Earnings continue to pour in from the likes of Ford, Chipotle, Uber, and CVS as Disney's quarterly numbers wait in the wings this afternoon. Fed speakers expressed caution on rate cuts yesterday and are back at the podium today. The tech sector is in focus after falling on profit taking Tuesday.
Mouse time ahead as Disney lines up to report later with cost cutting, streaming in focus
Earnings roll in from CVS, Ford, Chipotle, and Uber, with ConocoPhillips ahead Thursday
More Fed speakers on tap today after most took cautious view on rates Tuesday
(Wednesday market open) It’s the one day each quarter when investors can dream of theme park vacations and summer movies. Walt Disney (DIS) earnings this afternoon put the spotlight on the company’s films, networks, cost-cutting efforts, and progress toward streaming profit. Before that, major indexes edged higher in premarket trading as investors digested earnings from CVS Health (CVS), Chipotle (CMG), Ford (F), and Uber (UBER) and awaited another slew of Federal Reserve speakers.
Today’s Fed lineup comes after several policy makers yesterday said, in essence, that the central bank has more work to do bringing down inflation. Like Fed Chairman Jerome Powell in his weekend TV interview, they aren’t talking rate cut timing yet. But they don’t seem to be in a hurry considering recent economic data looked resilient without any Fed training wheels.
Despite Fed speakers’ cautious stance, the benchmark 10-year Treasury note yield dropped below its 200-day moving average of 4.107% Tuesday before rebounding slightly this morning. The decline possibly reflected firm demand seen in a $54 billion 3-year note auction, as well as investors seizing onto a comment by typically hawkish Cleveland Fed President Loretta Mester that she’d be open to rate cuts later this year assuming the economy continues on its expected path. The 10-year yield has been volatile so far this month, trading as low as 3.82% and as high as 4.17% intraday. There’s a $42 billion 10-year Treasury note auction today, with results due at 1 p.m. ET.
“Fed probabilities of a rate cut continue to get pushed out,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. “Purchasing Managers Index came in better than expected, but outside of that there isn’t a lot of economic data hitting the tape this week. The next key data point is next Tuesday’s Consumer Price Index report.”
Before that, earnings take precedence with Disney just one of many notable firms reporting over the next few days. ConocoPhillips (COP) and PepsiCo (PEP) are still ahead.
Tuesday saw profit-taking hurt info tech stocks, “but we’ll have to wait and see if there is follow-through selling this week,” Peterson added. He noted that tech appears “overbought,” and the bullish catalyst of mega-cap earnings is mostly in the rearview mirror. Despite Tuesday’s losses for some mega-cap and semiconductor stocks, tech is up nearly 7% so far this year and communication services has risen nearly 10%.
Futures based on the S&P 500® index (SPX) rose 0.29% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) inched up 0.1%, and futures based on the Nasdaq-100® (NDX) climbed 0.44%.
Palace intrigue: Disney’s shares are up 10% so far this year, ranking among the top four $DJI performers, but still down more than 10% over the last year. The soft performance in part reflects concern over a heavy debt load and weakness at Disney’s television networks, including ABC and ESPN.
The company’s last two earnings reports fell short of analysts’ revenue estimates, but earnings per share (EPS) topped Wall Street’s expectations when Disney last reported in early November. The stock rebounded after that, in part due to narrowing losses in streaming, strong theme park performance, and signs of progress cutting costs. Investors will tune in today to see if some of that magic continued in the final months of 2024.
For today’s earnings report, analysts expect EPS of $0.99, equal to a year ago, according to estimates collected by Yahoo Finance. Wall Street sees quarterly revenue of $23.69 billion, up slightly from $23.512 billion a year earlier.
One potential piece of bad news that Disney has already prepared investors for is a possible drop in Disney+ subscribers, based partly on recent price hikes and as competition surges. Back in September, there were 150 million paid subscribers, but analysts expect that number to fall.
Regional bank shares are also in focus today after another slide for the subsector on Tuesday (see more below). Home builder and real estate stocks could draw attention after the MBA Mortgage Applications Index climbed 3.7%, compared with a 7.2% decline the week before.
Stocks on the move early Wednesday include:
Fed takes podium: Fed speakers today include Fed Governor Adriana Kugler speaking late this morning about the outlook for the economy and monetary policy, and Fed Governor Michelle Bowman this afternoon discussing entrepreneurship and small business. Also on tap: Boston Fed President Susan Collins and Richmond Fed President Tom Barkin.
Credit issues: December Consumer Credit is due out this afternoon. This metric trended lower last year due to higher interest rates before swelling in November ahead of the holiday season.
In November, consumer credit rose $23.7 billion, the Fed said, nearly three times as much as analysts had expected. Some of that might have been spurred by hopes for falling interest rates, and those same hopes might have been at play in December, too. Analysts expect a slightly smaller rise of $16.3 billion, Briefing.com said. Even that would keep total consumer credit above $5 trillion, a level it reached in November for the first time.
Tomorrow morning’s Initial Weekly Jobless Claims report comes after a slight uptick last week following near-historic lows. Consensus is 218,000, down from 224,000 a week ago, according to Briefing.com. Continuing claims jumped sharply last week to nearly 1.9 million, the highest since late last year, and bear watching for signs of how difficult it might be to find a new job. The last few weeks featured several high-profile layoff announcements, and employees who lost their jobs might start showing up in the weekly data.
Internal affairs: After falling well behind on Monday, advancing shares led decliners by a five-to-two margin at the New York Stock Exchange (NYSE) Tuesday, but again, volume was below average.
Trading at peak: Major indexes set numerous records early this year, raising questions of how to consider trading and investing when the stock market is at or near all-time highs. This handy Schwab video helps answer questions many might have at such times, like whether it’s too late to enter or should you wait for a pullback.
Early today, futures trading pegged chances at 20.5% for the FOMC cutting rates by 25 basis points following the March 19–20 meeting, according to the CME FedWatch Tool. The market prices in around a 64% chance the funds rate will be lower than now after the Fed’s May meeting, down from around 90% a week ago.
Rate cuts delayed? The Fed appears to be in no hurry to lower interest rates, but it has dropped its tightening bias. This more firmly points to the July 2023 hike as the final one of this cycle. What could this mean for equities? Liz Ann Sonders, Schwab’s chief investment strategist, and Kevin Gordon, senior investment strategist at Schwab, walk you through the history in their latest post.
Ideas to mull as you trade or invest
Bank shares struggle: Nearly a year after a shaky spring of 2023 for the financial sector, investors again appear worried about regional banks. The latest to come under pressure was New York Community Bank (NYCB), which fell 22% Tuesday after Bloomberg reported that the company had been pressed by its regulator to cut its dividend. The bank then got downgraded by Moody’s. Shares bounced back slightly ahead of Wednesday’s open after the bank provided liquidity and deposit data. The KBW Regional Banking Index (KRX) has hit a rough patch early this year and dropped more than 1% yesterday. In other bank news, the Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) out earlier this week showed banks reporting tighter lending standards and weaker demand for commercial and industrial loans to firms of all sizes in Q4.
Guidance consequences: Q4 earnings are running slightly above a low bar set ahead of reporting season. Earnings for S&P 500 companies are now posting a 1.6% year-over-year EPS gain on average, up from a 1.8% loss as of January 19. Health care and info tech lead all sectors in positive surprises so far, research firm FactSet said, but S&P 500 net profit margin is down annually and sequentially at 11%. Companies issuing negative quarterly guidance are running ahead of the historical average, a warning for investors banking on future earnings growth to keep the market humming. This weaker guidance shows up in declining analyst estimates for Q1 and 2024 EPS growth. S&P 500 companies are now seen growing EPS by 4.5% in Q1, down from the 5.9% estimate back on December 31, FactSet notes. For the full year, average EPS growth is still seen solid at 11.2%, but below the previous 11.7%. Future adjustments bear watching. That’s a mouthful, but it’s an important metric with the S&P 500’s price-to-earnings (P/E) ratio building in strong 2024 EPS growth. If the E slips, P/E gets bigger, and it already appears lofty versus historic averages.
Happy new year, again: Lunar New Year begins Saturday, with mainland China markets closed starting this Friday and all next week. The Hong Kong market will be closed February 12–13. The holiday is a time of mass migration as people return home to spend time with family and exchange gifts. Recently, Bloomberg reported that China’s government is considering a $280 billion government rescue package to help the country’s struggling stock market, and there’s speculation the timing of that could coincide with the holiday. Consider staying on the lookout for any related headlines this week. What might be good news for China, sometimes called the “world’s factory,” is on the manufacturing side. “Manufacturing leads the overall economy, and the global manufacturing recession may be ending,” said Michelle Gibley, director of international research at the Schwab Center for Financial Research. The J.P.Morgan Global Manufacturing PMI® hit the neutral 50 point in January after 16 months of contraction (readings below 50). New orders rose faster than inventories for the first time since June 2022, a leading indicator for future improvement.
February 8: Expected earnings from Baxter (BAX), ConocoPhillips (COP), Philip Morris (PM), Ralph Lauren (RL), Zimmer Biomet (ZBH), and Under Armour (UAA).
February 9: Expected earnings from PepsiCo (PEP).
February 12: No major earnings or data expected.
February 13: January CPI and Core CPI and expected earnings from Biogen (BIIB), Coca-Cola (KO), Hasbro (HAS), Airbnb (ABNB), and Lyft (LYFT).
February 14: Expected earnings from Occidental Petroleum (OXY) and Cisco (CSCO).
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.
Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.
Do Not Sell or Share My Personal Information
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2024 Charles Schwab & Co. Inc. All rights reserved.