+ 0.00
+ 0%
+ 0.05
+ 0.01%
+ 0.11
+ 0.03%
+ 0.00
+ 0%
+ 0.02
+ 0.01%

Intel, American Express, Honeywell All Under Pressure After Earnings, But Snap Rebounds

April 23, 2021 10:19 am
Share to Linkedin Share to Twitter Share to Facebook Share to Print License More
Intel, American Express, Honeywell All Under Pressure After Earnings, But Snap Rebounds

The market’s four-week winning streak looks threatened as today’s session opens. The S&P 500 Index (SPX) closed just above 4185 a week ago and finished Thursday near 4135, so it would take a major rally for a green week after the taxman’s visit yesterday.

At the same time, there aren’t a lot of new catalysts at work. Friday isn’t the busiest earnings day of the season, but it’s just the calm before the storm.

Next week is when the floodgates open and more than 100 S&P 500 companies report, including four of the five “FAANG” companies along with Tesla (NASDAQ:TSLA) and Microsoft (NASDAQ:MSFT). More on that below. By this time a week from now, we should have a much better sense of whether analysts’ average estimate for 24% Q1 earnings growth is in the ballpark or needs adjustment. 

Despite Signs Of Rebound, Caution Still In Place

Yesterday was a rough day thanks in part to new reminders of possible higher taxes (see more below). The Tech sector, especially semiconductors, took a licking, with those shares giving up a lot of Wednesday’s gains. The so-called “horsemen of risk” were in the saddle as bonds and volatility galloped higher. Volatility eased a little this morning, but bonds continued climbing and the 10-year Treasury yield fell below 1.55%—near the bottom of its recent range. 

It’s been a slow data week, and today ends without many fireworks. The new home sales report for March is about the only big data point today, and analysts expect a steep climb to 912,000 on a seasonally adjusted basis from 775,000 a month earlier, according to research firm Briefing.com.

Earnings-wise, companies are getting punished this morning. American Express (NYSE:AXP) and Honeywell (NYSE:HON) are both lower in pre-market trading. The pressure on HON appeared related to disappointment in its aerospace results, which missed the Street’s views. AXP share’s early softness is a classic case of what we’ve been talking about this earnings season: Don’t miss on revenue. 

Intel (NASDAQ:INTC) shares also lost ground after reporting last night. The semiconductor firm may be getting a fish eye from investors because the company faces big costs to build new factories, which could potentially eat into margins. Having said that, it’s never a bad thing to see a company investing for its future, especially one like INTC which faces such heavy competition. One thing that stood out was INTC’s CEO saying the chip shortage could last at least two more years. Think about how that could affect automakers and everyone else. It’s something to keep an eye on, because chips are used everywhere. 

Snap (NYSE:SNAP) had a very nice quarter. They lost money, but less than expected, revenue was solid, and user numbers looked good. The stock fell at first in pre-market trading, but then hustled back higher. 

One sector that performed pretty badly Thursday was Materials. Caught in the middle was Dow Inc. (DOW), whose earnings and revenue Thursday exceeded analyst expectations amid what analysts see as strong demand for its chemicals. 

If you’re an executive at DOW, you’re probably wondering what you have to do to impress Wall Street, considering the company’s guidance also topped consensus views. Barron’s called the selling “a head-scratcher” after a “blockbuster report.” Hard to argue with that.

Maybe you’re wondering why it’s so hard for stocks to go up despite decent earnings this quarter. Well, when you’re near all-time highs, it’s hard to get rewarded. It’s not like people are necessarily looking for a reason to buy more stock, especially stocks that have had incredible runs lately.

“Read My Lips:” New Tax Proposal Hits Market

This isn’t a political column, but sometimes Washington makes it hard not to talk politics in this space. We’re at one of those points after yesterday’s Bloomberg report about the Biden administration possibly planning to raise capital gains taxes and tax rates on high earners. 

As you probably know by now, the news outlet reported that the Biden administration would increase the rate for the richest Americans to 39.6%, from 37%, percent, while raising the capital gains tax on people earning more than $1 million to 39.6%, from 20%. Stocks immediately took a clobbering on the news. 

We’re not going to venture an opinion on the proposals themselves. But you can’t help but think that some investors might see the news as a sell signal and try to exit positions ahead of any new taxes coming down from the Beltway. That’s just what tends to happen when there’s news like this.

If you’re an investor and had plans to sell anyway, maybe it just puts more oil on the fire to get it done. However, if you’re in the market for the long-term, a new tax proposal or two shouldn’t necessarily affect your day-to-day planning. For one thing, there’s absolutely no certainty that Congress has the ability to pass this proposal. For another thing, tax rates tend to change a lot over time, depending on the administration. It’s like the weather in Chicago: If you don’t like it now, wait a few minutes. 

While selling definitely picked up yesterday on the tax news, it’s really nothing all that new when you think about it, Briefing.com pointed out. After all, President Biden campaigned on higher taxes for the wealthy. So Thursday’s sell-off might have been one of those times when people were looking for excuses to book some profit and chose that one.

Overall, the Materials, Energy, Consumer Discretionary, and Info Tech sectors were hardest hit by selling yesterday. Not a single S&P 500 sector finished in the green. If stocks keep getting pounded today, a possible technical support point might be near the 50-day moving average for the S&P 500 Index (SPX), now at 3970. A drop below that might cause technical selling to pick up.

Crude Choppy, Crypto Chopped

Crude’s had an odd week. It’s chopped up and down and at one point fell below $60 a barrel amid worries about demand from India and other parts of Asia where Covid cases are up. Since reaching $60 a barrel for the first time post-Covid in mid-February, the crude front-month has been surprisingly stable. It hasn’t fallen much below $60 or risen much above $65 over these two months.

If you watch crude over time, you’ll see it often carves a trading range and stays there for a while. It would probably take a move above the 2021 high of $67.98 or a drop below the March low of $57.25 to upset the apple cart much in this market.

It’s also been an odd week for Bitcoin. Well, maybe odd isn’t the right word. It’s just getting hammered, and fell below $50,000. That’s after piercing $60,000 for the first time not long ago. One possible reason for the weakness could be worry about how any new tax proposal could affect profits from trading in cryptocurrencies. Remember, that’s still pretty unclear, and remains in the realm of speculation for now. 

Also, maybe it’s worth noting that the last time the capital gains tax went up (in 2013), the SPX rose 30%.

philadelphia semiconductor index

CHART OF THE DAY: BUILDING UP. Need a data point to demonstrate the strength in all things building? Here are two: The S&P Homebuilders Select Industry Index ($SPSIHO—candlestick) and CME Group’s Comex Copper futures (/HG—purple line). As commodity prices continued to surge, homebuilder activity forged ahead in lockstep. Data sources: CME Group, S&P Dow Jones Indices. Chart source: The thinkorswim® platformFor illustrative purposes only. Past performance does not guarantee future results.  

Broken Record Department: You’ve heard it here before and you’ll hear it again: Earnings drive the market. This may sound like the record is skipping, but it’s true. And if you’re only going to focus on earnings one week out of the quarter, make it this coming week or you’ll miss the top-40 countdown. Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Tesla (NASDAQ:TSLA), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), and Amazon (NASDAQ:AMZN) are just a few of the big names stepping onto the earnings stage after this weekend. One thing they all have in common, obviously, is exposure to the Tech sector, even if AMZN, GOOGL, and TSLA aren’t officially “Tech” stocks. 

Together, these stocks make up 80% of the so-called “FAANGs,” and MSFT is often thought of as a FAANG cousin who might fit on the list if it’s name didn’t start with a letter that would mess up the cool word. You’re also talking almost $9 trillion in market cap spread across those six stocks. Together, they make up more than a quarter of the S&P 500’s market capitalization, and how they do can really make or break an earnings season. We’ve already previewed GOOGL’s earnings—where advertising revenue and cloud technology are likely to be in focus—and FB, which has seen solid ad revenue growth but may have a couple headwinds ahead. Stay tuned for previews of AAPL, TSLA, and AMZN. 

Refi High: Speaking of broken records, here’s an oldie but a goodie: with interest rates heading back down after last month’s spike, mortgage applications—and specifically mortgage refinances—are back on the front burner, according to the Mortgage Bankers Association (MBA). Overall mortgage activity was up 8.6% on the week last week, but refi applications were up 10%, and as of last week make up 60% of all applications. According to Bankrate’s weekly survey, average rates for a 30-year fixed mortgage ticked down six basis points to 3.21% (but still 30 basis points higher than the record low set in January). 

In and of itself, refis are a good thing for the consumer economy, as they tend to lower a fixed line item in the budget, thus leaving more room for discretionary spending, like home renovations, for example. Where it gets tricky, however, is when refinancers take cash out of their homes (the “cash-out refi” that hit fever pitch just before the financial crisis in 2008). According to Freddie Mac, borrowers cashed out about $48 billion in refis in Q4 2020—the highest level since late 2008. When you look at the trends in housing and commodity prices (see chart above), it’s tempting to conclude we’re setting up for another bruising pullback. But the housing market is fundamentally different than it was in 2008. And considering how unprecedented the pandemic has been, it’s probably folly to compare anything to 2020 and draw conclusions.    

An Abundance Of You Know What: Before the tax worries cratered Wall Street yesterday, it had been a pretty nice broad-based rally at midweek, if you take the steep Netflix (NASDAQ:NFLX) losses out of the equation. Still, the better performing sectors over the last week have still been defensive ones like Utilities, Health Care and Real Estate. Plus you have the bond market making some gains and volatility edging higher. Caution seems to be the watchword. That being said, the Cboe Volatility Index (VIX) couldn’t take out 20 on Thursday and the 10-year yield stayed above its recent 1.52% low. Those could be reckoning points to watch today and next week for hints at the market’s next move.

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

Image by Bruno /Germany from Pixabay

For the latest in financial news, exclusive stories, memes follow Benzinga on Twitter, Facebook & Instagram. For the best interviews, stock market talk & videos, subscribe to our YouTube channel.

Related Articles

Barron's Latest Picks And Pans: Moderna, Netflix, Perrigo, XPO Logistics And More

This weekend's Barron's cover story presents the results of the latest Barron's Big Money Poll. Other featured articles show which food stocks are worth bite and which real estate stocks have room to run. read more

Barron's Picks And Pans: Alibaba, Biogen, China Mobile, Peter Lynch Picks And More

Might Stories Be The Revenue Story Behind Facebook's Earnings?

Streaming Wars, Social Media, And 5G: Comms Sector Earnings Preview