High expectations often lead to disappointment. That hasn’t been the case this earnings season.
Yes,
we’re two days into reporting season, but so far the numbers have been
very, very good. All five of the major companies that reported
Wednesday morning beat estimates and three of them finished higher on
the day.
That’s a trend that looks set to continue Thursday, with Bank of America, PepsiCo, and UnitedHealth among the companies reporting better-than-expected earnings. So far, the reaction to the earnings looks good as well, with Bank of America up 1.1%, PepsiCo up 0.2%, and United Health up 1.8%.
That’s
a far cry from the fourth-quarter earnings season where companies beat
earnings handily but their stocks got hit. At that point, the future was
uncertain and investors weren’t willing to bet on the gains continuing.
This time, investors appear willing to bet that the good times can
continue.
That’s especially true
for banks. The three banks that reported earnings Wednesday averaged
gains of 2.24% and there appear to be more gains ahead for the group.
“While it is still early in the season, this could be an early sign that
sentiment on the bank industry is changing for the better,” Wells Fargo
Securities strategist Chris Harvey says.
It’s still early, but perhaps the market wasn’t set up for disappointment after all.
—Ben Levisohn
***
Coinbase Is Now Worth More Than $85 Billion
The
largest cryptocurrency exchange in the U.S. made a splash on its first
day of public trading Wednesday, with shares soaring as high as
$429—briefly giving the company a valuation of more than $100 billion—before
closing below that high.
- Shares closed at $328, more than 30% above their $250 reference price and valuing the company at $85.8 billion on a fully diluted basis. Coinbase is now one of the 100 most valuable U.S. companies.
- The company reported preliminary profits of $730 million to $800 million in the first quarter of 2021, versus $32 million during the same period in 2020.
- Coinbase’s rise coincides with the resurgence of cryptocurrencies, most notably Bitcoin. The virtual currency has risen more than 112% in 2021 as it gains more mainstream acceptance.
- Federal Reserve Chair Jerome Powell called cryptocurrencies “vehicles for speculation,” in an interview with the Economic Club of New York. Mike Novogratz, CEO of Galaxy Digital and a prominent crypto proponent, warned that the market could be in store for “a washout.”
What’s Next: The listing wasn’t just a boon for Coinbase. It also sent the price of Bitcoin to an intraday record of nearly $65,000, and Ether, the second largest cryptocurrency by market value, as high as $2,400, in Wednesday trading. The Dow Jones Industrial Average also hit a new intraday high.
—Anita Hamilton
***
Delta Kicks Off Airline Earnings as Carriers Expand Summer Flight Schedules
With travel expected to surge this summer as the nation emerges from
the worst of the pandemic, Wall Street is urging investors to focus less on earnings for the first quarter of 2021, and more on profits going forward.
- Delta is expected to report an earnings drop of 53% compared to the first quarter of 2020, with losses of $1.6 billion, according to consensus estimates.
But analysts will likely be more interested in the airline’s outlook
for summer travel as well as business and international markets.
- There are already signs of an uptick in bookings. Delta said it expects March revenue to be 40% higher than February. American Airlines said Wednesday that it is planning to operate a near normal summer schedule.
- Other airlines are ramping up for summer as well: United
will start two dozen new routes starting Memorial Day, while discounter
Frontier said Tuesday that it is adding eight new routes plus flights
to Alaska.
What’s Next:
Leisure travel is expected to recover to 95% of its 2019 levels in
2022, according to a
JPMorgan forecast from analyst Jamie Baker. If operating costs return to
2019 levels as well, that could result in nearly $18 billion in savings
for the industry.
—Anita Hamilton
***
Fully Vaccinated? Get Ready for Another Booster Shot Later This Year
Moderna
is the first U.S. vaccine maker to announce that a booster shot aimed
at neutralizing a specific coronavirus variant will be available this
fall. Concerns that existing coronavirus vaccines may not adequately
protect against variants has led other vaccine makers to look at ways to
modify their drugs as well.
- After announcing in March
that it had injected its first human trial participant with a booster
shot aimed at protecting against the coronavirus variant first
identified in South Africa, Moderna said Wednesday that its modified
vaccine will be ready by this fall.
- “I
want to make sure there are boost vaccines available in the fall so
that we protect people as we go into the next fall and next winter
season in the U.S.,” Moderna CEO Stéphane Bancel told CNBC.
- The news follows Tuesday’s announcement that the Moderna vaccine remains highly effective six months after the second dose. Pfizer reported the same earlier this month. That’s key to both vaccines gaining full U.S. regulatory approval, enabling makers to market shots directly to consumers and sell them to private companies.
- Pfizer spokeswoman Jerica Pitts told Barron’s
on Wednesday, “We are also studying a new construct of the
Pfizer-BioNTech vaccine based on the B.1.351 lineage, first identified
in South Africa.” Pfizer announced in February that it was testing the
effectiveness of a third dose of its existing formula on variants.
What’s Next:
Bancel said Moderna is also working on a flu vaccine which it
eventually hopes to combine with its Covid-19 vaccine, “so you only have
to get one boost… every year that would protect you to the variant of
concern against Covid and the seasonal flu strain.”
—Janet H. Cho
***
U.S. to Slap Tough New Sanctions on Russia Over Alleged Election Meddling, Hacking
The U.S. government is due to announce on Thursday severe new
sanctions on Russia for election interference and other malign activity, according to government officials quoted in multiple U.S. news media.
- The measures would include for the first time far-reaching financial sanctions,
including tough restrictions on U.S. financial institutions’ ability to
trade Russian sovereign debt, according to the reports.
- The sanctions would be largely in response to the cyberattack on SolarWinds
software, discovered in December, which U.S. authorities say allowed
Russian hackers to access thousands of companies and government offices.
- Ten diplomats from the Russian embassy in Washington will also be expelled, according to
The Wall Street Journal. The sanctions will designate Russian companies
and individuals alleged to share responsibility for the hacking.
- The announcement would come two days after President Biden called his Russian counterpart Vladimir Putin to express his concerns about those
issues, as well as over the Russian military buildup on Ukraine’s borders, and suggest a bilateral meeting.
What’s Next: Putin
always took care to appear relaxed after previous sanctions rounds from
the U.S. and Europe, but this time it might be different: The Biden
version will be much more costly for the Russian economy, if the U.S.
takes radical steps to curb the trading of
Russian debt on international markets.
—Pierre Briançon
***
Convicted Fraudster Bernie Madoff Dies at 82
Bernard Madoff died in prison at the age of 82. The convicted fraudster was serving a 150-year
sentence in federal prison for one of the largest financial crimes in U.S. history.
- The former chairman of the Nasdaq Stock Market made a reputation of providing unerring positive returns,
year in and year out, regardless of the fluctuations of the stock
market. He would take on investors on the condition they didn’t ask
any questions.
- Madoff’s Ponzi scheme unraveled when the stock market plunged in the wake of the 2008-09 financial crisis. Until then, he could simply falsify his investors’ statements with bogus trades that showed their accounts steadily rising in value.
- Barron’sraised doubts about Madoff’s
inexplicably consistent high returns back in 2001,
but the scheme continued for years. He confessed after his arrest that
there were no trades, just fictitious numbers. As with all Ponzi
schemes, as long as the money kept coming in, the fraud could continue.
What’s Next: A
court-appointed trustee has recovered more than $13 billion of the
$17.5 billion investors had entrusted to Madoff, according to the
Associated Press. At the time of his arrest in December 2008, their
account statements showed holdings totaling $60 billion.
—Randall W. Forsyth and Connor Smith
Alissa
Resnick and Brett Benhazl’s experience buying a home will sound
familiar to many Americans negotiating today’s housing market.
The
married couple began seriously searching for a property to buy in
Austin, Texas, after November’s presidential election. After their first
two bids fell through, they were ready to go all out, Resnick said.
“We
were seeing the cost of
houses increase even in the couple of months that we were looking, and
we were worried about getting priced out if we didn’t get something
quickly,” Resnick, 30, said.
They
quickly realized that, at a minimum, they would need to include an
appraisal waiver in whatever offer they made. The Austin real estate
market is as competitive as ever. Buyers from pricier markets including
California and New York are coming in, ready to make all-cash offers.
Same goes for investors, looking to convert properties into rentals or
flip them for a profit.
A
reasonably-priced home could fetch 20 or more offers, said Resnick, who
works as a senior product manager in the tech industry. Their real
estate agents explained to them that to be competitive, the couple
should consider doing an appraisal waiver.
The
couple understood the rationale behind buyers waiving the appraisal
contingency—after all, sellers wouldn’t want to deal with buyers who
might back out if the appraisal came in low, especially given how high
bids could come in above the asking price. But that didn’t mean the
decision came without apprehension, once their third offer was accepted.
While
Austin may have one of the most competitive real-estate markets in the
country, home buyers all across the U.S. are facing these same difficult
decisions. With so many buyers in the market—and so few homes to go
around—families are often facing pressure to waive certain contingencies
in order to make their bids stand out.
But
these waivers involve risky trade-offs that could cost buyers thousands
of dollars or more, and leave them without vital protections should
elements of a deal fall through.
Read more here.
—Jacob Passy
