Crude Oil Rises To $100 Per Barrel

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(Tuesday Market Open) U.S. index futures markets staged a reversal on Monday’s results as many investors remain concerned that the lockdown in China will further hamper an already stressed supply chain. However, some Asian markets rebounded overnight. The Nikkei rose0.41% and the Hang Seng gained 0.33%. The Shanghai lost 1.44% to their lowest level in nearly two years. Authorities in Beijing expanded virus testing throughout most of the city, raising concerns about further lockdowns. European stocks bounced back from their 2-day selloff.

Potential Market Movers

PepsiCo PEP gained 0.4% in premarket trading after reporting their financial numbers. Revenue came in at $16.2billion, beating estimates of $15.54 billion, with earnings per share (EPS) at $1.29 versus analysts’ estimates of $1.23. Pepsi executives said they expect full-year organic growth of 8%, up from an earlier estimate of 6%.

General Electric GE lost 3.2% premarket after the industrial conglomerate reported first quarter adjusted profit and revenue that beat expectations but fell short on free cash flow and offered weak outlook. The company’s CEO affirmed its January 2022 outlook range 0of $2.80 to $3.50 EPS and free cash flow of $5.5 billion to $6.5 billion but noted both measures were trending lower given inflation and other evolving market pressures.  Total revenue fell 0.2% but came in at $17.04 billion, above the consensus of $16.85 billion.  EPS rose to 24 cents a share, above the 13-cent estimate.

United Parcel Service UPS delivered better-than-expected results with adjusted EPS of $3.05 versus an estimated$2.88. Revenue came in at $24.38 billion above a consensus of $23.8 billion. UPS also reaffirmed 2022 guidance. UPS management indicated they’ve demonstrated pricing power with customers so far and also raised its targeted total share repurchases to $2 billion for 2022.

3M MMM shares were down premarket (0.38%) despite reporting adjusted EPS of $2.65 on $8.8 billion in sales. Wall Street was looking for EPS of $2.32 on $8.7 billion in sales. Before today’s report, 3M stock has fallen about 16% year-to-date. Guidance for the remainder of 2022 remains unchanged.

Crude Oil (CL) futures were bouncing back, up 1.36% after a five-day slide. Investors reassessed the impact of China’s worsening COVID-19 situation on the outlook for global demand. Natural Gas (NG) futures are up 4.38%.

Durable Goods Report (Except transportation) came in at 1.1%, well above the consensus of .6% and a significant rebound over the previous February report of -0.5%.

Housing will be under the microscope today with the Case-Shiller home price index for February and the FHFA House Price Index later today. This could impact home builder stocks, many of which have risen in the last few trading sessions.

After the close today, look for earnings from Alphabet GOOG, Microsoft MSFT and Visa V.

Reviewing the Market Minutes

Stocks looked bad yesterday after a morning sell-off that caused the S&P 500 (SPX) to test the 4,200 level. However, bargain hunters arrived and started picking up stocks at the lower levels. The buying prompted more buying and the major indexes closed positive. There was no real catalyst for the rebound other than possible short covering. Short sellers may have been targeting the 4,200 level because it was near March lows and gave them the opportunity to close their positions by repurchasing the stock. That buying could have drawn the bargain hunters. The SPX rose 0.57% on the day, while the Dow Jones Industrial Average ($DJI) gained 0.70%, and the Nasdaq Composite ($COMP) rallied 1.29%.

Growth stocks rallied as the 10-year Treasury yield (TNX) dropped 80 basis points to 2.826%. The S&P 500 Pure Growth Index rallied to close 1.11% higher on the day. Investors started the day on their heels and rolling backwards, causing the Cboe Market Volatility Index (VIX) to spike up to 32. However, by day’s end, it flipped to close at 27.

All eyes were on Twitter TWTR, which agreed to sell to Elon Musk for $44 billion or $54.20 per share, in cash. Musk’s SEC filing last week showed that he did have the money in place to buy the company and Twitter’s board wasn’t able to court another suitor despite the use of their poison pill. Mr. Musk released a statement soon after the announcement reiterating his commitment to free speech, making the platform’s algorithms open source, defeating spam bots, and authenticating actual humans.

The news on Twitter was a negative for former U.S. President Donald Trump’s Digital World Acquisition (DWAC) which fell 12.9% on the news. Mr. Trump was planning on using the special purpose acquisition company (SPAC) to build a social media platform after he was kicked off Twitter in January. Despite Mr. Musk reiterating his desire for Twitter to be a free speech platform, Mr. Trump said on Monday that he doesn’t plan on returning to the platform even if he’s allowed to do so.

In other news, a report in the New York Post yesterday afternoon said the owners of JCPenney, Simon Property Group SPG and Brookfield Asset Management BAM are considering a bid for Kohl’s (KSS). Kohl’s tried a turnaround last year, but investors weren’t impressed, and the company felt increased pressure to look for a buyout instead. Activist investor Macellum has used their sizable position in the company to push KSS to find a suitor. Now the field is getting crowded.

CHART OF THE DAY: TECH PROBLEMS. At first glance, the Technology Select Sector Index ($IXT—candlesticks) looks like it has moved just about in sync with the S&P 500 (SPX—pink). However, the group has actually underperformed the benchmark according to the downtrending relative strength line (green). Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

Big Bellwethers? The technology sector has really struggled in April with the Technology Select Sector Index falling more than 10% before Monday’s rally. However, starting today, some bellwether tech names will report earnings after today’s close with the potential to boost the sector. Alphabet GOOG and Microsoft MSFT report this afternoon, Meta FB reports on Wednesday and Apple AAPL and Amazon AMZN report on Thursday.

Of these companies, Apple and Microsoft remain worthy of the bellwether moniker.  Meta is down 50% from its all-time high, which suggests the company got its bell rung instead. Alphabet and Amazon are both flirting with bear market territory but have helped to keep the tech sector and the major indexes from going to deep into that forest.

Earnings Trends: Similar to the previous quarter of earnings, Q1 2022 earnings are seeing companies beat expectations at a higher rate than FactSet’s five-year average, but lower than the last four-quarter average. The margin at which earnings are being beaten is actually below the five-year average. As of April 22, only 20% of the S&P 500 companies had reported earnings.

Energy companies are far and away the biggest gainers in earnings growth. Thus far, the energy sector is reporting a growth rate of 259.4%. Materials has the second-highest growth rate at 34.7% followed by industrials at 32.6%. Communications, consumer discretionary, and financials are reporting negative growth rates at -0.27%, -12.6%, and -21.4% respectively. The average earnings growth rate for the S&P 500 is 6.6%.

Currently, analysts are projecting improvement for the rest of the year. Their projected Q2 earning growth rate is 7%, Q3 is 11.7%, and Q4 is 11.2%.

Dimming Lights: Despite the energy sector’s big earnings growth rate, it has fallen off in performance in April with the Energy Select Sector Index returning a loss of 6.2% as of April 25. Falling oil prices are dragging down the sector’s outlook. Instead, consumer staples and real estate have been the best performers for the month according to the Consumer Staples Select Sector Index and the Real Estate Select Sector Index at 3.17% and 0.16% respectively. All other sectors are in the red.  

Notable Calendar Items

April 27: Pending home sales, and earnings from Meta Platforms (FB), T-Mobile TMUS, and PayPal PYPL

April 28: Gross Domestic Product, and earnings from Apple (AAPL), Amazon.com (AMZN), Merck (MRK), Intel INTC, and McDonald’s MCD

April 29: Earnings from Exxon XOM, Chevron CVX, and AbbVie ABBV

May 2: ISM Manufacturing PMI, Earnings from Berkshire Hathaway (NYSE: BRK-A), Devon Energy DVN, and Expedia EXPE

May 3: JOLTs Job Openings, Earnings from Pfizer PFE, Advanced Micro Devices AMD, and Airbnb ABNB

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

Image sourced from Unsplash

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