Stocks posted gains after a late-session rally powered by solid earnings, soothing Fed speak, and good economic numbers. There are plenty of jobs out there for the taking, according to the latest JOLTS Job Openings number which reflected that there were 10.925 million vacancies to fill.
OK Google, set a reminder for July 15th. For capital markets, there are lots of balls in the air right now. We have the all-too-familiar suspects: inflation and the Fed’s tightening. Add to all that: earnings, place a dollop of a recent selloff, and top the whole thing off with increased volatility. AND it’s February, it’s cold almost everywhere, including Texas and Florida…not that it has anything to do with the market, but I have to believe that everyone gets a bit cheerier the closer we get to spring. With all those balls in the air, there is no telling what we might wake up to each morning in the stock market. Yesterday, we woke up to some solid post-market earnings from a day earlier. UPS announced that it not only beat earnings estimates, but it gave upbeat forward guidance, AND raised its dividend. Great news for holders of UPS who had a volatile, but productive 2021. Indeed, around half of the S&P500 companies have announced earnings to date and the vast majority of them have exceeded analysts’ estimates. Despite the beats however, not all stocks responded with +14% rallies akin to UPS’s rise yesterday. No, in this macro environment, investors are more interested in learning what the companies are expecting for the upcoming year and less so in how well they did last quarter. We are about to enter the rate-hike zone, unknown to many, and investors want to make sure that their investments are poised to survive the journey. On those rate hikes, most folks have resolved themselves to three or four +25 rate hikes, but there has been growing concern that there may be five hikes, and possibly even a +50 basis point hike next month. According to Fed Funds futures, there is 9.5% probability of a +50 basis point hike in March, that is up from a 3.2% probability just a month ago. In case you were wondering, there is a 0% probability that rates will not be hiked in March! That probability was at 45.9% just a month ago. Yesterday morning, Fed speakers were out in force, and they all seemed to wave off the idea of a +50 basis point hike. So, let’s put it at possible but not likely... at this point. Markets agreed, and investors bought dips on recent losers and piled in on the winners.
That was yesterday… today is a whole new day. You are probably tired of hearing that I wake up very early to set myself up for the day. At those hours, being habitual about one’s routines, works in one’s favor…just saying. These days, I slip on a warm sweatshirt, a pair of warm slippers, and stammer down the steps attempting (not always successfully) not to wake anyone. As I pass the powder room, I desperately attempt to avoid looking in the mirror and shuffle into the kitchen. Still in complete darkness, I find my way to my ride-or-die espresso maker and press out double+ to the get my engine started. I fill up my water jug and head back upstairs to my office. Along the way, I pass my Google Nest Hub Max. We use it to control our smart home and as a really tricked-out food timer. The device has a camera, and it recognizes me (despite the state of my hair). When it recognizes me, it usually says, “Good evening, Mark,” and I resist the urge to correct it, because I know that 3:45 AM is still evening for most people. Still, I am always pleasantly surprised how smart that Google smart device is. Speaking of Google’s smarts, last night, Alphabet, the company formerly known as Google, announced its Q4 earnings, and that it beat estimates. Investors were happy to learn that the company continued to outperform targets in its core businesses of search and advertising. One unexpected announcement that really made investors happy was Alphabet’s announcement that it is doing a 20:1 stock split. The reason cited for the split was to make the stock more accessible to retail investors. At $2752 a share, the stock is out of reach for most smaller investors. Post-split, last night’s closing price would put the stock at $137.50, well within the reach of most. That is good news for smaller investors…or all investors if the stock responds positively to the news. A stock split does not affect the value of the company, though it is quite often bullish for stocks. There is more to the split however, than meets the eye. Many suspect that Alphabet/Google is set to join the Dow Jones Industrial Average. Because the Dow uses prices to calculate its member weighting, a $3000 stock would be a non-contender as it would have too much influence over the index. The split makes Google a ripe choice to join the industrials, after being passed over for Salesforce.com (CRM) in the Dow’s last reshuffle. The split is due to take place on July 15th. It will, thankfully, be a lot warmer then.
WHAT’S SHAKIN’
Advanced Micro Devices (AMD) shares are trading higher by +11.23% in the pre-market after it announced, last night, that it beat earnings estimates in Q4 and provided forward guidance that was also above analysts’ estimates. AMD further announced that it was gaining market share on its arch-rival Intel (INTC). In the past 30 days, 58% of analysts have changed their price targets, 18 up, 3 down, and 15 unchanged. Potential average analyst target upside: +27.5%.
Alphabet Inc. (GOOGL/GOOG) is trading higher by +10.61% in the pre-market after it announced that it beat GAAP EPS and Revenue estimates by +12.23% and +4.26% respectively. The company experienced strong demand for its search business despite a growing concern that recent changes made in Apple devices (IDFA) may have a negative impact on the efficacy of online search ads thus reducing demand. The company announced a 20:1 split in order to make the stock more accessible to retail investors. This also makes the stock more eligible to join the Dow Jones Industrial Average, though no announcements have been made yet. Potential average analyst target upside: +26%.
PayPal Holdings Inc (PYPL) shares are lower by -15.76% in the pre-market after it announced an EPS miss of -0.89% and Revenue beat of +0.42%. The company offered weak forward guidance. The poor showing caused a number of analyst downgrades and lower price target revisions. Potential average analyst target upside: +22.1%.
Also, this morning: Marathon Petroleum (MPC), DR Horton(DHI), Old Dominion Freight(ODFL), Thermo Fisher Scientific (TMO), IDEXX Labs (IDXX), Roper Technologies (ROP), Johnson Controls (JCI), Boston Scientific (BSX), Humana (HUM), and New York Times (NYT) all beat on EPS and Revenues. AmerisourceBergen (ABC), Emerson Electric (EMR), and Howmet Aerospace (HWM) beat on EPS but missed the mark on revenues.
YESTERDAY’S MARKETS
Stocks rose on dip buyers as positive Fed tones combined with earnings and solid economic data injected confidence in bulls. The S&P500 rose by +0.69%, the Dow Jones Industrial Average climbed by +0.78%, the Nasdaq Composite gained +0.65%, the Russell 2000 added +1.10%, and the S&P500 ESG Index advanced by +0.61%. Bonds slipped and 10-year Treasury Note yields added +1 basis point to 1.78%. Cryptos gained by +2.77% and Bitcoin added +1.81%.
NXT UP
- ADP Employment Change (Jan) may show that +180 new jobs were created, far lower than +807k reported last month
- After the closing bell earnings announcements: MetLife, Meta Platforms / Facebook, Hologic, McKesson, Align Technologies, Corteva, Cognizant, Qorvo, QUALCOMM, T-Mobile, and Allstate.