Wall Street futures showed moderate gains this morning as investors responded to President Donald Trump's inaugural address and anticipated his forthcoming economic policies. Following a three-day weekend, futures for the S&P 500, Nasdaq, and Dow Jones increased by 0.4%, 0.5%, and 0.4%, respectively. Meanwhile, the yield on 10-year US Treasuries fell below 4.60%. In the corporate sector, several companies, including Netflix, Charles Schwab, Prologis, and 3M, are posting their earnings reports today.
In a flurry of executive actions that have reshaped America's stance both domestically and internationally, President Trump has decisively withdrawn the United States from several key international commitments, including the World Health Organization, the Paris Climate Agreement, and the OECD's agreement on global corporate taxation. His administration has also systematically dismantled a range of initiatives, lifting the freeze on LNG export licenses, halting new offshore wind concessions, withdrawing support for electric vehicle charging infrastructure and the ambitious 2030 target for EV adoption, and reversing the ban on drilling in sensitive Arctic and coastal areas. Furthermore, development aid is under a stringent 90-day review, the executive order addressing the risks of artificial intelligence has been revoked, and federal guidelines promoting diversity, equity, inclusion, and accessibility have been cast aside.
Domestically, Trump's policy maneuvers have been equally bold. He has declared a national emergency at the US-Mexico border, putting an end to automatic citizenship for children born to undocumented immigrants, and has extended a controversial olive branch by pardoning 1,500 individuals involved in the Capitol Hill riots of January 6, 2021. In a move that intertwines social media with national security, he has delayed the ban on TikTok through an executive order.
Looking to the future, Trump's administration has signaled a series of assertive policy plans. These include imposing a 25% tariff on imports from neighboring Mexico and Canada starting February 1, ceasing oil purchases from Venezuela, and even proposing a bold rebranding of the Gulf of Mexico as the "Gulf of America." In a nod to American expansionism, there's talk of reclaiming the Panama Canal. And in a visionary leap, Trump has announced plans to send astronauts to Mars, a mission that will likely involve collaboration with tech mogul Elon Musk.
What does this mean for financial markets? Firstly, manufacturers with operations in Mexico, especially in the automotive and consumer goods sectors, are bracing for the impact of new tariffs. Investors, however, are relieved that universal tariffs weren't announced. Trump admitted the U.S. isn't ready for such a move yet, although he maintains that foreign businesses "steal our wealth, jobs, and businesses." Consequently, the Mexican peso and Canadian dollar took a hit yesterday.
Another predictable outcome is the sidelining of green energy in favor of oil and gas. Wind and solar sectors have already felt the pinch. Interestingly, oil giants haven't reaped significant benefits recently, as electricity producers have gained attention amid rising AI-related consumption. Nonetheless, deregulation should eventually boost the entire sector. Private prison operators like The Geo Group have seen significant gains, as they are crucial to Trump's anti-immigration policy, operating transit centers for deporting illegal immigrants.
Besides prison operators, Tesla emerged as a winner, despite Trump's anti-electric stance, thanks to his newfound camaraderie with Elon Musk. The Trump Trade also favored mortgage lenders Freddie Mac and Fannie Mae, poised to return to private ownership soon. Meanwhile, cryptocurrencies soared before concerns arose about Trump and Melania launching their own digital currencies. Other Trump-related bets, such as a focus on U.S. mid caps (represented by the Russell 2000 index) and discounted sectors, have struggled to gain traction. Investors worry that Trump's policies, aside from intensive drilling, could spur inflation, forcing the Fed to maintain high interest rates, which would hinder investment and smaller businesses.
This morning, Asian markets showed signs of relief, particularly in China, as the anticipated tariff storm hasn't hit yet. Exchanges rose after a favorable phone conversation between President Trump and China's President Xi Jinping. The Hang Seng in Hong Kong rose by 0.9%, while mainland China remained stable. South Korea, Taiwan, and Japan saw slight gains. Australia experienced a more pronounced rise (+0.7%) due to mining and financial stocks, while India faced a decline (-0.8%). European indices are mixed, with the Stoxx Europe 600 remaining flat.
Today's economic highlights:
Dollar: EUR 0.9640 GBP 0.8161
Ounce of gold: USD 2726
Brent crude: USD 78.17 WTI: USD 75.39
10-year US bond: 4.58
Bitcoin: USD 104,500
In corporate news:
- Apple: Apple is contending with legal issues in Belgium and Congo due to accusations of using conflict minerals in its products, while also facing a notable drop in smartphone sales in China, where Huawei has now taken the lead.
- Charles Schwab: Charles Schwab's financial performance has soared, with fourth-quarter earnings and revenue significantly surpassing Wall Street's forecasts.
- FB Financial Corporation: FB Financial has seen its Q4 adjusted earnings and revenue increase, although its revenue of $130.4M fell short of estimates.
- KeyCorp: KeyCorp's Q4 adjusted earnings rose to $0.38 per share, exceeding the FactSet consensus, despite a revenue shortfall.
- Old National Bancorp: Old National Bancorp reported a Q4 increase in both adjusted earnings per share and revenue, outperforming FactSet estimates.
- New Oriental Education & Technology Group Inc.: New Oriental Education & Technology Group's Q2 revenue hit $1.04 billion, ahead of estimates, but earnings and adjusted EPS did not meet expectations.
- Community Financial System, Inc.: Community Financial System exceeded FactSet predictions in Q4, with net income per share and increases in both earnings and revenue.
- Peoples Bancorp Inc.: Peoples Bancorp's Q4 saw a downturn in earnings and revenue, yet it still managed to surpass FactSet estimates, which affected the company's share value.
- CrowdStrike Holdings, Inc.: CrowdStrike has teamed up with Cognizant to enhance enterprise cybersecurity, integrating its AI-powered Falcon technology to safeguard business data against cyber threats.
Today's main earnings reports: Netflix, Charles Schwab, ProLogis, 3M Company, Capital One Financial, DR Horton, United Airlines, Fifth Third, Interactive Brokers, Seagate…
Analyst recommendations:
- Apple Inc.: Jefferies downgrades to underperform from hold with a target price reduced from USD 211.84 to USD 200.75.
- Cf Industries Holdings, Inc.: RBC Capital downgrades to sector perform from outperform with a target price of USD 100.
- Ebay Inc.: Arete Research downgrades to sell from neutral with a target price reduced from USD 56 to USD 52.
- Harley-Davidson, Inc.: Morgan Stanley downgrades to equalwt from overwt with a target price reduced from USD 40 to USD 33.
- Levi Strauss & Co.: Morgan Stanley maintains its equalwt rating with a target price reduced from USD 19 to USD 18.
- Mondelez International, Inc.: Jefferies downgrades to hold from buy with a target price reduced from USD 75 to USD 62.
- Northrop Grumman Corporation: Citi upgrades to buy from neutral with a target price of USD 587.
- On Holding Ag: Morgan Stanley maintains its overweight rating with a price target raised from USD 62 to USD 65.
- Rtx Corporation: Citi upgrades to buy from neutral with a price target raised from USD 132 to USD 153.
- Ulta Beauty, Inc.: Morgan Stanley upgrades to overweight from equal weight with a price target raised from USD 430 to USD 500.
- Amazon.com, Inc.: BNP Paribas Exane maintains its neutral recommendation with a price target raised from 180 to USD 220.
- Boston Scientific Corporation: Barclays maintains its overweight recommendation and raises the target price from USD 86 to USD 111.
- Celanese Corporation: Deutsche Bank maintains its buy recommendation and reduces the target price from USD 110 to USD 85.
- Genpact Limited: Jefferies upgrades to buy from hold with a price target raised from USD 44 to USD 55.
- Intuitive Surgical, Inc.: Barclays maintains its overweight recommendation and raises the target price from USD 510 to USD 684.
- Palo Alto Networks, Inc.: Bernstein maintains its outperform recommendation and reduces the target price from USD 430 to USD 215.
- Servicenow, Inc.: JMP Securities maintains its market outperform recommendation and raises the target price from USD 1000 to USD 1300.
- Tesla, Inc.: Piper Sandler & Co maintains its overweight recommendation and raises the target price from USD 315 to USD 500.
- Anglo American Plc: SBG Securities (Pty) Ltd upgrades to hold from buy with a price target raised from GBP 27 to GBP 28.
- Antofagasta Plc: AlphaValue/Baader Europe downgrades to reduce from add with a price target raised from GBX 1823 to GBX 1885.