Bracing for a stock market that's going 'a whole lot of nowhere': Morning Brief

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Wednesday, February 9, 2022

The looming era of 'not particularly positive' returns

Unless your name is Meta (FB) or Peloton (PTON), the fourth quarter earnings season has been surprisingly kind to corporate America.

Leaving the beleaguered social network (whoops, I mean metaverse pioneer) and fitness brand aside, Q4 results have continued to post strong growth in the face of the Omicron variant of COVID-19, skyrocketing inflation and supply chain headwinds.

The latest of the encouraging batch of results came from Chipotle (CMG), which expects to top 7,000 restaurants in North America this year, continuing to ride the COVID-19 era trend of digital orders that accounted for around 42% of Q4 sales, Yahoo Finance’s Brooke DiPalma reported on Tuesday.

The closing chapter of 2021 saw S&P 500 growth up over 23%, with nearly 80% of companies beating earnings estimates, according to S&P Global data. That’s been just enough to mollify an incredibly jumpy market where investors are struggling to adjust to the impending end of cheap money.

However, as is our wont at the Morning Brief, there’s a need to hand out a couple of spoonfuls of sugar to help the medicine go down. And in this case, the dose of reality is a market that will likely continue rising in fits and starts – yet at a far less torrid rate than the last several years.

"The market's really basically going a whole lot of nowhere this year," Annandale Capital CEO George Seay told Yahoo Finance Live on Wednesday. "There's some real headwinds on the growth part of the market."

Indeed. The biggest adjustment stems from a Federal Reserve that’s poised to (slowly) close the monetary spigot in response to spiking prices, which means investors have to get used to higher rates with far less stimulus.

Since the onset of the pandemic, markets have followed a “very consistent pattern,” Andrew Slimmon, managing director at Morgan Stanley Investment Management, told the Morning Brief in a recent interview.

Last year, Wall Street responded favorably to “very accommodative Fed policy and very strong corporate earnings and revisions,” with Wall Street being “way too bearish with corporate fundamentals,” Slimmon suggested.

The portfolio manager said the current recovery from 2020’s COVID-inspired recession are comparable to 1992, 2004 and 2011 — all of which were post-recession “single digit return years.”

As a result, “they’re not negative but they’re not particularly positive,” Slimmon added.

As the Fed pivots to tighter monetary policy, there’s “a push-pull battle between the Fed and good corporate fundamentals,” the investor told the Morning Brief.

And that doesn’t even begin to calculate the risks stemming from a potential Russia-Ukraine conflict, and a central bank that may overcorrect for an extended period of monetary accommodation.

What that means is a lot more volatility characterized by whipsawed stocks, with the best-performing companies “rising to the top and the dogs going back to the bottom,” Slimmon said. A battered and bruised Meta, which on Tuesday sank to a fresh 52-week low, sits squarely in the latter category — at least for now.

Amid the crosswinds of COVID, inflation, the Fed and supply woes, “the market is going back to rewarding good corporate fundamentals,” the investor told the Morning Brief. “That’s important to highlight because... ultimately, stocks regress to fundamentals and not the other way around. They’re going to go up eventually.”

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

What to watch today

Economy

  • 7:00 a.m. ET: MBA mortgage applications, week ended Feb 4 (12.0% during prior week)

  • 8:30 a.m. ET: Wholesale inventories, month-over-month, December final (2.0% expected, 2.1% in prior print)

Earnings

Pre-market

  • 6:40 a.m. ET: CVS Health Corp. (CVS) is expected to report adjusted earnings of $1.79 per share on revenue of $75.56 billion

  • 7:00 a.m. ET: Yum Brands Inc. (YUM) is expected to report adjusted earnings of $1.10 per share on revenue of $1.88 billion

  • 7:00 a.m. ET: CME Group Inc. (CME) is expected to report adjusted earnings of $1.63 per share on revenue of $1.17 billion

Post-market

  • 4:05 p.m. ET: Uber (UBER) is expected to report adjusted losses of 26 cents per share on revenue of $5.35 billion

  • 4:05 p.m. ET: Sonos (SONO) is expected to report adjusted earnings of 97 cents per share on revenue of $638.00 million

  • 4:05 p.m. ET: Vimeo (VMEO) is expected to report adjusted losses of 8 cents per share on revenue of $105.13 million

  • 4:05 p.m. ET: The Walt Disney Co. (DIS) is expected to report adjusted earnings of 57 cents per share on revenue of $20.85 billion

  • 4:05 p.m. ET: Twilio (TWLO) is expected to report adjusted losses of 23 cents per share on revenue. of $768.55 million

  • 4:05 p.m. ET: Zynga (ZNGA) is expected to report adjusted earnings of 9 cents per share on revenue of $711.33 million

  • 4:05 p.m. ET: Mattel (MAT) is expected to report adjusted earnings of 32 cents per share on revenue of $1.65 billion

  • 4:15 p.m. ET: MGM Resorts International (MGM) is expected to report adjusted earnings of 1 cent per share on revenue of $2.79 billion

  • 4:20 p.m. ET: Equifax (EFX) is expected to report adjusted earnings of $1.79 per share on revenue of $1.25 billion

  • 4:30 p.m. ET: O'Reilly Automotive (ORLY) is expected to report adjusted earnings of $6.04 per share on revenue of $3.11 billion

Politics

  • President Biden will host CEOs of utility companies at the White House for a discussion of climate efforts today. Biden recently highlighted $500 billion in energy and climate provisions as one "piece" of his stalled Build Back Better package that might be able to be passed soon.

  • The Senate Agriculture Committee is looking at digital assets at 10:00 a.m. ET with Commodity Futures Trading Commission chairman Rostin Behnam set to testify. The committee oversees the CFTC and recently sent a letter to clarify the agency’s role in regulating cryptocurrency.

Top News

European stock markets edge higher as global stocks rally [Yahoo Finance UK]

Chipotle Q4 earnings boosted by digital surge, sees bigger restaurant footprint [Yahoo Finance]

Nikola responds to hiring freeze report, says supply-chain department intact [Reuters]

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