Refocusing on Fundamentals, Jobs!, What’s going on at Meta? (Market Recap February 4)
February 4 Market Recap – Refocusing on Fundamentals, Jobs!, What’s going on at Meta?
Dow 35,089 or +364 or 1.0%
Nasdaq 14,089 or +319 or 2.30%
S&P 4,500 +69 or 1.5%
USD10Y 1.919% +13.5 bp or 7.5%
REFOCUSING ON FUNDAMENTALS?
It was the best week of the year for the markets. Blowout earnings from Amazon (AMZN), Alphabet (GOOG), and Advanced Micro Devices (AMD) lifted all three indices higher led by the tech heavy Nasdaq. Is this a sign that investors have come to terms with the Fed tightening the monetary supply and have refocused on the fundamentals? If so, the fundamentals are sound. Omicron seems to be fading rapidly and as of right now, the BA2 variant does not seem to be replacing it. Businesses can’t higher fast enough, the labor participation rate is improving, wages are higher, and earnings, with some exceptions (notably Meta (FB) and Netflix (NFLX)), have been very good.
The January Non-Farm Payrolls number was gangbusters! Expectations of 150,000 jobs added and whispers that the number was going to be negative could not have been more wrong as nearly half a million jobs were added in January. Further, as we speculated in “Tapering, Jobs, and Omicron Market Recap Dec 2,” the November and December numbers were revised substantially higher (full disclosure: our prediction was a month early but correct nonetheless).
Meta erstwhile Facebook?
What is going on at Meta anyway? They reported an absolute FUBAR quarter, traded down 26% and dragged Twitter (TWTR), Snap (SNAP), and Pinterest (PINT) to the bottom of the pool with them. Then SNAP reported an earnings blowout, beating on every metric, and rallied an incredible 52%. TWTR (reports next week) and PINT also rebounded handily. This suggests that the problem does not lie in shrinking advertising budgets as Meta proffered. Perhaps the call is coming from inside Meta’s own house?
The Russian Bear About to Pounce?
The U.S. stated that Russia was planning to stage a fake attack by the “Ukrainian” military on Russian forces in order to give them a pretense to invade. In addition, several defense experts stated that the Russian army has made final preparations for what can only be expected to be an invasion (moving blood supplies and other medical units close to front line units on the border).
Infections and hospitalizations continue to fall precipitously with no sign of the BA2 variant taking its place. The mortality rate also continues to moderate but obviously is still ridiculously high (more than one Omaha Beach D-day every day).
Earnings reports will continue to flow while economic data moderates next week. Have the gaming (TTWO) and ordering in (CMG) themes continued as Covid has receded? Will Disney (DIS) face the same fate as Netflix with a decline in subscriber growth at Disney+ and has park attendance improved? Can Coke (KO) and Pepsi (PEP) continue to pass on price increases to their customers? Three Fed representatives will speak next week. Finally, on Thursday, Initial Jobless Claims will print and one should expect a further drop towards the 200,000 mark after this week’s jobs report.
Market Data Points Next Week
- Monday – Earnings: Take-Two Interactive (TTWO), Simon Property Group (SPG).
- Tuesday – Earnings: Pfizer (PFE), Chipotle Mexican Grill (CMG), Peloton (PTON).
- Wednesday – Fed Governor Bowman and Cleveland Fed President Mester speak. Earnings: Pepsi (PEP), Disney (DIS).
- Thursday – Initial Jobless Claims, Core CPI, Richmond Fed President Barkin speaks. Earnings: Coca-Cola (KO), Twitter (TWTR), Cloudflare (NET).
- Friday – February University of Michigan Consumer Sentiment (prelim). Earnings: N/A
February 4 Market Recap Trading…
Monday – Dow +406 to 35,131, Nasdaq +469 to 14,239, S&P +83 to 4,515, USD10Y +3.2 bp to 1.79%
- The last day of a no-good terrible month saw the indices explode higher as the S&P moved back above its 200-day moving average.
- All eleven S&P sectors traded higher today led by Consumer Discretionary, Tech, and Communication Services.
- San Francisco Fed President Mary Daly said the Fed must remain data dependent and not disrupt the economy while attempting to tame inflation. She went on to state that she believes the first 0.25% interest rate hike will come in March. Regarding the reduction of the Fed balance sheet, Daly warned that the Fed does not have much experience in unwinding purchases and as such it should be done in the background. Kansas City Fed President Esther George argued the exact opposite on Monday stating that unwinding the Fed balance sheet could moderate the number of rate increases.
- January Chicago PMI easily beat expectations at 65.2 vs 62.3.
Tuesday – Dow +273 to 35,405 Nasdaq +106 to 14,346, S&P +31 to 4,546, USD10Y +0.5 bp to 1.795%
- Markets continued their rally today as investors eagerly awaited important earnings reports. They were greatly rewarded post close as earnings from GOOG and AMD crushed estimates and should push the indices higher tomorrow.
- Eight of the of the eleven S&P sectors traded higher led by Energy, Materials, and Financials.
- Earnings: Alphabet (GOOG) blew out their number and announced a 20-1 stock split which should pave the way for their inclusion into the Dow Jones Industrial Average. Starbucks (SBUX) posted a mixed quarter with earnings missing due to higher costs. SBUX traded down 4% post close. General Motors (GM) beat revs but missed their earnings number. PayPal (PYPL) reported an inline quarter but guided down their Q1 and 2022 expectations. The stock fell 14% post close. Advanced Micro Devices (AMD) crushed their numbers and guided Q1 and 2022 higher. AMD traded up 9% in the extended session. ExxonMobile (XOM) beat earnings on lower revenues and announced that they had paid down $9 billion in debt during Q4.
- January Markit and ISM Manufacturing numbers both beat estimates.
- December JOLTS showed a slight uptick in job openings vs November.
Wednesday – Dow +224 to 35,629, Nasdaq +71 to 14,417, S&P +42 to 4,589, USD10Y (2.1) bp to 1.774%.
- The Alphabet and AMD earnings pushed the indices higher today.
- Ten of the eleven S&P sectors traded higher today led by Communication Services, Real Estate, and Utilities.
- Earnings: Meta (FB) plunged 23% post earnings release that saw them miss on revenues, earnings, and guide down Q1. Twitter (TWTR) and Pinterest (PINT) traded down in sympathy. Will the FB release be the linchpin that breaks this four-day market rally?
- The ADP Employment report showed a loss of 301,000 jobs in January vs an expected gain of 200,000.
Thursday – Dow (518) to 35,111, Nasdaq (538) to 13,878, S&P (111) to 4,477, USD10Y +5.8 bp to 1.832%.
- The company formerly known as Facebook (FB) crashed the rally party with their horrendous earnings report Wednesday after the close. FB traded down 26% on the day and dragged all three indices down with it.
- Jobless claims beat expectations at 238,000 claims vs expected 245,000 claims and last week’s slightly revised higher print of 261,000 claims.
- January Markit Services PMI was a bit better; ISM was a bit worse, and December Factory Orders were in line.
- Earnings: Amazon (AMZN) blew out earnings on fewer than expected revenues and announced its first Prime price hike in four years to $139/year. Ford (F) reported earnings nearly half of what analysts expected and missed their revenue targets.
Friday – Dow (21) to 35,089, Nasdaq +219 to 14,089 S&P +23 to 4,500, USD10Y +7.9 bp to 1.919%.
- A week ago, stocks surged on the back of a massive quarterly report by Apple. Today was Amazon’s turn. The ubiquitous online retailer posted blowout numbers last night, put the tech sector on its back, rallied 13.5%, and took the Nasdaq and tech in particular with it.
- BLOWOUT JOBS REPORT: January Non-Farm payrolls crushed estimates! 460,000 jobs were added vs expectations of 150,000 and amid whispers that the number was actually going to be negative. Further, both the November and the December numbers were revised substantially higher (Nov reported 249k, revised to 647k and Dec reported 199k revised to 510k) as we postulated they would be last month (commence victory lap!).
- Unemployment crept up to 4.0% from 3.9%. This signifies that people are returning to the labor force and sure enough, the Labor Participation Rate rose to 62.2% vs 61.9% January vs December, the highest rate since March 2020.
- One of area of concern: only five of the eleven S&P sectors participated in the rebound rally today led by Consumer Discretionary, Financial, and Energy. The worst performing sectors were well represented in the Dow, thus explaining its underperformance today.
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