Last week saw significant gains in the stock markets: S&P500 rose by 5.9%, Nasdaq 100 by 6.5%, Stoxx Europe 600 by 3.4%, and Nikkei 225 by 3.1%. It was a remarkable week, possibly the best of the year for many financial centers. This rebound was the most prominent since the market downturn at the end of July. Notably, both S&P500 and Stoxx Europe 600 experienced declines in August, September, and October.
 
The recovery started in the United States, triggered by the Fed's recent speech that indicated the possible end of the central bank's rate hike cycle. This sentiment was strengthened by less-than-impressive macroeconomic indicators in the U.S., suggesting the Fed's efforts to cool the economy and control inflation had been effective. However, the situation is nuanced; the central bank hasn't completely abandoned its cautious approach, but conveying its stance to the market has become increasingly challenging.
Investors favored riskier assets, especially uncertain technology stocks and small-cap companies, leading to a noticeable difference in performance between Dow Jones (+5%) and Russell 2000 (+7.6%), the benchmark for smaller stocks in the US.
 
This preference for riskier assets is backed by historical stock market trends. When the US approaches the end of a rate hike cycle, investors tend to earn significant profits. Small and mid-cap stocks, along with growth stocks, historically perform exceptionally well in this scenario. The critical question now is whether we are at the beginning, middle, or end of this cycle, or if a sudden downturn awaits. The uncertainty persists, although the options market indicates a growing bet on the possibility of a rate cut as early as next June.

Currently, things that seemed negative just ten days ago now appear quite positive, while other warning signs are being overlooked. In terms of corporate results, there isn't much noteworthy. According to FactSet's weekly review, there are "no surprises in the West." US companies are surpassing expectations, with over 85% of S&P500 companies reporting better-than-expected results. European stocks, however, faced more challenges, experiencing more disappointments than their US counterparts, largely due to weaker sales figures and a less optimistic European consumer base compared to their American counterparts.

News to get the week off to a good start:

  • Ongoing conflict between Israel and Hamas leads to continued devastation in Gaza, despite international calls for moderation. US Secretary of State Antony Blinken meets Mahmoud Abbas in the West Bank amid the persisting conflict.
  • Elon Musk introduces Grok, an artificial intelligence interface linked to X (formerly Twitter), known for its unconventional and humorous responses to interactions with ChatGPT.
  • South Korea reimposes a ban on short selling until next June to ensure fair treatment for both retail and institutional investors.
  • Far-right political parties in Germany gain popularity in the polls within a politically fragmented landscape.
  • Proposed legislation in Europe aims to reduce the patent life of medicines, sparking concerns in the medical industry about potential impacts on research and development.
  • Notable companies such as NXP Semiconductors, Vertex, Uber, and Walt Disney report in the US, while UBS, Enel, Airbus, Bayer, and Merck KGaA release updates in Europe. In Asia, attention is on Softbank and Sony. Macroeconomic events include Chinese inflation data and a speech by Jerome Powell, followed by the University of Michigan's consumer confidence index release.

In Asia Pacific, the week gets off to a good start. Japan soared by 2.3%, making up for Friday's bank holiday. China was up by more than 1%, both in Shanghai and Hong Kong. Gains were a little more modest in India (+0.5%) and Australia (+0.3%). The star of the day was South Korea, where the KOSPI soared by over 4% following measures against short-selling, which helped rebound the sectors most under attack lately, such as car battery manufacturers and technology companies. European leading indicators are losing some ground; CAC40 (-0,39%); BEL20 (-0,32%).

Economic highlights of the day

Nothing in the US today. Full agenda here.

The dollar falls to 0.9300 EUR and 0.8049 GBP. The ounce of gold trades at 1985 USD. Oil remains under pressure, with North Sea Brent at 85.94 USD a barrel and US light crude WTI at 81.64 USD. The yield on 10-year US debt fell to 4.58%. Bitcoin is trading at around 35,000 USD.

In corporate news:

  • Tesla gains 2.8% in pre-market trading after a source tells Reuters that the group plans to build a 25,000-euro car at its factory near Berlin. Tesla also plans to raise wages by 4% for German workers under pressure from unions.
  • Carlyle is considering selling Japanese cosmetics supplier Tokiwa in a deal that could fetch $1 billion, two sources familiar with the matter said.
  • General Motors - The United Auto Workers union said the tentative agreement reached with the group includes plans for investment in electric vehicles and provides for base wage increases of 25% for full-time workers.
  • Berkshire Hathaway posted its first quarterly loss in a year on Saturday, due to falling share prices. Its third-quarter net loss was $12.77 billion, or $8,824 per Class A share, compared with a loss of $2.8 billion a year earlier.
  • KKR - Telecom Italia announced on Sunday that its board of directors had approved the American fund's offer to buy its fixed-line network, valued at 18.8 billion euros.
  • Tyson Foods - The food group announced that it was voluntarily recalling around 13,600 tons of Nuggets after a limited number of consumers reported finding small pieces of metal in the product, the company said in a statement on Saturday.
  • South Korean shares listed in the USA advanced ahead of the opening, Seoul having imposed a ban on short selling until the first half of 2024. The Posco conglomerate jumped 18.9%, while KB Financial gained 1.6% and flat-screen manufacturer LG Display 5.9%.
  • Bank of America - KBW raises its recommendation from "underperform" to "in-line performance".
  • Keycorp - KBW raises its recommendation from "in-line performance" to "outperform".

Analyst recommendations:

  • Albemarle Corporation: Morgan Stanley maintains its underweight recommendation with a price target reduced from USD 155 to USD 90.
  • Amazon: Baptista Research maintains its outperform recommendation with a price target reduced from USD 170.30 to USD 169.30.
  • Amphenol: Baptista Research maintains its hold recommendation with a price target reduced from USD 96.40 to USD 91.
  • Apple: Phillip Securities upgrades to accumulate from neutral with a price target raised from USD 183 to USD 194.
  • Arista networks: Evercore ISI maintains its outperform recommendation and raises the target price from USD 210 to USD 230.
  • Ball: Barclays maintains its overweight recommendation with a price target raised from USD 59 to USD 60.
  • Bank of america: Keefe Bruyette & Woods upgrades to market perform from underperform with a price target raised from USD 29 to USD 30.
  • Block: Macquarie maintains its outperform rating and reduces the target price from USD 95 to USD 85.
  • Coinbase: Cowen maintains its underperform recommendation and raises the target price from USD 36 to USD 39.
  • Eqt: Jefferies maintains its buy recommendation with a price target raised from USD 52 to USD 54.
  • Expedia group: Jefferies maintains its hold recommendation with a price target raised from USD 110 to USD 120.
  • Exxon mobil: Gerdes Energy Research LLC maintains its neutral recommendation with a price target raised from USD 122 to USD 123.
  • Ford motor: Evercore ISI maintains its in-line recommendation with a price target reduced from USD 11 to USD 10.
  • Fortinet: HSBC downgrades to hold from buy with a price target reduced from USD 75 to USD 49.
  • Idexx laboratories: Piper Sandler & Co maintains its overweight recommendation with a target price raised from USD 520 to USD 525.
  • Kraft heinz: Mizuho Securities maintains its buy recommendation and reduces the target price from USD 47 to USD 43.
  • Lowe's companies: Baird maintains its outperform rating and reduces the target price from USD 250 to USD 225.
  • Mastercard: Baptista Research maintains its hold recommendation with a price target reduced from USD 439.30 to USD 425.70.
  • Mondelez international, inc. : Mizuho Securities maintains its buy recommendation and reduces the target price from USD 86 to USD 83.
  • Moody's corporation: Baptista Research downgrades to underperform from hold with a price target reduced from USD 381 to USD 343.
  • Paypal: Phillip Securities maintains its buy recommendation and raises the target price from USD 98 to USD 101.
  • Roper technologies: Baptista Research maintains its hold recommendation with a price target reduced from USD 545.50 to USD 541.
  • Sempra: BMO Capital Markets maintains its market perform recommendation with a price target raised from USD 75 to USD 76.
  • Starbucks: Stifel maintains its hold recommendation with a price target raised from USD 100 to USD 108.
  • Stellantis: Nomura maintains its buy recommendation and reduces the target price from EUR 31 to EUR 27.
  • Stryker: Barclays maintains its overweight recommendation and raises the target price from USD 335 to USD 341.
  • Teradyne: Baptista Research upgrades to buy from hold with a price target reduced from USD 123.40 to USD 113.90.
  • The Home Depot: Baird maintains its outperform rating and reduces the target price from USD 360 to USD 330.
  • Ventas: BMO Capital Markets maintains its outperform rating and raises the target price from USD 46 to USD 50.
  • Walt Disney: Citi maintains its buy recommendation with a price target reduced from USD 120 to USD 110.
  • Welltower: BMO Capital Markets maintains its outperform rating and raises the target price from USD 92 to USD 96.
  • Zoetis: Piper Sandler & Co maintains its overweight recommendation with a price target raised from USD 210 to USD 215.