(Boursier.com) — After a green start to the session on Friday, the New York Stock Exchange fell back into bright red in the evening, the day after the announcement of a soaring inflation to 7.5% in January in the United States. There is reason to fear a rate hike of half a point by the Fed in March, and perhaps up to 7 turns of the screw this year to control the rise in prices. A rise in rates that weighs on stock market valuations, in particular that of technology stocks.
Two hours before the closing, the Dow Jones loose 1.3% to 34,784 points, while the broad index S&P500 lost 1.8% to 4,420 pts, and that the Nasdaq Compositerich in technology and biotech stocks, fell 2.5% to 13,824 pts.
The morale of American households weighed down by the rise in prices
The Nasdaq is sinking into the correction zone, dropping nearly 14% from its closing record of November 19 (16,057 pts), after losing up to 17% at the end of January. Bond markets are calming after Thursday’s surge in rates, but rates remain at their highest level since 2019, in anticipation of the Fed’s aggressive monetary tightening cycle.
After the announcement of inflation at its highest for 40 years in January in the United States (+7.5% over one year), the markets learned on Friday of a fall in the morale of American households in February, at the lowest for more than 10 years, in the face of concerns caused by price tensions… Thus, thepreliminary index of consumer sentiment for February, measured by the University of Michigan, collapsed to 61.7, against 67.5 market consensus and after 67.2 in January. So he came back the lowest since October 2011…
The sub-index measuring current conditions came in at 68.5 versus the consensus 72. The expectations component collapsed to 57.4 against 64.5 market consensus!
Pause on rates, but they remain at their highest since 2019
On the fixed income markets, the return on the T-Bond at 10 years gives up 2 basis points on Friday evening, at 2.02%, but it remains above 2%, the highest since August 2019, and has gained half a point since the start of the year. As to American “2-year-old”which reflects the trend in short rates, it fell to 1.57% against 1.6% on Thursday evening, but it has more than doubled since the start of the year (0.76%).
In Europe, the yield of 10-year German bundwhich jumped 8 bps on Thursday to 0.30%, ended the week only slightly lower at 0.29%, its highest since April 2019.
In the foreign exchange market, the dollar is strengthening on the prospect of fairly aggressive rate hikes from the Fed. The dollar index (which measures its evolution against a basket of 6 reference currencies) gained 0.2% at the end of the evening at 95.76 points, while the euro yielded 0.65% to $1.1354, after statements by Christine Lagarde. The ECB President warned against the risk of acting too quickly on rates.
Raise the key ECB rates now would not make it possible to stem the record rise in inflation in the euro zone (+5.1% in January) and would only have the effect of harming the economy, said the head of the ECB in an interview with ‘Reuters’. Christine Lagarde was thus more “dove” than at the end of the monetary policy meeting of December 3, where she had not ruled out raising key rates this year.
A full point tightening envisaged by the Fed by July?
In the United States, the tone of the central bankers remains more bellicose, in particular that of St. Louis Fed President James Bullard, which contributed to the rate turbulence on Thursday. He said to himself in favor of a hike in the “fed funds” rate by half a point in March, and did not rule out that the cost of money would increase by a full point by next July.
James Bullard even said he was open to emergency rate hikes, occurring between scheduled Fed meetings, if necessary. Mr. Bullard is one of the voting members of the FOMC (Federal Open Market Committee, the monetary policy committee) this year. He had already been one of the first to call for a normalization of Fed policy in 2021.
Big bank strategists continue to raise their expectations for key rate hikes this year. After Bank of Americait’s the turn of Goldman Sachs to foresee no longer 5, but 7 turns of the screw this year.
The CME Group’s FedWatch tool (which mirrors rate futures) reported Friday evening a 59.8% chance for a half-point turn and 40.2% chance for a half-point hike at the March 15-16 meeting. For the end of 2022, the FedWatch tool is counting on “fed funds” rates around 2%, against the reminder, a range of 0%-0.25% at present, which would imply increases in rates at each of the seven Fed meetings scheduled by the end of the year.
VALUES TO FOLLOW
Goodyear Tire & Rubber plunged 28%, despite higher-than-expected accounts that had initially propelled the stock higher ahead of the market. For its fourth fiscal quarter, the group posted adjusted earnings per share of 57 cents, compared to a level of 44 cents a year earlier and a consensus of 32 cents. Revenues soared to $5.05 billion (+38%), compared to $3.66 billion in the corresponding period last year. Revenue consensus was 4.96 billion.
Unit volumes of tires increased by 29% year-on-year. Replacement tire shipments soared 39%. Quarterly revenue growth excluding the Cooper Tire transaction remains solid at 12%. Quarterly net profit stands at $553 million and adjusted profit at $162 million. which creates a little wind of panic today!
Apollo Global (-4.2%). The Wall Street Journal reports an approaching agreement from the Apollo fund to acquire the payment terminal business of Worldline (+5.7%) for 2.3 billion dollars – more than 2 billion euros. The WSJ explains that the pandemic has accelerated the adoption of digital payments, and that Apollo Global Management Inc. is therefore on the verge of sealing an agreement to acquire payment terminals from Worldline. The newspaper quotes people familiar with the matter, adding that the deal could be announced in the coming days.
The New York firm Apollo Global has also just published its financial results for the fourth fiscal quarter today. Distributable profit increased by 52%, with management and advisory fees from credit operations. This distributable profit represented 483 million dollars for the quarter ended at the end of December, against 317 million dollars a year before. Distributable EPS amounted to $1.05, slightly below market consensus. Disposal proceeds for the quarter were 4.2 billion. The group has also deployed 34.6 billion dollars, dedicated to new investments, mainly in the credit division. Under GAAP, quarterly net profit fell 45% to $234 million. Assets under management rose 3.4% to $497.6 billion.
Newell Brands (+13%), American player in consumer products, has just published quarterly profits and revenues above expectations, but its gross margin has declined. The group with the brands Rubbermaid, Sharpie, Elmer’s and Mr. Coffee, has also unveiled a mixed guidance for the quarter started and the year. Net income was $96 million and 22 cents per share for the quarter ended, compared with $127 million a year earlier. Adjusted earnings per share reached 42 cents. Consolidated sales rose 4.3% to $2.8 billion. Management expects 2022 to be another year of progress, despite the difficult environment. Organic growth is expected between 0 and 2%, while adjusted EPS is expected between $1.85 and $1.93.
Zillow jumped 14%. The American firm of online real estate ads based in Seattle revealed convincing results last night for the fourth fiscal quarter. The loss of adjusted Ebitda over the period emerged symbolic at 0.4 million dollars, while analysts feared a much larger deficit. The net loss was $261 million, also lower than expected. Revenue totaled $3.88 billion in the quarter ended, versus a FactSet consensus of about $3 billion.
The guidance for the first fiscal quarter is robust, with adjusted EBITDA expected between $124 and $174 million, while the FactSet consensus saw a loss. Revenue is expected between $3.123 billion and $3.443 billion. The group has also introduced a 2025 guidance including revenues of 5 billion dollars and an adjusted EBITDA margin of 45%.
Under Armor (-11.5%), the Baltimore clothing group, beat the Wall Street consensus in the fourth quarter, but warns of difficulties to come. Revenues for the quarter ended increased 15% in the domestic market. Net income was $110 million and 23 cents per share, compared with $185 million a year earlier. Total revenue rose 9% to $1.5 billion (+8% at constant currency). Gross margin climbed 130 basis points to 50.7%. Net profit was $110 million and adjusted profit was $67 million. Adjusted EPS was 14 cents. However, the group expects supply chain concerns to weigh on profits in the coming months.
Stanley Black & Decker (-1.2%) is studying the sale of the unit Access Technologies, says the Bloomberg agency, citing people familiar with the subject. According to the agency, the US home and garden products giant is working with an adviser to explore options for the division, which could be valued at $500 million and is likely to attract interest from its peers, as well as from private equity firms.
Alphabet (-2.5%) remains under surveillance this Friday on Wall Street, while the Competition and Markets Authority (CMA), the British competition authority, which launched an investigation into Google’s Privacy Sandbox project at the beginning of last year. consisting of removing third-party cookies from the Chrome browser, said today that it had obtained new legally binding commitments from the internet giant to address its concerns. The final commitments accepted by the CMA today are the result of extensive investigation and extensive work with Google and market participants, including two formal public consultations.
It should also be noted that European publishers, including Axel Springer, News UK and Conde Nast, have filed a complaint with the European Commission against Google, judging that the American would exercise control over them through advertising technologies.