Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Election drama, Tesla bounce, and earnings kick-off
US Election 2024 5 minutes to read
Peter Garnry
Chief Investment Strategist
Key points
- Tesla: Small beat, big gains: Tesla's Q2 deliveries of 443,956 exceeded estimates, boosting shares by 23% despite weak overall demand, with investors hopeful about the upcoming robotaxi event on 8 August.
- French stocks rebound on hung parliament scenario: French equities rose 2.2% this week as first-round election results suggest a hung parliament, calming market fears and benefiting French banks and insurance stocks.
- Biden enters critical weekend: President Biden's poor debate performance has led to panic in the Democratic Party, with discussions about a new candidate intensifying as Biden's chances of winning appear to diminish.
- UK election result could result in repricing of UK equities: Labour's landslide victory in the UK election is expected to bring political stability, which could positively impact UK equity valuations.
- Next week: US CPI and Q2 earnings season kick-off: Key upcoming events include the US June CPI report and the start of the Q2 earnings season, which could influence market expectations on Fed rate cuts.
Tesla: Small beat, big gains
Tesla shares are up 23% over the past week as the EV maker reported Q2 deliveries of 443,956 beating estimates of 439,302. While EV deliveries are still down 5% YoY the EV production was down 14% YoY signalling weak demand persists in the EV industry. Investors did not pay attention to this fact but instead the small beat creating the hope that Tesla is past the worst. If momentum continues it could extend all the way to its 8 August robotaxi event which is the next catalyst for Tesla shares.
French stocks rebound on hung parliament scenario
The French first-round election results have calmed the market about French equities which are up 2.2% this week after weeks of negative sentiment. The reasons is that the election result and subsequent polls are suggesting a hung parliament which potentially keeps status quo. French banks and insurance stocks have been the biggest winners. For more in depth analysis of the French election and what it means for French equities read our analysis French election: Is this a new Meloni moment for Europe? Biden enters critical weekend
This week has been all about the Biden to pull from presidential ticket narrative fuelled by a disastrous first presidential debate against Trump. Biden’s poor performance has sparked a panic in the Democratic Party and intensified discussions about finding a new candidate to run for president at the election in November. As the PredictIt market is showing the probability of a Biden victory has plunged to around 20% compared to Trump’s implied probability of 58%. Biden has an important ABC interview tonight at 8 p.m. EDT (Eastern Daylight Time) which is 2 a.m. CEST (Central European Summer Time). Depending on his performance and whether the party can control the unfolding narrative that Biden is not up for the task this weekend will be critical for Biden.
UK election result could result in repricing of UK equities
Labour delivered a landslide victory, 409 seats in latest count vs 119 seats for Conservative, in the UK election due to how the UK electoral system works. Measured on popular vote Labour got around 33.8% vs 23.7% for the Conservative Party. The election turnout came in at only around 60% which is lowest in many decades. Yes, Labour got a landslide victory, but it is not an outright clear popular mandate. However, the outright majority means that the political landscape might provide UK with the political calmness it needs. It could turn out to be a blessing for UK equities as lower political uncertainty tends to have a positive impact on equity valuations. Back in July 2023 we highlighted the attractiveness of UK equities in our analysis UK equities offer high expected returns for the bold investor. As the table below shows, the long-term expected real rate return for UK equities is very high relative to European and US equities. UK equities have a dividend yield of 4% and buyback yield of 1.9% in addition to low real earnings growth expectations.
Week ahead: US CPI and Q2 earnings season kick-off
Macro will dominate the week ahead trading action and below we highlight the key events to watch.
- US CPI: On Thursday the US reports June CPI with economists expecting core CPI MoM at 0.2% unchanged from May. The headline CPI YoY is expected at 3.1% down from 3.3% in May. Another month of low inflation could bolster the market’s bets on Fed rate cuts this year which are currently at two rate cuts by the December meeting.
- Earnings: The Q2 earnings season kicks off. Key earnings to watch in the week ahead are Kongsberg Gruppen (Wed) which is part of the European defence theme, Delta Air Lines (Thu) which is part of the travel industry and a good read on business sentiment, and finally JPMorgan Chase (Fri) which is the world’s most global bank and also a good indicator on the global economy.
Previous weekly equity market updates
- US election heats up, Alfen rout, and Micron earnings (28 June 2024)
- French election, king Nvidia, and FedEx earnings (21 June 2024)
- Tech rally, inflation surprise, and EU trade war (14 June 2024)
- AI bonanza drives new highs and dangerous index concentration (7 June 2024)
- Chinese setback, AI woes, and ECB decision (31 May 2024)
- Nvidia earnings, electrification boom, and bubbles (24 May 2024)
- New all-time high on speculative stocks comeback (17 May 2024)
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