Bond Bears Bite Bank Stocks - Your Money January 14th 2022
Posted by Steve Bokor
Inflationary stats sent bond investors to cash taking equity investors with them. Multiple central bank presidents emphasized the need to get inflation back down to 2% in speech after speech. In particular, Jay Powell was grilled before a senate banking committee on Tuesday and Lael Brainard’s nomination hearing on Wednesday. The hawkish statements created a mini run for the exits. As it stands now, when the 10 Year US T Bond breaches 1.75%, the sellers come in with emphasis on companies with rising sales but little to no bottom line. Throw in the Omicron virus hitting retailers in the pocketbook, and you have the perfect recipe for analysts cutting target prices. Take a great company like Lulu Lemon, which issued a profit warning for the latest quarter and in no time the stock is down 5%. Unfortunately, it is hurting the Nasdaq more than the broader markets with names like Docusign, Zoom Video and Crowdstrike taking it on the chin during the month of January. 10-year Treasuries closed out the week yielding 1.78% in the US and 1.77% in Canada.
And sadly, the profit taking does not end there. Earnings season unofficially kicked off in New York today with Citigroup, JP Morgan and Wells Fargo plus Blackrock (the world’s largest money manager by assets) all reporting before the open this morning and all four of them missed on either an income statement metric or their most up to date outlook for 2022. Obviously, future inflation targets and the Omicron outbreak are playing havoc with growth targets. JP Morgan for example reported earnings of $3.33 for the 4th quarter on revenue of $30.35 billion both numbers beat the average estimate by the street. Stock tanked 6% today. Go figure.
In fairness, US and Canadian markets sold off this morning but a late afternoon rally pushed most of them back into positive territory thanks to rising energy, industrials and technology stocks. On the Dow for example, the best performing companies include Boeing, Dow Inc and Chevron. All three rose today and were up for the week. Crude oil by the way breached $83.50 today, and that has helped propel energy stocks on both sides of the border. Energy stocks continue to be the best performing sector on the TSX. Top performing names include Tamarack Valley, Secure Energy, Vermillion Energy and Canadian Natural Resources. They were joined by a diverse group of companies like Aritzia (great earnings and an analyst upgrade), Interfor (Lumber is back over $1300) and Teck Resources (copper $4.43 per pound).
Finally, a quick glance at the mega cap tech stocks gives us a split decision with half moving up and half going lower. Alphabet and Tesla top the list moving up 2% this week, but Netflix and Microsoft drifted lower. Interestingly, Canadian tech stocks were mixed as well. Nuvei jumped 7% this week, but Shopify dropped 10%.
Turning to next week, The US market will be closed on Monday for MLK (so it will likely be a quiet day in Toronto), but through the week, the top stories will be housing stats on the economic front combined with 150 US Corps reporting earnings. Banks will take the lion’s share of reports including Goldman Sachs on Wednesday and Bank of America on Thursday. Other names of note include Intel, P&G, United Health (Wed), American Airlines, United Pacific, CSX, Netflix (Thursday). Then things really kick into high gear starting the 24th.
Stay safe and Happy trading.
Cheers Steve and Michele.
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