Tuesday Morning Reads
- Workers Aren’t Happy
- Soaring Oxygen Demand
- Still Getting Your Head Around Digital Currency?
- U.S. Companies Bump Up Prices
- General Electric Reports Smaller Cash Outflow
- 3M Beats Profit Estimates
- Tesla Posts Record Net Income
- ‘Infrastructure’ Matters So Much
- Dips Are Still Being Bought
- The Last Crash
The next round of Big Tech earnings is coinciding with a milestone for the Nasdaq Composite, which has returned to record levels for the first record since February. Reopening plays saw tech stocks lag behind other sectors this year, like financials, industrials and energy, though growth names could be in for a bigger comeback as the market heads higher. "Strong breadth measures suggest stocks still may have more upside," said Jeff Buchbinder, equity strategist at LPL Financial. "While valuations are elevated, they still appear reasonable when factoring in interest rates and inflation."
Overnight, Dow futures held steady, while the Nasdaq and S&P 500 inched up 0.2% and 0.1%, respectively. Tesla (TSLA) reported a record quarterly profit after Monday's closing bell (see below), while Microsoft (MSFT) and Alphabet (GOOG, GOOGL) will release their Q1 results today. Apple (AAPL) and Facebook (FB) are scheduled to report tomorrow, followed by Amazon (AMZN) on Thursday, and analysts are already weighing in on the action and what to look for in the days ahead.
Technically speaking: "We did see last week the loss of short-term momentum broadly behind the likes of these mega-cap tech stocks. And I think that that tells us we could see a pullback to their breakout points, that would apply to both Alphabet and also Microsoft, both of which had nice breakouts," wrote Katie Stockton, managing director of Fairlead Strategies. "These breakouts do have bullish intermediate-term implications but in the short term, there's about 5% to maybe 8% room to 50-day moving averages so that to me is a little bit uncomfortable."
Watch guidance: "I am still heavily invested in the names like Facebook, like the Apples and all the names that I have been in. However, I am cautious and have trimmed some just because of the substantial amount of gains that I've had over time," added Kourtney Gibson, president of Loop Capital. "It's less about earnings right now in my opinion and what happened in the first quarter and more about the guidance, whether formal or informal, that we get out of these companies to help us as we look through to the third and fourth quarter of the year."
No quick judgments: "Google has had a pretty nice move. It's up 30% this year. It's really been a fantastic performer. I think there's more to go but it’s the type of name that if it doesn't raise guidance, perhaps it'll pause," said Karen Firestone, CEO of Aureus Asset Management. "Just because the stock goes down 1% or 2% after they print the quarter doesn’t mean you give up. It just could be that we've anticipated a lot of good news from Google over the past few weeks, and that, you know, maybe the investors have to absorb the new numbers that come out and then it can start to move again."
Fresh updates are coming to iPhones worldwide as Apple (NASDAQ:AAPL) began rolling out iOS 14.5, its new operating software that includes loads of new features. The one that's grabbing headlines is Apple's new privacy change, called App Tracking Transparency, which centers around access to unique iPhone IDs. Users will be asked by each app if they are okay with being tracked across other apps and websites, a move that could bring seismic changes to the nearly $100B mobile advertising market.
"Apps can prompt users for permission, and in Settings, users will be able to see which apps have requested permission to track so they can make changes to their choice at any time," Apple wrote in a press release.
Thought bubble: Apple has been positioning itself as a protector of digital privacy, hoping to draw users by marketing itself as a privacy-focused company. But many have been angered by the move, like Facebook (NASDAQ:FB) and Google (GOOG, GOOGL), whose business models greatly depend on monetizing eyeballs on every possible platform. Apple has been sparring with the companies over data-collection practices, both privately and publicly, with the latter arguing that it will undermine connectivity and small business, as well as free services supported by targeted advertising. Apple may also have to justify the billions of dollars a year it receives for making Google the default search engine on Safari, which likely uses the same data-gathering techniques that it has criticized.
Outlook: It's not clear what impacts the new changes will have, though many companies that rely on online advertising have said it will reduce the effectiveness and profitability of targeted ads. Others, like analysts at MKM Partners, expect a "fairly fleeting and minimal fundamental impact on the ecosystem." As for Apple, the company feels that opt-in rates are likely to hinge on how companies make their case for tracking users (a better ad experience?), as well as the language used in the space Apple reserves for developers before showing the prompt.
There was a lot to unpack following Tesla's Q1 results, though it was an all-around record quarter for the EV maker. The company reported record net income of $438M, as well as earnings of $0.93 per share (vs. $0.77 consensus) on $10.39B in revenue (vs. $10.29B consensus). The numbers were buoyed by sales of Bitcoin (BTC-USD) and regulatory credits, as well as rising margins and decreasing costs, but the stock fell as much as 3% AH as investors digested some forecasts.
What happened? Besides the usual earnings day volatility, Elon Musk and CFO Zachary Kirkhorn both said supply chain issues will likely to remain a challenge for Tesla this year, though it had weathered past industry chip shortages in part by "pivoting extremely quickly to new microcontrollers, while simultaneously developing firmware for new chips made by new suppliers." The company also said it produced none of its higher-end Model X SUVs and Model S sedans for the period ending March, and deliveries of the vehicles will only start in Q3 of 2020 and May 2021, respectively. Scaling up production at its Shanghai factory was also a problem because it couldn’t get "critical engineers" due to pandemic restrictions, but progress is being made there, as well as Gigafactories in Berlin and Austin.
Cameras, not radar... "Our AI-based software architecture has been increasingly reliant on cameras, to the point where radar is becoming unnecessary earlier than expected," added Musk. "As a result, our FSD [Full Self-Driving] team is fully focused on evolving to a vision-based autonomous system and we are nearly ready to switch the US market to Tesla Vision."
Crypto biz: Tesla execs noted that the company trimmed 10% of its Bitcoin position by the end of the quarter after investing $1.5B in the crypto (profit was about $101M). It is still optimistic about the space and plans to be a long-term investor in Bitcoin, but an ensuing battle took place on Twitter. Dave Portnoy lambasted Musk for what he saw as a pump and dump scheme, saying he "didn't want to be last one #HODLing the bag." Musk then fired back, telling Portnoy he didn't sell any of his own Bitcoin, and that Tesla only unloaded a small portion "to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet." (418 comments)
New York-based MindMed will begin trading on the Nasdaq today - under ticker symbol "MNMD" - becoming the second psychedelic company to ever go public on a major U.S. exchange. Shroom drug developer COMPASS Pathways (NASDAQ:CMPS) debuted only six months ago, while another "drug growth platform," called ATAI Life Sciences (ATAI), filed to go public last week. "I think that the psychedelics industry could be much bigger than the cannabis industry because it's going to attract institutional capital and already is starting to," MindMed co-founder JR Rahn declared. "It's also going to be a more concentrated space because the barriers to entry are much higher."
Backdrop: MindMed (OTCQB:MMEDF) went public last year on Toronto's NEO Exchange, after failing to secure a second round of VC funding. "VCs had blinders on when they saw those three letters: LSD," Rahn continued. "We got laughed out of most rooms... Where we found patient capital was up in Toronto." The move to the Nasdaq will allow institutional investors to take larger positions in the company, though it will hang on to its NEO listing.
While MindMed believes its products should be taken under medical supervision, it's unclear if FDA approval would accept tele-tripping instead of an in-person session. "Therapists are going to be a key component of making this whole new approach work," outlined Rahn, adding that the "objective is to treat mental health." Besides winning backing from the FDA, the company must also be mindful of the DEA, with the active ingredients for its treatments still being considered Schedule 1 drugs.
Go deeper: Comparing psychedelics to the weed industry, the legalization process could take place in stages: decriminalization, medical, and then recreational. In fact, many drug-related initiatives were decided across the nation in 2020, with Oregon becoming the first to decriminalize possession of hard drugs and D.C. voters approving a measure that would effectively decriminalize "magic mushrooms." Similar sentiment could be a boon for companies investigating the potential use of psychedelic medicines like Aion Therapeutic (OTCPK:ANTCF), Better Plant Sciences (OTCQB:VEGGF), Champignon Brands (OTCPK:SHRMF), Codebase Ventures (OTCQB:BKLLF), Field Trip Health (OTCQX:FTRPF), Graph Blockchain (OTCPK:REGRF), Lobe Sciences (OTCPK:GTSIF), HAVN Life Sciences (OTCPK:HAVLF), Hollister Biosciences (OTCPK:HSTRF), Mind Medicine (OTCQB:MMEDF), Thoughtful Brands (OTCQB:PEMTF), Mydecine Innovations Group (OTCPK:MYCOF), New Wave Holdings (OTCPK:TRMNF), Numinus Wellness (OTCPK:LKYSF), Nutritional High International (OTCPK:SPLIF), Red Light Holland (OTCPK:TRUFF), Revive Therapeutics (OTCPK:RVVTF) and Seelos Therapeutics (NASDAQ:SEEL). (29 comments)
What else is happening...
Streamers continue gaining prestige ground with Oscar wins.
Supreme Court case could expand gun rights in New York.
J.P. Morgan finds valuation picks as mortgage REITs re-approach normal.
In Asia, Japan -0.5%. Hong Kong -0.2%. China flat. India +1.2%.
In Europe, at midday, London -0.2%. Paris -0.2%. Frankfurt -0.3%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq +0.2%. Crude +0.8% to $62.40. Gold flat at $1779.60. Bitcoin +2.7% to $54806.
Ten-year Treasury Yield +1 bps to 1.58%
Today's Economic Calendar
FOMC meeting begins
8:55 Redbook Chain Store Sales
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
11:30 Results of $28B, 2-Year FRN Auction
1:00 PM Results of $62B, 7-Year Note Auction
1:00 PM Money Supply