Daily Markets: Gloomy Guidance Weighs on Stocks

Today’s Big Picture

Asia-Pacific equity markets finished the day mixed. Hong Kong’s Hang Seng fell 1.60% in a broad decline led by Health Technology names, and Japan’s Nikkei declined 1.34%. Taiwan’s TAIEX ended the day flat, up a mere 0.04% while China’s Shanghai Composite gained 0.14%, and South Korea’s KOSPI closed 0.33% higher in an overall positive day. India’s markets are closed today to celebrate its 75th Republic Day, marking the day the country adopted its constitution, making it a truly independent nation. Additionally, Australia’s markets are closed today as the country marks the 236th anniversary of its establishment in 1788. European markets are up across the board in midday trading and U.S. equity futures point to a weak market open as investors digest weaker-than-expected guidance from Intel (INTC), Visa (V), and others.

Following yesterday’s unexpectedly strong GDP print for 4Q 2023, which was significantly higher than market and even regional Fed GDP forecasts, this morning’s stream of data includes the December PCE Price Index. Both the market and the Fed will be particularly eyeing what it shows for the core PCE Price Index compared to its November reading of +3.2% YoY. The index rose 0.2% for the month, and 2.9% for the year, excluding food and energy.  This is against expectations of 0.2% and 3%, respectively.

Should the reported December figure come in around that implied level, paired with the initial 4Q 2023 GDP print of +3.3%, the market should prepare itself for what Fed Chair Powell will say following the conclusion of next week’s monetary policy meeting. Odds are it will be a message the Fed isn’t in a rush to begin cutting interest rates and that any cuts this year are likely to be more in line with the forecast it laid out in its December economic projections. In other words, roughly half of what the market has been calling for.

Data Download

International Economy

The core consumer price index for the Ku-area of Tokyo in Japan rose 1.6% year-on-year in January, slowing from a 2.1% gain in December, coming in below market expectations of 1.9%.

Reports indicate Chinese officials have called on their Iranian counterparts to help end Houthi attacks on ships in the Red Sea or risk harming business ties between the two countries.

Domestic Economy

In addition to this morning’s December PCE Price Index, December Personal Income & Spending will be released at 8:30 AM ET. Personal Income is expected to rise 0.3% MoM, while Spending is forecasted to climb a bit faster, up 0.4% compared to November.

At 10 AM ET, the Pending Home Sales report will be distributed, and the market expects sales to rise 1.5% in December compared to November.

The Florida House of Representatives passed bipartisan legislation that bans minors under the age of 16 from creating social media accounts. The bill, known as HB 1, also requires social media platforms to terminate existing accounts of such minors and verify the ages of account holders. The bill now goes to the state's Senate for approval, before heading to Governor Ron DeSantis' desk. If cleared, it would go into effect in July.

Markets

Yesterday’s Q4 GDP print put a bounce in traders’ steps as all sectors except for Healthcare (-0.15%) which was dragged lower by Humana Inc (HUM) [-11.69%] and UnitedHealth Group Incorporated (UNH) [-3.86%], and Consumer Discretionary (-1.24%) which, once again, was pulled lower by Tesla (TSLA) which fell 12.13%. Energy led the way higher, up 2.25% followed by Utilities (1.80%) and Technology (1.63%). Broad indexes were up across the board with the Nasdaq Composite gaining 0.18%, the S&P 500 rising 0.53%, the Dow adding 0.64% and the Russell 2000 closing 0.71% higher. Shares of United Rentals (URI) got a boost as traders bid them up 12.96% after the company reported a revenue record-setting quarter and provided forward guidance that exceeded analyst expectations.

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

• Dow Jones Industrial Average: 0.95%
• S&P 500: 2.61%
• Nasdaq Composite: 3.33%
• Russell 2000: -2.53%
• Bitcoin (BTC-USD): -4.92%
• Ether (ETH-USD): -3.33%

Stocks to Watch

American Express (AXP), Badger Meter (BMI), Booz Allen (BAH), Caterpillar (CAT), Colgate Palmolive (CL), and Norfolk Southern (NSC) are expected to release quarterly earnings before equities begin trading later this morning.

Pre-market breadth is healthy today as 235 names in the S&P 500 have traded hands so far this morning with 100 gainers and 135 decliners. Among the decliners are Intel, KLA Corporation (KLAC), and Western Digital (WDC) (more below on all), while Danaher Corporation (DHR) and Iron Mountain (IRM) are being bid higher.

Shares of Intel are selling off in pre-market trading this morning following meaningfully weaker-than-expected guidance for the current quarter. For its December quarter, Intel delivered EPS of $0.54, ahead of the $0.45 consensus, on revenue that rose 9.7% YoY to $15.4 billion, besting the consensus forecast. Management sees a sharp sequential drop in March quarter EPS to $0.13, well below the $0.34 consensus.

Visa’s consensus topping December quarter results were overshadowed by the company’s slightly weaker-than-expected payments volume in Q1 2024 and increased its expense growth guidance for FY2024. Visa now anticipates annual operating expense growth in the low double digits, up from its previous guidance of high single digits. The company also revised its annual net revenue growth forecast to the low double digits, compared to the prior range of high single digits to low double digits. This combination should place some pressure on margins, but management reiterated it sees Visa’s EPS growing in the low-teens year over year.

Shares of chip company KLA Corp. were down in aftermarket trading last night after the company posted light revenue and EPS guidance for the current quarter. KLA expects that EPS to be in the range of $4.66-$5.86 compared to the market consensus of $5.86. Management shared that “market conditions remain challenging in the near term, with limited visibility regarding the timing of a resumption in sustainable demand.”

Data storage device company Western Digital reported its seventh consecutive quarter of declining revenue last night. The decline was largely due to a 13% YoY fall in sales in the company's cloud business due to lower e-solid state drive bit shipments.

Shares of LVMH (LVMHF) moved higher following the company’s release of higher-than-expected sales for 2023 and an increase in its annual dividend. Fourth quarter sales rose 10% organically, driven by a 14% annual growth in the fashion and leather goods sector, and an 11% growth in perfumes and cosmetics, while wines and spirits experienced a 4% decline.

November quarter results from Levi Strauss (LEVI) were a mixed bag but it was the company’s weaker-than-expected fiscal 2024 guidance and $100 million cost savings plan that stood out. For 2024, Levi expects EPS in the range of $1.15-$1.25 compared to the $1.33 consensus. Its Project FUEL initiative is a two-year initiative focusing on optimizing the operating model and structure, and its first phase is expected to include a 10% to 15% headcount reduction.

Norfolk Southern (NSC) will reportedly lay off 7% of its non-union workforce amid a tough freight cycle.

Even though Salesforce (CRM) has 1,0000 open jobs, the company will lay off ~1% of its 70,000 workforce.

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

We’ve reached the end of the trading week and that means there are no companies 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

Monday, January 29

• China: Industrial Profits - December

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

“It's in the nature of Wall Street to imagine that whenever a company sets a record for earnings, it will go on setting new ones.” ~Peter Lynch

Disclosures

• Intel (INTC),American Express (AXP) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• LVMH (LVMHF) is a constituent of the Tematica BITA Big Spenders & Savers Index

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

Other Topics

Stocks Earnings Economy Central Banks