On Wall Street the reporting season for the second quarter is now coming to an end, with interim reports for 89% of the companies listed on the S&P 500 having been presented by 7 August. According to FactSet, 83% of them managed to beat analysts' average expectations for earnings per share (EPS). If this rate is maintained, more companies than ever before since the data service provider started this survey in 2008 will have upset the consensus – although it has to be said that expectations had fallen sharply due to the coronavirus pandemic. Since the middle of the year, analysts have been pitching their estimates a little higher again, says FactSet. Indeed, the average EPS expectation for the S&P 500 index in 2020 has risen 3.5%. In addition to the figures and outlooks presented in the "earnings season", the latest developments on the currency markets could also be responsible for the upward revision: over the last few weeks, the US dollar has softened markedly relative to other major currencies.
A raft of US companies can thus enjoy a special "economic stimulus package". According to FactSet, the members of the leading index still record 40% of their sales from international business. This ratio is significantly higher in a range of sectors (see graph). For groups in the information technology sector, more than half of their business is generated outside the USA. Along the same lines, Goldman Sachs finds that IT shares in months in which the trade-weighted dollar depreciated by at least 1.25% have in the past been among the top performers on Wall Street. Of course, historical performance is not an indicator of future price movements. Nevertheless, the most recent weakness of the greenback could lend further stimulus to the considerable momentum already enjoyed by the technology sector.
Leonteq is therefore now offering investors the opportunity to invest in three possible beneficiaries of the US dollar's weakness while benefiting from partial protection. Alongside the IT stocks Lam Research and Nvidia, the choice of underlyings also fell on Philip Morris International – the tobacco group pulls in the entirety of its sales outside the USA. The structured product would participate to a disproportionately high extent in the positive performance of the basket of these three equally weighted shares. The upside participation is 150%. At the same time, investors are shielded against falling quotations down to the barrier. As long as no underlying stock falls to or below the protective threshold of 50% of the initial fixing during the term, the repayment will correspond to at least the bonus level of 100%. Should this cushion not suffice, the partial protection will lapse. In that case the investment would be exposed to the full risk of the share with the weakest performance on the expiration date.
The two technology stocks in particular have been moving in only one direction recently, the pair having appreciated markedly in value. Lam Research also caught the eye with strong quarterly figures. The semiconductor manufacturer from California surpassed expectations both in sales and in EPS. In the second quarter Lam Research estimated the share of revenue earned abroad at a hefty 97% of its total business. For Nvidia, the foreign ratio for February to April 2020 came to 84%. That period marked the first quarter of the 2021 fiscal year for the graphics card specialist. It will present the interim report for the second quarter on 19 August. Nvidia caused headlines on the M&A front at the turn of the month, with unconfirmed reports suggesting the Californians were targeting chip developer ARM. Nvidia is said to be in advanced takeover discussions with SoftBank, the owner of ARM. Philip Morris has recently sold much fewer tobacco-based cigarettes, but the group had already announced a "withdrawal" in this regard. It would like to put the focus on smoke-free products, or e-cigarettes, in the future.
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