Lowered S&P EPS estimates

Ahead of Monday, June 2, increased tension in talks about new tariffs between the US and China dampened the stock market sentiment. US Treasury Secretary Scott Bessent argued that the negotiations had reached a stalemate, while President Trump claimed China had violated previous agreements, including those involving delivery of rare minerals and magnets. 

Higher tariffs between the US and the rest of the world will reduce global GDP (Gross Domestic Product). Above all, Trump's directives, which change at least weekly, have put the world's companies in a state of uncertainty. In such circumstances, it would be irrational to make any investment decisions relating to capital expenditure, such as the construction of new plants for example.

Looking at performance for main equity indices over the past month and year-to-date, the German DAX index has performed by far the best. The reason for this is unclear, but perhaps the stock market is starting to anticipate a ceasefire between Russia and Ukraine. However, for German industry to benefit, sanctions on trade with Russia would need to be lifted, which does not seem likely in our view. 

Of the major equity indices shown in the graph above, the second-best performer is the FTSE (London, UK) index. Unlike the DAX and OMX, the FTSE is primarily composed of companies in the pharmaceutical, food and beverage, and financial sectors. Some major FTSE companies also operate in the energy sector, with Shell ranking third in terms of market weighting among FTSE constituents. Relx, ranked fifth, is a British information and analytics company.

Pharmaceutical companies are concerned about the US market and prices, which may come under pressure during Trump's term. It will take time to implement any major changes in this area, though. Higher tariffs are not likely to have a significant impact, as the largest pharmaceutical companies already have local factories. Pharmaceutical companies also have higher profit margins than most other industries, making them less sensitive to higher tariffs.

Larger food companies, which typically have strong brands, should be able to withstand a period of lower GDP growth relatively unscathed. Food companies are also considered to be in the most defensive sector amongst investors, possibly alongside utilities and similar industries. An example of the latter can be found among the larger FTSE companies in the form of National Grid, the UK's national electricity network.

Banks and financial companies tend to remain profitable during recessions, particularly in lending, though perhaps less so in investment banking.

However, commodity-related companies and those in the mining sector should continue to perform weakly for as long as the current recession and uncertainty surrounding US tariffs persist. 

For Q1 of 2025, 98% of S&P 500 companies have reported results. Of these, 78% reported a positive earnings per share (EPS) surprise and 64% reported a positive revenue surprise. However, according to Earnings Insight, the expected profit growth rate has been sharply revised down for Q2–Q4 of 2025 since 3 January 2025, as can be seen in the graph below. The forward-looking price-to-earnings (P/E) ratio valuation is currently 21.3 times, which is 7% and 16% higher than the five- and ten-year average P/E ratios, respectively.

On Wednesday 4 June, Volvo Cars will release its May volume sales figures, while Autoliv and Swedbank will host their respective Capital Markets Days. In terms of macroeconomic news, Wednesday will see the release of the May services PMI (Purschasing Mangers’ Index) figures for Japan, Sweden, Spain, Italy, France, Germany, the Eurozone, the UK and the US. From the US, we will also receive the ADP private employment report for May, the weekly oil inventory report (Department of Energy), and the Fed Beige Book. The Bank of Canada will issue an interest rate statement too.

On Thursday 5 June, we will receive a traffic report for May from Norwegian.Early on Thursday morning, we will receive the Caixin Services PMI for May from China. A few hours later, SCB will publish Sweden's CPI (Consumer Price Index) in May and the balance of payments for Q1. About the same time, Germany will release industrial orders and the eurozone will publish PPI (Producer Price Index), both for April. The ECB (European Central Bank) will announce a rate decision after lunch. From the US, we will receive Challenger layoff statistics for May, the April trade balance and weekly initial jobless claims. Broadcom, a US-based multinational manufacturer of semiconductor and infrastructure software products, is expected to publish its interim report on Thursday.

Friday 6 June is Sweden's National Day, so the Stockholm Stock Exchange will be closed for trading. Japan will kick off Friday's macro agenda with household consumption figures for April. A few hours later, Germany will release its trade balance and industrial production figures for April, followed by France's industrial production figures for the same month. From the eurozone, we will receive Q1 GDP and employment figures, as well as April's retail sales figures. Finally, the most important figures of the week will be published in North America: the US's nonfarm payroll figures for May.

As the chart below shows, since mid-April the S&P 500 has been consolidating just below the resistance level of 5,965, testing it multiple times without breaking out. However, the index is trading above the rising EMA9 and MA20. Meanwhile, the pattern of higher lows remains intact, suggesting that the bulls are defending dips. The next step may be a break on the upside and the previous top from early 2025. Note also that the MACD has generated a buy signal in the weekly chart.

As can be seen from the Nasdaq 100 chart below, the index has broken above key resistance, forming higher highs and higher lows. This, alongside the fact that the index is trading above all its moving averages, is a bullish sign, and previous tops from early 2025 appear to be on the cards. Additionally, the weekly chart shows that MACD has generated a buy signal.

In Europe, the DAX is losing momentum. This is evident from the fact that MACD has generated a soft sell signal. This is also evident in the loss of momentum for EMA9, which is now sloping downwards. A break below the MA20, which is currently just above 23,800, could be next, followed by a fall to 23,400.

OMXS30 is under pressure, partly due to a strong SEK. Note the MACD, which has generated a soft sell signal. The next step could be a break below 2,480 and 2,400.

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