Stocks wrapped up their second straight losing week to start the year on a mixed note. Indexes were dragged down by uninspiring bank earnings that marked the unofficial start of the earnings season, downbeat economic data, and higher interest rates. Retail sales data released last week badly missed economists' forecast. Spending at physical and online retail and food services businesses in December fell 1.9% from November, while consensus had been for a 0.1% decline. Another bad news for investors was inflation report that came in on Wednesday morning, with the Consumer Price Index jumping 7% Y/Y in December, marking the largest increase since June 1982.
The Dow Jones Industrial Average lost 0.88% last week, while the S&P 500 closed down 0.3% and the Nasdaq Composite lost 0.28% of its value during the week.
Top S&P 500 sectors last week:
- Energy sector + 5.21% (ETF: XLE)
- Communication services sector + 0.52% (ETF: XLC)
- Consumer staples sector + 0.37% (ETF: XLP)
Top news last week:
- Mixed Bank Earnings: A batch of big U.S. bank earnings last week signaled the start of earnings season. The group has outperformed the S&P 500 over the past year. But 4Q21 results were mixed: J.P. Morgan Chase, the top U.S. bank by assets, reported better than expected quarterly profit and revenue, but shares fell more than 6% after warning that the company likely would miss a key profit target in the next two years. Citigroup lost 1.3% after the earnings release. However, there was a winner as well - Wells Fargo, which closed up 3.7% after earnings. “WFC” reported revenue of $20.856 billion, topping consensus estimate of 18.824 billion, according to Refinitiv. Their net income was also impressive, $5.75 billion, an 86% increase from a year ago.
- Netflix is raising prices: Netflix announced its first price bump in North America since October 2020. The basic plan is going up by $1, the standard plan (the company’s most popular) is being raised by $1.50 and the premium plan is increasing by $2. Developing high-quality programming is expensive and with subscriber growth slowing in North America, the company thinks the best approach for increasing their revenue is to squeeze few more dollars out of its existing customers. Netflix’s budget for original content stood at US$ 17bn in 2021, and analysts expect the company’s content budget has only grown this year. Netflix shares closed down 1.25% higher after the announcement. Netflix will likely elaborate on its pricing decision when it reports its Q4 earnings this Thursday. Analysts expect the company to have added 8.5 million new signups to its existing global total of 213.6 million.
- Ford’s Market Cap Crosses $100bn: Automaker Ford Motor Company (F) made headlines on Thursday after reaching a market capitalization of over US$ 100bn for the first time in its history. Investors seem to be optimistic about Ford CEO Jim Farley’s aggressive electrification strategy. Flooded with reservations for its new electric version of the hugely popular F-150 Lightning pickup truck, Ford recently revealed its plans to double production to 150,000 trucks annually. Along with ramping up production of the Lightning, Ford plans to triple Mustang Mach-E (electric version of Mustang sports car) production and expects to reach over 200,000 units per year by 2023. In a recent release, Ford committed to invest over $30 billion in electric vehicles through 2025. Ford shares have posted astonishing performance over the past year, increasing in value by more than 150%.
Earnings this week:
Tuesday, January 18: Goldman Sachs (GS), PNC Bank (PNC), Truist (TFC), J.B. Hunt Transport (JBHT) and Stride (LRN).
Wednesday, January 19: UnitedHealth (UNH), Bank of America (BAC), Procter & Gamble (PG), Morgan Stanley (MS), U.S. Bancorp (USB), United Airlines (UAL) and Kinder Morgan (KMI).
Thursday, January 20: American Airlines (AAL), Travelers (TRV), Union Pacific (UNP), Netflix (NFLX) and CSX (CSX).
Friday, January 21: Ally Financial (ALLY), Honeywell (HON), IHS Markit (IHS) and Schlumberger (SLB).
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