Less appetite for Novo shares
This week's case is Novo Nordisk, which has been successful in obesity and diabetes, but has so far failed to live up to the high expectations for 2024. In the short term, Novo looks technically weak. Longer-term, the fundamentals look better as the company broadens the positioning and reach of its best-selling drugs such as Wegovy. On the macro calendar this week, the US Nonfarm Payrolls and Hourly Earnings growth reports on Friday 4th October could have some impact on the markets.
Case of the week: Novo Nordisk
Novo Nordisk's share price is in bear market territory after a correction of more than 20% since the end of June this year. While the charts show a risk of further weakness in the short term, the expected news flow towards the end of the year could eventually help turn sentiment around.
To some extent, Novo Nordisk has become a victim of its huge success in obesity and diabetes. By its high standards, the news flow has been somewhat disappointing of late. Q2 sales (+25% y-o-y in constant currencies) did not meet analysts' expectations. Sales growth of the once-weekly obesity treatment Wegovy slowed to 55% in Q2 from 106% in Q1, partly due to lower average prices in the US. More recently, mid-stage (phase IIb) data on the obesity drug candidate monlunabant showed efficacy in weight loss but also raised some safety concerns.
The company has guided for full-year 2024 growth of 22-28%, and consensus estimates are in the middle of that range, according to S&P Capital IQ. In other words, analysts expect the group as a whole to grow at roughly the same rate in the second half of 2024 as it did in the first half. Judging by the share price performance, investors are getting nervous that Novo's growth will not be strong enough to justify a valuation multiple that is roughly double that of other pharma companies, and that the gap will continue to narrow.
EV/EBIT NTM multiples, Novo Nordisk and CSQ Pharma index
Recently, investors have also begun to flock to more cyclical assets, such as mining stocks, while health care and other defensive sectors lag in performance. Central bank rate cuts and hopes of fiscal stimulus have contributed to this change in sentiment.
Pharmaceuticals (blue) compared to mining companies (red), three months performance
The Novo share is currently in a negative trend and trading below the MA200, which could mean continued high price volatility in the short term. An ominous head-and-shoulders technical pattern supports this scenario. On the weekly chart, we see a possible five to ten percent further downside. However, the stock is entering very oversold territory.
Novo Nordisk A/S B, one-year daily chart (in DKK)
Novo Nordisk A/S B, five-year weekly chart (in DKK)
On the positive side, Novo is making rapid progress in positioning Wegovy as a drug that can help reduce the risk of adverse cardiovascular events such as heart failure, supported by growing clinical evidence. This is critical to achieving broader coverage by insurance companies and Medicare in the US and should help underpin volume growth in the coming years.
In addition to Wegovy, Novo is investigating new treatments for obesity. The first study read-out from the phase III programme for the combination treatment CagriSema (experimental drug Cagrilinitide plus Wegovy (semaglutide)) is expected before the end of the year. This will be a key milestone for one of the most important investigational treatments in Novo's pipeline and a catalyst for a potential turnaround in share sentiment.
Macro comments
US inflation was 2.2% in August according to the so-called personal consumption expenditure price index (PCE) measure released on Friday 27th September. This compares with 2.5% in the previous month and was slightly below market expectations of 2.3%.
This week's most important macro data will come from the US on Friday 4th October, when Nonfarm Payrolls for September are expected to land at 144,000 new jobs compared to 142,000 new jobs in August. Another component that the Fed tends to focus on is hourly earnings growth. As the chart below shows, wage growth in the US is still relatively high. Market expectations are for average hourly earnings growth to fall from 3.8% year-over-year in August to 3.3% year-over-year in September 2024.
US average hourly earnings year-over-year, January 2023-August 2024
Today, Wednesday 2 October, Machinery Orders for August are received in Germany from the association “Verband Deutscher Maschinen- und Anlagenbau” (VDMA). Eurozone unemployment for August will also be released. From the US, we get Automatic Data Processing (ADP) private employment for September as well as oil inventories from the department of energy (DOE), weekly statistics.
On Thursday 3rd October we will get the September Services purchasing manager’s index (PMIs) from Japan, Sweden, Spain, Italy, France, Germany, the UK and the US. We will also get the August producer price index (PPI) from the Eurozone, as well as initial jobless claims and August industrial orders from the US. An interim report from Constellation Brands is also due on Thursday.
On Friday 4th October, in addition to the aforementioned US employment figures, French industrial production for August will be released.
Consolidation ahead of employment figures
Equities turned south during yesterday's trading session and is currently trading below EMA9 close to support at 5,640 and the MA20. While the short term trend is still up, it is clearly under pressure as momentum is waning as shown on the MACD histogram. A period of consolidation ahead of Friday's employment figures around 5,640 and MA20 is not an unlikely scenario. The previous high serves as the first level of resistance on the upside.
S&P 500 (in USD), one-year daily chart
S&P 500 (in USD), weekly five-year chart
The Nasdaq 100 is trading lower, approaching the MA20. Momentum is positive again but fading ahead of the employment data.
Nasdaq 100 (in USD), one-year daily chart
Nasdaq 100 (in USD), weekly five-year chart
The DAX is trading in a steep upwards sloping trend. In addition to US employment figures, the increased probability of an European Central Bank (ECB) rate cut in October could lead the DAX to outperform.
DAX (in EUR), one-year daily chart
DAX (in EUR), weekly five-year chart
The Swedish OMXS30 is struggling to make new highs and closed yesterday's trading close to EMA9. A break on the downside and levels around 2,550-2,560 may be next. US employment figures are also likely to have an impact on the OMXS30 going forward.
OMXS30 (in SEK), one-year daily chart
OMXS30 (in SEK), weekly five-year chart
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
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