Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

Back in the red

05/06/2022 | 08:57am EDT
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Wall Street fell sharply yesterday, dragged down by its former star stocks, after the Fed on Wednesday officially buried the era of free money that had dominated since 2008.

US equity markets went through the wringer yesterday, as illustrated by the 5% plunge in the Nasdaq 100. They had rebounded strongly on Wednesday on confirmation of tighter monetary policy by the Fed. But they lost their footing the next day. Everyone knew very well that the U.S. central bank was going to take vigorous action to calm prices, but it wasn't until it actually happened that markets really got alarmed. In reality, of course, stock market indices have been wobbling for several weeks. But sudden movements attract much more attention. Moreover, the general press, attracted by the smell of blood, will not be long in picking up on this new stock market debacle. And the crystal balls will come out.

The backdrop remains more or less unchanged: inflation will weigh more heavily on the economy at some point and central banks, which reacted too late, are forced to play with fire to maintain an acceptable balance. Corporate earnings growth rates will cease to be delirious and the exuberant asset bubbles will continue to deflate. It remains to be seen whether this will take place with noise and fury or in relative calm. History is yet to be written. 

Finance is not immune to the power of storytelling, quite the contrary in fact. Investors are constantly constructing scenarios and are sensitive to the way events are told. When communicating with the market, the Fed does nothing more than tell a story, with very careful attention paid to vocabulary and semantics. Most of the time, this story coincides with what investors want to hear. The chemistry works and it's back to the drawing board. Sometimes it's more complicated because the story sounds too good to be true, even for the incorrigible optimists that are investors.

But the power of storytelling also operates at the stock level. The research firm Liberum has taken a keen interest in the subject and for some time now has been producing a weekly review of the themes that are gaining ground in the financial media. The analysts mainly use the Google Trends tool. Recently, they have seen solar energy emerge as a major theme after the invasion of Ukraine by Russia. The sector has gained 30% in one month. Conversely (and somewhat paradoxically), ESG investment research has melted away like snow in the sun (oil, excluding Russian oil, has become furiously trendy again). Yesterday, Liberum also reported on the work of a Chinese team that looked at the performance of stocks exposed to a popular concept (e.g. artificial intelligence) and those that are declining in prominence. Baskets constructed from each of the trends over the 2014 /2021 period showed a clear decorrelation. To the point of reaching an annual outperformance of 15% for the popular stock baskets against the others, which is considerable. The moral of the story is that a popular theme over time looks like a good investment base.

 

Economic highlights of the day:

German industrial production and US employment figures for April are on the agenda. All the "macro" agenda here.

The dollar is trading at EUR 0.9463. The ounce of gold is back down to USD 1884. North Sea Brent is trading at USD 111.8 a barrel and US WTI light crude at USD 109.3. The yield on 10-year U.S. debt is back up to 3.06%. Bitcoin is falling back to around $36,300.

 

On markets:

* Tesla - The U.S. automaker wants to set up two shifts at its Shanghai plant starting May 16, according to an internal memo seen by Reuters, which would allow it to bring production back to pre-containment levels in the city.

* Twitter - Elon Musk is expected to become Twitter's interim chief executive after the social network's $44 billion buyout is completed, a source close to the matter said.

* The Boeing Company announced Thursday that it plans to move its headquarters from Chicago, Illinois, to Arlington, Virginia, not far from the Pentagon and the U.S. capital.

* Air Lease - The U.S. aircraft leasing company on Thursday reported strong demand for Boeing and Airbus medium-haul aircraft amid a recovery in travel but warned of potential production problems due to tight global supply chains. Air Lease shares were up 3% in after-hours trading.

* Virgin Galactic announced Thursday that it is delaying the commercial launch of its spaceflight service until the first quarter of 2023 due to labor and supply issues. The group also posted a net loss of $93.1 million for the three months ended March, compared with a loss of 129.7 million a year ago. The share price dropped 3.8% in premarket trading.

* Nike is down 2% in premarket trading in the wake of Adidas, which on Friday lowered its guidance for this year due to the confinement in China.

* Under Armour falls 12% in premarket trading Friday after it issued a lower-than-expected annual profit forecast due to rising costs and the resurgence of the COVID-19 outbreak in China.

* Johnson & Johnson - The U.S. Food and Drug Administration announced Thursday that it is restricting the use of the company's COVID-19 vaccine in adults because of a thrombosis risk.

* CONOCOPHILLIPS reported a five-fold increase in quarterly profit on Thursday, beating Wall Street expectations amid soaring energy prices.

* Block - The former Square, a payment services company founded by Twitter founder Jack Dorsey, is up 6.1% in pre-market trading on a better-than-expected quarterly profit.

* Doordash on Thursday raised its full-year gross order and subscription forecast after better-than-expected quarterly revenue. The stock is up 6.7% in pre-market trading.

* Peloton Interactive - The sports equipment maker is considering selling a stake of about 15 percent to 20 percent of its stock to potential buyers, the Wall Street Journal reported Thursday, citing sources close to the matter.

* Lucid Group - The electric vehicle maker announced Thursday that it will raise prices on most of its models starting in June due to higher raw material costs. The stock is up 1.6% in premarket trading.

* Nio - The electric vehicle maker is up 2.2% in premarket trading on Wall Street in reaction to a proposed listing in Singapore.

 

Analyst recommendations:

AbbVie: Daiwa Securities downgrades to neutral from outperform. PT down 1.4% to $150.

Bancfirst: Piper Sandler downgrades to underweight from neutral. PT down 6.7% to $79.

Black Hills: Mizuho Securities downgrades to neutral from buy. PT up 0.9% to $76.

Boohoo: Societe Generale downgrades to hold from buy. PT down 4% to 72 pence.

Centrica: HSBC downgrades from Hold to lighten with a GBp 70 target.

eBay: CFRA cut the recommendation on eBay Inc. to hold from buy. PT up 14% to $55.

Hiscox: HSBC upgrades to buy from hold. PT up 26% to 1,100 pence.

Petrofac: Goldman Sachs resumes coverage at buy targeting GBp 170.

Rathbones: Jefferies downgrades from buy to hold with a target of GBp 2100.

Tupperware: Citi cut the recommendation to neutral. PT up 27% to $13.


© MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ABBVIE INC. 1.93% 152.34 Delayed Quote.12.51%
AIR LEASE CORPORATION 9.01% 33.02 Delayed Quote.-25.34%
BANCFIRST CORPORATION 0.68% 94.98 Delayed Quote.34.61%
BLACK HILLS CORPORATION 1.88% 71.49 Delayed Quote.1.30%
BLOCK, INC. 5.54% 71 Delayed Quote.-56.04%
BOOHOO GROUP PLC 4.40% 61.14 Delayed Quote.-52.44%
CENTRICA PLC 2.04% 82.812 Delayed Quote.13.73%
CONOCOPHILLIPS 3.44% 90.91 Delayed Quote.25.95%
DOORDASH, INC. 5.46% 74.11 Delayed Quote.-50.23%
EBAY INC. 6.28% 45.67 Delayed Quote.-31.32%
HISCOX LTD -0.25% 949.4 Delayed Quote.10.57%
JOHNSON & JOHNSON 1.46% 182.29 Delayed Quote.6.56%
LUCID GROUP, INC. -0.47% 19.21 Delayed Quote.-49.51%
NIKE, INC. 4.55% 112.91 Delayed Quote.-32.26%
NIO INC. 4.47% 24.08 Delayed Quote.-23.99%
PELOTON INTERACTIVE, INC. 4.76% 11.01 Delayed Quote.-69.21%
PETROFAC LIMITED 2.02% 121.6 Delayed Quote.3.30%
RATHBONES GROUP PLC 1.14% 1980.4 Delayed Quote.-1.31%
TESLA, INC. 4.52% 737.12 Delayed Quote.-30.25%
THE BOEING COMPANY 5.64% 141.53 Delayed Quote.-29.70%
TUPPERWARE BRANDS CORPORATION -3.68% 7.06 Delayed Quote.-53.83%
TWITTER, INC. 1.89% 39.41 Delayed Quote.-8.82%
UNDER ARMOUR, INC. 5.39% 9.58 Delayed Quote.-54.79%
VIRGIN GALACTIC HOLDINGS, INC. 1.55% 6.57 Delayed Quote.-50.90%
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