Wall Street Breakfast: What Moved Markets

- The S&P 500 and Nasdaq Composite erased early losses to finish higher Friday to conclude their best week so far this year, led by continued strength in quarterly earnings reports and a better than expected January jobs report. Amazon shares surged 13.5% for their biggest one-day gain since 2015, and Snap skyrocketed 58%, suggesting that Meta Platforms' earnings disappointment that sent shares crashing 26% on Thursday was a company-specific issue. U.S. payrolls came in at a three-month high as employers added more jobs than forecast last month despite a surge in COVID-19 infections. Average hourly earnings also rose more than expected, although not enough to keep pace with inflation. Crude oil soared to a fresh seven-year high near $93 a barrel, and the average price of gasoline surged to the highest in more than seven years. U.S. Treasury prices fell with the 10-year yield briefly topping 1.93%, jumping from about 1.5% at the start of the year as the Federal Reserve has signaled a more aggressive fight against inflation. For the week, the Dow Jones average added 1.1%, the S&P gained 1.5%, and the Nasdaq jumped 2.4%.

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Top News Shutterstock The S&P 500 and Nasdaq Composite erased early losses to finish higher Friday to conclude their best week so far this year, led by continued strength in quarterly earnings reports and a better than expected January jobs report. Amazon shares surged 13.5% for their biggest one-day gain since 2015, and Snap skyrocketed 58%, suggesting that Meta Platforms' earnings disappointment that sent shares crashing 26% on Thursday was a company-specific issue. U.S. payrolls came in at a three-month high as employers added more jobs than forecast last month despite a surge in COVID-19 infections. Average hourly earnings also rose more than expected, although not enough to keep pace with inflation. Crude oil soared to a fresh seven-year high near $93 a barrel, and the average price of gasoline surged to the highest in more than seven years. U.S. Treasury prices fell with the 10-year yield briefly topping 1.93%, jumping from about 1.5% at the start of the year as the Federal Reserve has signaled a more aggressive fight against inflation. For the week, the Dow Jones average added 1.1%, the S&P gained 1.5%, and the Nasdaq jumped 2.4%.       Media Spotify controversy Spotify (NYSE:SPOT) went into damage control mode this week as listeners, creators and shareholders found themselves on different sides of the fence on what to do about controversial content on its platform. The straw that broke the camel's back was a podcast episode featuring mRNA virologist Dr. Robert Malone on the show of popular host Joe Rogan, who signed a reported $100M deal with Spotify back in 2020. Neil Young, Joni Mitchell and Nils Lofgren pulled their music from Spotify in response, citing "vaccine misinformation," while calls to boycott the platform grew on social media with hashtag #DeleteSpotify. The solution? Looking to pacify both sides of the free speech vs. harmful misinformation debate, Spotify added a disclaimer to any podcast episode that addresses COVID-19. "This advisory will direct listeners to our dedicated COVID-19 Hub, a resource that provides easy access to data-driven facts, up-to-date information as shared by scientists, physicians, academics and public health authorities around the world, as well as links to trusted sources." Spotify also published platform rules that will govern what content is and isn't allowed on its service, which will be updated regularly to reflect the changing safety landscape. That wasn't all. Spotify (SPOT) made waves for the second time by plunging as much as 23% AH on Wednesday with an earnings report that rippled through markets. Estimates for user growth in Q1 were barely in line with analyst projections, and the company scrapped annual guidance for the foreseeable future since the "vast majority of our initiatives are multi-year in nature and measured as such." However, sales outperformed in the current quarter, with subscription-based revenue climbing 22% to €2.3B and advertising revenue surging 40% to €394M. Go deeper: During an earnings call, Spotify acknowledged for the first time that it might take financial hit from the controversy surrounding Joe Rogan Experience. It's "too early to know what the impact may be," CEO Daniel Ek declared, noting that "usually when we've had controversies in the past, those are measured in months, not days." Artists like India Arie and Neil Young's former bandmates "Crosby, Stills and Nash" also joined the crew in pulling their music off the streaming platform.       Featured 70 Stocks Experts Think Will Do Well In 2022 Which stocks would you buy if you had a time machine that goes back to March 2020? Back when the market was bottoming in March 2020, the team behind the Stock Waves service compiled a "shopping list" of over 100 stocks, almost all of which gained at least 50% in as little as three months - among them Moderna, Apple, and NIO. How do these experts do it? They combine their powers. Stock Waves is run by one of Seeking Alpha's most popular fundamental analysts, Lyn Alden Schwartzer, alongside two technical analysis experts. Now, this same team is releasing another list of 70 stocks they expect to do well in 2022. These are stocks where the fundamentals and technicals align. Get this list of stocks - as well as deep-dive reports, model portfolios, sector analysis, and more - by joining the thousands of subscribers to the Stock Waves service. Try it free today » Economy $30T and counting America's national debt topped $30T for the first time, according to figures from the Treasury Department on Tuesday. The record amount of red ink and gloomy fiscal milestone are adding to worries about the long-term economic health of the country, which is grappling with red-hot inflation and a higher interest rate environment, which can make servicing the debt even more challenging. Other factors like an aging population, elevated healthcare costs, and a tax system that doesn't bring in enough revenue to cover spending are also worrying as the federal government kicks the can down the road. Quote: "COVID exacerbated the problem. We had an emergency situation that required trillions in spending, but the structural problems we face fiscally existed long before the pandemic," said Michael Peterson, CEO of the Peterson Foundation, which promotes deficit reduction. "Our current fiscal posture is a result of many years of fiscal irresponsibility from both parties. The polarization of our government and, to some extent, our population, makes implementing solutions more difficult. If we don't get our fiscal house in order, all these other concerns like climate, inequality and national security will be made more difficult." Long gone are the days of austerity conversations, the Tea Party movements or the balanced budget talk that made some political brownie points. Instead, discussions today have shifted to whether the passing of more trillion-dollar spending bills would be a net positive or negative for the overall U.S. economy. In fact, the U.S. has already returned to the record debt-to-GDP ratio last seen in the aftermath of World War II, leaving the nation with a debt burden so large that it would need to spend an amount larger than the entire annual economy in order to pay it off (the debt-to-GDP percentage totaled 125% in 2022). How much is too much? There's no magic number or level for when a government's debt begins to hurt its economy. As long as interest rates stay relatively low and the U.S. can borrow cheaply, the country can handle a much heavier debt load than was once thought possible (and can even use those conditions to remain competitive on the international stage). However, the federal debt cannot grow faster than the economy indefinitely. Once confidence erodes in Treasuries or the dollar's reserve currency status is threatened, borrowing can get more expensive and servicing that debt would cancel any budgetary forecasts that were made in a previous lending environment.       On The Move Metaplunge And just like that, the volatility came back. A tarnished earnings report from Meta Platforms (FB), formerly known as Facebook, dented whatever sentiment the market seemed to take hold of following the big reverberations seen in January. Shares of Meta tumbled 26% on Thursday, wiping out $251B in market capitalization, while the worries spilled over to the Nasdaq Composite, which slid almost 4% (that came after the biggest four-day rally since November 2020). Analyst commentary: "It's a black eye quarter," Wedbush's Dan Ives said following the Q4 results. "It's a dark chapter quarter at a time when the bulls need to see good news." Investors were surprised by weaker user growth (DAUs missed estimates of 1.95B), while Meta gave a disappointing sales forecast for the current period ($27B-$29B vs. $30.3B). Looking under the surface, one can see that the vast majority of Facebook's revenue comes from targeted advertising, though the company has been severely hurt by Apple's (NASDAQ:AAPL) privacy changes, which will result in a $10B hit in 2022. CEO Mark Zuckerberg also acknowledged that Meta is facing serious competition for user time and attention (think TikTok and Roblox (RBLX)), causing the company to pivot into a whole new arena: the Metaverse.

Thought bubble: Meta still has to convince shareholders that its embrace of the Metaverse will pay off, and despite the rebranding, the company at the moment is primarily an advertising company. "They're a basketball player saying that they're a skier," Dan Ives pointed out in an interview. Many say the firm will also have to sink big bucks and capex to get ahead of the curve in developing the Metaverse, where it will have the opportunity to make revenue from transaction-based or token-based sales (like NFTs) and not only from advertising.

     

Earnings

More Big Tech

Google parent Alphabet (GOOG, GOOGL) reported a set of blockbuster earnings late Tuesday, but perhaps the more notable news was a rare 20-for-1 stock split that added to the wave of investor enthusiasm. It's only the second time the company has split its shares since going public in 2004, and while it doesn't really affect the fundamentals, the move will make the stock more affordable or easier to execute some options contracts. Shares of Alphabet soared over 10% AH to regain $3,000 - a level last seen in November - though the split still needs to be approved at a shareholder meeting in July.

More on those results: Earnings rose by a third to $30.69 a share (compared to $22.30 per share a year ago), while revenue of $75B (32% Y/Y) came in more than $3.5B ahead of analyst expectations. The majority of sales came from Google advertising, which includes search, YouTube and the Google network, showing the resilience of advertising despite the pandemic. It also comes in the face of lawsuits and proposing legislation to curtail the tech giant's dominance, and antitrust lawsuits against its ad technology.

Amazon (AMZN) also reported a set of bumper results that smashed operating income and EPS expectations, sending shares up 12% after the bell on Thursday. Investors cheered news that Prime annual membership will be hiked to $139 (from $119), reflecting higher wages and transportation costs. Amazon also received a big boost from its investments in electric vehicle company Rivian (RIVN), as well as surging revenue from its AWS cloud computing unit (+40% to $17.8B) and advertising businesses (+32% to $9.7B).

Outlook: "As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron. Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic," declared CEO Andy Jassy. Even with the forecast, Amazon expects Q1 revenue of $112B-$117B vs. a $121B consensus on Wall Street and operating income of $3B-$6B vs. a $6.35B consensus.

     

Energy

Oil tops $90

With inventory levels in Cushing at multi-year, seasonally-adjusted lows, and prices for the U.S. crude grade encroaching on seaborne levels, WTI traded above $90 for the first time since mid-2014. Currently, global crude inventories are at unusually low levels, meaning supply increases from OPEC+ and American shale will need to meet post-pandemic demand (if oil prices are to remain at current levels). Unfortunately for consumers and oil-price bears, OPEC+ continues to miss quotas, while shale heavyweights like Conoco (COP), Exxon (XOM) and Chevron (CVX) have all budgeted for flat, portfolio-wide output growth in 2022.

Quote: "The oil market is so tight that any shock to production is going to send prices soaring," explained Ed Moya, senior market analyst at OANDA.

Remember, the U.S. coordinated a release 50M barrels of oil from the U.S. Strategic Reserve in November, when prices were still under $80. While the move was meant to lower prices, the volumes announced were much less than the market was expecting and would need to be sustained over a longer period of time. A large portion of the barrels was also set to be exported to China and India, since the supplies comprised of sour crude, a type of oil that many American refiners are avoiding due to its high sulfur content and makes it more expensive to process.

Next stop? A number of analysts have already forecast $100 oil, with WTI up nearly 20% YTD, building on 2021's more than 50% gain. Geopolitical tensions have meanwhile sent jitters through the market, especially the recent standoff playing out between Russia and Ukraine. The trends are also highly inflationary, posing trouble for central bank policymakers around the globe. Estimates of Fed rate hikes on Wall Street now range from three increases all the way to seven for 2022.

     

U.S. Indices
Dow +1.1% to 35,090. S&P 500 +1.6% to 4,501. Nasdaq +2.4% to 14,098. Russell 2000 +1.9% to 2,005. CBOE Volatility Index -16.1% to 23.22.

S&P 500 Sectors
Consumer Staples +1.6%. Utilities +1.6%. Financials +1.8%. Telecom -0.4%. Healthcare +1.8%. Industrials +1.5%. Information Technology +0.6%. Materials +1.5%. Energy +3.3%. Consumer Discretionary +0.2%.

World Indices
London +0.7% to 7,516. France -0.2% to 6,951. Germany -1.4% to 15,100. Japan +2.7% to 27,440. China flat at 3,361. Hong Kong +4.3% to 24,573. India +2.5% to 58,645.

Commodities and Bonds
Crude Oil WTI +5.9% to $91.95/bbl. Gold +1.3% to $1,808.9/oz. Natural Gas -1.9% to 4.55. Ten-Year Bond Yield +8.9 bps to 1.916.

Forex and Cryptos
EUR/USD +2.75%. USD/JPY -0.03%. GBP/USD +0.93%. Bitcoin +7.5%. Litecoin +8.7%. Ethereum +15.4%. XRP +4.5%.

Top S&P 500 Gainers
DXC Technology (NYSE:DXC) +21%. Xilinx (NASDAQ:XLNX) +17%. Advanced Micro Devices (NASDAQ:AMD) +17%. Enphase Energy (NASDAQ:ENPH) +14%. United Parcel Service (NYSE:UPS) +13%.

Top S&P 500 Losers
PayPal Holdings (NASDAQ:PYPL) -23%. Meta Platforms (NASDAQ:FB) -21%. The Clorox (NYSE:CLX) -15%. C.H. Robinson Worldwide (NASDAQ:CHRW) -15%. Xylem (NYSE:XYL) -11%.

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

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