Our Chief Marketing Strategist rounds up the day’s key business stories and offers insights into how they can affect your trading and investment.
New jobless claims down slightly from 793,000 but not as much as many had hoped had
(Thursday market open) With the long Presidential Day weekend ahead, the tone on Wall Street is changing slightly. Stocks remain near record highs but there is a feeling that things are slowing down a little from the rapid pace of recent weeks.
Today has the potential to usher in a lighter volume trend towards the long weekend, although an important earnings report will be released this afternoon. A thinner volume can mean sharper movements. So people should be more careful and consider keeping trade sizes a little smaller than normal.
The number of new jobless claims continued to decline, falling last week from a revised 812,000 the week before to 793,000. However, this was slightly above analysts’ expectations for 750,000 and doesn’t really move the needle for this closely watched move. Claims have fallen, but probably not as quickly as most of us would like to see. Stock futures didn’t move much in the data and maintained their modest gains before opening.
In the commodities industry, crude oil ticked a little lower to start the day after OPEC shaved its demand expectations. One possible insight is that OPEC may be expecting the pandemic to come back a little more slowly, which we’ve also heard from economists lately.
Imagine walking around Disney World on a beautiful summer day and splashing Ketchup on your hot dog. This is the scenario that some of the big companies reporting today would probably like to see.
Yes, we’re talking about Walt Disney (DIS) and Kraft Heinz (KHC). While DIS is getting more exposure, KHC stock has done pretty well over the past year and got a boost last week when the Wall Street Journal reported there were talks about the sale of its Planters division to Hormel (HRL). This deal – which KHC confirmed today – fits in with KHC’s recent efforts to outsource some of its products, including the well-known cheese brand Cracker Barrel.
KHC shares rose following the pre-market announcement of the nuts Trading and after KHC beat Wall Street expectations for the quarter. In that way, it joined about 80% of the S&P 500 companies, beating analysts’ estimates for the fourth quarter.
Uber (UBER) stocks saw a decline in pre-market trading, though the net loss in 2020 decreased compared to 2019. The problem for investors seemed to be that UBER failed to meet analysts’ quarterly revenue guidance.
After this week, earnings parade slowed down a bit, but some major retailers as well as semiconductor Bellwether Nvidia (NVDA) are still to come. However, the schedule for tomorrow looks relatively calm and of course Monday is a federal holiday so things will be closed.
Typically, expect small profit-taking as the market approaches a long weekend of record highs. It’s hard to predict this time around as it still looks like investors have a collective fall from FOMO (fear of missing out). Even when the market collapsed in the brief period of insanity in late January, it returned, thanks in part to continued optimism about vaccinations, stimuli and reopening.
This feeling is countered by some worrying reports of new virus variants that are becoming more easily spread and appear deadlier. It doesn’t take a degree in finance to know that new lockdowns can quickly wipe out some of the Wall Street reopening craze. Everyone imagines this trip to Disney World, or just the local ballpark, this summer, but it’s fair to say that things are taking longer to get back to normal than many of us thought.
Before this one Few should be surprised when Fed chairman Jerome Powell said yesterday that the Fed is still required to keep interest rates close to zero and to buy $ 120 billion in assets every month. Powell has been determined for months. Powell’s talk is one possible reason bonds found some buyers yesterday, but the main culprit was likely a benign consumer price index (CPI) report for January. The core CPI declined to 1.4% yoy from 1.6% in December.
At the same time, the so-called “yield curve” between two- and ten-year government bond yields is the steepest since 2017, and it appears that these positive long-term US returns might attract some international investors who can. t find yield overseas.
Corporate bonds have also found a certain love lately with investors looking for yield, analysts said, but even so-called high-yield corporate bonds are lower than ever. Anyone getting into corporate bonds – especially high-yielding ones – should remember that there are risks involved, including potential defaults.
Many investors also look beyond traditional stocks and fixed income securities. This is one reason the Special Purpose Acquisition Companies (SPAC) market continues to sizzle. This could be because there is a lot of money going into the market, which is sometimes good for people going outside the S&P 500 Index (SPX) or the Nasdaq 100 (NDX). This behavior could continue, but care should be taken here too. Make sure you have done your research and know the risk you are taking (and the potential losses to deal with).
Yesterday we realized that the earnings recession may be over as many analysts now expect it to be fourth quarter earnings will match last year’s level. But that’s the data for 2020. What could that mean for 2021?
Analysts had already expected pretty good results this year, which partly explains why the market had this long rally. Now some are looking for even better results for 2021, which is partly due to the enthusiasm that many companies have expressed in the current earnings season.
Research company FactSet is now expecting earnings growth of 23.4% in the calendar year 22.1% in December. Research firm CFRA found this week that 70% of the S&P 500 sub-industries have revised up EPS estimates for 2021, with energy, finance and materials having the highest percentage of companies increasing their forecasts.
Short-term it doesn’t necessarily mean a lot as we are basically in the « show-me state ». That said, people can predict things, but then they have to happen or they are just fun numbers to talk about. However, if the bottom line continues to brighten and the numbers are in line with expectations, it may mean that valuations – something many analysts have been wrestling over lately – could tighten without the market necessarily falling. This means that the “E” in the P / E ratio could catch up with the P. This would be a very good thing for those who have been betting on stocks for a long time.
This could actually start to happen. The 12-month forward valuation of the S&P 500 recently fell to 22.4 in December, according to FactSet. Note, however, that comparisons will become much easier for companies if the market “collapses” in connection with the pandemic last year. In other words, it’s important to understand the context behind the improving numbers.
TABLE OF THE DAY: TECH SPLIT. The PHLX Semiconductor Index (SOX – candlestick) has outperformed the Nasdaq 100 (NDX – purple line) for the past three months, although both have risen sharply. Growing demand for semiconductor chips as the economy re-opened could be a reason chip inventories are growing faster than the broader tech market, along with a worrying chip shortage that is gradually evolving (see below). Data source: Nasdaq. Diagram source: TD Ameritrade’s thinkorswim® platform. For illustration only. Past performance does not guarantee future results.
Volatility Chronicles: One really amazing move over the past few sessions is the way the Cboe Volatility Index (VIX) has just slowed down and back to what it was before the short-selling frenzy Fell behind in late January. Back then, it jumped from 21 to 37 in just one day. It has been trading near 22 again recently. We saw a similarly rapid up and down trend last October so this is not uncommon. However, it is unusual for VIX to deviate from a specified area and then return to it so quickly. Don’t be surprised if there is a second act, especially given the fact that options trading volume hit record highs last year and remains high. In addition, the VIX futures complex is in contango, with prices still above the spot price. This means that futures traders expect at least more uncertainty as we near a long-awaited spring jam and continue to grapple with the virus.
Toppy Tech: Some of the biggest tech mega-caps like Microsoft (MSFT), Apple (AAPL) and now Tesla (TSLA), sometimes grouped with tech, seem to be bumping their heads against resistance. Yesterday and last Friday, the weakness of the tech sector seemed to weigh on the S&P 500 Index (SPX), which is dominated by the « FAANGs » and their friends like MSFT and TSLA. There are double problems with the mega-caps. First of all, they have all come a long way very quickly after that slump last September and October. This has caused the ratings of some, including Amazon (AMZN), AAPL, and Netflix (NFLX), to look a bit stretched in the eyes of some analysts. For example, AAPL’s price-to-earnings (P / E) ratio is roughly twice the historical level of the stock. Say what you want about low interest rates that make P / E less important, but it seems like a metric many investors are still watching.
Second, earnings season for big tech is basically over, which is it makes it difficult to find important catalysts in the short term. Instead, many investors flock to cyclical sectors like finance, energy, and small caps, which do best in a recovering economy. This partly explains why the semiconductor sector has all but avoided the pressure of the mega-caps. A growing economy could drive demand for semiconductor chips, which can be found in so many consumer products, including large ones like automobiles.
Chips and other staples: Yesterday’s core consumer price index was unchanged. The 10-year treasury has risen by more than 20 basis points since the beginning of the year, but is a lukewarm 1.14%. Last week’s salary report reminded us how far we are from pre-COVID full employment levels. Then why is all this inflation talk whirling around? A lot has to do with expectations – especially concerns that absorbing all of these new fiscal stimulus reports that are reportedly on the way could open the floodgates for consumer demand once the US hits herd immunity.
While this is certainly a legitimate concern, there may be another concern – resource scarcity and geopolitics. And not only are we talking about corn, soybeans, and crude oil (although these commodities have certainly increased in recent months), there are growing reports of semiconductor shortages as well. From automakers to Apple (AAPL), the country’s tech giants have been reporting on chip shortages that are becoming increasingly acute. Geopolitics tend to be in flux during the U.S. change of power, and COVID-19 could exacerbate the problem. Some have even called for semiconductor manufacturing to be restructured for national security reasons. Chips are the staple of the modern economy, and as anyone who struggled to purchase toiletries this past April will know, if you lack basic necessities, it can lead to a major – even inflationary – disruption.
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New jobless claims slightly down from 793,000 but not as much as many had hoped
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