Daily Market Report | January 24, 2022
US FINANCIAL MARKET
S&P 500 Drops to Correction Territory Amid Market Fall
- Stocks, oil and cryptocurrencies fell, continuing the market’s bruising start to the year, as investors prepared for a Federal Reserve meeting and tracked tensions between the West and Russia over the military buildup on the border with Ukraine.
- The S&P 500 fell 2.4% in morning trading. The swift drop put the broad benchmark index into correction territory, defined as a 10% drop from a recent high. The S&P 500 has declined for three consecutive weeks, and last week it suffered its biggest weekly drop since March 2020.
- The technology-focused Nasdaq Composite lost 2.7%. The Dow Jones Industrial Average dropped 1.7%, or more than 560 points, putting the blue-chips index on track for its seventh consecutive day of losses.
- Tesla, which is due to file earnings Wednesday, lost 7.4%. Shares of Moderna fell 7.1% and fellow vaccine maker Pfizer shed 2.6%. Chip maker Nvidia, one of last year’s strongest performers, fell 2.6%.
- The yield on 10-year Treasury notes fell to 1.710% from 1.747% Friday as investors fled to the safety of government bonds.
- Yields move in the opposite direction from prices. Last week, the 10-year yield hit its highest level in more than two years.
- The losses in once-hot investments continued Monday. Bitcoin was trading at about $33,578, down more than 5% from its 5 p.m. ET level on Sunday. Cathie Wood’s Ark Innovation ETF, a big winner in 2020, fell 2.3%.
- Fears of a possible Russian invasion of Ukraine are also weighing on markets, analysts said. The State Department on Sunday instructed the families of U.S. diplomats in Ukraine to leave the country, while the White House is considering sending several thousand troops to Europe.
- Investors are looking ahead to a fresh batch of corporate earnings reports this week, including from some big tech companies.
- International Business Machines is due to report quarterly results after the closing bell on Monday, followed by General Electric, Microsoft, Apple and Tesla later in the week.
- About a fifth of companies on the S&P 500 have filed results, and 82% have beaten analysts’ expectations for earnings per share, according to FactSet.
- Overseas stock markets fell. The Stoxx Europe 600 tumbled 3.7%, dragged down by shares of travel, leisure, and basic-resource companies.
- Asian markets were mixed. Hong Kong’s Hang Seng fell 1.2%, while the Shanghai Composite Index was flat and Japan’s Nikkei 225 rose 0.2%.
- Chinese internet stocks came under pressure. Hong Kong-listed shares of Alibaba Group and JD.com fell 6.3% and 5.6%, respectively.
U.K. Ends Tests for Visitors; Pfizer Zaps Omicron: Virus Update – Bloomberg, 1/24/2022
- Pfizer and BioNTech said a pair of laboratory studies confirmed that three doses of their Covid-19 vaccine produce antibodies that can neutralize the omicron variant.
- Beijing eased a testing requirement for the Winter Olympics even as a growing number of cases associated with the games are being found. In the Chinese city of Xi’an, a month-long lockdown was ended after a virus outbreak was stamped out.
- The U.K. will stop requiring vaccinated travelers to take a Covid-19 test after arriving in England, Prime Minister Boris Johnson said.
- Meanwhile, an Israeli study found that a fourth vaccine dose for older adults leaves them better protected against coronavirus infection.
- Iran on Monday reported its highest daily coronavirus infections since Nov. 10, with 7,691 cases that brought the country’s total tally to over 6.2 million.
- Hong Kong’s onerous system of hotel quarantine may have seeded an omicron outbreak that’s led to thousands of people being locked down, prompting calls for reform of the controversial setup.
- An outbreak of over 200 at a public housing estate was confirmed, and the preliminarily positive cases on Monday were traced to a traveler who caught omicron while undergoing 21 days of isolation at a hotel in Kowloon. While she entered the hotel Covid-free, the pathogen was transmitted to her from an infected person staying at the same hotel.
- The Chinese city of Xi’an lifted a monthlong lockdown after a Covid outbreak was stamped out. Capacity limits will still apply at restaurants, tourism sites and theaters, and family dinners will be capped at 10 people.
- The city of 13 million people was plunged into lockdown last month as China adheres to a strict Covid-Zero policy.
- But even as the delta flareup in Xi’an eases, Chinese authorities are now having to turn their attention to containing the highly transmissible omicron variant.
- The strain has been reported in seven out of 31 provinces and all of China’s biggest cities including Beijing and Shanghai. China reported 18 local confirmed Covid-19 cases on Jan. 23, with six in Beijing, three in Hebei and three in Yunnan, the National Health Commissions said in a statement.
Halliburton doubles quarterly profit, boosts dividend as oil rebounds – Reuters, 1/24/2022
- Halliburton’s fourth-quarter adjusted profit doubled from a year earlier, it said on Monday, beating analysts’ forecasts and prompting the oilfield services company to lift its dividend following a rebound in crude and natural gas prices.
- Revenue of $4.3 billion also beat analysts’ expectations of $4.1 billion.
- Halliburton’s fourth quarter adjusted net income totaled $320 million, or 36 cents per share, topping Wall Street estimates of 34 cents a share, according to Refinitiv IBES.
- Adjusted net income was $160 million, or 18 cents per share, a year ago.
- Halliburton estimates the North American completions market is nearing 90% utilization, and said its fleets are currently sold out. Fully electric hydraulic fracturing locations are expected to take up a larger share of the market, Miller told investors.
- The Houston, Texas-based firm said it would boost its dividend to 12 cents, payable on March 23, up from a 4.5 cents dividend previously.
Ford to halt orders for hybrid pickup Maverick – Reuters, 1/24/2022
- Ford Motor said on Monday it would halt retail orders for the Maverick, an affordable pickup that the automaker rolled out last year, as it did not have the capacity to meet overwhelming demand.
- The company will stop taking new orders after Jan. 27 to focus on existing bookings, although customers may still be able to purchase a Maverick at their local Ford dealer.
- The company will resume taking orders for the 2023 Maverick in the summer, it said in an emailed statement.
- The Maverick compact pickup truck was launched in June with a gasoline-electric hybrid powertrain as standard equipment, a technology choice aimed at keeping the vehicle’s starting price below $20,000.
Ford launches high-performance Bronco Raptor – Reuters, 1/24/2022
- Ford Motor on Monday launched a Raptor variant of its Bronco SUV, expanding its Bronco lineup with a new high-priced model.
- Ford said the Bronco Raptor is set to hit the roads this summer and customers can begin placing orders in March.
- The Raptor’s improved off-roading capabilities and 3.0 liter twin turbo ecoboost engine will help Ford directly compete with the Jeep’s Wrangler Rubicon model.
- The Raptor lineup, which usually features pickup trucks like its F-150 and the Ranger, was created to mirror off-road trophy truck designs onto their street-legal counterparts.
Boeing Expands Focus on Air Taxis – Wall Street Journal, 1/24/2022
- Boeing said it is investing a further $450 million in its air-taxi joint venture with Google co-founder Larry Page, developing small, pilotless aircraft for short passenger hops in and around cities.
- The company’s Silicon Valley-based Wisk venture joins an expanding crowd of electric air vehicles that have attracted billions of dollars in new funding over the past year. Some aim to start service by the middle of the decade, though those efforts hinge on an evolving regulatory framework to ensure passenger safety.
- Rival plane makers Airbus SE and Embraer SA are developing their own electric air taxis alongside other startups that have attracted interest and investment from airlines, private jet operators and aircraft leasing companies.
- The U.S. Air Force is also involved with developing flying taxis for military use.
Google Deceived Users About Location Tracking, New Suit Alleges – Wall Street Journal, 1/24/2022
- Washington, D.C., and two states filed new lawsuits against Alphabet’s Google, accusing it of deceiving consumers by recording their location even after users tried to turn off the company’s tracking.
- Google falsely told customers that if they opted out of collection of their “Location History” or other settings, Google wouldn’t store the places they went, according to a lawsuit filed Monday in the District of Columbia’s Superior Court.
- In fact, the suit alleges, Google still tracks people’s movements using information from its search engine, Maps app, Wi-Fi and Bluetooth services.
- It alleges that reality is inconsistent with Google’s public statements about giving users control over what information the company can collect.
US ECONOMY & POLITICS
Fed Steps Up Deliberations on Shrinking Its $9 Trillion Asset Portfolio – Wall Street Journal, 1/24/2022
- Federal Reserve officials are set to resume discussions this week over how fast they will shrink their nearly $9 trillion bond portfolio when the time comes, which would serve as a tool for tightening monetary policy as they try to curb high inflation.
- Officials are on track at their meeting Tuesday and Wednesday to approve a final tranche of bond purchases, allowing them to end the stimulus program by March—when they are likely to raise interest rates to cool the economy, according to their recent public comments.
- The Fed’s asset portfolio, sometimes referred to as its balance sheet, has more than doubled since March 2020. The Fed bought nearly $1.5 trillion in Treasurys in March and April 2020 to prevent turmoil in the market for U.S. government debt from igniting a broader financial meltdown, when the coronavirus pandemic triggered a dash for dollars.
- After the Fed completed a similar round of bond-buying stimulus in 2014, it kept its holdings steady by reinvesting the proceeds of maturing securities into new ones for more than 2½ years before slowly and gradually allowing more securities to mature without any reinvestments, shrinking the balance sheet.
- Fed Chairman Jerome Powell and several colleagues have indicated such a turn from expanding the portfolio to contracting it is likely to be measured in months and not years this time around.
Rate-Hike Bets Show Traders Doubt Fed Will Ride to Rescue on Equities – Bloomberg, 1/24/2022
- Interest-rate markets remain resolute in anticipating that the Federal Reserve will plow on with increasing borrowing costs even as riskier assets tumble globally and geopolitical discord ramps up.
- Swap markets show a quarter-point Fed rate increase is priced in for March and close to a full percentage point is in the market for the whole of 2022.
- The gap between 2- and 10-year securities touched as little as 70 basis points, a level last seen in late 2020.
- The yield on the two-year Treasury, a tenor that’s closely linked to central bank expectations, remained near its level from the end of last week even as fears around Russia and other issues weigh on equity futures. The government is slated to auction two-year notes later in the day.
Red-Hot Inflation Grips Pockets of U.S. Midwest and South With Rates Over 9% – Bloomberg, 1/24/2022
- The American heartland has become an inflation hotbed, highlighting how difficult it will be for U.S. policy makers to cool decades-high inflation that is gripping the economy.
- Small towns in the Midwest and South are among the hardest hit, with consumer prices rising 9% or more — faster even than the red-hot national average of 7%.
- The state with the most small cities registering inflation of at least 8% last quarter was Wisconsin, a place better known for its cheese and factories than high living costs. A close second was Texas, where several oil towns experienced a surge in prices at the end of the year.
- The findings are based on data from Moody’s Analytics, which include 400 metro regions. Zooming in on cities with fewer than 200,000 people provides a more detailed account than government figures, which break down consumer prices in about two dozen large cities, obscuring the local experience of more rural and suburban Americans.
U.S. Food Supply Is Under Pressure, From Plants to Store Shelves – Wall Street Journal, 1/24/2022
- The U.S. food system is under renewed strain as Covid-19’s Omicron variant stretches workforces from processing plants to grocery stores, leaving gaps on supermarket shelves.
- In Arizona, one in 10 processing plant and distribution workers at a major produce company were recently out sick. In Massachusetts, employee illnesses have slowed the flow of fish to supermarkets and restaurants.
- Food-industry executives and analysts warn that the situation could persist for weeks or months, even as the current wave of Covid-19 infections eases. Recent virus-related absences among workers have added to continuing supply and transportation disruptions, keeping some foods scarce.
- Now some executives say supply challenges are worse than ever. The lack of workers leaves a broader range of products in short supply, food-industry executives said, with availability sometimes changing daily.
- In-stock levels of food products at U.S. retailers hit 86% for the week ended Jan. 16, according to data from market-research firm IRI. That is lower than last summer and pre-pandemic levels of more than 90%.
- Sports drinks, frozen cookies and refrigerated dough are especially low, with in-stock levels in the 60% to 70% range. In-stock rates are lower in states such as Alaska and West Virginia, IRI data show.
EUROPE & WORLD
Omicron Slows Europe’s Economy but Supply-Chain Strains Ease – Wall Street Journal, 1/24/2022
- Rising infection rates driven by the faster-spreading Omicron variant of Covid-19 led to economic slowdowns in Europe, Japan and Australia as 2022 got under way, but a further easing of supply-chain strains helped support factory activity.
- In the eurozone, data firm IHS Markit’s composite Purchasing Managers Index–which measures activity in both the manufacturing and services sectors–fell to 52.4 from 53.3 to hit an 11-month low.
- However, the economic slowdown was entirely confined to the services sector, while manufacturing output rose at the fastest rate in five months.
- Japan and Australia also saw sharp slowdowns in services activity, although in contrast with Europe, they led to a decline in overall economic activity.
- Eurozone businesses reported that worker absences due to infection were a drag on activity in both services and manufacturing, but they also reported a further easing in supply-chain problems, and a slowdown in the rate at which their raw material and input costs were rising.
- However, they themselves raised their prices at the fastest pace on record, an indication that consumer-price inflation is set to remain high over coming months.
NATO to Send Ships, Jet Fighters to Eastern Europe Amid Standoff With Russia – Wall Street Journal, 1/24/2022
- NATO allies are bolstering the alliance’s eastern flank in response to Russia’s military buildup around Ukraine, as the European Union set out plans for loans and grants for Kyiv worth more than $1.3 billion.
- The moves are part of sharpening efforts by the U.S. and its allies to gird for what they believe could be an imminent military invasion of Ukraine, which Russia denies it is planning.
- NATO said allies were putting forces on standby and sending ships and jet fighters to its northeastern and southeastern member countries.
- Denmark said it was dispatching a frigate to the Baltic Sea and would send four F-16 jet fighters to Lithuania. Spain is sending ships to join NATO forces in the Black and Mediterranean Seas and is considering sending jet fighters to Bulgaria. The Netherlands is deploying two F-35 jet fighters to Bulgaria from April. France has said it could send troops to Romania.
No respite for China’s stressed out supply chains as Covid-zero and new year holidays take a toll – CNBC, 1/24/2022
- Covid lockdowns, quarantines and restrictions are causing a backlog in some of China’s major ports, resulting in “chaos” and pushing up air freights by as much as 50% in some cases, analysts tell CNBC.
- Ahead of the extended Lunar New Year holiday in China, air freight rates have spiked and some shipping firms have suspended services, putting the spotlight on overwhelmed supply chains again.
- China’s key priority right now is to limit the spread of Covid cases ahead of next month’s Winter Olympics and the upcoming Lunar New Year, he added. However, the ensuing curbs at ports have also let to some “chaos.”
- Cases have been reported in the key port cities of Shenzhen, Tianjin and Ningbo, as well as the industrial hub of Xi’an, sparking lockdowns and other curbs.
- The capital of Beijing reported its first locally transmitted omicron infection on Jan. 15. On Sunday, less than two weeks before the Winter Olympics, Beijing’s authorities introduced new restrictions to contain a recent outbreak after nine locally transmitted cases were found in Beijing a day earlier.
Evergrande Asks Overseas Creditors for More Time – Wall Street Journal, 1/24/2022
- China Evergrande Group asked international creditors to give the giant property developer more time to get a grip on its complicated financial situation, and warned that drastic legal action could be destabilizing.
- The plea came days after a group of international bondholders threatened to enforce their legal rights against Evergrande, saying they had been unable to engage substantively with the troubled Chinese real-estate company for months.
- Advisers to some Evergrande bondholders last Thursday released a statement accusing the developer of withholding crucial information about its liabilities and failing to engage, despite statements to the contrary.
- The developer said it is working with its advisers to communicate with overseas debt holders and has told creditors that it was sparing no effort to evaluate its situation, stabilize its business, and formulate a comprehensive restructuring plan.
Philips expects summer recovery from supply chain woes – Reuters, 1/24/2022
- Dutch health technology company Philips said on Monday it expects sales to recover strongly in the second half of the year, while a steep decline due to global shortage of parts is likely to persist in the coming months.
- Philips earlier this month warned that supply chain woes would hit profit and a ventilator recall needed to be expanded, sending its shares down over 15% on their worst day on the financial markets in decades.
- “We expect to start the year with a comparable sales decline, followed by a recovery and strong second half of the year,” Chief Executive Officer Frans van Houten said in a statement.
- This should lead to between 3% and 5% growth in comparable sales in 2022, with a 40 to 90 basis points improvement in the adjusted earnings before interest, tax and amortisation (EBITA) margin, he added.
- The Amsterdam-based company said its comparable sales fell 10% in the fourth quarter of 2021, while adjusted EBITA dropped 35% to 647 million euros, in line with provisional numbers released on Jan. 12.
Factmonster – TODAY in HISTORY
- Roman emperor, Gaius Caesar, better known as Caligula (meaning Little Boot—he used to wear military boots as a child), was murdered. (41)
- Gold was first discovered in California, in Sutter’s mill. When President Polk announced the news in December, the gold rush began. (1848)
- The Casablanca Conference with Franklin D. Roosevelt and Winston Churchill concluded. (1943)
- Japanese soldier Shoichi Yokoi was discovered in Guam, having spent 28 years hiding in the jungle thinking World War II was still going on. (1972)
- The Department of Homeland Security, under Tom Ridge, became a cabinet department. (2003)
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