Temporary respite for the Nasdaq

01/19/2022 | 10:05am

Wall Street is bouncing back this morning, after a difficult session yesterday, but this may only be temporary. Investors seem to have realize that a more restrictive monetary policy from the Fed is unavoidable and imminent. It has become pretty clear that the central bank is going to go all out to fight inflation, which has spurred a brutal rotation between assets, especially because it involves a purge of the market's beloved technology stocks.

The Nasdaq recorded a 2.57% drop yesterday, and the technology index is approaching the correction zone. "Historical correlations imply a drop in the valuation of the Nasdaq of the order of 10% more than the current level," wrote Kepler Cheuvreux on Monday, wondering if the increase in results would allow to absorb the compression of multiples, even though the expectations of results are "almost flat since last August" on the Nasdaq. The US technology index has lost 6.8% since the beginning of the year, and 9.2% from its November peaks. Its aggressive proxy, Cathie Wood's Ark Innovation fund, is down 18.7% in 2022, while its evil twin, the Tuttle Capital Short Innovation ETF, is up 20.7%.

The profligate monetary policy of the past 10 years is ending, with asset buybacks disappearing and the rate hike cycle about to begin in the US. Brian S. Wesbury, of First Trust, published an interesting paper on inflation, putting Democrats who accuse corporations of greed and Republicans who castigate public spending on opposite sides. For the economist, known for his Republican sympathies, both sides are acting in bad faith, unless they are deeply mistaken. No, from his point of view, it is lax monetary policy that explains inflation, which makes it all the more important to monitor rigorously over the next few months and makes the central bank's task singularly difficult. However, Wesbury believes that a few rate hikes and tapering (the end of asset purchases) will not be enough to eliminate all laxity in monetary policy.

After repeatedly surprising investors with the quality of their results last year, the first US bank announcements are mixed. JPMorgan Chase fell 6% on Friday after it reported record earnings, but they were less flamboyant than expected. And it fell by another 4.2% yesterday after its peer Goldman Sachs also posted lower than expected results.

However, Bank of America reported higher fourth-quarter profit on the back of a jump in mergers and acquisitions and lending. Morgan Stanley also reported better-than-expected fourth-quarter profit.

 

Today's economic highlights:

December inflation figures for the UK and Germany, as well as U.S., December housing starts and building permits will be announced are today’s main indicators.

The dollar is down 0.1% to EUR 0.8812. The ounce of gold is stagnant at USD 1826. Oil is firm at USD 86.52 for WTI and USD 88.35 for Brent. The T-Bond yield is climbing back up to 1.88% on the 10-year. Bitcoin is trading around USD 42,500.

 

On markets:

Tesla's stock gained 0.9% in premarket trading as Piper Sandler said the electric vehicle maker's market share was limited only by its production capacity as two of the group's new factories are expected to come on line this year.

* Ford said that its fourth-quarter results would include an $8.2 billion gain from its investment in electric car maker Rivian, which went public in early November. Ford shares gained 0.5% in premarket trading and Rivian Automotive gained 1%.

* Bank of America on Wednesday reported higher fourth-quarter profit on the back of a jump in M&A activity and lending. The stock was up 2.6 percent in premarket trading.

* Morgan Stanley reported better-than-expected fourth-quarter profit Wednesday, helped by a boom in mergers and acquisitions and strong fees in its advisory business. The stock gained 1.5% in premarket trading...

* Procter & Gamble on Wednesday reported better-than-expected quarterly sales thanks to higher rates and a resurgent COVID-19 outbreak that boosted demand for its cleaning products. The group also raised its full-year organic revenue forecast. The share price rose 1.6% in pre-market trading..

* Several airlines, fearing disruptions, decided to modify or suspend some of their flights in the United States as part of Wednesday's rollout of new 5G C-band services despite AT&T and Verizon's decision to delay the opening of their services near some airports.

* Intel has ordered next-generation lithography equipment from ASML, still in development, to be released in several years as the industry tries to ramp up production rates amid a global shortage of electronic components.

* The World Health Organization (WHO) said Tuesday that no studies have yet confirmed that a booster dose of the COVID-19 vaccine is needed in healthy children and adolescents.

* Gilead Sciences - The drugmaker announced Tuesday that an unauthorized network of drug distributors and suppliers had sold more than $250 million of counterfeit versions of its AIDS treatments to pharmacies over the past two years.

* Oracle announced Wednesday that it will open a data center in South Africa, its first on the African continent, to provide cloud computing services.

 

 

Analyst recommendations:

  • Activision Blizzard: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 15% to $95
  • AvalonBay Communities: Goldman Sachs adjusts PT to $284 from $269, maintains Buy rating
  • Asos: Germany Sachs upgrades to neutral from buy targeting GBp 2750.
  • Ally Financial: J.P. Morgan downgrades to neutral from overweight. PT up 10% to $56
  • Chevron Corporation: Raymond James raises PT to $155 from $137, maintains Outperform rating
  • Commercial Metals: KeyBanc Capital Markets upgrades to overweight from sector weight. PT up 15% to $42
  • D.R. Horton: KeyBanc Capital Markets downgrades to sector weight from overweight.
  • Entegris: Deutsche Bank upgrades to buy from hold. PT up 26% to $160
  • Essex Property Trust: Goldman Sachs raises PT to $350 from $341, maintains Sell rating
  • Exxon Mobil: RBC Capital Markets upgrades to sector perform from underperform. PT up 23% to $90
  • Gilead Sciences: Morgan Stanley lowers PT to $72 from $74, maintains Equalweight rating
  • Goldman Sachs: Wells Fargo lowers PT to $420 from $450, maintains Overweight rating
  • JPMorgan Chase: Evercore ISI lowers PT to $172 from $174, maintains Outperform rating
  • KB Home: KeyBanc Capital Markets downgrades to underweight from sector weight. PT down 16% to $38
  • Lennar: KeyBanc Capital Markets cut the recommendation on Lennar Corp. Class A to underweight from sector weight. PT down 15% to $86
  • Lowe's: Evercore ISI raises PT for Lowe's to $275 from $270, maintains Outperform rating
  • Mercantile Bank: Raymond James upgrades to outperform from market perform. PT up 14% to $44
  • Neuropace: Wells Fargo downgrades to Equalweight from Overweight; Price Target is $11
  • Safestore: Panmure Gordon & Co downgrades to hold from buy. PT up 6.3% to 1,417 pence
  • Segro: J.P. Morgan upgrades to Overweight from Equal-Weight with a target of GBP 1450.
  • Smith: RBC Capital Markets downgrades to sector perform from outperform. PT up 3.5% to 1,675 pence.
  • The Home Depot: Evercore ISI raises PT to $440 From $435, Maintains Outperform Rating
  • Toll Brothers: KeyBanc Capital Markets downgrades to underweight from sector weight. PT down 12% to $56
  • Under Armour: Exane BNP Paribas raised the recommendation on Under Armour Inc. Class A to neutral from underperform. PT down 4.3% to $18

 

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