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Carlsquare weekly market letter: Time for the Magnificent Seven to set the tone

  • The correction in equities was triggered by expectations that interest rate cuts would be pushed further into the future.
  • So far, earnings have been better than expected (as usual), but the price reaction has been modest.
  • The market is in correction mode after the October bull run. Reports from Mag 7 will have the energy to fuel the rally again, so please stay tuned.

A correction initiated by higher inflation

The broad US S&P 500 index has been trading in a narrow uptrend since the end of 2002. Looking at the chart, it almost looks as if the index has been trading along an artificially created straight line. However, in late March/early April the index entered a correction phase. The correction was triggered by a number of factors, including heightened geopolitical tensions in the Middle East, which led to a sharp rise in oil prices and hampered the performance of equities.

However, perhaps the most important trigger for the correction was the hotter than expected inflation data, which pushed yields higher and caused the market to bring forward its expectations for Fed rate cuts.

Looking at the pricing of Fed Funds futures, a June rate cut is priced in at 16.8%. A month ago, the probability of a June cut was priced in at 75.6%. Now, expectations for the first US rate cut have been pushed forward to September.

The correction has been led by the technology sector, including stars such as Nvidia and Microsoft, which have also been crucial to the rally.

Q1 2024 earnings season, so far better than expected

Is the correction just the start of a bigger sell-off? Well, the oil price has come down, which is supporting equities. And, perhaps even more critically, earnings season is upon us. As of 19 April 2024, around 70 of the S&P 500 companies (14% of all companies) had reported their Q1 2024 results. The table below shows that 74% of the S&P500 companies have reported positive earnings surprises.

Looking at the 33 major US companies that reported quarterly results last week, the average earnings per share surprise is 11.1%, and the median is 7.3%. Despite that, the post-announcement price movement was, on average, 0.8% an on median 0.7%.

Source: Zacks Research and Carlsquare

On the other hand, our beloved Spotify was well rewarded, closing up 11.4% after its Q1 results. Profits were at a record high, with a solid margin improvement after cost cuts. Guidance for the coming quarter was also positive. Monthly active users are expected to increase by 16 million to 631 million. Gross margins are also expected to improve.

As can be seen from the chart below, the Spotify stock did close the gap, but far from its intraday highs. The likelihood of the gap closing can therefore be considered higher than the probability of the gap being a so-called runaway gap followed by a continuation of the stock’s uptrend.


Source: Infront and Carlsquare

 ASML Holding, a supplier of equipment to the semiconductor industry, was not so lucky. After beating earnings expectations, the stock fell for three days in a row on lower-than-expected sales. Forward guidance was unchanged.


Source: Infront and Carlsquare

Yesterday, after the US market closed, Tesla reported lower-than-expected earnings and sales. However, comments about accelerating new model launches sent the stock up by 13% in after-hours trading.


Source: Infront and Carlsquare

In the Swedish OMXS30 index, five industrial companies have reported Q1 results. Three of them (Volvo, ABB and Munters) beat expectations, while two (Sandvik and Epiroc) missed analysts’ estimates.

Demand continued to normalise at a good level in many of the Volvo Group’s markets in Q1 2024. Volvo’s sales in Q1 2024 were approximately the same as in Q1 2023. Sales increased in the Americas, but declined in Europe, Asia and the rest of the world.

Volvo Trucks’ net order intake decreased by 19%. Net orders for trucks fell by 20% in Europe, 37% in North America and 23% in Asia. However, they increased by 52% in South America.

Source: Volvo Group

The volume forecasts for the truck market to 2024 remain largely unchanged, with only minor revisions for the truck markets in Brazil (+5,000 units) and India (-35,000 units). For the world market, this represents a volume decline of -1.6%.

Volvo Construction Equipment states that the global machine market was flat or negative in most regions in Q1 2024. In Asia excluding China, the construction equipment market was at the same level as in Q1 2023, while it declined in Europe, North America and China.

ABB reported a strong book-to-bill ratio, driven by Electrification and Motion. Short-cycle products showed low single-digit growth. Demand from utilities and data centres was strong in all regions. Robotics declined in the automotive, general industry and consumer segments. Machine automation declined as design lead times normalised. And there was a decline in the process segment, partly explained by very difficult comparables.

In transport and infrastructure, demand was positive in marine & ports and rail. Demand for commercial buildings was solid, stronger in the US and slightly weaker in the rest of the world.

ABB’s outlook for Q2 2024: “ABB expects mid-single-digit year-on-year growth. Operating EBITA in Q2 2024 is expected to be slightly higher than in Q1 2024”.

ABB’s outlook for FY2024: “ABB expects comparable revenue growth of around 5%, with a book-to-bill ratio of more than 100%. The company expects an EBITA margin of 18% in FY2024, the same as in Q1 2024”.

Sandvik’s total order intake decreased by 5%, excluding currency and acquisition effects. Order intake decreased by 7% in Mining and Rock Solutions and by 3% in Manufacturing and Machining Solutions.Excluding currency and acquisition effects, Sandvik Group sales decreased by 5% in the first quarter.

Underlying EBITA decreased by 14% to an EBITA margin of 18% in the first quarter, compared to 20% in the first quarter of 2008.

Sandvik sees good demand in the aerospace and mining segments, but a mixed picture in the manufacturing industry. In manufacturing, Sandvik sees a weak market situation in Germany, continued stable demand in the US and signs of recovery in China.

Source: Sandvik.

Sandvik’s outlook for the rest of 2024: “Looking beyond the dynamics of the first quarter, we see a stable to positive trend in customer sentiment and a continued willingness to invest. Leading indicators point to a positive development. Various purchasing managers’ indices are improving. Prices of key metals are supportive at high levels”.

In an interview following the Q1 2024 report, CEO Stefan Widing said that improving economic conditions in China is key to boosting German exports and, by extension, Europe.


Source: Avanza, SME Direkt and Carlsquare.

59% of the 22 OMX companies that had reported by Tuesday 23 April reported better-than-expected results. Meanwhile, only 41% beat sales forecasts. More encouragingly, order intake was better in four out of seven cases (57%).

The next table shows the 22 OMX companies that have reported since 27 May and their Q1 2024 earnings, sales and order intake compared with expectations.

Source: SME Direkt, Avanza and Carlsquare.

Time for Magnificent Seven to shine

Few in the financial community have missed the “Magnificent Seven” – a group of high-performing tech stocks: Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla.

The Magnificent Seven are also tech giants with heavy weights in the major US indices. Specifically, they account for 29% of the S&P 500 index, 40% of the Nasdaq 100 and around 15% of global equity market capitalisation. As a result, they largely control the direction of the indices and, indirectly, market sentiment.

Tesla was the first of the Magnificent Seven to report. Next is Meta, which is due to report after the close today. Microsoft and Alphabet are due to report after the close on Thursday 25th April. Nvidia’s next quarterly report is due on 22 May.

The market is still in an overall strong trend, but is now in a correction. The MA20 on the weekly chart is currently providing support.

Zooming in on the daily chart, the MA100 acted as support as the reporting season began. Is this a traditional V-shaped bottom that we have seen the beginning of? We are more inclined to see a lower high and a fresh test to the downside once the reporting season is over. But there are a lot of forces at play, so let us take it one day at a time.

We will take a break from the weekly letter next Wednesday, 1 May, which is a public holiday in Sweden and many other countries. We will be back with the weekly letter on Wednesday 8 May.

Happy trading!

Week Ahead

Reports on Wednesday, 24 April:  Handelsbanken, Assa Abloy, Billerud, Husqvarna, SEB, Volvo Cars, Electrolux PRO, Evolution, Kindred, Lifco, MTG, Scandic Hotels, Wallenstam, Atlas Copco, SSAB, Trelleborg, Aker BP, DSV, Nordic Semiconductor, Kone, Norsk Hydro, Storebrand, Valmet, AT&T, Boeing, Boston Scientific, Ford Motor, General Dynamics, IBM, LAM Research, Meta Platforms, ServiceNow, Thermo Fisher Scientific, Waste Management.

The German IFO index for April will be released at 10.00 CET, followed by the CBI April industrial trends in the UK at 12.00 CET. From the United States, we get March Durable Goods Orders and weekly oil inventories (DOE).

Reports on Thursday, 25 April: Axfood, Essity, Pandox, Swedbank, Telia, Addnode, Fabege, Gränges, Indutrade, NCAB, Stora Enso, Astra Zeneca, OX2, Tietoevry, AAK, Alfa Laval, Catena, Alimak, Biotage, Bufab, Byggfakta, Fortnox, New Wave, Aker Solutions, Gjensidige Forsikring, Kesko, Norwegian, Huhtamäki, Sparebank 1 SR-Bank, Subsea 7, UPM, Metsä Board, QT Group, Atea, D/S Norden, Equinor, Fiskars, Kesko, Konecranes, Metso, Neste, Orion, Pareto Bank, Barclays, Deutsche Bank, Drägerwerk, Pfeiffer Vacuum, Schneider Electric, Alphabet, Bristol Myers Squibb, Caterpillar, Comcast, Gilead Sciences, Honeywell International, Intel, Merck, Microsoft, TMobile US and Union Pacific.

Swedish PPI for March and German GfK Consumer Confidence for May are due at 8.00 CET. 45 minutes later, French industrial expectations for April are due. From the US, we get Q1 GDP (forecast), weekly jobless claims, March wholesale inventories, March home purchases and the April Kansas City Fed index.

Reports on Friday, 26 April:  Diös, SKF, Betsson, Holmen, Saab, Medicover, Thule, Electrolux, Engcon, Hexagon, SCA, Traton, Autoliv, Hexpol, Beijer Alma, XXL, Yara, Kemira, Schibsted, Tomra, Wärtsilä, Abbvie, Chevron, Colgate Palmolive, Exxon Mobil and HCA Healthcare.

Friday begins with the Bank of Japan’s interest rate announcement at 6.00 CET. Statistics Sweden’s trade balance and household credit for March are due at 8.00 CET. 45 minutes later, France releases its Household Confidence Indicator for April. The US will release March private consumption and inflation (PCE) and the April Michigan index.

Reports on Monday, 29 April:  Ratos, Nokian Renkaat, Philips and NXP Semiconductors.

We start with Sweden’s GDP for Q1 2024 and March retail sales at 8.00 CET. Spain’s CPI for April will follow an hour later. At 11.00 CET it is time for the eurozone’s barometer indicator for April. Italy’s Q1 GDP is due at 12.00 CET and Germany’s CPI for April at 14.00 CET. From the United States, we get the Dallas Fed index for April.

Reports on Tuesday, 30 April: Arion Bank, Telenor, Fortum, Cargotec, Carlsberg (operational update), Schouw&Co, Eaton, Mercedes-Benz, Volkswagen, Advanced Micro Devices, Amazon, American Tower, Coca-Cola, Eli Lilly, Illinois Tools Work, Marathon Petroleum, McDonalds, Paccar, Paypal, Starbucks, Stryker, 3M and Samsung.

Japan’s March unemployment rate, industrial production and retail sales will be released first. China will then release its April PMI. Q1 GDP is due from Germany, France, Italy and Spain. Germany’s March Retail Sales and Import Prices and April Unemployment will be released. April CPI from France and Italy are also due. From the US we get Q1 labour costs, Redbook retail sales, weekly data, S&P/CS and NABH house price index for February, Chicago PMI and household confidence indicator for April and weekly oil inventories (API).


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.

Carlsquare weekly market letter: Time for the Magnificent Seven to set the tone