Good morning contrarians!
Yesterday saw another day of selling, with the Nasdaq now officially entering correction territory (defined as a 10% decline from the all-time high). It’s the same story: fear of higher interest rates have investors selling their tech stocks and bond holdings alike. If there has been a ‘rotation’ into anything it’s been cash and that type of situation simply cannot persist for very long. Not with the risk-free rate for cash still so low and with inflation still so high.
State of Play
Stock futures are pointing to a rebound this morning, with tech up the most as of 0630. Nasdaq is 0.9% to the good. S&P 500 up about 0.5%, followed by Dow Industrials and Russell 2000 both about 0.4% higher.
Bonds are down a tiny bit from yesterday’s peak, with the 2-year yield at 1.04% and 10-year sitting at 1.84%. Industrial metals are rallying, likely spurred by China cutting key rates overnight: Copper, platinum, palladium, aluminium, zinc, and nickel all pointing to gains of 1% or more. Crude oil is flat. Cryptos are treading water, with bitcoin sitting roughly unchanged around $42,000.
Today’s Earnings
Netflix (NFLX) is the big one today. Unfortunately we have to wait until after the close for their report. This is not so much about earnings or revenue but subscriber numbers. The company has set this figure at 8.5 million for the quarter. Last quarter NFLX beat these estimates and the stock rallied before it, too succumbed to the tech wreck.
What will that say about the broader economy? Not much, other than that many people globally (not just in the U.S.) are keen to pay $15.49 or the equivalent each month for the privilege. Ostensibly, that’s bullish because it is a leisure spend and speaks to people having more disposable income to put toward entertainment. But it’s a small part of that.
If NFLX beats earnings and the stock rallies, could it take the broader tech sector with it? Potentially, though Netflix has also been an outlier in the past. What is clear is that the Nasdaq should not see very many bids of NFLX produces an earnings (and subscriptions) miss.
We also have Baker Hughes (BKR), Travelers (TRV), and American Airlines (AAL) reporting today. Those are out before the open at 0930. United Airlines (UAL) reported yesterday and rattled investors a bit with lower guidance due to omicron. So that stock has sold off but not terribly (2% or so). One company that did beat yesterday: Kinder Morgan (KMI). Podcast listeners know the significance of this.
Data Releases
Another slow day for economic data releases. Initial jobless claims are out at 0830. Expectations are for 220,000 new claims, down slightly from the 230,000 seen last week. That was quite a bit higher than the consensus and this data point has started to trend in the wrong direction and if it exceeds 230,000 it will have increased for three weeks in a row — first time that’s happened in, well, a long time (couldn’t be bothered to check exactly. But there’s your headline if we do get past 230k).
Then we have existing home sales are out at 1000. Economists expect this figure to have held pretty steady in December versus the previous month.
The Bottom Line
Would caution against getting too excited about futures: yesterday’s pre-market activity was also higher and bear markets tend to see higher futures prices before the regular session results in selling. We aren’t in a bear market yet (other than maybe for pandemic favorites and Cathie Wood stocks) but the fact that bond prices haven’t moved seems to indicate we aren’t out of the woods yet where investor worries about rates are concerned. The Fed meets next week and markets may be holding their breath until then.
Having said that, there is nothing economically that is pointing to a slowdown. Markets and economies don’t always follow each other in lockstep, but they do tend to dovetail. If the economy is still expanding and stocks are selling off it often lends itself to opportunity to purchase shares. Of course, timing the market is impossible. But you can pick spots and this would appear to potentially be one such opportunity.
The Tech Correcteth: Daily Contrarian, Jan. 20