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Daily Market Report | February 8, 2022

US FINANCIAL MARKET

Bond Yields Rise, Stocks Waver Amid Earnings – Wall Street Journal, 2/8/2022

  • U.S. stocks wavered Tuesday as investors digested another round of earnings reports.
  • A generally positive earnings season has provided support for stocks.
  • With results in from about 60% of S&P 500 companies, analysts expect profits rose 30% in the fourth quarter from a year earlier, according to FactSet. That is up from estimates for 21% growth at the end of September.
  • Earnings reports drove some of Tuesday’s moves in individual stocks.
  • Pfizer shares fell 5.2% after the vaccine maker reported revenue that missed analysts’ forecasts.
  • Harley-Davidson rose 10% after the motorcycle maker swung to a fourth-quarter profit.
  • Peloton Interactive shares rose 12% after the stationary-bike maker said it would replace its chief executive, overhaul its board and cut costs. The company, whose value has plummeted amid a slowdown in demand, will post earnings after markets close.
  • Nvidia declined 1.4% after the semiconductor giant said it was calling off its blockbuster deal to buy chip-design specialist Arm.
  • Investors edged out of bonds on the expectation that the Federal Reserve is poised to embark on a course of interest-rates rises.
  • The yield on the benchmark 10-year Treasury note rose to 1.965%, putting it on course for its highest closing level since 2019, after settling at 1.915% Monday. Yields rise when prices fall.
  • Brent crude, the international oil benchmark, fell 2.2% to $90.61 a barrel, with talks over reviving a nuclear agreement with Iran set to resume Tuesday. A deal could see sanctions on Iran lifted, allowing it to export more oil.
  • Overseas, the pan-continental Stoxx Europe 600 slipped 0.2%. Asian stock markets were mixed. Japan’s Nikkei 225 edged up 0.1%, while in Hong Kong, the Hang Seng Index fell 1%. In mainland China, the Shanghai Composite Index added 0.7%.

Pfizer Forecasts $54 Billion in 2022 Sales From Its Covid-19 Vaccine, Treatment – Wall Street Journal, 2/8/2022

  • Pfizer said Tuesday that surging sales of its Covid-19 treatment and continued demand for its shots will likely boost the company’s revenue to around $100 billion this year.
  • In the last three months of 2021, Pfizer’s vaccine achieved $12.5 billion in sales, contributing to overall revenue of $23.84 billion.
  • Paxlovid, cleared by the Food and Drug Administration just before the quarter ended, added $76 million in sales.
  • A year earlier, Pfizer’s fourth-quarter revenue was $11.63 billion.
  • Adjusted earnings grew to $1.08 a share, from 43 cents a share in the year-ago quarter.
  • Analysts polled by FactSet had forecast adjusted earnings of 87 cents a share on sales of $24.16 billion.
  • The pharmaceutical company estimated that sales of Paxlovid, a pill aimed at reducing severe outcomes from the virus, will reach about $22 billion in 2022. Pfizer’s vaccine for the virus will likely add $32 billion in revenue, Pfizer said, an increase from Pfizer’s most recent guidance.
  • Pfizer forecast $98 billion to $102 billion in revenue for 2022 that, if achieved, would represent significant gains from development of America’s most widely used vaccine for Covid-19 and a pill that has become a promising treatment for the coronavirus as it has mutated into new dominant variants.

Peloton CEO John Foley to Step Down, Firm to Cut 2,800 Jobs – Wall Street Journal, 2/8/2022

  • Peloton Interactive plans to replace its chief executive, cut costs and overhaul its board after a slowdown in demand caused the once-hot bike maker’s value to plummet.
  • The company reported preliminary second-quarter revenue of $1.14 billion and said it ended the period with 2.77 million subscribers.
  • The New York company will also cut roughly 2,800 jobs, affecting 20% of its corporate positions, to help cope with the drop-off in demand and widening losses. The cuts won’t affect Peloton’s instructor roster or content.
  • Peloton also lowered its revenue forecast for its full fiscal year to a range of $3.7 billion to $3.8 billion, down from its prior range of $4.4 billion to $4.5 billion.
  • The company also released a 65-page presentation in which it estimated a sale could value Peloton above $65 a share.
  • Peloton shares closed Monday at $29.75.

Amgen plans $6 bln share buyback in Q1, sees earnings doubling by 2030 – Reuters, 2/8/2022

  • Amgen said on Tuesday it would buy back up to $6 billion of its shares in the first quarter and forecast earnings to more than double by 2030 on the back of strong sales in its biosimilar drugs and other key products.
  • Amgen on Monday reported a 3% rise in its fourth-quarter revenue, bolstered by sales of a COVID-19 antibody treatment it manufactures for Eli Lilly.
  • Amgen also said it expects to deliver mid-single-digit revenue growth through the end of the decade. Its key treatments include cholesterol treatment Repatha, psoriasis drug Otezla and osteoporosis drug Evenity.

DuPont beats profit estimates on price hikes, electronics demand – Reuters, 2/8/2022

  • Industrial materials maker DuPont posted quarterly earnings that surpassed market expectations on Tuesday as price hikes and strong demand in its electronics unit helped offset a hit from surging raw material costs.
  • Total sales for the fourth quarter jumped 14% to $4.3 billion and beat analysts’ average estimate of $4 billion, according to Refinitiv data.
  • To hedge inflationary pressure roiling several industries, DuPont hiked the price of its products by 7% in the quarter.
  • The company also boosted its quarterly dividend by 10% and announced a new $1 billion share buyback program, as it capitalizes on a rebound in the auto and chipmaking industries as well as the rollout of high-end telecom technologies.
  • The company expects 2022 net sales between $17.4 billion and $17.8 billion, higher than analyst estimates, on the back of strong consumer demand.
  • It expects full-year adjusted earnings to be $4.60 to $4.90 per share, the midpoint of which falls below the consensus estimate of $4.86 per share.

Harley revenue beats on higher motorcycle demand – Reuters, 2/8/2022

  • Harley-Davidson reported quarterly revenue on Tuesday that beat analysts’ estimates, as the motor cycle maker’s strategy to pivot to selling more expensive touring and cruiser bikes paid off.
  • Harley reported motorcycle and related products revenue of $816 million in the fourth quarter ended Dec. 31, compared with analysts’ estimates of $663.8 million, according to Refinitiv IBES data.
  • Retail sales in the United States, the company’s biggest market, rose to 18,855 units from 17,274 units.
  • Net income rose to $21.6 million, or 14 cents per share, in the fourth quarter, compared with a loss of $96.4 million, or 63 cents per share, a year earlier.

Take-Two forecasts fourth-quarter adjusted sales below estimates – Reuters, 2/7/2022

  • Take-Two Interactive Software on Monday projected fourth-quarter adjusted sales below market estimates, a sign that the video-gaming boom sparked by the pandemic was fading.
  • Take-Two posted adjusted sales of $866.1 million for the third quarter ended Dec. 31, missing expectations of $874.56 million.
  • Its net income fell to $144.5 million, or $1.24 per share, from $182.2 million, or $1.57 per share, a year earlier.
  • The videogame publisher said it expected adjusted revenue between $808 million and $858 million, while analysts had estimated $924.24 million, according to Refinitiv IBES data.

Ford, GM Warn Dealers: Charge Above Sticker Price and Face Repercussions – Wall Street Journal, 2/8/2022

  • Ford Motor and General Motors are clamping down on dealerships that are trying to charge more than the sticker price, a tactic that has proliferated amid the car shortage.
  • Ford Chief Executive Jim Farley said Thursday that dealers who engage in this practice will face consequences, including losing supplies of future models. Auto makers set a manufacturer’s suggested retail price, or MSRP, when they ship cars to dealerships.
  • Dealers aren’t required to adhere to them, but under business norms that has been the general practice and expectation.
  • Ford has determined that about 10% of the roughly 3,000 dealerships in its U.S. network are charging above the sticker price, Mr. Farley said.
  • If they don’t stop, Ford plans to take punitive action by shipping them fewer sought-after models, he added.

SoftBank Pitches IPO for Arm After Deal With Nvidia Falls Through – Wall Street Journal, 2/8/2022

  • After a deal that could have been worth $80 billion to his company fell apart, SoftBank Group Chief Executive Masayoshi Son is playing salesman for Plan B—an initial public offering of chip designer Arm.
  • Mr. Son sounded as if he were on a roadshow for investors at a news conference in Tokyo on Tuesday. He said Arm is entering a “golden period” of high demand for the chips it helps create in smartphones, electric vehicles and computer-server farms operated by the likes of Amazon.com Inc.
  • The pitch came hours after the Japanese investment and technology conglomerate said it was abandoning plans to sell Arm to Nvidia—in what would have been the largest semiconductor deal on record—because antitrust concerns stood in the way.

Sensor Maker Velodyne Lidar’s Shares Surge After Amazon Investment – Wall Street Journal, 2/8/2022

  • Velodyne Lidar’s stock jumped more than 50% in extended-hours trading Monday after the maker of sensors for autonomous cars reported an investment by Amazon.com.
  • The California-based Velodyne on Monday said it would issue a warrant for an Amazon subsidiary to buy nearly 39.6 million shares. In return, Amazon would get a board observer as long as its stake stays above about 12.3 million shares.
  • The deal also includes a so-called standstill agreement.
  • The warrants could be exercised any time before Feb. 4, 2030, at an exercise price of $4.18 a share.
  • The warrant shares will vest over time based on discretionary payments by Amazon of up to $200 million.

Investors Gobble Up Dividend Stocks During Market Turbulence – Wall Street Journal, 2/8/2022

  • Through Feb. 4, the S&P 500 High Yield Dividend Index—made up of the S&P 500’s top 80 dividend-paying companies—was up 2.1% including dividends, compared with a negative total return of 5.5% for the broad benchmark through Friday.
  • The average dividend-paying stock in the S&P 500 rose by 6.6 percentage points more than nonpayers in January, the biggest margin favoring payers in 17 years, according to S&P Dow Jones Indices.
  • Investors poured $7.5 billion into funds that buy dividend-paying stocks in January, the most on record, according to data from Refinitiv Lipper, with more than $2 billion of inflows during the week ended Feb. 2.

US ECONOMY & POLITICS

Biden Says Nord Stream 2 Pipeline Won’t Go Forward if Russia Invades Ukraine – Wall Street Journal, 2/8/2022

  • President Biden said the Russian-built Nord Stream 2 natural-gas pipeline to Germany would be suspended if Russia invades Ukraine, with the German chancellor offering support but without explicitly saying the project would be halted.
  • “If Russia invades, that means tanks and troops crossing the border of Ukraine, again, then there will be no longer a Nord Stream 2. We will put an end to it,” Mr. Biden said at a joint appearance with Chancellor Olaf Scholz of Germany after the leaders met at the White House. “I promise you, we will be able to do it.”
  • Mr. Scholz said Germany and the U.S. are aligned in their positions regarding Moscow’s potential invasion of Ukraine. In keeping with his past statements, he didn’t cite suspending the pipeline specifically as among the steps his government is ready to take to punish Russia.
  • The potential fate of Nord Stream 2 has been closely watched as the U.S. and its allies put together a raft of punishing sanctions and other economic measures to be imposed in the event of a Russian assault on Ukraine.

U.S. small business sentiment drops to 11-month low -NFIB – Reuters, 2/8/2022

  • U.S. small business confidence fell to an 11-month low in January amid persistent worker shortages and higher prices for materials, a survey showed on Tuesday.
  • The National Federation of Independent Business said its Small Business Optimism Index dropped 1.8 points to 97.1 last month, the lowest reading since February 2021.
  • The NFIB survey showed half of the 1,504 small businesses who participated in the poll reporting raising compensation. That was the highest reading in 48 years and was up 2 points from December.
  • That corroborates to a surge in measures of wage growth tracked by the government.
  • About 27% of small businesses said they planned to increase compensation in the next three months, down 5 points from December, but still historically high.
  • Eleven percent said labor costs were their top business problem, down 2 points from December’s 48-year record high reading. About 23% complained about labor quality.
  • Faced with rising labor costs, the share of small businesses raising average selling prices jumped 4 points to 61%, the highest reading since the fourth quarter of 1974.
  • Price hikes were most frequent in wholesale, manufacturing, retail and construction industries.

Economic Recovery Pushed 2021 U.S. Trade Deficit to Record Level – Wall Street Journal, 2/8/2022

  • Continued strong consumer appetite for overseas goods pushed up the U.S. trade deficit in December, sending the full-year import-export gap to a record level in 2021.
  • The December deficit in trade of goods and services grew by 1.8% to a seasonally adjusted $80.7 billion, the Commerce Department said Tuesday, just less than the record deficit of $80.8 billion in September.
  • The full-year trade deficit for 2021 increased 27% to $859.1 billion, larger than the previous record of $763.53 billion in 2006.
  • Annual trade balance records date to 1960.
  • In December, imports rose 1.6% to $308.9 billion, growing more quickly than exports, which expanded by 1.5% to $228.1 billion, the Commerce Department said.
  • Trade deficit with China grew 14.5% for the full year to $355.3 billion, as U.S. demand for Chinese goods surged amid the post-pandemic economic recovery.
  • The level was still well below the record trade deficit of $418.2 billion the U.S. set with China in 2018.

EUROPE & WORLD

U.S. Adds China’s Wuxi Biologics to ‘Unverified List’; Shares Dive – Wall Street Journal, 2/8/2022

  • The shares of one of China’s most valuable biotechnology companies plummeted Tuesday, losing almost a quarter of their value after the U.S. Commerce Department flagged concerns about the firm to American exporters.
  • Two units of Wuxi Biologics, a Jiangsu-based company whose stock is listed in Hong Kong, were among 33 Chinese organizations that were added to an “unverified list” by the Commerce Department on Monday.
  • The list subjects foreign entities to tighter export controls, and requires them to supply additional documents and be subject to other checks to transact with U.S. companies.
  • The Commerce Department said the move was because it hasn’t been able to verify the “legitimacy and reliability” of the 33 entities through end-use checks. Others named on the list included businesses in electronics and optics, as well as two universities.

Europe Aims to Boost Microchip Output With Billions in New Funding – Wall Street Journal, 2/8/2022

  • A European Union proposal to increase microchip production could unleash tens of billions of dollars in funding for research and new production facilities, part of the bloc’s economywide effort to boost its commercial independence.
  • The European Commission, the EU’s executive arm, introduced legislation Tuesday to make available about $49 billion in public and private funding for the chip-making industry. The proposal would also give the Commission power, under some circumstances, to demand that companies give priority to specific products where there is a shortage.
  • The European proposal is valued at about $49 billion, putting it close to the $52 billion announced in U.S. legislation meant to expand American microchip production.
  • European officials had previously said they expected the Chips Act to provide funding on a similar scale to the money planned by the U.S.

Energy prices lift BP profits to 8-year high – Reuters, 2/8/2022

  • BP’s profits hit their highest in eight years in 2021, lifted by soaring gas and oil prices, as the company boosted share repurchases and accelerated plans to cut emissions with increased spending on low carbon energy.
  • BP’s rebound to an annual profit of $12.85 billion after a large loss in 2020, is likely to add to calls in Britain for higher taxes on energy producers to help reduce consumers’ energy bills.
  • In the fourth quarter of 2021, BP’s underlying replacement cost profit, its definition of net earnings, reached $4.1 billion, beating analysts’ forecast of $3.93 billion.
  • The company maintained its dividend at 5.46 cents per share and boosted its share repurchase targets to $1.5 billion per quarter from $1.25 billion.

Nissan raises profit outlook but sees chip limit to growth – Reuters, 2/8/2022

  • Nissan Motor on Tuesday raised its full-year profit outlook as it squeezed out more profit per vehicle but said that access to scarce semiconductors would be the key driver of future earnings growth.
  • Retail volume in the quarter shrank by 16.3% from a year ago to 904,000 vehicles, with the biggest drop in the United States, which fell 19.8%.
  • Operating profit for the three months to Dec. 31 almost doubled to 52.2 billion yen ($451.8 million), exceeding an average 35.8 billion yen profit estimated by nine analysts, Refinitiv data shows.
  • Japan’s No. 3 carmaker, maintained its global full-year sales target of 3.8 million vehicles after cutting it from 4.4 million in November.
  • The company raised its operating profit forecast for the year to March 31 by 17% to 210 billion yen ($1.82 billion) helped by cost cutting that improved margins and a weaker yen that bolstered the yen value of overseas sales.

EV battery giant LG Energy Solution sees demand rising as chip shortage eases – Reuters, 2/8/2022

  • Battery maker LG Energy Solution (LGES) said on Tuesday it aims to boost sales by about 8% in 2022, forecasting a pick-up in demand for electric vehicle (EV) batteries as a global chip shortage eases later this year.
  • Revenue at LGES, which supplies Tesla and General Motors among others, rose 2% to 4.4 trillion won from a year earlier.
  • LGES, which became South Korea’s second-largest listed firm last month in the country’s biggest ever IPO, posted an operating profit of 76 billion won ($63.5 million) for the fourth quarter, it said in its maiden earnings report.
  • That compares with a 150 billion won profit estimate by two analysts polled by Refinitiv and a loss of 479 billion won in the same period a year earlier.
  • The company said it has set this year’s capital expenditure budget at 6.3 trillion won, up 58% from a year earlier, to finance capacity expansion at its global manufacturing facilities to meet demand for batteries.

Factmonster – TODAY in HISTORY

  • Mary Queen of Scots was beheaded. (1587)
  • The National Weather Service was established under the U.S. Army Signal Corps. (1870)
  • The Russo-Japanese war began when the Japanese launched a surprise attack on the Russian fleet at Port Arthur in northeast China. (1904)
  • President Jimmy Carter revealed his plan to reinstate selective service draft registration. (1980)

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