Daily Markets: Investors Wait for Powell

Today’s Big Picture

Asia-Pacific equity markets finished the day mixed. China’s Shanghai Composite declined 0.26%, and South Korea’s KOSPI fell 0.30% while Japan’s Nikkei and Australia’s ASX All Ordinaries ended the day flat, down 0.02% and up 0.03%, respectively. India’s SENSEX gained 0.55%, Taiwan’s TAIEX rose 0.58%, and Hong Kong’s Hang Seng closed 1.70% higher in a broad rally led by Non-Energy Materials. European markets are mostly higher in midday trading and U.S. equity futures point to a positive start to the trading day.

U.S. equity markets are looking to win back some of the declines over the last two days, but how the trading day fares will hinge on Fed Chair Powell’s comments as he begins two days of back-to-back testimony in Washington. Based on what we saw in yesterday’s February Service PMI reports -- continued strength in that part of the economy and selling prices continuing to rise -- and other recent data, the odds that Fed Chair Powell will double down on a slow path to rate cuts are high. Powell's choice of words and tone, especially during the Q&A portion of the testimony, will be what the market focuses on the most. We highly doubt Powell will tip the Fed's hand, but the more forceful his remarks are about needing to stay the course until the fight on inflation is assured, the more likely we will see rate cut expectations slip further.

That could lead to yesterday’s market sell-off continuing today, but we will also have to see what this morning's ADP Employment Report says about job creation during February. Consensus expectations are for 150,000 jobs during the month, up from 107,000 in January. A stronger print would bolster the case for a slow-walking Fed while an inline print won't do much to change that expectation. We say that because a print near 150,000 jobs would be above the trailing six-month average of 125,000 jobs created, according to ADP's data.

When we read the data, we'll also look at the wage data it brings. In the January report the median annual pay increase for job stayers was 5.2% while for job changers it was 7.2%. Those figures have been inching lower over the last several months, but if that progress slows or those figures rebound higher, it would be another sign that rate cut timing is likely to be pushed off even further.

Data Download

International Economy

Retail sales in the Euro Area dropped by 1.0% year-on-year in January, following a revised 0.5% contraction the month before and compared with market expectations of a 1.3% fall.

At 9:45 AM ET, the Bank of Canada will share its latest interest rate decision, one the market thinks will show no change to the current 5% rate. Much like what we see in the U.S., investors will be more interested in any forward-looking comments about the BoC’s monetary policy intentions.

Domestic Economy

Above reviewed what’s expected from the February ADP Employment Change Report out at 8:15 AM ET and Fed Chair Powell’s start of two days of back-to-back testimony. This morning also brings the January Job Openings & Quits report, a somewhat rearview mirror take on the employment market but one that brings an added dimension. The market expectation is the number of job openings slipped to 8.9 million at the start of the year from 9.0256 million closing out 2023.

This afternoon at 2 PM ET, we will receive the latest Fed Beige Book iteration, a summary of economic commentary across the various regional Fed banks. We and others will be rummaging through it, interested in whether the comments support the vibrant economy and sticky inflation found in recent data.

Markets

Technology (-2.46%) was led lower by Broadcom (AVGO), Apple (AAPL), and Microsoft (MSFT), which combined to contribute to just under 60% of the sector’s return. Consumer Discretionary’s 1.24% decline coupled with Communication Services’ 0.81% drop helped push broad indexes lower. The Russell 2000 fell 0.99%, the S&P 500 shed 1.02%, the Dow dropped 1.04% and the Nasdaq Composite closed 1.65% lower. While those three sectors, by virtue of their ultra mega-cap constituents, have tended to dictate the direction of broad market measures on any given day, it should be noted that, unlike last year, we are seeing broader representation YTD. Financials (7.45%), Industrials (6.11%), and Healthcare (6.34%) aren’t being left behind as compared to Consumer Discretionary (0.81%) Technology (6.81%), and Communication Services (7.80%) as 2024 continues to unfold.

In individual names, Target Corp’s (TGT) post earnings 12.02% gain was enough to help offset yesterday’s slump from food & drink producers Monster Beverage (MNST), Mondelez International (MDLZ), Coca-Cola (KO), and PepsiCo (PEP). Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 2.38%
• S&P 500: 6.48%
• Nasdaq Composite: 6.18%
• Russell 2000: 1.31%
• Bitcoin (BTC-USD): 53.34%
• Ether (ETH-USD): 55.99%

Stocks to Watch

Abercrombie & Fitch (ANF), Brown Forman (BF.B), Campbell Soup (CPB), EVgo (EVGO), Foot Locker (FL), and Thor Industries (THO) are expected to release quarterly earnings before equities begin trading later this morning.

Pre-market breadth is higher today as 282 names in the S&P 500 have traded hands so far this morning with 231 gainers and 51 decliners. Estee Lauder (EL) and Ross Stores (ROST) (more below) are coming under some pressure ahead of this morning’s market open. Cybersecurity is poised to have a good day after CrowdStrike (CRWD) earnings last night (more below) as Verisk Analytics (VRSK), Palo Alto Networks (PANW), and Fortinet (FTNT) are on top of the leaderboard.

CrowdStrike (CRWD) shares zoomed higher in after-market trading last night after the company’s January quarter results easily cleared consensus expectations. Revenue for the period climbed 32.6% YoY to $845.3 million and the company guided current quarter revenue to $902.2-$905.8 million compared to the $899.53 million consensus. CrowdStrike also shared it was buying cybersecurity startup Flow Security and the transaction is expected to close in the current quarter.

January quarter results reported by Ross Stores (ROST) topped market expectations led by same-store sales that climbed 7%, well ahead of the company’s 2%-3% guidance. However, those results are being overlooked as the market focuses on the company’s downside guidance for the coming year, which calls for EPS of $5.64-$5.89 compared to the $5.90 consensus. In discussing that outlook, the company shared that “while inflation has moderated, housing, food, and gasoline costs remain elevated and continue to pressure our low-to-moderate income customers' discretionary spend.” To take the sting out of that potentially conservative guidance, Ross Stores increased its quarterly dividend by 10% and approved a new two-year $2.1 billion share repurchase authorization.

Nordstrom (JWN) came up short with its January quarter results relative to what the market was looking for and offered a mixed outlook for the coming year. As part of its outlook, the company sees comp sales between -1.0% to +2.0% compared to last year. During the January quarter, Nordstrom sales were down 3% while Nordstrom Rack's net sales were up 14.6%. Active, Beauty, and Women's Apparel were the best-performing categories in the fourth quarter, with strong growth versus the prior year.

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

Infinera (INFN), Kodiak Gas Services (KGS), and Victoria’s Secret (VSCO) 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, March 7

• China: Imports/Exports - February
• Eurozone: European Central Bank Interest Rate Decision
• US; Weekly Initial & Continuing Jobless Claims
• US: Productivity & Unit Labor Costs - 4Q 2023
• US: Consumer Credit - January

Friday, March 8

• Japan: Eco Watchers Survey - February
• Eurozone: Employment Change, GDP - 4Q 2024
• US: Employment Report - February

Thought for the Day

“You will never know how strong you are until being strong is your only choice.” ~ Bob Marley

Disclosures

• CrowdStrike (CRWD), Palo Alto Networks (PANW), Fortinet (FTNT) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Broadcom (AVGO) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
• PepsiCo (PEP), Ross Stores (ROST) are constituents of the Tematica BITA Big Spenders & Savers Index
• Apple (AAPL), Microsoft (MSFT) are constituents of the Tematica Research Thematic Dividend All-Stars Index

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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