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Business – Wall Street Observer

Wall Street Observer

Wall Street Observer

Nvidia current-quarter forecast beats expectations

(Reuters) – Nvidia Corp forecast better-than-expected first-quarter revenue on Wednesday, betting on strong demand for its graphic chips used in gaming devices and data centers.

The company expects first-quarter revenue of $5.30 billion, plus or minus 2%, above analysts’ average estimates of $4.51 billion, according to IBES data from Refinitiv.

(Reporting by Chavi Mehta in Bengaluru; Editing by Maju Samuel)


U.S. retail sales in 2021 expected to jump on vaccine, stimulus in positive sign for economy – NRF

By Melissa Fares and Aditi Sebastian

(Reuters) – U.S. retail sales could rise as much as 8.2% to more than $4.33 trillion this year as more people get the COVID-19 vaccine and the economy reopens, the National Retail Federation (NRF) said on Wednesday.

The economy is expected to see its fastest growth in over two decades as the rollout of the vaccine to consumers should permit accelerated growth during the mid-year, the trade group said. NRF expects the overall economy to gain between 220,000 and 300,000 jobs per month in 2021.

“We are very optimistic that healthy consumer fundamentals, pent-up demand and widespread distribution of the vaccine will generate increased economic growth, retail sales and consumer spending,” NRF Chief Executive Matthew Shay said in a statement.(https://bit.ly/3kiGzRI)

Preliminary results show retail sales for 2020 grew 6.7% to $4.06 trillion, above the trade body’s forecast of at least 3.5% growth, NRF said. The retail sales numbers exclude automobile dealers, gasoline stations and restaurants.

U.S. retail sales are expected to rise between 6.5% and 8.2% in 2021, the NRF said.

Deemed “essential, Walmart and rivals Target and Best Buy were permitted to stay open throughout the pandemic, unlike others, including Macy’s.

The U.S. department store chain said while reporting company earnings on Tuesday that it has invested tremendously in its online business, as virus-wary shoppers have opted to stay home to make their purchases rather than leisurely shop in-store.

“We do anticipate that customers will be increasingly more comfortable in public spaces as vaccine distribution reaches scale,” said Macy’s Chief Financial Officer Adrian Mitchell.

New rounds of stimulus-driven consumer spending in the coming months would also strengthen retail sales, should the U.S. Congress pass the Biden administration’s support plan that includes sending a $1,400 check to households.

The NRF also said online sales, which are included in the overall number for 2021, were expected to increase between 18% and 23% to between $1.14 trillion and $1.19 trillion. In 2020, online and other non-store sales jumped 21.9 percent to $969.4 billion as consumers opted to stay home and place their orders online to curb the spread of the virus.

The trade body’s forecast follows other estimates from companies like consumer research firm Customer Growth Partners (CGP).

Boosted by rounds of stimulus checks and a “new-found momentum across income levels,” CGP said earlier this month that retail sales in 2021 will total a record $4.26 trillion, up 8.1% from $3.94 trillion in 2020.

(Reporting by Aditi Sebastian in Bengaluru and Melissa Fares in New York; Editing by Shailesh Kuber, Jonathan Oatis, Ben Klayman and Aurora Ellis)



Nasdaq futures fall 1% as tech sell-off set to deepen

(Reuters) – Futures tracking the Nasdaq 100 index fell 1% on Wednesday, sliding for a seventh straight session as investors swapped growth-oriented technology shares with stocks that stand to gain the most from an economic rebound.

Up to Tuesday’s close, the broader technology-heavy Nasdaq Composite index had lost 4.5% since Feb. 12, compared with a 0.3% rise in the blue-chip Dow. The benchmark S&P 500 slipped 1.4% in the same period.

By 1:40 a.m. ET on Wednesday, Nasdaq 100 e-minis were down 109.5 points, or 0.83%, Dow e-minis were down 100 points, or 0.32%, and S&P 500 e-minis were down 15.5 points, or 0.4%.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Subhranshu Sahu)


ViacomCBS quarterly revenue misses estimates

(Reuters) – ViacomCBS Inc reported lower-than-expected quarterly revenue on Wednesday, as the COVID-19 pandemic brought forth content production delays and cut film revenue, despite steady demand for its streaming services CBS All Access and Showtime.

Ahead of its Paramount+ launch, a rebranded version of CBS All Access, the company has been scrambling to distinguish itself from bigger players including Netflix, HBO Max and Disney+ in the crowded over-the-top (OTT) market and attract more subscribers.

The company’s revenue rose 3% to $6.87 billion in the fourth quarter ended Dec. 31, but came in below estimates of $6.89 billion, according to IBES data from Refinitiv.

Net earnings attributable were $783 million, or $1.26 per share, compared with a loss of $302 million, or 49 cents per share, a year earlier.

(Reporting by Eva Mathews in Bengaluru; Editing by Maju Samuel)


Wall Street’s ‘fear gauge’ is in a bubble, says J.P. Morgan

By April Joyner

NEW YORK (Reuters) – Wall Street’s “fear gauge” is in a bubble, according to analysts at J.P. Morgan.

Investor appetite for protective options has kept the Cboe Volatility Index elevated despite muted moves on the benchmark S&P 500, according to the bank. The gap between investor expectations for volatility in U.S. stocks, as measured by the VIX, and actual moves on the S&P 500 is near its highest levels over the past 30 years, said Marko Kolanovic, J.P. Morgan’s global head of macro quantitative and derivatives strategy.

In Kolanovic’s view, that level of caution is not justified, and the bank expects stocks will keep climbing. The gap between investor expectations and actual market moves, he wrote, is “indicating a bubble of fear and demand from investors looking to hedge or profit from a hypothetical market selloff.”

The demand for options is twofold, said Matt Amberson, principal at ORATS: some investors are buying puts for protection, while others are choosing to maintain exposure to equities through calls. Both, he said, have helped prop up the VIX.

The VIX has tended to fall in the past when the gap between the fear gauge and realized volatility has grown similarly wide, according to Kolanovic. But the last such gap, in late August, preceded a substantial sell-off in U.S. stocks, said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

The rotation to value and cyclical stocks from growth stocks has effectively “pulled the S&P (500) in two different directions,” Murphy said. But if that trend changes, market gyrations could pick up, he said, though he also believes the VIX is likely to decline over the coming months.

“I don’t know if you can assume that that rotation would occur forever,” he said. “Is two weeks a long enough time frame to think that the market is really calm?”

(Reporting by April Joyner; Editing by David Gregorio)


Wall Street closes higher as Fed’s Powell soothes inflation fears

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – Shares on Wall Street ended higher on Wednesday, as a selloff in technology-related stocks eased and a rotation into cyclical shares continued after Federal Reserve Chair Jerome Powell’s comments calmed inflation worries.

The Nasdaq index, which traded as much as 1.3% lower earlier in the session, regained its footing by early afternoon and closed higher. The Dow hit a record high earlier in the session.

GameStop Corp stock, which was at the center of volatile moves in late January by shares talked about on a Reddit forum, rose sharply in late trading. Volume was more than two times the 10-day moving average, and shares were halted by the New York Stock Exchange. AMC Entertainment Holdings also jumped.

Powell told lawmakers on Wednesday it may take more than three years to reach the central bank’s inflation goals, a sign the Fed plans to look beyond any post-pandemic spike in prices and leave interest rates unchanged for a long time to come.

“What’s driving the stock market is the fiscal stimulus, the dovish Fed, the real strong, strong earnings that we’re seeing, as well as the fact that we’re going to have a third vaccine,” said Richard Saperstein, chief investment officer at Treasury Partners.

The U.S. Food and Drug Administration said on Wednesday Johnson & Johnson’s one-dose COVID-19 vaccine appeared safe and effective in trials, paving the way for its approval for emergency use as soon as this week.

Johnson & Johnson rose following the news.

Unofficially, the Dow Jones Industrial Average rose 424.51 points, or 1.35%, to 31,961.86, the S&P 500 gained 43.98 points, or 1.13%, to 3,925.35 and the Nasdaq Composite added 132.77 points, or 0.99%, to 13,597.97. All three main indexes were on track to post strong monthly gains, with the Dow and the S&P 500 set for their best month since November.

Investors have focused on rising U.S. yields and their potential impact on growth stocks. Saperstein said higher yields could pressure stocks but would not derail the upward trend.

“I don’t believe that the 10-year yield going from 1% to 1.5% is going to alter the calculus of owning large technology stocks,” said Saperstein.

Value-oriented stocks have enjoyed a bit of a bounce recently, and the S&P 500 Value index rose for a fourth straight day.

The S&P 500 financial sector hit an all-time peak, while other cyclical stocks including industrials, energy and materials also rose.

The S&P 500 Growth index, which includes most of the high-flying technology-related stocks, has come under pressure in the last few days due to valuation concerns, elevated Treasury yields and an investment shift into more economy-sensitive parts of the market.

Microsoft Corp, Amazon.com Inc and Apple Inc were down, while Facebook, Netflix Inc and Alphabet Inc reversed earlier declines.

Growth-oriented stocks are particularly sensitive to rising yields as their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.

Tesla Inc gained after star investor Cathie Wood’s Ark Invest fund bought a further $171 million worth of the company’s shares in the wake of a sharp fall in the electric-car maker’s stock.

Lowe’s Cos Inc slid as it stuck by its 2021 outlook of a $4 billion to $8 billion drop in revenue, even after reporting blow-out fourth quarter results.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Devik Jain and Shreyashi Sanyal in Bengalaru; Editing by Cynthia Osterman)



Charlie Munger warns of market ‘frenzy’; frowns on gambling mentality, bitcoin, SPACs

By Jonathan Stempel

(Reuters) – Charlie Munger, the longtime business partner of Warren Buffett, on Wednesday warned that the stock market bears signs of a bubble, reflecting a “dangerous” mentality among some investors to gamble on stocks as they would horse races.

Munger, 97, lamented the recent mania for GameStop Corp, in which amateur investors encouraged each other online to buy the gaming retailer on platforms including Robinhood, and caught some hedge funds in a short squeeze.

“It’s really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors,” he said.

“A lot of them crowd in to buying stocks on frenzy, frequently on credit, because they see that they’re going up, and of course that’s a very dangerous way to invest.”

Asked if the market resembled the late-1990s dot-com bubble, Munger said: “Yes, I think it must end badly, but I don’t know when.”

Munger was speaking at the annual meeting of Daily Journal Corp, the Los Angeles newspaper publisher he chairs, which was broadcast on Yahoo Finance.

He is better known as vice chairman of Buffett’s conglomerate Berkshire Hathaway Inc since 1978.

Munger said investors should not buy gold or bitcoin, noting the latter was too volatile to become a “medium of exchange for the world.”

He paraphrased author Oscar Wilde’s quotation about fox hunting to describe bitcoin, calling it “the pursuit of the uneatable by the unspeakable.”

Munger also expressed disdain for the surging demand for special purpose acquisition companies, or SPACs, which raise money from investors and then merge with private companies to take them public, in “blank check” arrangements.

“The world would be better off without them,” Munger said.

“This kind of crazy speculation in enterprises not even found or picked out yet is a sign of an irritating bubble,” he said. “It’s just that the investment banking profession will sell shit as long as shit can be sold.”

(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Richard Chang)



Record redemption in Ark ETF sparks liquidity worries

By Thyagaraju Adinarayan and Saikat Chatterjee

LONDON (Reuters) – A record half-billion dollar redemption from Ark Invest’s flagship fund in a single day has led analysts to highlight the risks arising from the ETF’s heavy exposure to illiquid stocks if outflows pick up pace.

A 20% pullback in Tesla shares over the past three weeks, the biggest holding of the exchange-traded fund Ark Innovation set up by star investor Cathie Wood has triggered a rush among investors to sell some of their holdings.

But according to some who watch the fund closely, a far bigger problem could be its 15%-plus stakes in a handful of companies whose shares are relatively illiquid and potentially hard to exit when redemptions surge.

These include names such as therapeutic discovery company Compugen and three-dimensional printing firm Stratasys whose daily share trading is tiny compared to the overall ETF’s turnover.

“They won’t find liquidity in many of these stocks,” said Ben Johnson, director of global ETF research at Morningstar. “If there’s going to be liquidity it is going to come at a price, and it’s going to be a price that, in all likelihood, would not be favourable to fund shareholders.”

For instance, about $100 million worth of shares change hands on average every day in Stratasys, a stark contrast to Ark Innovation ETF’s turnover in single-digit billions and Tesla’s in tens of billions of dollars.

Investors yanked $465 million from Ark Innovation on Monday, according to Refinitiv data. More such redemptions would prompt Wood’s fund to sell liquid holdings to manage the squeeze in the near-term before looking to unwind its illiquid holdings.

That could turn nasty and rekindle memories of British money manager Neil Woodford’s flagship fund, which failed in 2019 because of its exposure to hard-to-sell stocks. That left it unable to meet a flood of redemption requests after a phase of disappointing performance and asset revaluations.

“These large stakes are difficult to exit quickly. This movie has played out before, with the leading role played by Neil Woodford,” said Neil Campling, head of technology research at Mirabaud Securities.

Ark Invest did not return calls seeking comment.

The portfolio risk level of the Ark Innovation ETF, which returned 157% last year, ranks well above average on 10 of the 11 factors in Morningstar’s Global RiskModel.

Ark Invest meanwhile shuffled its portfolio on Tuesday by cutting its already-tiny holdings in Apple, Amazon, Taiwan Semiconductor and Google-owner Alphabet to beef-up its Tesla stake on Wednesday.

The fund, which saw $5.5 billion inflows in 2021, traded nearly flat on Wednesday as Tesla shares stopped falling.

In 2020, its assets grew nine-fold thanks to small-time investors as actively managed ETFs focused on red-hot themes such as major tech disruptors, space technology and pet care took off.

Investors say Ark’s ETF allows funds to invest in specialised niche companies that other large ETFs simply don’t take stakes in.


The pressure on the fund this week has lured in short-sellers, with 100% of Ark Innovation shares available for shorting out on loan as of Monday, data provider FIS Astec Analytics estimated.

Selling pressure can cause the ETF to trade below net asset value (NAV), which leads to “redemptions” as ETF arbitrageurs exchange the fund for the underlying holdings and then sell the underlying holdings, exacerbating the selling pressure on these ETFs.

In a similar episode, during China’s 2015 stock market crash, overseas-listed ETFs of Chinese markets traded at significant discounts to their NAVs.

“ETFs can rapidly gain or lose assets based on the sentiments of their retail investors. These changing flows can act as a self-fulfilling prophecy for ARK,” Campling added.

Of course, Ark is not the only fund to bet heavily on a very small number of companies. It is among the biggest, however, and many others have adopted a more cautious approach.

Global X, which has $25 billion in managed assets, uses a concept of “modified market capitalisation” in its thematic ETFs where no company has more than 8% weight in the portfolio, CEO Luis Berruga says.

“We limit the potential situation in which a company can become a very large part of their portfolio and address some of the potential concentration risks in our portfolios,” Berruga told Reuters.

Graphic: ARK, Tesla shares in the last two years – https://fingfx.thomsonreuters.com/gfx/buzz/rlgvdeqgzpo/Pasted%20image%201614189488797.png

(Reporting by Thyagaraju Adinarayan and Saikat Chatterjee; Editing by Sujata Rao and Hugh Lawson)


Oil rises after data shows slump in U.S. output amid Texas freeze

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices climbed on Wednesday to fresh 13-month highs after U.S. government data showed a drop in crude output after a deep freeze disrupted production last week.

U.S. crude oil production dropped by more than 1 million barrels per day last week during the rare winter storm in Texas, equaling the largest weekly fall ever, the Energy Information Administration said. Refinery crude inputs dropped to the lowest since September 2008 as the freeze knocked out power to millions. [EIA/S]

“If you’re getting that kind of drop in one week of EIA production, you’re likely to get more after that,” said Phil Flynn, senior analyst at Price Futures in Chicago.

“There is some concern that this will be a long-term permanent production drop.”

Traffic at the Houston ship channel was slowly coming back to normal but terminals were still facing several issues. After nearly a quarter of national refining capacity was idled by the freeze, refineries have also started to come back online this week.

Brent crude futures gained $1.59 or 2.4%, to $66.96 a barrel by 11:27 a.m. EST (1627 GMT). Brent hit $67.20 a barrel, its highest since Jan. 8, 2020.

U.S. West Texas Intermediate (WTI) crude futures rose $1.34, or 2.2%, to $63.01 a barrel. WTI reached $63.32, its highest since Jan. 8, 2020.

The rally continued oil’s steady march to levels not seen since prior to the coronavirus pandemic as vaccine distribution increases and on forecasts for renewed demand.

Oil prices have rallied about 30% since the start of the year, boosted as well by ongoing supply cuts by the Organization of the Petroleum Exporting Countries and its allies.

Brent may trade in a range of $66.45-$66.97 per barrel again, as suggested by its wave pattern and a projection analysis, said Reuters technical analyst Wang Tao.

(Reporting by Stephanie Kelly in New York; additional reporting by Ahmad Ghaddar in London, Roslan Khasawneh and Koustav Samanta in Singapore, and Sonali Paul in Melbourne; Editing by Marguerita Choy and Steve Orlofsky)


Goldman-backed ReNew plugs into U.S. public market with $8 billion blank check deal

By Anirban Sen and Noor Zainab Hussain

(Reuters) – ReNew Power will go public through an $8 billion merger with a blank-check firm in the biggest deal in the fast-growing clean energy sector in India, allowing the country’s largest renewable energy firm to grow capacity over the next few years.

The deal will be financed with cash proceeds of $1.2 billion, including $855 million in investments from serial blank-check dealmaker Chamath Palihapitiya, funds managed by BlackRock and Sylebra Capital, ReNew Power said on Wednesday.

Founded in 2011, ReNew Power counts Goldman Sachs and Canada Pension Plan Investment Board among its prominent investors. It owns and operates solar energy projects for more than 150 commercial and industrial customers across India.

ReNew, which currently has a 10% market share of India’s renewable energy market, is among a wave of clean-energy firms poised to benefit from the country’s push into renewable energy.

India, the world’s third-largest emitter of greenhouse gases, wants to raise its renewable energy capacity to 500 gigawatts (GW), or 40% of total capacity, by 2030.

ReNew’s total operational clean energy capacity is currently over 5 GW and it has an aggregate capacity of about 10 GW. It also counts Abu Dhabi Investment Authority, Global Environment Fund and JERA Co Inc, a consortium of two of the biggest Japanese utilities, as investors.

The company expects to grow its capacity to about 19 GW by 2025, with cash raised from the deal to be used to fund the roll-out, Sumant Sinha, chairman & chief executive officer of ReNew, told Reuters.

Goldman Sachs and Morgan Stanley are serving as financial advisers to ReNew, with Morgan Stanley also acting as a joint placement agent to the blank check company RMG Acquisition Corp II on the PIPE deal.

Special purpose acquisition companies, or SPACs, such as RMG raise money through an initial public offering to merge with a privately held company that then becomes publicly traded.

RMG’s shares were up about 3% in New York. The combined entity is expected to be listed on the Nasdaq under the ticker symbol “RNW”.

“We had been looking at trying to get an IPO done, and preferably from our standpoint, in the overseas market, just because they understand renewables better,” Sinha said.

The amount of environmental, social and governance capital in overseas markets also influenced ReNew Power’s decision to list in the U.S., Sinha added.

Palihapitiya, a former Facebook executive, also led the PIPE (private investment in public equity) round at SoftBank-backed robotics firm Berkshire Grey, which earlier on Wednesday agreed to go public through a merger with a blank-check firm.

(Reporting by Anirban Sen and Noor Zainab Hussain in Bengaluru and Sudarshan Varadhan in New Delhi; Editing by Shinjini Ganguli, Saumyadeb Chakrabarty and Shounak Dasgupta)