Closing Stock Market SummaryThe stock market showed some impressive resilience to selling efforts early on before the main indices faded away around midday and ultimately settled the session near their worst levels of the day. Market participants were likely driven by a feeling that the market had gotten overbought/overextended and was due for some consolidation.
Investors reacted negatively to some disappointing earnings and/or guidance from several notable companies, namely Alphabet (GOOG 105.22, -3.58, -3.3%), Amazon.com (AMZN 103.39, -9.52, -8.4%), Qualcomm (QCOM 135.02, -0.83, -0.6%), Starbucks (SBUX 104.30, -4.85, -4.4%), and Ford (F 13.23, -1.09, -7.6%). Apple (AAPL 154.50, +3.68, +2.4%) also missed earnings estimates and traded down 2.0% at this morning's low, but recovered from its early loss and closed the session with a gain.
The main sticking point for investors is that the disappointing earnings guidance does not bode well for the overall 2023 earnings picture.
Market participants were also digesting stronger than expected economic data that created some doubts as to whether the Fed will pause its rate hikes soon and cut rates at all before the end of the year. Briefly, the January Employment Situation Report showed some stunning growth in nonfarm payrolls (+517,000), and the January Services PMI was stronger than expected and back in growth mode with a 55.2% reading.
Treasuries sold off sharply in response to the data releases. The 2-yr note yield rose 21 basis points to 4.29% and the 10-yr note yield rose 14 basis points to 3.53%. The U.S. Dollar Index rose 1.2% to 102.96. Separately, the fed funds futures market is now accounting for the prospect of a third 25 basis point rate hike in May. According to the CME FedWatch Tool, the probability of a rate hike in May, in addition to the one that is fully priced in for March, increased to 61.8% from 30.0% yesterday.
Equities sold off in a broad and orderly fashion today. The Vanguard Mega Cap Growth ETF (MGK) closed down 1.5%, the Invesco S&P 500 Equal Weight ETF (RSP) closed down 1.2%, the S&P 500 closed down 1.0%, and the Nasdaq closed down 1.6%.
All 11 S&P 500 sectors registered losses ranging from 0.1% (financials) to 3.1% (consumer discretionary).
- Nasdaq Composite: +14.7% YTD
- Russell 2000: +12.8% YTD
- S&P Midcap 400: +11.4% YTD
- S&P 500: +7.7% YTD
- Dow Jones Industrial Average: +2.4% YTD
Reviewing today's economic data:
- January Nonfarm Payrolls 517K (consensus 190K); Prior was revised to 260K from 223K; January Nonfarm Private Payrolls 443K (consensus 175K); Prior was revised to 269K from 220K;
- January Unemployment Rate 3.4% (consensus 3.6%); Prior 3.5%; January Avg. Hourly Earnings 0.3% (consensus 0.3%); Prior was revised to 0.4% from 0.3%; January Average Workweek 34.7 consensus 34.4); Prior was revised to 34.4 from 34.3
- The key takeaway from the report is that it has the market questioning its own conviction about the prospect of the Fed cutting rates before the end of the year, as it is thought the remarkable strength of the report could have the Fed questioning its own conviction about pausing rates soon.
- January IHS Markit Services PMI - Final 46.8; Prior 46.6
- January ISM Non-Manufacturing Index 55.2% (consensus 50.3%); Prior was revised to 49.2% from 49.6%
- The key takeaway from the report is that business activity for the services sector, which comprises the largest swath of U.S. economic activity, quickly rebounded into growth mode after contracting for the first time since May 2020 in December. That should be seen as supportive for the soft-landing scenario.
Cummins (CMI), ON Semiconductor (ON), and Tyson Foods (TSN) are among the companies reporting earnings ahead of Monday's open.
There is no U.S. economic data of note on Monday.