Goldman Sachs signals failure as investor fear rises…

Goldman Sachs, PNC Financial, Truist Financial and Bank of NY Mellon reported mixed results despite rising interest rates. Yields continue to rise on Tuesday, dragging European, Asian and US stocks lower in premarket trading. The VIX shows investor fears rising as yields and oil prices test former highs. Analysts hope inflation will ease later in the year as COVID-19 supply chain bottlenecks open up. The producer price index (PPI) mirrors Wednesday’s consumer price index (CPI), with inflation rising faster than expected. Natural gas prices are soaring as the eastern third of the United States faces a cold spell. TD Ameritrade investors were net sellers in December according to the Investor Movement Index. Not all industrial groups in the materials sector react in the same way to inflation.



5 minute read

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Key points to remember

  • Stock index futures point to a lower open on higher oil prices and yields and a shortfall by Goldman Sachs
  • Rising interest rates and oil prices appear to be raising fears among foreign and domestic investors

  • Analysts hope inflation will ease later in the year as COVID-19-related supply chain bottlenecks open up

JJ Kinahan, Chief Market Strategist, TD Ameritrade

(Tuesday Market Open) Stock index futures are pointing to a lower open and not being helped by earnings announcements from major financial firms. Goldman Sachs (GS) reported lower-than-expected earnings despite higher-than-expected revenue. During this time, PNC Financial (PNC) missed revenue, but beat profit. Financial truist (TFC) beat earnings and hit the revenue estimate on the nose. Finally, Bank of NY Mellon (BK) beat both the top and bottom numbers. Respective stock prices are mixed in pre-market trading. Goldman was down 3.76%, PNC was also down 0.20%, Truist was up 0.13% and Mellon was down 0.96%.

Financials were expected to post higher profits due to favorable interest rates. However, Goldman saw its profits fall by 13%. Like JP Morgan (JPM) and Citigroup (C) Goldman last week saw an increase in investment banking revenue from mergers and acquisitions. But equity trading revenue fell in the previous quarter and bond trading revenue was flat.

While the earnings announcements don’t seem to be helping, stock index futures appear to be falling due to rising yields. the 2-year Treasury yield rose to 1.024%, matching its February 2020 level, while the 10-year Treasury yield (TNX) hit a two-year high of 1.813% ahead of the open. The two-year rise may be the main driver of fear, as it is often seen as a reflection of the direction the Fed is heading. The move above 1% is above the Fed’s target of 0.90% for the overnight rate at the end of 2022. So what we can see here is a reset in asset values based on the potential for more and higher rate hikes. Growth stocks like You’re here (TSLA), Twitter (TWTR), and Metaplatforms (FB) are lower in premarket trading, which could be seen as evidence of revaluations.

the Cboe Market Volatility Index (VIX) signals investor concerns jumping more than 12% in premarket trading to 21.52. Fears may be compounded by rising oil prices, which rose 1.72% before the bell and hit $84.82 a barrel. Oil is now testing its 2021 highs and at one point was trading at a seven-year high.

Rising yields appear to be pulling equities lower overseas. the European Stoxx 600 fell more than 1% overnight and the BSE Sensex fell 0.90%. European markets were hit by yields on German bunds (bonds) which hit a seven-year high. Additionally, Reuters reported that Asian stocks sold off as US yields rose in premarket trading.

A growth stock that is rising is Activison Blizzard (ATVI) which is up 37.64% in pre-marketing. Microsoft (MSFT) announced its intention to acquire the gaming company for $95 per share for a total value of $68.7 billion. The deal will make Microsoft the third-largest gaming company by revenue.

The impact of inflation

Rising inflation can have an insidious effect on the economy. With rising input prices, consumers may buy fewer goods, profits decline, and the economy may slow down until a level of economic equilibrium is reached. Rising prices are definitely a key discussion right now, and it’s hard not to worry about it. Although many analysts expect inflation to ease this year, consumers are seeing a noticeable price difference in a number of their purchases compared to a year ago.

The consumer price index (CPI), which measures what consumers pay for goods and services, rose 6.8% from a year ago. According to the Bureau of Labor Statistics, this is the fastest annual increase in 40 years. Data shows prices are up in nearly every category, including energy, housing, transportation services, food, and new and used cars. As expected, Energy Commodities were the main driver with a 12-month percent change of 48.9%. Meat, poultry, fish and eggs increased by 12.5% ​​over the same period.

CHART OF THE DAY: INFLATING NUMBERS. The chart of the Consumer Price Index: Total of all items for the United States shows that the monthly change in inflation is at 1990 levels. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor, endorse or affiliate with TD Ameritrade. Data sources: ICE, S&P Dow Jones indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Cause: The COVID-19 pandemic has sent shockwaves through the global economy, disrupting a number of supply chains and contributing to significant shipping delays. To compound the problem, we have seen labor shortages combined with increased consumer demand. With a number of items in short supply and rising transportation costs, prices have risen. Generally speaking, inflation is actually the result of an increase in the cost of production or an increase in the demand for products and services.

For consumers, inflation is a concern because money saved today becomes less valuable tomorrow, eroding purchasing power and even delaying retirement. For most families, one of the first places inflation will hit is rising food and energy prices. According to data from the United States Department of Agriculture, in 2020 consumers spent about 10% of their income on food. Then add an additional 5-8% of disposable income for energy expenses. So a price increase, no matter how small, can mean less money for other products, less money to save, or even less money to pay off debt.

On the positive side, some analysts expect more supply chain issues to ease this year, which could have a direct impact on current inflation levels. Also, the Federal Reserve is of the view that inflation is likely to be more temporary than long-term.

Advantages: During a period of inflation, investors who hold assets that are also affected by inflationary pressures will frequently generate above-average returns in the market. Concrete example, the Light Sweet Crude Oil Futures contract easily outperformed all equity indices last year, climbing more than 55%.

Generally speaking, businesses will benefit from inflation by charging more for their products and services when demand increases. For example, when the economy is strong, the demand for homes is often higher, allowing home builders to raise the price of a home. This pricing power will positively impact a company’s profit margin, allowing it to charge more for products than the underlying increase in production costs.

It is important to note that businesses will suffer the negative effects of inflation if they are unable to pass on their higher production costs to consumers. So, depending on the product or service being offered, if demand drops with an increase in price, the business will have to absorb the cost, which will reduce its profit margins and ultimately its profitability.

good trade,

not a word

@TDAJJKinahan

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