The US earnings season is set to gain momentum in the coming days. Investors are optimistic and are pushing Wall Street higher. Today, the focus will be on quarterly earnings from major US banks.
US stock markets rose again on Monday, following strong gains in the previous week. The S&P 500 climbed 0.4% to 4522.79, its highest level since April 2022. The Dow Jones closed 0.2% firmer at 34’585.35, its highest level since December 2022, and the Nasdaq Composite gained 0.9% to 14’244.95.
US markets were unimpressed by weaker-than-expected economic data from China, which had weighed on trading in Europe. The world's second largest economy is recovering less quickly than hoped from the severe restrictions imposed during the corona pandemic and grew more slowly than forecast in the second quarter.
This week's events on Wall Street will be dominated by the earnings season, which should provide further momentum for equity markets. Quarterly reports from major US banks Bank of America, Morgan Stanley and Goldman Sachs, as well as tech giants Tesla and Netflix, are due in the coming days.
Most Asian markets are showing losses on Tuesday. In Hong Kong, the Hang Seng Index is down around 2%, with property and technology stocks weighing on trading. The Shanghai Composite is trading 0.2% lower, while Japan's Nikkei is barely in positive territory.
Aside from Chinese economic data, macroeconomic news was light at the start of the week. Sentiment in New York State industrial sector deteriorated in July. The Empire State index fell to 1.1 points from 6.6 points in June, the Federal Reserve Bank of New York reported on Monday. However, on average, analysts had expected an even sharper decline to -3.5 points. At just above zero, the reading signals a slight increase in economic activity.
Inflation could turn out to be lower than previously expected in many regions of the world, according to a survey of around 1400 economists in 133 countries conducted by the Munich-based Ifo Institute. For the current year, the experts forecast an average inflation rate of 4.5% in North America, followed by 4.9% in Western Europe and 5.0% in East Asia, including China. These figures are 0.3 to 0.5 percentage points lower than three months ago. The differences within regions are quite substantial in some cases. Germany, for example, pulls up the European average with an estimated annual inflation rate of 5.8%. The forecasts also show that inflation rates are likely to remain well above pre-corona levels in the coming years.
Corporate news in focus: Novartis, Bank of America and Morgan Stanley report Q2 figures.
Economic data in focus: US retail sales (14:30), US industrial production (15:15).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi
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We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
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We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
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