Year: 2024

© Reuters. UBS sees ‘a difficult phase’ for global stocks in 2024

UBS Group strategists are forecasting a challenging period ahead for global equities, which are currently trading near all-time highs.

The strategists express concerns about the sustainability of significant revenue gains in a slowing economic growth environment, noting this as a “very unusual” mismatch in a recent Monday note.

Their primary concern revolves around the prospect of earnings disappointments, largely due to a combination of rising wages and the delayed effects of higher interest rates. These factors could potentially threaten profit margins across various sectors.

The concern is that as economic growth stalls, the ability of companies to sustain high revenue growth becomes increasingly questionable, particularly in a context where operating costs are rising.

The MSCI World Index, which represents developed-market stocks and is heavily influenced by high-performing tech companies, is currently just below its all-time high. However, the UBS strategists’ outlook suggests that this rally might face headwinds.

“We see a 35% chance of equities rising 15%+ on the back of Gen AI being perceived to boost US productivity growth to 2.5%, a Nifty 50 style bubble (which often accompanies technical change), or if US wage growth quickly fell to 3% (without a major rise in unemployment),” the strategists wrote.

Region-wise, analysts are least bullish on Europe.

“GEM is cheap, has improving relative economic momentum, is earlier into the easing cycle, and has catalysts of China easing, a weaker dollar and Fed cuts. We favour Japan (unhedged) – corporate change and a once-in-a-generation shift into real assets are not being reflected in valuations.”

“The UK is an abnormally cheap defensive market. Our least favoured region is Europe (greatest earnings risk). The US is not as defensive as normal, owing to valuation, slowdown in GDP and margin risks that are higher than for global markets.”

© Reuters. Chinese stocks see strongest buying frenzy by hedge funds in over 5 years – Goldman

Hedge funds have exhibited a significant surge in interest in Chinese stocks, executing the most significant buying spree in over five years over three days last week.

According to a client note by Goldman Sachs seen by Reuters, this surge of activity occurred between January 23 and 25, marking a notable shift in hedge fund sentiment towards the Chinese market.

Previously, hedge funds had been predominantly bearish on Chinese stocks, maintaining a mostly negative outlook for eight out of the past ten weeks.

However, this trend reversed dramatically last week, with many hedge funds adopting outright long positions, betting on a rise in stock prices, rather than merely closing their short positions.

The renewed interest in Chinese equities aligns with Beijing’s intensified efforts to boost confidence in its economy, which has been struggling due to a property sector crisis and sluggish growth.

Hedge funds gravitated mainly towards U.S.-listed shares of overseas companies, or American Depository Receipts (ADRs), as a primary method of investing in Chinese stocks. This preference was followed by investments in mainland A-shares and Hong Kong-listed Chinese companies, known as H-shares.

The move towards Chinese equities is part of a broader trend in Asian emerging markets, which have seen their most significant net buying activity in over five years.

Within this context, China emerged as the most net-bought market in the week ending January 25, surpassing both Taiwan and India.

The week leading up to January 25 witnessed an unprecedented influx of nearly $12 billion into Chinese equity funds, the largest since 2015 and the second-largest in history, according to Goldman Sachs and Bank of America.

This influx was primarily through domestic exchange-traded funds (ETFs) in China.

Despite this recent surge in interest, overall positioning in Chinese equities remains cautious, at five-year lows across both hedge funds and mutual funds.

As of the end of December, mutual fund historical holdings showed a 5.5% allocation to China, the lowest in a decade. Nevertheless, Goldman Sachs maintains a “constructive” stance on Chinese equities.

© Reuters Dow Jones, Nasdaq, S&P 500 weekly preview: FOMC, NFP, Apple, Microsoft and more

The S&P 500 (SPX) added 1.1% last week as bulls continue to close in on the new big target – 5000. The old record high of 4818 is now acting as support with the index in a bull mode as long as it keeps closing above this level on a daily basis.

The S&P 500 rallied to fresh highs, driven by favorable economic data and strong tech earnings. Despite some initial concerns due to soft earnings from several industrial behemoths like GE, the market was buoyed by a less hawkish regional Fed survey and robust earnings from Netflix. A reserve rate cut from the PBOC also contributed to the surge.

The rally was further supported by a mix of “Goldilocks” economic data and a less hawkish European Central Bank decision. However, the week ended on a mixed note with soft guidance from Intel (NASDAQ:INTC).

The Dow Jones Industrial Average (DJI) jumped 0.7% to secure a new weekly closing high. Finally, the Nasdaq Composite Index (IXIC) was up 0.9% although the bulls failed to secure a close near intra-week highs after Intel’s disappointing guidance.

Packed calendar

This week’s economic data and earnings calendar is packed with high-risk events.

“This could be the greatest week for “event risk” in many years — or perhaps we could call it “event reward”,” analysts at Argus said in a note.

First, the Federal Reserve is set to conclude its two-day meeting on Wednesday.

“We expect the Fed to stay on hold at the January FOMC meeting and to change its policy rate guidance in the post-meeting statement to more neutral language,” economists at Bank of America said.

On Friday, we will hear about the state of the US jobs market in January.

“Job growth should again be narrowly driven by the public and high-touch service sectors,” the economists added.

Elsewhere, several ECB speakers are due to speak this week. CPI data in Europe, including Germany, is also set to be released this week.

Big Tech to report

With actual results in from 25% of S&P 500 companies, 69% have exceeded earnings per share expectations, while 68% have surpassed revenue forecasts, according to FactSet’s data. The earnings decline currently stands at -1.4%, while the estimated earnings growth for Q4 was +1.5%.

This week marks the busiest week of earnings with more than 100 companies, which are representing ~40% of the S&P 500 earnings, scheduled to report.

On Tuesday, Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) are set to report their results for the December quarter. Furthermore, AMD (NASDAQ:AMD), United Parcel Service (NYSE:UPS), Pfizer (NYSE:PFE), and Starbucks (NASDAQ:SBUX) are also set to report.

Mastercard (NYSE:MA), Qualcomm (NASDAQ:QCOM), and Boeing (NYSE:BA) are highlight names for Wednesday, while tech behemoths Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Microsoft (MSFT) are scheduled to hit the stage on Thursday.

The busy earnings week is expected to be concluded with reports from oil giants Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX).

What analysts are saying about US stocks

Analysts at Oppenheimer: “We persist in favoring cyclicals over defensive sectors. • Established technology companies whose products and services are deeply embedded in the lives of business and consumers are likely to prove to be key holdings.”

Analysts at RBC: “Three big things you need to know: First, we’d describe 4Q23 reporting season as a mixed bag so far. Second, in our transcript review we were struck by the wide range of views on the macro backdrop and outlook as well as the continued emphasis on the challenges associated with inflation and higher costs. Third, we review the latest developments in our high frequency indicators including some modest improvements on some of our sentiment and valuation models.”

Analysts at JPMorgan: “We stay OW Growth vs Value, a position we held through 2023, and opposite to our Value preference that we held in 2021 and 2022. As long as the market stays narrow, heavily concentrated and Tech driven, the US is likely to have the upper hand vs Eurozone. We keep our preference for Quality Growth over Cyclical Value, which translates into a continued preference for the US over Eurozone.”

Goldman Sachs: “Many investors express concern about how a steepening and normalizing yield curve will affect equities, especially given the negative recent correlation between stocks and bond yields. However, economic growth matters more for equity returns than movements in the yield curve. Stocks have typically posted the greatest returns during periods of strong economic growth, regardless of whether the yield curve was steepening or flattening. Equity returns following yield curve normalization have also been positive provided the US economy avoided a recession.”

Analysts at BTIG: “The SPX has gained 12 out of the last 13 weeks. The last time that happened was 1985. Clearly upside momentum is strong, but it’s starting to show some exhaustion signals here. With 38% of SPX reporting this week, along with the FOMC meeting, a pause/pullback here is well overdue.”

© Reuters. iRobot (IRBT) plummets after terminating Amazon (AMZN) deal; CEO resigns

Shares of iRobot (NASDAQ:IRBT) plunged in premarket trading after the robot maker and Amazon (NASDAQ:AMZN) announced they mutually agreed to terminate their acquisition deal.

Shares were down 17.3% in early New York trading on Monday.

The move comes because the deal “has no path to regulatory approval in the European Union,” Amazon said in an official announcement, forcing the companies to cancel the agreement.

“We’re disappointed that Amazon’s acquisition of iRobot could not proceed,” said David Zapolsky, Amazon SVP and General Counsel.

“We’re believers in the future of consumer robotics in the home and have always been fans of iRobot’s products, which delight consumers and solve problems in ways that improve their lives,” he added.

Initially signed in 2022, the acquisition was meant to enable Amazon to invest in iRobot’s ongoing innovation efforts and help iRobot offer its products at lower prices to customers. Under the terms of their agreement, Amazon will pay iRobot a termination fee of $94 million.

Moreover, iRobot said it will implement an operational restructuring plan to adapt to the current environment, which includes a major leadership change.

Notably, Colin Angle, who served as Chairman of the Board of Directors and CEO, has relinquished his roles as Chairman and CEO.

In his place, Glen Weinstein, iRobot’s Executive Vice President and Chief Legal Officer, has taken on the role of Interim CEO, and Andrew Miller, the lead independent director of the Board, has assumed the position of Chairman of the Board.

Simultaneously, iRobot plans to lay off 350 employees, constituting 31% of its workforce as of December 30, 2023.

This workforce reduction will result in restructuring charges of approximately $12 million to $13 million, mainly covering severance and related expenses, over the first two quarters of 2024, with a majority occurring in Q1 2024.

AMZN rose around 0.5% in the premarket.

© Reuters. FILE PHOTO: A passerby walks past an electric monitor displaying recent movements of various stock prices outside a bank in Tokyo, Japan, March 22, 2023. REUTERS/Issei Kato/File Photo

By Herbert Lash and Alun John

NEW YORK/LONDON (Reuters) – Global stocks surged on Monday, with the S&P 500 closing at a new record close and European shares hitting a two-year high, as markets slashed ambitious bets at the end of 2023 on interest rate cuts by the Federal Reserve and other central banks.

MSCI’s all-country world index also climbed to a fresh two-year high, closing up 0.6%, lifted by the S&P 500’s sixth all-time closing high so far in January.

A slight gain in Europe’s broad STOXX 600 index after its biggest weekly gain in three months last week also helped advance the global gauge of stock performance.

The equity rally comes at the start of a week packed with big corporate earnings, European inflation data, Federal Reserve and Bank of England policy meetings and U.S. employment data that could shape the market’s direction for months to come.

Investors are trying to understand the outlook for the U.S. economy as it is unlikely to require the deep interest rate cuts by the Fed it has priced in, said Phillip Nelson, head of asset allocation at NEPC, an investment consultant for institutional investors in Boston.

Absent geopolitical shocks, the U.S. economy will grow better than expected with just a few areas underperforming, he said.

The Dow Jones Industrial Average rose 0.59%, the S&P 500 gained 0.76% and the Nasdaq Composite added 1.12%. With the S&P 500 up 3.3% in January, BlackRock (NYSE:BLK) raised its overall view on U.S. stocks to “overweight” from “neutral.”

Mega cap earnings will be scrutinized this week after disappointing forecasts from Intel (NASDAQ:INTC) and Tesla (NASDAQ:TSLA) last week deepened concerns about the valuation of the mega growth stocks that spearheaded the rally at year-end 2023.

Microsoft (NASDAQ:MSFT), which through its partnership with Open AI has piqued market interest about artificial intelligence in 2023, is expected to report a 15.8% jump in quarterly revenue on Tuesday. The stock closed up 1.4%.

The euro sank to almost a seven-week low, breaking below the 1.08 mark, as the market dialed back expectations of the extent of rate cuts this year by the Fed and European Central Bank (ECB), said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“We’re still reacting and correcting to what happened in Q4 last year,” Chandler said.

“The market got in its head there’d be aggressive rate cuts not just by the Fed, but by the Bank of England and the ECB. The dollar sold off in that environment,” he said.

The dollar index retreated, down 0.09%, while the euro slid 0.18% at $1.0832 after falling to $1.0797. The euro may be poised for a weak February, as the single currency has declined versus the dollar the past seven years during the month, Chandler said.

Investors await a press conference with Fed Chair Jerome Powell and statement by the U.S. central bank at the conclusion of a two-day policy meeting on Wednesday, and the U.S. unemployment report on Friday.

Policymakers are expected to hold the Fed’s target interest rate steady at a range of 5.25%-5.50%, but some investors believe the U.S. central bank could drop its hiking bias.

The yield on the benchmark 10-year Treasury note fell 8.6 basis points to 4.074%, while the European benchmark – the 10-year German bund – slid 0.8 basis points to 2.230%.

Treasury yields had dropped sharply in November and December, helping equity markets to rally on expectations that Fed rate cuts could come as soon as March. But yields rose in January on concerns about the government’s funding needs.

Treasury yields slid further on Monday after the Treasury Department said late in the session that it would need to borrow less than its previous estimates.

Asian shares rose as new steps by Beijing to stabilize the local market outweighed the drag on sentiment from a Hong Kong court order to liquidate property giant China Everglade.

Investors were also sensitive to geopolitical risks with oil rising after a Couth missile attack caused a fire on a fuel tanker in the Red Sea and a drone attack killed three U.S. troops in Jordan.

In Asia, the main drag to stocks came from a Hong Kong court order to liquidate Everglade, the poster child of China’s property meltdown.

Hong Kong’s Hang Sen trimmed gains on the news and closed up 0.78%, having earlier been up nearly 2% on the back of China’s securities regulator saying on Sunday it would fully suspend the lending of restricted shares.

Oil prices fell more than a dollar a barrel as China’s ailing property sector sparked demand worries, causing traders to reassess the supply risk premium from escalating tensions in the Middle East.

U.S. crude futures settled down $1.23 at $76.78 a barrel, and Brent fell $1.15 to end at $82.40 a barrel.

U.S. gold futures settled 0.4% higher at $2025.40 an ounce.

© Reuters. A view shows oil tanks of Transneft oil pipeline operator at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel

By Shariq Khan

NEW YORK (Reuters) -Oil prices fell more than a dollar a barrel on Monday as China’s ailing property sector sparked demand worries, causing traders to reassess the supply risk premium from escalating tensions in the Middle East.

Brent crude futures fell $1.22, or 1.5%, to $82.33 a barrel by 12:56 pm ET (1756 GMT), while U.S. West Texas Intermediate crude futures were down $1.24, or 1.6%, at $76.77 per barrel.

Both benchmarks gained about 1.5% earlier on Monday, with Brent prices touching their highest since early Nov. after a fuel tanker was hit by a missile in the Red Sea and U.S. troops were attacked in Jordan near the Syrian border. The events mark a major escalation of tensions that have engulfed the Middle East.

However, prices have since retreated as attention shifted to China, the world’s largest oil importer, where a real estate crisis deepened with a Hong Kong court ordering the liquidation of property giant China Evergrande (HK:3333) Group.

“The situation in China is the biggest headwind to the whole market, that is why the market keeps backing off from the war risk premium,” said John Kilduff, partner at Again Capital LLC.

Market participants were also questioning how much the risk premium should be as oil supplies have not yet been directly affected by the Middle East crisis.

“Currently we are seeing a premium of around $10 a barrel when it should really just be $3 or $4 based on true petroleum demand fundamentals,” said Gary Cunningham, director at energy advisory firm Tradition Energy.

Meanwhile, lingering high interest rates were also in focus after European Central Bank policymakers were unable to reach a consensus on Monday over when interest rates should be cut.

Russia, meanwhile, is likely to cut exports of naphtha, a petrochemical feedstock, by between 127,500 and 136,000 barrels per day – about a third of its total exports – after fires disrupted operations at Baltic and Black Sea refineries, according to traders and LSEG ship-tracking data.

Another Russian oil facility came under attack on Monday, with Russian authorities indicating they had thwarted a drone attack on the Slavneft-YANOS refinery in the city of Yaroslavl.

U.S. crude oil and distillates inventories were expected to have reduced last week while gasoline stocks were seen rising, according to a preliminary Reuters poll.

The American Petroleum Institute will publish its U.S. stockpiles data on Tuesday around 4:30 pm ET. Official data from the Energy Information Administration is due on Wednesday at 10:30 am ET.

© Reuters.

Investing.com — The Dow and S&P 500 rallied to a record close Monday, as investors added to bullish bets on tech ahead of earnings from several mega-cap tech companies, with key macro economic events including Federal Reserve policy-setting meeting and monthly jobs report due later this week.

By 16:00 ET (21:00 GMT), the Dow Jones Industrial Average was up 224 points, or 0.6%, S&P 500 0.8% higher and NASDAQ Composite climbed 1.1%.

Tech continues to reign supreme with earnings now in focus

Tech stocks continued to rack up gains as the countdown to the busiest week of the earnings season, with 19% of the S&P 500 including five of the “Magnificent Seven” tech stocks

This week marks the busiest week of the earnings season, with 19% of the S&P 500 including five of the “Magnificent Seven” tech stocks set to report earnings.

Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) are due to report results on Tuesday, followed by Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday, with Meta Platforms (NASDAQ:META) closing out the week on Friday.

SoFi Technologies Inc. (NASDAQ:SOFI), meanwhile, was also big winner on the earnings stage, surging 20% after its fourth-quarter results topped Wall Street estimates.

On the flip side, iRobot (NASDAQ:IRBT) slumped 9% after the robot maker and Amazon (NASDAQ:AMZN) announced they mutually agreed to terminate their acquisition deal.

Treasury lowers borrowing forecast for Q1

The positive start to the week for tech was helped by a dip in Treasury yields as concerns about the level of Treasury borrowing were eased somewhat after the U.S. Treasury lowered its forecast for federal borrowing, expecting to borrow $760 billion from a prior forecast of $816B.

The announcement comes ahead of the refunding announcement due Wednesday, which details the Treasury’s plans for note and bond sales.

Fed meeting, macro data loom large

The Federal Reserve‘s two-day policy-setting meeting gets underway on Tuesday, but while the expectations for a unchanged a decision on rates is priced-in, investors will keen for a fresh update or clues on rate cuts.

In the weeks, leading up to the Fed decision, investors have reined in their expectations for a March cut as signs of ongoing strength in the economy has lessen the need for speed on rate cuts.

Some on Wall Street are sticking to their bets of a March cut and are closely watching remarks from the Fed that suggests incoming economic data will continue to drive policy decisions.

“The main thing we want to see to maintain our conviction that the first rate cut comes at the March FOMC meeting is a data dependent message, and that March is not completely ruled out in the press conference,” UBS said in a recent note.

The widely-watched monthly payrolls report is scheduled for Friday, and ahead of that comes JOLTS job openings and consumer confidence on Tuesday, followed a day later by a report on private sector payrolls and weekly data on initial jobless claims on Thursday.

Consumer stocks get boost as Tesla rebounds, cruise stocks shine

Tesla Inc (NASDAQ:TSLA) rose 3% as its recent malaise appears to have attracted dip buyers, though sentiment on the stocks remains fragile following the electric vehicle maker’s recent quarterly results that missed Wall Street estimates.

Cruise stocks including Royal Caribbean Cruises Ltd (NYSE:RCL), Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), and Carnival Corporation (NYSE:CCL) also lifted consumer stocks as investors, with the latter up nearly 4%.

(Peter Nurse, Oliver Gray contributed to this article.)

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