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After a big first year, expect smaller and choppier gains from the rest of this bull market

It was on March 23, 2020, when the S&P 500 hit its bottom after the Covid crisis sent the equity benchmark tumbling 30% in 22 days.

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One year ago Tuesday, a new bull market was born. Powered by unprecedented stimulus, stocks crawled out of their deep pandemic rout and started sprinting.

History indicates that after big bear market declines, strong bull markets usually follow with gains carrying into a second year. However, investors should expect a smaller return over the next 12 months with a choppier road to get there.

On March 23, 2020, the S&P 500 hit its bottom after the Covid crisis sent the equity benchmark tumbling 30% in 22 days, the biggest decline in such a short time. There have been five other bear-market sell-offs of 30% or more since World War II, and the market has been up every single time in year two with a near 17% return on average, according to data from LPL Financial.

Still, the first year’s comeback rally is usually hard to top. Only in the aftermath of the 1987 crash did stocks advance more during year two than year one, according to the data. Plus, the second year of a new bull market is prone to pullbacks with an average drawdown of 10%, LPL said.

The S&P 500 has bounced about 80% from its March bottom, marking the best start to a new bull market on record, LPL data showed. This historic beginning could open the door for sophomore slumps and more volatility on the horizon.

“Embarking on the second year of the current bull market could be just as exciting for investors, but it is easy to question if the strength will continue,” said Lindsey Bell, chief investment strategist at Ally Invest. “Think of the sports free agent who disappoints after scoring the nine-figure contract, or the sequel that just doesn’t live up to the original.”

4% gain from here?

Wall Street’s consensus year-end target for the S&P 500 stands at 4,099, representing a 4% gain from Monday’s close of 3,940.59, according to the CNBC Market Strategist Survey that rounds up 15 top strategists’ forecasts.

The bull market was officially declared when the S&P 500 wiped out its pandemic losses and reached a record closing high on Aug. 18, then the beginning of a bull cycle was traced back to the market trough with the benefit of hindsight.

Still, the “black swan” event of 2020 makes the current bull market one of a kind. Unlike the past few crises where the malfunction of the financial markets was the culprit, this time the downturn was triggered by a pandemic. And in contrast to the slow and steady recovery in the previous cycles, this rebound has been extraordinarily rapid, thanks to trillions of dollars of aid from Congress and the Federal Reserve.

“This is the first bull market that any of us have been through where it’s been essentially manufactured by the government and by the Fed,” said Tom Essaye, founder of Sevens Report. “The huge stock gains didn’t come organically. They were essentially decreed by the government taking on enormous amounts of debt and deficits to spur economic activity. That does change the outlook going forward.”

While history is on the market’s side, many believe that the lasting power of the new bull hinges on its ability to sustain the rally without massive amounts of stimulus. A new round of stimulus checks just started to hit Americans’ bank accounts this month. Once the stimulus boost fades, Wall Street is betting that corporate earnings will then do the heavy lifting and keep the lofty promises that stock prices have made.

What are the risks?

At its current level, the S&P 500 is trading more than 21 times projections for next year’s earnings, a level not seen since 2000, according to FactSet.

“You are essentially transitioning from a government-infused rally to what we hope would be an organically economically infused rally where the economy reopens and that in turn just feeds on itself,” Essaye said.

Meanwhile, inflation expectations are rising amid the historic economic reopening and massive stimulus, making it harder to justify stocks’ lofty valuations. The concern has manifested itself in the year-to-date underperformance of the tech-heavy Nasdaq Composite as higher inflation and interest rates erode growth-oriented companies’ future earnings.

Another possible threat as this bull market ages could be higher tax rates with President Joe Biden set to propose higher duties to fund a grand infrastructure program. Goldman U.S. equity strategist David Kostin warned investors that Biden’s tax plans could curb S&P 500 per-share earnings by 9%.

Biden has signaled his willingness to raise the corporate tax rate to 28% in a partial rollback of President Donald Trump’s 2017 tax overhaul. Meanwhile, Biden also endorsed upping the top marginal tax rate to 39.6% and taxing capital gains and dividends at the higher ordinary income tax rate.

Wells Fargo believes that corporate tax rates will rise but fall short of Biden’s 28% proposal, and any damage from higher taxes will be softened by stronger corporate earnings.

“We believe record-level economic growth and fiscal spending will support higher profits, potentially offsetting the drag from a higher tax regime,” Wells Fargo investment strategy analyst Ken Johnson said in a note.

— With assistance from CNBC’s Nate Rattner

Still, the first year’s comeback rally is usually hard to top. Only in the aftermath of the 1987 crash did stocks advance more during year two than year one, according to the data. Plus, the second year of a new bull market is prone to pullbacks with an average drawdown of 10%, LPL said.

Source: https://www.cnbc.com/2021/03/23/after-a-big-first-year-expect-smaller-and-choppier-gains-from-the-rest-of-this-bull-market.html

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Oracle guidance misses expectations, stock drops

Oracle reported better-than-expected results and showed accelerating growth compared with the immediate impact of the coronavirus last year.

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Safra Catz, co-chief executive officer of Oracle Corp.

David Paul Morris | Bloomberg | Getty Images

Oracle shares fell 5% in extended trading on Tuesday after the company offered lower quarterly revenue guidance than expected as it plans to increase capital expenditures to support cloud computing workloads. The guidance came on Oracle’s earnings call after the enterprise software maker issued better-than-expected earnings and faster revenue growth than last quarter.

Here’s how the company did:

  • Earnings: $1.54 per share, adjusted, vs. $1.31 per share as expected by analysts, according to Refinitiv.
  • Revenue: $11.23 billion, vs. $11.04 billion as expected by analysts, according to Refinitiv.

With respect to guidance, Oracle CEO Safra Catz called for 94 cents to 98 cents in adjusted earnings per share and 3% to 5% revenue growth in the fiscal first quarter. Analysts polled by Refinitiv are expecting fiscal first-quarter adjusted earnings of $1.03 per share and the equivalent of 3% revenue growth.

“We expect to roughly double our cloud capex spend in FY 2022 to nearly $4 billion,” Catz said. “We are confident that the increased return in the cloud business more than justifies this increased investment, and our margins will expand over time.”

Revenue rose 8% year over year in Oracle’s fiscal fourth quarter, which ended on May 31, according to a statement. In the prior quarter revenue grew 3%. The accelerating growth benefited from a comparison against the quarter last year when the coronavirus arrived in the U.S. and Oracle’s revenue fell some 6%.

Oracle’s top segment by revenue, cloud services and license support, generated $7.39 billion, which was up 8% and above the FactSet consensus estimate of $7.32 billion in revenue. The company said revenue from its second-generation cloud infrastructure doubled in the quarter, but it did not provide the figure in dollars.

The cloud license and on-premises license segment contributed $2.14 billion in revenue, up 9% and more than the $2.05 billion consensus.

The company’s hardware revenue, at $882 million, was exactly in line with analysts’ estimates, declining 2%.

During the quarter Oracle announced new public-cloud computing options that draw on Arm-based chips, and the U.S. Supreme Court ruled on a longstanding case between Oracle and Google, declaring that Google’s copying of Java code was fair use.

Notwithstanding the after-hours move, Oracle stock is up 26% since the start of the year, while the S&P 500 index is up 13% over the same period.

In May, Barclays analysts lowered their rating on the stock to the equivalent of hold from the equivalent of buy after the price had moved upward as investors rotated out of growth and into value. “To see further relative outperformance a growth acceleration at Oracle is needed, and we don’t have enough tangible data points for this yet,” the analysts wrote.

WATCH: The great tech tug-o-war

Here’s how the company did:

Source: https://www.cnbc.com/2021/06/15/oracle-orcl-earnings-q4-2021.html

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RH beats earnings, hikes outlook as retail rebound boosts high-end home goods; shares jump

Shares of the high-end furniture retailer surged Wednesday after the company beat analysts’ profit and sales estimates for the fiscal first quarter.

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Jason Kempin | Getty Images Entertainment | Getty Images

Shares of the high-end furniture retailer RH surged in extended trading Wednesday after the company beat analysts’ profit and sales estimates for the fiscal first quarter.

RH also hiked its full-year outlook, building on the momentum it’s seeing in the luxury home category, and gave a stronger-than-expected sales forecast for the second quarter.

In a letter to shareholders, Chief Executive Officer Gary Friedman said the remainder of this year “will surely be a tale of two halves” for the retail industry. But he said that “the un-masking of the general public could lead to a Roaring Twenties type of consumer exuberance.”

The company’s stock was last up more than 7%.

Here’s how RH did in the quarter ended May 1 compared with what analysts were anticipating, using Refinitiv estimates:

  • Earnings per share: $4.89 adjusted vs. $4.10 expected
  • Revenue: $861 million vs. $758 million expected

RH’s net income for the fiscal first quarter grew to $130.7 million, or $4.19 per share, compared with a loss of $3.2 million, or 17 cents per share, a year earlier. Excluding one-time adjustments, it earned $4.89 per share, topping expectations for $4.10.

Revenue surged 78% to $861 million from $483 million a year earlier. That also beat expectations for $758 million.

Friedman said that a strong housing and renovation market, a record stock market, low interest rates, and the reopening of the U.S. economy all bode well for the company in the quarters ahead.

RH hiked its fiscal 2021 outlook for revenue growth to a range of 25% to 30%, compared with a prior range of 15% to 20%. Analysts had been looking for a 19.7% increase year over year.

For its fiscal second quarter, RH expects revenue to grow 35% to 37%. Analysts had been looking for a 27.2% jump.

The company is preparing to kick off its global expansion in the spring of 2022, starting with England. To drive future growth, it is also considering expanding into new services, potentially into areas such as landscape architecture. It currently offers interior design consulting.

RH shares are up roughly 37% year to date. The company has a market cap of about $13 billion.

Find the full earnings press release from RH here.

Source: https://www.cnbc.com/2021/06/09/rh-earnings-q1-2021.html

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Blue Origin auctions seat on first spaceflight with Jeff Bezos for $28 million

The winning bidder will fly to the edge of space with the Amazon founder on Blue Origin’s New Shepard rocket scheduled to launch on July 20.

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A New Shepard rocket launches on a test flight.

Blue Origin

Jeff Bezos‘ space venture Blue Origin auctioned off a seat on its upcoming first crewed spaceflight on Saturday for $28 million.

The winning bidder, whose name wasn’t released, will fly to the edge of space with the Amazon founder and his brother Mark on Blue Origin’s New Shepard rocket scheduled to launch on July 20. The company said it will reveal the name of the auction winner in the coming weeks.

Bidding opened at $4.8 million but surpassed $20 million within the first few minutes of the auction. The auction’s proceeds will be donated to Blue Origin’s education-focused nonprofit Club for the Future, which supports kids interested in future STEM careers.

Blue Origin director of astronaut and orbital sales Ariane Cornell said during the auction webcast that New Shepard’s first passenger flight will carry four people, including Bezos, his brother, the auction winner and a fourth person to be announced later.

Autonomous spaceflight

New Shepard, a rocket that carries a capsule to an altitude of over 340,000 feet, has flown more than a dozen successful test flights without passengers, including one in April at the company’s facility in the Texas desert. It’s designed to carry up to six people and flies autonomously — without needing a pilot. The capsule has massive windows to give passengers a view of the earth below during about three minutes in zero gravity, before returning to Earth.

Blue Origin’s system launches vertically, and both the rocket and capsule are reusable. The boosters land vertically on a concrete pad at the company’s facility in Van Horn, Texas, while the capsules land using a set of parachutes.

The interior of the latest New Shepard capsule

Blue Origin

Bezos founded Blue Origin in 2000 and still owns the company, funding it through share sales of his Amazon stock.

July 20 is notable because it also marks the 52nd anniversary of the Apollo 11 moon landing.

Branson and Musk

VSS Unity fires its rocket engine shortly after launching on its third spaceflight on May 22, 2021.

Virgin Galactic

Bezos and fellow billionaires Elon Musk and Sir Richard Branson are in a race to get to space, but each in different ways. Bezos’ Blue Origin and Branson’s Virgin Galactic are competing to take passengers on short flights to the edge of space, a sector known as suborbital tourism, while Musk’s SpaceX is launching private passengers on further, multi-day flights, in what is known as orbital tourism.

Both Blue Origin and Virgin Galactic have been developing rocket-powered spacecraft, but that is where the similarities end. While Blue Origin’s New Shepard rocket launches vertically from the ground, Virgin Galactic’s SpaceShipTwo system is released mid-air and returns to Earth in a glide for a runway landing, like an aircraft.

Virgin Galactic’s system is also flown by two pilots, while Blue Origin’s launches without one. Branson’s company has also flown a test spaceflight with a passenger onboard, although the company has three spaceflight tests remaining before it begins flying commercial customers – which is planned to start in 2022.

SpaceX launches its Crew Dragon spacecraft to orbit atop its reusable Falcon 9 rocket, having sent 10 astronauts to the International Space Station on three missions to date.

In addition to the government flights, Musk’s company is planning to launch multiple private astronaut missions in the year ahead – beginning with the all-civilian Inspiration4 mission that is planned for September. SpaceX is also launching at least four private missions for Axiom Space, starting early next year.

Blue Origin’s auction may have netted $28 million, but a seat on a suborbital spacecraft is typically much less expensive. Virgin Galactic has historically sold reservations between $200,000 and $250,000 per ticket, and more recently charged the Italian Air Force about $500,000 per ticket for a training spaceflight.

Musk’s orbital missions are more costly than the suborbital flights, with NASA paying SpaceX about $55 million per seat for spaceflights to the ISS.

SpaceX’s Crew Dragon spacecraft named “Resilience” is seen docked to the International Space Station.

NASA

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The winning bidder, whose name wasn’t released, will fly to the edge of space with the Amazon founder and his brother Mark on Blue Origin’s New Shepard rocket scheduled to launch on July 20. The company said it will reveal the name of the auction winner in the coming weeks.

Source: https://www.cnbc.com/2021/06/12/jeff-bezos-blue-origin-auctions-spaceflight-seat-for-28-million.html

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