The beginning of the earnings season comes at a time when the world remains deeply entrenched in ongoing geopolitical turmoil in the Middle East. Over the past week, this conflict has cast a shadow over the markets, leading to a surge in investments in safe-haven assets as investors adopted a cautious stance to observe how the situation unfolds.
Market Dynamics
The S&P 500 saw a modest uptick last week, closing with a gain of 0.45%. The energy and utilities sectors emerged as top performers, with surges of 4.51% and 3.61%, respectively. This performance can be attributed to the increasing concerns among investors regarding the potential involvement of more countries in the Middle East conflict. The Nasdaq Composite faced some headwinds, as it saw a weekly decrease of -0.18% in its performance.
Earnings Season
Last week, the three largest banks in the United States released their earnings reports, revealing strong and positive results. JPMorgan, for another quarter, posted record-breaking net interest income while raising its forecast, capitalizing on net interest income and its acquisition of First Republic Bank.
Wells Fargo also hiked its annual earnings forecast, aligning with its robust revenue performance from NII.
Citigroup's Fixed Income, Currencies, and Commodities trading segment delivered outstanding results, marking their best third quarter in at least eight years and surpassing analysts' revenue expectations.
Source: Bloomberg
LVMH shares saw a decline following the company's report of a slowdown in sales growth for the third quarter. Delta shares rose in premarket trading after beating earnings per share (EPS) expectations and announcing strong expectations for holiday bookings. Walgreens Boots shares dropped as the company's profit outlook failed to meet expectations.
Next week, Netflix and Tesla are set to release their earnings reports. These two companies, along with tech giants such as Apple, Microsoft, Alphabet, Amazon, and NVidia, collectively account for a significant 25% of the S&P 500's total market capitalization.
After implementing significant job cuts, these five tech giants are expected to see their profit levels rebound to pre-pandemic levels. According to analysts at Bloomberg Intelligence, they are projected to increase by 34% compared to the previous year.
Source: Bloomberg
The rest of the benchmark appears relatively flat, according to analysts' forecasts, as interest rates surge and Treasury yields reach levels not seen in over a decade. The 13% advance in the S&P 500 this year has been primarily driven by the five major tech companies.
In the upcoming week, we can expect more earnings releases, including Goldman Sachs, Bank of America, American Express, Johnson & Johnson, Procter & Gamble, and others.
Economic highlights
The Consumer Price Index (CPI) in the US came higher than expected, both in the headline CPI and the core CPI (excluding volatile food and fuel). Analysts attribute this higher-than-expected result primarily to a more than 7% increase in shelter costs. Excluding this factor, the current CPI is in close proximity to the Federal Reserve's target of 2%. Despite this data, the news triggered a market selloff.
Source: Bloomberg
Commodities
The possibility of a global economic downturn is on the horizon if conflict in the Middle East drive oil prices to higher levels. Should Iran become involved, there's potential for oil to climb to $150 per barrel, which could lead to a significant reduction in global growth, possibly down to as low as 1.7%. This scenario may result in an economic downturn that trims approximately $1 trillion from the world's economic output, as reported by Bloomberg.
Oil slide on Monday after surging about 6% on Friday, with crude's timespreads continuing to suggest short-term strength.
Source: Bloomberg
Copper declined for the second week, facing headwinds from rising inventories and inflation results. Iron ore, continued fourth consecutive weekly decline, marking its longest losing streak in a year. Gold gained.
Corporate news
Exxon has reached an agreement to acquire Pioneer for $59.5 billion, making it the biggest corporate takeover of this year. In this all-stock deal, Exxon will pay $253 per share. If this deal comes to fruition, it will significantly boost the company's overall production to almost 4.5 million barrels of oil equivalent per day. This output would surpass that of the next largest supermajor by a 50%.
Novo Nordisk has reported early effectiveness in a kidney failure study of its diabetes drug Ozempic. This development had a negative impact on Fresenius, a dialysis provider, as its stock tumbled in Frankfurt.
Ex-Arm employees in China started a government-backed chip design house that some investors fear may divert revenue from Arm that was recently floated at the Nasdaq.
Newmont received approval from Newcrest shareholders for its $15 billion acquisition, marking the largest takeover in the gold sector's history.
The $64b bid of Activision Blizzard by Microsoft is expected to receive clearance from the FCA following revisions to the deal that have addressed the FCA's concerns.