Update Equities: Many moving parts
October is a month known for high market volatility and sharp swings; and, so far, it has lived up to its reputation. The earnings season is leaving its mark, as are oil prices and the Chinese stock markets, which are both moving significantly. In the second half of October, it will likely not quiet down. The earnings season will be in full swing, and the US presidential elections lie ahead.
As the US nears Election Day on 5 November, Donald Trump and Kamala Harris are in a tight race. And in China, high market volatility persists, as investors anticipate further stimulus measures, following a rapid market rise after large stimulus measures were announced at the end of September. The current pullback in Chinese markets reflects disappointment in additional measures. Investors seem to be looking for more, preferably fiscal, stimulus.
Despite the fact that the earnings season is not yet in full force, it is already having an impact. The technology sector, in particular, reacted strongly to company earnings and guidance reports. Semiconductor equipment supplier ASML reduced its 2025 guidance due to lower demand and took a big hit in its share price. The company sees a slower recovery in certain end markets. As a result, major chip manufacturers, such as Intel, Samsung and TSMC, seem to be postponing their orders for new machines. On 14 November, ASML will host a capital markets day.
ASML's disappointing results were partly offset by TSMC's strong numbers. The Taiwanese chipmaker posted better-than-expected results and the outlook for the rest of the year was also above market expectations.
In consumer-related sectors, the results of both LVMH and Nestlé disappointed. An ongoing slowdown in Chinese luxury spending hurt LVMH's stock. Fashion and leather goods sales declined for the first time since the pandemic. As current stimulus in China prioritizes boosting the equity market and property sector, there is minimal direct aid for LVMH's market.
Consumer staples company Nestlé lowered its yearly outlook, anticipating only 2% organic revenue growth compared to a previously stated growth of at least 3%. Nestlé is struggling to rebuild market share after higher prices deterred consumers from purchasing branded products. A new chairman has announced a raft of organizational changes to improve the pace of decision making. Investors are focusing on 19 November, when new details on 2025 targets may be announced.
Joost Olde-Riekerink