Markets Edge Lower As Retails Sales Slump 1.9% And Banks Report A Solid Quarter

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JPMorgan (JPM) reported fourth-quarter earnings down 14% but beat analysts’ estimates. They posted a profit of $10.4 billion, or $3.33 per share, compared to $12.1 billion, or $3.79 per share, in last year’s fourth quarter. Analysts’ consensus expected earnings per share was $3.01. Revenue missed expectations, with business revenue down 7% and fixed income also declining. Investment banking Pre-market shares are down 3.8% despite global merger and acquisition activity breaking all-time records in 2021 and a record profitable quarter.

Wells Fargo
WFC
(WFC) revenue came in at a consensus of $20.86 billion versus $18.79 billion. Last year was $18.49. Wells Fargo surprised analysts’ estimates of $1.12, reporting EPS of $1.38, beating expected earnings by 23.21%. Pre-market shares are up less than .05%.

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Citigroup
C
(c) Fourth quarter adjusted EPS came in at the consensus estimate of $1.46 versus 1.37. It came in at $1.92, lower than the same quarter last year. Revenue stood at $17.02 billion, compared to an estimate of $16.85 billion. The same period last year was $16.83 billion. Sales were reported at $17.00 billion, surpassing estimates of $16.77 billion. The same period last year was $16.50 billion. Pre-market shares are down 3.6%. Revenues for fixed income and equity trading were lower than expected.

black Rock
BLK
(BLK) beat projected earnings by 2.66%, reporting EPS of $10.42 versus estimates of $10.15 and $10.02 in the year-ago period. Assets under management (AUM) increased 15% to $10.1 trillion. Shares traded in the premarket are down 3.2%.

First Republic Bank (FRC) beat projected earnings by 4.66%, reporting EPS of $2.02, compared to estimates of $1.92 per share. Last year’s EPS was $1.60. Revenue was up $287 million from the same period last year. The First Republic saw an increase in loans, deposits and money-management assets. The stock is trading with a fall of 1% in the market.

retail
RVI
Overall sales declined 1.9% in December. Excluding auto and gas, sales declined by 2.5%. This is the biggest reduction since February 2021.

Yield is slightly higher at .64% with VIX up 5.5%. S&P down .6%. It remains to be seen how the traders react. Will they be too nervous to stay over the weekend?

(Markets open Friday) JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK), and First Republic (FRC)

Retail Sales

Battle of Nasdaq
NDAQ
The Composite (COMP: GIDS) heated up on Thursday as the bears turned against the bulls, resulting in a 2.51% sell-off. On Monday, the bears pushed the Nasdaq well below its 14,900 level, but the bulls were able to fight back and help the index close on a positive note for the day. The Nasdaq was then able to rally over three days and over 2%. However, the bears have pushed the tech-heavy index back for support once again.

Technology Select Sector Index fell 2.60% despite better-than-expected earnings from Taiwan Semiconductor
Feather
(TSM), resulting in a 5.26% rally in the stock. But just one stock wasn’t enough because it was floating on top of an industry conglomerate that was falling. The PHLX Semiconductor Index (SOX) fell 2.29% that day. The software industry conglomerate was one of the worst performers in the tech sector, with the S&P Software & Services Select Industry Index falling 3.16% on the day.

Weakness in technical areas was also dragging the S&P 500 (SPX), which closed 1.42% lower. The Dow Jones Industrial Average ($DJI) was slightly better but still down 0.49%. Technology, consumer discretionary and health care were the bottom sectors, while utilities, industry and consumer staples were the top and only sectors with positive returns on Thursday.

Vaccine makers traded low after the Supreme Court blocked the Biden administration’s COVID-19 vaccine-or-test rules for large private employers. While the government had some latitude for health care providers as they received federal funding for the Medicare and Medicaid programs, the private-employer requirements for businesses with 100 or more employees were said to exceed the right that Congress granted to commercial businesses. Safety and Health Administration. (OSHA). pfizer
PFE
(PFE), Moderna (mRNA), BioNTech (BNTX), and Johnson & Johnson (JNJ)
JNJ
) fell by 1.96%, 5.71%, 8.10% and 0.61%, respectively.

easy Come…

After skyrocketing more than 14% on Wednesday, natural gas futures returned most of their gains on Thursday, falling more than 12%. Obviously, traders felt that the market had retreated a bit and pushed the prices lower. The cold snap that pushed natural gas higher is believed to still be a threat as heating oil futures were able to hit a 52-week high for the second time in a row.

It seems logical that changes in the weather affecting natural gas and heating oil prices would affect electricity and gas utility companies as well. However, utilities are not sensitive to these costs because they are usually able to pass on changing costs to consumers. Instead, utilities are more sensitive to changes in returns or interest rates.

Investors typically hold utilities because of their low volatility and high dividend yield. Therefore, utilities tend to outperform when investors are nervous or bearish or when yields are falling. Higher yields on Treasuries make them a more attractive investment than utilities because they are considered safer investments. But lower Treasury yields make utilities’ higher dividends more attractive.

Simultaneously, the synergy of Treasury yields and utilities has shrunk slightly during the pandemic. At times, they have moved in opposite directions, and sometimes, they have moved together. The issue has been investors’ panic about the economy as well as the possibility of the Fed raising rates.

Bringing heat: With the weather getting colder and housing getting warmer, HVAC (heating, ventilation and air conditioning) may be on the mind of some investors. HVAC companies such as Ingersoll-Rand
IR
(IR), Carrier (CARR), Lennox (LII), and Johnson Controls
JCI
(JCI) are part of the Engineering and Construction Industries Group under the Industrial Sector. However, many of these companies may be considered overvalued because their price-to-earnings ratios are 60, 21, 23 and 34, respectively. With both heating and air conditioning products manufactured, these stocks are not particularly seasonal. In the end, these stocks are probably more dependent on the housing market than any other factor, which is one reason they have high valuations. The housing market has been hot for almost two years. Investors interested in HVAC stocks may have to be patient as they may consolidate when the housing market catches up with demand. Investors should also wait to see if housing prices remain strong with rising interest rates.

Software too soft: The S&P Software and Services Industry Index is down more than 18% from its November 2021 high. The industry group is heading into bear territory (down 20%) and is gaining support from its spring 2021 lows. The group has been hit hard as investors have shifted their focus from growth to value. Many of these companies have high price-to-earnings ratios, if their earnings at all.

While tech support levels could halt a decline, the software group could continue to struggle if the Fed is to raise rates faster and higher than it has anticipated. Goldman Sachs analyst
gs
And JPMorgan has already forecast more than three rate hikes projected by the Fed in 2022, targeting an overnight rate of 0.90% by the end of the year.

TD Ameritrade® Commentary for educational purposes only. Member SIPC.

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