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OFFON

Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

Are companies fooling themselves on inflation?

10/26/2021 | 08:33am EST
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After a weak session on Friday, Wall Street bounced back vigorously, boosted by energy stocks and the stunning gains of Tesla, which soared 10% on stocks markets after a series of good news on the commercial front. The US carmaker was enough to send the entire cyclicals segment into a tailspin.

Strong quarterly results have revived investors' appetite for risk. Somewhat counter-intuitively, and clearly out of step with the media coverage of price spikes, companies seem to be handling this period of hyperinflation quite well. Is this because they subscribe to the scenario of a transitory acceleration? Probably not, since their results cannot really include this type of variable. It’s perhaps because they are confident that they can replicate their cost increases. On whom? On us, consumers. An excellent breeding ground for an inflationary spiral, isn't it? This is the main criticism of the advocates of non-transitory inflation: how can it be non-transitory when everything is increasing, everywhere?

The research firm AlphaValue doesn't deny the reality of inflation, but it explains that there are several indications that it is cyclical. Because the current inflation is very synchronous, "which tends to prove that it is a conjunction of factors rather than an anchored trend" and global. AlphaValue belives that this concordance has its origin in covid and the resulting easy money, which has "unleashed animal spirits, first in the markets, then in the real world". For the research firm, the problem can very easily be solved by adopting more restrictive monetary policies.

But the most interesting thing about AlphaValue's analysis is that the first quarterly results shows that companies are unanimously convinced that they will be able to pass on price increases to the consumer. This is even the basis for their Q4 earnings forecasts. However, AlphaValue thinks that companies are deluding themselves because the consumer will first have to deal with his energy bills and may not be able to pay more for other goods and services. "We expect inflation mechanisms to run up against this obvious reality," concludes AlphaValue.

One may not subscribe to such a scenario, believing that companies will pass their rate increases no matter what. For the moment, this is the bet taken by stock markets, which continue to rise overall while awaiting a new salvo of results, including Microsoft and Alphabet today. Yesterday after the close of Wall Street, Facebook took centerstage between results, the metaverse and contortions of Mark Zuckerberg on the future direction of its platforms. And Tesla, of course, whose global capitalization has exceeded the symbolic $1,000 billion mark, beating out...Facebook in the ranking of heavyweights on the US stock market. Tesla, which has just announced major price increases…

 

Economic highlights:

Today’s indicators include the FHFA house price index, the Richmond Fed manufacturing index, the Conference Board consumer confidence index and the new housing figures.

The dollar fell back to EUR 0.8607. The ounce of gold is stabilizing at USD 1803. Oil did not vary much with Brent at $86.10 and WTI at $83.97. In the bond market, the 10-year US debt yield is at 1.64%, while the Bund is at -0.12% over the same duration. Bitcoin is losing ground to USD 62,780.

 

On markets:

*Facebook gained 2% in pre-market trading as the announcement of a $50 billion increase in its share buyback program offset slightly lower-than-expected revenue and a downward revision to its fourth-quarter forecast.

* U.S. industrial group 3M said Tuesday it cut its annual profit forecast, citing the impact of supply chain bottlenecks on its business.

* Eli Lilly raised its profit and revenue forecast for 2021, mainly due to sales growth of its COVID-19 treatments. The U.S. company also announced that it has submitted an application for approval of its experimental treatment for Alzheimer's disease. The stock gained 1% in pre-market trading.

* United Parcel Service reported quarterly sales and earnings above expectations on Tuesday, as growth in online shopping allowed the U.S. package delivery giant to raise its rates. The stock gained 2.5% in pre-market trading.

* General Electric raised its full-year profit target after posting a better-than-expected profit in the third quarter. Its stock is up 0.9% in premarket trading.

* Amazon - British intelligence agencies have signed a contract with Amazon Web Services (AWS) to host classified data in order to increase the use of data analysis and artificial intelligence for espionage purposes, the Financial Times reported Monday. The stock is up 1.5% in pre-market trading.

* Hasbro said Tuesday that supply chain strains caused it to lose about $100 million in orders in the third quarter, and it warned that its year-end sales could also be affected.

* Lockheed Martin on Tuesday lowered its 2021 revenue forecast to $67 billion and said its revenue next year could fall to $66 billion as the COVID-19 pandemic affects the U.S. defense group's supply chain.

* Archer-Daniels-Midland doubled its third-quarter profit as the U.S. grain and agricultural commodities trader benefited from growth in both its services business and its oilseed division.

* Xerox lost 3.7% in pre-market trading after reporting quarterly sales below the Refinitiv IBES consensus.

* Pioneer Natural Resources said Monday it lost $501 million in the third quarter in hedging against potential oil and gas price declines as energy prices hit multi-year highs.

* American International Group announced Monday the appointment of Shane Fitzsimons as chief financial officer, replacing Mark Lyons, as the insurer prepares to spin off its life insurance and pension businesses.

 

Analyst recommendations:

  • Alibaba: Truist Securities adjusts  pt to $230 from $260, maintains buy rating
  • American Express: Stephens adjusts price target to $190 from $180, keeps equalweight rating
  • Barclays : UBS is keeping its Buy rating. Previously set at GBp 220, the target price has been raised to GBp 250.
  • Canadian National Railway: BMO Capital adjusts pt to ca$170 from ca$160, maintains market perform rating
  • Cloudflare : Truist Securities adjusts pt to $185 from $130, maintains buy rating
  • eBay : Truist Securities adjusts ebay pt to $75 from $66, maintains hold rating
  • Facebook: Goldman Sachs advises its customers to buy the stock. The target price is slightly modified from USD 455 to USD 445.
  • Hollywood Bowl: Berenberg remains Buy with a price target raised from GBP 280 to GBP 300.
  • HSBC: JP Morgan confirms his opinion on the stock and remains Neutral. Previously set at GBp 440, the target price has been slightly modified to GBp 450.
  • Intel: BMO Capital Markets cut the recommendation to market perform from outperform. PT up 5.2% to $52
  • Kimberly-Clark Corporation: DA Davidson lowers price target to $138 from $151 on guidance cut, maintains buy rating
  • Mid-America: Piper Sandler initiated coverage with a recommendation of overweight. PT set to $230
  • Prologis : Truist Securities adjusts prologis price target to $158 from $137, maintains buy rating
  • Segro: Berenberg starts to follow the stock with a Buy rating, targeting GBp 1,500.
  • Truist Financial: Odeon Capital adjusts price target to $66.23 from $52.90, maintains hold rating
  • Warehouse REIT: Berenberg initiates a Buy rating with a target of GBP 200.

© MarketScreener.com 2021
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Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED -8.23% 111.96 Delayed Quote.-47.37%
AMAZON.COM, INC. -1.38% 3389.79 Delayed Quote.4.08%
AMERICAN EXPRESS COMPANY -0.53% 155.94 Delayed Quote.29.66%
AMERICAN INTERNATIONAL GROUP, INC. -1.19% 53.32 Delayed Quote.36.61%
ARCHER-DANIELS-MIDLAND COMPANY 0.21% 62.53 Delayed Quote.24.04%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -1.20% 0.7001 Delayed Quote.-7.63%
BARCLAYS PLC -0.31% 186.66 Delayed Quote.27.65%
BITCOIN (BTC/EUR) 0.16% 43429.83 Real-time Quote.101.61%
BRITISH POUND / US DOLLAR (GBP/USD) -0.50% 1.3231 Delayed Quote.-2.90%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.21% 0.778 Delayed Quote.-0.62%
CANADIAN NATIONAL RAILWAY COMPANY -0.53% 164.34 Delayed Quote.15.69%
CLOUDFLARE, INC. -4.02% 159.69 Delayed Quote.118.94%
EBAY INC. -0.64% 67.05 Delayed Quote.33.43%
ELI LILLY AND COMPANY -0.93% 245.58 Delayed Quote.47.55%
EURO / US DOLLAR (EUR/USD) 0.08% 1.1313 Delayed Quote.-7.44%
FACEBOOK INC -1.14% 306.84 Delayed Quote.12.33%
GENERAL ELECTRIC COMPANY -2.58% 92.77 Delayed Quote.7.64%
HASBRO, INC. -0.30% 98.37 Delayed Quote.5.16%
HOLLYWOOD BOWL GROUP PLC -1.58% 217.5 Delayed Quote.6.62%
HSBC HOLDINGS PLC -0.44% 429.7 Delayed Quote.13.42%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.37% 0.013291 Delayed Quote.-2.57%
INTEL CORPORATION -0.51% 49.25 Delayed Quote.-1.14%
KIMBERLY-CLARK CORPORATION 1.96% 135.39 Delayed Quote.0.42%
LOCKHEED MARTIN CORPORATION 0.99% 333.81 Delayed Quote.-6.89%
LONDON BRENT OIL -0.84% 69.87 Delayed Quote.36.29%
MID-AMERICA APARTMENT COMMUNITIES, INC. -0.25% 207.43 Delayed Quote.58.92%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.92% 0.67461 Delayed Quote.-5.16%
PIONEER NATURAL RESOURCES COMPANY -0.07% 176.89 Delayed Quote.53.04%
PROLOGIS, INC. 0.16% 154.66 Delayed Quote.55.19%
S&P 500 -0.84% 4538.43 Delayed Quote.20.15%
S&P GSCI CRUDE OIL INDEX -2.42% 363.148 Delayed Quote.37.26%
SEGRO PLC -1.36% 1376.5 Delayed Quote.45.26%
TESLA, INC. -6.42% 1014.97 Delayed Quote.53.70%
TRUIST FINANCIAL CORPORATION -3.15% 58.48 Delayed Quote.21.74%
UBS GROUP AG -0.77% 16.14 Delayed Quote.29.43%
UNITED PARCEL SERVICE INC 0.42% 200.73 Delayed Quote.15.29%
WAREHOUSE REIT PLC -0.12% 166.4 Delayed Quote.38.83%
WTI -1.39% 66.387 Delayed Quote.37.48%
XEROX HOLDINGS CORPORATION 0.50% 20 Delayed Quote.-17.38%