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The world is in greater danger in 2023 than it has been at any moment over the past seven decades, warns a leading panel of scientists and security experts.
The illegal Russian-Ukraine conflict and its risk that nuclear weapons could be used was a primary, but not exclusive, catalyst in bumping forward the hands on the symbolic measure known as the “Doomsday Clock.”
The…
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After one of the worst years in Wall Street’s history, investors have some serious questions for companies. As holiday returns roll in — and with them, forecasts for the months or year ahead — many have the chance to answer those questions, or avoid them.
In the busiest week of the holiday-earnings season so far, three big names will take the stage on back-to-back-to-back afternoons. Here is what to expect:
Microsoft
MSFT,
shed $737 billion in market value last year, the third-most of any S&P 500 company, then announced plans to lay off some 10,000 workers this month. Previously a Wall Street darling thanks to the phenomenal growth of its Azure cloud-computing offering, Microsoft now faces a cutback in enterprise spending on cloud and other products, as companies seek to cut their bills after spending wantonly during the early years of the COVID-19 pandemic.
First Take: Big Tech layoffs are not as big as they appear at first glance
When the company announced layoffs, Chief Executive Satya Nadella admitted customers were cutting, saying “as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.” Analysts believe Azure may be holding up better than rivals, however, and will expect to hear about it when Microsoft results hit Tuesday afternoon.
“Our Azure checks were mixed, but generally better than public cloud sentiment that has turned highly negative over the past few months,” Mizuho analysts wrote. “More specifically, we have heard of increasing levels of optimization, but it is being partially offset by many organizations prioritizing digital transformation.”
From October: The cloud boom has hit its stormiest moment yet, and it is costing investors billions
As cloud growth slows down, expect Microsoft to point to the next big buzzword in tech: Artificial intelligence, specifically ChatGPT, the chatbot product developed by OpenAI, which Microsoft has invested heavily in and expects to incorporate into its products. D.A. Davidson analyst Gil Luria this month wrote that Microsoft’s investments in OpenAI would help it build out more AI technology, including in its search engine Bing.
Tesla
TSLA,
stock suffered a much larger percentage decline than Microsoft in 2022,as the electric-vehicle maker’s shares closed out their worst year on record with their worst quarter and month ever. After the year ended, Tesla began slashing prices in China and the U.S. in hopes of qualifying for more consumer tax incentives and reinvigorating demand, which could lead to questions about previously fat margins.
In-depth: Tesla investors await clues on demand, board actions and weigh downside risks in 2023
For Tesla, which reports fourth-quarter results Wednesday, the results will offer more context on production of the Cybertruck — currently set to start in the middle of the year — demand in China, competition and the impact of price cuts. Auto-information website Edmunds on Thursday said that Tesla’s decision to slash prices by as much as 20% in the U.S. and Europe led to a jump in interest in the vehicles.
While those cuts seem likely to hurt profit, Deutsche Bank analyst Emmanuel Rosner called it “a bold offensive move, which secures Tesla’s volume growth, puts its traditional and EV competitors in great difficulty, and showcases Tesla’s considerable pricing power and cost superiority.” And a survey from Wedbush analysts found that “76% of EV Chinese consumers are considering buying a Tesla in 2023.” But Toni Sacconaghi, an analyst at Bernstein, said Tesla needed more low-cost electric-vehicle offerings, which might not ship until 2025.
Tesla earnings preview: Price cuts in focus as stock hovers around 2-year low
With Tesla’s stock in the gutter, some analysts have raised the possibility of a share buyback to spur investor interest, and Chief Executive Elon Musk said such a plan was being discussed in the previous earnings call. Musk is not in great favor with many investors right now, however, following some heavy selling of Tesla shares in the wake of his purchase last year of Twitter, which some on Wall Street have said has distracted him from the needs of the auto maker. Musk’s tweets have landed him in trouble elsewhere: Opening arguments began last week for a trial centered on allegations that Musk put investors at risk when he tweeted in 2018 that he was “considering” taking Tesla private and had secured the money to do so.
‘He broke the stock’: Why a prominent Tesla investor wants Elon Musk to put him on the board
Intel’s
INTC,
questions were not fresh in 2022, as the chip maker for years has seen rivals like Advanced Micro Devices Inc.
AMD,
and Nvidia Corp.
NVDA,
challenge it in ways that would have been unthinkable in previous generations. Shares still dove more than 43% last year, as declining sales led to plans for $3 billion in cost cuts.
There’s little hope for a big rebound when Intel reports Thursday afternoon. Personal-computer sales have experienced their biggest year-over-year declines ever recorded, and Intel’s long-delayed new data-center offering that is meant to answer AMD’s challenge only began selling this year.
Opinion: The PC boom and bust is already ‘one for the record books,’ and it isn’t over
Intel CEO Pat Gelsinger, though, has a chance to lay out his vision for a long-term Intel rebound, as he attempts to make Intel a chip-manufacturing powerhouse again after years of struggles. He was forced to trim his annual outlook multiple times last year, so it will be important for him to provide attainable numbers this time, but without reducing hopes in the path forward.
Expectations remain low for fourth-quarter earnings season overall, with consumers squeezed by higher prices and interest rates, and hopes fading for any relief from the holiday shopping season. But even with a low bar, the fourth-quarter results from companies so far have been worse than the historical norm, with FactSet senior earnings analyst John Butters writing Friday that “the fourth-quarter earnings season for the S&P 500 is not off to a strong start.”
So far, 11% of S&P 500 companies have reported fourth-quarter results, with roughly one-third reporting earnings better than estimates, Butters reported. That’s lower than the 10-year average of 73%.
Still, Wall Street generally expects strong profit margins for companies in the S&P 500, as earlier price increases — which help businesses offset their own costs and test the limits of consumer demand — mix with more recent cost cuts.
For the week ahead, 93 companies in the S&P 500 index
SPX,
and 12 of the 30 Dow Jones Industrial Average
DJIA,
components, are set to report quarterly results.
Mark your calendars! Here is MarketWatch’s full earnings calendar for the week
Among the highlights: General Electric Co.
GE,
reports Tuesday for the first time since splitting off its GE HealthCare Technologies
GEHC,
business. 3M Co.
MMM,
— which makes Post-it Notes, duct tape, air filters, adhesives and coatings — also reports Tuesday, after the company in October said the costs of raw materials, a big driver of inflation, were showing signs of easing.
And as demand for goods eases amid worries about a downturn, a number of railroad operators that ship those goods report during the week. Union Pacific Corp.
UNP,
whose lines ship across the Western half of the U.S., reports on Tuesday, while CSX Corp.
CSX,
which covers much of the East, reports Wednesday. Norfolk Southern Corp.
NSC,
also reports Wednesday.
Telecom giants Verizon Communications Inc.
VZ,
AT&T Inc.
T,
and Comcast Corp.
CMCSA,
report Tuesday, Wednesday and Thursday, respectively. Results there will offer a clearer sense of the state of demand for Apple Inc.’s
AAPL,
iPhones, as premium models suffer from production snags, and for broadband, which saw heightened demand when more people were staying home due to the pandemic.
Southwest, post-meltdown: Southwest Airlines Co.
LUV,
which reports on Thursday, will offer executives with plenty to answer for, after bad weather and an overloaded, aging scheduling system caused thousands of flight cancellations over the holidays.
For more: Southwest Airlines turns to repairing its reputation after holiday meltdown
The implosion has raised questions about the air carrier’s investments in its own technology — after restarting dividend payments shortly before the disruptions — and airlines’ ability to handle the post-lockdown travel rebound. The breakdown has underscored the airline industry’s bigger issues with understaffing, after 2020’s wave of departures, as carriers try to reload flight schedules to meet pent-up travel demand.
Scott Kirby, chief executive at United Airlines Holdings Inc.
UAL,
said during his company’s earnings call last week that he felt the industry’s goals to expand their flight coverage this year and beyond were “simply unachievable.” And he said that airlines that tried to follow prepandemic patterns were destined to face trouble. He said manufacturers were suffering from delays in building jets, engines and other parts, and that airlines had outgrown their technology infrastructure.
For more: United Airlines swings to profit despite ‘worst’ winter storm’
“All of us, airlines and the FAA, lost experienced employees and most didn’t invest in the future,” he said. “That means the system simply can’t handle the volume today, much less the anticipated growth.”
American Airlines Group Inc.
AAL,
Alaska Air Group Inc.
ALK,
and JetBlue Airways Corp.
JBLU,
are also expected to report results Thursday morning, along with Southwest.
Visa, Mastercard and consumer spending: The return of travel and entertainment, along with rising prices, have helped prop up consumer spending. But as Visa Inc.
V,
Mastercard Inc.
MA,
American Express Co.
AXP,
and Capital One Financial Corp.
COF,
prepare to report, their finance-industry counterparts are getting nervous — and taking more steps to pad themselves against the fallout from consumers struggling to pay their bills.
Credit-card issuer Capital One reports results on Tuesday, while card payments-network providers Visa and Mastercard report on Thursday, with Amex on Friday morning. They’ll report after shares of Discover Financial Services
DFS,
got hit last week after the company, which also offers credit cards and loans, set aside more money to cover souring credit, and reported a bump in its net charge-off rate — a measure of debt a company thinks is unlikely to be recovered.
Larger banks, like JPMorgan Chase & Co.
JPM,
have also set aside more money to guard against credit losses.
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After one of the worst years in Wall Street’s history, investors have some serious questions for companies. As holiday returns roll in — and with them, forecasts for the months or year ahead — many have the chance to answer those questions, or avoid them.
In the busiest week of the holiday-earnings season so far, three big names will take the stage on back-to-back-to-back afternoons. Here is what to expect:
Microsoft
MSFT,
shed $737 billion in market value last year, the third-most of any S&P 500 company, then announced plans to lay off some 10,000 workers this month. Previously a Wall Street darling thanks to the phenomenal growth of its Azure cloud-computing offering, Microsoft now faces a cutback in enterprise spending on cloud and other products, as companies seek to cut their bills after spending wantonly during the early years of the COVID-19 pandemic.
First Take: Big Tech layoffs are not as big as they appear at first glance
When the company announced layoffs, Chief Executive Satya Nadella admitted customers were cutting, saying “as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.” Analysts believe Azure may be holding up better than rivals, however, and will expect to hear about it when Microsoft results hit Tuesday afternoon.
“Our Azure checks were mixed, but generally better than public cloud sentiment that has turned highly negative over the past few months,” Mizuho analysts wrote. “More specifically, we have heard of increasing levels of optimization, but it is being partially offset by many organizations prioritizing digital transformation.”
From October: The cloud boom has hit its stormiest moment yet, and it is costing investors billions
As cloud growth slows down, expect Microsoft to point to the next big buzzword in tech: Artificial intelligence, specifically ChatGPT, the chatbot product developed by OpenAI, which Microsoft has invested heavily in and expects to incorporate into its products. D.A. Davidson analyst Gil Luria this month wrote that Microsoft’s investments in OpenAI would help it build out more AI technology, including in its search engine Bing.
Tesla
TSLA,
stock suffered a much larger percentage decline than Microsoft in 2022,as the electric-vehicle maker’s shares closed out their worst year on record with their worst quarter and month ever. After the year ended, Tesla began slashing prices in China and the U.S. in hopes of qualifying for more consumer tax incentives and reinvigorating demand, which could lead to questions about previously fat margins.
In-depth: Tesla investors await clues on demand, board actions and weigh downside risks in 2023
For Tesla, which reports fourth-quarter results Wednesday, the results will offer more context on production of the Cybertruck — currently set to start in the middle of the year — demand in China, competition and the impact of price cuts. Auto-information website Edmunds on Thursday said that Tesla’s decision to slash prices by as much as 20% in the U.S. and Europe led to a jump in interest in the vehicles.
While those cuts seem likely to hurt profit, Deutsche Bank analyst Emmanuel Rosner called it “a bold offensive move, which secures Tesla’s volume growth, puts its traditional and EV competitors in great difficulty, and showcases Tesla’s considerable pricing power and cost superiority.” And a survey from Wedbush analysts found that “76% of EV Chinese consumers are considering buying a Tesla in 2023.” But Toni Sacconaghi, an analyst at Bernstein, said Tesla needed more low-cost electric-vehicle offerings, which might not ship until 2025.
Tesla earnings preview: Price cuts in focus as stock hovers around 2-year low
With Tesla’s stock in the gutter, some analysts have raised the possibility of a share buyback to spur investor interest, and Chief Executive Elon Musk said such a plan was being discussed in the previous earnings call. Musk is not in great favor with many investors right now, however, following some heavy selling of Tesla shares in the wake of his purchase last year of Twitter, which some on Wall Street have said has distracted him from the needs of the auto maker. Musk’s tweets have landed him in trouble elsewhere: Opening arguments began last week for a trial centered on allegations that Musk put investors at risk when he tweeted in 2018 that he was “considering” taking Tesla private and had secured the money to do so.
‘He broke the stock’: Why a prominent Tesla investor wants Elon Musk to put him on the board
Intel’s
INTC,
questions were not fresh in 2022, as the chip maker for years has seen rivals like Advanced Micro Devices Inc.
AMD,
and Nvidia Corp.
NVDA,
challenge it in ways that would have been unthinkable in previous generations. Shares still dove more than 43% last year, as declining sales led to plans for $3 billion in cost cuts.
There’s little hope for a big rebound when Intel reports Thursday afternoon. Personal-computer sales have experienced their biggest year-over-year declines ever recorded, and Intel’s long-delayed new data-center offering that is meant to answer AMD’s challenge only began selling this year.
Opinion: The PC boom and bust is already ‘one for the record books,’ and it isn’t over
Intel CEO Pat Gelsinger, though, has a chance to lay out his vision for a long-term Intel rebound, as he attempts to make Intel a chip-manufacturing powerhouse again after years of struggles. He was forced to trim his annual outlook multiple times last year, so it will be important for him to provide attainable numbers this time, but without reducing hopes in the path forward.
Expectations remain low for fourth-quarter earnings season overall, with consumers squeezed by higher prices and interest rates, and hopes fading for any relief from the holiday shopping season. But even with a low bar, the fourth-quarter results from companies so far have been worse than the historical norm, with FactSet senior earnings analyst John Butters writing Friday that “the fourth-quarter earnings season for the S&P 500 is not off to a strong start.”
So far, 11% of S&P 500 companies have reported fourth-quarter results, with roughly one-third reporting earnings better than estimates, Butters reported. That’s lower than the 10-year average of 73%.
Still, Wall Street generally expects strong profit margins for companies in the S&P 500, as earlier price increases — which help businesses offset their own costs and test the limits of consumer demand — mix with more recent cost cuts.
For the week ahead, 93 companies in the S&P 500 index
SPX,
and 12 of the 30 Dow Jones Industrial Average
DJIA,
components, are set to report quarterly results.
Mark your calendars! Here is MarketWatch’s full earnings calendar for the week
Among the highlights: General Electric Co.
GE,
reports Tuesday for the first time since splitting off its GE HealthCare Technologies
GEHC,
business. 3M Co.
MMM,
— which makes Post-it Notes, duct tape, air filters, adhesives and coatings — also reports Tuesday, after the company in October said the costs of raw materials, a big driver of inflation, were showing signs of easing.
And as demand for goods eases amid worries about a downturn, a number of railroad operators that ship those goods report during the week. Union Pacific Corp.
UNP,
whose lines ship across the Western half of the U.S., reports on Tuesday, while CSX Corp.
CSX,
which covers much of the East, reports Wednesday. Norfolk Southern Corp.
NSC,
also reports Wednesday.
Telecom giants Verizon Communications Inc.
VZ,
AT&T Inc.
T,
and Comcast Corp.
CMCSA,
report Tuesday, Wednesday and Thursday, respectively. Results there will offer a clearer sense of the state of demand for Apple Inc.’s
AAPL,
iPhones, as premium models suffer from production snags, and for broadband, which saw heightened demand when more people were staying home due to the pandemic.
Southwest, post-meltdown: Southwest Airlines Co.
LUV,
which reports on Thursday, will offer executives with plenty to answer for, after bad weather and an overloaded, aging scheduling system caused thousands of flight cancellations over the holidays.
For more: Southwest Airlines turns to repairing its reputation after holiday meltdown
The implosion has raised questions about the air carrier’s investments in its own technology — after restarting dividend payments shortly before the disruptions — and airlines’ ability to handle the post-lockdown travel rebound. The breakdown has underscored the airline industry’s bigger issues with understaffing, after 2020’s wave of departures, as carriers try to reload flight schedules to meet pent-up travel demand.
Scott Kirby, chief executive at United Airlines Holdings Inc.
UAL,
said during his company’s earnings call last week that he felt the industry’s goals to expand their flight coverage this year and beyond were “simply unachievable.” And he said that airlines that tried to follow prepandemic patterns were destined to face trouble. He said manufacturers were suffering from delays in building jets, engines and other parts, and that airlines had outgrown their technology infrastructure.
For more: United Airlines swings to profit despite ‘worst’ winter storm’
“All of us, airlines and the FAA, lost experienced employees and most didn’t invest in the future,” he said. “That means the system simply can’t handle the volume today, much less the anticipated growth.”
American Airlines Group Inc.
AAL,
Alaska Air Group Inc.
ALK,
and JetBlue Airways Corp.
JBLU,
are also expected to report results Thursday morning, along with Southwest.
Visa, Mastercard and consumer spending: The return of travel and entertainment, along with rising prices, have helped prop up consumer spending. But as Visa Inc.
V,
Mastercard Inc.
MA,
American Express Co.
AXP,
and Capital One Financial Corp.
COF,
prepare to report, their finance-industry counterparts are getting nervous — and taking more steps to pad themselves against the fallout from consumers struggling to pay their bills.
Credit-card issuer Capital One reports results on Tuesday, while card payments-network providers Visa and Mastercard report on Thursday, with Amex on Friday morning. They’ll report after shares of Discover Financial Services
DFS,
got hit last week after the company, which also offers credit cards and loans, set aside more money to cover souring credit, and reported a bump in its net charge-off rate — a measure of debt a company thinks is unlikely to be recovered.
Larger banks, like JPMorgan Chase & Co.
JPM,
have also set aside more money to guard against credit losses.
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Many people are good at saving up money for retirement. They manage expenses and build up their nest eggs steadily. But when it comes time to begin drawing income from an investment portfolio, they might feel overwhelmed with so many choices.
Some income-seeking investors might want to dig deeply into individual bonds or dividend stocks. But others will want to keep things simple. One of the easiest ways to begin switching to an income focus is to use exchange-traded funds. Below are examples of income-oriented exchange-traded funds (ETFs) with related definitions further down.
Before looking at income-producing ETFs, there is one concept we will have to get out of the way — the relationship between interest rates and bond prices.
Stocks represent ownership units in companies. Bonds are debt instruments. A government, company or other entity borrows money from investors and issues bonds that mature on a certain date, when the issuer redeems them for the face amount. Most bonds issued in the U.S. have fixed interest rates and pay interest every six months.
Investors can sell their bonds to other investors at any time. But if interest rates in the market have changed, the market value of the bonds will move in the opposite direction. Last year, when interest rates rose, the value of bonds declined, so that their yields would match the interest rates of newly issued bonds of the same credit quality.
It was difficult to watch bond values decline last year, but investors who didn’t sell their bonds continued to receive their interest. The same could be said for stocks. The benchmark S&P 500
SPX,
fell 19.4% during 2022, with 72% of its stocks declining. But few companies cut dividends, just as few companies defaulted on their bond payments.
One retired couple that I know saw their income-oriented brokerage account value decline by about 20% last year, but their investment income increased — not only did the dividend income continue to flow, they were able to invest a bit more because their income exceeded their expenses. They “bought more income.”
The longer the maturity of a bond, the greater its price volatility. Depending on the economic environment, you might find that a shorter-term bond portfolio offers a “sweet spot” factoring in price volatility and income.
And here’s a silver lining — if you are thinking of switching your portfolio to an income orientation now, the decline in bond prices means yields are much more attractive than they were a year ago. The same can be said for many stocks’ dividend yields.
What lies ahead for interest rates? With the Federal Reserve continuing its efforts to fight inflation, interest rates may continue to rise through 2023. This can put more pressure on bond and stock prices.
Ken Roberts, an investment adviser with Four Star Wealth Management in Reno, Nev., emphasizes the “downside protection” provided by dividend income in his discussions with clients.
“Diversification is the best risk-management tool there is,” he said during an interview. He also advised novice investors — even those seeking income rather than growth — to consider total returns, which combine the income and price appreciation over the long term.
An ETF that holds bonds is designed to provide income in a steady stream. Some pay dividends quarterly and some pay monthly. An ETF that holds dividend-paying stocks is also an income vehicle; it may pay dividends that are lower than bond-fund payouts and it will also take greater risk of stock-market price fluctuation. But investors taking this approach are hoping for higher total returns over the long term as the stock market rises.
“With an ETF, your funds are diversified. And when the market goes through periods of volatility, you continue to enjoy the income, even if your principal balance declines temporarily,” Roberts said.
If you sell your investments into a declining market, you know you will lose money — that is, you will sell for less than your investments were worth previously. If you are enjoying a stream of income from your portfolio, it might be easier for you to wait through a down market. If we look back over the past 20 calendar years — arbitrary periods — the S&P 500 increased during 15 of those years. But its average annual price increase was 9.1% and its average annual total return, with dividends reinvested, was 9.8%, according to FactSet.
Also see: When can I sell my I-bonds? Are I-bonds taxed? Answers to your questions about Series I bonds.
In any given year, there can be tremendous price swings. For example, during 2020, the early phase of the Covid-19 pandemic pushed the S&P 500 down 31% through March 23, but the index ended the year with a 16% gain.
Invesco Head of Factor and Core Strategies Nick Kalivas believes investors should “explore higher-yielding stocks as a way to generate income and hedge against inflation.”
He cautioned during an interview that selecting a stock based only on a high dividend yield could place an investor in “a dividend trap.” That is, a high yield might indicate that professional investors in the stock market believe a company might be forced to cut its dividend. The stock price has probably already declined, to send the dividend yield down further. And if the company cuts the dividend, the shares will probably fall even further.
Here are two ways Invesco filters broad groups of stocks to those with higher yields and some degree of safety:
The 30-day yields give you an idea of how much income to expect. Both of these ETFs pay monthly. Now see how they performed in 2022, compared with the S&P 500 and the Nasdaq, all with dividends reinvested:
A mutual fund is a pooling of many investors’ money to pursue a particular goal or set of goals. You can buy or sell shares of most mutual funds once a day, at the market close. An ETF can be bought or sold at any time during stock-market trading hours. ETFs can have lower expenses than mutual funds, especially ETFs that are passively managed to track indexes.
You should learn about the expenses before making a purchase. If you are working with an investment adviser, ask about fees — depending on the relationship between the adviser and a fund manager, you might get a discount on combined fees. You should also discuss volatility risk with your adviser, to establish a comfort level and to try to match your income investment choices to your risk tolerance.
Here are eight more ETFs designed to provide income or a combination of income and growth:
| Company | Ticker | 30-day SEC yield | Concentration | 2022 total return |
| iShares iBoxx $ Investment Grade Corporate Bond ETF |
LQD, |
4.98% | Corporate bonds with investment-grade ratings. | -17.9% |
| iShares iBoxx $ High Yield Corporate Bond ETF |
HYG, |
7.96% | Corporate bonds with lower credit ratings. | -11.0% |
| iShares 0-5 Year High Yield Corporate Bond ETF |
SHYG, |
8.02% | Similar to HYG but with shorter maturities for lower price volatility. | -4.7% |
| SPDR Nuveen Municipal Bond ETF |
MBND, |
2.94% | Investment-grade municipal bonds for income exempt from federal taxes. | -8.6% |
| GraniteShares HIPS US High Income ETF |
HIPS, |
9.08% | An aggressive equity income approach that includes REITs, business development companies and pipeline partnerships. | -13.5% |
| JPMorgan Equity Premium Income ETF |
JEPI, |
11.77% | A covered-call strategy with equity-linked notes for extra income. | -3.5% |
| Amplify CWP Enhanced Dividend Income ETF |
DIVO, |
1.82% | Bue chip dividend stocks with some covered-call writing to enhance income. | -1.5% |
| First Trust Institutional Preferred Securities & Income ETF |
FPEI, |
5.62% | Preferred stocks, mainly in the financial sector | -8.2% |
| Sources: Issuer websites (for 30-day yields), FactSet | ||||
Click the tickers for more about each ETF.
The following definitions can help you gain a better understanding of how the ETFs listed above work:
30-day SEC yield — A standardized calculation that factors in a fund’s income and expenses. For most funds, this yield gives a good indication of how much income a new investor can be expected to receive on an annualized basis. But the 30-day yields don’t always tell the whole story. For example, a covered-call ETF with a low 30-day yield may be making regular dividend distributions (quarterly or monthly) that are considerably higher, since the 30-day yield can exclude covered-call option income. See the issuer’s website for more information about any ETF that may be of interest.
Taxable-equivalent yield — A taxable yield that would compare with interest earned from municipal bonds that are exempt from federal income taxes. Leaving state or local income taxes aside, you can calculate the taxable-equivalent yield by dividing your tax exempt yield by 1 less your highest graduated federal income tax bracket.
Bond ratings — Grades for credit risk, as determined by ratings agencies. Bonds are generally considered Investment-grade if they are rated BBB- or higher by Standard & Poor’s and Fitch, and Baa3 or higher by Moody’s. Fidelity breaks down the credit agencies’ ratings hierarchy. Bonds with below-investment-grade ratings have higher risk of default and higher interest rates than investment-grade bonds. They are known as high-yield or “junk” bonds.
Call option — A contract that allows an investor to buy a security at a particular price (called the strike price) until the option expires. A put option is the opposite, allowing the purchaser to sell a security at a specified price until the option expires.
Covered call option — A call option an investor writes when they already own a security. The strategy is used by stock investors to increase income and provide some downside protection.
Preferred stock — A stock issued with a stated dividend yield. This type of stock has preference in the event a company is liquidated. Unlike common shareholders, preferred shareholders don’t have voting rights.
These articles dig deeper into the types of securities mentioned above and related definitions:
Don’t miss: These 15 Dividend Aristocrat stocks have been the best income builders
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The numbers: The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, tumbled 21.7 points to negative 32.9 in January, the regional Fed bank said Tuesday.
This is the lowest level since the worst of the pandemic in May 2020 and among the lowest levels in the survey’s history, the regional Fed bank said.
Economists had expected a reading of negative 7, according to a survey by The Wall Street Journal.
Any reading below zero indicates contraction.
Key details: The new orders index fell 27.5 points to negative 31.1 in January. Shipments fell 27.7 points to negative 22.4.
The indexes for prices paid and prices received moved lower.
The employment gauges were also weak.
Firms expect little improvement in coming months, with the futures index at 8.
Big picture: The Federal Reserve’s steady increase in interest rates is having a slowing impact on capital spending as firms are scaling back investment, economists said. Demand for goods is also slowing after two strong years on the weak global economy. Added to the mix is the strong dollar which makes U.S. exports more expensive.
The market pays attention to the Empire State index because it is seen as a early read on the national ISM manufacturing index to be released early next month.
The ISM factory index contracted in December for the second straight month, falling to 48.4% from 49% in the prior month.
Looking ahead: “Manufacturing conditions in the U.S. are deteriorating and the worst is likely ahead,” said Gurleen Chadha, economist at Oxford Economics.
Market reaction: U.S. stocks
DJIA,
SPX,
opened lower on Tuesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
retreated to 3.51% after reaching 3.57% in early morning trading.
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U.S. stocks finished higher Friday, as investors weighed a flurry of bank earnings results for the fourth quarter and fresh data on consumer sentiment and inflation expectations.
All three major benchmarks also booked their best weekly percentage gains since Nov. 11, according to Dow Jones Market Data.
For the week, the Dow rose 2%, the S&P 500 advanced 2.7% and the Nasdaq gained 4.8% gain.
Read: Goldman Sachs sees these ‘prospective’ total returns across assets in 2023
Major stock indexes posted their best week of gains in two months on Friday after companies began reporting their fourth-quarter results, with big banks kicking off the earnings season.
No big surprises have come from the banks’ earnings results so far, with Bank of America Corp. and JPMorgan Chase & Co. indicating a potentially mild recession this year, according to Anthony Saglimbene, chief market strategist at Ameriprise Financial.
“I think the base case for most of the market right now is that we’re going to see a mild recession,” Saglimbene said in a phone interview Friday. “I don’t think anything that was said across bank earnings today surprised investors.”
Typically, the release of megabank earnings marks the unofficial start of the U.S. earnings reporting season, and market analysts will be watching closely this quarter for indications of how America’s largest companies are bracing for an expected economic downturn driven by higher interest rates.
JPMorgan
JPM,
Bank of America
BAC,
Wells Fargo & Co.
WFC,
and Citigroup
C,
were among banks that reported their fourth-quarter earnings Friday. JPMorgan was the top performer in the Dow Jones Industrial Average, with its shares closing 2.5% higher, FactSet data show.
Earnings will continue to be a “big focus” for markets this month, according to Saglimbene. “Analysts took down estimates pretty aggressively in the fourth quarter,” he said. “So the bar is pretty low for companies. We’ll see if they can hurdle past that.”
In U.S. economic data released Friday, the University of Michigan consumer sentiment index climbed in January to its highest level in nine months, as expectations for the rate of inflation one year out moderated.
“Signs that inflation has peaked and is moderating slowly kind of eases some of the anxiety that we’re going to see runaway inflation this year,” said Saglimbene.
A reading from the consumer-price index on Thursday showed U.S. inflation fell in December. Many investors are expecting that the Federal Reserve will slow its pace of interest rate hikes this year as the cost of living has cooled.
Read: Inflation slows again and clears path for slower Fed rate hikes
Stocks on Thursday pushed higher after St. Louis Federal Reserve Bank President James Bullard said the probability of a soft landing for the economy has increased due to “encouraging” inflation data.
Steve Sosnick, chief strategist at Interactive Brokers, said by phone Friday that he still favors consumer-staples stocks and companies with “more steady streams than more cyclical streams” of income. “If you’re looking at an economy that’s likely to slow down, it’s really hard for me to think that somehow ‘the cyclicals’ will be immune from the economic cycle,” he said.
Read: Why earnings season could be a ‘market-moving event’
—Barbara Kollmeyer contributed to this article.
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Pour one out for the beleaguered economists, who for once got an important indicator, the consumer price index, right on the nose, after CPI fell 0.1% in December, while core prices rose 0.3%.
“The 2021 surge in durable goods demand normalized, and the resulting collapse in durable goods price inflation was stunningly fast,” says Paul Donovan, chief economist of UBS Global Wealth Management.
“The commodity wave of inflation is fading, and that leaves the profit margin expansion in focus,” he adds. What a good time for earnings season to be upon us, and what do you know, it is, kicking off with the banking sector on Friday before broadening out next week.
Strategists at Goldman Sachs have a new note out, saying that the market is pricing in a soft landing even though the trend of earnings revisions points to a hard landing.
They’re not that optimistic — even in the soft-landing scenario, the team led by David Kostin say the S&P 500
SPX,
will end the year right around current levels, at 4,000. But they identify 46 stocks that could benefit — profitable, cyclical companies that are trading at price-to-earnings valuations below their 10-year median, among other factors.
One name jumps out: Tesla
TSLA,
which trades at 22 times forward earnings versus the 10-year median of 117 times. But the other 45 names are less flashy, ranging from Capital One
COF,
and Carlyle Group
CG,
to a host of industrials including 3M
MMM,
Parker-Hannifan
PH,
and Otis Worldwide
OTIS,
As a whole, these typically $10 billion companies are trading at 12 times earnings, versus 17 times usually.
In the hard landing scenario, S&P 500 profit margins would shrink by 125 basis points, to 10.9% — about in line with the median peak-to-trough decline during the eight recessions since 1970, which has been 132 basis points. Consensus expectations are for a 26 basis-point margin decline.
The Goldman team also have a 36 stock screen for a hard landing — profitable companies in defensive industries with a positive dividend yield. They’re typically food, beverage and tobacco companies as well as software and services companies — including Costco Wholesale
COST,
Kroger
KR,
Altria
MO,
Tyson Foods
TSN,
Microsoft
MSFT,
MasterCard
MA,
and Visa
V,
As a whole, these $37 billion companies are trading at 22 times earnings vs. a historical 24 times.
After a 2.3% advance for the S&P 500
SPX,
over the last three sessions, U.S. stock futures
ES00,
NQ00,
declined on Friday.
The yield on the Japanese 10-year bond
TMBMKJP-10Y,
exceeded 0.5%, the Bank of Japan’s yield cap, ahead of next week’s rate decision , prompting a second day of aggressive bond purchases from the central bank.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
Fourth-quarter earnings were rolling out from Bank of America
BAC,
JPMorgan Chase
JPM,
Citigroup
C,
and Wells Fargo
WFC,
and outside of banks, Delta Air Lines
DAL,
BlackRock
BLK,
and UnitedHealth
UNH,
JPMorgan shares slumped after forecast-beating earnings, though investment bank revenue came in light of estimates. Delta shares also declined after topping earnings estimates.
Tesla
TSLA,
cut prices of Model 3 and Model Y vehicles in the U.S. and elsewhere by up to 20%. The electric vehicle maker stock dropped 6%.
Virgin Galactic
SPCE,
surged after saying it’s on track to launch space-tourism flights in the second quarter.
Apple
AAPL,
says CEO Tim Cook requested, and received, a pay cut after investor criticism.
The University of Michigan’s consumer-sentiment index is due at 10 a.m. Eastern, and Minneapolis Fed President Neel Kashkari and Philadelphia Fed President Patrick Harker are due to speak.
Tyler Winklevoss said charges by the Securities and Exchange Commission brought about Gemini Trust for allegedly offering unregistered securities were “super lame” as it seeks to unfreeze $900 million in investor assets.
There’s a bull market in swearing on corporate earnings calls.
The West is now preparing to send tanks to Ukraine in what could be another escalation of its conflict with Russia, which on Friday claimed victory in the eastern town of Soledar.
A look back at photos of Lisa Marie Presley, who died at age 54.
Here were the most active stock-market tickers as of 6 a.m. Eastern.
| Ticker | Security name |
|
BBBY, |
Bed Bath & Beyond |
|
TSLA, |
Tesla |
|
GME, |
GameStop |
|
AMC, |
AMC Entertainment |
|
MULN, |
Mullen Automotive |
|
NIO, |
Nio |
|
APE, |
AMC Entertainment preferreds |
|
AAPL, |
Apple |
|
SPCE, |
Virgin Galactic |
|
AMZN, |
Amazon.com |
Like a scene out of “Stranger Things” — there’s uproar after new restrictions on the Hasbro
HAS,
game Dungeons & Dragons.
Starting next month, Starbucks
SBUX,
rewards will be less generous for most items, though iced coffee will be easier to get.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.
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Trouble may be brewing in the second half of this year, but there’s a window for a stock-market rally during the first six months of 2023, in the view of Stifel chief equity strategist Barry Bannister.
The potential for a rally in equities is based on his expectations for inflation to fall sharply, for the Federal Reserve to pause interest-rate hikes in the second quarter, and for no official recession, as declared by the National Bureau of Economic Research, before midyear, according to a Jan. 9 note from Bannister.
All of that should add up to a lower real yield on the 10-year U.S. Treasury note
TMUBMUSD10Y,
and to the S&P 500 rising to 4,300 by the end of June, according to the note.
“2023 may be a year of 2 halves, with the S&P 500 peaking mid-2023,” wrote Bannister. “The S&P 500 in late 2023 may give back some or all of 2023 gains.”
During the first half of the year, the equities rally will probably be led by “cyclical growth” and “cyclical value” stocks as hot inflation cools, Bannister wrote. He sees economic risk for equities likely rising again in late 2023, when a recession for U.S. industrial production may already be “locked in” after “long and variable lags” to the Fed’s aggressive rate hikes aimed at bringing down inflation.
Stifel’s earnings-per-share forecast for the S&P 500 features a “major” slowdown in the second half of the year, Bannister said in the note. “Additionally, inflation may turn back up late-2023, causing the Fed to re-tighten financial conditions.”
The downside risk for the S&P 500 may be 3,300, according to Bannister.
While Bannister does not yet see a recession in earnings per share, or EPS, for the S&P 500 in the first half of 2023, he cautioned that in the second of the year, the benchmark may face a slowdown in EPS that’s similar to 2012 or 2015-2016.
The S&P 500 closed at around 3,919 on Tuesday, as the U.S. stock market climbed after initially struggling for direction following Fed Chair Jerome Powell’s speech in Sweden.
The S&P 500
SPX,
finished 0.7% higher Tuesday, while the Dow Jones Industrial Average
DJIA,
gained 0.6% and the technology-laden Nasdaq Composite rose 1%, according to FactSet data.
Investors have been anxious about a potential recession in 2023, fearing that the Fed’s rapid pace of rate hikes in 2022 and continued monetary tightening this year could lead to a hard landing for the U.S. economy.
“The Fed drives this bus,” said Bannister. “Real yields were repressed 2000-2020 amid crises, and if hastily normalized, stocks could fall further.”
The U.S. stock market is up so far this year after tumbling in 2022 as the Fed raised its benchmark rate to battle the highest inflation in four decades. The S&P 500 has edged up 2.1% this month based on Tuesday’s close, following a 19.4% drop in 2022 for the index’s worst year since 2008, FactSet data show.
Meanwhile, Stifel has forecast that headline readings from the U.S. consumer-price index (CPI) will fall to 3.5% on a year-over-basis by the end of the third quarter, Bannister’s note said. Headline inflation ran as high as 9.1% in the 12 months through June, falling to 7.1% in November.
The next CPI reading, scheduled for Thursday, will provide details on U.S. inflation data for December.
It took 16 months for inflation to rise to last year’s June peak on a year-over-year basis, according to Bannister, who said Stifel’s measures point to it taking around 16 months to fall to 3.5%.
“Major inflation bursts are symmetrical,” meaning that “up” equals “down,” he said. “Every leading indicator of inflation sub-components now points down.”
Also see: Why the consumer is ‘critical’ for investors to watch in 2023 as bear market ‘not yet complete’
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It may not have been a surprise to see the consumer discretionary sector of the S&P 500 get hammered last year amid talk of a looming recession while the Federal Reserve jacked up interest rates to push back against inflation.
But the stock market always looks ahead. Following a decline of 19.4% for the S&P 500
SPX,
in 2022 and a 37.6% drop for the benchmark index’s consumer discretionary sector, this may be the time to begin looking for bargains.
And now, analysts at Jefferies have lifted the sector to a “bullish” rating.
In a note to clients on Jan. 10, Jefferies’ global equity strategist, Sean Darby, wrote: “A Goldilocks scenario might be unfolding for the U.S. consumer — falling inflation but steady employment conditions.”
He sees consumer confidence improving, in part because “households are still sitting on [about] $1.4 trillion of Covid savings.”
Darby pointed to a list of 18 consumer discretionary stocks favored by Jefferies analysts that was published on Jan. 6. Those are listed below, along with three stocks in the sector the analysts rate “underperform.”
The ratings of the Jefferies analysts for individual stocks is based on their 12-month outlooks for the companies, in keeping with Wall Street tradition.
So we have added another list further down, showing which companies in the S&P 500 consumer discretionary sector are expected by analysts polled by FactSet to increase sales the most through 2024.
Here are the 18 consumer discretionary stocks recommended by Jefferies analysts with “buy” ratings on Jan. 6, sorted by how much upside the firm sees for the shares from closing prices on Jan. 9:
| Company | Ticker | Jan. 9 price | Jefferies price target | Implied 12-month upside potential | Three-year estimated sales CAGR through 2022 | Two-year estimated sales CAGR through 2024 |
| Topgolf Callaway Brands Corp. |
MODG, |
$20.76 | $56 | 170% | 32.8% | 10.0% |
| Bloomin’ Brands Inc. |
BLMN, |
$22.08 | $35 | 59% | 2.4% | 3.7% |
| Coty Inc. Class A |
COTY, |
$9.38 | $14 | 49% | -7.1% | 3.7% |
| MGM Resorts International |
MGM, |
$37.64 | $56 | 49% | -0.1% | 6.6% |
| Chewy Inc. Class A |
CHWY, |
$40.13 | $57 | 42% | 28.0% | 10.6% |
| Planet Fitness Inc. Class A |
PLNT, |
$82.36 | $115 | 40% | 10.4% | 13.9% |
| Molson Coors Beverage Co. Class B |
TAP, |
$50.21 | $69 | 37% | 0.5% | 1.4% |
| Fox Factory Holding Corp. |
FOXF, |
$99.90 | $135 | 35% | 28.1% | 6.6% |
| Hasbro Inc. |
HAS, |
$63.70 | $85 | 33% | 9.1% | 3.6% |
| Hostess Brands Inc. Class A |
TWNK, |
$23.10 | $30 | 30% | 14.2% | 5.0% |
| Lowe’s Cos. Inc. |
LOW, |
$199.44 | $250 | 25% | 10.6% | -1.9% |
| Walmart Inc. |
WMT, |
$144.95 | $175 | 21% | 4.9% | 3.3% |
| Dollar General Corp. |
DG, |
$241.05 | $285 | 18% | 10.9% | 6.7% |
| Church & Dwight Co. Inc. |
CHD, |
$82.25 | $97 | 18% | 7.0% | 4.6% |
| McDonald’s Corp. |
MCD, |
$267.25 | $315 | 18% | 2.4% | 4.0% |
| Estee Lauder Cos. Inc. Class A |
EL, |
$261.63 | $304 | 16% | 2.8% | 5.8% |
| Mondelez International Inc. Class A |
MDLZ, |
$67.24 | $75 | 12% | 6.3% | 4.1% |
| Tapestry Inc. |
TPR, |
$41.25 | $45 | 9% | 3.3% | 3.2% |
| Sources: Jefferies, FactSet | ||||||
Click on the tickers for more information about the companies.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
The two right-most columns on the table show estimated compound annual growth rates (CAGR) for the companies over the past three calendar years and expected sales CAGR for two years through calendar 2024, based on the companies’ financial reports and consensus estimates among analysts polled by FactSet.
(We used calendar-year numbers, some of which are estimated by FactSet for prior years, because some companies have fiscal years or even months that don’t match the calendar.)
The stock pick with the highest 12-month upside potential, based on Jefferies’ price target, is Topgolf Callaway Brands Corp.
MODG,
This company has the highest estimated three-year sales CAGR on the list, and has the third-highest projected sales CAGR through 2024, after Planet Fitness Inc.
PLNT,
and Chewy Inc.
CHWY,
On Jan. 6, the Jefferies analysts also listed three stocks in the sector they rated “underperform.” Here they are, sorted by how much the analysts expect the stocks to decline over the next 12 months:
| Company | Ticker | Jan. 9 price | Jefferies price target | Implied 12-month upside potential | Three-year estimated sales CAGR through 2022 | Two-year estimated sales CAGR through 2024 |
| Lululemon Athletica Inc. |
LULU, |
$298.66 | $200 | -33% | 26.3% | 14.6% |
| Williams-Sonoma Inc. |
WSM, |
$122.17 | $98 | -20% | 14.1% | -0.3% |
| Harley-Davidson Inc. |
HOG, |
$43.25 | $39 | -10% | -2.8% | 4.4% |
| Sources: Jefferies, FactSet | ||||||
A look head at which companies are expected to increase sales the most over the next two years might serve as a good starting point for your own research.
Bear in mind that some of the companies in travel-related industries suffered declining sales for three years through 2022 because of the coronavirus pandemic. Some of those are on this new list of 20 stocks in the S&P 500 consumer discretionary sector expected to show the highest two-year sales CAGR through calendar 2024:
| Company | Ticker | Two-year estimated sales CAGR through 2024 | Three-year estimated sales CAGR through 2022 | Share “buy” ratings | Jan. 9 price | Consensus price target | Implied 12-month upside potential |
| Las Vegas Sands Corp. |
LVS, |
59.2% | -32.6% | 79% | $52.78 | $53.53 | 1% |
| Norwegian Cruise Line Holdings Ltd. |
NCLH, |
39.6% | -9.3% | 44% | $13.78 | $16.96 | 23% |
| Carnival Corp. |
CCL, |
35.2% | -14.7% | 30% | $9.47 | $10.11 | 7% |
| Tesla Inc. |
TSLA, |
34.3% | 49.7% | 64% | $119.77 | $232.43 | 94% |
| Wynn Resorts Ltd. |
WYNN, |
29.3% | -17.5% | 53% | $94.33 | $96.07 | 2% |
| Royal Caribbean Group |
RCL, |
28.4% | -6.8% | 53% | $57.29 | $66.43 | 16% |
| Chipotle Mexican Grill Inc. |
CMG, |
13.4% | 15.9% | 71% | $1,446.74 | $1,778.81 | 23% |
| Amazon.com Inc. |
AMZN, |
12.2% | 22.1% | 92% | $87.36 | $133.76 | 53% |
| Booking Holdings Inc. |
BKNG, |
11.9% | 3.9% | 63% | $2,208.41 | $2,307.67 | 4% |
| Aptiv PLC |
APTV, |
11.9% | 6.4% | 70% | $97.98 | $117.23 | 20% |
| Starbucks Corp. |
SBUX, |
11.2% | 7.2% | 42% | $104.74 | $103.44 | -1% |
| Etsy Inc. |
ETSY, |
11.1% | 45.3% | 50% | $120.99 | $124.04 | 3% |
| Hilton Worldwide Holdings Inc. |
HLT, |
10.1% | -2.9% | 38% | $129.08 | $146.17 | 13% |
| Expedia Group Inc. |
EXPE, |
9.0% | -0.9% | 50% | $93.77 | $125.65 | 34% |
| NIKE Inc. Class B |
NKE, |
8.1% | 5.8% | 62% | $124.85 | $126.15 | 1% |
| Marriott International Inc. Class A |
MAR, |
7.5% | -1.2% | 30% | $152.53 | $172.81 | 13% |
| BorgWarner Inc. |
BWA, |
7.1% | 15.3% | 53% | $42.24 | $46.93 | 11% |
| Tractor Supply Co. |
TSCO, |
6.8% | 19.0% | 61% | $217.48 | $232.34 | 7% |
| Yum! Brands Inc. |
YUM, |
6.7% | 6.4% | 47% | $129.76 | $137.79 | 6% |
| Dollar General Corp. |
DG, |
6.7% | 10.9% | 67% | $241.05 | $267.54 | 11% |
| Source: FactSet | |||||||
Among the companies on this list that didn’t suffer sales declines from 2019 levels, Tesla Inc.
TSLA,
is expected to achieve the highest two-year sales CAGR through 2022.
Dollar General Corp.
DG,
is the only company to appear on this list based on consensus sales growth estimates and the Jefferies recommended list.
Don’t miss: These 15 Dividend Aristocrat stocks have been the best income builders
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U.S. stocks advanced Friday, with the Dow rising 500 points, as monthly Labor Department data showed the pace of job creation cooled in December while wage gains slowed, fueling hopes that the Federal Reserve’s interest rate hikes are starting to have the desired effect.
After several sessions of choppy trade stocks finished lower on Thursday. However, thanks to Friday’s strong rebound, the S&P 500 is on track to finish the week in the green after four consecutive weekly declines.
Stock-market bulls cheered Friday’s jobs report, which showed that the pace of job creation and wage growth cooled last month, contradicting labor-market data released earlier in the week.
The December nonfarm payrolls report showed 223,000 jobs were created in December, above expectations for 200,000 new jobs, though the pace of job creation slowed from 256,000 during November. Wages grew by just 0.3% in December, down from 0.4% a month earlier.
See: U.S. adds 223,000 jobs in December and jobless rate matches 55-year low of 3.5%
While stocks advanced in the wake of the data, it seems the labor market has continued to confound expectations for an imminent recession, market analysts said. While the pace of wage growth has slowed slightly, workers continued to command higher pay, even if wages have lagged headline inflation.
“This is not going to push the Fed off its agenda one iota,” said Brad Conger, deputy chief investment officer at Hirtle, Callaghan & Co., in commentary about Friday’s data.
Numerous Fed officials have made clear that they want to see unemployment climb in order to help suppress inflation and engineer a return to the Fed’s 2% target. Senior Fed officials expect unemployment to rise by nearly a percentage point in 2023, according to projections released in December.
“The release was a win-win from the Fed’s perspective, as it signaled that wage inflation is moderating while job growth remains steady,” said Peter Essele, Head of Portfolio Management, Commonwealth Financial Network. “Coupled with the fact that headline inflation continues to move in the right direction, there’s a growing chance the Fed may be able to navigate a soft landing in the economy. If it meets its target, 2023 could be one of the best years for markets given the amount of negative investor sentiment currently weighing on prices.”
The S&P 500 index is down more than 19% from its 52-week high after the Fed raised interest rates by 4.25 percentage points in 2022 in an attempt to crush inflation that hit a four-decade high of 9.1% in June, according to the consumer-price index.
Jobs data released earlier in the week painted a picture of a labor market that had remained robust despite the Fed’s best efforts, and it’s not clear whether Friday’s data have meaningfully changed this perception, market strategists said.
JOLTS data released Tuesday showed more than 10 million jobs remained open. Analysts noted that the ADP private sector employment report released on Thursday was stronger than expected, which triggered a selloff in stocks.
Later Friday morning in New York, the ISM services sector index for December turned negative for the first time since May 2020, indicating a slowdown in the all-important services sector. The ISM services index slowed to 49.6% in December from 56.5%, below forecast.
The drumbeat of cautious Fedspeak continued on Friday, with Federal Reserve Governor Lisa Cook saying that inflation “remains far too high, despite some encouraging signs lately.” The pace of inflation has cooled in recent months, according to the consumer-price index.
Atlanta Fed President Raphael Bostic said on CNBC Friday that the December jobs data “doesn’t really change my outlook at all.”
A number of other Fed speakers are expected Friday, including Richmond Fed President Tom Barkin at 12:15 p.m. and Kansas City Fed President Esther George at 1 p.m.
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U.S. stocks ended lower Friday, booking their worst annual losses since 2008, as tax-loss harvesting along with anxieties about the outlook for corporate profits and the U.S. consumer took their toll.
For the week, the Dow fell 0.2%, the S&P 500 slipped 0.1% and the Nasdaq slid 0.3%. The S&P 500 dropped for a fourth straight week, its longest losing streak since May, according to Dow Jones Market Data.
All three major benchmarks suffered their worst year since 2008 based on percentage declines. The Dow dropped 8.8% in 2022, while the S&P 500 tumbled 19.4% and the technology-heavy Nasdaq plunged 33.1%.
U.S. stocks fell Friday, closing out the last trading session of 2022 with weekly and monthly losses.
Stocks and bonds have been crushed this year as the Federal Reserve raised its benchmark interest rate more aggressively than many had expected as it sought to crush the worst inflation in four decades. The S&P 500 ended 2022 with a loss of 19.4%, its worst annual performance since 2008 as the index snapped a three-year win streak, according to Dow Jones Market Data.
“Investors have been on edge,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management, in a phone interview Friday. “It seems as though the ability to drive down prices is probably a bit easier given just how crummy the year’s been.”
Stock indexes have slumped in recent weeks as hopes for a Fed policy pivot faded after the central bank in December signaled that it would likely wait until 2024 to cut interest rates.
On the final day of the trading year, markets were also being hit by selling to lock in losses that can be written off of tax bills, a practice known as tax-loss harvesting, according to Kim Forrest, chief investment officer at Bokeh Capital Partners.
An uncertain outlook for 2023 was also taking its toll, as investors fretted about the strength of corporate profits, the economy and the U.S. consumer with fourth-quarter earnings season looming early next year, Forrest said.
“I think the Fed, and then earnings in the middle of January — those are going to set the tone for the next six months. Until then, it’s anybody’s guess,” she added.
The U.S. central bank has raised its benchmark rate by more than four percentage points since the beginning of the year, driving borrowing costs to their highest levels since 2007.
The timing of the Fed’s first interest rate cut will likely have a major impact on markets, according to Forrest, but the outlook remains uncertain, even as the Fed has tried to signal that it plans to keep rates higher for longer.
On the economic data front, the Chicago PMI for December, the last major data release of the year, came in stronger than expected, climbing to 44.9 from 37.2 a month prior. Readings below 50 indicate contraction territory.
Next year, “we’re more likely to shift towards fears around economic growth as opposed to inflation,” said Heppenstall. “I think the decline in growth will eventually lead to a more meaningful decline in inflation.”
Read: Stock-market investors face 3 recession scenarios in 2023
Eric Sterner, CIO of Apollon Wealth Management, said in a phone interview Friday that he’s expecting the U.S. could fall into a recession next year and that the stock market could see a new bottom as companies potentially revise their earnings lower. “I think earnings expectations for 2023 are still too high,” he said.
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite booked modest weekly declines, adding to their December losses. For the month, the Dow fell 4.2%, while the S&P 500 dropped 5.9% and the Nasdaq sank 8.7%, FactSet data show.
Read: Value stocks trounce growth equities in 2022 by historically wide margin
As for bonds, the U.S. Treasury market was set to record its worst year since at least the 1970s.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
has jumped 2.330 percentage points this year to 3.826%, its largest annual gain on record based on data going back to 1977, according to Dow Jones Market Data.
Two-year Treasury yields
TMUBMUSD02Y,
soared 3.669 percentage points in 2022 to 4.399%, while the 30-year yield
TMUBMUSD30Y,
jumped 2.046 percentage points to end the year at 3.934%. That marked the largest calendar-year increases ever for each based on data going back to 1973, according to Dow Jones Market Data.
Outside the U.S., European stocks capped off their biggest percentage drop for a calendar year since 2018, with the Stoxx Europe 600
SXXP,
an index of euro-denominated shares, falling 12.9%, according to Dow Jones Market Data.
Read: Slumping U.S. stock market lags these international ETFs as 2022 comes to an end
—Steve Goldstein contributed to this article.
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Even during a year in which the S&P 500 index declined 19%, with 72% of its stocks in the red, there were plenty of winners.
Before showing you the list of the best performers in the benchmark index, let’s look at a preview: Here’s how the 11 sectors of the S&P 500
SPX,
performed for the year:
| Index | 2022 price change | Forward P/E | Forward P/E as of Dec. 31, 2021 |
| Energy | 59.0% | 9.7 | 11.1 |
| Utilities | -1.4% | 18.9 | 20.4 |
| Consumer Staples | -3.2% | 21.0 | 21.8 |
| Health Care | -3.6% | 17.6 | 17.2 |
| Industrials | -7.1% | 18.3 | 20.8 |
| Financials | -12.4% | 11.9 | 14.6 |
| Materials | -14.1% | 15.8 | 16.6 |
| Real Estate | -28.4% | 16.5 | 24.2 |
| Information Technology | -28.9% | 20.1 | 28.1 |
| Consumer Discretionary | -37.6% | 21.3 | 33.2 |
| Communication Services | -40.4% | 14.3 | 20.8 |
| S&P 500 | -19.4% | 16.8 | 21.4 |
| Source: FactSet | |||
Maybe you aren’t surprised to see that the energy sector was the only one to increase during 2022. But it might surprise you to see that despite the sector’s weighted price increase of 59%, its forward price-to-earnings ratio declined and remains very low relative to all other sectors.
It might also surprise you that West Texas Intermediate crude oil
CL.1,
gave up most of its gains from earlier in the year:
The reason investors are still confident in energy stocks is that oil producers have remained cautious when it comes to capital spending. They don’t want to increase supply enough to cause prices to crash, as they did in the run-up to the summer of 2014, after which prices fell steadily through early 2016, causing bankruptcies and consolidation in the industry.
Now the oil companies are focusing on maintaining supply, raising dividends and buying back shares, as Occidental Petroleum Corp.’s
OXY,
chief executive explained in a recent interview with Matt Peterson. Click here for more about Occidental and the long-term supply/demand outlook for oil.
Here are the 20 stocks in the benchmark index that rose most during 2022, excluding dividends. Proving that there are always exceptions, not all of them are in the energy sector.
| Company | Ticker | Sector | Industry | 2022 price change |
| Occidental Petroleum Corp. |
OXY, |
Energy | Oil & Gas Production | 117.3% |
| Hess Corp. |
HES, |
Energy | Oil & Gas Production | 91.6% |
| Marathon Petroleum Corp. |
MPC, |
Energy | Oil Refining/ Marketing | 81.9% |
| Exxon Mobil Corp. |
XOM, |
Energy | Integrated Oil | 80.3% |
| Schlumberger Ltd. |
SLB, |
Energy | Contract Drilling | 78.5% |
| APA Corp. |
APA, |
Energy | Integrated Oil | 73.6% |
| Halliburton Co. |
HAL, |
Energy | Oil & Gas Production | 72.1% |
| First Solar Inc. |
FSLR, |
Information Technology | Semiconductors | 71.9% |
| Valero Energy Corp. |
VLO, |
Energy | Oil Refining/ Marketing | 68.9% |
| Marathon Oil Corp. |
MRO, |
Energy | Oil & Gas Production | 64.9% |
| ConocoPhillips |
COP, |
Energy | Oil & Gas Production | 63.5% |
| Steel Dynamics Inc. |
STLD, |
Materials | Steel | 57.4% |
| EQT Corp. |
EQT, |
Energy | Oil & Gas Production | 55.1% |
| Chevron Corp. |
CVX, |
Energy | Integrated Oil | 53.0% |
| McKesson Corp. |
MCK, |
Health Care | Medical Distributors | 50.9% |
| Cardinal Health Inc. |
CAH, |
Health Care | Medical Distributors | 49.3% |
| EOG Resources Inc. |
EOG, |
Energy | Oil & Gas Production | 45.8% |
| Enphase Energy Inc. |
ENPH, |
Information Technology | Semiconductors | 44.8% |
| Merck & Co. Inc. |
MRK, |
Health Care | Pharmaceuticals | 44.8% |
| Cigna Corp. |
CI, |
Health Care | Managed Health Care | 44.3% |
| Source: FactSet | ||||
Click on the tickers for more information about the companies.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
Don’t Miss: These 20 stocks were the biggest losers of 2022
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U.S. stocks turned higher at midday Tuesday, as investors gauged whether the recent losing streak in equities has been overdone. Traders also weighed the potential rippled effects of the Bank of Japan’s surprise announcement to put a higher ceiling on government bond yields.
Stocks fell for a fourth straight session on Monday. The Nasdaq Composite was down 6.3% over that stretch, and has retreated 32.6% so far this year.
Wall Street is looking to avoid a fifth straight losing session, while investors weighed the implications of a surprise monetary policy shift by the Bank of Japan.
The S&P 500 closed the previous day near a six-week low as concerns intensify that central banks’ hiking of borrowing costs to combat inflation will push economies into recession and cause corporate earnings to fall.
The Bank of Japan had been an outlier among major central banks by having maintained rates at the zero lower bound, while others embarked on their biggest tightening cycle in a generation, noted Henry Allen, strategist at Deutsche Bank.
But on Tuesday the BoJ doubled the cap on the country’s 10-year bond, from 0.25% to 0.5%, causing the yen to jump more than 3%, while whacking equities in the region and giving U.S. stock investors more to consider.
See: Why the Bank of Japan’s surprise policy twist is rattling global markets
The BoJ kept its short-term interest rate at minus 0.1%, but the raising of the yield at which it will allow bonds to trade was seen as a step towards the ending of its era of ultra-loose monetary policy. The Nikkei 225
NIK,
fell 2.5%.
“It’s important not to underestimate the impact this could have, because tighter BoJ policy would remove one of the last global anchors that’s helped to keep borrowing costs at low levels more broadly,” Allen added.
The 10-year U.S. Treasury yield
TMUBMUSD10Y,
stood at 3.685% as the equivalent maturity Japanese government bond
TMBMKJP-10Y,
climbed to 0.418%.
However, some analysts argued that recent drops in U.S. stocks were starting to go too far.
“I think we’ve been oversold the last couple weeks,” Joe Saluzzi, partner at Themis Trading, said in a phone interview. There’s the macroeconomic pressures weighing on stocks, but Saluzzi said the recent run of heavy selling may also be partly attributable to year-end tax loss harvesting in order to reap tax benefits from the year’s losses.
The Bank of Japan announcement may have unsettled some early trading, he said. But ultimately, there’s just one central bank in the mind of U.S. equity investors, Saluzzi noted.
Until the Federal Reserve is clear that its own interest rate hikes are complete, markets will be choppy, Saluzzi said. “The economy is weakening. No matter what the Fed said, they are not going to be doing much more,” he said.
“U.S. equity markets remain trending lower in the short run, but are close to near-term support which should materialize between 12/21-12/23 at marginally lower levels,” wrote Mark Newton, head of technical strategy at Fundstrat, in a note to clients.
“The percentage of stocks above their 20-day moving average is nearing single-digit territory, which normally provides relief for longs. Overall, I don’t expect markets to go down much further in December, and risk/reward for trading shorts looks sub-par with SPX not far above targets at 3,725.
“This might materialize at 3775-3800 before allowing for a minor bounce, and then retest into Wednesday-Friday. However, I’m fully expecting a bounce next week into year-end, regardless if it proves temporary,” Newton concluded.
Tuesday morning data gave another window to a slowing economy. Building permits and housing starts were both down in November.
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The last 12 months was a year of fast-rising inflation, fast-rising interest rates and fast-rising questions about a future recession.
Prices went up while stock markets and savings account balances went down, leaving consumers and investors dizzy and their wallets hurting.
There may be more financial pain, that’s pretty sure — but it might not be as bad as feared, according to Vanguard’s look ahead to 2023.
The likely recession will not send jobless rates charging sharply higher, sticker shock will fade for the price of goods, and the rise in rent and mortgages will also ease, Vanguard said.
“On Tuesday, inflation data for November showed prices are continuing to cool. Analysts say that makes a 50-basis point increase, rather than a 75-basis-point increase, more likely.”
The good news: This opens up chances for stocks to rebound, the asset-manager added.
The outlook, released this week, comes as Americans are trying to guess what 2023 holds for their finances while they manage their holiday shopping budgets, and 2022 investments.
On Tuesday, inflation data for November showed prices are continuing to cool. From October to November, the cost of living nudged up 0.1%, lower than the 0.3% forecast, the Consumer Price Index showed. Year over year, the inflation rate receded to 7.1% from 7.7% in October, according to the CPI data.
On Wednesday, the Federal Reserve will announce its latest decision on interest rate increases. A 50-basis point increase is widely expected after four jumbo-sized 75-basis point hikes from the central bank.
Here’s one roadmap for what’s next, as far as Vanguard’s researchers and experts can see.
Inflation rates during 2022 climbed to four-decade highs. There have been signs of easing, such as smaller-than-expected price increases in October.
“As we step into 2023, early signs of a recovery in goods supply and softening demand could help balance supply and demand for consumption goods and bring prices lower,” the authors noted ahead of Tuesday’s CPI numbers.
But the cost and demand of services are going to prevent a quick fall, they noted. Signs of slowing price increases are already emerging in rents and mortgages, but they will take longer to ease than prices of consumer goods, the authors said.
That echoes the view from Treasury Secretary Janet Yellen, who said Sunday there will be “much lower inflation,” absent any unanticipated shocks to the economy.
But while hot inflation will cool, it will still be warm to the touch. The Fed says 2% inflation is its target goal; Vanguard sees 3% inflation by the end of 2023.
As “generationally high inflation” slowed economies across the world, the Fed and other central banks have countered with interest-rate increases to tame price increases. That “will ultimately succeed, but at a cost of a global recession in 2023,” according to Vanguard’s report. Vanguard sees a 90% chance of a recession in the United States by the end of next year.
Vanguard is hardly alone in the recession call, so the question is how bad could the big picture look?
In Vanguard’s view, it’s not so bad. “Households, businesses, and financial institutions are in a much better position to handle the eventual downturn, such that drawing parallels with the 1970s, 1980s, 2008, or 2020 seems misplaced,” the authors wrote.
For now, the jobless rate in a tight labor market is 3.7%, which is just a little above the lowest levels in five decades. That stands against the headline-grabbing list of companies where layoffs are mounting, notably in the tech sector.
When a recession, in all likelihood, lands next year, “unemployment may peak around 5%, a historically low rate for a recession,” the Vanguard outlook said. As interest rates climb, the job losses “should be most concentrated in the technology and real estate sectors, which were among the strongest beneficiaries of the zero-rate environment.”
The unemployment rate going from 3.7% to the 5% vicinity is “a sizable move,” Roger Aliaga-Díaz, Americas chief economist for Vanguard, said in a Monday press conference on the report. “But it is less dramatic of a rise than compared to past recessions perhaps.”
When interest rates go up, bond prices go down. So it’s been difficult for bonds with lower returns and “near-term pain” for investors this year, the Vanguard outlook said.
“However the bright side of higher rates is higher interest payments. These have led our return expectations for U.S. and international bonds to increase by more than twofold,” the report said.
Vanguard said U.S. bond return projections could be 4.1% – 5.1% annually over the next year versus its 1.4% – 2.4% return estimate last year. For U.S. stocks, the forecast could be 4.7% – 6.7% annually, while returns in emerging market equities could be between 7% and 9%.
On Tuesday morning, stock markets are soaring higher on the cooler than expected inflation data, igniting hopes of an end of year Santa Claus rally.
“‘There’s one silver lining of our outlook for a modest global recession. And it’s the clear silver lining of higher expected returns for investors.’”
Still, the Dow Jones Industrial Average
DJIA,
is down nearly 5% year to date. The S&P 500
SPX,
is off 14% in that time and for the Nasdaq Composite
COMP,
is down more than 26%.
When the market hits bottom is impossible to know, the outlook said — but it noted “valuations and yields are clearly more attractive than they were a year ago.”
“There’s one silver lining of our outlook for a modest global recession. And it’s the clear silver lining of higher expected returns for investors,” said Joseph Davis, Vanguard’s chief global economist.
“We’re long concerned that the low rate environment was both unsustainable and ultimately a tax and a headwind for savers and long term investors,” Davis said.
But even with all the turbulence this year, “we certainly are starting to see the dividends to higher real interest rates around the world in the higher projected returns that we anticipate for investors over the coming decade.”
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Following a sharp and sustained rise in interest rates, U.S. stocks have taken a broad beating this year.
But 2023 may bring very different circumstances.
Below are lists of analysts’ favorite stocks among the benchmark S&P 500
SPX,
the S&P 400 Mid Cap Index
MID
and the S&P Small Cap 600 Index
SML
that are expected to rise the most over the next year. Those lists are followed by a summary of opinions of all 30 stocks in the Dow Jones Industrial Average
DJIA.
Stocks rallied on Dec. 13 when the November CPI report showed a much slower inflation pace than economists had expected. Investors were also anticipating the Federal Open Market Committee’s next monetary policy announcement on Dec. 14. The consensus among economists polled by FactSet is for the Federal Reserve to raise the federal funds rate by 0.50% to a target range of 4.50% to 4.75%.
Read: 5 things to watch when the Fed makes its interest-rate decision
A 0.50% increase would be a slowdown from the four previous increases of 0.75%. The rate began 2022 in a range of zero to 0.25%, where it had sat since March 2020.
A pivot for the Fed Reserve and the possibility that the federal funds rate will reach its “terminal” rate (the highest for this cycle) in the near term could set the stage for a broad rally for stocks in 2023.
Among the S&P 500, 92 stocks are rated “buy” or the equivalent by at least 75% of analysts working for brokerage firms. That number itself is interesting — at the end of 2021, 93 of the S&P 500 had this distinction. Meanwhile, the S&P 500 has declined 16% in 2022, with all sectors down except for energy, which has risen 53%, and the utilities sector, which his risen 1% (both excluding dividends).
Here are the 20 stocks in the S&P 500 with at least 75% “buy” or equivalent ratings that analysts expect to rise the most over the next year, based on consensus price targets:
| Company | Ticker | Industry | Closing price – Dec. 12 | Consensus price target | Implied 12-month upside potential | Share “buy” ratings | Price change – 2022 through Dec. 12 |
| EQT Corp. | EQT | Oil and Gas Production | $36.91 | $59.70 | 62% | 78% | 69% |
| Catalent Inc. | CTLT | Pharmaceuticals | $45.50 | $72.42 | 59% | 75% | -64% |
| Amazon.com Inc. | AMZN | Internet Retail | $90.55 | $136.02 | 50% | 91% | -46% |
| Global Payments Inc. | GPN | Misc. Commercial Services | $99.64 | $147.43 | 48% | 75% | -26% |
| Signature Bank | SBNY | Regional Banks | $122.73 | $180.44 | 47% | 78% | -62% |
| Salesforce Inc. | CRM | Software | $133.11 | $195.59 | 47% | 80% | -48% |
| Bio-Rad Laboratories Inc. Class A | BIO | Medical Specialties | $418.28 | $591.00 | 41% | 100% | -45% |
| Zoetis Inc. Class A | ZTS | Pharmaceuticals | $152.86 | $212.80 | 39% | 87% | -37% |
| Delta Air Lines Inc. | DAL | Airlines | $34.77 | $48.31 | 39% | 90% | -11% |
| Diamondback Energy Inc. | FANG | Oil and Gas Production | $134.21 | $182.33 | 36% | 84% | 24% |
| Caesars Entertainment Inc | CZR | Casinos/ Gaming | $50.27 | $67.79 | 35% | 81% | -46% |
| Alphabet Inc. Class A | GOOGL | Internet Software/ Services | $93.31 | $125.70 | 35% | 92% | -36% |
| Halliburton Co. | HAL | Oilfield Services/ Equipment | $34.30 | $45.95 | 34% | 86% | 50% |
| Alaska Air Group Inc. | ALK | Airlines | $45.75 | $61.08 | 34% | 93% | -12% |
| Targa Resources Corp. | TRGP | Gas Distributors | $70.42 | $93.95 | 33% | 95% | 35% |
| Charles River Laboratories International Inc. | CRL | Misc. Commercial Services | $201.94 | $269.25 | 33% | 88% | -46% |
| ServiceNow Inc. | NOW | Information Technology Services | $401.64 | $529.83 | 32% | 92% | -38% |
| Take-Two Interactive Software Inc. | TTWO | Software | $102.61 | $135.04 | 32% | 79% | -42% |
| EOG Resources Inc. | EOG | Oil and Gas Production | $124.06 | $158.24 | 28% | 82% | 40% |
| Southwest Airlines Co. | LUV | Airlines | $38.94 | $49.56 | 27% | 76% | -9% |
| Source: FactSet | |||||||
Most of the companies on the S&P 500 list expected to soar in 2023 have seen large declines in 2022. But the company at the top of the list, EQT Corp.
EQT,
is an exception. The stock has risen 69% in 2022 and is expected to add another 62% over the next 12 months. Analysts expect the company’s earnings per share to double during 2023 (in part from its expected acquisition of THQ), after nearly a four-fold EPS increase in 2022.
Shares of Amazon.com Inc.
AMZN
are expected to soar 50% over the next year, following a decline of 46% so far in 2022. If the shares were to rise 50% from here to the price target of $136.02, they would still be 18% below their closing price of 166.72 at the end of 2021.
Read: Here’s why Amazon is Citi’s top internet stock idea
You can see the earnings estimates and more for any stock in this article by clicking on its ticker.
Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
The lists of favored stocks are limited to those covered by at least five analysts polled by FactSet.
Among components of the S&P 400 Mid Cap Index, there are 84 stocks with at least 75% “buy” ratings. Here at the 20 expected to rise the most over the next year:
| Company | Ticker | Industry | Closing price – Dec. 12 | Consensus price target | Implied 12-month upside potential | Share “buy” ratings | Price change – 2022 through Dec. 12 |
| Arrowhead Pharmaceuticals Inc. | ARWR | Biotechnology | $31.85 | $69.69 | 119% | 83% | -52% |
| Lantheus Holdings Inc. | LNTH | Medical Specialties | $54.92 | $102.00 | 86% | 100% | 90% |
| Progyny Inc. | PGNY | Misc. Commercial Services | $31.21 | $55.57 | 78% | 100% | -38% |
| Coherent Corp. | COHR | Electronic Equipment/ Instruments | $35.41 | $60.56 | 71% | 84% | -48% |
| Exelixis Inc. | EXEL | Biotechnology | $16.08 | $26.07 | 62% | 81% | -12% |
| Darling Ingredients Inc. | DAR | Food: Specialty/ Candy | $61.17 | $97.36 | 59% | 93% | -12% |
| Perrigo Co. PLC | PRGO | Pharmaceuticals | $31.83 | $49.25 | 55% | 100% | -18% |
| Mattel Inc. | MAT | Recreational Products | $17.39 | $26.58 | 53% | 87% | -19% |
| ACI Worldwide Inc. | ACIW | Software | $20.75 | $31.40 | 51% | 83% | -40% |
| Topgolf Callaway Brands Corp. | MODG | Recreational Products | $21.99 | $32.91 | 50% | 83% | -20% |
| Dycom Industries Inc. | DY | Engineering and Construction | $86.03 | $128.13 | 49% | 100% | -8% |
| Travel + Leisure Co. | TNL | Hotels/ Resorts/ Cruiselines | $37.98 | $56.00 | 47% | 75% | -31% |
| Frontier Communications Parent Inc. | FYBR | Telecommunications | $25.21 | $36.18 | 44% | 82% | -15% |
| Manhattan Associates Inc. | MANH | Software | $120.06 | $171.80 | 43% | 88% | -23% |
| MP Materials Corp Class A | MP | Other Metals/ Minerals | $31.39 | $44.79 | 43% | 92% | -31% |
| Lumentum Holdings Inc. | LITE | Electrical Products | $54.45 | $76.44 | 40% | 76% | -49% |
| Tenet Healthcare Corp. | THC | Hospital/ Nursing Management | $44.22 | $62.00 | 40% | 80% | -46% |
| Repligen Corp. | RGEN | Pharmaceuticals | $166.88 | $233.10 | 40% | 82% | -37% |
| STAAR Surgical Co. | STAA | Medical Specialties | $59.57 | $82.67 | 39% | 82% | -35% |
| Carlisle Cos. Inc. | CSL | Building Products | $251.99 | $348.33 | 38% | 75% | 2% |
| Source: FactSet | |||||||
Among companies in the S&P Small Cap 600 Index, 91 are rated “buy” or the equivalent by at least 75% of analysts. Here are the 20 with the highest 12-month upside potential indicated by consensus price targets:
| Company | Ticker | Industry | Closing price – Dec. 12 | Consensus price target | Implied 12-month upside potential | Share “buy” ratings | Price change – 2022 through Dec. 12 |
| UniQure NV | QURE | Biotechnology | $22.99 | $51.29 | 123% | 95% | 11% |
| Cara Therapeutics Inc. | CARA | Biotechnology | $11.34 | $23.63 | 108% | 88% | -7% |
| Vir Biotechnology Inc. | VIR | Biotechnology | $25.50 | $53.00 | 108% | 75% | -39% |
| Dynavax Technologies Corp. | DVAX | Biotechnology | $11.22 | $23.20 | 107% | 100% | -20% |
| Thryv Holdings Inc. | THRY | Advertising/ Marketing Services | $18.40 | $36.75 | 100% | 100% | -55% |
| Artivion Inc. | AORT | Medical Specialties | $12.93 | $23.13 | 79% | 83% | -36% |
| Cytokinetics Inc. | CYTK | Pharmaceuticals | $38.33 | $67.43 | 76% | 100% | -16% |
| Harsco Corp. | HSC | Environmental Services | $7.17 | $12.30 | 72% | 80% | -57% |
| Ligand Pharmaceuticals Inc. | LGND | Pharmaceuticals | $64.80 | $110.83 | 71% | 100% | -35% |
| Corcept Therapeutics Inc. | CORT | Pharmaceuticals | $20.84 | $34.20 | 64% | 80% | 5% |
| Payoneer Global Inc. | PAYO | Misc. Commercial Services | $5.70 | $9.33 | 64% | 100% | -22% |
| Xencor Inc. | XNCR | Biotechnology | $28.69 | $46.71 | 63% | 93% | -28% |
| Pacira Biosciences Inc. | PCRX | Pharmaceuticals | $45.50 | $72.90 | 60% | 80% | -24% |
| BioLife Solutions Inc. | BLFS | Chemicals | $19.72 | $31.38 | 59% | 89% | -47% |
| Customers Bancorp Inc. | CUBI | Regional Banks | $30.00 | $47.63 | 59% | 75% | -54% |
| ModivCare Inc. | MODV | Other Transportation | $92.22 | $145.83 | 58% | 100% | -38% |
| Stride Inc. | LRN | Consumer Services | $32.56 | $51.25 | 57% | 100% | -2% |
| Ranger Oil Corp. Class A | ROCC | Oil and Gas Production | $36.98 | $58.00 | 57% | 100% | 37% |
| Outfront Media Inc. | OUT | Real Estate Investment Trusts | $17.59 | $27.00 | 53% | 83% | -34% |
| Walker & Dunlop Inc. | WD | Finance/ Rental/ Leasing | $82.22 | $125.20 | 52% | 100% | -46% |
| Source: FactSet | |||||||
Here are all 30 components of the Dow Jones Industrial Average ranked by how much analysts expect their prices to rise over the next year:
| Company | Ticker | Industry | Closing price – Dec. 12 | Consensus price target | Implied 12-month upside potential | Share “buy” ratings | Price change – 2022 through Dec. 12 |
| Salesforce Inc. | CRM | Software | $133.11 | $195.59 | 47% | 80% | -48% |
| Walt Disney Co. | DIS | Movies/ Entertainment | $94.66 | $119.60 | 26% | 82% | -39% |
| Apple Inc. | AAPL | Telecommunications Equipment | $144.49 | $173.70 | 20% | 74% | -19% |
| Verizon Communications Inc. | VZ | Telecommunications | $37.95 | $44.60 | 18% | 21% | -27% |
| Visa Inc. Class A | V | Misc.s Commercial Services | $214.59 | $249.33 | 16% | 86% | -1% |
| Microsoft Corp. | MSFT | Software | $252.51 | $293.06 | 16% | 91% | -25% |
| Chevron Corp. | CVX | Integrated Oil | $169.75 | $191.20 | 13% | 54% | 45% |
| Cisco Systems Inc. | CSCO | Information Technology Services | $49.30 | $53.76 | 9% | 44% | -22% |
| UnitedHealth Group Inc. | UNH | Managed Health Care | $545.86 | $593.30 | 9% | 85% | 9% |
| Goldman Sachs Group Inc. | GS | Investment Banks/ Brokers | $363.18 | $392.63 | 8% | 59% | -5% |
| Walmart Inc. | WMT | Specialty Stores | $148.02 | $159.86 | 8% | 72% | 2% |
| JPMorgan Chase & Co. | JPM | Banks | $134.21 | $143.84 | 7% | 59% | -15% |
| Home Depot Inc. | HD | Home Improvement Chains | $327.98 | $346.61 | 6% | 61% | -21% |
| American Express Co. | AXP | Finance/ Rental/ Leasing | $157.31 | $164.57 | 5% | 43% | -4% |
| McDonald’s Corp. | MCD | Restaurants | $276.62 | $288.67 | 4% | 72% | 3% |
| Johnson & Johnson | JNJ | Pharmaceuticals | $177.84 | $185.35 | 4% | 36% | 4% |
| Coca-Cola Co. | KO | Beverages: Non-Alcoholic | $63.97 | $66.62 | 4% | 73% | 8% |
| Boeing Co. | BA | Aerospace and Defense | $186.27 | $192.69 | 3% | 77% | -7% |
| Intel Corp. | INTC | Semiconductors | $28.69 | $29.54 | 3% | 13% | -44% |
| Walgreens Boots Alliance Inc. | WBA | Drugstore Chains | $41.06 | $42.24 | 3% | 17% | -21% |
| Merck & Co. Inc. | MRK | Pharmaceuticals | $108.97 | $110.62 | 2% | 65% | 42% |
| Caterpillar Inc. | CAT | Trucks/ Construction/ Farm Machinery | $233.06 | $236.23 | 1% | 41% | 13% |
| Honeywell International Inc. | HON | Aerospace and Defense | $214.50 | $217.35 | 1% | 54% | 3% |
| Nike Inc. Class B | NKE | Apparel/ Footwear | $112.07 | $112.58 | 0% | 64% | -33% |
| 3M Co. | MMM | Industrial Conglomerates | $126.85 | $127.30 | 0% | 5% | -29% |
| Procter & Gamble Co. | PG | Household/ Personal Care | $152.47 | $150.22 | -1% | 59% | -7% |
| Travelers Companies Inc. | TRV | Multi-Line Insurance | $187.11 | $184.24 | -2% | 18% | 20% |
| Amgen Inc. | AMGN | Biotechnology | $276.78 | $264.79 | -4% | 24% | 23% |
| Dow Inc. | DOW | Chemicals | $51.11 | $48.73 | -5% | 15% | -10% |
| International Business Machines Corp. | IBM | Information Technology Services | $149.21 | $140.29 | -6% | 33% | 12% |
| Source: FactSet | |||||||
Don’t miss: 10 Dividend Aristocrat stocks expected by analysts to rise up to 54% in 2023
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Despite worries about inflation and an impending recession, there is at least one sign that some bullish market technical analysts might latch onto.
An upbeat golden cross appears to be forming in the Dow Jones Industrial Average
DJIA,
more than nine months after a bearish death cross formed back in March, as the hawkish agenda of the Federal Reserve shattered bullishness on Wall Street.
A golden cross occurs when the 50-day moving average for an asset price trades above the 200-day MA, while a death cross, comparatively, is when the 50-day falls below the long-term average.
The 50-day moving average for the Dow stands at 32,200.32, at last check Friday afternoon, while the 200-day sits at 32,460.71, a roughly 260-point difference that could be traversed in the coming week or two, based on its current trajectory.
A golden cross would mark the first for the Dow industrials since 2020 of August, according to Dow Jones Market Data.
The bullish chart formation also would appear at an odd time for investors, with an apparent uptrend materializing in the stock market, even as the threat of a recession in 2023 grows.
See: Goldman Sachs CEO says recession is likely, with 35% chance of a soft landing
BlackRock, the world’s largest asset manager, is anticipating a unique recession unlike others that we’ve seen in U.S. history.
“The new macro regime is playing out. We think that requires a new, dynamic playbook based on views of market risk appetite and pricing of macro damage,” wrote BlackRock’s Investment Institute team led by Jean Boivin.
The BlackRock team said markets aren’t necessarily pricing in the recession that is being predicted.
“Central banks appear set on doing ‘whatever it takes’ to fight inflation, making recession foretold, in our view,” the team at BlackRock wrote.
As MarketWatch’s Tomi Kilgore notes, crosses, overall, aren’t necessarily good market-timing indicators.
Check out: MarketWatch’s live blog of the market
On top of that, MarketWatch columnist Mark Hulbert concludes that the U.S. stock market on average has performed no better in the wake of a golden crosses as it did at other times.
In many cases, a golden cross can help put an asset’s move into perspective, however, they tend to be well telegraphed.
Interestingly, the recession is also being widely predicted and some don’t think investors are getting the memo. As BlackRock notes, investors aren’t reflecting the damage that is to come, particularly as earnings expectations from American companies are right-sized.
So, it might be worth it for investors to take any golden crosses in assets with a grain of salt.
So far, the Dow industrials have outperformed over the past three months, up about 5%, compared with a decline of 2.5% for the S&P 500
SPX,
and an 8.2% drop for the Nasdaq Composite
COMP,
Over the past three months, the Dow industrials have recent in aggregate on the back of gains in shares of Caterpillar
CAT,
Boeing Co.
BA,
Merck & Co.
MRK,
IBM
IBM,
and Travelers Cos.
TRV,
For the year so far, the Dow is down 7%, while the S&P 500 is off 17% and the Nasdaq is down nearly 30%.
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U.S. stock indexes are wavering between small gains and losses on Wall Street Wednesday, struggling to gain ground after a four-day losing streak amid worries about the chances of an economic downturn in coming months.
On Tuesday, the Dow Jones Industrial Average fell 351 points, or 1.03%, to 33596, the S&P 500 declined 58 points, or 1.44%, to 3,941, and the Nasdaq Composite dropped 225 points, or 2%, to 11,015.
A four-day losing streak, during which the S&P 500 index has lost 3.4%, showed little sign of being snapped Wednesday as investors continued to assess the potential economic damage inflicted by high inflation and the Federal Reserve’s campaign to damp it by raising interest rates. U.S. stock indexes extended losses in midday trade despite regaining some ground in the morning session.
MarketWatch Live: S&P 500 on pace for 5-day losing streak as stocks turn negative heading into midday
“The recent run of macro data points in the U.S. continues to underscore relatively solid economic trends. And combined with the recent easing in financial conditions, it may trigger a need for the Fed to push back in December. Put another way, the dove camp is feeling some pain,” said Stephen Innes, managing partner at SPI Asset Management.
Jim Reid, strategist at Deutsche Bank , noted that the S&P 500 had now lost ground in the last seven out of eight sessions. “In fact, the latest moves for the S&P mean it’s now unwound the entirety of the rally following Fed Chair Powell’s [supposedly dovish] speech last week, which makes sense on one level given he didn’t actually say anything particularly new.”
The S&P 500 has fallen 17.2% in 2022 as the Federal Reserve has driven borrowing costs sharply higher in an effort to tame inflation that has been running at the fastest pace in 40 years.
See: BNP Paribas studied 100 years of market crashes — here’s what it says is coming next
The Fed’s monetary tightening alongside stubborn inflation may deliver a marked economic slowdown, senior bankers such as JPMorgan’s Jamie Dimon and Goldman Sachs’s David Solomon warned this week.
“Fears are growing that economies are in for a rough time ahead as feverish inflation and the bitter interest rate medicine being used to bring it down take effect,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“Worries deepened amid warnings from U.S. banking and media sectors that navigating through the storm would not be easy, while the latest data has shown China’s trade has been sideswiped by a drop in global demand and zero-COVID policies. Despite today’s easing of restrictions it’s clear China’s COVID nightmare is not at an end,” Streeter added.
China on Wednesday announced a series of measures rolling back some of its most draconian anti-COVID-19 restrictions. People who test positive for the virus will be able to isolate at home rather than in overcrowded and unsanitary field hospitals, and schools where there have been no outbreaks must return to in-class teaching, according to the National Health Commission.
The Hang Seng index
HSI,
in Hong Kong fell 3.2%, while the CSI 300
000300,
dropped 0.2%, suggesting investors had already discounted Beijing’s more relaxed COVID stance.
See: A speedy reversal of China COVID-19 restrictions could cause 1 million winter deaths: report
However, long time bull Tom Lee, head of research at Fundstrat, reckons equities will benefit in coming weeks as investors start to get greater clarity on when the Fed may stop tightening policy.
“We don’t think the end of the inflation war in 2022 is the Fed cutting rates. It is when Fed and markets see sufficient progress in inflation to remove the upside risks to higher rates. We think this could happen as early as the November CPI report. This will be released on 12/13,” Lee wrote in a note.
“And if November CPI is soft, we think this will support a strong year-end rally. Admittedly, a 10% move between now and [year end] seems a stretch given the S&P 500 is around 4,000 but… the broader point is we see stocks having positive skew given the cautious positioning of investors and the possibility of very favorable incoming inflation reports,” Lee added.
On the U.S. economic front, nonfarm productivity, which measures hourly output change per worker, rose at a 0.8% annualized rate last quarter, the Labor Department said on Wednesday. Unit labor costs, the price of labor per single unit of output, climbed by a smaller 2.4% annual pace in the third quarter, compared to the preliminary 3.5% increase.
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The S&P 500 and Nasdaq Composite indexes recorded their worst day in almost a month on Monday, after a hotter-than-expected U.S. services-sector reading fueled concerns that the Federal Reserve may need to be even more aggressive in its inflation battle.
Stocks finished mixed on Friday, although they clinched gains last week, following a robust November jobs report, which stoked fears that inflation might not be so easily defeated.
Strong wage growth numbers released Friday were followed up on Monday by a robust reading for the U.S. services sector — both of which helped to stoke fears that the Fed’s interest-rate hikes, along with the central bank’s modest balance-sheet unwind, haven’t had much of an impact on the tight labor market.
The ISM barometer of U.S. business conditions in the service sector came in stronger than expected, rising to 56.5% in November, a healthy showing that signals the U.S. economy is still expanding at a steady pace.
“If nothing else, the ISM services report is being interpreted as very strong, and thus the economy is overheating and that means more Fed tightening,” said Will Compernolle, a senior economist at FHN Financial in New York. “Consumer resilience has proven to be more intense than I would have expected. In the two most interest-rate sensitive sectors — housing and autos — tightening has channeled into markets in meaningful ways.”
But there has been so much pent-up demand, that higher interest rates haven’t been cooling overall spending as much as the Fed would like because companies are still having to fill a backlog of orders, he said via phone.
In other economic data, the final November S&P Global U.S. services PMI edged up to 46.2 from 46.1, but remained in contractionary territory.
November jobs data released on Friday showed average hourly wages grew over the past year by more than 5% as of November, beating economists’ expectations and stoking concerns that robust wage growth would continue to fuel inflation, market strategists said.
Worries about a more-aggressive Fed also helped to drive Treasury yields higher, adding to the pressure on stocks. The yield on the 10-year note rose 9.6 basis points to 3.6% on Monday. Treasury yields move inversely to prices, and yields had fallen sharply over the past month, driven by shifting expectations about the pace of Fed rate hikes.
Monday’s ISM services figure “surprised to the upside, suggesting that the economy is still running above its long-run sustainable path and that the Fed is going to have to slow the economy more than expected in 2023,” Bill Adams, the Dallas-based chief economist for Comerica Inc. CMA, said via phone.
In other markets news, signs that China’s government is easing its COVID restrictions helped Hong Kong’s Hang Seng Index
HSI,
finish with a 4.5% gain.
See also: Chinese ADRs and casino operators rally on signs of easing COVID
Meanwhile, oil futures ended lower on Monday, a day after Sunday’s decision by OPEC and its allies to keep production quotas unchanged.
Falling equity prices helped drive the CBOE Volatility Index
VIX,
also known as the VIX, back above 20 on Monday. The volatility gauge had fallen sharply in recent weeks as stocks rallied, potentially signaling complacency that could ultimately hurt stocks, said Jonathan Krinsky, chief market technician at BTIG, in a note to clients.
––Jamie Chisholm contributed reporting to this article.
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The U.S. Senate on Thursday voted 80-15 in favor of a bill that would prevent a rail strike by imposing a deal on freight-rail workers, after rejecting a separate House-passed measure that would require rail companies to provide those workers with seven days of paid sick leave per year.
The vote for the bill imposing a deal keeps Washington on track to block a strike, as the House of Representatives passed it Wednesday. President Joe Biden is expected to sign the legislation into law given that he called on Monday for Congress to act.
Business groups have been warning that even a short-term strike would have a tremendous impact and cause economic pain.
The deal that would be imposed on rail employees includes a 24% increase in wages from 2020 through 2024, but workers have remained concerned about a lack of paid sick time.
In the vote on sick leave, there were 52 senators in favor, while 43 were opposed, and 60 votes for it were needed. A half dozen Republican senators were in favor, while Sen. Joe Manchin of West Virginia was the only Democrat in opposition.
“While I am sympathetic to the concerns union members have raised, I do not believe it is the role of Congress to renegotiate a collective bargaining agreement that has already been negotiated,” Manchin said in a statement.
Earlier Thursday, the Senate also voted against an amendment from Republican senators that aimed to deliver a cooling-off period so talks between rail companies and their workers could continue.
Railroad operators’ stocks finished with gains Tuesday as traders reacted to Washington’s moves to prevent a strike, but Norfolk Southern Corp.
NSC,
CSX Corp.
CSX,
and Union Pacific Corp.
UNP,
all lost ground Thursday as the broad market
SPX,
DJIA,
closed mostly lower.
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OMAHA, Neb. — President Joe Biden on Monday asked Congress to intervene and block a railroad strike before next month’s deadline in the stalled contract talks, following pressure by business groups on the stalled negotiations.
“Let me be clear: a rail shutdown would devastate our economy,” Biden said in a statement. “Without freight rail, many U.S. industries would shut down.”
Congress has the power to impose contract terms on the workers, but it’s not clear what lawmakers might include if they do. They could also force the negotiations to continue into the new year.
Both the unions and railroads have been lobbying Congress while contract talks continue. Four rail unions that represent more than half of the 115,000 workers in the industry have rejected the deals that Biden helped broker before the original strike deadline in September and are back at the table trying to work out new agreements. Eight other unions have approved their five-year deals with the railroads and are in the process of getting back pay for their workers for the 24% raises that are retroactive to 2020.
Biden said that as a “a proud pro-labor president” he was reluctant to override the views of people who voted against the agreement. “But in this case — where the economic impact of a shutdown would hurt millions of other working people and families — I believe Congress must use its powers to adopt this deal.”
Biden’s remarks came after a coalition of more than 400 business groups sent a letter to congressional leaders Monday urging them to step into the stalled talks because of fears about the devastating potential impact of a strike that could force many businesses to shut down if they can’t get the rail deliveries they need. Commuter railroads and Amtrak would also be affected in a strike because many of them use tracks owned by the freight railroads.
The business groups led by the U.S. Chamber of Commerce, National Association of Manufacturers and National Retail Federation said even a short-term strike would have a tremendous impact and the economic pain would start to be felt even before the Dec. 9 strike deadline. They said the railroads would stop hauling hazardous chemicals, fertilizers and perishable goods up to a week beforehand to keep those products from being stranded somewhere along the tracks.
“A potential rail strike only adds to the headwinds facing the U.S. economy,” the businesses wrote. “A rail stoppage would immediately lead to supply shortages and higher prices. The cessation of Amtrak and commuter rail services would disrupt up to 7 million travelers a day. Many businesses would see their sales disrupted right in the middle of the critical holiday shopping season.”
A similar group of businesses sent another letter to Biden last month urging him to play a more active role in resolving the contract dispute.
On Monday, the Association of American Railroads trade group praised Biden’s action.
“No one benefits from a rail work stoppage — not our customers, not rail employees and not the American economy,” said AAR President and CEO Ian Jefferies. “Now is the appropriate time for Congress to pass legislation to implement the agreements already ratified by eight of the twelve unions.”
Congressional leaders and the White House have said they are monitoring the contract talks closely but haven’t indicated when they might act or what they will do. House Majority Leader Steny Hoyer, D-Md., said leaders are aware of the situation with the rail negotiations and will monitor the talks in the coming days.
Rep. Brian Fitzpatrick, R-Pa., said on “Fox News Sunday” that congressional intervention is a last resort but that lawmakers will have to be ready to act.
“Congress will not let this strike happen. That’s for sure,” said Fitzpatrick, who helps lead a bipartisan group of 58 lawmakers. “It would be devastating to our economy. So, we’ll get to a resolution one way or another.”
“It certainly could end up in Congress’ lap, which is why we are headed to D.C. this week to meet with lawmakers on the Hill from both parties,” said Clark Ballew, a spokesman for the Brotherhood of Maintenance of Way Employes Division, which represents track maintenance workers. “We have instructed our members to contact their federal lawmakers in the House and Senate for several weeks now.”
The unions have asked the railroads to consider adding paid sick time to what they already offered to address some of workers’ quality of life concerns. But so far, the railroads, which include Union Pacific
UNP,
Berkshire Hathaway’s
BRK.B,
BNSF, Norfolk Southern
NSC,
CSX
CSX,
and Canadian Pacific’s
CP,
Kansas City Southern, have refused to consider that.
The railroads want any deal to closely follow the recommendations a special board of arbitrators that Biden appointed made this summer that called for the 24% raises and $5,000 in bonuses but didn’t resolve workers’ concerns about demanding schedules that make it hard to take a day off and other working conditions.
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