Daily Markets: Markets Expect 'Go Big' Stimulus Comments From Yellen

Today’s Big Picture

Equities in Asia finished trading today mostly higher, led by the 2.7% jumping the Hong Kong Hang Seng and the 1.4% move higher in Japan’s Nikkei. Equities in China as measured by China’s Shanghai Composite slumped 0.8%. By mid-day trading, equities in the Eurozone were mixed while U.S. futures point to a positive open later this morning.

The December quarter earnings season kicks into a higher gear this week, with around 100 companies set to report over the coming days, and the tone of today’s trading will likely be set by mega-bank earnings out ahead of the market open. In addition to analyzing the usual quarterly metrics, investors will be digging into those results and guidance to assess the renewed impact of the COVID-19 virus and lockdowns. Soon after U.S. equities begin trading today, investors will turn to comments from Treasury Secretary nominee Janet Yellen at her 10 AM confirmation hearing. Yellen is expected to say that the U.S. does not want a weak dollar and that it's time to "act big" on fiscal stimulus, but investors will be waiting to see how she addresses that effort against the backdrop of the U.S. national debt. Given reports that a growing number of congressional Republicans are expressing opposition to President-elect Joe Biden’s $1.9 trillion economic relief proposal, we should expect Wall Street to closely parse Yellen’s words.

Data Download

Coronavirus

First, some much-needed good news. The number of people hospitalized for Covid-19 fell for the sixth consecutive day on Monday to 123,848, according to data from the Covid Tracking Project. On the downside, the number of deaths in the U.S. from the coronavirus is nearing 400,000. Los Angeles County has become the first municipality to have over 1 million coronavirus cases, more than 10% of its population of 10 million. New York Governor Cuomo asked Pfizer (PFE) if the company would sell its coronavirus vaccine directly to the states to help alleviate a shortfall of federally allocated doses.

In England, Covid-19 was the leading cause of death for the second consecutive month in December with the total number of lives lost 25% higher than the average for the prior five years. The UK government is looking to pilot a 24-hour a day network of vaccination centers by the end of this month in its bid to vaccinate the entire nation by September. London’s Heathrow is no longer Europe’s busiest airport, as travel restrictions cut passenger traffic by 73% in 2020, moving Istanbul into first place.

Germany discovered a new mutation of the coronavirus had been discovered among 35 patients at a hospital in the Bavarian ski town of Garmisch-Partenkirchen, southeast Germany. Reports inform this variant is different from recently discovered variants in the UK and South Africa.

Spain has been reporting some of the highest coronavirus infection rates since the beginning of the pandemic, with Monday’s figure 3x the prior month’s level.

Brazil’s health regulator Anvisa has approved the COVID-19 vaccines developed by AstraZeneca (AZN) and Sinovac Biotech (SVA) for emergency use.

Shares of Gritstone Oncology (GRTS) are up in pre-market trading following news the company is advancing the development of a second-generation vaccine against SARS-CoV-2, with potential for both prolonged protection and potency against Spike mutants.

International Economy

China’s economy expanded by a more-than-expected 6.5% in the last quarter of 2020, the fastest pace since 2018, leaving it one of the very few nations to have enjoyed economic growth in 2020. For the full year of 2020 GDP rose 2.3% but remains the weakest calendar year in over 40 years due to the profound contraction in activity early in the year.

Italy’s Prime Minister Conte won a vote of confidence in Parliament yesterday after former Prime Minister Renzi pulled his party’s support from the ruling coalition over its handling of the pandemic. He is facing what is expected to be a far tighter second vote in the senate. If he loses that one, he must give his resignation to Italy’s president Sergio Mattarella.

Construction output in the Eurozone contracted 1.3% YoY in November following an upwardly revised 1.9 percent drop in October. Demand for new passenger cars in the EU fell 3.3% YoY to 1,031,070 units in December. For all of 2020, the EU passenger car market contracted by 23.7% to 9.9 million units, the biggest drop on record, as a direct result of the COVID-19 pandemic.

Germany’s Inflation Rate fell 0.3% YoY in December, which follows a similar drop in November, and matched expectations for the month.

The International Energy Agency now sees world oil demand recovering by 5.5 million barrels per day to 96.6 million this year. While that sounds positive, it reflects a downward revision of 0.3 million barrels from the prior month’s forecast. The catalyst for the cut - soaring Covid-19 cases and renewed lockdown measures.

Domestic Economy

Friday’s Retail Sales report for December missed forecasts for the third consecutive month. On a headline basis, retail sales fell 0.7% MoM versus expectations for them to remain unchanged from November. Ex Autos and gas, results were even more grim, falling 2.1% MoM versus expectations for a 0.3% decline. In addition, November’s already weak report was revised even lower. Retail sales have now declined for three consecutive months and while that may not on the surface sound all that impressive, going back to 1992, there has only been one other period when headline sales declined for over three months - during the great financial crisis. The biggest winner for December was sales at gas stations, up 6.6% MoM, followed by Clothing, up 2.4%. The biggest loser was online sales, down 5.8% MoM, followed by Electronics & Appliances, down 4.9%.

Friday also brought the New York Fed’s read on the manufacturing sector, which was still expanding, but at a slower pace in January, falling to 3.5 from 4.9, versus expectations for an acceleration to 6.0. This is the lowest reading since June.

Later today will bring data on overall Net Capital Flows, Foreign Bond Investment, and Net Long-term TIC flows.

Markets

Markets Friday were mostly weaker across the board with the Dow dropping 0.6% and the S&P 500 falling 0.7% as 312 of its components closed lower on the day. The Nasdaq dropped 0.9%, the Russell 2000 lost 1.5% while the VIX rose 4.7%. So far this year the Russell 2000 is up 7.5%, the Nasdaq Composite is up 0.9%, the Nasdaq 100 down 0.7%, and the S&P 500 is up 0.3%.

According to data from Bespoke Investment Management, those companies in the decile of Russell 3000 stocks with the highest short interest as a percentage of float have been the strongest performers so far in 2021, up for an average of 14.2%. As we move down the declines with lower short interest levels, the year-to-date performance declines. The tenth decile of stocks with an average short interest level below 1% is up just 2.8% this year on average.

Stocks to Watch

Investors will dig into December quarter results this morning from Bank of America (BAC), Charles Schwab (SCHW), Goldman Sachs (GS), and PetMed Express (PETS).

December quarter results at Logitech International (LOGI) topped top and bottom-line expectations and the company boosted its 2021 outlook. For the coming year, the company sees constant currency sales growth between 57%-60% and approximately $1.05 billion in non-GAAP operating income.

Citrix (CTXS) reported December quarter results that topped consensus expectations but guided current quarter EPS below the consensus forecast. For the current quarter, the company sees EPS of $1.40-1.45 vs. the $1.48 consensus and revenue in the range of $785-795 million vs. the $791.4 million consensus. Citrix also announced it would acquire SaaS collaborative work management space company Wrike for $2.25 billion in cash.

Apple (AAPL) is exploring a subscription podcasting service and shared it would re-close 22 retail stores in Texas, North Carolina, and Georgia. Other reports suggest Apple is planning the first redesign of its iMac all-in-one personal computer in at least eight years.

The Trump administration notified Huawei suppliers, including chipmaker Intel (INTC), that it is revoking certain licenses to sell to the telecom equipment supplier and intends to reject dozens of other applications to supply the Chinese company.

Chinese electric vehicle (EV) company XPeng (XPEV) revealed a beta version of its Navigation Guided Pilot (NGP), an autonomous feature that will allow the company's flagship P7 sedan to automatically change lanes, speed up or slow down, overtake cars, and enter and exit highways.

BMW (BMWYY) shared it targets doubling its sales of fully-electric vehicles in 2021. The company currently produces 13 electrified models, including hybrids, and sold 193K electrified vehicles across 74 markets last year.

Western Union (WU) and Walmart (WMT) agreed to offer Western Union money transfers at Walmart locations across the U.S.

NXP Semiconductors NV (NXPI) announced it is laying the foundation for a new era of Wi-Fi 6 devices that can operate in the 6GHz band with its new CW641 Wi-Fi 6E Tri-Band system-on-chip.

eMarketer sees programmatic advertising on connected TVs hitting $6.73B in 2020 and is headed for $8.7 billion this year, up 29% YoY from $6.73 billion in 2020. Investors looking to capture this incremental spend should look at companies like The Trade Desk (TTD).

Following massive user backlash, Facebook (FB) has decided to delay its controversial update to WhatsApp's privacy policy.

Tesla (TSLA) delivered its first made-in-China Model Y compact crossover vehicles.

Cisco Systems’ (CSCO) purchase of Acacia Communications (ACIA) was approved by China’s antitrust regulator on the condition “the companies ensure fair competition.”

Following the completion of the merger of Peugeot S.A. and Fiat Chrysler Automobiles N.V. on January 16, the combined company was renamed Stellantis NV (STLA) and will trade under the symbol STLA.

Reports suggest Lumentum (LITE) is in advanced talks to buy Coherent (COHR) in a cash-and-stock deal that could be announced as soon as this week. Coherent also announced it sees revenue upside for the December quarter to $325-$327 million vs. the $314 million consensus.

After today’s market close, Interactive Brokers (IBKR), JB Hunt Transportation (JBHT), Netflix, and (NFLX) among others will report their quarterly results. Investors looking to get a jump on those reports and other such ones to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• January 20: Chief Justice Roberts swears in the President, NAHB Housing Marking Index, API Crude Oil Stocks
• January 21: Building Permits, Housing Starts, Philly Fed Manufacturing, Weekly Jobless Claims
• January 22: Markit Manufacturing and Services Flash PMIs, Existing Home Sales, Energy stocks
• January 25: Chicago Fed National Activity, Dallas Fed Manufacturing
• January 26: FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
• January 27: FOMC rate decision, MBA Mortgage applications, Durable Goods
• January 28: Retail Inventories, weekly Initial Jobless Claims, GDP, Leading Index, New Home Sales, Kansas City Fed Manufacturing
• January 29: Personal Income and Spending, Employment Cost Index, PCE Deflator, Chicago PMI, Pending Home Sales, University of Michigan Consumer Sentiment
• February 1: Markit Manufacturing PMI Final, Construction Spending, ISM Manufacturing, Total Vehicle Sales
• February 2: IBD/TIPP Economic Optimism, API Crude Oil Stocks
• February 3: ADP Employment Change, Markit Service PMI, ISM Non- Manufacturing PMI, EIA energy stocks
• February 4: Jobless claims, Nonfarm Productivity Q4, Factory Orders
• February 5: Nonfarm Payrolls, Balance of Trade

Thought for the Day

“Don’t spend time beating on a wall, hoping to transform it into a door.” — Coco Chanel

Disclosures

• Acacia Communications (ACIA), Cisco Systems (CSCO), Citrix Systems (CTXS), NXP Semiconductors NV (NXPI) are constituents in the Tematica BITA Digital Infrastructure and Connectivity Index.
• Cisco Systems (CSCO) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
• Walmart (WMT) is a constituent of Tematica Research's Thematic Dividend All-Stars Index.
• Tesla (TSLA) is a constituent 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.

Other Topics

Economy Politics Earnings Stocks