The biggest event in equities happened last night after the US market close when Amazon reported Q3 earnings which missed on bottom line but delivered a small beat on revenue. But even worse, Amazon put forth Q4 revenue guidance with the high range below consensus estimate which turned out to be the kicker sending the shares down 7% in extended trading closing at 1,660 (red line on chart). Adding salt to the wound AWS Q3 revenue missed estimates as well indicating faster growth decline than anticipated by analysts. This could lead to a change in valuation for Amazon. One of the things mentioned in the Q3 report was rising logistics costs as the company is pushing out one-day shipping for Prime customers. There are two things likely at play here. Walmart is intensifying the competition for Amazon’s e-commerce business and Microsoft is becoming a formidable competitor in the cloud business. It was the second straight quarter of EPS missing estimates which is the first time since 2014.
Amazon is the third
largest component in the NASDAQ 100 Index with a 9% weight so the index will most
likely be weighed down by Amazon in today’s session. Even before Amazon’s earnings the index looked like it was losing steam.
For NASDAQ 100 to print a new all-time high it requires strong earnings
releases from Apple, Facebook and Alphabet, all reporting earnings next week,
that combined represent a weight of 25% of the index.
Yesterday’s France PMI
figures for October indicated that economic activity is stabilizing in Europe
and potentially Europe is getting closer to a turning point. The German IFO survey today shows better
than expected expectations in October at 91.5 vs est. 91.0 and up from 90.9 in
September. Maybe the green shoots are real. However, our view is that macro
indicators are still too mixed to be calling for a turning point, so our
expectation is still for the global economy to slow down further over the
coming months. The potential catalyst for European equities is more
momentum in European new car registrations, which just recently turned positive
y/y again, and better numbers out of Asia.
If the global leading indicators from OECD turn higher then the global economy
is entering the recovery phase and as
our table below shows, then European and Emerging Market equities are the most
likely winners. Especially Swedish equities look interesting given their
pro-cyclical nature and the Riskbank’s decision yesterday to take rates to zero
which could add further tailwind to SEK in top of gains from a change in the
business cycle. For foreign investors, Swedish equities could become one of the
best equity markets next year.
Next week is the
busiest in the entire earnings season with around 730 companies reporting
earnings in the universe we track. The table below shows the 30 largest
companies on market value reporting earnings. The key earnings to watch are Alphabet, Amgen, Merck, Pfizer, GlaxoSmithKline,
Apple, Facebook, Sanofi, Bristol-Myers, Novo Nordisk and AbbVie. These are the
bellwethers of the technology and health care sectors, the two largest sectors
in global equity markets, and thus are very important for equity market
direction and the potential for new highs.
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