Sep 13, 2021 - Aditya Raghunath
Investors need to brace for a choppy equity market according to market experts as Wall Street analysts have lowered Q3 earnings estimates for the S&P 500 last week. This coupled with a slower than expected economic recovery will continue to weigh on equity markets making them volatile in the near term.
A note from DataTrek co-founder Nicholas Colas explained analysts revised estimates for companies part of the industrials and materials sectors in the third quarter of 2021. Colas further said that for the S&P 500 to continue to move towards record highs will need both robust expectations from analysts as well as earnings and revenue outperformance by the companies.
The S&P 500 Index has gained 20% year to date and is trading just 1.7% below its record high. Investors are also worried about rising inflation rates and the Federal Reserve's tapering program.
The United States will release its Consumer Price Index numbers on September 14. An article from Financial Times states, “Consumer prices have shot higher this year, with the pace of annual gains hovering around a 13-year high as of July. On a month-to-month basis, price increases have moderated somewhat, but now the focus is shifting to whether sectors beyond those most sensitive to pandemic-related disruptions, which have so far driven the bulk of the higher inflation prints, are starting to register higher gains.”
If inflation numbers are high, it could lead to tapering by the U.S. Federal Reserve sooner than expected. A couple of U.S. Fed Reserve officials told Reuters that the slowdown in the job growth wouldn't stop the Fed from starting its taper program in 2021.
Leading investment bank Goldman Sachs and Airbnb downgraded tech stocks Twitter and Airbnb. Analyst Eric Sheridan said he is selectively positive on the stocks part of the U.S. internet sector. The analyst is bullish on tech stocks such as Amazon, Facebook, Alphabet, Uber, Lyft, Snap, and Expedia and said these stocks are underappreciated by investors given their potential to derive long-term compounded gains with robust operating margin structures.
However, Goldman Sachs initiated coverage of Twitter with a price target of $60 and a “Sell” rating. Sheridan claims that Twitter's increasing ad sales are priced into the stock and does not expect the company to grow top-line by 20% per annum going forward which means the social-media giant will fall short of its 2023 revenue goals.
Sheridan initiated coverage on Airbnb as well with a price target of $132 and a “Sell” rating. Goldman believes the risk-reward ratio is skewed if we consider an uncertain travel environment and a relatively mature end market as well as rising competition among legacy players.
According to Utradea's Reddit dashboard, large-cap giants such as Apple, Microsoft, Amazon, and Tesla are popular on the social media platform. Other names include GameStop, Clover, and AMC Entertainment and a few unknown stocks include Rocket Lab and buy now pay later giant Affirm.