Head of Saxo Strats
Summary: In today's equity update we go through next week's earnings releases which will include the first Q4 earnings starting with US banking earnings from Bank of America, JPMorgan Chase, and Citigroup. Analysts expect US banks to show another quarter of negative earnings growth before returning to earnings growth in Q1. We also dive into our theme basket performance in the first week of trading highlighting the e-commerce basket up 7% this week on three divers across falling container freight rates, robust consumer, and cost cutting driving the strong performance.
US banks saw earnings decline in Q4
The Q4 earnings season starts next week with major US banking earnings most notably from Bank of America, JPMorgan Chase, and Citigroup. Analysts remain muted on US banks with earnings expected to show another quarter of negative earnings growth compared to a year ago. The interest rate shock has been bad for banking earnings and activity levels across the investment banking division. As credit portfolios have an average maturity of around seven years banks will slowly begin rolling their assets into higher interest rate levels which will begin to accelerate their net revenue figures improving profitability over time. If the US economy just experience a shallow recession in real terms and strong nominal growth then US banks should be considered as a good tactical trade over the coming years.
For the overall Q4 earnings season we expect to see more industries experiencing margin compression than industries experiencing expanding margins. This will continue to be a headwind for earnings growth. Back in May last year we inserted analyst estimates of S&P 500 earnings for Q2- Q4 2022, and it is interesting to see how realized earnings have disappointed against those expectations. Analysts did not see the margin compression and judging from current estimates they have not materially revised down their expectations. That means that the Q4 earnings season and beyond could be paved with more disappointments.
The list below shows the most important earnings releases next week.
Could e-commerce stocks be the big positive surprise this year?
The best performing equity theme basket so far this year has been the Chinese consumer & technology basket because of the sentiment shift in China over the reopening policy, intentions to stimulate, bailout real estate developers, and finally the green light for Ant Group (Alibaba’s financial arm) to raise more share capital which could pave the way for an IPO later this year. While China is still a difficult trade the other strong performer in the first week of trading which is our e-commerce basket is more interesting.
The e-commerce basket (see constituents below) is up 7% this year which is in stark contrast to last year’s horrible performance. There are likely three drivers behind the positive performance and they can all continue throughout 2023 making potentially e-commerce the big positive surprise this year.
2024: 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.
