US FINANCIAL MARKET
Stocks Tumble in Wake of Turbulence on Wall Street – Wall Street Journal, 1/25/2022
- U.S. stocks opened lower, putting markets on course for another day of bumpy trading, as investors awaited the Federal Reserve’s policy meeting and parsed a docket of earnings.
- The S&P 500 fell 1.6% early Tuesday, while the technology-heavy Nasdaq Composite slumped 1.7%. The blue-chip Dow Jones Industrial Average dropped 1.1%.
- The moves follow a jarring intraday reversal Monday, when major indexes clawed back losses to post a big comeback. The Dow reversed losses of more than 1000 points for the first time in history.
- After falling more than 4% in intraday trading, the Nasdaq recorded its biggest reversal since 2008.
- Behind the selloff: fears about the Federal Reserve raising interest rates this year and withdrawing the stimulus that propelled markets in recent years.
- Some investors said they no longer expect the so-called Fed put—or the Fed’s tendency to cut rates or hold off on rate increases in response to market turmoil—to stay in place. Others have been more optimistic.
- General Electric fell over 6% after reporting a fourth-quarter loss of $3.8 billion, while Raytheon Technologies declined 0.5% after posting quarterly revenue that missed analysts’ expectations. Meanwhile, 3M shares rose 0.2% after the company reported a better-than-expected performance.
- Around 77% of companies reporting so far have surpassed analysts’ expectations, according to Refinitiv. That hasn’t been enough to lift stocks.
- The median company beating earnings expectations this quarter has slipped around half a percentage point, while companies missing earnings expectations have fallen around 4%, wrote Morgan Stanley analysts in a note to clients Monday.
- This week, investors will be parsing results from tech heavyweights like Microsoft, Apple and Tesla. These been among the companies weighing on the S&P 500 the most this year, according to Goldman Sachs.
- Federal Reserve officials are set to debate the path of monetary policy, including the speed at which they could shrink the nearly $9 trillion bond portfolio, at their two-day meeting that starts Tuesday. Chairman Jerome Powell is expected to use his postmeeting comments to lay the groundwork for a cycle of interest-rate rises.
- The yield on the benchmark 10-year U.S. Treasury note rose Tuesday to 1.755% in recent trading, from 1.735% Monday. Bond yields move inversely to prices.
- Overseas, Japan’s Nikkei 225 closed down 1.7%, with major decliners including technology and telecom giant SoftBank Group, which fell more than 5%. Australia’s S&P/ASX 200 and South Korea’s Kospi Composite both retreated more than 2%.
- Hong Kong’s Hang Seng Index shed 1.7%.
- European stocks rebounded, having closed Monday before U.S. indexes rallied. The pan-continental Stoxx Europe 600 index was up 0.8% Tuesday.
Pfizer Begins Study Testing Omicron Vaccine in People – Wall Street Journal, 1/25/2022
- Pfizer and BioNTech have started a trial evaluating an adapted version of their Covid-19 vaccine that targets the Omicron variant of the coronavirus.
- The drugmakers said Tuesday they began enrolling adults ages 18 to 55 in the U.S. and South Africa to examine the safety, tolerability and immune response generated by the vaccine if it is given either as a primary series or as a booster dose.
- Initial study results are expected in the first half of the year, Pfizer said. The drugmaker could ask U.S. regulators for authorization and begin distribution in March, should the Omicron-targeted shot prove to work safely, Chief Executive Albert Bourla has said.
- Should the vaccine be needed, Pfizer and BioNTech would still be able to manufacture 4 billion doses of the shot this year, the companies said.
- Pfizer and BioNTech say they want to be prepared with an Omicron vaccine, should regulators and researchers determine one is needed.
Israel Panel Recommends Fourth Dose for Age 18 and Over – Bloomberg, 1/25/2022
- A panel of Israeli health experts has recommended offering a fourth dose of coronavirus vaccine to all adults age 18 and over.
- The shot would be administered only to those who received the vaccine at least five months earlier or recovered from coronavirus at least five months before, the Health Ministry said in a text message. The ministry’s director-general, Nachman Ash, would have to approve the recommendation for it to go into effect.
- The recommendation was made after a ministry study showed that the fourth dose provided three to five times more protection against serious illness, and twice as much protection against infection than just a third dose.
- Israel began administering a fourth inoculation to the immunocompromised and people 60 and over earlier this month.
GE’s Sales Decline 3%, Hit by Supply-Chain Woes – Wall Street Journal, 1/25/2022
- General Electric reported fourth-quarter revenue fell 3%, weighed down by supply-chain difficulties, and projected a return to sales growth this year as its aviation business begins to recover.
- Revenue fell to $20.3 billion from $21 billion a year earlier, missing analyst expectations of $21.31 billion, according to FactSet.
- GE’s Aviation division revenue rose 4% on segment profit of $1.2 billion while orders rose 22% in the quarter. The results were driven by commercial-service revenue, and GE said the division “continues to evaluate and manage the impact of Omicron.”
- Revenue in the health-care division, which makes CT scanners, MRI machines and other hospital equipment, fell 4% because of continuing supply shortages. Profit margins dropped to 16.5% from 19.7% in Healthcare during the quarter from shortages and inflation pressure, GE said.
- Revenue dropped 13% in the power unit, which makes turbines for power plants, to $4.66 billion, while revenue in the renewable energy unit, which mostly makes wind turbines, fell 6% to $4.19 billion.
- Overall, GE swung to a net loss attributable to common shareholders of $3.9 billion for the fourth quarter, mostly dragged down by debt repayment costs, compared with a year-earlier profit of $2.4 billion.
- The Boston conglomerate reported free cash flow from its industrial operations of $3.8 billion, bringing the full-year total to $5.1 billion, and projected 2022 cash flow of $5.5 billion to $6.5 billion.
- GE expects 2022 adjusted earnings of $2.80 to $3.50 a share, below the $4 a share projected by analysts, according to FactSet.
- The company expects revenue to grow in the high-single digits driven by Aviation growth of more than 20%.
Lockheed Martin posts better-than-expected profit, reiterates 2022 sales outlook – Reuters, 1/25/2022
- U.S. weapons maker Lockheed Martin reported better-than-expected quarterly profit on Tuesday, helped by a strong performance at its ships and helicopters unit and venture capital gains, and reiterated its sales guidance for 2022.
- Net sales were $17.7 billion during the fourth quarter, just beating analyst estimates of $17.67 billion.
- Lockheed’s biggest unit, which makes F-35 fighter jets for the United States and its allies, delivered 142 of the stealthy planes in 2021, three more than originally planned.
- Lockheed reported net operating earnings were $2 billion in the fourth quarter, or $7.47 per share, surpassing analyst estimates of $1.98 billion, or $7.12 per share, according to Refinitiv data.
- Last October, the Bethesda, Maryland-based company lowered its 2022 full-year revenue outlook to $66 billion – sending its shares tumbling – citing challenges with its supply chain. Lockheed reaffirmed that 2022 revenue guidance on Tuesday.
- The company said it now expects full-year 2022 earnings per share to be about $26.70, ahead of analysts’ expectation of $26.36 per share, according to data from Refinitiv.
- But the company also said it had been informed by the U.S. Federal Trade Commission that its planed purchase of Aerojet Rocketdyne would raise antitrust concerns, leaving Lockheed either to abandon the transaction or fight a federal lawsuit in order to close the deal.
- The $4.4 billion deal announced in late 2020 is Lockheed’s first large acquisition under new Chief Executive Jim Taiclet.
- It would reshape the competitive landscape for solid rocket fuel missiles which are used with jets and drones
Raytheon sales forecast disappoints as profit beats estimates – Reuters, 1/25/2022
- Raytheon Technologies on Tuesday forecast full-year sales below Wall Street estimates, even as demand for the company’s aerospace products and services benefited from a surge in air travel during the holiday season.
- Raytheon, whose Pratt and Whitney unit supplies aircraft engines to companies like Boeing and Airbus, said fourth-quarter revenue rose to $17.04 billion from $16.42 billion a year earlier.
- Sales fell 10% in its key missile and defense business, where demand remained strong but higher prices, labor shortages and supply chain constraints reduced its ability to make deliveries.
- Ratheon’s net income rose five-fold to $686 million, or 46 cents per share, in the fourth quarter ended Dec. 31 from a year earlier.
- Raytheon forecast full-year sales for 2022 to be in the range of $68.5 billion to $69.5 billion, below the average Refinitiv-IBES estimate of $70.09 billion.
AmEx plays down Omicron impact as spending hits record levels – Reuters, 1/25/2022
- American Express’s finance chief on Tuesday played down the Omicron coronavirus variant’s impact on travel spending after a surge in volumes helped the credit-card giant sail past quarterly profit expectations.
- In the quarter to Dec. 31, spending on travel and entertainment on AmEx cards more than doubled. That pushed up total revenue excluding interest expense by 30%.
- Net income came in at $1.7 billion, or $2.18 per share, higher that analyst estimates of $1.87 per share, according to Refinitiv.
- The profit growth was, however, held back by a 29% surge in expenses due to increased compensation and higher usage of travel-related benefit. The expense jump was in line with figures from other major financial institutions.
- AmEx expects net revenue growth of between 18% and 20% in 2022 and earnings per share of $9.25 to $9.65.
Verizon’s Profit Rises After TracFone Takeover – Wall Street Journal, 1/25/2022
- Verizon Communications’ fourth-quarter profit inched up as the company replaced revenue lost from its digital-media spinoff with new customers under pay-as-you-go wireless giant TracFone.
- Quarterly revenue slipped 1.8% to $34.07 billion, reflecting the divestiture of the media business.
- Wireless-service revenue grew 6.5% to $17.76 billion.
- Verizon, the largest mobile network operator in terms of subscribers, also added 558,000 postpaid phone connections in the December quarter, a figure that trailed growth of competing carriers.
- Fourth-quarter net income attributable to Verizon rose to $4.61 billion from $4.59 billion a year earlier.
- On a per-share basis, Verizon’s profit stayed flat at $1.11.
- Verizon said its total connections—a figure that includes connected devices like smartwatches and tablets but excludes phone service resold through partners like Charter Communications and Comcast — ended the year at 115.4 million. That tally reflected roughly 20 million new TracFone customers.
- For the current year, Verizon forecast organic wireless service revenue growth of at least 3%. The company said its regular capital spending this year will range between $16.5 billion and $17.5 billion.
- It plans to spend an additional $5 billion to $6 billion dedicated to network upgrades supporting its C-band spectrum deployments, up from about $2.1 billion last year.
Johnson & Johnson Posts Higher Quarterly Sales as It Prepares for Split – Wall Street Journal, 1/25/2022
- Johnson & Johnson finished 2021 with its strongest quarter to date for Covid-19 vaccine sales, contributing to year-over-year revenue growth across the company as it prepares to separate its consumer-health division.
- Overall, higher sales from all three of Johnson & Johnson’s segments —consumer health, pharmaceuticals and medical devices—contributed to a 10% rise in revenue.
- In the fourth quarter, Johnson & Johnson posted sales of $24.8 billion, compared with $22.48 billion a year earlier.
- In the consumer business, greater sales of Tylenol and digestive-health products helped bring revenue 1.1% higher year over year. Higher sales of beauty products also contributed to the lift as people returned to social activities.
- Pharmaceutical and medical-device sales grew more briskly, rising by 17% and 4%, respectively.
- Its net earnings were $4.74 billion, a rise from $1.74 billion.
- In 2022, Johnson & Johnson’s total sales will likely reach $98.9 billion to $100.4 billion, the company said, which would be a mid-single-digits percentage rise from 2021. The company forecast an adjusted per-share profit of $10.40 a share to $10.80 a share this year.
IBM marks strong start to new chapter as cloud revenue booms – Reuters, 1/25/2022
- IBM on Monday beat Wall Street estimates for revenue in the fourth quarter, as its focus on the cloud paid off in Big Blue’s first earnings after exiting the slow-growing managed infrastructure business.
- IBM’s revenue rose 6.5% to $16.7 billion, adjusted for the separation of the managed infrastructure services business, now Kyndryl. Analysts on average had expected $15.96 billion, according to IBES data from Refinitiv.
- Revenue at IBM’s consulting business rose 13.1%, while cloud revenue jumped 16% to $6.2 billion in the quarter.
- Excluding items, IBM earned $3.35 per share, beating estimates of $3.30.
- Shares of the IT giant jumped as much as 7% aftermarket before easing to trade flat, with the company reiterating its forecast for mid-single-digit revenue growth in 2022, compared with 3.9% last year.
IMF Cuts 2022 World Economic-Growth Forecast to 4.4% on Weaker U.S., China Outlooks – Bloomberg, 1/25/2022
- The International Monetary Fund cut its world economic growth forecast for 2022 as the Covid-19 pandemic enters its third year, citing weaker prospects for the U.S. and China along with persistent inflation.
- The global economy will expand 4.4% this year, down from an estimate of 4.9% in October, the Washington-based IMF said in its World Economic Outlook on Tuesday.
- The fund forecast 3.8% growth for 2023, up from the prior projection, but cumulative expansion for the two years will still be 0.3 percentage point less than previously forecast.
- The fund slashed its forecast for growth in the U.S. by 1.2 percentage points to 4%. The revision reflects removal of assumptions for a positive impact from President Joe Biden’s Build Back Better social-spending plan, which stalled in Congress; earlier withdrawal of Federal Reserve support; and continued supply-chain bottlenecks
- It trimmed China’s growth forecast by 0.8 point to 4.8%, citing disruptions caused by the pandemic, the nation’s zero-tolerance policy for Covid-19 and disruption in the housing sector.
- India will see the fastest growth among major economies at 9% from 8.5%, due to credit-growth improvements
- The world economy expanded 5.9% last year, the IMF estimated, the most in four decades of detailed data. That followed a 3.1% contraction in 2020 that was the worst peacetime decline in broader figures since the Great Depression.
- Supply-chain disruptions are spurring more broad-based inflation than anticipated, the IMF said, with the annual rate projected to average 3.9% in advanced economies this year, up from a prior 2.3% estimate, and 5.9% in emerging and developing nations.
Nvidia Quietly Prepares to Abandon $40 Billion Arm Bid – Bloomberg, 1/25/2022
- Nvidia is quietly preparing to abandon its purchase of Arm from SoftBank Group after making little to no progress in winning approval for the $40 billion chip deal, according to people familiar with the matter.
- Nvidia has told partners that it doesn’t expect the transaction to close, according to one person, who asked not to be identified because the discussions are private. SoftBank, meanwhile, is stepping up preparations for an Arm initial public offering as an alternative to the Nvidia takeover, another person said.
- The U.S. Federal Trade Commission sued to stop the transaction in December, arguing that Nvidia would become too powerful if it gained control over Arm’s chip designs.
- The acquisition also faces resistance in China, where authorities are inclined to block the takeover if it wins approvals elsewhere, according to one person. But they don’t expect it to get that far.
US ECONOMY & POLITICS
- U.S. Home-Price Growth Slowed in November – Wall Street Journal, 1/25/2022
- U.S. home-price growth decelerated in November as months of fast-rising prices pushed some buyers out of the market.
- The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 18.8% in the year that ended in November, down from a 19% annual rate the prior month.
- The Case-Shiller 10-city index gained 16.8% over the year ended in November, compared with an 17.2% increase in October. The 20-city index rose 18.3%, after an annual gain of 18.5% in October. Price growth accelerated in 11 of the 20 cities.
- A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found a 17.5% increase in home prices in November from a year earlier.
- The median existing-home price in 2021 rose to a record $346,900, up 16.9% from 2020, the National Association of Realtors said earlier this month.
U.S. Consumer Confidence Fell in January on Dimmer Expectations – Bloomberg, 1/25/2022
- U.S. consumer confidence fell in January for the first time in four months as Americans’ views about the outlook for the economy and labor market cooled.
- The Conference Board’s index decreased to 113.8 from a downwardly revised 115.2 reading in December, according to the group’s report Tuesday. Economists in a Bloomberg survey had called for a reading of 111.2.
- Fewer consumers expected the economy to improve, incomes to increase and more jobs to be available in the next six months.
- At the same time, Americans were more upbeat about present business conditions. The share of respondents who said conditions were “good” rose to a six-month high, and buying plans firmed.
- The Conference Board’s expectations index fell to 90.8 from 95.4, while the gauge of current conditions improved to a five-month high of 148.2.
- The share of consumers who expect their incomes to rise fell to 16.7%, the lowest since May. Those who see their wages falling rose to 12.4%, the highest since February.
- Consumers who plan to buy a home in the next six months rose to a record, and plans to purchase cars and major appliances increased to multi-month highs. Following government relief programs, households are flush with cash.
U.S. Considers ‘Potent’ Export Controls Against Russia Amid Ukraine Tensions – Wall Street Journal, 1/25/2022
- The U.S. is prepared to impose sanctions and export controls on critical sectors of the Russian economy if Russian President Vladimir Putin invades Ukraine, U.S. officials said.
- Administration officials declined to provide many specifics on the kinds of sanctions it would impose, but said the selloff in Russian markets, the cost of borrowing money and the value of Moscow’s currency all make the kinds of measures the U.S. plans to impose effective. Export controls would be “potent,” officials said.
- White House officials are preparing for a Russian incursion into Ukraine after Russia has amassed more than 100,000 troops along the country’s borders. In addition to sanctions, the U.S. said it would reinforce NATO forces in Eastern Europe.
- On Monday, the Pentagon announced it was putting up to 8,500 troops on standby for possible deployment to the region.
EUROPE & WORLD
Credit Suisse Warns Profit Will Be Hit by Litigation Costs – Wall Street Journal, 1/25/2022
- Credit Suisse Group issued a profit warning on Tuesday, the latest setback for the beleaguered Swiss bank.
- The bank said its profits for the fourth quarter of last year would be hit by setting aside provisions for legal costs of around 500 million Swiss francs, equivalent to $545 million, mostly related to legacy matters in its investment bank. The charge will be partially offset by real estate sales worth 225 million Swiss francs.
- The profit warning is the latest in a series of blows for the bank. Chairman António Horta-Osório stepped down from his perch earlier this month in the wake of internal reviews into his personal travel and breaches of quarantine rules, The Wall Street Journal has reported.
- Credit Suisse earlier said it expected to make a loss in the fourth quarter and said it would take a 1.6 billion Swiss franc goodwill impairment charge. The bank said it would break even for the fourth quarter before the goodwill charge.
- Credit Suisse on Tuesday attributed the investment banking loss to its pullback in risk and exit from prime services, the unit that lends hedge funds money and processes their trades.
- Credit Suisse in November said it would ax that business after it lost more than $5 billion when Archegos imploded.
TSMC Overtakes Chinese Tech Giants to Become Asia’s Most Valuable Stock – Wall Street Journal, 1/25/2022
- Rising demand for semiconductors has helped lift Taiwan Semiconductor Manufacturing Co. to a market capitalization of $600 billion, making it the most valuable company in Asia.
- Globally, TSMC ranks ninth, according to S&P Global Market Intelligence data based on the latest available closing prices, behind Warren Buffett’s Berkshire Hathaway.
- The company it displaced atop the Asia list is China’s Tencent Holdings, which has suffered from Beijing’s sustained regulatory scrutiny on China’s technology giants.
- TSMC chips can be found inside billions of products, including iPhones, computers and cars. It makes more than 90% of the world’s most sophisticated semiconductors, according to Capital Economics, based on data published by the Semiconductor Industry Association. The chips house transistors less than one-thousandth the width of a human hair.
Airbus Jumps Into Red Hot Air-Cargo Market With Beluga Jets – Bloomberg, 1/25/2022
- Airbus will enter the booming air-freight market, using its massive Beluga jets to transport outsize products such as helicopters, jet engines and space equipment for customers.
- The European planemaker will use five older BelugaST planes based on the A300-600 to form a new airline, Airbus Beluga Transport, according to a statement Tuesday.
- The planes are currently used to ferry large aircraft components such as wings and fuselage sections across its manufacturing sites in Europe.
- The twin-engine BelugaST, whose cargo bay boasts a 47 metric-ton payload, is being replaced internally by the BelugaXL, which is based on the newer A330 model and has even larger capacity and range.
- Airbus will use six BelugaXLs — which can carry two Airbus A350 wings instead of one — as part of its production ramp-up coming out of the coronavirus downturn.
- Alexander Graham Bell inaugurated transcontinental telephone service. (1915)
- The first Winter Olympic games opened at Chamonix, France. (1924)
- President John F. Kennedy held the first presidential news conference carried live on radio and television. (1961)