Bristol-Myers back from the brink and Fed still rules

Stocks had a mixed close yesterday with the Nasdaq, led by tech shares, posting a late session rally. Interest rates were in focus as Powell released planned comments underscoring the Fed’s aggressive but flexible agenda.

Bite, chew, swallow, digest, repeat…  Interest rates are all the rage these days. With little or no company news hitting the tape prior to the start of earnings season which begins later this week, investors are left to focus on the other big market drivers: COVID and interest rates. With respect to COVID and the surging OMICRON-variant, markets seem to have all but completely digested its economic effects. The numbers are big and scary, and the media seems to be using every literary tool in the handbook to grab headlines, but the markets appear to be unmoved, for the moment. Traders seem to be looking at the charts and noting that though the new daily cases are at nosebleed levels, they give the impression they are leveling off, hopefully indicating that the peak is here or near. With respect to interest rates and the newly toothy Federal Reserve, markets have not quite digested the implications of impending policy shifts. Looking at the bond markets, we saw a markable jump in 10-year Treasury yields at the start of year. The initial move was propelled higher by the FOMC Minutes which underscored the Fed’s keen interest in not only raising rates, but also shrinking its balance sheet in the months to come. We knew it was coming but perhaps, not quite as fast and furious, and the meeting minutes served as a warning if not a reminder: get your positions in order and tighten your seatbelts. 10-year T-note yields raced to 52-week highs touching 1.8% but ultimately retreating, closing lower but still at lofty pandemic-era highs. Higher yields sent equity markets into a risk-off trade with the riskiest classes, growth and tech stocks taking the brunt of the selling. Risky cousin cryptos also pulled back. Yesterday, once again 10-year yields jumped early in the session attaining yet higher intraday highs. Ultimately those yields pulled back for a break-even close. The pullback was possibly a sign the recent upswing may have run its course. This was encouraging to beleaguered tech stocks which rallied into the close. The growth-heavy Nasdaq was down as much as -2.7% before turning around and ultimately closing higher by a scant +0.05% for the day. Yep, my ears popped as well. Can we talk 2-yr yields for a moment. Those are perhaps the ones that will have a real impact on most of us in the near term.  Most interest rates that we as consumers pay are closely tied to short-maturity Treasury yields which are correlated to the Fed Funds rate, for obvious reasons. Back in October, before the Fed announced its taper plans, 2-year Note yields were around 0.28% but have since found their way to 0.89% at yesterday’s close. Interestingly, despite if, when, or how much the Fed raises its statutory rates, the market appears to be doing the Fed’s work, tightening credit without any policy changes. According to Fed Funds futures, there is a 76.4% chance of a rate hike resulting from the Fed’s March 16^th FOMC meeting. Just 1 month ago, those odds stood at just 35.9%, demonstrating just how quickly things can change in the markets. Chew on that.

What’s shaking?

Bristol-Myers Squibb (BMY) rose by +3.61% yesterday after the company provided 2022 guidance at the higher end of analysts’ expectations. BMY also confirmed a $5 billion stock purchase target for Q1. Dividend yield: 3.09%. Potential average analyst target upside:  +10%.

Take-Two Interactive Software (TTWO) shares fell by -13.13% yesterday after it announced that it will acquire rival game maker Zynga (ZNGA) for $11 billion. Zynga’s shares were higher by +44.7% yesterday. Potential average analyst target upside:  +44.6%.

Danaher (DHR) ­announced yesterday that it expects Q4 revenues to have grown by high-teens to low-twenties year over year, above previous guidance. Shares of the medical equipment maker rose by +2.49% yesterday and are higher by +2.30% in the pre-market. Dividend yield: 0.27%.  Potential average analyst target upside:  +14.1%.

International Business Machines (IBM) is trading lower by -2.4% in the pre-market after UBS lowered its price target and cut its rating to SELL.  Dividend yield: 4.85%. Potential average analyst target upside:  +2.9%.

Rivian Automotive (RIVN) shares are lower by -5.63% in pre-market after the Dow Jones reported that its Chief Operating Officer stepped down. Potential average analyst target upside:  +65%.

YESTERDAY’S MARKETS

Stocks closed mixed as a late session tech rally drove the Nasdaq from deep in the red into a positive close. The S&P500 slipped by -0.14% (it has some tech too), the Dow Jones Industrial Average fell by -0.45% (it has very little tech), the Nasdaq Composite Index rose by +0.05% (it is chock-full of tech), the Russell 2000 Index traded lower by -0.40%, and the S&P500 ESG Index gave up -0.04%. Bonds fell and 10-year Treasury yields were unchanged at 1.76%. Cryptos traded lower by 2.98% and Bitcoin fell by -1.38%.

NXT UP

• NFIB Small Business Optimism (Dec) rose to 98.9 from 98.4 above projections.
• The Senate Banking Committee will hold a hearing on Jerome Powells 2^nd-term nomination to head the Federal Reserve.  The hearing is likely to spin-off some interesting quotes and headlines and will certainly add to recent market volatility in today’s session. The hearing will begin this morning at 10:00 AM EDT.