Tech sell off spreads to other sectors

US equities tumbled on Thursday, with major indexes falling as the Dow ended its record-high streak and the Nasdaq and chip sector also faced significant declines. The CBOE Volatility Index spiked amid heightened investor anxiety, exacerbated by higher-than-expected jobless claims. Meanwhile, the Euro Stoxx 50 dropped 0.3%, pressured by tech stocks and uncertainty over ECB policy, with ASML's losses deepening to over 16% for the week. Sector performance varied, with healthcare declining and auto manufacturers gaining.

Summary for 19.07.2024

Asian equity markets faced a challenging week, with Japan's Nikkei falling 2.7%, its steepest in three months. Technology shares struggled, as South Korea's KOSPI and Taiwan's markets both eased over 1%. Disappointing Chinese economic data and policy uncertainty, along with Hong Kong's 1.5% drop, contributed to the negative sentiment.

European and US equity index futures are a tad higher this morning as the rotation out of heavyweight technology shares eases, despite ongoing concerns over US politics and underwhelming earnings from Netflix.

Oil prices fell on Friday, heading for a second weekly decline, as mixed economic signals and a stronger US dollar dampened demand. Brent crude and WTI both dropped, with concerns about China's slow economic growth and lack of stimulus adding pressure. Broader inventory trends and OPEC+ output policy also influenced market sentiment.

The number of US unemployment benefit claims rose by 10,000 to 243,000 for the week ending 13th July, surpassing expectations and indicating a softening labour market. The four-week moving average increased to 234,750, while non-seasonally adjusted claims surged to 279,032, with notable rises in Texas and California.

The ECB held interest rates steady in July, maintaining the main refinancing rate at 4.25% amid stable inflation data. Despite high wage growth, inflationary pressures are moderated by profits, though domestic price and services inflation remain high. The ECB will adjust rates as needed based on economic data and inflation trends.

Netflix's Q2 earnings beat estimates with $4.88 per share on $9.56 billion revenue, driven by strong content and subscriber growth. However, Q3 revenue guidance of $9.37 billion fell short of expectations. Despite better-than-expected earnings and robust ad-tier membership growth, Netflix's shares were unchanged in afterhours trading.

Intuitive Surgical reported a strong Q2, with adjusted EPS of $1.78 and revenue of $2.01 billion, both exceeding estimates. Shares surged 6.7% post-announcement. The company saw a 14% revenue increase year-over-year and a 17% rise in da Vinci procedures. It expanded its da Vinci system base by 14%, reaching 9,203 systems.

D.R. Horton beat Wall Street profit estimates and tightened its annual home sales forecast, sending shares to a record high. The homebuilder expects to deliver up to 90,500 homes in fiscal 2024, benefiting from low existing home supply and a new $4 billion buyback. Despite high mortgage rates, demand remains strong.

Abbott Laboratories raised its annual profit forecast after beating Wall Street estimates for Q2, driven by strong growth in medical devices and glucose monitors. Despite a 10.2% increase in medical device sales and strong glucose monitor performance, Abbott's shares fell 4.4% amid ongoing legal concerns over its infant formula.

Domino's Pizza shares fell 13.6% after it forecast slower Q3 comparable sales and cut its international store opening target. The company now expects to open about 275 fewer stores than planned due to closures in Japan and France. Despite a profit of $4.03 per share, exceeding estimates, concerns over market risks and reduced promotional activities weighed on its outlook.

Novartis raised its full-year profit guidance following a strong Q2, with net sales up 11% and core operating income nearing 40%. The company cited robust performance from key treatments like Kesimpta and Zolgensma. Despite the positive update, Novartis shares fell by 4.0% on Thursday.

Nokia's shares fell 5% after Q2 results showed an 18% drop in net sales and a 32% decline in operating profit due to weak 5G equipment demand. Despite exceeding EPS expectations, revenue missed forecasts. The company maintained its full-year outlook and anticipates growth in the latter half of 2024.

Meta Platforms is negotiating to acquire a 5% stake in EssilorLuxottica, valued around $4.73 billion. This deal could enhance Meta's control over the development of Ray-Ban smart glasses amid growing competition in augmented and mixed-reality technologies. EssilorLuxottica's shares rose 1.5% on the news, while Meta's gained 3.0%.

Renault's H1 sales rose 1.9% to 1,154,700 vehicles, driven by strong hybrid demand in Europe, which grew 6.7%. Electrified vehicles made up 29.6% of European sales. Despite slower global growth and declining international demand, Renault's focus on hybrids and new launches is expected to sustain momentum.

Plug Power Inc. shares fell 9.2% in after-hours trading following its announcement of a $200 million common equity offering, with an additional $30 million option for underwriters. The funds will be used for general corporate purposes. Morgan Stanley is the sole book-running manager, and the offering's completion depends on market conditions.

Jefferies analysts expect Alphabet’s shares to continue rising but at a slower pace due to tougher comparisons and high valuations. Despite a strong year-to-date performance and robust fundamentals, Jefferies maintains a Buy rating with a $220 price target. They anticipate solid Q2 results, with continued strength in ad spend and Cloud growth.

Redburn Atlantic downgraded CrowdStrike to Sell and Palo Alto Networks to Neutral, citing valuation concerns and competitive market dynamics. CrowdStrike's target price was cut to $275 from $380 due to high valuations and market maturity. Palo Alto's target was reduced to $325 from $350, with a more cautious outlook on future growth.

Wedbush analysts are optimistic about Palantir Technologies, projecting the shares could nearly double in value. They highlight the company's central role in the AI revolution, growing use cases, and strong enterprise demand. With a $35 price target and a $50 bull case for 2025, they view Palantir as significantly undervalued.

William Blair upgraded Block to Outperform, citing anticipated growth in late 2024 and improved execution. The firm expects enhanced performance from Square's ecosystem and new features. Conversely, PayPal was downgraded to Market Perform due to limited growth potential, intense competition, and strategic concerns, despite a large user base.

Wedbush analysts view the recent tech sell-off as a buying opportunity, dismissing fears from Trump’s comments on China tariffs and Taiwan as overblown. They anticipate a rebound, projecting a 15% rise in tech shares by year-end and highlighting key companies like Microsoft, Alphabet, and Amazon as top picks.

Citi analysts predict the S&P 500 will continue to rise in the second half of 2024, though at a slower pace than earlier in the year. The forecast is bolstered by significant investments in generative AI and strong performance from the "Mag 7" tech giants, despite ongoing recession concerns.

UBS raised its year-end S&P 500 target to 5,900 and set a mid-2025 target of 6,200, citing strong earnings growth, disinflation, expected Fed rate cuts, and AI investment. Despite a high P/E ratio, the firm views the macro environment as favourable, with a potential upside to 6,500 if conditions remain supportive.

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