Daily Markets: GameStop (GME) Saga To Dominate Friday's Trading

Today’s Big Picture

Equities in Asia finished the week on a weak note with Japan’s Nikkei falling 1.9%, Hong Kong’s Hang Seng down 0.9%, and China’s Shanghai Composite slumping 0.6%. Raising eyebrows, the Chinese government shared it will not set a GDP growth target for 2021. For the week in full, all the major market indices for the region closed in the red. By mid-day trading today, equities in Europe were predominantly in the red and U.S. futures point to a lower open when those markets open later this morning.

In addition to the latest earnings, economic, and coronavirus news, U.S. futures and investor confidence are feeling the weight of expected hedge fund short-covering in the wake of Robinhood Markets reinstating trading for select stocks, such as GameStop (GME) it had restricted. Investors are also assessing the possibility that we could see some form of regulation to address the situation that sparked the week’s volatile move: Earlier this week the SEC shared it is monitoring the “volatility in the options and equities markets” and “working with our fellow regulators to assess the situation.” As we fade into the weekend, we expect the fate of Biden’s stimulus package will join the issues that will shape the start of trading next week.

Data Download

Coronavirus

In the U.S., hospital admissions fell on Thursday to 104,303, the lowest level since early December, which is great news. The not-so-great news is that there were also over 4,000 lives reported lost to Covid-19 yesterday with several states reporting record or near-record increases in deaths. On the really, really not-so-great news front, the U.S. Centers for Disease Control and Prevention announced yesterday that the first documented case of the South African variant of the coronavirus, referred to as B.1.3.5.1, was found in South Carolina.

International Economy

South Korean Industrial Production was much stronger than expected, rising 3.4% YoY in December, up from the prior 0.5%, and well above the expected 0.9%. Manufacturing Production rose 3.4% YoY, up from the prior 0.6% pace. Retail Sales fell 2.0% YoY in December, accelerating the downward slide from the prior -1.5% contraction.

In Japan, the unemployment rate remained at 2.9% in December versus expectations for an increase to 3.0%. CPI rose slightly to -0.5% from -1.3%. Industrial Production fell by -3.2% YoY, slightly up from the prior -3.9%. Consumer Confidence in Japan fell to 29.6 in January from 31.8.

Germany’s unemployment rate was 6% in January, unchanged compared with the prior month.

France saw its economy plummeted to -1.3% QoQ in Q4 from 18.5% in Q3, better than the expected contraction of 4%.

Spain’s GDP was 0.4% QoQ in Q4 from 16.4% growth in Q3, better than the expected drop to a contraction of 1.5%.

Domestic Economy

Yesterday’s weekly jobless claims report found initial claims improving for the second consecutive week, falling more than the expected decline to 875k at 847k from 914k. Good news, but initial claims are still 136k higher than the pandemic low of 711k recorded during the first week of November. Continuing claims also fell more than expected, dropping to 4.77 million versus consensus for 4.97 million which means that total continuing claims were below 5 million for the first time since March and have remained there for two consecutive weeks.

New home sales are slowing a bit, with December’s 842k SAAR around 13% below the September pace of almost 1 million SAAR, but sales are still up more than 15% YoY. Some good news for buyers with homes available for sale rising 5.2% over the last three months as owners are becoming more willing sellers. Month’s supply is moving up slightly to 4.3 in December from 3.6 in September but is still down 18.6% YoY. The median number of months a home is on the market was down to 3.3 in December from 4.5 in September and is up 3.8% YoY.

Yesterday the Kansas City Fed’s Manufacturing Index for January came in stronger than expected, rising to 17 from 14 compared to expectations for a decline to 13. That is a post-pandemic high and the highest level going back to July 2018. Expectations are also at the highest level since September 2018. Overall the report indicates a further acceleration in the growth of the region’s manufacturing sector.

Later today we will get the December Personal Income and Spending report, the 4Q 2020 reading of the Employment Cost Index, the December PCE Deflator, January Chicago PMI data, Pending Home Sales for December, and the final January reading of the University of Michigan Consumer Sentiment report.

Markets

The U.S. equity market overall rose nearly 1% yesterday despite the wild vacillation in the small-cap Russell 2000, which left that index down 0.1%. Both the S&P 500 and the Dow closed up 1%, the Nasdaq 100 up 0.7%, the Nasdaq Composite 0.5%, and the VIX fell 18.8%. Crude oil fell 1.2%, gold dropped 0.2%, and silver rose 4.5%. In the bond market, we are seeing some curve steepening with the yield on the long bond rising 3.5 basis points while the 2-year yield remained flat.

Many online brokerage firms such as Interactive Brokers (IBKR), E*Trade, and Robinhood halted trading of the stocks that have gone the most parabolic in the recent short squeeze insanity, a move that drew sharp criticism from users and politicians. Shares of BlackBerry (BB), GameStop (GME), and AMC Entertainment (AMC) all closed sharply lower, down more than 40%. Shares of Koss Corp (KOSS) were up nearly 200% early in pre-market trading but closed down nearly 30%, right around where Nokia (NOK) shares closed the day. After the market close last night, it was announced the House Financial Services Committee will also hold a hearing on short selling and online trading.

Stocks to Watch

December quarter results at Colgate Palmolive (CL) topped consensus expectations for both revenue and EPS. The company reported EPS of $0.77 vs. the $0.76 consensus with revenue for the quarter rising 7.7% YoY to $4.32 billion vs. the $4.15 billion consensus. Organic growth of 8.5% in the quarter was well above the 5.4% consensus. Colgate expects net sales to be up 4%-7% in 2021, including a low-single-digit benefit from foreign exchange. Organic sales are called to be up within the company’s long-term targeted range of 3%-5%.

Eli Lilly (LLY) reported December quarter EPS of $2.75 per share, $0.36 better than the $2.39 consensus; revenue for the quarter rose 21.7% YoY to $7.44 billion, besting the $7.27 billion consensus. The company sees 2021 EPS in the range of $7.75-8.40 vs. the $8.19 consensus, and revenue in the range of $26.5-28.0 billion vs $27.6 billion. That revenue guidance includes an estimated $1-$2 billion of revenue from COVID-19 therapies.

Caterpillar (CAT) reported mixed December quarter EPS with EPS of $2.12 that handily beat the $1.49 consensus but revenue for the quarter was $11.23 billion vs. the $11.24 consensus. The YoY decline in revenue was mostly due to lower sales volume driven by lower end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers decreased inventories more during the fourth quarter of 2020 than during the fourth quarter of 2019.

SAP SE (SAP) reported December quarter EPS of €1.69 per share, €0.13 better than the consensus of €1.56 even though revenue for the quarter fell 6.3% YoY to €7.54 billion, beating the €7.44 billion consensus. For 2021, SAP sees €9.1-€9.5 billion non-IFRS cloud revenue at constant currencies vs. €8.09 billion in 2020 and €23.3-€23.8 billion in non-IFRS cloud and software revenue at constant currencies vs. €23.23 billion in 2020.

December quarter results at Ericsson (ERIC) topped expectations for both the company’s top and bottom lines. Sales at the company’s Networks business grew organically by 20% in the quarter due to high activity levels in North America and North-East Asia, and also in Europe. Per the company, “We see more signs that countries and enterprises see 5G as a key access technology, with increasing deployment speed in Australia, the Middle East, North-East Asia, and the US. The pandemic has exposed the digital divide and rapid deployment of 5G is a fast way to bridge the divide.”

Skyworks (SWKS) crushed December quarter expectations boosted its outlook for the current quarter and announced a new $2 billion stock repurchase program. Mobile revenue was up 80% sequentially, driven by wide-spread content increases and the ramping of solutions at all major OEMs. Per the company, “Demand for always-on connectivity is accelerating and is moving into new areas like telemedicine, remote learning, store-to-door delivery, and touch-less commerce.” For the current quarter, the company sees revenue in the range of $1.125-$1.175 billion with EPS of $2.34 at the midpoint of its revenue guidance vs. the consensus forecast of $1.06 billion in revenue and EPS of $2.09.

Visa (V) reported better than expected December quarter revenue and EPS but did not provide forward guidance. Payment volume of $2.47 trillion matched the consensus forecast for the quarter, rising 5% YoY. Total cross-border volume fell 18% YoY and processed transactions rose 4% YoY. The company’s board authorized a new $8.0 billion share repurchase program, bringing total funds available for repurchase to over $11 billion.

InterDigital (IDCC) issued upside guidance for its December quarter revenue and now sees revenue in the range of $87-90 million vs. the $86.7 million consensus.

H&M (HMRZF), the world's second-biggest fashion retailer, is bracing for a loss in the first quarter of 2021 after full-year 2020 profits plummeted due to COVID-19. Restrictions, lockdowns, and store closures pushed local-currency sales down 23% in the December to Jan. 27 period, well below analyst expectations. - worse than expected by analysts. Currently, more than a third of H&M's ~5,000 stores worldwide are closed.

Novartis AG (NVS) signed an initial agreement to leverage its manufacturing capacity and capabilities to address the COVID-19 pandemic by supporting the production of the Pfizer (PFE)-BioNTech (BNTX) COVID-19 vaccine.

Toyota Motor (TM) overtook Volkswagen (VLKAY) in vehicle sales last year, regaining the top spot on the leader board for the first time in five years as the world's top-selling automaker.

Eaton (ETN) inked an agreement to acquire Tripp Lite for $1.65 billion. Tripp is a supplier of power quality products and connectivity solutions, including single-phase uninterruptible power supply systems, rack power distribution units, surge protectors, and enclosures for data centers, industrial, medical, and communications markets in the Americas.

After today’s market close, there are no expected quarterly earnings reports to be had. Investors looking to get a jump on the deluge of such reports to be had next week should visit Nasdaq’s earnings calendar page.

On the Horizon

• February 1: Markit Manufacturing PMI Final, Construction Spending, ISM Manufacturing, Total Vehicle Sales
• February 2: IBD/TIPP Economic Optimism, API Crude Oil Stocks
• February 3: ADP Employment Change, Markit Service PMI, ISM Non- Manufacturing PMI, EIA energy stocks
• 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

Thought for the Day

“Work hard, don’t quit, be appreciative, be grateful, be respectful, also never whine, never complain, and always keep a sense of humor.” ~ Michael Keaton

Disclosures

• Ericsson (ERIC), InterDigital (IDCC), Nokia (NOK), Skyworks (SWKS) are constituents of the Tematica BITA Digital Infrastructure and Connectivity Index.
• Colgate Palmolive (CL), Visa (V) are constituents in Tematica Research's Thematic Dividend All-Stars 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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