The major Wall Street houses kicked off the quarterly corporate reporting season on Friday. Investors were eagerly awaiting to see whether the recent turbulence surrounding US regional banks such as Silicon Valley Bank had left its mark on the balance sheets of the major investment houses. Although US banks were able to convince with their figures for the first quarter, the mood on the stock market remains tense.
First and foremost, the quarterly results of the banks were better than expected. However, a cautious look at the next quarters reveals that negative effects are expected due to the banking crisis. The banks were able to profit from the sharp rise in interest rates, and J.P. Morgan earned USD 12.6 billion in the first quarter, 52% more than in the previous year. With the quarterly figures, the largest US bank was able to clearly exceed expectations. Rival Citigroup reported a net profit of 4.6 billion US dollars for the first quarter, compared with 4.3 billion in the same period last year. A similar picture was seen at Wells Fargo. The San Francisco-based bank reported a 32% increase in profits to 5 billion US dollars. This week will continue to focus on the first quarter balance sheets and outlooks for the coming months of US blue chip companies. Some highlights include Bank of America, Goldman Sachs, Johnson & Johnson and Netflix on Tuesday. Morgan Stanley, IBM and Tesla on Wednesday. AT&T and American Express on Thursday. Overall, the mood on the trading floor, thanks to the weakening of inflation and interest rate concerns, brightened towards the weekend.
On Wall Street, business results from US banks were not enough to close the week on a positive note. The Dow Jones Industrial closed 0.42% lower at 33,886.47 points but posted a gain of 1.2% for the week. The broad-based S&P 500 fell by 0.21% to 4,137.64 points and on the technology-heavy Nasdaq 100 indices fell by about 0.3%. Meanwhile, the yield on ten-year US government bonds rose to 3.51%.
New economic data from the US showed a mixed picture. On the one hand, retail sales fell more than expected in March. On a monthly basis, retail sales fell by 1.0%, whereas analysts had expected on average only half as strong a decline. On the other hand, consumer sentiment brightened last month according to survey results from the University of Michigan. The consumer confidence barometer improved from 62.0 points in February to 63.5 points.
On stock exchanges in the Asia-Pacific region, most stock indices rose at the start of the week. The Hang Seng Index in Hong Kong rose by 0.22%. Mainland Chinese markets advanced, with the Shanghai Composite up 0.8% and the Shenzhen Component up 0.1%. In Tokyo, however, the Nikkei 225 declined slightly.
Corporate news in focus: State Street with Q1 figures.
Economic data in focus: Italy consumer prices March (10:00 CET). From the US, the Empire State Industrial Indicator for April (14:30) and the NAHB Housing Market Index for April (16:00).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi,
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Explanation of investment recommendations for stocks
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).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
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
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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