Stocks traded higher yesterday on positive earnings announcements. A civilian employment number, out yesterday, reported -300k job losses in January and traders are unsure if that is good or bad news… for stocks.
The really good, the really bad, and really ugly. Well, we are just sort of rounding the midpoint for Q4 earnings season, and companies, for the most part seem to be healthy. January was a tough month for stocks. They ended the year somewhat overbought, based not only on historic valuation, but also considering the knowledge that an upcoming, heavy-handed Fed tightening cycle was on the horizon. It is not that traders were caught unawares when they heard the Fed Chair’s post-meeting discussion, no, we all knew that rate hikes were coming. I have noticed in my many decades on Wall Street that traders will push a profitable venture quite literally until the window closes… and further yet, to ensure that it is actually closed. Imagine if the world’s top athletes got together to compete in a high-stakes game of musical chairs all of them plying the outskirts of the row of chairs waiting for the music to stop. Being highly athletic, form and split-second timing are everything for the would-be champion sitters. Chins up, eyes sharp, and sinuous muscles tense – all waiting to pounce. For us mortals, we are likely to jump the gun and clumsily bounce our bums early or to run our hands along the chairbacks in a dowdy, conservative move. The music ultimately stops and the slower competitors, missing the mark by fractions of a second, peel away one by one, but ultimately there can only be one winner. The game gets tenser and tenser as the chairs diminish. Stocks faced a similar tense, and high stakes inflection point as we entered 2022, and traders pushed as far as they could until the music stopped, and stocks pulled back.
Stock pullbacks are healthy in some cases. They give us a chance to reflect and rethink our strategies. In some cases, pullbacks provide buying opportunities, and in others they provide warnings of stocks that should be trimmed. This recent pullback, however, was swift, painful, and far-reaching, leaving very little time for investors to consider their options. A bit of fear has entered the market, an emotion that is quite in contrast to the fearless appetite that drove markets higher in late 2020 and 2021. Lately we have seen the battle between the fear of missing out (FOMO) and the fear of losing. The result of this conflict is volatility. We see markets swing at extremes not witnessed in recent months, which simply raises the stakes even further. Now we are in the midst of earnings season, which is a timely opportunity to get a read on the health of our stocks, and we expect good performers to be lauded, while we expect under performers to be punished. But in this current environment, those consequences can be disconcertingly extreme. Two days ago, Alphabet/Google offered up an upbeat earnings result, causing the stock to rally by more than +7% yesterday. In contrast, PayPal offered up a weak earnings announcement and its stock lost almost -25% yesterday! Granted Google’s assessment was solid, and PayPal’s was… well, weak, but the magnitude of the single day moves appear somewhat unwarranted. After last night’s close, Meta/Facebook announced earnings, offering up a solid miss, weak forward guidance, and lots of excuses. Let’s just say it was not a good announcement for the social networking giant. In this extreme environment one would expect a swift and exacting response, and so there was. In the pre-market, the stock is down more than -22%. Being that the S&P500 and the Nasdaq are heavily weighted with the stocks, futures in those indexes are lower, and with those many more volatile stocks that have already announced earnings with good results. Looking at those three examples, it is clear that fear is still in the air, and that it is the fear of losing which is still winning the race…there is very little FOMO to be found.
WHAT’S SHAKIN’
Meta Platforms Inc (FB) shares are lower by -22.5% in the pre-market. After last night's closing bell, the company announced that it missed EPS estimates by -13.36%. The company also announced that daily active users were below estimates citing competition from applications like TikTok. Meta executives further pointed to Apple’s recent ratcheting up of privacy measures affected ad revenues. Potential average analyst target upside: +6.8%.
Quest Diagnostics Inc (DGX) is trading lower by -4.35% in the pre-market. The company announced that it had beaten Q4 estimates for EPS and Revenues by +4.6% and +2.69 respectively. The company offered forward EPS guidance above estimates but Revenue guidance that was below. The company expected earnings and revenues to decline in upcoming quarters that is in line with expectations. Dividend yield: 1.94%. Potential average analyst target upside: +19%.
T-Mobile (TMUS) shares are higher by +7.71% in the pre-market after it announced an EPS beat and Revenue miss after last night's closing bell. The company announced that subscriber growth was far better than analysts’ estimates. In the past month 3 analysts upped their price targets, 3 lowered targets, and 21 analysts left targets unchanged. Potential average analyst target upside: +49.7%.
ALSO, THIS MORNING: Merck (MRK), ConocoPhillips (COP), Carlyle Group (CG), Lumentum (LITE), Parker-Hannifin (PH), Biogen (BIIB), Eli Lilly (LLY), Estee Lauder (EL), Cigna (CI), Beckton Dickinson (BDX), and Hershey (HSY) beat on EPS and Revenues. Cummins (CMI) and Penn National Gaming (PENN) missed on EPS but beat on Revenues.
YESTERDAY’S MARKETS
Stocks traded higher yesterday, driven by solid pre-market and post-market earnings. The S&P500 grew by +0.94%, the Dow Jones Industrial Average climbed by +0.63%, the Nasdaq Composite Index gained +0.50%, the Russell 2000 fell by -1.03%, and the S&P500 ESG Index advanced by +1.16. Bonds climbed and 10-year Treasury Note yields slipped by -1 basis point to 1.77%. Cryptos rose by +2.77% and Bitcoin added +0.98%.
NXT UP
- Initial Jobless Claims (Jan 29) is expected to come in at 245K compared to last week’s 260k.
- ISM Services Index (Jan) may have slipped to 59.5 from last month’s revised 62.3.
- After the bell earnings announcements: Fortinet, NortonLifeLock, ActivisionBlizzard, Prudential, Amazon.com, Snap, Skyworks, Microchip Technology, Avantor, Deckers Outdoors, Pinterest, Ford, and Clorox.