Good morning. Happy Friday.
The Asian/Pacific markets were mixed. Japan, South Korea and Australia did well; China, Hong Kong and New Zealand were weak. Europe, Africa and the Middle East are mostly down. The UK, Denmark, Poland, France, Germany,Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Austria and Sweden are down 1% or more; the UAE and Russia are up. Futures in the States point towards a flat open for the S&P and a down open for the Nasdaq.
The dollar is down. Oil is up; copper is down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Apple’s blockbuster quarter
The world’s most valuable company just posted the highest revenue in its history. Apple’s (AAPL) sales in the holiday quarter climbed 11% to $123.9B, led by strength in the iPhone, which generated $71.6B of revenue over the three-month period. Earnings also topped $30B for the first time, and shares responded by soaring 5% AH on Thursday, a notable price movement in the current volatile market environment and recent upheaval plaguing the technology sector.
Quote: “This quarter’s record results were made possible by our most innovative lineup of products and services ever,” CEO Tim Cook announced on a conference call, pointing to the iPhone 13, Apple Watch Series 7 and revamped Macs. “We are gratified to see the response from customers around the world at a time when staying connected has never been more important.”
While supply chain problems cost the company “more than $6B” in revenue, the results showed a victory against the logjams and chip shortages that have hit many industries during the pandemic. In fact, the Wearables unit, which includes the Apple Watch and AirPods, generated $14.7B in revenue during the period, up from the $12.9B seen in the first quarter of 2021. Services revenue also rose to $19.5B in the quarter, up from $15.7B in the year-ago period, with more than 785M paid subscriptions across the segment.
Block beware: As the Cupertino-based company published earnings, Bloomberg reported that the tech giant was “planning a new service that will allow iPhones to accept payments with the tap of a credit card.” That would essentially turn the devices into payment terminals and threaten Block’s (SQ), formerly known as Square, presence in the space. The system would likely use the iPhone’s near field communications, or NFC, chip that is currently used for Apple Pay, and wouldn’t require any extra hardware.
The EU and the U.K., with support from the U.S, are drawing up plans to sanction Russia’s energy sector if the country invades Ukraine. The group would cut off new gas projects from Western financing and technology, which could hamper Moscow’s ability to drive new production in the future. Russia is likely to unveil counter-sanctions, in a similar process that occurred following its annexation of the Crimean peninsula in 2014.
Would it backfire? The 27 nations of the EU buy about 40% of their natural gas from Russia, so it is looking elsewhere for a vast supply. Diplomats have even been speeding up negotiations for fallback sources with gas producers around the globe, like Azerbaijan and Qatar. The Biden administration has also held a marathon of video calls in recent days trying to convince buyers in South Korea, Japan and elsewhere – that have already paid for their imports – to let the U.S. reroute the shipments to Europe.
“Politically, we are very keen to help both the United States and Europe, but in reality we cannot just walk away from our long-term commitments to Asia even if it is just for a short period,” a senior Qatari adviser told the WSJ. “The U.S. and other players in Europe will have to do a lot of convincing here.”
Go deeper: U.S. LNG exporters, which are already running near capacity, have told officials that they are sending as many shipments as they can to Europe without violating other customers’ long-term supply agreements. In fact, Europe is taking 70% of America’s LNG cargoes, according to S&P Global Platts. There are also some near-term bottlenecks that have to be ironed out, including a limited number of U.S. export terminals that can turn gas into a liquid so it can be shipped over long distances.
What’s it like to take a spin in an autonomous vehicle? “It’s just surreal,” General Motors (NYSE:GM) CEO Mary Barra declared after her first trip in the company’s driverless cars without a safety driver. In a clip uploaded to YouTube, she is seen riding in a retrofitted Chevrolet Bolt EV with Kyle Vogt, founder and interim CEO of Cruise, GM’s majority-owned autonomous vehicle subsidiary. “That was incredible,” she adds. “This is going to change the way people move in such a positive way… I’m over the moon.”
Backdrop: In March 2016, General Motors acquired Cruise for an undisclosed amount, although reports have placed the number between $500M to north of $1B. Just nine months earlier, Cruise had received a permit to test self-driving vehicle technology from the California Department of Motor Vehicles, and it soon formed the core of GM’s self-driving efforts. Fast forward to September 2021… Cruise lands a permit to provide driverless taxi rides in the state and is valued at around $30B following a series of funding rounds.
Some internal disagreements recently enveloped the subsidiary, with Dan Ammann, a former GM executive who was leading Cruise, leaving last month. Kyle Vogt has since stepped into the role, though it’s still unclear what led to Ammann’s abrupt departure. As recently as October he had forecast that Cruise would commercialize its robotaxi in San Francisco in 2022, followed by a ramping up of 1M such vehicles by 2030.
Outlook: “I think the apprehension that some people think they have is going to dissipate extremely quickly once they get the experience,” Barra said after her ride in San Francisco. “We were in the vehicle for 5 minutes and the trust is there.” GM expects the operations to potentially contribute up to $50B in annualized revenue by the end of this decade, with analysts viewing the autonomous driving industry as a potential multitrillion-dollar market.
New revenue stream
The latest results from Robinhood (NASDAQ:HOOD) failed to impress investors, with the stock plunging over 14% premarket to under $10, following a 6% fall during the regular session on Thursday. The retail brokerage posted weak revenue guidance, as well as big earnings and revenue misses in Q4, as the retail trading frenzy in meme stocks and crypto lost steam. That’s prompting the industry pioneer, which brought commission-free trading to the masses (via payment-for-order-flow), to look for new revenue streams.
Quote: “We’re close to delivering a feature that our customers have been asking for an even larger window of available trading hours,” CEO Vlad Tenev said on an earnings call. “We call this feature hyper-extended hours and anticipate rolling it out later this quarter.”
Currently, Robinhood only allows premarket/extended trading 30 minutes before the stock market opens at 9:30 a.m. and for two hours after the close at 4 p.m. Other electronic brokers offer more extended access, allowing trades as early as 4 a.m. and as late as 8 p.m. Liquidity is relatively thin at those times, which could lead to major price swings, though the increased risk is sometimes tolerated by regular traders, like during earnings season when reports are released outside of scheduled trading hours.
Why not 24/7? Crypto trades around the clock, and futures almost do as well, but when it comes to the U.S. stock market, many feel that better price discovery happens when most Americans are awake. For many market makers, exchanges, brokers, investment houses and even financial professionals, a shift to 24/7 trading would also make their lives more complicated, and in many ways, they dictate the resources in the current trading environment. However, hedge-fund billionaire Steve Cohen is trying to change that by seeking approval from the SEC for first U.S. stock exchange that would operate around the clock, including holidays and weekends. His startup, called the 24 Exchange, has the potential to shake up market dynamics and many like the New York Stock Exchange (NYSE:ICE) and Nasdaq (NASDAQ:NDAQ) are watching.
Today’s Economic Calendar
8:30 Personal Income and Outlays
8:30 Employment Cost Index
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
What else is happening…
U.S. economy grew by 5.7% in 2021, fastest clip since 1984.
The Fed needs more than rate hikes, it may need a recession.
Will Caterpillar’s (NYSE:CAT) strong backlog support Q4 earnings?
Home Depot (NYSE:HD) appoints company veteran Ted Decker as CEO.
EV stocks like Lucid (LCID) and Tesla (TSLA) lose growth premiums.
Gulf of Mexico oil and gas leases thrown out by federal judge.
Southwest Airlines (NYSE:LUV) guides for profitability after February.
Mondelez (NASDAQ:MDLZ) talks price increases and supply chain problems.
Q4 results at McDonald’s (NYSE:MCD) arrive short of expectations.
Meme mania: Is the party over for GameStop (NYSE:GME) and AMC (NYSE:AMC)?
Good morning. Happy Thursday.
The Asian/Pacific markets posted big losses. Japan, China, Hong Kong, South Korea, India, Australia, New Zealand – all down big. Europe, Africa and the Middle East are currently mostly up. The UK, Denmark, Turkey, Russia, Hungary, Spain, Italy, Portugal and Austria are up; South Africa and Israel are down. Futures in the States point towards a positive open for the cash market.
The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Facebook’s (FB) grand plan to bring cryptocurrency, or more specifically stablecoins, to the social network’s billions of users has reportedly gone up in smoke. The idea was to have money spent, transferred and paid across its platform just “as easily as sending a text message” and could even bring financial services to many of the world’s underbanked citizens. While the company initially hoped to peg the asset to a basket of currencies, which used distributed ledger technology, it eventually narrowed its focus to one-for-one to the dollar to reduce volatility.
Backdrop: Facebook founded the Libra project, now known as the Diem Association, back in 2019, though the initiative immediately struggled to get off the ground. As regulatory scrutiny picked up across the globe, many founding members pulled out of the endeavor including PayPal (PYPL), eBay (EBAY), Stripe, Visa (V) and Mastercard (MA). Policymakers cited existing privacy concerns about how Facebook handles user information, and they saw the potential for the new scheme to enable crime, money laundering and erode their control over the monetary system.
Last October, Facebook (should we be saying Meta?) finally launched a “small pilot” to test its crypto wallet Novi, but without its planned cryptocurrency called Diem (it used a different stablecoin called the Pax Dollar instead). Criticism from lawmakers immediately erupted, while David Marcus, the founder of Diem, subsequently left the company. The project also attempted to shift its operations from Switzerland to the U.S. – with crypto-focused bank Silvergate Capital becoming the exclusive issuer of Diem – though the Federal Reserve “dealt the effort a final blow.”
Outlook: Meta currently owns about a third of the Diem venture, with the rest retained by venture capital firms and tech players that are members of the association. While discussions are still in the early stages, Bloomberg reports that Diem’s intellectual property might be sold to in order to return capital to its investor members. The association is also looking out for a new employer that could take on the “engineers who developed the technology, and cash out the value left in the project.”
If you thought the press conference of Jay Powell would provide some clarity for the markets… guess again. Stocks initially rallied Wednesday, but ended the day lower, and futures sold off heavily overnight, only to pare much of their losses. Meanwhile, the yield curve shrank to the flattest since 2020 following the FOMC meeting, with two-year Treasuries extending declines today even as 10-year notes rebounded.
Quote: “This is going to be a year in which we move steadily away from the very highly accommodative monetary policy that we put in place to deal with the economic effects of the pandemic,” Powell declared. “I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming conditions are appropriate for doing so. I don’t think it’s possible to say exactly how this is going to go, and we’re going to need to be, as I’ve mentioned, nimble about this so that we can respond to the full range of plausible outcomes.”
The hawkish pivot, coupled with uncertainty, comes as red-hot inflation plagues the economy with an annual rate of 7% seen in December. The central bank also approved one final round of asset purchases, bringing an end to its pandemic-era bond-buying in March. There will be additional discussions about reducing the Fed’s nearly $9T balance sheet, which will be “led by the incoming data and evolving outlook.”
What’s in the cards? Following the press conference, futures betting markets showed an 86% chance of a 25 basis point hike for the March FOMC meeting, while 14% predicted a 50 bps increase (a half-point hike hasn’t occurred since May 2000). “Powell said that the Fed’s focus has always been on the underlying economy, and a byproduct of that has been inflated asset prices,” noted Max Gokhman, chief investment officer at AlphaTrAI. “But now that inflation is here and real while labor markets have slack, it’s time to focus on fighting that fire, and if that burns euphoric bulls then so be it.”
Despite earnings smasher in AH trading on Wednesday, Tesla (TSLA) shares drifted lower on supply chain developments that got some investors nervous. Its factories have been running below capacity for several quarters due to low quantities of semiconductors and related parts, and that headwind is expected to persist throughout 2022. “The chip shortage, while better than last year, is still an issue,” CEO Elon Musk said on a conference call with analysts.
By the numbers: The EV maker beat on both the top and bottom lines, reporting a record of $2.3B in quarterly profit (+65% Y/Y). It also showed off a 14.7% operating margin for Q4 in an industry where single-digit margins are regarded as average, while automotive gross margins came in at 30.8%, above the consensus mark of 29.9%. Tesla ended the quarter with a cash position of $17.6B, while total debt – excluding vehicle and energy product financing – fell to $1.4B at the end of 2021.
As far as deliveries guidance, the electric vehicle juggernaut stuck with a multi-year deliveries view for 50% average annual growth. Of note, Tesla expects hardware-related profits to be accompanied with an acceleration of software-related profits this year. Musk also stressed (once again) that “Full Self Driving is not fully appreciated” and would be shocked if the technology is “not safer than a human this year.”
Production updates: Tesla is in the process of finalizing the manufacturing permit from local authorities for the Berlin gigafactory, which will allow it to start delivering German-made vehicles in Europe. After the final certification of Austin-made Model Y, the company also plans to start deliveries to customers from that new gigafactory. Meanwhile, Tesla will not introduce the highly-awaited Cybertruck this year, risking falling behind orders for Ford’s (F) F-150 Lighting, which is poised for delivery in the first half of 2022.
Spotify (NYSE:SPOT) is in the midst of removing Neil Young’s music from its platform after the company refused to take down Joe Rogan’s podcast amid the folk-rock star’s objection to “vaccine misinformation.” That means no more listening to hits like Heart Of Gold, Harvest Moon and – ironically – Rockin’ in the Free World. The controversy touches on the free speech debate and if a public platform should be held responsible for content as a publisher. Similar arguments have also played out on related tech platforms like Twitter (TWTR), Facebook (FB) and YouTube (GOOGL).
The letter: “I sincerely hope that other artists and record companies will move off the Spotify platform and stop supporting Spotify’s deadly misinformation about COVID. They can have Rogan or Young. Not both,” he wrote on his blog. “I am doing this because Spotify is spreading fake information about vaccines – potentially causing death to those who believe the disinformation being spread by them. Please act on this immediately today and keep me informed of the time schedule.” Spotify represents 60% of Young’s streaming music via record label Warner Records (NASDAQ:WMG).
At issue is a recent episode with Dr. Robert Malone, a virologist who worked on early research in mRNA technology. During the discussion on The Joe Rogan Experience, he drew comparisons to the climate surrounding “mandates of an experimental vaccine” to “mass formation psychosis” and “the rise of the Nazi party in Germany” among other claims. Twitter and YouTube have since removed the episode citing misinformation, while Spotify is keeping it, though it did point out that its “detailed content policies” have resulted in the removal of over 20,000 COVID-19-related podcasts since the start of the pandemic.
Go deeper: The controversy is a significant test of Spotify’s big bet on podcasting’s most popular voice. The streaming service struck an exclusive licensing deal with Rogan in 2020, worth a reported $100M, that was central to its podcast strategy of attracting listeners and ad dollars to its platform. However, it is not the first time Rogan has gotten in hot water with the medical establishment. He has discouraged vaccination in young people and children, claimed that mRNA vaccines are “gene therapy” and promoted off-label use of Ivermectin to treat COVID-19.
Today’s Economic Calendar
8:30 Durable Goods
8:30 GDP Q4
8:30 Initial Jobless Claims
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $53B, 7-Year Note Auction
4:30 PM Fed Balance Sheet
What else is happening…
Boeing (NYSE:BA) shares grounded on whopping Q4 loss, 787 delays.
Netflix (NASDAQ:NFLX) jumps as Pershing Square discloses 3.1M-share purchase.
AT&T (NYSE:T) CEO starts to favor spinoff for Warner-Discovery deal.
Intel (NASDAQ:INTC) drops despite Q4 results beating expectations.
Moderna (NASDAQ:MRNA) doses first patient in Omicron-specific vaccine trial.
Two-thirds of Omicron COVID cases are reinfections – English study.
Bumper earnings… Abbott’s (NYSE:ABT) COVID-19 testing sales reach $2.3B.
LendingClub (NYSE:LC) sinks on soft net income guidance for Q2.
Good morning. Happy Wednesday. Happy Fed Day.
The Asian/Pacific markets leaned to the upside. China, Malaysia, Indonesia, Singapore and Thailand did well; South Korea was weak. Europe, Africa and the Middle East are currently mostly up. The UK, Denmark, Poland, France, Turkey, Germany, Russia, Greece, South Africa, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel, Austria, Sweden and the Czech Republic are all up big. Futures in the States point towards a big gap up open for the cash market.
The dollar is up. Oil and copper are up. Gold is down; silver is up. Bonds are unchanged. Bitcoin is up.
Stories/News from Seeking Alpha…
Hawks take flight
How aggressive will the Fed be in its fight against inflation? Investors hope to get some answers today from Chair Jay Powell, who will take the podium at 2:30 p.m. ET. On watch is the pace of interest rate increases, which are expected to begin in March and accelerate this year, to help slow the pace of price pressures that have plagued the U.S. economy for most of 2021. The Consumer Price Index even breached the 7% level in December, running at its highest annual pace in nearly 40 years.
Balancing act: “Weaker economic growth projections have contributed to investors breathing a sigh of relief that the Fed won’t have to be overly aggressive,” said Sam Stovall, chief investment strategist at CFRA, but that’s specifically what some are afraid of: a policy mistake. A transitory inflation forecast – since retired by the central bank – remains fresh in investors’ minds. If the Fed goes too soft, it runs the risk of allowing price pressures to get entrenched in the economy, making it a lot harder to fight inflation down the line.
The rate hiking cycle isn’t the only thing on watch. The Fed is looking to combine the tightening with a reversal of its bond-buying program and a runoff of its nearly $9T balance sheet, betting that a smaller central bank presence in financial markets could help relieve inflationary forces. In contrast, the Fed was focused on the economic risks posed by the coronavirus pandemic for much of the last year, continuing to support the economy with pandemic-era stimulus.
Outlook: Keep an eye on 10-year Treasury yields, which briefly broke above the 1.9% threshold last week, triggering the fear seen in equities and much of the market. There are also worries that international developments could exacerbate inflationary forces, like supply problems related to China’s Zero COVID policies or an energy crisis from a military conflict between Russia and Ukraine. In turn, many foreign economies are watching the Fed’s path forward on monetary policy, which can shake up exchange rates and destabilize economic growth around the world.
It’s not an easy environment to report earnings, given the recent market volatility, but Microsoft (MSFT) was able to overcome the recent selling pressure on the tech industry. Shares rose 1.2% AH to $292 on Tuesday (following an earlier decline) as the company delivered an upbeat forecast for fiscal third quarter. Don’t forget beats on both earnings and revenue, with quarterly sales that topped $50B for the first time on strength in cloud, gaming and Windows software.
Guidance: With Azure cloud growth set to pick over the next three months, Microsoft expects revenue for the period to be between $48.5B and $49.3B, topping average analyst estimates of $48.1B. CEO Satya Nadella also said the tech giant was experiencing a “PC renaissance with increases in time spent on PCs and PCs per household.” The earnings arrived a week after Microsoft announced a whopping $69B deal to acquire Activision Blizzard (ATVI), which it hopes “shape what comes next for gaming as platforms like the metaverse develop.”
“We would be buyers on this modest selloff as we believe the underlying metrics and implied growth trajectory into the rest of 2022 are strong for MSFT,” Wedbush Securities analyst Dan Ives wrote in a research note. “In this jittery market we will see every tech print initially viewed as glass half empty, but ultimately this remains a core cloud name to own and we believe is in oversold territory.”
Up next: More trillion-dollar tech companies are set to report quarterly results this week, including Tesla (TSLA) this afternoon and Apple (AAPL) tomorrow. Investors will be paying close attention to the reports, with the earnings and sentiment likely to define the road ahead for tech darlings amid inflationary pressures and rising interest rates. The Nasdaq tumbled 7.6% in the last week alone and is off 12% so far in 2022 (futures are up this morning in the latest bout of volatility).
T is for Topics
Google (GOOG, GOOGL) is overhauling plans for a key technology it had been developing to replace cookies, which are small browser files that track user behavior as they move around online. Advertisers and publishers rely on cookies to make money, as they give them the ability to display targeted advertisements based on relevant topics that interest a user. The term “cookie” was coined by web programmer Lou Montulli in 1994, based on the term “magic cookie” (like a fortune cookie), or a packet of information with an embedded message.
Backdrop: In 2019, Google announced that it would replace cookies in its Chrome browser with FLoC, Federated Learning of Cohorts. The tracking protocol was claimed to be far more anonymized, but still able to yield conversion rates of 95% for every ad dollar spent. The plans were found to be less effective and didn’t pan out, and in July 2021, the company announced that Chrome would continue supporting third-party cookies until at least mid-2023.
Now, Google is taking a second stab at altering the cookie landscape, replacing FloC with “Topics.” The API works by pinpointing 15 baskets out of about 350 “topics” like “Fitness” or “Travel & Transportation,” and is based on three weeks of browsing history (older topics are deleted). Advertisers will be able to see up to three topics per user – one topic from each of the past three weeks – and could then decide whether to show that individual an ad based on their web history.
Go deeper: While some have embraced a move away from “privacy-invasive tracking cookies,” advertisers, website owners and publishers have cautioned that it may further limit competition in the advertising industry. They fear that the loss of cookies will make them more reliant on buying ads from tech giants because of their massive user databases, with Apple (NASDAQ:AAPL) also making privacy a selling point to consumers and unveiling its own changes last year. Complaints have also led antitrust authorities in the U.S., U.K., EU and elsewhere to closely follow the latest happenings in the industry.
Coming after Tesla
Looking to catch up in the electric vehicle race, General Motors (GM) is plowing $6.6B in its home state of Michigan through 2024 to increase EV pickup truck production and build a new EV battery cell plant. The investment is part of a strategy to increase the automaker’s U.S. production capacity of 1M electric vehicles by 2025, and a bigger $35B pledge the company previously made to spend on the industry. Even luxury carmakers are following suit, with Lamborghini and Bentley pledging to go fully electric this week.
Quote: “We will have the products, the battery cell capacity and the vehicle-assembly capacity to be the EV leader by mid-decade,” GM CEO Mary Barra said in a statement. It was only a few months ago that Barra forecast that General Motors would “absolutely” catch Tesla (TSLA) in U.S. sales of electric vehicles by 2025.
It won’t be easy to do in just three years. While Tesla doesn’t provide a specific breakdown of its American sales, the EV maker delivered 936,172 electric vehicles globally in 2021. Putting that in perspective, GM sold less than 25,000 EVs last year, even ranking behind Ford (F), which sold 27,140 of its Mustang Mach-E. Among the EVs that General Motors plans to put on the market are electric versions of the Hummer, Equinox, and Silverado and Sierra pickup trucks.
Outlook: New vehicle prices have jumped 12% over the past year (used cars and trucks have soared by 37%), but that hasn’t put a dent in vehicle ownership. Boosted by stimulus and higher wages, Americans are splurging on the sector, according to a recent Morning Consult survey, with ownership rates rising again last month. “Older adults tend to be more sensitive to pandemic developments, and a growing preference for private transportation over public transit could be a result of rising case counts,” added the authors of the study, economists John Leer and Kayla Bruun.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 New Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $26B, 2-Year FRN Auction
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference
What else is happening…
OSHA withdraws private employee vaccine mandate after Supreme Court ruling.
Can cannabis compound CBD combat COVID-19 infection?.
Nvidia (NASDAQ:NVDA) stumbles as it reportedly prepares to drop $40B Arm bid.
Next three Call of Duty (NASDAQ:ATVI) games to appear on PlayStation.
3M (NYSE:MMM) beats expectations as Omicron lifts N95 mask sales.
More earnings: Weak guidance weighs on General Electric (NYSE:GE).
GM (NYSE:GM) invests $7B in plants with goal to be an EV leader.
Lumber plunges for seventh day on demand fears, supply chain chaos.
Russian finance ministry official objects to central bank crypto ban.
IMF urges El Salvador to strip bitcoin of legal tender status
Good morning. Happy Tuesday.
The Asian/Pacific markets suffered big losses. India did well, but Japan, China, Hong Kong, South Korea, Taiwan, Australia, Indonesia and Singapore dropped at least 1% each. Europe, Africa and the Middle East are currently mostly up. The UK, Poland, France, Turkey, Finland, Spain, Israel and Austria are up solidly. Futures in the States point towards a big gap down open for the cash market.
————— VIDEO: Wayne Whaley’s TOY Barometer —————
The dollar is up. Oil is up; copper is down. Gold is flat; silver is down. Bonds are down. Bitcoin is flat.
Stories/News from Seeking Alpha…
The volatility edition
Things are getting wild in equity markets as traders try to size up the latest outsized moves. A rowdy session on Monday saw the biggest Nasdaq comeback since 2008, as the index ended the day up 0.6% following a midday plunge of nearly 5%. Similar movement was seen with the Dow and S&P 500, which both ended the session in the green despite an earlier drop of 3.3% and 4% (at one point the S&P 500 even fell into correction territory).
Quote: “The buyers are coming in to buy the dip here,” said Lindsey Bell, chief money and markets strategist at Ally Invest. “Things looked a little bit over-stretched to the oversold side, so it’s not surprising. But that doesn’t mean we are going to be in the clear. There is a lot that we have going on this week.”
That forecast couldn’t be more on point, with stock index futures plunging again overnight. At the time of writing, the Dow is off more than 250 points, while contacts linked to the S&P and Nasdaq are down 1.3% and 1.9%, respectively. Investors are nervous about red-hot inflation landscape and accompanying rising rate environment in 2022, as well as the risk of a policy mistake. There are additional fears that the economy is losing (or could lose) some momentum or that earnings season may not be perceived as positively as it has been in the past.
Analyst commentary: “We’re in what I call the triple threat of… rapidly rising rates, and the market has been working overtime, as have all of the algorithms, to try to figure out what that means, and what that pace means for valuations and global equities,” explained UBS Private Wealth Management’s Alli McCartney explained. “For the last decade, the market has been able to count on the Fed to support growth. It is now swinging the pendulum and having very different acts to take care of, while the market is figuring out what that means for valuations.”
Will Powell put in a word?
As the stock market continues to stumble in 2022, many are looking at the possibility of the Federal Reserve dialing back on its upcoming policy tightening. FOMC officials are meeting today and tomorrow for their January meeting, with Jerome Powell’s closely watched press conference coming at 2:30 p.m. ET on Wednesday. Investors will be watching comments on three key areas in particular, including interest rates, the tapering of asset purchases and a reduction of the central bank’s balance sheet.
Flashback: In recent years, the Fed has pivoted toward a dovish direction in the face of market turmoil. One instance was in early 2016, when it flagged risks from an economic slowdown in China and the strengthening U.S. dollar. The other came in late 2018, when stocks sold due to four rate hikes that year and a policy tightening cycle.
However, this time around, the Fed may be less inclined to halt its plans. Inflation has taken over the conversation – and what may come as a surprise to some investors – price stability (not markets) is actually part of the central bank’s dual mandate. Investors are even pricing in at least four rate hikes in 2022, with the 10-year Treasury yield soaring as much as 40 basis points to 1.9% in the first three weeks of the year.
What they’re saying: “We doubt that Chair Powell will feel much need to make soothing noises in Wednesday’s press conference,” wrote Lou Crandall, chief economist at Wrightson ICAP. “I don’t think anything the Fed is going to do is going to make the markets happy,” added Louis Gargour, chief investment officer at LNG Capital.
Stock investing since the global financial crisis has been heavily rooted in TINA, an acronym that stands for “there is no alternative.” That has helped drive many of the explosive valuations we see today, however, the prospect of higher interest rates is starting to weigh on the sentiment. TINA has also created subcultures of its own, like the retail crowd, and the somewhat rebranded moniker “Stonks Only Go Up.”
Keep in mind: In any market environment, especially the current volatile one, it is important to have some portfolio protection. That includes diversification, having cash on the side, or staying in your long-term positions and not getting too emotional. Investors that do want to dip into pockets of the markets are generally advised to do so in smaller amounts as the trading landscape becomes clearer.
For those looking to put money to work, many analysts have said it is (or was) time to get defensive, or rotate out of high-growth areas of the market in favor of safer bets. Others are searching for yields, like stable dividend payers, or even revenue producing tech players. Commodities, utilities, consumer staples and REITs are other sectors attracting attention, while some feel that “buying the dip” can be profitable in any number of sectors. Other strategies? Discuss in the comments section below.
Eyes on earnings season: “Perhaps Apple (AAPL), Microsoft (MSFT) and Tesla (TSLA) can come to the rescue with some knockout numbers when they report this week,” said Russ Mould, investment director at AJ Bell. “On the other hand, a series of disappointing updates from these technology titans would only undermine sentiment further.”
Where do we go from here?
The bulls: “Considering expectations for solid gains in the economy and corporate profits… we’re not convinced the fundamentals support any near-term technical weakness beyond the classic 10% correction,” said John Lynch, chief investment officer for Comerica Wealth Management. “A review of the technical and fundamental backdrops suggests a bottom is forming.”
“These kinds of bottoms tend to be revisited, as the [S&P 500 has] now fallen 10% from its high, and those who bought at the lows will scalp their gains,” noted CNBC’s Mad Money host Jim Cramer. “The bottom line: If you bought into Monday’s weakness as I’ve been telling you to do… if you bought into what sure looked like a crescendo of selling, then I think you’ll end up being happy with your decision.”
The bears: “The game has changed,” said Michael Lewis, Barclays’s head of U.S. stock trading. “It’s going to be a tough year. It’s going to be a tough year for people to make money. From 2009 to 2021, you’ve been paid to buy the dip. I don’t think you buy the dip anymore.”
“This type of action is just not comforting. I don’t think anybody is going home feeling like they’ve got this thing nailed even if they bought the lows,” commented Mike Wilson, chief U.S. equity strategist at Morgan Stanley. “We think the slowing growth narrative is the one that is going to be more important. It’s not a recession or anything like that… but the S&P 500 [is vulnerable to another 10% plunge] below 4,000 in the next three to four weeks. At the level, we’d start to get constructive given our base case of the index of 4,400 by year-end.”
“The data hasn’t been soft enough for the Fed to stop the tightening process. Some companies may also take the opportunity during earnings season to lower the bar a bit because it’s a tough operating environment. We’re not making a big bet on cyclicals here like we were a year ago because growth is decelerating. People got a little too excited on these cyclical parts of the market, and we think that’s wrong-footed.”
Today’s Economic Calendar
FOMC meeting begins
8:55 Redbook Chain Store Sales
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
1:00 PM Results of $55B, 7-Year Note Auction
1:00 PM Money Supply
What else is happening…
Will Microsoft’s (NASDAQ:MSFT) Q2 earnings support analysts’ upbeat view?
Google (GOOGL) faces suit over tracking, pushback over cookies.
Meta Platforms (FB) details new reporting structure ahead of earnings.
Saying goodbye to the combustion engine, Lamborghini goes full electric.
Boeing (BA) adds $450M to electric air taxi JV with Larry Page.
M&A intrigue! Kohl’s (NYSE:KSS) soars 36% on takeover bids.
IBM (NYSE:IBM) goes into the clouds as Q4 sales climb 6%.
COVID talk… New York judge blocks statewide mask mandate.
Aerial surveys detect 30 methane ‘super-emitters’ in Permian Basin.
Deal? Change Healthcare (CHNG) weighs UnitedHealth (UNH) asset sales.
Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were weak overall. Hong Kong, South Korea, India, New Zealand and Indonesia suffered big losses. Europe, Africa and the Middle East are currently down big. The UK, Denmark, Poland, France, Turkey, Germany, the UAE, Greece, Russia, South Africa, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel and Austria are all down big. Futures in the States point towards a big gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down big.
Stories/News from Seeking Alpha…
The warnings over Ukraine are coming in fast and loud, with the U.S. State Department on Sunday ordering diplomats’ family members to leave the country. “Military action by Russia could come at any time,” the U.S. Embassy said in a statement, and the “United States government will not be in a position to evacuate American citizens in such a contingency.” Meanwhile, Secretary of State Antony Blinken met with Russian counterpart Sergey Lavrov in Geneva on Friday, though no diplomatic breakthroughs were reached as Moscow amasses an estimated 100K troops along its border with Ukraine.
What does Russia want? The country has pointed to NATO’s eastward expansion and is seeking a pledge that Ukraine will never be allowed to join the military alliance. Don’t forget about historic, cultural and economic ties to the country, which was under Russian rule during Soviet days. Russia even annexed Crimea, a strategic peninsula on the Black Sea, in the aftermath of the Maidan Revolution in 2014, and aided a rebellion in the eastern Donbas region, where pro-Russia separatists now control breakaway parts of Donetsk and Luhansk.
Russian shares came under further selling pressure today amid the latest tensions, with the MOEX benchmark stock index tumbling 5% and taking its losses to 15% YTD. While the U.S. has rejected pressure to immediately escalate sanctions, saying it would limit options in the future, President Biden is considering deploying troops to NATO allies in eastern Europe and the Baltics. “The purpose of those sanctions is to deter Russian aggression,” Blinken told CNN’s State of the Union, “and so if they’re triggered now, you lose the deterrent effect.”
Energy on watch: Nearly half of Europe’s gas supplies are imported from Russia, raising concerns about the willingness of some European nations to take a stand against Moscow. The continent is already dealing with an energy crunch that has resulted in some of the highest heating and electricity bills in the developed world. Looking to stave off such a threat, talks are currently underway with Qatar – the world’s largest exporter of LNG – and other nations, in case a Russian incursion was to disrupt energy supplies to Europe.
Interest rate menu
An interest rate increase from the Fed this week would be a surprise, with most betting on a March start to the new hiking cycle, but some are still raising their expectations around the pace of tightening. Over the weekend, Goldman Sachs became one of the first on Wall Street to forecast the possibility of more than four rate hikes in 2022 as the central bank tries to extinguish red-hot inflation. As of the last reading on Jan. 12, the U.S. Consumer Price Index breached the 7% Y/Y level, running at its highest 12-month pace in nearly 40 years.
Quote: “We see a risk that the [Federal Open Market Committee] will want to take some tightening action at every meeting until the inflation picture changes,” Goldman economist David Mericle wrote in a note to clients. “We also increasingly see a good chance that the FOMC will want to deliver some tightening action at its May meeting, when the inflation dashboard is likely to remain quite hot. If so, that could ultimately lead to more than four rate hikes this year.”
Remember, it was only two weeks ago that Goldman touted a “four hike” forecast and futures markets have gone a long way since then to catch up with the expectations. Traders are pricing in nearly a 95% chance of a rate increase at the March meeting, and a more than 85% chance of four moves in all of 2022, according to the CME’s FedWatch gauge, while similar chances of a fifth rate increase have now moved to nearly 60%. Goldman also sees the Fed starting to cut its nearly $9T balance sheet by $100B a month from July, with the process expected to run more than two years and shrink the balance sheet to a still-elevated $6.1T-$6.6T.
Market movement: Fear of impending hikes has weighed on the market, triggering the biggest rout for the Nasdaq since the pandemic began in March 2020. The tech benchmark slumped a total of 7.6% last week, and things are turning south again this morning, with futures tied to the index falling nearly 1% overnight. Rising Treasury yields aren’t always bad for stocks in the long-term, but expect more volatility ahead as traders continue to digest the economic landscape.
The outlook for vaccine maker stocks, which was glowing not long ago, is increasingly turning less rosy. A combination of factors is leading to the situation:
Breakdown: a) Additional boosters – at least as the vaccines are currently formulated – may not be as effective, especially against the Omicron variant, b) Given the large number of COVID cases in the past few months caused by the Omicron variant, herd immunity may become closer to reality in many parts of the U.S. and around the world as even those who are unvaccinated develop antibodies, c) Even though all the COVID-19 vaccine makers have said they are working on Omicron-specific vaccines, the availability of those vaccines may arrive too late as the Omicron wave appears to have peaked on Jan. 15, according to CDC data.
All of the companies making COVID vaccines are down year-to-date, but those companies whose revenue disproportionately relies on the jabs – Moderna (MRNA), BioNTech (BNTX), and Novavax (NVAX) – have especially been hit hard. Pfizer (PFE), Johnson & Johnson (JNJ), and AstraZeneca (AZN) are also down, but much more modestly in comparison, likely because their bottom lines are impacted by much more than vaccine sales. Booster hesitancy has also been seen among the population, especially with periodic administration of doses every four to five months.
Less frequent boosters? “Once a year – it is easier to convince people to do it. It is easier for people to remember. So from a public health perspective, it is an ideal situation,” Pfizer CEO Albert Bourla said in an interview on Saturday. “We are looking to see if we can create a vaccine that covers Omicron and doesn’t forget the other variants and that could be a solution.”
Nothing gets better headlines in the cryptoverse than Bitcoin (BTC-USD) being down 50% from its latest high. Traders are now debating the path forward amid an onslaught of selling pressure in the space, ranging from a bloodbath in the speculative tech sector to a mining and trading ban in Russia. Bitcoin plunged to $34,000 over the weekend (before paring losses), down from its record of almost $68,000 in November, and fell another 7% overnight to crash almost below the $33,000 level.
Where are the HODLers? While Bitcoin is known to be volatile, the most recent forecasts from Cathie Wood’s ARK Invest was calling for a surge to $500K, while MicroStrategy (MSTR) CEO Michael Saylor saw an eventual “6-handle,” or a ride up to $6M. In fact, the latest decline has wiped out more than $600B in market value, and over $1T lost from the aggregate crypto market. Reports also suggest that the Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as February, which could task federal agencies with assessing risks posed by the currencies.
Cryptos “leave me increasingly feeling like the boy watching the naked emperor passing in procession. So many significant people and institutions are admiring his incredible coat, which is so technically complicated and superior that normal people simply can’t comprehend it and must take it on trust. I would not. In such situations I have learned to prefer avoidance to trust,” wrote famed fund manager Jeremy Grantham in a recently published article, entitled Let The Wild Rumpus Begin.
Contagion: Other cryptos are also hitting the skids, including Ethereum (ETH-USD), Bitcoin Cash (BCH-USD), Litecoin (LTC-USD), XRP (XRP-USD), Monero (XMR-USD), Terra (LUNA-USD), Solana (SOL-USD) and Cardano (ADA-USD).
Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
9:45 PMI Composite Flash
1:00 PM Results of $54B, 2-Year Note Auction
What else is happening…
Trian’s Nelson Peltz is said to take stake in Unilever (NYSE:UL) – FT.
Activist calls on Peloton (NASDAQ:PTON) to fire CEO, put itself up for sale.
Netflix (NASDAQ:NFLX), Disney (NYSE:DIS) lead streaming attention for 2021.
Welcome robot masters: Honeywell (NASDAQ:HON) grows warehouse automation.
Big discount? Wynn Resorts (NASDAQ:WYNN) may sell online sports betting business.
Kohl’s (NYSE:KSS) is said to get $9B bid from Starboard Value consortium.
Use of Gilead’s (NASDAQ:GILD) COVID drug expanded to non-hospitalized patients.
Vulnerable housing market counties cluster around East Coast, Chicago.