Today’s Big Picture
Asia-Pacific equity markets ended today mixed. Japan’s Nikkei slid 1.44% on the prospects of a stronger Yen having a negative impact on exporters, especially in the auto sector. India’s Sensex declined 0.31%, Hong Kong’s Hang Seng fell 0.12% while China’s Shanghai Composite rose 0.49%, and both Australia’s ASX All Ordinaries and South Korea’s KOSPI gained 0.51%. Taiwan’s TAIEX is closed for a market holiday
By mid-day trading, European equity indices are down across the board except for Turkey, and U.S. futures point to a rocky market open. Despite inflation-related progress found in yesterday’s December Producer Price Index report, several Fed officials comments they continue to see the fed funds rate needing to move above 5% to achieve their stated goal of returning inflation back to 2%. These comments run counter to what the Fed Funds Futures market is pricing into the curve per the CME FedWatch Tool that sees the fed funds rate topping out between 475-500 basis points following the Fed’s March policy meeting. It seems to be an emerging case of “The market is always right” versus “Don’t fight the Fed.” Let’s see if the Fed is as data-dependent as it claims to be or if markets are just projecting what they want to see.
As we note below, we have several more Fed officials making the rounds today but in addition to their comments, investors will be assessing scenarios resulting from the U.S. hitting its debt ceiling later today. Following China’s President Xi Jinping expressing concern about the spread of Covid-19 heading into the Lunar New Year, investors are likely to revisit near-term expectations for China’s economic re-opening. And if that wasn’t enough to put the market in a somber mood, the chorus of companies announcing layoffs and right-sizing efforts saw a number of new additions in the last 24 hours. Despite the tight labor market, those announcements are likely to see consumers take a more cautious approach to spending.
Data Download
International Economy
Christine Lagarde, president of the European Central Bank, told the World Economic Forum in Davos on Thursday that she was determined to “stay the course” with high interest rates to get inflation down.
Domestic Economy
At 8:30 AM ET, The Commerce Department will release December’s Housing Starts and Building Permits Data. Housing starts are anticipated to come in at 1.36 million down from 1.43 million a month earlier. However, the number of building permits is expected to have increased to 1.37 million in December from November’s 1.35 million.
Also at 8:30 AM ET, the January Philadelphia Fed Index will be published and is expected to rebound modestly to a reading of -11.0 from December’s -13.8 print.
The U.S. is expected to hit its statutory debt limit of $31.4 trillion later today, an event that will prompt a series of extraordinary measures to avoid a default on government debt.
We also have another round of Fed officials making the rounds today, including Federal Reserve vice chair Lael Brainard, Boston Fed President Susan Collins, and New York Fed President John Williams. Following comments yesterday from other Fed officials looking for the fed funds rate to move past 5%, we expect the market will look for confirmation today as a sign of what’s likely for Fed monetary policy in the coming months. Added to that mix, earlier this morning JPMorgan (JPM) CEO Jamie Dimon shared he sees rates going above 5% because of inflation and expects a mild recession in 2023.
Markets
Yesterday saw markets trade off as the combination of December retail spending numbers and recession concerns prompted traders to remember the old saying that, “nobody ever lost money selling into a gain.” The Nasdaq Composite fell 1.24%, the S&P 500 dropped 1.56%, the Russell 2000, closed 1.59% lower, and the Dow declined 1.81%, putting it 0.45% away from erasing all gains made since the start of the year. Sectors were all down, with the Utilities (-2.40%) and Consumer Staples (-2.73%) taking the biggest hits. There really wasn’t a safe place yesterday as all sectors were off anywhere from 1.20% to 1.90%. One bright spot was JB Hunt Transportation Services, which rallied 4.95% yesterday despite missing EPS targets as the company said it saw supply chain issues settling down and overall demand for freight services stabilizing in the second quarter of 2023.
Here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: 0.45%
- S&P 500: 2.33%
- Nasdaq Composite: 4.69%
- Russell 2000: 5.29%
- Bitcoin (BTC-USD): 24.68%
- Ether (ETH-USD): 26.91%
Stocks to Watch
Before trading kicks off for U.S.-listed equities, Banc of California (BANC), Comerica (CMA), Fastenal (FAST), Heartland Express (HTLD), Procter & Gamble (PG), and Truist (TFC) are expected to report their quarterly results. We would caution readers to be on the watch for earnings pre-announcements as we move into the heart of earnings season.
Supermicro (SMCI) expects its second-quarter sales above its previously provided forecast and raised its EPS guidance range. The company now expects to report Q2 sales of around $1.77-$1.80 billion, and GAAP EPS of $2.95-$3.10, up from its prior guidance of $2.54-$2.81.
During a presentation at an RV show yesterday, Camping World (CWH) CEO Marcus Lemonis warned on current retail demand, new RV inventory levels, and negative pricing trends.
Bloomberg reports Apple’s (AAPL) new smart home products are looking to compete with Amazon (AMZN) and Google (GOOGL).
Bed Bath & Beyond (BBBY) is still in the process of talking to potential acquirers on potential sales of parts of the business and with lenders on financing options. So far, the company has only confirmed it is working with strategic advisers to evaluate all paths to regain market share and enhance liquidity.
On the headcount reduction front: In a filing with the SEC, online auto retailer Vroom (VRM) shared it let go of 275 employees, ~20% of its workforce, a move that it expects to save ~$27 million. This latest round of layoffs leaves the company with roughly half the number of employees it had entering 2022. Inspirato (ISPO) will streamline its operations, including a workforce reduction, effective immediately, that impacts ~12% of the company’s current staff. And Wallbox (WBX) also announced measures to re-align its cost structure, including reducing its workforce by ~15%.
IPOs
The near-term IPO calendar is relatively light so there are no significant IPOs slated to price this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.
After Today’s Market Close
Netflix (NFLX) and PPG Industries (PPG) are among the handful of companies slated to report their latest 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
Friday, January 20
- Japan: Consumer Price Index – December
- UK: Retail Sales – December
- Germany: Producer Price Index – December
- US: Existing Home Sales – December
Thought for the Day
“You can complain about bad weather or you can splash around in a puddle.” ~ Anonymous
Disclosures
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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