Stocks fluctuated after their best two-day rally since November, with traders sifting through a batch of earnings for clues on the outlook for Corporate America amid mounting fears about a recession.
(Bloomberg) — Stocks fluctuated after their best two-day rally since November, with traders sifting through a batch of earnings for clues on the outlook for Corporate America amid mounting fears about a recession.
Just before the start of the tech earnings season, a few other bellwethers reported their numbers. The Dow Jones Transportation Average — a proxy for economic activity — fell on disappointing results from Union Pacific Corp. 3M Co., the maker of Post-it notes, forecast profit that trailed estimates and said it plans to cut jobs. Homebuilder D.R. Horton Inc. beat projections.
A combination of mixed earnings and economic numbers is making investors hesitant to take on more risk particularly after an equity surge that drove the S&P 500 up 12% from its mid-October low. US business activity contracted for a seventh month, though at a more moderate pace, while a measure of input prices firmed in a sign of lingering inflationary pressures.
After the closing bell, we’ll hear from Microsoft Corp., whose guidance will be especially relevant as some investors had counted on the software behemoth to be relatively resistant to a downturn. Results from another industry giant — Texas Instruments Inc. — could show weakness in the semiconductor sector spreading to new product categories.
“You have to ask: Have investors taken stocks to levels that can’t be supported by what we are about to hear?” wrote Kenny Polcari, senior market strategist at Slatestone Wealth.
Corporate Highlights:
- The US Justice Department and eight states sued Alphabet Inc.’s Google, calling for the break up of the search giant’s ad-technology business over alleged illegal monopolization of the digital advertising market.
- General Electric Co. continues to grapple with lingering issues in its renewable energy business, even as the slimmed-down manufacturer says strong demand for air travel will help boost overall profits this year.
- Johnson & Johnson guided to stronger earnings for 2023 than analysts were expecting after a year in which the pharma division suffered because of waning demand for its unpopular Covid-19 shot.
- Halliburton Co. boosted its dividend 33% as the world’s biggest provider of fracking services follows its oil-and-gas clients by expanding shareholder returns amid tight global supplies for crude.
- Verizon Communications Inc.’s profit outlook trailed Wall Street estimates in a sign that the consumer wireless business continues to weigh down performance.
The popping of the bubble in US stocks is far from over and investors shouldn’t get too excited about a strong start to the year for the market, warns Jeremy Grantham, the co-founder and long-term investment strategist of GMO.
“The range of problems is greater than it usually is — maybe as great as I’ve ever seen,” Grantham added.
A strong start to the year for US tech stocks is facing a pair of technical roadblocks.
The recent Nasdaq 100 rally has left the gauge just below the 23.6% Fibonacci retracement of its 2021 record high and September low. That level acted as resistance three different times late last year, with rallies fading just above it each time. Even if it does manage a successful break, it will then face a test of its 200-day moving average, a line it hasn’t traded above in nearly a year.
‘Technical Issue’
The New York Stock Exchange is probing what caused wild stock swings and trading halts when the market opened on Tuesday as dozens of the biggest US companies suddenly plunged or spiked.
A “technical issue” that the exchange didn’t immediately identify resulted in some gyrations that spanned almost 25 percentage points between the high and low in a matter of minutes. Banks, retailers and industrial companies were among those affected, including Wells Fargo & Co., McDonald’s Corp., Walmart Inc. and Morgan Stanley.
Read: NYSE Publishes List of Null and Void Trades
Now with the Federal Reserve’s Feb. 1 rate decision about a week away, traders in the options market are contemplating a scenario in which the rate hike it’s expected to deliver ends up being the last one of the tightening cycle.
The swap market is pricing around 48 basis points of rate hikes over the next two policy meetings. That implies a small chance — approximately 8% — that if the Fed raises its benchmark rate by a quarter point next week, it could be the central bank’s final move in a tightening cycle that has marked the most aggressive action against inflation in several decades.
“It’s almost like people are trying to project forward toward the end the Fed tightening policy and trying to find a bottom here and a new bull-market rally,” said Jerry Braakman, chief investment officer of First American Trust. “But that’s in light of deteriorating economic statistics and I think that’s a little premature.”
Read: Citigroup Gives Thumbs-Up for Corporate Debt’s Riskiest Trade
Key events this week:
- Earnings for the week include: Abbott Laboratories, ASML Holding, AT&T, Boeing, International Business Machines, NextEra Energy, Tesla (Wednesday); American Airlines, Blackstone, Comcast, Diageo, Intel, LVMH Moet Hennessy Louis Vuitton, Mastercard, SAP, Southwest Airlines, Visa (Thursday); American Express, Charter Communications, Chevron, HCA Healthcare (Friday)
- US MBA mortgage applications, Philadelphia Fed non-manufacturing activity, Wednesday
- US fourth-quarter GDP, new home sales, initial jobless claims, Thursday
- US personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 3:04 p.m. New York time
- The Nasdaq 100 fell 0.1%
- The Dow Jones Industrial Average rose 0.4%
- The MSCI World index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0884
- The British pound fell 0.3% to $1.2338
- The Japanese yen rose 0.5% to 130.04 per dollar
Cryptocurrencies
- Bitcoin rose 0.1% to $23,029.81
- Ether fell 0.5% to $1,623.95
Bonds
- The yield on 10-year Treasuries declined five basis points to 3.46%
- Germany’s 10-year yield declined five basis points to 2.15%
- Britain’s 10-year yield declined eight basis points to 3.28%
Commodities
- West Texas Intermediate crude fell 1.8% to $80.16 a barrel
- Gold futures rose 0.5% to $1,955.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Matt Turner, Peyton Forte, Isabelle Lee, Vildana Hajric, Emily Graffeo and Felice Maranz.
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