Nasdaq aims for rebound after entering correction territory

01/20/2022 | 09:38am

Futures on all three Wall Street indexes were up this morning, including a 1.1% gain for the Nasdaq. Good results from American Airlines and Travelers are keeping investors hopeful for the fourth-quarter earnings season.

The purge of US technology stocks continued yesterday, after a failed rebound, which dragged Wall Street into the red. U.S. indexes tried to rally yesterday, but were again dragged down by tech, consumer cyclicals and, more rarely, financial stocks. In the end, the Nasdaq 100 lost another 1% and ended down 10% from its November highs, which technically characterizes a correction phase.

There have been 33 correction phases in 40 years on the S&P500, which lasted four months and resulted in a decline of 13% on average. The S&P500 is down 6% from its all-time high on January 4.

Bank of America recently released a report on the financial flows and behavior of major investors since the beginning of the year. The performance gap between cheap stocks (so-called "value" stocks) and expensive stocks (so-called "growth" stocks) is 30%, the highest gap ever recorded since 1992, when this type of data was first collected. It should be noted, however, that a large gap was already at work at the same time last year, before closing. The most popular stocks in this rotation are, in order, very low 12-month P/Es, risky stocks and low-quality stocks.

The upcoming Fed rate hikes are still bothering Wall Street and investors are looking for any cues on the Federal Reserve's policy meeting next week, as inflation accelerates. Today, the Labor Department said that Initial claims for unemployment benefits progressed sharply last week, rising to 286 000 during the week that ended on Jan. 15, following an increase for the week ended Jan. 8. These figures come in a context marred by the spread of Omicron and worker shortages.

Adding to investors’ concerns, U.S. President Joe Biden said he believes Russia intends to "move in" on Ukraine. It is also worth noting what looks like a blunder by Joe Biden on Ukraine, since the U.S. President publicly mentioned two scenarios, an invasion and "minor incursion" by Russia. The backtracking of his advisers was not enough to silence critics, who accuse Biden of giving up on preventing Vladimir Putin from carrying out his threats.

However, there was a bit of good news when China's central bank took another step towards a more accommodating policy on Thursday. To counter a slowing economic recovery, the Chinese central bank (PBOC) cut two of its key rates, in addition to the two cuts already announced earlier this week on other loan lines. The aim is to support the economy at a pivotal moment. "The question remains whether banks will respond by increasing their lending to the real economy," ING said today.

 

Economic highlights of the day:

New weekly jobless claims and the Philly Fed index for January, December housing sales and weekly oil inventories from the DOE are the main indicators today in the US. In the eurozone, Eurostat confirmed a previous estimate today that consumer prices rose 0.4% month-on-month in December for a 5% year-on-year jump.

The dollar/euro pair is stabilizing at EUR 0.8808. The ounce of gold is up to USD 1844. The barrel remains firm at $88.02 for Brent and $85.55 for WTI. Bitcoin is holding at around USD 42500.

 

On markets:

* Talks between Tesla and the Indian government have stalled, with New Delhi wanting the automaker to commit to local production first before a possible move by authorities on tariffs, sources close to the matter told Reuters.

* Amazon announced Thursday that it will open its first physical fashion store near Los Angeles this year, where customers will be able to receive buying suggestions thanks to algorithms. The stock gained 0.5% in pre-market trading.

* Walt Disney announced Wednesday that it has appointed Rebecca Campbell to head its new international content creation division to further develop its streaming programs locally.

* Novavax is up 3% in premarket trading after its COVID-19 vaccine was approved Thursday by Australian authorities.

* American Airlines Group reported a smaller-than-expected fourth-quarter net loss on Thursday on strong demand for holiday travel. The stock is up 1.6 percent in premarket trading.

* United Airlines on Wednesday night lowered its capacity forecast for this year and warned of higher costs after posting a net loss in the fourth quarter. The stock is down 1.8% in pre-market trading. The major U.S. airlines said Wednesday that the rollout of AT&T and Verizon's new 5G C-band services had little impact on air traffic.

* Baker Hughes reported Thursday an adjusted profit for the fourth quarter compared with a net loss for the same period a year ago, as the group benefited from soaring oil prices that fueled demand for equipment and services in the sector. The stock gained 1.2% in pre-market trading.

* The Travelers Companies on Thursday reported better-than-expected earnings per share for the October-December period. The stock is up 4.6% in premarket trading.

* Chesapeake Energy is in advanced discussions to acquire natural gas producer Chief Oil & Gas for about $2.4 billion, including debt, sources close to the matter said.

* Hong Kong-based private equity firm Baring Private Equity Asia (BPEA) said Thursday it had sold Interplex to private equity funds managed by Blackstone for an enterprise value of $1.6 billion (€1.4 billion).

 

Analysts recommendations:

  • Activision Blizzard: DA Davidson adjusts price target to $95 from $94, buy/add rating kept
  • Advanced Micro Devices: Piper Sandler downgrades to neutral from overweight. PT up 1.3% to $130.
  • Affirm Holdings: Loop Capital initiates coverage with hold rating, $72 price target
  • Anglo American: Liberum cut its recommendation to hold from buy.
  • Ball: Morgan Stanley downgrades to equal-weight from overweight. PT up 9% to $100
  • Bumble: Morgan Stanley lowers price target to $49 from $57, maintains equalweight rating
  • Countryside: Peel Hunt downgrades to hold from buy. PT up 0.4% to 330 pence
  • Electronic Arts: Morgan Stanley adjusts price target to $150 from $155, keeps equalweight rating
  • Etsy: Morgan Stanley adjusts price target to $154 from $179, keeps equalweight rating
  • Ford: Jefferies downgrades to hold from buy. PT up 112% to $25
  • General Electric: RBC Capital lowers price target to $125 from $130, maintains outperform rating
  • Match Group: Morgan Stanley adjusts 's price target to $177 from $192, keeps overweight rating
  • NXP Semiconductors: Piper Sandler downgrades to neutral from overweight. PT down 0.5% to $210
  • Pearson: Goldman Sachs reinstated coverage with a recommendation of buy. PT set to 896 pence
  • Procter & Gamble: Stifel Nicolaus raises price target to $160 from $148, maintains hold rating
  • Rentokil: Citigroup upgrades from neutral to buy targeting GBp 650.
  • Rio Tinto: Cut to sell from hold at Liberum
  • Roblox Corporation: Morgan Stanley adjusts price target to $115 from $150, reiterates overweight rating
  • Sealed Air: Morgan Stanley upgrades to overweight from equal-weight. PT up 15% to $79
  • US Bancorp: Keefe, Bruyette & Woods downgrades to market perform from outperform. PT up 12% to $64
  • Vertex Pharmaceuticals: BMO Capital Markets upgrades to outperform from market perform. PT up 19% to $274
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