Daily Markets: Big Tech Earnings and the Fed Up This Week

Today’s Big Picture

Asia-Pacific equity markets finished the day higher except for China’s Shanghai Composite which fell 0.92% as regulators continue to attempt to stabilize that market. Australia’s ASX All Ordinaries rose 0.30%, Taiwan’s TAIEX gained 0.69%, both Japan’s Nikkei and Hong Kong’s Hang Seng came in just under 0.80% and South Korea’s KOSPI added 0.89%. India’s SENSEX closed 1.76% higher boosted by Reliance Industries (RLNIY) while Tata Motors, Larsen and Tourbro (LTOUF), and other Industrial and Finance names also contributed. European markets are mixed in midday trading and U.S. equity futures are pointing to a positive start to the day although S&P 500 futures are flirting with a flat open.

We have an eventful week ahead with more than 650 earnings reports, including those from several of the Splendid Six, the usual start of the month economic data, and the conclusion of the Fed's next monetary policy meeting. As we enter that market data gauntlet, the Relative Strength Index (RSI) for both the S&P 500 and Nasdaq Composite sits above 70, signaling overbought status, and the Fear & Greed Index is registering “Extreme Greed” meaning that investor sentiment is running hot. Expectations for company forward guidance and Fed rate cuts are running high while the U.S. economy continues to surprise to the upside.

All of this sets up the latest “priced to perfection” scenario, which leaves little room for disappointment in the market given the significant gains posted since late October. As the week unfolds, we could see some profit-taking emerge as investors revisit the expected path ahead. The evolving geopolitical landscape could also introduce more uncertainty into the market equation.

Data Download

International Economy

Profits earned by China's industrial firms fell 2.3% YoY to CNY 7,685.83 billion in 2023, easing from a 4.4 % drop during the first 11 months of the year and a 4% decline in 2022. However, in December, industrial profits climbed by 16.8% YoY, marking the fifth month of gains.

China Evergrande (EGRNQ), the world's most indebted property developer, has been ordered to liquidate by a Hong Kong court after a judge ruled that it was "time to say enough is enough." Trading in Evergrande shares was suspended overnight as the company’s liquidation is likely to send another shock wave through Chinese markets and prompt authorities to act to contain a deepening crisis. It should therefore come as little surprise that Chinese regulators implemented curbs on short-selling of stocks.

Oil prices are higher this morning after a drone strike by Iran-backed Houthi terrorists killed three U.S. service members in Jordan, in an attack that will raise pressure on President Biden to confront Iran. In response, Biden said, “Have no doubt — we will hold all those responsible to account at a time and in a manner [of] our choosing.”

Domestic Economy

The Biden administration is expected to award billions of dollars in subsidies to Intel (INTC), Taiwan Semiconductor (TSM), and other semiconductor firms in the coming weeks for new factories. The subsidies, part of the $53 billion Chips Act, are expected to be announced before Biden's March 7 State of the Union address to Congress.

In what is likely to escalate tensions with China, the U.S. wants cloud services providers such as Amazon (AMZN) and Microsoft (MSFT) to actively investigate and call out foreign clients developing artificial intelligence applications on their platforms. According to reports, China approved over 40 artificial intelligence models for public use in the first six months since regulators started the approval process.

Markets

Shares of Intel fell 11.91% on Friday and caused some sympathy selling which ended up pushing Technology 1.15% lower which, in turn, led the S&P 500 and the Nasdaq Composite to fall 0.07% and 0.36%, respectively. The remaining sectors except for Real Estate (-0.44%) and Industrials (-0.16%) ended the day higher led by Energy (0.74%) and Health Care (0.57%). The Dow gained 0.16% and the Russell 2000 added 0.12%.

Despite reporting a fourth-quarter earnings miss, shares of American Express (AXP) closed 7.10% higher as the company provided an upbeat outlook for 2024, targeting revenue growth between 9%-11% and EPS between $12.65 - $13.15, significantly higher than analyst expectations of $12.38.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 1.11%
• S&P 500: 2.54%
• Nasdaq Composite: 2.96%
• Russell 2000: -2.40%
• Bitcoin (BTC-USD): -0.28%
• Ether (ETH-USD): -1.23%

Stocks to Watch

Phillips (PHG) and SoFi Technologies (SOFI) are expected to release quarterly earnings before equities begin trading later this morning.

Pre-market breadth is slightly lower today as 226 names in the S&P 500 have traded hands so far this morning with 106 gainers and 120 decliners. MarketAxess (MKTX) and Revivity (RVTY) are coming under some pressure this morning but the only update points to 13G filings by Blackrock (BLK) updating holdings to 8.4% and 7.0%, respectively. Shares catching a bid this morning include Leidos (LDOS) and Pool Corporation (POOL).

Tesla (TSLA) disclosed that it expects its expenditures to exceed $10.00 billion in 2024 and be between $8.00 to $10.00 billion in each of the following two fiscal years.

Last Friday, the U.S. approved the sale of new F-16 fighter jets to Turkey after the Turkish government ratified Sweden’s accession to the North Atlantic Treaty Organization (NATO). While that will benefit Lockheed Martin (LMT), the defense contractor announced it will cut 1% of its jobs this year to cut costs and streamline operations. Lockheed employs ~122,000.

Ryanair Holdings (RYAAY) narrowed its fiscal 2024 profit forecast to a range of €1.85-€1.95 billion, from €1.85-€2.05 billion previously, primarily due to higher fuel costs and removal of its flights by some online travel agents.

Philips will not sell new sleep therapy devices or other respiratory care devices in the U.S. until the company meets the requirements of a consent decree it reached with the U.S. Food and Drug Administration.

WillScot Mobile Mini (WSC) agreed to acquire B2B rental company McGrath RentCorp (MGRC) in a cash-and-stock deal valuing McGrath at $3.8 billion. McGrath shareholders will receive for each of their shares either $123.00 in cash or 2.8211 shares of WSC common stock. The transaction represents a premium of 10.1% to McGrath's closing stock price on January 26.

IPOs

Reports suggest Reddit is looking for a valuation of mid-single-digit billion in a stock market debut that could come as soon as March. In a 2021 funding round, the company was valued at ~$10 billion and it aims to sell about 10% of its shares in the IPO. Readers who want to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Cleveland Cliffs (CLF), F5 Networks (FFIV), Nucor (NUE), Super Micro Computer (SMCI), and Whirlpool (WHR) 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

Tuesday, January 30

• UK: Bank of England Consumer Credit – December
• Eurozone: Flash 4Q 2023 GDP
• Eurozone: Economic Sentiment & Consumer Confidence – January
• US: FHFA Housing Price Index – November
• US: S&P Case Shiller Home Price Index – November
• US: JOLTS Job Openings Report – December
• US: Consumer Confidence – January

Wednesday, January 31

• Japan: Industrial Production, Retail Sales, Housing Starts – December
• Japan: Consumer Confidence - January
• China: NBS Manufacturing and Non-Manufacturing PMI - January
• US: Weekly MBA Mortgage Applications
• US: ADP Employment Change Report
• US: Weekly EIA Crude Oil Inventories
• US: FOMC Rate Decision

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

“We don’t pay attention to quarterly earnings or consensus forecasts. That’s performance investing, not value investing.” ~ Marty Whitman

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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