S&P 500 ceased its 3 day series of losses yesterday finishing with a .30% gain, Nasdaq outperformed with .73% and the Dow finished around flat. The market was cheered by the favorable JPM results, as the state of the major investment bank is indicative of the state of the US economy. The 10yr Treasuries’ yields fell to 1.542% and this was the driver of the Nasdaq gains – as mentioned in previous articles, big tech’s growth is financed with debt and future cash flows from investment projects are discounted more or less with the base rate plus project-specific risk. The Fed’s minutes from yesterday were indicative of a mild and more favorable tapering – officials broadly agreed that they should start reducing stimulus in mid-November or mid-December by USD10B per month concerning Treasuries and USD5B per month concerning agency mortgage-backed securities. Tapering is inevitable concerning the rising inflation, as the yesterday CPI surpassed expectations rising with .4% mom, but Fed members are prone to make it gradual by mid-2022. Regarding inflation, it would not be irrelevant and repetitive to attribute it to supply shocks, the most common word, mentioned in analysts’ interviews in the last three months, to energy prices and labor market shortages.
Regarding the energy market, a hot topic for the time being and in the near future, the WTI Crude is currently trading at USD81.08, .81% higher and Brent, adding another .83% at USD83.87. In its monthly report, the OPEC decreased its 2021 global oil demand forecast but kept its expectations for 2022 stable. The rising natural gas prices are supposed to increase demand for oil-based products rendering the equivalent energy. The European Natural Gas contract, traded at TTF reached an equivalent for oil of USD177 per barrel, which is above the record trading Brent oil price of USD146 per barrel, reached in 2008. Considering the coal prices, China’s purchases rose 17% mom in September, the highest total this year, with gas imports also rocketing. The Australian coal bonded in storage is to be unlocked, following international leaders’ disputes. Chinese thermal coal futures pared gains after registering another record. Stocks and ETFs related with renewable energy appear to be interesting for consideration, and are set to be more closely discussed in the following articles.
The market-colored picture from yesterday is indicative of the big-tech winners, with the exception of AAPL, which could not ride the rally. Big techs are better equipped to pass higher prices to their clients, without harming their business, but in cases of international factory closedowns and new product launch impediments, projects and profits are inevitably hurt. This is the case with AAPL’s iPhone13 – production will be slowed down due to chip supplies insufficiency, a big negative, especially when the holiday season is approaching.
Regarding JPM’s posted EPS of USD3.74, they truly outperformed market expectations of USD3. The brilliant results are attributed to the intensive and lucrative business in the M&A sector, as well as to a deleted provision for bad debts, related with the pandemics. Nevertheless, the stock ended lower with 2.6%, as it had gained some 26% from the beginning of the year, positive results have already been priced in and the perspective is the most important part in earnings’ release.
DAL also released earnings better than expectations, excluding the federal fiscal support from the beginning of the pandemics. Rising oil prices, however, as well as travelling restrictions worsen the prospects of the company and it ended 5.8% north.
Earnings release trigger big, strong and easy to trade moves, with hints where the company will end the session, still in the pre-market hours. Today, before market open we have reports of BAC, C, WFC, MS, and AA after market close. As it could be induced from the short analysis above, the direction, at which the stock is heading could be often counterintuitive, and not based on plain EPS/reported/expected but on how much the company has been over or underpriced so far, considering a bunch of factors.
Today we have also the PPI at 8:30 am, EST and US Crude Oil Inventories at 11 am. At 1pm an FOMC member speaks, exiting short term positions at these hours is strongly recommended.