Today’s Big Picture
By mid-day trading, European equity indices are up across the board, and U.S. futures point to a mixed market open as investors digest better than expected guidance from Netflix (NFLX), the holiday sales warnings from Nordstrom (JWN), and Alphabet (GOOGL) being the latest tech company to announce large layoffs. As we exit this week, investors will be looking for answers to a number of questions, including: What is the speed of the global economy? What will the December quarter earnings season guidance look like? What kind of spike will we see in China Covid cases after the Chinese New Year? And, how quickly and cleanly will the U.S. tackle its debt ceiling dilemma? The answers or at least clues to those answers will shape the market mood next week.
Data Download
International Economy
The annual inflation rate in Japan rose to 4.0 % in December, the highest since January 1991 amid a rise in prices of imported raw commodities and yen weakness. Core consumer prices also increased by 4.0% YoY, the most since December 1981, matching market forecasts but above the Bank of Japan’s 2% target for a ninth straight month.
Retail Sales in the UK fell 5.8% YoY in December, far greater than the market forecasts for a 4.1% fall. The data marks the sharpest December decline since records began in 1997. The GfK Consumer Confidence indicator in the United Kingdom fell to -45 in January from -42 in December, defying expectations for a slight improvement to -40, amid persistently high inflation and soaring energy bills.
The annual producer inflation in Germany fell to 21.6% in December from 28.2% in November. While this marked the lowest reading since November 2021, the December figure was above the expected 20.8% figure. On a monthly basis, producer prices went down 0.4%, the third straight month of decline.
Speaking at the World Economic Forum earlier today, European Central Bank President Christine Lagarde shared the view the reopening of China’s economy will increase inflation in Europe as they both compete for more energy. Lagarde’s comments follow a warning from the International Energy Agency that European companies might face higher costs when looking to purchase natural gas this year due to greater demand-competition dynamics.
Domestic Economy
At 10 AM ET, December Existing Home Sales will be reported and they are expected to fall to 3.96 million on an annualized basis, down from November’s 4.09 million. Today also brings another trifecta of Fed speakers before the central bank enters the quiet period for its upcoming monetary policy meeting that concludes on February 1.
Markets
Recession fears have prompted traders to put more pressure on markets as yesterday’s 0.76% drop in the Dow brought that index into familiar, and negative, territory. The S&P 500 also fell 0.76% while the Nasdaq Composite and the Russell 2000 closed 0.96% and 0.97% lower. Sectors were mixed, with gains going to Energy (1.24%), Health Care (0.24%), and Communications Services (0.51%), and Industrials taking the biggest hit, down 2.06% as a “Right to Repair” agreement was struck between John Deere (DE) and the American Farm Bureau Federation clearing the way for third-parties approval to repair equipment. Caterpillar (CAT) also traded down 2.32% on the news. On the positive side, Expedia Group (EXPE) rose 3.08% yesterday despite both Morgan Stanley (MS) and Wells Fargo (WF) analysts reducing their price targets on the stock but maintaining their ratings of equal weight and overweight, respectively.
Here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: -0.31%
- S&P 500: 1.55%
- Nasdaq Composite: 3.69%
- Russell 2000: 4.26%
- Bitcoin (BTC-USD): 26.94%
- Ether (ETH-USD): 29.29%
Stocks to Watch
Before trading kicks off for U.S.-listed equities, Ally Financial (ALLY), Ericsson (ERIC), and State Street (STT) will be among the companies reporting their quarterly results.
While its December quarter EPS came up short relative to expectations, Netflix’s (NFLX) December quarter revenue rose 1.9% YoY to match the consensus forecast and global streaming paid net adds fell 7.5% YoY to 7.66 mln compared to guidance of 4.50 mln. The company sees EPS for the current quarter at $2.82 vs. the $2.96 consensus with revenue of $8.17 billion roughly in line with the market consensus forecast. Netflix expects modest positive paid net adds in the current quarter and anticipates rolling out paid sharing more broadly later in the quarter. The company also lifted its operating margin expectation for this year to 21%-22% vs. its prior target of 19%-20%. Finally, Netflix announced Ted Sarandos and Greg Peters are now co-CEOs, with Reed Hastings as Executive Chairman.
Alphabet announced it will reduce its workforce by about 12,000 roles, with cuts impacting teams across the company including recruiting and some corporate functions, as well as some engineering and products teams.
Nordstrom (JWN) revised its outlook for 2022 and now sees revenue growth for the full year at the low end of its previously issued outlook of 5%-7% due to slower than anticipated holiday sales. Additionally, significant markdowns offered in the season hit the bottom line, causing the company to cut its full-year adjusted EPS guidance to a range between $1.50-$1.70 vs. its prior outlook of $2.30-$2.60.
While PPG Industries (PPG) reported December quarter results that topped expectations, the paint and coatings company guided EPS for its current quarter to $1.10-$1.20 vs. the $1.38 consensus as it sees aggregate sales volumes down a mid-single-digit percentage YoY.
SVB Financial Group (SIVB) stock retreated after-hours trading last night following disappointing earnings as market volatility and rising interest rates continued to limit growth and drive higher credit costs. The company also issued its outlook for 2023 that calls for average deposit balances to dip by “mid-single digits” vs. 2022, and net interest income is expected to see a “high teens” decline.
Eli Lilly (LLY) shared the U.S. Food and Drug Administration rejected its accelerated approval submission of its Alzheimer’s treatment Donanemab, news that sent its shares lower in after-market trading last night.
Costco (COST) announced that its board reauthorized a common stock repurchase program of up to $4 billion that expires in January of 2027 and replaces the current $4 billion program set to expire this coming April. Out of that pre-existing buyback program, roughly $1.4 billion in shares had been repurchased.
Capital One Financial (COF) announced it will eliminate more than 1,100 technology positions this week.
Magnite (MGNI) disclosed in a filing that it is cutting jobs across its global operations by about 6% to eliminate multiple identical positions.
T-Mobile US (TMUS) announced it was hacked by a bad actor that used a single Application Programming Interface to obtain limited types of information on customer accounts. Per the company, “Some basic customer information (nearly all of which is the type widely available in marketing databases or directories) was obtained, including name, billing address, email, phone number, date of birth, account number, and information such as the number of lines on the account and service plan features.” For those counting, this is the 8th time since 2018 T-Mobile was hacked.
IPOs
The near-term IPO calendar is relatively light so there are no significant IPOs slated to price this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.
After Today’s Market Close
No companies are expected to report their quarterly results after the market close. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.
On the Horizon
Monday, January 23
- US: S&P Case-Schiller Home Price Index – November
- US: Leading Indicators – December
Tuesday, January 24
- Japan: Flash Manufacturing PMI – January
- Germany: Gfk Consumer Climate – February
- Eurozone: Flash Manufacturing and Services PMIs – January
- US: S&P Global Flash Manufacturing and Services PMIs – January
Wednesday, January 25
- UK: Producer Price Index Input, Output – December
- Germany: Business Expectations Index – January
- US: Weekly MBA Mortgage Applications
- US: Weekly EIA Crude Oil Inventories
Thursday, January 26
- US: Weekly Initial & Continuing Jobless Claims
- US: Durable Orders – December
- US: GDP – Preliminary 4Q 2022
- US: PCE Price Index – 4Q 2022
- US: New Home Sales – December
- US: Weekly EIA Natural Gas Inventories
Friday, January 27
- US: Personal Income & Spending, PCE Price Index – December
- US: Pending Home Sales – December
- US: University of Michigan Consumer Sentiment Index (Final) – January
Thought for the Day
“To appreciate the beauty of a snowflake, it is necessary to stand out in the cold.” ~ Anonymous
Disclosures
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
