Today’s Big Picture
Asia-Pacific equity markets finished the day mixed. Concerns over the effectiveness of China’s market stabilization efforts continue as China’s Shanghai Composite fell 1.48%, Hong Kong’s Hang Seng declined 1.39%, and Taiwan’s TAIEX shed 0.80%. South Korea’s KOSPI closed near flat, up a mere 0.07%. Japan’s Nikkei gained 0.61%, India’s SENSEX rose 0.86%, and Australia’s ASX All Ordinaries closed 0.99% higher in a mixed day that saw gains in Utilities and Consumer Services offset losses in Electronic Technology names. European markets are mixed in midday trading and U.S. equity futures are pointing to a mixed open as Dow futures are relatively immune to the shifting sentiment on technology stocks.
Equity futures are being influenced by the investor reaction to quarterly results last night from Alphabet (GOOGL), AMD (AMD), and Microsoft (MSFT) that has those heavily weighted shares trading down in pre-market trading – for more on that see Stocks to Watch below. As the market contemplates those reports and their implications, we have another barrage of quarterly results this morning and ADP’s January Employment Report at 8:15 AM ET. ADP’s findings are expected to show 145,000 jobs added during January, a slower pace than December’s 164,000 but a far faster one compared to the 98,700 average number of jobs added during September-November.
Following a wave of earnings conference calls throughout the morning, we could see investors become more cautious ahead of the Fed announcing its latest monetary policy decision at 2 PM ET. The market will be looking for the Fed’s policy statement and to Fed Chair Powell’s presser comments that support its view the central bank will begin cutting rates in the next few months. Developments in the Red Sea, the rebound in oil prices, the December core CPI report, and easing in credit conditions are some reasons the Fed could disappoint stock market doves. The likely message to be delivered by the Fed will acknowledge the continued progress on inflation but that risks remain, especially given the above trend growth in the economy. Should the Fed telegraph the start of rate cuts isn’t likely until late 3Q 2024 or early 3Q 2024, the market will need to adjust its rate cut expectations. If history holds, such a reset would bring a bout of volatility back into the market as the rest of Big Tech reports its earnings this week.
Data Download
International Economy
Preliminary estimates showed industrial production in Japan increased by 1.8% MoM in December, reversing from a 0.9% drop in the prior month but falling short of market estimates for 2.4% growth. Retail sales in Japan rose 2.1% year-on-year in December 2023, slowing from a 5.4% gain in November and missing market expectations for a 4.7% growth.
China’s official NBS Manufacturing PMI came in at 49.2 in January, matching market forecasts and slightly higher than December’s 6-month low of 49.0. However, the January figure marked the 4th straight month of contraction in factory activity, and new orders remained in contraction territory. The NBS Non-Manufacturing PMI increased to 50.7 in January from 50.4 in December, slightly above market forecasts of 50.6. This reading was the 13th straight month of expansion in services activity and the strongest pace since last September, but new order activity was little changed compared to December (47.6 vs 47.5 in December) and pointed to muted growth prospects.
Domestic Economy
As we indicated above, the market will have a first look at January job creation courtesy of the latest ADP Employment Change Report and this afternoon it will digest the Fed’s latest policy statement as well as comments from Fed Chair Powell. In addition, today investors will also receive the latest Weekly MBA Mortgage Applications and Weekly EIA Crude Oil Inventories data.
Markets
Sectors were mixed yesterday but the gains in Energy (1.03%) and Financials (1.26%) weren’t enough to offset selling in Technology, and Communication Services which declined 0.83% and 0.68%, respectively. After a strong showing on Tuesday, small caps gave back some ground as the Russell 2000 shed 0.76%, matching the same decline in the Nasdaq Composite. The S&P 500 came close to even dropping just 0.06% while the Dow managed to stay positive, gaining 0.35%.
While technology has been on investors’ minds lately, the “other Cisco” — namely, Sysco (SYY) — saw its shares bid up 7.52% after the food service company reported a strong quarter with adjusted EPS increasing 11.3% in the same period YoY and gross profit rising 4.9%. Here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: 2.06%
- S&P 500: 3.25%
- Nasdaq Composite: 3.32%
- Russell 2000: -1.52%
- Bitcoin (BTC-USD): 1.97%
- Ether (ETH-USD): 2.02%
Stocks to Watch
Boeing (BA), Brinker (EAT), Evercore (EVR), Extreme Networks (EXTR), Hess (HES), Mastercard (MA), Rockwell Automation (ROK), Silicon Labs (SLAB), Teva (TEVA), and Thermo Fisher (TMO) are among the companies expected to release quarterly earnings before equities begin trading later this morning.
Pre-market breadth is healthy today as 252 names in the S&P 500 have traded hands so far this morning with 110 gainers and 142 decliners. Shares of Paramount Global (PARA) are on track to open over 14% higher on reports of a $14 billion takeover offer from Allen Media Group. Technology shares are weighing on pre-market trading as the list of top decliners includes names like Teradyne (TER), Advanced Micro Devices (more below), Nvidia (NVDA), Alphabet (more below), KLA Corporation (KLAC) and Micron Technology.
December quarter results from Microsoft topped consensus revenue and EPS forecasts led by faster-than-expected growth for the company’s Azure and other cloud services. Microsoft’s guidance calls for its March quarter revenue to be in the $60-$61 billion range compared to the $60.97 billion consensus and the $62 billion delivered in the December quarter. Underlying that revenue guidance, continued growth in cloud is expected to be offset by a 10%-13% sequential decline in the company’s More Personal Computing segment.
Alphabet reported earnings of $1.64 per share, beating estimates by $0.05 while revenues rose 13.5% YoY to $86.31 billion versus the $85.28 billion consensus. Cloud was the standout in terms of growth as Google Cloud saw a 26% increase YoY to $9.2 billion, putting the segment on par with YouTube Ads which saw 16.5% growth to hit that same number. The company noted that it continues to invest responsibly in its data centers while reengineering the cost base, although it went on to say that it is winding down some non-priority projects. CFO Ruth Porat commented, “We ended 2023 with very strong fourth quarter financial results, with Q4 consolidated revenues of $86 billion, up 13% year over year. We remain committed to our work to durably re-engineer our cost base as we invest to support our growth opportunities.”
Shares of AMD are trading off in pre-market trading after the company’s largely in-line December quarter earnings report contained downside revenue guidance for the current quarter. For the current quarter, AMD sees revenue of ~$5.4 billion, plus or minus $300 million, compared to the consensus forecast of $5.75 billion. Inside that outlook, management sees a sequential decline in revenue for its client, embedded, and gaming segments with Data Center revenue expected to be flat sequentially.
Starbucks (SBUX) missed consensus forecasts for its December revenue and EPS but affirmed its 2024 global store growth of 7% and EPS growth of +15%-20%, which implies $4.07-$4.25 vs the $4.10 consensus forecast. The company revised its 2024 revenue guidance lower to +7%-10% from +10%-12% and also reduced its outlook for global store comps to 4%-6% from 5%-7%. Store comps in the December quarter rose 5% globally, with North American up 5% and International +7%.
PayPal Holdings (PYPL) announced it will reduce its workforce by about 9% as it looks to “right-size” the company. Earlier this week, Block (SQ), which offers the Cash App and Square payments services, began cutting jobs as part of the firm’s goal to cap its workforce at 12,000 employees.
Walmart Inc. (WMT) announced a 3-for-1 stock split, saying a lower price will help more of its employees buy shares. This is the company’s 11th stock split since 1972 and the new shares will be awarded to holders of record as of February 22.
IPOs
Readers who want to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.
After Today’s Market Close
8×8 (EGHT), Celestica (CLS), Flex (FLEX), Kulicke & Soffa (KLIC) Meritage (MTH), Qorvo (QRVO), Qualcomm (QCOM), Tetra Tek (TTEK), and WolfSpeed (WOLF) are expected to report quarterly results after equities stop trading today. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.
On the Horizon
Thursday, February 1
- Japan: Jibun Bank Manufacturing PMI (Final) – January
- China: Caixin Manufacturing PMI – January
- Eurozone: HCOB Manufacturing PMI (Final), Flash Inflation Rate – January
- UK: S&P Global Manufacturing PMI (Final) – January
- US: Weekly Initial & Continuing Jobless Claims
- US: Productivity & Unit Labor Cost – 4Q 2023
- US: S&P Global Final Manufacturing PMI – January
- USL ISM Manufacturing Index – January
- US: Construction Spending – December
- US: Weekly EIA Natural Gas Inventories
Friday, February 2
- Eurozone: ECB Survey of Professional Forecasters
- US: Employment Report – January
- US: Factory Orders – December
- US: The University of Michigan Consumer Sentiment Index (Final) – January
Thought for the Day
“If you are selling because of a missed earnings report or the trend of the market or something, you’ve stopped looking at the rate of return the company can achieve over time.” ~ Chuck Akre
Disclosures
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
