Earnings Worries Keep Wall Street Indexes In Check

Barry Adams
24 Jan, 2023
New York City

Stocks rested after two days of solid gains and chip stocks led the decliners. 

Market sentiment was also weak after the U.S. Department of Justice and several other states filed an antitrust lawsuit against Google's parent Alphabet Inc and sought separation of certain of its advertising businesses. 

Investors also worried about the implications of the U.S. debt ceiling delays and how the government will cope with spending cuts.  

Investors also digested a fresh batch of earnings from Verizon, Johnson & Johnson, 3M, Lockheed Martin and await earnings from 300 companies this week. 

Microsoft surged 4% in extended trading hours after the software developer reported better-than-expected earnings. 

On the economic front, investors are also looking to gain clues on the economy after the release of durable goods orders, fourth quarter GDP, new home sales and personal income and spending later in the week.

The S&P 500 index fell 2.86 points to 4,016.95 and the Nasdaq Composite index decreased 30.14 to 11,334.27. 

 

Energy Prices Lacked Direction 

Energy prices closed down in volatile trading as traders awaited weekly inventories data on Thursday. 

Crude oil decreased $1.69 to $79.93 a barrel and natural gas futures decreased 17 cents to $3.26 a thermal unit. 

 

Treasury Yield Hovered Near Recent Lows 

Bond yields were under pressure after the S&P Global US Composite PMI weakened to 46.6 in January from 45.0 in December. 

The private sector activities contracted for the seventh month in a row, the flash estimate showed. 

While the input price inflation picked up pace in January, the rate of final output price charged to customers was unchanged. 

The yield on 2-year Treasury notes inched lower to 4.21%, 10-year Treasury notes hovered near 3.46% and 30-year Treasury bonds traded down to 3.62%. 

 

US Stock Movers 

Johnson & Johnson declined 1% to $166.71 after the healthcare company reported quarterly results that met investors expectations but the company's forward guidance was weaker-than-anticipated. 

Sales in the quarter declined 4.4% to $23.71 billion from $24.80 billion in the similar quarter last year, primarily because of lower Covid-19 vaccine sales and unfavorable exchange rate.  

Net earnings declined 25.9% to $3.52 billion or $1.33 per share from $4.74 billion or $1.77 per share in the quarter a year ago. 

US sales rose 2.9% to $12.52 billion and international sales dropped 11.5%  to $11.19 billion from last year.

The company  estimated adjusted earnings per share in a range of $10.45 to $10.65 and adjusted operating earnings per share in a range of $10.40 to $10.60. 

Verizon Communications Inc increased 80 cents to $39.75 after the company reported mixed quarterly results. 

Lockheed Martin Corp gained 1.4% or $5.98 after the defense contractor reported sales and adjusted earnings ahead of expectations. 

Raytheon Technologies Corp increased 1.8% or $1.69 to $97.92 after the defense contractor benefitted from arms sales for Ukraine and the company said it plans to reorganize in three business units. 

 

European Markets Pause On Rate Hike Worries

European markets were on the backfoot after aggressive rate hike worries returned following the release of business activities index. 

Stocks lacked direction in choppy trading after natural gas prices plunged but the rebound in business activities rekindled the worries of aggressive rate hikes at the next policy meetings in February and March. 

 

European Business Activities Rebound 

The S&P Global Composite Purchasing Managers' Index increased to 50.2 in January 2023 from 49.3 in December 2022 after falling for six months in a row. 

The rebound in service activities in pharmaceuticals, healthcare and technology and smaller contraction in manufacturing activities improved the index.   

 

European Market Indexes Paused 

European indexes paused as investors weighed earnings optimism and weakening energy prices against the rate hike worries. 

The DAX index decreased 0.3% to 15,057.73,  the CAC-40 index traded up a fraction to 7,032.26 and the FTSE !00 index decreased 0.4% to 7,755.79. 

 

Dollar Hovers Near 9-month Low

The U.S. dollar hovered near a 9-month low on the hopes that the Federal Reserve will moderate its aggressive rate hike posture and pivot to smaller rate increases at the meeting next week. 

The euro inched lower to $1.08, the British pound traded near $1.228 and the Swiss franc hovered near 92.63 U.S. cents. 

 

Bond Yields Advanced On Rate Hike Worries 

The yield on 10-year German Bunds increased to 2.20%, French bonds to 2.64%, the UK Gilts to 3.33% and Italian bonds to 3.997%. 

 

Natural Gas Prices Drops 10% 

Natural gas prices fell for the second day in a row and dropped near a 16-month low as cold snap faded and warmer-than-usual temperatures are expected to return this week. 

Brent crude oil decreased 12 cents to $88.06 a barrel and the Dutch TTF natural gas dropped 9.7% to €59.60 per MWh. 

 

French Services Contracted In January 

The French service sector contracted for the third month in a row, S&P Global Service PMI data showed Tuesday. 

French Service PMI declined to 49.2 in January 2023 from 49.5 in December 2022, third monthly decline in a row and the sharpest pace since March 2021. 

New order flows declined on the persistent economic uncertainties and higher inflation and rising borrowing costs but on the positive side new job addition rate improved. 

 

British Manufacturing Weakness Persists 

The British manufacturing sector continued to face headwinds amid persistent high inflation and energy prices and economic uncertainties, data from the Confederation of British Industries showed Tuesday. 

The order book balance declined 11 points in January to -17 from December, the weakest since February 2021 according to the latest Industrial Trends Survey.   

The price expectations for the next three months eased to +41 from +52 in December on the easing of supply chain constraints and labor shortages and falling natural gas prices.

 

UK Borrowings Soared In December 

The UK budget deficit widened to the record December-level after the government revved up energy subsidies and higher rates lifted interest payments. 

Public sector net borrowing, excluding government controlled banks, increased to  £27.4 billion, record high since monthly records began in January 1993, the Office for National Statistics reported Tuesday. 

December’s borrowing was £16.7 billion higher from the previous year and £9.8 billion higher than the latest official forecast published by the Office for Budget Responsibility. 

Central government debt interest payable increased to £17.3 billion in December 2022, the highest December payment since monthly records began. 

 

Europe Stock Movers 

Associated British Foods Plc declined 2.2% to 1,829.0 pence after the owner of Primark said revenue in the 16-week period ending on January 7 rose 20% to £6,698 million. 

Revenue in constant currency rose 16% and the stronger U.S. dollar drove the nominal exchange rate based revenues. 

"We continue to encounter significant cost pressures but inflation has become less volatile and recently some commodity costs have declined. 

Consumer spending has proven to be more resilient in this trading period than anticipated at the start of the financial year," the company said in its latest trading update. 

For the full year, the company estimated "result overall is unchanged with a significant growth in sales, and adjusted operating profit and adjusted earnings per share to be lower than the previous financial year."

Technip Energies NV declined 1.9% to €16.93 despite the company winning a contract in Saudi Arabia. 

Saudi Arabia-based Aramco awarded a contract to modernize sulfur recovery facilities to the French engineering and technology company.  

Marston's Plc increased 6.2% to 43.42 pence after the pubs operator said sales increased during holiday period. 

Comparable sales in the 16-week period ending on January 21 increased 20% from the previous year. 

Comparable sales in the five-day holiday period, Christmas Eve, Christmas Day, Boxing Day, New Year’s Eve and New  Year’s Day, jumped 26% and sales in the similar period two-years ago rose 12.9%. 

The company said total retail sales at the company owned and managed and franchised pubs were up 14.0% on last year and up 7.3% from the fiscal year 2020. 

Beverage sales continued to outperform food sales. 

 

Tech Stocks Drive Nikkei Higher Second Day In a Row 

Benchmark index in Tokyo closed higher following a surge in tech stocks tracking gains in New York trading. 

The Nikkei index closed at 5-week high on the back of a rebound in tech stocks and investors awaited corporate earnings. 

The Nikkei 225 index increased 1.5% to 27,299.19 and the yen firmed 18 cents to 130.48 against the U.S. dollar. 

GS Yuasa Corp increased 3.8% to ¥2,255.0 after the company announced  a joint venture with Honda Motor Corp to make advanced Lithium-Ion batteries. 

Honda Motor Corp increased 1.2% to ¥3,129.0. 

Most markets in the region were closed to celebrate the Lunar New Year. 

Markets in mainland China, Hong Kong, Taiwan, Singapore, Malaysia and South Korea were closed. 

 

India Awaits Union Budget Measures 

Indian stocks lacked direction ahead of the Republic day holiday on Thursday and investors reacted to latest earnings from vehicles makers Maruti Suzuki and TVS Motor. 

Investors are also awaiting the central government budget next week and looking for clues on incentives to accelerate the manufacturing sector and infrastructure spending. 

The Sensex index increased 0.06% or 37.08 to 60,978.75 and the Nifty index traded down 0.25 points to 18,118.30.

The rupee closed down 11 paisa to 81.59 against the U.S. dollar. 

Maruti Suzuki said revenue in the December quarter increased 27% to ₹29,905 crore and net income rose 66.4% to ₹2,135 crore and diluted earnings per share jumped to ₹77.84 from ₹33.48 a year ago.

TVS Motor said the December quarter revenue increased 15% to ₹6,076 crore and net income increased to ₹352 crore from ₹288 crore and diluted earnings per share rose to ₹7.42 from ₹6.07 a year ago.