US equities end a momentous week at record highs

General market commentary

Following the recent US election, American markets have demonstrated strong resilience, with the S&P 500 rallying by 4.6% last week, marking its best weekly performance since November 2023. This rise is driven by robust fundamentals, including steady consumer spending, rising incomes, and strong employment, all of which contribute to sustained economic growth. The clarity provided by the election outcome has reduced volatility, boosting investor optimism, particularly in cyclical and smaller-cap shares. Additionally, recent interest rate cuts by the Federal Reserve signal a cautious approach to sustaining growth, while high yields in US fixed-income assets present opportunities for long-term returns as rates are expected to gradually decline.

In contrast, European markets faced challenges, with the Euro Stoxx 50 index falling by 1.5% last week. Trump’s agenda, which includes tax cuts and tariffs, is expected to weaken demand for European exports, particularly in economies like Germany. Furthermore, his preference for bilateral agreements over EU-wide deals could strain EU cohesion and reduce investor confidence. Higher US interest rates may also strengthen the dollar, potentially leading to capital outflows from Europe and raising borrowing costs, especially for heavily indebted firms. Meanwhile, in Asia, markets were mostly lower, with Chinese equities slipping after a substantial debt relief package failed to inspire confidence, as it lacked broader stimulus measures, particularly for the struggling property sector.

Looking ahead, this week will be pivotal for economic data, with key inflation reports and retail sales figures shaping market expectations. The October Consumer Price Index (CPI) will be released on Wednesday in the US, with expectations for a 0.2% monthly rise in the headline figure and 0.3% for core CPI. On Thursday, the Producer Price Index (PPI) will provide further insight into inflationary pressures, while Friday’s retail sales data for October will be closely monitored following a strong September. Meantime, data out this morning showed consumer prices in China rose at their slowest pace in four months in October, with deepening producer price deflation. With today marking Veterans Day in the US, the Treasury market will be closed, but the New York Stock Exchange will operate as usual. Earnings reports are lighter, but Walt Disney, Applied Materials, Home Depot, and Cisco are key highlights under our coverage.

Latest market update

Most Asian equities fell on Monday as underwhelming fiscal stimulus from China and ongoing deflation concerns weighed on markets. Chinese, Japanese, and broader regional indices declined, with Hong Kong’s Hang Seng leading losses, while uncertainty around Japanese interest rates also added pressure.

European equities are set to open mixed, amid ongoing economic concerns. In contrast, US share index futures have risen modestly, indicating a positive start as investors await inflation data and Federal Reserve signals on interest rates.

Oil prices declined in Asian trading this morning as China’s latest stimulus measures underwhelmed and Hurricane Rafael weakened, reducing concerns over US production disruptions.

Bitcoin hit a record high above $81,000 on Sunday, continuing its rally following Donald Trump's election, which boosted hopes for pro-crypto regulation. Ether also gained, reaching a three-month high of $3,190.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

TSMC was ordered by the US to halt shipments of advanced AI chips to Chinese customers, including Huawei, after violations of export controls were discovered, aiming to restrict China's access to sensitive semiconductor technology.

Booking.com and Expedia are both navigating challenges in the competitive online travel sector, with Booking.com considering job cuts to enhance efficiency, while Expedia faces modest growth prospects due to ongoing issues in its B2C business, prompting Deutsche Bank analysts to downgrade its shares to Hold despite a raised target price.

Sony's operating profit rose 73% in Q3, driven by strong sales in its gaming and network businesses, despite weaker TV production. The company maintained its annual profit forecast, equivalent to $8.51 billion, with a revised outlook for its gaming division.

Enphase Energy will cut 17% of its workforce, about 500 employees, due to declining solar demand, particularly in Europe, with restructuring costs expected to be $17-$20 million by Q1 2025.

Lowe's and Home Depot shares rose on Friday after Telsey Advisory upgraded both to ‘outperform’, citing factors like interest rate cuts, hurricane recovery demand, and easier sales comparisons. Price targets were also raised, signalling positive outlooks for both companies.

Rivian was downgraded by Bank of America to Neutral, with its price target cut to $13, following larger-than-expected losses and a negative gross margin of 45%. The company also revised its 2024 outlook, projecting higher EBITDA losses and modest delivery growth.

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