Markets

Daily Markets: Prices Moving Higher as Investors Wait on Latest Fed Decision

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Today’s Big Picture

Major equity indices in Asia closed mixed on the day, with Japan’s Nikkei 225 dropping 0.5%, Hong Kong’s Hang Seng and South Korea’s Kospi closing fractionally lower, China’s Shanghai Composite ended the day marginally higher, and the Shenzhen Component added 0.3%. By midday trading, all the major equity indices in Europe were in the red, and U.S. equity futures were fairly flat as earnings season kicks into high gear today with a number of big tech companies reporting.

One of the developing trends that we’re watching is that companies like Chipotle Mexican Grill (CMG), Procter & Gamble (PG), and Whirlpool (WHR) are announcing price hikes in response to rising material costs. Those announcements follow record high index price levels contained in the April manufacturing reports from the New York, Kansas City, and Dallas Federal Reserve banks. We suspect these developments will force Federal Reserve Chair Powell to carefully choose his word during his prepared remarks and Q&A session following tomorrow’s conclusion of the Fed’s two-day policy meeting that kicks off today. We suspect that market participants will have to put their monetary policy decoder rings on extra strength.

Data Download

International Economy

The advance estimate South Korea’s GDP in Q1 came in stronger than expected at 1.8% YoY after a -1.2% contraction in Q4 and compared to expectations for a 1.1% increase.

As expected, the Bank of Japan left its key short-term interest rate unchanged at -0.1% and maintained the target for the 10-year Japanese government bond yield at around 0%. Consumer inflation expectations were cut from 0.5% in January to 0.1%.

Italy’s Business Confidence index rose more than expected to 105.4 in April from 101.9 in March, from which it was expected to rise to just 102.5. Consumer Confidence in the nation also rose more than expected to 102.3 in April from 100.9, from which it was expected to improve to 102.

Domestic Economy

Yesterday’s Durable Goods Orders for March were weaker than expected, rising just 0.5% MoM after a -0.9% decline from which they were expected to improve to 2.5%. The weakness is primarily attributed to supply shortages impacting production yet again. Ex Transports orders came in as expected, rising 1.6% after a -0.3% decline. Ex Defense, orders rose 0.5% after a -0.4% decline.

The Dallas Fed Manufacturing Index rose 8.4 points to 37.3, the highest level since June 2018 with New Orders and the growth rate of order index rising to the highest level in the survey’s 17-year history. The Capacity Utilization index fell to 34.6 from 46.1. Prices Paid rose for the ninth consecutive month and Prices Received rose to a record high, indicate those higher costs are being passed on.

On the domestic data front today, we will get S&P/Case-Shiller Home Price update for February, House Price Index, Conference Board’s Consumer Confidence, Richmond Fed Manufacturing, and the usual weekly API Crude Oil Stock report.

Markets

Yesterday the S&P 500 eked out an intraday record high yesterday and finished the day 0.2% higher, matching the Dow’s performance. By comparison, the Nasdaq Composite rose 0.9% on the day to close at another record high while the Russell notched another 1.2% to its year to gains. By S&P 500 sector, consumer discretionary, information technology, and energy led the way, with each of those sectors rising 0.6%. Consumer staples, utilities, health care, and industrials sectors closed the day in the red.

Stocks to Watch

Investors face a barrage of quarterly earnings reports this morning, including those from Corning (GLW), JetBlue Airways (JBLU), Paccar (PCAR), Sherwin Williams (SHW), and Waste Management (WM).

Shares of Proofpoint (PFPT) rose more than 31% after Thoma Bravo announced that it had agreed to pay $176 share for Proofpoint, a 34% premium over last Friday’s closing price.

March quarter top and bottom-line results at UPS (UPS) crushed consensus expectations with EPS of $2.77 vs. the $1.72 consensus as revenue rose 27.0% YoY to $22.9 billion vs. the $20.6 billion consensus. Despite that, UPS opted not to provide 2021 revenue or EPS guidance, but it did announce it would hold its 2021 Investor and Analyst Day on June 9.

Top and bottom-line results at 3M (MMM) beat consensus expectations, and the company shared it sees its 2021 revenue rising 5%-8% with EPS in the $9.20-$9.70 range. For the March quarter, sales grew 13.7% in Safety and Industrial, 13.1% in Transportation and Electronics, 9.8% in Consumer, and 6.8% in Health Care.

Tesla (TSLA) reported March quarter EPS of $0.93 per share, $0.20 better than the consensus of $0.73, as revenue for the quarter jumped 73.6% YoY to $10.39 billion, well ahead of the $9.89 billion consensus. The company is currently building Model Y capacity at Gigafactory Berlin and Gigafactory Texas and remains on track to start production and deliveries from each location in 2021. Gigafactory Shanghai will continue to expand further over time. Tesla Semi deliveries will also begin in 2021. Over a multi-year horizon, Tesla expects to achieve a 50% average annual growth in vehicle deliveries. In some years, TSLA may grow faster, which it expects to be the case in 2021. Digging into the details, the company recorded a quarterly net profit record-high of $438 million on a GAAP basis and recorded $518 million in revenue from the sales of regulatory credits. In addition, a $101 million positive impact from sales of bitcoin during the quarter was recorded as a reduction in operating expenses.

NXP Semiconductors (NXPI) reported March quarter revenue that rose 28.6% YoY to $2.6 billion, besting the $2.56 billion consensus and shrugging off concerns over the auto chip shortage. For the quarter, the company’s automotive revenue was up 24% Y/Y to $1.2 billion, while its Industrial and IoT sales rose 52% YoY, Mobile grew 40% YoY, and its Communications infrastructure business rose 4% YoY.

Shipping giant Maersk (AMKBY) announced Q1 preliminary results that put revenue 1.7% below forecast, but underlying EBIT guidance was raised (+89% at the midpoint) and global container volume for 2021 up between 5% and 7% versus an earlier 3-5% guided range - overall a good sign for global trade.

Rambus (RMBS) and Lattice Semiconductor (LSCC) announced a partnership to leverage their respective technology expertise in next-generation security solutions. Through the partnership, customers will have access to Rambus secure hardware IP on Lattice FPGAs for communications, computing, industrial, automotive, and consumer applications.

Lyft (LYFT) signed an agreement with Woven Planet, a subsidiary of Toyota Motor (TM), for the acquisition of Lyft's self-driving vehicle division, Level 5. The transaction also includes multi-year non-exclusive commercial agreements between Lyft and Woven Planet to accelerate the development and enhance the safety of automated driving technology. Lyft will receive, in total, ~$550 million in cash with $200 million paid upfront subject to certain closing adjustments and $350 million of payments over a five-year period.

Shares of Amazon (AMZN) moved higher yesterday on speculation the company could announce a stock split during 2021, perhaps as soon as when it reports its quarterly results this Thursday.

Spotify (SPOT) is raising the monthly price for its Family Plan by $1 on Friday for its US subscribers and by £3 to £26.99 for its UK Family Plans. Student plans in the UK will see their plans increase by £1.

MindMed (MNMD), which has been trading OTC under the ticker (MMEDF), will begin trading on the Nasdaq today, making it the second psychedelic company ever to go public on a major U.S. stock exchange. The company seeks to treat symptoms primarily of ADHD, anxiety, and opioid dependence.

ABB Ltd. (ABB) shared it is considering a stock market listing for its electric vehicle charging business.

Saudi Aramco (ARMCO) is considering the sale of a stake in its natural gas pipeline network to help free up cash and attract more international investors.

After today’s market close, Alphabet (GOOGL), Capital One (COF), F5 Networks (FFIV), FireEye (FEYE), Juniper Networks (JNPR), Microsoft (MSFT), Mondelez International (MDLZ), Starbucks (SBUX), and Visa (V) among a horde of others will report their quarterly results. Investors looking to get ready for those reports and the sea of others over the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

  • April 28: Goods Trade Balance, Wholesale Inventories, EIA Energy Stocks, Federal Reserve Interest Rate Decision and Press Conference
  • April 29: US GDP Q1 (advance estimate), Jobless Claims, Pending Home Sales
  • April 30: Personal Income and Spending, PCE Price Index, Employment Cost Index, Chicago PMI, Univ. Michigan Consumer Sentiment
  • May 3: Markit Manufacturing PMI, Construction Spending, ISM Manufacturing, Total Vehicle Sales
  • May 4: Balance of Trade, IBD/TIPP Economic Optimism, Factory Orders, API Crude Stocks
  • May 5: ADP Employment Report, Markit Services PMI, ISM Non-Manufacturing PMI, EIA Energy Stocks
  • May 6: Jobless Claims, Unit Labor Costs, Nonfarm Productivity
  • May 7: Nonfarm Payrolls, Wholesale Inventories
  • May 10: Consumer Inflation Expectations
  • May 11: NFIB Business Optimism Index, JOLTs Job Openings, weekly Redbook retail sales, API Crude Oil Stock Change
  • May 12: MBA Mortgage Applications, Inflation Rate, EIA Energy Stocks reports, World Agricultural Supply and Demand Estimates (WASDE) Report, Monthly Budget Statement
  • May 13: PPI, weekly Jobless Claims, EIA Natural Gas Stocks
  • May 14: Retail Sales, Import/Export Prices, Industrial Production, Manufacturing Production, Capacity Utilization, Business Inventories, Michigan Consumer Sentiment Report, Baker Hughes Oil Rig Count

Thought for the Day

“Success is stumbling from failure to failure with no loss of enthusiasm.” ~ Winston Churchill

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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