Daily Markets: On Tap Today -- Apple, Tesla, Facebook to Release Earnings; Fed Chair Powell to Speak

Today’s Big Picture

Equities in Asia finished the day’s trading on a mixed note with gains in Japan’s Nikkei and China’s Shanghai Composite offset by declines in the Hong Kong Hang Seng and the 1.9% drop in India’s Sensex. By mid-day trading, equities in Europe were red across the board and U.S. futures pointed to equities giving back some of their year-to-date gains when those markets open later this morning.

The drivers of the last few days include the growing pace of corporate earnings, as well as President Biden issuing executive orders aimed at shoring up the U.S.’s pandemic response. These drivers will continue to influence markets today. This afternoon, investors will once again take out their decoder rings to parse the latest post-Federal Reserve FOMC meeting press release and comments from Fed Chair Powell. Following recent comments from Treasury Secretary Yellen to “go big” on stimulative efforts, Powell is likely to toe the line and signal the Fed will continue to backstop the economy. That said, given the stock market action of the last few days, and by that, we mean the arguable madness associated with GameStop (GME) and other shares thanks to what is reportedly a message board on Reddit, we suspect investors will be bracing to see if Powell addresses the froth in the market.

Data Download

International Economy

Australia’s inflation rate in Q4 2020 rose to 0.9% YoY from 0.7% in Q3, where it was expected to remain. The Royal Bank of Australia (the country’s central bank) weighted mean CPI rose unexpectedly to 1.4% YoY in Q4 from 1.3% in Q3 from which it was expected to decline to 1.2%.

Germany’s GfK Consumer Confidence for February fell to -15.6, well below the expected -7.9 reading and January’s -7.3 figure.

Consumer Confidence in France slipped to 92 in January from 95 from which it was expected to decline to 94. Unemployment claims in December edged up by 0.5k in December to 3.587 million, well above pre-pandemic levels, as new coronavirus-induced lockdown measures hit the labor market.

Domestic Economy

Yesterday’s Case-Shiller home price data was yet another strong print of 17% annualized home price appreciation on a national basis in November. For the first 11 months of 2020, home prices nationwide are up 9.4%.

Yesterday also brought the Consumer Confidence report for January which saw overall confidence rise from 87.1 to 89.3, beating expectations for an increase to just 89.0. That said, the overall level is still well below pre-Covid levels. Digging into the details, consumers look to be worried about holding onto their jobs, making it tough to feel terribly confident. Despite the wild moves in the stock market that has the CNN Money Fear & Greed Index in “Greed “territory, consumer optimism towards the market actually fell in January with just 34.8% reporting that they expect stock prices to increase.

The Manufacturing Activity Index from the Richmond Fed echoed the disappointing data from Monday’s reading out of Dallas, falling to 14 in January from 19, the lowest reading since July. All activity remained in expansion territory, albeit decelerating, and overall manufacturers were optimistic that conditions will improve in the coming months. Of the 17 sub-indices, 12 were lower month-over-month with some (raw materials inventories, finished goods inventories, equipment, and software expenditures) dropping into the bottom percentiles of historical readings.

Later today we will get Durable Goods Orders for December, the weekly MBA Mortgage Applications and EIA inventory data, and hear the latest from the Federal Reserve on its interest rate decisions as it exits its January FOMC meeting.

Markets

Equities closed mostly lower yesterday, with the S&P 500 erasing its earlier gains to close down 0.2%, the Nasdaq Composite and the Dow fell 0.1%, while the Russell 2000 lost 0.3%. The GameStop madness continued, with shares rising another 93% during normal trading hours and another 42% in after-hours, aided by a tweet from Tesla (TSLA) CEO Elon Musk, to put the share price up over 1,000% year-to-date. More than 1.4 million options traded hands yesterday, including over 200,000 contracts on the January 29th calls - expiring in just three days!

Taking a look at valuation, we are seeing some decidedly abnormal moves in the market with respect to the price to sales ratio. This ratio is calculated by dividing market cap by annual sales. Typically, a company with a lower price to sales ratio is more attractive than one that is more expensive. Not these days, as GameStop can attest. Lately, the higher the price to sales ratio, the higher the share-price return. The S&P 500 overall has a price to sales ratio of 2.89 which is around 75% higher than its average since 1995 and higher than it was in March 2000. The S&P 500 tech sector ratio has hit 7.03, with is more than double its average since 1995, but still slightly below its dotcom peak of 7.87.

Stocks to Watch

Investors will be digesting quarterly earnings and guidance from a number of companies this morning, including Boeing (BA), Corning (GLW), Norfolk Southern (NSC), and VF Corp. (VFC).

While Textron (TXT) reported better than expected top and bottom-line results for the December quarter, this industrial conglomerate issued mixed 2021 guidance. For the coming year, the company sees EPS of $2.70-2.90 vs. the $2.69 consensus with revenue of ~$12.5 billion vs. the $12.6 billion consensus.

December quarter revenue and EPS at AT&T (T) came in ahead of consensus expectations despite revenue for the quarter coming in 2.4% lower YoY. During the quarter, the company logged total phone net adds of 760,000. Total domestic HBO Max and HBO subscribers topped 41 million and nearly 61 million worldwide, and HBO Max activations hit 17.2 million exiting 2020.

United Micro (UMC) crushed December quarter EPS expectations, reporting $0.92 vs. the $0.51 consensus. Revenue for the quarter climbed 8.2% YoY to $45.3 billion, effectively matching the consensus forecast. For the current quarter, the company sees wafer shipments rising ~2% with ASPs up 2%-3% and its capacity utilization running at ~100%

Microsoft (MSFT) reported December quarter EPS of $2.03, well ahead of the $1.43 consensus as revenue for the quarter climbed 16.7% YoY to $43.08 billion, besting the $40.2 billion consensus. Productivity and Business Processes segment revenue rose 13% YoY to $13.4 billion; Office Commercial products and cloud services revenue increased 11%; LinkedIn revenue rose 23% YoY; Dynamics products and cloud services rose 21% YoY; Dynamics 365 revenue rose 39% YoY; Intelligent Cloud segment revenue rose 23% YoY; Server products and cloud services revenue increased 26% YoY. More Personal Computing segment revenue rose 14%; Windows OEM revenue rose 1% YoY; Windows Commercial products and cloud services revenue increased 10%; Xbox content and services revenue increased 40% YoY; Surface revenue increased 3%, and Search advertising revenue excluding traffic acquisition costs rose 2%.

We’d note management’s comment - “What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry ... Building their own digital capability is the new currency driving every organization's resilience and growth.”

Advanced Micro Devices (AMD) reported stronger than expected December quarter revenue and EPS and guided 2021 above consensus expectations. For the quarter, the company’s Computing and Graphics segment revenue was $1.96 billion, up 18% YoY while revenue at the Enterprise, Embedded, and Semi-Custom segment revenue rose 13% QoQ and 176% YoY driven by increased game console-related semi-custom revenue. For 2021, AMD sees revenue growth of 37% implying $13.4 billion vs. the $9.72 billion consensus.

Starbucks (SBUX) reported mixed December quarter results with EPS that topped the consensus forecast while revenue came in shy of expectations for the quarter. Global comparable-store sales fell 5% during the quarter, missing the -3.6% consensus estimate. The average ticket was up 17% but transaction growth was down 19% during the quarter. Starbucks expects 2021 revenue of $28.0-$29.0 billion vs. the $28.48 billion consensus with EPS of $2.70-$2.90 vs. the $2.82 consensus. 2021 guidance includes global comparable store sales growth of 18%-23% with Americas and U.S. comparable store sales growth of 17%-22% and International comparable store sales growth of 25%-30%.

F5 Networks (FFIV) reported better than expected December quarter EPS on revenue that matched expectations but guided revenue for the current quarter below the consensus forecast. The company sees EPS for the current quarter in the range of $2.32-2.44 vs. the $2.42 consensus on revenue of $625-645 million vs. the $621.4 million consensus.

Allstate (ALL) agreed to sell Allstate Life Insurance Company (ALIC) to entities managed by Blackstone (BX) for $2.8 billion.

Walgreens Boots Alliance (WBA) tapped Starbucks' chief operating officer to become its new chief executive officer.

Las Vegas Sands (LVS) named Robert Goldstein chairman and chief executive officer after he assumed the role as acting chairman and chief executive officer on January 7.

As consumers shift their spending online amid the COVID-19 pandemic, Walmart (WMT) shared it will add small robot-staffed warehouses to dozens of its stores to help fill orders for pickup and delivery.

Southwest Airlines (LUV) is offering another round of voluntary leave as staffing levels remain too high for a flight schedule hammered by the coronavirus pandemic.

Nu Skin Enterprises (NUS) announced the acquisition of 3i Solutions to create new products and improve the performance of its formulations in beauty and wellness by leveraging 3i's proprietary research and processes. 3i Solutions develops and manufactures ingredients for consumer markets through proprietary encapsulation technologies.

After today’s market close, Apple (AAPL), Facebook (FB), Hologic (HOLX), Lam Research (LRCX), Las Vegas Sands (LVS), Packaging Corp. (PKG), Tesla (TSLA), and others 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

• January 28: Retail Inventories, weekly Initial Jobless Claims, GDP, Leading Index, New Home Sales, Kansas City Fed Manufacturing
• January 29: Personal Income and Spending, Employment Cost Index, PCE Deflator, Chicago PMI, Pending Home Sales, University of Michigan Consumer Sentiment
• 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

“I’ve had a lot of worries in my life, most of which never happened.” ~ Mark Twain

Disclosures

• F5 Networks (FFIV) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
• AT&T (T), Nu Skin Enterprises (NUS), Microsoft (MSFT), Walgreens Boots Alliance (WBA), Walmart(WMT) are constituents of Tematica Research's Thematic Dividend All-Stars Index.
• Tesla (TSLA) is a constituent 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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