Stocks week ahead: Can the stock market’s momentum continue into 2022?

Wall Street certainly thinks so.

Jonathan Golub, chief US equity strategist at Credit Suisse, predicts that the S&P 500 will rise to 5,200, roughly 9% above where it finished 2021. That would mark a healthy gain, though it pales in comparison to the index’s 27% climb over the past 12 months.

Driving the call: Golub said he’s increasingly optimistic due to “robust projections for economic growth” — and because he expects companies to dole out more cash for stock buybacks, a move that lifts share prices.

He also said Credit Suisse is no longer betting that corporate taxes will rise to pay for fresh government spending. That’s allowed the bank to raise its forecast for corporate earnings over the next two years.

Another good sign: The Russell 2000, which tracks smaller American companies, rebounded in December after taking a beating in November. The fate of smaller firms is closely tied to the health of the US economy, since they aren’t insulated by their size. Their stocks are often seen as a barometer for economic expectations.

The big question mark is interest rate hikes. Near-zero rates have been the driving force behind the stock market’s rebound since its initial Covid-induced crash, providing companies with access to easy money and boosting overall confidence.

The Federal Reserve has indicated it could raise rates three times in 2022 as it tries to rein in inflation.

Should that happen, borrowing costs will still be extremely low by historical standards. But an environment of increasing rates could shift the mood.

“Risks are rising as central banks are getting closer to winding down emergency monetary support,” Goldman Sachs analysts said in the bank’s 2022 forecast for stocks.

But the strategists said the market rally is likely to continue thanks to an expected 8% increase in global corporate earnings.

“This should support a reasonably strong year for equity markets overall, contributing to another year for the new bull market, albeit at a slower pace,” they said.

My thought bubble: Year-ahead predictions are best seen as a snapshot in time. Wall Street’s market estimates for 2020 were quickly thrown out as the pandemic gathered steam. At the start of 2021, few policymakers expected inflation would rise so sharply.

Especially during a global health crisis that can obscure economic data and make it harder to see the future, it’s tough to say with certainty what’s coming around the bend. For now, though, sentiment is positive.

Omicron scrambles consumer tech’s big conference

CES, one of the technology industry’s top trade shows, is going ahead despite an unprecedented spike in Covid-19 cases fueled by the fast-moving Omicron variant.

The event will return to Las Vegas this week for the first time since 2020. At last count, more than 2,000 exhibitors had committed to showing up, though there have been a number of high-profile cancellations in recent weeks.

Microsoft (MSFT), Google (GOOGL), Amazon (AMZN), Intel (INTC) and Meta (previously known as Facebook (FB)) have all said they won’t attend in-person. Other tech companies are continuing to pull out in the days leading up to the event.

The head of the Consumer Technology Association, which hosts CES, said on LinkedIn that the conference “will and must go on.”

“It will have many more small companies than large ones. It may have big gaps on the show floor. Certainly, it will be different from previous years,” Gary Shapiro wrote. “It may be messy. But innovation is messy.”

On the radar: Other big event organizers have gone a different route. The World Economic Forum in Davos, Switzerland, which was due to take place in person in January, has been pushed to early summer.

“Current pandemic conditions make it extremely difficult to deliver a global in-person meeting,” organizers said in late December. “Despite the meeting’s stringent health protocols, the transmissibility of Omicron and its impact on travel and mobility have made deferral necessary.”

Up next

Tuesday: OPEC meeting; ISM Manufacturing Index; Data on US job openings

Wednesday: CES begins

Thursday: Initial US jobless claims; ISM Non-Manufacturing Index; Bed Bath & Beyond (BBBY), Conagra (CAG), Constellation Brands (STZ) and Walgreens (WBA) earnings

Friday: US jobs report for December; European inflation

Premarket stocks: Macy’s stock, once left for dead, is roaring back to life

What’s happening: Once out of favor as mall closures rose and coronavirus restrictions kept people at home, department stores are finding love again on Wall Street.

Kohl’s (KSS) shares popped 11% on Thursday after it reported earnings. The stock has rallied 54% this year. Shares of Dillard’s (DDS) have shot up more than 480%.
What gives? First, consumer spending has surged. Shoppers say they’re worried about inflation, but continue to shell out for items they held off buying last year.

Macy’s — the largest US department store chain — reported revenue up 36% year-over-year. Shoppers snapped up tailored suits, luggage and dresses.

“The consumer is healthy, and we expect the strong demand to continue, particularly as people return to work,” finance chief Adrian Mitchell told analysts.

Bank of America reports that spending on credit and debit cards in the week ending Nov. 13 rose 23% compared with the same period in 2019. Some of that increase is due to higher prices, according to the bank’s analysts.

Macy’s started planning for supply chain disruptions late last year, Cowen analyst Oliver Chen noted. That puts it in a good position to take advantage of holiday shopping this year.

Department stores have also shuttered locations that weren’t performing well in recent years. Research firm CoStar said that retailers announced plans to shut more than 11,100 stores in 2020, an all-time high.

In February 2020, Macy’s said it would close 125 stores by 2023.

One more thing: Investors are coming around to Macy’s digital strategy. Online sales jumped 49% last quarter compared to 2019. Chen noted that the company is making “significant investments” in its app.

Macy’s also plans to launch a digital marketplace in the second half of 2022 which will include third-party sellers. The announcement comes as the company faces pressure from an activist investor to spin off its e-commerce business, as Saks Fifth Avenue did.

Not everyone is a convert. According to Refinitiv, just three Wall Street analysts have “buy” recommendations for Macy’s stock, while nine are neutral and five are advising clients to sell.

In a note this week, Bank of America said that despite the solid quarter, it’s still not bullish on Macy’s “given our view that department stores face long-term structural issues.”

Carmakers get serious about fighting chip shortages

Shortages of computer chips have been a nightmare for carmakers this year, forcing them to idle production at plants around the world and hindering their ability to meet a jump in demand for vehicles.

Now they’ve decided enough is enough; they’re getting into the chip business themselves.

The latest: Ford (F) announced Thursday that it’s partnering with GlobalFoundries, a chip manufacturer majority owned by Abu Dhabi’s sovereign wealth fund.

Together, the two companies plan to boost production capacity for Ford’s lineup and conduct research on the semiconductors that will be crucial to the next generation of vehicles.

General Motors (GM) President Mark Reuss also said at an industry conference on Thursday that the company will team up with chipmakers like Qualcomm (QCOM) and Taiwan Semiconductor Manufacturing Company to develop the chips it needs.

“We see the semiconductor requirements more than doubling over the next several years as the vehicles that we produce become more of a technology [platform],” Reuss said.

Remember: GM’s revenue plunged nearly 25% last quarter despite record high car prices, while Ford said its automotive revenue fell 4% from a year ago. The difficulty in securing chips has been a major reason the companies have been sputtering.

That’s pushing carmakers to assume greater control of their supply chains.

“It’s critical that we create new ways of working with suppliers to give Ford — and America — greater independence in delivering the technologies and features our customers will most value in the future,” Ford CEO Jim Farley said in a statement. “This agreement is just the beginning.”

Workers are crying out for a four-day week

American workers are quitting in record numbers — 4.3 million in August, and another 4.4 million in September. Managers across industries are having trouble hiring, even as they raise wages and offer incentives.

But a new survey offers support for a not-so-radical but still uncommon solution, my CNN Business colleague Allison Morrow reports: the four-day workweek.

Researchers at Jefferies asked Americans ages 22 to 35 who had quit their jobs recently what their former bosses could have done to persuade them to stay. Thirty-two percent said they would have stuck around if they’d been offered a four-day work week. That was the second most-common answer, right behind the 43% who would have stayed for more money.

The study also found 80% of respondents support a four-day workweek.

The idea is hardly new, but has been gaining steam thanks to high levels of worker burnout in the wake of the pandemic. Over the summer, US lawmaker Mark Takano of California introduced legislation that would amend the Fair Labor Standards Act of 1938 — which codified the 40-hour model we now live with — to reduce the standard workweek to 32 hours.

Not just the rank-and-file: CEO turnover has also jumped, as overworked executives decide to shake up their careers, according to a study from recruiting firm Heidrick & Struggles.

“Our belief is that it will only accelerate going into next year as people have delayed their retirements,” Jeff Sanders, a co-managing partner at the company, told Reuters.

Up next

Foot Locker (FL) reports results before US markets open.

Also today: The US House of Representatives reconvenes as Democrats aim to pass President Joe Biden’s $1.9 trillion social safety net package.

Coming up: Investors are waiting for Biden to announce his decision for chair of the Federal Reserve. Will Jerome Powell get another term, or will the president opt for new leadership?

Beijing Stock Exchange: President Xi Jinping’s pet stock market is here

The bourse was first announced by the Chinese Communist Party leader in September, and is intended to help small and medium-sized enterprises raise capital.

The first batch of 81 firms started trading on Monday, including 10 initial public offerings from companies in tech and manufacturing. Shares in those IPOs surged at the open and hit circuit breakers, before closing with an average price increase of 200%.

Autos components maker Tongxin Transmission was the standout performer with an eye-popping gain of 494%. The other 71 companies listed in Beijing were previously trading on an over-the-counter system for companies not listed on China’s premier stock markets in Shanghai and Shenzhen.

The exchange’s launch is of strategic significance to Xi’s economic and political vision. This is the first time that a bourse has been set up in Beijing, giving the nation’s capital and political center more influence in the world of business and finance.
It comes at time when Xi has been cracking down on some of the country’s biggest tech giants, which had until recently been growing at an almost unbridled pace. The communist leader’s campaign aims to ensure that wealth and capital is not concentrated in the hands of a few industry juggernauts.
The launch of the BSE may provide some relief to companies in the tech sector, which are facing major regulatory hurdles from both the United States and China to raise money overseas.

Helping new and small businesses

When Xi first announced the idea of a Beijing-based exchange in a speech in September, he said that he wanted to create a “primary” funding platform” for “service-oriented” and “innovative” small businesses.

Small and medium-sized enterprises traditionally face difficulties in obtaining funds from China’s state-owned banking system because of their lack of collateral and other constraints.

But if China is to realize Xi’s ambition of surpassing the West in advanced technologies, these companies will need to grow and innovate.

In 2018, as the US-China trade war raged, Xi unveiled a board for startups on the Shanghai Stock Exchange — the Star Market — which focuses on companies with “core technologies in key fields,” such as high-end semiconductors and computer processors. There is also a Nasdaq-style board on the Shenzhen Stock Exchange, the ChiNext, which was established in 2009 to target high growth startups.

The Beijing Stock Exchange will “complement” the Shanghai and Shenzhen stock exchanges and focus on serving innovative smaller firms, the Chinese Securities Regulatory Commission said in September. As of now, the companies listed on the BSE have an average market value of around 3.9 billion yuan ($610 million).

China's answer to the Nasdaq might be starting to fizzle

Increasing the influence of Beijing

Mainland China’s major stock exchanges are located far from the country’s political center in the north. The Shanghai Stock Exchange, which was established in the eastern city in 1990, hosts mostly large-cap companies, including state-owned enterprises, banks and energy firms. The Shenzhen Stock Exchange, in southern China, has a bigger proportion of tech companies.

(Hong Kong, the former British colony in southern China, also has an international stock exchange that is subject to different regulatory and legal systems. It’s free of the type of strict capital control that Beijing imposes on the mainland.)

“The establishment of BSE is conducive to balanced regional development and will increase the influence of northern China [on the] capital market,” said Luo Zhiheng, chief macro analyst for Guangzhou-based Yuekai Securities, in a recent research report.

In addition, the Beijing Stock Exchange can “better serve the capital city’s core positioning of becoming the nation’s centers of politics, culture, international exchange, and technology and innovation, ” a goal set by Xi in 2014, Luo said.

The door is closing on Chinese tech IPOs on Wall Street

The launch of the Beijing-based exchange also comes as the door is closing for Chinese tech IPOs overseas, due to stricter scrutiny on these firms in both China and the United States.

Beijing has been encouraging its companies to list at home and become less dependent on foreign money and technology, a campaign that intensified during the 2018-2019 trade war with the United States.
It also appears keen to prevent the huge amount of sensitive data held by tech companies from falling into the hands of foreign governments — manifested in its surprising move in July to suspend Didi days after the ride-hailing giant’s US IPO, citing data collection violations.

On Sunday, the Cyberspace Administration of China proposed tougher rules for tech firms planning overseas listings. Companies that seek to list in Hong Kong must submit to cybersecurity inspections if they hold data that concern national security, the regulator said.

Firms with more than 1 million users must also seek cybersecurity approval before they list overseas, it added, reiterating a guideline from July.

“China’s leadership has grown more wary of its firms listing in the United States … in particular for firms that control significant amounts of data,” said analysts from New York-based Eurasia Group in a recent research report.

“Indeed, the newly announced Beijing Stock Exchange is intended to help smaller Chinese companies raise capital outside the United States,” they said.

It’s not just Elon Musk: Here’s who else at Tesla has been selling the stock

The dollar value of his sale is dwarfed by his brother Elon’s sale of $5.7 billion worth of Tesla stock from Monday through Thursday this week. But it represented a much larger percentage of his holdings in Tesla (TSLA) — about 15% of Kimbal’s stake in the company. Elon’s stake has declined by only 3% so far through his sales through Thursday.

Although Elon Musk’s sales were the first time he sold any Tesla stock since 2016, Kimbal Musk has been selling his own shares on a regular basis. So have many other top executives and board members at the world’s most valuable automaker.

Robyn Denholm, the company’s chair, has been selling regularly shares since she got the job overseeing the board in late 2018. In the last two years, each time she exercised options she received as part of her compensation, she immediately sold all the shares she had just acquired.
Zachary Kirkhorn,Tesla’s so-called Master of Coin, who used to have the more standard title of chief financial officer, has also been selling shares regularly.

Leaving money on the table

All three are probably the poorer for doing so. Tesla shares had an incredible run these last two years, rising nearly 2,000% since the company surprised investors with a profitable third quarter in 2019. That kicked off a string of profitable quarters. Before that October 2019 report, many investors worried that the company might be facing a cash crunch.
That stock ride has made Tesla only the sixth US company to reach a valuation of $1 trillion, achieving a market value greater than the combined market cap of the 12 largest automakers on the planet and making Elon Musk the richest person in the world.

Many insider sales are made to diversify their holdings and don’t necessarily predict the direction of the stock. In the case of Tesla insiders, diversifying wasn’t necessarily the best strategy.

“The irony is they left hundreds of millions on the table by selling early,” said Daniel Ives, tech analyst with Wedbush Securities.

Kimbal Musk’s sales

Kimbal Musk has sold 525,00 shares on a split adjusted basis since October 2019, receiving $189 million as a result, for an average price of $360 a share. If he still owned all those shares, they now would be worth $369 million more than what he received. And he would have just more than twice as many shares as he currently holds.

Some of Kimbal Musk’s sales were made using a “Rule 10b5-1 trading plan,” an SEC rule that allows company insiders to sell shares on a pre-arranged schedule so they can’t be accused of trading on news about the company. He has also sold some shares in which the filing doesn’t mention such a plan.

For example, in February 2021 Kimbal Musk sold $25.6 million in Tesla shares without the filing mentioning any trading plan. Telsa shares suffered a 33% slide over the next four weeks. It doesn’t look like anything happened after the sale that wasn’t public information at the time that he sold, but he anticipated the market pretty well, at least in the short-run.

Tesla shares have made up that lost ground and more since that sale, when his shares sold for an average price of $852. Now they are trading over $1,000, even with the recent slide brought on by his brother’s stock sales.

Last week’s sales by Kimbal Musk, just before his brother started selling shares, did not mention a Rule 10b5-1 trading plan.

Zachary Kirkhorn’s sales

Virtually all of Kirkhorn’s sales have been through Rule 10b5-1 plan trades, although some additional sales were performed by the company to pay the withholding taxes he owed on exercised stock options that are part of his compensation.

In most months, he’s sold between 750 shares and 1,250 shares on a split adjusted basis, which, during the the last two years, have amounted to 25,250 shares, at an average price of $503 a share, or about half of their current value. That brought him $12.7 million.

Robyn Denholm’s sales

Denholm’s filings over the last two years do not mention any trading plan. She has sold nearly 412,000 shares of Tesla on a split-adjusted basis, leaving her with the same stake of 5,000 Tesla shares that she had two years ago just before shares started their rise.

The shares that she held came from exercising stock options that cost her a fraction of their market value, generating a $200 million profit. She would have done much better hanging onto the shares she acquired and immediately sold, which would have been worth $438 million.