U.S. Major Averages Struggle After Mixed Earnings

Barry Adams
23 Jan, 2024
New York City

U.S. stocks were little changed in early trading, and investors turned cautious after three leading indexes hovered near record highs.

The Dow Jones Industrial Average surpassed 38,000 for the first time in Monday's trading, and the S&P 500 and the Nasdaq 100 traded near their record highs.

But the Dow was down today after 3M fell more than 10% following its weaker-than-expected quarterly and annual earnings outlook.

Earnings dominated trading today, and DR Horton dropped 10% after the home builder reported weaker-than-expected quarterly earnings. GE eased after the company's first quarter earnings estimate fell short of market expectations.

Crude oil was in focus after the U.S. and U.K. carried out additional military strikes targeting Houthi rebel bases in Yemen.

The attacks on Monday, supported by Australia, Bahrain, Canada, and the Netherlands, targeted eight sites used for arms and supply storage and missile surveillance capabilities.

Trading activities across Europe were muted ahead of the European Central Bank's rate decision on Thursday.

Investors are expecting the central bank to hold rates steady and provide more clarity about the future direction of interest rates, despite policymakers pushing back against rate-cut expectations this year.

 

U.S. Indexes and Yields

The S&P 500 index increased 0.03% to 4,854.75 and the Nasdaq Composite rose 0.2% to 15,383.21.

The yield on 2-year Treasury notes increased to 4.41%. 10-year Treasury notes advanced to 4.13%, and 30-year Treasury bonds edged up to 4.35%.

WTI crude oil decreased $0.66 to $74.09 a barrel, and natural gas prices decreased 1 cents to $2.40 a thermal unit.

Gold increased by $4.65 to $2,025.65 an ounce after declining in the previous week following the general strength in the U.S. dollar.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.40.

 

U.S. Stock Movers

Airline stocks were higher after United Airlines reported strong fourth quarter results, but the company forecasted a loss in the first quarter after the aviation regulator ordered the grounding of 737 Max 9 planes for emergency inspection following the Alaska Airlines midair door incident.

United Airlines jumped 6% to $40.97.

American Airlines rose 3% to $14.02, and Delta Air Lines advanced 2.4% to $37.85 after United reported strong quarterly results.

General Electric declined 3% to $127.30 after the industrial engineering company estimated weaker-than-expected first quarter results.

The company's fourth-quarter results were ahead of market expectations, but investors focused on the current quarter's business conditions.

Procter & Gamble gained 1.5% to $150.0 after the consumer products maker reported mixed quarterly results.

3M declined 6.6% to $100.86 after the company estimated weak current quarter and full-year earnings estimates.

The diversified conglomerate estimated earnings per share in the first quarter between $2.0 and $2.15 and for the full year between $9.35 and $9.75.

Halliburton Company increased 1.5% to $34.95 after the oil field service provider reported mixed quarterly results for its fourth quarter.

Logitech International dropped 6.5% to CHF 77.56 after the computer accessories maker estimated an annual sales decline between 6% and 7%.

Revenue in the fiscal third quarter ending in December declined 1% to $1.26 billion, net income rose to $247.7 million from $140.5 million, and diluted earnings per share rose to $1.57 from 87 cents a year ago.

The company revised its sales outlook for the fiscal year 2024 to range between $4.2 billion and $4.25 billion, a decline between 6% and 7% compared to the previous estimate of between $4.0 and $4.15 billion, a decline between 9% and 12%.

 

Subdued Trading In Europe, ECB Rate Action Awaited 

European markets lacked direction, and investors debated the rate path and the prospect of economic growth and cooler inflation amid global economic uncertainties and elevated geopolitical tensions.

Market indexes in Frankfurt, London, and Paris trade around the flat line, and investors are worried that the European Central Bank may keep higher rates for longer and dash hopes of rate cuts later in the year.

Policymakers are set to announce rate decisions and monetary policy direction on Thursday, and investors are hoping to get more insights about the future rate path.

In Asia, the Bank of Japan held its short-term interest rate at -0.1% and kept the yield around zero on 10-year Japanese government bonds.

The central bank also lowered its 2024 inflation outlook to 2.4% from its previous estimate of 2.8% released in October.

Market indexes in Shanghai and Hong Kong advanced, and the yuan jumped to 7.18 against the U.S. dollar after China's cabinet pledged to take more "forceful" measures to stabilize financial markets.

 

UK Public Sector Borrowing Declined In December

The UK public sector borrowing fell sharply in December from a year ago and dropped to the lowest level since 2019, the Office for National Statistics reported Tuesday.

Public sector borrowing, excluding public sector banks, dropped to £7.8 billion from £16.2 billion in December.

Total public sector receipts increased 5.9% to £89.5 billion because of higher collection of VAT and income tax, and spending declined 3.4% to £97.3 billion, driven down in part by lower interest payments.

Total borrowing in the nine-month period to December of the current financial year rose by £11.1 billion to £119.1 billion, the fourth highest borrowing in the period on record.

 

Europe Indexes and Yields

The DAX index decreased 0.4% to 16,627.09, the CAC-40 index fell 0.4% to 7,388.04, and the FTSE 100 index inched down 0.03% to 7,485.73.

The yield on 10-year German bonds edged up to 2.30%; French bonds inched lower to 2.80%; the UK gilts edged higher to 3.93%; and Italian bonds inched higher to 3.87%.

The euro edged lower to $1.088, the British pound inched higher to $1.272, and the U.S. dollar gained to 86.81 Swiss cents.

Brent crude decreased $0.85 to $79.20 a barrel, and the Dutch TTF natural gas increased by €0.04 to €27.23 per MWh.

 

Europe Stock Movers

Marston's PLC declined 0.2% to 33.25 pence, despite the pub house operator reporting a solid holiday sales increase.

Associated British Foods increased 1.4% to 2,300.0 pence after the company announced its trading update for 16 weeks ending on January 6. 

The company said its discount apparel store chain, Primark, benefited from cash-strapped consumers looking for discounts, but added underlying sales growth slowed in the last  quarter.  

L. M. Ericsson declined a fraction to kr61.26 in Stockholm trading after the telecom equipment maker said challenging market conditions are likely to persist in 2024.

Sanofi SA declined 1.7% to €92.63 after the French pharmaceutical company agreed to acquire the U.S. biotech company Inhibrx Inc. for as much as $2.2 billion.

Inhibrx shareholders will receive $30 in cash for each share held, a contingent value right of $5.0, and 0.25 shares of a new publicly traded company that will retain Inhibrx’s non-INBRX-101 assets, the immuno-oncology drug pipeline.

Sanofi will retain an 8% stake in the new Inhibrx.

 

Asian Markets Diverged Reflecting Local Realities

Market indexes rebounded in China, accelerated in Japan, and struggled to advance in India in Tuesday's trading. 

In overnight trading in New York, the tech-powered rally extended to the second week after investors bid up semiconductor and mega-cap tech stocks. 

Crude oil was also in focus after the U.S. and U.K. carried out additional military strikes targeting Houthi rebel bases in Yemen.

The attacks on Monday, supported by Australia, Bahrain, Canada, and the Netherlands, targeted eight sites used for arms and supply storage and missile surveillance capabilities.

Market indexes in Shanghai and Hong Kong advanced, and the yuan jumped to 7.18 against the U.S. dollar after China's cabinet pledged to take more "stronger and more effective" measures to "stabilize financial markets" and "improve market confidence."

 

Japan Holds Interest Rates

Market indexes in Tokyo advanced after the Bank of Japan held its benchmark interest rate as expected.

The Nikkei 225 Average jumped 1.2% to a new 34-year high of 36,981.80 and extended gains for the third consecutive session.

The Bank of Japan held its short-term lending rate to -0.1% and the yield around zero for 10-year Japanese government bonds by a unanimous vote.

The central bank also lowered its 2024 inflation outlook to 2.4% from its previous estimate of 2.8% released in October.

Market enthusiasm was supported by a higher closing in New York in overnight trading, and tech stocks extended their rally in the second week.

 

China Stocks Rebound On Stimulus Hopes 

The Hang Seng index soared 2.5% to 15,333.01, and tech stocks led the gainers after the indexes rebounded from a near-15-month low.

Chinese policymakers have struggled to provide meaningful support to financial markets after years of reckless spending on infrastructure driven by a surge in government debt.

By some measures, the Chinese government debt-to-GDP ratio is nearing 300%, the highest among large economies in the world.

Pessimism in Chinese markets is not likely to reverse in the near term as Chinese consumers retrench from spending, avoid pumping additional savings into the property market, and increase cash savings in the face of economic and labor market uncertainties.

 

Earnings Growth Expectations Power India Indexes  

Stocks in Mumbai advanced in morning but sold off sharply in the final hour of trading on Tuesday, and the Nifty and Sensex indexes faced heavy selling after investors returned from the Monday holiday.

Travel stocks were in focus after Ram Mandir Pran Pratistha of Ram Temple in Ayodhya.

The religious site is expected to attract as many as 10 crore, or 100 million, travelers to the city in Uttar Pradesh this year.

The Sensex index decreased 1.5% to 70,370.55, and the Nifty index dropped 1.5% to 21,238.80.

On the Mumbai stock exchange, 468 stocks traded at their 52-week highs and 36 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds increased to 7.18%, and the Indian rupee edged lower to ₹83.11 against the U.S. dollar.

In other markets in the region, the KOSPI index in Seoul added 0.4% to 2,473.54, and the ASX200 index in Sydney advanced 0.5% to 7,517.30.