EB Daily Market Report - Friday, January 7, 2022

Market Vision 2022

Tomorrow is THE DAY! Our annual Market Vision event will be held Saturday, January 8th, beginning at 8:45am ET. There is NO COST to EB.com subscribers. In fact, we are not even offering the event to non-members. This is exclusive EarningsBeats.com content and we're happy to provide it as yet another benefit of being a loyal EarningsBeats.com member. So thank you!

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Executive Market Summary

• Futures were mostly higher overnight, but turned much weaker after the nonfarm payrolls were released
• Growth stocks are struggling once again vs. value stocks after job growth slowed, rates jumped, and wage inflation spiked
• December nonfarm payrolls gained just 199,000, well below the 400,000 consensus forecast; it was particularly interesting given the huge ADP employment beat on Wednesday
• Average hourly earnings may have been the most important part of the report, however, as they increased 0.6%, doubling the +0.3% estimate
• The 10-year treasury yield ($TNX) hit 1.80% for the first time since the pandemic began, benefiting financials (XLF, +1.02%), especially life insurance ($DJUSIL, +1.55%) and banks ($DJUSBK, +1.38%)
• Energy (XLE, +1.26%) leads again today, despite crude oil prices ($WTIC, -0.87%) falling for only the 2nd time in the last 12 sessions
• Boeing (BA, +2.85%) and Honeywell (HON, +2.74%) are today's top performing Dow components, lifting that index to outperformance

Market Outlook

It's more of the same today. I'm going to highlight the two NASDAQ charts that I highlighted yesterday, because we're once again testing a very critical short-term area of support that, if lost, could trigger much more selling, and potentially panicked selling. We know how fast the stock market can go down, so just keep this in mind if we weaken over the balance of today's session:

NASDAQ (daily):

NASDAQ (hourly):

Some charts don't need narration. These are two, especially this hourly chart. When you hit support, you want the market to bounce and trend higher - not bounce and then immediately test support again. It gives me the feeling that support is not going to hold.

I wrote an article for ChartWatchers this weekend and I believe Apple (AAPL) could lead the entire stock market significantly lower in the short-term. You can CLICK HERE to read this article, if you haven't already.

Sector/Industry Focus

Banks ($DJUSBK) like higher treasury yields and especially a widening yield spread ($UST10Y-$UST6M). Today, we're seeing the 10-year treasury yield ($TNX) hitting 1.80% for the first time since the pandemic began. Higher interest rates are a drag on growth stocks, but really aid the bottom line of banks. Therefore, I'd consider the financials ETF (XLF) as a potential beneficiary of a higher rate environment for now. I am not a believer that interest rates will soar, but while they're rising, financials make sense. Within financials, banks are a direct beneficiary from a higher rate environment and recently we're seeing both absolute and relative strength. If we get a breakout on an absolute basis today, I'd expect banks to continue to outperform the benchmark S&P 500 in the near-term:

The 10-year treasury yield bottomed back in July/August, but banks didn't start moving higher on a relative basis until the spread between the longer-term 10-year treasury and the shorter-term 6-month treasury began widening.

The highest candle body (open or close) on the DJUSBK has been 627.31. Currently, we're less than 1% away from closing above that number.

ChartLists/Strategies

Recently, I featured a few banks on Trading Places Live (PNC, SNV, WFC) that I thought could perform well, especially given all the risk in growth-oriented areas and they've done quite well. There are other areas of financials that also could do well in a higher interest rate environment - like life insurance ($DJUSIL). Brighthouse Financial (BHF) is one of those stocks and it's currently on our Strong Earnings ChartList (SECL) and it's also a component stock in the S&P 400 Mid Cap Index ($MID). It's performing fine in this current environment, challenging its 52-week high:

Patience as a handle develops makes sense. Any test of the rising 20-day EMA would seem to represent excellent entry. A breakout would measure to approximately 65.

Earnings Reports

Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks that will be reporting results are highlighted in BOLD. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning.

Friday, January 7:

AYI, GBX

Monday, January 10:

CMC, TLRY, ACCD, AZZ

Economic Reports

December nonfarm payrolls: 199,000 (actual) vs. 400,000 (estimate)

December private payrolls: 211,000 (actual) vs. 363,000 (estimate)

December unemployment rate: 3.9% (actual) vs. 4.1% (estimate)

December average hourly earnings: +0.6% (actual) vs. +0.3% (estimate)

Happy trading!

Tom