Market Hits Pause On Rebound Effort As Earnings Season Gets Underway

Articles From: Briefing.com
Website: Briefing.com

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Chief Market Analyst

It is plain for all to see that the stock market — and most stocks — have had a good start to 2023. Some might argue that it has been better than deserved (yes, we’re looking at you Bed Bath & Beyond, which filed a going concern statement and is up 109% in 2023), but, regardless, there has been a clear positive bias over the last week.

The positive bias has faded away this morning, however. 

Currently, the S&P 500 futures are down 40 points and are trading 1.0% below fair value, the Nasdaq 100 futures are down 137 points and are trading 1.2% below fair value, and the Dow Jones Industrial Average futures are down 290 points and are trading 0.8% below fair value.

The basis for the mood shift is open for debate, yet it comes in the wake of a number of major banks reporting their Q4 earnings results.

Bank of America (BAC) and JPMorgan Chase (JPM) exceeded consensus earnings estimates, yet BAC is down 1.4% and JPM is down 2.3%. Citigroup (C) and Wells Fargo (WFC) fell short of consensus earnings estimates. Citigroup is up 0.4% while WFC is down 3.7%.

The weakness here is generally being pinned on two factors: 1) these stocks had made big moves leading up to their reports and 2) these banks all increased their provision for credit losses with an eye toward some economic weakening.

Neither development is all that surprising, yet that doesn’t mean it isn’t disappointing to see the market recoil in the wake of their reports, especially with S&P 500 sitting on the doorstep of its 200-day moving average, which has served as a key area of technical resistance during prior rebound efforts over the last year.

For good measure, Dow component UnitedHealth (UNH) is down 0.8% after topping the Q4 consensus EPS estimate and reaffirming its FY23 guidance, albeit with the midpoint of that guidance falling below the current consensus estimate. Delta Air Lines (DAL), meanwhile, is down 5.3% after topping Q4 expectations but issuing Q1 EPS guidance below consensus.

Another notable laggard this morning is Tesla (TSLA). It is down 6.1%. Tesla did not report earnings, but there is a report from The Wall Street Journal indicating the EV maker has cut prices in the U.S. for some of its cars by close to 20%. The price cuts will enable some buyers to qualify for the $7,500 tax credit, yet the read through for most is that the price cuts have been driven by weakening demand.

There is a lot of weight, therefore, hanging over the broader market. We would add that Apple (AAPL)Microsoft (MSFT)Alphabet (GOOG), and Amazon.com (AMZN) are all trading lower, too.

Accordingly, the market this morning looks to be succumbing to general profit-taking interest, which has been hastened by some less-than-stellar earnings reports from the banks that have raised some doubts about the market’s fundamental positioning and its ability to break through technical resistance at its 200-day moving average in a trend-changing way.

This is a pause in the rebound effort for now, but additional earnings reports and guidance over the next several weeks will determine if this market is inclined to hit fast forward or rewind.

Originally Posted January 13, 2023 – Market hits pause on rebound effort as earnings season gets underway

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