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Stocks Climb as U.S. Labor Costs Ease

Barchart - Tue Jan 31, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.40%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.60%.

U.S. stock index futures this morning shook off overnight losses and are moderately higher.  An easing of U.S. wage pressures knocked bond yields lower and boosted stocks after this morning’s report on the U.S. Q4 employment cost index rose +1.0% q/q, weaker than expectations of +1.1% q/q and the slowest pace of increase in a year. Other U.S. economic reports this morning were mixed for stocks.

Expectations are for the Fed on Wednesday to increase the fed funds target range by 25 bp to 4.50%-4.75%, slowing from last month’s 50 bp rate increase and November’s 75 bp rate hike.  The markets will also scour Wednesday’s post-FOMC meeting comments from Fed Chair Powell to see if he will push back against market expectations of easier monetary policy later this year.

Positive corporate news today is also giving the overall market a boost after AO Smith jumped more than +7% after reporting stronger-than-expected 2023 adjusted EPS.  Also, General Motors is up more than +7% after reporting stronger-than-expected Q4 adjusted EPS and forecasting better-than-expected 2023 adjusted EPS.  In addition, UPS is up more than +3% after reporting better-than-expected Q4 adjusted EPS, and International Paper is up more than 6% after reporting better-than-expected Q4 adjusted operating EPS.

Negative corporate news is limiting gains in the overall market. Caterpillar is down more than -4% after reporting weaker than expected Q4 adjusted EPS, and McDonald’s is down more than -2% after reporting weaker than expected Q4 and full-year operating margins. 

Stock indexes in overnight trade initially retreated as a slide in semiconductor stocks in pre-market trading led technology stocks lower. Samsung Electronics said it expected the smartphone market to contract in 2023, and NXP Semiconductors forecasted Q1 revenue of $2.90 billion to $3.10 billion, weaker than the consensus of $3.16 billion.

The International Monetary Fund (IMF) revised its 2023 GDP estimate up by +0.2 to 2.8% from a 2.7% estimate in October, citing resilient U.S. consumer spending and China's reopening.

The U.S. Nov S&P CoreLogic composite-20 home price index rose +6.77% y/y, slightly weaker than expectations of +6.80% y/y and the smallest pace of increase in 2 years.

The U.S. Jan MNI Chicago PMI unexpectedly fell -0.8 to 44.3, weaker than expectations of an increase to 45.0.

The Conference Board U.S. Jan consumer confidence index unexpectedly fell -1.9 to 107.1, weaker than expectations of an increase to 109.0.

Today’s stock movers…

AO Smith (AOS) is up more than +7% today to lead gainers in the S&P 500 after forecasting 2023 adjusted EPS of $3.15 to $3.45, the midpoint well above the consensus of $3.17.

PulteGroup (PHM) is up more than +7% after reporting Q4 revenue of $5.17 billion, well above the consensus of $4.60 billion.

International Paper (IP) is up more than +6% after reporting Q4 adjusted operating EPS of 87 cents, above the consensus of 69 cents. 

Regeneron Pharmaceuticals (REGN) is up more than +2% to lead gainers in the Nasdaq 100 after Cowen on Monday upgraded the stock to outperform from market perform.  

General Motors (GM) is up more than +7% after reporting Q4 adjusted EPS of $2.12, stronger than the consensus of $1.67, and forecasting 2023 adjusted EPS of $6.00-$7.00, above the consensus of $5.70.

United Parcel Service (UPS) is up more than +3% after reporting Q4 adjusted EPS of 3.62, better than the consensus of $3.58.

Pentair PLC (PNR) is up more than +5% after reporting Q4 net sales of $1.0 billion, stronger than the consensus of $998.9 million and forecasting 2023 adjusted EPS of $3.50-$3.70, the midpoint above the consensus of $3.54.  

Philips 66 (PSX) is down more than -5% to lead losers in the S&P 500 after reporting Q4 adjusted EPS of $4.00, weaker than the consensus of $4.35.

Corning (GLW) is down more than -4% after forecasting Q1 core sales of $3.20 billion-$3.40 billion, well below the consensus of $3.56 billion.  

Caterpillar (CAT) is down more than -4% to lead losers in the Dow Jones Industrials after reporting Q4 adjusted EPS of $3.86, weaker than the consensus of $3.97.

McDonald’s (MCD) is down more than -2% after reporting Q4 operating margin of 43.6%, below the consensus of 45.45%, and forecasting 2023 operating margin of 45%, weaker than the consensus of 46.5%.

Sysco (SYY) is down more than -2% after reporting Q2 adjusted EPS of 80 cents, weaker than the consensus of 85 cents.

Across the markets…

March 10-year T-notes (ZNH23) today are up +4 ticks, and the 10-year T-note yield is down -1.3 bp at 3.524%.  Mar T-notes this morning are moderately higher on signs of slower wage pressures after the U.S. Q4 employment index rose less than expected.  A decline in German bund yields today is also providing carry-over support to T-notes, with the 10-year German bund yield down -2.7 bp at 2.291%.  However, t-notes fell back from their best level as strength in stocks curbed safe-haven demand for T-notes.

The dollar index (DXY00) today is down by -0.03%.  The dollar today fell back from a 1-1/2 week high and is slightly lower.  Weaker-than-expected U.S. economic news today on the Q4 employment cost index, the Jan MNI Chicago PMI, and Jan consumer confidence were dovish for Fed policy and undercut the dollar.  Also, strength in stocks today has curbed liquidity demand for the dollar.  In addition, expectations for the Fed to slow its pace of rate hikes for a second straight meeting Wednesday weighs on the dollar.  The FOMC is expected to announce a 25 bp increase in the fed funds target range on Wednesday, down from a 50 bp rate hike last month and a 75 bp rate hike in November.

EUR/USD (^EURUSD) today is up +0.04%.  The euro today recovered from a 1-1/2 week low and is slightly higher on a weaker dollar.  Also, today’s economic reports that showed an unexpected expansion in Eurozone Q4 GDP and an unexpected decline in German Jan unemployment are bullish for EUR/USD.  Gains in the euro were limited after today’s economic news showed the German Dec retail sales and France's Dec consumer spending fell more than expected. 

Eurozone Q4 GDP rose +0.1% q/q and +1.9%y/y, stronger than expectations of -0.1% q/q and +1.7% y/y.

German Dec retail sales fell -5.3% m/m, weaker than expectations of -0.2% m/m and the steepest decline in 17 months.

German Jan unemployment unexpectedly fell -22,000, the biggest decline in 11 months, and a stronger labor market than expectations of a +5,000 increase.

France Dec consumer spending unexpectedly fell -1.3% m/m, weaker than expectations of +0.3% m/m.

USD/JPY (^USDJPY) today is down by -0.43%.  The yen is moderately higher today on a decline in T-note yields. Also, stronger-than-expected Japanese economic reports today on Jan consumer confidence, Dec industrial production, and Dec retail sales were bullish for the yen.

The Japan Jan consumer confidence index rose +0.7 to a 5-month high of 31.0, stronger than expectations of 30.5.

Japan Dec industrial production fell -0.1% m/m, stronger than expectations of -1.0% m/m.

Japan Dec retail sales rose +1.1% m/m, stronger than expectations of +0.7% m/m. 

February gold (GCG3) this morning is up +1.0 (+0.05%), and March silver (SIH23) is down -0.03 (-0.01%).  Precious metals prices this morning are little changed.  A weaker dollar and lower global bond yields today support metals prices. Also, expectations that the Fed will slow its pace of interest rate hikes to 25 bp after Wednesday’s 2-day FOMC meeting is supportive for metals.  However, strength in stocks today has reduced the safe-haven demand for precious metals. 



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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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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