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Daily Market Report | Jan. 29, 2021

U.S. Stocks Fall as GameStop Frenzy Builds – Wall Street Journal, 1/29/2021

  • U.S. stocks fell Friday as frenzied trading continued to drive GameStop and other heavily shorted shares, pointing to a volatile end to 2021’s first month of trading.
  • Shares of GameStop jumped roughly 70% after closing down 44% Thursday.
  • AMC Entertainment was up 54%. Robinhood Markets, a popular venue for online traders that had restricted trading in GameStop and AMC, said late Thursday it would reinstate some trading in stocks that it had curbed earlier.
  • The frenetic trading has caught the attention of lawmakers and regulators. On Thursday, both Rep. Alexandria Ocasio-Cortez (D., N.Y.) and Sen. Ted Cruz (R., Texas) took to Twitter to criticize Robinhood.
  • On Friday morning, the Securities and Exchange Commission (SEC) said it was reviewing the trading curbs by brokerage firms and was also on the lookout for potentially manipulative trading.
  • Consumer spending in the U.S. declined by 0.2% in December, according to data from the Bureau of Economic Analysis.
  • It fell for the second straight month due to a rise in coronavirus cases, although a little less than economists had predicted.
  • Household incomes rose 0.6%, which could prime the economy for growth later this year.
  • Pharmaceutical company Novavax soared 67% after it said its Covid-19 vaccine was 89% effective in a late-stage trial in the U.K. Johnson & Johnson fell 3% after saying its own vaccine was 66% effective.
  • Swedish telecom Ericsson jumped 12% after it posted earnings that beat estimates and said it had gained market share. Meanwhile, Nokia’s shares listed in Finland rose 5.8%.
  • The cellphone company’s U.S.-listed shares have been among those buffeted by retail investors in recent days.
  • In Asia, most major benchmarks declined. The Shanghai Composite Index edged down 0.6% and Japan’s Nikkei 225 fell 1.9%. South Korea’s Kospi index retreated 3%, in the biggest daily drop in five months.
  • Bitcoin gained 11% to trade at $37,034. Tesla CEO Elon Musk mentioned the cryptocurrency in his Twitter account, writing “#bitcoin.”

Covid-19 Live Updates: Hospitalizations Steadily Decline – Wall Street Journal, 1/29/2021

  • Hospitalizations due to Covid-19 in the U.S. fell to their lowest level since Dec. 7, as the nation marked its 12th day in a row in which newly reported cases were below 200,000.
  • A total of 104,303 people were hospitalized due to the disease as of Jan. 28, according to the Covid Tracking Project.
  • The number of people in intensive care units also declined slightly to 20,113.
  • Newly reported cases ticked up to more than 164,000 for Thursday from around 152,000 the previous day, according to data compiled by Johns Hopkins University. The data may update later.
  • The country’s daily death toll remained high as it has for most of January, with more than 3,800 fatalities reported for Thursday, while the total figure surpassed 433,000.
  • A continuing worry in the battle to curb the spread of the virus is the emergence of new variants. Health authorities in South Carolina said Thursday they have identified two people who were infected with a coronavirus variant that was first detected in South Africa and could evade some treatments.
  • The two adults haven’t traveled to South Africa and aren’t connected to one another, authorities said, suggesting that the variant, known as B.1.351, is potentially circulating in the community.

J&J Covid-19 Vaccine Was 66% Effective in Late-Stage Study – Wall Street Journal, 1/29/2021

  • Johnson & Johnson said its experimental Covid-19 vaccine was 66% effective at protecting people from moderate to severe disease in a large clinical trial, positive results that could pave the way for its deployment across the U.S. within weeks.
  • The J&J vaccine also appeared to be generally safe and well tolerated among the 44,325 adults aged 18 years and older in the late-stage trial, J&J said Friday, though some of the volunteers reported side effects like fever.
  • The J&J shot would also be more convenient for people getting vaccinated, since they would only need to take one shot rather than the two required for the Covid-19 vaccines that have been available since December.
  • One potentially troubling sign: The vaccine’s efficacy rate varied among the regions in the study, at 72% in the U.S., 66% in Latin America and 57% in South Africa, J&J’s interim analysis found, which could indicate the vaccine didn’t work as well against new virus variants.
  • The results haven’t yet undergone the vetting by outside experts that typically precede publication in a medical journal. J&J said it would submit the data for publication in the coming weeks.

Novavax Vaccine Is 89% Effective Against Covid-19 in U.K. Study – Wall Street Journal, 1/29/2021

  • Novavax said Thursday its Covid-19 vaccine was 89.3% effective at protecting people from the disease in an interim analysis from its late-stage study in the U.K., where a worrisome strain of the coronavirus has been circulating.
  • In the study, 62 people came down with Covid-19 with symptoms after receiving either the vaccine or placebo, Novavax said. Of these, six had received the vaccine and 56 had gotten the placebo.
  • Yet the vaccine was less effective in a separate, middle-stage study in South Africa, where yet another variant has spread.
  • In South Africa, the Novavax shot was about 49.4% effective against Covid-19 in the study.
  • Preliminary results showed that more than 90% of the sick subjects for whom sequencing data were available were infected with the new variant circulating in South Africa.

Visa profit beats estimates as holiday shopping drives rebound – Reuters, 1/28/2021

  • Visa beat Wall Street estimates for quarterly profit on Thursday, as its customers shopped online during Christmas and New Year holidays, driving a recovery in payment volumes from the coronavirus-induced slump.
  • Visa said total spending rose 5% on a constant dollar basis from a year earlier, after dropping 10% in the previous quarter.
  • Cross-border volume slumped 21% from a year earlier, but improved from the prior quarter when they crashed 47%.
  • Visa reported a net income of 1.42 per Class A share for the first quarter ended Dec. 31, compared with analysts’ estimates of $1.28 per share, according to IBES data from Refinitiv.
  • Visa’s shares gained 1.2% as the company said the number of processed transactions rose 4% and that it approved a new $8 billion share buyback program.

Honeywell profit drops 13% as pandemic hits aerospace sales – Reuters, 1/29/2021

  • Honeywell International on Friday reported a 13% fall in quarterly profit as the coronavirus crisis hurt sales in its main aerospace business, which makes parts for Boeing and Airbus planes.
  • Net sales fell 6% to $8.90 billion in the quarter.
  • Net income attributable to Honeywell fell to $1.36 billion, or $1.91 per share, in the fourth quarter ended Dec. 31, from $1.56 billion, or $2.16 per share, a year earlier.
  • The company forecast 2021 sales between $33.4 billion and $34.4 billion, up 2% to 5% compared with 2020, though the midpoint came in slightly below analysts’ expectation of $33.95 billion.
  • Honeywell’s aviation unit is also seeing improved demand for spares for business jets, as wealthy travelers look to avoid commercial flights during the COVID-19 pandemic.

Caterpillar Flags Signs of Recovery Amid Slack Demand – Wall Street Journal, 1/29/2021

  • A construction slowdown during the coronavirus pandemic is hurting demand for Caterpillar’s heavy machinery, but the manufacturer said dealers and customers expect a turnaround this year.
  • In all, revenue in the quarter fell 15% to $11.26 billion from the quarter a year before.
  • Revenue declined in each of Caterpillar’s main businesses: construction, mining, and energy and transportation.
  • Caterpillar said its service and parts revenue fell to $16 billion in 2020, down from $18 billion in 2019, showing how the pandemic is making it more difficult for companies to stick by preset strategies.
  • Profit declined 29% to $780 million.
  • Still, Caterpillar said it sees signs of a turnaround. Its order backlog increased in its fourth quarter compared with the previous three months and a year earlier as dealers ordered new machines ahead of the traditionally busy spring season.
  • For the current first quarter Caterpillar said it expects stronger sales of construction equipment in particular.

Chevron Posts Quarterly Loss to Cap Worst Year Since 2016 – Wall Street Journal, 1/29/2021

  • Chevron posted its third consecutive quarterly loss Friday to close its worst year since 2016, as the global pandemic continues to weigh on the oil-and-gas industry and cloud hopes for renewed economic growth in 2021.
  • The company’s revenues were much higher in the fourth quarter of 2019, at about $36 billion compared with $25 billion in the last quarter of 2020.
  • Chevron’s oil-and-gas-production unit posted $501 million in profit for the fourth quarter, but the company’s results were weighed down by its refining and chemical businesses, as well as higher pension expenses and costs related to its $5 billion acquisition of Noble Energy last year.
  • The company’s oil and gas production increased 1% in 2020 from the previous year to 3.08 million barrels a day, in part because Chevron added Noble’s output.
  • Chevron’s loss of $665 million in the fourth quarter compared with a loss of $6.6 billion during the same period in 2019, which was driven by a roughly $10 billion write-down.

Refiner Phillips 66 posts wider adjusted Q4 loss on demand slump – Reuters, 1/29/2021

  • U.S. refiner Phillips 66 on Friday reported a wider adjusted loss compared to the previous quarter, as rising crude prices and pandemic-hit fuel demand pressured its refining and marketing businesses.
  • The company reported adjusted net loss of $507 million, or $1.16 per share, in the fourth quarter, compared with a loss of $1 million, or 1 cent per share, in the third quarter.
  • Like rival Valero has noted, Phillips 66 on Friday said it was optimistic about the impact of the COVID-19 vaccines on the economic recovery.

Mondelez Says Its Snacks Gained Share During Pandemic – Wall Street Journal, 1/28/2021

  • Mondelez International said it is making investments to maintain the ground it gained on competitors last year as shoppers bought more of its snacks while they spent time at home during the pandemic.
  • Mondelez said revenue in the fourth quarter rose 5.6% to $7.3 billion.
  • The Chicago-based maker of Oreos and Triscuits said Thursday that comparable sales rose 3.2% annually in the fourth quarter, in line with expectations.
  • The company’s comparable sales in emerging markets increased 4.1% in the fourth quarter, compared with a 1.7% rise in the first three quarters of last year.
  • Mondelez said demand in larger emerging markets including China has rebounded, while smaller one such as Mexico are still in a slump.
  • It reported net income of $1.16 billion and an adjusted profit of 67 cents per share.

Eli Lilly profit beats estimates on demand for cancer, diabetes drugs – Reuters, 1/29/2021

  • Eli Lilly beat Wall Street estimates for fourth-quarter profit on Friday, boosted by strong demand for its diabetes and cancer drugs and a partial lift from sales of its COVID-19 antibody treatment.
  • Overall sales rose 21.7% to $7.44 billion.
  • The company recorded $871.2 million in quarterly sales of the COVID-19 therapy, bamlanivimab, benefiting from the U.S. government’s move to stock up on the drug for emergency use.
  • Sales of diabetes drug Trulicity rose 24% to $1.50 billion, beating estimates of $1.39 billion, according to seven analysts polled by Refinitiv.
  • Sales of cancer treatment Alimta also grew 23% to $652.7 million, trouncing estimates of $560 million.
  • Net earnings rose to $2.12 billion, or $2.32 per share, in the fourth quarter ended Dec. 31 from $1.50 billion, or $1.64 per share, a year earlier.
  • The company lowered its 2021 earnings forecast to between $7.10 and $7.75 per share from its prior forecast of between $7.25 and $7.90, citing higher investments. It, however, kept its sales and adjusted profit forecasts unchanged.

Robinhood Raises $1 Billion to Meet Surging Cash Demands – Wall Street Journal, 1/29/2021

  • Robinhood Markets raised more than $1 billion from its existing investors, an infusion meant to help the company meet rising demands on its cash stemming from frenzied trading in GameStop and other hot stocks.
  • Because of a lag between when investors book new positions in a stock and when their cash is actually exchanged for securities, brokerages like Robinhood have to maintain deposit accounts at the clearing firms that help finalize trades.
  • Clearing firms, such as the Depository Trust & Clearing Corp., require brokerages to post more of their own money in riskier times to insure against losses.
  • Robinhood restricted investors’ ability to purchase shares in GameStop and 12 other companies on Thursday to try to limit future increases in those requirements.
  • On Friday, Robinhood allowed purchases in those 13 sought-after stocks in limited increments. For instance, customers could only increase their position in GameStop by up to five shares.
  • For customers whose current positions in those stocks exceed the new limits, Robinhood won’t require them to sell but also won’t allow them to buy more.
  • The Securities and Exchange Commission on Friday said it would “review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”

Losses on short positions in U.S. firms top $70 billion – Ortex data – Reuters, 1/28/2021

  • Short-sellers are sitting on estimated losses of $70.87 billion from their short positions in U.S. companies so far this year, data from financial data analytics firm Ortex showed on Thursday.
  • Ortex data showed that as of Wednesday, there were loss-making short positions on more than 5,000 U.S. firms.
  • Its data also showed that estimated losses from shorting GameStop at $1.03 billion year-to-date, while those shorting Bed, Bath & Beyond were looking at a $600 million loss.

Exclusive: AMC Entertainment explores new capital raise amid stock surge – sources – Reuters, 1/29/2021

  • AMC Entertainment is exploring raising more capital, including through yet another possible stock sale, to weather the COVID-19 pandemic and take advantage of this week’s rally in its shares, people familiar with the matter said on Thursday.
  • AMC said on Monday it had raised $917 million since mid-December through equity and debt issues. “This means that any talk of an imminent bankruptcy for AMC is completely off the table,” Chief Executive Adam Aron said in a statement accompanying disclosure of the additional funds.
  • On Wednesday, AMC said it raised an additional $304.8 million by selling shares this week, cashing in on an unprecedented social media-driven rally powered by amateur traders taking on hedge funds that had shorted its shares.
  • AMC said on Monday its “financial runway has been extended deep into 2021.” Still, it could use proceeds from a new capital raise to further trim its $5.5 billion debt pile as of the end of September, according to the sources.

GM aims to end sale of gasoline, diesel-powered cars, SUVs, light trucks by 2035 – Reuters, 1/28/2021

  • General Motors said on Thursday it was setting a goal to sell all its new cars, SUVs and light pickup trucks with zero tailpipe emissions by 2035, a dramatic shift by the largest U.S. automaker away from gasoline and diesel engines.
  • GM sold 2.55 million vehicles in the United States last year, but only about 20,000 were EVs, the Chevy Bolt hatchback.
  • GM, which also said it plans to become carbon neutral by 2040, made the dramatic announcement just over a week after President Joe Biden took office pledging to tackle greenhouse gas emissions and boost sales of electric vehicles (EVs).
  • GM also said it will source 100% renewable energy to power its U.S. sites by 2030 and global sites by 2035, five years ahead of a prior goal.

Apple Comes Out on Top While Huawei Slumps in Smartphone Market Shake-Up – Wall Street Journal, 1/29/2021

  • Apple reasserted itself as the world’s No. 1 seller of smartphones in the fourth quarter thanks to record sales of its latest iPhone, while Huawei Technologies’s device shipments collapsed under the weight of U.S. restrictions.
  • Apple’s smartphone shipments shot up by 22% in the fourth quarter, with 90.1 million devices shipped—the highest quarterly number of shipments for any vendor on record, according to IDC.
  • The surge during Apple’s most profitable quarter was fueled by the success of the company’s iPhone 12 series and lifted Apple to the No. 1 spot in the quarter, with 23% of the total market, according to IDC.
  • In a similar shift, smartphone shipments by China’s Huawei plunged by 42%, according to IDC, an acceleration from its third-quarter fall of 22%.

US ECONOMY & POLITICS

U.S. Household Income, Savings Rose at End of Last Year – Wall Street Journal, 1/29/2021

  • U.S. household income rose for the first time in three months in December as a new round of government-aid efforts kicked in, priming the economy for stronger growth this year once the pandemic recedes and businesses fully reopen.
  • Household income—what families received from wages, investment returns and government-aid programs—climbed 0.6% from the prior month, the Commerce Department said Friday.
  • Income is expected to rise further this quarter as the government distributes federal stimulus checks of $600 to most households.
  • Consumer spending fell 0.2% last month, marking the second straight monthly decline.
  • The personal savings rate rose to 13.7% last month, far higher than the pre-pandemic level of roughly 8%.

Repeal of State-Tax Deduction Cap Pitched for Covid-19 Relief Bill – Wall Street Journal, 1/29/2021

  • Lawmakers from New York and New Jersey, looking to capitalize on new Democratic majorities in Congress, are trying to repeal the $10,000 cap on the state and local tax deduction as part of a pandemic-relief bill.
  • But the Biden administration has been noncommittal, and the move looks likely to wait until later this year.
  • That is a tall order, however. Repealing what’s known as the SALT (state and local tax) cap would reduce federal revenue by more than $65 billion a year and expose splits within the party.
  • The Biden campaign offered vague answers about the cap, which limits how much people can deduct on their federal tax returns and resulted in a significant tax increase for some taxpayers, especially in Democratic-run states with high state and local taxes.
  • The administration didn’t include any change to the cap in its $1.9 trillion relief plan.

Exclusive: U.S. oil industry seeks unusual alliance with Farm Belt to fight Biden electric vehicle agenda – Reuters, 1/29/2021

  • The U.S. oil industry is seeking to forge an alliance with the nation’s corn growers and biofuel producers to lobby against the Biden administration’s push for electric vehicles, but is so far meeting a cool reception, according to multiple sources familiar with the discussions.
  • The American Fuel and Petrochemical Manufacturers (AFPM), an oil refining trade group, confirmed it has been contacting state and national representatives of the corn and biofuel industries in recent weeks to seek support for a policy that would reduce the carbon intensity of transport fuels and block efforts to provide federal subsidies for electric vehicles.
  • That proposal would be an alternative to Biden’s goal of electrifying the nation’s vehicle fleet and would ensure a market for liquid fuels like gasoline and corn-based ethanol.
  • The refining sector has previously made attempts to find common ground with their biofuel rivals, but the latest efforts have taken on an added sense of urgency given the Biden agenda.

U.S. Congress to hold hearings on GameStop trading, state of stock markets – Reuters, 1/29/2021

  • The U.S. House Financial Services and Senate Banking committees said on Thursday they will hold hearings on the stock market after users of investment apps faced trading limits following the “Reddit rally” that put a charge into GameStop and other volatile stocks that were touted in online forums.
  • Democrat Alexandria Ocasio-Cortez and Republican Ted Cruz were among a growing number of lawmakers who agreed Congress needed more information.
  • Ocasio-Cortez, a member of the U.S. House of Representatives, tweeted the restriction was “unacceptable,” adding Congress needed to know more about the move “to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”
  • Senator Ted Cruz, a Republican, took to Twitter retweeting Ocasio-Cortez with rare words of agreement, writing “Fully agree.”
  • Tesla Chief Executive Elon Musk backed Ocasio-Cortez’s criticism of Robinhood on Twitter responding “absolutely.”

EUROPE & WORLD

SK Hynix expects chip supply shortages in 2021 as fourth-quarter profit surges – Reuters, 1/28/2021

  • SK Hynix, the world’s No.2 memory chip maker, forecast high demand this year and warned of possible shortages of certain semiconductors including those that power many consumer devices.
  • Fourth-quarter revenue rose 15% to 8 trillion won.
  • The South Korean company, which counts Apple Inc among its customers, reported an operating profit of 966 billion won ($868 million) in October-December, up from a low base of 242 billion won a year earlier.
  • SK Hynix said 2021 demand for server and mobile DRAM products, which go into devices, will remain high as global companies invest in new data centres and the 5G smartphone market more than doubles on-year, leading to a DRAM demand jump that could be as high as 20% on year.
  • SK Hynix said it is speeding up moving its 8-inch chip contract manufacturing line to China, a move originally planned to be carried out over two years, to take advantage of the booming 8-inch foundry business.

Ericsson tops forecasts as 5G lifts off – Reuters, 1/28/2021

  • Ericsson beat fourth-quarter core earnings forecasts on Friday, helped by strong sales of 5G equipment and the ban on Chinese rival Huawei in several countries.
  • Total revenue rose 5% to 69.6 billion crowns, beating estimates of 68.35 billion crowns.
  • Not only is Ericsson is selling more, but it is also earning more from each sale, with gross margins rising to 40.6% in the quarter from 36.8% a year earlier.
  • In particular, the core Networks business saw margins at 43.5% from 41.1% a year earlier, on a 20% rise in sales.
  • The company said its operating margin of 12.5% in 2020 reached the 2022 group target range of 12-14% two years early.
  • The company’s quarterly adjusted operating earnings rose to 11 billion Swedish crowns ($1.3 billion) from 6.5 billion crowns a year earlier, beating analysts’ mean forecast of 8.58 billion crowns, according to Refinitiv estimates.

Factmonster – TODAY in HISTORY

  • Edgar Allan Poe’s The Raven was published. (1845)
  • Henry Clay introduced the Compromise of 1850 to the Senate. (1850)
  • Karl Benz received a patent for the first successful gasoline-driven car. (1886)
  • In his State of the Union address, President Bush labels Iraq, Iran, and North Korea an “axis of evil.” (2002)

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