Carlsquare weekly market letter: Weight loss, defence and emerging markets in focus as market seeks next leg up

• With the S&P 500 at its peak, the union of the Magnificent Seven has broken down. As a result, people are looking for alternatives. What can be the next leg of this equity rally?
• Emerging markets, commodities, life sciences and defence are candidates. Also a new acronyms is getting popular as “The Fantastic 4” and “The Granolas”!?

We are entering a new phase in the stock market as the union of the seven greats in the US has broken down. Tesla has been down for a long time. But when Google/Alphabet starts to test the bottom, it is a grim signal that nothing can climb to the top.

The overall trend in the market is still up, up and away. The energy is coming from lower interest rates and investment in the technology sector, with the focus on AI. With P/Es in many cases exceeding 40, comparisons to 2000 and other crashes are becoming more frequent. But one thing we have learned is that bubbles, when they are bubbles, tend to last much longer than people think. It is better to ride the wave than to sit on the sidelines and be bitter. But it is always prudent to have the ability to check out when the market turns sour.

There is a rising wedge on the daily chart of the S&P 500. Note that this formation usually breaks out on the downside. However, as there are no sell signals yet, it is more of a warning than a sell signal.

Looking at Google/Alphabet we can see some fatigue. The lower Bollinger Band and the MA100 are being tested. The MACD is also giving a sell signal. The background of the last few days comes after reports that Google is falling behind in the AI race. Of course, it is too early to draw any conclusions from this race, but since NVDA is the crown jewel at the moment, some people may be inclined to sell Google and NVDA on this story.

Apple’s chart does not look healthy either as it has broken below the MA200. Apple has rallied strongly before, but it is clear that the stock has lost its lustre for the moment.

This is a breakdown of the Magnificent Seven.

NVDA still leads the pack. The parabolic move ended in a crash, but the stock was saved by another stellar quarterly report.

People are now starting to write articles about the Fantastic 4, as in Amazon, Google, Meta, Microsoft,

https://www.livewiremarkets.com/wires/fantastic-four-is-the-new-magnificent-seven

In Europe, we have an equivalent in Granola. The latter consists mainly of Europe’s largest stocks with a focus on life sciences, technology, food and luxury goods: GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH Moët Hennessy, Louis Vuitton LVMUY, AstraZeneca, SAP and Sanofi.

https://www.morningstar.com/stocks/europes-version-magnificent-seven-cheaper-diversified-profitable

The performance of the Granola Index is stable.

Looking at individual stocks, life sciences is the engine, with Novo Nordisk leading the way.

Going back to the US and looking at the crowded chart above, XLC, which represents communications services, is still in the lead (only one in green). Two other sectors in the same area are XLF – Financials and XLK – Technology.

The runner-up is XLV – Life Sciences. One thing that stands out is that healthcare stocks are on the move. This is a sector that is traditionally weak in US election years, when spending is easy and welcome.

But everyone agrees that interest in the life sciences is growing. We are all getting older and, on average, fatter. With better finances, we are willing to spend more on health. The latest craze, of course, is treatments for the obesity epidemic. Novo Nordisk is a global star in this field. Competitors such as Zealand Pharma and Viking Therapeutisk are also hot.

The latter soared 100% yesterday on the back of new data.

Defence stocks are also in the spotlight. The general public has begun to realise that the period of relative peace that followed the fall of the wall between East and West in Europe is now over. We are entering a new period of instability that will increase the demand for defence in the coming decade. With all the new tactics in Ukraine, it is still hard to pick the winners, but from a macro perspective the trend is clear.

Emerging markets are also in the spotlight as the US markets outperformed the rest of the world last year.

China is coming back (SSEC Shanghai chart above), showing that the Chinese government has been able to regain control of the financial markets. This is being done through both stimulus and regulation. One new rule is that you can no longer be net short at the open and close of the day. (The only people allowed to sell are the government guys?).

The surge in China is also giving a boost to cryptocurrencies, such as Ethereum above.

Agriculture has also become a popular sector again.

Happy trading!

Q4 2023 reporting season

S&P500 stocks in the US

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 9.8% and the median is 5.0% for 106 reporting companies since 1 January 2024. The post-announcement price movement is minus 0.4% on average and minus 0.7% 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 90 OMX companies that have submitted their Q4 2023 reports since 18 January 2024. As can be seen, 52% of Q4 results were better than expected, while 51% 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 four OMX companies that have reported their Q4 2023 results since Wednesday 21 February compared to the corresponding consensus estimates.

Week Ahead

Reports on Wednesday, 28 February: Golden Ocean, Leroy Seafood, Royal Unibrew, Sydbank, Monster Beverage, Salesforce and TJX Companies.

Statistics Sweden will publish the trade balance and PPI for January at 8.00 CET. The Swedish NIESR economic barometer för February is due one hour later. At 11.00 CET we get the eurozone’s barometer indicator for February. From the United States, we get Q4 GDP, January trade balance and wholesale inventories, as well as DOE weekly oil inventories.

Reports on Thursday, 29 February: Cibus, Elekta, Adevinta, Frontline, NTG Nordic Transport Group, Subsea 7, Dell Technologies, Polestar and AnheuserBusch InBev.

We start the day with Industrial Production and Retail Sales in January from Japan at 0.50 CET. At 8.00 CET, Statistics Sweden will release Q4 GDP and January Retail Sales. At the same time, we also get German Retail Sales for January. 45 minutes later, France will release Q4 GDP and February CPI. Spain’s CPI for February is due at 9.00 CET and Germany’s unemployment rate for February at 9.55 CET. After lunch we will get German CPI for February and Canadian GDP for Q4. From the United States, we get January personal consumption and inflation (PCE), weekly jobless claims, as well as February Chicago PMI and Kansas City Fed index.

Reports on Friday, 1 March:  Schouw & Co and Daimler Truck.

Friday’s first macro news will be Japan’s January unemployment rate at 0.30 CET.The rest of the day will be dominated by February manufacturing PMIs from Japan, China, India, Russia, Sweden, Spain, Italy, France, Germany, the Eurozone, the UK, Brazil and the US. We also get February CPI from Italy and the eurozone. The US also contributes with construction investment in January and the Michigan index in February.

Reports on Monday, 4 March:  –

At 8.00 CET, Statistics Sweden brings us foreign trade in services for Q4 2023. From the Eurozone at 10.30 CET we get Sentix investor confidence for March.

Reports on Tuesday, 5 March: Systemair, Traton, Bayer, Target and CrowdStrike.

On Tuesday, 5 March, the macroeconomic agenda is dominated by the February services PMIs from Japan, China, Sweden, Spain, Italy, France, Germany, the Eurozone, the UK and the US. At 8.45 CET we get France’s industrial production for January. At 11.00 CET we have the Eurozone PPI for January. From the United States, we also get the weekly Redbook Retail Sales, January Industrial Orders and API Oil Inventories, 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.