Key Takeaways

Investors Digest a Better Round of Earnings Reports Ahead of the Easter Holiday

Big Banks Have a Better Showing in Thursday’s Earnings Reports Compare to Wednesday’s Reports

Precious Metals Push Higher as Inflation Continues to Grow Faster Than Expected

Shawn Cruz, Director of Derivative Strategy, TD Ameritrade

(Thursday Market Open) Equity index options were mixed before the open as investors await another round of earnings on the last trading day of the week. The U.S. stock and bond markets will be closed tomorrow in observance of Good Friday. But before investors can start painting Easter eggs, they’ll have a busy news day to digest.

Potential Market Movers

Starting with the economic news, retail sales in the United States came in higher than expected at 1.1% instead of the forecasted 1% month-over-month. However, the report isn’t adjusted for inflation, so inflation could account for the increase versus consumer activity. Export prices were much higher than forecast at 4.5% compared to the projected 2.2%, likely helped by the strong U.S. dollar.

The European Central Bank (ECB) chose to keep its key lending rate the same, but it appears to be adopting a more hawkish tone. The ECB is signaling a steady reduction of stimulus over the coming months but refused to offer a date for ending its bond-buying program.

China’s lockdown situation may be improving because Chinese electric vehicle maker Nio (NIO) is reporting that it’s back to work. If China loosens its pandemic restrictions, it could be a double-edged sword for the economy. Chinese manufacturing will produce more products to meet consumer needs but will also means higher demand for oil. So far, this doesn’t appear to be a problem because crude oil futures were 1.41% lower before the opening bell.

Financials are making a better show of it Thursday with Wells Fargo (WFC), Morgan Stanley (MS), Goldman Sachs (GS), Citigroup (C), and U.S. Bancorp (USB) all beating earnings estimates. Wells Fargo was the only one that missed on revenue. WFC saw a decrease in consumer banking and lending and corporate and investment banking. Banks are seeing growth in investment banking and demand from capital markets. This likely favors Morgan Stanley and Goldman Sachs because they don’t have to deal with the slowdown in consumer banking.

Moving from financials to health care, UnitedHealth (UNH) reported better-than-expected earnings and revenue. UNH continues to see growth in its Optum Health segment which reported a revenue increase of 18.9%. UnitedHealth also increased its fiscal year earnings projections.

Moving next to tech, Taiwan Semiconductor (TSM) soundly beat estimates on the top and bottom lines. TSM also increased its earnings forecast for the next quarter by nearly $1 billion over what analysts were projecting. The stock rose 1.66% in pre-market trading.

Elon Musk has turned up the pressure on Twitter (TWTR) with a hostile cash offer to buy the entire company for $54.20 per share, an 18% premium to yesterday’s close. In the filing with the SEC, the offer appears to be contingent on financing. TWTR rose 6.87% in pre-market trading in response to the news. However, Musk’s flagship company, Tesla (TSLA) was down 1.7% in pre-market trading.

Reviewing the Market Minutes

After a tentative start to the day, stocks were able to rally with the S&P 500 (SPX) rising 1.13%, the Nasdaq Composite ($COMP) climbing 2.12%, and the Dow Jones Industrial Average ($DJI) closing 0.96% higher. Travel and leisure stocks were among the top performers with help from Delta Air Lines (DAL) beating earnings estimates but also reporting record bookings that prompted a 6.21% rally. Delta’s success carried over to other airlines as the AMEX Airline Index (XAL) rallied 4.69% on the day.

The energy sector was among the leaders once again as oil continues to bounce off support. WTI oil futures rallied 3.57% to close above $104 per barrel. Oil prices have swung nearly $10 in the last two days. Oil-related futures also rallied with RBOB gasoline futures rising 4.49%, heating oil futures climbing 7.72%, and natural gas futures increasing 5.49%. If crude oil continues to rise, then airlines may find themselves grounded once again because jet fuel rises with oil prices.

Financial stocks disappointed investors as they kicked off the new earnings season. JPMorgan (JPM) and BlackRock (BLK) missed on important estimates. JPM fell 3.22% on the day, while BLK lost 0.15%. With that said, the First Republic Bank (FRC) rallied 6.93% on better-than-expected earnings.

The 10-year Treasury yield (TNX) fell 38 basis points despite a worse-than-expected Producer Price Index (PPI) released before yesterday’s market open. The 10-year yield is testing resistance at 2.75%. 

CHART OF THE DAY: CATCHING AIR. The Dow Jones U.S. Travel & Leisure Index ($DJUSCG)—candlesticks) has underperformed the S&P 500 (SPX—pink) because airlines, represented by the AMEX Airline Index (XAL—blue), have been weak. The Dow Jones U.S. Hotels Index ($DJUSLG) has helped strengthen the group. The travel and leisure index appear to have gained in relative strength (green) against the S&P 500. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three Things to Watch

Ready for Takeoff: The Dow Jones U.S. Travel & Leisure Index has trailed the S&P 500 (SPX) due to ongoing restrictions related to COVID-19. The airlines have kept the group down, but the hotels have stayed relatively strong. In fact, the Dow Jones Hotels Index has mostly kept pace with the S&P 500 and recently pulled ahead for the year. If airlines can build on their recent strength, the travel and leisure group could start leading the market.

The good news is that Delta (DAL) and America Air Lines (AAL) are both reporting record bookings as travelers appear determined to get out and enjoy the warmer weather.

Solid Gold: Gold has quietly put together a rally. Gold futures closed 0.20% higher on Wednesday and extended its winning streak to six days of higher closes. Gold futures have cleared their March highs and are moving higher. Rising gold prices helped gold miner Newmont (NEM) to another 52-week high along with the AMEX Gold Bugs Index (HUI).

Gold isn’t the only shining precious metal. Silver futures are working on their own streak with six days of higher highs. Precious metals were helped Wednesday by a pullback in the U.S. dollar, but they’ve been moving despite the stronger dollar. The Gold & Silver Index (XAU) broke resistance yesterday by moving past its May 2021 highs.

The moves in gold and silver and their related stocks are likely related to ongoing increases in inflation. Historically, precious metals have been viewed as a hedge against inflation.

Earnings Trends: As I mentioned above, Wednesday’s PPI was hotter than expected, showing that companies are still dealing with high input costs. Over the next week, financial stocks will likely take the limelight, but look for the theme of higher input costs from producers and manufacturers. We saw this theme last quarter too. Rising commodity prices and ongoing supply chain issues will continue to cause problems for companies.

Additionally, the theme of pricing power will continue as companies attempt to raise prices to pass on these costs. Companies that demonstrate pricing powers will likely draw attention from investors.

Notable Calendar Items

April 15: Markets closed for Good Friday

April 18: European markets closed for Easter holiday and earnings from Bank of America (BAC), Bank of NY Mellon (BK), and JB Hunt (JBHT)

April 19: Building permits and earnings from Johnson & Johnson (JNJ), Netflix (NFLX), Lockheed Martin (LMT), IBM (IBM), and Halliburton (HAL)

April 20: Existing Home Sales and earnings from Tesla (TSLA), Procter & Gamble (PG), and Abbott Labs (ABT)  

April 21: Philadelphia Fed Manufacturing Index and earnings from Philip Morris (PM), Union Pacific (UNP), AT&T (T), and Blackstone (BX)

Good Trading,

Shawn Cruz

Helpful Educational Content and Programming

Check out our upcoming Webcasts or watch any of our hundreds of archived videos, covering everything from market commentary to portfolio planning basics to trading strategies for active investors. You can also deepen your investing know-how with our free online immersive courses. No matter your experience level, there’s something for everybody.

Looking to stay on top of the markets? Check out the TD Ameritrade Network, live programming which brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.

TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc., are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of The Charles Schwab Corporation. TD Ameritrade Media Productions Company is not a financial advisor, registered investment advisor, broker-dealer, or futures commission merchant.