Tech powers rally before solid Alphabet earnings

At Tuesday's market close, U.S. indices finished mostly higher, driven by the information technology sector amid stabilising Treasury yields. The S&P 500 rose 0.16% to 5,832.92, while the Dow Jones fell 0.36% to 42,233.05. In Europe, the Stoxx 50 closed down 0.4%, with declines in travel and leisure shares, and significant losses for Novartis and BP. However, HSBC and Adidas saw gains of 3.7% and 3.3%, respectively, bolstered by positive earnings.

Summary for 30.10.2024

Asian markets mostly fell on Wednesday as investors braced for key U.S. economic data and election uncertainties. Japan’s Nikkei bucked the trend, rising over 1% on tech gains and expectations that the Bank of Japan will hold rates. Chinese equities remained flat ahead of key PMI data, while Hong Kong’s Hang Seng fell, and Australia’s ASX 200 dropped on sticky inflation concerns.

European markets are expected to open mixed as investors focus on upcoming U.S. GDP, inflation, and employment data, which may shape Fed policy and add to market volatility. U.S. share futures rose overnight, driven by Alphabet’s strong earnings, boosting tech sentiment, although other sectors saw limited gains amid caution over key economic data and the 2024 presidential election.

Oil prices stabilised on Wednesday after unexpected drops in U.S. crude and gasoline inventories reversed earlier losses, which were driven by hopes for de-escalation in the Middle East. The American Petroleum Institute reported declines in U.S. crude, gasoline, and distillate stocks, contrary to forecasts of a rise, helping offset recent price drops caused by concerns over Middle East tensions.

Australian inflation slowed to a 3.5-year low in Q3, with annual CPI at 2.8%, within the RBA's 2-3% target. However, core inflation remained sticky, led by persistent services price pressures. This reinforced expectations of no rate cuts until at least next year, with April viewed as likely. The Australian dollar rose slightly, while Woolworths warned of lower food earnings as consumers seek bargains.

Britain’s minimum wage will rise by 6.7% to £12.21 per hour from April, benefitting 3 million low-paid workers. Announced by Finance Minister Rachel Reeves, the increase supports the Labour government’s focus on boosting earnings. However, employers warn of financial strain and reduced investment, while the Bank of England monitors wage growth’s effect on inflation.

CEOs of Goldman Sachs and Morgan Stanley predicted a rise in corporate dealmaking in 2025 during a panel at the Future Investment Initiative conference in Riyadh. Morgan Stanley's Ted Pick suggested the trend would be global, with larger firms going public. Apollo Global Management's Marc Rowan indicated that a Donald Trump presidential victory could further stimulate mergers and acquisitions and promote investment liberalisation.

An Italian parliamentary committee approved an €8.2 billion plan to acquire new-generation tanks and upgrade the army's ground forces, as part of a defence procurement initiative by Giorgia Meloni's government amid rising geopolitical tensions. The programme, running from 2025 to 2038, includes €5.4 billion already allocated. The joint venture between Italy's Leonardo and Germany's Rheinmetall will likely lead the project, focusing on developing the new Main Battle Tank.

Alphabet reported stronger-than-expected third-quarter results, with earnings of $2.12 per share on revenue of $88.27 billion, surpassing forecasts of $1.84 per share and $86.37 billion. The company's advertising revenue grew to $65.85 billion, up from $59.65 billion, while YouTube ad revenue rose to $8.92 billion. Google Cloud revenue increased to $11.35 billion from $8.41 billion. Shares rallied by almost 6% in after-hours trading.

Visa exceeded Wall Street expectations for Q4 profit, reporting net revenue of $9.62 billion and adjusted earnings of $2.71 per share. Consumer spending remained strong, particularly in travel and dining, despite economic concerns. However, growth in the Asia-Pacific region lagged due to China's economic issues. Visa faces legal challenges, including a lawsuit alleging monopoly practices, and plans to lay off about 1,400 employees by year-end.

Advanced Micro Devices forecast Q4 revenue slightly below estimates, projecting $7.5 billion, while raising its AI chip sales forecast to $5 billion for 2025. Despite a 122% surge in data centre revenue to $3.5 billion, AMD shares fell nearly 8% in after-hours trading due to concerns over supply constraints and competition from Nvidia, which dominates the AI semiconductor market.

Snap exceeded Wall Street expectations for Q3 revenue and user growth, reporting a 15% increase in revenue to $1.37 billion and a 9% rise in daily active users to 443 million. Enhanced ad features and machine learning investments attracted advertisers, and Snap announced a $500 million share buyback. Shares initially dropped but later rose 10% to $12 in after-hours trading.

Reddit reported its first quarterly profit, with a 68% revenue increase to $348.4 million, surpassing estimates. The platform attributed its success to AI content licensing deals and robust digital advertising spending, leading to a 25% rise in shares. Reddit forecasted Q4 revenue between $385 million and $400 million, exceeding analyst expectations, and daily active unique visitors rose 47% to 97.2 million.

Chipotle Mexican Grill missed expectations for third-quarter same-store sales growth, with a 6% increase falling short of the anticipated 6.3%. Higher menu prices and rising ingredient costs, particularly for avocados and dairy, pressured margins, leading to an over 5% drop in shares after hours. Despite these challenges, the company’s loyal customer base helped sustain demand for its popular menu items.

Broadcom shares rose over 4% on Tuesday as competition concerns eased, with OpenAI scaling back plans to directly compete in chip manufacturing. Initially, OpenAI considered producing its own chips via a network of foundries but is now focusing on in-house chip design, backed by Broadcom and Taiwan Semiconductor, due to the high costs and time required, sources told Reuters.

HSBC reported a 10% rise in Q3 profit to $8.5 billion, exceeding expectations due to increased wealth and wholesale banking revenue. The bank's shares hit a six-year high following the announcement of a $3 billion share buyback. CEO Georges Elhedery outlined a structural overhaul into East and West operations but provided limited details on potential cost savings or role cuts, which are expected in February.

D.R. Horton forecasted 2025 revenue and home deliveries below estimates, causing shares to drop about 11%. The largest U.S. homebuilder also missed fourth-quarter profit and revenue targets. CEO Paul Romanowski attributed buyer uncertainty to volatile mortgage rates and market noise. Despite elevated prices and costs, 63% of buyers used incentives, leading to expectations of declining gross margins in the current quarter.

McDonald’s reported third-quarter earnings that exceeded expectations, with adjusted earnings per share at $3.23 and revenue rising 3% year-on-year to $6.87 billion. However, global comparable sales fell by 1.5%, with the U.S. market only seeing a modest 0.3% increase. The company announced a 6% increase in its quarterly cash dividend, reflecting confidence despite ongoing challenges, including an E. Coli outbreak linked to its burgers.

Royal Caribbean raised its annual profit forecast for the fourth time this year, citing strong demand for voyages to private destinations and European and Alaskan cruises. Shares rose over 3%, continuing a 75% gain for the year. The company reported third-quarter adjusted earnings per share of $5.20, above estimates, but warned of a profit hit from Hurricane Milton, forecasting fourth-quarter earnings below analyst expectations.

MSCI Inc. reported strong third-quarter results, with adjusted earnings per share of $3.86, surpassing estimates of $3.76, and revenue of $724.7 million, exceeding expectations of $714.6 million. The index segment saw an 11.8% revenue increase to $404.9 million, driven by higher asset-based fees. The company's total run rate rose 17.3% year-over-year to $2.89 billion.

PayPal forecasted fourth-quarter revenue growth below analyst estimates, leading to a 5% drop in shares. CEO Alex Chriss emphasised efficiency, focusing on high-margin businesses while moderating growth in low-margin units. Q3 revenue rose 6% to $7.85 billion, missing estimates, but the company raised its 2024 profit forecast. Analysts highlighted that long-term initiatives may take time to impact results.

Pfizer shares fell over 1% yesterday notwithstanding the company exceeded third-quarter earnings expectations, reporting EPS of $1.06 and revenue of $17.7 billion, both surpassing analyst estimates. Pfizer raised its fiscal 2024 EPS guidance to $2.75-$2.95 and revenue outlook to $61-$64 billion. The company highlighted strong growth in its oncology products and heightened demand for Paxlovid.

Tenet Healthcare reported strong third-quarter earnings, with adjusted earnings per share of $2.93, exceeding analyst estimates of $2.35. Revenue reached $5.12 billion, above the expected $5.05 billion. The company raised its full-year Adjusted EBITDA outlook to $3.9 billion to $4.0 billion. Despite slightly below-expected revenue guidance for Q4 and 2024, shares rose over 16% following the announcement.

American Tower reported third-quarter results that missed revenue estimates, with total revenue at $2.52 billion, below the expected $2.76 billion. The company cited reduced customer spending in its leasing business, leading to a revised annual adjusted funds from operations forecast of $9.86 to $10.03 per share, down from analyst expectations of $10.59.

Santander reported a record quarterly profit of €3.25 billion, up 12% year-on-year, despite flat net interest income of €11.225 billion due to lower eurozone interest rates. A decline in loan-loss provisions and operating expenses offset the impact of reduced lending income, particularly in Argentina. The bank remains on track for a profitability target above 16% by year-end 2024.

BP reported a 30% drop in Q3 profit to $2.3 billion, its lowest in nearly four years, due to weaker refining margins and oil trading. CEO Murray Auchincloss emphasised a shift towards high-margin businesses, distancing from previous expansion plans. The company maintained its dividend and share buyback programme while facing rising debt and a challenging market environment for refiners.

Shares of Lufthansa fell 5.2% after the airline reported third-quarter earnings of €1.34 billion, slightly above expectations. Analysts at J.P. Morgan noted that the earnings beat stemmed from cost reductions rather than core improvements, with ongoing pricing pressures affecting passenger revenue. Lufthansa maintained its 2024 EBIT target of €1.4 to €1.8 billion but faces challenges from rising operational costs and competitive market conditions.

Pemex reported an $8.2 billion net loss in Q3, primarily due to a weaker peso, despite government support. Revenue fell 8% year-over-year as crude export sales declined, though refining activity increased. Debt dropped to $97.3 billion, yet production challenges persist, with output down 6% from last year. New President Claudia Sheinbaum plans continued support amid discussions of potential private partnerships.

Adidas reported strong growth in Greater China for Q3, with currency-neutral sales rising 9% to €946 million, its best performance since early 2022. The brand gained market share by tailoring products for the Chinese market and opened over 200 stores in smaller cities. While North American sales, excluding Yeezy, dropped 7%, Adidas' wholesale and direct-to-consumer segments grew. The company also settled legal disputes with Kanye West.

Saint-Gobain reported a 2% year-on-year decline in like-for-like sales for Q3 2024, but noted a sequential improvement. Total sales remained at €11.6 billion, despite a 1.3% negative currency impact. Growth in the Americas and Asia-Pacific helped offset weaknesses in Europe’s new construction markets. The company expects continued market challenges in 2024 but anticipates increased operating margins due to disciplined execution and a focus on sustainable construction.

ARK Invest views Tesla's upcoming robotaxi service as a transformative opportunity worth trillions in the mobility sector. Set to launch in Texas and California next year, the service could significantly reduce ride costs, with estimates of $0.30-0.40 per mile compared to traditional rates. ARK predicts this shift could unlock approximately $11 trillion in revenue potential, vastly expanding Tesla's market reach.

Wells Fargo initiated coverage of AppLovin with an Overweight rating and a price target of $200, highlighting its strong market position and software revenue growth prospects. The analyst forecasts a 20-30% compound annual growth rate through 2027, attributing recent revenue surges to the launch of Axon 2.0. However, concerns remain about AppLovin's challenges in the eCommerce advertising market.

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