Nvidia earnings could turn sentiment

The S&P 500 dropped to around 4,960 Wednesday, while the tech-heavy Nasdaq 100 underperformed a touch more — with Nvidia down 2%. The chipmaker is still the best performer in the US equity benchmark this year, up almost 40%.

‍

‍

Nvidia really has acted as a sentiment gauge in the market, and will either confirm or potentially put a ding in the lofty AI expectations - some investors are getting worried. Later today, Nvidia reports results in what’s likely to be the most closely watched report in the company’s three decade history and expectations are certainly high.

Wall Street analysts expect Nvidia to report January quarter revenue of $20.4 billion — up nearly 240% year over year— with adjusted earnings per share of $4.59.

Nvidia’s outlook for the current quarter will be just as closely watched. Analysts currently estimate April quarter revenue of $22.2billion with earnings per share of $5.02. That would represent growth of up 208% and up 361%, respectively, from a year ago.

“AI hype is everywhere and we need to be measured on our expectations. We are still in the early innings,” Dell Chief Operating Officer Jeff Clarke said last year. “Experience over multiple technology cycles tells us that progress won’t always be linear, but we are excited about the opportunity in front of us.”.

‍

Federal Reserve minutes becoming available

Aside from Nvidia earnings, traders will also sift through the minutes of the Federal Reserve’s January meeting on Wednesday night (UK), for clues on the outlook for the central bank’s next steps. Fed Bank of Richmond President Thomas Barkin said recent economic data highlighted how price pressures in some sectors are still too high, despite improvement in the overall inflation picture.

We actually feel that the market is still overestimating the timing and the speed of Fed cuts. Inflation is on the rise again in the US, and cutting would seem completely the wrong thing to do given the data.

HSBC Holdings Plc reports profit fall of 80%

‍

In the UK HSBC Holdings Plc reported fourth-quarter profit fell 80% after taking unexpected charges on holdings in a Chinese bank and from selling its French retail operations.

HSBC Holdings on Wednesday reported a shock $3 billion charge on its stake in a Chinese bank amid mounting bad loans in the country, sending the British bank's shares plunging and taking the shine off its record annual profit.

HSBC's shares slid as much as 8% in London, heading for their worst single-day drop since the COVID-19 pandemic erupted in March 2020.

This dragged down the FTSE100 to trade -0.70 at the time of writing.

HSBC's $3 billion impairment on its stake in China's Bank of Communications (BoCom) is the largest yet by an overseas lender, as the country's real estate crisis deepens and its economic recovery stalls.

Chief Executive Noel Quinn told reporters the writedown had not been triggered by any conversations with regulators but came as accounting rules triggered a review of the value HSBC assigned to its 19% stake in BoCom.

The bank's annual report released on Tuesday said that "recent macroeconomic, policy and industry-wide factors" resulted in a wider range of valuations for HSBC's BoCom stake than had previously been the case.

BoCom's forecast earnings growth was also lower than its recent actual growth, HSBC said.

That knocked the BoCom stake's "Value in Use" - an accounting measure of current value - to $21 billion as of Dec. 31, 2023 from nearly $24 billion at the end of 2022.

The hit also came despite Quinn saying as recently as October he thought China's real estate crisis had bottomed out.

Quinn said on Tuesday he was seeing a "progressive and gradual recovery" but that it would "take a few years for the market to work its way through the current challenges."

The share price plunge came despite the bank announcing a new $2 billion buyback, an annual dividend o f$0.61 per share and the intention to pay a special dividend of $0.21 per share once it completes the sale of its Canada business.

The bank's 2023 pre-tax profit jumped 78% to $30.3 billion, but still missed a consensus estimate of$34.1 billion due largely to the unexpected China writedown. If we look beyond the issues in China, it was actually a bumper set of results therefore future earnings could look quite promising now the writedown has been and gone.

‍

‍

HSBC’s wealth business was a bright spot for the bank, with revenues up 8% to $7.5 billion, partly boosted by the acquisition of Citigroup’s wealth business in China last year.

The wealth unit – which HSBC has been trying to grow, particularly in Asia - also attracted net new invested assets of $84 billion, up from $80 billion in 2022.

HSBC said its bonus pool rose to $3.8 billion from $3.4 billion in 2022, reflecting improved performance, and it would also launch a new variable pay scheme for junior and middle management staff.

Elsewhere, Palo Alto Networks, a cybersecurity company, cut its annual revenue forecast, stoking concerns that customers are reining in spending despite an uptick in attacks.

We also heard that Cisco Systems said it plans to borrow from the US high-grade bond market to partly finance its proposed $28 billion acquisition of Splunk as issuers rush to capitalise on strong investor demand and Toll Brothers, a large US luxury homebuilder raised its guidance for full-year deliveries after reporting a strong start to the spring selling season.

Now it’s all eyes on Nvidia (and the small matter of FOMC minutes)

‍