Stock Futures Edging Lower Amid Chinese Property Fears
U.S. stock futures are under pressure yet again on Monday morning, as did equity indexes in Asia and Europe. With today’s decline, it will turn in three straight weeks of losses for the first time since September 2020. The bearish movement came after stocks in Hong Kong saw a sharp sell-off earlier today. That’s due to the growing concerns that a default on property developer China Evergrande’s $300 billion of liabilities could crystallize broader risks in the world’s second-largest economy.
Also, investors are looking ahead to a new Fed meeting, with Chairman Jerome Powell due to speak on Wednesday. Therefore, investors and traders alike will be looking for cues on when the tapering could take place. And it won’t be surprising if the Fed decides to delay its tapering process. That’s considering the mixed economic data released since Powell’s last comments.
On top of all that, investors are also looking forward to a number of major quarterly earnings in the stock market this week. And they include Adobe (NASDAQ: ADBE), FedEx (NYSE: FDX), Nike (NYSE: NKE), and Costco (NASDAQ: COST). As of 7:08 a.m. ET, the Dow, S&P 500, and Nasdaq futures are down by 1.56%, 1.32%, and 1.09% respectively.
Lennar Earnings On Tap After The Stock Market Closes Today
Lennar Corporation (NYSE: LEN) is set to announce its third-quarter earnings today, after market close. The Miami-based home construction and real estate company is expected to report earnings per share (EPS) of $3.27 in the fiscal third quarter. It’s no secret that the U.S. housing market is hot right now. With the supply of U.S. homes for sale near a record low and a home shortage of 5.24 million, this is good news for the largest homebuilders in the U.S. And with the soaring housing prices, it should go without saying that the company received a large boost.
Recall from its second fiscal quarter, the company’s revenue came in 22% higher year-over-year to $6.4 billion. That was driven by a 14% increase in homes delivered and a 6% increase in average selling price. What’s more, its gross margin was 26.1%, a sizable jump from the previous year period. Looking ahead to its fiscal third quarter, analysts are expecting a net new orders estimate of 16,248, gross margin on home sales estimates to be around 27.3%. Impressively, over the last 2 years, Lennar has beaten EPS estimates 100% of the time and has beaten revenue estimates 100% of the time.
Admittedly, construction supply hasn’t been meeting demand over the past few years. Therefore, investors might think that LEN stock is an investment opportunity they don’t want to miss. While that’s conceptually true, investors need to know there are many economic variables that could dampen its growth and profitability. For instance, the Fed may raise interest rates significantly. That would make it more expensive to own a home. And that is likely to affect the demand for Lanner’s products. Taking all these factors into consideration, does LEN stock look like a good investment if you hold a long-term horizon?
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China Defends Tech Crackdown In Meeting With Wall Street Executives
China’s top regulators defended their market-roiling crackdown on various industries in a meeting with Wall Street executives. The meeting marked the resumption of the roundtable that was first convened in September 2018. There’s no question that investors across the globe have been unnerved by the regulatory onslaught from Beijing. If you have some exposure to Chinese stocks, the past few months would have been a nightmare. The regulatory crackdown has led to sharp sell-offs on some of the top Chinese stocks, including Alibaba (NYSE: BABA) and Tencent (OTCMKTS: TCEHY)
China Securities Regulatory Commission Vice Chairman Fang Xinghai said recent actions were to strengthen regulations for companies with consumer-facing platforms. Apart from that, improving data privacy and national security is another reason for such a crackdown, according to a person familiar with the talks. And a big part of that has to do with the “common prosperity” initiatives by President Xi. He called for high-income groups and businesses to “return more to the society”. As a result, a number of large Chinese companies have taken measures to align themselves with the government’s initiatives.
Oil Down On Stronger Dollar & Increasing Rig Count
Oil price continues to slide on Monday, extending losses from Friday after the U.S. dollar jumped to a three-week high. A stronger dollar makes U.S. dollar-priced oil more expensive for holders of other currencies, pushing pressure on demand. This would prompt traders to keep a closer eye on this week’s Fed meeting for indications on the timeline of the tapering.
Adding pressure to the oil price is the rising U.S. rig count. That is despite the fact that some of the major producers remain offline in the wake of two hurricanes for nearly a quarter. As of Friday, 23% of the U.S. Gulf of Mexico crude output, or 422,078 barrels per day, remained shut, according to data from the Bureau of Safety and Environmental Enforcement.
Apart from these, Costa Rica and Denmark are also spearheading efforts to build the world’s first diplomatic alliance to manage oil and gas production. The initiative goes by the name of “Beyond Oil and Gas Alliance”. In brief, it is seeking to persuade many countries to align their oil and gas production to the 2015 Paris Agreement.
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Earnings Winding Down
In terms of earnings, there are several names across the board that would be in focus today. For those keen on pre-market earnings, cyber intelligence platform Cognyte Software (NASDAQ: CGNT) is one to watch out for. For those unfamiliar, Cognate is a spin-out from Verint (NASDAQ: VRNT) and has been steadily increasing its gross margin. If Cognyte can deliver another stellar performance today, I wouldn’t be surprised that this is a potential multi-bagger in the making.
If you’re looking for potential after-market movers, there are several notable names reporting earnings as well. These include Lennar, Erytech Pharma (NASDAQ: ERYP), and Inventiva (NASDAQ: IVA). So, whether it is looking for opportunities amid market volatility or keeping up with earnings, there’s enough to keep you busy as we kick start the week.
