Closing Stock Market SummaryThe S&P 500 rose 1.0% on Friday, and closed at a record high, following a hot Consumer Price Index (CPI) report for November. The Nasdaq Composite (+0.7%) and Dow Jones Industrial Average (+0.6%) also posted decent gains, and like the S&P 500, ended the week with gains over 3.5%.
All 11 S&P 500 sectors closed higher, with the information technology sector (+2.1%) being the biggest and most influential gainer. The financials sector (+0.1%) underperformed on a relative basis with a 0.1% gain.
Not all stocks reacted positively to the CPI report, though. The small-cap Russell 2000 (-0.4%) and the iShares Micro-Cap ETF (IWC 138.77, -1.12, -0.8%) both closed lower. Declining issues outpaced advancing issues at both the NYSE and Nasdaq.
Specifying the data, total CPI increased 0.8% m/m in November (Briefing.com consensus 0.6%), leaving it up 6.8% yr/yr -- its highest level since 1982. Core CPI, which excludes food and energy, increased 0.5% m/m, as expected, and was up 4.9% yr/yr.
The report wasn't too surprising given all the commentary about increased inflation pressures and the in-line core CPI print. Some investors took the data at face value: inflation is a byproduct of economic growth and offers companies pricing power for greater earnings potential.
As an aside, Oracle (ORCL 102.63, +13.86, +15.6%), Broadcom (AVGO 631.68, +48.26, +8.3%), and Costco (COST 558.82, +34.49, +6.6%) each rallied noticeably on pleasing earnings results, with ORCL and AVGO also announcing plans to repurchase $10 billion worth of stock.
Separately, based on the counter-intuitive price action in Treasuries, there was a tolerance for the view that inflation pressures could be peaking, which was espoused by the White House yesterday. Treasury yields were mixed and little changed, which was seen as a source of comfort for the stock market.
The 10-yr yield settled unchanged at 1.49% after trading at 1.51% prior to the CPI data. The 2-yr yield decreased two basis points to 0.66%, even though the report not only supported the case for the Fed be more aggressive with its tapering plan but also to think about hiking rates three times next year.
Reviewing Friday's economic data, which featured the Consumer Price Index for November:
- The latest Consumer Price Index (CPI) showed total CPI increased 0.8% month-over-month in November (consensus 0.6%) while core CPI, which excludes food and energy, increased 0.5%, as expected. On a year-over-year basis, total CPI was up 6.8%, versus 6.2% in October, and was the highest it has been since June 1982. Core CPI was up 4.9% year-over-year, versus 4.6% in October.
- There isn't just one key takeaway from this report. There are many:
- The Fed totally missed the mark with its transitory inflation view.
- The inflation data make it clear that the Fed is going to announce a more aggressive tapering path at next week's FOMC meeting.
- These data should stir concerns about a third rate hike being in the mix for 2022.
- Inflation pressures are broad based.
- Nominal wage gains will be undercut by inflation that will limit real spending growth potential.
- The elevated inflation print will stand as a political pressure point.
- The preliminary December University of Michigan Index of Consumer Sentiment increased to 70.4 (consensus 68.0) from the final November reading of 67.4.
- The key takeaway from the report is the finding that inflation, versus unemployment, was seen as the more serious risk to the economy across all income, age, education, region, and political subgroups.
- The U.S. Treasury reported a $191.3 bln deficit for November to follow last month's $165.06 bln deficit. The deficit one year ago was $145.27 bln.
There is no economic data scheduled for Monday.
- S&P 500 +25.5% YTD
- Nasdaq Composite +21.3% YTD
- Dow Jones Industrial Average +17.5% YTD
- Russell 2000 +12.0% YTD
Weekly Market Update: Pfizer Allays Omicron Worries, Nov CPI Makes for Lively Dec FOMC Meeting
US stock markets rose this week as Omicron fears continued to fade. Reports out of South Africa continued to show Omicron cases have generally remained mild and hospitalizations had not ticked up significantly. In Monday’s news, at what appeared to be the behest of Chinse government leadership, the PBOC cut is overall reserve requirement ratio by 50 basis points, which also served as a catalyst for risk assets, equities in particular. On Wednesday, in a much anticipated announcement, Pfizer said three doses of its Covid-19 vaccine do indeed provide a high level of protection against the Omicron variant in a new study. The news propelled stocks to make another leg higher, along with US Treasury yields. The 2-year yield topped 0.7% for the first time since before the pandemic, while futures markets were once again pricing in three Fed rate hikes in 2022. The flattening along the US yield curve was pronounced as US employment data (JOLTS/claims) remained historically strong and attention turned towards Friday’s key US inflation reading.
US Nov CPI saw the largest rise in nearly four decades, but the data did not spook markets as some participants were likely positioned for. The year-over-year growth rates for both the core and headline readings were in line with expectations at 4.9% for the core and 6.8%, with rising shelter costs locking in a higher floor. Most economists project y/y readings to track even higher in the coming months, giving the Fed little reason to second-guess last month’s hawkish pivot ahead of next week’s FOMC meeting. Treasury yields actually moved lower across the entirety of the US curve and US stock markets lifted following the release. Gold prices drifted higher and the US dollar lost ground. The VIX dipped back below 20, well off the recent spike highs above 30. Mega cap growth and value stocks continued to handily outperform small cap, with speculative growth masking the ongoing turmoil across significant portions of US stock markets, despite the the S&P posting an all time high on Friday. The Dow, S&P and NASDAQ had their best weeks since Q1 2021. For the week, the S&P rose 3.8%, the Dow jumped 4% and the NASDAQ gained 3.6%.
In corporate news, Oracle posted its largest weekly gain after reporting an upbeat Q3 and raising buybacks by $10B. Broadcom notched better than expected Q4 earnings and revenue, noting chip lead times are extended though stable. Chewy reported tough earnings, sending shares plummeting, as executives pointed to macro headwinds for the company’s weak performance. Apple reportedly told suppliers to accelerate iPhone production in the Nov-Jan period as supply chain issues would leave the tech giant about 15M units short of its 230M iPhone production plan. Stellantis said it would partner with Foxconn to design and sell new flexible semiconductors for the automotive industry. Toyota confirmed plans to build its first EV battery plant in North Carolina, investing $1.29B. The prospects for certain US tech names remained cloudy after the EU affirmed it intends to make tech companies reclassify gig workers as employees, though member countries still need to negotiate the final details before ratification.
SUN 12/5
BAVA.DK Reports positive topline Phase 2 results for its COVID-19 vaccine candidate; The candidate increases existing levels of SARS-CoV-2 neutralizing antibodies against Wuhan, Alpha, Beta and Delta variants, could be used as booster vaccine
(UK) UK govt scientific advisors warn that COVID-19 pandemic will pose a threat for at least next 5 year before it settles into a predictable endemic state - UK press
(RU) Reportedly Russia could invade Ukraine in 3 stages, aiming to take over 2/3 of Ukraine's territory; Military actions may start in end-Jan 2022 or early Feb 2022 - German press
MON 12/6
(ZA) Director of Africa Health Research Institute in South Africa Hanekom: Omicron variant has a less than 1% chance of re-infection and typically results in milder disease - UK press
*(CN) CHINA PBOC CUTS OVERALL RESERVE REQUIREMENT RATIO (RRR) BY 50BPS; effective Dec 15th
FAST Reports Nov net sales $524.2M +18.9% y/y
TM Confirms plans to build its first EV battery plant in North Carolina, investing $1.29B - press
(HK) Hong Kong Chief Exec Lam: Travel between Hong Kong and China to begin with business groups
(CN) China PBOC to cut relending rate by 25bps to support SME and rural sector, effective Dec 7th; says rate cut should not be regarded as a cut of policy rates (MLF and 7-day reverse repo rates) - China Securities Times
TUES 12/7
STLA.NL Targets ~€20B in incremental annual Rev by FY30 driven by software-enabled vehicles
GSK.UK Preclinical studies demonstrate GSK/Vir investigational monoclonal antibody sotrovimab retains activity against the full combination of mutations in the spike protein of the Omicron SARS-CoV-2 variant
STLA.NL Partners with Foxconn to design and sell new flexible semiconductors for automotive Industry
*(DE) GERMANY DEC ZEW CURRENT SITUATION SURVEY: -7.4 V +5.7E; EXPECTATIONS SURVEY: 29.9 V 25.4E
(US) Reportedly in South African Pretoria hospital, out of 166 patients with COVID-19 admitted from Nov 14 to Nov 29, average stay was 2.8 days, and fewer than 7% died - NYT
(EU) Reportedly concerns growing among ECB council members regarding potential extending QE program beyond Q2 2022 due to persisting inflation - FT
(RU) Russia and India agree to extend military technical cooperation for another decade; India to proceed with delivery of S-400 missile system from Russia - press
AZO Reports Q1 $25.69 v $20.83e, Rev $3.67B v $3.36Be
*(US) Q3 FINAL NONFARM PRODUCTIVITY: -5.2% V -4.9%E; UNIT LABOR COSTS: 9.6% V 8.3%E
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: +1.4% v +1.9% prior
*(US) OCT CONSUMER CREDIT: $16.9B V $25.0BE
PFE Africa Health Resource Institute: Study shows 40-fold reduction in neutralization capacity of Pfizer Comirnaty vaccines against Omicron variant; Some protection remains
AAPL Reportedly has told suppliers to accelerate iPhone production in Nov-Jan period; Supply chain woes will leave Apple about 15M units short of its 230M iPhone production plan set at the start of 2021 - Nikkei
BNTX CEO: data on Covid vaccine efficacy against the Omicron variant could be out Wed, Dec 8th or Thursday, Dec 9th; Would be more optimistic - NBC News
WEDS 12/8
*(DE) PARLIAMENT FORMALLY VOTES TO APPOINT SCHOLZ AS CHANCELLOR OF GERMANY
(UK) PM Johnson said to introduce new restrictions to curb Omicron variant spread in UK; To announced its “Plan B" imminently (as soon as today, Dec 8th) - FT
LUV Raises Q4 Op Rev -15% to -10% v 2019 levels (prior -25% to -15%); Affirms load factor 80-85%; Leisure travel demand was strong for Thanksgiving and continues to come in above expectations for Dec - investor day slides
PFE Proclaims three vaccine doses neutralize Omicron variant; 2-dose significantly less effective, but still could prevent from severe disease (as suggested on 12/7); Continue to advance development of a variant-specific vaccine for Omicron and expect to have it available by March
BF.B Reports Q2 $0.49 v $0.54e, Rev $994M v $1.07Be
*(US) OCT JOLTS JOB OPENINGS: 11.033M V 10.47ME (record high)
(UK) PM Johnson: We are seeing rapid growth of Omicron cases in the UK like in South Africa; We can't assume Omicron is less severe than previous variants at this point; UK will move to 'Plan B'
1777.HK Receivers appointed for company, cites HK corporate registry filing - US financial press
THURS 12/9
AMZN (IT) Italy antitrust regulator said to fine Amazon €1.13B over market dominance - press
3333.HK Fitch cuts Evergrande ratings to 'restrictive default' referred to default on its dollar debt
(EU) ECB said to plan for a temporary increase in the APP bond buying (conventional QE) scheme that would still significantly reduce overall debt purchases after PEPP program ends - financial press
(EU) EU confirms plan to make online platform companies to reclassify workers as employees which could cost them ~€4.5B/yr ; EU Commission to negotiate with EU countries and lawmakers on final draft before adoption - press
(CN) China PBOC raises Forex RRR by 200bps to 9.00%; Effective from Dec 15th - press
VOW3.DE Provides update on five year investment plan: Planning total investments of €159B; Affirms FY21 Op margin upper end 6.0-7.5%
*(US) INITIAL JOBLESS CLAIMS: 184K V 220KE (lowest since 1969); CONTINUING CLAIMS: 1.99M V 1.91ME
*(US) TREASURY $22B 30-YEAR BOND REOPENING DRAWS 1.895%; BID TO COVER 2.22 V 2.36 PRIOR AND 2.38 OVER LAST 8 REOPENINGS
LULU Reports Q3 $1.62 v $1.39e, Rev $1.45B v $1.43Be
ORCL Reports Q2 $1.21 v $1.11e, Rev $10.4B v $10.2Be; Raises buybacks by $10B (4% of market cap)
COST Reports Q1 $2.98 v $2.60e, Rev $50.4B v $50.0Be
AVGO Reports Q4 $7.81 v $7.75e, Rev $7.41B v $7.35Be; Raises Quarterly dividend 13.9% to $4.10 from $3.60 (indicated yield 2.81%); Authorized $10B buyback
(US) US Senator Wyden (D-OR) said the billionaires tax has not been included in the Finance Committee's text; Separate report said Democrats will remove the vaping tax from the Senate plan amid negotiations related to the details of the bill
FRI 12/10
*(UK) OCT GDP M/M: 0.1% V 0.4%E
*(DE) GERMANY NOV FINAL CPI M/M: -0.2% V -0.2%E; Y/Y: 5.2% V 5.2%E (confirms highest annual pace since 1993 reunification)
(UK) UK healthcare analysts said to see Omicron variant spreading faster in UK than in South Africa; Reportedly daily Omicron cases could top 60K/day by Christmas - press
ASO Reports Q3 $1.75 v $1.16e, Rev $1.59B v $1.50Be
*(US) NOV CPI M/M: 0.8% V 0.7%E; Y/Y: 6.8% V 6.8%E (highest annual pace since 1982)
Gapping down
In reaction to earnings/guidance:
- AOUT -19.1% (also announces $15 mln share repurchase program), MESA -18.2%, CHWY -9.1%, FIZZ -8.6%, MTN -5.4%, LULU -1.4%
Other news:
- EVBG -36.3% (CEO to resign; also reiterates Q4 guidance)
- ANGN -20.6% (reports topline results from Phase 2 GUARD Trial of ANG-3777)
- MRNA -10.4% (announces interim data from the Phase 1 study of the Company's quadrivalent seasonal flu vaccine candidate, mRNA-1010)
- OBSV -1.7% (reports 52-Week Data from the Phase 3 PRIMROSE studies of linzagolix for the treatment of uterine fibroids demonstrating sustained safety and efficacy results at 52 weeks to be presented orally)
- PTRA -1.6% (names new CEO)
- AZUL -1.6% (reports November 2021 traffic)
- FIGS -1.3% (CFO Jeffrey Lawrence decided to retire, effective December 24, 2021) TSLA -1.2% (Elon Musk tweets "thinking of quitting my jobs & becoming an influencer full-time wdyt")
Analyst comments:
- PTON -4.4% (downgraded to Neutral from Outperform at Credit Suisse)
- LUV -4% (downgraded to Sell from Neutral at Goldman)
- CURV -1.8% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
- FIS -1.5% (downgraded to In-line from Outperform at Evercore ISI),
Gapping up
In reaction to earnings/guidance:
- ORCL +12.5% (also increases share repurchase program by $10 bln), CXM +7.5%, AVGO +5.9% (also increases dividend by 14%; announces new $10 bln share repurchase program), CF +4.5% (raises FY21 adjusted EBITDA guidance), ASO +4.4%, LESL +4.1% (also announces $300 mln share repurchase authorization), COST +1.5%, CNC +1.2% (sees FY22 EPS in line and FY22 revs above consensus; details Value Creation Plan)
M&A news:
- RRD +3.2% (Chatham Asset Mgmt increases offer to acquire RRD to $10.85/sh in cash)
- IRM +1.5% (to acquire ITRenew)
Other news:
- CNTX +31.1% (announces "positive" data from ONA-XR in early breast cancer at 2021 San Antonio Breast Cancer Symposium)
- AI +18.7% (receives $500 mln agreement from US Dept of Defense)
- OCX +11.7% (DetermaIO clinical test predicts response to immunotherapy in triple negative breast cancer)
- HALO +3.8% (authorizes new $750 mln share repurchase program)
- CYTK +3.8% (presents data at the 32nd International Symposium on ALS/MND including an analysis of baseline characteristics from the initial patients enrolled in COURAGE-ALS)
- ABUS +2.8% (amended Cross License Agreement with Genevant Sciences GmbH)
- CCK +2.2% (authorizes new $3 bln share repurchase program)
- ORC +2.2% (increases share repurchase program to bring it up to 10% of shares outstanding)
- VAL +2.1% (announces support agreement with the Seatankers)
- ZUMZ +1.9% (discloses authorization for repurchase of $150 mln in common stock)
- XM +1.8% (Tiger Global increases passive stake to 6.8% (prior ~1.1%)
- CLNN +1.7% (presented data from the RESCUE-ALS Phase 2 study of CNM-Au8)
- WM +1.3% (increases dividend; also approves $1.5 bln share repurchase program),
- LCID +1.2% (announced the pricing of its offering of $1,750,000,000 aggregate principal amount of 1.25% convertible senior notes due 2026)
- NEWP +1.1% (appoints prior CEO and founder Dr. Rui Feng as Chairman), .
Analyst comments:
- CXM +9.2% (upgraded to Overweight from Neutral at JP Morgan)
- BHG +8% (upgraded to Overweight from Neutral at JP Morgan)
- PAY +5.4% (initiated with a Buy at Goldman)
- JBL +4.1% (upgraded to Buy from Neutral at Goldman)
- ARNC +3.3% (upgraded to Overweight from Neutral at JP Morgan)
- GBX +2.2% (upgraded to Overweight from Equal-Weight at Stephens),
Early premarket gappers
- Gapping up:
- CNTX +33.5%, AI +20%, ORCL +11.7%, OCX +10.9%, AVGO +7.1%, INTT +5.6%, HALO +4.5%, LESL +4.1%, RRD +3.2%, ORC +2.9%, CXM +2.8%, GTE +2.5%, CCK +2.2%, TGLS +2.1%, CF +2.1%, ZUMZ +1.9%, COST +1.9%, BTG +1.6%, PRPB +1.4%, WM +1.3%, NEWP +1.1%,
- Gapping down:
- EVBG -30.7%, AOUT -19.1%, ANGN -18.9%, MESA -15.3%, CHWY -9.9%, PTRA -6.6%, FIZZ -5.6%, MTN -5.4%, IMUX -5%, AZUL -1.6%, TUP -1.5%, LULU -1.4%, LCID -1%,