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U.S. stocks rose on Thursday, on track for their biggest gain in two weeks, as another batch of strong big-tech earnings reports helped boost the broader market while offsetting signs of slowing economic growth.
On Wednesday, the Dow Jones Industrial Average fell 229 points, or 0.68%, to 33,302 as worries about First Republic Bank FRC overshadowed upbeat big-tech earnings.
For…
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A U.K. regulator made the surprising decision Wednesday to block Microsoft Corp.’s deal for Activision Blizzard Inc. in a further sign of resistance to the power of Big Tech.
The U.K.’s Competition and Markets Authority announced Wednesday that it would prohibit the $69 billion deal as the merger could hurt competition in the nascent market for cloud gaming. The decision comes after the agency said in late March that it no longer thought the deal would threaten console gaming, which is a vastly larger and more established…
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Microsoft Corp. shares headed toward their highest prices in more than year in Tuesday’s extended session, after the software giant reported better-then-expected profit and revenue and guided for continued strong results in an uncertain economy.
Microsoft MSFT reported fiscal third-quarter profit of $18.3 billion, or $2.45 a share, up from $2.22 a share a year ago. Revenue grew to $52.86 billion from $49.36 billion in the same quarter last year. Analysts on average were expecting earnings of $2.24 a share on sales of $51.02…
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U.S. stocks just touched their highest levels in two months. Yet, signs of a looming selloff are piling up, according to Jonathan Krinsky, chief technical strategist at BTIG.
The S&P 500
SPX,
and Russell 3000
RUA,
are both trading just shy of their highs from mid-February, but market breadth hasn’t recovered, as index gains over the past month have largely relied on megacap names like Microsoft Corp.
MSFT,
and Apple Inc.
AAPL,
helping to offset weakness in other areas of the market.
As of Friday, only 45% of Russell 3000 stocks were trading above their 200-day moving averages, according to data cited by Krinsky. By comparison, when the broad-market gauge was trading at its highest level of 2023 back in February, 70% of the individual stocks included in the index were trading above their 200-day moving average. Technical analysts use moving averages as a gauge of a stock or index’s momentum.
Lackluster breath is looking like more of an issue analysts say, especially now that the Nasdaq’s outperformance appears to be fading after leading markets higher since the start of the year.
Over the last two weeks, the Dow Jones Industrial Average
DJIA,
has outperformed the Nasdaq Composite
COMP,
by the widest margin since the two-week period ending Dec 30, according to FactSet data.
Krinsky cited exchange-traded funds that feature megacap technology names, including the iShares Expanded Tech-Software ETF
IGV,
the Communications Services Select Sector SPDR Fund ETF
XLC,
and Consumer Discretionary Select Sector SPDR Fund ETF
XLY,
as examples of emerging weakness in this critical sector of the market. Meanwhile, regional bank stocks, small-cap stocks and shares of retailers, all of which have lagged behind the market this year, look weak.
See: Are tech stocks becoming a haven again? ‘It is a mistake,’ say market analysts.
Krinsky summed up this dynamic thus: “The weak parts of the market remain weak, while the strong parts now appear vulnerable,” the BTIG analyst said in a Sunday note to clients.
Furthermore, “[i]n absolute and relative terms, the tech sector looks like a poor risk/reward to us here,” Krinsky added.
Low implied volatility is another issue for markets, Krinsky said. That can mean investors have gotten too complacent and markets may be heading for a selloff, analysts say.
The Cboe Volatility Index
VIX,
otherwise known as Wall Street’s “fear gauge,” finished Friday at its lowest end-of-day level since Jan. 4, according to Dow Jones Market Data. The Cboe S&P 500 9-Day Volatility Index, which tracks implied volatility over a shorter time horizon, has also fallen to January lows, FactSet data show.
Such low levels mean volatility could be poised to “mean revert,” Krinsky said, which may portend a selloff in the months ahead for the S&P 500, the most liquid and most closely watched gauge of U.S. stock-market performance.
Implied volatility gauges measure activity in option contracts linked to the S&P 500 to gauge how volatile traders expect markets to be over the coming days and weeks. Typically, implied volatility advances when U.S. stocks are falling.
The greenback has shown some signs of life in recent sessions, although the U.S. dollar remains well below the multi decade highs it reached back in September. That the buck bounced off its February lows late last week suggests that momentum could be skewed toward the upside for the dollar, Krinsky said, which could create more problems for stocks given the dollar’s tendency to weigh on markets during 2022.
The ICE U.S. Dollar Index
DXY,
a gauge of the dollar’s strength measured against a basket of rivals, was up 0.7% in recent trade at 102.22.
All of these factors support the notion that stocks could be headed for what Krinsky called the “reverse October playbook.”
Just as the S&P 500 bottomed following the hotter-than-expected September report on consumer-price inflation, the market’s monthslong rebound rally may have peaked following last week’s CPI report for March, which showed consumer prices rose a scant 0.1% last month, less than the 0.2% increase that had been forecast by economists polled by MarketWatch.
Not everybody agrees with this assessment. Marko Papic, chief strategist at Clocktower Group, cited market data going back to 1934 to show that U.S. stocks tend to rally after inflation peaks. Consumer-price inflation reached its highest level in more than four decades when the CPI headline number showed prices up 9.1% year-over-year in June.
U.S. stocks look set to decline for a second day in a row on Monday, with the S&P 500 off 0.3% at 4,126, while the Nasdaq Composite was down by 0.4% at 12,070, and the Dow Jones Industrial Average traded marginally lower at 33,881.
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U.S. stocks have shrugged off a number of threats since the start of the year, powering through the worst U.S. bank failures since the 2008 financial crisis, while resisting the pull of rising short-term Treasury yields.
This helped all three main U.S. equity benchmarks finish the first quarter in the green on Friday, but that doesn’t change the fact that the S&P 500 index, the main U.S. equity benchmark, has barely budged since last summer.
“The market has handled a lot of gut punches recently and it’s still standing in this range,” said JJ Kinahan, CEO of IG North America, owner of brokerage firm Tastytrade. “I think that’s a sign that the market is very healthy.”
The S&P 500 index
SPX,
traded at 4,110.41 on Sept. 12, 2022, according to FactSet data, just before aggressive Federal Reserve commentary on interest rates and worrisome inflation data triggered a sharp selloff. By comparison, the index finished Friday’s session at 4,109.31.
Some equity analysts expect it to take months, or perhaps even longer, for U.S. stocks to break out of this range. Where they might go next also is anyone’s guess.
Investors likely won’t know until some of the uncertainty that has been plaguing the market over the past year clears up.
At the top of the market’s wish list is more information about how the Fed’s interest rate hikes are impacting the economy. This will be crucial in determining whether the central bank might need to keep raising interest rates in 2024, several analysts told MarketWatch.
The S&P 500 has vacillated in a roughly 600-point range since September, but at the same time, the number of outsize swings from day-to-day has become even more pronounced, making it more difficult to ascertain the health of the market, analysts said.
The S&P 500 rose or fell by 1% or more in 29 trading sessions in the first quarter, including Friday, when the S&P 500 closed 1.4% higher on the last session of the month and quarter, according to Dow Jones Market Data.
That’s nearly double the quarterly average of just 14.9 days going back to 1928, according to Dow Jones Market Data. The S&P 500 was created in 1957, and performance data taken from before then is based on a historical reconstruction of the index’s performance.
Stocks also look almost placid in comparison with other assets. For example, Treasurys saw an explosion of volatility in the wake of the collapse of Silicon Valley Bank in March. The 2-year Treasury yield
TMUBMUSD02Y,
logged its largest monthly decline in 15 years in March as a result.
“You can’t find any clues about where we’re going by watching the S&P 500,” said John Kosar, chief market strategist at Asbury Research, in a phone interview with MarketWatch. “Ten years ago, you could look at the movement of the S&P 500 and a simple indicator like volume and get a back-of-the-envelope idea of how healthy the market is. But you can’t do that anymore because of all this intraday volatility.”
The S&P 500’s 7% advance in the first quarter of this year has helped to mask weakness underneath the surface. Specifically, only 33% of S&P 500 companies’ shares have managed to outperform the index since the start of the quarter, well below the long-term average, according to figures provided to MarketWatch by analysts at UBS Group UBS.
If it weren’t for a flight-to-safety rally in large capitalization technology names like Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
and Nvidia Corp.
NVDA,
the S&P 500 and Nasdaq would likely be in much worse shape.
Advancing megacap tech stocks have helped the Invesco QQQ
QQQ,
Trust exchange-traded fund, which tracks the Nasdaq 100, enter a fresh bull market in the past week, as the closely watched market gauge closed more than 20% above its 52-week closing low from late December, according to FactSet data. That’s helped to offset weakness in cyclical sectors like financials and real estate.
Tech behemoths have also benefited from the hype around artificial intelligence platforms like OpenAI’s ChatGPT.
Confusion about the Fed’s quantitative tightening efforts to reduce the size of its balance sheet also helped muddle the outlook for markets.
For example, the size of the Fed’s balance sheet has increased again in recent weeks as banks have tapped the central bank’s emergency lending programs in the wake of the failure of two regional banks, undoing some of the central bank’s efforts to shrink its balance sheet by allowing some of its Treasury and mortgage-backed bond holdings to mature without reinvesting the proceeds.
Some analysts said this is akin to sending the market mixed signals.
“It seems to be both tightening and loosening right now,” said Andrew Adams, an analyst with Saut Strategy, in a recent note to clients.
U.S. stocks have remained rangebound for long stretches in the past.
Beginning in late 2014, the S&P 500 traded in a tight range for roughly two years. Between Jan. 1, 2015 and Nov. 9, 2016, the day after former President Donald Trump defeated Hillary Clinton to become president of the U.S., the S&P 500 gained less than 100 points, according to FactSet data.
At the time, equity analysts blamed signs of softening economic activity in China and weakness in the U.S. energy industry for the market’s lackluster performance.
But after once it became clear that Trump would win the White House, stocks embarked on a steady ascent as investors bet that the Republican economic agenda, which included corporate tax cuts and deregulation, would likely bolster corporate profits.
It wasn’t until the fourth quarter of 2018 that stocks turned volatile once again as the S&P 500 wiped out its gains from earlier in the year, before ultimately finishing 2018 with a 6.2% drop for the year, according to FactSet.
As investors brace for a flood of first-quarter corporate earnings in the coming weeks, Kinahan said he expects stocks could remain range bound for at least a few more months.
“There’s going to be a very cautious outlook still, which should keep us in this range,” he said.
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U.S. stocks ended lower Friday as worries about banking-sector stability reemerged following a bankruptcy filing by SVB Financial Group and the release of data showing banks borrowed $165 billion from the Federal Reserve over the past week.
For the week, the Dow fell 0.1%, the S&P 500 gained 1.4% and the Nasdaq climbed 4.4%, according to Dow Jones Market Data. The Dow booked back-to-back weekly losses while the Nasdaq saw its biggest weekly percentage gain since January.
U.S. stocks fell Friday as worries about the banking sector persisted.
“The markets are up and down all this week, and they’re moving typically in big amounts, because there really isn’t any consensus on how the strains in the banking system will play” into the economy, said Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, in a phone interview Friday. Investors are trying to get a sense for how quickly the economy may be slowing and whether the problems in the banking sector will lead to an “accelerated slowing,” he said.
Concerns about the banking sector’s ability to withstand deposit flight reemerged Friday morning after SVB Financial Group
SIVB,
announced it had filed for Chapter 11 bankruptcy protection. SVB is the holding company of Silicon Valley Bank , which was put into FDIC receivership last Friday.
On Thursday, First Republic Bank announced that it would receive $30 billion of uninsured deposits from a group of large U.S. banks. JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. were among the 11 banks that agreed to provide the deposits.
Meanwhile, Federal Reserve data released Thursday afternoon in New York showed banks borrowed a combined $165 billion from the central bank. Most of the borrowing occurred via the Fed’s discount window. But a small amount was also tapped through the Fed’s new Bank Term Funding Program that allows bonds trading at a discount to be used as collateral, at par value. The fact that borrowing through the discount window has soared to a record high was adding to the market’s concerns about the banking sector, analysts said.
See: Banks have borrowed $165 billion from the Fed in past week after SVB failure
First Republic Bank
FRC,
shares plunged 32.8% Friday, while Credit Suisse Group
CS,
which earlier this week got a lifeline from the Swiss National Bank, closed 6.9% lower, according to FactSet data.
At least four major banks have put restrictions on trades that involve troubled Swiss lender Credit Suisse Group or its securities, Reuters reported Friday, citing people with direct knowledge of the matter.
“I think there are still a lot of questions right now,” said Mark Luschini, chief investment strategist at Janney, during a phone interview with MarketWatch. “Investors can’t seem to hold their enthusiasm for equities for longer than a 24-hour news cycle.”
It’s not hard to understand why investors are still so anxious about the banking sector given the surge in borrowing from the Fed, said Matt Maley, chief market strategist at Miller Tabak + Co.
“Given that banks borrowed over $150bn at the Fed’s discount window on Wednesday, which compares to $4.4bn the week before, one can understand why investors are worried that the situation might be a bit more dire than the authorities are admitting to right now,” Maley said in emailed commentary.
In economic news, the Conference Board said Friday that the U.S. leading economic index fell 0.3% in February, marking the 11th straight monthly decline. U.S. industrial production was flat in February, data released Friday by the Fed show.
Meanwhile, the University of Michigan’s latest reading on consumer sentiment showed consumers were more downbeat in March than at ay time in the last four months.
While stocks fell Friday, they finished the week mostly higher. The Dow Jones Industrial Average slipped 0.1% for the week, while the S&P 500 booked a 1.4% weekly gain and the technology-heavy Nasdaq Composite saw a weekly rise of 4.4%, according to Dow Jones Market Data.
—Steve Goldstein contributed to this report.
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Silicon Valley could use a reboot. The biggest players aren’t growing, and more than a few are seeing sharp revenue declines. Regulators seem opposed to every proposed merger, while legislators push for new rules to crack down on the internet giants. The Justice Department just can’t stop filing antitrust suits against Google. The initial public offering market is closed. Venture-capital investments are plunging, along with valuations of prepublic companies. Maybe they should try turning the whole thing on and off.
The only strategy that seems to be working is to lay people off. Tech CEOs suddenly are channeling Marie Kondo, tidying up and keeping only the people and projects that “spark joy,” or at least support decent operating margins. Layoffs.fyi reports that tech companies have laid off more than 122,000 people already this year.
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The initial version of this story had incorrect price changes for 2023. It is now updated with information as of the market close on Jan. 31.
Investors staged a January rally, with solid gains for the S&P 500 and an even better showing for technology stocks that led the dismal downward action in 2022.
This…
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U.S. stocks opened higher on Thursday as optimism over Tesla’s earnings results and a stronger-than-expected GDP report left investors in a better mood following Wednesday’s intraday selloff.
The Dow Jones Industrial Average finished Wednesday’s session up 10 points after falling roughly 400 points at the lows earlier in the session. The S&P 500 finished little-changed after erasing its early losses, while the Nasdaq ended lower.
Stocks opened higher after a flurry of economic data including a fourth quarter GDP report that came in stronger than expected, but the focus was on the latest batch of earnings, which helped to revive investors’ optimism following disappointing guidance from Microsoft Corp.
MSFT,
earlier in the week.
The economy grew at a robust 2.9% annual pace to close out 2022, according to the first estimate of fourth quarter GDP, released Thursday morning — the latest sign that the U.S. economy is holding up well despite the Federal Reserve’s aggressive interest-rate hikes.
“Thursday’s GDP report suggests that the economy is relatively strong even in the face of aggressive measures by the Federal Reserve to calm inflation,” said Carol Schleif, chief investment officer, BMO Family Office, in emailed commentary.
Stocks rose after the data were released as investors found solace in the latest signs that a soft landing for the U.S. economy — a scenario where growth slows, but a recession is avoided — remains possible, or even likely.
“This is a bit of a relief rally,” said Christopher Zook, chairman and chief investment officer of CAZ Investments.
However, corporate earnings and guidance are still the primary concern for investors, along with expectations about when the Federal Reserve will cut interest rates, Zook said.
The labor market also showed signs of strength despite more reports of layoffs in the tech, finance and media spaces, as the number of Americans filing for unemployment benefits fell to their lowest level since April. Investors also digested durable goods orders for December. New home sales for December will be published at 10 a.m. ET.
Investors also celebrated a surge in Tesla Inc.
TSLA,
shares premarket after the firm released well-received results that showed record quarterly profits.
Disappointing guidance from technology behemoth Microsoft had clobbered stocks on Wednesday as traders worried it signaled not just difficulties for the sector but also broadly worsening economic conditions.
However, before the end of Wednesday’s session, Microsoft shares had recovered most of their 4.5% loss and the S&P 500 finished the session almost exactly where it began, according to data from FactSet.
As for the Federal Reserve, the central bank is expected to slow the pace of interest rate hikes when it next week raises its policy rate by 25 basis points to a range of 4.5% to 4.75%.
Companies announcing results on Thursday include: McDonald’s
MCD,
Intel
INTC,
Comcast
CMCSA,
Visa
V,
Dow
DOW,
Whirl pool
WHR,
Western Digital
WDC,
and Northrop Grumman
NOC,
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Microsoft
posted better-than-expected results for the December quarter, driven by strength in cloud computing. But the strong results were tempered by disappointing guidance for the March quarter.
While the company saw weakness in its PC software business, Microsoft (ticker: MSFT) posted solid results in cloud computing and enterprise applications. In particular, the Azure public cloud business beat Wall Street growth estimates, which is a relief to investors nervous about the outlook for corporate IT spending.
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Microsoft Corp.’s profit declined more than 12% in the holiday season, and executives said Tuesday that a revenue deceleration at the end of 2022 is expected to continue into the new year as the company lays off workers.
Microsoft MSFT Chief Financial Officer Amy Hood said in a conference call Tuesday that “we are seeing customers exercise caution,” which resulted in “moderating consumption growth in Azure and lower-than-expected growth in new business” in December. Hood then said that “we expect business trends that we saw…
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U.S. stocks finished lower on Tuesday with only the Dow clinging to gains for the session as investors digested more earnings reports from major American firms. The S&P 500 SPX shed roughly 3 points, or 0.1%, to finish just shy of 4,017. The Nasdaq Composite COMP dropped by 30 points, or 0.3%, to roughly 11,334. The Dow Jones Industrial Average gained 104 points, or 0.3%, to finish at roughly 33,734. More earnings from major U.S. companies, including Microsoft Corp. MSFT are due out after the bell.
…
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U.S. stocks finished at their highest level in a month on Monday as strong performances by consumer-technology giant Apple Inc.
AAPL,
and chipmaker NVIDIA Inc.
NVDA,
pushed the Nasdaq Composite
COMP,
further into the lead. The Nasdaq gained roughly 223 points, or 2%, to finish at around 11,364, bringing the tech-heavy index’s year-to-date gain to 8.6%, according to FactSet data. The Dow Jones Industrial Average
DJIA,
gained 254 points, or 0.8%, to close at roughly 33,630. The S&P 500
SPX,
gained 47 points, or 1.2%, to 4,020. The Dow is up approximately 1.5% since the start of the year, while the S&P 500 is up roughly 4.7%. The tech-heavy Nasdaq has outperformed the other major U.S. indexes since the start of 2023, a reversal of the trend from 2022, when the value-heavy Dow outperformed the Nasdaq by the widest margin since 2000, according to Dow Jones Market Data. Investors await a batch of earnings from megacap technology stocks this week, including Microsoft Corp
MSFT,
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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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More than 55,000 global technology sector employees have been laid off in the first few weeks of 2023, according to data compiled by the Layoffs.fyi website.
The website’s tally of global tech layoffs has almost doubled from just over 25,000 on Tuesday.
The data suggest 2023 is on pace to surpass 2022 for global tech redundancies, with 154 tech companies laying off 55,324 employees in the first few weeks of the year. Last year, 1,024 tech companies laid off 154,336 employees, according to Layoffs.fyi.
Related: More than 25,000 global tech workers laid off in the first weeks of 2023, says layoff tracking site
Layoffs.fyi was set up by San Francisco-based startup founder Roger Lee to track layoffs during the COVID-19 pandemic. Lee is the co-founder of Human Interest, a digital 401(k) provider for small businesses and Comprehensive, an employee compensation platform.
Major U.S. tech companies are firmly in the layoffs spotlight. This week Google parent Alphabet Inc.
GOOGL,
GOOG,
confirmed plans to lay off about 12,000 workers globally and Intel Corp.
INTC,
said it is slashing hundreds of jobs in Silicon Valley.
Microsoft Corp.
MSFT,
confirmed plans to cut about 10,000 positions. The software maker’s layoffs did not come completely out of the blue. Earlier reports from Sky News and Bloomberg indicated that Microsoft was preparing to make cuts.
In a blog post, Microsoft CEO Satya Nadella said that while the company is eliminating roles in some areas, the company will continue to hire in key strategic areas. The CEO did not specify which areas will see hiring but did describe advances in artificial intelligence as “the next major wave of computing.”
Earlier this month Coinbase Global Inc.
COIN,
announced 950 job cuts in an attempt to cut costs.
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It has taken just one day for Tesla Inc.’s stock to erase the entire bounce it enjoyed over the last three days trading sessions of 2022, as disappointing deliveries data helped trigger the biggest selloff in more than two years.
The stock’s
TSLA,
Tuesday drop knocked the electric vehicle maker’s market capitalization to 15th on the list of most valuation S&P 500 index companies.
On Tuesday, Tesla’s market cap fell below that of consumer products company Procter & Gamble Co.
PG,
with a current market cap of $359.18 billion, and was just below Nvidia Corp.
NVDA,
at $352.15 billion, according to FactSet data. Tesla sat just above Chevron Corp.
CVX,
which was at $336.43 billion. (See list of S&P 500’s 20 most valuable companies as of Tuesday’s closing prices below.)
Tesla’s stock took a $15.08, or 12.2% dive, to $108.10 on Tuesday, to lead the S&P 500’s
SPX,
decliners, after the company reported over the weekend that fourth-quarter deliveries that came up short of expectations for the third quarter in a row. It suffered the biggest one-day decline since it plummeted 21.1% on Sept. 8, 2020, and closed at the lowest price since Aug. 13, 2020.
With about 3.16 billion shares outstanding as of Oct. 18, the stock’s decline shaved about $47.62 billion off Tesla’s market cap, to bring it down to $341.35 billion. That’s a far cry from the peak market cap of $1.24 trillion reached exactly one-year ago.
After the stock hit the deepest oversold reading in its history based on the widely followed Relative Strength Index momentum indicator on Dec. 27, following the longest losing streak in more than four years, it ran up $14.08, or 12.9%, over the past three days.
If there’s a bright side to Tuesday’s stock selloff, it’s that even though the price fell below the Dec. 27 closing price, the RSI ended the day at 24.86, which is up from the Dec. 27 record low of 16.56.
That could be a preliminary sign of what chart watchers call “bullish technical divergence,” which is when prices make lower lows while the RSI makes a higher low. It’s still rather early to make that determination, however, as the stock needs to start bouncing again to see if RSI bottoms above the previous low.
Market caps of the Top 20 most valuable S&P 500 companies:
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Just five trading sessions accounted for more than 95% of S&P 500 index losses in 2022, according to an analysis by Datatrek co-founder Nicholas Colas in a note published Wednesday, as stocks headed for their worst year since 2008.
He described them in the note as the “five days that killed the year”: Two were caused by disappointing inflation data, while the others were triggered by weak corporate earnings and commentary from Federal Reserve Chairman Jerome Powell.
On the worst day for stocks since 2020, the release of the August U.S. consumer price index report sent traders into a panic when the data showed annual headline and core inflation running hotter than expected.
The headline number came in at 8.3% for the 12 months through August, while core inflation — which strips out volatile food and energy prices — accelerated at 6.3%.
Economists and analysts were particularly rattled by the monthly core inflation number, which came in at 0.6%, double the expected rate of 0.3%, stoking concerns about stubbornly high housing costs as energy prices began to decline after earlier being the biggest driver of this year’s inflation.
Retail giant Target Corp.
TGT,
missed first quarter earnings expectations by a wide margin, elevating worries about the U.S. consumer’s ability to cope with inflation into a full-blown panic one day after Walmart Inc.
WMT,
highlighted similar concerns.
Adding to the pressure on the market, during an event hosted by the Wall Street Journal Powell acknowledged that “there could be some pain involved” as the FOMC raised interest rates.
This day’s punishing selloff was also triggered by the release of CPI data, as the numbers for the month of May came in higher than expectations. The S&P 500 finished the session in bear-market territory for the first time in 2022, down 21.8% from the record highs reached in early January.
The market’s decline on this day was also triggered by a corporate earnings disappointment. However, this time, the focus was on e-commerce, and the ripple effects sent many of the megacap technology stocks reeling.
Amazon.com Inc.
AMZN,
— which like both Target and Walmart is a member of the consumer discretionary sector of the S&P 500 — missed earnings expectations for the first quarter while reducing its guidance. The stock ended the day down 14%, its biggest single-session decline since 2006. Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
and Google owner Alphabet Inc.
GOOGL,
were also down sharply.
Markets tumbled one day after Powell assured investors during a post-meeting press conference that the Fed wasn’t considering interest-rate hikes of greater than 50 basis points. Of course, this statement didn’t age well, as the central bank went on to hike interest rates by 75 basis points at the following four consecutive meetings.
According to Colas, investors can glean some helpful insights about the root causes of this year’s market misery from these five sessions.
To wit, investors had clearly realized by the spring that stubbornly high inflation would force the Fed to raise its benchmark interest rate more aggressively than it was letting on. Also, inflated expectations for corporate earnings helped contribute to the pain as U.S. consumer spending waned.
U.S. stocks sold off far more often than they traded higher this year, a deviation from the historic pattern since World War II whereby stocks typically climb far more often than they fall. Through Tuesday’s session, the index fell during 141 trading days (including Tuesday), while finishing higher during 107 up days.
The S&P 500 was on track to finish 2022 down more than 20% as of midday on Wednesday as all three of the main indexes were trading in the red, with the S&P 500
SPX,
Nasdaq Composite
COMP,
and Dow Jones Industrial Average
DJIA,
adding to their losses with just two more trading days left in the year.
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