Markets Today: Tech Earnings Weigh on Stocks as FOMC Results Awaited

Rich Asplund - Barchart - Wed Jan 31, 8:10AM CST

Morning Markets

March E-Mini S&P 500 futures (ESH24) are down -0.46%, and March Nasdaq 100 E-Mini futures (NQH24) are down -0.96%.

Stock index futures this morning are moderately lower on weakness in technology stocks after earnings results from Alphabet, Advanced Micro Devices, and Microsoft failed to live up to lofty expectations. Stock index futures recovered from their worst levels as bond yields fell after the Jan ADP report showed companies added fewer jobs than expected and the Q4 employment cost index rose less than expected.

On the negative side, Alphabet is down more than -5% in pre-market trading after reporting Q4 Google ad revenue below consensus. Also, Advanced Micro Devices is down more than -4% after forecasting Q1 revenue below consensus.

On the positive side, Paramount Global surged more than +16% in pre-market trading after Bloomberg reported that Byron Allen had made a $14.3 billion offer to buy all the company's outstanding shares. Also, Boston Scientific is up more than +3% after reporting stronger-than-expected Q4 net sales.

The Federal Reserve is expected to hold monetary policy steady after the conclusion of today’s 2-day FOMC meeting. However, investors will scour post-FOMC meeting comments from Fed Chair Powell for clues on the Fed’s policy outlook.

The U.S. Jan ADP employment change rose +107,000, weaker than expectations of +150,000.

The U.S. Q4 employment cost index rose +0.9% q/q, weaker than expectations of +1.0% q/q and the smallest increase in 2-1/2 years.

The Treasury today announced that it will sell $121 billion of T-notes and T-bonds in the February quarterly refunding, right on expectations. The Treasury said it does not anticipate the need to boost auction sizes "for at least the next several quarters."

The markets are discounting the chances for a -25 bp rate cut at 2% at today’s FOMC meeting and 52% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are lower. The 10-year T-note yield fell to a 2-week low of 3.988% and is down -2.5 bp at 4.001%. The 10-year German bund yield fell to a 2-1/2 week low of 2.189% and is down -3.8 bp at 2.230%. The 10-year UK gilt yield fell to a 2-week low of 3.838% and is down -3.1 bp at 3.869%.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.10%. China’s Shanghai Composite Index closed down -1.48%. Japan’s Nikkei Stock Index closed up +0.61%.

The Euro Stoxx 50 recovered from early losses and posted a new 23-year high. Stocks recovered as price pressures eased in Germany and knocked bund yields lower. The 10-year German bund yield dropped to a 2-1/2 week low today after German Jan CPI rose less than expected. Earlier today, stocks moved slightly lower on economic concerns after German retail sales unexpectedly declined in December. Today’s European corporate news was mixed. Retailer stocks declined, led by a -10% fall in Hennes & Mauritz AB, after the retailer missed profit estimates and its CEO stepped down. On the positive side, Novo Nordisk A/S climbed more than +4% after it projected sales and profit will surge again this year due to its obesity shot Wegovy.

German Jan CPI (EU harmonized) eased to +3.1% y/y from +3.8% y/y in December, better than expectations of +3.2% y/y.

The German Jan unemployment change unexpectedly fell -2,000, showing a stronger labor market than expectations of an increase of +11.000. The Jan unemployment rate was unchanged at 5.8%, a stronger labor market than expectations of 5.9%.

German Dec retail sales unexpectedly fell -1.6% m/m, weaker than expectations of a +0.6% m/m increase.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 19% for its next meeting on March 7 and at 89% at the following meeting on April 11.

China’s Shanghai Composite Index today retreated for a fourth session. Chinese stocks fell on concern that authorities are not doing enough to counter a deteriorating economic outlook and a multi-year property crisis. China’s economic outlook appears to be worsening after today’s news showed the China Jan manufacturing PMI contracted for a fourth month. Property developers retreated for a third day after the liquidation of debt-ridden China Evergrande Group, once China’s largest property developer. Also, Chinese lithium stocks and battery makers fell after two of the biggest players in the sector warned about the health of the battery metal business. On the positive side, activity in China’s service sector strengthened after the Jan non-manufacturing PMI rose more than expected.

The China Jan manufacturing PMI rose +0.2 to 49.2, weaker than expectations of 49.3. The Jan non-manufacturing PMI rose +0.3 to a 4-month high of 50.7, stronger than expectations of 50.6.

Japan’s Nikkei Stock Index today recovered from early losses and posted moderate gains. Japanese stocks initially moved lower as technology stocks retreated on negative carryover from a slide in Alphabet, Advanced Micro Devices, and Microsoft in after-hours trading Tuesday when they failed to show the large benefits from AI that had been built into their stock prices. Also, a jump in government bond yields today initially weighed on stocks after a hawkish summary of the BOJ’s Jan 22-23 policy meeting pushed the 10-year JGB bond yield up to a 1-1/2 month high of 0.753%.

However, stocks reversed and moved higher, led by a rally in banks and financial stocks on optimism their earnings would improve once the BOJ exits its negative policy rate. Also, positive corporate news lifted the overall market as Komatsu rose more than +6% after reporting Q3 operating income above consensus, and Canon jumped more than +5% after reporting stronger-than-expected Q4 operating income and raised its dividend and announced a share buyback.

The Japan Jan consumer confidence index rose +0.8 to a 2-year high of 38.0, stronger than expectations of 37.5.

Japan Dec industrial production rose +1.8% m/m, weaker than expectations of +2.5% m/m.

Japan Dec retail sales unexpectedly fell -2.9% m/m, weaker than expectations of +0.2% m/m and the largest decline in 3-1/2 years.

The summary of the BOJ's Jan 22-23 policy meeting stated policymakers were getting closer to raising interest rates for the first time since 2007. One BOJ member said, "It seems that conditions for policy revision, including the termination of the negative interest rate policy, are being met."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 29% for its next meeting on March 19 and at 75% for the following meeting on April 26.

Pre-market U.S. Stock Movers

Alphabet (GOOGL) tumbled more than -5% in pre-market trading after reporting Q4 Google ad revenue of $65.52 billion, below the consensus of $65.80 billion.

Advanced Micro Devices (AMD) dropped more than -4% in pre-market trading after forecasting Q1 revenue of $5.10 billion-$5.70 billion, weaker than the consensus of $5.77 billion.

Tesla (TSLA) fell more than -2% in pre-market trading after a Delaware judge struck down CEO Musk’s $55 billion pay package.

Mondelez International (MDLZ) dropped more than -4% in pre-market trading after forecasting full-year organic net revenue up +3% to +5%, weaker than the consensus of up +6.6%.

Rockwell Automation (ROK) tumbled more than -7% in pre-market trading after reporting a Q1 adjusted EPS of $2.04, well below the consensus of $2.66, and cut its full-year EPS forecast to $11.24-$12.74 from a prior view of $11.49-$12.99.

Teradyne (TER) dropped more than -7% in pre-market trading after reporting Q4 net revenue of $670.6 million, below the consensus of $676.1 million, and forecasting Q1 revenue of $540 million-$590 million, weaker than the consensus of $624.3 million.

Verizon Communications (VZ) slid more than -1% in pre-market trading after Barclays downgraded the stock to equal weight from overweight.

Paramount Global (PARA) surged more than +16% in pre-market trading after Bloomberg reported that Byron Allen had made a $14.3 billion offer to buy all of the company's outstanding shares.

Stryker (SYK) jumped more than +4% in pre-market trading after reporting Q4 adjusted EPS of $3.46, better than the consensus of $3.27, and forecast full-year adjusted EPS of $11.70-$12.00, stronger than the consensus of $11.56.

Boston Scientific (BSX) climbed more than +3% in pre-market trading after reporting Q4 net sales of $3.73 billion, above the consensus of $3.59 billion.

Starbucks (SBUX) rose more than +3% in pre-market trading despite reporting weaker-than-expected Q1 sales after company executives maintained their outlook for EPS to grow 15% to 20% this year.

Chubb (CB) climbed more than +3% in pre-market trading after reporting Q4 core operating EPS of $5.54, stronger than the consensus of $5.10.

Skyworks Solutions (SWKS) rose more than +3% in pre-market trading after reporting Q1 adjusted EPS of $1.97, above the consensus of $1.96.

Earnings Reports (1/31/2024)

Aflac Inc (AFL), Align Technology Inc (ALGN), Aptiv PLC (APTV), Automatic Data Processing Inc (ADP), AvalonBay Communities Inc (AVB), Avery Dennison Corp (AVY), Boeing Co/The (BA), Boston Scientific Corp (BSX), Cencora Inc (COR), CH Robinson Worldwide Inc (CHRW), Corteva Inc (CTVA), Fortive Corp (FTV), Hess Corp (HES), MarketAxess Holdings Inc (MKTX), Mastercard Inc (MA), MetLife Inc (MET), Nasdaq Inc (NDAQ), Old Dominion Freight Line Inc (ODFL), Otis Worldwide Corp (OTIS), Phillips 66 (PSX), PTC Inc (PTC), Qorvo Inc (QRVO), QUALCOMM Inc (QCOM), Rockwell Automation Inc (ROK),

Roper Technologies Inc (ROP), Thermo Fisher Scientific Inc (TMO).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.