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Daily Market Report | February 18, 2022

US FINANCIAL MARKET

Stocks Waver After Steep Selloff, as Ukraine Tensions Mount – Wall Street Journal, 2/18/2022

  • The S&P 500 rose but remained on course for a weekly loss as investors tracked the escalating violence in Ukraine and considered the future path of U.S. monetary policy.
  • The broad U.S. stock index advanced 0.1% Friday at the end of a turbulent week for markets. The Dow Jones Industrial Average added 0.2%, or about 64 points, after dropping more than 600 points Thursday in its steepest one-day decline of 2022.
  • The tech-heavy Nasdaq Composite fell 0.3%.
  • Investors have struggled with mixed messages on the potential for escalation between Russia and Ukraine. Secretary of State Antony Blinken warned Thursday of a looming Russian offensive against Ukraine and proposed a last-ditch diplomatic meeting with his Russian counterpart.
  • Brent crude, the international oil benchmark, fell 1.1% to $91.93 a barrel Friday as expectations of additional Iranian supply counteracted tensions over Ukraine. Benchmark European gas futures fell 2%.
  • Among individual stocks, Shake Shack fell 4.1% after the burger chain guided for weaker-than-expected revenue this quarter.
  • Roku shares dropped 22% after it said supply-chain disruptions continued to affect its growth and TV sales.
  • Shares of chemical and specialty-materials company Celanese slipped 0.3% after it reached a deal to buy most of DuPont’s mobility and materials unit for $11 billion. DuPont shares added 3.5%.
  • In bond markets, the yield on the benchmark 10-year Treasury note dropped to 1.944% from 1.972% Thursday.
  • Overseas, the pan-continental Stoxx Europe 600 fell 0.3%.
  • Major indexes in Asia closed with mixed performance.
  • China’s Shanghai Composite rose 0.7%, while Japan’s Nikkei 225 declined 0.4%.
  • Hong Kong’s Hang Seng shed 1.9%, with declines led by Meituan, which fell 15% after China said the country’s food-delivery platforms should reduce the fees they charge merchants.

Roku drops sharply on disappointing revenue and guidance – CNBC, 2/18/2022

  • Roku shares fell as much as 20% in extended trading on Thursday after the video-streaming company issued fourth-quarter revenue and first-quarter revenue guidance that came in below consensus.
  • Revenue: $865.3 million, vs. $894.0 million as expected by analysts, according to Refinitiv.
  • Earnings: 17 cents per share, adjusted, vs. 9 cents per share as expected by analysts, according to Refinitiv.
  • Revenue grew by 33% year over year in the quarter, according to a letter to shareholders, compared with 51% growth in the third quarter and 81% in the second quarter.
  • Roku reported 60.1 million active accounts in the fourth quarter. That figure was up 17% year over and year and more than the 59.5 million that analysts polled by StreetAccount had been looking for.
  • The number of hours each active account watched declined year over year.
  • Player revenue, from sales of streaming players and audio devices, totaled $161.7 million, declining 9% as analysts surveyed by StreetAccount had expected $162.5 million.
  • With respect to guidance, Roku called for $720 million in first-quarter revenue, which implies 25% revenue growth.
  • The Refinitiv revenue consensus was $748.5 million.
  • Roku said it sees $55 million in adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, in the first quarter, below the $79.2 million consensus among analysts polled by FactSet.
  • Roku expects revenue growth in the mid-30s percentage range for all of 2022, Steve Louden, the company’s finance chief, said on a conference call with analysts. Analysts polled by Refinitiv had expected 36% growth.
  • Louden said the company sees EBITDA would be consistent with 2020, when it was $150.0 million.

DraftKings Posts Higher Revenue but Expects Losses to Widen in 2022 – Wall Street Journal, 2/18/2022

  • Sports-betting company DraftKings posted higher revenue for the holiday quarter, but said it expects its adjusted loss to widen this year as it launches in new states like New York and Louisiana.
  • For the final quarter of 2021, which didn’t include the launch of operations in New York, DraftKings posted better-than-expected revenue of $473 million, up 47% from a year earlier. Analysts expected revenue of $446 million, according to FactSet.
  • The company also said its number of monthly unique payers, which averaged 2 million a month in the fourth quarter, grew by 32% from a year earlier and average revenue per monthly unique payer grew 19%.
  • Boston-based DraftKings said its sales and marketing costs in the final three months of the year grew 45% from a year earlier, and that doesn’t include costs associated with the New York launch.
  • Total operating expenses grew to $842 million, from $591 million a year earlier.
  • That jump in costs weighed on the company’s earnings. It posted a quarterly loss of $326.3 million, wider than the $242.7 million loss it posted a year earlier. And the company doesn’t see losses slowing down anytime this year.
  • The company raised its 2022 revenue guidance from between $1.7 billion and $1.9 billion to between $1.85 billion and $2 billion this year, compared with $1.29 billion in 2021.
  • DraftKings guided for an adjusted loss of between $825 million and $925 million before interest, taxes, depreciation and amortization for 2022, wider than the adjusted loss of $676.1 million it posted in 2021.
  • The company now doesn’t expect to generate a positive adjusted EBITDA until 12 months later, in the fourth quarter of 2023.

Deere aims for bigger profit as price hikes power earnings beat – Reuters, 2/18/2022

  • Deere & Co raised its annual profit forecast after posting estimate-beating quarterly earnings on Friday, as the world’s largest farm equipment maker expects a margin boost from price hikes and solid demand for its tractors and combines.
  • Net sales from equipment operations rose about 6% to $8.53 billion for the first quarter ended Jan. 30, beating the Refinitiv-IBES consensus estimate of $8.22 billion.
  • Net income fell to $903 million, or $2.92 per share, as costs weighed, but still beat the average estimate of $2.38.
  • Deere has raised equipment prices to combat rising shipping and supply chain costs, but that has not deterred demand, with the company’s North American order books full or nearly full for most of its large farm equipment in 2022.

Shake Shack forecasts slim sales as Omicron surge hurts – CNBC, 2/18/2022

  • Shake Shack forecast first-quarter revenue below estimates as the fast-spreading Omicron variant kept diners away and led to temporary restaurant closures, sending the burger chain’s shares down 10% in extended trading.
  • Shake Shack forecast first-quarter revenue of $196 million to $201.4 million, compared with analysts’ average estimate of $210.9 million, according to Refinitiv IBES.
  • In the fourth quarter ended Dec. 29, same-store sales in Shake Shack’s urban restaurants, which account for over half of its topline, declined 4% as many city dwellers moved to suburbs during the pandemic.
  • To protect its margins, Shake Shack will jack up prices in March and increase its third-party delivery menu prices, Garutti said. The company in October raised prices by 3% to 3.5%.
  • Shake Shack also pointed to a sales improvement in recent days, with monthly comparable sales through Feb. 15 jumping 13%, versus a 2% rise last month.

GE warns of profit hit in first half from supply and labor issues – Reuters, 2/18/2022

  • General Electric warned on Friday that supply chain logjam coupled with labor crunch and inflation will pressure profits through the first half.
  • The challenges are affecting its units including healthcare, renewable energy and aviation, the company said in a regulatory filing.

DuPont to shed mobility and materials unit in $11 bln Celanese deal – Reuters, 2/18/2022

  • DuPont said on Friday it would sell most of its mobility and materials business to Celanese Corp for $11 billion, as the industrial materials maker continues to tweak its portfolio to focus on high-margin operations.
  • The deal, DuPont’s biggest since its split from DowDuPont, furthers Chief Executive Officer Ed Breen’s strategy of doubling down on the company’s electronics and water solutions businesses.
  • Delaware-based DuPont’s plan to sell its more cyclical mobility and materials unit, which brought net sales of $5 billion in 2021, was announced in November.
  • Celanese said it expects to achieve run-rate synergies of around $450 million within the first four years of deal close.

Frackers Hold Back Production as Oil Nears $100 a Barrel – Wall Street Journal, 2/18/2022

  • America’s largest frackers are reporting huge profits but plan to keep oil production in low gear this year, adhering to an agreement with Wall Street, even as prices approach the $100-a-barrel mark for the first time since 2014.
  • Three of the largest shale companies, Pioneer Natural Resources, Devon Energy and Continental Resources, this week reported their highest annual profits in more than a decade for 2021.
  • The companies said they collected record amounts of extra cash by hanging on to the money they earn selling oil and natural gas and reinvesting only what they needed to keep output roughly flat.
  • All three said they would continue to limit production growth this year.
  • Analysts disagree about how much U.S. oil production will rise in response to high prices this year, amid a supply vacuum left by the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, which haven’t kept up with a goal set last year to add 400,000 barrels a day to the market each month.

Ford’s CEO Is Exploring Ways to Separate Its EV Business to Unlock Tesla-Like Value – Bloomberg, 2/18/2022

  • Ford Motor is looking at ways to separate its electric-vehicle operation from its century-old legacy business, hoping to earn the sort of investor respect enjoyed by Tesla and other pure-play EV makers.
  • Chief Executive Officer Jim Farley wants to wall off Ford’s electric operations from its internal combustion engine business and has even considered spinning off one or the other, people familiar with the effort said.
  • A spinoff could generate the kind of earnings multiples that have given Tesla a market value approaching $1 trillion.
  • But splitting the company, which Ford says it isn’t planning, may prove too difficult, so Farley instead may simply separate the EV business internally as its own unit as part of a broad reorganization that seeks to give Ford an edge in the electric age.
  • A spinoff could be a tough sell to the Ford family. They control the automaker through a special class of stock and are leery of losing influence over the 118-year-old company, said the people, who didn’t want to be identified revealing internal deliberations.

Ford’s Mustang Mach-E beats Tesla’s Model 3 as Consumer Reports’ top electric vehicle for 2022 – CNBC, 2/17/2022

  • Ford’s Mustang Mach-E, the automaker’s bold bet to lead its transformation into selling more electric vehicles, replaced the Tesla Model 3 as Consumer Reports’ “Top Pick” for an electric vehicle in 2022.
  • Consumer Reports says reliability data it has collected shows the Mach-E has very few problems, so far.  That data, along with owner reviews and testing conducted by Consumer Reports, prompted it to make the Mach-E its 2022 “Top Pick” for an electric vehicle, replacing the Tesla Model 3.
  • Consumer Reports is still recommending the Model 3, but Fisher says the small electric car fails to match the Mach-E in certain areas, most notably when it comes to hands-free driving and alerting drivers who fail to pay attention.
  • Overall, Tesla fell seven spots to 23rd place in Consumer Reports ranking of 32 major auto brands.
  • It’s the poorest showing in the seven years Tesla has been included in the “Top Picks” issue.

US ECONOMY & POLITICS

  • U.S. Home Sales Jumped 6.7% in January Amid Record-Low Inventory – Wall Street Journal, 2/18/2022
    • Sales of previously owned homes jumped at the start of the year as buyers rushed to purchase homes in the face of record-low inventory and climbing mortgage rates.
    • Existing-home sales rose 6.7% in January from the prior month to a seasonally adjusted annual rate of 6.5 million, the National Association of Realtors said Friday, with home sales increasing in regions across the country.
    • January sales fell 2.3% from a year earlier.
    • The median existing-home price rose 15.4% in January from a year earlier, NAR said, to $350,300.
    • There were 860,000 homes for sale at the end of January, down 2.3% from December and down 16.5% from January 2021, NAR said. This is the lowest level on record since NAR began tracking total existing-home inventory in 1999.
    • At the current sales pace, there was a 1.6-month supply of homes on the market at the end of January, also a record low.
    • In the four weeks ended Feb. 13, the number of active listings fell 27% from a year earlier to 447,000, according to real-estate brokerage Redfin Corp.
    • The share of first-time buyers in the market fell to 27%, down from 33% a year earlier.

    Fed Official Says Monetary Policy Needs ‘Substantial Adjustment’ – Wall Street Journal, 2/18/2022

    • The Federal Reserve needs to raise interest rates to address an interval of higher-than-expected inflation, but the central bank could be able to avoid a turn to more restrictive policy as long as price pressures moderate this year, a top official said Friday.
    • “The current stance of monetary policy is wrong-footed and needs substantial adjustment,” said Chicago Fed President Charles Evans at a monetary-policy conference in New York. “But how big will it need to be?”
    • The answer will rest on what happens with inflation this year, he said. Mr. Evans said that one model of inflation presumes that price pressures should diminish this year if they are due to what he calls “markup shocks” that are relatively short-lived.
    • It would be more troubling, he said, if higher inflation was resulting from what he described as persistent technological disruptions.

EUROPE & WORLD

China Orders Cuts for Food-Delivery Fees, Sparking Tech Selloff – Wall Street Journal, 2/18/2022

  • Chinese authorities on Friday said the country’s online food-delivery platforms should reduce the fees they charge businesses, sending shares of industry giant Meituan plummeting to their lowest level in more than a year.
  • China’s state planner and 13 other Chinese government bodies said in a joint statement that authorities would guide delivery-platform operators on lowering the fees charged to restaurant owners to reduce catering businesses’ operating costs.
  • The directive, which was led by China’s National Development and Reform Commission, said the internet companies should also give periodic preferential discounts to food and beverage vendors in cities that have been affected by coronavirus outbreaks.
  • Outbreaks in China over the past year have led to tighter social-distancing rules and lockdowns in some cities, which has hurt the service sector.
  • On Friday, Chinese authorities also introduced other measures to support the service sector, which has been a persistent laggard in China’s post-pandemic recovery. They included tax breaks and additional financial support for struggling businesses, as well as monthslong rent exemptions for small service companies that lease properties from state landlords.

Alibaba, Tencent E-Commerce Sites Tagged by U.S. for Counterfeit Sales – Wall Street Journal, 2/18/2022

  • E-commerce sites operated by China’s Tencent Holdings and Alibaba were included on the U.S. government’s latest “notorious markets’’ list of entities that allegedly sell or facilitate the sale of counterfeit goods.
  • The U.S. trade representative’s office said Thursday the two companies were among the 42 online markets and 35 physical markets that are reported to engage in or facilitate a substantial market for counterfeit goods or copyright piracy.
  • The agency said there was a significant increase in counterfeit goods offered for sale on AliExpress, Alibaba’s business-to-consumer e-commerce platform that sells Chinese goods to buyers around the world.
  • Its offerings include goods that are blatantly advertised as counterfeit, as well as goods that are falsely advertised as genuine, the USTR said, based on reports from intellectual rights holders of products.

No reversal on China’s tech crackdown in sight as Xi calls for more work on laws – CNBC, 2/18/2022

  • Chinese President Xi Jinping told top leaders to speed up work on new laws for the technology sector during a speech in early December, according to the Chinese Communist Party’s bimonthly journal published Wednesday.
  • It’s a sign that regulation is not going away yet, even though the speech covers little new ground and economists expect the worst of Beijing’s crackdown is over.
  • China must “accelerate the pace of legislation in the fields of digital economy, internet finance, artificial intelligence, big data, cloud computing, etc.,” Xi said, according to a CNBC translation of the Chinese text.
  • He also called for more laws to ensure national security, and urged increased use of law for “international struggles” — including countering foreign sanctions.
  • But most of Xi’s speech, delivered on Dec. 6 to China’s Central Politburo of top leaders, focused on broad theoretical points such as not blindly following Western systems.

Canada Parliament Cancels Session as Police Clamp Down on Freedom Convoy Protesters – Wall Street Journal, 2/18/2022

  • Canadian lawmakers canceled Friday’s sitting of parliament on the advice of security officials, in anticipation that police in the capital will continue their efforts to remove protesters parked in front of the legislature for the past 22 days.
  • Lawmakers were scheduled to debate Friday and through the weekend the Liberal government’s decision to invoke rarely used emergency measures, with a vote slated for Monday night.
  • The emergency powers allow authorities to designate certain areas—including the streets around Parliament Hill—as no-protest zones where people could be subject to arrest.
  • Ottawa police said it filed three charges against convoy organizer Chris Barber that included counseling to commit mischief and obstruction of justice.
  • Tamara Lich, another organizer, is charged with counseling mischief.

Factmonster – TODAY in HISTORY

  • Martin Luther, German leader of the Protestant Reformation, died. (1546)
  • The Adventures of Huckleberry Finn by Mark Twain was published. (1885)
  • Pluto, the ninth planet in the solar system, was discovered by American astronomer Clyde Tombaugh. (1930)

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