The DAX 40 index was hovering near its all-time high as the third quarter earnings season started, and as traders waited for the upcoming European Central Bank (ECB) decision. It was trading at €19,432, a few points below the record high of €19,630.

European Central Bank decision ahead

The DAX index remained on edge as the ECB prepared to deliver its November monetary policy meeting.

In it, the bank is expected to deliver the third 0.25% rate cut of the year, bringing the base interest rate to 3.25%.

Recent economic numbers show why the ECB is under increased pressure to cut interest rates. Data released on Wednesday showed that the headline Consumer Price Index (CPI) in key countries like France and Italy continued falling in October.

In Italy, the headline Consumer Price Index (CPI) dropped by 0.2% in September and to 0.7% on a year-on-year basis. The annual inflation report has moved much lower than the ECB’s target of 2.0%. 

The preliminary report showed that the European inflation data also dropped to 1.7% in September, down from over 10.6% in 2022. 

At the same time, the European economy was not doing well as the labor market started to show signs of weakening. For one, some big employers in Germany like Volkswagen and BASF are considering large layoffs as demand wanes.

Therefore, the ECB will likely decide to cut interest rates to stimulate the economy by making it cheap to access capital.

The odds of more easing by the ECB are reflected in the bond market. The German 10-year bund yields dropped to 2.20%, down from 2.30% on Friday and 2.7% in June. The five-year bund yield also retreated to 2.04%.

Central banks easing and China

Other global central banks have room to continue cutting interest rates. In the US, the Federal Reserve delivered a jumbo rate cut in its last meeting, and the odds of a 0.25% cut in November have risen. 

Central banks like the Bank of England, Swiss National Bank (SNB), and Riksbank have also slashed rates in the past few months.

The DAX index and other Chinese firms do well when there are rising chances of more rate cuts in the future. 

Meanwhile, the DAX index has risen to a record high because China has opened the floodgates of money in the past few weeks.

Officials have announced several stimulus packages worth billions of dollars to stimulate an economy that is weakening. 

For example, the central bank has brought interest rates to near zero and become more flexible on bank rules.

The happenings in China are important for the DAX index because many companies in the index do a lot of business there. For example, automakers like Volkswagen and BMW count China as one of their biggest markets. 

Corporate earnings ahead

The next important catalyst for the DAX index ist the ongoing earnings season in the US and Germany.

Most US companies like Goldman Sachs, JPMorgan, and Morgan Stanley published strong numbers. These banks have been helped by higher interest rates and the ongoing stock trading frenzy. 

German companies are also expected to publish their numbers in the near term. Adidas stock price retreated by over 6% on Tuesday even after the company published strong financial results and forward guidance. It expects to make €1.2 billion in revenue this year, helped by its Gazelle and Samba brands.

SAP, the biggest company in Germany, will be the next top firm to publish its financial results next week. These numbers will come at a time when the stock has surged to a record high, helped by its momentum on cloud and artificial intelligence. SAP shares have rallied by over 170% from the lowest level in 2022.

After SAP, the next top company to watch will be Deutsche Bank, the biggest bank in the country, which will release on Wednesday. Beiersdorf and Mercedes Benz Group will also release their numbers next week. 

Most DAX index constituents have done well this year. Siemens Energy moved from the worst performer in 2023 to the best this year as it soared by over 190%. Other firms like Rheinmetall, MTU Aero, Commerzbank, SAP, and Zalando are the other top performers.

DAX index forecast

The weekly chart shows that the DAX index has been in a strong bull run in the past few years. It has risen from the 2022 low of €11,905 to over €19,432. Along the way, it has formed an ascending channel pattern, and remained above the 50-week and 100-week Exponential Moving Averages (EMA).

The MACD and the Relative Strength Index (RSI) have formed a bearish divergence pattern. Therefore, while more gains are likely to happen, the index may show some volatility in the coming weeks. This means that it may retest the important psychological point at €19,000.

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Vodafone (LON: VOD) share price has done well this year, helped by its ongoing transformation under Margherita Della Valle, the CEO. It has jumped by more than 25% from its lowest point in February.

Slowing blue-chip company

Vodafone is one of the biggest telecom companies globally. According to Companies by Market Cap, it is the 29th biggest player in the world and the sixth in Europe.

It has operations in Europe, Asia, Africa, and other countries, where it offers broadband, fixed line, internet, mobile money, and other solutions to millions of companies. 

Its biggest markets are in the UK and Germany, which account for a substantial share of its business. It also has major operations in India, through its troubled Vodafone Idea brand. 

Vodafone has been in a transformation journey in the past few years. As part of this strategy, the company has exited some markets and business solutions. 

For example, it spun out its tower business as a standalone company known as Vantage Towers in 2020, and has been reducing its stake since then. In July, it sold another 10% in the company worth 1.3 billion euros.

Vodafone has also exited some other less profitable markets. It sold its Spanish operations to Zegona in a $5.3 billion and its Italian business to Swisscom for 8 billion euros. 

The company has used these exits to boost its balance sheet by reducing its substantial debt, with its leverage being between 2.25x and 2.75x. The exits also helped the management to right-size the brand by focusing in countries where it has a substantial market share. 

Additionally, investors benefited by increased distributions. In a statement, the firm said that it would provide €4 billion in share buybacks. It will also rebase its dividend to 4.5c per share from next year. 

Vodafone’s stable business

Like most telecom companies of its size, Vodafone is no longer a growing firm since most people already have their phone subscribers.

People who invest in the company do so because of its stability, dividends, and room for improvement.

The most recent financial results showed that Vodafone’s total revenue rose by 2.8% in Q1’25 to €9.03 billion. This growth was primarily because of its service revenue, which rose by 3.2% to €7.46 billion. 

A key concern among many investors is that Germany, its biggest market is not doing well as competition with Telefonica and Deutsche Telekom rising. Its German revenue dropped from over €3.14 billion in Q1’24 to €3.095 billion in the same quarter this year. 

The German growth has been offset by Turkey, where revenue soared from €456 million to over €664 million. Its UK and African operations are also doing well.

The case for Vodafone

A case for investing in Vodafone can be made. First, today’s Vodafone is much different from the one that existed a few years ago. It is a leaner company that will be more profitable in the coming years.

Second, the firm is solidifying its market position in the UK through its merger with Three. The resulting company will be a more formidable competitor to BT Group, the parent company of EE. 

Third, Vodafone has a strong dividend yield of over 9%, making it one of the top-income companies in the FTSE 100 index. It will remain a solid income play even after rebasing its dividend next year. 

Additionally, the management has room to shed or improve some of the other weak businesses like Vodafone Business. 

Vodafone share price analysis

The daily chart shows that the VOD stock price has done well in the past few months, helped by its strong turnaround. It has risen above the 23.6% Fibonacci Retracement level, meaning that bulls are in control.

The stock has also formed an ascending channel and remained above the 100-day and 50-day Exponential Moving Averages (EMA).

It has also moved above the key support at 72p, the lowest point in December 2022 and the 23.6% retracement point.

Therefore, the stock will likely continue rising as bulls target the year-to-date high of 80p. A break above that level will see it rise to the 50% retracement point at 86p.

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The CAC 40 index pulled back this week even as its American peers like the Dow Jones, S&P 500, and Nasdaq 100 indices surged to a record high. It retreated to €7,420, its lowest point since September 25, and 9.3% below its highest point this year. 

Weak LVMH earnings 

The CAC 40 index, which tracks the biggest companies in France, remained under pressure this week as investors focused on the country’s earnings season.

Most of this week’s retreat were because of the latest LVMH earnings, which showed that the Chinese consumers were still not spending. 

Its earnings revealed that organic revenue dropped by 5%, missing what analysts were expecting. In a statement, the Chief Financial Officer based this decline to the economic challenges in its key markets. Organic sales in Asia, which includes China, fell by 16% during the quarter.

LVMH’s earnings are important for the CAC 40 index because it is the biggest constituent company in France. Also, its results mean that other French luxury goods companies like Hermes and Kering will also release weak numbers because of their exposure to the Chinese market. 

Conversations with some Chinese consumers show how bad the situation has gotten. Bloomberg cited a Chinese shopper known as Louisa Chen who used to spend at least $10,000 a year on handbags. She has yet to buy any recently after her bonus was cut.

Maggie Wang, a Chinese shopper who talked to Invezz, said that she had opted for more budget-friendly handbags and clothes after the real estate industry collapsed. She had bought two apartments from Evergrande, a company that has imploded and is now focused on boosting her savings.

Data released this week showed how dire the situation is since the country is going through a deflation period, where prices are falling. 

Analysts worry that the recently announced stimulus packages by Beijing will do nothing to stimulate spending for now.

More CAC 40 earnings ahead

More companies in the CAC 40 index will publish their financial results in the coming days. EssilorLuxotcca, which we wrote about here, will release its numbers on Thursday. 

While EssilorLuxottica’s name might not be familiar, it is a near monopoly in the eyeglasses and sunglasses industry. It is the main manufacturer of most brands you know, including Coach and RayBan.

The other companies to watch on Thursday will be Pernod Ricard, a leading company in the alcohol industry, where it owns brands like Chivas, Jameson, Aberlour, and Ballantine’s.

Publicis Groupe, one of the top advertising agencies globally, will release its results, which will provide more color on the global advertising industry. 

Next week will see more CAC 40 companies release their earnings. The most notable ones will be Kering, Carrefour, Hermes, Dassault Systemes, Air Liquide, Vinci, Danone, Renault, Accor, Sanofi, Safran.

The top firms to watch here will be Hermes and Kering. Kering, the parent company of Gucci, has plunged by more than 50% this year amid a sustained slowdown in China. 

Hermes, on the other hand, has done much better because of its strategy of focusing on the ultra-wealthy. Unlike the other luxury groups, the company has done well in terms of pricing by not hiking prices sharply when demand peaked. 

The other notable stocks to watch will be Renault, a key French automaker, and Thales, the biggest French defence contractor.

ECB decision ahead

The next important catalyst for the CAC 40 index will be the upcoming European Central Bank decision. Analysts expect the bank to cut interest rates by 0.25%, the third cut this year. 

The ECB is concerned about the health of the European economy as key sectors like manufacturing wane. For example, the manufacturing PMI has remained below 50 in the past few months, and the trend may continue.

Many French manufacturers are at a disadvantage because of the higher energy prices since Russia’s invasion of Ukraine.

The bank hopes that lower rates will make capital more affordable in the country and stimulate consumer and corporate spending. 

The ECB and other central banks have joined the rate cutting cycle. For example, the Federal Reserve delivered a jumbo cut in its last monetary policy meeting. 

CAC 40 index analysis

The CAC 40 index has been one of the top underperformed other European indices this year because of its China’s exposure. It formed a small double-top chart pattern at €8,260 earlier this year, and has remained below the neckline at €7,893. 

The index has moved below the 50-day and 200-day Exponential Moving Averages (EMA) and the 23.6% Fibonacci Retracement point. 

Therefore, the path of the least resistance for the index is downward, with the next point to watch being at €7,200. The stop-loss of this trade will be at €7,600.

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The Cambria Shareholder Yield ETF (SYLD) stock has done well this year. It has risen in the last six consecutive weeks, reaching a record high of $73.48, which is 280% above the lowest point in 2020.

A blue-chip ETF

The Cambria Shareholder Yield ETF is a popular fund that tracks companies that have a long track record of rewarding their shareholders. 

It mainly focuses on companies that have a history of paying dividends, buying back their shares, and reducing their debt. In most cases, these are firms that have strong free cash flows, one of the best financial metric to watch.

The SYLD also has a history of investing in companies that trade at a discount compared to the S&P 500 index. It has an expense ratio of 0.59% and an annual dividend yield of about 1.81%.

The fund’s constituents are different from those of popular funds like the Vanguard S&P 500 (VOO) and the SPDR S&P 500 ETF (SPY). It has a limited number of technology companies, which dominate most funds.

Most of the companies in the fund are in the energy sector, which account for 21.7% of all firms. The other firms are in the consumer discretionary, financials, materials, industrials, and communication services.

Top SYLD constituent companies

CNX Resources, a leading natural gas company valued at over $5.3 billion is the biggest constituent, with a 1.47% stake. CNX’s stock has soared by over 52% in the last 12 months even as natural gas prices have remained under pressure. They have jumped by 381% in the last five years.

Jefferies Financial Group, a well-known investment banking group with billions in assets, is the second-biggest company in the fund. Its stock has soared by over 96% in the past 12 months and 267% in the last five years, bringing its valuation to over $13 billion. 

Jefferies and other investment banks have done well as investors anticipate more deals as interest rates start moving downwards. Top banks in the industry like Morgan Stanley and JPMorgan have published strong financial results this week.

REV Group, a mid-cap company that manufactures specialty items like fire engines, terminal trucks, and emergency vehicles is the third firm in the SYLD ETF. Its stock has jumped by over 82% in the last 12 months, bringing its valuation at over $1.4 billion.

REV is often seen as an all-weather company because its products are often in demand regardless of the economic conditions. 

The other top companies in the fund are Prog Holdings, Victory Capital Holdings, Aflac, Fox Corporation, and Brady Corp.

Uncorrelated ETF

One of the top reasons for investing in the SYLD ETF is that it is not as correlated to the S&P 500 and Nasdaq 100 indices as other funds. According to its documents, the correlation with the S&P 500 in the last five years was 0.80. In contrast, the Morningstar Mid-Cap Value Category Average’s correlation was 0.90. 

The SYLD also has done better than the S&P 500 index in the past five years, with its total return in the last five years being 126%. In the same period, the Schwab US Dividend Equity (SCHD) and the S&P 500 ETFs have risen by 88% and 112%.

The challenge, however, is that the fund is exposed to the energy sector, which is a highly cyclical industry.

The other concern is that the fund has a smaller yield of 1.8% than other dividend ETFs, and is more expensive than other funds. For example, the VOO ETF, which has a good track record, has an expense ratio of just 0.03%.

SYLD ETF analysis

SYLD chart by TradingView

The weekly chart shows that the Cambria Shareholder Yield ETF has been in a strong bull run in the past few years.

It has risen from the 2020 low of $19.63 to $73.48. Most recently, it has moved above the key resistance point at $72.71, its highest swing in April 2024. By moving above that level, it has invalidated the double-top pattern that has been forming.

The fund has remained above the ascending trendline that connects the lowest swings since May 2023. It has moved above the 50-week and 100-week Exponential Moving Averages (EMA). 

Therefore, the stock will likely continue rising as bulls target the next key resistance point at $80, which is about 10% above the current level.

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The Global X Uranium ETF (URA) has bounced in the past few months as investors predict a renaissance in the nuclear energy industry. After dropping to a low of $22.76 on August 5, the fund has rebounded by over 42%, and is nearing its all-time high of $33.65.

Nuclear energy demand

The Global X Uranium ETF has rallied as the prices of uranium continued rising. Data by Markets Insider shows that uranium has risen from $78 in August to $82.95 today.

Still, unlike in 2023 when uranium prices soared, they have come under intense pressure, this year as they dropped from $105 to a low of $78. 

This rebound happened as investors predicted that the nuclear energy industry will continue doing well in the next few years. 

For example, we recently wrote that Microsoft had reached a deal with Constellation Energy, a large utility company in the US. The agreement is that the firm will restart the Three Mile nuclear energy plant to supply the company with reliable energy for its data center. 

Analysts expect that Microsoft will pay Constellation between $110 and $115 per megawatt hour in the 20-year long-term deal.

Microsoft is not the only company working on the nuclear energy. This week, Google inked a deal with Oklo, a company affiliated with Sam Altman to develop small modular nuclear power plants in the US. 

Therefore, most nuclear power stocks have surged, with some of them hitting their all-time high.

For example, the Oklo stock price has soared by over 56% this year, outperforming the S&P 500 and the Nasdaq 100 indices.

Better still, NuScale shares have surged by 480% this year, outperforming popular brands like Nvidia and MicroStrategy. It has moved from a small company to a large one valued at over $3.3 billion. Uranium Energy Corp and Uranium Royalty have also surged by double digits. 

The URA ETF has also surged after the Department of Energy approved the conceptual design for Oklo’s Aurora Fuel Fabrication Facility. As part of the approval, Oklo received 5 metric tons of high-assay low-enriched uranium (HALEU) and used nuclear fuel.

Analysts believe that the small modular nuclear power plants will be the ket driver for nuclear energy in the next few years. For example, Rolls-Royce Holdings is working on these plants in the UK.

Uranium demand and supply metrics

The challenge for uranium is that supply and demand metrics mean that uranium prices may remain under pressure for a while. 

According to the Energy Information Agency (EIA), the domestic uranium market is expected to grow in the US. Mining production is expected to keep growing this year as the number of development holes dug rising to 1,930 last year, from 260 in 2021.

Global production is also expected to continue rising as many of the idled mining locations come back online. A few years ago, mining operations in Kazakhstan almost dried as prices dropped.

Other suppliers like Australia, Namibia, and Uzbekistan have also increased their production as demand rises. For example, Australia is expected to export over 8,000 tonnes by 2028, a big increase from the 4,933 tons it sold in 2022.

URA is a top uranium ETF

URA is one of the best approaches to invest in uranium. Unlike popular commodities like crude oil and natural gas, it is not offered by most brokers, making it highly difficult to invest in it. 

URA, therefore, gives access to uranium by investing in the biggest producers and Sprott Physical Uranium Fund. 

Cameco, the biggest uranium company, is a key player in the fund. Its stock has soared by over 54% in the last 12 months, helped by its strong performance and hopes of higher uranium prices.

The other top players in the URA ETF are Nexgen Energy, NAC Kazatog-Regs, Paladin Energy, Denison Mines, Mitsubishi Heavy, and OKLO.

URA ETF analysis

The weekly chart shows that the URA ETF has staged a strong comeback in the past few days, helped by the strong sentiment in the market. 

It has soared from $22.84 in August to $32.35, and is nearing its record high of $3364. The stock has also risen above the key resistance point at $28.05, its highest point in November 2021.

URA has also moved above all moving averages, while the Relative Strength Index (RSI) and the MACD indicators have pointed upwards. 

Therefore, the stock will likely continue rising as bulls target the next key point at $33.65, its highest point on May 24th. A move above that level will point to more gains since it will invalidate the double-top pattern that has been forming. If this happens, it will point to more gains, with the next point to watch being at $40. 

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