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Morgan Stanley: bear market rally to continue

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One of Wall Street’s best-known bears, Michael Wilson, thinks the S&P 500 will rise another 7% before turning down, so the bear market rally will continue for now, writes Market Watch.

After the Dow Jones, S&P 500 and Nasdaq Composite joined their strongest weekly gains since at least May last Friday, Wilson, who is chief strategist and head of U.S. equity markets at Morgan Stanley (NYSE:MS), told clients that there could be another 5% to 7% before the downward trajectory of U.S. stocks resumes during the latest bear market recovery.

Wilson has held a bearish view of the stock market for about 2 years and correctly predicted a sell-off this year.

Wilson explained in a research note sent out to clients on Monday that a pullback in the 38-50% drop in the stock market this year “would not seem like something unnatural, not consistent with the previous bear market rally.”

While growth concerns have triggered a sell-off in commodities and lowered inflation expectations, the fact that the U.S. economy is already slowing and heading toward recession means that any market rally is likely to be short-lived, and U.S. stocks are likely to eventually fall.

Wilson mentioned in the note that the bear market is not over yet, although it may appear otherwise in the next few weeks as the market takes the rate cut as a sign that the Fed can still manage a “soft landing” and prevent a meaningful revision to earnings forecasts.

U.S. stocks rose last week as investors now hope the slowing economy and falling commodity prices may inspire the Fed to raise interest rates less sharply. Federal funds futures, a derivative used by investors to bet on the pace of the Fed’s monetary policy changes, estimate with a high probability that the Fed will be forced to start cutting interest rates again as soon as next summer.

They also consider the lower peak in the federal funds rate: it will peak around 3.5% at the end of 2022 instead of 3.75% just a couple of weeks ago. Wilson also pointed out the drop in Treasury yields: the 10-year Treasury bond yield went from 3.230% to a low of 3.07% on Friday before rebonding again on Monday.

Wilson expects the S&P 500 index to fall to around 3,400 points if the U.S. Federal Reserve manages to get a “soft landing” for the economy — which Fed Chairman Jerome Powell said last week would be “a very difficult thing to do.”

Wilson expects that if the U.S. economy plunges into recession, the S&P 500 index will fall to around 3,000 points. In any case, Wilson believes that U.S. stocks are still highly valued because the risk premium — that is, the measure of compensation that investors receive for the extra risk of owning stocks instead of bonds — remains about 300 basis points higher than the 10-year Treasury bond yield, which is considered a “risk-free rate.” 



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Piper Sandler cuts First Bank stock target to $15, maintains Overweight

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On Wednesday, Piper Sandler adjusted its stance on First Bank (NASDAQ:), reducing the price target to $15 from the prior $16 while sustaining an Overweight rating on the stock. The adjustment follows First Bank’s first-quarter earnings report for 2024, which showed earnings per share (EPS) of $0.50. When accounting for a Bank-Owned Life Insurance (BOLI) death benefit and normalizing the tax rate, the core EPS was calculated at $0.45. This core figure surpassed both the analyst’s and the consensus estimates by $0.03.

The report highlighted that a negative provision recognized in the quarter was the main variance from the forecast, contributing $0.06 to the EPS. This was somewhat balanced by a $0.01 decrease in net interest income (NII) and a $0.01 rise in operating expenses. Consequently, pre-provision net revenue (PPNR) fell short of expectations by $0.02.

The bank’s financial results for the first quarter of 2024 included an unexpected benefit from the BOLI death benefit, which influenced the reported earnings. However, when this one-time factor was excluded, the core earnings still outperformed the anticipated results. The negative provision taken was not anticipated in the initial models and served as the key difference from the projections.

Piper Sandler’s revised price target reflects the latest financial figures and the bank’s performance in the quarter. Despite the adjustments made in the financial modeling, the firm continues to hold a positive view on First Bank’s stock, as indicated by the Overweight rating.

The new price target of $15 indicates Piper Sandler’s valuation expectation for First Bank’s shares following the recent earnings report and the bank’s current financial position. The Overweight rating suggests that the firm expects the stock to outperform the average return of the stocks covered in the sector over the next 12 to 18 months.

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InvestingPro Insights

In the wake of Piper Sandler’s price target adjustment for First Bank (NASDAQ:FRBA), InvestingPro data and insights offer additional context for investors considering the bank’s stock. With a market capitalization of $309.23 million and a P/E ratio that has adjusted to a more attractive 11.48 based on the last twelve months as of Q4 2023, First Bank appears to be positioned for potential growth. The bank also boasts a solid operating income margin of 39.08%, reflecting efficient management and profitability.

InvestingPro Tips suggest a positive outlook, noting that net income is expected to grow this year, with analysts predicting profitability. This is further supported by three analysts revising their earnings upwards for the upcoming period, which may signal confidence in the bank’s financial trajectory. Additionally, the bank has been profitable over the last twelve months, reinforcing the positive sentiment.

For investors seeking more in-depth analysis, there are additional InvestingPro Tips available, which can be explored further at https://www.investing.com/pro/FRBA. To enhance your investing strategy with these expert insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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Why Is HashiCorp (HCP) Stock Soaring Today

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What Happened:
Shares of cloud infrastructure automation platform HashiCorp (NASDAQ:) jumped 10% in the afternoon session after Bloomberg reported that tech giant IBM (NYSE:) is closing a deal to acquire the company for about $35 per share. According to sources, a deal could be struck between IBM and HashiCorp as soon as Wednesday, April 24, 2024. This corroborated the report on Tuesday, April 23, 20224, as HCP’s stock rallied 20%, after the Wall Street Journal reported on a potential deal with IBM.

In a related event, BTIG analyst downgraded HashiCorp from Buy to Neutral, adding, “Given that there is still some uncertainty on a deal being consummated and a typical approval/closing process in the six to nine-month range, BTIG sees limited incremental upside to shares near term.”

Is now the time to buy HashiCorp? Find out by reading the original article on StockStory, it’s free.

What is the market telling us:
HashiCorp’s shares are very volatile and over the last year have had 19 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 11 months ago, when the stock dropped 25.6% on the news that the company reported first quarter results that beat analysts’ revenue, remaining performance obligations (RPO, a leading indicator of revenue), and earnings per share (EPS) estimates. Cash position improved with operating cash flow at nearly breakeven. However guidance was weak and a major driver of the stock move. Revenue guidance for the next quarter missed Consensus. The full-year guidance was lowered, which is never a good sign and could imply company-specific challenges or lack of visibility around near-term fundamentals. Non-GAAP operating loss guidance was roughly inline. Management highlighted a weaker macro environment and ” pressure in the buying process.” HashiCorp also announced cost-saving measures and a headcount reduction of about 8%. Overall, it was a fine quarter for the company but underwhelming guidance was the focus.

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HashiCorp is up 38.6% since the beginning of the year, but at $31.70 per share it is still trading 10.7% below its 52-week high of $35.49 from June 2023. Investors who bought $1,000 worth of HashiCorp’s shares at the IPO in December 2021 would now be looking at an investment worth $371.87.

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Starbucks loses appeal over union election at Seattle store

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By Daniel Wiessner

(Reuters) – A U.S. appeals court on Wednesday rejected Starbucks (NASDAQ:)’ claims that an election won by a union at the coffee company’s flagship Seattle store was invalid because it was held via mail ballot during the COVID-19 pandemic.

A three-judge 9th U.S. Circuit Court of Appeals panel upheld a National Labor Relations Board decision that said the company, which is facing a nationwide union organizing campaign, must recognize and bargain with the store’s union, which represents nearly 100 workers.

Starbucks claimed that a labor board official who ordered the mail-ballot election in March 2022 used the wrong data to determine that an in-person election was unsafe because there was an upward trend in COVID cases in the Seattle area at the time. Workers at the store voted 38-27 to unionize.

The 9th Circuit on Wednesday disagreed, finding that the official correctly applied a test the board adopted in 2020 for determining when a mail-ballot election was appropriate because of the pandemic.

Starbucks and Workers United, the union organizing the company’s stores, did not immediately respond to requests for comment.

During the pandemic, most union elections were held via mail ballot, and the labor board is still ordering elections by mail in some cases.

Business groups and Republican lawmakers have criticized the labor board for continuing to shun in-person elections even as the pandemic subsided. They claim mail-ballot elections lower voter participation and jeopardize workers’ rights to choose whether to be represented by a union.

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In a 2020 decision involving hospital operator Aspirus, the labor board said that, among other factors, regional directors should look at the 14-day trend in local COVID cases in deciding how to administer a union election.

In Wednesday’s case, Starbucks claimed that meant looking at the average rate of new cases each day over a 14-day period, and not the number of cases reported 14 days apart as the regional director had done.

But the 9th Circuit in its decision noted that the labor board had not defined what a 14-day trend was or laid out a specific method for calculating it.

“Even if we credit Starbucks’s approach … our standard of review does not permit us to displace the NLRB’s choice between two fairly conflicting views,” Circuit Judge M. Margaret McKeown wrote for the court.

Workers at more than 420 of Starbucks’ 9,000 U.S. stores have voted to unionize since 2021. The 9th Circuit case is one of several involving the organizing campaign to reach federal appeals courts.

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