Head of Saxo Strats
Summary: The Q1 earnings season is kicking into gear this week with several important earnings releases with the most notable earnings being those from Netflix, US Bancorp, Tesla, ASML, and CATL. Earnings estimates for 2023 have been coming down ahead of the Q1 earnings but estimates still show growth is expected this year suggesting little weight is put on the recession call. Finally, we reflect on earnings today from Charles Schwab which was under pressure during the recent banking crisis.
Earnings expectations going into Q1
The Q1 earnings season has started and thus it is important to begin tracking how Q1 earnings releases are impacting earnings estimates for the coming quarters. If we look at S&P 500 earnings estimates for Q2, Q3, and Q4 this year, which are the ones that really matters now, then we can see that analysts have revised down their estimates for Q2 and Q3 since mid-February while raising the estimate for Q4. The figures also show that analysts expect earnings in Q4 to be 6.7% higher than in Q2 signalling no signs among equity analysts that a recession is incoming. Today’s significant positive surprise in the US April Empire Manufacturing figure might be suggestive of the economy just continuing to hum along.
Netflix to set sentiment in technology stocks
This week the Q1 earnings season gets very important with key earnings from Netflix on Tuesday which will set the stage for sentiment in technology stocks ahead of next week’s technology earnings. Analysts expect Netflix to report revenue growth of 4% y/y in Q1 and EPS of $2.87 down 10% from a year ago. Netflix is in the midst of a turnaround case which involves less password sharing for higher revenue monetisation, an advertisement-based model generating revenue of customers that do not want a subscription, and finally less own content production to reduce investment needs. All these actions are positive for shareholder creation.
Charles Schwab sees massive drop in deposits in Q1
This week the market will also focus on US regional banks and among the most important ones to track is US Bancorp reporting on Wednesday. Charles Schwab, which was under pressure during the recent banking crisis, has reported today Q1 net revenue in line with estimates and EPS of $0.93 vs est. $0.90. But the US broker also reported Q1 deposits that declined to $325.7bn down from $366.7bn in Q4 2022 and down from $465.9bn a year ago highlighting that the US broker has been hit hard on the funding side. Charles Schwab notes that Q1 money market fund assets are $358bn vs $143bn a year ago. Charles Schwab shares are up 3% in pre-market trading.
Key earnings next week from Tesla, ASML, CATL
This week the three most important earnings releases are from Tesla and ASML on Wednesday and CATL on Thursday. Tesla has reported its Q1 delivery figures so the market will be obsesses about any guidance on Q2 and generally forward demand. Analysts expect Tesla to report 25% y/y revenue growth in Q1 and EBITDA of $4.4bn vs $4.5bn a year ago as recent price cuts will make it difficult to expand the operating margin.
ASML sits in the middle of the massive investment boom in semiconductor manufacturing in the US due to the US CHIPS Act signed last August and which according to the FT is fueling significant investment commitments already. Due to the nature of ASML being an order driven business quarterly figures can change wildly and analysts expect revenue growth of 79% y/y, but investors will more pay attention to the expected revenue growth for the fiscal year which is currently 25% in FY23.
CATL is the world's largest EV battery maker and is thus riding the tailwind of EV adoption which is happening at a blistering pace. Analysts expect revenue growth of 54% y/y in Q1 and current estimate for Q2 revenue growth if 41% y/y. With lithium carbonate prices coming down batteries are expected to decline in price accelerating EV adoption even more. Investors will also focus on any comments about CATL’s partnerships with Ford and Tesla to build out EV battery manufacturing in the US.
The remaining important earnings releases are highlighted below.
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.
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