There are several earnings announcements today, but not many companies that are likely to have a far reaching effect. Thursday’s Consumer Price Index could be spark that provides some excitement this week.
One large company reporting earnings this morning is Pfizer (NYSE:PFE). The company missed on revenue, but was still able to beat earnings estimates. However, the company offered a lower earnings outlook, which prompted the stock to fall 3.18% in premarket trading. Investors are also concerned that PFE’s vaccine-related earnings will slide as COVID-19 cases decline and the economy reopens.
Motorcycle maker Harley-Davidson (NYSE:HOG) was revving up before the bell, with the stock up 6.87%. The company reported a surprise profit against analyst expectations of a loss. The company was able to increase motorcycle revenues to $4.54 billion—higher than the estimated $4.4 billion—and increased its earnings outlook. This is a positive turnaround when you think about it, the stock was frankly left for dead by many investors two years ago.
An entirely different type of bike company, Peloton (NASDAQ:PTON), was trading 2.32% lower in premarket trading after rallying nearly 21% on Monday on news that the company has potential suitor in Amazon (NASDAQ:AMZN), Nike (NYSE:NKE) and Apple (NASDAQ:AAPL). The company is replacing founder and CEO John Foley with Barry McCarthy. McCarthy previously worked for Spotify (NYSE:SPOT) and Netflix (NASDAQ:NFLX), which could provide PTON with the necessary content background needed to turn the company around. Additionally, PTON reported that it would cut 2,800 jobs as it tries to reduce cost to reflect the lower demand for exercise bikes.
General Motors (NYSE:GM) was downgraded by Morgan Stanley analysts on Tuesday, causing the stock to fall 4% in premarket trading. The downgrade came because of GM’s 2022 guidance and a change in how analysts calculated the value of the company.
The 10-year Treasury yield appears to be on its way to 2% because it was up again this morning in premarket action. The TNX was trading above 1.95%. The 10-year yield isn’t getting much help from oil prices this morning because crude futures are down 1.62% and back below $90 a barrel. Investors appear to be unconcerned about either development because the Cboe Market Volatility Index (VIX) is relatively unchanged before the opening bell.
Monday’s Action
Stocks were mixed and relatively flat on Monday with little significant news to provide traders with any kind of conviction. The energy sector saw the most attention, leading the day with the Energy Select Sector Index rising 1.31%. Outside of energy, financials, consumer staples, and industrials were the only sectors to end the day in the green.
Travel and leisure got help from the news that after two years, Australia would reopen its borders to vaccinated travellers. Norwegian Cruise Line (NYSE:NCLH) rallied 8.4% on the news and Penn National Gaming (NASDAQ:PENN) climbed 5%. The Dow Jones U.S. Travel & Leisure Index rose 1.36% on the day.
After the close, biotech Amgen (NASDAQ:AMGN) reported stronger-than-expected earnings despite weaker-than-expected revenues. The stock was relatively unmoved in after-hours trading as the company continues to struggle with sales of its biggest products.
From the real estate sector, Simon Property Group (NYSE:SPG) fell 2.63% in after-hours trading despite beating on top and bottom line numbers.
Take-Two Interactive (NASDAQ:TTWO) reported better-than-expected earnings but missed on revenues, which took the stock 2.67% lower in extended-hours trading.
Inflationary Not Stationary
According to Refinitiv, 278 companies in the S&P 500 had reported earnings as of Friday; another 82 are expected report this week. Of those that have reported, 78.4% have beat analysts’ estimates, which is above the long-term average of 65.9% but lower than the prior four-quarter average of 83.9%. Year-over-year earnings growth is expected to increase 27.2%, but when you take out energy, earnings growth is only 18.8%. Energy continues to be the top-performing sector this earnings season, followed by materials and utilities.
The energy sector’s earnings growth rate year over year is an astounding 11,180.4%. All five energy subindustries are on track for higher earnings growth too. The top two industries include the integrated oil and gas group, which is seeing earnings growth near 2,600% and oil and gas exploration and production, which is homing in on 1,800% growth.
The materials sector looks almost normal by comparison to energy with an earnings growth rate of 64.1%. Nine of the 10 industries in the sector are expected to see positive growth rates. Steel is on track for the top spot in the sector, growing 517%. Fertilizers and agricultural chemicals are looking at 252.8%. If you remove these industry groups, the rest of the sector is on pace for an earnings growth rate of 32.7%.
With these earnings growth rates in mind, it’s no wonder that the Energy Select Sector Index has returned about 22% year to date. The Materials Select Sector Index is actually down about 7% year to date. Materials’s two strong growing industries aren’t enough to hold the eight other industries up.
CHART OF THE DAY: HOT COMMODITIES. The S&P Goldman Sachs (NYSE:GS) Commodity Index ($SPGSCI—candlesticks) has outperformed the S&P 500 (SPX—pink) most of the last two years. In December, the commodity index exhibited greater relative strength (green) compared to the SPX. Data Sources: ICE), S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Under Pressure: The Monday morning earnings announcement from Tyson Foods (NYSE:TSN) reminded us that commodities are more than just oil and oil products. TSN was able to smash analyst estimates because of rising meat prices that included a 32% rise in beef prices, 20% in chicken, and 13% in pork. The stock closed 12.23% higher on the news and helped the S&P Food & Beverage Select Index rally 0.71% on the day.
However, some commodities are more easily substituted than others. While beef had the highest price increases, Tyson also reported that it saw a drop in the number of units sold. Consumers may find it easier to substitute chicken or pork for beef because their prices didn’t rise as much. Of course, vegetarian options have also grown substantially.
On other hand, petroleum products aren’t so easily substituted. It’s not like you can decide to fill up with a cheaper option like natural gas or slap a solar panel to your car. It’s also expensive to replace your car with a hybrid or electric vehicle. Therefore, oil prices may experience more sustainability than meat prices.
Miracle Growth: Another commodity that falls in the “hot” category is lumber. Lumber futures prices have shot up four straight days, triggering limit-up events. A limit up or limit down is the maximum amount an exchange will let a futures price move during one trading day. When the price is reached, the exchange can halt trading in that security or raise the limit to allow further trading. After hitting its recent low the first of February, lumber prices have risen about 20% from $934 to $1,114 per board foot.
While rising prices may be concerning, lumber is still about 16% off its January highs and 30% off its pandemic high in May of 2021. But the trend has been up since reaching its bottom back in August near $468. With supply chains opening up, you’d think prices would be more stable. However, much of the timberland in the northern hemisphere is under snow and hard to log.
According to Fortune, the run in lumber prices from August through January was due in part to a bad wildfire season in Canada and then heavy rains and mudslides in the fall. But overall, it’s a matter of demand. Many builders are buying more lumber to avoid getting caught off-guard in case of another wave of COVID-19 or more natural disasters, but the strong economy is keeping demand high too. So, higher lumber prices may be here for a little while.