News and analysis

Loopring (LRC) saw a decline of 1.6% this week, trading at $0.248. This movement can be interpreted as a consolidation phase following a significant 39% drop over the weekend, which occurred amidst heightened military tensions in the Middle East. Despite the consolidation, prices are currently below the support of an ascending channel that has remained intact since October 20, 2023.

For the fifth consecutive day, the altcoin has been closing below this critical support level. To resume its upward trajectory, LRC would need to stage a recovery of at least 50%, reaching $0.300. While such a recovery is plausible, any further delays in reclaiming this level could lead to a deterioration in prices, potentially pushing LRC below $0.200.

Such a scenario would be detrimental for the altcoin, as it would signify a breakdown from its established channel and could trigger significant selling pressure.

Morgan Stanley (MS) is one of the best performers among the largely drowning stocks of US banks during this earnings season. Indeed, it managed to hold nearly 2.5% of intraday gains at the regular session of April 16, when its Q1 report came out. Yet, the initial surge in share price reached a 4% of height soon after the opening bell, accompanied by fresh profit taking, as no enthusiastic buyers were seen near these slightly elevated levels. Technically, the two latest candlesticks on MS daily charts turned black despite initial price gaps, which is not a positive sign even for the short-term.

A chance for testing multi-month resistance at nearly $95 per share is still here, because Morgan Stanley showed no essential weaknesses in its own forecasts for the rest of the year, unlike other monster financial institutions including JPMorgan Chase and Wells Fargo, which noted last Friday that their interest payments were below expectations, as the whole banking industry needed to be ready to future Federal Reserve's rate cuts. Rising uncertainty over the central bank's outlook for the borrowing costs prompted the benchmark 10-year public bond yields to soar above 4.65% this week, which is good for interest income, but understates the value of the banking balance sheets, based on the same kind of U.S. bonds which the banks had to acquire for safe haven purposes over the years. Now these bonds rather became the source of financial rigidity, or one may call it awkwardness, leading to the lack of free cash the banks may use for their lending business and investment purposes.

As other Wall Street banking pillars, Morgan Stanley beats consensus estimates in terms of its incredible past performance. Higher investment banking segment helped a lot, which also took place in the case of Goldman Sachs, as another rather positive example. "We saw building momentum in investment banking, both in our M&A and underwriting pipelines across corporate and financial sponsor clients," Morgan Stanley CEO Ted Pick commented, adding that a "multi-year M&A cycle" is to be launched now, and this period may last 3 to 5 years. Geopolitical risks may even create incentive for more deals, he said, when businesses are shifting their international footprint partly because of the two major conflicts. Morgan Stanley also noted it is still bullish on the U.S. economy.

Q1 2024 was the best quarter for MS since April 2022, as the banking group announced its EPS (equity per share) of $2.02 vs consensus estimates of $1.66. A more than 20% surplus compared to average forecasts, yet a rising wave on charts is very modest. Logically, the situation around other banking stocks with worse reported (and especially forecasted) numbers may be even less enjoyable for the bullish camp. We clearly understand that other large banks are usually more dependent on their customers' well-being, rather than investment projects. This is why the Bank of America lost 3.5% on the same day, despite its EPS was also more than 9% above consensus estimates, yet this has not bailed it out to escape from price falling. Competition in high yield from private credit and leveraged loan markets were marked even in the conference call by Morgan Stanley.

The first quarter was good for most U.S. banks, yet the future prospects scared the crowds of investors. If so, they are ready to move down on the stocks of many other big banks and are ready to be no more than just patient in the best cases like Morgan Stanley and Goldman Sachs. There is a great distance between the road of tolerance to potential headwinds and the road of enthusiastic buying on the hot heels of earnings reports. So, other segments seem preferable compared to any banking stocks.

Johnson and Johnson (JNJ) was the first member of the health consumer staples club to report in the spring on Wall Street. As a large producer of essential hygiene products, personal care items and services, it could reap the benefits of its unique positioning on markets as most people are addictive in their nature to the same kind of skin health brands and baby medications. JNJ is also one of the world leaders in providing prescription and over-the-counter drugs, surgical equipment and orthopaedic implants, which are difficult to be replaced by anything else. Nevertheless, the stock lost 2.15% of their value on April 16. As a result, a smoothly descending channel on monthly charts since the beginning of 2023 still stands intact.

Nominally, the Q1 growth numbers were even better than expected, with EPS (equity per share) coming out at $2.71 vs $2.64 of consensus projections. Yet, there is almost no increase in profit in absolute terms over the past two years, which means the medtech giant is earning less if adjusted for inflation effects. Therefore, even though J&J performance in the segment of innovative medicine could be called impressive, as it contributed to 63.5% of the company's sales amounting to $13.56 billion against preliminary estimates of $13.47 billion, most large investment houses were not satisfied. Some of them just preferred to moderately cut their mid-term targets for the company's price, in the range of $5 to $10 per share to the current levels around $145, citing a lacklustre in forward guidance parameters for the rest of 2024, foreign exchange headwinds (a reason why international sales declined by 0.3% Y0Y) and other factors like a potential loss of exclusivity for Stelara drug brand, which was designed to treat psoriasis, related arthritis and ulcerative colitis.

Johnson & Johnson sees its adjusted operational EPS to range between $10.60 and $10.75 for 2024, with "Innovative Medicine sales growth is expected to be stronger in the first half of the year". Does it mean that the second part of 2024 would experience a slowdown? Again, the Vision Care business of the giant has narrowed due to "changes in distributor inventory". JNJ's CEOs commented on the strategic acquisition of Shockwave Medical and Ambrx to strengthen the company's cardiovascular and oncology portfolios, which could be important but still questionable from the point of view of future financial return. The session of questions and answers during the conference call also included the multiple myeloma franchises and litigation related to some patents, while the company's representatives affirmed confidence in their solid position. The company's future prospect looks rather optimistic, yet the share price dynamics based on mentioned challenges suggests that prematurely buying of JNJ stock at any levels well above the lows of April 2020 may be unreasonable, if only no fresh fundamental drivers appear.

I don't think the recent S&P 500 retracement to a 5,050-5,075 area is threatening the stock rally. This short correction began last Friday only because of the clear drawdown in the US banking segment. I expected the trash scenario for the flagship banking stocks when I sold off my last remaining stocks of JPMorgan (JPM) just a day before the bearish signs were included into its weaker forward guidance as an attachment to a regular and strong quarterly report. I am not going to repeat all of my arguments behind the situation. Anyway, when other sectors of the market are mostly stable or unmoved, the downward momentum by several leading banks define the overall bearish mood for the broad indexes. Meanwhile, the fundamentals of the rally, especially in the AI and e-commerce segments, still look as strong as it was a couple of weeks ago and in recent months as well. Therefore, I feel comfortable to invest some free cash into temporarily discounted chip producers like AMD, or into the GPT chats based giants, including Microsoft and Google. I have no doubts in a step-by-step recovery of AMD from its current $160 per share to above $200 once again to cover a nearly 30% discount from its peaking price, even though high bond yields behind a drop in banking stocks, Middle East developments to some extent, may bring the S&P 500 to 5,000 or even a little bit lower when going with the flow. All this temporary agenda is hardly to change the basic instincts of large investment houses that avoid money and want more shares in growing businesses.