Article / 14 April 2014 at 8:28 GMT

Quant Corner: Mostly negative on large cap US equities

Head of Equity Strategy / Saxo Bank
• Microsoft price action keeps stock on positive view

• Pipeline execution can trigger Apple potential
• JP Morgan closes nearly a third of its South Korea branches

By Peter Garnry

The mini-crash in technology, social media, momentum and biotechnology stocks continued last week and as we recently wrote on Quant Corner, our model is negative across the board on the previous high-flying technology stocks. But over the past month, our model has become increasingly broadly negative on the large cap segment in the S&P 500, i.e. the 70-100 most liquid stocks in the index.

Any bright spots among large caps?

There are few positive stories in the large cap segment, but the ones that exist are mainly semiconductor or the old guard software companies such as Apple, Microsoft, Intel and Micron Technology.

Our model has indicated that Microsoft was undervalued for more than six months but recently, due to the rising stock price, the model is now indicating that the stock is fairly valued. This means that only the price action is keeping the stock on positive view. As a result, we would hesitate being all in despite recent positive news flow.

Apple is still screaming: "Buy!", and hopefully a successful pipeline execution later this year can trigger its unresolved potential.

Outside technology, the model has just turned positive on Exxon Mobil and Chevron which is likely to be a good bet this year if the US economy accelerates to 3 percent, as we expect.

Within the consumer segment the model is positive on only two stocks which are Mondelez and CVS Caremark.

JPMorgan hints at bad quarter for Citigroup

Citigroup reports Q1 earnings on 12.00 GMT, and given the decline in Fixed Income Clearing Corporation (FICC) and mortgage activity observed in the earnings from JPMorgan and Wells Fargo last week coupled with emerging markets slowing down, we expect Citigroup to report weak earnings.

Analysts are looking for EPS 1.14 slightly down from last but that figure may be a bit too optimistic given what we saw at JPMorgan's Q1 results. The biggest uncertain factor here is the emerging market exposure, which may very well drag down the results. Last week, the bank announced that it is closing 29 percent of its branches in South Korea due to profit outlook confirming the weakening trend in emerging markets.


Peter Garnry is the Head of Equity Strategy at Saxo Bank. Please check out his articles and trades on our exciting copy trading platform.

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