LIVE MARKETS Inflation, COVID-19 hottest topics this earnings season

  • Major US indices slightly higher in choppy session
  • Small caps and chips outperform
  • Energy leads S&P sector winners; comm svcs single loser
  • flat dollar; bitcoin, rise in gold; gross falls
  • 10-year US Treasury yield ~1.91%

February 7 – Welcome home to real-time market coverage from Reuters reporters. You can share your thoughts with us at [email protected]

INFLATION, COVID-19 HOTTEST TOPICS THIS EARNING SEASON (1422 EST/1922 GMT)

Inflation and COVID-19 are still the most important topics this earnings season, BofA Securities strategists wrote in their latest earnings tracker on Monday.

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There are signs of exacerbating labor and supply chain issues, they wrote, noting: “The recent spike in COVID cases has also contributed to the deteriorating environment, with further labor shortages and supply chain disruption.”

Amazon.com, Clorox Co (CLX.N) and Raytheon Technologies (RTX.N) are among the companies that noted inflation and/or labor shortage issues on recent earnings-related calls, according to BofA rating.

While S&P 500 earnings are in the final weeks, more than 30% of consumer discretionary reports are yet to arrive, they noted. With them, “we expect to learn more about consumer trends, supply chain bottlenecks and inflation,” the strategists wrote.

Additionally, the earnings of many small- and mid-cap companies are also on the rise. As it stands, 74% of small-cap companies and 69% of mid-cap companies have yet to report earnings, they wrote.

(Caroline Valetkevich)

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RUSSELL 2000 SHOULD BE DELAYED AGAIN IN 2022-GOLDMAN (1310 EST/1810 GMT)

The Russell 2000 Small Cap Index (.RUT) has underperformed the S&P 500 (.SPX) recently, and is expected to continue to lag the benchmark in 2022, Goldman Sachs strategists wrote in a recent note.

Among the headwinds for the small-cap index: slowing GDP growth, they said.

“Russell 2000 is biased toward cyclical sectors,” including financials and industrials, “and away from technology,” they noted.

“Small-cap companies typically have weaker balance sheets, lower profit margins, and less market power, making them highly sensitive to economic growth environments. Returns on the Russell 2000 versus the S&P 500 are generally correlated along with other market reflections of expected economic growth,” they wrote.

In addition, they wrote, tighter financial conditions, slowing growth and a flattening yield curve are all expected to put pressure on Russell 2000 returns relative to the S&P 500.

“Over the past 20 years, the Russell 2000 has generated a return very similar to that of the S&P 500. However, the small cap index has underperformed on average during periods when the yield curve has flattened, the “Economic growth was high and falling, or financial conditions were tightening. These three dynamics describe our economists’ outlook for 2022,” they wrote.

They recommend investors focus in the small cap space on stocks with a combination of high growth, high profit margins and undemanding valuations.

Meanwhile, the S&P 500 is down more than 5% so far this year, while the Russell 2000 is down more than 10% year-to-date.

(Caroline Valetkevich)

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HALFTIME EARNINGS SEASON HUDDLE: TECH THE REMARKABLE SO FAR (1205 EST/1705 EST)

Technology, excluding consumer-related internet names, has been the sector that stands out so far in terms of stock price reactions to earnings. This according to Lori Calvasina, head of US equity strategy at RBC Capital Markets.

According to Calvasina, at just over 50%, Tech has the highest percentage of companies whose stock price rose 1% or more immediately after earnings among all GICS sectors.

On the EPS growth forecast for 2022, by percentage, she says expectations have improved for energy, materials, healthcare and technology. Meanwhile, they weakened in consumer discretionary, communication services, financials and utilities. She adds that growth and value as well as secular, cyclical and defensive stocks are well represented among the leaders and laggards on this metric, “confirming the idea that positioning trades look a bit messy from an earnings perspective. for the moment”.

That said, Calvasina also notes that the rate of upward revision to EPS estimates was slightly stronger in value than in growth, and weaker in defensives than in cyclicals.

“At a sector level, we prefer to look at the rate of EPS and sales upside revisions. And that view reminds us once again that the story is a bit more complicated with financials, REITs and energy (and to a lesser extent tech and healthcare degree) outperforming other major sectors.”

(Terence Gabriel)

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STRONG CPI DATA COULD IMPROVE FEDERAL HIKE EXPECTATIONS AND DAMAGE BONDS (1100 EST/1600 GMT)

US inflation data on Thursday could be key to knowing whether the bond rout that propelled benchmark Treasury yields to two-year highs is likely to continue, with investors likely to price in higher rates more aggressively if the number is stronger than expected, according to Morgan Stanley.

Thursday’s consumer price index (CPI) data is expected to show prices rose 0.5% in January and 7.3% on the year, according to the median estimate of economists polled by Reuters.EM

However, “an upside surprise next Thursday would mean further talk of the Fed’s 50 basis point rate hike in March. At a minimum, the Fed’s hike calls at every meeting this year will seem far less off about,” said Morgan Stanley analysts, including Matthew. Hornbach said in a report.

The Federal Reserve said last month it would likely raise interest rates in March as it tackles persistent inflation, though traders in fed funds futures only forecast a 37% chance of a 50 basis point hike this month. Five increases of 25 basis points are planned by December. FEDWATCH find out more

“An upside surprise in the U.S. January CPI next week, followed by further strength in nonfarm payrolls and even stronger inflation in February, could bolster expectations of a 50% hike. basis points in March. This result would certainly upset expectations for Fed policy this year – and investors are not sufficiently protected against this, given current market prices, in our view,” added Morgan analysts. Stanley.

Benchmark 10-year Treasury yields hit two-year highs on Monday, after data on Friday showed the U.S. economy added far more jobs than expected in January, despite the disruption to businesses in contact with consumers because of an increase in COVID-19 cases. They are at 1.94%, against 1.50% at the end of the year. Read more

(Karen Brettell)

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NASDAQ UP ON AMAZON BOOST (1001 EST / 1501 GMT)

The Nasdaq (.IXIC) is higher in early trading on Monday, with Amazon.com providing a boost. The S&P 500 (.SPX) is roughly flat, while the Dow (.DJI) is slightly red.

Meanwhile, shares of Peloton Interactive Inc (PTON.O) rose about 25% following media reports that Amazon and Nike are considering a potential takeover bid for the exercise bike maker.

All three major indices ended a volatile week of trading on Friday with weekly gains.

Here is the first market overview:

February 7

(Caroline Valetkevich)

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AMID JUNKY ACTION, S&P 500 GOES Trash (0900 EST / 1400 GMT)

Action on the riskiest corporate bonds can potentially provide an important signal for the equity market. Although the timing may be imprecise, the difficult price action of high yield securities may be a sign of less than buoyant sentiment, ultimately leading to volatility in the equity market.

Indeed, as a proxy for the high-yield sector, the SPDR Bloomberg Barclays High Yield Bond ETF (JNK.P) had broken below its 200-day moving average (DMA) and deviated from the S&P 500 (. SPX), when the stock index exceeded in early January:

SPXJNK02072022

It should be noted that looking back at the start of 2020, following new record highs for equities, the S&P 500 highs to varying degrees came on the back of even minor divergence from JNK.

From its early January peak to its late January trough, the SPX broke below its 200-DMA and fell almost 10%. In doing so, the benchmark fell to its lowest level since early October 2021. The SPX has since recovered its 200-DMA and rebounded around 4%.

Meanwhile, JNK continues to trade below its 200-DMA and ended Friday at its lowest level since early November 2020.

To bolster confidence in the sustainability of the stock market rebound, traders can expect the JNK to quickly reverse higher to confirm any ongoing rally in the S&P 500. Read More

On the positive side, the JNK formed a bullish hammer candle on Friday, suggesting it is ready for some turn. However, he has some work to do if he is to get back up and running with the SPX and repair his recent map damage.

(Terence Gabriel)

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Terence Gabriel is a market analyst at Reuters. Opinions expressed are his own.

Our standards: The Thomson Reuters Trust Principles.

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