Some Give and Take in Front of Big Earnings Reports

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Chief Market Analyst

A somewhat lethargic market found some late-day energy yesterday that was fueled by the Treasury Department’s lower-than-expected first quarter borrowing estimate. Specifically, it was $55 billion less than previously expected. That appeared to be music to the ears of the Treasury market, which saw yields tumble in the wake of the news and stocks power up as those yields fell.

The S&P 500 and Dow Jones Industrial Average hit new record highs, with the former topping 4,900 after clearing 4,800 only a few weeks ago.

The mega-cap stocks powered the move, but small-cap stocks also enjoyed the ride. The Russell 2000 (+1.7%) outperformed the other indices.

Things are looking more subdued this morning. The S&P 500 futures are down 11 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 43 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 87 points and are trading 0.2% below fair value.

It’s a bit of a give-and-take trade in that some market participants seem to be using yesterday’s rally to take some money off the table, recognizing that the rally further stretched out valuations and the parabolic returns from the October lows.

At the same time, there is a knowingness that there are some big trading catalysts straight ahead that could inject some added volatility. Those would be the earnings reports after the close from Microsoft (MSFT), Alphabet (GOOG), and Adv. Micro Devices (AMD).

Not to put the cart before the horse, though. There are a bunch of earnings horses running this morning in different directions. That has capped some of the overall buying enthusiasm.

Companies trading up nicely after their results and/or guidance include General Motors (GM), F5 Networks (FFIV), Super Micro Computer (SMCI), Sanmina (SANM), HCA Healthcare (HCA), Nucor (NUE), and Pfizer (PFE)

Companies trading down in a not-so-nice manner include UPS (UPS), Whirlpool (WHR), Johnson Controls (JCI), Polaris Industries (PII), and Cleveland-Cliffs (CLF).

The mixed responses have slowed the market’s momentum in front of a slate of economic data this morning that includes the November FHFA Housing Price Index and November S&P Case-Shiller Home Price Index at 9:00 a.m. ET, and the December JOLTS – Job Openings and January Consumer Confidence Index reports at 10:00 a.m. ET. 

The Treasury market is little changed at the moment. The 2-yr note yield is down one basis point to 4.32% and the 10-yr note yield is down two basis points to 4.07%. The modest buying interest has been supported by some relatively weak Q4 GDP growth numbers out of the eurozone and the ongoing fallout from a Hong Kong court’s liquidation order for Chinese property developer Evergrande.

Separately, the FOMC begins its two-day meeting today. A new policy directive will be issued at 2:0 p.m. ET Wednesday and will be followed by Fed Chair Powell’s press conference at 2:30 p.m. ET. The market widely expects the target range for the fed funds rate to remain unchanged at 5.25-5.50%, which means all the intrigue will revolve around what Fed Chair Powell has to say — or doesn’t say — at the press conference.

Originally Posted January 30, 2024 – Some give and take in front of big earnings reports

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