Daily Markets: Macro Concerns Beginning to Emerge

Today’s Big Picture

Asia-Pacific equity indexes ended today’s session up across the board: Australia’s ASX All Ordinaries gained 0.16%, Taiwan’s TAIEX 0.50%, South Korea’s KOSPI 0.65%, Japan’s Nikkei 0.67%, and China’s Shanghai Composite 0.78%. Hong Kong’s Hang Seng set the pace, up 1.00% on a rally led by Health Technology names. India’s markets are closed again today marking the Diwali holiday.

By mid-day trading, major European equity indices are down across the board except for Germany, and U.S. futures point to an uneasy open as of this writing.

The rally that started last Wednesday continued to gain steam yesterday; however, concerns over Big Tech earnings are weighing on equities this morning. Results from Alphabet (GOOGL) and Microsoft (MSFT) confirmed tightening corporate purse strings, dollar headwinds, and falling device demand. On a positive note, cloud demand buoyed both companies’ quarterly results and are positive drivers for their current quarters, despite warnings of continued challenging conditions.

With more technology companies set to report their quarterly results this week, including Meta Platforms (META), Apple (AAPL), and Amazon (AMZN), a clearer picture for cloud, advertising spend, device demand, and currency headwinds should emerge. There are bright spots, such as quarterly results from Visa (V), which had a strong quarter and isn’t factoring a 2023 recession into its outlook. 

As we navigate the coming wave of quarterly results, reports of new Covid outbreaks in Asia are emerging, and the debate over the size of the Fed’s December monetary policy action continues. As we see it, interest rates will be significantly higher entering 2023 vs. the start of 2022, and questions remain as to whether that is fully baked into market expectations for earnings and the economy. 

Data Download

International Economy

The annual inflation rate in Australia climbed to 7.3% in 3Q 2022 from 6.1% in 2Q and above market forecasts of 7.0%. For those keeping score, the 3Q 2022 print was the highest since 2Q 1990.

The index of leading economic indicators in Japan was revised higher to 101.3 in August from a preliminary reading of 100.9 and the final figure of 98.9 in July.

Domestic Economy

In addition to the usual Wednesday weekly economic data that includes the MBA Mortgage Applications Index and EIA’s Crude Oil Inventories data, today brings another look at the housing market. At 10 AM ET, September New Homes Sales will be released, and the headline figure is expected to fall to 0.585 million from 0.685 million the prior month.

Markets

Yesterday saw markets extend gains in the latest rally as traders continue to find positive sentiment in this earnings cycle. The Dow gained 1.07%, the S&P 500 1.63%, the Nasdaq Composite 2.25%, and the Russell 2000 2.73%. All sectors were up although Energy and Healthcare lagged on a relative basis, gaining 0.06% and 0.76% as compared to any number of sectors up 2% or more. Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -12.39%
• S&P 500: -19.03%
• Nasdaq Composite: -28.42% 
• Russell 2000: -20.00%
• Bitcoin (BTC-USD): -56.68%
• Ether (ETH-USD): -60.34%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, we'll get earnings from:

• Automatic Data (ADP)
• Boeing (BA)
• Bristol-Myers (BMY)
• CME Group (CME)
• Garmin (GRMN)
• General Dynamics (GD)
• Hilton (HLT)
• Kraft Heinz (KHC)
• Otis Worldwide (OTIS)
• Waste Management (WM)

Readers will also want to be on the lookout for earnings pre-announcements, both good and bad, and what they could mean for other companies poised to report in the coming days and weeks. 

September quarter results at Alphabet came up short with both revenue and EPS missing consensus forecasts, sending shares lower in after-market trading. Total revenue rose 6.1% to $69.09 billion, below the $70.67 billion consensus, as 38% YoY growth at Google Cloud was offset by 2.5% YoY revenue growth at Google Advertising and the 1.8% YoY drop in YouTube Ad revenue.

Also impacting its revenue were currency headwinds, which are expected to continue in the current quarter, one that will also see YouTube and the Google Network contend with tough YoY comparisons. Momentum is expected to continue in Google Cloud, with the business on track to eventually become profitable, but the company cautioned “advertisers are carefully evaluating the effectiveness of their budgets.” 

While top- and bottom-line results at Microsoft topped September quarter consensus forecasts, the company’s shares sagged in after-market trading last night as investors keyed on slowing cloud revenue growth and tepid guidance. The September quarter beat came in spite of the deteriorating PC market, advertising spend that weakened during the quarter, and dollar headwinds.

Microsoft expects revenue to grow at a "double-digit" YoY rate in its current fiscal year led primarily by continued cloud growth. Those and other segment gains will be "partially offset" by continued declines in PC and gaming sales, more focused advertising spend, and continued dollar headwinds. 

Visa reported better-than-expected September quarter top- and bottom-line results led by strength in consumer payments, resilience in e-commerce, and ongoing recovery in cross-border travel. Payment volume rose 10% YoY in constant dollars with cross-border volume up 36% and processed transactions up 12%. As Visa moves into its fiscal 2023, it is assuming no recession and sees low-double-digit growth for its business but also expects the dollar to remain a revenue headwind. 

In updating its 2022 outlook yesterday, Corning (GLW) now expects the smartphone market to be down ~12% for the year, and notebook and tablet demand to fall 15%. Those declines are skewed to the second half of the year. 

Ahead of Apple’s quarterly results later this week, yesterday Foxconn (HNHAF) shared that its factory in Zhengzhou, China was hit with a Covid outbreak. That factory is currently the world’s largest assembly plant for Apple’s iPhones.

Macau also detected its first new Covid infection in about two months, raising concerns over casino and gaming stocks, including Las Vegas Sands (LVS), MGM Resorts (MGM), and Wynn Resorts (WYNN).

Heineken NV (HEINY), the world’s second-largest brewer, reported in recent weeks it is seeing signs of slowing in demand for its beer in some European markets. This prompted the company to share that there are “reasons to be cautious on the macroeconomic outlook, including some signs of softness in consumer demand.”

IPOs

Intel's (INTC) self-driving technology unit Mobileye (MBLY) priced its 41 million share IPO at $21 per share, above the targeted $18-$21 range. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

CACI International (CACI), Coursera (COUR), Digital Realty Trust (DLR), Ethan Allen (ETD), Flex (FLEX), Ford Motor (F), Fortune Brands Home & Security (FBHS), Lending Club (LC), Meta Platforms (META), Paramount Group (PGRE), ServiceNow (NOW), Spirit Airlines (SAVE), Teladoc (TDOA), United Rentals (URI), and VF Corp (VFC) are expected to report quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. 

On the Horizon

Thursday, October 27

• Germany: GfK German Consumer Climate – November
• Eurozone: European Central Bank Interest Rate Decision
• US: Weekly Initial & Continuing Jobless Claims
• US: 3Q 2022 GDP - Initial
• US; Durable Orders – September
• US: Weekly EIA Natural Gas Inventories

Friday, October 28

• Japan: Tokyo Consumer Price Index – October
• Japan: Bank of Japan Interest Rate Decision
• Eurozone: Business and Consumer Survey - October
• US: Personal Income & Spending, PCE Price Index – September
• US: Employment Cost Index – 3Q 2022
• US: Pending Home Sales – September
• US: University of Michigan Consumer Sentiment Index – Final

Thought for the Day

“It is the struggle itself that is most important. We must strive to be more than we are. It does not matter that we will not reach our ultimate goal. The effort itself yields its own reward.” ― Gene Roddenberry

Disclosures

• Digital Realty Trust (DLR), Intel (INTC) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Apple (AAPL), General Dynamics (GD), Microsoft (MSFT), Visa (V) are constituents of the Tematica Research Thematic Dividend All-Stars Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks Economy Earnings Central Banks