Carlsquare weekly market letter: Getting closer to the magic line of 5000

• The magnificent seven are still in the driver’s seat. Everyone is looking for rotation among the winners, as technology cannot be the winner forever. Consumer stocks have been the least in demand, but they can surprise on the upside…
• The S&P 500 is very close to the magic line of 5000. Two fading lights to watch are the USD and junk bonds. USD is trading up, which is a negative, and Junk Bonds are trending horizontally. But as long as the trend is positive – don’t fight the current!

The S&P 500 has reached a new all-time high:

The trend is very positive. The S&P 500 has even been pushed above the upper trading range. Note that the index needs to consolidate, but this is not in itself a sell signal. An overshoot can last a long time. The sell signal is triggered when the index breaks below e.g. the EMA9. The index is trading just below the round number 5000, which acts as a resistance and a magnet for the index.

The magnificent seven (Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA), are all in an uptrend, with Tesla being the big exception.

With the US macro coming in stronger than expected recently, the USD has started to strengthen again, giving a boost to interest rates. The market has not yet decided whether this is good or bad news for the stock market, so keep an eye on the USD and interest rates.

JUNK BONDS SIGNAL LESS MOMENTUM

A canary in the coal mine is HYG, which reflects the sentiment in the market for high-yield bonds, also known as junk bonds. It looks like a dragon, which is not a conventional formation in technical analysis, but shows that interest is waning after a strong period. The energy is now building up for a breakout. Either the market will get some good news and the momentum will come back. If not, HYG will collapse and take the market with it. A period of consolidation after the strong move higher might not be a bad thing.

TECHNOLOGY AND REAL ESTATE REMAIN TOP SECTORS

The chart above is difficult to read, but interesting nonetheless. It shows that S&P500 energy companies (XLE) continue to underperform.The leaders are real estate (XLRE), financials (XLF) and technology (XLK). It has been the same story for a long time, with the magnificent seven leading the way in the US stock market. Eventually, this will end with the stock market going down or other sectors taking the lead – or a mix of both.

It is too early to tell, but the consumer has been out of fashion for a long time.

US CONSUMER SENTIMENT AT HISTORIC LOW

Consumer confidence in the US has fallen dramatically, as shown by the Michigan consumer sentiment index. It is worth noting that a new low seems to have been reached in mid-2002 and that a more positive trend has emerged since then.

DISPOSABLE INCOME IS STILL ON THE RISE; HOWEVER

On a brighter note, disposable income in the US has returned to its long-term upward trend after a sharp decline. This gives us confidence that consumer stocks will come back.

DISCRETIONARY STOCKS ARE ON A ROLL

Consumer discretionary (IXR) is on a roll.

In the US, Amazon reported fourth-quarter sales and net income that beat analyst expectations. With a solid holiday season in Q4 2023, sales from the e-commerce business grew by 13 per cent. The cloud and computing segment also increased sales by 13 per cent.

Source: Infront and Carlsquare

The chart above shows that the Amazon stock rallied on the report. However, it has been stuck at resistance around the USD 170 level. A break above this level and USD 185-190 could be next.

Netflix beat expectations on the top line but fell slightly short on the result. The company added more than 13 million subscribers in Q4 2023, well above expectations. This was enough for investors to buy into the report. The stock may need new triggers to approach its all-time high in late 2021.

NETFLIX DELIVERED A STRONG REPORT

Although still well below 100 and therefore with plenty of upside potential, the improved consumer sentiment, in parallel with solid Q3/2023 reports from Swedish consumer stocks, has triggered a rally in consumer stocks. The consumer rally has led to solid outperformance of a basket of the 50 largest consumer stocks listed in Sweden, compared to the broader index, OMXSPI index.

Solid Q4 2023 reports from consumer companies could lead to further outperformance for the broad consumer sector.

VOLVO CARS MADE A JUMP AFTER PLAN TO DIVEST ITS JV COMPANY

Volvo Cars, which is correlated with consumer sentiment and spending, reported Q4 2023 sales in line with analyst estimates. However, net profit was slightly lower than expected. Nevertheless, the stock closed up 26%. The main reason for the positive movement was the decision to stop funding its JV company Polestar and to potentially distribute its stake in Polestar. Also worth noting are the solid gross margins for the EV segment, driven by a better product mix and lower raw material prices.

The chart below shows that the share failed to break above the MA100, which served as the first resistance. A break above and SEK 42.5 could be next. However, given the price action over the past two days, the technical risk is to the downside. A break below MA50 and EMA9, currently at 31.4 SEK, and a closing of the gap could be next.

Q4 2023 reporting season

S&P500 stocks in the US

As of Friday 2 February 2024, around 230 S&P500 companies have reported their fourth quarter results. 72% 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 is currently at 1.6%, compared to minus 1.7% two weeks ago, an improvement. Seven sectors are reporting higher earnings today compared to 31 December 2023 due to positive earnings surprises.

As can be seen in the chart below, Communication Services is the best of eleven S&P500 sectors with 44.6% annual earnings growth in Q4 2023, while Energy is the worst with a 25.9% annual earnings decline.

S&P500 Earnings Growth (YoY), Q4 2023

Source: Factset Earnings Insight

The table below shows 24 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 10.4% and the median is 4.8% for twelve reporting companies since 1 January 2024. The post-announcement price movement is 0.0% on average and minus 0.6% 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 48 major OMX companies that have submitted their Q4 2023 reports since 18 January 2024. As can be seen, 53% of Q4 results were better than expected, but only 41% of Q4 revenues were better than expected. Six out of ten companies missed expectations for new orders.

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 24 OMX companies that have reported their Q4 2023 results since Wednesday 31 January compared to the corresponding consensus estimates.

Week Ahead

Reports on Wednesday, 7 February: Handelsbanken, Lindab, Assa Abloy, Bilia, Securitas, Addtech, AAK, Clas Ohlson (January sales figures), Fabege, Telenor, Fortum, Carlsberg (operational update), Equinor, Lundbeck, Pandora, Rockwool, Sanoma, Storebrand, Valmet, Vestas, Örsted, Alibaba, CVS Health, Disney, Paypal and Softbank.

German industrial production in December is due at 8.00 CET. The Swedish Riksbank publishes the minutes of the monetary policy meeting on 31st January at 9.30 CET. From the United States, we get the December trade balance and oil inventories (DOE), weekly statistics.

Reports on Thursday, 8 February: Astra Zeneca, Bio Arctic, Boliden, Bufab, Fastpartner, MTG, New Wave, Pandox, Wallenstam, Aker Solutions, SpareBank 1 SR-Bank, Metsä Board, Aker BP, ALK Abello, Alm Brand, Atea, D/S Norden, Elkem, Fiskars, GN Store Nord, Huhtamäki, Maersk, Neste, Orkla, Outokumpu, Veidekke, ConocoPhilips, Unilever, Philip Morris and S&P Global.

Japan’s current account balance for December is due at 0.50 CET. China’s CPI and PPI for January will be released at 14.30 CET. From the United States, we get initial jobless claims and wholesale inventories for July.

Reports on Friday, 9 February:  Sweco, Saab, Skanska, Medicover, Thule, Balder, NP3, Coloplast, Yara, DFDS, Entra, Kemira, Enbridge and PepsiCo.

Statistics Sweden starts at 8.00 CET with the release of household consumption and industrial orders for December and the production value index for January. German CPI figures for January are due at the same time. From Canada, employment figures for January are due at 14.30 CET.

Reports on Monday, 12 February:  Ratos, Alimak, Arista Networks, Cadence Design Systems and Waste Management.

At 17.00 CET, we get the US Household Inflation Expectations.

Reports on Tuesday, 13 February: Wihlborgs, Mandatum, Orion, Coca-Cola, Mariott International, Moody’s, Shopify and Zoetis.

The UK unemployment rate for December is due at 8.00 CET. This is followed by Opec’s monthly oil report and Germany’s February ZEW index. From the United States, we get the NFIB small business index and CPI for January, weekly Redbook retail sales data and oil inventories (API), weekly statistics.

Valuation tables, Swedish Equities

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.

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