Indexes Registered Losses in February On Rate-Path and Recession Worries

Barry Adams
28 Feb, 2023
New York City

Market indexes closed down after bond yields advanced and 10-year Treasury notes closed at a 3-month high. 

Investors reacted to the latest batch of earnings from retailers, restaurants and tech companies and reviewed the rising bond yields. 

Retailer Target Corp struggled to control costs but higher discounts lured customers back in search of bargains as prices of essential goods continue to rise but at a slower pace. 

Zoom Video reported a sharp plunge in earnings and sales growth after the pandemic-era boom began to fade but the number of companies paying more than $100,000 a year continued to rise. 

Movement in Treasury yields also impacted stock market sentiment after the yields on six-month and one-year Treasury notes traded above 5% and 10-year Treasury touched a 3-month high. 

Investors are also looking ahead to earnings from Kohl's and Lowe's before the opening bell on Wednesday. 

 

Indexes and Yields 

The S&P 500 index decreased 0.3% to 3,970.51 and the Nasdaq Composite index fell 0.7% to 11,455.54.  

In February, the S&P 500 declined 2.6% and the Nasdaq Composite decreased 1.1%. 

U.S. Treasury yields increased and extended gains in February as traders come to terms with the prospects of higher rates staying longer and recalibrate expectations.

The yields on 10-year Treasury notes traded at a 3-month high and shorter term debts of six months or one-year duration stayed firmly above 5%.     

The yield on 2-year Treasury notes increased to 4.83%, 10-year Treasury notes edged higher to 3.94% and 30-year Treasury bonds hovered near 3.93%.  

 

Energy Prices Extend Annual Losses 

Crude oil traded higher and the commodity rose 0.5% in February and dropped 28% over the last twelve months. 

Traders are looking for a demand surge from China as refiners accelerate reopening to meet the rising demand for transportation fuel.

Natural gas futures edged higher but the fuel is set to fall more than 2.5% in February and extend loss to 41% over the last twelve months. 

Demand for natural gas has been weak amid warm weather conditions and the LNG export terminal in Freeport, Louisiana is not expected to reopen before mid-March.  

Crude oil increased 86 cents to $76.56 a barrel and natural gas rose 1 cent to $2.64 a thermal unit. 

 

U.S. Movers 

Target Corporation increased 1.1% to $168.46 after the retailer reported a weak sales increase and earnings fell on higher costs and the company issued a cautious outlook.

Target Corporation said revenue in the fourth quarter increased 1.2% to $30.9 billion but net income plunged 43% to $876 million and diluted earnings per share dropped to $1.89 from $3.21 a year ago. 

In full-year 2022, revenue increased 2.8% to $107.6 billion and net income plunged 60% to $2.8 billion from $6.9 billion and diluted earnings per share dropped to $5.98 from $14.10 a year ago. 

Comparable sales in the quarter increased 0.7% on top of 8.9% and advanced 2.2% on top of 12.7% in 2021. Comparable traffic in 2022 increased 2.1% on top of 12.3% in the previous year.  

Zoom Video Communications increased 1.1% to $74.59 after the company reported better-than-expected earnings and sharp decline in sales growth. 

Zoom Video Communications said revenue in the fourth quarter increased 4% to $1.1 billion and the company swung to a net loss of $104.4 million from a profit of $490.5 million. 

The earnings per share was a loss of 36 cents compared to a profit of $1.60 a year ago. 

Revenue in the fiscal year ending in January increased 7.0% to $4.4 billion and net income dropped to $103.7 million from $1.4 billion and diluted earnings per share dropped to 34 cents from $4.50 a year ago.

 

European Markets Erased Previous Day's Gains 

European markets opened lower but managed to cross flat line by midday and turned lower in the afternoon trading. 

Market sentiment was negative at the opening after inflation accelerated in France and Spain. 

But by midday investors were able to shake off lingering worries of higher rates and indexes stayed firmly in the positive zone for two hours. 

In the late afternoon stocks turned lower after bond yields advanced in the Euro Area, denting the market sentiment on the worries of higher interest rates. 

Crude oil rebounded on the hopes that Chinese refineries will soon drive the demand higher as social mobility picks up in the second-largest economy after three-years of Covid-linked lockdowns.  

However, natural gas fell towards the Є45 price level amid warm weather conditions and elevated supply.  

 

France's Consumer Inflation Accelerated 

France's consumer price inflation accelerated to 6.2% in February from 6.0% in January, the statistical office INSEE reported Tuesday. 

Sustained increase in food and energy prices drove the bulk of inflation in the month. 

Food prices increased 14.5% but energy price inflation slowed to 14.0% from 16.3% in January. 

Consumer prices increased 0.9% in February after rising at 0.4% in January. 

A separate report from the statistical office showed that household consumption on a monthly basis increased 1.5% in January after falling 1.6% in December. 

Household consumption rose after the government withdrew support for household energy bills.  

 

Spain's Inflation Accelerated in January 

Spain's consumer price inflation increased to 6.1% in February from 5.9% in January, the statistical office INE said in a preliminary report Tuesday. 

The recent bout of inflation was driven by the price increases in electric utility bills and rising cost of food. 

Core inflation, excluding unprocessed food and energy, accelerated to 7.7% in February from 7.5% in January. 

Overall consumer inflation rose 0.1% in February from the previous month when the prices dropped 0.2%  

 

Indexes Looked Down and Yields Advanced 

The DAX index decreased 0.1% to 15,365.14, the CAC-40 index dropped 0.4% to 7,267.93 and the FTSE 100 index fell 0.7% to 7,876.28. 

The yield on 10-year German Bunds rose to 2.63%, French bonds increased to 3.1%, UK gilts to 3.84% and Italian bonds to 4.47%. 

The euro edged lower to 1.056%, the British pound inched lower to $1.203 and the Swiss franc to 94.14 cents. 

 

Oil Advanced On China Optimism, Gas Weakened  

Brent crude fell 1.3% in February and plunged 28% and TTF natural gas price dropped 5% in February and plunged 61% from a year ago. 

Brent crude oil increased to $1.23 to $83.27 a barrel and the Dutch TTF natural gas fell 63 cents to Є46.67 per MWh. 

 

Europe Stock Movers 

Credit Suisse Group AG increased 0.6% to sfr 2.85 and recovered from the loss of 2% and the Swiss financial regulator FINMA said the bank "seriously breached its supervisory obligations" in its transactions with Australian businessman Lex Greensill. 

Greensill filed for financial bankruptcy protection after the supply chain financial products provider's subsidiary in Germany was shuttered for financial irregularities. 

Adecco Group declined 2.9% to sfr 33.46  after the Swiss-French recruitment services provider reported fourth quarter net income plunged 65% to Є65 million from Є185 million a year ago.   

Bayer AG declined 3.9% to €56.29 after the German pharmaceutical firm reported a sharp decline in earnings. 

Fourth quarter earnings fell 47% to €611 million from €1.16 billion a year ago and revenue increased 4% to €12 billion from €11.1 billion in the period. 

Diluted earnings per share declined to 62 cents from €1.18 a year ago. 

Full-year revenue increased 8.7% to €50.7 billion  and net income increased to 4.1 billion from 1.0 billion and diluted earnings per share rose to €4.22 from €1.02 a year ago. 

Aitron SE increased 12.1% to €29.13 after the maker of advanced semiconductor chip equipment reported an improvement in sales and earnings. 

Revenue in the fourth quarter slightly improved to €183.2 million from €180.9 million and in the full-year 2022 increased 8% to €463.2 million.  

Consolidated net profit for the year 2022 grew by 6% to €100.5 million from €94.8 million and earnings per share improved to €0.89 from €0.85 in 2021.