Today’s Big Picture
Asia-Pacific equity markets finished the day mixed. South Korea’s KOSPI declined 0.26% in a largely positive day that saw Consumer Services names tip that market negative, and both Hong Kong’s Hang Seng and Taiwan’s TAIEX fell 0.21%. India’s SENSEX ended the day flat, up a mere 0.04% while China’s Shanghai Composite gained 0.20%, Australia’s ASX All Ordinaries rose 0.95%, and Japan’s Nikkei closed 1.16% higher keeping that index into multi-decade highs as current economic indicators point to the country’s long-fought battle with deflation coming to an end.
European markets are mixed in midday trading and U.S. equity futures are pointing to down market open later this morning.
Following yesterday’s technology led pop in the market, negative earnings pre-announcements last night and this morning are leading investors to re-think prospects for the upcoming Q4 2023 earnings season. They are also facing further pushback on the expected pace of Fed rate cuts later this year. Yesterday, while Atlanta Fed Head Raphael Bostic shared that inflation has come down more than he expected and is on a path today to reaching the Fed's 2%, he repeated his expectation for two rate cuts this year, and shared that he expects the first cut in the third quarter. Federal Reserve Governor Michelle Bowman joined Bostic in throwing some cold water on the market’s rate cut expectations, and we will see if Michael Barr, Vice Chair for Supervision of the Board of Governors of the Federal Reserve, joins them later today.
We’d call out that even though it’s still way off its October high, the yield on the 10-year Treasury has quietly climbed back above 4% and the market still sees a better than 50% probability the Fed will begin cutting rates in March. It would appear some may need to re-learn an old Wall Street lesson - don’t fight the Fed.
Data Download
International Economy
According to the China Passenger Car Association, 5.26 million made-in-China vehicles were sold overseas last year, about a million more than exports of made-in-Japan cars. Through the first 11 months of 2023, Japan shipped just under four million vehicles abroad.
The seasonally-adjusted jobless rate in the Euro Area hit 6.4% in November, matching June’s historic low, and down from the 6.5% level posted for the four months ending in October.
Domestic Economy
The NFIB Small Business Optimism Index increased 1.3 points in December to 91.9, marking the 24th consecutive month below the 50-year average of 98. Twenty-three percent of small business owners reported that inflation was their single most important problem in operating their business, up one point from last month, and replacing labor quality as the top concern. Seasonally adjusted, a net 32% plan price hikes in the next three months. 40% (seasonally adjusted) of all owners reported job openings they could not fill in the current period.
Long-standing monetary policy hawk Federal Reserve Governor Michelle Bowman said rate cuts will be considered once inflation falls closer to the Fed's 2% goal over time to prevent policy from becoming overly restrictive. "In my view, we are not yet at that point, and important upside inflation risks remain." Bowman pointed to the risk of continued labor market tightness leading to persistently high core services inflation, sharing she is still willing to raise rates further if data shows that progress on inflation has stalled or reversed.
Markets
Equities found a bounce in their step yesterday, except for Energy which traded off 1.16% after it was reported that the Supreme Court refused to hear a motion to move an environmentally focused case brought against Exxon Mobil (XOM) and the American Petroleum Institute from state to federal court. Leadership came from Technology (2.51%), Consumer Discretionary (1.70%) and Communication Services (1.55%) as the so-called Magnificent Seven made their first appearance in 2024, lifting these sectors above all others. Materials (0.43%) and Financials (0.64%) lagged. Broad indexes all posted gains as the Dow rose 0.58%, the S&P 500 added 1.41%, the Russell 2000 advanced 1.94%, and the Nasdaq Composite closed 2.20% higher.
There wasn’t much that traded lower yesterday but shares of AT&T (T) fell 0.86% after S&P Global Rating gave the company’s debt that finances the Direct TV division a “BB” rating and Moody’s graded it “Ba3”, a “BB-” equivalent on the S&P scale. For reference, anything rated below BBB-/Baa3 is considered a “below investment grade” investment.
Here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: -0.02%
- S&P 500: -0.13%
- Nasdaq Composite: -1.12%
- Russell 2000: -1.88%
- Bitcoin (BTC-USD): 11.92%
- Ether (ETH-USD): 1.68%
Stocks to Watch
Acuity Brands (AYI), Albertsons (ACI), MSC Industrial (MSM), TD Synnex (SNX), and Tilray (TLRY) are expected to release quarterly earnings before equities begin trading later this morning.
Pre-market breadth is a little lighter today as 251 names in the S&P 500 have traded hands so far this morning with 67 gainers and 184 decliners. Shares of Juniper Networks (JNPR) are looking to open over 20% higher and Hewlett Packard Enterprise (HPE) are on track to open around 10% lower displaying classic acquisition positioning (more below).
Samsung Electronics (SSNLF) shared its Q4 2023 operating profit to drop around 35% to about 2.8 trillion Korean Won compared 4.31 trillion in the year ago quarter, much worse than expected as weak consumer demand persisted in many of its businesses even as memory chip prices improved. This follows LG Electronics (KRX:066570) issuing Q4 2023 profit guidance of 313 billion won, well below estimates due to intensifying competition and higher spending on marketing in the television and home appliance markets. Samsung will report its Q4 2023 earnings on January 31.
Extreme Networks (EXTR) now expects its second quarter revenues to be between $294-$297 million, below its prior revenue guidance of $312-$327 million. The company expects annualized subscription and support revenue to be around $430 million, led by 41% YoY subscription growth, accelerating from 32% in the prior quarter and expects recurring revenue to account for 33% of total revenue. Per the company, its “revised second fiscal quarter outlook reflects industry headwinds of channel digestion and elongated sales cycles. In late Q2, we saw multiple large deals pushing out to future quarters.”
Microchip (MCHP) also reduced its quarterly revenue forecast to $1.76 billion, down 22% quarter-over-quarter and below its prior guidance for a 15%-20% fall as well as below the $1.87 billion consensus revenue forecast. Management explained the updated outlook this way - “The weakening economic environment that our customers and distributors faced during the December 2023 quarter resulted in many of them wanting to receive a lower level of shipments as they took actions to further de-risk their inventory positions…Many customers also had extended shutdowns or closures at the end of the December quarter as they managed their operational activities.”
BioNTech (BNTX) now sees 2024 revenue coming in around €3 billion compared to the €3.75 billion consensus forecast. The company plans to provide detailed full year 2024 financial guidance when it reports its Q4 2023 results on March 20.
In a filing with the SEC, Unity Software (U) disclosed it would cut about 1,800 employee roles, or about 25% of its current workforce as part of a restructuring and refocusing efforts on its core business. The company said it cannot reasonably estimate the costs and charges in connection with this reduction, which will be substantially incurred in the Q1 2024.
The Container Store Group (TCS) now expects consolidated net sales for its third quarter to be about $214 million, down from its prior guidance range of $220-$225 million, and expects its profitability for the quarter to be negatively impacted by the sales shortfall.
Jefferies (JEF) reported November quarter EPS of $0.30 per share, $0.04 better than the consensus forecast, on revenue that fell 16.7% YoY to $1.2 billion. Investment Banking and Capital Markets net revenue of $1.06 billion slipped from $1.17B in the previous quarter but edged up from $1.5 billion in the year-ago quarter.
ByteDance (BDNCE), the company behind social media platform TikTok, is engaged in discussions to sell its game titles to potential buyers including the world's largest video game company Tencent (TCEHY).
Shares of Juniper Networks (JNPR) soared in after hours trading last night following a Wall Street Journal report that Hewlett Packard Enterprise (HPE) was in advanced talks to buy the networking name for about $13 billion.
IPOs
Readers who want to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.
After Today’s Market Close
PriceSmart (PSMT), SMART Global (SGH), and WD-40 (WDFC) are expected to report quarterly results after equities stop trading today. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.
On the Horizon
Wednesday, January 10
- US: Weekly MBA Mortgage Applications
- US: Wholesale Inventories – November
- US: Weekly EIA Crude Oil Inventories
Thursday, January 11
- Japan: Leading Indicators Index (Preliminary) - November
- US: Weekly Initial & Continuing Jobless Claims
- US: Consumer Price Index – December
- US: Weekly EIA Natural Gas Inventories
- US: Treasury Budget – December
Friday, January 12
- China: Inflation Rate, Producer Price Index – December
- Japan: Eco Watchers Survey – December
- UK: Industrial Production, Manufacturing Production - November
- US: Producer Price Index - December
Thought for the Day
“We are addicted to our thoughts. We cannot change anything if we cannot change our thinking.” ~Santosh Kalwar
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
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Mark Abssy
Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.
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