Asian shares rose after US stocks rebounded from a $2 trillion sell-off, amid optimism that big tech leaders will report huge earnings this week.
Benchmarks in Japan and South Korea advanced, while Hong Kong futures also tilted toward gains. U.S. stocks were little changed after the S&P 500 crossed the 5,000 mark — ending a six-day losing streak — while the Nasdaq 100 rose 1%, with Nvidia leading the gains among big tech companies. Apple was named Bank of America’s top pick for 2024, on optimism about its upcoming results.
AI Predictions
Investors are waiting to see if earnings will meet the high expectations for AI this week, with about 180 companies in the S&P 500 — representing more than 40% of the index’s market value — set to report results. The seven big names are expected to post earnings gains of about 40% from a year ago, according to Bloomberg Intelligence. The focus on earnings comes after a slump fueled by geopolitical concerns and signals that the Federal Reserve will be in no rush to cut interest rates.
“Concerns about rising interest rates, stubborn inflation and geopolitical risks are not going away, but this week, the tech sector may be calling the shots,” said Chris Larkin, of Morgan Stanley’s ETrade.
Japanese Yen Support
Treasuries in Asia were steady ahead of a wave of bond auctions that will test investor appetite after yields hit their highest levels in 2024. Australian bonds rose in early trade.
Oil fell modestly after tensions in the Middle East eased. Gold rose after falling 2.7% on Monday as safe-haven demand eased.
In Asia, focus is returning to China's role as a major lender to developing countries, with a report that the central bank chief wants creditors involved in debt restructuring to agree on how to share the burden of debt relief fairly.
Elsewhere, the yen traded near a 34-year low against the dollar, keeping speculation alive that Japanese authorities will step up interventions via statements or actions to support their ailing currency.
Analysts divided
Strategists at Wall Street’s biggest banks are divided on whether companies can deliver strong forecasts. While Michael Wilson of Morgan Stanley said he expects earnings growth to improve as the economy strengthens, his colleague at JPMorgan Chase, Mislav Matejka, says stubborn inflation, a strong dollar and geopolitical tensions are clouding the outlook.
Nearly two-thirds of 409 respondents to a Bloomberg Markets Live Pulse survey said they expect earnings to give U.S. stock indexes a boost, the highest vote of confidence in earnings since the survey began in October 2022.
The challenge for S&P 500 returns this earnings season will be that companies will have to report earnings and forecasts that support already high multiples, said Megan Horneman of Verdence Capital Advisors.
Indeed, the stakes are high for U.S. tech giants to begin delivering on their AI promises, with their profits set to slow, according to strategists at Bank of America.
Apple, Alphabet, Meta and Tesla report results this week, kicking off the earnings season of the Big Seven.
With AI seen as key to future earnings, its contribution to the earnings mix is a key focus for traders, wrote a Bank of America team including Ohsung Kwon and Savita Subramanian in a note.
