Jan 27, 2023
Nasdaq 100 notches its best week since November
BNN Bloomberg's closing bell update: Jan. 27, 2023
Wall Street brushed off disappointing outlooks from some of the world’s largest technology companies to push stocks higher on speculation of smaller Federal Reserve hikes as inflation shows signs of easing.
The nascent year’s tech revival sent the Nasdaq 100 to its best week since November — with Tesla Inc. and Facebook parent Meta Platforms Inc. climbing at least 3 per cent Friday. That’s even after a bleak forecast from Intel Corp. that followed recent worrisome remarks from Microsoft Corp. and Texas Instruments Inc.
Looking into next week, heavyweights Apple Inc.. Amazon.com Inc. and Meta are set to report their quarterly figures, and investors will get a sense on whether market projections are still too rosy as the economy slows down.
The megacaps that have reported so far have mostly beaten estimates by a small margin, said Dennis DeBusschere, founder of 22V Research. “Strong results from these names will help keep index level estimates from deteriorating too far.”
Companies in the S&P 500 that have exceeded projections on both earnings per share and sales have outperformed the benchmark by an average of 1.45 per cent within a day of reporting, exceeding the norm of the past six years, according to data compiled by Bloomberg Intelligence.
And those that fell short underperformed by just 1.7 per cent, the least negative reaction in eight quarters, as many companies report taking steps to adjust to shifting business conditions.
Traders found solace in data showing the Fed’s preferred inflation measures eased in December to the slowest annual pace in over a year and spending fell. A separate report from the University of Michigan showed U.S. inflation expectations continued to retreat in late January, helping boost consumer sentiment.
The central bank watches long-term views especially closely, as expectations can become self-fulfilling and lead to higher prices.
Treasury Secretary Janet Yellen said she’s encouraged by recent data on inflation and jobs, but conceded the economy is at risk of recession. Former Treasury Secretary Lawrence Summers urged the Fed to refrain from signaling its next move after an expected hike next week because of the highly uncertain economic outlook.
“The market has been rallying on the idea that inflation is whipped. But I’m not so sure it’s settled yet,” said Kara Murphy at Kestra Investment Management. “When you think about how monetary policy works, it’s generally slow. Imagine trying to turn the Titanic way in advance of the iceberg — you have to start long before the iceberg is right in front of you, and you can’t always be sure how the economy is going to react.”
Hopes are high for the Fed deliver a 25 basis-point increase on Feb. 1 — shifting away from last year’s bigger moves — but expectations for end-2023 rate cuts are “a step too far,” according to Erick Muller, head of product and investment strategy at Muzinich & Co.
“We will probably see the Fed say ‘we are entering the final phase, but listen carefully guys: we will continue to raise rates,’” Muller said. “A lot of volatility in rates will depend on the path of inflation from here.”
- Bed Bath & Beyond Inc.’s efforts to find a buyer in bankruptcy have stalled, potentially putting it on a path toward liquidation as it faces a Chapter 11 filing, according to people with knowledge of the matter.
- American Express Co. predicted that revenue and earnings for this year will surge well above what analysts estimated.
- Chevron Corp. posted disappointing results just days after surprising investors with a mammoth buyback program.
- Colgate-Palmolive Co. sold fewer personal-care and household products than expected at the end of last year.
- Goodyear Tire & Rubber Co. will eliminate about 500 jobs in response to weak demand and rising inflation.
- Hasbro Inc., one of the world’s largest toymakers, said it would cut 15 per cent of its workforce, after a disappointing holiday shopping season.
U.S. equities have flown in the face of many dire signals this year, from recession fears to weak earnings. Yet a peek into the trading activity behind the benchmark suggests the bullish run lacks conviction.
Flows into the SPDR S&P 500 ETF Trust (ticker SPY) show that, while the fund is on pace to see net inflows in January after two straight months of investors taking assets out, the total amount of money coming in weekly has been steadily declining this month. Flows into two other major funds tracking the S&P 500 — the Vanguard S&P 500 ETF (VOO) and IShares Core S&P 500 ETF (IVV) — tell a similar story.
The S&P 500 is on pace for its second-best January since the turn of the century, trailing only the 7.9 per cent jump in 2019.
If history is any guide, the gauge is also likely to be in the green on Dec. 31, as the direction in the first month — a gain or loss — has matched the annual result two-thirds of the time since 1973. The positive-positive periods delivered a full-year average gain of 20 per cent, while the negative-negative years saw a typical decline of 17 per cent.
Some of the main moves in markets:
- The S&P 500 rose 0.2 per cent as of 4 p.m. New York time
- The Nasdaq 100 rose 1 per cent
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 rose 0.3 per cent
- The MSCI World index rose 0.3 per cent
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2 per cent to US$1.0867
- The British pound fell 0.1 per cent to US$1.2392
- The Japanese yen rose 0.3 per cent to 129.88 per dollar
- Bitcoin rose 0.2 per cent to US$23,132
- Ether fell 0.1 per cent to US$1,600.62
- The yield on 10-year Treasuries advanced two basis points to 3.51 per cent
- Germany’s 10-year yield advanced two basis points to 2.24 per cent
- Britain’s 10-year yield was little changed at 3.32 per cent
- West Texas Intermediate crude fell 2 per cent to US$79.41 a barrel
- Gold futures fell 0.1 per cent to US$1,944.50 an ounce