Last week was mixed on Wall Street: The S&P500 gained 0.45% and the Nasdaq 100 even just 0.15%. Friday's session ended on a low note for the tech sector, with the Nasdaq 100 down 1.2% at the bell, while the Dow Jones managed a last-ditch effort to hold on to a 0.12% gain.
The Dow was saved by "old" economy, thanks to the strong results of UnitedHealth and JPMorgan Chase. Let me remind you that the world's oldest index is price-weighted, not capitalization-weighted, which means that companies with the highest share price, not capitalization, have the most influence. At USD 539 per share, UnitedHealth is in pole position, weighing in at over 9% of the Dow Jones. Its 2.6% rise on Friday did the rest. Oil stocks also contributed to performance, riding the rebound in oil prices.
The two "hottest" sectors over the past week have been oil and defense. Uncertainties over the scale of Israel's retaliation to Hamas's bloody raid, the ongoing humanitarian tragedy in Gaza and Iran's entry into the fray have heightened geopolitical tension in the region. The price of a barrel of Brent crude topped the USD 90 mark. As for companies in the arms sector, it's easy to see why they are once again popular, as they have been since the start of the Russian-Ukrainian conflict. The situation is worrying enough for Joe Biden to make the trip to Israel, after warning of the dangers of occupying the Gaza Strip. At least, that's the rumor circulating this morning.
Corporate news this week will be dominated by the accelerating pace of Q3 earnings releases. Johnson & Johnson, Bank of America, Lockheed Martin and Tesla in the US, and Rio Tinto, ASML, Nestlé, L'Oréal and Roche in Europe, among a host of others. For the time being, the picture is mixed, as I mentioned earlier: finance seems to be doing very well (high interest rates have come a long way) and consumer spending is in a tough spot. Not to forget an XXL warning from Pfizer in the healthcare sector on Friday. The American laboratory is suffering from a fall in its latest golden goose, covid vaccines. The stock lost 3.7% in after-hours trading on Friday evening. The situation seems to be quite specific to the group and should not be extrapolated to the rest of the sector.
On the weekly macroeconomic agenda, we have the publication of China's Q3 GDP, on Tuesday and the speech to be delivered by Fed boss Jerome Powell on Thursday. U.S. yields have eased in recent days, while the 10-year was almost set for a foray above 5%. It finally eased to 4.66% after surprisingly muted comments from some of America's most orthodox central bankers. Powell has the opportunity to provide some clarification to markets which believe more than ever that the Fed will not raise rates again. In other news, the US is set to tighten restrictions on China's access to cutting-edge microchip technology. This is likely to upset Xi Jinping, who will be able to discuss the matter with Vladimir Putin when the two leaders meet this week.
US stock futures were struggling for direction this morning. The New York Federal Reserve's Empire State manufacturing index, released at 8.30 am ET, dropped to negative 4.6 in October from 1.9 in September, while a reading of negative 6 was expected in the consensus.
Economic highlights of the day:
The Empire Manufacturing index is today’s main indicator. The full agenda is here.
The dollar is slightly down to EUR 0.9489 and GP 0.8220. The ounce of gold is trading at USD 1918. Oil remains high, with Brent North Sea crude at USD 91.17 a barrel and WTI US light crude at USD 88.03. The yield on 10-year US debt reaches 4.66%. Bitcoin is trading at USD 28,000.
In corporate news:
- Pfizer falls 6.5% in after-hours trading, with the drugmaker now forecasting 2023 sales of between $58 and $61 billion, compared with $67 to $70 billion previously. Moderna was down 4% after the announcement. Jefferies upgrades its recommendation for Pfizer from "hold" to "buy".
- The U.S. will take steps to prevent American chipmakers from taking advantage of a legal loophole to sell certain advanced semiconductors to China, a U.S. official said. Nvidia was down 1.2% before the opening. Advanced Micro Devices is down 0.5% before the opening.
- KKR and life sciences investor Flerie have created a platform to jointly invest in specialty pharmaceutical services, the two companies announced on Monday. KKR-owned chipmaker Kokusai Electric raised $724.4 million in its initial public offering. KKR submitted a binding offer for Telecom Italia's assets, which postulates a combined valuation in excess of 23 billion euros.
- Ford Motor announced on Friday that it would temporarily suspend work on one of the three production shifts for its F-150 Lightning electric pickup at its Michigan plant, citing multiple constraints, including supply chain problems.
- Private equity firm Apollo Global Management is looking to join the consortium that Scandinavian airline SAS chose last week to end its bankruptcy proceedings, according to a source familiar with the matter.
- Illumina said on Friday that it would sell cancer test manufacturer Grail within 12 months, under the terms of a European Commission order, if the EU Court of Justice did not rule in its favor.
- Lululemon Athletica jumps 5.2% after the close, with S&P Dow Jones Indices reporting that Lululemon will replace Activision Blizzard in the S&P 500.
- Qatar's Sheikh Jassim bin Hamad al Thani has informed the Glazer family, which controls Manchester United, that he will not improve his takeover bid, which values the club at more than $6 billion, sources said. Rival buyer Jim Ratcliffe is offering to pay more than $1.5 billion for a 25% stake in the company, sending the share price down 12.0%.
- Australian lithium producer Liontown Resources said Monday that U.S.-based Albemarle had withdrawn its $4.16 billion takeover offer.
- Sporting goods retailer Vista Outdoor said Monday it would sell its sporting goods business to Czechoslovak Group for $1.91 billion in an all-cash transaction.
Analyst recommendations:
- American tower c: RBC Capital maintains its outperform rating and reduces the target price from USD 230 to USD 193.
- Anglo amer: Morningstar upgrades to buy from hold with a price target raised from GBX 2530 to GBX 2650.
- Autozone: Citi maintains its buy recommendation with a price target raised from USD 3020 to USD 3040.
- Boeing: RBC Capital maintains its sector perform recommendation with a price target reduced from USD 225 to USD 210.
- Caterpillar inc: JP Morgan maintains its overweight recommendation with a price target raised from USD 315 to USD 320.
- Ceres power hold: Bryan Garnier & Co. downgrades to sell from strong buy with a price target reduced from GBX 1300 to GBX 200.
- Citigroup inc: Goldman Sachs maintains its neutral recommendation with a price target raised from USD 41 to USD 44.
- Clorox: Wells Fargo maintains its underweight recommendation with a price target reduced from USD 135 to USD 120.
- Colgate-palmoliv: Stifel upgrades to buy from hold with a price target reduced from USD 85 to USD 81.
- Crown castle inc: RBC Capital downgrades to sector perform from outperform with a price target reduced from USD 125 to USD 100.
- Cummins inc: JP Morgan downgrades to underweight from neutral with a price target reduced from USD 270 to USD 255.
- Dr horton: Goldman Sachs upgrades to buy from neutral with a price target reduced from USD 132 to USD 131.
- Electronic arts: BNP Paribas Exane maintains its outperform rating with a price target reduced from USD 160 to USD 155.
- Enphase energy: BMO Capital Markets downgrades to market perform from outperform with a price target reduced from USD 175 to USD 148.
- Fair isaac corp: Jefferies maintains its buy recommendation and raises the target price from USD 985 to USD 1035.
- General motors c: RBC Capital maintains its outperform rating and reduces the target price from USD 48 to USD 47.
- Haleon plc: AlphaValue/Baader Europe maintains its add recommendation with a target price of GBX 402.
- Illinois tool wo: JP Morgan maintains its overweight rating and reduces the target price from USD 265 to USD 255.
- Itm power plc: Bryan Garnier & Co. downgrades to sell from buy with a target price reduced from GBX 350 to GBX 55.
- L3harris technol: Bernstein maintains its market perform recommendation with a price target reduced from USD 210 to USD 204.
- Mitie group: Liberum maintains its buy recommendation with a price target raised from GBX 115 to GBX 125.
- Natwest group pl: Autonomous Research maintains its outperform rating and reduces the target price from GBP 3.75 to GBP 3.60.
- Nucor corp: JP Morgan upgrades to neutral from underweight with a target price of USD 151.
- Paccar: JP Morgan maintains its overweight rating and raises the target price from USD 97 to USD 105.
- Pfizer: Jefferies upgrades to buy from hold with a target price raised from USD 38 to USD 39.
- Rio Tinto plc: Morningstar upgrades to buy from hold with a price target raised from GBX 5600 to GBX 5700.
- Rs group plc: Numis maintains its buy recommendation and reduces the target price from GBX 1250 to GBX 1175.
- Sba comm: RBC Capital maintains its outperform rating and reduces the target price from USD 265 to USD 220.
- Tate & lyle: Kepler Cheuvreux maintains its buy recommendation and reduces the target price from GBX 1080 to GBX 1000.
- Trimble: JP Morgan maintains its neutral recommendation with a price target reduced from USD 62 to USD 57.
- UnitedHealth: UBS raised the recommendation to buy from neutral. PT up 19% to $640.