After slowing its pace of hiring last year, Spotify Technology SA confirmed Monday that it was laying off employees, adding to the wave of jobs cuts sweeping across the tech industry.
The streaming music service disclosed in a filing with the Securities and Exchange Commission that it was reducing its workforce by about 6%, which translates to about 588 jobs.
Bloomberg News had originally reported over the weekend that the company was planning job cuts as soon as this week.
The Luxembourg-based company said it expects to record charges of EUR35 million to EUR45 million ($38.1 million to $48.9 million) related to severance payments.
Spotify’s U.S.-listed shares SPOT, +4.63%
rallied 4.4% toward a four-month high in premarket trading,
In October, Spotify laid off at least 38 employees at its Gimlet and Parcast podcast units. Last June, Spotify Chief Executive Daniel Ek told employees that the company would reduce hiring by 25%, according to Bloomberg and CNBC reports.
Stockholm-based Spotify has been pressured by massive spending on podcasts in recent years, which have yet to deliver profits and have weighed on margins. In June, Ek predicted a meaningful ramp in profitability within the next couple of years.
Separately, Spotify said Chief Content & Advertising Business Officer Dawn Ostroff will leave the company.
Spotify shares have sunk about 50% over the past 12 months, compared with the S&P 500’s SPX, +1.89%
10% decline over that time.
Tesla Inc. Chief Executive Elon Musk took the witness stand briefly late Friday in a federal trial in San Francisco over alleged investor losses caused by his “funding secured” tweet and other tweets back in 2018.
In his roughly half-hour being questioned by a defense lawyer, Musk lauded Twitter Inc. as the most “democratic” way to communicate with Tesla investors and took a swipe at short sellers.
His testimony is expected to resume on Monday at 11:30 a.m. Eastern. Meanwhile, Tesla shares TSLA, +4.91%
were flat in the extended session Friday after ending the regular trading day up 4.9%.
A defense attorney began with plumbing Musk’s Twitter habits, and that Musk sometimes bristled at the implications his tweets may carry more meaning than what he assigns them.
“Just because I tweet something, it does not mean people believe it, or act accordingly,” Musk said, giving as example another one of its infamous tweet, in which he said Tesla stock was too high — and the stock then went higher.
The case revolves around key tweets from August 2018, including one where Musk told his millions of Twitter followers he was “considering taking Tesla private at $420” and then added “funding secured.”
Investor Glen Littleton, the lead plaintiff in the case, alleges he lost money due to the false tweets and is seeking damages.
U.S. District Judge Edward Chen already has ruled that Musk’s tweets about taking Tesla private were not true and that Musk acted with recklessness.
It is still up to jurors to decide, however, if the tweets were material to investors and if the falsehoods caused investor losses.
During his testimony, Musk said short sellers are essentially pulling for Tesla’s demise.
“Short sellers are basically a bunch of sharks on Wall Street,” Musk said. “(They) wanted Tesla to die, very badly” because they stood to make money for an eventual bankruptcy.
Musk testified right after a lengthy testimony from a plaintiff expert.
The CEO and Tesla each were fined $20 million in September 2018 to settle civil charges around the “funding secured” tweets and Musk was stripped of his chairman role at Tesla.
Musk and Tesla agreed to settle the charges against them without admitting to nor denying the SEC’s allegations.
posted better-than-expected subscriber growth in the fourth quarter, adding 7.66 million net new subscribers, well ahead of the 4.5 million the company had projected.
The company also announced that founder and co-CEO Reed Hastings was moving to the executive chairman role to “complete our succession process.” Netflix said that Chief operating officer Greg Peters will join Ted Sarandos as co-CEO of the company.
Tesla Inc.’s price cuts in the U.S. and Europe heightened worries on Wall Street about the electric-car maker’s margins and worsening demand at a moment when both aspects of the business seem at risk.
Tesla overnight slashed prices of several of its models, including its cheaper Model Y compact SUV and Model 3 sedan, in the U.S. and in several European countries by about 6% to 20%.
The price cuts, which also mean some Tesla EVs qualify for tax credits, may represent a gamble that until very recently Tesla thought itself insulated from.
“Ultimately, management is following through with its strategy to sacrifice industry-leading gross margins to prop up volume demand as the health of the global consumer remains uncertain,” TPH analyst Matthew Portillo said.
“Today’s move on pricing likely sets the table for management to be able to set more realistic guidance expectations on Jan. 25,” when Tesla is expected to report quarterly earnings, Portillo said.
“We see a negative catalyst path for the stock to underperform in the near and intermediate term,” Jewsikow wrote in a note.
Jewsikow went on to forecast a “sizable gross margin miss” in the fourth quarter, mostly thanks to the price reductions and incentives. Fiscal 2023 estimates “need a reset,” the analyst said.
Tesla is slated to report fourth-quarter earnings after market close on Jan. 25. FactSet consensus calls for adjusted earnings of $1.16 a share on revenue of $25 billion. The numbers are likely to be tweaked as it gets closer to the reporting day.
Analyst Dan Ives with Wedbush said he was optimistic the price action could prompt more people to get their Tesla.
Tesla now enjoys the global scale it did not have a few years ago, with more factories, and has margin flexibility to make such moves, Ives said. And there’s the added benefit that some of its vehicles are now eligible for the tax credits.
“We believe all together these price cuts could spur demand/deliveries by 12%-15% globally in 2023 and shows Tesla and Musk are going on the ‘offensive’ to spur demand in a softening backdrop,” Ives said.
“Margins will get hit on this, but we like this strategic poker move by Musk and Tesla,” the analyst said, keeping the equivalent of a buy rating on the stock and a $175 price target, which compares with an average $244 price target as gathered by FactSet from 45 analysts.
Citi analyst Itay Michaeli took more of a middle road. The price cuts confirm Wall Street worries on demand outside of China and Tesla’s strategy of prioritizing volume over price, he said.
The EV maker’s decision, though, are also part of a broader EV-industry view “that any demand pressures in 2023 would likely be met with price actions as opposed to production cuts,” Michaeli said.
Ultimately, gaining EV market share “will prove more important than maximizing EV margins in 2023,” Michaeli said.
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, +0.42%
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.
The Jefferies 18
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:
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, -0.22%.
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, +0.69%
and Chewy Inc. CHWY, +1.63%.
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:
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:
Among the companies on this list that didn’t suffer sales declines from 2019 levels, Tesla Inc. TSLA, -1.83%
is expected to achieve the highest two-year sales CAGR through 2022.
Dollar General Corp. DG, -0.26%
is the only company to appear on this list based on consensus sales growth estimates and the Jefferies recommended list.
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, -0.25%
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, +2.69%
gave up most of its gains from earlier in the year:
FactSet
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, +1.14%
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.
Best-performing S&P 500 stocks of 2022
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.
Harris Kupperman, the president of Praetorian Capital, made a couple of interesting calls heading into 2022. He predicted that stocks of the giant tech-oriented companies that led the bull market would be sold off, and that oil prices would continue to rise through the end of 2022.
The first prediction came true, while the second one for oil prices fizzled. After rising to $130 in March, oil prices have fallen back to where they started the year. Then again, that second prediction still could have made you a lot of money because the share prices of oil companies kept rising anyway.
That leads to a new prediction for 2023 and a related stock screen below.
Here’s a chart showing the movement of front-month contract prices for West Texas Intermediate (WTI) crude oil CL.1, -0.62%
since the end of 2021:
FactSet
Even though Kupperman didn’t get his oil price call right, the energy sector of the S&P 500 SPX, -1.20%
was up 60% for 2022 through Dec. 27, excluding dividends. That is the only one of the 11 S&P 500 sectors to show a gain in 2022. And the energy sector is also cheapest relative to earnings expectations, with a forward price-to-earnings ratio of 9.8, compared with 16.7 for the full S&P 500.
WTI pulled back from its momentary peak at $130.50 in early March, but that didn’t reverse the long-term trend of low capital spending by oil and natural gas producers, which has given investors confidence that supplies will remain tight.
Vicki Hollub, the CEO of Occidental Petroleum Corp. OXY, -3.50%
— the best-performing S&P 500 stock of 2022 — said during a recent interview that there was “no pressure to increase production right now,” citing a $40 per barrel break-even point for oil prices.
At the end of November, these 20 oil companies stood out as reasonable plays for 2023 based on expectations for free-cash-flow generation and dividend payments.
For this next screen, we are only looking at ratings and consensus price targets among analysts polled by FactSet.
There are 23 energy stocks in the S&P 500, and you can invest in that group easily by purchasing shares of the Energy Select SPDR ETF XLE, -2.24%.
We can expand the list of large-cap names by looking at the components of the iShares Global Energy ETF IXC, -1.91%,
which holds all the energy stocks in the S&P 500 plus large players based outside the U.S.
Prices on the tables in this article are in local currencies.
IXC holds 51 stocks. To expand the list for a stock screen, we added the energy stocks in the S&P 400 Mid Cap Index MID, -1.24%
and the S&P Small Cap 600 Index SML, -1.89%
to bring the list up to 91 companies, which we then pared to 83 covered by at least five analysts polled by FactSet.
Here are the 20 companies in the list with at least 75% “buy” or equivalent ratings that have the most upside potential over the next 12 months, based on consensus price targets:
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Twitter on Sunday announced it will ban accounts that post links or usernames for certain “prohibited” third-party social media platforms.
“We will no longer allow free promotion of certain social media platforms on Twitter,” Elon Musk’s company said in a tweet thread posted as much of the world was watching the World Cup final. “Specifically, we will remove accounts created solely for the purpose of promoting other social platforms and content that contains links or usernames for the following platforms: Facebook, Instagram, Mastodon, Truth Social, Tribel, Nostr and Post.”
In a blog post, Twitter said cross-promoted posts will still be allowed, but that “Accounts that are used for the main purpose of promoting content on another social platform may be suspended.” It did not specify how it will decide what an account’s main purpose is, but provided examples of banned content, such as: “follow me @username on Instagram,” “username@mastodon.social,” and “check out my profile on Facebook – facebook.com/username.”
The new policy triggered an immediate flurry of criticism by many Twitter users.
The move comes after a number of prominent tech journalists were suspended, then reinstated, last week for reporting on Twitter’s ban on an account that tracked Elon Musk’s private jet.
While Musk, who competed his $44 billion takeover of the company in October, has called himself a free-speech absolutist, many of his policies as Twitter’s owner and CEO have been to silence his critics.
Tesla Inc. stock edged higher Thursday, but Wedbush analyst Dan Ives minced no words to decry what he called an ongoing Twitter Inc. “funding nightmare,” accusing Chief Executive Elon Musk to treat the electric-vehicle maker as an ATM machine.
“The nightmare of Musk owning Twitter has been an episode out of the Twilight Zone that never ends and keeps getting worse,” said Ives, a noted Tesla bull, in a note Thursday.
Tesla Inc. Chief Executive Elon Musk just sold nearly $3.6 billion more of the company’s stock, according to a filing with the Securities and Exchange Commission released late Wednesday.
Musk sold just under 22 million shares worth $3.58 billion in aggregate from Dec. 12 to Dec. 14, the latest filing shows. Tesla shares TSLA fell in all three of those trading sessions, dropping 12.4% in total over the three-day stretch to finish Wednesday at $156.80.
What worked well during the years-long bull market through 2021 — a focus on growth, regardless of price — has ground to a halt this year. The rebirth of the value style of investing — and modest valuations overall — has taken hold.
The approach taken by the Invesco S&P 500 GARP ETF has paid off through both bull and bear markets.
Let’s begin with a 10-year chart comparing total returns with dividends reinvested for the Invesco S&P 500 GARP ETF SPGP, +0.67%
and the SPDR S&P 500 ETF Trust SPY, +0.78%,
which tracks the benchmark S&P 500:
FactSet
So far this year, SPGP is down 12%, while SPY is down 16%. But the long-term chart shows significant and consistent outperformance for SPGP, even during the bull market.
The S&P 500 GARP Index
GARP stands for “growth at a reasonable price.” SPGP tracks the S&P 500 GARP Index, which is reconstituted and rebalanced twice a year, on the third Fridays of June and December. The next change occurs Dec. 16.
S&P Dow Jones Indices assigns a growth score to each component of the S&P 500 by averaging the three-year compound annual growth rate (CAGR) for earnings and sales per share.
The top 150 components of the S&P 500 by growth score are eligible for inclusion in the GARP index. Those 150 are ranked by “quality/value composite score,” which is the average of these three ratios:
Financial leverage — total debt to book value.
Return on equity — trailing 12 months’ earnings per share divided by book value per share.
Earnings-to-price — 12 months’ earnings per share divided by the share price.
The top 75 of the 150 by QV rankings are then included in the GARP index and weighted by the growth score, with portfolio weightings ranging from 0.5% to 5%.
There is a weighting limitation of 40% to any one of the 11 S&P sectors.
Addressing concentration risk
The benchmark S&P 500 Index SPX, +0.75%
is weighted by market capitalization, which means it is more heavily concentrated than you might expect — success is rewarded, with rising stocks more heavily weighted over time.
That can backfire during a bear market, with Amazon.com Inc. AMZN, +2.14%
down 47% and Tesla Inc. TSLA, -0.34%
down 51% this year, to name two prominent examples.
Looking at the SPDR S&P 500 ETF Trust SPY, +0.78%,
which is the first and largest exchange traded fund and tracks the benchmark index by holding all of its components, six companies (Apple Inc. AAPL, +1.21%,
Microsoft Corp. MSFT, +1.24%,
Amazon, both common share classes of Alphabet Inc. GOOGL, -1.30%
That percentage has come down this year, but a lot of risk remains concentrated in a handful of companies. (Apple alone makes up 6.4% of the SPY portfolio. Tesla is now the ninth-largest holding, making up 1.4% of the portfolio.)
One way to address high concentration in an index fund is to use an equal-weighted approach, which Mark Hulbert recently discussed.
For the Invesco S&P 500 GARP ETF, the underlying index’s selection methodology has resulted in much less portfolio concentration than we see in SPY, with the top five holdings making up 10.9% of the portfolio.
San Francisco City Attorney David Chiu said Tuesday that he will look into the loss of Twitter janitors’ jobs, which appears to be in violation of San Francisco law.
Members of the SEIU Local 87 went on strike Monday as their contract was set to expire Dec. 9. The contractor that employed them is set to be replaced by another contractor that Twitter would not disclose to the union, according to Olga Miranda, president of the union local. Twitter then moved up the janitors’ last day on the job to Monday, she said.
According to San Francisco law, when a company changes contractors for security or janitorial services, the contractor is supposed to rehire workers for at least 90 days after the transition.
When contacted by MarketWatch on Tuesday, Chiu said: “Elon Musk has a long history of flouting labor laws. While I’m not surprised this happened, I feel for those workers as well as all Twitter employees and contractors who have been laid off. We will be looking into this further.”
Miranda said 48 janitors in total are affected, 30 of whom were waiting to go back to work because many Twitter employees had been working from home and not as many janitors were needed.
San Francisco-based Twitter, whose communications team was reportedly almost entirely laid off at the beginning of November after Musk bought the company, has not returned a request for comment. Musk has cut about half of the company’s pre-acquisition workforce of 7,500 since he took over.
Also Tuesday, Ted Goldberg, a senior editor at KQED, San Francisco’s public radio station, tweeted that the San Francisco Department of Building Inspection is launching an investigation into news reported by Forbes that Twitter has set up bedrooms for employees at its headquarters.
“We need to make sure the building is being used as intended,” a representative of the department told KQED News.
Income-seeking investors are looking at an opportunity to scoop up shares of real estate investment trusts. Stocks in that asset class have become more attractive as prices have fallen and cash flow is improving.
Below is a broad screen of REITs that have high dividend yields and are also expected to generate enough excess cash in 2023 to enable increases in dividend payouts.
REIT prices may turn a corner in 2023
REITs distribute most of their income to shareholders to maintain their tax-advantaged status. But the group is cyclical, with pressure on share prices when interest rates rise, as they have this year at an unprecedented scale. A slowing growth rate for the group may have also placed a drag on the stocks.
And now, with talk that the Federal Reserve may begin to temper its cycle of interest-rate increases, we may be nearing the time when REIT prices rise in anticipation of an eventual decline in interest rates. The market always looks ahead, which means long-term investors who have been waiting on the sidelines to buy higher-yielding income-oriented investments may have to make a move soon.
During an interview on Nov 28, James Bullard, president of the Federal Reserve Bank of St. Louis and a member of the Federal Open Market Committee, discussed the central bank’s cycle of interest-rate increases meant to reduce inflation.
When asked about the potential timing of the Fed’s “terminal rate” (the peak federal funds rate for this cycle), Bullard said: “Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation.”
Fed’s Bullard says in MarketWatch interview that markets are underpricing the chance of still-higher rates
In August we published this guide to investing in REITs for income. Since the data for that article was pulled on Aug. 24, the S&P 500 SPX, -0.29%
has declined 4% (despite a 10% rally from its 2022 closing low on Oct. 12), but the benchmark index’s real estate sector has declined 13%.
REITs can be placed broadly into two categories. Mortgage REITs lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, while equity REITs own property and lease it out.
The pressure on share prices can be greater for mortgage REITs, because the mortgage-lending business slows as interest rates rise. In this article we are focusing on equity REITs.
Industry numbers
The National Association of Real Estate Investment Trusts (Nareit) reported that third-quarter funds from operations (FFO) for U.S.-listed equity REITs were up 14% from a year earlier. To put that number in context, the year-over-year growth rate of quarterly FFO has been slowing — it was 35% a year ago. And the third-quarter FFO increase compares to a 23% increase in earnings per share for the S&P 500 from a year earlier, according to FactSet.
The NAREIT report breaks out numbers for 12 categories of equity REITs, and there is great variance in the growth numbers, as you can see here.
FFO is a non-GAAP measure that is commonly used to gauge REITs’ capacity for paying dividends. It adds amortization and depreciation (noncash items) back to earnings, while excluding gains on the sale of property. Adjusted funds from operations (AFFO) goes further, netting out expected capital expenditures to maintain the quality of property investments.
The slowing FFO growth numbers point to the importance of looking at REITs individually, to see if expected cash flow is sufficient to cover dividend payments.
Screen of high-yielding equity REITs
For 2022 through Nov. 28, the S&P 500 has declined 17%, while the real estate sector has fallen 27%, excluding dividends.
Over the very long term, through interest-rate cycles and the liquidity-driven bull market that ended this year, equity REITs have fared well, with an average annual return of 9.3% for 20 years, compared to an average return of 9.6% for the S&P 500, both with dividends reinvested, according to FactSet.
This performance might surprise some investors, when considering the REITs’ income focus and the S&P 500’s heavy weighting for rapidly growing technology companies.
For a broad screen of equity REITs, we began with the Russell 3000 Index RUA, -0.04%,
which represents 98% of U.S. companies by market capitalization.
We then narrowed the list to 119 equity REITs that are followed by at least five analysts covered by FactSet for which AFFO estimates are available.
If we divide the expected 2023 AFFO by the current share price, we have an estimated AFFO yield, which can be compared with the current dividend yield to see if there is expected “headroom” for dividend increases.
For example, if we look at Vornado Realty Trust VNO, +1.03%,
the current dividend yield is 8.56%. Based on the consensus 2023 AFFO estimate among analysts polled by FactSet, the expected AFFO yield is only 7.25%. This doesn’t mean that Vornado will cut its dividend and it doesn’t even mean the company won’t raise its payout next year. But it might make it less likely to do so.
Among the 119 equity REITs, 104 have expected 2023 AFFO headroom of at least 1.00%.
Here are the 20 equity REITs from our screen with the highest current dividend yields that have at least 1% expected AFFO headroom:
Click on the tickers for more about each company. You should read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
The list includes each REIT’s main property investment type. However, many REITs are highly diversified. The simplified categories on the table may not cover all of their investment properties.
Knowing what a REIT invests in is part of the research you should do on your own before buying any individual stock. For arbitrary examples, some investors may wish to steer clear of exposure to certain areas of retail or hotels, or they may favor health-care properties.
Largest REITs
Several of the REITs that passed the screen have relatively small market capitalizations. You might be curious to see how the most widely held REITs fared in the screen. So here’s another list of the 20 largest U.S. REITs among the 119 that passed the first cut, sorted by market cap as of Nov. 28:
U.S. stocks closed higher Tuesday, but off the session’s best levels, after more data suggested inflation may be slowing and mega-retailer Walmart offered a rosier annual forecast.
The Dow turned negative earlier in the session after the Associated Press reported that Russian missiles crossed into Poland and killed two people, ratcheting up geopolitical tension given Poland is a NATO country.
How stocks traded
S&P 500 index SPX, +0.87%
rose 34.48 points, or 0.9%, to close at 3,991.73.
Dow Jones Industrial Average DJIA, +0.17%
climbed 56.22 points, or 0.2%, ending at 33,592.92, after touching a nearly three-month high of 33,987.06 earlier.
Nasdaq Composite COMP, +1.45%
climbed 162.19 points, or 1.5%, closing at 11,358.41.
On Monday, U.S. stocks finished near session lows after early gains evaporated. The Dow Jones Industrial Average fell 211 points, or 0.6%, while the S&P 500 declined 36 points, or 0.9% and the Nasdaq Composite dropped 226 points, or 2%.
What drove markets
U.S. stocks closed higher Tuesday, after another batch of inflation data showed that whole prices rises were slowing in October for the second straight month.
The Dow’s brief negative turn came after reports that Russian military bombarded Ukraine Tuesday. In the attack, missiles reportedly crossed into Poland, a member of NATO, the Associated Press said, citing a senior U.S. intelligence official.
“Geopolitical concerns obviously are never positive for the market,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
On Tuesday, oil futures settled higher. West Texas Intermediate crude for December delivery rose to $1.05, or 1.2%, reaching $86.92 a barrel.
While markets had started to price in the toll of Russian’s nearly nine-month invasion of Ukraine, it had not priced in an potential escalation of the war, said Kent Engelke, chief economic strategist at Capitol Securities Management.
“Talk about geopolitical angst returning,” Engelke said, later adding, “If there were really missiles shot to Poland and that was really not an accident, wow, that is really increasing the scope of the war.”
A U.S. National Security Council spokesperson said the agency was aware of the news reports out of Poland, but that it cannot confirm the reports or any details at this time.
While international worries clouded the session, there was also encouraging domestic news.
The U.S. producer-price index climbed 8% over the 12 months through October, the Labor Department said Tuesday, easing from September’s revised 8.4% increase. Last week, stocks surged after the October consumer-price index rose more slowly than expected.
Tuesday’s PPI report helped support the notion that inflation has peaked, at least for now.
“Today, it’s really about the PPI and the market reaction to it,” Steve Sosnick, chief strategist at Interactive Brokers IBKR, +3.45%,
said in a Tuesday morning interview before the reports of missiles crossing into Poland.
Markets ripped higher last Thursday after October’s consumer-price index showed signs of easing. The same dynamic was playing out Tuesday, but the response now has been “a bit more muted” because it’s an iteration on inflation data that investors already had been starting to see, Sosnick said.
So, is the economy really at peak inflation? It’s too early to say for sure, according to Sosnick. Still, the PPI numbers, paired with last week’s CPI reading “does add evidence to that narrative,” he added.
Walmart’s third quarter earnings also were buoying markets, Sosnick said. The massive retailer’s beat on earnings offers a glimpse at the minds and wallets of many American consumers. For anyone who worries about consumers “getting highly defensive” and not spending, Walmart’s numbers are “counter evidence.”
In other news, the first face-to-face meeting between President Joe Biden and President Xi Jinping helped support stocks listed in China and Hong Kong, as some of the tensions between the world’s two largest economies were seen to be easing.
Analysts increasingly expect stocks to enjoy a positive end to the year. “The near-term picture still looks positive for U.S. benchmark indices and while momentum has reached intra-day overbought levels, this doesn’t imply a selloff has to happen right away,” said Mark Newton, head of technical strategy at Fundstrat.
Philadelphia Federal Reserve President Patrick Harker said Tuesday that he favored a 50 basis-point hike to the Fed’s benchmark rate in December. Atlanta Fed President Raphael Bostic said more rate hikes will be needed, even through there have been “glimmers of hope” on inflation.
Fed Vice Chairman for Supervision Michael Barr said Tuesday that the U.S. economy is likely to slow in coming months, and more workers will lose their jobs, in Senate testimony. The Fed is working with regulators to assess risks tied to cryptocurrency markets, following the collapse of FTX and its associated companies.
In other U.S. economic data, the New York Empire State manufacturing index for November showed a gauge of manufacturing activity in the state rose 13.6 points to 4.5 this month.
The yield on the 10-year Treasury note TMUBMUSD10Y, 3.774%
was down 6.7 basis points at 3.798%. Bond yields move inversely to prices.
Companies in focus
Walmart WMT, +6.54%
shares jumped after the giant retailer swung to a net third-quarter loss, due to $3.3 billion in charges related to opioid legal settlements, but reported adjusted profit, revenue and same-store sales that were well above expectations and a full-year outlook that was above forecasts. Walmart shares opened Tuesday at $145.61 and closed at $147.48, or 6.57% higher.
Home Depot HD, +1.63%
rose after the home improvement retailer reported fiscal third-quarter earnings that beat expectations, citing strength in project-related categories, but kept its full-year outlook intact. Home Depot shares opened Tuesday at $304.06 and closed at $311.99.
Chinese-listed technology traded sharply higher on Tuesday, including U.S.-traded ADRs for Alibaba Group Holding BABA, +11.17%, Baidu Inc. BIDU, +9.02%
and JD.com Inc. JD, +7.14%
The KraneShares CSI China Internet exchange-traded fund KWEB, +9.56%
also traded substantially higher.
—Jamie Chisholm contributed reporting to this article
Shares of Chinese travel and consumer companies gained ground in Hong Kong after Beijing eased some Covid-19 restrictions, improving the outlook for sectors directly hit by the pandemic and the broader economic recovery.
In Friday afternoon trade, the Hang Seng China Enterprises Index 160462, +7.98%
advanced 7.6%, while the city’s benchmark Hang Seng Index HSI, +7.51%
jumped 7.1% to 17221.43, recovering to levels last seen a month ago. The benchmark index would mark its largest one-day gain since mid-March if it closes at current levels.
China’s three major airlines, Air China Ltd. 601111, -3.11%,
China Southern Airlines Co. 600029, +0.13%
and China Eastern Airlines Corp. 600115, +1.14%,
added between 2.2% and 5.1%, while travel retailer China Tourism Group Duty Free Corp. 601888, +3.65%
climbed 7.1%.
Broader consumer-related sectors also strengthened, amid hopes that less stringent rules could help revive consumption. E-commerce platforms Alibaba Group Holding Ltd. BABA, +7.60%
9618, +16.22%
jumped 11% and 16%, respectively, while restaurant operator Haidilao International Holding Ltd. 6862, +5.21%
climbed 4.7%.
China said Friday that it will shorten the quarantine period for close contacts of COVID cases and travelers to the country, among other policy tweaks. But the government also said it will stick to its zero-COVID policy.
Friday’s market upturn came on the back of U.S. stocks’ biggest rally in two years, after October inflation data was weaker than expected, lifting expectations of less aggressive interest-rate increases by the Federal Reserve.
Self-proclaimed “free-speech absolutist” Elon Musk announced a crackdown Sunday on parody Twitter accounts impersonating him, or anyone else.
“Going forward, any Twitter handles engaging in impersonation without clearly specifying ‘parody’ will be permanently suspended,” Musk tweeted Sunday evening.
“Previously, we issued a warning before suspension, but now that we are rolling out widespread verification, there will be no warning. This will be clearly identified as a condition for signing up to Twitter Blue,” he continued in a thread. Furthermore, “Any name change at all will cause temporary loss of verified checkmark.”
That came after a number of prominent verified Twitter users — including comedians Kathy Griffin and Sarah Silverman and actress Valerie Bertinelli — switched their account names to read “Elon Musk” to prove that Musk’s new plan to give blue verification checkmarks to anyone who’ll pay $8 a month is flawed, allowing anyone with $8 to impersonate anyone else and potentially spread disinformation. As of Sunday night, Griffin’s account was suspended, while Silverman and Bertinelli had gone back to their real names.
Musk has described himself as a “free-speech absolutist,” and that content on Twitter should not be censored much past the the law. Last week, after completing his $44 billion acquisition of Twitter, Musk tweeted: “Comedy is now legal on Twitter.”
In April, Musk said: “I hope that even my worst critics remain on Twitter, because that is what free speech means.”
But perhaps more telling, in a 2019 interview in The Atlantic, Musk said “Accurate and entertaining satire is vital to a functioning democracy,” then quipped: “Unless it’s about me.”
A number of Twitter users called out Musk for Sunday’s changes:
