Wall Street Breakfast: What Moved Markets

- Stocks wrapped up their second straight losing week to start the year on a mixed note Friday, overcoming uninspiring bank earnings that marked the unofficial start of the earnings season, downbeat economic data, and higher interest rates. 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. Casino stocks including Las Vegas Sands and Wynn Resorts rallied after Macau's government said it would allow just six casino licenses. Oil stocks also rose, following continued strength in crude prices. But consumer discretionary stocks were weighed by disappointing data on retail sales, which fell by a much worse than forecast 1.9% in December, and consumer sentiment, as Americans worry about long-term inflation. For the week, the S&P 500 fell nearly 1%, while the Dow and Nasdaq finished slightly in the red

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Top News Shutterstock Stocks wrapped up their second straight losing week to start the year on a mixed note Friday, overcoming uninspiring bank earnings that marked the unofficial start of the earnings season, downbeat economic data, and higher interest rates. 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. Casino stocks including Las Vegas Sands and Wynn Resorts rallied after Macau's government said it would allow just six casino licenses. Oil stocks also rose, following continued strength in crude prices. But consumer discretionary stocks were weighed by disappointing data on retail sales, which fell by a much worse than forecast 1.9% in December, and consumer sentiment, as Americans worry about long-term inflation. For the week, the S&P 500 fell nearly 1%, while the Dow and Nasdaq finished slightly in the red       Outlook #futureofwork While some companies like Robinhood (HOOD) and Twitter (TWTR) are planning for a remote-first future, others are making big bets on employees coming back to work. Google (GOOG, GOOGL) shelled out $1B this week to acquire the rest of London's colorful Central Saint Giles building, where it already occupies a number of floors. That's beside a new 11-story U.K. headquarters that it is building nearby, which sits on a plot behind in the recently gentrified King's Cross neighborhood. Quote: "We believe that the future of work is flexibility," wrote Ronan Harris, VP of Google U.K. and Ireland. "Whilst the majority of our UK employees want to be on-site some of the time, they also want the flexibility of working from home a couple of days a week. Some of our people will want to be fully remote. Our future UK workplace has room for all of those possibilities." "We'll [also] be introducing new types of collaboration spaces for in-person teamwork [at Central Saint Giles], as well as creating more overall space to improve well-being. We'll introduce team pods, which are flexible new space types that can be reconfigured in multiple ways, supporting focused work, collaboration or both, based on team needs. The new refurbishment will also feature outdoor covered working spaces to enable work in the fresh air." Outlook: At the beginning of 2021, Google said it would spend $7B over the course of the year to expand its footprint of offices and data centers across the U.S. It seems to now be executing a similar strategy abroad, adding 700 employees to its current roster of 6,400 employees in the U.K. Once the construction of its new London complexes is complete, Google will have the capacity for a 10,000-strong workforce in the city.       Featured Start the year on the right track Join this free webinar with Steve Cress, the creator of Seeking Alpha's Quant Ratings, as he reveals his Top 10 Stocks for 2022. Our "Very Bullish" stock picks are beating the market by more than 4-to-1. Steve will share data-driven insights that have the power to transform your portfolio. Don't miss it - space is limited! Register for free » Healthcare New era of transplants? In a last-ditch effort to save his life, doctors at the University of Maryland Medical Center transplanted a genetically modified pig heart into patient David Bennett, a 57-year-old handyman from Maryland. He's doing well days after the highly experimental surgery, and is being monitored for immune system problems and other complications, but it is still too early to tell if the operation will work. Due to his condition, Bennett had also received a pig heart valve about a decade ago, which (along with pig skin grafts) are routinely used in humans. Snapshot: "It was either die or do this transplant. I want to live. I know it's a shot in the dark, but it's my last choice," Bennett said a day before the nine-hour surgery. While he knew there was no guarantee the experiment would be effective, Bennett was ineligible for a human heart transplant or pump due to a heart failure condition and an irregular heartbeat. The FDA, which oversees such experiments, allowed the xenotransplantation surgery under "compassionate use" emergency authorization, which is available when a patient with a life-threatening condition has no other options. "If this works, there will be an endless supply of these organs for patients who are suffering," said Dr. Muhammad Mohiuddin, scientific director of the University of Maryland's animal-to-human transplant program. A total of 106,657 people are currently on the U.S. transplant waiting list, and more than 6,200 patients die each year before getting one. In 2021, more than 40,000 organ transplants were conducted nationwide, including a record 3,800 heart transplants. Gene editing tools: Several biotech companies are developing pig organs for human transplant, with the heart used in the most recent operation coming from Revivicor, a subsidiary of United Therapeutics (NASDAQ:UTHR). The organ was modified to make it more acceptable to a human, including removing and inserting 10 genes to keep the heart from growing after the transplant. The team at the University of Maryland Medical Center also used a new drug made by Kiniksa Pharmaceuticals (NASDAQ:KNSA) to help prevent the organ from being rejected by the patient's body. (10 comments)       Economy 40-year high Another bad inflation report came in Wednesday morning, with the Consumer Price Index jumping 7% Y/Y in December, marking the largest increase since June 1982. It was also the eighth straight month of a figure higher than 5%, and the third consecutive month above 6%. The core CPI, which excludes food and energy and is the Fed's preferred gauge of inflation, also topped expectations, coming in at 5.5% for the highest reading since 1991. Eyes on Powell: In his confirmation hearing on Capitol Hill a day earlier, the Fed Chair emphasized that he would use all the tools of the central bank to get inflation back on track. "If we have to raise interest rates more over time, we will," Jay Powell told the Senate Banking Committee. "The economy no longer needs or wants the very accommodative policies we have had in place." He additionally expressed hope that the alleviation of supply chain bottlenecks would bring inflation down, as the economy returns to "normal supply conditions," but admitted that it has taken much longer than expected to get the problems under control. The price pressures could also impact the other side of the Fed's dual mandate, or "maximum sustainable employment." "To get the kind of very strong labor market that we want with participation, it's going to take a long expansion. To get a long expansion, we're going to need price stability," Powell explained. "In a way, high inflation is a severe threat to the achievement of maximum employment and to achieving a long expansion that can give us that." Brainard commentary: As nominee for Vice Chair of the Federal Reserve, Brainard also told Congress that the fight against inflation is the central bank's "most important task" as it shifts gears towards tighter monetary policy. "Inflation is too high, and working people around the country are concerned about how far their paychecks will go. Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone." Many now expect the Fed to begin a cycle of interest rate hikes in March and to start the process of winding down its nearly $9T balance sheet later in the year. (236 comments)

     

On The Move

Commodity boom

A broad rally continued to take shape across commodity markets this week, with WTI crude oil topping $82 a barrel, as well as copper trading above $10,000 a ton for the first time since October. Joining the rally were nickel and lithium stocks as demand for electric vehicles hits fresh records. The price of nickel even notched a 10-year high, climbing to $23,000 a ton as stockpiles continue to dwindle across the globe.

Snapshot: Nickel is one of the most widely used minerals for EV batteries, though supply does not seem to be keeping up with demand. "With China's policy response gathering steam at a moment of severely depleted inventories, micro and macro conditions are beginning to align, driving a repricing of metals toward scarcity," explained Nicholas Snowdon, analyst at Goldman Sachs. "We are starting to see consumers wake up and recognize the problems that exist," added Jeremy Weir, CEO of Trafigura, one of the world's largest commodity traders.

EV makers are scrambling for the metal, prompting Tesla (TSLA) on Monday to ink its first U.S. supply deal. Under the arrangement, the company agreed to purchase 75,000 tons of nickel from Talon Metals' (OTCPK:TLOFF) Tamarack mine project in Minnesota. BHP (BHP) also announced it would invest as much as $90M in Kabanga Nickel, which owns a nickel project in Tanzania, as the miner aims to boost its exposure to metals needed for a low-carbon economy.

Go deeper: Growth of electric vehicle sales topped that of the global car market in 2021, up 26% over the previous year, led by the U.K and Europe. In the U.S., over 310K EVs were sold in the first six months of the year, compared to the 322K sold over the entire 2020, though the segment still only reflects 4% of the market. Besides offering some hot cars, tougher standards over emissions and fuel economy are in the mix as America drives toward a goal of 50% all-electric and plug-in hybrid sales by 2030. (11 comments)

     

Covid

Vaccine mandates

The verdict finally arrived on a pair of the Biden administration's vaccine mandates, with separate rulings for two of the orders. In a vote of 6-3, the Supreme Court blocked a mandate that required businesses with more than 100 employees to have them vaccinated or tested weekly, calling the requirement an "encroachment into the lives" of two-thirds of the private sector. In a separate 5-4 ruling, the High Court let stand another mandate that would require vaccinations for more than 10M healthcare workers whose facilities participate in Medicare and Medicaid.

The decision: "Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly," the court wrote. "COVID-19 is also spread at home, in schools, during sporting events, and everywhere else that people gather... The Act empowers the Secretary [of labor] to set workplace safety standards, not broad public health measures. Requiring the vaccination of 84M Americans, selected simply because they work for employers with more than 100 employees, certainly falls in the latter category."

Responding to the decision, President Biden said he was disappointed the court blocked "common-sense life-saving requirements for employees at large businesses that were grounded squarely in both science and the law." While the cases have sown tension between federal and state governments, Biden went on to say that "it is now up to states and individual employers to determine whether to make their workplaces as safe as possible for employees, and whether their businesses will be safe for consumers during this pandemic by requiring employees to take the simple and effective step of getting vaccinated."

Healthcare ruling: "COVID-19 is a highly contagious, dangerous, and - especially for Medicare and Medicaid patients - deadly disease," the majority opinion wrote. "Indeed, their [healthcare industry] support suggests that a vaccination requirement under these circumstances is a straightforward and predictable example of the health and safety regulations that Congress has authorized the Secretary to impose. After all, ensuring that providers take steps to avoid transmitting a dangerous virus to their patients is consistent with the fundamental principle of the medical profession: first, do no harm." (534 comments)

     

U.S. Indices
Dow -0.9% to 35,912. S&P 500 -0.3% to 4,663. Nasdaq -0.3% to 14,894. Russell 2000 -0.8% to 2,161. CBOE Volatility Index +2.3% to 19.19.

S&P 500 Sectors
Consumer Staples -0.4%. Utilities -1.4%. Financials -0.9%. Telecom +0.5%. Healthcare -0.3%. Industrials -0.6%. Information Technology -0.1%. Materials -0.6%. Energy +5.2%. Consumer Discretionary -1.5%.

World Indices
London +0.8% to 7,543. France -1.1% to 7,143. Germany -0.4% to 15,883. Japan -1.2% to 28,124. China -1.6% to 3,521. Hong Kong +3.8% to 24,383. India +2.5% to 61,223.

Commodities and Bonds
Crude Oil WTI +6.8% to $84.28/bbl. Gold +1.1% to $1,817.4/oz. Natural Gas +7.8% to 4.223. Ten-Year Treasury Yield -0.1% to 128.19.

Forex and Cryptos
EUR/USD +0.5%. USD/JPY -1.18%. GBP/USD +0.68%. Bitcoin +3.5%. Litecoin +13.6%. Ethereum +7.7%. XRP +3.9%.

Top S&P 500 Gainers
Las Vegas Sands (NYSE:LVS) +13%. APA (NASDAQ:APA) +12%. Applied Materials (NASDAQ:AMAT) +11%. Halliburton (NYSE:HAL) +11%. Illumina (NASDAQ:ILMN) +9%.

Top S&P 500 Losers
Etsy (NASDAQ:ETSY) -12%. Lumen Technologies (NYSE:LUMN) -10%. Aptiv (NYSE:APTV) -10%. Estee Lauder (NYSE:EL) -9%. Dollar General (NYSE:DG) -9%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

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