BofA’s Hartnett says concentrated U.S. stock returns are likely to persist

Investing.com -- Morgan Stanley has upgraded its rating on Henkel AG (OTC:HENKY) & Co. KGaA (ETR:HNKG) to “equal-weight” from “underweight,” citing signs that the company’s prolonged period of weak organic growth is ending, in a note dated Friday. 

The brokerage raised its price target to €72 from €67, following an 18% year-to-date drop in Henkel shares compared with a 19% rise in the MSCI Europe index.

The upgrade comes after 16 consecutive quarters of volume declines in Henkel’s Consumer Brands division. 

Recent scanner data from the United States and Europe shows sequential improvement, with both regions reporting positive trends in the last four weeks. 

U.S. sales growth in that period was up 3% compared with a flat performance over the last 52 weeks, while European sales rose 4% after a long stretch of declines. 

Market share losses have also narrowed, with some categories such as U.S. hair spray and European laundry detergent showing gains.

Morgan Stanley expects Consumer Brands volumes to grow in the third and fourth quarters of 2025, leading to a stronger second-half performance. 

The brokerage’s forecast for group organic sales growth in 2025 is now 1.7%, slightly above the previous 1.6% estimate, with an adjusted EBIT margin of 15%, up from 14.8% in earlier projections. Earnings per share estimates for 2025 remain at €5.40.

Henkel’s valuation at roughly 12 times next-12-month earnings, near decade lows, and improving sales data limit the risk of further earnings cuts, the report said. 

While Morgan Stanley still expects Henkel to lag household and personal care peers on topline growth over the long term, the current share price reflects a more balanced risk-reward profile.

The analysts said a more positive stance would require evidence of sustained share gains in key consumer categories, improvement in adhesive technologies’ end markets, or effective capital deployment strategies.

Investing.com - Market forecasts for upcoming interest rate cuts are incompatible with ongoing one-year inflation expectations, according to analysts at BCA Research.

Investors are currently pricing in more than one percent of rate cuts at the Federal Reserve’s upcoming meetings over the next one-year period, driven in part by a recently weak employment report, the strategists led by Dhaval Joshi argued in a note.

This would bring borrowing costs below 3.3%, where markets expect inflation to stand in one year, according to Bloomberg and CME Group (NASDAQ:CME) data cited by BCA.

"These two market expectations are inconsistent with one another because if inflation does run at 3.3%, then the Fed will be unable to deliver that magnitude of rate cuts," the analysts wrote.

"And if the Fed can deliver that magnitude of rate cuts, then inflation is unlikely to be running at 3.3%."

The comments come as debate is swirling around the trajectory of U.S. interest rates. Some Fed policymakers, echoing strident demands from President Donald Trump, have called for immediate cuts, arguing that this would help bolster the labor market.

However, it remains unclear if July’s soft employment report was fueled by a fall in hiring demand or decline in available workers due to a crackdown on illegal immigration by the White House, the BCA analysts said. If it is the former, a rate cut could be effective to spur spending and investment, but a reduction may not aid solving a drop in the supply of workers, they added.

Meanwhile, inflation above the Fed’s 2% has been cited as a reason to leave rates steady -- and many Fed officials have flagged uncertainty around the impact of Trump’s aggressive tariff agenda on price gains. Recent economic figures have suggested that the levies are starting to feed into the costs of some goods, although headline inflation has stayed relatively muted.

Against this backdrop, the BCA analysts recommended "neutral allocation to bonds until there is a genuine worsening in cyclical U.S. unemployment," as well as taking a long U.S. dollar-to-Hungarian zloty position to "play a technical rebound" in the greenback.

"[F]or stocks, given their recent near straight-line rally, we are taking August off before reassessing our cyclical allocation at end month or in September," the BCA analysts said.

Investing.com-- U.S. stock index futures edged higher Friday as investors digested Trump’s new selection to temporarily fill a vacancy on the Fed’s Board of Governors and assessed an ebbing stream of corporate earnings.

At 06:15 ET (10:15 GMT), Dow Jones Futures rose 105 points, or 0.2%, S&P 500 Futures gained 20 points, or 0.3%, and Nasdaq 100 Futures climbed 75 points, or 0.3%. 

The main averages on Wall Street ended in mixed fashion on Thursday following a choppy session, but are on pace for weekly gains, with the S&P 500 up 1.6% and the Dow Jones Industrial Average on pace for a 0.9% advance. The NASDAQ Composite is poised for a 2.9% climb.

Fed rate cut, Chair successor in focus 

The Trump administration’s tariffs took effect from Thursday, imposing import duties as high as 50% on regional economies.

Several countries have thrashed out trade deals with the U.S., including the European Union, reducing their tariff levels, but investors remained on edge over the economic impact of the duties.

A rise in weekly jobless claims on Thursday added to signs of a further cooling in the labor market, especially after last week’s disappointing jobs report.

These readings have furthered bets that the Federal Reserve will cut interest rates in September. 

U.S. President Donald Trump has repeatedly called on the central bank to cut interest rates, and announced on Thursday that his top economic adviser, Stephen Miran, will be his pick to take an empty governor seat at the Fed, replacing Adriana Kugler abruptly stepped down from the role as a Fed governor last week.

If confirmed by Senate lawmakers, Miran would have the ability to vote on upcoming interest rate decisions. Notably, Miran has been a consistent supporter of Trump, and has particularly argued that sweeping U.S. tariffs will not massively drive up inflation domestically and the costs of the levies will instead fall mostly on overseas suppliers.

Trump has said Miran will serve in the role temporarily, but hinted that it could be extended.

"We will continue to search for a permanent replacement," Trump said in a social media post. Crucially, that person could be the one who eventually replaces Powell after his term at the head of the Fed ends next year.

Solid quarterly earnings

With more than two-thirds of the benchmark S&P 500 having reported their latest quarterly results, the number of those firms whose earnings have topped estimates is one of the highest in recent history, according to analysts at HSBC.

Roughly 80% of reports from constituents in the benchmark index have beat analysts’ profit estimates, with renewed optimism over the applications of artificial intelligence helping paper over concerns over an economic outlook clouded over by sweeping U.S. tariffs.

The S&P 500 is now on track for 10% per-share income growth in the second quarter, almost double initial Wall Street estimates, the HSBC analysts said in a note.

There are more earnings to digest Friday, with retailer Under Armour (NYSE:UAA), entertainment company AMC Networks (F:9AC) and fast food giant Wendy’s (NASDAQ:WEN) the main examples.

Additionally, Pinterest (NYSE:PINS) stock plummeted by over 11% in premarket trading, as analysts flagged that the social media group’s second-quarter sales in the U.S. and Canada trailed its closest rivals.

Expedia (NASDAQ:EXPE) stock skyrocketed premarket after the travel booking website’s second-quarter earnings and revenue beat expectations.

Block (NYSE:XYZ) stock rose after the Cash App parent lifted its guidance for full-year gross profit.

Crude on track for weekly losses

Oil prices rose Friday, but remained on track for hefty weekly losses on concerns U.S. tariffs will hit global economic activity, reducing the demand for crude.

At 06:15 ET, Brent futures gained 0.6% to $66.81 a barrel, and U.S. West Texas Intermediate crude futures rose 0.6% to $64.23 a barrel.

Both benchmarks were on track for weekly losses of between 3% and 4%, which would be their steepest weekly losses since late-June.

Higher U.S. tariffs against a host of trade partners went into effect on Thursday, and have raised concerns of a long-term hit to global demand. 

Oil prices were already reeling from the OPEC+ group’s decision last weekend to fully unwind its largest tranche of output cuts in September, months ahead of target.

Ambar Warrick contributed to this article