NVIDIA surges yet to another record high

U.S. equities closed mixed on Monday, with the S&P 500 down 0.2% and the Dow Jones Industrial Average falling 0.8% due to rising Treasury yields and inflation concerns. In contrast, the Nasdaq Composite gained 0.3%, boosted by NVIDIA reaching a record high and SAP’s U.S. shares rising over 3% after strong earnings. Meanwhile, European markets saw the Stoxx 50 decline 0.9%, led by lower insurance equities.

Summary for 22.10.2024

Asian shares mostly declined on Tuesday, driven by uncertainty over U.S. interest rates and the upcoming presidential election. Japan's Nikkei 225 led losses, falling 1.7%, despite yen weakness. South Korea’s KOSPI and Australia’s ASX 200 also saw declines amid profit-taking. In contrast, Chinese markets edged higher after a recent interest rate cut, with the Shanghai Composite and Hang Seng gaining modestly.

European markets are set for a cautious open, with focus on key earnings, particularly from SAP, amid broader tech sector concerns. Similarly, U.S. equity futures remained steady as investors await major third-quarter earnings, including reports from Texas Instruments and Tesla, while rising Treasury yields and inflation concerns continue to weigh on sentiment.

Oil prices declined in Asian trade on Tuesday, weighed by concerns over slowing demand in China and prolonged high interest rates, despite geopolitical tensions in the Middle East. Brent and WTI futures fell 0.5%. The IEA warned that China’s economic slowdown and rising EV adoption could limit oil demand, while recent stimulus measures and rate cuts in China offered limited support.

Minneapolis Fed President Neel Kashkari reiterated his expectation of "modest" interest rate cuts over the coming quarters but indicated he might support swifter reductions if the labour market weakens significantly. Speaking at a town hall, he noted that an unexpected downturn in employment could prompt him to reassess his stance on rate cuts, which he currently believes are restraining the economy.

SAP raised its full-year guidance after strong fiscal Q3 results, driven by a 25% jump in cloud revenue. The company now expects adjusted operating profit of €7.8B to €8.0B and cloud and software revenue between €29.5B and €29.8B, up 10-11% from last year. SAP reported Q3 earnings of €1.23 per share on €8.47B revenue, beating analyst expectations, boosting shares over 3% in after-hours trading.

Boeing's latest labour contract proposal has raised hopes of ending a month-long strike that halted production of key models, including the 737 MAX. The offer includes a 35% pay rise over four years and other benefits. Analysts are divided on whether it will be accepted, with concerns over production recovery and potential cost increases of over $1 billion. Emirates' order for five 777F freighters offered a boost.

Disney has appointed Morgan Stanley veteran James Gorman as chair, effective January 2025, while announcing plans to name a successor for CEO Bob Iger in early 2026. Gorman, credited with successful succession planning at Morgan Stanley, will help oversee the transition. Internal CEO candidates include Dana Walden, Josh D'Amaro, Jimmy Pitaro, and Alan Bergman, as Disney aims for a smooth leadership change before Iger's contract ends.

Automotive supplier Forvia saw a 9.1% increase in shares after reporting third-quarter sales of €6.36 billion, slightly above expectations despite a 0.4% year-on-year decline. Strong growth in its Interiors and Seating divisions offset weaknesses, particularly in Clean Mobility, which fell 10%. Forvia maintained its full-year sales guidance of €26.8 to €27.2 billion, with an EBIT margin of 5% to 5.3%.

Danish shipping giant A.P. Moller-Maersk raised its full-year forecast after strong Q3 results, driven by robust demand and disruptions in the Red Sea. Preliminary Q3 EBITDA was $4.8 billion, surpassing analysts' $3.7 billion estimate, with revenue at $15.8 billion. Maersk now expects 2024 EBITDA of $11-11.5 billion, up from $9-11 billion, and raised its EBIT forecast to $5.2-5.7 billion.

UBS analysts raised their price target for Berkshire Hathaway shares to $538, citing improved reinsurance underwriting and lower catastrophe loss estimates. They noted Berkshire trades at a 1% discount to intrinsic value, despite third-quarter growth in its equity portfolio, driven by stakes in Apple, American Express, and Coca-Cola. However, increased catastrophe losses in Q4 due to Hurricane Milton may impact annual earnings.

Jefferies analysts are sceptical about Apple’s upcoming Apple Intelligence feature, predicting it won't significantly boost iPhone 16 sales due to hardware limitations and a small AI model. They noted shrinking delivery wait times for the iPhone 16, indicating soft demand, particularly in China and the U.S. Jefferies maintains a cautious outlook, with a Hold rating on Apple shares, citing that advanced AI hardware is still years away.

Morgan Stanley downgraded ServiceNow to Equal Weight from Overweight, citing limited valuation upside after a 70% surge in shares. While stable demand and Pro Plus adoption remain positive, analysts expressed concerns about elongated deal cycles due to pricing hesitancy and uncertainty following the departure of the former president. The firm's revised price target is $960, reflecting current valuations and competitive pressures.

Jefferies raised Tesla's price target to $195, citing expected cash flow growth, but maintained a Neutral rating amid concerns over governance and funding. The recent robotaxi reveal disappointed, shifting focus back to Tesla's core auto business, which faces slowing deliveries and potential decline in 2024. Analysts see at least two years of subdued growth as competition rises and core models age.

JPMorgan downgraded Hertz to Underweight, removing its $5 price target due to concerns over softer travel trends, higher fleet depreciation, and financial leverage. The bank cut its 2025 EBITDA forecast to $325 million, citing prolonged recovery challenges. Preferring Avis Budget, JPMorgan highlighted Avis’s stronger operations, lower leverage, and positive cash flow, contrasting Hertz’s higher costs and fleet management issues, including past Tesla investments.

Barclays downgraded United Parcel Service, citing long-term margin challenges from increased competition with Amazon and FedEx, alongside pressure from weak parcel demand and lower-margin e-commerce growth. The downgrade reflects scepticism about the company's earnings outlook for 2024, particularly after FedEx's disappointing results. Barclays set a price target of $120, indicating a potential downside of about 12%.

Stifel upgraded Volvo to a "buy" rating from "hold," raising its price target to SEK 318 from SEK 282, indicating 15.9% upside. Despite a disappointing Q3 2024, analysts remain optimistic due to expected recovery in the North American truck market and Volvo's strong execution. While challenges persist in the construction equipment sector, overall demand stabilization is anticipated by 2025, supporting long-term growth prospects.

Wedbush analysts predict a strong third-quarter tech earnings season, driven by solid enterprise spending and a rebound in digital advertising, with the ongoing AI revolution boosting tech shares. They expect major cloud leaders like Microsoft, Google, and Amazon to exceed expectations. Wedbush anticipates that 70% of global workloads will be in the cloud by 2025, supporting a bullish outlook for tech equities.

Evercore ISI strategists are urging investors to build positions in China and China-exposed equities, highlighting attractive valuations and upcoming policy support. Meanwhile, UBS analysts view recent stimulus measures as positive but insufficient, upgrading GDP growth forecasts to 4.8%, still below Beijing's 5% target. They remain "tactically overweight" on Chinese equities, favouring copper while cautioning against luxury shares and vulnerable US consumer brands.

Standard Chartered analysts argue that September's strong non-farm payroll data is an anomaly, driven by a significant increase in government jobs. Despite the unexpected surge, they maintain that the Federal Reserve is likely to implement 75 basis points in rate cuts across the next two meetings, with a 50bps cut in December still possible. They foresee weaker job numbers in Q4 and believe the Fed will proceed with easing if inflation remains stable.

Bernstein analysts recommend building long exposure in Bitcoin through ETFs or related equities as it attempts a breakout ahead of the US election. Bitcoin ETFs saw $2 billion in inflows last week, boosting demand. Bitcoin-focused miners like Riot and CleanSpark outperformed, reflecting bullish sentiment. Robinhood's crypto trading revenues surged, and meme coins' popularity soared, with their market cap tripling to $66 billion over six months.

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