S&P 500 and Nasdaq Rebound 1% After Investors Look Beyond Rate Decisions

Barry Adams
01 Feb, 2024
New York City

Stocks rebounded following a sharp decline in the previous session after Federal Reserve Chairman Powell said interest rate cuts in March were not likely.

The S&P 500 index and the Nasdaq Composite advanced more than 0.8% in trading after investors reassessed their interest rate outlook after the Federal Reserve held its key lending rate for the fourth time in a row.

In Wednesday's trading the S&P 500 index declined 1.6% and the Nasdaq Composite dropped 2.2%. 

In Wednesday's trading, investors sold high-growth and tech stocks after Chairman Powell stressed that higher rates are needed until solid evidence emerges that inflation is on a sustained path to the target rate of 2%.

However, Chairman Powell left the door open for a rate cut later in the year but did not provide a specific timeline.

But in today's trading, market indexes rebounded after investors returned to increase exposure to tech stocks. 

 

U.S. Jobless Claims Advanced Second Consecutive Week

Initial claims of jobless benefits rose for the second week in a row to 224,000 in the week ending on January 27 from the upwardly revised 218,000 in the previous week, the U.S. Department of Labor reported Thursday.

Continuing claims increased to 1.898 million in the week ending on January 20, from the downwardly revised 1.828 million in the previous week.

  

U.S. Indexes and Yields

The S&P 500 index increased 0.8% to 4,886.01, and the Nasdaq Composite rose 0.9% to 15,301.57.

The yield on 2-year Treasury notes decreased to 4.20%. 10-year Treasury notes declined to 3.87%, and 30-year Treasury bonds edged down to 4.11%.

WTI crude oil decreased $1.45 to $74.45 a barrel, and natural gas prices decreased 5 cents to $2.04 a thermal unit.

Gold increased by $15.83 to $2,052.53 an ounce and extended the previous week's gains after the U.S. dollar drifted slightly lower in international trading.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.62.

 

U.S. Stock Movers

Qualcomm declined 1.8% to $145.83 after the chipmaker reported better-than-expected fiscal first quarter revenue.

Revenue in the quarter increased 5% to $9.9 billion from $9.5 billion, net income increased by 24% to $2.7 billion from $2.2 billion, and diluted earnings per share advanced to $2.46 from $1.98 a year ago.

During the first quarter, the company returned $1.7 billion to stockholders, including $895 million, or $0.80 per share, of cash dividends paid and $784 million through repurchases of 6 million shares of its common stock.

The company estimated revenue in the fiscal second quarter between $8.9 billion and $9.7 billion and diluted earnings per share between $1.73 and $1.93.

Align Technology soared 12.2% to $300.0 after the orthodontics company reported better-than-expected sales and earnings in its latest quarter.

Revenue in the fourth quarter increased 6.1% to $956.7 million from $901.5 million, net income soared three-fold to $124.0 million from $41.8 million, and diluted earnings per share rose to $1.64 from 54 cents a year ago.

The company guided first quarter revenue between $960 million and $980 million and estimated 2024 total revenues to be "up mid-single digits over 2023."

Wolfspeed declined 4.5% to $31.0 after the company's fiscal third-quarter revenue fell short of market expectations.

Revenue in the fiscal second quarter ending in December increased to $208.4 million from $173.8 million; net loss expanded to $144.7 million from $90.9 million; and diluted loss per share rose to $1.15 from 73 cents a year ago.

The company estimated fiscal third quarter revenue between $185 million and $215 million, net loss from continuing operations between $134 million and $155 million, and diluted loss per share between $1.07 and $1.23.

 

European Markets Closed Down, Sweden and UK Hold Rates

In cautious trading, stocks in Europe edged slightly lower, but market indexes hovered near record highs.

Benchmark indexes in Frankfurt, Paris, and London traded in a tight range, and investors reviewed the monetary policy decisions in Sweden and the U.S.

The Swedish central bank, Riskbank, maintained its key policy rate at 4.0%, meeting market expectations.

The central bank noted that restrictive rates are having an impact on inflation, but prices are still rising at a faster-than-expected pace. Higher rates are needed to stabilize inflation at lower levels.

The Bank of England held its key rate at a 16-year high of 5.25%, and the central bank reiterated its commitment to bringing down inflation to its target level.

The Monetary Policy Committee in a 6-3 vote decided to hold rates, with two  members favoring a rate increase by 25 basis points and one supporting a 25 basis points rate cut. 

The committee noted that the headline inflation is expected to drop to 2% target level in the second quarter, but rebound in the third and the fourth, because how energy prices are accounted for in inflation calculation. 

The headline inflation is not expected to drop to 2.3% until late 2026 and fall further in 2027.   

 

Eurozone Inflation Slowed

The Eurozone inflation rate decreased to 2.8% in January from 2.9% in the previous month, Eurostat reported Thursday.

The core rate of inflation, which excludes food and energy prices, slowed to 3.3% and dropped to the lowest level since March 2022.

The decline in overall inflation was driven by the fall in energy inflation to 6.3% from 6.7% in the previous month, and food, alcohol, and tobacco inflation eased to 5.7% from 6.1%.

On a monthly basis, overall consumer prices declined by 0.4% in the month after rising by 0.2% in the previous month.

 

Euro Area Jobless Rate Held Steady

Despite the sharp jump in interest rates and global market uncertainties, the labor market in the Euro Area has remained resilient.

The seasonally adjusted unemployment rate in the Euro Area held steady at 6.4% in December, Eurostat reported in a separate report on Thursday.

The number of individuals seeking jobs decreased by 17,000 to 10.909 million, but the jobless rate varied widely across the region.

The youth jobless rate, tracking applicants younger than 25 years and seeking jobs, decreased to 14.4% from 14.5% in November.

Spain led the jobless rate in the currency union with 11.7%, followed by France with 7.3% and Italy with 7.2%.

Germany reported the lowest jobless rate of 3.1% in the Euro Area.

 

Europe Indexes and Yields

The DAX index decreased 0.3% to 16,859.04, the CAC-40 index fell 0.9% to 7,588.75, and the FTSE 100 index inched higher by 0.1% to 7,622.11.

The yield on 10-year German bonds edged down to 2.20%; French bonds inched higher to 2.70%; the UK gilts edged lower to 3.82%; and Italian bonds inched lower to 3.77%.

The euro edged lower to $1.079, the British pound inched higher to $1.264, and the U.S. dollar gained to 86.31 Swiss cents.

Brent crude decreased $1.10 to $79.45 a barrel, and the Dutch TTF natural gas decreased by €1.24 to €28.99 per MWh.

 

Europe Stock Movers

BNP Paribas declined 8.2% to €57.51 after the French lender reported a decline in pre-tax income in the fourth quarter to €1.47 billion from €2.79 billion a year ago.

Adidas dropped 5.8% to €165.82 after the German sportswear maker's operating earnings guidance fell short of expectations.

Deutsche Bank added 4.4% to €12.56 after the German lender said it plans to increase shareholder payouts by 50% and announced a plan to cut 3,500 jobs.

Sanofi SA declined 2.3% to €91.16 after the global pharmaceutical company headquartered in Paris, France, reported weaker-than-expected fourth-quarter earnings.

 

Asian Markets Struggle  Amid Weak Global Backdrop

Asian markets traded in a tight range, and tech stocks were under pressure in Japan following the steep decline in overnight trading in New York.

The U.S. Federal Reserve held its key lending rate range for the fourth time between 5.25% and 5.50% and clarified that interest rates are not likely to be trimmed in the immediate future, dashing hopes of a rate cut at the end of the next policy meeting in March.

The S&P 500 index closed down 1.6%, and the Nasdaq Composite dropped 2.2%.

The Nikkei 225 decreased 0.8% to 36,011.46, and technology stocks led the decline.

Tokyo Electric Power, Sony Group, Kawasaki Kisen, Fast Retailing, and Toyota Motor declined between 1.5% and 2.0%.

Nomura Holdings rose more than 5% after the financial services provider reported better-than-expected quarterly results.

ANA Holdings and East Japan Railways also gained more than 1% after reporting financial results.

Elsewhere in the region, the ASX 200 index decreased 1.2% to 36,011.46 after trading at a new record high in the previous session.

Banks, miners, and real estate stocks were among the leading decliners in Sydney trading.

In Seoul, the KOSPI index soared 1.7% to 2,540.35, and South Korea swung to a trade surplus in January.

 

Broad  Recovery Lifts South Korea Exports 

The Ministry of Trade, Industry, and Energy (MOTIE) announced the monthly update on Thursday.

South Korea’s exports increased 18.0% from the previous year to $54.7 billion. Imports decreased 7.8% to $54.4 billion, and the trade balance stood at a surplus of $0.3 billion.

The trade balance was in surplus for January, extending the surplus for the eighth consecutive month since June 2023.

Generally, international trade in January recorded a deficit, but this year’s trade balance improved by $13 billion from the previous year, boosted by strong exports.

By destination, eight of the nine major markets saw growth in January.

Specifically, shipments to China and the U.S. surpassed the $10 billion thresholds for the sixth and fifth consecutive month, respectively.

 

China Indexes Rebound After Private Survey Show Manufacturing Expanded

Market indexes in China rebounded from five-year lows after a private survey showed the manufacturing sector expanded for the third month in a row in January.

China's manufacturing sector continued to grow at a stable rate, and the Caixin PMI Manufacturing Index was unchanged at 50.8 in January, contrasting the official survey released Wednesday.

Caixin surveys about 650 private and government companies primarily located in China's coastal region with a strong focus on export activities.

The official survey from the NBS, which gathers data from a wider sample of 3,200 companies, showed factory activities contracted in January after the Manufacturing PMI index edged slightly higher from the previous month to 49.2.

The CSI 300 index rose 0.6% to 3,235.11, and the Hang Seng index jumped 1% to 15,648.02.

Alibaba Group, NetEase, JD.com, Meituan, Baidu, and Tencent rebounded between 2% and 3%.

Hong Kong left its interest rate unrevised at 5.75% following the Fed's decision to hold rates steady.

Property developers Sun Hung Kai declined 1%, New World Development rose 3.5%, and Henderson Land Development added 1.5%.

 

Record Highs In India Indexes

Market indexes in Mumbai rebounded from early doldrums as investors awaited the release of the interim budget.

The index tracking growth of eight key infrastructure sectors slowed to a 14-month low of 3.8% in December 2023, the Office of the Economic Advisor reported Wednesday.

The eight core industries collectively weigh 40.27% in the index of industrial production.

The new government spending has been on hold, and private sector capital spending has been lackluster ahead of the Lok Sabha election scheduled between April and May.

The Nifty and the Sensex indexes struggled in early trading amid weak Asian markets and a sharp decline in New York overnight trading.

The Sensex index increased 280.49 points to 72,033.15, and the Nifty index rose 71.05 points to 21,805.30.

On the Mumbai stock exchange, 265 stocks traded at their 52-week highs, and 11 stocks sank to their 52-week lows.

The yield on the 10-year Indian government bonds increased to 7.14%, and the Indian rupee held steady at ₹83.03 against the U.S. dollar.

Bajaj Auto rose 0.9% to ₹7,733.60 after the 2- and 3-wheel vehicle maker reported January sales.

Vehicle sales in January jumped 24% from a year ago to 356,010 from 287,935 a year ago.

Domestic vehicle sales surged 31% to 230,043 and exports increased 12% to 126,967 from a year ago, respectively.