The S&P 500 is rising after falling the past four sessions as equites have shown some volatility amid festering uncertainty regarding the ultimate economic impact of aggressive global central bank tightening. The markets are higher even as yesterday's minutes from the Fed's February monetary policy meeting suggested the Central Bank may need to continue its rate hike campaign to try to tame inflation. In economic news, jobless claims came in below expectations, and Q4 GDP growth was unexpectedly revised lower and the inflation components came in well above estimates. Treasury yields have turned modestly lower in choppy trading and the U.S. dollar is dipping, while crude oil prices are stabilizing after a string of losses and gold is moving to the downside. Q4 earnings season continues down the home stretch, with Nvidia Corporation rallying after topping estimates and offering upbeat Q1 revenue guidance. Elsewhere, eBay matched earnings forecasts but its outlook is garnering scrutiny, and Domino's Pizza is falling after missing revenue forecasts and adjusting its guidance lower. Asia finished mostly lower, though Japan was closed for a holiday, and Europe is mostly higher with the global markets also grappling with the outlook for monetary policies.
At 10:30 a.m. ET, the Dow Jones Industrial Average is up 0.4%, while the S&P 500 Index and the Nasdaq Composite are rising 0.6%. WTI crude oil is rising $1.95 to $75.90 per barrel, and Brent crude oil is gaining $1.61 at $82.06 per barrel. The gold spot price is declining $9.80 to $1,831.90 per ounce, and the Dollar Index is dipping 0.1% to 104.49.
Nvidia Corporation (NVDA $237) reported adjusted Q4 earnings-per-share (EPS) of $0.88, above the $0.81 FactSet estimate, as revenues declined 21.0% year-over-year (y/y) to $6.05 billion, versus the Street's forecast of $6.02 billion. Revenues were up 2.0% compared to the prior quarter. The chip company saw sluggish performance in its PC markets, and noted a recovering gaming market, while touting its outlook for its artificial intelligence initiative, and reporting strength out of its data center unit. NVDA issued Q1 revenue guidance with a midpoint above expectations. Shares are rallying over 10.0%.
eBay Inc. (EBAY $45) posted adjusted Q4 EPS of $1.07, matching estimates, with revenues declining 4.0% y/y to $2.51 billion, compared to the forecasted $2.47 billion, with gross merchandise volume (GMV) coming in at $18.2 billion, down 12.0% y/y. The company said its Q4 results demonstrate the continued resiliency of its marketplace amid economic uncertainty. EBAY issued Q1 revenue guidance with a midpoint that was above estimates, while its EPS outlook was mostly in line with expectations. Shares are trading solidly lower as the Street appears unimpressed by its outlook for sales. Separately, the company increased its quarterly dividend by about 14.0% to $0.25 per share.
Domino's Pizza Inc. (DPZ $311) announced Q4 earnings of $4.43 per share, including a gain resulting from store sales in 2022 that added an incremental $0.46 per share, making it unclear if its Q4 EPS result is comparable to the projected $4.25. Revenues rose 3.6% y/y to $1.39 billion, missing the estimated $1.44 billion. The company lowered its two-to-three-year global retail sales growth outlook and said it expects results for fiscal-year 2023 to come in towards the low-end of its expected range. DPZ cited macro-economic headwinds that are impacting its U.S. delivery business and the negative impact on global sales from foreign currency impacts. Shares are falling. Separately, the company increased its quarterly dividend by 10.0% to $1.21 per share.
Q4 earnings season is heading down the home stretch this week and of the 457 S&P 500 companies that have reported thus far, about 58% have topped revenue estimates and approximately 68% have exceeded earnings projections, per data compiled by Bloomberg. Results have been mixed, along with guidance as corporations try to determine the ultimate impact of the aggressive Fed monetary policy tightening on the economy and profit margins.
Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, The Price You Pay: A Look at Equity Valuations, how valuation metrics broadly look more attractive relative to where they were a year ago, but history shows they don't provide clear guidance on future returns. You can follow Liz Ann on Twitter: @LizAnnSonders.
Q4 GDP revised lower, jobless claims smaller than expected
Weekly initial jobless claims (chart) came in at a level of 192,000 for the week ended February 18, below the Bloomberg consensus estimate of 200,000 and the prior week's upwardly revised 195,000 level. The four-week moving average rose 1,500 to 191,250, and continuing claims for the week ended February 11 fell by 37,000 to 1,654,000, south of estimates calling for 1,700,000. The four-week moving average of continuing claims declined by 3,000 to 1,668,750.
The second look (of three) at Q4 Gross Domestic Product (chart), the broadest measure of economic output, showed a 2.7% quarter-over-quarter (q/q) annualized rate of expansion, versus expectations to be unrevised at the first estimate of 2.9% growth. Personal consumption was adjusted solidly lower to a 1.4% increase, compared to estimates of an adjusted 2.0% gain, from the prior reading of a 2.1% growth rate.
On inflation, the GDP Price Index rose 3.9%, higher than expectations for it to remain at the prior read's 3.5% gain. The core PCE Price Index, which excludes food and energy, marked a 4.3% growth rate, above expectations to match the prior reading of a 3.9% rise.
Treasury rates have turned mostly lower, as the yield on the 2-year note is little changed at 4.70%, while the yield on the 10-year note is dipping 1 basis point (bp) to 3.92%, and the 30-year bond rate is decreasing 2 bps to 3.91%.
Treasury yields have moved higher as a tight labor market and still elevated inflation have preserved Fed expectations that it could stay on the hawkish path of tighter monetary policy. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, Mind the Gap: Bond Yields Appear Set for a Rebound, how over the next few months, we see room for yields to move higher, especially if the inflation data come in stronger than anticipated.
Europe mostly higher as choppiness remains
Stocks in Europe are mostly higher in late-day action, as choppy trading continues amid lingering uncertainty regarding the ultimate implications of aggressive monetary policy tightening across the globe. The markets are digesting late-yesterday's report out of the U.S. that suggested that although the Fed decelerated its rate hike campaign, it may still need more rate increases to combat inflation. The Fed's February decision was followed by rate increases from the Bank of England and the European Central Bank. In economic news, y/y headline Eurozone consumer price inflation was revised higher than initially reported for January but was a slowdown from the pace posted in December. Core Eurozone consumer inflation was also revised higher y/y but accelerated slightly from the prior month. The British pound and the euro are little changed versus the U.S. dollar, while bond yields in the Eurozone are down and rates in the U.K. are ticking to the upside.
Despite some volatility, equities in the region have had a strong start for 2023, buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening, and expectations that global central bank aggressive tightening may cool off. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, The Everything Everywhere All at Once Rally, how despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists.
The U.K. FTSE 100 Index and Switzerland's Swiss Market Index are nearly unchanged, while Germany's DAX Index is rising 0.8%, France's CAC-40 Index is gaining 0.7%, Italy's FTSE MIB Index is up 1.1%, and Spain's IBEX 35 Index is advancing 0.8%.
Asia mostly lower as markets remain focused on monetary policy
Stocks in Asia finished mostly lower as the markets continued to focus on monetary policy tightening following yesterday's release of the minutes from the meeting that led to the U.S. Central Bank in February to continue to hike rates but at a decelerated pace. However, the report suggested the Central Bank will continue to tighten monetary policy amid the continued fight to get inflation under control. Also, the Bank of Korea delivered its monetary policy decision and left its benchmark interest rate unchanged. Uneasiness and volatility in the markets due to the aggressive global monetary policy tightening has been met with heightened geopolitical tensions between the U.S. and China. In other economic news, South Korea's producer price inflation slowed in January.
Schwab's Jeffrey Kleintop discusses the latest rise in tensions in his latest article, Investors' Guide to Geopolitical Risk, noting that while threats flare up from time to time, it is important to keep in mind that geopolitical risks are an ever-present part of investing. Despite the recent news of geopolitical tensions, the risks are not necessarily higher now than on average in the past. But even when geopolitical risk is "average" it remains an important consideration. "That is one reason why it is important to diversify, which may lessen the volatility that can result."
China's Shanghai Composite Index dipped 0.1%, and the Hong Kong Hang Seng Index decreased 0.4%. Australia's S&P/ASX 200 Index also traded 0.4% lower, and India's S&P BSE Sensex 30 Index moved 0.2% to the downside, while South Korea's Kospi Index bucked the trend, rising 0.9%. Volume was lighter than usual as markets in Japan were closed for a holiday.
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