Incredible Tesla ending the week at +23%, Oil is up +4% on Israel striking Iran, US NFP and PCE data releases next week
WEEKLY TRENDS
WEEKLY TRENDS
- Q3 earnings are driving the markets for the moment, with an incredible Tesla’s growth and outlook given by Elon Musk, the stock ends the week at +23%. In Europe OVH ends the week at +22% on strong earnings and helped by the announcement of a buyback programme
- On the macro front, investors will look for the Oct US job report to be released next Friday, together with the PCE inflation on Thursday, in order to gauge whether they will test again the Fibonacci retracement on the US 10 year Bond yield at 4.25%
- On the Q3 earnings front, after Tesla last week, 4 of the Magnificent 7 stocks will publish their results this coming week: Alphabet, Microsoft, Apple and Amazon, almost enough to drive away the attention of investors recently placed on China’s stimulus plans.
MARKETS
Equities
Q3 earnings releases last week (stock WoW performance):
+++ Tesla (+23%), SAP (+4%), Philip Morris (+8%), Roche (+3%)
- - - L’Oreal (-4%), Colgate (-4%), Coca Cola (-4%), Unilever (-1%)
Analysts: French Teleperformance (+12%) on Kepler upgrade ; Ericsson (+15%) several upgrades after strong results
NB: OVH (+22%) after buyback announcement of 20% at €9 a share; BIC (+15%), Thule (+14%), Renault (+6%), Molina (+12%) on better results; Michelin (-9%), Edenred (-14%), Newmont (-16%) on worst results
Rates
US curve (2-10 years) steepening, remained at 15bps. Bond yields went up across the curve by 15bps
Commodities
Oil is up after Israel launched airstrikes on Iran’s missile production sites, US offered defensive assurances to Saudi Arabia
EU
Moody’s downgraded France’s rating outlook to negative (S&P will announce its decision on 29 Nov) by 25bps last Thursday, market. GS downgraded its European earnings growth forecasts (below market consensus) 2% in 2024 from 6%, 3% in 2025 and 4% p.a. in 2026-2027
EM
IMF forecasts that BRICS nations’ contribution to the World GDP will reach 44% by 2029 vs 20% for the G7 countries
Crypto
$1.7bn net BTC ETF inflows last week (Trump is a strong supporter) ETH +6% on the week, SOL +3% and BNB +4%. Italy decided to increase the CGT on crypto currencies from 26% to 42%
Nota Bene
Winter time change in Europe while the US will change next weekend
SP500 Price to Book ratio is now at 5.2x (when excluding the Mag7 it becomes 4.2x)
Record defaults in Chinese municipal debts at $800bn
US share repurchase announcements hit $990bn so far in 2024, a record, 3 times higher than in 2020, +21% YoY Oct
CALENDAR
WHAT ANALYSTS SAY
Goldman Sachs, 25 October 2024 - Briefings
· Why S&P returns may be muted in the long term
Market concentration may drag down S&P 500 returns over the next decade. Goldman Sachs Research expects the S&P 500 to deliver a 3% annualized nominal total return over the next decade — far lower than the 13% returned over the past decade and the 11% long-term average. Our analysts' forecast, which includes a range of outcomes from -1% to 7%, is also lower than the estimates of other market participants: Buy- and sell-side projections of the long-term returns of US equities average 6%.
The most important variable in this forecast is starting valuation. “In theory, a high starting price, all else equal, implies a lower forward return,” writes David Kostin, chief US equity strategist at Goldman Sachs Research.
At present, the 10 largest stocks in the S&P 500 account for more than a third of the total market cap. The current level of market concentration — at a multi-decade high — represents another drag on our analysts' forecast. Without this variable, the baseline return forecast would be roughly 4 percentage points higher (7% rather than 3%) and the range would be 3% to 11% rather than -1% to 7%.
US stocks will face stiff competition from other assets at such low levels of return, according to our strategists. Their forecast suggests the S&P 500 has roughly a 72% probability of underperforming bonds and a 33% likelihood of lagging inflation through 2034.
· China’s equities are likely to rally again
The China rally may just be getting started. Chinese equities soared following the announcement of a major stimulus package, and according to Kinger Lau, Goldman Sachs Research's chief China equity strategist, further upside could be ahead. “We think the rally makes sense,” Lau says. “The Chinese government has shown its commitment to supporting economic growth — which is exactly what investors have been waiting to hear.”
He acknowledges that some investors may be hesitant about buying after such a significant move, which may explain why the market has corrected. But he adds that a historical analysis suggest that “this rally could have legs,” given that “when we've seen 20% rallies in Chinese stocks, that rally has continued over the next several months.”
Lau adds that Chinese stocks remain “quite reasonably valued — with valuations only rising back up to historical averages.”
Finally, he notes that Chinese equities' correlations with developed markets have fallen to around 30%, which suggests that exposure can provide diversification benefits for international investors.
“So even if the rally does lose momentum,” Lau says, “we think Chinese equities still have a place in investors' portfolios.”
· Why PE funds are on a quest for intermittent liquidity
In 2021, private equity funds distributed more than $700 billion after a record-breaking wave of exits from their investments. Since then, the pace of distribution has slowed. In the first half of 2024, distributions were at about 9% of net asset value, compared to 29% in 2021.
In its latest edition of Asset Management Perspectives, Goldman Sachs Asset Management finds that the distribution drought is being felt acutely. At the same time, most limited partners remain under-allocated to private market strategies, and they're increasing their allocations rather than seeking liquidity. Exits have become difficult for several reasons – such as higher cost of capital, the sluggishness in the IPO market, and the fact that exit valuations have dipped below holding valuations for the first time in a decade, writes Dan Murphy, head of Portfolio Solutions for Alternatives Capital Formation.
UBS, 21 October 2024 - Which regions shine brightest for stocks?
Authors: Matthew Carter, Strategist; Vincent Heaney, Strategist
Key message
· Positive economic surprises in the US, more forceful policy interventions in China, and the continuation of the global rate-cutting cycle establish a more constructive backdrop for global stocks.
· Exposure to US stocks—especially technology—is crucial to capture the AI opportunity, in our view, while we also see near-term opportunities in smaller European stocks and Asian ex-Japan equities.
We now judge the US market to be an Attractive one
• US economic activity has been more resilient than expected—recent revisions to the last five years’ data show that GDP growth averaged 2.5% per year since 2019.
• Earnings growth is broadening out. We continue to expect 11% S&P 500 EPS growth (to USD 250) this year and 8% growth (to USD 270) in 2025.
• We hold a December 2025 S&P 500 price target of 6,600 and like financials, technology, and utilities in particular.
We like smaller and mid-sized companies in the Eurozone
• The macroeconomic backdrop looks set to brighten with troughing growth, strong consumption, and looser financing conditions.
• This segment should benefit from transformational themes, such as increased electric power generation and decarbonization, and nearshoring (automation).
• European small and mid caps (MSCI EMU SMID) are currently trading at a 20-year low price-to-earnings ratio compared to large caps (MSCI EMU).
We also find Asian ex-Japan equities appealing
· The region is especially sensitive to falling US and regional interest rates.
· It offers one of the most appealing earnings growth profiles for next year with our forecast for 14.8% earnings growth in USD terms in 2025.
· Indian stocks could experience 12% EPS growth in fiscal year 2025 (MSCI India) and a revival to around 14% growth thereafter.
New this week
Companies that represent about 15% of the S&P 500 market capitalization have reported their third-quarter results so far, with nearly 80% of them beating earnings estimates and more than 60% beating sales estimates.
One liner
Positive US economic surprises, the growth potential of Chinese stimulus, and global rate cuts create a favorable environment for equities.
· Historically, when the Fed is easing policy in the context of a soft landing, US equities rise 18% on average in the 12 months after the first Fed rate cut.
Investment view
We believe the outlook is brightening for global equities, driven by the global rate-cutting cycle, robust earnings, and more resilient growth.
Potential Chinese stimulus, while uncertain in size, could also boost global stocks. We particularly highlight US stocks, Eurozone SMID caps, and Asian ex-Japan equities as appealing in today's environment.
Contacts
Main office
1-5, № 53, 12 Charents Str., Yerevan, 0025
+37410 59-55-56
Broker
+374 43 00-43-82
broker@unibankinvest.am
research@unibankinvest.am
info@unibankinvest.am
Disclaimer
The information presented in the document contains a general overview of the products and services offered by OJSC Unibank (registered trademark – Unibank INVEST, hereinafter referred to as the Bank).
The information is intended solely for the attention of the persons to whom it is addressed. Further dissemination of this information is allowed only with the prior consent of the Bank.
The information is only indicative, is not exhaustive and is provided solely for discussion purposes. The information should not be regarded as a public offer, request or invitation to purchase or sell any securities, financial instruments or services. The Bank reserves the right to make a final decision on the provision of these products and/or services to a specific customer, including refusing to provide products and/or services if such activities would be contrary to applicable law.
No guarantees in direct or indirect form, including those stipulated by law, are provided in connection with the specified information and materials. The information presented above cannot be considered as a recommendation for investing funds, as well as guarantees or promises of future profitability of investments.
Equities
Q3 earnings releases last week (stock WoW performance):
+++ Tesla (+23%), SAP (+4%), Philip Morris (+8%), Roche (+3%)
- - - L’Oreal (-4%), Colgate (-4%), Coca Cola (-4%), Unilever (-1%)
Analysts: French Teleperformance (+12%) on Kepler upgrade ; Ericsson (+15%) several upgrades after strong results
NB: OVH (+22%) after buyback announcement of 20% at €9 a share; BIC (+15%), Thule (+14%), Renault (+6%), Molina (+12%) on better results; Michelin (-9%), Edenred (-14%), Newmont (-16%) on worst results
Rates
US curve (2-10 years) steepening, remained at 15bps. Bond yields went up across the curve by 15bps
Commodities
Oil is up after Israel launched airstrikes on Iran’s missile production sites, US offered defensive assurances to Saudi Arabia
EU
Moody’s downgraded France’s rating outlook to negative (S&P will announce its decision on 29 Nov) by 25bps last Thursday, market. GS downgraded its European earnings growth forecasts (below market consensus) 2% in 2024 from 6%, 3% in 2025 and 4% p.a. in 2026-2027
EM
IMF forecasts that BRICS nations’ contribution to the World GDP will reach 44% by 2029 vs 20% for the G7 countries
Crypto
$1.7bn net BTC ETF inflows last week (Trump is a strong supporter) ETH +6% on the week, SOL +3% and BNB +4%. Italy decided to increase the CGT on crypto currencies from 26% to 42%
Nota Bene
Winter time change in Europe while the US will change next weekend
SP500 Price to Book ratio is now at 5.2x (when excluding the Mag7 it becomes 4.2x)
Record defaults in Chinese municipal debts at $800bn
US share repurchase announcements hit $990bn so far in 2024, a record, 3 times higher than in 2020, +21% YoY Oct
CALENDAR
- Corporate earnings: US Alphabet, AMD, Pfizer (29 Oct), Microsoft, Meta, Eli Lilly (30), Apple, Amazon, Merck, Intel (31), Exxon, Chevron (1 Nov); Europe Philips (28 Oct), Novartis, BP (29), Airbus, UBS, GSK, Glencore, VW (30), Shell, Total, Linde (31)
- Macro: US Sep PCE inflation (31 Oct), US Oct NFP job report (1 Nov)
- BOJ monetary policy decision (30/31 Oct)
WHAT ANALYSTS SAY
- Goldman Sachs - Briefings
- UBS - Which regions shine brightest for stocks?
Goldman Sachs, 25 October 2024 - Briefings
· Why S&P returns may be muted in the long term
Market concentration may drag down S&P 500 returns over the next decade. Goldman Sachs Research expects the S&P 500 to deliver a 3% annualized nominal total return over the next decade — far lower than the 13% returned over the past decade and the 11% long-term average. Our analysts' forecast, which includes a range of outcomes from -1% to 7%, is also lower than the estimates of other market participants: Buy- and sell-side projections of the long-term returns of US equities average 6%.
The most important variable in this forecast is starting valuation. “In theory, a high starting price, all else equal, implies a lower forward return,” writes David Kostin, chief US equity strategist at Goldman Sachs Research.
At present, the 10 largest stocks in the S&P 500 account for more than a third of the total market cap. The current level of market concentration — at a multi-decade high — represents another drag on our analysts' forecast. Without this variable, the baseline return forecast would be roughly 4 percentage points higher (7% rather than 3%) and the range would be 3% to 11% rather than -1% to 7%.
US stocks will face stiff competition from other assets at such low levels of return, according to our strategists. Their forecast suggests the S&P 500 has roughly a 72% probability of underperforming bonds and a 33% likelihood of lagging inflation through 2034.
· China’s equities are likely to rally again
The China rally may just be getting started. Chinese equities soared following the announcement of a major stimulus package, and according to Kinger Lau, Goldman Sachs Research's chief China equity strategist, further upside could be ahead. “We think the rally makes sense,” Lau says. “The Chinese government has shown its commitment to supporting economic growth — which is exactly what investors have been waiting to hear.”
He acknowledges that some investors may be hesitant about buying after such a significant move, which may explain why the market has corrected. But he adds that a historical analysis suggest that “this rally could have legs,” given that “when we've seen 20% rallies in Chinese stocks, that rally has continued over the next several months.”
Lau adds that Chinese stocks remain “quite reasonably valued — with valuations only rising back up to historical averages.”
Finally, he notes that Chinese equities' correlations with developed markets have fallen to around 30%, which suggests that exposure can provide diversification benefits for international investors.
“So even if the rally does lose momentum,” Lau says, “we think Chinese equities still have a place in investors' portfolios.”
· Why PE funds are on a quest for intermittent liquidity
In 2021, private equity funds distributed more than $700 billion after a record-breaking wave of exits from their investments. Since then, the pace of distribution has slowed. In the first half of 2024, distributions were at about 9% of net asset value, compared to 29% in 2021.
In its latest edition of Asset Management Perspectives, Goldman Sachs Asset Management finds that the distribution drought is being felt acutely. At the same time, most limited partners remain under-allocated to private market strategies, and they're increasing their allocations rather than seeking liquidity. Exits have become difficult for several reasons – such as higher cost of capital, the sluggishness in the IPO market, and the fact that exit valuations have dipped below holding valuations for the first time in a decade, writes Dan Murphy, head of Portfolio Solutions for Alternatives Capital Formation.
UBS, 21 October 2024 - Which regions shine brightest for stocks?
Authors: Matthew Carter, Strategist; Vincent Heaney, Strategist
Key message
· Positive economic surprises in the US, more forceful policy interventions in China, and the continuation of the global rate-cutting cycle establish a more constructive backdrop for global stocks.
· Exposure to US stocks—especially technology—is crucial to capture the AI opportunity, in our view, while we also see near-term opportunities in smaller European stocks and Asian ex-Japan equities.
We now judge the US market to be an Attractive one
• US economic activity has been more resilient than expected—recent revisions to the last five years’ data show that GDP growth averaged 2.5% per year since 2019.
• Earnings growth is broadening out. We continue to expect 11% S&P 500 EPS growth (to USD 250) this year and 8% growth (to USD 270) in 2025.
• We hold a December 2025 S&P 500 price target of 6,600 and like financials, technology, and utilities in particular.
We like smaller and mid-sized companies in the Eurozone
• The macroeconomic backdrop looks set to brighten with troughing growth, strong consumption, and looser financing conditions.
• This segment should benefit from transformational themes, such as increased electric power generation and decarbonization, and nearshoring (automation).
• European small and mid caps (MSCI EMU SMID) are currently trading at a 20-year low price-to-earnings ratio compared to large caps (MSCI EMU).
We also find Asian ex-Japan equities appealing
· The region is especially sensitive to falling US and regional interest rates.
· It offers one of the most appealing earnings growth profiles for next year with our forecast for 14.8% earnings growth in USD terms in 2025.
· Indian stocks could experience 12% EPS growth in fiscal year 2025 (MSCI India) and a revival to around 14% growth thereafter.
New this week
Companies that represent about 15% of the S&P 500 market capitalization have reported their third-quarter results so far, with nearly 80% of them beating earnings estimates and more than 60% beating sales estimates.
One liner
Positive US economic surprises, the growth potential of Chinese stimulus, and global rate cuts create a favorable environment for equities.
· Historically, when the Fed is easing policy in the context of a soft landing, US equities rise 18% on average in the 12 months after the first Fed rate cut.
Investment view
We believe the outlook is brightening for global equities, driven by the global rate-cutting cycle, robust earnings, and more resilient growth.
Potential Chinese stimulus, while uncertain in size, could also boost global stocks. We particularly highlight US stocks, Eurozone SMID caps, and Asian ex-Japan equities as appealing in today's environment.
Contacts
Main office
1-5, № 53, 12 Charents Str., Yerevan, 0025
+37410 59-55-56
Broker
+374 43 00-43-82
broker@unibankinvest.am
research@unibankinvest.am
info@unibankinvest.am
Disclaimer
The information presented in the document contains a general overview of the products and services offered by OJSC Unibank (registered trademark – Unibank INVEST, hereinafter referred to as the Bank).
The information is intended solely for the attention of the persons to whom it is addressed. Further dissemination of this information is allowed only with the prior consent of the Bank.
The information is only indicative, is not exhaustive and is provided solely for discussion purposes. The information should not be regarded as a public offer, request or invitation to purchase or sell any securities, financial instruments or services. The Bank reserves the right to make a final decision on the provision of these products and/or services to a specific customer, including refusing to provide products and/or services if such activities would be contrary to applicable law.
No guarantees in direct or indirect form, including those stipulated by law, are provided in connection with the specified information and materials. The information presented above cannot be considered as a recommendation for investing funds, as well as guarantees or promises of future profitability of investments.
