A roundup of Monday’s stock market results from across the Americas
🌎 Brazil’s Ibovespa leads in LatAm:
Latin American markets closed the first day of this week with mixed results, with Argentina’s Merval index (MERVAL) seeing the sharpest fall, one day after the agreement with the International Monetary Fund (IMF) was reached in principle and in view of the partial devaluation announced by the government.
According to the IMF, the principle of the agreement with Argentina seeks to “consolidate fiscal order and strengthen reserves”. At the same time, the fiscal measures to be applied in Argentina made imports and the savings dollar more expensive.
Brazil’s Ibovespa (IBOV) led the gains, climbing 0.94%, followed by the IPSA (IPSA) index of the Santiago Stock Exchange, which recovered from last Friday’s setback and gained 0.80% on Monday, boosted by the shares of Enel Chile (ENELCHIL), up 3.79%, and CAP (CAP), which closed 3.44% higher.
The S&P/BMV IPC index of the Mexican Stock Exchange (MEXBOL) dropped 0.34%, with the shares of Controladora AXTEl (CTAXTELA) falling 9.13% and those of Grupo Aeroportuario del Centro (OMAB) down 3.88%.
Colombias’s Colcap index (COLCAP) was little changed. varied very little at the end of the day, and Lima’s index (SPBLPGPT) saw a moderate advance on the back of mining companies’ shares.
🗽On Wall Street:
A pivotal week for markets started with small gains in stocks as traders braced for rate decisions from major central banks and a deluge of corporate earnings.
In the run-up to the Federal Reserve and European Central Bank’s gatherings, investors got a reminder about the side-effects of aggressive policy tightening. Disappointing data from both the US and euro-area added to bets officials are close to ending their hiking cycles to prevent a recession. Aside from the economic picture, global companies with a combined $27 trillion in value were set to report results, including giants Microsoft Corp., LVMH and Samsung Electronics Co.
“This week will offer plenty of opportunity to test the stock-market rally that began on Oct. 12,” said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management. “Traders will be seeking to gain further insight into the direction the markets are likely to take from here.”
The Dow Jones Industrial Average rose for an 11th straight day — its longest winning run since 2017. The S&P 500 traded near 4,550, while the Nasdaq 100 underperformed after a “special rebalance” that took effect Monday. Two-year US bond rates climbed as an auction drew the highest yield since 2007. The dollar was little changed. Bitcoin briefly fell below $29,000. West Texas Intermediate crude topped $78 a barrel. Wheat and corn gained as Russia attacked one of Ukraine’s biggest Danube river ports.
Among the corporate highlights, Tesla Inc. advanced after disclosing strong sales outside the US and China. Apple Inc. gained as Bloomberg News reported the company is keeping its iPhone shipments steady despite the 2023 turmoil. AMC Entertainment Holdings Inc. climbed as a surprise court ruling Friday scuttled a stock conversion plan the cinema chain has now revised. Chevron Corp. rose on solid earnings.
The delayed impact of aggressive interest-rate hikes by global central banks, dwindling consumer savings and a “deeply troubling” geopolitical backdrop are poised to spur fresh market declines and renewed volatility, according to JPMorgan Chase & Co. strategist Marko Kolanovic.
Kolanovic also noted that the stock-price reaction to earnings reports is expected to be muted as the market was strong coming into the second-quarter reporting season.
Investors have mostly shrugged off positive earnings surprises from companies that reported results so far, according to strategists at Bank of America Corp. Moves were on average 1.3 percentage points larger than implied by the options market, but the direction was skewed to the downside.
“This suggests increased positioning risk and good news having been priced in,” BofA strategists led by Savita Subramanian added.
To Chris Larkin at E*Trade from Morgan Stanley, tech may “hold the key” to the continuation of the near-term bullish enthusiasm of stock traders as big names get ready to report their quarterly numbers.
Indeed, the stakes are high for heavyweight technology firms, which have fueled an advance of over 40% for the Nasdaq 100 this year. The “big seven” — Apple Inc., Amazon.Inc., Nvidia Corp., Meta Platforms Inc. (META), Alphabet Inc. (GOOGL), Tesla (TSLA) and Microsoft (MSFT) — now trade at a record premium to the bottom 493 stocks in the S&P 500, according to BofA’s Subramanian.
“We expect big tech earnings to be mixed and the real test will be for companies that have significant exposure to artificial intelligence as investors are eager to see if these companies can report strong enough results to support their significantly elevated share prices in recent months,” said James Demmert, chief investment officer at Main Street Research.
Fair value
The S&P 500′s high valuation is reasonable and could rise further this year as laggards of the index join the surge in winners from artificial intelligence, according to Goldman Sachs Group Inc. strategists.
While the base-case scenario is for the S&P 500′s price-to-earnings ratio to shrink slightly to 19 times from the current level of about 20 by the end of 2023, the risks to valuations are now skewed to the upside, strategists led by David J Kostin said.
Meantime, Glenmede’s Global Expected Returns Model shows valuations on US large-cap equities currently sit at the 77th percentile — which implies 22% downside if valuations were to revert to fair value.
“Recession beginning later this year or early next remains the base case, a likelihood which is not reflected in equity valuations,” said Jason Pride, chief of investment strategy and research at Glenmede.
The outlook for the world’s largest economy will likely hinge on the Fed’s willingness to tolerate inflation markedly higher than it would prefer. After taking a break from tightening last month, Chair Jerome Powell and his colleagues look locked in to raising interest rates by a quarter percentage point on Wednesday.
The big question facing policymakers and financial markets at this stage is what comes next.
“The market is pretty well signaling another 25-basis point rate hike is in the cards,” said George Mateyo, chief investment officer at Key Private Bank. “People are probably looking past the announcement itself and then trying to glean some read in terms of what happens later this year.”
Whether the Fed gives investors a reason to sell or there’s a big earnings disappointment this week, the market is ripe for a decline into the fall, according to Paul Nolte at Murphy & Sylvest Wealth Management.
“For now, that decline is not something to upset the longer-term trajectory of the market,” he noted.
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.6% to $1.1062
- The British pound fell 0.3% to $1.2817
- The Japanese yen rose 0.1% to 141.52 per dollar
🍝 For the dinner table debate:
Everybody wants to work with Jamie Dimon, CEO of JPMorgan Chase & Co (JPM) - or at least that what a survey indicates.
A recent Market Live Pulse poll revealed that three out of five respondents out of a universe of 600 would select Dimon to work with him, far outperforming other well-known business leaders such as Jane Fraser (Citigroup) and James Gorman.
Dimon has led JPMorgan for the past 17 years, garnering many positive comments about his management and boosting its stock price fourfold. On the other hand, nearly half of respondents blame executives for the higher costs and payroll collections that are dragging down the financial sector.
Paola Villar S, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report
