Today on Wall Street: Changes

There's a lot of uncertainty for investors at the moment, in a changing environment. It’s been much talked about, the month of January 2022 is seeing a rotation of flows in favor of stocks that are supposed to be poorly valued (known as "value") and to the detriment of growth stocks. There is of course a January effect behind this, but it is also a consequence of the arrival of a phase of rate hikes by the US central bank, which is expected to give its first round of interest rates in March.

Meanwhile, assets continue to fluctuate with oil reaching high levels due to a mix of economic momentum, supply tensions and a hint of geopolitics with a drone attack in the Gulf on Adnoc oil facilities. Black gold is back to its 2014 levels and at the same time, the yield on US bonds is reaching new highs. The two-year U.S. Treasury yield, the most sensitive to changes in policy rate expectations, gained more than seven basis points to 1.0323%, the highest since February 2020, and the 10-year, at 1.8162%, rose more than four points, at a two-year high. This is rather logical in view of the path that key rates must take. Economists are now looking at the 2% line and watching for real yields to rise.

Unknowns multiply in this new environment and investors are closely watching the new earnings season to get more clues about the direction of markets in the coming days. While mostly goods, there have been a few surprises so far, including the Goldman Sachs Group, which saw profit fell nearly 13% and missed expectations. It said lower volatility impacted equity trading.

There are also some developments on the M&A side: Microsoft said today that it would buy "Call of Duty" videogame maker Activision Blizzard for $68.7 billion in cash. This will turn the tech giant into the third-largest gaming company by revenue.

 

Economic highlights of the day:

Data released today include the ZEW survey of German financial confidence for January, the US Empire Manufacturing index for January and the NAHB housing index. Overnight, the Bank of Japan left rates and monetary policy unchanged, while acknowledging that price risk is on the rise, the first time this has happened since 2014.

The dollar is up 0.3% against the euro to €0.8794. The ounce of gold is steady at USD 1817. Oil remains strong with Brent at USD 87.20 and WTI at USD 84.87. The yield on 10-year U.S. debt rises to 1.84%. Bitcoin is down slightly at USD 41450.

 

On markets:

* Microsoft announced Tuesday that it plans to buy video game publisher Activision Blizzard for $68.7 billion, the largest deal ever in the industry. In other news, Activision announced Monday night that it has fired 37 employees and issued letters of reprimand to 44 others since July as part of an internal investigation into reports of sexual harassment and inappropriate conduct at the company.

* Goldman Sachs reported a below-consensus profit for the fourth quarter due to weak trading activity. The stock lost 2% before the Wall Street opening.

* Tesla is down 2.6 percent in pre-market trading on analysts' questions about the roadmap for its new models, including the Model 2, its most affordable vehicle that could be sold for $25,000. Reuters reported last week that the automaker now plans to start production of its Cybertruck in early 2023, rather than late this year. In addition, Credit Suisse lowered its price target on Tesla to $830 a share from $1,025.

* Alibaba - The U.S. administration has opened an investigation into the Chinese group's cloud computing division to determine whether it poses a threat to U.S. security, three sources close to the case told Reuters. Alibaba shares listed on Wall Street are down 3.4% in premarket trading.

* Major U.S. airlines said on Tuesday that Wednesday's rollout of AT&T and Verizon's new 5G C-band services could cause a "catastrophe" because of a potential for aviation disruptions. Meanwhile, the U.S. auction of 5G licenses in the 3.45 GHz band brought in a total of $22.5 billion (€19.7 billion), including $9 billion disbursed by AT&T, the Federal Communications Commission (FCC) announced Friday night.

* The Boeing Company announced Tuesday that its plant in Tianjin, northern China, was operating at a "normal level", despite the local containment to curb the spread of COVID-19, which affects some of its employees.

* Apple announced Saturday that it would allow dating app developers in the Netherlands to offer customers of the App Store, its software store, a third-party payment system, complying with the decision of the Dutch competition authority. In addition, a U.S. Senate committee is expected to consider a bill Thursday on app stores, accused of exerting too much control over the market.

* The British payment systems regulator on Tuesday fined five companies in the industry, including Mastercard, a total of 33 million poundsfor cartelizing prepaid cards issued to people deemed vulnerable.

* Amazon announced Monday that it intends to suspend its decision to ban Visa-issued credit cards from its platform in the U.K. as of Jan. 19, adding that discussions are underway to resolve the dispute over transaction fees between the two groups.

* Pfizer, Eastman - The two U.S. groups unveiled a series of investments in France on Monday evening during a day dedicated to the country's attractiveness, where 21 investment projects by foreign companies, representing a total amount of four billion euros and 10,000 new jobs, were presented.

* Walt Disney - The French group Sodexo announced on Monday an official partnership with Disneyland Paris, which will allow it to serve nearly 2.5 million meals a year to employees of the theme park, Europe's leading tourist destination.

* Starbucks announced Tuesday a partnership with Meituan, a company specializing in meal delivery and reservations in the restaurant industry, to strengthen its presence in China, its second largest market.

 

Analyst recommendations:

• AutoNation: Wells Fargo Securities reinstated coverage with a recommendation of overweight. PT set to $135
• AirBnb: Gordon Haskett downgraded to Hold from Buy. 
• Alibaba Group: Needham reiterated a Buy rating, but the firm slashed its $230 price target on the shares to $180.
• AvalonBay: Barclays upgrades to equal-weight from underweight. PT up 5.8% to $263
• Aviva: Investec downgrades to hold from buy. PT up 3.9% to 455 pence
• Bunzl: Goodbody downgrades to hold from buy. PT up 6% to 2,850 pence
• Choice Hotels: Morgan Stanley downgrades to underweight from equal-weight. PT down 11% to $136
• ConocoPhillips: Goldman Sachs upgrades to buy from neutral. PT up 16% to $101
• Dollar General: Morgan Stanley downgrades to equal-weight from overweight. PT up 3.6% to $225
• Fevertree: Jefferies upgrades from Neutral to Buy targeting GBp 3,400
• Gap: Morgan Stanley downgrades to underweight from equal-weight. PT down 23% to $14
• Incyte: RBC Capital Markets upgrades to outperform from sector perform. PT up 20% to $90
• Johnson Matthey: Panmure Gordon & Co Limited upgrades to hold from sell. PT down 2.8% to 1,895 pence
• LyondellBasell: Atlantic Equities downgrades to neutral from overweight. PT up 9.9% to $113
• Neurocrine Bio: RBC Capital Markets downgrades to sector perform from outperform. PT up 15% to $90
• Phoenix Group: Investec upgrades to buy from add. PT up 11% to 760 pence
• Six Flags: Oppenheimer & Co upgrades to outperform from market perform. PT rises 33% to $54
• SSE: HSBC downgrades to hold from buy. PT up 9.9% to 1,740 pence
• Under Armour: BMO Capital Markets upgrades to outperform from market perform. PT up 33% to $25