Daily Markets: Stocks Get a Boost From Stronger-Than-Expected Bank Earnings

Today’s Big Picture

The main focus for investors today will be on the barrage of bank earnings reports today, which so far have been much stronger than expected, as well as the slew of economic data releases, including retail sales, which will likely garner the most attention and should also be strong thanks to warmer weather, government stimulus and easing pandemic restrictions. We will also get data on manufacturing and industrial production, as well as the usual weekly jobless claims report.

Equity indices in Asia-Pacific were mixed today, with the gainers including Taiwan’s Taiex rising 1.3%, Australia’s ASX 200 adding 0.5%, and Japan’s Nikkei closing fractionally higher. The decliners included China’s Shanghai Composite and Hong Kong’s Hang Seng, which both fell 0.5% while the Shenzhen Component lost 0.4%.

By mid-day trading, equity indices in Europe were in positive territory across the board, and ahead of a bonanza of economic data to be released this morning, U.S. equity futures point to positive open as investors digest better than expected earnings and yesterday’s listing of Coinbase (COIN) shares.

Data Download

International Economy

South Korea’s central bank kept its base rate unchanged at a record low of 0.5%, as expected. Policymakers commented that GDP is expected to come in stronger in 2021 than the 3.0% forecast from February.

Today brought final inflation rate data out of Europe for March:

• Germany came in at 1.7%, as expected, from 1.3% in February.
• France came in as expected as well at 1.1% from 0.6%.
• Italy also matched expectations at 0.8% from 0.6%.

Domestic Economy

Yesterday the Federal Reserve released its Beige Book, which is a summary of qualitative conditions across its 13 districts. It reveals what looks like the strongest backdrop since late 2005, with a very strong level of positive commentary. Many Districts reported moderate price increases, and some said prices rose more robustly, although any inflation concerns weren't manifested in the Treasury market, which strengthened a bit in response. Also yesterday, Fed Chair Powell shared the Fed is likely to follow a similar game plan to the one it did exiting the financial crisis, namely, first tapering asset purchases after substantial progress on its goals has been reached, then holding its balance sheet constant for a while, and then finally, gradually raising interest rates.

The Census released the most recent new business applications, which saw those for Accommodations & Food Services at a record high, which makes sense given this has been the sector hardest hit by the pandemic and lockdowns. Transportation and Warehousing are also seeing exceptionally high openings, which is consistent with more commerce occurring online, which boosts the need for deliveries. On the other end of the spectrum, Retail and Wholesale openings continue to decline, as do new Manufacturing openings.

Yesterday’s mortgage applications for the week ended April 9 were down 3.7%, the sixth consecutive decline following last week’s 5.1% decline. The combination of rising rates, rising prices, and a tight supply of homes is putting a damper on home sales, and we expected to see March’s existing-home sales to be below February’s levels.

Today brings a cornucopia of domestic economic data including March Retail Sales, NY Empire State Manufacturing, Philadelphia Fed Manufacturing, weekly Jobless Claims, Industrial Production, Business Inventories, NAHB Housing Market Index, Net Capital and TIC flows as well as Foreign Bond Investment, just for fun.

Markets

The S&P 500 slipped 0.4% yesterday after starting the day slightly higher in record territory following favorable earnings reports from JPMorgan Chase (JPM), Goldman Sachs (GS), and Wells Fargo (WFC). The Dow Jones Industrial Average finished higher on the day while the Nasdaq Composite Index slumped 1.0%.

The 10-yr yield settled the session two basis points higher at 1.64% after trading slightly higher prior to the Beige Book's release.

Stocks to Watch

Yesterday was the first day of trading for Coinbase (COIN) through a direct listing on the Nasdaq. Nasdaq set a reference price of $225; shares opened just over $380 and traded up to $429, but then sold off sharply into the close, finishing the day at $328. It is now ranked as the seventh biggest new listing in the U.S. of all time. Investors in a few other related names had some weakness by comparison, with shares of Marathon Digital (MARA), MicroStrategy (MSTR), and Riot Blockchain (RIOT) falling 15.8%, 13.3%, and 15.4%, respectively, on the day. To put the Coinbase market cap in context, it is now just below that of Intercontinental Exchange (ICE) and above that of Nasdaq (NDAQ).

Bank of America (BAC) reported top and bottom-line results for its March quarter that bested consensus expectations. The company’s provision for credit losses decreased $6.6 billion to the benefit of $1.9 billion, reflecting a reserve release of $2.7 billion amid an improved macroeconomic outlook and balance declines. Loan and lease balances in business segments declined 7% to $887 billion, driven primarily by declines in commercial loans and lower card balances. Net interest income declined 16% to $10.2 billion, driven primarily by lower interest rates. The company also shared it has been authorized the repurchase up to $25 billion of common stock over time.

Revenue and EPS results at PepsiCo (PEP) beat consensus expectations for the March quarter as reported organic growth of 2.4% was more robust than the 1.7% consensus. Revenue for the quarter rose 6.8% YoY. For its 2021, the company continues to expect a mid-single-digit increase in organic revenue; a high-single-digit increase in core constant currency EPS; a core annual effective tax rate of ~21%; and total cash returns to shareholders of ~$5.9 billion. PepsiCo does not anticipate repurchasing any additional shares for the balance of 2021.

Taiwan Semiconductor (TSM) reported March quarter revenue and EPS and lifted its outlook for the current quarter. In the first quarter, shipments of 5-nanometer accounted for 14% of total wafer revenue; 7-nanometer accounted for 35%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 49% of total wafer revenue. For the current quarter, the company sees revenue of $12.9-13.2 billion vs. the $12.68 billion consensus.

Early this morning, Ford Motor (F) announced another series of plant shutdowns due to the global semiconductor chip shortage, with five facilities in the United States and one in Turkey affected. In March, Ford expected the semiconductor shortage to cost between $1-$2.5 billion.

American Eagle Outfitters (AEO) shared it is on track to exceed expectations with its Q1 revenue now seen as topping $1 billion, which implies a mid-teens increase compared to pre-COVID comparable from two years ago and the $904 million consensus. The company is set to report Q1 full results on May 1.

Ethan Allen Interiors (ETH) reported a record increase of 51.8% in written orders at its retail division for its FQ3 vs. the year-ago quarter that was understandably impacted by the pandemic. The company expects to report consolidated net delivered sales of $177.0 million with adjusted EPS in the range of $0.56-$0.58 vs. the $0.47 consensus.

Reports indicate self-driving truck startup TuSimple (TSP) raised ~$1.35 billion in an IPO with the shares priced at $40 vs. the targeted $35-$39 range.

Dell Technologies (DELL) is reportedly evaluating options for its Boomi cloud business, include a possible sale, which may be valued at ~$3 billion. This follows the news yesterday that Dell will spin off its 81% stake in VMware (VMW) in a special cash dividend of $11.5-$12 billion to all VMware shareholders.

Retail real estate companies Kimco Realty (KIM) and Weingarten Realty (WRI) have entered into a definitive merger agreement under which Weingarten will merge with and into Kimco, with Kimco continuing as the surviving public company. The combined company is expected to have a pro forma equity market capitalization of approximately $12.0 billion and a pro forma total enterprise value of approximately $20.5 billion.

United Rentals (URI) acquired Franklin Equipment, a regional provider of equipment rentals, sales, and related services in the Midwest and the Southeast United States.

After today’s market close, Alcoa (AA), JB Hunt (JBHT), and PPG Industries (PPG), among others, are expected to report their quarterly results. Investors looking to get ready for the sea of bank earnings reports and other such ones to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• April 16: Housing Starts, Building Permits, Michigan Consumer Sentiment
• April 20: API Crude Oil stocks
• April 21: EIA Energy Stocks
• April 22: Jobless Claims, Chicago Fed National Activity Index, Existing Home Sales
• April 23: Markit Manufacturing and Services PMIs, New Home Sales
• April 26: Durable Goods Orders, Dallas Fed Manufacturing
• April 27: S&P/Case-Shiller Home Price Index, Conference Board Consumer Confidence, API Crude Oil Stocks
• April 28: Goods Trade Balance, Wholesale Inventories, EIA Energy Stocks, Federal Reserve Interest Rate Decision and Press Conference
• April 29: US GDP Q1 (advance estimate), Jobless Claims, Pending Home Sales
• April 30: Personal Income and Spending, PCE Price Index, Employment Cost Index, Chicago PMI, Univ. Michigan Consumer Sentiment
• May 3: Markit Manufacturing PMI, Construction Spending, ISM Manufacturing, Total Vehicle Sales
• May 4: Balance of Trade, IBD/TIPP Economic Optimism, Factory Orders, API Crude Stocks
• May 5: ADP Employment Report, Markit Services PMI, ISM Non-Manufacturing PMI, EIA Energy Stocks
• May 6: Jobless Claims, Unit Labor Costs, Nonfarm Productivity
• May 7: Nonfarm Payrolls, Wholesale Inventories

Thought for the Day

“Who looks outside, dreams; who looks inside, awakes.” ~Carl Jung

Disclosures

• VMWare (VM) is a constituent of the Tematica BITA Digital Infrastructure and Connectivity Index.
• PepsiCo (PEP) is a constituent of 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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Stocks Earnings Economy Coronavirus Nasdaq-Listed Companies