Dow futures drop 270 points, building on losses after worst week since October

U.S. stock index futures declined in overnight trading as a surge in speculative trading by retail traders continued to cause hedge funds to take off risk and worried investors about a market bubble. The losses build on last week’s decline, which was the worst for the market since October.

Futures contracts tied to the Dow Jones Industrial Average declined 270 points, indicating a 271-point loss at the opening bell. S&P 500 futures slipped 1%, while Nasdaq 100 futures fell 1.2%.

The Dow dropped 620 points on Friday, or 2%, to close below the 30,000 level for the first time since December. The Nasdaq Composite also slipped 2%, while the S&P 500 fell 1.9%.

For the week, all three major averages slipped more than 3% for their worst weekly performance since October. The Dow and S&P also posted losses for January — the first negative month in four — although the Nasdaq did manage to post a gain for the month.

Friday’s dip came amid a frenzy of activity by retail investors in heavily-shorted stocks including GameStop and AMC Entertainment, which fueled concerns about the overall health of the market. Goldman Sachs noted that the current short squeeze is the worst in 25 years.

“This week’s events may have turned markets on their heads, but fear indicators imply that we may have seen the worst of the degrossing,” Jefferies wrote in a note to clients over the weekend. Barclays added that it’s unlikely that the impact of the short squeezes will ripple through the broader market.

“The ongoing short squeeze in a few stocks by retail investors has raised concerns of a broader contagion,” the firm wrote in a recent note to clients. “While we believe there is more pain to come we remain optimistic that it is likely to remain localized.”

Meanwhile, a group of 10 Republican senators sent President Joe Biden a letter on Sunday, urging him to consider a smaller, scaled down Covid-19 relief proposal. His current plans calls for $1.9 trillion in additional fiscal stimulus. The alternative proposal comes after House Speaker Nancy Pelosi said the chamber will move to pass a budget resolution, the first step toward approving legislation through reconciliation. The process would enable Senate Democrats to approve an aid measure without GOP votes.

Elsewhere, another busy week of earnings is coming up with 99 S&P companies set to report. Alphabet, Amazon, Alibaba, Snap, Exxon, Biogen, Pfizer and Chipotle are among the names set to report this coming week. Thursday is the busiest day of the earnings season.

“We believe the medium-term path for the market remains higher,” noted Mark Haefele, global CIO at UBS Wealth Management. “In a similar pattern to the previous two quarters, corporate earnings for 4Q20 are exceeding expectations by a significant margin.”

He added that a stimulus package as well as investors looking beyond delays to vaccine production and distribution should further boost stocks.

– CNBC’s Jacob Pramuk contributed reporting.

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

Chevron and Exxon discussed merger last year: reports

A vehicle passes an Exxon Mobil Corp. gas station in Arlington, Virginia, U.S., on Wednesday, April 29, 2020.

Andrew Harrer | Bloomberg | Getty Images

The CEOs of Chevron and ExxonMobil last year discussed the possibility of merging the two companies, The Wall Street Journal reported Sunday, citing unnamed people familiar with the talks.

The newspaper reported that Chevron CEO Michael Wirth and Exxon CEO Darren Woods spoke about the prospect after the Covid-19 pandemic began to negatively impact oil prices.

The talks are not ongoing and were described as preliminary, according to the Journal. Representatives from the two companies declined to comment. The talks were later reported by Reuters.

A merger between Chevron and Exxon would be among the largest in history, and would likely face antitrust scrutiny from President Joe Biden’s Department of Justice. Both companies descend from John D. Rockefeller’s Standard Oil, which was broken up by the Supreme Court in 1911.

Chevron’s market cap is $164 billion, and Exxon’s is $189 billion, meaning that the combined company would be worth north of $350 billion. The combined firm would be the second largest oil and gas company in the world, after Saudi Aramco.

Oil prices have recovered much of their losses since cratering in March, though they have remained somewhat depressed amid a slower-than-expected vaccine roll out and worries of new coronavirus variants.

— CNBC’s Pippa Stevens contributed to this report.

Subscribe to CNBC Pro for the TV livestream, deep insights and analysis  on how to invest during the next presidential term.

Blinken calls for Russian release of Alexei Navalny

Russian opposition politician Alexei Navalny takes part in a rally to mark the 5th anniversary of opposition politician Boris Nemtsov’s murder and to protest against proposed amendments to the country’s constitution, in Moscow, Russia February 29, 2020.

Shamil Zhumatov | Reuters

WASHINGTON – Secretary of State Anthony Blinken has condemned the “persistent use of harsh tactics” by Russian authorities on peaceful protesters who took to the streets across Russia on Sunday to call for the release of opposition leader Alexei Navalny.

For the second weekend in a row, tens of thousands rallied across the country in an effort to raise awareness for Navalny, a vocal critic of Russian President Vladimir Putin, who was detained earlier this month by authorities.

More than 4,500 people were detained by Russian authorities for participating in the protests, according to a monitoring group.

“We renew our call for Russia to release those detained for exercising their human rights, including Aleksey Navalny,” Blinken wrote in a tweet.

Last year, Navalny was medically evacuated to Germany from a Russian hospital after he became ill following reports that something was added to his tea. Russian doctors treating Navalny denied that the Kremlin critic had been poisoned and blamed his comatose state on low blood sugar levels.

In September, the German government said that the 44-year-old Russian dissident was poisoned by a chemical nerve agent, describing the toxicology report as providing “unequivocal evidence.” The nerve agent was in the family of Novichok, which was developed by the Soviet Union.

The Kremlin has repeatedly denied having a role in Navalny’s poisoning.

Earlier this month, Navalny flew to Russia from Berlin, Germany where he had spent nearly half a year recovering since he was poisoned last summer. He was arrested at passport control.

Russian authorities had issued a warrant for Navalny’s arrest, claiming that he had violated the terms of a suspended three-and-a-half year sentence he received back in 2014 for embezzlement charges.

“Mr. Navalny should be immediately released, and the perpetrators of the outrageous attack on his life must be held accountable,” Jake Sullivan, Biden’s national security advisor, wrote on Twitter on the heels of the arrest.

Last week, Blinken expressed “deep concern” over the treatment of Navalny and the broader human rights situation in Russia.

“It remains striking to me, how concerned, and maybe even scared, the Russian government seems to be of one man, Mr. Navalny,” Blinken told reporters during a press briefing on Wednesday.

Newly confirmed U.S. Secretary of State Antony Blinken addresses reporters during his first press briefing at the State Department in Washington, January 27, 2021.

Carlos Barria | Reuters

“Across the board, as the president has said, we’re reviewing all of these actions that are a deep concern to us whether it is the treatment of Mr. Navalny and particularly the apparent use of a chemical weapon in an attempt to assassinate him,” the nation’s top diplomat added.

Blinken also said Wednesday that the Biden administration was reviewing the hack on SolarWinds, reports of bounties placed by Russia on American forces in Afghanistan, and potential election interference.

Biden has previously vowed “to work with our allies and partners to hold the Putin regime accountable for its crimes.” He has also previously accused the Trump administration of not taking a tough enough stance on Moscow.

Melvin Capital lost more than 50% after betting against GameStop: WSJ

A GameStop Corp. store in Rome, Italy, on Thursday, Jan. 28, 2021.

Alesia Pierdomenico | Bloomberg | Getty Images

Hedge fund Melvin Capital Management lost 53% in January amid a record rally in GameStop and other stocks the fund was betting against, according to The Wall Street Journal citing people familiar with the matter.

The heavy losses come as retail investors piled into popular hedge fund short targets, including the struggling video game retailer. Shares of GameStop finished last week with a gain of 400%, bringing its total return this year to 1,625%. The stock closed Friday’s session at $325. As recently as October it traded under $10.

CNBC’s Andrew Ross Sorkin reported last week that Melvin Capital closed out its short position in GameStop on Tuesday afternoon after sustaining heavy losses. Citadel and Point72 infused close to $3 billion into the fund to shore up its finances. Citadel’s flagship fund lost less than 1% last week on its investment into Melvin Capital, a source familiar with the matter told CNBC.

Melvin’s assets under management now stand at more than $8 billion — including the emergency funding — down from roughly $12.5 billion at the beginning of the year, according to the Journal.

Last week’s activity in GameStop extended to other popular short targets, including Bed Bath & Beyond and AMC Entertainment, with retail investors turning to Reddit’s WallStreetBets forum to discuss various trades. The forum has seen its members more than triple in just a week to north of 7 million.

Amid the short squeeze, Robinhood and other brokerages restricted trading in some of the most volatile names, sparking frustration for users who were unable to trade at will.

Robinhood said in a blog post that the central Wall Street clearinghouse mandated a tenfold increase in the firm’s deposit requirements on the week in order to ensure smooth settlement in trades involving the securities experiencing unprecedented volatility.

The meteoric rise in GameStop’s shares has prompted some lawmakers to call on regulatory bodies to intervene.

“We need an SEC that has clear rules about market manipulation and then has the backbone to get in and enforce those rules,” Sen. Elizabeth Warren, D-Mass., told CNBC Wednesday. “To have a healthy stock market, you’ve got to have a cop on the beat.”

Read more from The Wall Street Journal’s report.

– CNBC’s Patti Domm contributed reporting.

Former Biden Covid advisor warns of coming surge in Covid cases

Dr. Michael Osterholm, Regents Professor, McKnight Presidential Endowed Chair in Public Health, and director of the Center for Infectious Disease Research and Policy at the University of Minnesota, announced advances for COVID-19 testing in Minnesota, Wednesday, April 22, 2020 in St. Paul, MN.

Glen Stubbe | Star Tribune | Getty Images

An epidemiologist who advised President Joe Biden’s transition on the Covid-19 crisis warned on Sunday of a looming wave of infections and said the U.S. should adjust its vaccination strategy in order to save lives.

“We do have to call an audible, I think it’s no doubt about it,” Dr. Michael Osterholm said on NBC’s “Meet the Press,” using a metaphor drawn from football to describe changing plans on the fly.

Osterholm said that the administration should attempt to administer as many first doses of vaccine as it can, particularly to those over 65-years-old, ahead of a potential surge in cases linked to mutations found overseas.

The two vaccines approved by federal regulators in the U.S. are administered in two doses given three weeks apart. Osterholm suggested that his plan might require some second doses to be delayed.

“The fact is that the surge that is likely to occur with this new variant from England is going to happen in the next six to 14 weeks. And, if we see that happen, which my 45 years in the trenches tell me we will, we are going to see something like we have not seen yet in this country,” Osterholm said.

“We still want to get two doses in everyone, but I think right now, in advance of this surge, we need to get as many one doses in as many people over 65 as we possibly can to reduce serious illness and deaths that are going to occur in the weeks ahead,” Osterholm added. He said that data supported the idea that those who receive their second dose later may have better outcomes.

The coronavirus variant first identified in the United Kingdom has been associated with more rapid transmission and may be more deadly. The Centers for Disease Control and Prevention have warned that the variant may be the dominant strain in the U.S. by March.

Osterholm is the director of the Center for Infectious Disease Research and Policy at the University of Minnesota. He served on the Biden transition team’s Covid-19 advisory board, which dissolved when Biden was inaugurated earlier this month.

The White House did not return a request for comment on Osterholm’s remarks Sunday.

The number of daily new coronavirus cases and hospitalizations has been dropping sharply in recent weeks, though the totals remain high. The monthly death toll from the virus hit a record in January.

As a seven-day average, the U.S. is facing more than 3,000 deaths daily on average from the virus and more than 150,000 infections, according to a CNBC analysis of data from Johns Hopkins University.

Osterholm suggested that the declining number of cases and hospitalizations may be providing a false sense of security, and that those figures would rise once more transmissible mutations spread more widely throughout the country.

“You and I are sitting on this beach, where it’s 70 degrees, perfectly blue skies, gentle breeze, but I see that hurricane — Category 5 or higher —  450 miles off shore,” Osterholm told host Chuck Todd. “Telling people to evacuate on the nice, blue sky day is going to be hard. But I can also tell you that the hurricane is coming.”

The federal vaccine rollout, which got off to a rocky start, has sped up in recent weeks. Nearly 25 million people have received at least one dose of vaccine, according to CDC data, with about 5 million receiving both doses. Biden has pledged to hit a goal of 100 million doses administered within his first 100 days.

Subscribe to CNBC Pro for the TV livestream, deep insights and analysis  on how to invest during the next presidential term.

Republican senators present smaller Covid proposal

Senator Mitt Romney, a Republican from Utah, listens during a Senate Foreign Relations Committee hearing regarding Iran-U.S. relations on Capitol Hill in Washington, D.C., U.S., on Wednesday, Oct. 16, 2019.

Al Drago | Bloomberg | Getty Images

WASHINGTON – A group of 10 Republican senators called on President Joe Biden to consider a smaller, alternative Covid-19 relief proposal as his administration works to pass a $1.9 trillion package to address the economic fallout triggered by the pandemic.

In a letter to Biden on Sunday, Sens. Susan Collins of Maine, Mitt Romney of Utah, Rob Portman of Ohio, Lisa Murkowski of Alaska and five other lawmakers said they would unveil their proposed legislation on Monday.

“We recognize your calls for unity and want to work in good faith with your administration to meet the health, economic, and societal challenges of the Covid crisis,” the senators wrote.

“With your support, we believe Congress can once again craft a relief package that will provide meaningful, effective assistance to the American people and set us on a path to recovery,” the group wrote asking for a meeting with Biden in order to discuss the proposed legislation in greater detail.

The Republican senators explained that their version of the Covid relief package provides “more targeted assistance” to Americans with the greatest need. The proposed legislation asks for a total of $160 billion for vaccine development and distribution, testing and tracing, treatment as well as other crucial supplies.

The senators laid out the following details of their plan:

  • An additional round of economic impact payments for families who need assistance the most including their dependent children and adults.
  • Extends enhanced federal unemployment benefits at the current level.
  • Fully funds nutrition assistance to help struggling families.
  • Additional resources to help small businesses and their employees through the Paycheck Protection Program and the Economic Injury Disaster Loan Program.
  • Funds resources for opening schools safely and for child care.
  • Provides $4 billion to bolster behavioral health and substance abuse services.

On Sunday, Portman told CNN’s “State of the Union” that the proposal would be a slimmer version of what was presented by the Biden administration.

“It’d be less than $1.9 [trillion] because much of what the administration has laid out has nothing to do with Covid-19,” Portman explained. “As an example, with regard to the direct payments, we think they should be much more targeted,” he added.

Brian Deese, director of the National Economic Council, told MSNBC’s “Meet the Press” on Sunday that the White House had received the letter and was open to discussing the proposed legislation.

“The president has said repeatedly, he is open to ideas wherever they may come that we could improve upon the approach to actually tackling this crisis. What he is uncompromising about is the need to move with speed on a comprehensive approach here,” Deese said.

“We’ve been engaging with members of Congress from both parties and in both houses over the course of the last week or two. We will continue to do that as we go forward,” he added.

Deese also told CNN’s “State of the Union” that the administration is willing to negotiate on the stimulus checks.

The Republican counter-proposal comes as the House is set to pass a budget resolution this week, the first step toward approving the relief bill through reconciliation. The process would enable Senate Democrats to approve an aid measure without Republican support.

Senate Majority Leader Chuck Schumer of New York signaled last week that the chamber would also work to pass a budget resolution soon. He said the Senate “as early as next week will begin the process of considering a very strong Covid relief bill.”

When asked if Senate Democrats could pass the rescue bill through the reconciliation process, Sen. Bernie Sanders of Vermont told ABC’s “This Week” that he believed the party had the votes to do so.

“It’s hard for me to imagine any Democrat, no matter what state he or she may come from, who doesn’t understand the need to go forward right now in an aggressive way to protect the working families of this country,” Sanders said.

“Look all of us will have differences in opinion, this is a $1.9 trillion bill, I have differences and concerns about this bill but at the end of the day we are going to support the president of the United States and we are going to do what the American people want us to overwhelmingly do,” he added.

CNBC’s Jacob Pramuk, Tucker Higgins and Emma Newburger contributed to this report from New York.

Top analysts like these stocks coming out of earnings season

Johnson & Johnson products on a shelf in a store in New York.

Lucas Jackson | Reuters

It was a busy week for Wall Street. Heavyweights like Apple, Microsoft, Facebook, Boeing and Tesla, among others, stepped up to report their earnings for the most recent quarter.

However, some analysts and strategists were more focused on guidance and looking ahead. “As earnings season gets underway and gathers momentum a key factor to Q4 earnings season will be not just how expectations were met, missed, or exceeded in the quarter but how managements of the companies reporting frame the quarters that lie ahead,” Oppenheimer’s John Stoltzfus commented.

With this in mind, one way to find compelling investment opportunities is to follow the activity of the pros that get it right time and time again. TipRanks analyst forecasting service attempts to identify the best-performing analysts on the Street. These are the analysts with the highest success rate and average return per rating.

Here are the best-performing analysts’ top stock picks right now:

Crane Company

Following the company’s fourth quarter earnings release, Canaccord Genuity analyst Ken Herbert continues to view Crane Company’s long-term growth narrative as being strong. As such, the top analyst reiterated a Buy rating on the industrial and engineered products maker. In a further bullish signal, he lifted the price target from $82 to $86.

During the quarter, the company generated revenue of $726 million, reflecting a 21% core decline. That said, free cash flow landed at $88 million for the most recent quarter, or $275 million for the full year, which was $30 million higher than the latest guidance mid-point.

Additionally, Herbert points out that CR “provided bullish comments on the order trends across Q4/20 and is confident in its ability to hit its initial 2021 financial guidance.”

What’s behind the bullish outlook? Strength in the Payment and Merchandising Tech (PMT) segment had a lot to do with management’s optimistic forecast. This strong showing has persisted in 2021, and although the company expects some minor COVID-19-related disruptions, market trends suggest that the disruptions don’t pose a long-term threat.

“We are encouraged by the monthly Q4/20 order cadence, which provides additional confidence in the 2021 outlook for the PMT and FH segments. We believe the strong FCF performance is not fully appreciated by investors, and the strength in the H1/21 Crane Currency business should be a positive catalyst,” Herbert commented.

To this end, Herbert sees CR on the path to generating 2021 and 2022 EPS of $5.05 and $5.75, respectively. “The initial $4.90 to $5.10 EPS guidance is a relatively tight range, but we believe management has very good visibility, and high confidence, on its ability to hit the guidance range, which we believe reflects some justified conservatism,” he noted.

Earning the #84 spot on TipRanks’ ranking, Herbert boasts a 73% success rate and 26.7% average return per rating.

AudioCodes

Despite unforeseen tax and FX headwinds, AudioCodes was able to post estimate beating Q4 2020 results. In addition, the communications software provider issued initial 2021 guidance that also surpassed estimates.

As a result, Needham’s Richard Valera kept a Buy rating and $43 price target on the stock.

“Ongoing strength in Teams/SBC/Contact Center is more than offsetting COVID-driven weakness in Service Provider, driving higher margins, and we think setting the stage for better growth as challenged businesses become a smaller % of revs and/or stabilize,” the analyst explained.

Seeing “exceptionally strong growth in Q4,” the SBC business generated revenue of $95 million in 2020, up from around $60 million in 2019. “Rapid growth of this predominantly software business, has driven steadily increasing product GMs,” Valera said.

While the Service Provider segment made up only 18% of revenue, reflecting a 10% year-over-year drop, this decline is expected to moderate in 2021. IP iPhones are also primed for a rebound in 2021, in Valera’s opinion.  

On top of this, Valera believes MSFT momentum remains strong going into 2021, with similar growth to 2020 expected.

Summing it up, the Needham analyst stated, “We think an accelerated shift to cloud precipitated by COVID-19, and the related explosive growth of MSFT’s Teams, could serve to sustainably accelerate this growth rate. Our recent channel checks suggest accelerating momentum for Teams Voice deployments and a related increase in demand for AUDC SBCs, which we think positions AUDC well for upside in balance of 2020. With shares having underperformed since the company’s June 4th $35 per share follow-on offering, we see an attractive risk/reward for the shares.”

Ranked #117, Valera has achieved a 69% success rate and 22.2% average return per rating.

Johnson & Johnson

Apple  

Fiscal Q1 saw Apple generate record-breaking revenue. As a result, Canaccord Genuity analyst Michael Walkley left his Buy rating as is, with the analyst also raising the price target from $150 to $155.

The top line result was $111.4 billion, beating Walkley’s estimate and the Street’s forecast by 7%. EPS also impressed, with the $1.68 figure surpassing the consensus and the analyst’s call by 16%.

On top of this, iPhone revenue landed at $65.6 billion, up 17% year-over-year even though the iPhone 12 launch was staggered and it had difficulty meeting the demand for the higher ASP Pro products. Macs and iPads also experienced double-digit growth during the period.

“We believe Apple is well-positioned to benefit from the 5G upgrade cycle and anticipate strong overall growth trends as 5G smartphones ramp and Apple continues to grow its installed base and higher-margins services revenue. Apple’s ecosystem approach, including an installed base that exceeds 1.65 billion devices globally and now over 1 billion iPhone users, should continue to generate strong services revenue,” Walkley stated.

As for the analyst’s long-term expectations, Walkley believes that higher-margin services revenue growth will “outpace total company growth and drive gross margin expansion.”

He added, “With $84 billion in net cash, Apple has a strong balance sheet to continue to invest and support long-term growth. With the 5G upgrade cycle likely a benefit during 2021, other hardware categories growing double digits, and continued mix shift towards high-margin services, we believe the share price is compelling for longer-term investors.”

With a 71% success rate and 29.2% average return per rating, Walkley scores the #54 spot on TipRanks’ list of best-performing analysts.

Facebook

Facebook just got a thumbs up from Oppenheimer analyst Jason Helfstein. In addition to maintaining a Buy rating, the five-star analyst gave the price target a boost, with the figure moving from $345 to $350.

In a report titled “Stellar Q4 Results with Management Taking a Bite at the AAPL,” Helfstein tells clients that the company’s advertising business “continues to benefit from the secular shift to eCommerce/product ads.”

In the fourth quarter, ad revenue grew 31% year-over-year, with the social media company guiding for stable to modestly accelerating year-over-year revenue growth in the first half of 2021. However, management is cautious that Apple’s iOS 14 rollout will create ad targeting headwinds.

“FB management specifically noted iOS 14 changes will impact SMBs’ ability to run targeted ad campaigns, with impact beginning late 1Q. Given comps, we believe revenue impact won’t be visible until 4Q:21,” Helfstein wrote in the research note. The analyst also points out that Facebook is “attacking AAPL’s inherent messaging advantage from iMessage pre-installed on devices, while arguing that iOS 14 policy changes will hurt SMBs.”

Separately, Facebook approved an additional $25 billion in buybacks, with the current authorization now landing at $33.6 billion. It also plans to bring additional digital storefronts to Whatsapp and Messenger.

All of this prompted Helfstein to conclude, “We continue to view stock price as highly attractive at 11x ’22E EBITDA.”

Landing among the top 5 analysts tracked by TipRanks, Helfstein’s calls, on average, generate returns of 45%. He also has a 74% success rate.  

 

Investment in hardware could be ‘game changer’

A blowout earnings release hasn’t given lift to Facebook shares.

The stock is down 7% this week, victim to a broader sell-off within the large-cap growth and FANG names.

On Wednesday, the social media platform reported $3.88 a share in earnings, above consensus of $3.22. Daily and monthly active users and sales also all came in above expectations. However, the company did warn that upcoming privacy changes on Apple’s iOS system could impact its advertising business.

One overlooked segment of Facebook’s business could be a “game changer,” though, according to Todd Gordon, founder of TradingAnalysis.com.

“Five percent of Facebook revenue is a combination of digital payments that they’re working on as well as hardware,” Gordon told CNBC’s “Trading Nation” on Thursday, highlighting its Oculus virtual reality headsets for its growth potential.

Facebook’s “other” revenue, which includes Oculus, rose 156% to $885 million in its recent quarter, making up just 3% of its total quarterly sales. Its triple-digit growth, though, far exceeded the 33% increase in overall revenue.

“This is going to be a game changer,” said Gordon. “These are going to be the way of the future; I really firmly believe that.”

The device could expand beyond its current use in gaming, he said. He envisions future applications in social media, work-from-home use and virtual conferencing, and potentially even financial markets with how investors access and interact with their trading platforms. He is also watching whether other megacap tech companies such as Apple venture into the space.

Gordon added to his position in Facebook on Wednesday ahead of earnings. Facebook holds a 1.5% position in his portfolio.

Disclaimer