Global Courant
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After a week in which Tek shares took a hit, there will be new excitement as four of the seven truly big stock market giants report quarterly results for the week. Moreover, the specter of interest rates looms large.
In the coming days, Google’s parent company Alphabet, Microsoft, Facebook owner Meta and Amazon will present updated accounts to investors and analysts. The four that will be on fire this week have a combined market value of more than NOK 6,200 billion. For comparison, all companies on the Oslo Stock Exchange currently cost NOK 4,100 billion.
Tesla, which presented its quarterly results on Wednesday, lost almost 16 percent of its market value last week. Nvidia was hit by the authorities’ desire to slow down Chinese exports and fell nine percent. But these weren’t the only ones: All ten of the largest Nasdaq stocks fell last week.
DNB Markets equity strategist Paul Harper says disappointing reports now could have major consequences, but the cause has a lot to say for the stock market in general:
Equity strategist at DNB Markets, Paul Harper. (Photo: Skjalg Böhmer Vold)– It depends on whether any disappointments are company specific or based more on macro conditions. If companies experience a weaker economy, this is relevant for the entire market. If it’s more operationally related, it becomes less important to the rest of the market, Harper says.
The status so far in October for the S&P 500 is a possible third straight month of price declines. For the S&P 500, a new three-month decline will be the first in a row since the corona spring of 2020.
High expectations
And absolutely central to the S&P 500 are Alphabet, Amazon, Microsoft and Meta, along with Apple, Tesla and Nvidia. The stock club has been nicknamed “Magnificent 7”.
– The “Magnificent 7” shares have a weight of 19 percent in the MSCI World index and mean a lot for the global stock indices – and also set the tone for risk appetite in general. That said, direct comparability between these stocks and some companies on the Oslo Stock Exchange is limited, Harper adds.
In another of the world’s major stock indexes, the S&P 500, the seven stocks account for 26 percent.
Highlights of the week
Monday: Quarterly reports from Magnora and Strongpoint and the Hong Kong Stock Exchange are closed.
Tuesday: Quarterly reports from Bergenbio, Norsk Hydro and Vår Energi, and among those mentioned in New York: Alphabet, Barclays and Microsoft. Unemployment figures from Statistics Norway and PMI figures from the EU, the US and a number of other countries.
Wednesday: Quarterly reports from Elkem, Nel, Schibsted, Storebrand, Sparebanken Vest, Kitron, Pareto Bank, Telenor and Vistin Pharma. Also reports from Intrum (Sweden), IBM (US) and Meta (US).
Thursday: Quarterly reports from Okea, Akastor, Komplett, Orkla, PGS, Sparebank 1 SR-Bank, Bonheur, Sats and TGS. From abroad come Swedbank (Sweden), Amazon (US), Credit Suisse (Switzerland) and Intel (US).
Friday: Quarterly reports from Aker BP, Equinor, Itera, Kongsberggruppen, Medistim, Scatec and XXL. In addition, Danske Bank and IAG (England)
Just as the reports from Alphabet, Microsoft, Meta and Amazon can impact the benchmark indices, Equinor’s quarterly report on Friday could do the same for the major indices on Oslo Børs.
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According to Bloomberg’s overview, 62 analysts follow Microsoft, which reports quarterly results on Tuesday. None of the analysts recommend selling the software company and only six analysts provide neutral advice. In other words: 56 analysts have a buy rating. Their average price target is just under $398, while Microsoft stock is trading at just over $325. The distance between the price target and the traded price has widened significantly after analysts got drunk on AI and the stock market sold off the stock in recent weeks.
And so it is for Amazon, where 62 analysts say “Buy!” say, while only two say “wait a minute.” No one is recommending selling Amazon stock, and neither is anyone at Alphabet or Nvidia. There may be some skepticism at Meta, but we are talking about only two of the total of 68 analysts who say that the share should be sold.
With high expectations there is disappointment if everything is not in order when the quarterly reports arrive. In addition, another challenge is becoming increasingly urgent: a risk-free interest rate of five percent.
Super attractive interest rate
Tek shares saw a huge price increase during the zero interest rate period of the corona pandemic, were smashed into the ground when interest rates started to rise last year and returned again this spring when everyone thought the interest rate peak had been reached. But now it is said that interest rates will remain high for a long time, and as growth companies, technology companies are extra vulnerable if interest rates can rise.
The article continues below the advertisement– The S&P500 has fallen eight percent since the end of July, which is within what can be called ‘normal’ volatility. But the main reason for this decline is the large increase in US government interest rates, and it could possibly be called dramatic. In particular, the increase in the ten-year real interest rate from minus 1.21 percent to plus 2.45 percent in just under two years. It’s dramatic because it affects the prices of the entire stock market, Harper says.
One sign that investors are now starting to get more nervous is the Vix fear index. The aim is to show what investors expect from stock market volatility, and is based on options trading linked to the S&P 500 index. It has risen 70 percent since mid-September.
Put the money in the bank – or in an interest fund
In August, Harper stated that “the market is more likely to unexpectedly fall 20 percent than it is to unexpectedly rise 20 percent.” He then advised investors to reduce the share of stocks in their portfolios in favor of cash.
– Compared to Scandinavian or US stocks, cash in money market funds has recently delivered better returns with lower volatility. The rise in interest rates, from a purely mathematical perspective, should in theory put even more pressure on stock pricing, and we still prefer cash yielding around five percent interest in low-risk money market funds, says Harper now.
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A common way to judge whether the price of a stock is high or low is to compare the price with the expected profits in the company. In financial jargon, this ratio is simply called P/E, which stands for price/earnings or stock price/earnings. When this is turned on its head, as with earnings/share price, you get a measure of return. For all companies in the S&P 500, the return is now around five percent. This means that the risk premium that normally exists in the stock market, compared to fixed income investments, has evaporated. Many will then say that shares are expensive.
Harper agrees, but thinks there are possibilities:
– We believe that equity investors should look at the soundness of the companies in which they invest. Companies with weak balance sheets may have difficulty refinancing if interest rates are significantly higher than before. Although the market as a whole is highly priced relative to interest rates, there are still some companies that are attractively priced. It takes a little more work to find the good opportunities now.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases via links that lead directly to our pages. Copying or other use of all or part of the contents may only be made with written permission or as permitted by law. For further conditions see here.
Four giants will present figures: – If companies experience a weaker economy, this is relevant for the entire market
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