Argentina’s Merval Continues Climb; US Stocks Snap 4-Day Surge

Argentina’s stock market continues on its upward streak, while US markets reopened after Monday’s holiday alert to corporate results

Photographer: Diego Giudice/Bloomberg
By Bloomberg Línea
January 17, 2023 | 10:54 PM

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A roundup of Tuesday’s stock market results from across the Americas

👑 Argentina’s Merval maintains the lead in Latin America:

Most of Latin America’s markets closed with losses on Tuesday, but Argentina’s Merval (MERVAL) maintained its upward march and gained 4.07% at closing, driven by the shares of Telecom Argentina (TECO2), Cablevision Holding (CVH) and YPF SA (YPFD).

Brazil’s Ibovespa (IBOV) also closed higher, climbing 2.04%, with the strong performance of Petrobras (PETR3;PETR4) shares and those of Banco do Brasil, the latter gaining 5.87%.

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The shares of troubled retailer Americanas (AMER3), which have dropped more than 80% since the announcement of a 20-billion-reais deficit in its balance sheet and the exit of CEO Sergio Rial, dropped a further 2.06% during Tuesday’s trading.

📉 A bad day for Peru’s stock exchange:

Peru’s S&P/BVL (SPBLPGPT) saw the region’s sharpest decline, closing 1.46% lower, dragged down by the materials, finance and public service sectors.

The shares of Compañía de Minas de Buenaventura (BVN), Enel Generación Perú (ENGEPEC1) and Southern Copper (SCCO) posted the sharpest losses.

Mexico’s S&P/BMV IPC (MEXBOL) also closed lower as shares in the industrial, basic consumer and communications services sectors tumbled.

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Tax revenues in Mexico fell below the government’s 2022 target and recorded their first decline in real terms in five years, the government announced Tuesday.

Economic activity observed in most of 2022 and the generation of formal employment contributed to the collection, mainly, of income tax associated with salaried employees and companies. However, the government had to forgo revenues last year to subsidize gasoline to support the population’s economies and cushion the rise in inflation, which ended up affecting the final balance of tax revenues in the country.

🗽On Wall Street:

US stocks fell as concern over the outlook for corporate earnings weighed on risk sentiment while investors assessed the path for policy tightening.

The S&P 500 closed in the red for the first time in five days after struggling for direction throughout the session. The Dow Jones Industrial Average dropped the most in a month, with financials weighing on the gauge of blue chips. Meanwhile, the tech-heavy Nasdaq 100 eked out gains, up for a seventh day, taking a cue from declines in policy sensitive short-dated Treasury yields.

The S&P 500 dropped 0.20%, the Nasdaq Composite (CCMPDL) gained 0.14% and the Dow Jones Industrial Average slipped 1,14%, its sharpest fall in a month.

Goldman Sachs Group Inc. (GS) slid the most in a year after reporting fourth-quarter net revenue below expectations, while Morgan Stanley rallied as its wealth-management business boosted revenue above forecasts. Travelers Cos. fell after reporting preliminary earnings. Pfizer Inc. retreated as Wells Fargo & Co. predicted earnings downgrades for the drugs company.

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In after hours trading, United Airlines Holdings Inc. gained after saying first-quarter profit will be more than double analysts’ estimates. That helped lift shares in Delta Air Lines Inc. and American Airlines Group Inc. Moderna Inc. rose after saying its vaccine against RSV was highly effective in preventing the lung disease in older people.

Earnings may set the tone for traders this week as the reporting season moves up a gear. Of the 33 S&P 500 companies that have posted results so far, 25 have beaten analysts’ expectations. While it’s still early days in the season, the nascent trend lags buoyant surprises of earlier quarters.

“While we envision more choppiness in markets in the first quarter, we see markets settling into a slow grind higher after that,” wrote Art Hogan, chief market strategist at B. Riley Wealth. “The Fed will have reached its terminal Fed funds rate in 1Q, and investors can start reacting to incoming data without the lens of what better news will mean for Monetary Policy. Good news for the economy can become good news for markets.”

Goldman Sachs fell 6.4% after it reported investment-banking fees tumbled by almost half during the last three months of 2022 and costs jumped. Travelers dropped after the insurer reported higher storm claims in the fourth quarter as part of preliminary earnings. Pfizer slid more than 3% after Wells Fargo downgraded its recommendation on the stock. Morgan Stanley climbed 5.9%.

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Treasuries posted modest gains at the front end of the curve, with the policy sensitive two-year yield falling 3 basis points. European sovereigns also caught bids, with the 10-year bund yield dropping eight basis points. The drop in yields suggested traders are betting pressures on rate hikes are easing.

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The dollar traded near the lowest level since April and the euro fell. The yen gained ahead of a Bank of Japan policy decision.

Data today showed New York state manufacturing activity plummeted in January to the lowest level since the early months of the pandemic as new orders and shipments collapsed. The measure has shown contraction in five of the last six months, underscoring the depth of the pain to the manufacturing sector as the Federal Reserve hikes interest rates.

A New York Fed survey showed that spending growth may be slowing as interest rates rise but still remains elevated.

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“Earnings season gets into full swing this week and the focus will be on jobs, wages, inflation, and margins for companies reporting,” wrote Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management. “The expectation this year is for a modest decline in economic growth which should do little to dampen corporate profits. The next few weeks will be a good test of that thesis.”

“As we saw in today’s earnings from GS and MS (we own both) the difference between good management and one that is behind is vast,” wrote Nancy Tengler, CEO & CIO of Laffer Tengler Investments. “However, we think GS kitchen-sinked it and warned, so this presents an interesting opportunity to buy shares,” .

“While we agree that evidence is building that inflation has definitively turned down, we caution against exuberance around the ‘inflation is dead’ narrative,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note. “We are still a long way from ‘mission accomplished.’”

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Several Fed officials will be speaking this week, providing more clues on their policy priorities. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers including ECB President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.

Elsewhere, oil contracts traded higher as traders looked to a revival in Chinese demand this year after data showed the economy fared better than expected last quarter.

On the currency markets, the Bloomberg Dollar Spot Index fell 0.1%, the euro fell 0.3% to $1.0793, the British pound rose 0.7% to $1.2279 and the Japanese yen rose 0.2% to 128.27 per dollar.

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🔑 The day’s key events:

Bitcoin started the year on the right foot, showing signs of a promising 2023. It is seemingly shaking off the negative sentiment of last year, when it fell 64% in its second worst annual performance on record. The rally in the largest digital asset now points to it achieving its longest bull run in nearly a decade, renewing enthusiasm among its followers, even as the industry continues to grapple with the FTX collapse.

Bitcoin was trading little changed Tuesday after rising for 13 consecutive days, a period in which it has added more than 25% to trade above $21,000. The rise has helped push the global value of digital assets to nearly $1 trillion, according to CoinMarketCap.

“It looks like macro investors are coming back, but tentatively, and BTC is the go-to asset, the first one they are likely to jump on,” wrote Noelle Acheson, author of the newsletter “Crypto Is Macro Now.”

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Bitcoin has “astronomically” surpassed its 50-day moving average, according to Bespoke Investment Group, and is also trading above its 200-day moving average. So far, it has recovered most of the fall since prices plunged following the FTX crash.

🍝For the dinner table debate:

Around 20 technology companies of Latin American origin and backed by private equity have gone public since 2019, which has represented an opportunity for them to access a broader base of investors and raise their profile in the international market, according to figures shared with Bloomberg Línea by the Latin American Venture Capital & Private Equity Association (LAVCA).

Lavca’s Director of Research, Emanuel Hernandez, explains that there is a trend of startups worldwide that prefer to stay private for a longer period of time. This dynamic, he says, responds to a greater number of investors who are willing to invest in private companies.

In addition, “from a more technical point of view, each stock exchange establishes its own requirements to determine which companies can be listed, so companies have to reach a certain scale and meet certain financial indicators such as pre-tax earnings, cash flow, equity, and market capitalization”. Therefore, he says an IPO is not necessarily the right path for all startups.

According to LAVCA’s records on IPOs of Latin American technology companies that have been financed by private equity funds between 2019 and 2022, the countries that have contributed the most to this list are Brazil (14), Argentina, Mexico and Uruguay (with one each).

Leidys Becerra, a content producer at Bloomberg Línea, and Stephen Kirkland of Bloomberg News, contributed to this report.