Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 22 Oct -Sterling hits 1-week low as UK inflation cools, Barclays ups guidance, gold bounces after selloff
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
But the earnings story yesterday was in my opinion incredibly strong as it hinted at leadership for the rally shifting from tech to industrials. This broadening would tend to be a positive catalyst and could indicate that the economy and earnings are going to be even better than hoped across the sectors.
This morning, the FTSE 100 added another half a percent in early trade to 9,481, while stocks across Europe were weaker. Fresnillo, Endeavour Mining and Rio Tinto were leading the charge early doors as the reversal in gold and silver prices stopped and reversed. They’ve been hit very hard in the last couple of sessions on gold and silver volatility – Fresnillo –16% in 5 days but still +240% YTD.
Barclays rose 3% as it upped guidance and announced a further £500mn share buyback, despite a decline in quarterly profits. The bank boosted guidance for 2025 group return on tangible equity (RoTE) to greater than 11% from c.11%, and 2025 group net interest income (NII) was upgraded to greater than £12.6bn from greater than £12.5bn previously. It also brought forward a portion of its 2024 shareholder return plans by announcing a new £500mn buyback - the target remains to return at least £10bn of capital between 2024 and 2026. Barclays is able to do this after a sustained period of capital generation under its three-year revamp - CET1 ratio now stands at 14.1%. The setting aside of a further £235mn for motor finance compensation barely touches the sides. Growth was seen across the major sectors – core UK retail income +16%, corporate +17% and the investment bank put its shoulder to the wheel with an 8% rise in income, with both the global markets and investment banking divisions growing. Unlike in the first half, banking fees and revenue from underwriting as well as income from advisory work were higher than last year. Some tailwinds on Wall Street but still positive. Overall, turnaround looks more than on track and investment banking was more positive than in the first half.
US earnings – industrials take over
Netflix earnings were solid enough, but shares fell 6%. Revenues met expectations, while a tax dispute with Brazilian authorities meant earnings were a touch light. But with “KPop Demon Hunters” the most popular film ever on the platform with some 325mn streams, as well as record ad revenues, it’s easy to argue that quarterly results come and go.
The standout was General Motors, which jumped 15% as it lowered its expected hit from tariffs. The company raised its annual profit forecast to $12bn-13bn from a prior range of between $10bn and $12.5bn. GE Aerospace also raised its outlook as services revenue rose 28%, notching a record high for the stock in the process.
Coca-Cola posted organic growth of 6% for the quarter as it beat forecasts – huge growth that sent the shares up 4%. Industrials RTX and 3M also posted really strong numbers. Broadening participation in the rally makes it more durable.
Finally, Zions Bancorp, the regional lender at the centre of last week's bad loan freakout, posted a strong quarter and JPMorgan raised its price target to $62 a share from $58. Shares have rebounded 12% since the low last week.
Chart: gold found support at the 23.6% retracement now having bounced clean off $4k, near its 20-day SMA. Bearish MACD crossover forming.
Key Points
- Sterling falls to 1-week low as inflation holds steady at 3.8%
- Dow Jones closes at record high as industrials take the lead
- Netflix earnings disappoint but ad revenues were a record
- Barclays shares rally as it raises guidance for the year
UK inflation unexpectedly held steady at 3.8% in September, below the 4% widely expected, leaving the path open for rate cuts by the Bank of England perhaps a little sooner and a little further than markets had thought before. Core inflation fell to 3.5% and key services inflation also held steady at 4.7% against the 5% predicted. Interest rate swaps moved sharply to price in additional easing, a full two cuts, by the spring of next year following the data, shoving sterling back down to a one-week low. The BoE thinks September should mark the peak in inflation for Britain. This could be good news for those wanting cuts, but we should caution that the uncertainty ahead of the Budget means November is unlikely to see a move, but December is definitely in play.
Gold had its biggest fall since 2013 – long time coming... no CFTC data on futures doesn’t help, end of Diwali in India doesn’t help, and a stronger USD doesn’t help. But fundamentally this consolidation phase was overdue – conditions had become extremely stretched and we were extremely overbought – weekly RSI above 76 is not a great signal to keep buying. A rally of $1,000 in six weeks was always pushing it – but nevertheless the underpinning of this gold rally is a) durable and b) not like previous gold rushes. So, a consolidation is due, but that does not mean we’ve seen the top - and we have seen really strong dip buying push prices up about $150 off the lows in fairly short order. Spot gold bounced clean off the $4,000 round number – see below.
The FTSE 100 rose about 23 points to close at 9,426.99 yesterday while trading on Wall Street was mixed. Positive earnings from the likes of 3M and Coca-Cola lifted the Dow Jones 0.5% to close at a record high just below 47k. Elsewhere, the picture in tech was more mixed, leaving the S&P 500 flat and Nasdaq Composite down 0.2%.
Gold had its biggest fall since 2013 – long time coming... no CFTC data on futures doesn’t help, end of Diwali in India doesn’t help, and a stronger USD doesn’t help. But fundamentally this consolidation phase was overdue – conditions had become extremely stretched and we were extremely overbought – weekly RSI above 76 is not a great signal to keep buying. A rally of $1,000 in six weeks was always pushing it – but nevertheless the underpinning of this gold rally is a) durable and b) not like previous gold rushes. So, a consolidation is due, but that does not mean we’ve seen the top - and we have seen really strong dip buying push prices up about $150 off the lows in fairly short order. Spot gold bounced clean off the $4,000 round number – see below.
The FTSE 100 rose about 23 points to close at 9,426.99 yesterday while trading on Wall Street was mixed. Positive earnings from the likes of 3M and Coca-Cola lifted the Dow Jones 0.5% to close at a record high just below 47k. Elsewhere, the picture in tech was more mixed, leaving the S&P 500 flat and Nasdaq Composite down 0.2%.
But the earnings story yesterday was in my opinion incredibly strong as it hinted at leadership for the rally shifting from tech to industrials. This broadening would tend to be a positive catalyst and could indicate that the economy and earnings are going to be even better than hoped across the sectors.
This morning, the FTSE 100 added another half a percent in early trade to 9,481, while stocks across Europe were weaker. Fresnillo, Endeavour Mining and Rio Tinto were leading the charge early doors as the reversal in gold and silver prices stopped and reversed. They’ve been hit very hard in the last couple of sessions on gold and silver volatility – Fresnillo –16% in 5 days but still +240% YTD.
Barclays rose 3% as it upped guidance and announced a further £500mn share buyback, despite a decline in quarterly profits. The bank boosted guidance for 2025 group return on tangible equity (RoTE) to greater than 11% from c.11%, and 2025 group net interest income (NII) was upgraded to greater than £12.6bn from greater than £12.5bn previously. It also brought forward a portion of its 2024 shareholder return plans by announcing a new £500mn buyback - the target remains to return at least £10bn of capital between 2024 and 2026. Barclays is able to do this after a sustained period of capital generation under its three-year revamp - CET1 ratio now stands at 14.1%. The setting aside of a further £235mn for motor finance compensation barely touches the sides. Growth was seen across the major sectors – core UK retail income +16%, corporate +17% and the investment bank put its shoulder to the wheel with an 8% rise in income, with both the global markets and investment banking divisions growing. Unlike in the first half, banking fees and revenue from underwriting as well as income from advisory work were higher than last year. Some tailwinds on Wall Street but still positive. Overall, turnaround looks more than on track and investment banking was more positive than in the first half.
US earnings – industrials take over
Netflix earnings were solid enough, but shares fell 6%. Revenues met expectations, while a tax dispute with Brazilian authorities meant earnings were a touch light. But with “KPop Demon Hunters” the most popular film ever on the platform with some 325mn streams, as well as record ad revenues, it’s easy to argue that quarterly results come and go.
The standout was General Motors, which jumped 15% as it lowered its expected hit from tariffs. The company raised its annual profit forecast to $12bn-13bn from a prior range of between $10bn and $12.5bn. GE Aerospace also raised its outlook as services revenue rose 28%, notching a record high for the stock in the process.
Coca-Cola posted organic growth of 6% for the quarter as it beat forecasts – huge growth that sent the shares up 4%. Industrials RTX and 3M also posted really strong numbers. Broadening participation in the rally makes it more durable.
Finally, Zions Bancorp, the regional lender at the centre of last week's bad loan freakout, posted a strong quarter and JPMorgan raised its price target to $62 a share from $58. Shares have rebounded 12% since the low last week.
Chart: gold found support at the 23.6% retracement now having bounced clean off $4k, near its 20-day SMA. Bearish MACD crossover forming.
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