Stocks fly to ALL TIME HIGHS as a soft-landing narrative continues to strengthen; Netflix (+16.8%) posts blockbuster earnings

A very warm welcome to all my readers! It was a busy week, filled with several geopolitical themes and big earnings! Stocks managed to make All Time Highs - we are quite literally watching history in the making!

Today’s newsletter covers; Earnings from the biggest European stocks, the ECB Policy Announcement (and its dovish pivot), and the key US data which continues to fuel into the soft landing narrative!

STOCK SPECIFICS:
ASML, NFLX, LVMH, TSLA

Tesla (WTD -13.5%): No more road to drive on! Metrics were weaker across the board, (1) missing on EPS and Revenue. (2) Additionally, Tesla noted that 2024 vehicle growth may be “notably“ lower than in 2023 (as it focuses on the new vehicle). Yes… that’s definitely the reason why 😉. (3) CEO Musk also said he wants a 25% stake in the company, before attention turns to achieving its AI goals - further uncertainty for investors. My thoughts? AI advancements has and will continue to be the main driver for Tesla - and (3) just adds to the negativity surrounding already weak results. However, I think its sensible to say that this move seems a bit overdone - and not helped by the sensationalists in the media - looking at you Jim!

Netflix (WTD +16.8%): I can’t password-share anymore…so I’ll just sub myself. (1) Metrics: Missed EPS, but significantly grew net additions. (2) Guidance: Q1 EPS guidance beat analyst estimates. Ultimately, this, coupled with strong net additions was enough to offset the miss on EPS. (3) Prior to the earnings, Netflix announced it acquired rights to WWE’s Raw live event - interesting diversification and perhaps paves the way for more. My thoughts? In one line. The crackdown on password sharing was good.

LVMH (WTD +15.9%) / Luxury: Holds the second largest weighting in the Eurostoxx50. (1) Metrics: Earnings were strong across the board. (2) Guidance: “Chinese clientele remained good“. The Luxury sector significantly under-performed last year, amid continued weakness in Chinese demand. These results helped ease some of the concerns and pointed towards a recovery for the sector as a whole. (3) Barclays upgraded Luxury to Overweight. My thoughts? You might remember my past newsletters which mentioned Burberry (bad guidance) / Richemont (strong demand). Seemingly, the “larger“ Luxury names are faring best - Hermes and Kering are still due; it will be safe to assume they will largely reiterate trends mentioned by LVMH.

ASML (WTD +13.5%) / Semiconductors: The largest weighted Eurostoxx50 company announced its earnings on Thursday. (1) Metrics: Strong across the board. (2) Guidance: Q1 Net Sales below expectations; though did say there are “positive“ signs on the semiconductor market recovery. My thoughts? Whilst revenue was strong, the proof in the pudding was in the bookings metric (approx. 3x higher than analyst expectations) - with AI continuing to be a driver in the new year. Focus was also on the 2025 outlook, (expects significant growth) as well as a dividend increase. I expect a pullback - Intel (-11%) cut guidance on Friday which led to negative price action on Friday - AMD on Tuesday up next.

KEY EVENTS:
ECB Policy Announcement / Geopolitics

ECB kept rates on hold - Ultimately, this was a boring announcement, with Lagarde not adding too much to the story - and that’s exactly what markets wanted. The ECB President did not explicitly push back on market pricing for early rate cuts, which allowed the EUR and EGBs to react dovishly (albeit modestly). My thoughts? I think the ECB will implement its first rate cut in June. (1) I think the ECB will want to wait for wages data to cool, that is released in April. (2) I feel markets are well ahead of themselves - the path to the cutting cycle is to the upside (there is no room for mistakes). (3) ECB member Vujcic said “there was no dovish tilt“ in January meeting - its not even on the Bank’s mind at the moment. (4) Geopolitical related inflation upside risks. (see below)

Geopolitics / Inflation - Red Sea tensions continue - and it seems it will do for a long time. On Friday, the Houthis naval forces carried out a targeted attack on a British oil tanker. Several shipping companies have continued its re-route from the Red Sea to the Cape of Good Hope (around Africa) - extending shipping times and increasing premiums. Over the past month, the majority of companies have noted that they have/will not be effected in the short-term. However, I have noticed (particularly in the past week) that more companies are beginning to caution of higher prices, due to the Red Sea events. In terms of figures, freight rates for Asia-North Europe have increased by approx. 180%.

MACRO RUNDOWN:
US Data / Central Banks
Central Banks - Market pricing has shifted since the start of the month, in a slightly more hawkish direction. Currently, markets offer a 50% probability to to a first rate cut in May.

US Data - In one line - mixed as traders focused on the dovish aspects. (1) US PMI is forward looking, and came in hotter than expected (expansionary for economy). (2) GDP Q4 - MUCH hotter than expected, but is very backward focused. Side note: If I were a trader, I would have most definitely taken a short position on this print (and lost money) 😅 . (3) US PCE (Q4) - softer than expected and drove the dovish reaction (the more timely data for December was near enough in-line with a dovish tilt). Analysts noted that the annualised 6-month average brought inflation below 2% for the first time. My thoughts? Overall the Goldilocks pattern continues to be displayed and further helps market pricing for a early rate cut in May.

FINAL THOUGHTS / YOUR COMMENTS:
[Earnings, Fed, US NFP]
Earnings - Tuesday marks the start of a slew of important earnings - with four of the “Magnificent 7“ due to report. Tue: Google, Microsoft, Starbucks, AMD. Wed: Boeing, Mastercard, Qualcomm. Thur: Amazon, Meta, Apple. Fri: Exxon, Chevron, Abbvie.

Fed - On Wednesday the Central Bank is expected to keep rates on hold at 5.25-5.50%. Ultimately this will be a boring meeting - with Chair Powell likely to stick to a “data dependent“ approach. What to look out for? As a trader, look out for any dovish pivot and/or any mention of which specific data points the Fed is looking at (the ECB mentioned wage data).

US NFP - Analysts estimates are for the figure to print 162k in January whilst the unemployment rate is expected to remain unchanged. Recently, the jobs market has been moving in a positive direction for the Fed (cooling at a slow rate) - adding to expectations for a soft landing. JOLTs and ADP metrics will precede the final NFP print, which may help to predict the figure on Friday.

What you said? A big thanks to Hubert this week for writing in! They said: “I am expecting a lot of volatility this week, there are alot of risk events to keep a note of. My focus will be on Meta, and particularly on any commentary on its Quest Pro product ahead of Apple’s Vision Pro release on Friday.“

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