Will they or won’t they? On or off? When deciding whether to be fully invested on the stock market, or whether to enter the market at all, many investors are trying to anticipate the Federal Reserve’s next move regarding interest rates. The choppiness in the market, where stocks seem to lack direction and conviction, suggests investors are still on the fence about inflation and what the Fed will do to fight the rising cost of living.
After stock fell on Thursday on fears that the Fed might need to hikes rates, stocks closed mostly lower on Friday, with both the the Dow Jones Industrial Average and the S&P 500 booking weekly losses. But Friday's session didn’t end as bad as it started, with the Dow opening with a loss of more than 300 points. Surging wholesale prices, released on Thursday, signaled that inflation is not retreating as quickly as investors would like, or in a way to compel the Fed to pivot from its hawkish stance.
The broad consensus among Wall Street analysts is that the Fed in its March meeting will hike rates by another 25 basis points, as it did at its last policy meeting. However, there’s a sense that the hike might be as high as 50 basis points. It remains to be seen what the ultimate increase is, (assuming there is an increase, which, admittedly, looks very likely at this point). But concerns moderated as trading continued, allowing the Dow not only to recover into positive territory by the closing bell, but also both the Nasdaq and S&P 500 trimmed their losses.
The Dow rose 129.84 points, or 0.4%, ending at 33,826.69, while posting a 0.1% weekly drop. The Dow was powered by healthcare giants, namely UnitedHealth (UNH), Amgen (AMGN) and Johnson & Johnson (JNJ). With declines in tech heavyweights Nvidia (NVDA), Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT), the technology-heavy Nasdaq Composite index declined 68.56 points, or 0.58%, to close at 11,787.27. The S&P 500 shed 0.28%, or 11.32 points to close at 4,079.09. For the week, the S&P 500 gave up 0.3% and posted its second consecutive weekly decline.
Friday’s trading action is yet another example of what’s good for the economy is not always perceived in the same light for stocks. The good news is that the labor market remains strong, with the unemployment rate hovering near 3% even as the inflation is on the rise. However, the market’s focus on the Fed’s policy decisions is understandable. In the meantime, evidenced by the solid earnings reports we have seen, companies are controlling the things they can.
Will that trend continue this week? Here are the earnings I’ll be watching.
Lucid Group (LCID) - Reports after the close, Wednesday, Feb. 22
Wall Street expects Lucid to post a per-share loss of 40 cents on revenue of $302.61 million. This compares to the year-ago quarter loss of 21 cents per share on revenue of $661.04 million.
What to watch: One of the main questions investors want to know as we head into the quarterly earnings results is whether Lucid’s decision to enter the EV pricing war will boost demand. The company last week announced that customers can receive a $7,500 electric vehicle credit on the purchase of the Lucid Air. The promotion is an effort to reduce the price tag on those vehicles that don’t currently qualify for the government's EV tax credit under the Inflation Reduction Act. "We think our customers still deserve a $7,500 credit for choosing an EV. Lucid Air owners have told us how much they love this car, from the world-class driving experience to the elegant design and spacious interior,” the statement read. “With this limited time offer, we hope to get Lucid Air into the hands of even more customers so they can experience the best for themselves.” While the discount incentive may drive higher sales, it is likely to come at the expense of lower margins, thus lower cash flow. The company has already struggled generate positive operating cash flow, and is currently utilizing the cash on its balance sheet to fund its operations. When factoring its operating cash burn and its capital expenditures, Lucid burned through $2.4 billion in the first three quarters of 2022. One of the main initiatives for 2023 is to ramp up production and deliveries. On Wednesday the company will need to outline how it can achieve its growth objectives and do so profitably.
Nvidia (NVDA) - Reports after the close, Wednesday, Feb. 22
Wall Street expects Nvidia to earn 81 cents per share on revenue of $6.01 billion. This compares to the year-ago quarter when earnings came to $1.32 per share on revenue of $7.64 billion.
What to watch: Shares of Nvidia have skyrocketed over the past thirty days, surging more than 30%, compared to a 2% rise in the S&P 500 index. And there could be more room to run, according to Bank of America analyst Vivek Arya. While citing the chipmaker's potential gains from advances in artificial intelligence technology, Arya last week boosted his price target to $255 per share, up from $215. The price target assumes potential returns of 20% from current levels of $212. Among his many catalysts, Arya also referred to Nvidia's "full stack" of accelerated silicon, systems, software and developers which puts the company in a position to "lead the nascent generative AI arms race among global cloud and enterprise customers.” In the near term, it’s whether the company can continue to navigate through weakening demand for its chips used in the gaming end market. In the most recent quarter, revenues from the Gaming market platform declined 51% year over year, while falling 23% sequentially. However, thanks to the growing adoption of cloud-based solutions and the growing hybrid work, Nvidia continues to enjoy some tailwinds in its Datacenter business, which may boost its fourth-quarter revenues. To continue to the stock's upward trend the company on Wednesday will need to talk positively about its growth prospects for the next quarter and beyond.
Alibaba (BABA) - Reports before the open, Thursday, Feb. 23
Wall Street expects Alibaba to earn $2.37 per share on revenue of $35.73 billion. This compares to the year-ago quarter when earnings came to $2.59 per share on revenue of $33.71 billion.
What to watch: Since the end of the December, shares of Alibaba have been on an impressive run, suggesting renewed optimism that a rebound in China might be underway as the country emerges from its zero-COVID sluggishness. The stock has risen close to 20% year to date, compared to a 6% rise in the S&P 500 index, surging from around $91 to as high as $110. And when factoring 2022 lows on Oct. 24 or around $58, BABA stock has skyrocketed close to 90%. Investors want to know whether these gains are sustainable, and if there is room for more upside. The gains in BABA has been fueled by the fact that Chinese regulators are eager to reopen the country's economy, reversing their long-standing zero-Covid policy. Alibaba currently extracts roughly 65% of its total revenue from its China Commerce segment. A bet on Alibaba’s ability to capitalize on China’s reopening looks like a good one, particularly given not only the company’s diversified revenue sources within the country, but also its cloud potential. BABA recently announced plans to invest $1 billion over the next three years to boost its cloud prowess, and although the cloud is currently a small portion of its overall business, management has begun to prioritize it as a crucial piece towards long-term growth and profitability. On Thursday the stock can continue its climb if Alibaba can deliver a top- and bottom-line beat and provide confidence outlook for the next quarter and full year.
Nikola (NKLA) - Reports before the open, Thursday, Feb. 23
Wall Street expects Nikola to lose 43 cents per share on revenue of $32.13 million. This compares to the previous quarter when the loss came to 54 cents per share on revenue of $24.24 million.
What to watch: The main question heading into this quarter is whether Nikola has enough lasting power, particularly with its cash burn, to sustain the high capital costs of running an electric vehicle company. Although the company has met its delivery targets and appears on track to boost production in 2023, it’s not yet clear whether Nikola has a clear path towards sustained revenue and profitability. However, with several operating headwinds now removed, the road is less treacherous. On the bright side, the company’s has made significant progress in its effort to build out its fueling network for hydrogen-fueled heavy trucks. Aiming to be a leading producer of electric trucks powered by hydrogen, the company plans to operate that segment under the HYLA brand and will supply for not only its own big rigs, but also those of its competitors. “The strategic mission of HYLA at Nikola is to secure supplies of clean hydrogen and then to distribute it to our customers at very competitive prices,” said Carey Mendes, president of the company’s energy unit. “It will, of course, support not only our vehicles, but it's also going to support every other manufacturer of hydrogen-powered vehicles who are going to need this in the future.” The company also recently received approval from the California Air Resources Board (CARB) for eligibility of major incentives for potential hydrogen truck buyers. If the company on Thursday can instill optimism that growth and profitability can still be achieved in the quarters ahead the stock may yet find some traction to climb higher.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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