Daily Markets: What Investors Need to Know About the Week Ahead

Today’s Big Picture

Equities in Asia started the last week of February mostly lower led by the 2.3% decline in India’s Sensex and the 1.5% move lower in China’s Shanghai Composite. The Hong Kong Hang Seng fell 1.1% on the day, while Japan’s Nikkei bucked the overall trend and finished 0.5% higher even though Japan's Economy Minister acknowledged Japan’s economy is expected to grow slower than the EU and the U.S.

Reports suggest that while People’s Bank of China left its benchmark lending rates unchanged the central bank may be mulling tightening. By mid-day trading, equities in Europe were down across the board as positive developments from the UK for reopening from its third lockdown and strong February German Ifo data were offset by the news France boosted its self-quarantine time to 10 days from seven days due to new COVID-19 variants. U.S. futures point to a weak market open later this morning.

This week we have the final push for the December quarter earnings season, with more than 1,000 companies reporting this week. Investors will note the shift to companies with January quarter-end reporting, which means there will be a heavy focus on retail-facing companies. We also have several economic data points coming at us as well. In our view, with the consumer, directly and indirectly, accounting for roughly two-thirds of the economy, investors will be closely watching the January Personal Income & Spending report with an eye toward the services side of the economy.

Amid all of that, we expect investors will continue to monitor developments on bond yields and inflation with an eye for what the combination could mean for equities. That likely means listening closely to Federal Reserve Chairman Jerome Powell when he delivers his semi-annual testimony on the economy before the Senate Banking Committee on Tuesday, Feb. 23. As the market digests Powell’s comments, the focus will return to Washington as on Friday when the House will vote the $1.9 trillion Biden stimulus bill. We’d note that even if the bill passes intact, certain parts of the proposed legislation could face hurdles in Senate.

Data Download

Coronavirus

There have been nearly 111 million confirmed cases of the coronavirus, with 2.45 million lives lost. In the U.S., hospitalizations for Covid-19 have fallen for the 40th consecutive day, according to the Covid Tracking Project. The U.S. has reported close to 490,000 deaths from Covid-19 so far.

The latest studies suggest that the Pfizer (PFE)/BioNTech (BNTX) vaccine is likely effective with just one dose.  Sanofi (SNY) inked an agreement with Johnson & Johnson (JNJ) unit, Janssen Pharmaceuticals, to provide manufacturing support for Janssen's COVID-19 vaccine candidate.

Dr. Anthony Fauci says it's possible Americans will still be wearing masks in 2022, but the U.S. will have a "significant degree of normality" by the end of 2021.

According to the British government, all adults in the UK should get a first coronavirus vaccine shot by July 31, a few months sooner than the original forecast of September.

International Economy

Germany’s Ifo Business Climate in February climbed to 92.4 in February vs. 90.3 the prior month and the expected rise to 90.5. The Ifo Current Conditions moved ahead to 90.6 in February vs. 89.2 in January and the expected decline to 89.0. The Ifo Expectations for February jumped to 94.2 from January’s 91.5, besting the expected 91.8.

Domestic Economy

Friday’s Markit Manufacturing PMI data showed a sequential decline from 59.2 to 58.5, but it was only a modest one, and from the highest levels on record, while new orders and new export orders remaining areas of strength. Services PMI and the Composite PMI both rose. Existing home sales slowed in January to 0.6% MoM from 0.9% in December but came in well above expectations for a decline to -1.5%.

Later today we will get the Chicago Fed National Activity Index for January and the Dallas Fed Manufacturing Index for February.

Markets

The S&P 500 ended last week down 0.7%, after closing in the red all four trading days. The Nasdaq Composite closed the week 1.6% lower and the Dow rose slightly 0.1%. With earnings season nearly over, almost 80% of the S&P 500 companies have reported better-than-expected earnings with earnings rising 3.2% in the fourth quarter, according to FactSet, versus expectations for a 9.0% decline just two months ago. What is amazing is that the S&P 500’s YTD performance of +4.6% is nearly the same as in 2020, up 4.8%.

At the peak last Tuesday, just over 15% of the S&P 500 had broken to new all-time highs, the highest percent since January 12. Going back to 1990, there have only been 38 trading days that saw a higher percent of tech stocks making new highs than we saw on Tuesday at 35.5%.

Looking at performance since the beginning of the year, the 50 stocks in the S&P 500 with the highest share prices at the start of the year are up an average of 3.9%, compared to an average gain of 16.2% for the 50 stocks with the lowest share prices. Shares with the largest market cap are underperforming those with the smallest market cap, leaving the cap-weighted S&P 500 up 4.0% year-to-date versus 6.1% for the equal-weighted S&P 500 while the Russell 2000 is up 14.8%.

Looking at recent high-flyers, Apple (AAPL) closed below its 50-day moving average last week for the first time since November. Amazon (AMZN) and Facebook (FB) have not made new highs since September. Alphabet (GOOG) and Microsoft (MSFT) have managed to outperform year-to-date but are looking extremely overextended.

The yield on the 10-year Treasury rose above 1.3% last week, highest than the post-pandemic peak in March, but still well below the pre-pandemic level of over 1.5%.

Stocks to Watch

The Federal Aviation Administration ordered emergency inspections of Boeing (BA) 777 planes equipped with the type of Pratt & Whitney (RTX) engine that broke apart in the air yesterday and scattered debris over suburban Denver.

Bloomberg reports Elliott Management has taken a stake in life insurer Principal Financial Group (PFG) and “plans to push for changes at the life insurance company."

The Wall Street Journal reports M&T Bank (MTB) is nearing an all-stock deal to buy People’s United Financial (PBCT) for more than $7 billion.

The Financial Times reports HSBC Holdings PLC (HSBC) is accelerating its pivot to Asia, moving top executives from London to Hong Kong, scrapping its U.S. retail banking operation, and planning further expansion in Singapore.

A group of activist investors that includes Macellum Advisors GP LLC, Ancora Holdings Inc., and Legion Partners Asset Management LLC, as well as 4010 Capital LLC, that control a combined 9.5% stake in Kohl’s (KSS) are calling for the department-store chain to add directors with retail experience, reduce inventory levels and consider a sale-leaseback of some of the company's non-core real estate.

Sinopec Shanghai Petrochemical (SHI) plans to have 1,000 refueling stations equipped with hydrogen by 2025, as it looks to leverage China’s stated target of 1 million fuel-cell vehicles in operation by 2030.

Xos, a maker of electric commercial vehicles, to go public through a merger with a SPAC NextGen Acquisition (NGAC) at a $2 billion valuation.

After today’s market close, Air Lease (AL), American States Water (AWR), Freshpet (FRPT), Green Dot (GDOT), Nordson (NDSN), Palo Alto Networks (PAWN), The RealReal (REAL), Trex (TREX) and a few dozen other companies will report their quarterly results. Investors looking to get a jump on those reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• February 22: Chicago Fed National Activity, Dallas Fed Manufacturing
• February 23: S&P/Case-Shiller Home Prices, CB Consumer Confidence, weekly API Crude Oil Stocks
• February 24: New Home Sales, weekly EIA Energy Stocks
• February 25: Durable Goods, Weekly Jobless Claims, Pending Home Sales
• February 26: Personal Income & Spending, Goods Trade Balance, Chicago PMI, Michigan Consumer Sentiment
• March 1: Markit Manufacturing PMI, ISM Manufacturing, Construction Spending, Total Vehicle Sales
• March 2: IBD/TIPP Economic Optimism, API Crude Oil Stocks
• March 3: ADP Employment Change, Markit Services PMI, ISM Non-Manufacturing, EIA Energy Stocks
• March 4: Jobless Claims, Nonfarm Productivity, Factory Orders
• March 5: Nonfarm Payrolls, Balance of Trade

Thought for the Day

“Success consists of going from failure to failure without loss of enthusiasm.” ~Winston Churchill.

Disclosures

• Palo Alto Networks (PAWN) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
• Microsoft (MSFT) is a constituent of Tematica Research's Thematic Dividend All-Stars Index.
• Freshpet (FRPT), Trex (TREX) are constituents of Tematica Research’s Cleaner Living Index.

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

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