Carlsquare weekly market letter: All eyes on Nvidia!

• With positive earnings from rivals such as AMD, SMCI and TSMC, expectations are high ahead of Nvidia’s report this evening. The options market is signalling a move of around +11%, which is a huge number for a blue chip!
• President Biden is still not improving in the US election. Either he backs down or Janet Yellen and her team must step up with more spending to improve the economy. The latter would be good for equities.

The AI race began with the open launch of ChatGPT in November 2022. It didn’t take long for ChatGPT to gain popularity. Just five days after its launch, it surpassed 1 million users. Two months later, in January 2023, the application had around 100 million monthly active users, according to a UBS study.

NVIDIA was a stock that benefited from the AI trend, as you can see in the chart above. AI is not really a new topic, but suddenly everyone had to have an AI strategy and apply it to their business. This new anticipated demand created a boom for companies that could deliver on AI in one way or another.

Since then, the market has been driven by the magnificent seven stocks in the US, where most of which are also riding the AI wave.

Nvidia reports tonight and with rivals such as AMD, SMCI and TSMC posting strong numbers, investors’ high expectations will be put to the test.

Last week we wrote that Nvidia had reached a point where the likelihood of a collapse was approaching, just by gravity alone.

Last week we drew the blue line and said that the parabolic move was not sustainable. Now it has broken and yesterday the stock fell by 4%. Today’s Nvidia report will be the breakpoint for the whole stock market. However, the whole market does not have to collapse on a negative Nvidia result. In fact, it could create some market opportunities.

At the start of the year, we argued that both the Janet Yellen administration and the Jerome Powell Fed would likely to support the market with liquidity to help Biden defeat Trump in the November 2024 presidential election.

We can now see that Biden is still well behind Trump.

Donald Trump is 11/10 to win, compared to 5/2 for Joe Biden.

Looking at Gallup’s job approval rating, the odds are not in Joe Biden’s side either. There is a high correlation between the approval rating in January and the approval rating in November when the election takes place.

Either Joe Biden, Jane Yellen will be even more active to get the trend right in the United States. If you look at the numbers, it is not too bad.

US GDP is improving again and the Fed is forecasting a continued growth path.

Inflation is falling.

The problem is still disposable income. As long as people feel poor, it does not matter what the statistics say.

The Fed put is also still in place. The term “Fed put” refers to the concept that the Fed tends to intervene in times of crisis, acting as a safety net to support the economy and financial markets. Knowing that Jerome Powell is close to Janet Yellen and that Trump and Powell do not get along, it is easy to see that the Fed might be tempted to step in if the stock market falls. 

The S&P 500 has reached the ceiling of its long trend. Within that it also trades in a coil. If this breaks a test of the MA50 and the lower Bollinger bands lies within the cards.

Nvidias report will be telling. A part from that also the Fed minutes and a auction of 20 year US Treasury bonds is on the tablet today.

Happy trading!

Q4 2023 reporting season

S&P500 stocks in the US

As of Friday 9 February 2024, around 395 S&P500 companies have reported their fourth quarter results. 75% of S&P companies have reported a positive EPS surprise and 65% have reported a positive revenue surprise.

For the fourth quarter of 2023, earnings growth for S&P500 companies has risen to 3.2%, up from 2.9% a week ago and 1.6% two weeks ago.

For Q1 2024, 59 S&P500 companies have issued negative EPS guidance  and 26 S&P500 companies have issued positive earnings guidance.

S&P500 SECTOR-LEVEL REVENUE GROWTH Q4 2023

Source: Factset Earnings Insight

The top three S&P500 sectors in terms of EPS versus estimates are Information Technology, Energy and Industrials with 89%, 87% and 83%, respectively, beating estimates. Materials, Financials and Real Estate were the worst performers, with only 67%, 61% and 55% of Q4 2023 results beating expectations.

The table below shows ten major US companies that reported quarterly results for Q4 2023 last week, along with the actual and expected EPS, the percentage deviation and the post-announcement price movement. The average EPS surprise is 10.0% and the median is 4.9% for 97 reporting companies since 1 January 2024. The post-announcement price movement is minus 0.5% on average and minus 1.0% on median.

Below we have listed the market’s earnings per share expectations for each company and the date of each interim report for the coming week.

OMX stocks in Sweden

Carlsquare has compiled the results, revenues and order intake compared to expectations for 86 OMX companies that have submitted their Q4 2023 reports since 18 January 2024. As can be seen, 51% of Q4 results were better than expected, while 49% of Q4 revenues exceeded expectations. Seven out of 13 companies missed expectations for new orders.

Q4 2023 OUTCOME VERSUS EXPECTATIONS FOR OMX COMPANIES

Sources: Avanza, Bloombergs, Carlsquare, Direkt och Infront.

The following table shows the deviation (in percent) of the earnings, sales and order intake results of the twelve OMX companies that have reported their Q4 2023 results since Wednesday 14 February compared to the corresponding consensus estimates.

Week Ahead

Reports on Wednesday, 21 February: Nyfosa, Corem, Engcon, OX2, Better Collective, Lundin Mining, Chr Hansen (operational update), FL Smidth, Jeudan, NKT, HSBC, Analog Devices, Rio Tinto, Nvidia, Suncore and Synopsys.

We start with Japan’s January trade balance at 0.50 CET. UK CBI industrial trends for February is due at 12.00 CET. A eurozone household confidence indicator for February will be released at 16.00 CET. From the United States, we get oil inventories (DOE), weekly statistics and the minutes of the FED’s meeting on 31st January.

Reports on Thursday, 22 February: Catena, Bure, Lundbergs, Lundin Gold, Sagax, ISS (operational update), Mercedes-Benz, Booking Holdings, EOG Resources and Intuit.

Thursday will be dominated by the February PMIs from Japan, France, Germany, the Eurozone, the UK and the US. France will also release its industrial expectations for February and Italy its January CPI. January CPI is also due from the Eurozone. The minutes of the ECB meeting on 25 January will be released. The US will contribute with initial jobless claims, existing home sales for January and weekly oil inventories (DOE).

Reports on Friday, 23 February:  Stendörren and Berkshire Hathaway.

Friday starts with China’s house price index for January at 2.30 CET. At 8.00 CET, Q4 2023 employment and construction statistics from Statistics Sweden are due. Germany brings us GDP for Q4 2023 and the IFO index for February at 8.00 and 10.00 CET respectively. From the Euro zone, we get Household Inflation Expectations at 10.00 CET.

Reports on Monday, 26 February:  Workday

From the United States, we will get new home sales for January and the Dallas Fed index for February.

Reports on Tuesday, 27 February: Millicom, SBB, Jyske Bank, Zealand Pharma, American Tower and Dell Technologies.

We start with Japan’s CPI for January at 0.30 CET. Statistics Sweden’s Household Lending for January and Germany’s GfK Consumer Confidence for March are due at 8.00 CET. The French Household Confidence Indicator for February is due at 8.45 CET. From the US, we get durable goods orders for January, Redbook retail sales, weekly data, S&P/CS and FHFA house price index for December, household confidence indicator for February, Richmond Fed index for February and oil inventories (API), weekly statistics.

Disclaimer:

The information in this presentation is based on what the publisher, Carlsquare, believes to be reliable sources. However, we cannot guarantee its content. Nothing in the presentation should be construed as a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the presentation are for the recipient’s use only. The contents may not be copied, reproduced, quoted, or distributed to anyone else. Carlsquare shall not be liable for any loss arising from any decision taken based on the information contained in this presentation. Past performance should not be taken as an indication of future results. Changes in foreign exchange rates may affect the value, price or income of an investment made abroad or in a foreign currency.

The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be distributed to such persons. The analysis is not intended for natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.