U.S. Stock Futures Edge Lower As Bank Warns Of Losses
U.S. stock futures edge lower on Monday morning. This came as traders are bracing for the impact of the forced selling that has been taking place on Wall Street recently. No doubt, some investors may be feeling a little uneasy as we start the week. Investors are bracing for heightened volatility during this holiday-shortened week. Be it the hedge fund’s liquidation concerns, a week packed with economic reports, or recent swift advance in bond yields.
From the stock futures, investors could expect another disappointing start for the week. Or could they? The S&P 500, Dow, and Nasdaq futures are all trading in the negative territory, falling 0.54%, 0.56%, and 0.29% respectively as of 8:42 a.m. ET. Nevertheless, while the liquidation concerns continue to be the hot topic in the stock market today, not everyone believes that the sell-off will continue this week.
“I don’t necessarily see that we’re going to have a big correction even with these block trades going on in the market,”…” There is not a lot of bad news lurking that’s going to truly cause a major correction at least the next two to three months, therefore your dips are going to be modest.”- Carol Pepper, Pepper International Chief Executive Officer, and Founder.
Large Block Trades Tied To Archegos Raise Concerns
The buzz around Friday’s massive block trades has not subsided as much as some may hope. Many investors are fretting, wondering if the sales were a one-off event or if there is more to come this week. To those unfamiliar, a block trade is simply the sale or purchase of a large number of securities. And it is often done outside the open markets. While they are not uncommon, the especially large size of these trades last week drew attention.
According to Bloomberg data, these sales were executed separately by Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS). The sales amounted to about $20 billion worth of shares in total. And it is rumored that Archegos Capital was behind the trades. As you may or may not know, Archegos is the family office of Bill Hwang. He was busted on charges related to illegal trading of Chinese bank stocks and pleaded guilty in 2012. Shares of ViacomCBS (NASDAQ: VIAC) and Discovery (NASDAQ: DISCA) both fell 27% on Friday. But the question here is, why did he execute these trades? No matter what the real reason was, these moves certainly are going to make investors increasingly cautious.
“While the speed of the fall has attracted attention for all of the wrong reasons, prompting speculation of a large margin-call liquidation, what most people appear to have missed is that both of these companies have seen their share prices almost quadruple since October last year,” wrote Michael Hewson, chief market analyst at CMC Market.
A Week Full Of Economic Reports
Apart from the volatility of the stock market, investors are also anticipating the economic reports that could shed some light on current economic conditions. One of the most closely watched data will be Friday’s March jobs report from the Labor Department. Investors will also have to note that the stock market will be closed on Friday in observance of Good Friday.
The March jobs report is expected to be the first this year to show meaningful progress in the job market recovery. This comes as ramped-up vaccinations and the start of the latest stimulus check rollout helped boost consumer spending and hiring. That said, with job gains rising, consumer confidence also probably increased this month. This could help to propel spending and further gains in employment as demand picks up.
Data from the University of Michigan Consumer Sentiment index showed the biggest rise in consumer confidence in nearly eight years. This pushed the index up to a pandemic-era high. These data clearly point toward robust increases in consumer spending. However, the ultimate strength and duration of the increased spending remain to be seen.
Chewy (CHWY) Earnings
With the earnings winding down, online pet retailer Chewy (NYSE: CHWY) is one of the last few companies reporting fourth-quarter fiscal this week. Like with other e-commerce businesses, sales have been booming during the pandemic as consumers continue to rely on online purchases for their goods. The company expects its sales to be between $1.94 and $1.96 billion. Because of Chewy’s visibility into its sales, a large deviation away from expectations is not likely. Should the company hit that target, it would be a 44% increase from the prior year.
The next metric investors will be looking at is its total active customers. The company has recorded strong growth in this aspect. It reached a whopping 17.8 million as of November 2020, an increase of 38.9% from 2019. What’s more, customers usually increase their spending on the site over time. Therefore, new sign-ups could serve as an indication of where future revenue in the coming quarters could go.
If you have been eyeing CHWY stock over the past month, you would know it lost a quarter of its value. The concern came amid ramped-up COVID-19 vaccinations. Investors may worry that the business would slow down as things slowly return to normalcy. Therefore, if Chewy can offer optimistic guidance for fiscal 2021, it would be good news for investors.
Lululemon Athletica (LULU) Earnings
Another company with a strong expected earnings report this week is lululemon Athletica (NASDAQ: LULU). For the uninitiated, its business had a growing momentum even before the pandemic. And the great thing about this company is that its mid-January sales update confirmed that sales trends remained strong through the holiday season late last year.
Investors should get a clearer market share update this week when the company reports tomorrow. The company continued to gain strong traction thanks to a string of popular product releases and its high-performing online platform. Lululemon may have entered the holiday period with more inventory than it usually would, which often can be a bad sign for the business. However, last week, lululemon confirmed that it is not lowering its inventory level as consumers continue to snap up its workout gear. This could certainly provide some relief to existing investors.
No one knows for sure how the business will fare in the coming quarters. But one thing for sure is that the company has demonstrated resilience with sports enthusiasts through every phase of the pandemic. This implies that, even if demand slows, the sports apparel company could continue to make inroads in the market and increase profitability over time. As such, whether it’s the volatility from block sales, economic data, or earnings reports, there should be enough to keep you busy this holiday-shortened week.