Markets pull back as retail sales fall 1.9% and banks report strong quarter

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JP Morgan (JPM) reported a 14% drop in fourth-quarter earnings, but beat analysts’ estimates. They posted earnings of $10.4 billion or $3.33 per share compared to $12.1 billion or $3.79 per share in the fourth quarter of last year. Analyst consensus was for earnings of $3.01 per share. Revenues exceeded expectations with trading revenue down 7% and fixed income down as well. Pre-market shares are down 3.8% despite global investment banking M&A activity hitting all-time highs in 2021 and a record profitable quarter.

Wells Fargo

WFC
(WFC) reached $20.86 billion against a consensus of $18.79 billion. Last year it was $18.49. Wells Fargo beat earnings estimates by 23.21%, posting EPS of $1.38 versus an estimate of $1.12 that surprised analysts. Premarket shares rose less than 0.05%.

Citigroup

VS
(C) Fourth quarter adjusted EPS was $1.46 versus consensus estimate of 1.37. This figure is lower than the same quarter last year at $1.92. Revenue was $17.02 billion versus estimates of $16.85 billion. The same period last year was 16.83 billion. Sales were reported at $17.00 billion, which beat estimates of $16.77 billion. The same period last year was 16.50 billion. Pre-market market share was down 3.6%. Fixed income and equity trading revenues were below expectations.

black rock

NOIR
(BLK) beat earnings estimates by 2.66%, posting EPS of $10.42 versus estimates of $10.15 and $10.02 a year earlier. Assets under management (AUM) increased 15% to $10.1 trillion. Shares traded pre-market are down 3.2%.

First Republic Bank (FRC) beat earnings estimates by 4.66%, posting EPS of $2.02 against an estimate of $1.92 per share. Last year EPS was $1.60. Revenue increased by $287 million compared to the same period last year. The First Republic saw growth in loans, deposits, and wealth management assets. The shares are trading slightly down 1% pre-market.

Retail

IVR
Sales fell 1.9% overall in December. Sales excluding automobiles and gas fell 2.5%. This is the biggest drop since February 2021.

Yields are slightly higher at 0.64% with the VIX up 5.5%. S&P down 0.6%. It remains to be seen how traders react. Will they be too nervous to last the weekend?

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

Retail sales

The Battle of the Nasdaq

NDAQ
Composite (COMP:GIDS) warmed up on Thursday as the bears fought back 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 positive for the day. Then the Nasdaq was able to stage a three-day, more than 2% rally. However, the bears pushed the tech-heavy index back to support it once again.

Technology Select Sector Index fell 2.60% despite Taiwan Semiconductor’s better-than-expected earnings

TO
(TSM), which drove the stock up 5.26%. But the stock alone was not enough as it was swimming upstream against an industry group that was down. The PHLX Semiconductor Index (SOX) fell 2.29% on the day. The software industry group was one of the worst performers in the technology sector, with the S&P Software & Services Select Industry Index falling 3.16% on the day.

Weakness in the technology sector also held back the S&P 500 (SPX), which closed down 1.42%. The Dow Jones Industrial Average ($DJI) held up a little better but still fell 0.49%. Technology, consumer discretionary and healthcare were the lowest sectors, while utilities, industrials and consumer staples were the main and only sectors with positive returns on Thursday.

Vaccine makers declined after the Supreme Court blocked the Biden administration’s COVID-19 vaccine or testing rules for large private employers. While the government had some latitude for health care providers because they received federal funds for the Medicare and Medicaid programs, private employer requirements for companies with 100 or more employees exceeded the authority that Congress granted to the Occupational Safety and Health Administration. (OSHA). Pfizer

DFP
(PFE), Moderna (MRNA), BioNTech (BNTX) and Johnson & Johnson (JNJ

JNJ
) fell by 1.96%, 5.71%, 8.10% and 0.61% respectively.

Come quietly…

After soaring more than 14% on Wednesday, natural gas futures gave back most of their gains on Thursday, falling more than 12%. Apparently, traders felt that the market got a little carried away and pushed prices lower. The alleged cold snap that pushed natural gas higher could still pose a threat as fuel oil futures were able to hit a second consecutive 52-week close higher.

It would seem logical that climate change that affects natural gas and fuel oil prices would also affect electric and gas utilities. However, utilities are not sensitive to these costs as they are usually able to pass on changing costs to consumers. Instead, utilities are more sensitive to changes in yields or interest rates.

Investors typically hold utilities because of their low volatility and high dividend yields. Utilities therefore tend to perform better when investors are nervous or bearish or when yields fall. The higher yields of treasury bonds make them a more attractive investment than utilities, as they are considered safer investments. But falling Treasury yields make higher utility dividends more attractive.

That said, Treasury and utility yields have been a bit out of sync during the pandemic. Sometimes they moved in opposite directions, and sometimes they moved together. The problem has been investor nervousness about the economy as well as the prospect of a Fed rate hike.

Bring warmth: With the weather getting colder and homes warming up, HVAC (heating, ventilation, and air conditioning) may be on some investors’ minds. HVAC companies like Ingersoll-Rand

IR
(IR), Carrier (CARR), Lennox (LII) and Johnson Controls

JCI
(JCI) are part of the engineering and construction industry group under the industrial sector. However, many of these companies could be considered overvalued as they have price-earnings ratios of 60, 21, 23 and 34 respectively. With the manufacturing of heating and air conditioning products, these inventories are not particularly seasonal. Finally, these stocks are more dependent on the housing market than probably any other factor, which is one of the reasons why they have higher valuations. The housing market has been hot for nearly two years. Investors interested in HVAC stocks may need to be patient as they could consolidate as the housing market catches up to demand. Investors should also wait to see if house prices stay high as interest rates rise.

Software too soft: The S&P Software & Services Industry Index is down more than 18% from its November 2021 high. spring 2021. 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 any at all.

Although the level of technical support could block the fall, the software group could continue to struggle if the Fed were to raise rates faster and higher than it had expected. Goldman Sachs analysts

GS
and JP Morgan have already forecast more rate hikes in 2022 beyond the three forecast by the Fed, which is targeting an overnight rate of 0.90% by the end of the year.

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

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