(Boursier.com) – The New York Stock Exchange starts the week down sharply on Monday, the indices however trying to rebound from their lows for the session, where they lost between 3% and 4.5% in fear of an escalation of geopolitical tensions in Ukraine, and ahead of a crucial Fed meeting on Tuesday and Wednesday. Technology stocks suffered the strongest releases, with in particular falls ofApple (-2.9%), Microsoft (-2.7%), You’re here (-5.6%) or netflix (-7.8% after -22% on Friday…) Risk aversion also hits oil, but benefits gold and bonds, leading to a decline in interest rates, after the tensions of the week past.
Two hours before the closing, the Dow Jones now yields 1.64% to 33,704 points, signing its 7th consecutive session of decline. The broad index S&P500 fall of 1.9% to 4,313 pts, and the Nasdaq Composite, rich in technology and biotech stocks, fell 1.8% to 13,522 pts, after a 4.5% plunge to the lowest of the session. Last week, the three indexes had fallen by 4.6%, 5.6% and 7.5% respectively for the Nasdaq.
At the lowest of the day, the Nasdaq lost 19.2% compared to its record in session on November 19 at 16,212 pts. The S&P 500 also fell into the correction zone during the session with a decline of more than 11% on its last closing record, while the Dow Jones is not far from it (-8%). Remember that a loss of more than 10% corresponds to a stock market correction. In the event of a decline of more than 20%, the indices would enter a real bear market.
All 11 S&P 500 sector indices are in the red, starting with technology (-1.9%), communication services (-1.8%) and consumer discretionary (-1.1 %). The S&P energy index also lost 1.9%, even if the current geopolitical tensions are likely to lead to a rise in energy prices.
Boot noises around Ukraine
US light crude oil barrel prices WTI fell 1.9% to $83.46 for the March futures contract on the Nymex, while the Brent of North Sea fell 1.7% to $86.34 (March contract). gold gained 0.5% to $1,841.70 an ounce and the bitcoin rebounded around $36,217 (+2.3%), after falling below $34,000 this weekend, victim of the flight of buyers of risky assets and threats from Russia to ban cryptocurrencies. The BTC had thus lost around 20% between Thursday and Saturday.
Investors, already rattled in recent weeks by the prospect of a much less accommodating monetary policy this year in the United States, were spooked this weekend by the escalation of tensions between NATO and Russia over the ‘Ukraine.
NATO thus placed its forces on alert on Monday and decided to send reinforcements to Eastern Europe. against a backdrop of open crisis between Russia and the Western powers who fear a Russian military operation in Ukraine. Part of the diplomatic personnel in Ukraine from the United States and Great Britain was also evacuated.
“Military action by Russia could occur at any time,” the U.S. Embassy said. in a press release. Authorities “will not be able to evacuate US citizens in such an event, so US citizens currently in Ukraine should prepare accordingly.” On his side, the Kremlin on Monday accused the US and its allies of escalating tensions, calling it ‘hysterical’ the attitude of the Western powers.
The Fed expected Wednesday on the calendar of monetary tightening
This week will be marked by the meeting of the Federal Reserve, which is expected to specify its intentions to raise key interest rates on Wednesday. Markets now expect at least three, and possibly as many as 5, rounds of the screw this year as the Fed lags behind in the fight against inflation that accompanies the coronavirus pandemic. Additionally, the Fed will cease its asset purchases from the end of March (or even earlier, according to some analysts) and should also begin to reduce its balance sheet this year. The combination of these actions would represent a clear monetary tightening, after two years of “free money”, which is likely to weigh on the credit conditions for companies and their stock market valuation.
On the bond markets, government bonds are sought Monday as safe havens, pushing down yields, which move in the opposite direction to prices. The rate of T-Bond at 10 years thus lost 5 basis points to return to 1.72% after peaking at 1.88% last Tuesday, the highest since December 2019. “2 years” rate US fell 4bp to 0.97%, from 0.73% on December 31. In Europe, the yield of 10-year German bund, which was at -0.18% on December 31, fell 4 bp -0.11% on Friday. Last Wednesday, it briefly returned to positive ground, at 0.025%, for the first time since April 2019.
Corporate earnings are on the rise this week
On the US corporate front, the first results for the 4th quarter have so far disappointed the markets somewhat, with banking results planed by the rise in wage costs, while Netflix shocked by reporting a sharp slowdown in the number new subscribers in early 2022.
The coming week will allow us to clarify the outlook with a marked acceleration in publications, including those of several technology giants such as IBM, Apple, You’re here, Intel and Texas Instruments. Several Dow Jones heavyweights like Dow Inc., Caterpillar, Chevron, Colgate-Palmolive, Boeing, Johnson & Johnsonand McDonald’swill also be present.
On the other hand, the next few days will be light in terms of macroeconomic publications across the Atlantic. We will monitor all the same, Thursday, the GDP of the 4th quarter, expected at 5.8% on an annual basis. The so-called “PCE” inflation index, the Fed’s favorite measure of rising prices, will be released on Friday. Economists expect an increase of 0.5% in December over one month and 4.8% over one year.
Disappointing economic activity in January in the United States
On Monday, the composite PMI index of the United States came out at 50.8 only in January, against 56.7 of market consensus. The manufacturing indicator came in at 55, versus 57 consensus, and the services index was 50.9, versus 55 consensus. These figures therefore signal a marked slowdown in US expansion in January, linked to the disruption caused by the Omicron wave of the coronavirus.
The Chicago Fed’s national activity index also disappointed in December at -0.15, against a consensus of 0.25 and a revised (up) level of 0.44 in November. The indicator is therefore in the red, signaling a below-normal expansion at the end of last year.
In the euro zone, the activity indices came out close to expectations in January, with the composite index coming out at 52.4, down moderately from December (53.3). The manufacturing index rose to 59 (from 58 in December), but the services index suffered from Omicron, falling from 53.1 to 51.2.
VALUES TO FOLLOW
On the side of the major technological values of the rating, Apple yields 2.9%, Microsoft loses 2.7%, Amazon 2.5%, Facebook 1.7%, Twitter 3.7% and Alphabet loose 3.1%.
You’re here (-5.6%). Japanese panasonic will begin production of its new lithium-ion batteries for American Tesla early next year and expects to invest around 80 billion yen (over $700 million) in production sites in Japan, said the Nikkei daily.
Halliburton (-2%), the American oil services giant, published adjusted earnings per share growth for its fourth fiscal quarter, above expectations with the increase in crude prices, which supported demand for related services. The Texan group from Houston thus generated an adjusted net profit of 320 million dollars or 36 cents per share for the period ended at the end of December, against 160 million dollars and 18 cents per share a year earlier. This adjusted EPS was expected at 34 cents. Cash flow from operating activities was $682 million and free cash flow was $478 million. Consolidated net profit was $824 million. Quarterly revenue was $4.3 billion, down from $3.9 billion in the previous quarter. The consensus was $4.1 billion.
Platoon (+4%). After its plunge on Thursday, the title rose 11.7% Friday evening on Wall Street. An activist investor reportedly intends to ask Peloton to fire its chief executive and consider a divestiture, reports the Wall Street Journal. People familiar with the matter told the WSJ that Blackwells Capital, which has a large but less than 5% stake in Peloton, believes that tech or fitness companies might be interested in acquiring the exercise bike maker, ‘star’ of confinements, but recently mistreated on the stock market.
Kohls (+33%!), the American chain of department stores, is arousing interest. According to Reuters, the Menomonee Falls retailer could soon receive a second takeover offer, as private equity firm Sycamore Partners prepares to deliver its proposal. A consortium led by activist investors Starboard Value had previously offered to buy the chain. Reuters cites three sources familiar with the matter. Sycamore reportedly contacted Kohl’s about a potential offer that would value the company around $9 billion. The firm would agree to pay at least $65 per title in cash, according to a source. Acacia Research, backed by Starboard, had previously offered $64 per Kohl’s share. However, there is no guarantee that Sycamore will make an offer or that an agreement will be reached with Sycamore or Acacia, Reuters notes.
Pfizer loses 4.4%, in the midst of provided news. People over the age of 60 who have received four doses of the Covid-19 vaccine developed by Pfizer and BioNtech (-1.6%) would present resistance against severe forms of the disease three times higher than that of the same age group having received only three doses, according to an Israeli study presented yesterday. It should also be noted that Albert Bourla, chief executive of Pfizer, said this weekend that an annual vaccine against covid would be preferable to frequent reminders in the fight against the pandemic. Finally, the American FDA (Food & Drug Administration) rejected the approval of its somatrogon treatment intended for children suffering from a deficiency in growth hormones, while the American and his partner Opko had received the green light from Japan a few days ago for this same treatment.
KKR (-4.4%). A consortium led by the American fund today announced its intention to acquire Accell Group, the owner of the Sparta, Batavus and Raleigh bicycle brands, for a cash consideration of 1.56 billion euros, 58 euros per share, a premium of 26% on Friday’s closing prices.