What happened in the markets: 22 Jan - 26 Jan 2024
Stocks closed with a mixed performance but maintained a positive trend for the week, driven by the latest data that bolstered investor confidence in the U.S. economy. Earlier in the week, the U.S. gross domestic product exceeded expectations, growing at a 3.3% rate in the fourth quarter of last year, surpassing the anticipated 2% gain.
This development raised optimism among investors that the economy may have avoided a recession. Economic data took center stage on Friday, overshadowing the earnings season.
Before the market opened, the Bureau of Economic Analysis reported that the core personal consumption expenditures (PCE) price index, which is the Federal Reserve's preferred inflation measure, increased by 0.2% month-on-month in December 2023, in line with market expectations. On an annual basis, it rose by 2.9%, a decrease from the +3.2% year-on-year reading in November 2023 and below the expected figure of +3.0%.
Despite some prominent stocks, such as Intel, experiencing post-earnings declines, with a 12% drop on Friday, the broader market gains were somewhat tempered.
The S&P 500 ended the week 1.1% higher, the Nasdaq Composite gained 0.9%, and the Dow Jones Industrials added 0.7%.
Last week at a glance
Microsoft Takes The Lead
As we navigate the ever-evolving landscape of technology investments, Microsoft (MSFT) has given us a reason to look up. The tech behemoth's market capitalization soared to the $3T mark, buoyed by the buzz around its advancements in artificial intelligence. This achievement comes just before its anticipated quarterly earnings report, positioning Microsoft as a formidable player alongside Apple (AAPL), which previously hit this milestone. Analysts are leaning into the optimism, forecasting a "solid beat and raise" for Microsoft's upcoming financial disclosures on January 30. The sentiment is echoed by Investing Group Leader Daniel Jones, who identifies Microsoft as a "true growth prospect," capable of sustaining the growth necessary to meet market expectations.
Netflix's Winning Streak Continues
Netflix (NFLX) has once again demonstrated its prowess in the streaming arena with a robust Q4 earnings report. The company's shares leaped, reflecting investor confidence as Netflix announced plans to enhance its live programming offerings. A landmark $5B-plus deal with TKO Group (TKO) secures exclusive rights to top-tier content, including the highly-rated Raw from World Wrestling Entertainment, and brings star power with Dwayne "The Rock" Johnson joining the TKO board. Netflix's global streaming paid memberships reached a record-breaking 13.1M in Q4, capping off the year with an impressive 260.3M subscribers. This milestone represents a significant achievement for the streaming giant and a compelling narrative for investors.
Tesla Dips Below $200
Tesla (TSLA) investors are facing a crossroads as the company's latest earnings report suggests a slower pace in vehicle growth. The stock experienced a downturn, with shares dipping below $200. Tesla is currently in a transitional phase, with significant growth expected to resume in the latter half of 2025 following the introduction of a new vehicle platform. CEO Elon Musk's comments during the post-earnings conference call, particularly regarding recent price cuts to stimulate sales, have raised concerns among investors. This period of recalibration presents both challenges and opportunities for those invested in Tesla's future.
U.S. Economy Still Going Strong
The U.S. economy has defied recessionary fears with a strong GDP report that has invigorated the markets. The S&P 500 (SP500) and the Dow Jones Industrial Average (DJI) both celebrated record highs following the announcement. Treasury Secretary Janet Yellen's remarks at the Economic Club of Chicago underscored the positive outlook, attributing the economic strength to robust consumer spending and productivity gains without stoking inflationary pressures. This economic resilience is further supported by encouraging retail sales and consumer sentiment figures, painting a picture of enduring consumer confidence.
Boeing In More Trouble
Boeing (BA) has encountered another hurdle as the FAA has put a hold on the company's plans to ramp up production of its 737 MAX aircraft. This decision follows a recent incident involving an Alaska Airlines (ALK) MAX 9 aircraft, prompting a temporary grounding of the model. The FAA's stance is clear: no expansion in production will be sanctioned until all quality control issues are thoroughly addressed. While Alaska Airlines and United (UAL) have scheduled the MAX 9 to return to service, the FAA's directive underscores the importance of stringent safety and quality standards in the aerospace industry.
Top movers & shakers🎢
American Express (AXP) - surged 7.1% after the credit card company exceeded analysts' forecasts with its full-year earnings guidance, overshadowing weaker-than-expected fourth-quarter results.
Booz Allen Hamilton (BAH) - soared nearly 13% after the consulting company's quarterly earnings and revenue surpassed expectations.
Capital One Financial (COF) - climbed 4.6% following the credit card issuer's report of quarterly revenue that exceeded expectations.
Colgate-Palmolive (CL) - rose 0.5% after the company, known for Irish Spring soap, its namesake toothpaste, and other consumer brands, reported stronger-than-expected fourth-quarter results.
Spirit Airlines (SAVE) - tumbled 13% following reports that JetBlue (JBLU) suggested the potential termination of its $3.8 billion merger with the company due to potentially unmet conditions. JetBlue shares rose 3.6%.
Visa (V) - dropped nearly 2% as investors focused on the company's upwardly revised forecast for operating expenses, despite stronger-than-expected results from the previous quarter.
The week ahead: 29 Jan - 2 Feb 2024
Next week, all attention will be on the Federal Reserve as investors anticipate the outcome of their meeting on January 31. It is widely expected that the Fed will maintain interest rates at 5.25% - 5.5%. Recent improvements in inflation data suggest a reduced necessity for the fed funds rates to remain highly restrictive. While the market currently predicts approximately six Fed rate cuts in 2024, the Fed's own projections from its December meeting indicate around three rate cuts ahead.
The likelihood of a rate cut in March has decreased to about 50%, with expectations now shifting to rate cuts between June and December. Analysts think the Fed may use the January meeting to acknowledge advancements in both growth and inflation, while also tempering the aggressive rate cuts anticipated by the market.
Analysts are anticipating three to four rate cuts in 2024, possibly commencing around June, as core inflation continues to moderate. Overall, analysts believe the Fed will prefer a gradual reduction in rates to monitor its impact on the economy and ensure that inflationary pressures continue to ease. A substantial increase to six or more rate cuts may indicate a significant economic slowdown, while two or fewer rate cuts could signal a resurgence of inflation.
Therefore, analysts view three to four rate cuts in 2024 as a balanced approach to gradually returning rates to a neutral level over time.
CME FedWatch Tool - Same Rates For Now
On Friday, traders estimated a 53% likelihood that the federal funds rate will stay the same after the March FOMC meeting, based on the CME FedWatch Tool. The tool also indicates an approximately 88% probability that the funds rate will be at least a quarter-point lower following the FOMC's May meeting.
Jobs Report
Analysts anticipate a slight slowdown in labor market growth for next week's jobs report. According to Trading Economics, the United States added an estimated 178,000 jobs in January, down from 216,000 in December.
Earnings
Monday, January 29 - Nucor (NUE).
Tuesday, January 30 - General Motors (NYSE:GM), United Parcel Service (UPS), Sysco (SYY), Pfizer (PFE), Alphabet (GOOG), Microsoft (MSFT), Starbucks (SBUX), Mondelez International (MDLZ), and Advanced Micro Devices (AMD).
Wednesday, January 31 - Phillips 66 (PSX), Mastercard (MA), Qualcomm (QCOM), and Boeing (BA).
Thursday, February 1 - Merck (MRK), Honeywell (HON), Altria (MO), Amazon (AMZN), Apple (AAPL), Meta Platforms (META) an Royal Caribbean Cruises (RCL).
Friday, February 2 - Exxon Mobil (XOM), Chevron (CVX), AbbVie (ABBV), and Charter Communications (CHTR).
Sources:
https://seekingalpha.com/article/4665552-wall-street-breakfast-what-moved-markets
https://seekingalpha.com/article/4665561-wall-street-breakfast-week-ahead
https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/stock-market-weekly-update
https://www.schwab.com/learn/story/schwab-market-update
*Disclaimer: This information is provided for general information purposes only. Consider your investment objectives, financial resources and other relevant circumstances carefully before investing. This is not an invitation or an offer to invest, nor is it financial advice or a recommendation to buy or sell any investment.
