Stocks had a choppy day yesterday, closing down for the day after being spooked by tensions between Russia and Ukraine. Crude oil marched higher with escalating political tensions adding yet more pressure to the inflation threat vexing markets.
Keep your eye on the ball. No, this is not a direct reference to this past weekend’s Superbowl, in which the expected happened, but not before the unexpected seemed like it was going to happen. Perhaps there is something that we can take away from the event. Sometimes, the expected winners simply dominate for the duration of an event. The odds for success are high…and as you might suspect, the pay is low. It is when results are not so clear and the odds flip, that the payday rises...if you picked the right side. Many folks approach the equity markets with an optimistic view. Well, to be fair, the odds of success are high…if you can take a long-term view, so it is reasonable for one to enter the market and expect success. The challenge is that success doesn’t always come in an instant. Ultimately, the magnitude of your long-term success will be determined by how you act when the game is not going your way.
No matter how diversified your portfolio is, these past few months have been a challenge. Many of us are probably not feeling like the game is going our way. Sure, the markets have been volatile these past couple of years, but despite the volatility, they always have seemed to find their way through the tumult and grind higher. The stress began last year as inflation slowly tightened its grasp on our wallets and ultimately market sentiment. Late in the year the Fed shifted its stance making several rate hikes in 2022 all but guaranteed. Rising inflation and Fed rate hikes would be enough to cause digestive upset, but there is more. Stocks that did well through the pandemic have traded higher for good reason… they, did WELL. In fact, many exceeded our expectations, given the challenges. Those companies, because they did what they were supposed to, were awarded higher valuations. In other words, stocks were a bit on the expensive side. We are still in the midst of Q4 earnings season, and while the results are very solid with exciting growth, many companies are warning that 2022 growth, while good, may not be as good as boom-year 2021. So far, we have 1980s-magnitude inflation, we have a hawkish, blunt-weapon-wielding Fed, and now the potential for earnings headwinds. Can it get any more challenging? Indeed. A potential for Russia to invade its neighbor brings more than geopolitical risk. It brings the potential for higher energy prices to exacerbate already fast inflating costs to both consumers and producers. All these things together make for a very volatile market…which I am sure, you didn’t need me to highlight. These past few days have been particularly challenging because just when it appears that the market is ready to move forward and accept rate hikes and inflation, it reverses down. Just when it appears that the market is poised for a pullback…it reverses up. If you bought and sold on all those shifts, trying to take advantage of the swings, you are likely to have lost money. Markets are being pushed around by trading bots that buy and sell the instant news hits the tape. They are in and out before you even have a chance to unlock your phone and check the markets. For the record, the bots are not always successful, but they certainly always enhance volatility in times like these. Earnings season, for the most part, has been in line with bullish expectations. We recognize where inflation is coming from. We know that some of it will subside on its own. We also know that the Fed is going to carefully raise interest rates in the coming months to speed up the process of bringing prices to heel. The threat of a Russian invasion of Ukraine is still very real, and the outcome is still not exactly obvious, but looking back to 2014 when Russia annexed Crimea, we note a minimal effect on the markets. Ultimately it would seem that the real threat to your portfolio is for you to lose long-term focus. The odds for long-term success are high…stick to your team.
WHAT’S SHAKIN’
Arista Networks Inc (ANR) shares are higher by +9.71% in the pre-market after the company announced that it beat estimates for EPS and Revenues by +11.38%, and +4.26% respectively. In the past 30 days, 73% of analysts have changed their price targets 13 up, 1 down, 4 unchanged, and 1 dropped. Potential average analyst target upside: +19.9%.
Henry Schein Inc (HSIC) is trading higher by +3.64% in the pre-market after it announced that it beat on EPS and Revenues by +16.69% and +6.18% respectively. Additionally, the company provided 2022 guidance above estimates. Potential average analyst target upside: +11.3%.
Fidelity National Information Services Inc (FIS) is trading lower by -5.83 in the pre-market after it announced that it beat on EPS but missed on Revenues. The payment processing company provided weaker forward guidance for Q1 as well for 2022. Dividend yield: 1.39%. Potential average analyst target upside: +27.8%.
YESTERDAY’S MARKETS
Stocks traded lower yesterday in a volatile session as traders fretted about the potential for war between Russia and its Ukrainian neighbor. The S&P500 lost -0.38%, the Dow Jones Industrial Average gave up -0.49%, the Nasdaq Composite Index just about broke even, the Russell 2000 slipped by -0.46%, and the S&P500 ESG Index traded lower by -0.24%. Bonds lost ground and 10-year Treasury note yields gained +5 basis points to 1.98%. Cryptos lost -1.51% and Bitcoin gained +0.05%.
NXT UP