The consequence is increased volatility, visible in the return of the VIX index above 20 points for the first time since last month. The Nasdaq is the first victim of this mindset, dropping 2.57% yesterday, and down 0.9% pre-market this morning, erasing in the process the three rebound sessions of the beginning of the week. It is already up 0.3% as I write these lines.... How it'll finish the day is anyone's guess... Some tech aristocrats usually sparred by correction were badly hurt on Thursday, such as Microsoft and its -4.2%. Of course, the most richly valued stocks such as DocuSign, Mercadolibre and JD.com were also targeted. A good bellwether is Cathie Wood's Ark Innovation fund: it fell almost 9% in two sessions, below USD 80 per share, a drop of 50% since the February 2021 highs.
The main factor influencing markets remains the ability of the US central bank to fight inflation without derailing the economy. Since the beginning of the year - in fact since the release of the minutes of the last Fed meeting on January 5 – the sentiment is something along the lines that rate hikes and the end of economic stimulus are necessary, but either way if something goes wrong the Fed will back off and shower markets with money again.
Jerome Powell and his future number two Lael Brainard shared the roles of good cop and bad cop this week. On Tuesday, Powell delivered a speech that was rather reassuring in the US Senate. Result: +1.4% for the Nasdaq. Yesterday, Brainard used a more severe vocabulary on monetary policy. Result: -2.57% for the Nasdaq. The fact is that inflation can only be fought by conventional monetary measures and that this requires some strategic adjustments for investors, unless they are looking at the long term.
Today, the fourth quarter earnings season officially starts with US banks: JPMorgan Chase, Wells Fargo, BlackRock and Citigroup are due to release their results. The sector should only have good surprises, given the current context.
Economic highlights of the day:
In the United States, two December statistics: retail sales and industrial production. November's business inventories and the University of Michigan's consumer confidence index are also due. This morning, China announced disappointing December import and export figures, but that did not stop it from signing a new record surplus in 2021.
The dollar is trading at EUR 0.8730. The ounce of gold is stabilizing around USD 1824. The barrel remains firm at USD 84.98 for Brent and USD 82.42 for WTI. US 10-year debt is paying 1.72% (-2 points). Bitcoin is trading around USD 42,140.
* J.P. Morgan Chase reported a smaller-than-expected drop in quarterly profit Friday, as strong performance in its investment banking business offset a slowdown in retail banking. The stock is plunging.
* Wells Fargo gained more than 2% in premarket trading after posting a rising profit in the fourth quarter thanks to asset disposals.
* Blackrock - The world's largest asset manager reported Friday a quarterly profit that beat market expectations and a new record for assets under management, at more than $10 trillion.
* Citigroup reported a 26% drop in its quarterly profit, which nevertheless came in above expectations thanks to a good performance in the investment banking business. The group also announced an agreement to sell its retail banking activities in four Southeast Asian markets to United Overseas Bank for about five billion Singapore dollars.
* Tesla plans to start production of its Cybertruck electric pickup by the end of the first quarter of 2023, pushing back the initial target of starting production by the end of this year, a source close to the matter told Reuters on Thursday. Separately, Chief Executive Elon Musk announced on Friday that the crypto-currency dogecoin was being accepted for payment for the car company's derivatives.
* The U.S. House of Representatives committee investigating the Jan. 6, 2021, assault on Capitol Hill subpoenaed Alphabet, Twitter, Meta Platforms and Reddit to determine how their platforms were used to spread false information.
* A booster dose of Johnson and Johnson's COVID-19 vaccine is 85% effective against the risk of hospitalization due to the Omicron variant for one to two months after administration, the director of the South African Medical Research Council said Friday.
- Berkeley Group Holdings: Deutsche Bank upgrades to buy from hold. PT up 21% to 5,429 pence
- The Boston Beer company: MKM Partners analyst William Kirk cut the target on Boston Beer Co. Class A to $440 from $475. Maintains neutral rating.
- Domino’s Pizza: Morgan Stanley downgrades to equal-weight from overweight. PT up 11% to $535.
- Exxon Mobil: Truist Securities raised the target on Exxon Mobil Corp. to $70 from $65. Maintains hold rating.
- Ford: RBC Capital Markets downgrades to sector perform from outperform. PT up 3.9% to $26.
- KB Home: Seaport Global Securities ut the recommendation on KB Home to neutral from buy.
- Lennar: Seaport Global Securities raised the recommendation on Lennar Corp. Class A to buy from neutral. PT up 23% to $133
- NetApp: Cowen upgrades to outperform from market perform. PT lifted by 21% to $116.
- Occidental Petroleum: Truist Securities raises PT to $56 from $50. Maintains buy rating.
- O’Reilly Automotive: J.P. Morgan raised the recommendation to overweight from neutral. PT up 14% to $785.
- Virgin Money UK: Goodbody upgrades to buy from hold. PT up 21% to 235 pence.