Market Update
At Earnings Season Midpoint, Downward Revisions Take Center Stage
Barry Adams
10 Feb, 2023
New York City
Stocks rested on the final day of a chaotic week and investors digested earnings reports from more than 450 companies.
Investors remained focused on the future direction of interest rates and corporate quarterly results also supported the weakening economic narrative.
The latest batch of earnings showed management struggle at many companies in passing on higher input costs to customers who are battling sky-high prices.
Slower corporate revenue growth and sharper decline in earnings was the dominant theme in several sectors of the economy.
But companies are still expanding stock repurchase programs and hiking dividends ahead of looming economic slow down amid small but rising layoffs.
Looking ahead, investors are awaiting the release of the Consumer Price Index on Tuesday.
January's inflation measure is expected to advance 0.5% on the month but the annual pace of growth is expected to slow down to 6.2% from 6.5% in December.
Core inflation rate, which excludes energy and food, is expected to rise 0.4% on the month and slow to 5.4% over the 12 months.
U.S. Indexes In Review
The S&P 500 index was nearly unchanged at 4,080.68 and the Nasdaq Composite index fell 0.9% to 11,687.87.
For the week, the S&P 500 index increased 0.2% and the Nasdaq Composite index declined 0.6%.
Crude oil increased $1.72 to $79.79 a barrel and natural gas futures rose 4 cents to $2.47 a thermal unit.
The yield on 2-year Treasury notes rose to 4.51%, 10-year Treasury notes advanced to 3.73% and 30-year Treasury bonds increased to 3.82%.
U.S. Movers
Travel sector stocks were in focus after Lyft issued a cautious guidance and Expedia Group missed estimates on revenue and earnings.
Lyft plunged more than one-third after the company reported record revenue but issued cautious outlook for the first quarter. The ride-hailing company is struggling to regain its growth curve as it battles for market share with its larger rival Uber.
Expedia reported sharp jump in revenue and gross bookings but struggled with earnings growth as the travel booking company faced unexpected chaotic holiday period because of the Southwest Air's reservation system meltdown in December caused by tough weather conditions.
Rate Worries Resurface In European Trading
European markets closed down after central bankers in the U.S. and Germany stressed the need to keep revising rates higher to restrictive levels.
Bundesbank's president, Joachim Nagel, reaffirmed his stance for interest rate increases and said that decisive actions are needed from the European Central Bank in bringing down inflation expectations near 2%.
German bond yields advanced following Nagel's comments and stocks turned lower.
The DAX index declined 1.4% to 15,307.98, the CAC-40 index dropped 0.8% to 7,129.73 and the FTSE 100 index fell 0.4% to 7,882.45.
The euro edged lower to $1.06, the British pound weakened to $1.204 and the Swiss franc closed down 92.51 U.S. cents.
The yield on 10-year German Bunds inched higher to 236%, French bonds to 2.83%, UK Gilts to 3.39% and Italian bonds to 4.21%.
Brent crude gained $1.90 to $86.41 a barrel and the Dutch TTF natural gas spot price rose 2% to 53.95 per MWh.
UK Economy Avoids Technical Recession In Q4
The UK economy managed to avoid back-to-back quarterly economic growth decline in the fourth quarter but the economy is still expected to face more challenges in the year ahead.
GDP stabilized in the fourth quarter after shrinking 0.2% in the third quarter, the Office for National Statistics reported Friday.
In 2022, the UK economy slowed to 4.0% annual growth from 7.6% in 2021 as high inflation driven by elevated energy prices kept consumer spending in check and businesses from expanding.
The Bank of England forecasted the economy to shrink 0.1% in the first quarter and 0.5% in 2023 as the island nation battles high energy prices, Brexit induced supply shock and the aftermath of Covid-pandemic.
Next BoJ Governor Nomination Moves Forward
Stocks in Tokyo traded higher after a string of positive earnings supported the advance ahead of the nomination of candidates for the Bank of Japan governors.
Prime Minister Fumio Kishida is expected to recommend Kazuo Ueda as the next Bank of Japan governor, according to the state controlled television broadcaster NHK.
Prime Minister Kishida is scheduled to make the Cabinet's recommendation on Tuesday and seek approval from both chambers of the National Diet.
The Nikkei 225 average increased 0.3% to 27,670.98 and the yen weakened to 131.78 against the U.S. dollar.
China Inflation Data Suggested Slower Consumer Recovery
Market indexes in China dropped sharply after consumer and wholesale price inflation showed weaker-than-expected rebound in consumer spending.
Consumer prices rose 2.1% in January from 1.8% in December, the National Bureau of Statistics reported Friday.
Wholesale prices declined at a faster pace of 0.8% in January from 0.7% in December.
The weaker-than-anticipated inflation data suggested slower recovery in consumer spending after three years of "zero-Covid" lockdowns.
Investors are worried that stretched consumer finances and uncertain jobs market and slowing exports may contribute to slower consumer demand revival.
The Shanghai Composite Index declined 0.3% to 3,260.67 and the Hang Seng index dropped 2% to 21,190.42.
In other regional markets, stock indexes eased in Mumbai after rising for two days in a row and crude oil price rebounded after Russia said it plans to lower its crude oil production voluntarily by 500,000 a day in March.
The Sensex index decreased 0.2% to 60,682.70 and the Nifty index declined 0.2% to 17,856.50.
The Indian rupee closed higher to 82.46 against the U.S. dollar and the yield on 10-year Indian government bonds inched higher to 7.36%.
Rate Worries Resurfaced In Europe, UK Economy Avoided Technical Recession
Bridgette Randall
10 Feb, 2023
Frankfurt
European markets closed down after central bankers in the U.S. and Germany stressed the need to keep revising rates higher to restrictive levels.
Bundesbank's president, Joachim Nagel, reaffirmed his stance for interest rate increases and said that decisive actions are needed from the European Central Bank in bringing down inflation expectations near 2%.
German bond yields advanced following Nagel's comments and stocks turned lower.
The DAX index declined 1.4% to 15,307.98, the CAC-40 index dropped 0.8% to 7,129.73 and the FTSE 100 index fell 0.4% to 7,882.45.
The euro edged lower to $1.06, the British pound weakened to $1.204 and the Swiss franc closed down 92.51 U.S. cents.
The yield on 10-year German Bunds inched higher to 236%, French bonds to 2.83%, UK Gilts to 3.39% and Italian bonds to 4.21%.
Brent crude gained $1.90 to $86.41 a barrel and the Dutch TTF natural gas spot price rose 2% to 53.95 per MWh.
UK Economy Avoids Technical Recession In Q4
The UK economy managed to avoid back-to-back quarterly economic growth declines in the fourth quarter but the economy is still expected to face more challenges in the year ahead.
GDP stabilized in the fourth quarter after shrinking 0.2% in the third quarter, the Office for National Statistics reported Friday.
In 2022, the UK economy slowed to 4.0% annual growth from 7.6% in 2021 as high inflation driven by elevated energy prices kept consumer spending in check and businesses from expanding.
The Bank of England forecasted the economy to shrink 0.1% in the first quarter and 0.5% in 2023 as the island nation battles high energy prices, Brexit induced supply shock and the aftermath of Covid-pandemic.
Next Bank of Japan Governor to Face Ultra-loose Monetary Policy Pivot
Arjun Pandit
10 Feb, 2023
Mumbai
Asian markets closed mixed and market indexes in China dropped on the worries of slower economic recovery.
Japan is set to appoint the next central bank chief and investors welcomed stronger earnings from electronics equipment makers and industrial companies.
Next BoJ Governor Nomination Moves Forward
Stocks in Tokyo traded higher after a string of positive earnings supported the advance ahead of the nomination of candidates for the Bank of Japan governors.
Prime Minister Fumio Kishida is expected to recommend Kazuo Ueda as the next Bank of Japan governor, according to the state controlled television broadcaster NHK.
Prime Minister Kishida is scheduled to make the Cabinet's recommendation on Tuesday and seek approval from both chambers of the National Diet.
The Nikkei 225 average increased 0.3% to 27,670.98 and the yen weakened to 131.78 against the U.S. dollar.
China Inflation Data Suggested Slower Consumer Recovery
Market indexes in China dropped sharply after consumer and wholesale price inflation showed weaker-than-expected rebound in consumer spending.
Consumer prices rose 2.1% in January from 1.8% in December, the National Bureau of Statistics reported Friday.
Wholesale prices declined at a faster pace of 0.8% in January from 0.7% in December.
The weaker-than-anticipated inflation data suggested slower recovery in consumer spending after three years of "zero-Covid" lockdowns.
Investors are worried that stretched consumer finances and uncertain jobs market and slowing exports may contribute to slower consumer demand revival.
The Shanghai Composite Index declined 0.3% to 3,260.67 and the Hang Seng index dropped 2% to 21,190.42.
The Sensex index decreased 0.2% to 60,682.70 and the Nifty index declined 0.2% to 17,856.50.
The Indian rupee closed higher to 82.46 against the U.S. dollar and the yield on 10-year Indian government bonds inched higher to 7.36%.
Movers: Credit Suisse, Coursera, Dexcom, Doximity. Expedia, Lyft, Mr Cooper, Newell, PayPal, Thomson Reuters, Yelp
Scott Peters
10 Feb, 2023
New York City
Credit Suisse AG increased 3.5% to $3.18 after the troubled Swiss bank reported its biggest loss since 2008 and held out for more losses in 2023.
Credit Suisse dropped 11% in the previous trading session, after the release of quarterly results.
Credit Suisse said revenue in the December quarter dropped 20% to Sfr3.0 billion and net loss shrank to Sfr1.4 billion from Sfr2.1 billion and assets under management dropped 20% to Sfr1.3 trillion.
Coursera Inc declined 15% to $12.40 after the online learning solutions provider reported a larger loss and the company's 2023 forecast disappointed some investors.
Coursera said revenue in the December quarter increased 24% to $142.2 million and net loss expanded to $51.7 million from $47.7 million and loss per share rose to 35 cents from 34 cents a year ago.
Dexcom, Inc soared 9.9% to $117.90 after the diabetes monitoring company's earnings were ahead of expectations and the company prepares to launch a new glucose monitoring device.
Dexcom said revenue in the December quarter increased 17% to $815.2 million and net income rose to $91.8 million from $5.3 million and diluted earnings per share increased to 22 cents from 1 cents a year ago.
Doximity Inc dropped 12.5% to $31.85 after the online medical professionals networking platform reported a decline in earnings and forecasted weak 2023 results.
Doximity said revenue in the December quarter increased 18% to $115.3 million and net income fell to $33.5 million from $55.6 million and diluted EPS fell to 16 cents from 26 cents a year ago.
Expedia Group Inc declined 8.5% to $108.14 after the online travel agency reported a decline in earnings and the company said travel demand has rebounded after inclement weather in the fourth quarter.
Gross bookings increased 17% to $20.5 billion and booked room nights increased 19% to 70.8 million in the quarter.
Expedia said fourth quarter revenue increased 15% to $2.6 billion and net income dropped 36% to $177 million from $276 million and diluted EPS declined to $1.11 from $1.70 a year ago.
"While our Q4 results were negatively impacted by severe weather, demand was otherwise strong and accelerating, and has been markedly stronger since the start of the year,” Chief Executive Peter Kern said in a statement.
Kern added that the year began "with record app usage and member counts, led by Expedia US."
Expedia stocks have dropped about 40% over the last one year on the worries that high travel prices and restrained consumer spending is forcing the travel demand slowdown.
Lyft Inc dropped 36.7% to $10.32 after the online ride-hailing company reported record quarterly revenue but weak forecast for the current quarter and earnings outlook.
Lyft said fourth quarter revenue increased 21% to $1.2 billion and net loss expanded to $588.1 million from $283.2 million, Lyft guided first quarter 2023 revenue of $975 million.
Analysts were quick to lower their views on the stock after the company's guidance reflected its struggle to regain its footing in the post-pandemic recovery.
The company is also facing higher-than-anticipated costs in defending its market share against its larger rival with a deeper network of drivers and customers.
Mr. Cooper Inc rose 3.5% to $46.21 despite the mortgage services provider reported a sharp decline in earnings.
Mr. Cooper said revenue in the December quarter declined 41% to $303 million and net income plunged to $1 million from $113 million and diluted earnings per share declined to 1 cents from $1.55 a year ago.
Newell Brands Inc fell 2.2% to $14.27 after the company issued cautious outlook for the economy and forecasted a loss in the first quarter.
Newell said revenue in the December quarter fell 19% to $2.3 billion and the company swung to a loss of $249 million from a profit of $98 million.
Diluted loss per share in the period was 60 cents compared to a profit of 23 cents a year ago.
PayPal Holdings Inc rose 0.7% to $78.99 after the payment processor forecasted upbeat earnings outlook and the company said chief executive plans to retire by the year's end.
PayPal said fourth quarter revenue increased 7% to $7.4 billion and net income increased 15% to $921 million from $801 million and diluted EPS rose to 81 cents from 68 cents a year ago.
Thomson Reuters Corp increased 4.4% to $120.13 after the information and news publisher swung to a profit in the fourth quarter.
Thomson Reuters said revenue in the fourth quarter rose 3% to $1.7 billion and the company swung to a $282 million profit from a loss of $175 million.
Diluted earnings per share was 59 cents compared to a loss of 36 cents in the previous year.
The company said the recurring revenue from subscription products rose 7% from a year ago, providing stability for the year ahead that is expected to macroeconomic headwinds.
The company said it plans to complete its $2 billion stock repurchase program by April and return $2 billion to shareholders after the sale of the $5.6 billion stake held in the London Stock Exchange Group stemming from the Refinitiv transaction.
Thomson Reuters reiterated its target for 2023 revenue growth excluding the impact of divestitures between 5.5% and 6%.
The company trimmed its free cash flow estimate to $1.8 billion, from a previously released range of $1.9 billion to $2 billion.
Yelp Inc increased 4.4% to $32.14 after the online business review platform operator reported record revenue and forecasted upbeat advertising revenue outlook for 2023.
Yelp said revenue in the December quarter increased 11.6% to $303 million and net income fell to $20.1 million from $23.4 million and diluted earnings per share declined to 28 cents from 30 cents a year ago.
The company expects 2023 net revenue in the range of $1.29 billion to $1.31 billion and estimated adjusted EBITDA or operating earnings in the range of $290 million to $310 million.