* Major U.S. indexes slide, but off lows; Nasdaq down ~1.5%
* All major S&P 500 sectors red; cons disc, materials
* Healthcare off least, now just below flat
* Dollar, gold rise; crude, bitcoin down
* U.S. 10-Year Treasury yield hit 1.8080%, now ~1.78%
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S&P 500 Q4 EPS EXPECTED TO GROW 20% (1345 EST/1845 GMT)
Jonathan Golub, chief U.S. equity strategist & head of
quantitative research at Credit Suisse Securities, is out with
his Q4 earnings preview. Earnings season kicks off in earnest on
January 14 with results from a number of large banks.
According to Golub, S&P 500 revenue and EPS are projected to
grow 13% and 20%, from 17% and 39% in Q3.
He says cyclicals are expected to deliver the biggest EPS
growth, at 97%, followed by TECH+ (11%), non-cyclicals (11%),
and financials (2%). He adds that early reports (20 thus far)
have surprised by 7.2%.
Meanwhile, Golub says margins are expected to rise 70% for
cyclicals and 2.6% for non-cyclicals, and contract 2.4% and 4.0%
in TECH+ and financials. He adds that “typically, margins
account for 80%-85% of earnings beats.”
Additionally, Golub says S&P 500 Value index EPS
growth is expected to outpace the Growth index (26% vs.
16%) in Q4 as well as in each quarter in 2022.
TECH SELLOFF CLOBBERS CATHIE WOOD’S ARK INNOVATION ETF (1225
Monday’s tech selloff is clobbering Cathie Wood’s Ark
Innovation ETF, and putting the already troubled fund
on track for its lowest close since July 2020.
Ark Invest’s flagship exchange traded fund is down 4%,
bringing its loss so far in 2022 to 14%. The Ark Innovation fund
was the top performing U.S. actively managed fund in 2020, only
to fall into the bottom 1% last year, per Morningstar.
Slammed by a shift on Wall Street away from ‘disruptive’
stocks that have yet to turn profits, the ETF has now lost about
48% from its record high close in Feb. 2021.
Many of Ark Innovation’s biggest holdings have taken a hit
recently, with No. 2 holding, Zoom Video Communications,
down 52% in the past 12 months and No. 3 holding, Teladoc Health
, down 66% in past 12 months. Ark Invest owns about 10%
of Teladoc, making it the virtual healthcare company’s largest
shareholder, according to Refinitiv.
Zoom on Monday is down 2.3%, while Teladoc is dropping over
Top Ark Innovation holding Tesla is down just 0.4%.
Tesla now accounts for about 8% of the ETF’s holdings, down from
over 10% in mid-December, according to data on the Ark’s
Even as the Ark Innovation fund tanked last year, investors
poured almost $5 billion in new money into the ETF, according to
Refinitiv data. So far in 2022, they have pulled out about $35
million, per Refinitiv.
BCA RESEARCH IS CAUTIOUSLY LONG AUSSIE DOLLAR AT US$0.70
(1135 EST/1635 GMT)
BCA Research, in its latest research note, finds opportunity
in going long the Australian dollar at US$0.70. With COVID-19
continuing to ravage Australia and the country adopting strict
measures such as threatening to deport superstar athletes who
are unvaccinated, its economic outlook remains downbeat in the
But such a dour view opens the door to be cautiously
optimistic on the Aussie dollar, BCA said. It noted that
positioning-wise, speculators in the futures market have been
extremely short the currency, suggesting a reversal is looming.
In addition, low interest rates are re-introducing froth in
the Australian property market, with housing prices in Sydney
and Melbourne rising close to 20% year-over-year. Also most
inflation measures are also higher than the midpoint of the
Reserve Bank of Australia’s target.
BCA noted that should China (Australia’s biggest export
partner) ease monetary policy, this should spur a recovery in
global trade, allow the RBA to walk back its dovish rhetoric,
and boost interest rate support for the Aussie dollar.
The Australian dollar was last down 0.3% versus the U.S.
dollar at US$0.7172.
TOP POTENTIAL Q4 AND 2022 EARNINGS HEADWINDS: OMICRON, WAGE
GROWTH, TAXES (1100 EST/1600 GMT)
Citigroup, JPMorgan Chase & Co and Wells Fargo
& Co are due to report results on Friday, thereby firing
the un-official starter pistol for fourth-quarter earnings
So what should market participants be listening for during
earnings calls this go-around?
In his Weekly Kickstart note, Goldman Sach’s chief equity
strategist David Kostin identifies three ongoing areas of
concern for investors: “growth threats from Covid variants,
margin pressures from input cost inflation, and potential tax
Regarding the current headwinds posed by Omicron, Kostin
fingers the COVID variant as being at least partly responsible
for GS economists cutting their 2022 economic growth forecast to
3.5% from 4.2%, adding that each percentage point shaved from
GDP “translates into roughly $7 of S&P 500 EPS.”
With respect to rising input costs and the resulting
pressure on margins, the note identifies rising wages as the
main culprit, as companies faced with a labor shortage struggle
to attract workers.
GS economists see wage growth cooling over the next several
quarters to “around 4” from the 4.7% annual growth seen in
December’s employment report released on Friday.
“Firms with high labor costs or exposure to wage inflation
will face the most difficulty in preserving margins,” writes
Kostin, who notes that throughout the fourth quarter, companies
with “high and stable gross margins … outperformed those with
weak and variable margins by 12 pp.”
Finally, Kostin turns his attention toward the possibility
of President Joe Biden’s “Build Back Better” bill, which he says
“would have mixed implications for U.S. equities.”
Should the legislation be signed into law this year, GS
estimates its tax reform “would reduce S&P 500 EPS by 2-3%
relative to current tax policy but only go into effect in 2023
at the earliest.”
For now, analysts see S&P 500 companies, on aggregate,
year-over-year fourth-quarter earnings growth of 22.4%,
according to Refinitiv. That would mark the slowest quarter of
2021, a year that benefited from easy comparison to the
pandemic-shock of 2020.
The graphic below, courtesy of Refinitiv, provides
historical and estimated S&P 500 annual growth rates (click to
U.S. STOCKS SLIDE AS RATE JITTERS BUILD (1002 EST/1502 GMT)
Major U.S. indexes are sharply lower in early trade on
Monday as heavyweight FANG and technology stocks dropped on
expectations of a high interest rate environment.
With this, the U.S. Treasury yields climbed to new two-year
highs. Indeed, the U.S. 10-Year Treasury yield is
pushing back over 1.80%.
That said, the S&P 500 Banks index has now turned
slightly red, and all major S&P 500 sectors are down on
Meanwhile, the Nasdaq Composite has violated its
rising 200-day moving average, which now resides around 14,688.
The IXIC last closed below this long-term moving average on
April 21, 2020. With its loss, the IXIC now stands down around
9% from its November-19 record close.
Of note, the IXIC’s daily RSI has now fallen to its most
oversold level since May 2021.
Here is where markets stand in early trade:
NASDAQ COMPOSITE: YIELDING TO THE DOWNSIDE (0900 EST/1400
With CME e-mini Nasdaq 100 futures suggesting the
Nasdaq 100 index is poised to fall more than 1% in early
trade, it appears likely that the Nasdaq Composite will
violate its December lows.
In so doing, the tech-laden Composite will be on track for a
fifth-straight down day. The IXIC last fell five-straight days
in late-September/early-October 2021.
Meanwhile, tech is quoted down ahead of the open,
putting the S&P tech sector also on track to fall for
a fifth-day in a row, which would be its longest losing streak
since a seven-day slide in late-April/early-May of last year.
On the Composite, once its December lows give way, the next
significant support can be the rising 200-day moving average,
which ended Friday around 14,680. The Composite has not closed
below this longer-term moving average since April 21, 2020:
There is chart congestion in the 14,211/14,175 area that
includes a number of significant 2021 highs and lows. The 23.6%
Fibonacci retracement of the entire March 2020/November 2021
advance is at 13,951.
Of note, the IXIC’s daily RSI ended Friday at its lowest
level since the Composite’s October 4 low. That said, the rising
U.S. 10-Year Treasury yield remains a drag on
growth/tech shares, and, therefore, a thorn in the Composite’s
side. The rolling 10-day correlation between tech and the
10-year yield is now -0.88, or a strong negative relationship.
However, the 10-year yield is on track to rise for a
seventh-straight day, which would be its longest such streak
since an eight-day run of gains in April 2018. So, on the plus
side for Nasdaq bulls, at least shorter-term, just as the IXIC
may be getting stretched to the downside, yield may be getting
stretched to the upside.
FOR MONDAY’S LIVE MARKETS’ POSTS PRIOR TO 0900 EST/1400 GMT
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)