US equities notched another week of gains. On Thursday (9 May), initial jobless claims came in higher than expected, 231k vs 212k from consensus, marking the highest figure since August 2023. Continuing claims also surpassed expectation, coming in at 178k vs consensus 175k. This hints at the potential cooling of the labour market.

Furthermore, the consumer sentiment index also fell from 77.2 in April to 67.4 in May, and fell short of consensus estimates of 76. This decline reflects rising concerns regarding inflation, unemployment, and interest rates, which could potentially lead to reduced spending and increased savings, thus further cooling the economy. In response to signs of a cooling economy, US equities rose as investors anticipate the Fed will likely implement rate cuts sooner. According to CME’s FedWatch tool, markets are now pricing in a 48.6% chance of a cut by September’s Federal Open Market Committee (FOMC) meeting, up from 44.0% a month earlier. The S&P 500, Dow Jones, and NASDAQ gained 1.9%, 2.2%, and 1.1% respectively.

Topic in focus: Europe equities – STOXX 600 hits record highs amid strong earnings season. Europe’s main equity index, STOXX 600 ended the week up 3%, buoyed by a favourable earnings season. The market optimism was further supported by better-than-expected economic growth within Europe and China - EU’s third biggest trading partner, alongside the anticipation of interest rate cuts by the European Central Bank (ECB).

Approximately 66% of companies have reported earnings as of last Friday, of which about 58% of companies reported positive earnings surprise. The financials and real estate sectors led with robust earnings beats, while utilities and communication sectors lagged.

We continue to see positive momentum within sectors such as luxury, healthcare, and technology. Within luxury, we favour companies that align with the 'Quiet Luxury' theme, appealing to the ultra-wealthy who are resilient against inflation. The success of this theme is exemplified by Hermes (Quiet Luxury) delivering 17% y/y sales growth while Kering (Loud Luxury) saw a 10% y/y decline in sales for 1Q24. In healthcare, we remain positive on the (GLP-1) weight loss drug space. Danish pharma giant Novo Nordisk has seen significant success with its GLP-1 weight loss drug, Wegovy, which doubled in sales in 1Q24 contributing to a 28% y/y increase in the company’s net profit.

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