By Jamie Chisholm
Critical information for the U.S. trading day
A sticky inflation report and a poor 30-year U.S. bond auction on Thursday caused the S&P 500’s SPX latest rally to falter. Stock-index futures on Friday are softer again, suggesting such interest rate concerns linger.
Thankfully for stock pickers, we are entering a new earnings season — a time that should encourage market correlations to dislocate as individual equities have a headline reason to do their own thing rather than be swayed wholesale by macroeconomic factors.
And according to Wedbush analyst Dan Ives, the third-quarter earnings of tech stocks delivered over the next few weeks will be “an eye-opener” for Wall Street that will propel the sector up another 12% to 15% over the final months of the year.
“While the macro/bond backdrop is confusing for investors and the geopolitical situation caused by the terrorist attack on Israel has created a heartbreaking and nervous situation for the markets, we believe the tech universe is resilient and is poised for a strong earnings season ahead [which is] set to prove the doubters wrong,” says Ives in a new note to clients.
Indeed, Ives stresses that over the the past few decades it is just such periods of market nervousness that provide the best opportunity to buy top quality tech stocks; and then he gets a bit shouty, writing in capitals “THIS TIME IS NO DIFFERENT.”
Share price gains for tech are likely because the transformational growth around Artificial Intelligence, cloud, cyber security, and the rebound of digital ad dollars will create a springboard of growth into 2024 that is currently being underappreciated by Wall Street, Ives reckons.
In particular, he believes the impact of the AI cycle on the consumer internet sector “will be massive” and will begin with the cloud service divisions, such as Amazon’s AWS and Alphabet’s GCP.
A survey on generative AI conducted by Wedbush found that more than half of the enterprises interviewed see at least 20 examples of areas where they could use AI, while 80% of companies see more than 10 areas of use. As monetization of those uses grows this is “very positive for…the myriad of tech players globally that are heavily investing in developing Generative AI products/solutions for enterprises,” says Ives.
“AWS and GCP acquire AI-capable chips, build AI-capable service offerings, and sell those services into their respective installed bases. On this theme, we continue to like Amazon (AMZN), Alphabet (GOOG), and Meta (META) as our favorite tech plays,” he adds.
Wedbush’s favorite tech names overall are Apple (AAPL), Microsoft (MSFT), Palo Alto (PANW), Palantir (PLTR), Zscaler (ZS), CrowdStrike (CRWD), and MongoDB (MDB). The table below shows a selection of Wedbush picks with price targets.
“The macro story is overshadowing the biggest technology revolution in the last 30 years with AI a “1995 Moment” and we believe the fundamental tech growth stories/use cases are accelerating and will be front and center in 3Q earnings season over the coming weeks,” says Ives.
Markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar DXY is little changed on the day, while oil prices (CL.1) jump and gold (GC00) gains ground on concerns about escalating tensions in the Middle East..
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The buzz
U.S. economic data due on Friday include the preliminary reading of October consumer sentiment, published at 10 a.m. Eastern.
Philadelphia Fed President Patrick Harker is expected to make comments at 9 a.m..
Big banks JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) have kicked off the third quarter corporate earnings season. Early share price reaction suggests their reports have been well-received.
U.K. regulators on Friday gave Microsoft Corp. (MSFT) the go-ahead for the tech giant’s $68.7 billion acquisition of videogame holding company, Activision Blizzard (ATVI).
Dollar General shares (DG) are rallying nearly 8% in Friday’s premarket after the store chain said Todd Vasos is returning as chief executive having retired less than a year ago.
Shares of Cassava Sciences (SAVA) are plunging 27% after the publication Science reported that an investigation accused a neuroscientist who often collaborated with the company of “long-standing and egregious misconduct”.
China’s consumer prices were unchanged for the year to September, while factory-gate prices fell 2.5%, data released on Friday showed.
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The chart
Global trade variables used as proxies for global manufacturing are pointing up, says U.S. strategists at Deutsche Bank led by Francis Yared. The team looks at Chile exports, Taiwan exports and South Korea semi conductor exports, which together, as the chart below shows, have proved to be a decent leading indicator of global manufacturing. “These variables are currently pointing towards a global manufacturing PMI comfortably above its long term average,” Deutsche notes.
And that may have implications for monetary policy, they say. “Given the relative importance of manufacturing in the various economies, if global manufacturing does recover as implied by this chart, the BoJ should be most impacted and should come under pressure to move away from ZIRP [zero interest rate policy] sooner rather than later,” says Deutsche. The ECB may need to resume its hiking cycle too, Deutsche reckons.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla AMC AMC Entertainment TTOO T2 Biosystems INFY Infosys ADR NVDA Nvidia GME GameStop AAPL Apple NIO NIO ADR TUP Tupperware Brands AMZN Amazon.com
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-Jamie Chisholm
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10-13-23 0823ET
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