Pre-commercialization actions: technological benefits could supercharge a greedy market

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What’s happening: Investors who think the surge in valuations is rooted in reality are pointing to future earnings from companies like Apple (AAPL) and Facebook (FB), which releases results for the last quarter after the US markets close on Wednesday. Strong numbers could reinforce the feeling that stocks are the place to be, especially compared to low yielding bonds.

Microsoft (MSFT) set the tone by sharing its profits after the market closed on Tuesday. The company exceeded Wall Street analysts’ expectations for quarterly revenue by nearly $ 3 billion and hit a three-month sales record. Stocks are up 2% in pre-market trading.

Fix the problem: The pandemic continues to support Microsoft’s business, which – as my CNN Business colleague Clare Duffy reports – has been bolstered by sales of computers and gaming systems, as well as cloud tools computing helping companies to facilitate remote working.

“These are dazzling numbers that will be another feather in the tech sector’s ceiling,” said Daniel Ives, analyst at Wedbush Securities. “The cloud growth party is just beginning. “

Apple is also expected to show strong demand for electronics, especially as it rolled out its new iPhone 12 in the last quarter. “Despite the subsequent launch of iPhones, demand for high-end models remains robust,” Bank of America analyst Wamsi Mohan said in a research note this week.
Facebook, for its part, is poised to take advantage of new shopping and video capabilities, which are expected to have generated significant revenue from the large number of people glued to their phones and computers at home.

On the radar: we can’t forget Tesla (TSLA), of course, the results of which also arrive after the bell on Wednesday. With stocks up 1,122% from their March lows, the stock has become a symbol of the current market excess.

The company has been profitable for five consecutive quarters, a first in 17 years of history. But now that it’s part of the closely watched S&P 500, there is new pressure to come. Guidance on 2021 deliveries will be crucial.

The big picture: Greed has returned to the markets, according to CNN Business’s Fear & Greed Index. Two of the parameters for determining market sentiment – the strength of stock prices and market momentum – indicate “extreme greed.”

But the good results of the internet giants will only fuel the pro-stock narrative, pushing the highly technological Nasdaq Composite to new heights. Talking about a bubble only increases.

“We don’t think we’re yet at the advanced stage of a bubble in the global stock market,” John Higgins, chief market economist at Capital Economics said Tuesday in a note to clients. “Nonetheless, we do recognize that the surge in the Nasdaq Composite suggests that we may at least be at the start of a bubble again, even if the rise in the index is partly justified by the increase in profits of companies in the tech sector. pandemic. ”

The “artificial and insane” GameStop rally continues

The rally powered by Reddit GameStop (GME) Stocks show no signs of slowing down as individual traders continue to inflate shares of the struggling video retailer.

The latest: GameStop stock exploded 93% on Tuesday, ending the day at $ 147.98. Gains are also fueled by traders betting against GameStop, who rush to buy stocks to limit their exposure in what is known as a “short squeeze”.

The struggling company now has a record market value of over $ 10.3 billion. Its share rose another 64% to $ 242 per share in pre-market trading after Tesla CEO Elon Musk tweeted about the frenzy.

Remember: GameStop shares, which are expected to lose money over the next two years, closed 2020 at $ 18.84 per share. It is clear that demand has completely decoupled from expectations about future earnings and intrinsic value.

Instead, online commentators are enjoying what they see as a David vs. Goliath triumph over hedge funds and short sellers, encouraging the democratization of investing through no-cost trading platforms like Robinhood. .

But GameStop’s dramatic surge in stock is causing growing concern in the investment community – even among those who were previously bullish.

Michael Burry, the fund manager made famous by “The Big Short,” unveiled a stake in the company in 2019, helping to fuel interest. Now, as Bloomberg reports, he’s sounding the alarm bells.

“If I put [GameStop] on your radar, and you did well, I’m really happy for you. However, what is happening now – there should be legal and regulatory repercussions, ”he tweeted on Tuesday. This is unnatural, senseless and dangerous. ”

U.S. businesses still grapple with the Capitol riots

Despite vocal promises from some companies to take bold action after the deadly Jan.6 siege on the U.S. Capitol, many U.S. giants are taking a wait-and-see approach to their future political donations, new analysis from my colleagues at CNN shows. .

CNN polled the approximately 280 Fortune 500 companies that backed the 147 Republican lawmakers who opposed President Joe Biden’s certification of victory. About 150 responded, representing $ 14 million in donations to affected politicians during the 2020 cycle.

Among the results: Many companies that have chosen to suspend campaign donations have taken a holistic approach – freezing contributions at all levels, rather than targeting Republican opponents.

While 120 of the companies said they decided to suspend or end political donations in one form or another, 73 said they would stop donating to all federal candidates. Only 31 companies had specific timetables for the length of time they were suspended from political activities.

Sheila Krumholz, executive director of the Center for Responsive Politics, said the duration of the corporate revolt is an open question, especially as campaign fundraising typically slows down in the months following an election.

“Right now it’s pretty easy for them to sit down,” Krumholz said. “It’s hard to imagine that this would last through the primary and general election of 2022.”

You can find the details of each company’s response here.

following

AT&T (T), Hymn and Boeing (BA) publish the results before the US markets open. Apple (AAPL), Facebook (FB), Levi Strauss (LEVI) and Tesla (TSLA) follow after the close.

Also today: The Federal Reserve announces its latest policy decision at 2 p.m. ET, followed by a press conference chaired by President Jerome Powell. Any remarks on when the Fed will consider cutting bond purchases or raising interest rates will be under the microscope.

Coming tomorrow: How has the U.S. economy performed in the last three months of 2020? Investors will know when the GDP figures are released.

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