Daily Markets: Stocks See Continued Pressure Into Earnings

Today’s Big Picture

Asian markets closed down across the board with the exception of China’s Shanghai Composite which advanced an assumedly lucky 0.80%. India’s Sensex declined 0.90% while South Korea’s KOSPI and Taiwan’s TAIEX fell 0.89% and 0.79%, respectively. Hong Kong’s Hang Seng dropped 0.43% and Japan’s Nikkei fell 0.27%. By mid-day trading, European equity indices are down about 1% on average and U.S. futures point to a similarly down open.

Rising bond yields, renewed China-related supply chain concerns, and companies admitting to variant-related staffing issues are joining other issues plaguing companies as the December quarter earnings season kicks into gear. Amid questions over the velocity of the global economic recovery, odds are company guidance in the coming weeks will be a key driver of the stock market’s next move. Given the above issues as well as inflationary pressures, port issues, and reported truck shortages, we expect companies will issue conservative guidance relative to expectations. This points to the volatility of the first half of January continuing over the coming few weeks.

We also had some breaking news develop while putting together this note, and that is Microsoft (MSFT) announcing a deal to buy Activision Blizzard (ATVI) for $68.7 billion dollars. More details are sure to emerge.

Data Download

Coronavirus

The Centers for Disease Control and Prevention (CDC) on Friday updated its guidance on mask use for the general public, noting that cloth masks offer the least protection compared to surgical masks or respirators. Well-fitting disposable surgical masks and KN95s are more protective than cloth masks. Well-fitting respirators (including N95s) approved by the National Institute for Occupational Safety & Health (NIOSH) offer the highest level of protection.

In sports related covid news, it is now the second day of the Australian Open without number one ranked Novak Djokovic, who was ultimately banned from participating due to his vaccination status (unvaccinated). Once the Australian authorities finalized their decision to deport Djokovic, authorities from the French and Spanish Opens released their own statements mandating players be vaccinated as a prerequisite to participating.

With China imposing sweeping lockdowns in an effort to fend off the omicron variant, including confining tens of millions of people to their homes in several Chinese cities, companies are facing another round of potential supply chain disruptions. Already Volkswagen AG (VWAGY) and Toyota Motor (TM) announced they would temporarily suspend operations in Tianjin because of lockdowns.

Royal Caribbean Cruises (RCL) has canceled several trips across its Royal Caribbean International and Celebrity Cruises businesses as the omicron variant continues to wreak havoc with the cruise industry.

International Economy

Fresh data from China overnight showed that despite beating Q4 estimates of 3.6%, the nation's economic growth slowed to 4.0% pace in the fourth quarter from 4.9% YoY growth in the third quarter, bringing the full-year growth to 8.1% YoY, weighed down by property-market crisis and new coronavirus outbreaks.

China's People’s Bank of China cut key interest rates for the first time since the peak of the pandemic in 2020 responding to the property-market crisis and slowing economy. The Bank cut the rate on its one-year policy loans by 10 bps to 2.85% and also reduced the rate on the seven-day reverse repurchase agreements by 10bps to 2.1%.

Chinese December retail sales were up just 1.7% YoY missing expectations of 3.7% while December industrial production rose by 4.3% YoY also beating Reuters’ forecast of 3.6% growth.

In the UK, November Unemployment was reported just about in line with expectations of 4.1%, 0.1% lower than the previous reading.

In Germany, the January equivalent of the US Coincident Economic indicator, the ZEW Current Situation, fell from its previous reading of -7.4 to -10.2 surprising to the downside by 6.4 points. Despite this decline in current perception, January Economic Sentiment rose significantly from the previous reading of 29.9 to 51.7 showing an upside surprise of 21.2 points.

Markets

The S&P 500 gained 0.1% on Friday after being down 1.0% intraday, as the market overcame mixed bank earnings, downbeat economic data, and a sharp rise in interest rates. The Nasdaq Composite closed 0.6% higher on the day, while the Russell 2000 added 0.1% but the Dow Jones Industrial Average fell 0.6%. Exiting last week, here’s where the major US equity market barometers stood on a year-to-date basis:

• Dow Jones Industrial Average: -1.2%
• S&P 500: -2.2%
• Russell 2000: -3.7%
• Nasdaq Composite: -4.8%

Stocks to Watch

Before trading in U.S. equities begins today, BNY Mellon (BK), Charles Schwab (SCHW), Goldman Sachs (GS), PNC (PNC), and Truist (TFC) will report their latest quarterly results. Goldman missed profit estimates on weak equity trading, which is adding still more pressure to the markets.

Armstrong Flooring (AFI) announced it will increase its U.S. prices effective March 1, 2022, to offset rising input costs, with selected residential products price increases to increase in the range of 0-10%.

Walmart (WMT) has filed several trademarks to make and sell virtual goods, a likely sign it is looking to enter the metaverse. The company also filed applications to create its own cryptocurrency and non-fungible tokens (NFTs).

Netflix (NFLX) confirmed it will raise the monthly prices for its streaming service in the U.S. and Canada. The monthly cost for the basic plan rose $1 to $9.99, the standard plan jumped to $15.49 from $13.99, and the premium plan rose to $19.99 from $17.99.

Ericsson (ERIC) filed another set of patent infringement lawsuits against Apple (AAPL), the latest back and forth between the two companies concerning royalty payments for the use of 5G wireless patents in iPhones.

Nikkei Asia reports Toyota Motor's (TM) annual vehicle output will fall below the latest target of 9 million for the fiscal year ending March, as the chip shortage in Southeast Asia takes a further toll.

As more staff tests positive for the coronavirus, The Wall Street Journal reports companies such Starbucks (SBUX) and Chipotle Mexican Grill (CMG) are temporarily limiting operations at individual stores or regions as they face labor shortages.

Microsoft (MSFT) Threat Intelligence Center has identified evidence of a destructive malware operation targeting multiple organizations in Ukraine.

Ford Motor (F) and Stripe signed a five-year agreement to transform the automotive e-commerce and payments experience, with Stripe as a premier payment service provider for Ford and its dealers across North America and Europe.

Eastman Chemical (EMN) reportedly plans to spend as much as $1 billion to build the world's biggest molecular plastics recycling facility in France and aims to begin operations in 2025.

Bloomberg reports Elliott Investment Management and Vista Equity Partners are in advanced talks to buy software company Citrix Systems (CTXS).

IPOs

Several IPOs including those for Verdant Earth Technologies Limited (VDNT), Jupiter Neurosciences (JUNS), Four Springs Capital Trust (FSPR), and Samsara Vision (SMSA) are expected to price this week. Readers looking to dig more into the IPO calendar and expected pricing should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Interactive Brokers (IBKR), JB Hunt (JBHT), and Progress Software (PRGS) will be among the companies reporting their latest quarterly results. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

• Wednesday, Jan 19
  • Germany: CPI – December
  • UK: CPI and PPI – December
  • US: Weekly MBA Mortgage Applications
  • US: Housing Starts & Building Permits
• Thursday, Jan. 20
  • Germany: PPI – December
  • France: Manufacturing Business Climate Index- January
  • Eurozone: CPI – December
  • Eurozone: European Central Bank Monetary Policy Decision
  • US: Weekly Initial & Continuing Jobless Claims
  • US: Philadelphia Fed Index – January
  • US: Existing Home Sales – December
  • US: Weekly EIA Crude Oil Inventories
  • US: Weekly EIA Natural Gas Inventories
• Friday, Jan. 21
  • Japan: CPI – December
  • UK: Retail Sales – December
  • Eurozone: Consumer Confidence - January
  • US: Leading Indicators – December

Thought for the Day

“I drink to make other people more interesting.” ~Ernest Hemingway

Disclosures

• Chipotle Mexican Grill (CMG) is a constituent of the Tematica BITA Cleaner Living Index
• Chipotle Mexican Grill (CMG) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
• Microsoft (MSFT), Walmart (WMT) are constituents of the Tematica Research 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.

Other Topics

Smart Investing Stocks Earnings Economy Coronavirus