Market Overview: S&P 500 and European Equities See Strong Growth
The US and European equity markets continued to build on their recent momentum, with the S&P 500 recording its fourth straight day of gains. This rally has nearly wiped out the index’s September losses, thanks to a surge in the technology sector. Mega-cap stocks, alongside renewed optimism surrounding artificial intelligence (AI), were the key drivers of this performance. Additionally, communication services and consumer discretionary stocks outperformed, further boosting market sentiment.
Despite mixed inflation data, market volatility remained subdued, with Treasury yields climbing slightly. The 10-year Treasury note stood at 3.69%, reflecting a modest increase in yields. The S&P 500 has shown remarkable resilience this year, having gained over 17% year-to-date.
Asian Markets Show Mixed Results
Looking towards the Asian markets, most shares rose on Friday, with Hong Kong leading gains in the tech sector. Investor attention shifted to the possibility of a Federal Reserve rate cut, which has created a positive outlook. However, Japanese equities lagged due to weak inflation signals and hawkish comments from the Bank of Japan. In contrast, Chinese markets remained flat, weighed down by weak economic data and ongoing concerns about US-China trade tensions.
There is growing speculation about whether the Fed will opt for a 25 or 50 basis point rate cut, which is influencing broader Asian markets as well.
European and US Market Outlook
European markets are projected to open higher this morning, following the upbeat sentiment in US equities. Futures for US equity indices steadied during Asian trading hours, as the possibility of a Federal Reserve rate cut next week lifted market spirits. Investors are also hopeful about the continued strength of AI-driven tech stocks, which have been instrumental in boosting Wall Street’s positive outlook.
Oil Market Dynamics: Hurricane Concerns and OPEC Forecasts
Oil prices rose this morning, as Hurricane Francine’s disruption of Gulf of Mexico production heightened supply concerns. Despite recent gains, crude prices remain close to three-year lows, primarily due to demand issues, especially from China. Both OPEC and the International Energy Agency (IEA) have revised down their oil demand forecasts for 2024, further reflecting the uncertainty in the market. Meanwhile, US inventory data indicates slowing domestic fuel demand, particularly as the summer travel season winds down.
Key Corporate Developments
Oracle Corporation Hits Record High
Oracle Corporation shares surged by 6.6%, reaching a record high of $171.51 in after-hours trading on Thursday. The company’s robust revenue growth forecast and strong demand for its cloud computing services, driven by AI, fueled the increase. Oracle has raised its fiscal 2026 revenue projection to $66 billion, surpassing estimates, and expects annual revenue to hit $104 billion by fiscal 2029. So far this year, Oracle shares have gained around 55%.
Adobe’s Stock Declines After Q3 Results
Adobe’s shares dropped by 9.1% in after-hours trading, despite reporting stronger-than-expected earnings for Q3. The disappointment came from its Q4 guidance, which fell short of analyst expectations. Adobe reported Q3 earnings per share (EPS) of $4.65, with revenue reaching $5.41 billion. However, its forecast for Q4, with an EPS range of $4.63-$4.68 and revenue between $5.50-$5.55 billion, did not meet investor expectations, leading to a decline in stock value.
Moderna’s Share Plunge Amid Delayed Break-Even Goal
Moderna delayed its break-even goal by two years and reduced its 2025 sales forecast to $2.5-$3.5 billion, below analyst expectations and its 2024 outlook. Shares plummeted 12.4% as the company faced regulatory delays for flu and cancer vaccines and slower-than-expected RSV vaccine adoption. Moderna now projects a break-even on an operating cash cost basis by 2028 and plans to submit FDA applications for expanded RSV and combination COVID-influenza vaccines.
Wells Fargo Faces Regulatory Scrutiny
Wells Fargo shares fell 4% on Thursday after a US banking regulator criticised its anti-money laundering controls and restricted its ability to expand into high-risk areas. Although the bank avoided fines, it must strengthen internal controls and seek approval before expanding further. Wells Fargo has faced ongoing scrutiny since its 2016 fake accounts scandal, but some analysts believe this issue may not significantly affect the prospects for lifting the asset cap imposed by the Federal Reserve.
Federal Reserve and ECB Policy Updates
In Europe, the European Central Bank (ECB) took action to ease monetary policy, reducing its deposit facility rate by 25 basis points to 3.5%. This move, along with similar reductions in other lending rates, was aimed at supporting economic growth. Inflation forecasts remain relatively stable, with a target of 2.5% in 2024, dropping to 1.9% by 2026.
In the US, inflation data for August showed a 0.2% increase in producer prices, slightly above expectations. Service prices rose 0.4%, driven by higher guestroom rental costs, while goods prices remained flat. On a year-over-year basis, producer prices increased by 1.7%. Core CPI increased by 0.3%, with the annual core rate holding steady at 2.4%.
Strategies for Market Participants
Hedge funds are adjusting their portfolios by cutting back on Big Tech stocks and shifting toward cyclicals and bond proxies. Amazon, Microsoft, and Netflix saw reductions in portfolio weight, while Tesla remains a significant short position. Apple saw a slight increase but remains underweight. These changes reflect a defensive strategy amid concerns about tech sector valuations and growth prospects, as well as regulatory pressures. Hedge funds are adopting a more conservative stance, cutting overall equity exposure.
New Tech Advancements: Apple AirPods Get Hearing Aid Feature
The US Food and Drug Administration (FDA) authorized the first over-the-counter hearing aid software for use with Apple AirPods Pro headphones on Thursday. This upcoming software update will enable AirPods Pro 2 to function as a hearing aid, amplifying sounds for users with mild-to-moderate hearing loss. The feature, available this fall, aims to enhance hearing accessibility for millions of Americans.
Novo Nordisk’s Experimental Obesity Pill Shows Promising Results
Novo Nordisk’s experimental obesity pill, Amycretin, has shown promising early results, with a 13.1% weight loss in a Phase 1 trial compared to 1.1% with a placebo. If taken longer, the drug might achieve even greater weight reductions. The company plans further trials but is awaiting additional data from an injectable version. Amycretin builds on Novo Nordisk’s success with Wegovy and aims to enhance weight-loss and appetite control.
European Banking Sector M&A Speculation
Shares of Commerzbank and UniCredit rose on Thursday following UniCredit CEO Andrea Orcel’s announcement that he is interested in acquiring the remaining 12% of Commerzbank owned by the German government, or even pursuing a full merger. Analysts expect increased M&A activity in the European banking sector, which could positively impact valuations. However, potential political and execution risks remain.
Micron Technology Faces Downgrade
Micron Technology’s shares fell almost 4% after Exane BNP Paribas downgraded the shares from Outperform to Underperform, slashing its price target from $140 to $67. The downgrade is due to concerns about excess High Bandwidth Memory (HBM) capacity impacting DRAM pricing and potential underperformance compared to AI peers. Exane warns of further downside risks despite Micron’s shares already dropping 41% from their peak.
Nike’s Upcoming Earnings Report
Nike is set to report fiscal Q1 earnings on 1 October, with UBS predicting weak results and guidance. The company is expected to meet the $0.52 EPS consensus for Q1 but provide disappointing Q2 guidance of $0.65-$0.75 per share, below the $0.83 forecast. UBS highlights sluggish sales and traffic declines but notes potential margin support from reduced promotions. Nike’s shares have fallen 26% year-to-date.
Stephens Analysts Bullish on Carvana
Stephens analysts have initiated coverage of Carvana with an Overweight rating and a $190 price target, highlighting its potential to disrupt the US used vehicle market. Carvana’s digital approach, scalability, and efficient operations are seen as key advantages. Despite holding just 1% market share, Carvana is noted as highly profitable per unit and expected to achieve positive EBITDA by year-end. The firm views Carvana as a potential “retail category killer,” akin to retail giants like Walmart and Costco.
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