US equities climb for an eighth straight day

US equities continued their upward momentum on Monday, with the S&P 500 and Nasdaq gaining 1% and 1.2%, respectively, extending their winning streak to eight days and adding over $3 trillion in value from earlier lows. Meanwhile, European equities also rose, with the Eurozone’s Stoxx 50 increasing 0.7% to its highest level since 31st July. Both markets were buoyed by optimism over potential lower US interest rates, which supported strong performances in luxury stocks, major auto manufacturers, and banks.

Summary for 20.08.2024

Most Asian equities rose on Tuesday, driven by hopes of lower US interest rates. However, Chinese markets lagged after the People's Bank kept its benchmark rate unchanged, disappointing expectations for further cuts. Japanese shares led gains, while broader markets were supported by strength in technology shares across the region.

European shares look poised to rise and US equity futures steadied Tuesday as markets awaited Fed signals after a tech-driven rally and strong earnings.

Oil prices dipped slightly in Asian trade this morning, extending recent losses as reports of progress toward an Israel-Hamas ceasefire reduced risk premiums in crude. Concerns over weak demand, especially from top importer China, also kept prices subdued. Brent futures fell to $77.61 per barrel, while WTI crude slipped to $73.60 per barrel.

The RBA's August meeting minutes revealed growing concerns over inflation not returning to target due to slower disinflation and higher-than-expected demand. While the board considered raising rates, it chose to hold steady, citing a balanced approach to inflation and labour market risks. Future rate decisions will depend on data and ongoing risk assessments.

Palo Alto Networks exceeded Wall Street expectations with fiscal Q4 earnings of $1.51 per share on $2.2 billion in revenue, driven by increased cybersecurity demand and deal-making. The company projected stronger-than-expected Q1 earnings of $1.47 to $1.49 per share and fiscal 2025 earnings between $6.18 and $6.31 per share. Shares rose almost 2% in after-hours trading following the report.

Estee Lauder forecasted annual profit and sales below expectations due to slowing demand, especially in China. CEO Fabrizio Freda, who expanded the company’s portfolio and navigated pandemic challenges, will retire in June. The company anticipates a slight sales decline or modest increase, with adjusted profit per share expected between $2.75 and $2.95, below analyst forecasts.

AMD announced plans to acquire server maker ZT Systems for $4.9 billion, aiming to enhance its AI chip and hardware portfolio. The deal will be financed with 75% cash and 25% equity. AMD expects the acquisition to boost GPU sales and aid in rapid deployment of AI systems. The transaction, closing in early 2025, is anticipated to benefit AMD’s long-term revenue strategy despite minor initial dilution.

Boeing has paused flight tests of its 777X after discovering damage to a custom part between the engine and the aircraft structure. The company grounded the remaining three 777-9 test airplanes and is replacing the damaged part. It is unclear if this will affect the certification and 2025 delivery schedule of the 777X, which is already five years behind. Boeing has informed the FAA and its customers about the issue.

European defence equities fell on Monday after reports that Germany will limit new military aid to Ukraine due to budget constraints. The German government has halted new funding requests while continuing previously approved aid. Major defence contractors like Rheinmetall, BAE Systems, and Dassault Aviation saw declines of up to 6.2%. This shift reflects broader budgetary reductions and internal coalition tensions in Germany.

Jefferies analysts reaffirmed their "Buy" rating for Alphabet Inc, despite ongoing antitrust concerns. Antitrust expert Glenn Manishin predicts minimal risk of a forced breakup or major fines for Alphabet, citing long resolution timelines and strong network effects. The equity, down 8% in the past month, remains attractively valued at 11.6x forecasted CY25 EV/EBITDA, below its 10-year average.

MoffettNathanson initiated coverage of Apple with a Neutral rating and a $211 price target, noting that while Apple’s AI strategy is promising, it is already factored into the share price. The firm's analysis highlights Apple’s strong AI plans and the anticipated iPhone upgrade cycle, but warns of potential risks such as regulatory challenges and a possible underwhelming upgrade cycle.

Evercore analysts raised McDonald's target price to $320, up from $300, citing optimism about the company's US business recovery through 2025. They anticipate improved market share and brand perception, supported by successful promotions and strategic menu changes. Despite current pricing challenges and a P/E ratio in line with historical averages, Evercore expects stronger same-store sales and enhanced performance due to easing Fed rates and improved value offerings.

Elf Beauty's share received a boost from Raymond James analysts, who issued a "strong buy" rating with a $235 price target after a positive meeting with the company's leadership. Analysts are confident in Elf's growth potential, citing its rapid product development, expansion opportunities, and strong customer relationships. Despite a 27% decline since June, they view it as a buying opportunity.

Goldman Sachs analysts, in their Q2 earnings assessment, find concerns about a consumer slowdown overblown. Revenue growth remains stable at 2.4% year-over-year, aligning with GDP growth estimates. Real income growth is positive across income groups, and while election uncertainty has slightly dampened capex growth, a post-election boost is expected. The labour market is rebalanced, with layoffs returning to pre-pandemic levels.

Wells Fargo maintained its 2024 global GDP growth forecast at 2.9% and global CPI inflation at 3.6%, while adjusting its view on US monetary policy. The bank now expects the Fed to cut rates by 50 basis points in September and November, impacting other central banks' policies. The US dollar is projected to rise through 2025, contrary to earlier expectations of depreciation.

Goldman Sachs strategists predict a potential rally in US equities over the next four weeks, driven by positive technical dynamics and corporate buybacks. They anticipate $27 billion in equity inflows if the market rises or $22.9 billion even if it declines. However, they caution that September's second half historically underperforms. JPMorgan also remains optimistic for the S&P 500's performance through year-end, despite some risks.

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