MDB - Wall Street Breakfast Podcast: Jam Packed Earnings Week

2024-01-16 08:10:00 ET

Summary

• Jam packed earnings week, including many financials.
• US futures slide as yields rise.
• Elon Musk demands voting control in Tesla, stating he would be uncomfortable growing the company without owning at least 25% of its voting shares.

Listen above or on the go on Apple Podcasts and Spotify

US futures slide as yields rise (0:30), jam packed earnings week (2:50), and Musk demands voting control in Tesla (6:30).

This is an abridged transcript of the podcast:

Stock index futures pointed to a lower opening Tuesday as global rates moved higher.

S&P futures ( SPX ) -0.5%, Nasdaq 100 futures ( NDX:IND ) -0.6% and Dow futures ( INDU ) -0.5% were lower.

Monday "was a lighter session for markets given the US holiday, but it was fairly negative where trading did take place, since European equities and bonds struggled after several ECB officials pushed back on the possibility of rate cuts," Deutsche Bank's Jim Reid said.

The 10-year Treasury yield ( US10Y ) rose 6 basis points to 4.01%. The 2-year yield ( US2Y ) rose 7 basis points to 4.21%.

Before the bell, the January Empire State Manufacturing Index is due. Economists expect it to come in at -5, up from -14.5 the month before.

There are more warnings that the world is entering a new era of collective defense, and 2024 may mark that inflexion point. One of the world's most important trade arteries in the Red Sea is becoming too risky to navigate, with fresh attacks hitting American-owned ships despite retaliatory airstrikes by U.S. and U.K. military forces. Overnight, Iran's Revolutionary Guards also launched ballistic missiles and armed drones at the Erbil airport in northern Iraq, where U.S. and other international forces are stationed.

The call for increases in defense spending comes at a time when many Western economies are being pressured by giant debt loads and higher interest rates . Over the past few decades, European countries have cut back even further due to budget deficit rules and a reliance on the U.S. security umbrella, and rechanneling funds away from areas like health, education and infrastructure - or implementing higher taxes and spending cuts - won't be popular . While Donald Trump just inked a decisive win in Iowa as the 2024 presidential race begins, American military spending is likely to rise at an exponential rate no matter who is in office , with the defense budget increasing every year since 2016.

Aiming to avert a partial shutdown, U.S. lawmakers have agreed on yet another temporary spending bill . The stopgap spending measure would extend funds for some government agencies through March 1, while others would be funded through March 8. The Senate will start procedural votes on the bill today, with Senate Majority Leader Chuck Schumer calling for bipartisan cooperation to quickly pass the continuing resolution and send it to President Biden's desk before Friday's funding deadline. Some hardline Republicans are pushing back on the latest bill, with the House Freedom Caucus saying, "This is what surrender looks like."

A holiday-shortened week is still jam-packed with earnings reports, with numerous big-name players ready to announce their quarterly figures.

Following Friday's flurry of reports from major banks, the financial sector continues to take the spotlight, with this week promising insights into the broader banking industry in the U.S., as regional banks prepare to share their performance, offering a comprehensive view of this segment of the market as 2024 gets underway.

Beyond financials, industrial heavyweights like Alcoa (NYSE: AA ) and PPG Industries (NYSE: PPG ), as well as energy giants Kinder Morgan (NYSE: KMI ) and Schlumberger (NYSE: SLB ), are also slated to release their results. Adding to the mix, semiconductor giant Taiwan Semiconductor (NYSE: TSM ) will also contribute to the week's earnings announcements.

Following a series of bank earnings reported at the end of the previous week, Goldman Sachs ( GS ) is set to release its quarterly results alongside Morgan Stanley ( MS ) before the opening bell today. Analysts expect Y/Y growth in both EPS and revenue. Wall Street analysts rate it as a Buy , while the Seeking Alpha Quant Rating system suggests a Hold .

CFRA analyst Kenneth Leon notes that the bank is "confident" it can achieve "through-the-cycle" targets in the mid-teens return on equity. "GS is gaining scale in Asset & Wealth Management, but segment growth cannot offset weak Global Banking and Markets trading," he said. Goldman's challenges include "executing on the exit of the consumer bank businesses and higher technology investments."

"Goldman Sachs displays resilience in a competitive financial landscape through effective debt management and robust financial positions," writes SA author The Beginner Investor.

• Consensus EPS Estimates: $40.27

• Consensus Revenue Estimates: $10.9B

• Earnings Insight: Goldman Sachs has beaten revenue expectations in 6 of the past 8 quarters, missing EPS estimates 50% of time in that span.

More notable companies due to report earnings today include Morgan Stanley ( MS ), PNC Financial ( PNC ), and Interactive Brokers ( IBKR ). Those financial stocks (including Goldman Sachs) traded lower after their last earnings report.

As our news team noted over the long weekend in its Stocks To Watch article , oil prices will continue to be watched closely this week after a surprise buildup in U.S. crude stockpiles undercut the threat to supplies from recent escalations in the Red Sea.

More oil tankers have diverted course from the Red Sea following air and sea strikes by the U.S. and Britain on Houthi targets in Yemen, which could push up freight rates as ships take longer routes to Europe and the Eastern seaboard of the U.S.

There is also an intense deep cold snap forecast for Texas that could spike electricity demand and create anxiety over pipelines freezing.

Third Bridge analyst Peter McNally noted that oil fundamentals deteriorated during the second half of 2023, but at the outset of 2024, the factors driving supply and demand are less certain. He highlighted that seasonality and weaker global economic growth caused oil inventories to climb over the past four months despite OPEC+ cuts that were an attempt to balance the market. While the higher global stocks of oil are seen providing a buffer to small disruptions, the escalation of conflict on the Arabian Peninsula is said to be shaking the crude oil market out of complacency.

Early Tuesday, investors focused on comments from the World Economic Forum in Davos, Switzerland, where European policymakers made hawkish remarks , pushing back on imminent interest rate cuts. Germany’s inflation rate increased to 3.7% in December from 3.2% in November 2023.

Tesla (NASDAQ: TSLA ) CEO Elon Musk said he would be uncomfortable growing the electric vehicle maker into a robotics and artificial intelligence leader unless he owned at least 25% of its voting shares, nearly double his current stake.

The voting control would be "enough to be influential, but not so much that I can't be overturned," Musk wrote on social media platform X. "Unless that is the case, I would prefer to build products outside of Tesla ( TSLA )."

"If I have 25%, it means I am influential, but can be overridden if twice as many shareholders vote against me vs. for me," he added . "At 15% or lower, the for/against ratio to override me makes a takeover by dubious interests too easy."

The CEO said he would be okay with a dual-class share structure to get the voting power he wants, but he was told it'd be impossible post-IPO.

Musk already owns around 13% stake in Tesla ( TSLA ) as of the end of Q3. Musk had sold tens of billions of dollars worth of his Tesla stock in 2022 to fund his $44B buyout of Twitter.

The Needham Growth Conference takes place today and will feature presentations and fireside chats by a large number of companies. The conference has led to some share price jolts in the past off of guidance updates. The list of participating companies includes Freshworks (FRSH), BlackBerry ( BB ), Chegg ( CHGG ), Beachbody ( BODY ), Planet Labs ( PL ), Fubo ( FUBO ), and MongoDB ( MDB ).

Monster Beverage ( MNST ) will host an investor meeting to provide an update on business and operations. Goldman Sachs thinks the update will be a positive share price catalyst. Analyst Bonnie Herzog noted that management will be in-person for the first time in the past several years and will spend time fielding investor questions.

As of 6:40 am today, In Asia, Japan -0.8%. Hong Kong -2.2%. China +0.3%. India -0.3%. In Europe, at midday, London -0.5%. Paris -0.6%. Frankfurt -0.6%.

Futures at 6:30, Dow -0.5%. S&P -0.5%. Nasdaq -0.7%. Crude +0.6% to $73.14. Gold -0.4% to $2,044.10. Bitcoin +0.5% to $42,795. Ten-year Treasury Yield +6 bps to 4.01%.

At 11:00 a.m. Federal Reserve Board Governor Christopher Waller will give a speech on the economic outlook.

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