In the United States, the S&P 500 and Nasdaq had a similar day to the previous one: not much change. The S&P 500 barely moved, ending just slightly in the negative. However, the Dow Jones stood out by gaining 0.44%. This older New York index is less closely tied to the Nasdaq than the S&P 500, especially in terms of its most influential components. Its old-fashioned structure (the index is based on share price, not market capitalization) makes it less reliant on technology heavyweights. Yesterday, it was Amgen (healthcare), Boeing (aviation), and JPMorgan Chase (banking) that helped it achieve its sixth consecutive green session. In Europe, several indexes including the CAC40, DAX, FTSE and Stoxx Europe 600, have now posted four consecutive days in the green.

The markets are currently running low on momentum as we approach mid-May, mainly due to unclear monetary policy directions and the winding down of the corporate earnings season. Yesterday, I highlighted Nvidia's upcoming results on May 22 as a potential market catalyst. Before that, the U.S. inflation data for April, set to be released on May 15, will be crucial in determining the persistence of recent price increases.
 
In the meantime, let's review the first-quarter results, now that most influential companies have disclosed their financials, Nvidia being the exception. At this point, over 80% of U.S. companies and 65% of mid- and large-cap European companies have reported their earnings. As usual, we can look at this from two perspectives: absolute and relative. The absolute figures compare year-on-year changes in sales and earnings (Q1 2024 vs. Q1 2023). The relative perspective assesses how these results stack up against analysts' average expectations. The discrepancy in Q1 2024 is noteworthy.
 
In the United States, corporate earnings are increasing by 5% year-on-year (average), according to data from FactSet. This increase is influenced by a different basis of comparison and a large representation of technology companies whose earnings continued to rise, more than making up for declines in sectors like oil and healthcare. Additionally, a higher proportion of US companies have surpassed expectations compared to their European counterparts, a trend that has persisted for years. In the US, both absolute indicators (a 5% growth in earnings) and relative metrics (a majority of companies beating forecasts) show positive results

Different situation in Europe (with data from Bank of America), in absolute terms, European corporate earnings have declined by an average of 8% compared to the same period in 2023. This is significant. From a macroeconomic standpoint, it indicates that the situation is relatively stable, not overly dramatic. However, on the relative front, things look somewhat brighter: analysts had anticipated a steeper decline in earnings, around -14%. Thus, the results were better than feared:
  • corporate earnings are worse than in 2023
  • That corporate earnings are not as bad as expected.
Delving deeper, the situation isn't entirely positive. The perception of results being "not as bad as expected" is partly due to oil company earnings, which decreased less than anticipated, and to some extent from the manufacturing sector. Defensive stocks have outperformed cyclicals by a significant margin, indicating signs of an economic slowdown.

Looking ahead, analysts are anticipating a 9.6% year-on-year growth in U.S. corporate earnings for Q2 2024, almost doubling the rate seen in Q1. In Europe, a modest 1% year-on-year increase is expected for Q2 2024. While this may not seem substantial, it marks a significant improvement from the 8% decline observed in Q1.
 
Here’s the key takeaway from this set of data: analysts are optimistic that companies will boost their profits in Q2 and are forecasting growth for the entire year.
 
In other news, China has reported better-than-expected import-export figures for April, reinforcing the recent recovery in Chinese stock markets. In Brazil, the central bank has lowered its main interest rate from 10.75% to 10.50%. Meanwhile, Chinese President Xi Jinping is continuing his European visit, currently in Hungary. The Bank of England announced its decision at 7:00 am today. In Japan, the yen continues to face pressure despite interventions to stabilize it. Recently, concerns about the risk of competitive devaluation have surfaced, suggesting the potential for a new currency war in Asia.

In the Asia-Pacific region, the Nikkei 225 failed to break even. China is back on the rise, with the Hang Seng up 1.2% and the CSI300 up 0.9%. Things are more difficult elsewhere, notably in South Korea (-1.1%), Australia (-1%) and India (-0.7%). Bombay's fifth consecutive session in the red. 

Economic highlights of the day:

In the United States, Initial Jobless Claims will be published at 8:30 am. The Bank of England released its monetary policy decision at 7:00 am. Full agenda here.

The dollar returns to 0.9319 EUR and 0.803 GBP. The ounce of gold is little changed at 2312 USD. Oil rallies, with North Sea Brent at USD 84.2 a barrel and US light crude WTI at USD 79.38. The yield on 10-year US debt rebounds to 4.51%. Bitcoin trades at 61,000 USD.

In corporate news:

  • Sony Pictures Entertainment and the investment fund Apollo Global Management are considering acquiring Paramount Global for 26 billion dollars (24.23 billion euros) and dismantling the group.
  • Warner Bros Discovery is up 3.1% in pre-market trading after the group announced its intention to offer its streaming services Disney+, Hulu, and Max in a bundle to its American customers, starting this summer.
  • News Corp - the media conglomerate did not meet Wall Street's revenue estimates for the third quarter, with a sluggish advertising market and lower book sales weighing on the results.
  • Celanese - the chemical products manufacturer posted a first-quarter profit above consensus on Wednesday, thanks to a sustained increase in demand.
  • Airbnb reported a higher quarterly profit on Wednesday, but forecasts second-quarter revenue below Wall Street expectations, causing its stock to drop by 8% after the close.
  • AMC Entertainment reported a first-quarter result above consensus, but the world's largest cinema chain said the figures for the current quarter might be lower than last year.
  • Instacart forecasts for the second quarter a higher gross transaction value (GTV) and operating profit than consensus, thanks to an increase in orders and rising advertising revenue.
  • Robinhood Markets - the online broker reported a first-quarter profit above consensus on Wednesday, thanks to large volumes of cryptocurrency trading and interest rate hikes that boosted its net interest income.
  • Bumble reported a first-quarter revenue above consensus on Wednesday, driven by the growth in the number of paying users, pushing its stock up more than 9% after the close.
  • Emerson - Deutsche Bank upgrades its recommendation to "buy" from "hold" and its price target to 138 dollars from 123 dollars.
  • Truist Financial - Evercore resumes coverage of the stock with an "in-line" recommendation and a price target of 44 dollars.

Analyst recommendations:

    • Airbnb: TD Cowen maintains its buy recommendation and reduces the target price from USD 180 to USD 170.
    • Amgen: Redburn Atlantic maintains its sell recommendation with a price target raised from 170 to USD 180.
    • Ares Management Corporation: Jefferies remains at hold with a price target reduced from USD 131 to USD 127.
    • Coinbase Global: Redburn Atlantic maintains a neutral recommendation with a price target raised from USD 169 to USD 204.
    • Corpay: BMO Capital Markets maintains its outperform recommendation and reduces the target price from USD 360 to USD 350.
    • Corpay: JP Morgan maintains its overweight recommendation and reduces the target price from 337 to USD 330.
    • CRH: Kepler Cheuvreux maintains its buy recommendation and raises the target price from USD 89 to USD 94.50.
    • Ecolab: Berenberg maintains its hold recommendation with a price target raised from 180 to USD 214.
    • Entergy Corporation: Argus Research Company maintains its buy recommendation and reduces the target price from USD 135 to USD 120.
    • Hubspot: TD Cowen maintains its buy recommendation and reduces the target price from USD 700 to USD 680.
    • International Flavors & Fragrances: Redburn Atlantic maintains its neutral recommendation with a price target raised from 70 to USD 80.
    • Jacobs Solutions: Argus Research Company maintains its buy recommendation and reduces the target price from USD 174 to USD 170.
    • Lululemon Athletica: Redburn Atlantic maintains its sell recommendation with a price target reduced from USD 340 to USD 330.
    • Progressive Corporation: Goldman Sachs maintains a neutral recommendation with a price target raised from USD 219 to USD 228.
    • Skyworks Solutions: Wolfe Research downgrades to peerperform from outperform.
    • The Allstate Corporation: Goldman Sachs maintains its buy recommendation and raises the target price from USD 198 to USD 204.
    • The Trade Desk: Wells Fargo maintains its overweight rating and raises the target price from USD 110 to USD 115.
    • Uber Technologies: Fubon Securities maintains its buy recommendation and reduces the target price from USD 93 to USD 89.