By Silvano Grimaldi, CEO of the independent asset management firm Grimaldi & Partners AG.
Monthly Review
International equity markets ended July 2024 with mixed performance.
Driving Factors
- The US labour-market report for June was significantly weaker than expected.
- Markets increasingly expected the Federal Reserve to implement its first interest-rate cut in September.
Factors Weighing on Markets
- Profit-taking in technology stocks placed pressure on the sector.
Stock in Focus
Roche Makes a Strong Start After Raising Its Earnings Outlook
The pharmaceutical group delivered a positive surprise with its half-year results and exceeded market forecasts.
Analysts expect additional support from the company’s decision to raise its earnings outlook.
In their initial comments, analysts responded positively to the half-year results.
Barclays described the results as strong in terms of both revenue and earnings, while Octavian stated that Roche had demonstrated a strong underlying business performance.
Jefferies particularly highlighted the improvement in profitability within the pharmaceutical division.
The core operating margin reached 50.4%, significantly exceeding the market consensus.
UBS also praised the strong core operating profit generated by the important pharmaceutical division, while Goldman Sachs highlighted Roche’s strong cost control.
The increase in the earnings outlook surprised most analysts, as Roche is known for providing cautious forecasts.
According to market assessments, the higher earnings guidance could lead to an increase in consensus earnings-per-share estimates.
From the perspective of Zürcher Kantonalbank, the announced changes to Roche’s product pipeline were not significant.
Octavian, however, expects strong growth from newer products and faster development cycles.
Outlook – August 2024
Opportunities
- Progress in the Q2 reporting season: As the corporate reporting season for the second quarter of 2024 advances, the increased volatility experienced in the technology sector during July could begin to ease.
- Expectations of a Federal Reserve interest-rate cut: Investor expectations of an initial US interest-rate cut could continue to support equity prices.
Risks
- Negative summer seasonality: Equity markets usually experience periods of weakness during August and September.
- US presidential-election campaign: As November approaches, the election campaign could increasingly influence financial news and intensify market reactions.
Performance Expectations
For August 2024, we expect a sideways trend in international equity markets.
Stock Recommendation: Roche
This publication is provided for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any financial instrument. Past performance is not indicative of future results.
