Daily Markets: Better-Than-Feared December Earnings and January Data Lifts Equities

Today’s Big Picture

Equities in Asia finished today’s trading mostly higher led by the 1.0% and 1.1% climbs in Japan’s Nikkei and South Korea’s Kospi, while Hong Kong’s Hang Seng inched 0.2% ahead and China’s Shanghai Composite slipped 0.5% on the day. By mid-day trading, equities in Europe were positive across the board and U.S. futures point to a positive market open later this morning.

Better-than-expected December quarter results and upbeat guidance at Alphabet (GOOGL), Amazon (AMZN), and others, are keeping investors in a positive mood as the December quarter earnings palooza continues today. In addition to that frenetic activity, investors are digesting reported January Services PMI data that so far was better than expected - see today’s Data Download for more.

Investors will continue to monitor the progress of President Biden’s fiscal stimulus plan in Congress. And break out your calendars because you don’t want to miss this: U.S. Treasury Secretary Janet Yellen is calling a meeting of the Securities and Exchange Commission, the Federal Reserve, the Federal Reserve Bank of New York, and the Commodity Futures Trading Commission to reportedly discuss market volatility driven by retail trading in shares of GameStop (GME), silver, and other stocks favored on social media.

Data Download

International Economy

Italy’s government will be getting a new leader and it could be Mario Draghi, the former head of the European Central Bank. He has been asked to try and form a new government with Italy’s President Mattarella inviting him to join him for what we are sure will be a casual chat. It is currently unclear if Mr. Draghi would be able to form such a coalition or if he even wants to try after the breakup of the coalition that had put Mr. Conte, a little-known law professor, at the head of the world’s eighth-largest economy. EU leadership will be keeping a close eye as the events unfold given the sorry state of Italy’s economy and its finances. Its economy contracted almost 9% in 2020, one of the hardest hit in the Eurozone and it has the fourth highest debt-to-GDP ratio in the world, behind Japan, Lebanon, and Yemen.

While according to the Congressional Budget Office, the U.S. economy is expected to return to pre-pandemic levels by mid-2021 (we suspect it’ll take a bit longer), the European Union continues to fall behind. The EU’s GDP contracted 0.7% in Q4, putting 2020’s GDP at a 6.8% annual decline versus 3.5% for the U.S. China’s economy grew 2.3% in 2020. A far slower-than-expected rollout of the vaccines and fears over a new variant threatens to further strain economic growth.

Today brings an onslaught of final Service PMIs for January:

• Australia came in at 55.6 versus the prior estimate of 55.8, after reaching 57.0 in December, its peak since July 2020.
• Spain came in at 41.7 a sharp drop from 48.0 in December and well below the expected fall to 45.3.
• Italy registered 44.7 vs. December’s 39.7 from which it was expected to drop to 39.5.
• France fell to 47.3 from 49.1 but was better than the expected drop to 46.5.
• Germany slipped to 46.7 in January from 47.0, a modest miss vs. the expected drop to 46.8.
• The Eurozone overall fell to 45.4 from 46.4 vs the expected to drop to 45.0.
• The UK dropped to 39.5 from 49.4 from which it was expected to plummet to 38.8 in the post-Brexit world.

We also received some flash inflation numbers for January:

• Italy’s inflation rate registered 0.2% YoY from the prior -0.2% from which it was expected to rise to -0.1%.
• Eurozone inflation rate hit 0.9% YoY from -0.3% in December, a bit hotter than the expected 0.5%.

Domestic Economy

Later today we will get the ADP Employment Change report for January, which serves as a preview of this Friday’s jobs report from the Bureau of Labor statistics. The day will also bring January data for the Markit Service PMI and ISM Non-Manufacturing PMI as well as the usual weekly EIA energy stocks report.

Markets

The major equity indices rallied yesterday, with the Nasdaq Composite and the Dow adding 1.6%, the S&P 500 1.4%, and the Russell 2000 1.2%. All eleven of the S&P 500 sectors closed in the green, just as they did the day before, after having all dropped on Friday with four stocks rising for every one that fell. The short squeeze rocket ship reversed course yesterday, with GameStop falling 60% (its biggest-ever one-date decline) after yesterday’s decline of over 30%, Koss Corp (KOSS) dropped 42.1%, AMC Entertainment (AMC) lost over 40%, and Bed Bath and Beyond (BBBY) dropped 16.1%. Silver futures dropped 10% and the iShares Silver Trust (SLV) fell 7.5%.

Stocks to Watch

Capri Holdings (CPRI) reported December quarter earnings of $1.65 per share, $0.62 better than the $1.03 consensus even though revenues for the quarter fell 17.1% YoY to $1.3 billion, a tad below the $1.34 billion consensus. E-commerce sales improved sequentially, increasing 65% YoY, and the company reported positive retail sales in Asia across all luxury houses, led by double-digit growth in Mainland China. Capri also called out double-digit global retail sales growth at Versace (yes, we know, we know). The company did not provide annual guidance for its 2021 citing the lack of visibility surrounding the progression of the pandemic, macroeconomic fundamentals, and tourism flows.

Check Point Software (CHKP) reported December quarter EPS of $2.17 per share, $0.25 better than the consensus as revenue for the quarter rose 3.7% YoY to $563.8 million, besting the $556 million consensus. Exiting 2020, deferred revenue was $1,482 million, up 7% YoY.

December quarter results at Spotify (SPOT) were mixed relative to expectations with EPS of -€0.66 that as missed the consensus by €0.11 while revenue for the quarter rose 16.7% YoY to €2.17 billion, modestly ahead of the consensus forecast. Total monthly active users (MAUs) during the quarter rose to 345 million, besting the 343.8 million consensus and the company's own guidance of 340-345 million. Premium Subscribers grew 24% YoY to 155 million in the quarter. For the current quarter, the company sees total MAUs in the range of 354-364 million, total premiums subscribers of 155-158 million, and total revenue in the range of €1.99-€2.19 billion.

Amazon smashed December quarter consensus expectations with EPS of $14.09, revenue of $125.56 billion, up 43.6% YoY, operating income that rose 77% YoY to $6.87 billion, well ahead of the company’s guidance for $1.0-$4.5 billion. Tucked inside those results are~ $4 billion in COVID-related operating costs, which brought its 2020 tally to more than $11.5 billion. Amazon issued upside guidance for the current quarter with revenue of $100-$106 billion vs. the $95.5 billion consensus and operating income of $3.0-$6.5 billion vs the $5.68 billion consensus. The company also announced that Chairman and CEO Jeff Bezos will transition out of the CEO role during the September 2021 quarter, with Andy Jassy replacing him.

December quarter EPS at Chipotle Mexican Grill (CMG) came in below consensus expectations despite reporting in-line revenue for the quarter. Comparable sales for the quarter were up 5.7% YoY, a modest miss relative to the expected 5.9% consensus. Digital sales grew 177.2% YoY and accounted for 49.0% of total sales for the quarter. No formal guidance was issued by the company, but it did share it expects ~200 new restaurant openings this year. Concerning the current quarter, the company shared its January comps accelerated to ~11%, despite very difficult comparisons, and expects higher marketing spend in the quarter to support new product rollouts and its first-ever Super Bowl ad.

Electronic Arts (EA) missed December quarter expectations and guided 2021 EPS well below consensus forecasts. For its 2021, the company sees EPS $2.54 vs. the $3.49 consensus with revenue of $6.075 billion vs. the $5.98 billion consensus. For the current quarter, the company guided net bookings of ~$1.375 billion vs. the consensus for $1.32 billion, and loss per share of about $0.07, including a $0.52 per share impact from a tax accounting charge - well below expectations of $0.68.

Alphabet reported December quarter EPS of $22.30, significantly ahead of the $15.98 consensus as revenue for the quarter rose 23.5% YoY to $56.9 billion vs the $52.86 billion consensus. By business, Google Services revenue of rose 22% YoY to $52.9 billion; YouTube ad revenue jumped 47% YoY to $6.9 billion; Google Cloud revenue was $3.8 billion, up 46% YoY; and Other bets revenue for the quarter was $196 million.

Digital marketing and webinar company ON24 (ONTF) priced its IPO of ~8.86M common shares at $50 per share and trading begins later today. According to Global Market Insights, the global market for video conferencing is expected to exceed $50 billion by 2026.

Tesla (TSLA) is recalling around 135,000 Model S sedans and Model X SUVs over touch-screen failures, one of the carmaker's largest-ever recalls.

Shares of Kia Motors Corp. (000270:KS) jumped as much as 14.5% following local media reports that Apple (AAPL) will invest 4 trillion won ($3.6 billion) as part of a collaboration on making electric vehicles.

After today’s market close, ANGI Homeservices (ANGI), eBay (EBAY), GrubHub (GRUB), KLA Corp. (KLAC), PayPal (PYPL), Qualcomm (QCOM), Yum China (YUMC), and dozens of other companies are expected to report its quarterly results. Investors looking to get a jump on that report and other such ones to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• February 4: Jobless claims, Nonfarm Productivity Q4, Factory Orders
• February 5: Nonfarm Payrolls, Balance of Trade
• February 8: Consumer Inflation Expectations
• February 9: JOLTs report, weekly Redbook report, WASDE Report, weekly API energy stocks
• February 10: MBA Mortgage Applications, Inflation rate, Wholesale Inventories, weekly EIA Energy stocks, monthly budget statement
• February 11: Weekly jobless claims
• February 12: Lunar New Year in China: Year of the Ox, Michigan Consumer Sentiment, weekly Baker Hughes Oil Rig count
• February 16: NY Empire State Manufacturing, weekly Redbook, Net Capital Flows
• February 17: Retail Sales, PPI, Industrial Production, Capacity Utilization, Manufacturing Production, Business Inventories, NAHB Housing Market Index, FOMC Minutes, weekly API Crude Stock
• February 18: Housing Starts, Building Permits, Philadelphia Fed Manufacturing, weekly Jobless Claims, Import and Export Prices, EIA energy stocks
• February 19: Markit Manufacturing and Service PMI (flash), Existing Home Sales, weekly Baker Hughes Oil Rig report
• February 22: Chicago Fed National Activity, Dallas Fed Manufacturing
• February 23: S&P/Case-Shiller Home Prices, CB Consumer Confidence, weekly API Crude Oil Stocks
• February 24: New Home Sales, weekly EIA Energy Stocks
• February 25: Durable Goods, Weekly Jobless Claims, Pending Home Sales
• February 26: Personal Income & Spending, Goods Trade Balance, Chicago PMI, Michigan Consumer Sentiment

Thought for the Day

“What other people think of you is never as important as what you think of yourself.” ~ Chelsea Handler

Disclosures

• Qorvo (QRVO), Qualcomm (QCOM) are constituents of the Tematica BITA Digital Infrastructure and Connectivity Index.
• Checkpoint Software (CHKP) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
• Qualcomm (QCOM) are constituents in Tematica Research's Thematic Dividend All-Stars Index.
• Chipotle Mexican Grill (CMG), Tesla (TSLA) are constituents of Tematica Research’s Cleaner Living Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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