This article discusses various business-related news and developments, including the launch of Meta's Threads app as a rival to Twitter, Apple's stock valuation reaching $3 trillion, the rally in tech stocks, Tesla's record-breaking vehicle deliveries, the approval of Alef Aeronautics' flying car, a temporary injunction on government officials discussing content removal with social media companies, Pakistan's bailout from the IMF, China's export curbs on semiconductor materials, leadership changes in China's central bank, Australia's decision to keep interest rates on hold, Saudi Arabia and Russia's efforts to lower oil supplies, Reliance Jio's launch of a cheap internet-connected phone in India, and Japan Airlines' clothing rental service for passengers.
SoftBank-owned Arm has filed for its initial public offering (IPO), which will be a major test for the IPO market that has been stagnant due to rising interest rates, and is a significant move for SoftBank as it pivots its focus to artificial intelligence. Arm's chip designs are found in almost all smartphones globally, and the company's listing has implications for SoftBank's rebound strategy.
Investors are looking forward to after-the-bell earnings from Nvidia as the Dow, S&P 500, and Nasdaq are set to open slightly higher; Apple is now the most under-owned large-cap U.S. tech stock while Meta Platforms is the most over-owned.
Mortgage rates soar to the highest level in nearly 23 years, causing pain for homebuyers and exacerbating the housing supply issue, while chip designer Arm files for a Nasdaq listing and Google faces leadership changes as it navigates competitive, regulatory, and investor pressures. Additionally, American workers are demanding higher salaries, indicating a hot labor market and potential inflation.
European markets are expected to open higher following UBS's strong quarterly results and positive economic data, while China's factory activity contracted and U.S. job growth slowed in August.
UBS reports higher than expected profits, job creation in the US slows, and markets rally on weaker economic data and hope for a pause in interest rate hikes. China's factory activity shrinks but at a slower pace, while retail sales increase. There are opportunities for investors in other Asian markets.
The top 25 stocks in the S&P 500 outperformed the index in the 35th week of 2023, with tech stocks leading the way, suggesting a return of bull markets and a decrease in recessionary fears; however, market health, the balance between developed and emerging markets, and investor behavior still need to be addressed. Additionally, market correlations have dropped since COVID, and on "down-market" days, correlations are 5% higher than on "up-market" days. Market correlations also decrease during upward economic cycles. Retail investors are showing a preference for dividend-driven investing and investing in AI stocks. The global subsidies race is impacting valuations in tech and leading to supply chain inefficiencies. As a result, there are opportunities for diversification and investment in a wide variety of equities and bonds.
Equities are lower in premarket trading, oil prices pull back slightly, Arm Holdings' IPO is China-focused, Walt Disney faces a crisis with Charter Communications, retired Chinese Communist Party elders upbraid Xi Jinping, TD Cowen upgrades Constellation Brands, William Blair initiates coverage on Trade Desk, UBS lowers price target on Dexcom, HSBC initiates coverage on biopharmaceutical and healthcare companies, Loop Capital raises price target on TJX Companies, and Mizuho lowers price target on Dominion Energy.
Stocks sold off and U.S. Treasury yields rose for the second consecutive day, while Germany's manufacturing orders experienced a significant decline; Apple signed a long-term agreement with Arm, boosting anticipation for Arm's upcoming IPO; the European Commission designated Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft as "gatekeepers" under its new Digital Markets Act; Goldman Sachs updated its conviction list, adding a new company with projected revenue growth and removing another after a significant drop in shares; and markets are focusing on stubborn inflation and the threat of higher interest rates, causing stocks to be pressured and technology stocks to be particularly affected.
Big tech, including Apple, faced pressure as concerns grew over China potentially expanding its iPhone ban, while equity futures fell due to strong jobless claims figures, reinforcing the case for the Federal Reserve to maintain elevated interest rates.
China's reported ban on central government employees using iPhones at work led to a 6% drop in Apple's stock, causing major Wall Street indices to decline, although Morgan Stanley analysts predict the ban will only have a minor impact on Apple's revenues.
The US economy is displaying resilience with jobless claims at their lowest since February and increased consumer spending on travel and experiences, despite challenges such as the resumption of student loan payments and oil production cuts by Saudi Arabia and Russia. Apple's stock has also been affected by the Chinese government's expanding iPhone ban, reflecting the broader tensions between the US and China.
European stock markets are expected to open higher on Tuesday as investors await economic data, including U.S. inflation figures and the European Central Bank's rate decision, while Arm IPO's price could potentially surpass $51 per share. Meanwhile, tech investor Paul Meeks plans to buy tech stocks once the market correction subsides, and Federal Reserve officials are reportedly feeling less urgency for another rate hike. HSBC has also named its "must see stocks" in the UK.
The recent surge in IPOs, including the listing of Arm, reflects growing market confidence and economic optimism.
The article does not mention any specific stock recommendations. However, it discusses Apple (NASDAQ:AAPL) extensively and highlights the author's positive view towards the company's valuation and growth prospects.
The author's core argument is that while Apple's growth has slowed, its elevated valuation is justified due to factors such as its superior competitive position, strong brand and connection with consumers, solid prospects for future growth, and strong financial position.
Key information and data mentioned in the article include:
- The Wall Street Journal reported that the Chinese government had banned iPhones for government employees, but the Chinese government later denied this report.
- If the ban had been true, analyst Dan Ives estimated it would be a hit of half a million iPhones, but he referred to it as "more bark than bite."
- Apple's growth has slowed, but its high valuation is justified due to its many advantages, including its competitive position and strong financials.
- Apple's valuation is less dependent on current earnings and more focused on long-term prospects.
- Apple's revenue is comparable to other massive companies, but it still has room for growth, especially in the high-margin services segment.
- Apple's dependence on China is both a risk and an advantage, as China is also dependent on Apple.
- The Chinese economy is facing challenges, and a cooperative relationship between the US and China would benefit Apple and the global economy.
- The author believes that Apple's strong management and adherence to secrecy and compartmentalization give it a unique edge.
- The author suggests that expectations for Apple may be too low if globalization is not receding as expected.
The outlook of U.S. companies on China's markets in the next five years has hit a record low due to factors such as political tensions, tariffs, slow Covid recovery, and issues in the real estate market; however, complete decoupling between the two economies is unlikely.
Arm Holdings, the highest valued IPO this year, faces challenges due to its exposure to China risks, declining revenues from China, and uncertainties surrounding the impact of AI on its business, which may temper market optimism and its valuation premium.
U.S. equities fall after the Fed hints at higher interest rates, while homebuilder and Cisco shares decline, and FedEx shares soar.
Investors are rapidly selling off equities due to concerns about higher interest rates and the potential for a recession in 2024, according to Bank of America strategists.
Asia-Pacific markets mostly decreased despite a rebound on Wall Street, with Japan's Nikkei 225 and Australia's S&P/ASX 200 experiencing losses, while the Kospi in South Korea and the Kosdaq in Hong Kong saw mixed results; in European luxury sectors, Bank of America upgraded three stocks that are deviating from negative trends; Moody's warns that a U.S. government shutdown would have a negative impact on credit; analysts have mixed opinions on the investment potential of tech giant Meta; Amazon's shares increased by 1.2% following its announcement of a major investment in AI startup Anthropic; the Federal Reserve suggests that interest rates may soon stabilize but at a higher level than expected; Chevron's CEO predicts that oil prices could reach $100 per barrel.
JPMorgan retail analyst predicts challenges for lower to middle-class consumers due to increasing mortgage rates, credit card debt, stagnant wages, and declining apparel trade, while banks face uncertainty in the commercial real estate sector; JPMorgan reduces price target on Netflix ahead of earnings, UBS issues a buy rating for Trade Desk, Workday shares plummet after weak Investor Day details, Bank of America lowers price target on Advance Auto Parts, TD Cowen initiates coverage on Diageo, TD Cowen reduces price target on Walgreens Boots Alliance, Paychex receives multiple price target increases, JPMorgan raises price target on Take-Two Interactive, and Barclays cuts price target on United Parcel Service.
The global market for initial public offerings (IPOs) is showing signs of recovery after an 18-month slump, with emerging markets accounting for a significant share of the money raised and number of IPOs, driven by economic growth and increased interest from investors in local and regional companies; however, major IPO markets such as the US, Europe, and the UK have struggled this year due to factors such as high interest rates, regulatory restrictions, and reduced investor appetite for risky bets.
