HOT AIR BALLOON FLIGHT

By Julia Horowitz • Friday, January 14

Good morning. In today's newsletter: Earnings season is here. Phew. Plus, business groups respond to the Supreme Court's decision to block the White House's vaccine mandate, and the first major IPO of the year is a success.

 

US stock futures are lower as the sell-off in tech stocks is tipped to continue. Markets in Europe dipped in early trading, following stocks in Asia.

 

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MARKET FLASH

Earnings season is here to distract investors

 

Tech stocks have been plunging as Wall Street obsesses over the Federal Reserve's next moves and how aggressively it will hike borrowing costs over the next 12 months to rein in inflation.

 

But attention could soon shift elsewhere as corporate earnings season arrives, delivering a distraction from the economy and the unknowns that lie ahead.

 

What's happening: S&P 500 earnings are expected to have increased by 22.4% compared to the previous year during the final three months of 2021, according to Refinitiv. That would be a strong showing.

 

In a note to clients on Friday, UBS said that despite a volatile start to the year, it does not think a more hawkish Fed will "derail" the stock market rally, and that earnings season will "turn investor attention back to robust fundamentals."

 

This just in: Delta Air Lines said on Thursday that its profits beat expectations during the last three months of 2021. While it expects to lose money in its current quarter due to a surge in Omicron cases, it thinks the impact on its operations will end within the next 60 days.

 

"We believe the worst is behind us," CEO Ed Bastian said in an interview with CNBC on Thursday.

 

The rush of corporate earnings begins in earnest on Friday, when many US banks report results. Shares of these companies have soared since the start of the year. Higher interest rates would help banks make more money on loans.

 

The KBW Bank Index has jumped almost 12% year-to-date, while the S&P 500 is down more than 2%.

 

These banks will need to prove they're worthy of the recent influx of cash. Lending and lucrative investment banking fees are expected to deliver for them.

 

JPMorgan Chase on Friday posted earnings that beat analysts' expectations.

 

"JPMorgan Chase reported solid results across our businesses benefiting from elevated capital markets activity and a pick up in lending activity as firmwide average loans were up 6%," CEO Jamie Dimon said in a statement.

 

Counter-programming: Federal Reserve officials made clear this week that they view three interest rate hikes in 2022 as the baseline, but they could do more to fight prices that are rising at the fastest pace in 39 years.

 

"Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone," Lael Brainard, who has been tapped to be the Fed's No. 2 official, said at her confirmation hearing Thursday. "This is our most important task."

 

Christopher Waller, a Fed governor, told Bloomberg TV that the number of rate hikes will depend on "what inflation looks like in the second half of the year."

 

"If it continues to be high, the case will be made for four, maybe five hikes," Waller said.

 

Such remarks could compel investors to keep reassessing their portfolios in the coming weeks, since rising interest rates will ding the high-growth stocks that Wall Street has favored during the pandemic.

VOICES

China is the ultimate prize Western banks can't resist

"The sheer size of China's virtually untapped equity and bond market is irresistible to the world's large financial institutions."

 

ALEX CAPRI, HINRICH FOUNDATION RESEARCH FELLOW

 

Read more from CNN Business.

NEWS ALERT

Businesses react to vaccine mandate decision

On Thursday, the US Supreme Court blocked President Joe Biden's vaccine and testing requirement aimed at large businesses, a major blow to the White House's attempts to use the power of the federal government to fight the Covid-19 pandemic.

 

Remember: The president has emphasized the importance of getting vaccinated against the virus for months. Eventually, he opted to use the mandate on large employers as his main vehicle to push hesitant Americans to get their shots.

 

But the Supreme Court sent a clear message that the Occupational Safety and Health Administration, charged with protecting workplace safety, had overstepped its authority. 

 

Business groups had been divided over the mandate. On Thursday, some praised the Supreme Court's decision while others said they would respect the ruling.

 

The National Retail Federation said it has "maintained a strong and consistent position related to the importance of vaccines in helping to overcome this pandemic." But it called the Supreme Court's move "a significant victory for employers" worried about additional compliance hurdles and costs.

 

The influential Business Roundtable, for its part, said last year in response to the mandate that it welcomed "the Biden administration's continued vigilance in the fight against Covid." It noted that many companies had already implemented vaccine mandates on their own.

 

On Thursday, it said it respected the Supreme Court's judgment.

 

"While companies may take different approaches based on their unique circumstances and diverse workforces, employee and customer safety remain paramount, and efforts to promote vaccination will not abate," CEO Joshua Bolten said in a statement.

UP NEXT

BlackRock, Citigroup, JPMorgan Chase and Wells Fargo report results before US markets open. 

Also today →
▸ US retail sales for December post at 8:30 a.m. ET.

▸ The University of Michigan's consumer sentiment survey for January arrives at 10 a.m. ET.

 

Coming next week: Before the Bell will be off Monday, when US markets are closed. We'll be back Tuesday, when BNY Mellon, Goldman Sachs and Truist report earnings.

WHAT WE'RE READING AND WATCHING

▸ Virgin Galactic shares tumble as firm borrows big (CNN Business)
▸ You can buy Tesla merch using dogecoin now (Reuters)

▸ Another key inflation measure hit a record high (CNN Business)
▸ The world's appetite for electricity is a big problem (CNN Business)
▸ Biden will nominate Sarah Bloom Raskin as Fed's top regulator (AP)
▸ Mortgage rates are the highest since March 2020 (CNN Business)

FINAL WORD

The first big IPO of the year is a hit

Shares of private equity firm TPG jumped 15% in their first day of trading on Thursday, sending a positive signal to companies that are debating whether to go public in the early days of 2022.

 

The latest: Demand was strong for stock in TPG, whose initial public offering raised $1 billion. Shares closed at $34 apiece, giving the company — which was founded in 1992 and manages about $109 billion in assets — a market value of $10 billion. Its investments include Airbnb, Spotify, fitness chain Crunch and Vice Media.

 

Attention will now turn to other companies like Turo, the car-sharing platform that filed to go public earlier this week. Its listing will be a key test for startups that have thrived during the pandemic, but now need to prove their business models can hold up during the next phase of the economic cycle.

 

The company is often pitched as Airbnb for cars. It's generated hype as people rethink vehicle ownership — especially at a time when prices for cars are soaring.

 

Turo, which was founded in 2010, said in its IPO paperwork that it generated more than $330 million in revenue during the first nine months of last year, an increase of 207% compared to 2020. But its losses shot up, too.