European stocks started the day on May 21 with a slightly weaker note, marking a retreat from their recent impressive performance, with attention now shifting towards the upcoming earnings report from NVIDIA Corporation (NASDAQ:NVDA). The Stoxx 600 index dipped by 0.2%, showing a predominantly negative trend across most sectors, while futures for US equities remained relatively unchanged. Options markets in the US indicate significant anticipation for NVIDIA Corporation (NASDAQ:NVDA) earnings report this Wednesday, with traders expecting a notable shift in the chipmaker’s shares, reported Reuters.
Predictions suggest an 8.7% swing in either direction by Friday, potentially resulting in a staggering $200 billion market cap fluctuation, exceeding that of most S&P 500 companies. While substantial, this projected move falls short of the remarkable 16.4% surge witnessed in Nvidia’s shares after its previous quarterly report, and it’s also less aggressive than historical averages. NVIDIA Corporation (NASDAQ:NVDA), a key player in the AI industry, boasting a market value of approximately $2.3 trillion, is anticipated to deliver robust quarterly results, reflecting its pivotal role in the market. This optimism extends beyond NVIDIA Corporation (NASDAQ:NVDA), with other sectors such as power, commodities, and utilities benefiting from the broader AI theme.
While expectations are high, there’s recognition that the upcoming earnings announcement could trigger significant market activity. Implied volatility for options suggests traders are prepared for both upward and downward movements in the stock price. Despite Nvidia’s impressive performance this year, investors remain vigilant, aware that a substantial downturn in NVIDIA Corporation (NASDAQ:NVDA) shares could test the resilience of the broader AI trade, emphasizing the significance of NVIDIA Corporation (NASDAQ:NVDA) role in shaping market sentiment and trends.
Aerial view of a residential subdivision under construction, highlighting the scale of the homebuilding business.
Meanwhile, in Asia, shares took a breather following a week-long streak of gains. Investors remained vigilant regarding commodity prices, especially with the Bloomberg Commodity Spot Index hitting its highest point since January 2023. Notably, gold and copper were trading near their historical peaks, adding to the market’s attention.
On another front, oil prices experienced a decline, influenced by various market metrics suggesting a subdued outlook, despite heightened geopolitical tensions ahead of an OPEC+ meeting on supply. Brent crude’s prompt spread narrowed to its smallest backwardation since January, indicating a potential shift in market dynamics, while the reduction in bets on crude price increases continued among money managers. Futures trading reflected a period of consolidation, with implied volatility levels nearing lows not seen since 2019.
From Chinese property market side, analysts suggest that China’s recent efforts to bolster the property sector will require patience to yield results. Despite these initiatives, S&P maintains its view that the market is still “searching for a bottom.” Edward Chan from S&P emphasizes the government’s seriousness in stabilizing the property sector but notes that significant stabilization requires improvements in homebuyers’ demand and confidence, which have been affected by a nearly three-year market downturn. According to CNBC, recent measures, including lowered down payment minimums and enhanced liquidity for developers, aim to address the challenges. However, analysts like Goldman Sachs’ Hui Shan and Nomura’s Ting Lu believe more substantial actions are needed, estimating a significant funding requirement to address inventory excess and stabilize prices. While progress is noted, challenges persist, as indicated by declining real estate investment and slower-than-expected retail sales growth. Rebuilding homebuyer confidence is crucial, particularly concerning delivery delays and economic uncertainty. Analysts anticipate further efforts from Beijing, including a national survey to assess funding needs for completing residential projects. Ultimately, restoring confidence in the presale system is seen as essential for a genuine recovery in China’s housing markets. As market players navigate these developments, attention remains keenly focused on unfolding events and their potential impact on investment strategies and market sentiment.
On the stock market front, analysts are bearish on stocks such as D.R. Horton, Inc. (NYSE:DHI) by lowering their price targets. For a comprehensive overview of D.R. Horton, Inc. (NYSE:DHI) and other stocks affected by such adjustments, see Wall Street Analysts Just Trimmed Price Targets for These 10 Stocks .
D.R. Horton, Inc. (NYSE:DHI)
Price Reaction after the Price Target Cut: +0.53(+0.35%)
On May 20, Citi analyst Anthony Pettinari revised the price target for D.R. Horton, Inc. (NYSE:DHI), a leading company in the homebuilding industry, from $191 to $181 while maintaining a Buy rating. Following this price target adjustment, D.R. Horton, Inc. (NYSE:DHI) stock price saw a modest increase of 0.35%. Pettinari’s update reflects new assumptions about interest rates and recent activity levels from late April and early May. Despite anticipating a low double-digit year-over-year growth in single-family housing starts for 2024, the analyst now predicts more subdued pricing due to sustained higher interest rates, which are likely to keep incentives elevated. Additionally, Pettinari notes that the group’s current valuations appear to be “fair-to-full.”
Baron Real Estate Fund stated the following regarding D.R. Horton, Inc. (NYSE:DHI) in its fourth quarter 2023 investor letter:
“The share prices of our investments in homebuilder companies – Toll Brothers, Inc., D.R. Horton, Inc. (NYSE:DHI), Inc., and Lennar Corporation – gained 39.4%, 41.8%, and 33.2%, respectively, in the most recent quarter, in part due to the continuation of strong quarterly business results, management optimism about 2024 prospects, and a more than 100 basis point decline in 30-year mortgage rates during the quarter.
2023 was an excellent year for the public homebuilders. Housing fundamentals were resilient despite the affordability challenges of elevated mortgage rates and home prices. Several years of pent-up demand, fears that mortgage rates could move higher, a dearth of inventory in the existing home market, and an overall housing supply shortage drove home buyers off the sidelines to “stretch their wallet,” in part due to fears that they could miss out on the opportunity to buy a home. The Fund’s homebuilding companies Toll Brothers, D.R. Horton, and Lennar increased 108.0%, 71.4%, and 66.3%, respectively, in 2023.
Though we anticipate more modest gains for the Fund’s homebuilder investments in 2024, we remain optimistic about the long-term prospects for Toll Brothers, D.R. Horton, and Lennar. Further, we continue to believe there is a compelling case for the homebuilder valuations to re-rate higher over time.
Since the beginning of 2020, D.R. Horton, Lennar, and Toll Brothers have demonstrated substantial resilience and operating prowess. Despite several black swan events – COVID-19, a sharp increase in mortgage rates from 3% to 8%, and supply-chain disruptions – each company has managed its business exceptionally well and demonstrated that the demand to buy homes is resilient.”
You can visit Wall Street Analysts Just Trimmed Price Targets for These 10 Stocks to see the other stocks that are downgraded.
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Disclosure: None. This article is originally published at Insider Monkey.
