Stock futures moved a bit higher in premarket trading Friday as strong Netflix subscriber gains helped the Nasdaq even as Alphabet cut jobs. Next week kicks earnings season into high gear with expected reports from Microsoft, Johnson & Johnson, Union Pacific, Intel and others.
Netflix shares pop after subscriber growth beats its own estimates
Alphabet becomes latest tech company to cut jobs—what to watch for sector health this year
December existing home sales due shortly. Will it show more signs of a slowdown?
Shawn Cruz, Head Trading Strategist, TD Ameritrade
(Friday Market Open) The weekend probably can’t come soon enough for the info tech world with Friday’s latest round of layoffs.
This time, it’s Alphabet (GOOGL) announcing 12,000 job cuts. That follows Microsoft (MSFT) earlier this week and other major mega-cap tech companies slicing their payrolls before that.
It’s been a tough stretch for the industry and its employees with nearly 200,000 jobs cut in the past year, not including the latest from GOOGL, according to The Wall Street Journal. For investors, these job trims might signal that tech employers expect slowing demand not just from consumers, but from the businesses that use services like the cloud.
Info tech’s struggles could be one reason the S&P 500® index (SPX) remains unable to build on the recent rally. Several attempts by bulls to push the SPX above 4,000 failed miserably (see chart below).
There just doesn’t seem to be much buying interest when the SPX approaches 4,000, partly because of concerns that Q4 earnings may be worse than expected in the wake of recent bearish data and because the next Federal Open Market Committee rate announcement is scheduled for February 1.
The SPX rallied into the last three Fed meetings and got quickly slapped back down by Fed Chairman Jerome Powell’s hawkish remarks. Maybe Wall Street has finally learned that it doesn’t pay to buy ahead of a Fed meeting. This reticence could potentially set us up for some strength after the meeting, especially if Powell and company offer any hints that rate hikes might slow later this year.
Adding to that, Thursday’s comments from, Fed Vice Chair Lael Brainard didn’t sound exactly dovish. She warned that the Fed won’t waiver on its inflation fight, though she sounded optimistic about chances for a soft landing—inflation falling without sinking the job market.
Meanwhile, the bond market could behave a bit unusually in the coming days weeks as the current bump against the U.S. debt ceiling may limit the government’s near-term debt auctions. Yields might weaken if investors embrace fixed income as a possible hedge against stock market pain if default fears grow. It may seem counterintuitive to buy U.S. Treasuries if the government’s ability to pay its debt comes into serious question, but old habits die hard, and U.S. debt is traditionally seen as a safe haven.
Of course, no investment is completely safe. But it’s unlikely this political game around the debt ceiling will lead to actual default, according to many analysts. For more on how the debt ceiling fight might affect the investors, here are some thoughts from Michael Townsend, Managing Director, Legislative and Regulatory Affairs at Charles Schwab.
We’ll get fresh news today on the U.S. housing market with the scheduled 10 a.m. ET release of December existing home sales. Depending on what time you’re reading this, maybe you’ve seen the data.
Here’s how to survey the numbers. Note that Wall Street’s consensus was for a headline number of 3.96 million, seasonally adjusted, according to Briefing.com. That would be down from 4.09 million in November. Existing home sales have been falling steadily every month since last summer, and November’s median price growth for all types of housing rose just 3.5% to $370,700.
While November’s figures represented the 129th-consecutive monthly price increase, it was mild compared with many preceding it. Unsold inventory also rose in November, suggesting higher mortgage rates could be leaving some homes on the market longer. The mortgage situation improved in late December and early January, but that might not have come soon enough to have much impact on today’s data.
Looking ahead to next week, we’ll see the government’s first look at Q4 Gross Domestic Product (GDP) and the December readings for Personal Consumption Expenditures (PCE) prices, income, and spending. And then there will be Q4 earnings—lots of them. Check our daily calendar below.
Netflix (NFLX) became the first “FAANG” to report this earnings season, and its shares jumped in premarket trading as subscriber growth easily outpaced the company’s own forecast of 7.66 million. NFLX had guided toward 4.5 million.
The subscriber growth appeared to outweigh some concerns about the earnings, including a miss on earnings per share (EPS) that NFLX blamed on a non-cash charge. Operating margin also fell from a year ago but came in above Wall Street’s expectations. The company is no longer forecasting new subscriber growth but said it expects “modest” positive subscriber additions during the current quarter.
Strong subscriber growth at NFLX could suggest strength in streaming as shares of competitors Disney (DIS) and Amazon (AMZN) rose in premarket trading.
Next week’s earnings calendar takes us across all areas of the economy. Abbott Labs (ABT) and Johnson & Johnson (JNJ) will report key results in pharma, and Union Pacific (UNP) and American Airlines (AAL) will offer a birds’ eye view in transports. P payment firms like American Express (AXP) and Master Card (MA) will offer a vantage point on the consumer and industrial heavyweights like Dow Chemicals (DOW) and Boeing (BA) may suggest more about the economy at large. And the tech sector will also grab the spotlight with Microsoft (MSFT), Texas Instruments (TXN), and Intel (INTC) all reporting.
It’s a lot to juggle and things will come fast and furious. But we have some suggestions below on how to approach the week ahead as an investor. Also, we’ll post our energy sector earnings preview later this morning, so stay tuned.
The SPX languished in the final hour of trading yesterday after a bit of a midday rally from lows. The finish just below technical support at 3,900 doesn’t necessarily bode well for today’s action, with spillover selling still possible even on rallies. Some of the new money that came into the market at the start of the year may have sparked the recent rally; now it appears that the failed attempts at 4,000 could be sparking some profit taking.
Thursday’s selling pushed major indexes sharply lower for the second consecutive day, putting the January rally into question. Some major names getting hit included Nvidia (NVDA), Caterpillar (CAT), Microsoft (MSFT), Home Depot (HD), Amazon (AMZN), and Tesla (TSLA). Interestingly, three of the mega-caps—Apple (AAPL), Meta (META), and Alphabet (GOOGL)—actually finished higher, which may have kept the major indexes from having an even worse performance.
Two of the three best-performing sectors were energy and communication services, both areas of the market that typically do better in a strong economy. Industrials finished at the bottom of the leader board, with info tech and consumer discretionary also low in the pack.
Recent poor economic data is probably hurting stocks in these sectors. It didn’t help to see Nordstrom (JWN) lower its fiscal year 2022 earnings guidance yesterday, a decision that sent shares down 6% and might’ve also weighed on retailers like Walmart (WMT) and Target (TGT).
Here’s how the major indexes performed Thursday:
Talking technicals: SPX resistance remains where we saw it yesterday near 3,915, which now aligns closely with the 50-day moving average. There may be support at 3,880, a level that wasn’t breached yesterday when the low was 3,885. If things break down below those levels, there may not be much support below that all the way down to 3,800, though the 100-day moving average of 3,865 is one level to consider watching.
Meanwhile, it may be constructive that the $DJI managed to finish above 33,000 yesterday after a brief drop below that intraday for the first time since January 6.
CHART OF THE DAY: GET AN ICEPACK. The S&P 500 index (SPX—candlesticks) might have a metaphorical bump on its head right now after hitting a down-sloping trend line (red line) several times in the last week and not pushing successfully through. Now the SPX might be more likely to test support at 3,880 and below that at the 100-day moving average of 3,865 (blue line) before another test of that red line just above 4,000. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Q4 underwhelms—so far: Earnings season picks up steam next week after a relatively disappointing start. Only a handful of major companies have reported Q4 results so far, but of those that have, fewer than normal have beaten consensus estimates. Today should see an updated FactSet estimate for Q4 earnings results after last week’s forecast showed analysts expecting a 3.9% decline year over year. It wouldn’t be surprising to see this decline further, especially if companies from two sectors in particular—energy and industrials—show signs of falling below expectations. At this point, expected strength in energy seems to be keeping analysts’ expected overall 4% decline from being an 8% decline.
Earnings analysis 101: Next week’s packed earnings calendar can make it hard to focus but try to keep an eye on the bigger picture, including overall sector trends. We’re already seeing a shift toward demand for services over goods, for instance. Does that continue to show up in airline and auto earnings? The December retail sales report was way below expectations. Does that get reinforced when MA and AXP report? If you go into the week with a few questions you want to answer, it can help you decide which reports you want to pay most attention to. Also, instead of trying to keep track of dozens of earnings reports, zero in on a few you really care about and listen to or read the transcripts of their earnings calls. By listening to these calls, investors can gain valuable information that isn’t always obvious in a company’s financial reports.
Grabbing the spotlight: With so much earnings news peppering investors each day, Wall Street’s focus may turn more toward the reporting season and somewhat away from global headline events like the approaching U.S. debt ceiling, Ukraine, and China. Even economic data and the upcoming Federal Reserve meeting could take a back seat, meaning a strong or weak earnings day might have enough impact to move the market on its own.
Jan. 23: Expected earnings from Baker Hughes (BKR) and Steel Dynamics (STLD)
Jan. 24: Expected earnings from Johnson & Johnson (JNJ), Microsoft (MSFT), Lockheed Martin (LMT), General Electric (GE), 3M (MMM), Union Pacific (UNP), and Verizon (VZ)
Jan. 25: Expected earnings from Abbott Labs (ABT), Boeing (BA), AT&T (T), IBM (IBM), Tesla (TSLA), and Whirlpool (WHR)
Jan. 26: December Durable Goods and Durable Orders, Q4 GDP (first estimate), December New Home Sales, and expected earnings from American Airlines (AAL), Master Card (MA), Southwest Airlines (LUV), Dow Chemical (DOW), Alaska Air (ALK), and Blackstone (BX)
Jan. 27: December PCE Prices, Final January University of Michigan Consumer Sentiment, and expected earnings from American Express (AXP) and Chevron (CVX)
Jan. 30: Expected earnings from GE HealthCare (GEHC) and Philips (PHG)
Jan. 31: January Chicago PMI, December Consumer Confidence, and expected earnings from ExxonMobil (XOM), General Motors (GM), Pfizer (PFE), McDonald’s (MCD), Caterpillar (CAT), and UPS (UPS)
Check out our upcoming Webcasts or watch any of our hundreds of archived videos, covering everything from market commentary to portfolio planning basics to trading strategies for active investors. You can also deepen your investing know-how with our free online immersive courses. No matter your experience level, there’s something for everybody.
Looking to stay on top of the markets? Check out the TD Ameritrade Network, live programming which brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc., are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade Media Productions Company is not a financial advisor, registered investment advisor, broker-dealer, or futures commission merchant.
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. 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.
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. © 2023 Charles Schwab & Co. Inc. All rights reserved.