NASDAQ, S&P 500, Dow Jones Analysis – Stocks Rebound After Yesterday’s Pullback

Key Insights

  • S&P 500 moved back above the 4050 level as traders reacted to economic data and earnings reports. 
  • The tech-heavy NASDAQ moved higher as leading tech stocks enjoyed strong support ahead of tomorrow’s Fed decision. 
  • Dow Jones gained ground despite sell-off in Caterpillar shares as most components moved higher. 

S&P 500

S&P 500
S&P 500 310123 Daily Chart

S&P 500 gained ground as traders bought stocks after yesterday’s pullback and continued to prepare for the Fed decision, which will be released tomorrow.

It looks that economic data did not have a significant impact on today’s market dynamics. Case-Shiller Index confirmed the slowdown of the housing market, which was not surprising as interest rates remained at high levels. CB Consumer Confidence report missed analyst expectations.

General Motors was among the biggest gainers in the S&P 500 today. The stock was up by 8% as traders reacted to the better-than-expected earnings report.

Ford stock gained 4% as traders bet that the company’s results would also exceed forecasts. Ford will release its earnings report on February 2, after the market close.

Today’s rebound was broad, and all market segments moved higher. Utilities stocks underperformed as demand for safe-haven assets declined.

NASDAQ

NASDAQ
NASDAQ 310123 Daily Chart

NASDAQ moved back above the 12,000 level as tech stocks rebounded after yesterday’s pullback.

Traders should note that tech stocks are especially sensitive to changes in Fed policy outlook, so NASDAQ will be volatile tomorrow, after the release of the Fed decision.

NASDAQ has been moving higher since the beginning of the year as traders bet on a less hawkish Fed. In case Fed’s commentary is too hawkish, NASDAQ will find itself under material pressure.

Dow Jones

Dow Jones
Dow Jones 310123 Daily Chart

Dow Jones also enjoyed strong support in today’s trading session. The sell-off in Caterpillar shares, which declined by 3.5% after the company’s earnings missed expectations, did not hurt the performance of the index.

For a look at all of today’s economic events, check out our economic calendar.

NASDAQ, S&P 500, Dow Jones – Stocks Rebound From Session Lows Ahead Of Microsoft Earnings

Key Insights

  • S&P 500 moved away from session lows as Treasury yields pulled back. 
  • NASDAQ traders were cautious ahead of Microsoft’s earnings report. 
  • Dow Jones gained ground despite sell-off in 3M shares.

S&P 500 (SPX500)

S&P 500
S&P 500 240123 Daily Chart

S&P 500 rebounded from session lows and moved back into the positive territory. Today, traders focused on PMI reports. The reports exceeded analyst expectations but showed that rising prices continued to put pressure on businesses.

Interestingly, Treasury yields moved lower after the release of PMI reports. Bond traders are not ready to bet on a more aggressive Fed. Markets expect that the Fed will raise the interest rate by 25 bps at the next meeting and will not be able to push rates above the 5.00% level in 2023.

3M was the biggest loser in the S&P 500 today as traders reacted to the disappointing earnings report. The company missed analyst estimates and provided disappointing outlook.

Energy stocks have found themselves under pressure as WTI oil pulled back amid profit-taking. Concerns about the strength of global demand for oil have also served as a bearish catalyst for oil and energy stocks today.

NASDAQ (NAS100)

NASDAQ
NASDAQ 240123 Daily Chart

NASDAQ has also managed to rebound from session lows. Today’s trading session was mostly calm as traders waited for Microsoft‘s earnings report, which will be released today after the market close.

The reaction to Microsoft’s report will have a significant impact on NASDAQ dynamics, so traders should be prepared for fast moves.

Dow Jones (US30)

Dow Jones
Dow Jones 240123 Daily Chart

Dow Jones gained ground in today’s trading session as the rebound continued. Dow Jones has underperformed in recent trading sessions, and it looks that traders were ready to bet that it will move closer to recent highs.

Travelers Companies and Caterpillar were the best performers in the Dow Jones today. The sell-off in 3M stock did not put significant pressure on Dow Jones.

For a look at all of today’s economic events, check out our economic calendar.

NASDAQ, S&P 500, Dow Jones Analysis – Stocks Remain Under Pressure Amid Slowdown Concerns

Key Insights

  • Stocks managed to move away from session lows but failed to develop material upside momentum. 
  • Traders remain worried about the slowdown of the U.S. economy. 
  • Dow Jones settled below the 50 EMA, which is a bearish sign. 

S&P 500 (SPX500)

S&P 500
S&P 500 190123 Daily Chart

S&P 500 rebounded from session lows as some traders used the pullback as an opportunity to buy more stocks.

Today, traders focused on the housing and job market data. The labor market stays tight, but markets remain convinced that the Fed will not be able to push rates above the 5.00% level in 2023.

Energy stocks have outperformed the broader market today as oil markets moved closer to recent highs. Stocks from the Industrials and Technology segments were among the biggest laggards in today’s trading session.

From a big picture point of view, traders are worried about the slowdown of the economy. The recent rally was driven by bets on a less hawkish Fed, but traders’ focus has already shifted towards the situation in the real economy.

NASDAQ (NAS100)

NASDAQ
NASDAQ 190123 Daily Chart

NASDAQ received some support near the 20 EMA but remained under pressure as traders continued to sell tech stocks.

Treasury yields moved higher today, which was bearish for the tech-heavy NASDAQ. In case NASDAQ declines below the 20 EMA at 11,285, it will gain additional downside momentum and move towards the next significant support level at 11,100.

Dow Jones (US30)

Dow Jones
Dow Jones 190123 Daily Chart

Dow Jones was the best performer among major indices today as only a handful stocks have found themselves under strong pressure.

Home Depot, 3M, and Caterpillar were the biggest losers among Dow Jones components today. It should be noted that Dow Jones managed to settle below the 50 EMA at 33,280, which is a bearish sign.

Dow Jones needs to get back above the 50 EMA to have a chance to gain sustainable upside momentum in the upcoming trading sessions.

For a look at all of today’s economic events, check out our economic calendar.

NASDAQ, S&P 500, Dow Jones Analysis – Stocks Move Higher As Treasury Yields Fall After CPI Report

Key Insights

  • Stocks are testing new highs after the release of the CPI data, which met analyst expectations. 
  • Energy stocks continue to rebound as WTI oil managed to settle above the $79 level. 
  • The earnings season begins tomorrow with reports from big banks, so traders should be prepared for volatility. 

S&P 500 (SPX500)

S&P 500
S&P 500 120123 Daily Chart

S&P 500 moved to new highs as traders reacted to the release of U.S. inflation data for December.

Inflation Rate decreased from 7.1% in November to 6.5% in December, while Core Inflation Rate declined from 6% to 5.7%. Both reports were in line with the analyst consensus.

S&P 500 found itself under pressure at the start of the trading session, but traders quickly bought the dip. Treasury yields moved to new lows, providing material support to stocks. The pullback of the U.S. dollar, which tested multi-month lows, has also served as a positive catalyst for S&P 500.

Traders bet that the Fed will not push rates above the 5.00% level in 2023 as its previous moves have already put material pressure on inflation.

Today’s move was led by energy stocks, which enjoyed strong support as WTI oil moved above the $78 level. Hess Corporation, APA Corporation, and EQT Corporation were the among the biggest gainers in the S&P 500.

NASDAQ (NAS100)

NASDAQ
NASDAQ 120123 Daily Chart

The tech-heavy NASDAQ also moved higher as lower Treasury yields are bullish for yield-sensitive tech stocks.

Meta and NVIDIA were up by 3% in today’s trading session, while Tesla  pulled back by 2%.

Currently, NASDAQ is trying to climb above the 11,500 level. In case this attempt is successful, NASDAQ will continue its rebound and move towards the resistance at 11,600.

Dow Jones (US30)

Dow Jones
Dow Jones 120123 Daily Chart

Dow Jones has also enjoyed strong support in today’s trading session. Disney, Boeing, and Caterpillar were the best performers in the Dow Jones.

Tomorrow, the earnings season begins with  reports from big banks, including Dow Jones component JPMorgan Chase. Traders should be prepared for fast moves.

For a look at all of today’s economic events, check out our economic calendar.

NASDAQ, S&P 500, Dow Jones Analysis – Stocks Move Higher In Choppy Trading

Key Insights

  • S&P 500 gained some ground today as traders continued to prepare for the upcoming earnings season. 
  • NASDAQ is also moving higher. There is some demand for leading tech stocks despite higher Treasury yields. 
  • Dow Jones managed to climb above the 33,500 level, although there were no big moves among the index components. 

S&P 500 (SPX500)

S&P 500
S&P 500 100123 Daily Chart

S&P 500 gains some ground in today’s trading session as Fed Chair Powell wasn’t hawkish in his speech in Stockholm. Powell focused on the importance of central bank independence, which was the main topic of the event. He also added that unpopular measures were necessary to push inflation back to the target level.

The absence of hawkish comments provided some support to stocks today, and S&P 500 settled near the 3900 level. It should be noted that today’s move is not broad, as real estate, consumer defensive, and utilities segments are losing ground.

Trading may stay choppy until Thursday, when traders will focus on the inflation data. On Friday, big banks will open the earnings season. For a few weeks, traders’ focus will shift from Fed’s policy to companies’ results.

NASDAQ (NAS100)

NASDAQ
NASDAQ 100123 Daily Chart

NASDAQ  has also managed to gain some ground in today’s trading session. The strong performance of Amazon and Meta provided support to the NASDAQ today.

Meanwhile, Tesla  is down by 2% as short-term traders take some profits off the table after the recent rebound. From a big picture point of view, Tesla remains in a downside trend, and the stock will need additional positive catalysts to gain sustainable upside momentum.

Treasury yields are moving higher today, but this move does not put pressure on yield-sensitive tech stocks. The decent performance of the tech stock segment highlights the growing appetite for risk, which is bullish for NASDAQ.

Dow Jones (US30)

Dow Jones
Dow Jones 100123 Daily Chart

Dow Jones managed to settle back above the 33,500 level and is trying to gain additional upside momentum. Goldman Sachs, Caterpillar, and Visa are the strongest performers in the Dow Jones today.

There are no big moves in the Dow Jones components. The nearest material resistance level for Dow Jones is located at 34,000. In case Dow Jones settles above this level, it will head towards the next resistance at 34,300.

For a look at all of today’s economic events, check out our economic calendar.

NASDAQ, S&P 500, Dow Jones Analysis – Stocks Rally As Treasury Yields Fall

Key Insights

  • S&P 500 rallied as Treasury yields tested new lows after the release of the weak ISM Non-Manufacturing PMI report. 
  • The tech-heavy NASDAQ enjoyed strong support and moved towards the 11,000 level. 
  • Dow Jones is trying to break out of the recent trading range as all its components are gaining ground in today’s trading session.

S&P 500 (SPX500)

S&P 500

S&P 500 rallied towards the 3890 level as traders reacted to the weak Non-Manufacturing PMI report. The report showed that Non-Manufacturing PMI declined from 56.5 in November to 49.6 in December. Factory Orders declined by 1.8% in November and served as an additional positive catalyst for the market.

Stocks gain ground on weak economic data as traders bet that the slowdown of the economy will force the Fed to be less hawkish. For markets, the Fed policy is a more important catalyst than the situation in the real economy. If interest rates move lower, stocks will have a great chance to gain strong upside momentum.

Interestingly, all Fed speakers have signaled that the central bank would not start cutting rates in 2023, but traders do not believe them. Today’s rally is broad, and all market segments are moving higher. Even Tesla, which was under significant pressure at the opening, managed to climb back into the positive territory.

NASDAQ (NAS100)

NASDAQ

NASDAQ rallied towards the 11,000 level as tech stocks benefited from lower Treasury yields. Apple, NVIDIA, Meta gained strong upside momentum.

Currently, the yield of 10-year Treasuries is trying to settle below the 3.57% level. In case this attempt is successful, the yield of 10-year Treasuries will move towards the 3.50% level, providing additional support to NASDAQ.

Dow Jones (US30)

Dow Jones

Dow Jones is currently trying to break out of the recent trading range. All Dow Jones components are gaining ground in today’s trading session. Dow, Intel, and Caterpillar are among notable gainers.

In case Dow Jones manages to settle above the 33,500 level, it will have a good chance to develop additional upside momentum and get to the test of the 34,000 level.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Retreats As Meta Nosedives 24%

Key Insights

  • S&P 500 declined as Meta’s disappointing results put pressure on the whole tech segment. 
  • Treasury yields continued to move lower but did not provide support to the market. 
  • A move below the support at 3760 will open the way to the test of the next support level at 3735.

The Tech Segment Remains Weak

S&P 500 declined towards the support at 3805 as tech stocks continued to move lower. Yesterday, Meta released a disappointing earnings report, which put additional pressure on market sentiment in the tech segment. The tech-heavy Nasdaq declined by 1.6% in today’s trading session.

Treasury yields continued to move lower, and the yield of 10-year Treasuries settled below the important 4.00% level. However, lower Treasury yields did not provide enough support to S&P 500 as traders focused on the sell-off in tech stocks.

Traders should note that leading tech stocks like Meta were the main driver behind the strong performance of the S&P 500 in recent years. The current sell-off in this market segment is an uncomfortable signal for S&P 500 bulls. The market has become concentrated, so S&P 500 will not be able to develop sustainable upside momentum if mega cap stocks remain under pressure.

Caterpillar was a notable gainer today as the stock rallied 8% after easily beating analyst estimates on both earnings and revenue.

It looks that S&P 500 will find itself under more pressure tomorrow as Amazon stock is down by 19% in the post-market session after the release of its third-quarter report. Amazon reported revenue of $127.1 billion and GAAP earnings of $0.28 per share,

The company’s GAAP earnings beat analyst estimates but included a pre-tax valuation gain of $1.1 billion from the common stock investment in Rivian. The company expects to report fourth-quarter revenue of $140 billion – $148 billion, a growth of 2-8% compared to the fourth-quarter of 2021.

In the fourth quarter, Amazon expects to report operating income of $0 – $4.0 billion. The weak guidance is the main driver behind the strong sell-off in the post-market session.

Traders should note that Apple will also release its results today, and they may have a material impact on the dynamics of S&P 500.

S&P 500 Settled Below The Support At 3805 In The Post-Market Session

S&P 500

S&P 500 gained strong downside momentum after the release of Amazon’s results and moved towards the support level at 3760. If S&P 500 declines below this level, it will head towards the next support at 3735. A move below the support at 3735 will open the way to the test of the support at 3700.

On the upside, the previous support level at 3805 will serve as the first resistance level for S&P 500. If S&P 500 gets back above this level, it will head towards the resistance at 3835. A successful test of the resistance at 3835 will push S&P 500 towards the resistance at 3885.

For a look at all of today’s economic events, check out our economic calendar.

Best Industrial Stocks To Buy In June

Key Insights

  • Analyst estimates for Caterpillar and Deere have moved higher in recent months despite worries about the health of the global economy. 
  • Meanwhile their stocks have declined together with the broader market. 
  • As a result, Caterpillar and Deere are trading at attractive valuation levels. 

S&P 500 has just moved to new lows, and the market is under broad pressure. Industrial stocks are not an exception and are moving lower together with the general market. However, earnings estimates for some industrial stocks have been moving higher in recent months while they remained under pressure, which can serve as a material upside catalyst when markets calm down.

Caterpillar

Analyst estimates for Caterpillar continue to move higher despite worries about the slowdown of the world economy. Currently, the company is expected to report earnings of $12.47 per share in 2022 and $14.5 per share in 2023, so the stock is trading at 14 forward P/E.

The key question is whether analyst estimates will remain at current levels at a time when markets are worried about the impact of the upcoming rate hikes from the Fed. In case analyst estimates stay near current levels, Caterpillar will have a good chance to gain upside momentum.

Deere

The situation is similar for Deere as analyst estimates have been improving in recent months. The company is expected to report earnings of $26.36 per share in the next year, so the stock is trading at 12 forward P/E.

Earnings estimates for both companies have been gaining ground as analysts believe that demand for their products will stay strong due to high prices for many commodities.

While Deere stock will likely remain under pressure in case the general market continues to fall at a robust pace, the stock could be among leaders during the rebound due to its attractive valuation.

To keep up with the latest earnings updates, visit our earnings calendar.

Best Industrial Stocks To Buy Now

Key Insights

  • Caterpillar and Deere retreated after testing yearly highs. 
  • The pullback was driven by general market sentiment and the recent weakness in commodity markets. 
  • Both stocks are trading at less than 15 forward P/E, which is reasonably cheap for the current market environment. 

Several industrial stocks have recently suffered a material pullback after testing yearly highs as traders decided to take some profits off the table amid general market weakness. This sell-off may provide speculative traders with an opportunity to buy these stocks at a discount.

Caterpillar

Caterpillar stock has recently made an attempt to get to the test of the $240 level but lost momentum and pulled back towards the $210 level.

Analysts expect that Caterpillar will report earnings of $12.15 per share in the current year and $14.48 per share in the next year, so the stock is trading at less than 15 forward P/E. It should be noted that earnings estimates have been mostly stable in recent weeks.

At this point, the markets are worried that rising interest rates will hurt the economy and put pressure on stocks. However, commodity markets should remain strong despite the recent pullback, so demand for Caterpillar products would likely remain strong as well, and the stock would have a good chance to get back to the recent highs.

Deere

Deere stock has also found itself under significant pressure in recent trading sessions. The company is expected to report earnings of $26.18 per share in the next year, so the stock is trading at roughly 14 forward P/E.

The recent stock price action is a reaction to general nervousness and the pullback in commodity markets. However, the company’s stock is trading at reasonable valuation levels, which could attract speculative traders who are willing to bet that the recent strong pullback was not justified.

For a look at all of today’s economic events, check out our economic calendar.

Why Caterpillar Stock Is Down By 6% Today

Caterpillar Stock Falls As Traders Focus On Rising Costs

Shares of Caterpillar gained strong downside momentum after the company released its quarterly report.

The company reported revenue of $13.8 billion and adjusted earnings of $2.69 per share, beating analyst estimates on both earnings and revenue.

While the headline numbers were strong, the market focused on cost headwinds which put pressure on margins.

The market is worried about the negative impact that higher inflation will have on stocks and businesses in 2022, so it’s not surprising to see that investors are sensitive to any indications of rising costs.

These worries have already put significant pressure on Caterpillar shares today as the stock is down by 6% and is currently trying to settle below the $200 level.

What’s Next For Caterpillar Stock?

The market demand for Caterpillar products remains strong, and the key question is whether strong sales would offset the negative impact of higher costs in 2022.

The market has been very nervous since the start of this year, and S&P 500 is down by about 10% from all-time high levels. In such environment, traders are sensitive to bad news.

In the near term, inflation expectations could have a significant impact on Caterpillar stock. The market is worried that costs will rise faster than Caterpillar could offset them with higher pricing, which will put more pressure on margins and, therefore, on the company’s financial results.

Currently, analysts expect that Caterpillar will report earnings of $12.39 per share in 2022, so the stock is trading at 16 forward P/E, which looks reasonable for the current market environment.

However, it remains to be seen whether speculative traders will rush to buy Caterpillar shares amid rising yields and inflation fears. In case Treasury yields continue to move higher and the market begins to price in more than 4 rate hikes in 2022, Caterpillar and other infrastructure stocks may find themselves under more pressure.

For a look at all of today’s economic events, check out our economic calendar.

Caterpillar Stock Plunges on Cautioning of Margin Pressure in Q1

Caterpillar shares fell over 5% on Friday after the heavy equipment manufacturer cautioned that higher labour and production expenses could negatively impact its operating margins in the ongoing quarter.

The Deerfield, Illinois-based company reported quarterly adjusted earnings of $2.69​​ per share, beating the Wall Street consensus estimates of $2.26 per share. Caterpillar said its revenue jumped more than 22% year-on-year to $13.80 billion from a year ago. That too beat the market expectations of $13.15 billion.

“The beat was driven by higher other income and lower taxes while pricing added ~5% to the top-line. Dealer inventories decreased by $100mn in the quarter. Outlook: 1Q22 revenues are expected to be up YoY though Caterpillar (CAT) does see margin headwinds. Backlog up $2.5bn QoQ,” noted Stephen Volkmann, equity analyst at Jefferies.

Caterpillar stock fell over 5% to $201.4 on Friday. The stock fell over 2% so far this year after surging about 14% in 2021.

Analyst Comments

“While 1Q22 margin commentary is likely reflected in consensus to some extent, we think 4Q21 margin misses across all three segments is likely to mitigate estimate momentum exiting the print. Top-line momentum (particularly within Construction) remained resilient,” noted Courtney Yakavonis, equity analyst at Morgan Stanley.

“While retail sales should remain positive, we see less supportive replacement dynamics limiting the magnitude of the construction equipment recovery – limiting cycle over cycle growth in CI. E&T growth will likely see cycle-over-cycle deterioration in O&G revenues as well, as relatively young asset bases and limited capex improvement at the Oil Services level weigh on demand. While incremental have remained more resilient in the near term, we see limited scope for outsized incremental margin performance as well – given that consensus continues to embed more resilient margins. We see a less compelling re-stock opportunity vs. other Machinery end markets (e.g. Ag) as well.”

Caterpillar Stock Price Forecast

Nine analysts who offered stock ratings for Caterpillar in the last three months forecast the average price in 12 months of $240.00 with a high forecast of $290.00 and a low forecast of $164.00.

The average price target represents an 18.49% change from the last price of $202.55. Of those nine analysts, six rated “Buy”, two rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $164 with a high of $305 under a bull scenario and $94 under the worst-case scenario. The investment bank gave an “Underweight” rating on the heavy equipment manufacturer’s stock.

Several other analysts have also updated their stock outlook. Barclays raised the target price to $225 from $220. Citigroup lifted the price target to $230 from $225. Credit Suisse upped the target price to $275 from $240. UBS increased the target price to $250 from $235.

However, technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Check out FX Empire’s earnings calendar

Monstrous Earnings Ahead: IBM, Microsoft, Intel, Tesla, Apple, Visa in Focus, Along With The Fed

Investors will focus on Q4 earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could also hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant in order to see how it impacts earnings in 2022. The following is a list of earnings slated for release January 24-28, along with a few previews.

Earnings Calendar For The Week Of January 24

Monday (January 24)

IN THE SPOTLIGHT: IBM

The Armonk, New York-based technology company, International Business Machines, is expected to report its fourth-quarter earnings of $3.39 per share, which represents year-over-year growth of over 60% from $2.07 per share seen in the same period a year ago.

The world’s largest computer firm’s revenue would decline over 21% to $1.96 billion from $20.37 billion a year earlier. It is worth noting that the technology company has beaten earnings in most of the quarters in the last two years, at least.

International Business Machines (IBM) 4Q earnings will be focused on standalone model mechanics and whether Software revenue can re-accelerate while Consulting demand sustains. However, we believe the setup becomes more attractive in 2H21. We update our estimates to reflect IBM standalone post-KD spin,” noted Katy Huberty, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 24

TICKER COMPANY EPS FORECAST
BRO Brown & Brown $0.38
BOH Bank of Hawaii $1.39
BMRC Bank of Marin Bancorp $0.57
CR Crane $1.12
HAL Halliburton $0.34
HMST HomeStreet $1.3
IBM International Business Machines $3.39
PETS PetMed Express $0.3
SMBK SmartFinancial $0.48
STLD Steel Dynamics $5.66
TRST Trustco Bank $0.74
ZION Zions Bancorp $1.33

 

Tuesday (January 25)

IN THE SPOTLIGHT: MICROSOFT

The Redmond, Washington-based global technology giant, Microsoft, is expected to post its fiscal second-quarter earnings of $2.28 per share, which represents year-over-year growth of over 12% from $2.03 per share seen in the same period a year ago.

The world’s largest software maker would post revenue growth of nearly 17% to around $50.3 billion. It is worth noting that with a track record of always beating earnings per share estimates in the last five years, Microsoft is one of the best FAANG stocks in terms of earnings surprises.

“We model Azure growth of 45% cc & see 2-3% of upside, translating to steady growth vs. 48% last qtr. We see potential for strong M365 demand ahead of price hikes, as well as continued execution from LNKD, PowerApps & Dynamics ERP. Although tougher PC/Server dynamics, we expect strengthening trends for C22. Expect Mar Q guide slightly above Street,” noted Derrick Wood, equity analyst at Cowen.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 25

TICKER COMPANY EPS FORECAST
MMM 3M $2.07
AGYS Agilysys $0.13
AXP American Express $1.75
ADM Archer Daniels Midland $1.19
BXP Boston Properties $1.51
CNI Canadian National Railway $1.25
COF Capital One Financial $5.15
FFIV F5 $1.97
GE General Electric $0.84
JNJ Johnson & Johnson $2.12
LMT Lockheed Martin $8.04
LOGI Logitech International $1.23
NAVI Navient $0.81
NEE NextEra Energy $0.41
VZ Verizon Communications $1.28
WSBC WesBanco $0.67

 

Wednesday (January 26)

IN THE SPOTLIGHT: FOMC MEETING CONCLUDES, INTEL, TESLA

Tuesday and Wednesday will mark the first meeting of the Fed’s policymaking arm in 2022. At around 7:30 pm GMT on Wednesday, Jerome Powell will conduct a press conference. This is expected to be the biggest market event since investors expect more details about the central bank’s plan to raise interest rates.

INTEL: The California-based multinational corporation and technology company is expected to report its fourth-quarter earnings of $0.9 per share, which represents a year-over-year decline of about 40% from $1.52 per share seen in the same period a year ago. The company’s revenue would fall nearly 8% to $18.39 billion.

Intel remains controversial. Long-term skepticism remains and share losses will continue until products ramp on the Intel 4 node (old 7nm), but with a new CFO, improving PC and server market outlooks, cash inflows from the US Govt, Mobileye on the horizon, and a February analyst day now reconfirmed, we are cautiously optimistic sentiment can continue to gradually improve. Still LOTS to prove,” noted Matthew D. Ramsay, equity analyst at Cowen.

TESLA: The California-based electric vehicle and clean energy company is expected to report its fourth-quarter earnings of $2.31 per share, which represents year-over-year growth of 180% from $0.80 per share seen in the same period a year ago.

“Q4 results on 26 Jan are critical to validate (or not) the Q3 profit dynamics that could see Tesla 1) carve out meaningful share from legacy OEMs busy protecting their own share by ramping up BEVs and 2) claim a disproportionate share of the industry profit pool. We raise 2021-23 EBIT and FCF 10%, mostly on higher volume,” noted Philippe Houchois, equity analyst at Jefferies.

The high-performance electric vehicle manufacturer would post revenue growth of over 50% to $16.65 billion. The electric vehicle producer has beaten earnings estimates only twice in the last four quarters.

Tesla 4Q deliveries were 20% above our forecast, annualizing to over 1.2mm units, which is already above our prior FY22 forecast. We raise our forecasts and target to $1,300 on this ‘opening act’ and look for more in FY22,” noted Adam Jonas, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 26

TICKER COMPANY EPS FORECAST
ABT Abbott Laboratories $1.16
ANTM Anthem $5.11
AZPN Aspen Technology $1.41
T AT&T $0.76
KMB Kimberly-Clark $1.29
LRCX Lam Research $8.46
RJF Raymond James Financial $1.77
STX Seagate Technology $2.21
NOW ServiceNow $0.22
SIMO Silicon Motion Technology $1.56
SLG SL Green Realty $1.56
URI United Rentals $6.97
VRTX Vertex Pharmaceuticals $2.92
WHR Whirlpool $5.84

 

Thursday (January 27)

IN THE SPOTLIGHT: APPLE, VISA

APPLE: The consumer electronics giant would post its fiscal first-quarter earnings of $1.88 per share, which represents year-over-year growth of nearly 12% from $1.68 per share seen in the same period a year ago.

The iPhone manufacturer would post revenue growth of 6% to $118.13 billion. It is worth noting that with a track record of always beating earnings per share estimates in the recent five years, Apple is the best FAANG stock in terms of earnings surprises.

Apple is expected to report 1QFY22 earnings after market on Thursday, January 27th and host a call with investors at 5:00 PM ET. In our view, the recent strength in shares is a reflection of investors’ willingness to reward Apple for entering new markets, including electronic vehicles (EV) and the metaverse (with an augmented reality/virtual reality product). Now, we look for comments from management on its future product roadmap to justify the increase in share price,” noted Tom Forte, Senior Research Analyst at D.A. DAVIDSON.

“We are reiterating our BUY rating for Apple (AAPL) and putting our price target of $175 under review ahead of the company reporting 1QFY22 earnings.”

VISA: The world’s largest card payment company is expected to report its fiscal firth-quarter earnings of $1.70 per share, which represents a year-over-year decline of about 20% from $1.42 per share seen in the same period a year ago.

The global technology payment company would post revenue growth of nearly 19% to $6.8 billion. It is worth noting that the company has beaten earnings in most of the quarters in the last two years, at least.

Visa (V) is one of our preferred stocks, as it is a key beneficiary of resilient global consumer spend growth, the ongoing shift from cash to electronic payments, and broadening merchant acceptance. Global Personal Consumption Expenditure and secular growth drivers should support low double-digit revenue growth in the near-to-medium term,” noted James Faucette, equity analyst at Morgan Stanley.

“While Covid-19 headwinds are likely to persist, we see upside opportunity from the faster-than-expected recovery of travel. Continued investment in longer-term initiatives (faster payments, P2P, B2B) and partnerships continue to increase its TAM and offer an opportunity for compounding double-digit earnings growth for the foreseeable future.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 27

TICKER COMPANY EPS FORECAST
AOS A.O. Smith $0.77
ALK Alaska Air Group $0.21
BX Blackstone $1.3
CNX CNX Resources $0.5
CMCSA Comcast $0.73
DOW Dow $2.16
EMN Eastman Chemical $1.88
HCA HCA Healthcare $4.57
IP International Paper $1.02
JBLU JetBlue Airways $-0.39
MA Mastercard $2.2
MCD McDonald’s $2.32
LUV Southwest Airlines $-0.39
X U.S. Steel $5.12
V Visa $1.7

 

Friday (January 28)

TICKER COMPANY EPS FORECAST
ALV Autoliv $1.18
BAH Booz Allen Hamilton $0.97
CAT Caterpillar $2.23
CHD Church & Dwight $0.59
CL Colgate-Palmolive $0.79
RDY Dr. Reddy’s Laboratories $0.64
GNTX Gentex $0.33

 

In The Spotlight – Big Wall Street Banks as the Main Power in S&P 500

Banks’ earnings

Big Wall Street banks are in the spotlight right out of the gate with Goldman Sachs set to release results before markets open. They will be followed by Bank of America, Morgan Stanley, and U.S. Bancorp tomorrow (Wednesday). Bank results got off to a mixed start on Friday. JPMorgan Chase, Citigroup, and Wells Fargo all topped profit estimates for Q4 but JPMorgan and Citi delivered disappointments in other areas.

In particular, investors are nervous about higher expenses that cut into Q4 profits for both JPMorgan and Citi and which both banks forecast would continue to weigh on results in 2022. JPMorgan and Citi also saw -11% decreases in trading revenue, with fixed income trading down by double digits for both.

There are also signs of slowing loan growth that some analysts worry is an early sign of slowing consumer demand for big-ticket items as inflation continues to climb. While banks will eventually benefit from higher U.S. interest rates that are anticipated in the year ahead, a big pullback in consumer lending is a threat to some of the more lofty Wall Street expectations had for the sector in 2022.

Global economy

Globally, not a lot changed over the extended weekend. China might have provided a bit of a surprise with additional monetary easing into a struggling GDP and sagging real estate prices. It’s worth noting, Omicron has now been detected in Beijing for the first time, just three weeks before the city is due to host the Winter Olympics. Now the Chinese are shutting down and suspending the sale of Olympic tickets to the public.

Tensions remain heated between Hong Kong activists and Chinese government officials. North Korea launched its fourth missile test this month. After North Korea’s missile test last week, the US announced sanctions on eight North Korean and Russian individuals and entities for supporting North Korea’s ballistic missile programs.

Tensions between the U.S. and Russia seem to be headed in the wrong direction with Russia over the weekend moving troops and equipment into Belarus for joint military exercises.

The so-called “Allied Resolve” drills are set to take place near borders with NATO members Poland and Lithuania, as well as Ukraine where Russia has maintained its alarming military presence.

Most U.S. military experts don’t really think Russia has any real intentions of invading Ukraine or any other EU country. However, Western countries also have increased their military presence along borders and other strategic locations which increases the chances that a broader conflict could “accidentally” be sparked.

Europe’s gas supplies are also at risk as Russia continues to dangle the threat of cutting them off. Most of the tension stems from Russia’s demand that former Soviet countries be barred from entering NATO, something the U.S. and other NATO allies have refused.

In the USA, we are heading deeper into earnings season and investors are going to be paying close attention to costs and expenses. As I mentioned, late last week, JPMorgan warned that higher expenses and higher spending on hiring in 2022 could create some headwinds.

Looking ahead, it will be interesting to see how many executive teams start providing guidance and warnings that corporate expenses are rising faster than anticipated and what if any damage will be due to profit margins?

Remember, some companies have said they are passing the additional rising costs on to the consumer while other companies are eating a majority of the higher expenses in an attempt to gain more market share.

How the stock market decides to differentiate the strategy and style could greatly impact money flow and valuations. Goldman Sachs, J.B. Hunt, Charles Schwab, Citrix, Concentrix, and Interactive Brokers report earnings today.

Data to watch

Tomorrow we have Alcoa, Bank of America, Kinder Morgan, Morgan Stanley, Procter & Gamble, and United Airlines.

Thursday we have American Airlines, Baker Hughes, Netflix, and Union Pacific.

Then next week we have big names like Apple, Boeing, Caterpillar, McDonalds, Microsoft and Verizon reporting earnings.

Let’s also not forget next week we have the first Fed FOMC meeting of the new year.

With the U.S. Federal Reserve getting ever closer to implementing its first rate hikes, which most anticipate will begin in March, investors are growing less enchanted with some of the high-growth and momentum stocks that saw outsized share price gains last year.

This trend is most evident in the tech-heavy Nasdaq where nearly half of the index’s stocks have fallen by -50% from their recent peaks. The Nasdaq itself is only down by about -7% from its most recent record high. The selloff has been very much concentrated in highly-leveraged companies that have yet to deliver a profit, as the prospect of higher rates reduce future profit potential. Earnings results from these high-fliers will likely be harshly scrutinized as Wall Street tries to separate the “wheat from the chaff,” so to speak.

On the economic data front, Empire State Manufacturing and the NAHB Housing Market are today’s highlights.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Move Closer To All-Time Highs

Stocks Set To Gain Ground At The Start Of The Week

S&P 500 futures are gaining ground in premarket trading as traders believe that the recent pullback is over and are ready to push stocks to all-time high levels.

Today, U.S. President Joe Biden will sign the $1 trillion infrastructure bill. The ceremony may provide additional support to infrastructure stocks like Caterpillar or Deere, which are already moving higher in premarket trading.

It’s a rather quiet day on the economic front, but traders have a chance to take a look at NY Empire State Manufacturing Index report for November. The report indicated that NY Empire State Manufacturing Index increased from 19.8 in October to 30.9 in November compared to analyst consensus of 21.2.

WTI Oil Tests Support At $80 As Coronavirus Fears Grow

WTI oil continues its attempts to settle below the psychologically important support level at $80 as traders are worried about rising coronavirus cases in Europe.

Austria has recently decided to impose a lockdown for unvaccinated, and other European countries look ready to introduce additional virus containment measures which may have a negative impact on oil demand.

It should be noted that the recent pullback in the oil market did not put too much pressure on oil-related stocks, but it remains to be seen whether demand for energy stocks will stay strong in case WTI oil manages to settle below the important $80 level.

Gold Stays Strong As Traders Remain Focused On Inflation

Gold continues its attempts to get to the test of the $1875 level as traders remain focused on rising inflation in U.S.

The recent strength of the U.S. dollar had no impact on the gold market while rising Treasury yields did not put any pressure on precious metals.

Gold mining stocks gained strong upside momentum in recent trading sessions and look ready to continue their upside move as traders stay bullish on gold.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Futures Move Higher Amid Optimism In Infrastructure Stocks

Stocks Set To Open Higher

S&P 500 futures are gaining some ground in premarket trading while traders wait for additional catalysts which could push stocks to new highs.

S&P 500 moved from the 4350 level to the 4700 level without any pullback, and its RSI has entered into the overbought territory.

The strong earnings season provided significant support to stocks, while recent news on COVID-19 treatments from Merck and Pfizer pushed the market to new highs.

Over the weekend, the $1 trillion infrastructure bill has finaly passed the U.S. House of Representatives. Infrastructure-related stocks like Caterpillar or Deere are already moving higher in premarket trading, and this market segment will likely enjoy significant support today.

Gold Moves Towards $1830 As U.S. Dollar Retreats From Highs

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, failed to settle above the resistance near yearly highs at 94.50 and moved closer to the 94 level.

Weaker dollar provided support to gold, which managed to settle above the psychologically important $1800 level and moved closer to the resistance level at $1830.

In case gold manages to settle above the resistance at $1830, it will gain additional upside momentum and move towards the next resistance at $1845 which will be bullish for gold mining stocks.

WTI Oil Tries To Settle Above $82

WTI oil has recently made an attempt to settle above the 82 level as traders continued to bet on the recovery of oil demand.

The recent pullback was short-lived, and WTI oil quickly managed to find buyers below the $80 level. Energy-related stocks are trading close to yearly highs, and they will have a good chance to gain additional upside momentum during today’s trading session.

While crude inventories have been moving higher in recent weeks, the market looks focused on rising demand, infrastructure investments and the reopening of international travel in the U.S., which serve as bullish catalysts for oil.

For a look at all of today’s economic events, check out our economic calendar.

Nasdaq Hits Record High with Apple, Amazon Results on Deck

High-profile stocks Tesla Inc, Apple Inc and Amazon.com Inc boosted the Nasdaq and helped propel the index to a record after the S&P 500 and Dow reached fresh peaks earlier in the week.

Both Apple and Amazon were scheduled to post quarterly results after the closing bell.

Caterpillar Inc added rose after reporting a better-than-expected quarterly profit on rising commodity prices, while a bullish forecast from drugmaker Merck & Co Inc helped boost its shares.

Investors were also keeping an eye on Washington where President Joe Biden said he had secured a new $1.75 trillion framework for economic and climate change spending.

“Earnings continue to be very good,” said Bill Stone, chief investment officer at the Glenview Trust Co in Louisville, Kentucky, who also noted that Biden’s framework, if it succeeds, would not boost corporate taxes as investors had previously feared.

“Underneath the surface, that’s a positive for corporate earnings” going forward, said Stone.

According to preliminary data, the S&P 500 gained 44.85 points, or 0.98%, to end at 4,596.25 points, while the Nasdaq Composite gained 212.28 points, or 1.39%, to 15,448.12. The Dow Jones Industrial Average rose 236.94 points, or 0.67%, to 35,727.63.

Solid earnings also helped offset a report from the Commerce Department which showed the U.S. economy grew at a 2% annualized rate in the third quarter as COVID-19 infections flared up, short of the 2.7% estimate, while another set of data showed fewer Americans filed new claims for unemployment benefits last week as the labor market slowly improves.

“Clearly we are seeing a large batch of macroeconomic data that has been coming through during the middle of third-quarter earnings reporting season and you are seeing a little bit of a tug-of-war that exists between macroeconomic data that is appearing to be somewhat softer at the margin and corporate performance which is proving to be better than expectations,” said Bill Northey, senior investment director at U.S. Bank Wealth Management in Minneapolis.

Earnings reports have helped advance in the benchmark S&P index in 10 of the previous 12 sessions, with analysts now expecting profits for S&P 500 companies to grow 38.6% year-on-year in the third quarter.

Of the 244 S&P 500 companies that had reported by Thursday morning, 82% had beaten estimates.

Among the decliners however was EBay Inc whose shares tumbled after the e-commerce firm forecast downbeat holiday-quarter revenue.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chuck Mikolajczak and Sinéad Carew in New York; Editing by Matthew Lewis)

Marketmind: The ECB’s Inflation Conundrum

A look at the day ahead from Tommy Wilkes.

Will it or won’t it become the latest central bank to warn that price pressures are more severe — and less transitory — than they appeared a few months ago?

The difficulty for the ECB is that it wants to maintain its ultra-dovish stance to boost the region’s economy, but at the same time, it must face up to inflation expectations that are running at seven-year highs above 2%.

The prospect of slowing economic growth and central bank policy tightening is flattening bond yield curves worldwide — taking longer-dated borrowing costs lower. Europe is no exception, with German 10-year yields on Wednesday seeing their biggest daily drop in eight months.

A busy day for central bank activity elsewhere too. The Bank of Japan delivered another dovish statement, projecting inflation to stay below target for at least two more years. It just reinforces the view it will lag others in dialling back crisis-mode policies.

The Reserve Bank of Australia, meanwhile, skipped a chance to buy a government bond at the heart of its stimulus programme, sending yields soaring above target and raising wagers it will become yet another bank opting for an early rate hike.

Supply chain disruptions continue to dominate the earnings season, with Volkswagen the latest carmaker to report lower-than-expected operating profit, partly because of the chip shortage.

Samsung reported its highest quarterly profit in three years but expect component shortages to affect chip demand.

Stock markets have pulled back, with Germany’s DAX opening 0.2% lower and Wall Street futures only marginally higher.

(For graphic on Euro zone inflation expectations – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjolwdgpr/euro%20zone%20inflation.PNG)

Key developments that should provide more direction to markets on Thursday:

-ECB meeting

-German unemployment/prelim CPI Oct (4.4% Y/Y/ Reuters poll)

-Euro zone consumer inflation expectations Oct

-Norway Central Bank Governor Øystein Olsen speaks

-Emerging markets: Egypt central bank meeting

-U.S. flash GDP Q3 (2.8% Reuters poll)

-U.S. core PCE flash Q3 (4.5% Reuters poll)

-U.S. Initial jobless claims

-U.S. 7-yr note auction

-U.S. earnings: Allegheny, AllianceBernstein, Caterpillar, Comcast, Hershey, Mastercard, Merck, Newmont Mining, Moody’s, Royal Caribbean Cruises, T-Rowe Price, Yum Brands, Amazon, Apple, Gilead Sciences, Starbucks, United States Steel.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tommy Wilkes, editing by Sujata Rao)

Today’s Market Wrap Up and a Glimpse Into Wednesday

Stocks finished modestly higher, with all three indices closing in the green. The S&P 500 managed to set another record, the broader market index’s fourth in a row, on robust economic data, though it finished off its highs of the session. Today marks the 33rd time that the S&P 500 has reached all-time-high territory year-to-date.

Homebuilders were a bright spot after S&P Case-Shiller revealed that home prices climbed close to 15% higher in April year-over-year on the heels of a 13.3% gain in March. The home price index hasn’t been at this level in more than three decades.

Tech stocks led by Apple powered the Nasdaq to its latest all-time high. Wall Street analysts are eyeing chip stocks as beneficiaries of the introduction of the iPhone 13. Along those lines, Skyworks Solutions advanced 4.5% today. Consumers are exhibiting great confidence, with the Conference Board’s June results coming in stronger than anticipated.

The Dow Jones Industrial Average barely eked out a win, no thanks to Caterpillar, which is down 11% in the month of June alone. Otherwise, inflation worries appear to have been shelved for now. Investors, however, have plenty more data to weigh this week that might help to determine whether the bulls will remain in control.

Active Stocks

  • Virgin Galactic shed 14% on the day. Investors who are eyeing the stock ahead of Richard Branson’s company’s first commercial trip to space might consider it a buying opportunity. Virgin Galactic is proceeding with test flights this summer. Rival space travel company Blue Origin, founded by Jeff Bezos, plans to make its first flight with passengers next month, the excitement for which could spill over into Virgin Galactic.
  • Context Logic, a mobile e-commerce company that is another meme stock play, gave back some recent gains, falling 7%. The stock, which trades under the symbol WISH, is up almost 75% in the month of June in this new market paradigm.

Look Ahead

Second-quarter earnings reports will start to come out in earnest in the coming weeks. On Wednesday, meme stock Bed Bath & Beyond will take the spotlight with its fiscal Q1 earnings report prior to the opening bell. The stock is trading higher by 1% in after-hours.

The ADP employment report comes out at 8:15 a.m. ET ahead of the all-important employment report on Friday. In addition, there are a couple of Fed officials scheduled to speak on Wednesday, including Atlanta Fed President Raphael Bostic and Richmond Fed President Tom Barkin.

Today’s Market Wrap Up and a Glimpse Into Friday

An infrastructure deal was reached in Washington, D.C. and stocks were up on Wall Street. The S&P 500 set a new record high after rising fractionally to 4266.49. The broader market index last reached a new high in mid-June. The recent Fed-induced losses did not last long as investors decided to look at the market glass as half-full.

The Dow Jones Industrial Average isn’t too far from its new all-time high after tacking on about 1% in Thursday’s session. The Nasdaq was fractionally higher. Some of the standouts in today’s session include:

  • Tesla gained 3.5%, extending yesterday’s rally.
  • Caterpillar rose 2.6%, reclaiming some ground it lost on inflation and rate-hike fears last week.
  • FedEx stock is down in extended hours despite experiencing record Q4 earnings and revenue that increased 27%. The company swung to a profit after a quarterly loss in the year-ago period, reporting net income of USD 1.87 billion, or USD 6.88 per diluted share. The transportation company’s services have been in high demand throughout the pandemic, including the delivery of vaccines. The stock is seeing heavy options activity including bullish expectations for shares to gain as much as 18% by the July expiration of contracts.

Stocks to Watch

Nike stock is up 11% in after-hours trading after beating on the top and bottom lines with Q4 results. The company’s results were driven by a recovery in the North American region, where sales grew more than twofold YoY to a new peak of USD 5.38 billion. Nike also experienced robust results in China and its digital sales segment. The trend of comfortable clothing is persisting even after the lockdowns have lifted.

In addition, The Trade Desk, an ad stock, gained 17% today and is trading higher in the after-hours. The stock is benefiting from Google’s decision to delay its move to do away with cookies until 2023. Google is making the change in response to privacy concerns and was initially expected to remove the tracking tech next year.

Look Ahead

On the economic front, personal income and spending for May will be released on Friday. Now that the government stimulus checks are a thing of the past, the expectations are for a further decline in personal income. It will likely not be of the same magnitude as the 13.1% MoM drop in April over March levels, but economists, nonetheless, are expecting a decline. Personal spending is expected to rise slightly.

Markets Surge Despite Unprecedented Violence at U.S. Capitol

In a news-filled day, the Dow Jones hit an all-time high on Wednesday (Jan. 6), despite unprecedented unrest taking place in Washington D.C.

News Recap

  • The Dow climbed 438 points or 1.4% and briefly rose more than 600 points earlier in the day. The S&P 500 also gained 0.6% and hit an intraday record, while the Nasdaq fell 0.6%. The small-cap Russell 2000 surged by nearly 4%.
  • The day began with investors focused on the Georgia U.S. Senate special election runoff . Democrat Raphael Warnock defeated incumbent Republican Kelly Loeffler, with other Democrat Jon Ossoff announced as the winner over incumbent Republican Sen. David Perdue later in the day.
  • With a Democrat sweep in Georgia, the party now has control of the Senate. Although it is a 50-50 split (with two independents) in the Senate, both Democrats win, they have full control because Vice President-elect Kamala Harris will serve as the tiebreaker vote.
  • Many believe that because President-elect Biden, a Democrat, has a House and Senate under Democrat control, he could more easily pass higher taxes and progressive policies that may hurt the market. On the other hand, others believe that this Democrat sweep could bring into effect a larger and quicker stimulus relief bill.
  • The real news of the day was what happened at the U.S. Capitol building. After President Trump (and his family) led a “Stop the Steal” rally in Washington, D.C. to protest Congress’ certification of Joe Biden as the next president, angry MAGA supporters did the unthinkable and stormed the Capitol.
  • Wednesday (Jan. 6) was the first time since 1814 that the Capitol building was physically breached by hostile actors.
  • The invasion of the Capitol occurred after Vice President Mike Pence rejected President Trump’s calls to block Joe Biden’s election confirmation. Shortly after, the Capitol went into full lockdown.
  • Later that night, the Capitol was secured and Congress reconvened to officially certify Biden as the president. The CBOE Volatility Index (VIX) moved higher due to the unrest at the Capitol.
  • Caterpillar (CAT) surged 5.5%, while big banks such as JPMorgan Chase (JPM) and Bank of America (BAC) gained 4.7% and 6.3%, respectively. Other names and sectors that could be aided by Biden’s agenda rose as well such as the Invesco Solar ETF (TAN) which boomed 8.4%.
  • Tech lagged on the day due to fears of higher taxes and higher stimulus potential. Facebook (FB) and Amazon (AMZN) each fell more than 2%, while Netflix (NFLX) dipped 3.9%.
  • The 10-year Treasury note yield topped 1% for the first time since March.

What a newsworthy day Wednesday (Jan. 6) was. What started as a day focused on Senate runoff elections with the balance of Senate power at stake, ended with President-elect Biden being officially confirmed as the next president. But in between? A mob took over the capitol building! Did you ever think you would read that sentence in your lifetime?

Love him or hate him, President Trump is an eccentric character to put it lightly. Scorned, and still convinced that he won the election, Trump and his bruised ego whipped his supporters into a frenzy during a “Stop the Steal” rally and encouraged them to march towards the Capitol and make their voices heard. Somehow the protest turned into a storming of the Capitol after Vice President Mike Pence refused to overturn the election. Pence was later ushered out of the Senate and the Capitol went into lockdown.

What’s truly shocking here is that the markets still went up! In fact, the Dow hit yet ANOTHER all-time high! Whether you like it or not, this has to give you some sort of faith in the resiliency of capitalism,

The results of the Georgia election can be credited for the market surge.

Although some sectors plummeted due to fears of higher taxes and stricter regulations, with full Democrat control of the Presidency, Senate, and House, there is clarity for one, and expectations of further spending and government stimulus.

Goldman Sachs expects another big stimulus package of around $600 billion . While this could be bad for the national debt and have long-term consequences, in the short-term, it could send the economy heating. Small-cap stocks surged as a result.

I still believe that there will be a short-term tug of war between good news and bad news. Many of these moves upwards or downwards are based on emotion and sentiment, and I believe there could be some serious volatility in the near-term. Although markets on Wednesday (Jan. 6) may have been overly excited from the “Blue Wave” thanks to Georgia, consider this: the Capitol was invaded and the pandemic is still wreaking havoc! Even though the markets gained and the 10-year treasury ticked above 1% for the first time since March, the VIX still rose which means that fear is on the rise.

There was no pullback to end 2020 as I anticipated, but I still believe that markets have overheated in the short-term, and that between now and the end of Q1 2020 a correction could happen.

Carl Icahn seemingly agrees with me, and told CNBC on Monday (Jan. 4) that “in my day I’ve seen a lot of wild rallies with a lot of mispriced stocks, but there is one thing they all have in common. Eventually they hit a wall and go into a major painful correction.”

National Securities’ chief market strategist Art Hogan also believes that we could see a 5%-8% pullback as early as this month.

I believe though that corrections are healthy and could be a good thing. Corrections happen way more often than people realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). I believe we are overdue for one since there has not been one since the lows of March 2020. This is healthy market behavior and could be a very good buying opportunity for what I believe will be a great second half of the year.

While there will certainly be short-term bumps in the road, I love the outlook in the mid-term and long-term once vaccines become more widely available. The pandemic is awful right now, and these new infectious strains out of the U.K. and South Africa are quite concerning. But despite this, I believe the positive manufacturing data released on Tuesday (Jan. 5) is a step in the right direction, especially considering all the restrictions that most countries are living through.

The consensus is that 2021 could be a strong year for stocks. According to a CNBC survey which polled more than 100 chief investment officers and portfolio managers, two-thirds of respondents said the Dow Jones will most likely finish 2021 at 35,000, while five percent also said that the index could climb to 40,000.

Therefore, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and Q1 2021 is very possible. But I do not believe, with conviction, that a correction above ~20% leading to a bear market will happen.

Can Small-caps Own 2021?

Small-caps are the comeback darlings of the week. Although I believed that the Russell 2000’s record-setting run since the start of November was coming to an end, it has rallied over 5% in the last two trading days. Thanks to a Democrat sweep in Georgia and hopes of further economic stimulus, small-cap stocks have climbed back towards record highs.

I love small-cap stocks in the long-term, especially as the world reopens. A Democrat-dominated Congress could help these stocks too. But I believe that in the short-term, the index, by any measurement, has simply overheated. Before Jan. 4, the RSI for the I WM Russell 2000 ETF was at an astronomical 74.54. I called a pullback happening in the short-term due to this RSI, and it happened. Well now the RSI is back above 72, and I believe that a bigger correction in the near-term could be imminent.

Stocks simply just don’t always go up in a straight line, and that’s what the Russell 2000 has essentially been between November and December.

What this also comes down to is that small-caps are more sensitive to the news – good or bad. I believe that vaccine gains have possibly been baked in by now. There could be another near-term pop due to hopes of further stimulus, but I believe that it’s likely possible that small-caps in the near-term could trade sideways before an eventual larger pullback.

I truthfully hope small-caps decline a minimum of 10% before jumping back in for long-term buying opportunities.

SELL and take Wednesday’s (Jan. 6) profits if you can- but do not fully exit positions .

If there is a pullback, this is a STRONG BUY for the long-term recovery.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.