The financial report tide of U.S. technology giants is coming, and the two major banks on Wall Street have issued a warning!

Source: Brokerage China

The decline of U.S. stocks has just begun?

Today, Marko Kolanovic, chief market strategist at JPMorgan Chase & Co., said that the decline in the US stock market over the past three weeks is only the beginning of a larger sell-off. The sell-off is likely to intensify as macroeconomic risks such as rising US Treasury yields, a stronger US dollar, and higher oil prices intensify.

At the same time, Bank of America strategists have also warned that there are higher risks for US tech giants to realize the promise of artificial intelligence against the backdrop of a possible slowdown in earnings. The bank expects that while the growth of these companies in the first quarter is still expected to be 39% higher than the same period last year, the increase is lower than the 63% increase in the last three months of 2023. The bank's strategists predict that the growth gap between the seven tech giants and the rest of the S&P 500 could narrow by the fourth quarter, which could lead to a shift in money away from tech stocks and toward value-oriented stocks.

This week, Tesla, Meta, Microsoft, and Google's parent companies will all report their earnings reports. Last week, Wall Street publicly uneasy about upcoming results, with the tech-heavy Nasdaq falling 5.5% for the week, its biggest weekly drop since November 2022. Some analysts said that whether the sell-off in technology stocks will continue depends on the earnings reports of large-cap technology stocks.

JPMorgan Chase and Bank of America issued warnings

On Monday, local time in the United States, Marko Kolanovic, chief market strategist at JPMorgan Chase, said in a report that although the results announced by U.S. companies this week may temporarily stabilize the market, it does not mean that the stock market has been out of trouble.

Marko Kolanovic said complacency about stock market valuations, stubbornly high inflation, weakening expectations of an imminent Fed rate cut, and overly optimistic earnings expectations have all exacerbated downside risks, and the sell-off in U.S. equities could deepen further in the future, Marko Kolanovic said. Marko Kolanovic wrote: "A market correction is often defined as a 10% or greater decline, and the pullback is likely to continue. The market concentration has been very high and the positions have expanded, which is usually a red flag and there is a risk of a reversal. ”

Marko Kolanovic believes that the recent trading pattern and current market narrative are similar to last summer. At the time, an unexpected rise in inflation and a hawkish shift in the Federal Reserve's monetary policy spurred a decline in risk assets. However, unlike then, investors' positions now seem to be higher – which means greater downside risk.

The strategist suggested that investors should maintain a defensive posture 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 told clients that it is time to consider buying Japanese consumer-related stocks, as real wage growth is expected to spur an increase in Japanese personal consumption, 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 have raised their expectations for U.S. equities, these JPMorgan strategists remain generally unbiased on equities and risk assets, with their S&P 500 forecast of 4,200 points at the end of 2024, the lowest among large Wall Street banks. This expected point means that the S&P 500 will end the year down about 16% from Monday's closing level.

In addition, on Monday local time, Bank of America strategists also warned that for US tech giants, there is a higher risk of realizing the promise of artificial intelligence in the context of a possible slowdown in earnings. While these companies' growth in the first quarter is still expected to be 39% higher than the same period last year, the increase is lower than the 63% growth recorded in the last three months of 2023.

Bank of America noted that first-quarter earnings for companies in the S&P 500 except for the seven tech giants are expected to decline 4% year-on-year. However, according to Bank of America, about 25% of stocks in the benchmark stock index are likely to achieve positive and accelerated earnings per share growth in the first quarter.

Strategists at Bank of America predict that the growth gap between the seven tech giants and the rest of the S&P 500 could close by the fourth quarter, which could lead to a shift in money away from tech stocks and toward value-oriented stocks.

The market is quite divided

However, Wall Street analysts are quite divided on US stocks.

UBS said a few days ago that the upward momentum of the US tech giants is disappearing as the earnings momentum that the sector once enjoyed is facing a cooling. Ahead of this week's earnings release, UBS downgraded the sector ratings of Google, Apple, Amazon, Meta, Microsoft and Nvidia to "neutral" from "overweight". UBS expects earnings per share growth for the six major U.S. technology stocks to slow down, while other tech stocks will eventually outpace the giants by the end of the year.

On April 22, King Lip, chief strategist at wealth management firm Baker Avenue, said that whether the tech sell-off will continue will really depend on the reports of large-cap tech stocks. "Now that we've made a little bit of a correction, the valuation is definitely more reasonable now," he said. ”

"A pullback is long overdue," King Lip said. I think it's a normal adjustment at the moment. He has started to increase his exposure to stocks for clients and plans to buy more shares if the stock market falls further. However, he thinks the S&P 500 could fall by as much as 10% from its March 28 high.

Morgan Stanley's equity strategy team led by Michael Wilson said that as the U.S. economy strengthens, U.S. corporate profit growth is expected to improve significantly in 2024 and 2025, which is also a rare optimistic outlook for earnings per share expectations from the "big short" Michael Wilson since 2023. Regarding the latest outlook for US earnings expectations, Michael Wilson stressed that the rebound in the US business activity survey, supported by new orders data, "confirms the continued trend of earnings growth going forward".

In addition, Dan Ives, an analyst at Wedbush, a well-known Wall Street investment institution, said that a large number of field surveys have made the institution very confident in enterprise AI spending, and it is expected that AI spending is expected to account for about 10% of enterprise IT budgets this year, compared with less than 1% in 2023.

Dan Ives said the earnings environment for tech companies still looks strong, especially given the corporate frenzy for AI, which has fueled a 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 that the sector could soar another 15% by the end of 2024.

CICC's latest research report pointed out that the expectation of the Fed's interest rate cut postponement is still fermenting, and the number of interest rate cuts implied by CME interest rate futures last year has been reduced to one, resulting in the 10-year U.S. Treasury and the U.S. dollar continuing to rise, approaching the previous high. The S&P 500 index fell 3.1% last week, and the Nasdaq index fell 5.5%, causing market attention. "We are not surprised by this, on the one hand, the fall of U.S. stocks has its 'inevitability', and on the other hand, the fall of U.S. stocks in this position is not a bad thing, not only to digest its overly strong expectations, but to help the interest rate cut trade to open again, and then lay the foundation for the subsequent rise again." ”

Tesla is not optimistic

On April 22, Tesla's stock price fell 3.4%, the seventh consecutive trading day of decline, and its market value shrank further to $452.4 billion. Since the beginning of this year, Tesla's stock price has fallen by 43%, and its market value has evaporated by 339 billion US dollars, equivalent to about 2.46 trillion yuan.

After the U.S. stock market on April 23, Tesla will announce its first-quarter earnings report. Wall Street expects Tesla to report its worst earnings in seven years, with first-quarter gross margins hitting their lowest level since early 2017. Wall Street expects auto gross margins, excluding regulatory credit, to be 15.2 percent, down from 19 percent a year ago and the lowest since the fourth quarter of 2017, according to 20 analysts polled by data analytics platform Visible Alpha.

In addition, according to Bloomberg's consensus estimates, in the first quarter, Tesla's adjusted earnings per share were $0.52, with a peak revenue of $22.31 billion, which would be the company's first revenue decline in four years. On the earnings front, Tesla is expected to post an operating profit of $1.49 billion, down 40% from a year ago. For non-GAAP measures, Wall Street expects adjusted net income of $1.79 billion and EBITDA of $3.32 billion.

At the moment, Tesla's sales growth is slowing and is expected to have a significant impact on Tuesday's results. Earlier this month, Tesla disclosed data showing that in the first quarter, Tesla delivered 386,800 vehicles, down 8.5% from a year earlier, while inventories rose.

A few days ago, Tesla announced a global price cut for the Model 3, Model Y and other models, which will further eat into profits. Several analysts expect Tesla's annual deliveries to decline for the first time in 2024 after years of double-digit growth. Tesla had warned in January that delivery growth would "drop significantly" this year, suggesting that price cuts would not be enough to boost demand.

Last week, the electric car maker said it would lay off more than 10% of its workforce, the same day that Drew Baglino, Tesla's senior vice president of powertrain and energy engineering, and Rohan Patel, vice president of public policy and business development, announced their resignations. Some analysts said that Tesla's layoffs are directly related to the company's "Waterloo" in car sales in the first quarter of 2024.

Bank of America analyst John Murphy wrote in a note: "Sentiment towards Tesla has deteriorated since late 2023. Recently, analysts from more than 10 institutions, including Goldman Sachs, Da Mo and Deutsche Bank, lowered their 12-month target price for Tesla.

Among them, Deutsche Bank downgraded Tesla's rating to "hold" from "buy" and lowered its price target to $123 from $189. The bank noted that the launch of the Model 2, a low-cost car, is likely to be delayed, and that the company has shifted its strategic focus to the robo-taxi business, which is considered to be a management risk and will take years.

Editor-in-charge: Li Dan

Proofreading: Zhu Tianting

The 2024 Securities Times "Looking for the 'Golden Eagle' of Venture Capital and Discovering the 'New Seedlings' of Enterprises" plan was grandly reopened, lighting up the dream of the times and blooming the light of the times.

Click on the poster to register, and quickly poke ↓↓↓

Copyright Notice

All original content on the platforms of the Securities Times shall not be reproduced by any unit or individual without written authorization. Our company reserves the right to pursue the legal responsibility of relevant actors.

For reprinting and cooperation, please contact the Securities Times assistant, WeChat ID: SecuritiesTimes

END