Wall Street Extends Weekly Advance Ahead Of Rate Hikes Next Week

Barry Adams
27 Jan, 2023
New York City

U.S. stocks extended weekly gains as tech and energy sector stocks led gainers in a volatile week. 

Investors reacted to the latest earnings news and evaluated corporate performance in the light of looming economic slowdown and continued hike in interest rates. 

Consumer spending slowed in December raising the prospect of negative economic growth in the first quarter as consumers struggled with inflation broadening from goods to services. 

Investors turned cautions after December personal spending declined but the key measure of core inflation stayed elevated, highlighting the tough road for the policymakers in cooling elevated inflation. 

The core PCE index cooled for the third month in a row to 4.4% but stayed ahead of the Fed's target of 2%, despite seven rate hikes in 2022. 

The decline in inflation gauge was welcomed by investors but consumer spending declined in December, the key driver of the U.S. economy also put investors on alert. 

 

Consumer Inflation Cools but Stay Elevated

U.S. personal spending decreased 0.2% in December and personal income rose 0.2% from the previous month, the Bureau of Economic Analysis reported Friday. 

Personal income increased $49.5 billion or 0.2% in December and disposable personal income increased $49.2 billion or 0.3% and personal consumption expenditures or PCE decreased $41.6 billion or 0.2%.

Personal consumption declined for the second month in a row. 

Price consumption index, a measure of inflation faced by consumers, rose 5.0% and the core index increased 4.4% from a year ago.

 

Pending Homes Sales Unexpectedly Rebounded

Pending home sales in December rose unexpectedly in December, the National Association of Realtors said. 

U.S. pending home sales rose 2.5% in December from the previous month after falling 2.6% in November. Sales plunged 33.8% from a year ago.  

Sales in the South increased 6.1% and rose 6.4% in the West but declined 6.5% in the Northeast and eased 0.3% in the Midwest. 

Home sales have been slowing tracking the rise in mortgage rates after the Federal Reserve lifted rates seven times in 2022. 

 

U.S. Indexes In Review 

The S&P 500 index increased 0.2% to 4,070.56 and the Nasdaq Composite index advanced 0.95% to  11,621.71. 

For the week, the S&P 500 index increased 2.4% and the Nasdaq Composite index soared 4.3% and advanced for the fourth week in a row. 

Crude oil fell $1.69 to $79.31 a barrel and natural gas futures increased 1 cent $2.85 a thermal unit. 

The yield on 2-year Treasury notes increased to 4.21%, 10-year Treasury notes rose to 3.51% and 30-year Treasury bonds inched higher to 3.63%. 

 

U.S. Stock Movers

American Express soared 12.4% to $175.15 after the financial service company's earnings were ahead of expectations and the company issued an upbeat guidance. 

Fourth quarter total revenue net of interest rates increased 17% to $14.2 billion and net income declined to $1.6 billion from $1.7 billion a year ago. 

Diluted earnings per share fell to $2.07 from $2.18 in the previous year. 

American Express said 2023 revenues are expected to rise between 15% and 17% and earnings per share in the range between $11.0 and $11.40. 

Intel Corporation dropped 10% to $30.09 after the chipmaker reported a sharp fall in revenues and a loss and demand in the PC market is likely to persist in the current quarter.  

Intel said fourth quarter revenue plunged 32% to $14.0 billion and swung to a net loss of $0.7 billion from a profit of $4.6 billion. 

Diluted earnings per share was a loss of 16 cents compared to $1.13 a year ago.

Mastercard Inc edged slightly lower to $376.91 and the payment processor said cross border volume soared on the back of resilient consumer spending. 

Mastercard said in local currencies cross border volume soared 31% and gross dollar volume increased 8% and repurchased 7.4 million shares at a cost of $2.4 billion and paid $473 million in dividends.

Mastercard said fourth quarter revenue increased 12% to $5.8 billion and net income rose 6% to $2.5 billion and diluted earnings per share increased to $2.62 from $2.41 a year ago.

Visa Inc increased 2.2% to $229.65 after the payment processor said resilient consumer spending in the face of higher prices drove the increase in quarterly transactions. 

Visa Inc said revenue in the December quarter increased 12% to $7.9 billion and net income rose 6% to $4.2 billion and diluted earnings per share jumped to $1.99 from $1.84 a year ago.

Tesla Inc soared 11.0% to $177.90 and extended a two-day surge to 33% after the electric vehicle maker reported record quarterly revenue, earnings, production and deliveries. 

 

Europe's Broad Money Supply Growth Slowed 

European markets advanced in cautious trading ahead of rate decisions from three central banks and the deceleration in broad money supply growth signaled the impact of higher rates.  

The European Central Bank and Bank of England are expected to announce rate decisions on Thursday following the rate decisions from the U.S. Federal Reserve on Wednesday. 

The challenging economic conditions were highlighted in the latest monetary aggregate monthly report released by the European Central Bank. 

The annual growth rate of the broad monetary aggregate M3 fell to 4.1% in December 2022 from 4.8% in November, averaging 4.7% in the three months up to December.

 

European Indexes Closed Higher In Cautious Trading

Investors turned cautious after the release of the U.S. personal income and spending report. 

Real personal spending declined for the second month in a row in December, the Bureau of Economic Analysis said Friday. 

 Personal income growth slowed to 0.2% in December and spending declined 0.2%. 

The DAX index increased 13.01 points to 15,145.86, the CAC-40 index fell 11.68 points to 7,084.31 and the FTSE 100 index rose 4.04 points to 7,765.15. 

For the week, the DAX increased 0.9%, the CAC-40 rose 1.5% but the FTSE 100 index was fractionally lower. 

The euro inched down to $1.08, the British pound edged lower to $1.238 and the Swiss franc weakened to 92.06 U.S. cents. 

Brent crude oil edged 64 cents to $86.84 a barrel and the Dutch TTF natural gas futures increased 2.4% to €56.16 per MWh. 

Bond yields advanced after the release of the U.S. personal spending and income report indicating stubborn inflation. 

The yield on 10-year German Bunds rose to 2.24%, French bonds increased to 2.70%, UK gilts to 3.33% and Italian bonds to 4.22%. 

 

Europe Stock Movers 

LVMH was nearly unchanged at €801.0 after the luxury products maker reported a 9% rise in organic sales in the fourth quarter. 

Fourth quarter revenue increased to €22.7 billion and full-year 2022 revenues rose to 23% to €79.2 billion and net income from recurring operations increased 23% to €21.1 billion. 

Net profit increased 17% to €14.1 billion and operating free cash flow surpassed €10 billion. 

H&M Hennes & Mauritz AB decreased 4.1% to Swedish krona 125.80 after the fashion retailer's operating profit missed expectations set by some investors. 

In Frankfurt, Heidelberg Materials increased 2.7% to €61.72 and Adidas increased 2.1% to €148.30. 

J Sainsbury Plc increased 4.7% to  250.75 pence and the company confirmed that an investment group Bestway Group intends to acquire 3.45% stake in the retailer for "investment purposes and looks forward to supporting the  executive management team."

Rolls Royce Holdings PLC decreased 3.6% to 109.38 pence after the recently appointed chief executive in a meeting with employees made cautious remarks. 

"Every investment we make, we destroy value" and added "we underperform every key competitor," said Tufan Erginbilgic, the former BP executive who replaced Warren East as chief executive at the start of 2023. 

Erginbilgic is expected to announce sweeping changes and restructure operations and. 

The largest engineering company in the UK has lost nearly two-third of its market value in the last five years, a critically important company for the UK government for its military capabilities. 

Despite the two restructurings carried out by the company since 2018, the aerospace company has struggled after the pandemic halted worldwide air travel and the rebound since then has been slow. 

The company's revenues are tied to the operating aircraft engine hours, linking the financial performance to the ups and downs of the air travel industry.  

 

Shippers and Exports Advance In Tokyo 

Asian markets traded higher following the strong-than-expected fourth quarter U.S. GDP data on Thursday.  

Market sentiment was boosted after the largest economy in the world expanded at 2.9% annual pace in the fourth quarter and increased 2.1% in full-year 2022. 

Shin Etsu Chemical soared 4%, Yaskawa Electric increased 3% and Rakuten Inc increased 2%. 

The Nikkei index increased 19.81 points to 27,382.56 and the yen firmed to 129.91 against the U.S. dollar. 

Shipping companies and exporters were among the leading gainers. 

Nippon Yusen KK Mitsui OSK Lines and Kawasaki Kisen Kaisha increased 3%. 

Panasonic Corp, Fuji Electric, Sony Group and Olympus Corp increased between 1.7% and 3%. 

Mainland China markets were closed on Friday and markets are set to reopen on Monday. 

The Hang Seng index in Hong Kong increased 0.5% to 22,688.90 following the US GDP data report. 

 

India Awaits Union Budget 

Benchmark indexes in Mumbai declined after Adani Group stocks dropped more than 5% for the second day following the negative report released by the U.S.-based short seller Hindenburg Research.

Investors generally ignored the allegations of fraud and tight relationship with government-controlled banks and offshore accounts, which have been widely covered by local media in the past.  

Adani Enterprises is set to complete its $2.5 billion secondary offering in the next two weeks. 

State Bank of India, IndusInd Bank and ICICI Bank declined between 3% and 5% on the worries of debt exposure to Adani Group.  

Investors also looked ahead to the Union Budget and hoped that the government would provide additional incentives for manufacturing companies and increase a minimum threshold for personal income tax.  

The Sensex index dropped 1.5% or 874.16 points to 59,330.90 and the Nifty index declined 1.6% or 287.60 points to 17,604.35. 

The Indian rupee weakened to 81.54 against the U.S. dollar.