By akademiotoelektronik, 02/01/2023

Wall Street resumes its slide, before the verdict of the Fed

(Boursier.com) — After an ultra-volatile session on Monday, the New York Stock Exchange fell again on Tuesday, as the Fed began a two-day meeting with markets awaiting clarification on the timing and pace the rise in key rates. The escalation of geopolitical tensions in Ukraine continues to cause concern, and is driving up oil prices. Gold remains sought after as a safe haven, rates remain near their highs for the year and bitcoin has returned to $37,000.

Two hours before closing, the Dow Jones lost 0.22% to 34,290 points. On Monday, it had fallen by more than 3% in session before ending up slightly by 0.29%. The broad S&P 500 index fell 0.88% to 4,371 pts, and the Nasdaq Composite, rich in technology and biotech stocks, lost 1.6% to at 13,630 pts. On Monday, it had fallen by almost 5% in session, before ending up 0.6%.

Correction in progress, sharp increase in volatility

The Nasdaq has now lost around 15% compared to its record at the close of November 19 at 16,057 pts. The S&P 500 is down 8.8% on its highs, approaching the correction zone, while the Dow Jones is down 6% on its highs. Remember that a loss of more than 10% corresponds to a stock market correction. In the event of a decline of more than 20%, the indices would enter a real bear market.

The VIX volatility index, also known as the "fear index", climbed 7%, around 32 points, after a brief passage on Monday above 39 pts. The index has jumped 85% since early January and is moving above its historical average (around 20). During major stock market crises such as the beginning of 2020 (coronavirus) and 2008 ("subprimes"), the VIX soared to more than 50.

In terms of values, the many company results published on Tuesday were received differently. The accounts of IBM (+3.6%), American Express (+6.8%) and Johnson & Johnson (+2.8%) boosted their stock prices, but General Electric lost 6.6% and 3M was hesitant (+0.16 %) despite higher-than-consensus profits for both groups. Nvidia (-4%) suffers as 'Bloomberg' claims the chipmaker will give up buying Britain's Arm, a deal that is running into obstacles with investors competition authorities. The results of Microsoft (-1.9%) and Texas Instruments (-1.5%) are expected after the close.

Americans slightly less worried about inflation in January

Daily macroeconomic indicators have taken a back seat to investors' concerns about inflation, rates and geopolitical tensions . In the US housing market, prices continued to climb in November, amid a shortage of properties for sale. The adjusted S&P Case-Shiller 20-City index thus gained 1.2% over one month, against +1% consensus and after +1% in October. The FHFA house price index, which has also just been published, rose 1.1% in November compared to the previous month, against +1% market consensus.

In addition, the consumer confidence index measured by the Conference Board came out above expectations in January at 113.8, against 111.9 of consensus, even if it fell by compared to December (115.2). The survey shows that Americans remain worried about inflation but to a lesser degree than the previous two months, despite a 7% jump in the consumer price index in December.

More consumers were anticipating big purchases like houses or cars, although they were less optimistic about near-term employment due to the disruption caused by the Covid Omicron wave . This now seems to have peaked in January, according to estimates by US health authorities.

Finally, the Richmond Fed's regional manufacturing index plunged to 8, almost twice as low as expected, from 16 a month earlier. It therefore reflects a marked slowdown in manufacturing activity in the region under consideration.

Sounds of boots around Ukraine

Oil prices rose again on Tuesday, on fears of disruptions in energy supplies in the event of an invasion of Ukraine by Russia. The barrel of US WTI light crude gained 2.2% on Tuesday evening to $85.15 for the March futures contract on the Nymex, while the Brent of Mer North was up 1.9% $87.94 (March contract).

Gold gained another 0.6% to $1,852.50 an ounce, a two-month high, while bitcoin rebounded at the end price around $37,330 (+1.5%), after falling below $34,000 this weekend, victim of the flight of buyers of risky assets.

Investors, already rattled in recent weeks by the prospect of a much less accommodative monetary policy this year in the United States, are anxiously watching the evolution of tensions between NATO and Russia over Ukraine . NATO placed its forces on alert on Monday and decided to send reinforcements to Eastern Europe. The United States and the United Kingdom have announced the evacuation from Ukraine of part of their diplomatic personnel and their families, in the face of the Russian threat deemed to be growing.

Tensions have escalated recently after Russia deployed around 100,000 troops to Ukraine's borders, raising fears of a Russian offensive. Moscow still denies, for its part, any bellicose intention. The West is finally threatening Russia with heavy economic sanctions in the event of an invasion of Ukraine.

The Fed expected on Wednesday on the timing of monetary tightening

The markets have their eyes riveted on the Federal Reserve, which should specify its intentions on Wednesday in terms of raising key rates. Markets now expect at least three, and possibly more, tightening this year as the Fed lags behind in the fight against inflation that accompanies the coronavirus pandemic.

Furthermore, the Fed will end its asset purchases at the end of March (or even sooner, according to some analysts) and should also start reducing its balance sheet this year. The combination of these actions would represent a clear monetary tightening, after two years of "free money", which is likely to weigh on the credit conditions for companies and their stock market valuation.

On the bond markets, government bonds remained at a high level on Tuesday evening, pending the Fed's announcements. The 10-year T-Bond rate gained 1 basis point to 1.78%, after peaking at 1.88% last Tuesday, the highest since December 2019. The American 2-year rates rose by 5 basis points to 1.01%, against 0.73% on 31 December. In Europe, the yield on the 10-year German Bund, which was -0.18% on 31 December, rose 3 bp on Tuesday to -0.08%. Last Wednesday, it briefly returned to positive ground, at 0.025%, for the first time since April 2019.

VALUES TO WATCH

IBM (+3.6%) published Monday evening after the close of Wall Street its first quarterly results since the "spinoff" of its branch history of digital services, Kyndryl, IPO last November. The new "Big Blue", now refocused on non-IBM technologies, particularly in the cloud, published accounts above expectations in the 4th quarter of 2021.

The digital giant's quarterly net profit thus reached $2.33 billion ($2.60 per share) against $1.36 billion ($1.52 per share) a year earlier. In adjusted data, EPS reached $3.35, slightly above consensus FactSet expectations ($3.30). Revenues climbed to $16.7 billion from $15.68 billion a year earlier, again above the consensus, which had forecast sales of $15.96 billion.

Nvidia (-4%) is preparing to abandon the acquisition of Britain's Arm, the Bloomberg agency understands. Thus, the American giant of graphics processors, slowed down in its tracks by the competition authorities, could throw in the towel. Bloomberg specifies that the company indicated to its partners that it did not expect to be able to finalize the takeover. For its part, the Japanese SoftBank, current owner of Arm, would seek to IPO the group. Nvidia was aiming to buy Arm for an amount close to 40 billion dollars, but the regulators have since put a spoke in the wheels.

Johnson & Johnson (+2.8%), the American medical and pharmaceutical colossus, said on Tuesday that it expects revenues ranging from 3 billion to 3.5 billion dollars for its Covid-19 vaccine this year, against 2, 39 billion dollars generated in 2021. Last year, quality problems at the Baltimore site forced the group to get rid of millions of doses of its vaccine. Despite these few production problems and uneven demand, J&J manages to make several billion dollars from its vaccine.

For the fourth fiscal quarter, the group's total revenues were $24.8 billion, up 10.4% year-on-year, with organic growth of 11.6% (12.3% on an adjusted basis). Over the year, sales were 93.8 billion dollars, an increase of 13.6%. In the quarter ended alone, consolidated earnings per share were $1.77, almost tripling year-on-year, while adjusted earnings per share represented $2.13, up 14.5%. The consensus was $2.12 in adjusted EPS and $25.29 billion in revenue.

General Electric (-6.6%), the Boston industrial conglomerate, is confident for the 2022 financial year. It must be said that GE ended 2021 well, generating on the last quarter free cash flow from industrial operations of 3.8 billion dollars, for adjusted earnings per share of 92 cents compared to a consensus of 85 cents. The group anticipates improved profits and free cash flow this year. GE is thus targeting adjusted earnings per share ranging from $2.8 to $3.5, against $1.71 a year earlier. Annual free cash flow is now expected to be between $5.5 billion and $6.5 billion, compared to $2.6 billion in 2021.

3M (+0.16%), the diversified American industrial giant, announced for the quarter ended a drop in its profit, but quarterly results exceeded market expectations. Net income for the fourth fiscal quarter was $1.34 billion or $2.31 per share, compared to $1.41 billion for the corresponding period last year. Revenue rose marginally 0.3% to $8.6 billion. Expenditure reached $7 billion, compared to $6.7 billion a year earlier. The consensus was $2.02 adjusted EPS and $8.61 billion in revenue. The financial outlook for 2022 will only be unveiled on February 14.

American Express (+6.8%) strengthened its financial forecast today, with historical credit card spending. For the fourth fiscal quarter, the group easily exceeded market expectations in terms of revenues and profits. Quarterly net profit was $1.72 billion and $2.18 per share, compared to $1.44 billion and $1.76 per share for the corresponding period last year. The FactSet consensus was $1.86 EPS. Net revenues totaled $12.15 billion for the period ended, compared to $9.35 billion a year earlier. The consensus was 11.5 billion. Stephen Squeri, CEO of AmEx, talks about the record level of card spending.

Xerox (-4%) announced its quarterly and annual accounts, sanctioned by the markets. However, the group exceeded free cash flow expectations while investing for growth. In the fourth quarter, revenue fell 8% to $1.78 billion. Annual revenues were almost stable at 7.04 billion. Quarterly adjusted EPS was 34 cents and annual EPS was $1.51.

Tesla (-0.4%). Moody's has raised its rating on Tesla by two notches from 'Ba3' to 'Ba1', saying the automaker should maintain its leading position in the electric vehicle market.

Verizon (-0.5%), the American telecom operator, recruited 558,000 new mobile telephone subscribers in the fourth quarter, against 548,000 forecast by the research firm FactSet, with the rapid deployment of fifth-generation services.

Lockheed Martin (+2.8%), the American defense contractor, delivered quarterly profits above market expectations and confirmed its 2022 sales estimates. In the fourth quarter, profit was $2 billion or $7.47 per share, against $1.98 billion of consensus. Revenues were $17.7 billion in the quarter versus $17.67 billion in consensus. Annual EPS is now expected at $26.7, above consensus expectations.

Raytheon (+1.2%), another major defense player, beat the quarterly profit consensus but missed the revenue consensus. The annual guidance is also somewhat disappointing. Quarterly net profit was $686 million and 46 cents per share, compared with $135 million a year earlier. Quarterly revenue rose 3.8% to $17.04 billion, but so misses the consensus.

Meta Platforms (-1.6%), ex-Facebook, has developed a supercomputer equipped with a new artificial intelligence presented as the fastest in the world. The AI ​​Research SuperCluster, slated for release in the second half of the year, was built in partnership with Nvidia, Pure Storage, and Penguin Computing.

Regeneron (-2%) and Eli Lilly (-0.2%) decline, as the Food and Drug Administration limits the use of covid treatments based on antibodies developed by the two groups, believing that they could not be used everywhere in the United States in view of their probable ineffectiveness against the Omicron variant.