Friday, February 2, 2024

Markets jump on strong tech earnings while interest rates rise

Dow rose 134, surprisingly decliners over advancers about 2-1 & NAZ jumped 267.  The MLP index fell 2+ to the 262s & the REIT index was off 5 to the 377s.  Junk bond funds were weak & Treasuries continued to be heavily sold, taking yields much higher.  Oil fell 1+ to the low 72s & gold sank 16 to 2054 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Meta (META) jumped more than 20% & headed for their 3rd-best day ever after the company reported a tripling in 4th-qtr profit & issued its first-ever div.  Revenue rose 25% in the 4th qtr to $40.1B from $32.2B a year earlier.  That's the fastest rate of growth for any period since mid-2021 & offers further evidence that the online ad market is continuing to rebound.  Net income more than tripled, to $14B from $4.65B a year earlier.  The company is forecasting first-qtr sales to be $34.5-37B & analysts were expecting revenue of $33.8B.  META said it would pay investors its first quarterly div, 50¢ on Mar 26.  That comes after cash & equivalents swelled to $65.4B at the end of 2023, from $40.7B a year earlier.  META also announced a $50B share buyback.  The stock rallied today, added more than $200B to its market cap & pushed the total valuation past $1.2T.  Investors praised the div announcement as a sign of the company's maturity.  The stock is up a staggering 80 (20%).

Meta shares surge 20% on soaring profit, better-than-expected guidance and first-ever dividend

The 10-year Treasury yield topped 4% after a surprisingly strong jobs report that showed continued strength in the economy, but raised questions on when the Federal Reserve can cut interest rates.  The yield on the 10-year Treasury was last shot up by 17 basis points to 4.03% & the 2-year Treasury  yield was last up by 19.1 basis points at 4.38%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  A stronger-than-expected jobs report adds to the likelihood that interest rate cuts will not come as soon as investors had hoped, especially after Fed Chair Jerome Powell this week noted that a Mar rate cut is unlikely.   Investors digested a hot Jan jobs report.  Nonfarm payrolls expanded by 353K last month, much stronger than the payrolls increase of 185K anticipated.  The unemployment rate was at 3.7%, compared to the 3.8% consensus estimate.  Wage growth data in the report pointed to continued inflationary pressures.  Average hourly earnings rose 0.6%, which was double what what had been expected.  On a yearly basis, wages spiked 4.5%, more than the 4.1% consensus estimate.  A stronger-than-expected jobs report adds to the likelihood that interest rate cuts will not come as soon as investors had hoped, especially after Fed Chair Jerome Powell this week noted that a Mar rate cut is unlikely.

10-year Treasury yield tops 4% after surprisingly strong jobs report

The 4th-qtr is now shaping up to be the best of 2023.  Despite ongoing macroeconomic concerns that have hampered demand & weighed on consumer sentiment, almost halfway into earnings season, profits are clearly coming in far better than anybody expected.  Helping bottom lines this round: easing input costs; more emphasis on cost controls & efficiencies; & significantly reduced expectations.  A plethora of significant earnings beats have moved the Q4 growth rate notably higher late this week.  It is now seeing a nearly 8% rise in earnings growth this season.  That’s far better than the 4.7% expected just 3 weeks ago, right before the big banks reported results.  The S&P 500 as a whole, Q4's current EPS growth rate of 7.8% exceeds the 7.5% growth seen in all of Q3 & is now tops for the year.  Currently, 80% of S&P 500 earnings results have beat estimates, slightly higher than normal trends & earnings have come in more than 6% above expectations, not quite the 7-8% upside seen in the previous 2 qtrs, but still a very strong number.  One very important caveat: These strong figures come after earnings expectations tumbled going into the reporting season.  Back on Oct 1, S&P 500 4th-qtr earnings were expected to grow 11% year over year.  Although the earnings picture has significantly improved since the start of 2024, results are still far below what had hoped for a mere 4 months ago.  And, as good as Q4 results have been, there's still no positive momentum looking forward.  Both Q1 & full-year 2024 earnings estimates have come down since Jan 1 as many companies have issued cautious guidance this earnings season.

Fourth-quarter earnings are shaping up to be the best of 2023, but there’s a catch

Gold prices fell as the $ & treasury yields surged after the US added far more new jobs than expected in Jan.  Gold for Apr closed down $17 to settle at $2053 per ounce, falling off overnight highs of $2074.  The drop comes even after the US added 353K new jobs in Jan, up from 216K in Dec & well ahead of expectations for a rise of 185K.  The unemployment rate stayed steady at 3.7%.  The $ surged following the jobs report, making gold more expensive for intl buyers.  The ICE dollar index was last seen up 0.91 points to 103.96.  Treasury yields also rose sharply, bearish for gold since it offers no interest, as the robust reports cuts into expectations the Federal Reserve will be able to cut interest rates in the near-term.

Gold Prices Drop as the Dollar and Yields Surge as the US Added More New Jobs than Expected Last Month

West Texas Intermediate (WTI) crude oil on concerns over weak demand, though an unexpected surge in US hiring last month may ease some of the worries.  WTI crude for Mar closed down $1.54 to settle at $72.28 per barrel, a 3-week low, while Apr Brent crude, the global benchmark, was last seen down $1.28 to $77.42.  The drop comes after the US added 353K new jobs in Jan, up from 216K in Dec & well ahead of expectations for a rise of 185K.  The unemployment rate stayed steady at 3.7%.  The $ surged following the jobs report on expectations interest rates will stay high for longer, making oil more expensive for intl buyers, though rising employment is a bullish indicator for demand.  The ICE dollar index was last seen up 0.89 points to 103.94.  Weak demand from China, the #1 importer, as its economy continues to struggle, is also checking prices, as is a lower geopolitical risk premium, as prices fell sharply yesterday after uncertain reports over a ceasefire between Israel & Hamas.  Crude oil suffered its biggest loss since Nov with the risk premium deflating amid talks for Gaza ceasefire.  The negotiations are still in the early stages with plenty of risks still around, including a US response to the Jordan attacks

WTI Crude Oil Falls on Demand Concerns and a Surging Dollar Following a Robust US Employment Report

The earnings reports this week have been quite good.  But they are only history & early indications are for limited earnings in the new year.  In addition, interest rates are on the rise again with the 10 year Treasury yields back over 4% & there are more decliners than advancers.  Once again, this is an overbought market & subject to profit taking.  In the meantime enjoy these high stock values.  This week the Dow rose 545 & is up more than 965 YTD.

Dow Jones Industrials 

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