Top 4 Things Traders Have to Know Today

What is happening with Meta, Paypal and Spotify?

Spotify didn’t actually issue annual guidance, which seems to have exacerbated worries about potential subscriber growth potential. All three were down by double-digits in after hours trading at one point last night.

Competition is clearly much more fierce as larger players are starting to dial it in and use the latest technology to gain better traction i.e. Visa, Mastercard, etc. I also read reports this week that Apple is diving deeper into the payment and banking space and will soon be able to offer all kinds of options via the smartphone.

In simple terms, I wonder if PayPal executives could see they had a “growth” problem and that’s why they took a look at Pinterest a few months back. I heard rumors yesterday perhaps they might be looking at Robinhood.

At the moment the stock market just doesn’t seem real forgiving to those who swing and miss. On a somewhat positive note, Facebook disclosed they purchased back +$20 billion of their own stock in the last quarter.

Bulls are hoping for solid results from Amazon and Snap today to help prevent sentiment in the tech sector from creating more fallout. I’m not holding my breath!

Data to watch

Results are also due from Activision Blizzard, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, SnapOn, Wynn Resorts, and Xylem.

On the economic data front, Factory Orders, the ISM Non-Manufacturing Index, and Productivity and Costs are due today. Productivity and Costs has become a more closely watched report as worries about climbing wages have grown. In the third quarter, productivity fell -5.2% (the most since 1960) and labor costs rose +9.6%.

Obviously, weakening productivity and rising costs is a bad combo for corporate profits so reversing this trend is a high priority. It may be tough to find much relief in the near-term with the labor market expected to remain extremely tight.

The shortage of workers has also been exacerbated by the latest Covid wave. ADP’s private payrolls report yesterday showed a decline of -301,000 jobs for January versus the estimate for a +200,000 gain, the first reported net job less since December 2020 according ADP.

Covid issue

Most analysts blame last month’s Covid surge for the decline and expect it is just temporary. The official January Employment Report on Friday is expected to show a gain of around +150,000 jobs, though the government has warned that the data won’t be reliable due to Covid-related reporting problems. Hopefully we’ll soon stop hearing that excuse as the Omicron Covid wave does seem to be burning itself out in the U.S. Case numbers across the country are about half of what they were in mid-January.

Hospitalizations have finally started to come down, too, which experts say is a more reliable measure. I hate to mention it but health officials are currently monitoring a mutated strain of Omicron known as “BA.2″… when does it end?

The standoff between Ukraine and Russia

Also still on the radar is the standoff between Russia and Ukraine. The U.S. is now readying to send more than +3,000 troops to bases in Eastern Europe as new satellite images appeared to show an even further increase in Russian troop buildup on Ukraine’s borders. Whether or not war is a realistic threat or not, the climbing tensions continue to stoke the flames in the energy markets.

Brent crude futures are trading near $90 as OPEC struggles to meet production targets and global physical supplies continue to tighten. The 19 OPEC+ countries with quotas underperformed their production targets by -832,000 b/d in December. Russia is currently the top OPEC+ producer, so any disruption to those supplies runs the risk of shooting oil prices even higher. Take note the front-end of the natural gas market is up over +50% in the first month of the new year. It’s certainly going to be a wild ride in 2022!

 

Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

Cigna Shares Slump Over 10% on Downbeat Earnings Outlook, Analysts Cut Price Targets

Cigna shares slumped over 10% on Thursday after the Bloomfield, Connecticut-based health insurer cautioned the COVID-19 pandemic would have a greater impact on the company’s full-year earnings, prompting several analysts to cut their one-year price targets.

The U.S. health insurer said its outlook for full-year 2021 adjusted revenues is projected to be at least $170 billion. Cigna’s outlook for full-year 2021 consolidated adjusted income from operations is at least $6.96 billion, or at least $20.20 per share. This outlook includes nearly $2.50 per share in net unfavourable impacts of COVID-19.

The medical care ratio (“MCR”) rose to 85.4% for the second quarter 2021 compares to 70.5% a year ago, reflecting significantly lower medical care in second quarter 2020 due to the onset of the COVID-19 pandemic, an acceleration in the return to historical levels of utilization, the direct costs of COVID-19 testing and treatment, and the pricing effect of the repeal of the health insurance industry tax, the company said in the press release.

Following this, Cigna shares slumped over 10% to $206.21 on Thursday.

The insurance company said its total revenues in the second quarter were $43.1 billion, and adjusted revenues were at $43.1 billion Adjusted income from operations for the second quarter was $1.8 billion, or $5.24 per share, beating the Wall Street consensus estimates of $4.96 per share.

Analyst Comments

“We see two key drivers of the Cigna (CI) sell-off following its 2Q results: 1) meaningfully higher-than-expected MLR trends in FY21, and 2) implied core growth in FY22 that we calc at ~3.5% vs. mgt’s 6-8% LT average target. Utilization remains a wild card for 2H21/FY22, and rightfully so. Still, even if we assume a modest haircut to mgt’s implied FY22 EPS (we’re not), we think the risk/reward is favourable with shares now trading at 9.0-9.5xFY22 EPS. Buy,” noted David Windley, equity analyst at Jefferies.

Cigna Stock Price Forecast

Fifteen analysts who offered stock ratings for Cigna in the last three months forecast the average price in 12 months of $294.64 with a high forecast of $321.00 and a low forecast of $230.00.

The average price target represents a 42.88% change from the last price of $206.21. From those 15 analysts, 13 rated “Buy”, two “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $321 with a high of $341 under a bull scenario and $139 under the worst-case scenario. The firm gave an “Overweight” rating the life insurer’s stock.

Several other analysts have also updated their stock outlook. Mizuho slashed the stock price forecast to $267 from $290. Credit Suisse lowered the price objective to $270 from $300. Citi cut the target price to $267 from $308. JPMorgan lowered the price target to $285 from $300.

Check out FX Empire’s earnings calendar

Cigna Shares Hit New Record High After Q1 Earnings; Target Price $300 in Best Case

Cigna, a global health service company, reported better-than-expected earnings in the first quarter and lifted its full-year 2021 profit and revenue outlook, sending shares to a record high on Friday.

The Bloomfield, Connecticut-based company said its total revenues in the first quarter were $41.0 billion, and adjusted revenues were $41.0 billion. Adjusted income from operations for the first quarter was $1.7 billion, or $4.73 per share, beating the Wall Street consensus estimates of $4.37 per share.

The U.S. health insurer raised full-year 2021 adjusted revenue to at least $166 billion, up from the previous projection of at least $165 billion. Cigna expects consolidated adjusted income from operations at least $7.0 billion, or at least $20.20 per share.

Following the upbeat results, Cigna shares hit an all-time of $263.38 on Friday. The stock rose over 26% so far this year.

Cigna Stock Price Forecast

Eleven analysts who offered stock ratings for Cigna in the last three months forecast the average price in 12 months of $275.90 with a high forecast of $300.00 and a low forecast of $254.00.

The average price target represents a 7.38% increase from the last price of $256.93. Of those 11 analysts, ten rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $254 with a high of $343 under a bull scenario and $143 under the worst-case scenario. The firm gave an “Overweight” rating on the insurance company’s stock.

Several other analysts have also updated their stock outlook. Truist Securities raised the price target to $300 from $280. Jefferies lifted the price objective to $295 from $268. CFRA upped the target price by $25 to $260. Bernstein increased the target price to $263 from $242. BMO lifted the target price to $290 from $270.

Analyst Comments

Cigna is the fourth largest commercial (8% share) and exchange (3% share) player. Acquisition of ESRX creates vertically integrated player with better ability to manage medical and pharmacy spend to drive significant savings for members,” noted Ricky Goldwasser, equity analyst at Morgan Stanley.

“Flexible balance sheet to deploy into M&A. Opportunity to upsell dental and vision ancillary services can help drive accelerated commercial penetration longer-term. Opportunity for further MA penetration remains as co. can cross-sell in areas it has a strong commercial presence.”

Check out FX Empire’s earnings calendar

Will Earnings Season Bring Volatility To The Stock Market?

The Commerce Department last week reported that the U.S. economy grew at a +6.4% annual rate in the first quarter, slightly below estimates but still strong. If it would have come in real hot and much higher bears would have pointed to fanning the inflation flames even further.

This mindset of “bad-news-could-be-good-news” is helping to keep the stock market at or near all-time highs. If economic data somewhat disappoints it means the Fed stay dovish and accommodative for longer.

Fundamental analysis

That might be important to keep in mind as April data starting this week is expected to be extremely good. The April Employment Report is due next Friday and with upper-end of Wall Street estimates look for upwards of +1 million new jobs being added. Other key April data next week includes the ISM Manufacturing Index on Monday, and the ISM Non-Manufacturing Index on Wednesday.

employment

If the data comes in better than expected the bears will win the nearby battle and have the upper hand when talking higher inflation and the Fed perhaps tightening sooner than anticipated. So this week could be a bit tricky whereas “disappointing-data” could actually be digested as a win for the bulls and “strong data” a win for the bears.

The earnings calendar is packed again next week with big names including Activision Blizzard, Adidas, AllState, Cerner, Cigna, CVS, Dominion Energy, Enbridge, Etsy, Hilton Worldwide, Moderna, Monster Beverage, Nintendo, PayPal, Peloton, Pfizer, Rocket Companies, Square, TMobile, Wayfair, and Zoetis.

COVID-19

Checking in on U.S. progress against Covid-19, the number of adults that have received at least one dose is around 60%-65%, depending on the source. Global cases continue to rise led by India, where new infections have been hitting new record highs every day for weeks now. The country reported a staggering 380k new infections and 3,645 new deaths on Thursday while less than 10% of the population has been vaccinated.

Bottom line, the global restart will not be synchronized like many bulls had hoped would be the case and global growth may continue to struggle. At the moment the U.S. market doesn’t seem to care. It will be interesting to see if increasing inflation and continued global headwinds will eventually come home to roost.

SP500 technical analysis

SP500 earnings season

Earnings season can bring volatility to the stock market. At the beginning of May, cycles turn to the downside. Note, this is only a timing tool and it never shows the amplitude or strength of the move. When cycles are topping, it means we can expect a move down or choppy trading. This is it.

But relying on cycles only is not a good idea. Insider Accumulation Index shows bearish divergence on a daily chart. At the same time, Advanced Decline Line is still strong. The key resistance is around 4250 at the moment. I believe earning season can bring a profit booking to the stock market. If that happens, watch 4000 – 39500. It was a massive resistance and now it might turn into support. Intermarket Forecast is neutral. But if it turns to the downside, we will finally see a pullback in SP500.

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