Stocks Market

Sell-off Looming? Two Giants Issue Sudden Warnings!

Is the decline in US stocks just getting started?

Today, Marko Kolanovic, Chief Market Strategist at J.P. Morgan, stated that the recent three-week decline in the US stock market is just the beginning of a larger-scale sell-off. With the escalation of macroeconomic risks such as rising US bond yields, a stronger dollar, and increasing oil prices, the sell-off could intensify.

Meanwhile, strategists at Bank of America have also issued a warning, stating that there is a high risk for US tech giants to fulfill their promises in artificial intelligence amid the possibility of profit slowdown. The bank forecasts that although these companies’ first-quarter growth is still expected to be 39% higher than the same period last year, it is lower than the 63% growth seen in the last three months of 2023. The bank’s strategists predict that by the fourth quarter, the growth gap between the seven tech giants and other companies in the S&P 500 index may narrow, potentially leading to a shift of funds from tech stocks to value-oriented stocks.

This week, Tesla (TSLA), Meta (formerly Facebook), Microsoft (MSFT), and Google’s parent company Alphabet (GOOG) will all report their earnings. Last week, Wall Street expressed concerns about the upcoming earnings reports, with the tech-heavy Nasdaq falling 5.5% for the week, marking its largest weekly decline since November 2022. Analysts suggest that whether the sell-off in tech stocks will continue depends on the earnings reports of major tech companies.

Warnings from J.P. Morgan and Bank of America

On Monday local time, Marko Kolanovic, Chief Market Strategist at J.P. Morgan, stated in a report that although corporate earnings expected to be announced this week may temporarily stabilize the market, it does not mean that the stock market has overcome its difficulties.

Marko Kolanovic pointed out that factors such as complacency in market valuations, persistent high inflation, diminished expectations of a rate cut by the Federal Reserve, and overly optimistic profit expectations have intensified downside risks, and the future sell-off in US stocks may deepen further. Marko Kolanovic wrote, “Market corrections are typically defined as declines of 10% or more, and pullbacks may continue. Market concentration has been very high, with expanded positions, which is typically a danger signal with the risk of a reversal.”

Marko Kolanovic believes that recent trading patterns and the current market narrative are similar to those of last summer. At that time, unexpected inflation increases and the Fed’s monetary policy shift to hawkishness triggered declines in risk assets. However, unlike then, investors’ positions now appear to be even higher, which also means greater downside risk.

The strategist advises investors to remain defensive when the stock market looks “problematic.” In his model portfolio, defensive strategies include hedging risky assets with long-term volatility and exposure to commodities (excluding gold).

In addition, Marko Kolanovic also told clients that it is time to consider buying Japanese consumer-related stocks, as expected real wage growth is expected to stimulate personal consumption in Japan, boosting consumer stocks.

Marko Kolanovic and his team are among the few bearish contrarian investors on Wall Street this year. While most of their peers are raising their expectations for US stocks, these J.P. Morgan strategists generally remain pessimistic about stocks and risk assets, with their year-end target for the S&P 500 index at 4200, the lowest among major Wall Street banks. This target implies a decline of about 16% from Monday’s closing level for the S&P 500 index by the end of 2024.

Furthermore, on Monday local time, analysts at Bank of America also issued a warning, stating that there is a high risk for US tech giants to fulfill their promises in artificial intelligence amid the possibility of profit slowdown. Although these companies’ first-quarter growth is still expected to be 39% higher than the same period last year, it is lower than the 63% growth seen in the last three months of 2023.

Bank of America points out that companies in the S&P 500 index, excluding the seven tech giants, are expected to see a 4% year-on-year decline in earnings for the first quarter. However, according to Bank of America’s data, about 25% of stocks in the benchmark index are expected to achieve positive earnings growth and accelerate growth in the first quarter.

The bank’s strategists predict that by the fourth quarter, the growth gap between the seven tech giants and other companies in the S&P 500 index may narrow, potentially leading to a shift of funds from tech stocks to value-oriented stocks.

Market Disagreements Abound

However, analysts on Wall Street have widely differing views on US stocks.

UBS recently stated that the momentum of US tech giants is dissipating, as the sector’s previously enjoyed profit momentum faces cooling. Ahead of this week’s earnings releases, UBS downgraded its industry ratings for six major tech giants, including Google, Apple, Amazon, Meta, Microsoft, and Nvidia, from “overweight” to “neutral.” UBS expects the earnings growth of these six US tech stocks to slow down, with other tech stocks likely to outperform them by the end of this year.

On April 22, King Lip, Chief Strategist at Baker Avenue Wealth Management, stated that whether the sell-off in tech stocks will continue actually depends on the reports of major tech stocks. He said, “Since we’ve had a little bit of a correction, valuations are definitely more reasonable now.”

King Lip said, “The pullback was long overdue. I think this is just a regular adjustment at this point.” He has begun increasing stock exposure for clients and plans to buy more stocks as the stock market declines further. However, he believes that the S&P 500 index may decline by up to 10% from its high on March 28.

The stock strategy team led by Michael Wilson at Morgan Stanley stated that with the strengthening of the US economy, it is expected that US corporate profit growth rates in 2024 and 2025 will significantly improve. This is also a rare optimistic outlook for earnings per share by “big short” Michael Wilson since 2023. Regarding the latest outlook for US stock earnings, Michael Wilson emphasized that the rebound in US business activity survey data, supported by new order data, “confirms the sustained trend of future profit growth.”

In addition, Dan Ives, an analyst at the well-known investment firm Wedbush, stated that extensive field research has made the firm very confident in corporate AI spending and expects AI spending to account for approximately 10% of enterprise IT budgets this year, compared to less than 1% in 2023.

Dan Ives said that the profit environment for tech companies still looks strong, especially considering the fervor for artificial intelligence among major corporations, which has driven the surge in tech stocks over the past year. The strategist added that an incredibly strong earnings season could be the main positive catalyst for tech stocks, predicting a further 15% surge in the industry by the end of 2024.

A recent research report from CICC pointed out that the expectation for the postponement of a Fed rate cut is still brewing. Currently, the number of rate cuts implied by CME interest rate futures has been reduced to one, leading to continuous rises in the 10-year US Treasury yield and the dollar, approaching previous highs. This “fire” finally “burned” to US stocks last week, with the S&P 500 index falling 3.1% last week, and the Nasdaq index plummeting 5.5%, attracting market attention. CICC said, “We are not surprised by this. On the one hand, the decline in US stocks has its ‘inevitability,’ and on the other hand, the decline in US stocks at this level is not a bad thing. It not only can digest its overly strong expectations but also helps restart rate-cutting trades, thereby laying the foundation for subsequent rebounds.”

Gloomy Outlook for Tesla

On April 22, Tesla’s stock price fell by 3.4%, marking the seventh consecutive trading day of decline and further reducing its market capitalization to $452.4 billion. Since the beginning of this year, Tesla’s stock price has cumulatively fallen by 43%, evaporating $339 billion in market value, equivalent to about 24.6 trillion yuan.

After-market trading on April 23, Tesla will report its first-quarter earnings. Wall Street expects Tesla to face its worst quarter in seven years, with the first-quarter gross margin expected to hit its lowest level since early 2017. According to a survey of 20 analysts by data analysis platform Visible Alpha, Wall Street expects Tesla’s automotive gross margin, excluding regulatory credits, to be 15.2%, down from 19% in the same period last year, the lowest since the fourth quarter of 2017.

In addition, according to Bloomberg’s widespread estimates, Tesla’s adjusted earnings per share for the first quarter are expected to be $0.52, with the highest revenue reaching $22.31 billion. This will be the first revenue decline for the company in four years. In terms of profitability, Tesla is expected to achieve a operating profit of $1.49 billion in the first quarter, a 40% decrease from a year ago. In terms of non-GAAP indicators, Wall Street expects adjusted net income to be $1.79 billion and adjusted EBITDA to be $3.32 billion.

Currently, Tesla’s sales growth is slowing, and it is expected to have a significant impact on Tuesday’s earnings. Earlier this month, data disclosed by Tesla showed that it delivered 386,800 vehicles in the first quarter, an 8.5% decrease from the same period last year, while inventory increased.

This weekend, Tesla announced price cuts for its Model 3, Model Y, and other models worldwide, further eroding profits. Several analysts expect Tesla’s annual deliveries to decline for the first time in 2024 after years of double-digit growth. Tesla warned in January that growth in deliveries this year would “significantly decrease,” indicating that price cuts were not enough to boost demand.

Last week, the electric car maker announced layoffs of more than 10%, and on the same day, Drew Baglino, Senior Vice President of Tesla Powertrain and Energy Engineering, and Rohan Patel, Vice President of Public Policy and Business Development, announced their resignations. Analysts said Tesla’s layoffs were directly related to the company’s “Waterloo” in the first quarter of 2024 as automotive sales faltered.

John Murphy, an analyst at Bank of America, wrote in a report, “Sentiment towards Tesla has worsened since the end of 2023.” Recently, more than 10 institutions, including Goldman Sachs, Morgan Stanley, and Deutsche Bank, downgraded their 12-month target prices for Tesla.

Among them, Deutsche Bank downgraded Tesla’s rating from “buy” to “hold” and lowered its target price from $189 to $123. The bank pointed out that the launch of the low-cost car Model 2 is likely to be delayed, and the company’s strategic focus has shifted to the robotaxi business, which is considered to have management risks and requires several years.

Overall, the divergence in Wall Street’s views on US stocks, especially in the tech sector, underscores the uncertainty and volatility currently prevailing in the market. Investors are closely monitoring earnings reports and macroeconomic indicators for clues about the future direction of the stock market.

With concerns about profit growth, inflation, interest rates, and geopolitical tensions lingering, investors face a challenging environment characterized by heightened risk and increased market turbulence. As the situation evolves, market participants must remain vigilant and adapt their strategies accordingly to navigate through these uncertain times.

Tech Stocks

Google Restructures AI Team to Focus on Building Large Models

Google(GOOG) has announced a structural overhaul of its artificial intelligence (AI) team, aimed at streamlining and accelerating development, according to a notice sent to employees on Thursday. The tech giant is integrating teams specifically focused on building large models.

This strategic move underscores Google’s commitment to advancing its capabilities in AI research and development, particularly in the realm of large-scale model building. By consolidating resources and expertise in this area, Google aims to enhance its competitive edge and drive innovation in AI technologies.

The emphasis on large models aligns with broader trends in the AI industry, where companies are increasingly investing in sophisticated AI algorithms to tackle complex tasks such as natural language processing, image recognition, and recommendation systems. Google’s focus on building large models positions it strategically to address evolving market demands and stay at the forefront of AI innovation.

The restructuring of Google’s AI team is expected to have significant implications for the company’s business strategy, performance, and stock valuation. As Google doubles down on its efforts to develop cutting-edge AI technologies, investors may view the move as a positive signal of long-term growth potential, potentially bolstering the company’s stock price (GOOG).

Furthermore, Google’s deepening involvement in large model research and development could have broader implications for the AI industry as a whole. As one of the leading players in the tech sector, Google’s initiatives in AI have the potential to shape industry standards and influence the direction of AI innovation globally.

In conclusion, Google’s restructuring to focus on building large models reflects its strategic vision for advancing AI capabilities and maintaining leadership in the AI industry. As the company continues to invest in AI research and development, its efforts are poised to have a transformative impact on its business trajectory and the broader landscape of AI technologies.

Tech Stocks

Japanese Antitrust Regulators Plan to Push Google for Reforms Amid Allegations of Unfair Restrictions

On April 15th, it was reported that Japan’s antitrust regulatory body is considering measures to encourage Google(GOOG) to proactively reform its business practices. This initiative comes in response to allegations of unfair restrictions related to Google’s search advertising partnership with Yahoo.

The Japanese authorities are reportedly concerned that Google’s collaboration with Yahoo in the search advertising space may be subject to anti-competitive behavior, prompting them to explore options for addressing these concerns.

The potential regulatory scrutiny adds to the challenges faced by Google in recent times. Despite being a dominant player in the global technology and online advertising markets, Google has encountered increasing regulatory scrutiny from authorities around the world regarding its business practices.

In addition to regulatory challenges, Google’s financial performance has also come under scrutiny. While the company continues to generate significant revenue from its core advertising business, there have been concerns about slowing growth rates and rising competition in the digital advertising space.

Google’s parent company, Alphabet Inc., recently reported its quarterly earnings, which surpassed market expectations. However, investors remain cautious amid uncertainties surrounding regulatory investigations and potential legal actions against the company.

The news of Japanese antitrust regulators planning to push for reforms at Google could further impact the company’s stock price and investor sentiment. If the regulatory pressure intensifies or leads to sanctions or fines, it could have broader implications for Google’s operations and financial performance.

In response to the allegations, Google(GOOG) may need to reassess its partnerships and business practices to ensure compliance with antitrust regulations in Japan and other jurisdictions. This could involve implementing changes to its advertising policies or seeking to address concerns through dialogue with regulatory authorities.

Overall, the developments in Japan underscore the growing regulatory challenges faced by Google and other tech giants operating in the global marketplace. As regulatory scrutiny intensifies, companies like Google will need to navigate these challenges carefully to maintain their competitive position and sustain long-term growth.

Tech Stocks

xAI Seeks $3-4 Billion Funding: Valuation at $18 Billion

Elon Musk’s artificial intelligence startup, xAI, is currently seeking a financing round of $3 billion to $4 billion, with the potential to raise its valuation to $18 billion, according to materials provided to investors. However, the terms and amount of this funding round remain uncertain and subject to change, as per sources familiar with the matter. Reports surfaced last weekend indicating the company’s pursuit of a $3 billion funding round.

In light of this news, let’s delve deeper into the landscape of artificial intelligence and chip-related companies, comparing a few standout players to analyze their future business strategies, performance trends, and stock price movements.

Firstly, let’s consider NVIDIA Corporation (NVDA) and Advanced Micro Devices, Inc. (AMD), two leading chipmakers heavily involved in AI development. NVIDIA has been at the forefront of AI innovation, with its GPUs powering many AI applications, while AMD has also made significant strides in this field with its CPUs and GPUs. Both companies have experienced strong growth in recent years, driven by increasing demand for AI-related technologies across various industries. Their future prospects largely depend on their ability to maintain technological leadership and capitalize on emerging opportunities in AI-driven industries.

Another notable player in the AI space is Alphabet Inc. (GOOG), particularly through its subsidiary Google. Google’s AI initiatives span a wide range of products and services, from its search engine algorithms to its self-driving car project, Waymo. With vast resources and expertise in machine learning and data analysis, Google remains a key player in shaping the future of AI technology. However, it faces growing regulatory scrutiny and competition concerns, which could impact its growth trajectory.

In comparison, xAI, backed by Elon Musk’s visionary leadership, aims to disrupt the AI landscape with innovative solutions and breakthrough technologies. Despite being a relatively new entrant, xAI’s ambitious funding goals reflect its confidence in its ability to drive innovation and capture market share in the highly competitive AI industry. However, its success will depend on its ability to attract top talent, develop cutting-edge technologies, and establish strategic partnerships to scale its operations effectively.

As the AI industry continues to evolve rapidly, investors will closely monitor the performance and growth prospects of these companies. While established players like NVIDIA(NVDA), AMD(AMD), and Google(GOOG) have already made significant strides in AI, emerging startups like xAI pose exciting opportunities for investors seeking exposure to the burgeoning AI market. The outcome of xAI’s funding round and its subsequent growth trajectory will undoubtedly be closely watched by industry observers and investors alike.

Tech Stocks

Google to Invest $1 Billion to Enhance Digital Connectivity in Japan

Google(GOOG) announced on April 10th that it plans to invest $1 billion to improve digital connectivity in Japan. This initiative aims to bolster the country’s infrastructure and foster technological advancements, positioning Google as a key player in Japan’s digital transformation efforts.

The investment underscores Google’s commitment to expanding its global footprint and enhancing its presence in key markets. By allocating substantial funds to improve digital infrastructure, Google aims to strengthen its position as a leader in the tech industry while contributing to the economic development of Japan.

This announcement comes amidst growing competition in the technology sector, with companies increasingly focusing on investing in digital infrastructure to drive innovation and growth. Google’s decision to invest significantly in Japan reflects its strategic vision to capitalize on emerging opportunities in the region and solidify its position as a trusted partner for governments and businesses alike.

In response to this news, Google’s stock price may experience a positive reaction, as investors perceive the investment as a strategic move to drive long-term growth and profitability. Additionally, Google’s commitment to enhancing digital connectivity aligns with broader trends in the technology industry, further bolstering investor confidence in the company’s future prospects.

Recent statements from Google(GOOG)’s CEO, Sundar Pichai, emphasize the importance of investing in digital infrastructure to support economic growth and innovation. Pichai has reiterated Google’s commitment to leveraging its resources and expertise to address global challenges and drive positive change.

Overall, Google’s decision to invest $1 billion in enhancing digital connectivity in Japan is expected to have a positive impact on its performance and stock price, reaffirming the company’s position as a leading innovator and driving force in the technology sector.

Bank Stocks Financial stocks

The US Stock Earnings Season Kicks off This Week

The first-quarter earnings season is set to gradually commence in the US stock market this week, with JPMorgan Chase(JPM), Wells Fargo(WFC), and Citigroup(C) leading the way on Friday. Following suit will be global asset management giant BlackRock(BLK), and Delta Air Lines(DAL).

Despite the impressive performance of US stocks in the first quarter, Wall Street anticipates a relatively lackluster earnings season for American companies. However, analysts expect the “Big Seven” to continue driving profit growth in the US stock market, particularly in the telecommunications and technology sectors. Moreover, with US companies currently boasting record-high levels of cash flow, many firms may announce substantial buybacks and business expansions.

While the S&P 500 index surged by 10.16% in the first three months of the year, Wall Street strategists hold a somewhat pessimistic view regarding the performance of US companies in the first quarter. Expected profit growth for S&P 500 index component companies is forecasted to be the lowest since 2019, standing at just 3.9% year-on-year.

However, this situation could potentially be interpreted as a positive sign. If US companies outperform expectations, it could boost market confidence and fuel further growth. A similar scenario occurred three months ago when companies surpassed fourth-quarter earnings expectations, leading to market gains.

Wendy Soong, a senior analyst at Business Insider, noted, “Traders expect the Federal Reserve to cut interest rates later this year, which could result in stronger consumer spending, economic activity, better profit growth, and higher stock prices.”

Wall Street has outlined five major investment themes to watch during this earnings season:

  1. Continued profit growth led by the “Big Seven” companies, with significant increases anticipated for firms like Apple(AAPL), Microsoft(MSFT), Alphabet(GOOG), Amazon(AMZN), Nvidia(NVDA), Meta(META), and Tesla(TSLA) in the first quarter.
  2. Expected profit growth in the communication services, technology, and utilities sectors, while some sectors like energy, materials, and healthcare may experience profit declines.
  3. Record-high levels of corporate cash flow and free cash flow, potentially leading to increased capital allocation through dividend payments and investments.
  4. Improved operating profit margins, indicating enhanced corporate profitability.
  5. Potential disparity between stock price trends and earnings performance, as indicated by a low correlation index for S&P 500 index component stocks.

In summary, while Wall Street holds a somewhat negative outlook for the upcoming earnings season, potential positive surprises in corporate performance could spur market growth and bolster investor confidence.