Friday, July 16th, 2021
1/ Markets slip as dollar strengthens
2/ IBM holding support for now
3/ Tractor Supply Company trending higher
4/ The bottom line
1/ Markets slip as dollar strengthens
Precious metals and stock market indexes fell today, and the U.S. Dollar index (DXY) rose. This movement runs counter to the inflation-influenced trends that have been apparent in 2021 so far.
Chart watchers will notice that a comparison between gold and silver prices and DXY has shown some unusual activity. The recent positive correlation displayed between metals and the greenback broke apart yesterday and continued today (see chart below).
The timing of this divergence seems to suggest that investors are reacting to Federal Reserve Chairman Jerome Powell’s testimony before Congress on Wednesday. The implication is clear: investors expect the Fed to raise rates if inflation continues and higher rates will drive demand for dollars. Both stocks and metals are reacting in the same way suggesting this move is more about the dollar than about the other asset classes.
2/ IBM Holding Support For Now
International Business Machines (IBM) will announce its earnings Monday with analysts expecting the company to meet an estimate of $2.32 per share, and a revenue of $18.29 billion. It is expected that the company’s Cloud & Cognitive Software and Global Business Systems units will continue to improve through 2021 as IT spend returns, but the rest of its business may struggle.
Usually, the price of IBM is influenced by State Street’s Technology Sector (XLK), where it has a weight of 1.22%. But in the past few trading sessions, we have seen it moving in the opposite direction. In the past year, the company has increased its investment in R&D and CAPEX, and since October has acquired seven companies focused on hybrid cloud and AI. It is also to note that IBM could be a contender in the Pentagon’s new multi-vendor contract, Joint Warfighter Cloud Capability. Over the past 1-year, IBM has given a return of 18.43%, the stock is trading below its 50-day moving average and is down 0.82% in today’s trading.
The price of IBM looks positioned near recent lows and could break lower if investors don’t like the earnings report. That would signal a continuing downward trend for the tech company.
3/ Tractor Supply Company Trending Higher
share along with a revenue of $3.45 billion. TSCO moves similarly to State Street’s Materials Sector ETF (XLB), and both the stock and the ETF have given similar returns over the past year—35.64% and 38.71% respectively.
Tractor Supply Company has begun construction on its new $70M distribution center in Navarre, Ohio, which will create more than 375 new full-time jobs by the end of 2023 and service more than 250 Tractor Supply stores at full capacity. The construction is currently scheduled to be completed by Fall 2022. Tractor Supply currently operates 96 stores and employs over 1,700 Team Members across Ohio.
The stock has been drifting higher into earnings, but a strengthening dollar might provide a significant resistance against a continuing upward trend for TSCO.
4/ The Bottom Line
As the dollar rises, stocks and metals slide, suggesting investors are prepping for higher interest rates. That’s going to make it harder for investors to feel confident about stocks like IBM and TSCO even if their earnings news is good.
Originally posted on 16th July, 2021
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