Date Issued – 16th October 2024

Preview

This newsletter covers key developments over the last 24 hours, including ASML’s earnings report and stock fall, UK inflation rates, earnings from Johnson & Johnson and Bank of America, Hong Kong’s housing affordability measures, and Walgreens’ decision to close stores. Here’s what you need to know:

ASML Stock Falls After Q3 Earnings Miss

ASML, a key player in the global semiconductor industry, reported a sharp decline in stock price after missing Q3 2024 earnings expectations. The company’s revenue of €6.7 billion fell short of analysts’ predictions, largely due to delays in the delivery of its advanced lithography machines, which are crucial to chip manufacturing. Supply chain disruptions and slower-than-expected demand from semiconductor producers contributed to the earnings miss. The company also lowered its full-year revenue forecast, citing near-term challenges in the semiconductor industry, though its long-term outlook remains optimistic due to the increasing demand for AI chips and 5G technology. Analysts are now assessing how ASML’s near-term struggles may reflect broader trends in the semiconductor market.

Investment Insight: ASML’s recent performance underscores potential weaknesses in the semiconductor sector, which could present risks or opportunities depending on how the market evolves.

Market Price: ASML (ASML): € 641.50

UK Inflation Falls to 1.7%, Boosting Market Confidence

The UK’s inflation rate has dropped to 1.7% in September 2024, marking its lowest level in two years. This decline comes as energy prices continue to stabilize, and food costs ease after months of upward pressure. The lower inflation rate has reduced the likelihood of further interest rate hikes by the Bank of England, which previously raised rates to combat persistent inflation. The slowdown in inflation is seen as a positive sign for the UK economy, potentially boosting consumer spending and economic growth. Many economists now believe that the UK may avoid a recession, a concern that had been mounting over the past year due to rising living costs and slowing wage growth.

Investment Insight: The fall in inflation could improve the outlook for consumer-facing sectors, including retail and hospitality, making UK equities in these industries more attractive to investors.

Market Price: FTSE 100: £9,149.16

Johnson & Johnson Posts Strong Q3 Earnings Despite Industry Challenges

Johnson & Johnson delivered better-than-expected earnings for Q3 2024, reporting a 5% year-over-year increase in revenue, which reached $25 billion. The company’s pharmaceutical division led the charge, with key drugs in oncology and immunology driving strong sales. J&J’s medical device segment also saw growth, benefiting from increased demand for surgical tools and devices. The company raised its full-year earnings forecast, indicating confidence in its ability to navigate ongoing challenges in the healthcare sector, such as cost pressures and supply chain disruptions. Investors were encouraged by J&J’s diversified business model, which allows it to weather volatility in any single market segment.

Investment Insight: Johnson & Johnson’s resilience and growth in key divisions make it a solid pick for investors looking for stability in the healthcare sector, particularly in pharmaceuticals and medical devices.

Market Price: Johnson & Johnson (JNJ): $164.10

Walgreens to Close 1,200 Stores in Cost-Cutting Move

Walgreens announced it will close 1,200 stores over the next three years as part of a broad cost-cutting initiative. The decision comes as the pharmacy chain grapples with declining foot traffic, rising costs, and increased competition from online pharmacies. Walgreens’ move to shrink its brick-and-mortar presence is aimed at improving profitability and shifting more focus to its growing digital and healthcare services. The closures are expected to save the company significant operational costs, though they may also lead to revenue losses from reduced physical store sales. Walgreens’ management believes the cost-saving strategy will allow it to invest more in digital innovation and patient care.

Investment Insight: Walgreens’ shift towards digital healthcare services could offer long-term growth potential, but the near-term store closures may present challenges for investors seeking immediate returns.

Market Price: Walgreens Boots Alliance (WBA): $10.42

Bank of America Beats Earnings Expectations as Interest Income Rises

Bank of America posted a strong Q3 2024 earnings report, with net income increasing by 9% compared to the previous year, bringing total revenue to $25.3 billion. The bank’s results were driven by higher interest income, boosted by the Federal Reserve’s interest rate hikes earlier in the year. Additionally, the bank saw growth in its wealth management and investment banking divisions, further contributing to the better-than-expected earnings. Despite a challenging economic environment, Bank of America’s focus on cost management and its diversified business lines helped mitigate potential risks. The bank also benefited from an increase in loan demand, particularly in the commercial and real estate sectors.

Investment Insight:

Bank of America’s performance shows the continued strength of the financial sector, especially in an environment where higher interest rates boost income. Investors may want to keep an eye on how the bank manages rising loan demand in the coming quarters.

Market Price: Bank of America (BAC): $242.14

Hong Kong Implements Housing Affordability Measures

In response to rising housing prices and growing public dissatisfaction, the Hong Kong government has unveiled new measures to address housing affordability. These include subsidies for first-time homebuyers, incentives for developers to build affordable housing, and rezoning land for residential use. Hong Kong’s property market remains one of the most expensive in the world, with home prices far outpacing local incomes. The government’s initiatives aim to increase homeownership rates and alleviate the financial strain on residents. Analysts believe these measures could provide a much-needed boost to the real estate market by stimulating demand for lower-cost housing.

Investment Insight:

Hong Kong’s real estate sector could see increased activity as these new policies encourage more affordable housing developments, creating potential opportunities for investors in the housing market.

Market Price: Hang Seng Index: HKD 20,286.85

Conclusion:

Recent market developments reflect a broad array of challenges and opportunities across sectors. Whether in technology, finance, healthcare, or real estate, staying informed on key trends is essential for effective investment strategy.

Upcoming Dates to Watch:

• October 19: China Q3 GDP report release.
• October 20: ECB interest rate decision.
• October 24: Tesla Q3 earnings report.

Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.

Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.