Head of Equity Strategy
Summary: The Nasdaq 100 has seen EPS grow 5% q/q in Q4 and revenue increase by 16.7% compared to a year ago highlighting that US technology companies still offer a rare pocket of high growth. Equity valuations on Nasdaq 100 companies are still elevated and the overall downside risks persist in US equities due to tightening financial conditions, but the earnings season is showing why the US technology sector still has a place in the portfolio during inflation. We also highlight this week's earnings releases with US heavyweights such as Alphabet, Meta Platforms, and Amazon reporting earnings.
Earnings grow 5% q/q in Nasdaq 100
The Q4 earnings season is firing on all cylinders with this week being the most important one, which we cover further down, and around 33% of the companies in the S&P 500 Index has now reported earnings. After this week we will have enough data to make conclusions on the Q4 earnings season but already now a preliminary picture is emerging.
The Nasdaq 100 has seen its EPS grow 5.2% q/q while the MSCI World has seen EPS grow only by 0.3% q/q highlighting the underlying trend for more than a decade, that the US technology sector is where the growth is, even during inflation. While the S&P 500 and MSCI World have seen net profit margin decline 0.1%-point and 0.2%-point q/q in Q4, Nasdaq 100 has seen its net profit margin expand 0.4%-point suggesting less impact from inflation on technology companies. This should drum up some demand from investors.
The recent selloff in Nasdaq 100 has pushed the equity valuation to 3.2% free cash flow yield which is still on the expensive side in a historical context, but with revenue up 16% the past year and revenue having grown 11.5% annualized since 2004, investors will likely continue to maintain their exposure to the highest quality technology companies. However, the tier 2 and tier 3 (bubble stocks) technology companies will likely continue to feel the pain from tighter financial conditions and portfolio flows into commodity companies and other related inflation hedges.
Despite solid fundamentals from high quality Nasdaq 100 companies our stance is still that equities have downside risks due to an elevated VIX Index, inverted VIX forward curve, and tightening of financial conditions. Our view is still that investors should balance growth components with inflation components with pricing power such as commodity sector, travel, defence, mega caps, logistics and semiconductors.
A monster earnings week ahead
The earnings season really kicks into gear this week with releases from US heavyweights such as PayPal, Exxon Mobil, UPS, Starbucks, Alphabet, Meta Platforms, AbbVie, Qualcomm, Honeywell, and Amazon. In Europe many large companies will also report such as UBS, Novo Nordisk, Orsted, Banco Santander, Novartis, Nokia, Infineon Technologies, ABB, Roche and UniCredit. Unless US long-term interest rates move higher we expect earnings this week to bolster sentiment and support the view that companies for now are able to pass on inflationary pressures.
Monday: Ryanair, Komatsu, NXP Semiconductors
Tuesday: Novozymes, Keyence, UBS Group, Exxon Mobil, PayPal, UPS, AMD, Starbucks, Gilead Sciences, GM, Electronic Arts
Wednesday: Novo Nordisk, Orsted, Kone, Sony, Mitsubishi UFJ Financial, Denso, Prudential, Telenor, Banco Santander, Hexagon, Swedbank, Novartis, Alphabet, Meta Platforms (Facebook), Alibaba, AbbVie, Qualcomm, Thermo Fisher Scientific, Ferrari, Spotify Technology, DR Horton
Thursday: Suncor Energy, Danske Bank, Nokia, Dassault Systemes, Siemens Healthineers, Infineon Technologies, Merck KGaA, Enel, Nintendo, SoftBank, Mitsubishi, Takeda, Shell, ING Groep, BBVA, Siemens Gamesa Renewable Energy, Nordea, Roche, ABB, Amazon, Eli Lilly, Merck & Co, Honeywell, ConocoPhillips, Estee Lauder, Ford Motor, Fortinet,
Friday: Carlsberg, Sanofi, Vinci, UniCredit, Intesa Sanpaolo, Assa Abloy, Bristol-Myers, Regeneron Pharmaceuticals2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
