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Main U.S. indexes turn lower in afternoon trading
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Comm svcs weakest S&P 500 sector; tech, cons disc gain
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Dollar, crude, gold, bitcoin all decline
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U.S. 10-Year Treasury yield ~flat at ~3.65%
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WEAK EPS TRENDS, HIGHER MULTIPLES? (1345 EST/1845 GMT)
U.S. earnings forecasts have been falling, but that might be
OK for stock multiples, according to Jonathan Golub, chief U.S.
equity strategist & head of quantitative research at Credit
Suisse Securities.
Golub writes in a note Thursday that investors often assume
valuations will decline when earnings contract.
But, he says that since 1997, earnings-per-share estimates
have fallen in only seven calendar years, while in six of these
periods, price-to-earnings multiples ended the year higher.
In years with rising EPS estimates, multiples tended to
contract, he adds.
"While this might seem counter-intuitive, the data indicates
that the damage to returns from falling profits tends to be
mitigated/offset by improvement in valuations, and vice-versa,"
Golub writes.
More than halfway through the reporting period,
fourth-quarter 2022 earnings for S&P 500 companies still are
estimated to have declined year-over-year, and S&P 500 earnings
now are expected to fall year-over-year in the first and second
quarters of this year, according to IBES data from Refinitiv.
(Caroline Valetkevitch)
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FOOTBALL, FLOWERS, AND THE FED (1215 EST/1715 GMT) The National Retail Federation’s (NRF) annual consumer spending surveys for Super Bowl-related get-togethers and the Valentine’s Day holiday, may provide some insight into the state of the consumer and, therefore, may have some implications for how the Fed's hiking path plays out. At least, that's how Jessica Rabe, co-founder of DataTrek Research, sees it.
Rabe notes that December’s U.S. advanced retail sales report
was disappointing, so these two very different upcoming events
could provide a read into how consumers are approaching
discretionary spending early in 2023.
Some highlights from the NRF surveys Rabe relates are:
-Super Bowl (this coming Sunday): Total spending on food,
drinks, apparel, decorations and other purchases for Super
Bowl-related events is expected up 13% year-over-year (yr/yr) at
$16.5 billion. That’s a 4.1% decline from the record high of
$17.2 billion in 2020.
-Valentine’s Day (less than a week away): Overall, U.S.
consumers are expected to spend $25.9 billion on Valentine’s Day
this year, up 8.4% yr/yr. That’s down 5.5% from the all-time
high of $27.4 billion in 2020.
Despite the Fed hiking rates many times over the last year
to reduce inflation, Rabe notes that expected spending on the
big game and the holiday are at their second-highest levels
since the surveys started, which is likely a function of a
still-strong U.S. labor market and robust wage growth.
"Overall, these surveys speak to the tension markets face in
considering the Fed's path forward for monetary policy,
balancing hopes of a modest decline in aggregate demand to
reduce inflation with the desire to see consumer
spending/corporate earnings power hold up. Low single digit
comps fit that bill."
(Terence Gabriel)
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AI: HOT OR NOT? (1105 EST/1605 GMT)
Financial markets have seen a few frenzied rallies in recent memory, ranging from blockchain to meme stocks to cannabis, and now artificial intelligence, but some may argue otherwise.
This week, Microsoft announced it will pack its Bing search engine and Edge Web browser with AI, a direct threat to Alphabet's Google, whose own AI chatbot Bard wasn't as well received after it put out inaccurate information in a promotional video.
Shares of Microsoft have risen nearly 7% since its AI announcement, while Alphabet eyed its worst weekly performance since November.
Morgan Stanley says this AI hype is worth considering seriously, highlighting the startup OpenAI's chatbot sensation, ChatGPT, as the fastest platform to a million users and fastest to 100 million site views.
Hence, MS says generative AI is a serious contender that could have real market impact potential this year, arguing that its possible integration can be felt across industries.
So what are the skeptics saying?
"Investors should be wary of the AI-driven stock market rally so far this year," David Trainer, CEO of New Constructs noted.
Trainer warned of getting too carried away by tech companies pushing unproven technology like artificial intelligence, especially at a time when stock markets have been way too hopeful about a pivot in the Federal Reserve's policy.
"The worries that rattled markets last year are still with us," said Trainer, pointing to high inflation and any signs of the Fed pausing its rate hikes.
All in all, there are still too many profitless tech stocks,
crypto investments and other reckless speculative assets,
according to Trainer, which mirrors a similar reckless investing
behavior from 2021 where investors purchased profitless
companies without doing their due diligence.
(Shreyashi Sanyal)
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U.S. STOCKS RISE EARLY AS TECH REBOUNDS (1005 EST/1505 GMT)
Major U.S. stock indexes are higher in early trading
Thursday, led by gains in technology-related names.
Microsoft , Apple and Nvidia are
among stocks giving the most support to the S&P 500 .
Also, shares of Walt Disney are up more than 3%
after the company late Wednesday announced a sweeping
restructuring under recently reinstated CEO Bob Iger. It also
released quarterly earnings that topped Wall Street estimates.
Tech-focused names led a selloff in equities on Wednesday.
Investors also digested data showing a rise in weekly U.S.
jobless claims. Friday's surprisingly strong monthly jobs report
sparked concern about more aggressive actions from the Federal
Reserve to tame inflation.
Here is the morning market snapshot:
(Caroline Valetkevitch)
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TESLA SHARES SET TO DOUBLE FROM JAN LOWS (0908 EST/1408 GMT)
Tesla stock is up about 3% at $207 minutes before
the market open, alongside a surge in other high growth and tech
firms as U.S. Treasury yields are retreating.
Shares of the largest EV maker are set to rise for the
eighth session in a row, their longest winning streak since July
2022.
A flurry of good news has helped Tesla shares recently.
Among those were strong China car sales, a U.S. jury finding CEO
Elon Musk & Co not liable for misleading investors for his
take-private for $420/shr tweet in 2018, a $1,000 price hike of
Model Y after U.S. government made more EVs eligible for tax
credits.
Perhaps the most crucial was evidence that the aggressive
price-cuts on its best-selling models had re-ignited demand.
Tesla is also drawing unprecedented retail inflows, Vanda
Research said. This week Tesla alone attracted a 24% and 33%
share of single-stock and overall net purchases across all U.S.
securities, the analytics team added.
All eyes are now on Musk's reveal of the third part of the
electric vehicle (EV) maker's "Master Plan" at the company's
first investor day on March 1.
"One of the concerns has been around cyber truck and it
really doesn't seem to be moving forward so we hope to hear more
about that.. Or more on the commercial truck," said Brian
Mulberry, client portfolio manager at Zacks Investment
Management, an investor in Tesla.
"That's our expectation but you can't discount how Elon can surprise with something radically new."
A U.S. safety board said Wednesday found no evidence a Tesla
Model S was operating on Autopilot during an April 2021 fatal
crash, saying the probable cause was the driver's speeding,
alcohol impairment and failure to control the vehicle
If premarket gains hold, the stock will nearly double in
value from a 2-1/2 year low hit on Jan. 6. To be sure, Tesla
shares are still down about 75% from its all-time high of $414.5
hit in October 2021.
(Medha Singh)
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BITCOIN: READY FOR ANOTHER RUMBLE? (0900 EST/1400 GMT)
Early in the new year, it appeared something big was brewing
on the bitcoin chart. A similar setup may once again developing:
Indeed, on January 4, using Refinitiv data back to 2014,
bitcoin's daily Bollinger Band (BB) width, a historical
volatility measure, collapsed to 0.027, or its lowest reading
ever.
Low BB width does not in itself predict direction, but it
can indicate a market especially ripe for much more spirited
action, or its next significant trend.
From January 4, bitcoin surged as much as 44% into its Feb 2
high, while the Nasdaq Composite advanced more than 17%
into its Feb 2 high. Both BTC= and the IXIC have seen modest
pull backs since those highs.
With this, bitcoin's daily BB width has now collapsed again
to around 0.056, which is not as tight as in early January, but
still a respectably low reading.
Currently, bitcoin resides around $22,750 which puts its
below its 20-day moving average (DMA) around $23,135, suggesting
a weakening stance. A close below the lower daily BB, now just
shy of $22,500, will have the potential to spark another sharp
band-width rise, leading to a renewed slide.
Reclaiming the 20-DMA, can tilt back toward an upside
breakout. A close above the upper daily BB, now just shy of
$23,800, will have potential to also spark a sharp band-width
rise, and kickoff another advance.
In late January-early February, bitcoin's rolling 10-week
correlation with the Nasdaq hit 0.89 (1.00 is a perfect
positive correlation). Even though it has since weakened to
0.69, stock traders may want to keep a close eye on how bitcoin
resolves its current range, as it could signal another risk-on
charge, or bout of panic.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
