29 January 2021

US Stocks in Focus, After Reddit Frenzy

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News shaping
the markets today

     

What’s happening: US stocks will be in focus today ahead of a basket of economic reports due for released later in the day.

What happened: Wall Street surged on Thursday, recovering from a sharp selloff in the previous session, which saw the Dow Jones index record its worst decline in three months.

US stock indices recorded gains, backed by an unprecedenteind rally in the shares of GameStop and AMC Entertainment, as retail traders came together after a message on Reddit to push up their prices.

Why it matters: Equity markets witnessed massive selloffs on Wednesday, with speculative buying in heavily shorted stocks kept traders cautious.

Shares of GameStop and AMC Entertainment, which have been highly volatile in recent sessions, tumbled on Thursday after Robinhood and other brokers, took steps to limit trading in the heavily shorted stocks.

Investor sentiment was lifted by economic data, with the US economy expanding by 4.0% in the fourth quarter, although this came in below the market expectations of 4.3% growth. Initial jobless claims fell to 847,000 in the week ended January 23, versus the consensus estimate of 875,000.

Shares of American Airlines climbed more than 9% on Thursday, after the airline company reported a narrower-than-expected quarterly loss, while Tesla’s stock tumbled over 3% after the electric vehicle maker reported downbeat quarterly earnings.

The blue-chip Dow Jones index jumped 300 points to close at 30,603.36 on Thursday, while the S&P 500 rose 0.98% to 3,787.38, driven by a strong rise in financial and cyclical shares. The tech-heavy Nasdaq 100 also added 0.68% to reach 13,201.53.

What to watch: Markets await various economic reports from the US, including personal income, personal spending, employment cost index, Chicago PMI, pending home sales and University of Michigan's consumer sentiment index.

Personal income is expected to rise by 0.1% in December, while spending is projected to decline 0.4%. The employment cost index is expected to rise 0.5% on quarter, while analysts expect the Chicago PMI to decline to 58.5 in January, from 59.5 in the prior month. Pending home sales is expected to contract 0.1% in December, while the University of Michigan's consumer sentiment is projected to decline to 79.2 in January.

Rising covid-19 cases remain in focus, with total infections surpassing 25.7 million in the US.

The Markets Today

     

McDonald’s stock will be in focus today, after the restaurant chain giant missed Q4 expectations on Covid-19 woes

Context: McDonald’s reported disappointing results on Thursday for its fourth quarter. Several restaurant chains were forced to close their indoor dining last year to prevent crowding amid the spread of covid-19 infections. The resurgence of infections has again affected dine-ins in various countries. Despite missing Street estimates for the fourth quarter, McDonald’s shares traded higher before settling almost flat on Thursday.

Details: The Chicago-based hamburger chain reported a decline in both sales and earnings for the fourth quarter, with both metrices below market views.

  • Total revenue contracted by 2.1% to $5.31 billion, missing the Street estimate of $5.37 billion.
  • Net income declined by 12.4% to $1.38 billion, with adjusted earnings coming it at $1.70 per share, short of the consensus estimate of $1.78 per share.

Various European countries imposed stricter restrictions due to the resurgence of covid-19 infections, adding to the woes of the restaurant segment, which had already been suffering for most of the year.

Recent restrictions continued to impact McDonald’s overseas business, mainly in regions with few drive-thru facilities.

McDonald’s comparable sales in overseas markets declined 7.4% in the quarter, with weakness in Germany, France and Spain, where the virus has been spreading faster. US comparable sales rose 5.5% in the quarter, driven by a boost from drive-thru business and celebrity collaborations.

Although overall global comparable sales contracted by 1.3% in the quarter, the results were better than the projection of a 1.46% decline and an improvement from the previous quarter’s 2.2% decline.

Management guided to high single-digit US comp sales in January, backed by stimulus cheques from the government.

McDonald’s shares traded as high as $210.36 but settled almost flat at $206.82 on Thursday, following the release of quarterly report. The stock has declined around 4% over the past three months, versus a 14% surge in the S&P 500 index.

What to watch: Markets expect the fast-food chain’s performance in the current quarter to get some support from the rollout of the US government’s cheques. However, the company may continue to suffer in other countries, given the current pandemic-induced lockdowns. Investors will monitor the traction from the company’s planned addition of new items in its menu.

Other Markets: European trading indices closed mostly higher on Thursday, with the German DAX 30 and French 40 up by 0.33% and 0.93%, respectively. However, the FTSE 100 fell 0.63%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s GDP growth rate, household consumption expenditure and industrial producer prices, Germany's unemployment rate, unemployment change, gross domestic product and import prices, Turkey's balance of trade, tourism revenues and tourist arrivals, UK’s nationwide house price index, Spain’s gross domestic product, consumer prices, retail sales and current account, Eurozone’s loans to households, loans to private sector and money supply M3, Italy’s producer prices, South Africa's SACCI business confidence index and balance of trade, Mexico’s gross domestic product and government budget value, Brazil’s government budget value, Russia’s corporate profits and gross domestic product, Canada’s GDP, industrial product price index and government budget value as well as the US Baker Hughes crude oil rigs.

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