Russian Bear Eats the Rally, Earnings Upside Continue, Covid Recedes (February 11 Market Recap)
February 11 Market Recap – Russian Bear Eats the Rally, Earnings Upside Continue, Covid Recedes.
Dow 34,738 or (351) or (1.0%)
Nasdaq 13,791 or (298) or (2.11%)
S&P 4,418 (82) or (1.8%)
USD10Y 1.925% +0.6 bp or 0.31%
Russian Aggression Finally Grabs Market’s Attention
The trading week had about two hours left and was on the cusp of recording a decent showing for the five trading days. Earnings during the week continued to beat expectations and while the inflation number was hotter than expected, several Fed Presidents had assured the markets that a 50bp rate hike in March was not happening. Then, during a White House briefing, National Security Advisor Jake Sullivan stated that based on new intelligence the Russian invasion of Ukraine could commence before the end of the Olympics. All three indices rolled over hard and the flight to safety commenced, driving yields on the US10YR almost even with the level that they started at this week. President Biden and President Putin are expected to speak today (Saturday) in an ongoing attempt to forestall hostilities.
There were some important names that reported this week and helped drive markets higher; Disney (DIS) beat on all their metrics including Disney+ subscriber adds which begs the question “what is happening over at Netflix?” Coca-Cola (KO) beat their numbers which signals that they are able to pass on increasing input costs to consumers. Chipotle Mexican Grill (CMG) beat and said that they have raised prices in the past and will continue to do so. In the travel and leisure space, both Expedia (EXPE) and MGM Resorts (MGM) beat their numbers. All this suggests strength in the economy despite the headline gloom and doom inflation numbers.
Covid has been pushed to the back pages due to the Russian threat at the Ukrainian border. However, it is important to continue to monitor the data and the trends are extremely encouraging. All three metrics followed here moved lower; infections and hospitalizations declined in huge numbers for the second week in a row and deaths finally started to tick lower. With several states lifting mask mandates, and spring around the corner, it bears watching if these trends can continue.
Earnings will slow to a trickle next week but there are still several names to watch. Marriott (MAR), Hyatt Hotels (H), Airbnb (ABNB), Toast (TOST), and Walmart (WMT) will provide insight as to the health of the consumer and their discretionary income. Nvidia (NVDA) and Applied Materials (AMAT) will update the markets on the semiconductor shortage and their efforts to mitigate said issue. Finally, there are a host of Fed officials speaking next week, all of which have the ability with one ill constructed sentence to rattle the markets. Pay special attention to St. Louis Fed President James Bullard (scheduled to speak twice next week) who has made no secret of his desire to start raising rates aggressively, a position that no other Fed official has yet embraced.
Market Data Points Next Week
- Monday – St. Louis Fed President Bullard speaks on CNBC’s Squawk Box. Earnings: N/A
- Tuesday – Jan Producer Price Index (PPI) and Feb Empire State Manufacturing. Earnings: Marriott (MAR), Airbnb (ABNB), Toast (TOST) and Roblox (RBLX).
- Wednesday – Jan Retail Sales. Earnings: Cisco Systems (CSCO), Nvidia (NVDA), DoorDash (DASH), Applied Materials (AMAT), Hyatt Hotels (H).
- Thursday – Initial Jobless Claims, Philadelphia Fed Manufacturing, St Louis Fed President Bullard speaks, Cleveland Fed President Mester speaks. Earnings: Walmart (WMT).
- Friday – Jan Existing Home Sales, Jan Leading Economic Indicators, Fed Governors Waller and Brainard and Chicago Fed President Evans speak at U.S. Monetary Policy Forum. Earnings: N/A.
February 11 Market Recap Trading…
Monday – Dow +1 to 35,091, Nasdaq (82) to 14,015, S&P (16) to 4,515, USD10Y +0 bp to 1.919%
- Seven of the eleven S&P sectors traded lower today led by Communication Services, Tech, and Materials.
- Meta (FB) continued its slide, down 5% and dragged Communication Services down with it (-2.2%) on the day.
- Bank of America (BAC) said the Federal Reserve could implement as many as seven ¼ point rate hikes in 2022.
- Frontier Airlines announced a deal to buy Spirit Airlines for $2.9 billion which would create the United States’ fifth largest airline.
- Earnings: Take-Two Interactive (TTWO) missed revenue expectations and traded down 2% post close. Simon Property Group (SPG) also missed revs and fell nearly 3% after hours.
Tuesday – Dow +371 to 35,462 Nasdaq +178 to 14,194, S&P +37 to 4,521, USD10Y +4.3 bp to 1.962%
- Markets rallied today as investors poured money back into the markets despite the US10YR touching new pandemic highs at 1.97% before settling a touch lower. Earnings seemed to be the driving force behind the move, but will it be enough to overcome what is expected to be the hottest inflation report in 40 years on Thursday?
- Eight of the of the eleven S&P sectors traded higher led by Materials, Consumer Discretionary and Financials.
- Earnings: Pfizer (PFE) missed revenues and guided lower; the stock fell 2.84%. Chipotle Mexican Grill (CMG) beat earnings, reported in line revenues and stated that not only have they been raising prices but that they would likely continue to do so. Beleaguered exercise bike maker Peloton (PTON) continued to rally after announcing that their CEO was stepping down and former Netflix and Spotify CFO Barry McCarthy would be taking over. In addition, PTON announced a 20% culling of their corporate positions. Harley Davidson (HOG) popped 15% after announcing their strongest earnings in five years.
- Earnings Strength: 60% of the S&P has reported with 77% beating earnings expectations and 75% beating revenue expectations.
Wednesday – Dow +305 to 35,768, Nasdaq +295 to 14,490, S&P +65 to 4,587, USD10Y (1.5) bp to 1.947%.
- All eleven S&P sectors traded higher today led by Communication Services, Real Estate, and Tech.
- Earnings: Disney (DIS) popped 6% post close after reporting a beat in every segment including its streaming service, Disney+. Uber (UBER) traded up 5% as it beat revenue estimates. Twilio (TWLO) crushed revenue numbers, lost less than expected, and guided Q1 revenues much higher. The stock soared 18% after hours. MGM Resorts (MGM) rose 2% after beating top and bottom-line expectations.
- While Fed Governor Bowman did not deliver any headline comments today, Cleveland Fed President (voting member) said that everything was on the table, including rate hikes at each Fed meeting as well as shedding mortgage-backed securities which it holds on its balance sheet.
Thursday – Dow (526) to 35,241, Nasdaq (304) to 14,185, S&P (83) to 4,504, USD10Y +10.2 bp to 2.049%.
- The core inflation report came in hotter than expected and blew a nice two-day rally into smithereens. Core CPI was 6% vs 5.9% expected and the month over month number increased 0.6% vs 0.4%.
- St. Louis Fed President James Bullard, one of the Fed’s more hawkish members, stated in an interview that he would like to see rates up by 1% by July, which is considerably higher in a shorter time horizon than what the Fed has previously signaled. As a result, the USD10YR popped to above 2% for the first time since 2019.
- Ten of the eleven S&P sectors traded lower today led by Real Estate, Tech, and Utilities.
- Jobless claims beat expectations at 223,000 claims vs expected 230,000 claims and last week’s slightly revised higher print of 239,000 claims.
- Earnings: Coca-Cola (KO) beat on top and bottom lines and traded up 0.56%. Twitter (TWTR) reported mixed results, a $4 billion buyback and traded down 2%. Cloudflare (NET) shares jumped 5% after beating numbers and announcing the acquisition of Vectrix. Expedia (EXPE) traded up 5% as well after blowing out their earnings number.
Friday – Dow (503) to 34,738, Nasdaq (394) to 13,791 S&P (85) to 4,418, USD10Y (12.4) bp to 1.925%.
- The Russian threat on the Ukraine border finally burst into the headlines. The markets were trading relatively flat until U.S. National Security Advisor Jake Sullivan made comments during a White House briefing that there were signs that the Russians may invade the Ukraine prior to the end of the Olympics. All three indices immediately rolled over and the price of the US10YR spiked, driving yields lower in a flight to safety.
- February University of Michigan Consumer Sentiment (prelim) missed at 61.7 vs 67.
- Nine of the eleven S&P sectors traded negative today led lower by Tech, Consumer Discretionary, and Communication Services. Only Utilities and Energy traded higher.
P.S. If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.