Daily Market Report | February 2, 2022
US FINANCIAL MARKET
Tech Stocks Rise on Strong Earnings From Google Parent – Wall Street Journal, 2/2/2022
- The Nasdaq Composite Index rose 0.9% in early trading after Google parent Alphabet reported a surge in profit.
- Stocks have staged a recovery in recent days after the worst month since the pandemic began.
- With earnings season about halfway through, the number of companies that have beaten Wall Street’s expectations on sales and profit is above average, although lower than earlier in the recovery, according to analysis from Deutsche Bank.
- Shares of Alphabet, Google’s parent company, surged over 10% in off-hours trading after profit rose by a third in the last quarter.
- The search giant also announced a 20-for-1 stock split.
- Chip maker Advanced Micro Devices (AMD) rose over 12% after it reported revenue and a sales outlook above analysts’ forecasts, also sending shares of Xilinx, a semiconductor firm it is planning to acquire, up 12%.
- PayPal tumbled 17% after the company posted lower earnings and higher expenses.
- Square parent Block followed, declining 7%. Starbucks fell nearly 3% after it said rising costs will continue to weigh on its profits in the months ahead.
- The yield on the benchmark 10-year Treasury note ticked down to 1.777% from 1.799% on Tuesday.
- Oil prices were stable after Wednesday’s OPEC meeting, where major producers stuck to their plan of moderate output increases.
- The nonfarm private sector in the U.S. lost about 301,000 jobs in January, according to a release from ADP.
Google Shakes Off Omicron With Shopping Ads, Cloud Revenue – Bloomberg, 2/1/2022
- Google parent Alphabet posted fourth-quarter sales and profit that topped analysts’ projections, showing the resilience of its advertising business in the face of major economic upheaval as the pandemic persists.
- Sales, excluding partner payouts, rose 33% to $61.9 billion, compared with the $59.4 billion average analyst estimate.
- Google’s advertising revenue also grew by 33% during the holiday quarter, despite the disruptions to its biggest categories, travel and retail, from the spread of the omicron Covid-19 variant and supply chain crunches.
- The company also declared a 20-for-1 stock split.
- Retail ads were the biggest contributor to Google’s growth, chief business officer Philipp Schindler told investors on the call.
- Net income climbed to $20.6 billion, or $30.69 a share, compared to the $27.35 per-share estimate, Alphabet said Tuesday.
- Google’s Network business, which runs ads on other websites, grew 26% to $9.31 billion, despite increased regulatory pressure on the display ads operations.
- YouTube raked in $8.63 billion during the holiday quarter, a gain of 25% but just shy of the $8.76 billion analysts were expecting on average.
- Google’s cloud unit generated $5.54 billion in sales in the fourth quarter, when it picked up some key customers such as CME Group. Analysts were anticipating $5.42 billion.
- Alphabet also continued to invest heavily in nascent businesses, including Waymo, the self-driving car unit, and Verily, which aims to solve various health issues with technology.
- The stock split will take the form of a one-time special stock dividend, the Mountain View, California-based company said Tuesday in a regulatory filing.
- Alphabet said it will give $0.001 for each share of the company’s Class A stock, Class B stock and Class C stock.
AMD’s Bullish Outlook Suggests It’s Gaining Further on Intel – Bloomberg, 2/2/2022
- The chipmaker’s first-quarter sales outlook outpaced Wall Street estimates on Tuesday, and AMD is reaching a level of profitability that’s nearly identical to Intel’s – something that would have been inconceivable just a few years ago.
- AMD, long an underdog in the chip industry, ended 2021 with record revenue — up more than threefold from its annual sales five years ago.
- First-quarter revenue will be $5 billion, plus or minus $100 million, AMD said.
- That compares with an average analyst estimate of $4.33 billion.
- Its gross margin – the percentage of sales remaining after deducting costs of production – will be about 51% this year.
- That’s nearly on par with Intel’s projection for 51% to 53%.
- AMD predicted a sales gain of about 31% to $21.5 billion this year, compared with an analyst projection of $19.3 billion.
- AMD data-center sales, including chips used by companies such as Alphabet’s Google and Amazon’s AWS, doubled last year compared with 2020.
- AMD reported fourth-quarter net income of $974 million, or 80 cents a share, compared with $1.78 billion, or $1.45 a share, in the same period a year earlier. Sales rose 49% to $4.83 billion.
- Revenue in AMD’s enterprise and semicustom unit, which makes server and gaming console chips, rose 75% from a year earlier.
- Its computing division posted a revenue increase of 32% from a year earlier.
- That performance was helped by increasing sales of higher-priced Ryzen processors, AMD said.
- The company, which analysts once expected to run out of money, now has $3.6 billion of cash and only $313 million of debt.
PayPal Plummets After ‘Slower-Than-Expected’ Finish to Year – Bloomberg, 2/1/2022
- PayPal plummeted after saying growth in spending on its platform continued to slow during the fourth quarter as economies around the world reopened and consumers flocked to in-store shopping.
- Total payments volume climbed just 23% to $339.5 billion in the final three months of last year as the technology giant’s former parent company, eBay, continues to move payments offerings away from PayPal.
- In the final three months of the year, PayPal’s revenue climbed 13% to $6.9 billion, the smallest increase in two years.
- Excluding the impact of eBay, revenue would have climbed 22%, PayPal said in a statement.
- PayPal now believes it will add just 15 million to 20 million net new active accounts this year, a significant slowdown from the 49 million it added in 2021.
- PayPal said it expects revenue this year to climb as much as 17%, compared with a current forecast from analysts of 18%.
- The company said total payments volume for the year is expected to increase by as much as 24% while adjusted earnings per share may be between $4.60 and $4.
- The coffee giant reported fiscal first-quarter net income of $815.9 million, or 69 cents per share, up from $622.2 million, or 53 cents per share, a year earlier.
- Excluding items, Starbucks earned 72 cents per share, falling short of the 80 cents per share expected by analysts surveyed by Refinitiv.
- Net sales rose 19% to $8.05 billion, topping expectations of $7.95 billion.
- Its global same-store sales climbed 13% in the quarter.
- Despite staffing issues, the company reported U.S. same-store sales growth of 18% from a year earlier and 12% on a two-year basis. Active 90-day users of its Starbucks Rewards program rose 21% to 26.4 million people.
- During the quarter, shoppers spent more than $3 billion adding or reloading money to gift cards.
- International same-store sales fell 3%, dragged down by China’s sluggish performance.
- Wall Street analysts surveyed by StreetAccount were forecasting international same-store sales growth of 3.3%.
- Starbucks now expects GAAP earnings per share to fall by a range of 4% to 6% and adjusted earnings per share to rise by 8% to 10%.
- By fiscal 2024, Starbucks predicts that its margins will be back to its long-term goal of 18% to 19%.
Electronic Arts stock falls as forecast comes in short of expectations – MarketWatch, 2/2/2022
- EA — known for sports games such as “FIFA 21” and “Madden NFL 21,” as well as action titles like “Apex Legends” and “Battlefield 2042” — reported fiscal third-quarter net income of $66 million, or 23 cents a share, compared with $211 million, or 72 cents a share, in the year-ago period.
- Revenue rose to $1.79 billion from $1.67 billion in the year-ago quarter.
- Bookings, which account for deferred revenue, reached $7.25 billion over the trailing past 12 months, the company said.
- Net bookings for the quarter were $2.58 billion, compared with $2.4 billion in the year-ago quarter.
- For the fiscal fourth quarter, EA executives forecast earnings of 46 cents a share on sales of $1.76 billion, with net bookings also hitting $1.76 billion.
- Analysts on average had been expecting fourth-quarter earnings of 62 cents a share on sales of $1.77 billion and net bookings of $1.81 billion.
GM forecasts earnings ‘at or near record levels’ in 2022 as chip shortage eases – CNBC, 2/1/2022
- General Motors said it expects to generate an operating profit this year of between $13 billion and $15 billion as a semiconductor shortage that marred vehicle production and sales for most of last year shows signs of improving.
- The forecast, including adjusted earnings per share of between $6.25 and $7.25, is in line with many Wall Street analysts’ expectations as well as the company’s record $14.3 billion pretax adjusted earnings in 2021.
- Net income this year is expected to be between $9.4 billion and $10.8 billion, also in line with its $10 billion profit in 2021, GM said.
- CEO Mary Barra said the company is not reinstating its dividend, which the automaker cut during the early days of the coronavirus pandemic in April 2020.
- She said the company plans to use the saved capital for accelerating, even increasing, its $35 billion in investments in electric and autonomous vehicles through 2025.
- GM reported an adjusted EPS of $1.35 vs. $1.19 expected.
- Revenue of $33.58 billion vs. $34.01 billion expected.
- For the fourth quarter, GM’s unadjusted net income was $1.7 billion. Its pretax adjusted earnings were more than $2.8 billion.
Gilead earnings slammed by legal settlement, stock falls – MarketWatch, 2/1/2022
- Gilead Sciences beat Wall Street’s expectations for revenue in the fourth quarter, but the drugmaker’s earnings were hit by $2 billion in unexpected costs, most of it due to a legal settlement.
- Gilead reported earnings of $382 million, or 30 cents per share, in the fourth quarter of 2021, compared with $1.5 billion, or $1.23 per share, in the fourth quarter of 2020.
- It had adjusted earnings of 69 cents a share, against a FactSet consensus of $1.46.
- Gilead’s revenue was $7.2 billion in the fourth quarter of 2021, down from $7.4 billion in the same quarter in 2020.
- The FactSet consensus was $6.6 billion.
- Gilead’s top-selling therapies are Biktarvy, which Gilead said is the most prescribed HIV drug in the U.S., and remdesivir, the COVID-19 treatment long used to treat severely ill patients during the pandemic.
- The company issued guidance for 2022, saying it expects product sales between $23.8 billion and $24.3 billion, about $2.0 billion in sales of Veklury, and earnings per share between $4.70 and $5.20.
Match Revenue Forecast Disappoints Amid Lingering Covid Effects – Bloomberg, 2/1/2022
- The Dallas-based company, which owns dating apps such as Tinder, Hinge and OKCupid, said it expects first-quarter revenue of $790 to $800 million.
- That compares with the average analyst estimate of $832.9 million, according to data compiled by Bloomberg.
- Adjusted operating income will be $260 million to $265 million, according to a statement on Tuesday.
- Analysts projected $289.2 million.
- The pandemic required Match to explore new features such as virtual dates and an in-app virtual currency to boost engagement with users who were no longer socializing in person.
- Match reported a 15% increase in paying users, to 16.2 million, falling short of analysts’ estimates of 16.6 million, according to data compiled by Bloomberg.
- For the fourth quarter, Match reported sales of $806.1 million, a 24% increase from last year and missing the average analyst estimate of $818.6 million.
- Match reported a loss per share of 60 cents. Analysts were estimating a profit of 60 cents.
US ECONOMY & POLITICS
Consumers Are Pivoting Spending to Services Like Dining and Travel – Wall Street Journal, 2/2/2022
- After bingeing on goods earlier in the pandemic, consumers are taking a breather. What’s more, spending on goods has been hit by supply-chain constraints, rising prices and dwindling government stimulus funds.
- Strong demand for goods coupled with disruptions to their supply have fueled inflation, sending it to a 39-year high of 7% in December.
- Prices for goods such as furniture and appliances rose 10.7% in December from a year earlier, while services inflation for costs such as rent and airline fares was up a more moderate 3.7%.
- But looking ahead, a strong labor market and rising wages mean many U.S. consumers are starting 2022 with robust income prospects that are likely to help fuel the services recovery this year.
U.S. National Debt Exceeds $30 Trillion for First Time – Wall Street Journal, 2/1/2022
- Total public debt outstanding was $30.01 trillion as of Jan. 31, according to Treasury Department data released Tuesday.
- That was a nearly $7 trillion increase from late January 2020, just before the pandemic hit the U.S. economy.
- The total debt comprises debt held by the public and intragovernmental debt.
- In the fiscal year that ended September 2021, the federal budget deficit was $2.8 trillion, equal to 12.4% of U.S. gross domestic product, according to the Congressional Budget Office.
- In the fiscal year that ended September 2019, before the pandemic, the U.S. deficit was equal to 4.7% of GDP, the CBO said.
- Concerns over U.S. debt levels have impaired President Biden’s ability to pass his proposals for education, healthcare and climate-change programs.
U.S. Private Jobs Plunged Last Month on Omicron, ADP Data Show –Bloomberg, 2/2/2022
- Employment at U.S. companies declined in January by the most since the early days of the pandemic as the omicron variant of the coronavirus registered a swift yet likely temporary blow to the nation’s labor market.
- Businesses’ payrolls fell by 301,000 last month in a broad-based decline, according to ADP Research Institute data released Wednesday. The median forecast in a Bloomberg survey of economists called for a 180,000 rise.
- Service-provider employment fell by 274,000 in January, the biggest drop since April 2020, led by leisure and hospitality. Trade, transportation and utilities also posted a sizable decline.
- Payrolls at goods producers decreased by 27,000, reflecting declines in both construction and manufacturing.
- Payrolls at companies with fewer than 50 employees dropped 144,000 in the month, while large businesses shed 98,000 jobs.
- ADP’s payroll data represent firms employing nearly 26 million workers in the U.S.
- President Biden is sending roughly 2,000 troops from Fort Bragg, N.C., to Poland and Germany this week and repositioning about 1,000 troops that are part of a Germany-based infantry Stryker squadron to Romania, on the North Atlantic Treaty Organization’s eastern flank closest to Russia, the officials said.
- In addition, the Pentagon expects to make other moves of forces inside Europe, and has ordered several thousand more troops to be on standby to deploy, beyond the 8,500 troops given similar orders last week, the officials said.
- While a few hundred American military trainers and special operations forces are inside Ukraine, none of the new forces have been authorized to enter the country, and all of the deployments are expected to be temporary, the officials said.
- Some of the new forces could be used in the event the U.S. military was called upon to help evacuate the roughly 30,000 Americans now living in Ukraine.
- The Netherlands, Spain, Denmark are among the NATO countries that began positioning ships and aircraft in a push to bolster Europe’s eastern flank attack.
- Canada announced it would extend its training program in Ukraine, using as many as 400 troops, for another three years.
- Russia has amassed more than 100,000 troops near the Ukrainian border, is moving troops and surface-to-air missile systems into Belarus, which borders Ukraine and several NATO members, and has also moved several ships near Ukraine’s shores in the Black Sea and the Sea of Azov.
EUROPE & WORLD
Israeli defense chief visits Bahrain amid heightened Gulf tensions – Reuters, 2/2/2022
- Israeli Defense Minister Benny Gantz began a visit to Bahrain on Wednesday amid heightened tensions in the Gulf after missile attacks on the United Arab Emirates by Yemen’s Iran-aligned Houthi movement.
- Announcing Gantz’s trip only after his arrival in Manama, Israel’s Defense Ministry said he would sign a security cooperation agreement with Bahrain, which along with the neighboring UAE normalized relations with Israel in 2020.
- The United Arab Emirates on Monday intercepted a missile during a visit by Israel’s president, the third such attack in two weeks claimed by the Houthis, who are battling a Saudi-led coalition that includes the UAE.
- It was the first time an Israeli defense chief had visited the Gulf nation or that an Israeli military aircraft had landed there.
OPEC, Allies Agree to Pump More Oil Amid Supply Concerns – Wall Street Journal, 2/2/2022
- The Organization of the Petroleum Exporting Countries and a coalition of Russia-led oil producers said they agreed to raise their collective production by another 400,000 barrels a day in March.
- The boost is in line with what the cartel, called OPEC+, agreed to last year as part of a plan to raise output to pre-pandemic levels.
- If Russia invades Ukraine, it faces the prospect of Western sanctions that could affect its oil exports, fueling fears of more supply constraints.
- An internal OPEC report that was prepared for a technical meeting on Tuesday pointed to a global supply surplus of 1.4 million barrels a day in the first quarter, rising to 1.7 million barrels a day in the second if the group continued to add 400,000 barrels a day and crude consumption rises as planned.
- But OPEC+ in December pumped 824,000 barrels a day below its publicly stated targets, according to the report.
- Instead of curbing prices, OPEC+’s inability to increase output as promised has become a reason for traders to bet on higher prices.
U.K. Scrambles Fighter Jets to Intercept Unidentified Aircraft – Bloomberg, 2/2/2022
- The U.K. deployed Typhoon fighter jets against “unidentified aircraft” approaching its area of interest, the Ministry of Defense said Wednesday in a statement.
- The planes, deployed from a Royal Air Force base in Scotland, are supported by an air-to-air refueling tanker.
- Britain has frequently deployed its quick-response jets in the past to intercept Russian military aircraft.
- Such aircraft have never entered sovereign U.K. airspace without authorization.
- The scrambling of British jets comes at a time of tension between Russia and the West over Ukraine.
- Prime Minister Boris Johnson is due to speak with Russian President Vladimir Putin on Wednesday afternoon.
Eurozone Inflation Rises to Fresh Record, Against Expectations – Wall Street Journal, 2/2/2022
- The eurozone’s inflation rate rose to a fresh record high in January, an unwelcome surprise for policy makers at the European Central Bank who have said they don’t expect to raise their key interest rate this year.
- The eurozone’s annual rate of consumer-price inflation ended 2021 at 5%, then the highest on record and more than twice the ECB’s target.
- Economists surveyed by The Wall Street Journal last week had expected to see a decline to 4.3%.
- The ECB will announce its latest policy decisions Thursday, although little is expected to change ahead of its March meeting, when policy makers will discuss the implications of new forecasts for inflation and growth.
- Investors are starting to have doubts about the ECB’s guidance, and began to sell eurozone government bonds when national inflation figures from Spain and Germany first hinted at the January inflation surprise on Monday.
Factmonster – TODAY in HISTORY
- The city of Buenos Aires, Argentina, was founded by Spanish conquistador Pedro de Mendoza. (1536)
- Scottish sailor Alexander Selkirk, the inspiration for Daniel Defoe’s Robinson Crusoe, was rescued after four years alone on an island off the coast of Chile. (1709)
- The Treaty of Guadalupe Hidalgo, ending the Mexican War, was signed. In the treaty, Mexico ceded to the United States a huge portion of what is today the American West and Southwest, including California and New Mexico. (1848)
- James Joyce’s Ulysses was published. (1922)
- Nazi troops surrendered in the World War II Battle of Stalingrad. (1943)
- South African President F. W. de Klerk lifted a ban on the African National Congress and promised to free Nelson Mandela. (1990)
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