Earnings to Watch Next Week: Logitech, Goldman Sachs, NetFlix and IBM in Focus

Next week’s earnings are of much significance for major market movements as 2021 is believed to be a year of recovery on hopes of successful roll-out of the COVID-19 vaccine.

Earnings Calendar For The Week Of January 18

Monday (January 18)

IN THE SPOTLIGHT: LOGITECH INTERNATIONAL

Logitech International S.A., a Swiss-American manufacturer of computer peripherals and software, is expected to report a profit of $1.08 in the fiscal third quarter, which represents year-over-year growth of about 29% from the same quarter last year when the company reported 84 cents per share.

The Lausanne-based company’s revenue to grow over 35% year-over-year to $1.23 billion from $902.69 million in the same period last year.

“We are bullish into Logitech‘s F3Q21 earnings report next week as our December quarter checks point to a better than the expected market environment, most notably for PC peripherals. We’d be buyers into the print and raise our PT to $113 (from $106) to account for recent peer multiple expansion,” noted Erik Woodring, equity analyst at Morgan Stanley.

Tuesday (January 19)

IN THE SPOTLIGHT: GOLDMAN SACHS, NETFLIX

GOLDMAN SACHS: New York-based leading global investment bank is expected to report a profit of $7.33 in the fourth quarter, which represents year-over-year growth of about 56% from the same quarter last year when the company reported $4.69 per share. The bank’s revenue is expected to dip 4.9% from the year-ago quarter to $9.47 billion.

“As market volatility and the urgency around capital raising activity (both equity and debt) subside in 2021, we expect total revenues decline 11% y/y from a strong 2020. We are valuing the group on normalized 2023 EPS. While we still see 15%+ upside to Goldman Sachs (GS) based on this methodology, we see even more upside elsewhere in the group, particularly in consumer finance stocks which have been under more pressure,” said Betsy Graseck, equity analyst at Morgan Stanley.

“This drives our Underweight rating. Over time, we expect GS can drive some multiple expansion as management executes on its multi-year strategic shift towards higher recurring revenues.”

NETFLIX: California-based global internet entertainment service company is expected to report a profit of $1.35 in the fourth quarter, which represents year-over-year growth of about 4% from the same quarter last year when the company reported $1.30 per share. The streaming video pioneer’s revenue is expected to surge over 20% from the year-ago quarter to $6.60 billion.

“We expect paid net adds to come in the above guide, helped by ongoing shutdowns & seasonal strength. Our view is supported by our positive proprietary 4Q20 survey data, which implies rising pricing power into year-end. We tweaked estimate’s & introduced ’21 quarters; in turn, our DCF-based price target rises to $650 from $625 prior; reiterate ‘Outperform’ rating,” said John Blackledge, equity analyst at Cowen and company.

NetFlix (NFLX) shares were +67% in ’20 alongside a pandemic surge, following massive sub beats in 1Q / 2Q respectively and 28.1MM total paid net adds in 1Q-3Q ’20, up 47% y/y. With consumers staying home amid colder weather & limited social activities, we expect Netflix engagement to remain high; meanwhile, to the extent, there is any NT pressure on UCAN paid subs from the 4Q US price increase, we would consider this a buying opportunity for NFLX shares as the co. grows the value prop alongside rising ARPU.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

Ticker Company EPS Forecast
PACW Pacwest Bancorp $0.67
CMA Comerica $1.18
ONB Old National Bancorp $0.38
SCHW Charles Schwab $0.65
GS Goldman Sachs $7.33
STT State Street $1.57
HAL Halliburton $0.15
FULT Fulton Financial $0.27
JBHT J B Hunt Transport Services $1.30
ZION Zions Bancorporation $1.01
PNFP Pinnacle Financial Partners $1.36
FNB FNB $0.24
UCBI United Community Banks $0.60
NFLX Netflix $1.35
IBKR Interactive Brokers $0.58
RNST Renasant $0.59
SBNY Signature Bank $2.91

Wednesday (January 20)

IN THE SPOTLIGHT: UNITEDHEALTH

UNITEDHEALTH: Minnesota-based health insurance and health care data analysis giant is expected to report a profit of $2.41 in the fourth quarter, which represents a year-over-year decline of about 40% from the same quarter last year when the company reported $3.90 per share.

The largest insurance company by Net Premiums is witnessing a slowdown in its international business as increased joblessness due to the COVID-19 pandemic has dented demand for commercial membership.

UnitedHealth Group is the number one Medicare Advantage player with 28% market share, the number two Medicare PDP player with 20% market share, and the number two commercial player with 15% market share. United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country,” wrote Ricky Goldwasser, equity analyst at Morgan Stanley.

“With a large lead in the breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the US healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A.”

United Airlines is expected to report a deep loss in the fourth quarter due to the COIVD-19 pandemic, which harmed demand for travel.

Ohio-based Tide detergent and Pampers diaper manufacturer Procter & Gamble is expected to report an increase in profits on rising demand for home care and laundry products amid the COIVD-19 pandemic.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

Ticker Company EPS Forecast
UNH UnitedHealth $2.41
PG Procter & Gamble $1.51
ASML Asml $2.96
MS Morgan Stanley $1.30
USB US Bancorp $0.95
BK Bank Of New York Mellon $0.88
FAST Fastenal $0.33
CFG Citizens Financial $0.91
CBSH Commerce Bancshares $0.92
BOKF BOK Financial $1.92
FCEL Fuelcell Energy -$0.07
KMI Kinder Morgan $0.24
DFS Discover Financial Services $2.36
UAL United Airlines Holdings -$6.56
AA Alcoa $0.09
WTFC Wintrust Financial $1.41
UMPQ Umpqua $0.48
HWC Hancock Whitney Corp $0.90
PLXS Plexus $1.10
STL Sterling Bancorp $0.46
PTC PTC $0.65

Thursday (January 21)

IN THE SPOTLIGHT: IBM

IBM: Armonk, New York-based technology and consulting company is expected to report a profit of $1.81 in the fourth quarter, which represents a year-over-year decline of over 60% from the same quarter last year when the company reported $4.71 per share.

“For 2020, IBM refrained from providing any guidance, citing business uncertainty. Nevertheless, management stated that the fourth quarter is a seasonally strong quarter. The company is witnessing robust pipelines across hybrid cloud and data platform, AI solutions, in Cognitive Apps business driven by strength in Cloud Paks and Security, cloud-based transformation services in GBS segment, and App modernization offerings,” noted analysts at ZACKS Research.

“Also, management is banking on advancement in Red Hat “actual backlog growth.” Moreover, gains from the rapid uptake of IBM z15 is anticipated to be a tailwind. The company also anticipates to end 2020 with reduced debt levels.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 21

Ticker Company EPS Forecast
UNP Union Pacific $2.24
TFC Truist Financial Corp $0.85
TAL TAL International $0.04
TRV Travelers Companies $3.16
BKR Baker Hughes Co $0.17
FITB Fifth Third Bancorp $0.68
NTRS Northern $1.49
MTB M&T Bank $3.02
KEY KEY $0.43
CTXS Citrix Systems $1.34
HOMB Home Bancshares $0.39
INDB Independent Bank $1.02
FBC Flagstar Bancorp $2.36
WBS Webster Financial $0.75
BKU BankUnited $0.71
WNS Wns Holdings $0.59
INTC Intel $1.10
IBM IBM $1.81
ISRG Intuitive Surgical $3.09
CSX CSX $1.01
PPG PPG Industries $1.58
SIVB SVB Financial $3.79
TCBI Texas Capital Bancshares $1.13
ASB Associated Banc $0.30
PBCT People’s United Financial $0.32
OZK Bank Ozk $0.78
WAL Western Alliance Bancorporation $1.33
BKRKY Bank Rakyat $0.17
MTCH Match Group $0.50
MTG MGIC Investment $0.37
STX Seagate Technology $1.13

Friday (January 22)

Ticker Company EPS Forecast
EDU New Oriental Education Tech $0.26
ABBV AbbVie $2.86
HON Honeywell International $2.00
SLB Schlumberger $0.17
KSU Kansas City Southern $1.93
RF Regions Financial $0.42
HBAN Huntington Bancshares $0.29
ALLY Ally Financial $1.05
FHN First Horizon National $0.28
HRC Hill-Rom $1.05
NEP Nextera Energy Partners $0.39
IBN Icici $0.14
TOP Topdanmark A/S kr3.63

 

US Stocks Falter Amid Concerns Biden Stimulus Plan Would Lead to Higher Interest Rates, Corporate Taxes

Wall Street’s major stock indexes finished lower on Friday. Gains were capped as investors assessed the impact of President-elect Joe Biden’s $1.9 trillion stimulus plan with some suggesting higher corporate taxes would be necessary to pay for it. Also weighing on prices was a drop in U.S. big bank shares after their reports kicked off earnings season and a sharp break in energy due to the announcement of a regulatory probe into Exxon Mobil Corp.

In the cash market on Friday, the benchmark S&P 500 Index settled at 3768.25, down 27.29 or -0.81%. The blue chip Dow Jones Industrial Average finished at 30814.26, down 177.26 or -0.65% and the tech-based NASDAQ Composite closed at 12998.50, down 114.14 or -1.02%.

Biden’s Stimulus Plan Caps Gains, Raises Concerns about Taxes

Biden’s proposal, called the American Rescue Plan, includes increasing the additional federal unemployment payments to $400 per week and extending them through September, direct payments to many Americans of $1,400, and extending the federal moratoriums on evictions and foreclosures through September.

Biden’s coronavirus relief stimulus package may prove a double-edged sword for investors, sustaining optimism for further economic revival while raising worries over how the United States will pay for it all.

Investors didn’t chase the market higher on Friday after Biden announced the package the evening before because it had been widely anticipated by Wall Street and has helped lift the broad S&P 500 Index nearly 3% in the week since Democratic challengers won both of Georgia’s U.S. Senate seats, giving Democrats full control of Congress.

However, that rally has been mirrored by a slide in Treasuries, due in part to expectations that the government will need to fund the spending with more debt issuance and nudging borrowing costs throughout the economy higher.

On the other side, there’s a chance that markets will have to pay for this in the form or sharply higher interest rates or tax hikes that could cap equity valuations.

Bank Stocks Drag S&P Lower

The S&P 500 Banks Index Lost Ground as shares of Wells Fargo & Co, JPMorgan Chase & Co and Citigroup Inc tumbled even though they had posted better-than-expected fourth-quarter profits. The bank sector had rallied sharply in recent days.

JPMorgan Chase on Friday beat analysts’ estimates for fourth-quarter profit on record trading results and a boost from releasing money previously set aside for loan losses.

Wells Fargo released mixed results for the fourth quarter, sending the bank’s stock lower. Earnings per share of 64 cents exceeded Refinitiv’s estimate of 60 cents, but revenue of $17.93 billion fell short of the $18.127 billion forecast

Citigroup posted fourth-quarter results that beat analysts’ estimates for profit as the firm joined rival JPMorgan Chase in releasing reserves for loan losses.

Wells Fargo, down 7.8%, was among the biggest drags on the S&P 500.

Exxon Reportedly Investigated by SEC

Shares of Exxon slipped more than 5% on Friday after The Wall Street Journal reported that the Securities and Exchange Commission opened an investigation that the Securities and Exchange Commission opened an investigation into the oil giant over how it valued a key asset in the oil-rich Permian Basin.

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

The Week Ahead – U.S Politics, Monetary Policy, Economic Data, and COVID-19 in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 73 stats in focus in the week ending 22nd January. In the week prior, 46 stats had been in focus.

For the Dollar:

It’s a quiet week ahead on the economic data front.

In a shortened week, there are no material stats to consider in the 1st half of the week.

Through Thursday, Philly FED Manufacturing PMI and weekly jobless claims figures are in focus.

With market attention to labor market conditions, expect the jobless claims to have the biggest impact. Another jump in jobless claims would likely weigh on riskier assets.

At the end of the week, prelim private sector PMI figures for January wrap things up.

Housing sector data also due out in the week will likely have a muted impact on the Dollar and risk sentiment.

The Dollar Spot Index ended the week up by 0.75% to 90.772.

For the EUR:

It’s a busy week ahead on the economic data front.

On Tuesday, January ZEW Economic Sentiment figures for Germany and the Eurozone kick things off.

Germany’s ZEW Economic Sentiment indicator will likely be the key driver.

The focus will then shift to January prelim private sector PMI numbers on Friday. France, Germany, and the Eurozone’s private sectors will be in the spotlight on.

Expect Germany’s manufacturing and the Eurozone’s composite to be the key drivers.

Finalized December inflation figures for member states and the Eurozone, also due out in the week, will likely have a muted impact on the EUR.

On the monetary policy front, the ECB is in action on Thursday. No moves are expected, leaving the press conference as the key driver. Questions on the economic outlook are likely as EU member states extend lockdown periods.

The EUR ended the week down by 1.11% to $1.2082.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. Key stats include December inflation and retail sales figures, CBI industrial trend orders, and prelim January private sector PMIs.

Expect the retail sales figures and services PMI, due out on Friday, to have the greatest influence.

Away from the economic calendar, COVID-19 news will also influence. Following the vaccine approvals, the markets will be looking for new COVID-19 cases to begin abating.

On the monetary policy front, BoE Governor is scheduled to speak on Wednesday.

The Pound ended the week up by 0.16% to $1.3590.

For the Loonie:

It’s a busy week ahead on the economic calendar.

Key stats include December inflation and November retail sales figures due out on Wednesday and Friday.

Other stats include housing stats, manufacturing and wholesale sales figures. We would expect these stats to have a muted impact on the Loonie, however.

On the monetary policy front, the BoC is in action on Wednesday. With the markets expecting the BoC to hold rates steady, the rate statement and press conference will be the key drivers.

From elsewhere, economic data from China and private sector PMIs from the Eurozone and the U.S will also influence.

Expect COVID-19 news updates and chatter from Capitol Hill to also provide direction.

The Loonie ended the week down by 0.24% to C$1.2732 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a busier week on the economic data front.

Consumer sentiment figures for January are due out on Wednesday.

With consumer confidence key to fueling a pickup in consumer spending and an economic recovery, expect Aussie Dollar sensitivity to the numbers.

On Thursday, December employment figures will also provide direction ahead of retail sales figures on Friday.

Economic data from China and private sector PMI numbers from the U.S and the Eurozone will also influence.

COVID-19 news updates will remain a key driver in the week. however.

The Aussie Dollar ended the week down by 0.70% to $0.7703.

For the Kiwi Dollar:

It’s a quiet week ahead on the economic calendar.

In the 1st half of the week, 4th quarter business confidence and electronic card retail sales figures are in focus on Tuesday.

At the end of the week, Business PMI and 4th quarter inflation figures wrap things up.

Expect business confidence, retail sales, and 4th quarter inflation figures to be the key drivers.

The Kiwi Dollar ended the week down by 1.51% to $0.7133.

For the Japanese Yen:

It is a busy week ahead.

Finalized November industrial production figures get things going on Monday.

On Thursday, December trade figures will draw plenty of attention. With the COVID-19 pandemic continuing to wreak havoc, weak numbers could test market risk appetite.

At the end of the week, December inflation figures and prelim private sector PMIs for January wrap things up. The PMI numbers should have greater influence at the end of the week.

On the monetary policy front, the BoJ is in action on Thursday.

The Japanese Yen ended the week up by 0.09% to ¥103.85 against the U.S Dollar.

Out of China

It’s also a busy week ahead.

December industrial production and 4th quarter GDP numbers are due out on Monday. These will be the key stats of the week.

Other stats include fixed asset investment, retail sales, and unemployment figures. Barring dire numbers, however, these stats should have limited impact on market risk sentiment.

On Wednesday, the PBoC is also in action. However, the markets are not expecting any moves.

The Chinese Yuan ended the week down by 0.10% to CNY6.4809 against the U.S Dollar.

Geo-Politics

U.S Politics

It’s a busy week on Capitol Hill.

Inauguration Day and Trump’s impeachment will draw interest.

COVID-19

Vaccination rates and availability of vaccines will be key areas of interest.

An upward trend in vaccination rates and a downward trend on infection rates would support optimism towards an economic recovery.

Corporate Earnings

A number of big names deliver results in the week ahead.

From the U.S

These include:

Bank of America (Tues)

Goldman Sachs Group (Tues),

Netflix (Tues)

United Airlines (Wed)

Morgan Stanley (Wed)

Intel Corp. (Thurs).

The Weekly Wrap – COVID-19, Economic Data, and U.S Stimulus Weigh on Riskier Assets

The Stats

It was a relatively busy week on the economic calendar, in the week ending 15th January.

A total of 46 stats were monitored, following 61 stats from the week prior.

Of the 46 stats, 21 came in ahead forecasts, with 17 economic indicators coming up short of forecasts. There were 8 stats that were in line with forecasts in the week.

Looking at the numbers, 17 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 23 reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive weekly gain, with the Dollar Spot Index rising by 0.75% to $90.772. In the previous week, the Dollar had risen 0.18% to 90.098.

Out of the U.S

It was a relatively busy week on the economic data front.

It was a quiet 1st half of the week, however, with stats limited to JOLTs job openings and inflation figures.

While job openings fell in November, inflation held steady, with the annual rate of core inflation holding at 1.6%.

Consumer prices rose by 0.4%, month-on-month, while core consumer prices increased by a modest 0.1%.

In a busy 2nd half of the week, key stats included the weekly jobless claims, retail sales, and consumer sentiment figures.

Jobless claims figure disappointed on Thursday, with initial jobless claims jumping from 784k to 965k.

In December, core retail sales slid by 1.4%, with retail sales falling by 0.7%, both following on from declines in November.

Consumer sentiment figures also disappointed.

According to prelim figures, the Michigan Consumer Sentiment Index fell from 80.7 to 79.2.

The downside was limited, however, supported by COVID-19 vaccines and hopes of a bipartisan shift.

The survey noted that the fall was minor when considering the sharp rise in COVID-19 related deaths, insurrection, and Trump’s impeachment.

Other stats included industrial production, NY Empire State Manufacturing, and business inventory figures. These stats had limited impact on the markets, however.

On the monetary policy front, FED Chair Powell assured the markets that rates were not going up any time soon. The FED Chair also stated that there would be no tapering of bond purchases near-term.

In the equity markets, the NASDAQ and the S&P500 slid by 1.54% and by 1.48% respectively. The Dow fell by a more modest 0.91%.

Out of the UK

It was a relatively busy week on the economic data front.

Monday through Thursday economic data was limited to BRC retail sales and RICS house price figures.

Retail sales rose by a further 4.8% in December, following a 7.7% rise in November according to the BRC.

House prices were also on an upward trend, with the RICS house price balance coming in at 65%. While down marginally from October’s 66%, upward pressure on house prices is expected to remain.

At the end of the week, industrial and manufacturing production and GDP figures were in focus.

In November, industrial production fell by 0.1%, following a 1.1% rise in October. Manufacturing production rose by 0.7%, following a 1.6% increase in October. Both fell short of forecasts.

GDP figures were not much better. In November, the economy contracted by 2.6% reversing 0.4% growth from October. On a 3-month rolling basis, the economy grew by 4.1%, slowing from a 10.2% to October.

Trade data released on Friday had a muted impact on the Pound, however. In November, the trade deficit widened from £13.29bn to £16.01bn, with the non-EU deficit widening from £5.82bn to £8.01bn.

Away from the economic calendar, a pickup in vaccination rates in the UK offset the negative sentiment towards lockdown measures.

In the week, the Pound rose by 0.16% to $1.3590. In the week prior, the Pound had fallen by 0.76% to $1.3568. A 0.72% slide on Friday pared some of the gains from earlier in the week.

The FTSE100 ended the week down by 2.00%, partially reversing a 6.39% gain from the previous week.

Out of the Eurozone

It was a relatively quiet week on the economic data front.

Industrial production and trade figures for the Eurozone, together with full year GDP numbers for Germany were in focus.

It was a mixed set of numbers for the EUR and the European majors.

For the Eurozone, industrial production jumped by 2.5% in November, following a 2.3% increase in October.

Trade data disappointed, however, with the trade surplus narrowing from €30.0bn to €25.8bn in November. Weak numbers were expected, however, following Germany’s trade data from last week.

While economic data from Germany has been impressive of late, GDP figures disappointed.

For the full year 2020, the economy contracted by 5.0%, following 0.6% growth in 2019. Economists had forecasted a 5.1% fall, however, which limited the damage.

ECB President Lagarde had spoken the day before the release of the GDP numbers. Lagarde continued to stand by the ECB’s economic forecasts, in spite of the extended lockdown measures in the EU. Lagarde pointed out that the forecasts had factored in lockdowns through the 1st quarter.

At the end of the week, finalized inflation figures for France and Spain had a muted impact on the EUR.

On the monetary policy front, the ECB’s monetary policy meeting minutes also failed to move the dial in the week.

For the week, the EUR slid by 1.11% to $1.2082. In the week prior, the EUR had risen by 0.02% to $1.2218.

For the European major indexes, it was a bearish week. The EuroStoxx600 fell by 0.81%, with the CAC40 and DAX30 sliding by 1.67% and 1.86% respectively.

A continued spike in new COVID-19 cases weighed. Across the EU, member states were reporting particularly low vaccination rates that added to the negative mood.

For the Loonie

It was a particularly quiet week on the economic data front. There were no material stats to provide the Loonie with direction.

At the start of the week, the BoC’s Business Outlook Survey failed to move the dial.

Market optimism, fueled by expectations of a sizeable U.S stimulus package, had supported crude oil prices and the Loonie.

A Friday sell-off, however, left the Loonie in the red. Concerns over the COVID-19 pandemic and market reaction to the Biden stimulus package weighed on riskier assets.

In the week ending 15th January, the Loonie fell by 0.24% to C$1.2732. In the week prior, the Loonie had risen by 0.2% to C$1.2702.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar, following solid gains from the previous week.

In the week ending 15th January the Aussie Dollar fell by 0.70% to $0.7703, with the Kiwi Dollar ended the week down by 1.51% to $0.7133.

For the Aussie Dollar

It was a quiet week on the economic calendar.

November retail sales, building permit, and new home loan figures were in focus in the week.

Retail sales impressed in November, supported by an easing of containment measures in Victoria. Sales jumped by 7.1%, following a 1.4% rise in October.

Building permits rose by 2.6%, following a 3.3% increase in October, with new home loans surging by 5.5%.

Home loans hit a record high mid-way through the 4th quarter.

From elsewhere, trade data from China also provided support, with imports and exports on the rise in December.

For the Kiwi Dollar

It was also a particularly quiet week on the economic calendar.

There were no material stats from New Zealand to provide the Kiwi Dollar with direction.

For the Japanese Yen

It was a relatively quiet week on the economic calendar. Core machinery orders were in focus in the week.

Month-on-month, orders rose by 1.5% in November, following October’s 17.1% surge. Economists had forecast a 6.2% slide. Year-on-year, orders were down by 11.3%, after having risen by 2.8% in October. Economists had forecast a more severe 15.4% slump.

The stats ultimately had a muted impact on the Japanese Yen, however. COVID-19 news and chatter from Capitol Hill remained key drivers in the week.

The Japanese Yen rose by 0.09% to ¥103.85 against the U.S Dollar. In the week prior, the Yen had fallen by 0.72% to ¥103.94.

Out of China

Inflation and trade data for December were in focus.

The stats were skewed to the positive, supporting riskier assets in the week.

Inflationary pressures returned at the end of the year, with consumer prices rising by 0.7%, month-on-month. In November, consumer prices had fallen by 0.6%. As a result, consumer prices were up by 0.2% year-on-year, partially reversing a 0.5% decline from November.

Wholesale deflationary pressures also eased at the end of the year.

Trade data was more impressive, however, with exports surging by 19.1% following a 21.1% jump in November. Imports increased by 6.5%, leading to a widening in the USD trade surplus from $75.4bn to $78.16bn.

While the stats were positive, a spike in new COVID-19 cases in China was a concern in the week.

In the week ending 15th January, the Chinese Yuan fell by 0.10% to CNY6.4809. In the week prior, the Yuan had risen by 0.81% to CNY6.4746.

The CSI300 slipped by 0.68%, while the Hang Seng ended the week up by 2.50%.

US Stock Market Overview – Stocks Close Lower; Led Down by Energy; Retail Sales Disappoints

U.S. stocks moved lower on Friday, as weak retail sales weighed on sentiment. Most sectors in the S&P 500 index were lower, driven down by Energy shares, Utilities bucked the trend. For the second consecutive month, retail sales were negative and more fragile than expected. The spending seen in mid-2020 was driven by a stimulus that is now on deck for the Biden administration. Producer prices rose in December and were buoyed by energy and food. The bid banks kicked off the earnings season on Friday. J.P. Morgan was the standout, but the financial sector fell as traders appear to be taking profits.

Retail Sales Fall

U.S. retail sales dropped in  December as lockdowns to battle the spread of COVID-19 undercut spending. According to the U.S. Commerce Department, Retail sales dropped 0.7% last month. November was revised down to show sales declining 1.4% instead of 1.1% as previously reported. Expectations had been for retail sales to be unchanged in December.

Core retail sales were also lower. Excluding automobiles, gasoline, building materials and food services, retail sales tumbled 1.9% last month after a downwardly revised 1.1% decline in November. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have decreased by 0.5% in November.

U.S. producer prices increased in December. According to the Labor Department, U.S. Producer price index increased 0.3% in December after nudging up 0.1% in November. In the 12 months through December, the PPI rose 0.8%, matching November’s gain. Excluding food, and energy, producer prices increased 0.4%. The core PPI inched up 0.1% in November. In the 12 months through November, the core PPI gained 1.1% after rising 0.9% in November.

JP Morgan Chase Beats

J.P. Morgan Chase reported profits of $12.14 billion or $3.79 per share, better than expected. The bank reported $29.22 billion for the quarter in revenue, up 3% from a year earlier, also topping analysts’ expectations for $28.67 billion. JPMorgan posted a record revenue of $119.54 billion, up 4% from 2019. The growth was powered by trading as clients were eager to raise capital and trade securities amid a troubled economy and record-high markets.

S&P 500 Weekly Price Forecast – Stock Markets Pull Back From Highs

The S&P 500 is a bit negative for the week, as traders had initially been enthusiastic about the idea of stimulus overall. After all, the stimulus package may not be the $1.9 trillion that Joe Biden asks or, and therefore people are starting to reprice all of that “cheap money.” Wall Street runs on cheap money, and that of course has a huge influence on stocks. We are getting a little bit overstretched at this point in time, and therefore a pullback makes quite a bit of sense. I do not expect a major trend change, rather I think that it offers a bit of a value play for those who are looking to pick up stocks “on the cheap.”

S&P 500 Video 18.01.21

If we can break below the bottom of the trend line, the market would more than likely drop down towards the 3600 level. That is an area that previously had been resistance, so now it should certainly offer quite a bit of support. The 3800 level has offered significant resistance, but if we can break above there then it is likely we could go to the 4000 handle. When you look at the previous consolidation area, it measures for a 400 point range. By breaking above 3600, that signifies that we could go as high as 4000. I do not necessarily think that we get there easily, but this is a market that has been resilient over the longer term. Stimulus is the key, and the fact that we are in the midst of earnings season will probably just add a bit of volatility to the equation.

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

S&P 500 Price Forecast – Stock Markets Fall Toward Support

The S&P 500 has pulled back a bit during the course of the trading session on Friday but has turned around quite a bit to show signs of support underneath. Ultimately, this is a market that I think continues to go looking towards the 3800 level, perhaps even higher than that. Based upon the previous consolidation area between the 3200 level on the bottom and the 3600 level on the top, we should see an extension all the way to the 4000 handle, which of course is a large, round, psychologically significant figure.

S&P 500 Video 18.01.21

That being said, I think that pullbacks will continue to be bought into, as the stimulus situation will certainly be supportive for the markets. I have no interest in shorting this market, because quite frankly every time you have tried to short this market you have lost money with the exception of a handful of incidents. The 50 day EMA sits at the uptrend line, and therefore I think there is a natural barrier underneath to keep this market afloat. We are entering earnings season bound, so that can have a major influence on what happens next and you will need to be very cautious about jumping in with both feet. Buying short-term dips with little bits and pieces probably will make the most sense longer-term, building up a bigger position.

The candlestick for the session on Friday certainly looks as if there is plenty of support, so it only adds more credence to the idea of the market going higher.

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

US Stock Indices Daily Recap (14th Jan) – Decline, Don’t get Caught

This market reminds me of the days leading up to Christmas Eve 2018. For those who don’t remember, it was a pretty dark day for those trading in financial markets.

I was in the office, alone, and felt particularly responsible for my clients that day. You see, since October of that year, markets had been in a tailspin lower.

“Fundamentals look good, add some exposure to equities here” I found myself saying, more than once. And just when I thought I would get a break, have a half day in the markets, and take a couple days off – boom. Markets fell 2 to 3 percent on the day .

I still remember the feeling, it was like a gut punch. We were unprepared and had added more equity exposure for most of our clients in the prior few weeks. My boss was furious, as I was responsible for allocating hundreds of millions of dollars and we were having our worst quarter ever. I vowed to never be caught unprepared and foolhardy about markets ever again after that quarter.

It was a great lesson, and one that allowed me to flourish in 2020. While I did not foresee a global pandemic, back in January of 2020, things were looking eerily similar to 2018. Markets were frothy, and it appeared that no downside was possible. And I cut exposure for my family assets significantly.

That allowed me to avoid the worst of the pullback, and in March, with an eye on the long run, I took my family assets and picked up several companies at mouth watering valuations, some we hadn’t seen in years.

So far, so good. My old boss would have been pleased – not that it matters…

And now? Well. We’re falling into the same song and dance lately, aren’t we. I have some tips below for those interested, and if you want to know how my personal portfolios have performed, slip into my DMs.

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one where I could help people who needed help, instead of the ultra high net worth. Hopefully, you’ll find the below enlightening from my perspective, and I welcome your thoughts and questions.

Although stocks closed mildly lower on Thursday (Jan. 14), stocks have overall had a strong start to 2021.

Be that as it may, I am still concerned about overheated valuations for stocks and the return of inflation. The S&P 500 is trading at its highest forward P/E ratio since 2000, and the 10-year treasury is at its highest level since March. The Russell 2000 is also up over 37% from its 200-day moving average for the first time in its history.

Overvalued stocks combined with inflation returning by mid-year is quite concerning for me. I feel that a correction between now and the end of Q1 2020 is likely.

I like how economist Mohammed El-Erian described the market as a “ rational bubble .” But he did caution against four major risks that could cause a downturn.

The first two risks, and the least likely are the Fed pulling back on monetary stimulus and the potential for corporate bankruptcies. As Fed Chair Jay Powell said himself Thursday though, (Jan. 14) “be careful not to exit too early,”

The last two risks could be riskier.

The first is “some sort of market accident” akin to the dot-com bubble popping in 1999. THIS is what concerns me most right now. The IPO market is simply absurd right now. The DoorDash (DASH) and AirBnB (ABNB) IPOs were ridiculous, and other IPOs are looking more and more like a circus. Lender Affirm went public on Wednesday (Jan. 13) and nearly doubled. Shares of Poshmark also surged more than 130% in its debut Thursday (Jan. 14).

The other risk is the bond market and its effect on inflation. According to El-Erian, “If we were to see another 20 basis point move in yields, that would be bad news.”

Despite my concerns, it is clear to me that investors are loving the potential for a $1.9 trillion stimulus package under President-elect Biden.

Although a short-term tug of war between good news and bad news could continue, it seems to me that investors (for now) would just prefer to ride this out for what could be a strong second half of the year. According to CNBC’s Jim Cramer , there appears to be a lack of “people willing to sell”.

Be that as it may, jobless claims surged to their highest levels since August, and the pandemic is still out of control. According to Goldman Sachs’ Chief Economist Jan Hatzius, U.S. stocks and bond markets could possibly “ take more of a breather ” in the near term.

Generally, corrections are healthy, good for markets, and more common than most realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). Because we haven’t seen a correction since March 2020, we could be well overdue.

This is healthy market behavior and could be a very good buying opportunity for what should be a great second half of the year.

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. I don’t think that a correction above ~20% leading to a bear market will happen.

Hope everyone has a great day. Best of luck, and happy trading!

S&P 500’s Valuation is its Highest in Years

Figure 1- S&P 500 Large Cap Index $SPX

Conventional wisdom would tell you that the S&P had overheated and valuations are crazy. The index’s forward P/E ratio is the highest it’s been in two decades.

But did you just see JP Morgan ’s (JPM) earnings report?

Wow.

The big bank crushed both top and bottom line estimates, and saw a net income growth of 42% from a year ago.

But look deeper into the earnings call, and there are some things to worry about. JP Morgan reported a net benefit of $1.89 billion in credit reserves and is maintaining a reserve topping $30 billion.

Why is this worrying? According to CEO Jamie Dimon, this is because of “significant near term uncertainty” due to the pandemic.

Dimon further added that despite vaccine and stimulus-related optimism, JP Morgan is holding onto these reserves in order to “withstand an economic environment far worse than the current base forecast by most economists.”

That’s a bit troubling.

The S&P 500 has been trading in a streaky matter as of late and reflects the broader tug-of-war between good news and bad. The index seemingly goes on multiple day winning streaks and losing streaks on a weekly basis. After seeing its worst sell-off since October last Monday (Jan. 4), for example, it went on a four-day win streak and broke past 3800.

We are now back below 3800. Although I always cheer stocks going up and hitting records, I want buying opportunities. I would like to see a drop to around 3600 or below before making a BUY call for the long-term.

For now, my near-term outlook is murky. A short-term correction could inevitably occur by the end of Q1 2021, but for now, I am calling the S&P a HOLD. I would like to see a sharp correction before initiating S&P exposure at a discount. There is clear upside for the second half of 2021, but I would just prefer to maximize the upside from a lower level.

For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.

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.

 

Wells Fargo Shares Plunge as Q4 Revenue Disappoints

The United States’ fourth-largest bank Wells Fargo’s profit modestly beat consensus estimates for the fourth quarter, but its revenue fell short of market expectations, sending its shares down over 7% on Friday.

The San Francisco-based financial services company reported a net income of $2.99 billion, or 64 cents per share, beating the Wall Street consensus estimates of 58 cents after missing expectations in the last six consecutive quarters. The company’s total revenue plunged 10% to $17.93 billion, missing forecasts of $18.127 billion.

“Expect FY ’21 expense to come down $1 billion to $53 billion which includes $3.7 billion of cost saves from efficiency initiatives and offsets from biz investments, revenue-related comps, and other items. Wells Fargo (WFC) expects restructuring charges to remain flat in ’21 vs. ’20 and notes that operating losses can be unpredictable with $1 billion currently baked into the guide. The guide looks in-line with cons. at $53 billion.”

At the time of writing, Wells Fargo shares traded 7.28% lower at $32.21 on Friday; the stock fell more than 40% in 2020.

On the other hand, the world’s largest asset manager BlackRock reported better-than-expected earnings in the fourth quarter with 11% increase in full-year revenue reflecting strong organic growth, record performance fees and 17% growth in technology services revenue.

Executive Comments

“Although our financial performance improved and we earned $3.0 billion in the fourth quarter, our results continued to be impacted by the unprecedented operating environment and the required work to put our substantial legacy issues behind us,” Chief Executive Officer Charlie Scharf commented on the quarter.

Wells Fargo Stock Price Forecast

Fifteen analysts who offered stock ratings for Wells Fargo in the last three months forecast the average price in 12 months at $34.23 with a high forecast of $40.00 and a low forecast of $27.00.

The average price target represents a 6.57% increase from the last price of $32.12. From those 15 analysts, nine rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $40 with a high of $54 under a bull scenario and $20 under the worst-case scenario. The firm currently has an “Overweight” rating on the financial services company’s stock.

Several other analysts have also recently commented on the stock. Compass point raised the target price to $41 from $31. UBS upped their price objective to $41 from $23 and upgraded their ratings to buy from neutral. Citigroup raised the stock price forecast to $37 from $33. JP Morgan upped the target price to $32 from $31.

In addition, Wells Fargo & Company had its target price hoisted by Deutsche Bank to $37 from $35. The firm currently has a buy rating on the financial services provider’s stock. Credit Suisse Group raised their price objective to $35 from $33 and gave the company a neutral rating. At last, Barclays lifted their price target to $36 from $33 and gave the stock an equal weight rating.

Analyst Comments

“Wells Fargo (WFC) appears to be beginning to take action to restructure its business mix as it works to exit the Fed consent order/asset cap and reduce its expense base. While uncertainty remains around impact of business exits and timing of consent order/asset cap exit, we believe risk more than accounted for in the stock at 7.7x our 2022e EPS and 0.9x BV,” said Betsy Graseck, equity analyst at Morgan Stanley.

“WFC benefit to EPS from rising long end rates is the highest in the group, with each ~50bps increase in the 10yr driving ~4% to NII and as much as ~10% to EPS. We model WFC driving their expense ratio down to 66% by 2023 on reduced risk and compliance spend, operational efficiencies, and branch optimization. Lower expense ratio possible.”

Upside and Downside Risks

Risks to Upside: 1) New CEO’s financial targets higher than expectations. 2) Fed asset cap and consent order lifted in 1H21. 3) Business exits have minimal EPS impact and increase ROE. 4) Rates rise faster than forward curve – highlighted by Morgan Stanley.

Risks to Downside: 1) Fed does not lift asset cap until well into 2022+ 2) Business exits reduce EPS more than 10%. 3) Lower than expected operating leverage. 4) 10-year yield below expectations Macro environment remains challenging through 2021.

Check out FX Empire’s earnings calendar

E-mini S&P 500 Index (ES) Futures Technical Analysis – Taking out 3768.00 Shifted Momentum to Downside

March E-mini S&P 500 Index futures are trading lower shortly after the cash market opening on Friday as incoming President Joe Biden’s $1.9 trillion stimulus plan sparked fears of an increase in taxes, while investors parsed quarterly reports from major U.S. lenders.

Shares of JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co, which had seen a strong rally in the run-up to earnings, were all down even as the banks posted better-than-expected fourth-quarter profits.

At 14:48 GMT, March E-mini S&P 500 Index futures are trading 3779.00, down 12.25 or -0.32%.

In economic news, some investors worried that the government will need to fund the spending through tax hikes. Meanwhile, data showed a further decline in U.S. retail sales in December – the latest sign the economy lost considerable speed at the end of 2020.

Daily March E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 3824.50 will signal a resumption of the uptrend. The main trend will change to down on a move through 3596.00.

The minor trend is down. The minor trend changed to down on a trade through 3768.00. This move shifted momentum to the downside. Additionally, a new minor top has formed at 3817.75.

The new minor range is 3824.50 to 3768.00. Its 50% level at 3791.50 is potential resistance. This level will move down as the index moves lower.

On the downside, the nearest potential support is a pair of 50% levels at 3735.00 and 3706.75.

Daily Swing Chart Technical Forecast

The direction of the March E-mini S&P 500 Index into the close on Friday is likely to be determined by trader reaction to 3791.50.

Bearish Scenario

A sustained move under 3791.50 will indicate the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into 3735.00. If this level fails then look for a drop into 3706.75.

The daily chart opens up to the downside under 3706.75 with the next target a support cluster at 3657.50 to 3652.50.

Bullish Scenario

Overcoming and sustaining a rally over 3791.50 will signal the return of buyers. If this generates enough upside momentum then look for the rally to possibly extend into the minor top at 3817.75, followed by the main top at 3824.50.

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

Biden’s Stimulus Plan Fails To Push Stocks Higher

Traders Take Some Profits Off The Table At The Start Of The Earnings Season

S&P 500 futures are moving lower in premarket trading as traders take some profits off the table after Biden’s stimulus plan announcement.

Yesterday, U.S. President-elect Joe Biden unveiled a new stimulus plan worth $1.9 trillion which included $1,400 stimulus checks. Early reports suggested that the plan would be worth $1.5 trillion – $2 trillion so Biden’s proposal was in line with traders’ expectations.

Meanwhile, Fed Chair Jerome Powell stated that it was not the time to talk about changing the pace of monthly bond purchasing, refuting rumors about potential cuts to the current asset purchase program.

While the additional stimulus package and the continued bond purchases should be supportive for stocks in the longer run, traders have decided to take some chips off the table at the beginning of the earnings season.

Big Banks Report Earnings

Citigroup, JPMorgan Chase and Wells Fargo have provided their quarterly reports today ahead of the market open, marking the beginning of the earnings season.

All three banks easily beat analyst estimates on earnings as they released some of the reserves they built to deal with the consequences of the coronavirus pandemic. Stimulus programs provided support to banks’ customers which allowed banks to enjoy stronger results.

Interestingly, the market is not satisfied with the reports, and banks’ stocks are losing ground in premarket trading. Financials enjoyed a very strong rally in recent months so traders may be using better-than-expected reports as an opportunity to take profits.

Retail Sales Declined By 0.7% In December

The U.S. has just reported that Retail Sales decreased by 0.7% month-over-month in December while analysts believed that they would remain unchanged compared to November levels. On a year-over-year basis, Retail Sales increased by 2.9%.

The slowdown in Retail Sales is due to the negative impact of the second wave of the virus. However, Retail Sales may soon get a boost when additional stimulus checks are delivered.

Later today, the U.S. will provide Industrial Production and Manufacturing Production reports for December. Industrial Production is expected to grow by 0.5% month-over-month while Manufacturing Production is also projected to increase by 0.5%.

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

Delta Airlines Posts Full-Year Loss for First Time Since 2009 But CEO Bastian Eyes Recovery in 2021

Delta Airlines, one of the major players in the United States aviation industry, reported a loss for the fourth consecutive time in the December quarter and a full-year 2020 loss for the first time in 11 years as COVID-19 travel restrictions significantly dented air travel demand but CEO Ed Bastian said he expects 2021 to be the year of recovery.

The Airline company which provides scheduled air transportation for passengers and cargo reported a quarterly adjusted loss of $2.53​​ per share, worse than the Wall Street consensus estimate of $2.47​​ per share loss.

“The current operating environment will remain incredibly challenging as demand fluctuates with COVID-19 headlines & vaccine rollout. The work Delta has done on costs should provide leverage once demand improves. Delta is bullish on a second-half recovery, and there are certainly encouraging signs, but we are cautious near-term as vaccine distribution has been disappointing,” noted Helane Becker, equity analyst at Cowen and Company.

“We are reiterating our Market Perform rating on the common shares of Delta Air Lines. We are maintaining our $44 price target, which is based on 10x 2022E EPS. The air travel industry continues to be depressed by the ongoing coronavirus pandemic and related restrictions.”

The Atlanta-based airline said its revenue slumped 65.3% to $3.97 billion from a year ago​, worse than the market expectations of $3.59 billion. The company reported December quarter 2020 GAAP pre-tax loss of $1.1 billion and loss per share of $1.19 on total revenue of $4.0 billion.

For full-year 2020, the company reported GAAP pre-tax loss of $15.6 billion and loss per share of $19.49 on total revenue of $17.1 billion. Full-year 2020 adjusted pre-tax loss of $9.0 billion and adjusted loss per share of $10.76 on adjusted operating revenue of $15.9 billion.

“While our challenges continue in 2021, I am optimistic this will be a year of recovery and a turning point that results in an even stronger Delta returning to revenue growth, profitability and free cash generation,” said Ed Bastian, Delta’s chief executive officer.

Following this optimism, Delta Airlines shares closed 2.5% higher at $41.47 on Thursday. However, the stock fell more than 30% in 2020.

“Despite the pandemic, we continue to see clear reasons to expect a resounding recovery post-vaccine in both leisure and business travel. We are maintaining our $43 per share fair value estimate for Delta,” said Burkett Huey, equity analyst at Morningstar.

Delta Airlines Stock Price Forecast

Eleven analysts who offered stock ratings for Delta Airlines in the last three months forecast the average price in 12 months at $46.33 with a high forecast of $54.00 and a low forecast of $40.00.

The average price target represents an 11.72% increase from the last price of $41.47. From those 11 analysts, three rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $55 with a high of $86 under a bull scenario and $29 under the worst-case scenario. The firm currently has an “Overweight” rating on the airlines’ stock.

Several other analysts have also recently commented on the stock. JP Morgan lowered the target price to $49 from $51. Cowen and company cut to market perform from outperform; raises target price to $44 from $36. BofA Global Research raised the price objective to $42 from $38.

In addition, Credit Suisse upped the target price to $47 from $38. UBS raised the target price to $47 from $32. Citigroup upped price objective to $48 from $38. Jefferies initiates with a hold rating and a price target of $40.

Analyst Comments

“4Q results were an expected tough end to a historically bad year for the industry, but a decent 1Q guide and bullish commentary on the call about the potential for a traffic rebound, particularly in corporate, reinforce our bullish view on the Airline space and our OW on Delta Airlines (DAL) as our top Legacy pick,” said Ravi Shanker, equity analyst at Morgan Stanley.

“DAL has some of the strongest customer satisfaction numbers among the other Legacy peers, while also commanding a higher PRASM, making it our preferred Legacy carrier. With ample liquidity, we see limited liquidity risk here. Additionally, we continue to see Delta Airlines’ (DAL) international alliances and partnerships as strategic assets, despite recent writedowns.”

Upside and Downside Risks

Risks to Upside: 1) COVID-19 Vaccine timing. 2) Business Travel Recovery. 3) Industry Rationalization & Fare Stability – highlighted by Morgan Stanley.

Risks to Downside: 1) COVID-19 Second Wave. 2) Slower International Travel Rebound. 3) DAL has a significant underfunded pension liability at 78% funded status.

Check out FX Empire’s earnings calendar

US Stock Futures Edge Lower as Biden Unveils Stimulus Plan; Major Banks Set to Kickoff Earnings Season

The major U.S. stock index futures are edging lower in the pre-market session on Friday as investors digested the details of President-elect Joe Biden’s $1.9 trillion stimulus plan revealed Thursday evening local time.

In the early trade, futures tied to the benchmark S&P 500 Index were down 21.75 points. Futures associated with the blue chip Dow Jones Industrial Average were off by nearly 200 points and futures connected with the tech-driven NASDAQ Composite Index traded lower by about 45 points.

Biden’s American Rescue Plan

A quick recap of President-elect Joe Biden’s American Rescue Plan, includes increasing the additional federal unemployment payments to $400 per week and extending them through September, direct payments to many Americans of $1,400, and extending federal moratoriums on evictions and foreclosures through September.

The plan also calls for $350 billion in aid to state and local governments, $70 billion for COVID testing and vaccination programs and raising the federal minimum wage to $15 per hour.

Earnings Season Begins

On Friday, investors will get fresh looks at major banks as Wells Fargo, Citigroup and JPMorgan Chase report their fourth quarter earnings.

JPMorgan kicks off fourth-quarter earnings season for big banks on Friday at about 12:00 GMT, followed by releases from Wells Fargo and Citigroup.

Earnings expectations for the fourth quarter have been on the rise, thanks to climbing interest rates and expectations for solid trading and investment banking results.

The biggest U.S. banks (with the exception of Wells Fargo) all saw per-share earnings estimates jump by at least 8% in the past month, according to Barclays analysts Jason Goldberg.

Thursday US Stock Market Recap

Wall Street closed lower on Thursday after turning down late in the session as reports emerged about U.S. President-elect Joe Biden’s pandemic aid proposal following earlier data that showed a weakening labor market.

Of the 11 major S&P sectors, only four closed higher with economically-sensitive energy, up 3%, showing the biggest percentage gains as oil prices rose. The biggest percentage decliner on the day was the information technology sector.

The domestically-focused small-cap Russell 2000 Index closed up 2%, while the Dow Jones Transports Index ended up 1% after both sectors, which are seen as big beneficiaries of stimulus, scaled all-time highs during the day.

Helping the transport index was a 2.5% rise in shares of Delta Air Lines after Chief Executive Ed Bastian forecast 2021 to be “the year of recovery” after the coronavirus pandemic prompted its first annual loss in 11 years.

The S&P 1500 Airlines Index closed up 3.4%.

The Philadelphia Semiconductor Index also hit a record high with a big boost from Taiwan Semiconductor Manufacturing Co Ltd. The chip manufacturer’s U.S. shares closed up 5% after it announced its best-even quarterly profit and raised revenue and capital spending estimates.

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

U.S. Stock Market Overview – Stocks Consolidate Ahead of Biden Speach

U.S. stocks moved lower on Thursday. Sectors in the S&P 500 index were mixed, led by gains in Energy, the interest-rate sensitive utility sector underperformed. Rates moved higher and the dollar was flat along with gold. President-elect Joe Biden is expected to unveil details on his proposed spending package to support the U.S. economy. Many investors are counting on additional stimulus to help make ends meet, given the pandemic’s damaging impact. Unemployment claims an unexpected rose. Blackrock delivered better than expected financial results, ahead of Friday’s bank earning release deluge. Jerome Powell was on the tape today, saying he won’t raise rates to combat higher grain and energy prices.

Unemployment Claims Unexpected Rose

According to the Labor Department, U.S. jobless claims rose by 181,000 to 965,000 last week. That was the most significant weekly increase since March 2020 and put initial jobless claims at their highest level since mid-August. It also put weekly claims well above the roughly 800,000 a week they have averaged in recent months. Additionally, continuing claims rose to nearly 5.3 million for the week ended January 2, from 5.1 million a week earlier. That marked the first weekly increase since November.

Blackrock Delivers on Top and Bottom Line

BlackRock’s financial results showed profits rose 19% as investors turned to the money-management giant’s funds through election uncertainty. The investment company posted Q4 profit of $1.5 billion, or $10.02 a share, up from $1.3 billion, or $8.29 a share, a year earlier. BlackRock’s revenue rose 13% to about $4.5 billion in Q4.

Powell Takes Dovish Tone

Federal Reserve Chairman Jerome Powell affirmed his commitment to keeping interest rates low. Powell said the Fed is nowhere near a point where they could consider raising interest rates. During the discussion, Powell spoke about how the Fed handled the challenges brought on by the Covid-19 pandemic.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Trader Reaction to 3792.75 Sets the Tone into Close

March E-mini S&P 500 Index futures are trading nearly flat late Thursday as investors’ hopes for fresh fiscal stimulus ahead of President-elect Joe Biden’s pandemic aid proposal were countered by weakening labor market conditions.

The benchmark index was supported throughout the session as investors counted on Biden unveiling on Thursday evening a stimulus plan that could exceed $1.5 trillion. Helping to cap gains was the Labor Department’s weekly jobless report, which showed the number of Americans filing first-time claims for unemployment benefits increased more than expected last week, underscoring the impact of a resurgence in COVID-19 infections.

At 20:16 GMT, March E-mini S&P 500 Index futures are trading 3797.50, down 6.25 or -0.16%.

Daily March E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 3817.75 will signal a resumption of the uptrend. The main trend will change to down on a move through 3596.00.

The minor trend is also up. The minor trend will change to down on a move through 3768.00. This will shift momentum to the downside.

The minor range is 3817.75 to 3768.00. The index has straddled its pivot at 3792.75 the last two sessions.

The second minor range is 3652.50 to 3817.75. Its 50% level at 3735.00 is another potential support level. A third 50% support level comes in at 3706.75. The final minor support level is 3657.50. This is a potential trigger point for an acceleration to the downside.

Short-Term Outlook

The direction of the March E-mini S&P 500 Index into the close is likely to be determined by trader reaction to 3792.75.

Bullish Scenario

A sustained move over 3793.00 will signal the presence of buyers. This could trigger a move into 3817.75. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 3792.75 will indicate the presence of sellers. This could trigger a break into 3768.00. Taking out this level will shift momentum to the downside with 3735.00 the next likely target.

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

S&P 500 Price Forecast – Stock Markets Continue Ready to Go Higher

The S&P 500 has gone back and forth during the course of the trading session on Thursday but at this point we might be a little overextended. If we can break to a fresh, new high, the market is likely to continue to reach towards the 4000 target which is my longer-term goal, based upon the previous consolidation area underneath between the 3200 level on the bottom and the 3600 level on the top. The 400 point region extrapolates to a move towards the 4000 handle, which is a large, round, psychologically significant figure.

S&P 500 Video 15.01.21

To the downside, I believe that the previous uptrend line that I have marked on the chart as well as the 50 day EMA both could offer a bit of a “floor the market”, and therefore I think that a lot of people will be looking to get involved if that happens. Nonetheless, I do not even think we get down there. That is essentially my “value play” if we get that opportunity. Yields in the United States have been rising so that is cause a little bit of a drag in this market, but ultimately, I think that the promise of massive amounts of stimulus will continue to push this thing higher.

After all, over the last 13 years has been about stimulus, and that is exactly what they will be getting on Wall Street. The market currently does not even look like something that I could short, and quite frankly do not even have a scenario where I would be comfortable doing so. If we do break down, I simply will look to buy it at lower levels.

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

Asset Manager BlackRock’s Earnings Beat Wall Street Estimates; Target Price $890

The world’s largest asset manager BlackRock reported better-than-expected earnings in the fourth quarter with 11% increase in full-year revenue reflecting strong organic growth, record performance fees and 17% growth in technology services revenue.

The New York-based multinational investment management corporation reported net income of $10.18 per share, beating the Wall Street estimate of $9.17.

“The EPS beat reflected a combination of better than expected revenues across most segments (led by perf fees), as well as several favourable below the line items. Adj op income came in +$92M vs our est. Long-term flows of +$116.2B were in line with our estimate with solid contributions from most active segments. The base fee rate declined 0.15 bps q/q, mostly due to lower sec lending and MM fee waivers,” said Daniel T. Fannon, equity analyst at Jefferies.

“This is the second quarter in a row of solid revenues, with a record annualized base fee growth of +13% in the period. The trends inflows remain broad-based and dominated by strength across the active segments as well as in iShares. The biggest positive on the quarter is the continued positive contribution from Active Equity and Active Fixed Income flows.”

However, upbeat earnings did not help BlackRock’s shares, which traded 3% lower at $756.04 on Thursday. The stock rose more than 40% in 2020.

BlackRock Stock Price Forecast

Six analysts who offered stock ratings for BlackRock in the last three months forecast the average price in 12 months at $791.33 with a high forecast of $890.00 and a low forecast of $602.00.

The average price target represents a 4.12% increase from the last price of $760.00. From those six analysts, five rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $890 with a high of $1,338 under a bull scenario and $413 under the worst-case scenario. The firm currently has an “Overweight” rating on the investment manager’s stock.

Several other analysts have also recently commented on the stock. ValuEngine lowered shares of BlackRock from a hold rating to a sell rating. BMO Capital Markets upped their price objective to $602 from $594 and gave the company a market perform rating. Deutsche Bank upped their price objective to $802 from $795 and gave the company a buy rating.

In addition, Wells Fargo & Company upped their price objective to $805 from $700 and gave the company an overweight rating. At last, Citigroup upped their price objective to $800 from $690 and gave the company a buy rating.

Analyst Comments

“We believe BlackRock (BLK) is best positioned on the asset mgmt barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive 14% EPS CAGR (2020-22e) via 5% avg LT organic growth & continued op margin expansion,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. We expect the premium to widen as BLK takes share in the midst of market dislocation and executes on improving organic revenue growth trajectory.”

Upside and Downside Risks

Risks to Upside: 1) Growth in highly scalable iShares franchise driving margin expansion and strong EPS growth. 2) Further growth in tech & high fee products such as alts, active equities, and multi-asset – highlighted by Morgan Stanley.

Risks to Downside: 1) Market share loss in ETFs; lack of positive op leverage in declining markets. 2) Worse than expected base fee pressure through pricing initiatives or mix shift. 3) Greater regulatory scrutiny; liquidity challenges in products.

Other major banks will report their quarterly earnings on Friday.

Check out FX Empire’s earnings calendar

Stocks Move Higher As Traders Focus On Biden’s Stimulus Plan

President-Elect Joe Biden Will Present His Stimulus Plan On Thursday

S&P 500 futures are gaining ground in premarket trading as traders wait for details of the new stimulus plan which is expected to be presented today.

Recent reports suggested that Joe Biden would present a stimulus plan worth $1.5 trillion – $2 trillion which would include $1,400 stimulus checks. Additional stimulus is bullish for stocks. If markets are encouraged by the new stimulus package, stocks will move to new highs.

Interestingly, expectations of more stimulus have not put any pressure on the U.S. dollar which continues to rebound against a broad basket of currencies. The stronger dollar may serve as an additional bearish catalyst for gold and silver which are already suffering from decreasing demand for safe-haven assets.

U.S. President Donald Trump Is Impeached For A Second Time But Markets Ignore It

Yesterday, U.S. House of Representatives impeached Donald Trump for a second time. Meanwhile, Senate Majority Leader Mitch McConnell stated that the Senate would not have an opportunity to vote on the issue before Trump leaves office.

Markets have remained very calm despite recent historic developments. Most likely, traders will focus on whether impeachment fight will interfere with the  vote on the new stimulus package.

President-elect Joe Biden has already stated that he expected that the impeachment process would not hurt urgent priorities. If the impeachment drama does not delay the new stimulus, markets will likely continue to ignore all developments on this front regardless of the ultimate outcome of the story.

Initial Jobless Claims Jump To 965,000

The U.S. has just provided Initial Jobless Claims and Continuing Jobless Claims reports. The Initial Jobless Claims report indicated that 965,000 Americans filed for unemployment benefits in a week compared to analyst consensus of 795,000.

Meanwhile, Continuing Jobless Claims increased from 5.07 million to 5.27 million compared to analyst consensus of 5.06 million.

The Initial Jobless Claims report was much worse than expected and highlighted the need for additional stimulus.

It remains to be seen whether the disappointing Initial Jobless Claims report will put any pressure on stocks as traders will likely remain focused on Biden’s stimulus plan.

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

Nordstrom Shares Slump About 3% on Disappointing Holiday Season Sales

Seattle-based luxury department store chain Nordstrom said net sales declined nearly 22% in the nine-week holiday season as shoppers avoided department stores due a fresh spike in COVID-19 cases, sending its shares down about 3% in extended trading on Wednesday.

However, digital sales surge 23% over last year and represented 54% of total sales compared with 34% from the same period in fiscal 2019. The specialty retailer forecasts to deliver positive earnings before interest and taxes (EBIT) and operating cash flow for the fourth quarter.

“We expect the consensus 2020 EPS estimate to fall about 9% on today’s release (about -32c lost on the full year as the 46c Street 4Q estimate likely falls to about 14c as implied by y/y EBIT margin contraction). On the positive side, holiday-related headwinds that impacted the quarter likely abate going forward,” wrote Kimberly Greenberger, equity analyst at Morgan Stanley.

“We slightly lower our 4Qe EBIT margin estimate to be in-line with management’s -500 bps y/y forecast. More specifically, we marginally lower both 4Q gross margin and SG&A rate by 15 bps each due to the aforementioned headwinds, yielding -500 bps y/y EBIT margin (2.3% vs. 2.6% prior).”

Following this announcement, Nordstrom shares fell about 3% to $36.5 in extended trading on Wednesday; the stock plunged over 20% in 2020.

Nordstrom will hold an analyst event on Feb. 4 and report its full earnings on March 2. We expect to update our model and analysis after these events, although we do not anticipate any significant changes to our long-term view or valuation. The firm is likely to report an EPS loss of more than $4.00 for 2020, but we forecast positive EPS in 2021 (our current expectation is $1.57),” said David Swartz, equity analyst at Morningstar.

“In the long term, we forecast revenue growth and operating margins of about 2% and 5%, respectively. We view Nordstrom as fully valued as its shares trade at a slight premium to our per share fair value estimate of $33.50.”

Nordstrom Stock Price Forecast

Eleven analysts who offered stock ratings for Nordstrom (JWN) in the last three months forecast the average price in 12 months at $24.00 with a high forecast of $35.00 and a low forecast of $11.00. The average price target represents a -36.14% decrease from the last price of $37.58. From those 11 analysts, two rated “Buy”, seven rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $19 with a high of $35 under a bull scenario and $10 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the specialty retailer’s stock.

Several other analysts have also recently commented on the stock. Credit Suisse raised the target price to $39 from $26. Keybanc upped the price objective to $42 from $35. Wedbush increased the stock price forecast to $35 from $17. In November, Nordstrom had its target price lifted by Telsey Advisory Group to $28 from $24. Zacks Investment Research upgraded Nordstrom from a sell rating to a hold rating and set a $17 price target.

Analyst Comments

“Secular Challenges Eclipse Nordstrom’s (JWN) Strengths: JWN’s standout service, competitive pricing, coveted product, and seamless multichannel shopping experience differentiate JWN from department store peers and should stay relevant L-T, especially as high-end consumers kick start spending again,” Morgan Stanley’s Greenberger added.

“However, department store margins appear in secular decline, largely driven by channel shift to lower margin eCommerce sales, and JWN is not immune. Although we think JWN can remain highly relevant, its future earnings growth rate appears limited.”

Upside and Downside Risks

Risks to Upside: 1) Strength at the high end causes a meaningful rebound in-store comps and eComm. 2) EBIT margins stabilize after multi-year declines. 3) Capital spending on IT/Tech decelerates, potentially allowing JWN to drive expense leverage on a 1-2% comp. 4) Rack.com proves resilient– highlighted by Morgan Stanley.

Risks to Downside: 1) 2020 COVID-19/recession impact more severe than anticipated. 2) CECL has a greater impact than forecasted to credit revenue.

Check out FX Empire’s earnings calendar

Strong Performances in Utilities, Real Estate Sectors Lift Benchmark S&P 500 Index

The major U.S. stock indexes finished mixed on Wednesday as investors seemed to be distracted by the impeachment hearings in Congress ahead of Thursday’s speech by Federal Reserve Chairman Jerome Powell and the start of earnings season on Friday. Investors are also anticipating a speech by President-elect Joe Biden on Thursday night where he is expected to announce his COVID-19 economic relief plan.

In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3809.84, up 8.65 or +0.26%, the blue chip Dow Jones Industrial Average finished at 31060.47, up 8.22 or +0.03% and the tech-based NASDAQ Composite closed at 13128.95, up 56.52 or +0.51%.

Sectors in Focus

Seven of the 11 major S&P sectors gained ground. The S&P growth index, climbed 0.5% to outperform the value index, which fell 0.05%.

Utilities rose 1.9% and real estate advanced 1.4%, leading the percentage gains, while the biggest losers were the more economically sensitive sectors such as materials and industrials, which fell about 1%.

Stocks on the Move

Intel Corp was the biggest percentage gainer in the S&P, advancing 7% after the chipmaker said it would replace its Chief Executive Officer Bob Swan with VMware Inc CEO Pat Gelsinger next month. Shares of VMware fell 6.8% after the Intel news.

Regeneron Pharmaceuticals Inc’s shares climbed 1.2% after the U.S. government said it would buy 1.25 million additional doses of its COVID-19 antibody cocktail for about $2.63 billion.

Earnings Move to the Forefront

Earnings reports from big U.S. banks including JPMorgan and Citigroup were also on investors’ minds as they will mark the unofficial start to the fourth-quarter earnings season on Friday.

Earnings for S&P 500 companies are expected to have dropped 9.8% year-over-year in the final quarter of 2020, according to IBES data from Refinitiv, but they are expected to rebound in 2021, with a gain of 16.4% projected for the first quarter.

US Economic Reports

U.S. consumer prices increased in December, with households paying more for gasoline, though underlying inflation remained tame as the economy battled a raging COVID-19 pandemic, which has weighed on the labor market and the services industry.

U.S. economic activity increased modestly in recent weeks and a growing number of the Federal Reserve’s districts saw a drop in employment as a surge in coronavirus cases led to more shutdowns of businesses, the U.S. central bank’s Beige Book showed on Wednesday.

“Although the prospect of COVID-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions,” the Fed noted in the report.

The report was the first since last May to report outright declines in activity in some of the Fed’s districts.

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