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Overview of the topics

• Stocks Highlights: Johnson & Johnson has announced that it will pay $8.9 billion over the next 25 years to settle its talc claims.
• Financial Data: For Johnson & Johnson, the expected earnings per share for the current quarter is $2.51, a year-over-year change of -6%.
• Social Data: The fear of an economic downturn led Wall Street to adopt an extremely negative attitude toward stocks.
• Onchain Data: Despite Bitcoin's moves, Ether, the second-largest crypto, remained mostly steady during the past week.
• Deep Dive: The value of Dogecoin experienced a decline following a decision by Twitter to stop using its mascot as a logo.

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Stocks Highlights

JNJ will pay $8.9 billion for talc claims

Johnson & Johnson has announced that it will pay $8.9 billion over the next 25 years to settle claims that its baby powder and other products caused cancer.

The settlement is still subject to approval in bankruptcy court and will be paid out through J&J's subsidiary, LTL Management, which has been refiled for Chapter 11 bankruptcy protection. Over 60,000 claimants have pledged to support the resolution. However, the company refused all claims, stating they are without scientific merit.

The company ceased global sales of its talc-based baby powder earlier this year following thousands of lawsuits from its customers alleging that the products contained the carcinogen asbestos. In October 2021, J&J spun off LTL Management in an effort to limit losses from litigation and settlements. JNJ channeled its talc lawsuits to the subsidiary and filed for bankruptcy protection.

A judge initially approved J&J's Chapter 11 strategy in February 2022, but the US Court of Appeals for the 3rd Circuit overturned this ruling, stating that neither J&J nor LTL had the need for bankruptcy protection as they are not in "financial distress".

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Social Data

The EPS of JNJ will decrease by -6%

In February, the stock of Johnson & Johnson, the largest healthcare product manufacturer in the world, experienced a negative return of 5%, better than the -5.1% of the S&P 500 composite. In the same period, the Zacks Large Cap Pharmaceuticals industry, to which JNJ belongs, has lost only 3.3%.

Given this situation, the crucial question is whether the stock will continue to decline. Although media reports or rumors can influence a company's stock price in the short term, fundamental factors are the key drivers of long-term investment decisions. In the case of JNJ, investors must consider the firm’s financial health, market position, and product pipeline, which may impact its future growth and profitability.

However, as the change in a company’s earnings projection determines the fair value of its stock, we shall analyze the present value of its future stream of earnings. For Johnson & Johnson, the expected earnings per share for the current quarter is $2.51, a year-over-year change of -6%. For the next fiscal, however, the consensus earnings estimate of $10.94 indicates a change of +4.1% from a year ago.

While earnings growth is a significant indicator of a firm's financial health, it's also essential for a business to grow its revenues. Without revenue growth, a company can't sustain its earnings growth for an extended period of time. Therefore, it's crucial to know a company's potential revenue growth.

In the case of JNJ, the consensus sales estimate for the current quarter is $23.59 billion, indicating a year-over-year change of +0.7%. For the current and next fiscal years, the consensus sales estimates are $97.73 billion and $100.68 billion, respectively, indicating changes of +2.9% and +3%.

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Social Data

But what about the market as a whole?

Bank of America recently suggested that the fear of an economic downturn due to bank collapses caused Wall Street to adopt an extremely negative attitude toward stocks.

Bank of America's strategists, led by Savita Subramanian, noticed that Wall Street's consensus equity allocation has been a reliable indicator in the past. This means that when Wall Street strategists were extremely bearish, it was often a bullish signal. Therefore, the fact that the sell side indicator is close to signaling a buy can be a positive sign for those who believe in the long-term growth potential of the stock market.

The metric measuring the average allocation to stocks is 52.7%, indicating a neutral position. Nevertheless, it has decreased by 7 points since its peak in 2021, indicating concerns about stocks. The BofA team suggests that the decline in the metric indicates that negative sentiments about stocks have already been widely discussed, making it more likely for a positive surprise than a negative one.

Despite BofA's perspective, firms are warning that stocks still have room to fall. This is because of the recent increase in stock prices, which is not supported by the underlying economic fundamentals. Michael Wilson, a well-known bearish voice on Wall Street, thought that the recent rally in technology shares that led to the Nasdaq 100 entering a new bull market last week is not sustainable.

Stuart Kaiser, who heads US strategy at Citigroup Global Markets, warned that last month's stock market surge was a distraction from important shiftsin economic data, monetary policy outlook, and risk premiums, which could lead to disappointment. He added that unresolved issues in regional banks could also contribute to this.

According to the strategists at Bank of America, if the sell-side indicator falls by another 1.3 percentage points, it will trigger a "Buy" signal. However, even at current levels or lower, the S&P 500 has generated positive returns over the next 12 months 94% of the time, with a median gain of 22%.

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Onchain Data

BTC absolutely needs a significant event

Bitcoin, instead, is currently in a consolidation phase and needs a significant event to trigger a market reaction. While the jobs report did not provide this trigger, Bitcoin still has the potential for a big move in the next few weeks.

The $30,000 level is seen as key, as it was the level before last summer's selloff. However, cryptos are moving in correlation with the stock market in reaction to macroeconomic forces that impact both asset classes. But with the stock market closed for the long weekend, digital asset traders might still react to the jobs report and the non-farm payrolls figure.

The rally in Bitcoin this year has been fueled by expectations that the FED will ease back on interest-rate hikes and possibly even cut rates in 2023. In fact, the Fed's rate hikes over the past year caused a selloff in both stocks and cryptos.

Despite Bitcoin's moves, Ether, the second-largest crypto, remained mostly steady, while smaller cryptos were more mixed. Memecoins, like Dogecoin, weakened after a recent rally fueled by Elon Musk's tweets.

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Community

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Deep Dive

Dogecoin drops after Musk’s decision

The value of Dogecoin (DOGE) experienced a decline following a decision by Twitter to stop using the cryptocurrency's mascot as its logo. As a result of this change, DOGE dropped by 7.3% and hit a low of 8.5 cents.

The currency recently reached a high of 10.5 cents on April 3, after Musk's account, which has a significant influence on the crypto market, replaced its blue bird with the Shiba Inu dog mascot associated with Dogecoin. Invite 3 friends to read the full article

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News of the week

• Banks: U.S. banks are dangling promotions to lock in customer deposits. [Read more]
• Technology: Meta is the hottest tech stock in the market right now. [Read more]
• Markets: US investors increase investments in foreign equities. [Read more]
• Investments: How the market’s biggest companies, from Apple to Tesla and Microsoft, invest their cash. [Read more]

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About

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