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Business

Stock futures trade lower as earnings season rolls on

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Traders work on the floor of the New York Stock Exchange.

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Stock futures traded lower Tuesday as investors attempted to keep building on early 2023 momentum and weighed the latest earnings results.

Futures tied to the Dow Jones Industrial Average lost 81 points, or 0.2%. S&P 500 futures dropped 0.1%, while Nasdaq-100 futures slid 0.2%.

Goldman Sachs reported a smaller-than-expected profit for the fourth quarter, sending the stock down more than 2% in the premarket. The bank’s results were pressured by declines in investment banking and asset management revenues. Meanwhile, rival Morgan Stanley posted better-than-expected numbers thank in part to record wealth management revenue.

Those results come after other major banks such as JPMorgan and Citigroup reported mixed quarterly results.

Wall Street is coming off positive back-to-back weeks to start the new year. The Nasdaq Composite is leading the way up 5.9%, as investors bought beat-up technology shares amid rising hopes of an improving landscape for growth stocks. The S&P 500 and Dow have advanced 4.2% and 3.5%, respectively, since the start of the year.

Gains have come on the back of the first crop of inflation-related data that investors saw as indicating a contracting economy, with hopes that will give the Federal Reserve justification to slow interest rate hikes once again. Last week, the consumer price index for December showed prices cooled 0.1% from the prior month, but prices were still 6.5% higher than the same month a year ago.

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Business

Stock futures tick lower as investors look to corporate earnings

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Traders work on the floor of the New York Stock Exchange.

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Stock futures were down slightly Monday night as investors attempted to keep building on early 2023 momentum and looked ahead to more corporate earnings.

Futures tied to the Dow Jones Industrial Average lost 15 points, near flat. S&P 500 futures dropped 0.1%, while Nasdaq-100 futures slid 0.2%.

All three of the major indexes are up coming off a positive first two weeks of trading in the new year. The Nasdaq Composite is leading the way up 5.9%, as investors bought beat-up technology shares amid rising hopes of an improving landscape for growth stocks. The S&P 500 and Dow have advanced 4.2% and 3.5%, respectively, since the start of the year.

Gains have come on the back of the first crop of inflation-related data that investors saw as indicating a contracting economy, with hopes that will give the Federal Reserve justification to slow interest rate hikes once again. Last week, the consumer price index for December showed prices cooled 0.1% from the prior month, but prices were still 6.5% higher than the same month a year ago.

Investor focus now turns to corporate financials as earnings season kicks off. Banks took center stage Friday as investors digested comments about the likelihood of a recession. Goldman Sachs and Morgan Stanley are set to report before the bell Tuesday, followed by United Airlines after the market close.

“The economic data has been kind, to say the least, which is not something we were afforded for the vast majority of the year just gone,” said Craig Erlam, senior market analyst at OANDA. “The question now is whether earnings season will enhance that new sense of hope or spoil the party before it really gets going.”

Investors will also be closely watching for news out of the World Economic Forum’s summit in Davos taking place this week.

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Business

Stock futures rise after Nasdaq notches best day since July

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Stock futures rose Monday evening after the Nasdaq Composite posted its best daily performance since July.

Futures tied to the Dow Jones Industrial average gained 174 points or 0.58%. S&P 500 futures jumped 0.69% and Nasdaq 100 futures climbed 0.75%.

The moves came after a winning day on Wall Street. The Dow Jones industrial Average popped about 550 points, coming off a volatile past week of trading. The S&P 500 also rose 2.65% for the day. The Nasdaq surged 3.43% as tech stocks rebounded, led by names such as Amazon, Meta Platforms and Microsoft. It was the best day for the tech-heavy index since July 27.

Solid earnings reports sent stocks higher. Bank of America rose 6.06% after delivering better than expected results, and Bank of New York Mellon gained 5.08% after its own earnings beat.

In addition, another pivot from the U.K. bolstered markets. Jeremy Hunt, the new U.K. finance minister, announced Monday that he would reverse nearly all announced tax cuts and walk back an energy subsidy.

Investors are watching for any sign that the stock market has bottomed and the new rally may be the start of a new bull cycle. Analysts aren’t so sure that the bottom is in, however, and many see more pain ahead.

“I think this is going to be one of those bear market rallies that has people scratching their heads,” said Guy Adami, director of advisor advocacy at Private Advisor Group in Morristown, New Jersey, on CNBC’s “Fast Money,” adding that markets are nowhere near out of the woods when it comes to the bear market.

More big bank earnings are on deck. Tuesday morning, Goldman Sachs will report its quarterly results. Johnson & Johnson, Netflix and United Airlines will also announce results that day. Later in the week, Tesla, IBM and American Airlines report.

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Business

Keurig Dr Pepper, CSX, Li Auto and more

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Check out the companies making headlines before the bell:

Keurig Dr Pepper — The consumer stock fell 1.5% premarket after Goldman Sachs downgraded the stock to neutral from a buy rating. The Wall Street firm said it sees increased risk to Keurig’s margins as commodity inflation, especially related to coffee, remains elevated.

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Here are Tuesday’s biggest analyst calls: FedEx, McDonald’s, Lucid and more

Lucid Group — Shares of the electric vehicle player jumped 2.7% in premarket trading after Cantor Fitzgerald initiated coverage with an overweight rating. The firm said Lucid’s luxury and premium vehicles provide greater efficiency, longer range, faster charging and more space relative to its peers.

Norfolk Southern, CSX — Shares of the railroad companies declined more than 1% each after UBS downgraded the duo, citing a deteriorating macro backdrop. The Wall Street firm said it will be hard for Norfolk and CSX to achieve the consensus 25% volume growth going forward.

Li Auto — Shares of the Chinese EV maker edged up 0.5% premarket, even after the company cut its third-quarter delivery guidance by 2,500 vehicles or 9%. The company said the downward revision was due to supply chain constraints.

Amazon, Apple, Microsoft — Big Tech names Amazon, Apple, Alphabet and Microsoft all traded at least 1% higher premarket, a possible rebound from Monday’s sell-off. Treasury yields retreated Tuesday morning after the multi-year highs hit in the previous session put pressure on tech names.

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Business

Self-driving car companies’ first step to making money isn’t robotaxis

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A WeRide robotaxi with health supplies heads to Liwan district on June 4, 2021, in the southern Chinese city of Guangzhou.

Southern Metropolis Daily | Visual China Group | Getty Images

BEIJING — While governments may be wary of driverless cars, people want to buy the technology, and companies want to cash in.

It’s a market for a limited version of self-driving tech that assists drivers with tasks like parking and switching lanes on a highway. And McKinsey predicts the market for a basic form of self-driving tech — known as “Level 2” in a classification system for autonomous driving — is worth 40 billion yuan ($6 million) in China alone.

“L2, improving the safety value for users, its commercial value is very clear,” Bill Peng, Hong Kong-based partner at McKinsey, said Monday in Mandarin translated by CNBC. “Robotaxis certainly is a direction, but it doesn’t [yet] have a commercialization result.”

Robotaxi businesses have made strides in the last several months in China, with Baidu and Pony.ai the first to get approval to charge fares in a suburban district of Beijing and other parts of the country. Locals are enthusiastic — Baidu’s robotaxi service Apollo Go claims to clock roughly more than 2,000 rides a day.

But when it comes to revenue, robotaxi apps show the companies are still heavily subsidizing rides. For now, the money for self-driving tech is in software sales.

Lucrative tech

Investment analysts from Goldman Sachs and Nomura point to opportunities in auto software itself, from in-car entertainment to self-driving systems.

Last week, Chinese self-driving tech start-up WeRide said it received a strategic investment from German engineering company Bosch to produce an assisted driving software system.

The goal is to jointly develop an L2/L3 system for mass production and delivery next year, Tony Han, WeRide founder and CEO, told CNBC. L4 designates fully self-driving capability under specific circumstances.

“As a collaborator, we of course want this sold [in] as many car OEMs in China so we can maximize our [revenue and] profit,” he said, referring to auto manufacturers. “We truly believe L2 and L3 systems can make people drive cars [more] safely.”

In a separate release, Bosch called the deal a “strategic partnership” and said its China business would provide sensors, computing platforms, algorithm applications and cloud services, while WeRide provides the software. Neither company shared how much capital was invested.

The deal “is very significant,” said Tu Le, founder of Beijing-based advisory firm Sino Auto Insights. “This isn’t just a VC that sees potential in the overall market and invests in the sector.”

He expects the next step for commercialization would involve getting more of WeRide’s technology “bolted on the partner OEM’s products in order to get more pilots launched in China and experimenting with paid services so that they can tweak business models and understand the pricing dynamics and customer needs better.”

WeRide has a valuation of $4.4 billion, according to CB Insights, with backers such as Nissan and Qiming Venture Partners. WeRide operates robotaxis and robobuses in parts of the southern city of Guangzhou, where it’s also testing self-driving street sweepers.

CEO Han declined to speak about specific valuation figures. He said that rather than needing more funds, his main concern was how to reorganize the start-up’s engineers.

“Because Bosch is in charge of integration, we have to really spend 120% of our time to help Bosch with the integration and adaptation work,” Han said. WeRide has yet to go public.

The China stock play

For publicly listed Chinese auto software companies, Goldman’s thematic picks for autonomous driving include ArcSoft and Desay SV.

An outsourcing business model in China gives independent software vendors more opportunities than in the United States, where software is developed in-house at companies like Tesla, the analysts said. Beijing also plans to have L3 vehicles in mass production by 2025.

“Auto OEMs are investing significantly in car software/digitalization to 2025, targeting US$20bn+ of obtainable software revenue by decade-end,” the Goldman analysts wrote in mid-March.

Read more about electric vehicles from CNBC Pro

They estimate that for every car, the value of software within will rise from $202 each for L0 cars to $4,957 for L4 cars in 2030. For comparison, the battery component costs at least $5,000 today. By that calculation, the market for advanced driver assistance systems and autonomous driving software is set to surge from $2.4 billion in 2021 to $70 billion in 2030 — with China accounting for about a third, the analysts predict.

In September, General Motors announced it would invest $300 million in Chinese self-driving tech start-up Momenta to develop autonomous driving for GM vehicles in the country.

“Customers in China are embracing electrification and advanced self-driving technology faster than anywhere else in the world,” Julian Blissett, executive vice president of General Motors and president of GM China, said in a release.

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Business

Twitter, Coca-Cola, Warner Bros. Discovery and more

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Check out the companies making headlines in premarket trading.

Coca-Cola — Shares of Coca-Cola rose about 1% after the company beat analysts’ expectations on the top and bottom lines in the recent quarter. The beverage giant reported adjusted earnings of 64 cents per share on revenues of $10.5 billion, while analysts expected 58 cents per share on $9.83 billion in revenue.

Twitter — Twitter ticked 5% higher on reports that the social media giant is close to a deal with Elon Musk. It comes a day after the company’s board reportedly met Sunday to discuss a takeover bid from Elon Musk, who has already secured $46.5 billion in financing.

Oil stocks —Shares of energy companies fell on Monday as oil prices fell on fears of a global slowdown amid lockdowns in Shanghai. Chevron, ConocoPhillips, and Marathon Oil dipped 2.2%, 2.6% and 2.8% respectively.

Kellogg — Shares of Kellogg dipped 1.8% after Deutsche Bank downgraded the stock to a hold. The bank cited the impact from workers’ strikes, rising inflation and supply chain disruptions among the reasons for the downgrade.

Verizon — Verizon shares fell 1% after Goldman Sachs downgraded the stock to neutral. The bank said Verizon is situated well for 5G growth but offers a lower potential return compared to peers like AT&T.

Penn National Gaming — The gaming stock rose 2.8% after Morgan Stanley named it a buy despite its recent underperformance. The bank also sees opportunities in its Barstool Sports and theScore businesses.

Warner Bros. Discovery — Warner Bros. Discovery’s stock fell 2.5% as investors continued to digest the news that the company would shutter its CNN+ service weeks after its launch.

Deere — The equipment manufacturer’s stock fell 3.4% after Bank of America downgraded the stock to neutral. The bank said it remains cautious on the farm economy and agricultural equipment space amid ongoing supply chain issues and other macro trends.

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Business

Roblox stock dives 24% after earnings miss

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Nike is teaming up with roblox to launch a virtual world called Niketown.

Source: Nike

Roblox shares are down more than 24% after reporting earnings that missed expectations.

The gaming company reported earnings on Tuesday after the bell that missed Wall Street estimates on the top and bottom line. It noted $770 million in revenue (bookings) compared to the $772 million expected, per Refinitiv consensus estimates, for the fourth quarter. It also reported a 25 cent loss per share, worse than the 13 cents loss per share expected. Roblox said it had 49.5 million daily active users during the quarter, up 33% year-over-year.

Roblox is an open gaming platform that lets players create their own interactive “worlds.” It was the first major company working on the metaverse to go public. The company sells virtual currency to players, which is used to purchase digital items in the game. The company recently partnered with companies like Nike and the NFL.

Analysts were concerned about the slowdown in bookings and outlook.

“Our key takeaway from Roblox’s 4Q update… January 22′ bookings experienced a deceleration relative to past months, up just 2%-3%, y/y as compared to October/November/December ’21 at +15%/+23%/+21%, respectively, for example,” Stifel analysts said in a note on Tuesday evening.

“Furthermore, the company indicated y/y bookings comps, “should improve starting in the May-June timeframe,” leaving us to ponder what this suggests for February-April. Why the anticipated slowdown?”

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World

Russia-Ukraine tensions could prove a buying opportunity, strategists say

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A view shows Russian BMP-3 infantry fighting vehicles during drills held by the armed forces of the Southern Military District at the Kadamovsky range in the Rostov region, Russia January 27, 2022.

Sergey Pivovarov | Reuters

LONDON — The recent ratcheting up of tensions between Russia and Ukraine could spillover into the European economy, but may also present a buying opportunity, strategists have suggested.

The massive build-up of Russian troops and military hardware around the country’s border with Ukraine has drawn ire from NATO and the West, though Moscow has repeatedly denied any intent to invade its neighbor.

In a press conference with U.K. Prime Minister Boris Johnson on Tuesday, Ukrainian President Volodymyr Zelenskyy warned that any conflict would extend beyond the two countries and become a “full-scale war.”

In a research note Monday, Goldman Sachs chief European economist Sven Jari Stehn suggested an escalation could spill into the European economy in the form of lower trade with the region, tighter financial conditions and lower gas supply.

Goldman Sachs does not expect a significant impact on trade given that the euro area’s export exposure to Russia and Ukraine is relatively small. Stehn also noted that “while tighter financial conditions could, in principle, have notable effects on European growth, euro area financial conditions have not tightened meaningfully during past episodes of Russia-Ukraine tensions.”

“A reason for the limited financial spillovers is that the Euro area has weak cross-border banking exposure to Russia and Ukraine,” he added.

However, the Wall Street giant believes that spillovers via the gas market are the most important possibility to watch.

“While the effect of higher wholesale gas prices on consumers would likely be mitigated by limited wholesale-to-retail passthrough and government support schemes, we find that reduced gas supply could cause significant (although temporary) production disruptions across Europe,” Stehn said.

Russia is Europe’s largest gas provider, typically supplying 30-40% of the continent’s gas demand via its pipelines, but the euro area has recently begun shifting consumption away from Russian pipes toward liquified natural gas (LNG). Meanwhile, Russian gas flowing through Ukraine has reduced significantly in recent years, Goldman strategists highlighted.

“However, there is a potential risk that any escalation could result in sanctions on Russia’s Nord Stream 2 (NS2) pipeline, which would potentially end up curtailing flows to Europe for an indefinite period, exacerbating the tightness in European gas markets that our commodity strategists expect through 2025,” Stehn said.

“Taken together, our analysis therefore suggests that the growth risks from ongoing Russia-Ukraine tensions look manageable unless the tensions escalate and lead to sharply tighter financial conditions and/or energy supply cuts across Europe,” Stehn said.

‘Buying opportunities’

The constructive medium-term outlook, barring any sudden escalations, was echoed last week by strategists at Oxford Economics, who said that the balance of probabilities implies a “buying opportunity” for affected regional and global assets.

However, they noted that there would be significant effects on asset prices and volatility in the near term if Russia was to make a further incursion beyond Crimea and its western border.

In this worst-case scenario, Oxford Economics believes the Russian ruble would weaken significantly, testing its 2015 high against the U.S. dollar of 83, while Russian stocks would also suffer.

“Euro zone equities would also see modest downside in this scenario as higher gas prices weigh on growth and squeeze profit margins. The Energy sector could provide relative shelter for investors wishing to hedge against this risk,” the strategists added.

However, in the base case scenario that the situation is resolved through diplomatic means, Oxford Economics expects markets to gradually calm down, Nord Stream 2 to get the green light, and asset prices to bounce back given Russia’s “strong fundamentals.”

In the event of a limited incursion, possibly in the form of air raids to destroy military infrastructure, the firm expects the U.S. to react with “biting” sanctions while the EU is consumed by internal divisions, and therefore deploys only mild sanctions such as a ban on electronic and semiconductor exports to Russia, or measures targeting Russian banks.

It would be this eventuality that sends the ruble to 83 against the dollar, at which point it could “easily be on a trajectory to 100, especially if there is a decisive breach,” the research note added.

In all three of these more moderate scenarios, the impact on stocks would likely be “relatively benign,” somewhat akin to the Crimean crisis in 2014, when Russian markets sold off in the short term, but a spillover to the euro zone was minimal and the bloc actually performed better than the global index for a six-month spell.

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Goldman’s David Kostin says a tech disconnect is the ‘single greatest mispricing’ in U.S. stocks

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David Kostin, Goldman Sachs chief U.S. equity strategist, speaks during an interview with CNBC on the floor of the New York Stock Exchange, July 11, 2018.

Brendan McDermid | Reuters

LONDON — A substantial disconnect in the U.S. tech sector is top of mind for investors in 2022, according to Goldman Sachs’ Chief U.S. Equity Strategist David Kostin.

U.S. tech sold off sharply in the first week of the year, taking the Nasdaq 100 into correction territory briefly on Monday before rallying to snap a four-day losing streak.

Investor skittishness has been driven largely by the prospect of a higher interest rate environment, with the Federal Reserve striking a more hawkish tone over the past month. Markets are now preparing for potential interest rate hikes, along with a tightening of the central bank’s balance sheet.

As a result, analysts broadly expect 2022 to be a tough year for high growth tech names that have benefitted from ultra-loose monetary policy necessitated by the Covid-19 pandemic as that stimulus unwinds.

“The single greatest mispricing in the U.S. equity market is between companies that have high expected revenue growth but low or negative margins, and on the other hand high growth companies with positive or very significantly positive margins. That gap has adjusted dramatically in the last year,” Kostin told CNBC Monday ahead of the Wall Street giant’s Global Strategy conference.

Kostin highlighted that high growth, low profit-margin stocks were trading at 16 times enterprise value-to-sales in February 2021. The enterprise value-to-sales ratio helps investors to value a company, taking into account its sales, equity and debt.

These stocks are now trading at around seven times enterprise value-to-sales, Kostin said.

“Much of that took place in the last month or so, and largely that’s because as rates increase, the valuation, or the value of that future cash flows, are worth somewhat less in a higher rate environment,” Kostin said.

“That’s a big issue, and so the gap between those two, I’d say, is the single biggest topic of conversation with clients. You’ve had a huge derating of the fast expected revenue growth companies that have low margins, and the argument is probably that there is more to go in that readjustment.”

The gap between these two types of stocks remains fairly close, he argued, and will likely widen. Kostin said this could take the form of the companies with both fast growth and high profit margins increasing in valuation, or those with low or negative margins pulling back further.

“That comes down to the relationship between rates and equities broadly speaking, the speed and the magnitude of the change and also very specifically about the idea of profit margins being such a key topic of fund managers, and that is so important in the rate change environment we’re experiencing right now,” Kostin said.

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World

Draghi in the spotlight as Italy’s presidential election approaches

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The Italian Premier Mario Draghi attends the end of year press conference.

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Italy is back on the radar of many investors as an upcoming presidential vote threatens the political stability seen over the last year.

In two weeks, the country’s lawmakers and regional delegates will decide who should become the next president as the term of Sergio Mattarella comes to an end on Feb. 3. Over 1,000 of the country’s parliament and regional representatives are due to begin voting on Jan. 24.

Why does it matter?

The main issue is whether Mario Draghi, currently the country’s prime minister, will be chosen as the new president.

The appointment of Draghi, the former president of the European Central Bank, to national politics about a year ago put an end to several years of political turbulence in the country. The yield on the 10-year Italian bond dropped to its lowest level of 2021 shortly after news that Draghi was likely to be the new prime minister.

His government, comprised mostly of politicians from different parties and some technocrats, has appeased markets due to its parliamentary support and reform plans.

Draghi’s potential departure from government, however, risks this economic and political stability.

Fears of economic and political stability

Analysts at Goldman Sachs said in a note Thursday that Draghi’s departure would “trigger uncertainty regarding the new government and its policy effectiveness.”

“Given the diverging interests among the parties in Parliament and the typical length of time it takes to form a new government, we are more concerned than the consensus that this scenario would entail a delay to the implementation of the Recovery Fund and related reforms,” they said. The Recovery Fund refers to the 191.5 billion euros ($216.68 billion) that the country is due to receive from the EU to deal with the economic shock from the coronavirus pandemic.

The disbursements of the funds are linked to the implementation of previously promised reforms. Both aspects are seen by experts as pivotal to fostering the Italian economy, which has struggled for many years.

Wolfango Piccoli, co-president of the consultancy firm Teneo, also pointed out short-term risks to the economic recovery if Draghi becomes president.

“Regardless of whether Draghi is elected as president or not, Italy is unlikely to hold parliamentary elections a year ahead of schedule. However, the process to install a new prime minister and a new government is likely to be noisy and the current heterogeneous ruling coalition may undergo a partial reconfiguration,” he said in a note Wednesday.

The current parliamentary term expires in 2023 and Italians will then head to the polls to choose a new parliament and government, if no snap election takes place in the meantime.

Draghi signaled in his end-of-year press conference that he is available to take on the country’s presidency.

“What’s in [it] for Mario Draghi is that he will be able to secure Italian stability over the medium to long-term,” Guido Bodrato, economist at Berenberg, told CNBC’s “Street Signs Europe” on Thursday.

“He also wants to push political parties to actually be held accountable [for] government action.”

How will it work?

It is tradition for those interested in becoming the president of Italy to signal their willingness, but not to officially announce they are running.

Other potential candidates in the running include: Silvio Berlusconi, the former prime minister who was temporarily barred from public office after a conviction for tax fraud in 2012; Giuliano Amato, who twice served as prime minister; Justice Minister Marta Cartabia; former lower house speaker Pier Ferdinando Casini; and economics commissioner and former prime minister Paolo Gentiloni.

“The body of ‘grand electors’ that will elect [the] next president is currently composed of 1,007 members (58 regional delegates who are still to be appointed and 949 lawmakers),” Piccoli of Teneo said, though the final number could become 1,008 due to an upcoming by-election.

In the first three rounds of voting, a two-thirds majority is needed to elect a new president. After that, a simple majority becomes enough to choose a new head of state, Piccoli highlighted.

The “grand electors” could be in for a long process with voting rounds expected to take 6 hours due to pandemic restrictions.

“Intense political maneuvering behind closed doors characterizes the election of the president as the whole process is managed by political parties. Past experience also suggests that in the absence of a clear candidate emerging in the first round of voting, the dynamics of the voting itself often generate new alliances or consensus around names which, in principle, were only considered at best secondary options,” Piccoli added.

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