2023.04.11 4,300 points to be the resistance

The data of ADP National Employment report were worse than expected. In March, the private sector hiring rose by just 145,000, down from 261,000 in February and below the estimate of 210,000. In 1Q23, the average monthly hiring was 175,000, suggesting a cooling labor market. In addition, the U.S. ISM non-manufacturing index fell from 55.1 in February to 51.2 in March, lower than market expectations of 54.5 and was the lowest in three months. The above data reflected that the U.S. economy might be slowing, which could have a negative impact on future corporate earnings and U.S. stock performance.

The market continues to focus on the Fed’s stance on interest rate hike. According to market data, the probability of the Fed increasing the interest rate by 0.25% in May is over 80%. OPEC and other countries will reduce oil production which may increase the upward pressure on raw materials cost and inflation and making interest rates in the U.S. more uncertain. According to market data, investors’ positions in U.S. stocks are at an 18-year low, reflecting that investors are not optimistic about the prospects of U.S. stocks. However, if U.S. stocks remain strong in the near term, investors may need to reinvest into the stock market. Although the U.S. economic outlook and interest rate trends are still uncertain, the technical trend of the S&P 500 index is still strong and may trigger more capital inflows. We expect the S&P 500 index to trade between 3,800 points and 4,300 points.

The market expects limited room for the US to raise rates. We expect technology stocks to have revaluation potential and to outperform the market in the near term.

Cisco (CSCO) is one of the world’s largest network equipment supplier and software company. In FY2Q23, Cisco’s revenue was US$13.59 bn, higher than market expectations of US$13.43 bn, net profit was US$2.77 bn -7% YoY.

The company announced an update to its AppDynamics cloud software and disclosed a restructuring plan that includes adjustments to its real estate portfolio. Looking forward, the company expects the order on hand to double in FY23E when compared to normal condition, and the momentum to persist into FY2024. Mgmt expects revenue in the FY3Q23 to increase 11%-13% YoY, which is higher than the market expectation of 5.8%, while the revenue in FY23E to increase 9% to 10.5% YoY, which is also higher than market expectation of +5.7% YoY. As the mgmt has confidence in the future performance, it is recommended to buy at US$50.0, target at US$56.0, and stop loss at US$47.0.

Microsoft (MSFT) develops and licenses consumer and enterprise software. The company’s revenue in 2Q23 was US$52.75 bn (+2% YoY), but lower than the market’s estimate of US$52.93 bn. The company’s net profit was US$16.43 bn, -12.5% YoY. However, the company’s cloud business performed well with revenue +22% YoY to US$27.1 bn.

Microsoft will deploy OpenAI programs in Azure, including GPT, DALLE, and Codex programs. It will also be OpenAPI’s exclusive cloud provider. After the introduction of ChatGPT technology, it will improve the search results’ matching. In addition, the latest artificial intelligence (AI) model GPT-4 released by OpenAI can further strengthen Microsoft’s competitiveness in AI and to seize the search engines’ market share from Google. Microsoft as a leading technology company is expected to benefit from the development of artificial intelligence. It is recommended to buy at US$280.0, target at US$315.0, and stop loss at US$265.0.