Strong Session for U.S. Equities and Positive Dow Futures
U.S. equities saw their strongest session in weeks on Tuesday, with the S&P 500, Dow Jones, and Nasdaq each gaining over 1%. Investors were encouraged by signs of economic resilience and a drop in Treasury yields and volatility, boosting market confidence.
European markets also closed higher, led by a 0.5% rise in the Stoxx 50. Industrial stocks posted gains, though the automotive sector lagged behind. Notable moves included Hugo Boss, which dropped by 4.5% due to weaker sales in Asia, and Schroders, which plunged 13.4% after issuing a disappointing trading update.
Key Market Highlights
- S&P 500, Dow Jones, Nasdaq: Each index up over 1% on Tuesday.
- Stoxx 50: Increased by 0.5%, driven by industrial shares while autos underperformed.
- Hugo Boss and Schroders: Stock declines of 4.5% and 13.4%, respectively, due to Asia sales concerns and weak trading updates.
Asian Markets Mirror Wall Street’s Rally
On Wednesday, most Asian equities rose following Wall Street’s strong performance. Technology shares were particularly strong, with market sentiment lifted by anticipation of a potential Federal Reserve rate cut. However, Chinese markets remained volatile as early U.S. election results hinted at a potential Trump lead, which raised concerns over possible trade policy changes. Japan’s Nikkei surged by 1.8%, buoyed by a weaker yen, while broader Asian markets remained cautiously optimistic.
Asian Market Movements:
- Japan’s Nikkei: Rose by 1.8% due to yen depreciation.
- Chinese Markets: Volatility persisted with Trump’s early lead sparking trade concerns.
Positive Outlook for European and U.S. Equity Futures
European and U.S. equity futures pointed to a strong open, with S&P 500 futures up 1.2% and Nasdaq futures gaining 1.3% as early U.S. election results suggested a potential Trump lead. European futures also showed gains as investors remained optimistic amidst climbing Treasury yields and a strengthening dollar- a pattern often seen in “Trump trades.”
Oil Prices Fall on Rising U.S. Crude Inventories
Oil prices slipped during Asian trading as U.S. crude inventories grew more than expected, indicating potential cooling in demand. Both Brent and WTI futures declined, although recent price support stemmed from OPEC+ production cuts and possible supply disruptions due to Hurricane Rafael in the Gulf of Mexico.
Dollar Surges and Bitcoin Hits Record High
The dollar index rose by 1.42%, reflecting confidence as early election results showed Trump leading in some key states. Bitcoin also reached a record high of $75,060, as investors anticipated inflationary policies associated with a potential Trump administration, which could benefit cryptocurrencies. Meanwhile, risk-sensitive currencies like the Australian dollar and euro weakened in response to the early U.S. election results.
Corporate Sector Developments
Super Micro Computer
Super Micro Computer shares fell 15.9% in after-hours trading after it disclosed uncertainties about its annual report timing due to the sudden resignation of Ernst & Young as its auditor. Despite an internal probe revealing no fraud, concerns over governance and accounting transparency weighed on investor sentiment. The company’s second-quarter revenue forecast was revised down, with anticipation of production growth tied to Nvidia’s new AI chips.
Archer-Daniels-Midland (ADM)
ADM shares declined 6% following a reduced profit outlook for 2024 and reports of accounting irregularities, marking the second financial revision this year. Investor confidence was further shaken as the Ag Services and Oilseeds division saw a significant profitability drop, leading to government scrutiny and delayed earnings reporting. ADM’s leadership, headed by CEO Juan Luciano, is now under pressure as investors question internal oversight.
Builders FirstSource
Builders FirstSource reported stronger-than-expected third-quarter earnings with an adjusted EPS of $3.07. However, revenue missed expectations, showing a 6.7% year-over-year decline at $4.2 billion. The company reduced its 2024 revenue guidance to $16.25-16.55 billion, citing challenging market conditions, but emphasized robust cash flow and share repurchases.
Ferrari
Ferrari’s third-quarter core earnings rose by 7% despite a 2% decrease in vehicle shipments due to a new ERP system implementation that temporarily impacted production. High demand for luxury models and personalized options drove profit growth, and Ferrari maintained its full-year outlook with strong order visibility extending to 2026. Shares, however, fell 7.4% despite the favorable results.
Deutsche Post and Schaeffler Group
Deutsche Post reported a third-quarter EBIT of €1.37 billion, including a one-time €70 million gain, which slightly exceeded the €1.35 billion forecast. Nonetheless, the company lowered its 2024 EBIT and 2026 long-term guidance. Schaeffler’s shares declined 7.6% after a disappointing third-quarter performance and the announcement of a €580 million restructuring plan focused on European operations, with cash flow challenges tied to high e-mobility project costs.
Regulatory Actions and Analyst Ratings
Apple Faces Potential Fine under EU’s Digital Markets Act
Apple is expected to face a fine from the EU under the Digital Markets Act, marking the first such sanction under these new rules. This penalty, which could reach up to 10% of Apple’s global turnover, adds to its recent legal challenges, including a €1.84 billion fine in March.
Broadcom Expected to See Strong AI Revenue Growth
Bank of America forecasts Broadcom will achieve a 30-35% compound annual growth rate in AI-related revenue. Despite a lowered fiscal 2025 earnings forecast due to seasonal challenges, Broadcom is expected to benefit from AI partnerships, particularly with Apple and OpenAI, and maintain steady growth. Bank of America maintains a price target of $215 for Broadcom, underscoring its strong AI positioning.
eBay and Air France-KLM Analyst Updates
Bernstein upgraded eBay to “Outperform,” seeing the company’s focus on core buyers as a strength, despite a recent fourth-quarter forecast miss due to conservative consumer spending. Morgan Stanley, however, downgraded Air France-KLM to “underweight” due to valuation concerns, high maintenance costs, and weaker profitability compared to competitors like Lufthansa and IAG.
Predictions for a Year-End Equity Rally
Both Bank of America and UBS forecast a year-end rally for U.S. equities. Bank of America highlighted November’s typical strength in election years and current oversold conditions, targeting an S&P 500 range of 5940-6150. UBS anticipates that the resolution of election-related uncertainties, steady consumer spending, and Federal Reserve support could drive lower volatility and boost markets into 2025.
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