In another strange sort of day yesterday, the Dow stayed negative while the S&P and Nasdaq continued to roar ahead, the latter two helped by an astounding gain in the shares of META after their earnings report the previous evening.
The Dow got as low as a 278 point intraday loss due to weakness in MRK on a weak earnings report, in addition to BA, CAT, MCD, TRV and UNH which by itself accounted for around 150 negative Dow points due to its large selloff and the fact that it is the highest price stock in this price-weighted index. It finally ended with a closing decline of 39 due to the positive effect of the astounding strength in the other two major indices which went bonkers on the upside again.
The S&P ended with a 60 point advance up to 4179, the highest since last August, on that hard to believe gain in META and when this stock was around 90 last September, everyone in the investment world could not make fun enough of its C.E.O. for spending too much money on the construction of the “metaverse”. Now that the stock is around 100 points better than that, everyone says he must be a genius after all! It is extremely rare to see a company of this market cap rise by 23% in one session and it was helped by a $40 billion stock buy-back program as well.
The Nasdaq really went bonkers on the upside, due to the former’s gain which also dragged some of the other large ones higher ahead of last night’s earnings, which were not good enough to support those issues after the tremendous run-ups that they have had lately. It ended 384 points higher up to 12,200.
The Russell 2000 Index of small stocks did well with a 40 point advance up to 2001 while the VIX actually rose on a very strong day in the S&P, go figure and ended at 18.73, perhaps in anticipation of a lower start to today’s proceedings.
A day earlier, stocks and bonds took off after Fed Chair Jerome Powell said that the central bank is finally starting to see progress in its battle against inflation, as he used the word “disinflation” several times during the press conference. Markets took that as a sign that a pause may indeed be imminent, and investors even raised bets for cuts to rates later this year.
This is despite Powell saying on Wednesday that a few more rate hikes will likely be appropriate to get inflation down to the Fed’s target. He also said he did not foresee any rate cuts in 2023 and again pledged to “stay the course until the job is done” on beating inflation.
The E.C.B. raised its key rate by 0.50 percentage points and said another would arrive next month. The Bank of England also raised its key rate by half a percentage point and said it is seeing signs that inflation has turned the corner, though it also stressed it is too soon to declare victory over inflation.
Treasury yields were holding steady Thursday after falling in earlier days, an indication of expectations for an easier Fed. The yield on the 10-year Treasury fell to 3.40% from 3.42% late Wednesday while the two-year yield held at 4.10%.
There are a huge number of earnings reports this week and the lineup is as follows: yesterday – META, ALGN, ELF, BMY, CAH, HOG, HSY, RACE,WWE higher while Dow components HON and MRK plus COP, LLY, EL, DGX, CHRW, QRVO were lower; today – AMZN, GOOG, F, QCOM, SBUX, GOOS, GILD, GPRO, MSTR, NWSA, SIRI are lower while Dow component AAPL turned higher.
Economic reports will have: yesterday – weekly jobless claims slipped by 3K to 183K, 4Q unit labor costs were up by 1.15, 4Q productivity gained by 3%, December factory orders for non-defense capital goods, excluding aircraft, which are seen as a measure of business spending plans on equipment, dipped by 0.1% instead of 0.2% as reported last month. Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, dropped 0.6% instead of 0.4% as previously reported, final December durable goods orders, , which measure the cost of orders received by manufacturers of goods meant to last at least three years, soared by 5.6% month over month, which was the sharpest gain since July 2020 and well above market forecasts of a 2.5 % increase; today – January non-farms payroll report for which the estimate was 185,000, came in at a blockbuster 517,000 while the unemployment rate dropped to a 50-year low at 3.4%, average hourly earnings rose by 0.3% for a year over year gain of 4.4%, labor force participation rate inched up to 62.4 and the average work-week was 34.7; ISM January Services Index rose to 55.2.
Donald M. Selkin
Chief Market Strategist
Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.