Monthly markets recap: Rivian roars, oil falls, Fed lift off?

Here’s a quick look back at some of November’s top market stories.

November 2021 markets recap

Fed lift off soon?

US inflation reached its highest levels for 30-years, prompting markets to ask if a rate hike was on the way.

Federal Reserve Chairman Jerome Powell kept his place after a reshuffle. Lael Brainaird will be taking the Deputy Chair spot. However, that’s not what we’re interested in, although important. Markets want action on high inflation and a tight labour market.

There are indicators that the inflation alarm bell is ringing. As per the Fed’s last FOMC minute releases, policymakers said: “Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives”.

Inflation is positively scorching: Month-over-month deflator at 0.6%, up 5% year-on-year, hottest since 1990 and up from 4.4% in Oct. Core up 0.4% m-o-m, up 4.1% y-o-y from 3.7% in Oct, also the highest in 31 years.

The US labour market is tight too. US jobless claims are at their lowest levels since 1969. Jobs are out there, but it looks like there is no one to fill them. With a US nonfarm payrolls print coming, the latest job stats will make for very interesting reading indeed.

Still, markets are now waiting to see what will happen with the Fed when it meets again in mid-December.

Oil takes an Omicron-shaped beating

Crude oil started to slide at the start of November, but towards the end of the month fell off a cliff – all thanks to the newest COVID-19 strain.

The Omicron variant is currently wreaking havoc on global oil markets. WTI and Brent Crude started the week of 30th November on the backfoot after taking a huge tumble on Friday 26th upon the new strain’s detection. At the time of writing, both benchmarks are down around -3.9%.

Traders are now feeling uneasy about oil demand in 2022.

The new COVID-19 strain has also caused a split in OPEC+. The cartel may have to alter or pause its monthly 400,000 bpd production increases upon these lower oil prices. Their passage below $70 is ringing alarm bells for some OPEC members and their allies.

Saudi Arabia and Russia, the cartel’s largest producers, are expected to call for a halt at the December OPEC-JMMC meeting. The UAE, however, is the loudest voice of those member states calling for production to keep going.

Adding to OPEC+’s woes is the fact President Biden has sanctioned some 55 million barrels to be released from the US Strategic Petroleum Reserves. Biden is doing this to cool down rising gasoline prices, which are up over 60% across the year. The UK, Japan, China, India, and South Korea have also dipped into their reserves, bringing the total number of new barrels on the market up to 66m.

A lot of pressure is being exerted on oil right now. It may increase. All depends on the world’s response to the Omicron variant.

Rivian becomes 2021’s largest IPO

California EV start-up Rivian hit the track at high speed when its IPO launched in early November. The carmaker beat expectations by reaching a valuation in excess of $100bn upon its stock market debut on November 11th.

What makes this all the more impressive is the fact vehicle deliveries are exceptionally low at present. Rivian claims it has the capacity to deliver 150,000 vehicles annually, but so far deliveries are less than a third of that.

Rivian also has yet to make any substantial revenue. The company posted net losses of over $1bn in 2020, although much of this can be attributed to the construction of a factory in Normal, Idaho. According to its third quarter results, Rivian said losses for 2021 will come to $1.28bn.

None of this seems to have put off investors. Rivian shares began trading at $106.75 per share – some 37% higher than initial IPO price estimates. The electric vehicle marque was reportedly looking at a $72-74 initial public offering share price before going public.

In the weeks following its public launch, Rivian shares continued an impressive upward trajectory. On the 16th of November, for instance, Rivian reached a high of $179.08. A general slump in EV stocks followed, by the price is still healthy. At the time of writing, Rivian was trading for roughly $120.17.

Where next for Rivian? Tesla is the benchmark, but it will be some years before Rivian can match Elon Musk’s market leader if it ever can. With over $11bn in capital generated from its float, Rivian can now plough on with vehicle manufacturing and factory construction.

Markets spy an $8 trillion metaverse opportunity

You may have heard of Facebook’s parent company changing its name to Meta? This may herald the dawn of a new era – one where the digital and physical worlds begin to blur with the mass adoption of new technologies.

According to Morgan Stanley, the metaverse represents an $8 trillion investment opportunity. Canny tech-savvy stock traders and investors should perhaps be on the lookout for opportunities within this sphere.

But what is the metaverse really? A very quick description would be integrating the digital and the physical through augmented and virtual reality technology. It’s basically a blurring of the internet with everyday life; a highly immersive virtual world where people gather to socialise, play and work.

Morgan Stanley identified several stocks it believes holds the key to the metaverse’s development.

“We remain positive FB primarily because of the still under-appreciated core business growth durability and free cash flow into ’22,” Nowak said. “This is even through an estimated $13.6bn of investment in the metaverse in 2022 to build the next generation version of social networking.”

In addition to Meta/Facebook, Morgan Stanley also earmarked the below stocks, each with an overweight rating, as potential metaverse inroads:

  • Roblox
  • Alphabet
  • Snap
  • Unity Software

Enter the metaverse: an $8 trillion opportunity?

Are you ready to enter the metaverse?

Trading the metaverse

What is the metaverse?

You’re probably aware by now that Facebook’s parent company has changed its name to Meta. In its Q3 earnings release, the social media conglomerate said it was now pushing ahead with creating a metaverse – but what does this actually mean?

A very quick definition of the metaverse is it combines the digital and physical worlds through the use of augmented and virtual reality technology. It’s basically a blurring of the internet with everyday life; a highly immersive virtual world where people gather to socialise, play and work.

The metaverse is a new frontier. Really, it’s a bit of a buzzword at the moment. However, it does present some potential major investment opportunities as it develops into a tangible concept.

Morgan Stanley values this new sector’s potential as an $8 trillion investment and trading opportunity. Tech is where the big bucks are these days – you only have to take a look at Apple’s latest earnings to see that – but $8 trillion is huge by anyone’s standards.

So, how can people go about investing in the metaverse?

Making headway into the metaverse

In a note published by Morgan Stanley on Tuesday, November 16th, as reported by CNBC, Brian Nowak, an analyst at the investment bank, said: “The metaverse is most likely to be a next-generation social media, streaming and gaming platform. And like current digital platforms, we expect the metaverse to initially and primarily operate as an advertising and e-commerce platform for offline products/purchases.”

The most obvious route into this new technology space is Meta. The Facebook parent has been the most vocal about pursuing this blurring of the digital and the physical.

“We remain positive FB primarily because of the still under-appreciated core business growth durability and free cash flow into ’22,” Nowak said. “This is even through an estimated $13.6bn of investment in the metaverse in 2022 to build the next generation version of social networking.”

In addition to Meta/Facebook, Morgan Stanley also earmarked the below stocks, each with an overweight rating, as potential metaverse inroads:

  • Roblox
  • Alphabet
  • Snap
  • Unity Software

Google parent Alphabet is a bit of a no brainer. The company is already one of the world’s foremost technology developers. It makes sense that it wants to grow its offer into VR spaces and other meta tech areas.

Morgan Stanley said Alphabet “has leading traffic, compute power, engineering talent and a growing focus on augmented reality. If we believe in next-generation platforms [Alphabet] should not be missed.”

The bank also noted that Snap is already a market leader in augmented reality technologies. Think of the bewildering level of filters and in-camera options available on the company’s Snapchat platform. Snap is already fairly ahead of the game, but the technology could be adapted for other parts of life than just social media and fancy photographs.

Think in-glasses heads-up displays, similar to the failed Google Glass experiment, giving you local weather updates, entertainment information, shopping highlights and so on.

According to a BBC report, some Snap content creators had been given augmented-reality focussing glasses in May to help test and popularise the technology.

Roblox is a video game company that specialises in virtual reality gaming. The brand has over 47 million daily users. If it can leverage those into metaverse’s potential for advertising, eCommerce, and social aspects, then Morgan Stanley thinks RBLX could be a major meta player.

“Like FB, what we like most about RBLX is that the core growth and monetisation algorithms (aging up, global growth, in-app spend) also remain strong,” Brian Nowak said.

Unity Software is also a key part of the video game industry’s virtual reality segment, only rather than making games like Roblox, it provides development software to other creators. Based on this, Morgan Stanley believes Unity could be able to springboard into the 3D graphics space integral to meta visual development.

“In a scenario where the metaverse attracts large numbers of content creators beyond gaming (e.g., to build virtual stores, 3D models of homes etc.), we believe U could serve as a true ‘picks and shovels’ business for an audience beyond (and including) its current core of game developers and artists,” said Nowak.

The metaverse is still in its embryonic stage, but there is the potential to get in on the ground level for traders and investors alike. Of course, it goes without saying that investing and trading in the aforementioned meta stocks carries all the usual risks. Only invest or trade if you can afford to take any losses and do your research prior to committing any capital.

Earnings season: Facebook beats earnings but posts revenues miss

Facebook’s Q3 2021 earnings come in ahead of Wall Street forecasts but revenues fall this quarter.

Facebook earnings

Facebook’s headline stats

Facebook reports in the midst of a major whistleblowing case. Despite disgruntled former insiders taking the social media giant to task, Zuckerberg’s Facebook shrugged this off to post an earnings beat.

Facebook is one of the largest tech companies to report so far, alongside Tesla and Netflix.

Investors seem to have chosen to cherry-pick the EPS increase, which is fair enough, rather than focus on Facebook’s quarterly revenue drop.

Facebook’s key Q3 2021 earnings metrics are:

  • Earnings per share – $3.22 vs $3.19 forecast
  • Revenues – $29.01 billion vs $29.57 billion forecast
  • Average revenue per user – $10.00 vs $10.15 forecast

Its EPS beat means Facebook has earned $9bn this quarter.

Ad revenues continue to enjoy sustainable growth. Facebook said advertising-generated revenue in the third quarter rose 35% from a year earlier, while net income rose 17% to $9.2 billion, from $7.8 billion a year prior.

Comparing quarters, EPS is actually down from Facebook’s second quarter earnings. During Q2, Facebook’s earnings per share totalled $3.60. Revenues stayed fairly flat quarter-on-quarter, although it is fair to say Facebook did warn of slowing growth in its second-quarter guidance.

We also need to examine key user metrics when looking at Facebook earnings. This includes users across all of the apps and platforms in the Facebook family. These include Instagram, Messenger, and WhatsApp.

User engagement totals for Q3 came to:

  • Monthly active users (MAUs) – 2.91 billion vs. 2.93 billion forecast
  • Daily active users (DAUs) – 1.93 billion vs. 1.93 billion forecast

These are both comparable to Q2 earnings. Fairly flat across the board once more.

The EPS beat will be good news for investors, but for Zuckerberg and co. it’s going to take a lot of PR massaging to foster more sales going forward.

Where next for Facebook?

In the major bundle of documents Facebook whistle-blower Frances Haugan has leaked to the press, it looks like the social media app is losing ground in the 18-29 segment.

“Over the last decade as the audience that uses our apps has expanded so much and we focus on serving everyone, our services have gotten dialled to be the best for the most people who use them rather than specifically for young adults,” Mark Zuckerberg said in an earnings call.

Facebook is now committed to developing its full-screen Reels feature, already popular on Instagram, to try and claw back some market share from TikTok. However, developing its products to get back this lost ground will not be a simple project. According to Zuckerberg, this is a multi-year endeavour.

There’s even talk of a rebranding for Facebook as a corporate entity as part of Zuckerberg’s “metaverse’ project. The metaverse seeks to create a persistent, online world where you can interact with others as though you were speaking in real life.

Again, this is all long term. In the short term, Facebook will still have to contend with Apple’s privacy updates. The Apple App Transparency Tracking abilities in the iO4 operating system means users can limit how they are tracked. Facebook targets users to grow its advertising offer to clients, which is a cash cow for the platform.

Limiting its tracking efforts could damage its revenue streams – especially on an OS as popular as iOS.

“Our outlook reflects the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors,” the company said in an earnings call.

In terms of share performance, Facebook gained 2% in after-hours trading, despite a mixed outlook for Q4. It continued to make gains on Tuesday morning.

According to our analyst consensus tool, Facebook holds a strong buy rating:

Facebook Analyst Consensus 26.10.2021

Blogger consensus is also strong:

Facebook Blogger Opinions 26.10.2021

Earnings season: Facebook beats Wall Street but signals slowing growth

Mark Zuckerberg’s social media behemoth enjoys a very strong record, but headwinds may blow strong across the rest of the year.

Facebook earnings

Facebook’s headline stats

Facebook posts its fastest-growing quarter since 2016 with revenues expanding 56% in the quarter ending June 2021.

According to its results, Facebook notched up a 47% rise in its average price per ad. It also increased the volume of ads it delivered by 6% year-on-year.

That’s quite an interesting dichotomy. While revenues generated from its ad service is up massively, the number of ads delivered hasn’t kept pace. This may feed into problems down the line. It could also ultimately show how much more Facebook is currently charging for ad space.

Monthly average users (MAUs) also grew. Now, approximately 2.9 billion customers regularly use the social media network each month. Daily active users (DAUs) total 1.91bn, in line with Facebook expectations.

Across its multiple apps, which includes Messenger, WhatsApp and Instagram, Facebook’s total users clocked in at 3.51bn for the quarter – up from the 3.45bn registered in Q1.

Let’s have a look at the overall breakdown of Facebook’s Q2 2021 numbers:

  • Earnings – $3.61 per share vs. $3.03 analyst estimates
  • Revenue – $29.08 billion vs. $27.89 billion analyst estimates
  • DAUs – 1.91 billion vs. 1.91 billion analyst estimates
  • MAUs – 2.90 billion vs. 2.91 billion analyst estimates
  • Average revenue per user (ARPU): $10.12, vs. $9.66 analyst estimates

Of course, ad revenues are Facebook’s chief cash generator, but it also has a variety of other products which bring in cash. Its “Other” segment covers commercial hardware, including Oculus Rift VR headsets. Revenues generated from this sector of Facebook’s business fell below the expected $685.5m at $497m.

Free cash flow also dropped. Estimates suggested it would total $9.08bn for this quarter. In reality, the figure was $8.51bn.

Facebook guidance

Regarding its 2021 H2 performance, Facebook said it expects “year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.”

This is essentially unchanged from the guidance issued at the end of Q1.

A lot of Facebook’s future direction comes from what CEO Mark Zuckerberg calls the “metaverse”.

Zuckerberg describes this as “a virtual environment where you can be present with people in digital spaces.”

How this differs from the current experience is really yet to be seen.  A new team has been formed at Facebook HQ to develop this vision into a tangible reality. Zuckerberg is certainly optimistic.

“In the coming years, I expect people will transition from seeing us primarily as a social-media company to seeing us as a metaverse company,” he said.

Advertising will probably still play a key role here, but Facebook may continue to develop its VR capabilities in order to pull off this project.

The key thing the markets took away from Facebook’s call with analysts and journalists was a slump in revenue growth. Facebook share prices fell 5% after the company’s guidance announcement, showing slowing revenues will be a thorny issue for investors moving forward.

This mirrors other tech giants like Tesla and Apple who experienced similar share price dips after reporting this quarter’s earnings, albeit for different reasons.

The social media giant said ad headwinds are most likely to going to blow strongly throughout the rest of 2021. Regulatory and platform changes were cited, as well as Apple’s iOS 14.5 update, which allows users more flexibility in how apps track their activity.

Rivals Snap and Twitter have seemingly managed to navigate their way through the iOS changes. It’s now up to Facebook to do the same.

Then there is government scrutiny and lawsuits against Facebook. A recent antitrust complaint from the Federal Trade Commission was dismissed by judges, alongside a separate complaint, filed by 48 states attorneys. The FTC, however, is determined to fight this and give Facebook another day in court. It has until August 19th to alter its complaint.

President Biden is apparently no fan of Facebook either. The sitting president has stated that Facebook is not doing enough to combat the spread of misinformation on its platforms, even going so far as to say, “they’re killing people”.

What does the market think about Facebook?

Despite the 5% post-report drop in pre-US market trading Facebook shares experienced on Wednesday, 2021 remains a strong year for price action.

Facebook shares are up 37% since January, beating the S&P 500’s 17% rise in the same period.

Analyst consensus is a strong buy:

Facebook analyst consensus

News sentiment is also bullish, placing Facebook higher than the sector average:

Facebook news sentiment

So, a strong quarter for Facebook. What’s next? Challenges will likely intensify, but the onus is now on Zuckerberg et al to stick to their forecasts and keep things in line with market expectations as the year progresses.

To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.

Stocks firm, oil runs into technical problems

European stocks moved higher in early trade Tuesday after a sizeable down day in the previous session and a rather limp handover from Asia. The FTSE 100 recaptured 7,100, rising 0.5%, after slipping below this level yesterday, having closed down 0.9%. European indices continue to trip along recent ranges having set post-pandemic highs earlier this month as the market looks for more direction re inflation and bond yields. Everyone seems happy to buy the line that inflation will be transitory: the super-hot peaks we are getting right now will be, we knew that as base effects and pent-up demand played out; the question is what sort of new inflation regime persists beyond this summer. Once the inflation genie is out the bottle it is hard to put back in easily.

 

US markets are grinding higher along the path of least resistance but on lower vols and declining breadth. As bond yields remain in check and inflation expectations cool, big tech and other bond proxies are providing the heavy lifting for the indices. The S&P 500 inched to a new all-time high with just healthcare and utilities up and twice as many advancers as decliners. Energy was smoked, registering a decline of 3%, with Valero, Halliburton, Phillips 66, Occidental and Marathon all down 5%. Cruise operator stocks sank 6-7% as Carnival announced an additional stock sale of $500m, whilst Disney delayed a planned test voyage. Growth is beating value right now as the reflation trade unwinds: the Nasdaq rallied 1%, whilst the Dow fell 151pts as the likes of Chevron and Boeing pulled back. US 10yr yields are back under 1.5%, and this morning US stock futures are flat. After a pause, AMC rallied more than 7%. SoFi (Nasdaq: SOFI) is the most talked about stocks on Wallstreetbets, with WKHS, WISH, CLOV, BB, SPCE and GME also still garnering some of the most mentions. 

 

Among the big tech leaders making gains was Facebook, which rallied 4% to take its market capitalisation above $1tn for the first time as it saw off a monopoly legal threat. A judge rejected two antitrust lawsuits brought by the Federal Trade Commission and a coalition of 46 states. The news removed a significant headwind for the stock, though the FTC has a month to refile its complaint. It seems that the judge’s rejection of the case was based on the lack of evidence, or the way it was presented, which could be remedied with a new lawsuit.  

 

Elsewhere, in FX the dollar is mildly bid with GBPUSD testing the Jun 22th low around 1.3860 and EURUSD creeping back to 1.1910. Chart pattern looks a bit bearish and flaggy.

 

EURUSD price action chart.

Crude oil turned lower through the day after touching its best levels in almost three years. So far this market has been a buy-the-dip affair, and market fundamentals seem solid as supply remains tight, but we just need to be mindful from a technical perspective. Yesterday’s outside day bearish engulfing candle is one red flag, the bearish MACD crossover on the daily chart is another. Not necessarily the top but would call for a potential near-term pullback such as a ~10% correction as seen in Mar/Apr this year. Anyway, market fundamentals remain firm and OPEC+ has scope to increase in August – it would be about 1.5m bpd short of demand without any additional output from OPEC or Iranian oil coming back online.

Oil price movement chart.

Bitcoin – still holding under the 200-day SMA but the selling may be done now as bears tire and weak hands are out; there is a potential rip higher incoming.

Bitcoin price action chart.

Billionaires, blocks & stocks: super rich shareholders cash in

Some of the world’s richest shareholders are reaping major windfalls from equities sales in 2021.

According to research by Bloomberg, the likes of Amazon’s Jeff Bezos and Google’s Sergey Brin are turning to stock sales to improve their already substantial fortunes.

A 14-month long bull market is helping industry insiders cash in. $24.4bn worth of equities have been offloaded in the period up to the first half of May 2021, compared against the $30bn sold in the same manner throughout the whole of 2020.

The bulk of these sales have been undertaken via trading programmes, a common practice for shareholders of this status.

Usually, large shareholders will sell stock in planned intervals. However, it’s the prolonged stock market rally that’s really made these deals pay off. Whether they were planned or just coincided with the current equities boom is up for debate. The key motivations to sell now are:

  • Valuations coming under pressure from rising inflation
  • Investors becoming wary of potential tighter post-Covid measures from the Fed
  • Joe Biden’s proposed capital gains tax hike

Who is selling?

The following names were mentioned by Bloomberg has being key stock sellers:

  • Jeff Bezos – Sold $6.7bn worth of Amazon shares in 2021
  • Mark Zuckerberg – Sold $1.67bn worth of Facebook shares since November 2021 through the Chan Zuckerberg Foundation charity
  • Larry Ellison – Sold $552.3m Oracle shares
  • Charles Schwab – Sold $192 worth of shares in his eponymous brokerage
  • Sergei Brin – $163m worth of Alphabet stock
  • Eric Yuan – Sold $185m of Zoom shares

One thing to note is that all of the above are involved in big tech players. Typically, such entrepreneurs’ portfolios are heavily weighted to tech stocks. It’s where they generate their wealth after all. However, divesting such levels of stocks makes sense. It’s rarely a great idea to bet solely on one horse, even if said horse has made you a multi-billionaire.

These stock sales will have further ripples away from equities markets. Hundreds of millions could be about to be poured into areas like art, real estate, and philanthropy.

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Fed sticks to its guns, Apple and Facebook earnings blowout

The Federal Reserve remains resolutely firm. Jay Powell reiterated that the central bank is not even close to talking about tapering bond purchases, a move that would begin to unwind some of the extraordinary accommodation delivered in the wake of the pandemic. The Fed chair said the US economy is still a long way from achieving the progress required to dial back stimulus – over 8m jobs are still lost and that means we need several blowout jobs reports to get there. Powell also stressed that policymakers are not worried about inflation and think any price pressures will prove temporary.  The Fed is doubling down here and sticking to its guns. Advance GDP numbers due to today should show the US economy roaring back. 

 

All this should be a green light for stocks, but the markets are wary right now as they tread record highs and all this stimulus is priced in and the macro outlook well understood. The US 10-year bond yield moved to test the 1.65% level. US stock markets closed marginally lower, though the small cap Russell 2000 managed to eke out a small gain. Futures point to solid gains for Wall Street later today when the cash equities open. European stock markets are largely higher in early trade today, with the FTSE 100 popping its head above 7,000 again on a raft of largely positive corporate updates.

 

Apple reported another stunning quarter, with sales soaring from last year and a fresh round of buybacks. The company raised the dividend by 7% to $0.22 per share and announced $90 billion in share buybacks. Apple revenues grew more than 50% year-on-year, with total sales of $89.58bn vs around $77bn expected. EPS came in at $1.40 vs $1.00 expected. At all levels, we can see Apple outperforming even the most bullish expectations. The core iPhone business saw sales up 65% to $47.94 billion vs. $41.43 billion estimated. This was stunning – the iPhone remains the golden goose and way in which consumers become part of the Apple ecosystem. Services – a higher margin business that includes things like the Cloud, App Store, Apple Music – grew revenues by 26.7%. Revenues in China rose 87% – albeit this was in comparison to a quarter last year in which China was most affected by the pandemic. Shares rose 2% in the after-hours market. A really exceptional quarter – it’s not a surprise that it exceeded quite a low bar, but noteworthy just by how much.

 

Facebook shares advanced 6% in after-hours trading as the company reported posted forecast-beating revenues and earnings. However, the company warned investors that growth could slow as new Apple privacy policies would make it harder to targe ads on social media. I’m fairly used to Facebook using earnings calls to warn that rates of growth could slow in future, and I think investors are too. Earnings per share came in at $3.30 vs $2.37 expected on revenues of $26.17bn, which were about $3bn more than expected and up 48% on a year before. Net income rose 94% to $9.5bn. Average revenues per user came in at $9.27 vs. $8.40 expected. 

 

BT confirmed it is looking to sell its TV business.  This has been a long time coming – the vast sums BT paid to secure football rights was always at odds with the core business. In a statement responding to press speculation, the company says “early discussions are being held with a number of select strategic partners, to explore ways to generate investment, strengthen our sports business, and help take it to the next stage in its growth”. Whilst clearly the pandemic has badly hit sport, BT has never set too well in the content space; there are many with deeper pockets who do content. Ballooning costs left BT paying a hefty bill for sports that wasn’t being covered. It’s further evidence of chief executive Philip Jansen ripping up the Gavin Patterson era playbook to focus squarely on the Openreach rollout and modernise BT. 

 

Shell raised its dividend after beating expectations thanks to higher oil prices and improved margins in its chemicals business. Adjusted net income rose 13% from a year before. Net debt fell $4bn. Meanwhile French firm Total said profits are back to pre-pandemic levels as adjusted net income hit $3bn, higher than the pre-crisis first quarter of 2019. 

 

Unilever shares rose over 2% as the company announced it will commence a €3bn share buyback scheme next month after a 5.7% jump in sales in the first quarter. Most (4.7%) came from higher volume, with just 1% from stronger pricing. For 2021 Unilever stuck to its target of underlying sales growth to be within 3-5%, with the first half at around the top of this range. Management also pointed to additional supply chain costs, with rising commodity and freight prices a factor as margins are seen declining a touch in the first half before picking up later in the year. Ongoing covid restrictions in some areas of the world continued to support in-home sales, whilst the slackening of restrictions in some geographies boosted out of home sales. Mayonnaise and ice cream were strong sellers. India and China both posted strong double-digit growth against a backdrop of strict lockdown measures which impacted the prior year. 

 

NatWest reported Q1 2021 operating profit before tax of £946 million and an attributable profit of £620 million. This was boosted by the reversal of provisions for bad loans as government support schemes reduced the amount of loan delinquency banks had anticipated. NatWest booked at net impairment credit of £102m. But shares fell as the total income was a slight miss, coming in at £2.66bn vs £2.7bn expected. Net interest margin fell 2bps to 1.64%. Shares declined more than 3% in early trade. Standard Chartered continued the run of positive news from the large banks as it recorded underlying pre-tax profit rising 18% to $1.4bn as lower impairment charges and strong cyclical recovery in the global economy offsetting lower interest margins. Return on tangible equity rose 220bps to 10.8% and management reaffirmed their view that income will start growing again in the second half of the year and for impairment charges to reduce significantly.

 

Smith & Nephew shares rose 6% to the top of the FTSE 100 after reporting Q1 revenue up 6.2% on an underlying basis (11.5% reported) to $1.264bn. This included 3.4% from foreign exchange and 1.9% from acquisitions, whilst the quarter also included two more trading days than the equivalent 2020 period. 

Earnings season: estimate-topping stocks to watch

It’s the final week of April: a time that traditionally brings opportunities for earnings-driven volatility.

Many companies reporting their quarterly earnings have strong track records of beating analyst estimates and subsequently seeing their share prices rise.

Bespoke Investment Group, as reported by CNBC, has pulled together the below list of firms that, 90% of the time, beat estimates, and enjoy average day-after jumps of at least 1%.

Stock Company EPS beat % Average 1 day % price move
TDY Teledyne Tech 100 2.18
AVNT Avient 100 1.5
TRU TransUnion 100 1.27
NGVT Ingevity 100 1.74
GFF Griffon Corp 100 11.41
OPI Office Properties 100 2.62
UFI Unifi Inc 100 2.33
CSGP CoStar Group 96.7 2.18
EXPO Exponent 96.6 1.56
SHOP Shopify 95.7 3.54
PATK Patrick Industries 94.7 1.2
JBT JBT Corp 93.5 1.75
MA MasterCard 93.2 2.09
SLAB Silicon Labs 92.3 1.29
SYNH Syneos Health 92.3 3.22
FB Facebook 91.4 2.52
SPSC SPS Commerce 90.7 1.66
ABBV AbbVie 90.3 1.26
SPGI S&P Global 90 1.6

 

These reports suggest earnings are off to a great start this quarter. Companies have so far reported aggregate earnings 23.6% above expectations, according to FactSet. If the trend continues, then we’ll be looking at the highest surprise percentage since FactSet began recording the metric in 2008.

Interestingly, amongst the megacap tech companies reporting this week, Facebook is the only one to make the list. Bespoke highlights its average day-after jump of 2.5%. Facebook reports quarterly earnings today after the closing bell.

Facebook’s average analysts’ price target was up approximately up 14% over Friday’s level on Tuesday, trading at $342.37 per share, feeding into potential longer-term upsides.

Shopify, the Canadian e-commerce company, has consistently been one of the fastest growing stocks for the past 3 years. Since 2018, Shopify shares have grown a massive 700%.

MasterCard is also a bit of a big hitter with a proven ability to come out above analysts’ expectations. The credit card firm beats predictions 93% of the time. MasterCard currently enjoys an 85% buy rating on Wall Street, reports FactSet, with the stock up 9% year-to-date.

Looking to small caps, some of those on Bespoke’s list as consistently punching above their weight, estimates-wise, include Office Properties Income Trust and TransUnion.

Volgende week: Fed-bijeenkomst, Amerikaanse bbp & cijfers Big Tech

Komende week houdt de Federal Reserve zijn eerste vergadering in het nieuwe jaar en op de agenda staat een reeks nieuwe benoemingen, maar een grote beleidswijziging is onwaarschijnlijk. De laatste bbp-cijfers uit de VS worden ook gepubliceerd. De voorspellingen laten een gemengd, maar ook optimistisch beeld zien voor het vierde kwartaal van 2020. Tot slot verwachten we kwartaalcijfers van grote techbedrijven die de large caps aanvoeren.

FOMC-bijeenkomst & persconferentie

De eerste vergadering van de Federal Reserve in 2021 is komende week, tegen de achtergrond van plannen van de nieuwe president Joe Biden om extra geld vrij te maken voor stimulering, een plan waar de nieuwe minister van Financiën, Janet Yellen, achter staat. Zij wil het fiscale beleid “groots” aanpakken. De VS koerst af op $1,9 biljoen extra economische steun om de gevolgen van covid-19 te verzachten.

Over vier nieuwe regionale Fed-voorzitters wordt gestemd in januari – een rotatie die kan wijzen op een meer gematigde Fed in 2021. De vertrekkers zijn Mester (hardliner), Kashkari (gematigd), Kaplan (neutraal) en Harker (neutraal). De nieuwkomers zijn Evans (gematigd), Daly (neutraal), Bostic (gematigd) en Barkin (neutraal).

De nieuwkomers trekken enige aandacht, maar de koers van de Fed staat niet op het punt te veranderen en Jay Powell heeft aangegeven dat het nu niet het moment is om te praten over het terugdraaien van het opkoopprogramma, hoewel sommige beleidsmakers aangeven dat dit later in 2021 nodig kan zijn.

Volgens het verslag van de Fed-bijeenkomst in december 2020, verwachten beleidsmakers dat de tarieven tussen 0%-0,25% blijven tot 2022, met een langetermijnschatting van 2,5%. Niemand verwacht een stijging later dit jaar. De status quo wordt alom geaccepteerd. Volgens de Fed-voorzitter van Atlanta, Bostic, moet er heel wat gebeuren, wil er een stijging komen.

Mogelijk zullen die er zijn in 2023, en misschien zelfs in de tweede helft van 2022. Drie dingen zijn daarbij belangrijk: de gezondheid van kleine bedrijven, het effect van de leenprogramma’s van de Fed, waarvan er veel werden gesloten aan het einde van 2020 en tijdelijk baanverlies versus permanent baanverlies. Allesbepalend is echter het antwoord op de covid-19-pandemie.

Op dit moment lijkt het erop dat de Fed op koers blijft en vasthoudt aan het beleid dat in de loop van 2020 werd ingezet.

De nieuwste bbp-cijfers uit de VS

Zoals de meeste geavanceerde economieën wereldwijd, kreeg de VS zware klappen te verduren van de covid-19-pandemie. Donderdag verwachten we de eerste bbp-statistieken voor het vierde kwartaal en het beeld is op z’n minst warrig. Het is maar net wie je vraagt om de bbp-diagnose te stellen.

GDPNow van de Fed in Atlanta voorspelde op 15 januari een groei van 7,4% op jaarbasis in het vierde kwartaal, hoewel op 8 januari nog werd gesproken over 8,7%. Nowcast van de Fed in New York gaat uit van een expansie van 2,5%.

De groei van het bbp is volledig afhankelijk van hoe snel bepaalde economische sectoren weer overeind krabbelen. Het Amerikaanse departement van Commercie stelde recentelijk dat de consumentenuitgaven, de belangrijkste aanjager van de economie, iets omhoog waren bijgesteld, samen met de vaste bedrijfsinvesteringen. Ze werden echter getemperd door een daling van de export. De dienstverlening, waar 61% van de consumentenuitgaven naartoe gaat, daalde in het derde kwartaal van 2020 met 17% ten opzichte van een jaar eerder – komt er herstel aan? De tijd zal het leren.

Kwartaalcijfers – Apple, Microsoft en Facebook voeren de large caps aan

We verwachten nieuwe kwartaalcijfers op Wall Street en deze week ligt de focus op de techgiganten. Big tech lijkt steeds groter te worden, terwijl lockdowns de sector de wind in de zeilen geven. Zal dat ook blijken uit de kwartaalcijfers?

Apple overstijgt wellicht voor het eerst de $100 miljard dit kwartaal, terwijl de consensus-WPA ten opzichte van vorig jaar klimt met 12% naar $1,40. De feestdagen vielen in precies in dit eerste fiscale kwartaal en met de vele nieuwe iPhone 12-modellen op de markt – genoeg voor een productiestijging van 30% dit kwartaal – wijzen de indicatoren op een klapper voor de techgigant in Californië.

Microsoft behoort tot de winnaars. Wie vanuit huis werkt, kreeg waarschijnlijk te maken met Microsoft Teams, de communicatiesoftware die voor veel bedrijven wereldwijd de eerste keuze is.

Cloudoplossingen droegen bij Microsoft bij aan recordinkomsten voor dit kwartaal. Er werd meer gebruik gemaakt van producten zoals Azure, GitHub, SQL Server en Windows Server; deze commerciële cloudoplossingen genereerden in het recente kwartaal $15,2 miljard, 31% meer ten opzichte van een jaar eerder. In combinatie met andere productiviteitssoftware, zoals Office, Teams etc., liggen de inkomsten voor het eerste kwartaal van 2021 op koers om $40,2 miljard te bereiken.

De reputatie van Facebook kreeg in de afgelopen maanden een tik. Het platform kreeg veel klachten over de verspreiding van nepnieuws en haatzaaierij via het platform.

Desondanks rapporteerde Facebook een groei van 12% in het aantal dagelijks actieve gebruikers (1,82 miljard) in het laatste kwartaal, terwijl het aantal maandelijks actieve gebruikers net zo snel groeide, naar 2,74 miljard – iets meer dan een kwart van de wereldbevolking. De advertentie-inkomsten stegen met 22% ten opzichte van een jaar eerder, ondanks een boycot door 1.000 prominente adverteerders.

Hieronder de uitsplitsing van de large caps die deze week rapporteren.

Belangrijke economische data deze week

Date  Time (GMT)  Currency  Event 
Mon Jan 25       
       
Tue Jan 26  7.00am  GBP  Unemployment Claims 
       
  3.00pm  USD  CB Consumer Confidence 
       
Wed Jan 27  12.30am  AUD  CPI q/q 
       
  3.30pm  USD  US Crude Oil Inventories 
       
  7.00pm  USD  FOMC Statement 
       
  7.00pm  USD  Federal Funds Rate 
       
  7.30pm  USD  FOMC Press Conference 
       
Thu Jan 28  1.30pm  USD  Advanced GDP q/q 
       
  1.30pm  USD  Advanced GDP Price Index q/q 
       
  3.00pm  USD  CB Leading Index m/m 
       
  3.30pm  USD  US Natural Gas Inventories 
       
Fri Jan 29  8.00pm  CHF  KOF Economic Barometer 
       
  1.30pm  CAD  GDP m/m 
       
  2.45pm  USD  Chicago PMI 
       
  3.00pm  USD  Pending Home Sales m/m 

 

Belangrijke cijfers deze week

Date  Company 
Mon 25 Jan  NIDEC  
  Philips 
  Kimberely-Clark 
  ADM 
  Graco Inc. 
  Brown & Brown 
  Equity Lifestyle Properties 
   
Tue 26 Jan  Microsoft 
  Visa 
  Johnson & Johnson 
  LVMH 
  Verizon 
  Novartis 
  NextEra Energy 
  Texas Instruments 
  Starbucks 
  AMD 
  United Technologies 
  American Express 
  General Electric 
  3M 
  Lockheed Martin 
  Canadian National Railway Co. 
  UBS 
  Capital One 
  Prologis 
  Rockwell Automation 
  PACCAR 
  D.R. Horton 
  Maxim Integrated Products 
  Epiroc 
  LG Household & Health Care 
  EQT AB 
  SGS SA 
  Varian 
  Boston Properties 
  Jacobs 
  Nitto Denko Corp. 
  Metro Inc. 
  C.H. Robinson 
  Disco Corp. 
  F5 Networks 
  W.R. Berkley 
  OBIC 
   
Wed 27 Jan  Apple 
  Tesla 
  Facebook 
  AT&T 
  Abbott Laboratories 
  Boeing 
  ServiceNow 
  Stryker 
  Lam Research 
  Anthem 
  Shin-Etsu Chemical Co. 
  Blackstone 
  Automatic Data Processing Inc. 
  Crown Castle 
  Norfolk Southern Corp. 
  Edward Lifesciences Corp. 
  FANUC CORPORATION 
  MediaTek 
  Lonza AG 
  CPR 
  General Dynamics 
  TE Connectivity Ltd 
  Las Vegas Sands Corp. 
  Amphenol Corp. 
  ITC Ltd. 
  Xilinx Inc. 
  V.F Corp 
  Corning Inc. 
  Axis Bank 
  Ameriprise Financial Inc. 
  Hormel Foods Corp. 
  Teradyne 
  Nasdaq Inc. 
  Nomura Research Institute 
  Essity AB 
  Cheil Industries 
  MarketAxess Holdings 
  Hologic 
  Omron  
  United Rentals 
  Rollins Inc. 
  PTC Inc 
  Duke Realty 
  Teledyne Technologies 
  Raymond James Financial 
  Cree Inc. 
  Packaging Corp. of America 
  Whirlpool 
  Textron 
  MKS Instruments 
  Hess Corp. 
   
Thu 28 Jan  Samsung 
  Mastercard 
  Comcast 
  Danaher 
  McDonald’s 
  Diageo 
  Mondelez 
  Altria 
  Sherwin-Williams 
  Air Products & Chemicals 
  Atlassian 
  Northrop Grumman 
  HOYA 
  Dow 
  Walgreens Boots Alliance 
  T. Rowe 
  Xcel Energy 
  ResMed 
  Fujitsu 
  Hyundai 
  Stanley Black & Decker 
  Southwest Airlines 
  Skyworks Solutions 
  McCormick & Co. 
  Rogers Communications 
  Arthur J. Gallagher & Co. 
  Canon 
  UPM-Kymmene 
  Dover Corp. 
  Advantest 
  Nucor 
  Western Digital 
  Celanese Corp. 
  NVR Inc. 
  Principal 
  Eastman 
  PulteGroup 
  WestRock Co. 
   
Fri 29 Jan  Eli Lilly 
  SAP 
  Honeywell 
  Keyence 
  Charter Communications 
  Caterpillar 
  SK Hynix 
  Colgate-Palmolive 
  M3 
  Atlas Copco 
  Ericsson 
  Johnson Controls 
  H&M 
  Phillips 66 
  BBVA 
  Simon Property Group 
  Astellas Pharmacy 
  Simens Gamsea 
  Komatsu 
  LyondellBasell 
  WeyerHauser 
  LG Electronics 
  Synchrony Financial 
  Church & Dwight Co. 
  Sun Pharmaceutical 
  SG Holdings 
  Telia 
  CAIXABANK 
  NEC 
  Svenska Cellulosa AB 
  Booz Allen Hamilton 

 

 

 

Coronavirus outbreaks leave stocks stuck in their ranges

Virus outbreaks in the US continue to weigh on the mood, as it suggests the run-up in stocks on hopes of a V-shaped economic recovery may be overly optimistic. Several states, mainly in the south, have been forced to re-impose lockdown restrictions after being the first to reopen. Dr Fauci described it as a ‘serious problem’. The dangers of reopening too quickly seem all too apparent, but investors are also keeping an eye on outbreaks in Tokyo, Australia and China.

European equities were a touch softer but trading near the flatline on Monday morning, with a general lack of direction about today’s trade. Major indices tracking around the middle of their June ranges after Asian equities fell. US equities were lower Friday and finished down for the week but, as the month ends, stocks have enjoyed a very strong quarter.

The FTSE 100 is up over 8% quarter-to-date, while the S&P 500 has rallied over 16% in Q2 and the DAX has surged 21%. Valuations remain the concern as we head into earnings season with the S&P 500 still trading at more than 22x on a forward basis.

Coming up this week – Powell testimony, US nonfarm payrolls

Of course stocks haven’t only rallied because of reopening economies – enormous liquidity thanks to the coordinated action of central banks has been key. Central bankers have been striking similar notes in terms of the response to the crisis and Jerome Powell, the Federal Reserve chairman, will testify in Congress again this week. The Fed’s rather downbeat assessment of the economic recovery helped to stop the rally in its tracks and since then indices have been trading ranges.

The US jobs report – on Thursday this week due to the July 4th holiday – will provide an important view on the pace of recovery, but we should note that the weekly unemployment claims numbers are proving a more sensitive and up-to-date barometer, not least since there are problems with the data gathering for the monthly nonfarms report.

Facebook shares tumble on ad boycott, but how long can brands stay away?

Facebook shares tumbled more than 8% on Friday as a growing number of companies join a boycott of the platform over hate speech. We saw how a boycott of Facebook by users failed to move the needle on earnings, but this time it’s different – it’s the big brands that pay the big bucks and the loss of Unilever, Starbucks, Coca-Cola, Levi’s and Diageo among others will create a headwind to revenue growth in the coming quarter.

I would think Facebook can and will do a lot more and will be able to take steps to assuage brands’ concerns, allowing the stock to recover. Moreover, will brands be able to avoid Facebook for very long? Virtue signalling is one thing, but they also need to shift product.

Crude oil was steady with WTI (Aug) around $38 after rallying off the medium-term support around $37.50. OPEC+ compliance in June is expected to be higher than in May, mainly because Saudi Arabia, Oman, Kuwait and the UAE are cutting above their quotas. In FX, cable continues to track its channel lower with a new low put in at 1.2315, with the previous support in the 1.2390 region now acting as resistance.

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