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%.