Stocks ease off record highs, dollar pares losses, KO and HOG earnings, bitcoin volatility

Wall Street could be in for a few choppy trading weeks as more of the same strong earnings beats becomes the theme.  The bar was set too low this earnings season, but then again no one really thought it was possible that the US would reach herd immunity by June. The CDC reported that 39.5% of the total population has received at least one COVID vaccine dose, with 25.4% of Americans being fully vaccinated.  The 70% fully vaccinated target is what is needed to reach herd immunity, but with cases trending lower, pre-pandemic behavior should improve dramatically.

With the Fed blackout period upon us and no major economic data until later in the week, financial markets might primarily focus on how the bond market is positioned.  If economic recovery optimism remains strong, the 10-year Treasury yield could slowly rise towards the 1.70% level.  If the market is at a tentative top, risk aversion could become dominant on a break of the 10-year Treasury yield’s 1.53% level.

US stocks appear to have hit a top as all the good news from corporate America has been mostly priced in and as the pause in rising yields continues.  The S&P 500 is lower by 0.50% and Nasdaq has fallen 1.0%.

Earnings

Coca-Cola delivered a strong earnings report with a profit of 0.55 dollar per share, a five cent beat and revenue topped USD9.0 billion, stronger than the USD8.56 billion estimate.  What stands out for Coca-Cola is the organic revenue growth of 6%, which crushed the estimate of 0.51%.  The food and beverage company also reaffirmed their adj organic revenue growth view, which is probably why shares did not surge.  The CFO delivered the most important comment of the day that inflation is manageable this year but could be a challenge next year.  Coca-Cola shares rose 0.82%, but still below the highs seen at the end of last year.

Harley Davidson posted a strong eps beat and raised full-year guidance for both revenue and profit margins.  The motorcycle maker noted that they are seeing initial signs of consumer excitement and optimism returning.  Harley’s strong beat and outlook could be a recurring theme for many consumer discretionary stocks.

FX

The dollar is paring earlier losses as Treasury yields firm up.  The dollar started the week on soft footing as Wall Street began to lower rate hike expectations.  Europe is starting to look attractive now that the COVID situation is starting to improve.  With vaccinations rates approaching 20% and with COVID cases mostly trending lower, Europe can now benefit from reopening momentum.

Bitcoin

Bitcoin is trying to stabilize following the weekend plunge to bear market territory.  The coinbase IPO had crypto mania run too wild and left the market vulnerable for a violent reversal.  The selloff was sparked by regulatory fears and a key power outage in China that impacted where a lot of bitcoin mining is done. Regulatory fears will not be disappearing anytime soon and if the US Treasury announces that they are close to unleashing action to tackle money laundering concerns, that could send bitcoin much lower than the tentative plunge to bear market territory.

Bitcoin’s 20% plunge since the coinbase driven record high was met with decent demand. Regulatory concerns were not immediately confirmed by the Treasury and that might not happen for quite some time.  Institutional demand might find this massive sell-off as a buying opportunity. Bitcoin could continue to stabilize here, with a new trading range forming between USD52,000 and USD62,000 for the next few weeks.

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