INSIGHTS

Mihai Nechita

Fri, Feb 1


KYLIN TALK | Stock Watch 01.02.2019

In the 2 weeks since our last report, global equities have returned into positive territory, but the momentum that characterised the first part of the month did not quite continue into the latter stages of the month. The original surge seen in the first two weeks of the month was followed by general consolidation within the major indices, creating new monthly highs over the last trading sessions.  A more dovish FED, alongside a temporary reopening of the US Government, apparent progress on the trade negotiations and strong returns from earning season has fuelled the performance of equities.

Table 1. Major Global Indices Performance

 

US Markets

Table 2. Major US Indices Performance

The temporary reopening of the US Government alongside a more dovish FED and anecdotal evidence of progress on the trade tariff negotiation front provided great relief to the markets. We are in the midst of earnings season, with roughly a quarter of the S&P 500 companies having already submitted their reports. Please find below a summary of reporting’s to date:

IBM (IBM) has announced their Q4 results on 22nd of January. The company has beaten the market expectation on both earnings and revenues. Despite the beat in revenue estimates, they still recorded a decline of 3.55 % YOY (Year on year), with this being the second consecutive quarter of annual decline in revenue for the company.  Their purchase of Red Hat, which was announced in October 2018 should work to increase revenue of the enterprise solutions, but for the time being the market was underwhelmed by the conservative revenue forecast provided by the management.

Procter & Gamble (PG) have reported the quarterly results on 23 January 2019, beating the market expectation and recording YOY increases in both earnings and sales. The announcement of a $5 billion share buyback over the next year, complemented the positive earnings and sales guidance.  

General Electric (GE) stock moved above $10 a share for the first time since November 2018 on 31st of January following their quarterly earnings report. The company reported and increase in revenue of 5%, but earnings per share recorded a 40% decline. The company announced that have reached a settlement with the Department of Justice to pay $1.5 billion for its subprime mortgage business practice prior to 2007.

Table 3. FAANG Stocks Performance

Apple (AAPL) has announced the quarterly earnings beating the market expectation, forecast was relatively low following the updates from the beginning of the Year. Their revenue recorded a decline YOY, delivering their first seasonal quarter of negative growth rate since 2000. As expected, the revenue on mobile phones declined with 15% YOY but this was compensated by the increase in the other company products and their services division. The earnings per share growth from $3.89 to $ 4.18 was entirely due to Apple’s lower tax cost.  

Amazon (AMZN) reported a stellar quarter numbers, with year over year increase of 63% on net income and 20% on revenue. The market paid attention to the forward guidance that came short of the market expectations, driving the share price down 5% in the aftermarket trading on 31st of January. The investors took note of the international arm of the business, the major growth engine for the company that is still losing money, despite this loss having almost halved on annual basis. The regulatory E-commerce changes in India now forbids online retailers from selling products via vendors in which they have an equity interest. It also excludes them from making deals with vendors to offer exclusively on their platforms which has been detrimental to Amazon and caused more conservative sales guidance.

Facebook’s (FB) stock closed the trading session on 31st January 2019 with an increase of more than 10% following upbeat earnings results reported by the company. The revenue increased by 30% with earning per share surging 65% YOY. Their earnings improved investors sentiment, following the allegation of unappropriated share user data with third party companies.

At the sector level, economic sensitive sectors have continued to outperform the S&P 500, with defensive sectors lagging the index proving testimony for the increased appetite to risk.

 

European Markets

 

Table 4. Major European Indices Performance

Over the last two weeks the French Index has outperformed other European peers. The GDP reading came in better than expected, with strong export’s offsetting slowing domestic demand generated by French social unrest.

For the first time in 4 years Deutsche Bank has returned to a full year profit despite a greater than expected loss in the fourth quarter caused by weakness in the trading element of their business showing a 23% plunge specific to their bond trading division.

The UBS Group AG moved into profit in the fourth quarter and showed positive forward guidance. The biggest wealth manager in the world has indicated the impacts of the asset price movement seen in the last quarter of 2018, was a performance detractor, but outlined confidence in the economic growth and an increase in asset prices.

UK Markets

In the UK, the Brexit saga continued with debates and rejections of amendments. Latterly the Parliament agreed for further negotiation of the backstop and a non-binding amendment to reject no-deal Brexit.  In the meantime, the EU has categorically shown no inclination to negotiate.

Table 5. Major UK Indices Performance

UK indices have recorded a lower return than their US peers, bearing dragging factors of the continued political turmoil and Eurozone trade uncertainty.

BT Group (BT.A) has reported a slight decline in both earnings and revenues in their third quarter earnings, reported on 31st of January, beating market expectations. Their forward guidance for sales and revenue highlighted concerns over regulation, intensive competition and cost pressure as potential challenges going forward. The company announced that in May they could potentially cut 13,000 jobs as a part of the cost reduction plan.

Unilever’s (ULVR) reported on 31st of January with a full year’s profit 51% higher driven by a strong performance particularly in India and other Asian countries. The management team provided a forward growth expectation of 3-4%, well below average company guidance, due to increased volatility in emerging markets, bringing the stock price lower.

IG Group Holdings PLC (IGG) reported a 17% slump in their first-half profit on 22nd of January, sighting stricter global regulation impacting revenue generated by their online trading platforms. Naturally, the market reacted negatively to this news on the day, but the stock recovered as the dividend date approached.

The following two weeks bring further company earnings reports on both sides of the Atlantic. Results from “mega cap” companies like BP, Walt Disney, Alphabet, Intensa Sanpaolo Unicredit, Ralph Lauren, GlaxoSmithKline, General Motors, Fiat and AIG will be analysed in order to identify the future trends.  


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