Chief Investment Strategist
Summary: Important earnings week ahead with several hundred of large cap earnings on tap with the three most important earnings releases being Caterpillar (tomorrow), Apple (Thursday) and Novo Nordisk (Thursday). The Q3 earnings season has been acceptable so far with the Nasdaq 100 Index being the clear winner with operating income up 7% from a year ago getting to a new all-time high.
Caterpillar is set to report Q3 earnings tomorrow at 10:30 GMT with analysts expecting revenue growth of 6.7% y/y, down from 21% revenue growth a year ago, and EBITDA $3.6bn up from $3bn a year ago as the global construction industry is still doing well despite higher interest rates. The key focus point for investors is order intake and whether the backlog might have peaked for now as the effects of higher interest rates will finally begin to weigh on construction activity across properties, energy and mining. Caterpillar is usually quite transparent about growth in China and given the government’s efforts to ignite growth in China the reading from Caterpillar should be watched by investors.
The original competitors back in the 1980s when the nascent personal computer industry took off are still around and stronger than ever. It seems the massive digitalization over the past two decades has created two giants with Apple dominating the digital consumer market and Microsoft is dominating the digital enterprise market. Maybe among the greatest monopolies of all time.
Apple is set to report earnings FY23 Q4 (ending 30 Sep) earnings on Thursday (aft-mkt) with analysts expecting revenue growth of -1% y/y, down from 8% y/y revenue growth a year ago, and EBITDA $29.7bn up from $27.8bn a year ago driven by Apple strong ecosystem and pricing power (recently seen with a steep price increase on Apple TV). One key focus point from investors is whether Apple will confirm what Microsoft and Intel have confirmed, that the consumer electronics market is turning a corner for the better as consumers have now absorbed the initial inflation shock. A concern from investors is Apple’s large exposure to China, through 19% of revenue coming from China and the company assembling the majority of its devices in China. Recently Chinese authorities have opened up an investigation of Apple’s main contract manufacturer Foxconn
The new class of GLP-1 obesity drugs have shocked the world in their performance on obesity, and recently also heart disease and kidney risks, and sent demand skyrocketing. Novo Nordisk is currently the first-mover with its Wegovy drug, with Eli Lilly soon expected to get approval for its drugs and launch incredible growth. Novo Nordisk is expected to report Q3 earnings on Thursday at 06:30 GTM with analysts expecting revenue growth of 27% y/y and EBITDA of DKK 27bn vs DKK 22.2bn a year ago.
The only focus for investors is the obesity care segment which has grown from a DKK 1.2bn business (3.6% of total revenue) in Q3 2018 to now five years later a DKK 10.3bn business (19% of total revenue) in Q2 2023. The growth rate in obesity care was 183% y/y in Q2 and will no doubt post another +100% y/y figure as demand is skyrocketing for these new obesity care drugs. Investors will look for any updates on whether the many benefits of these GLP-1 drugs mean that they will be adopted nationally as key for lowering costs in the health care system.
The list below shows the most important earnings releases this week besides the three important earnings mentioned above.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
