Today’s Big Picture
Asia-Pacific equity markets closed the day mixed. Hong Kong’s Seng fell 1.36% on a broad market decline led by Non-Energy Materials, and China’s Shanghai Composite declined 0.68%. Taiwan’s TAIEX was essentially flat, gaining a mere 0.05% while Japan’s Nikkei rose 0.39%, South Korea’s KOSPI gained 0.47%, and Australia’s ASX All Ordinaries closed 0.56% higher. India’s Sensex jumped 1.52% led by banking stocks. By mid-day trading, major European equity indices are down across the board, and U.S. futures point to a tough market open.
After moving considerably higher over the last few weeks, the barrage of earnings reports last night, including those from Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), and Starbucks (SBUX) offered a sober look at the pace of China’s expected reopening, business spending and the slowing macro environment.
Before the morning is over, we will receive several more pieces of key January data, including the Employment Report and dueling looks at the Services economy courtesy of S&P Global (SPGI) and the Institute for Supply Management. These reports round out a busy very busy week of earnings and economic data, but what they say will shape expectations for the speed of the economy and reveal if there is any relief in what Fed Chair Powell continues to call a tight labor market. Following the Fed hinting earlier this week that there are “a couple of rate hikes” still to go, the wage inflation data in the January Employment Report isn’t likely to get passed over. What the combination of these reports says will have a strong hand in how we close out what so far looks to be another positive week for equities.
The au Jibun Bank Japan Services PMI was revised lower to 52.3 in January from preliminary estimates of 52.4 but pointed to a brisker pace of expansion compared to December’s 51.1 reading.
The Caixin China General Services PMI increased to 52.9 in January vs. 48.0 in December marking the first reading above 60 since August. The rebound was attributed to the recent rollback of pandemic curbs and the faster-than-expected peaking of infections. The modest upturn in new orders found in the data was supported by higher customer numbers, with new export business rising the most in 21 months.
The S&P Global Eurozone Services PMI came in at 50.8 in January 2023, little changed from a preliminary estimate of 50.7 and above the previous month’s 49.8, pointing to the first month of expansion in the sector since July 2022. New business volumes stabilized following six months of decline, while employment growth picked up to the fastest since last October. Input cost inflation eased to a 13-month low.
The S&P Global/CIPS UK Services PMI was revised higher to 48.7 in January from the preliminary reading of 48, but was still below December’s 49.9 figure, keeping that aspect of the economy in contraction mode for the fourth consecutive month.
At 8:30 AM ET, the January Employment Report will be released and it is expected to show 185K nonfarm jobs created during the month vs. 223K in December. The Unemployment Rate is expected to inch up to 3.6% from 3.5% the prior month while average hourly earnings are thought to fall to +4.3% YoY from +4.6% in December.
After the market opens, at 9:45 AM ET, S&P Global will publish its final January Service PMI data and the headline figure is thought to rebound to 46.6 from 44.7 in December. Then at 10:00 AM ET, the ISM Non-Manufacturing PMI will be shared and the consensus view has it climbing to 50.4 from December’s 49.6 reading.
Yesterday saw the extension of a pattern of “new economy” stocks surging ahead while “old economy” names remained sluggish. The Dow fell 0.11% while the S&P 500 gained 1.47%, Russell 2000 rose 2.06%, and the Nasdaq Composite closed 3.25% higher. That was how the markets ended yesterday, before Apple and Amazon announced earnings (more below) and traded off after hours. Pre-market action in AAPL is showing the name down roughly 3.20% and AMZN is currently trading 4.80% off of yesterday’s close. We expect to see a pretty big ripple effect run through the markets today.
Here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: 2.74%
- S&P 500: 8.86%
- Nasdaq Composite: 16.57%
- Russell 2000: 13.63%
- Bitcoin (BTC-USD): 41.55%
- Ether (ETH-USD): 37.31%
Stocks to Watch
Before trading kicks off for U.S.-listed equities, Brookfield Renewable Partners (BEP), Cboe Global Markets (CBOE), Church & Dwight (CHD), Regeneron Pharma (REGN), and Zimmer Biomet (ZBH) will be among the companies reporting their quarterly results.
Apple delivered a rare quarterly earnings miss last night for both its top and bottom line. Revenue for the December quarter fell 5.5% YoY to 117.15 billion and while the company didn’t offer specific guidance for the current quarter, Apple shared it sees similar top-line results for the current quarter vs. the $95.7 billion consensus. iPhone revenue for the December quarter rose modestly YoY to $65.8 billion but fell short of the $69 billion expectations. CEO Tim Cook commented sales would have increased without foreign exchange impact and said production delays in China were a big headwind during the quarter but added “that problem is behind us.” Cook also shared Apple is cutting costs and hiring, and that the economic environment is more challenging than 12 months ago.
Alphabet also missed top and bottom line consensus expectations for its December quarter. Year over year declines in Google Advertising and YouTube ad revenue were mitigated by gains in Google Cloud, which clocked in at $7.3 billion for the quarter or just under 10% of total revenue. DeepMind, previously reported within Other Bets, will be reported as part of Alphabet’s corporate costs, reflecting its increasing collaboration with Google Services, Google Cloud, and Other Bets. CEO Sundar Pichai shared that the company is “on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet.”
Amazon reported stronger than expected revenue for its December quarter, up 8.6% YoY to $149.2 billion vs. the $145.7 billion consensus. Continued rapid growth in advertising revenue and strong North American sales overcame softer than expected revenue from Amazon Web Services, which rose 20.2% YoY to $21.38 billion vs. the $21.76 billion consensus forecast. For the current quarter, Amazon is forecasting revenue of $121-$126 billion vs. the $125.13 billion consensus. The company shared clients are evaluating ways to optimize cloud spending, and expects this to be a headwind to growth at Amazon Web Services for at least the next couple of quarters.
December quarter results at Ford (F) were mixed with its top line rising 18.4% YoY to $41.8 billion, beating the $40.7 billion consensus, but its bottom line came in at $0.51 per share vs. the $0.62 consensus. The company targets profits of $9-$11 billion this year vs. $10.4 billion in 2022, which fell short of the company’s $11.5 billion target. Weighing on that 2022 performance, its European operation was slightly above breakeven and its China business reported a loss of $600 million. Those factors offset the $1.8 billion profit increase for its North American business to $9.2 billion. In addition to declaring its next regular quarterly dividend of $0.15 per share, Ford also announced a supplemental dividend of $0.65 per share.
Starbucks (SBUX) also came up short relative to expectations for its December quarter. Global comparable store sales increased 5%, primarily driven by a 7% increase in average ticket, partially offset by a 2% decline in comparable transactions for North America. Overall comparable sales in North America increased 10% vs. the 7.6% consensus, driven by a 9% increase in average ticket. China comparable store sales decreased 29% vs. the -13% consensus forecast, driven by a 28% decline in comparable transactions and a 1% decline in average ticket. In January, China’s comps declined roughly -15% vs. -42% in December. While it is seeing early positive signs of momentum rebuilding, the company said headwinds related to COVID still exist in the market and are expected to impact its current quarter. Starbucks previously projected a recovery in its China business as early as its June quarter but shared it does not have a clear line of sight into the timing of that recovery and now believes China’s profit contribution will be lower than previously expected.
Shared of Nordstrom (JWN) gapped higher in after-hours trading following reports activist investor Ryan Cohen has taken a large stake in the department store chain and wants board changes.
Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.
After Today’s Market Close
Take a deep breath folks, we made it yet again to Friday! As such, there are no companies expected to report their latest quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.
On the Horizon
Monday, February 6
- Germany: Factory Orders – December
- Eurozone: Sentix Investor Confidence – February
- Eurozone: Retail Sales – December
Tuesday, February 7
- Japan: Leading Indicators – December
- Germany: Industrial Production – December
- US: Consumer Credit – December
Wednesday, February 8
- Japan: Economy Watchers Index – January
- US: Weekly MBA Mortgage Applications
- US: Wholesale Inventories – December
- US: Weekly EIA Crude Oil Inventories
- Thursday, February 9
- US: Weekly Initial & Continuing Jobless Claims
- US: Weekly EIA Natural Gas Inventories
Friday, February 10
- Japan: Producer Price Index – Japan
- China: Consumer Price Index, Producer Price Index – January
- Germany: Consumer Price Index – January
- US: University of Michigan Consumer Sentiment (Preliminary) – January
- US: Treasury Budget – January
Thought for the Day
“The more we trust, the farther we are able to venture.” ~ Esther Perel
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.