Markets Today: Stock Indexes Climb on Strength in Alphabet and Netflix

Rich Asplund - Barchart - Fri Jan 20, 2023

Morning Markets

March S&P 500 futures (ESH23) this morning are up +0.15%, and March Nasdaq 100 E-Mini futures (NQH23) are up +0.55%.

U.S. stock index futures this morning are moderately higher on strength in technology stocks and some positive quarterly corporate earnings results. However, gains in stock index futures are limited after hawkish central bank comments pushed global bond yields higher.

Positive corporate news today is supporting stocks, with Netflix up more than +5% in pre-market trading after reporting a larger-than-expected increase in paid streaming customers. Also, Alphabet is up more than +1% after saying it plans to cut around 12,000 jobs or more than 6% of its global workforce. In addition, PPG Industries, Schlumberger, and State Street are all up more than +1% after reporting better-than-expected quarterly earnings.

On the negative side for stocks, Nordstrom is down more than -5% in pre-market trading after reporting weak holiday sales and cutting its full-year EPS forecast. Also, Eli Lilly is down more than -2% after it failed to get early approval from the FDA for its Alzheimer’s treatment donanemab.

Another negative for stocks is higher global bond yields. The 10-year T-note yield this morning is up +4.5 bp at 3.437%. Also, the 10-year German bund yield is up +7.8 bp to 2.143% after ECB President Lagarde said the ECB will stay the course in raising interest rates even as inflation has weakened.

Stocks are being undercut by concern that higher interest rates are already starting to impact the economy and corporate profitability. Of the 55 S&P 500 companies that have reported quarterly earnings results thus far, only 66% have beaten analysts' estimates, compared with the 80% average seen over the past several quarters.

Overseas markets are higher. The Euro Stoxx 50 index is up +0.58%. The Shanghai Composite Stock index today closed +0.76%, and Japan’s Nikkei Stock index closed up +0.56%.

European stocks are climbing today on optimism about China’s reopening and the avoidance of an energy crisis in Europe due to mild winter weather. Investors have been putting money into European stocks after Bank of America said EPFR Global data showed European equity funds recorded their first inflows in 49 weeks in the week through Jan 18. However, hawkish comments today from ECB President Lagarde pushed up bond yields and were negative for stocks when she said the ECB would stay the course in raising interest rates even as inflation has eased. The 10-year German bund yield is up +7.8 bp at 2.143%.

The German Dec PPI eased to 21.6% y/y from 28.2% y/y in Nov, stronger than expectations of +20.7% y/y.

ECB President Lagarde said, "stay on course is her mantra for monetary-policy purposes," even as the spike in prices appears to have peaked. Her comments suggest she is against slowing the pace of ECB interest rate hikes.

China’s Shanghai Composite rallied today to a 4-month high, led by a rally in consumer stocks and financials, on optimism that the reopening of the economy and pro-growth government policies will revive growth. Chinese markets will be closed next week for the week-long Lunar New Year holidays. According to Bloomberg data, global funds were net buyers of shares listed in Shanghai and Shenzhen for a 13th straight day on Friday, the longest such streak since May 2020.

Morgan Stanley said investor sentiment on mainland China stocks had moved lower ahead of the Lunar New Year, but any correction is a dip-buying opportunity as the economic outlook and government policies remain supportive of an ongoing rally.

Japan’s Nikkei Stock Index today posted moderate gains, led by a rally in exporter stocks after the yen tumbled on dovish comments from BOJ Governor Kuroda, who said the BOJ "will continue" its expansionary policy. The yen weakened even after Japanese price data showed consumer prices rose at the fastest pace in 40 years.

Japan's Dec national CPI ex-fresh food rose +4.0% y/y, right on expectations and the largest increase in 41 years. Also, the Japan Dec national CPI ex-fresh food and energy rose +3.0% y/y, the largest increase in 31 years but slightly below expectations of +3.1% y/y.

Pre-Market U.S. Stock Movers

Alphabet (GOOGL) rose more than +1% in pre-market trading after the company said that it plans to cut around 12,000 jobs or more than 6% of its global workforce.

Netflix (NFLX) jumped more than +5% after reporting 230.75 million streaming paid memberships in Q4, above the consensus of 227.3 million.

PPG Industries (PPG) rose down more than +2% in pre-market trading after reporting Q4 net sales of $4.19 billion, stronger than the consensus of $4.13 billion.

Schlumberger (SLB) is up more than +1% in pre-market trading after reporting Q4 revenue of $7.88 billion, better than the consensus of $7.81 billion.

State Street (STT) rose more than +1% in pre-market trading after reporting Q4 adjusted EPS of $2.07, above the consensus of $1.97.

Nordstrom (JWN) tumbled more than -5% in pre-market trading after reporting net sales fell -3.5% y/y in the nine weeks ended Dec 31 and lowering its full-year adjusted EPS forecast to $1.50-$1.70 from a prior forecast of $2.30 to $2.60, well below the consensus of $2.39.

Eli Lilly (LLY) fell more than -2% in pre-market trading after it failed to get early approval from the FDA for its Alzheimer’s treatment donanemab.

Salesforce (CRM) slid more than -1% in pre-market trading after Cowen downgraded the stock to market perform from outperform.

Today’s U.S. Earnings Reports (1/20/2023)

Huntington Bancshares Inc/OH (HBAN), Regions Financial Corp (RF), Schlumberger Ltd (SLB), State Street Corp (STT).

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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.