>>> US Close Dow +0,61% S&P +1,20% Nasdaq +1,76% Russell +0,67%

Closing Stock Market Summary

Today's trade shaped up to be decidedly positive after hitting an air pocket around mid-morning. The main indices moved higher right out of the gate following Tesla's (TSLA 160.27, +15.84, +11.0%) strong quarterly results and outlook, which drove a continued rebound in the mega cap space, and Chevron's (CVX 187.79, +8.71, +4.9%) massive $75 billion stock repurchase program announcement. 

There was also a slate of pleasing data releases this morning that helped support the positive bias. Namely, the Advance Q4 GDP Report, weekly initial jobless claims, and December durable goods orders all came in better than expected.

Some eventual selling interest kicked in mid-morning, driven presumably by an awareness that this morning's strong data releases could prevent the Fed from pausing its rate hikes in the near future, along with a lingering sense that the market might be getting ahead of itself with the January rally.

The Dow Jones Industrial Average, weighed down by IBM's (IBM 134.45, -6.31, -4.5%) earnings-driven weakness, and the S&P 500 slipped into negative territory at their intraday lows.

Nonetheless, equities once again proved to be resilient to selling efforts and the main indices resumed their upside charge. The bounce accelerated in the afternoon trade, likely driven by some short-covering activity and a fear of missing out on further gains, the indices closed at or near their highs for the session. 

Mega cap leadership was an important support factor in today's turnaround. The Vanguard Mega Cap Growth ETF (MGK) rose 1.7% versus a 0.8% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.1% gain in the S&P 500.

Ten of the 11 S&P 500 sectors logged a gain today led by energy (+3.3%), which was a reflection of Chevron's strong performance. The influential consumer discretionary (+2.0%), communication services (+1.7%), and information technology (+1.6%) sectors were also among the top performers. 

The consumer staples sector (-0.3%) was the lone the laggard sporting a loss by the close. 

  • Nasdaq Composite: +10.0% YTD
  • Russell 2000: +8.1% YTD
  • S&P Midcap 400: +7.4% YTD
  • S&P 500: +5.8% YTD
  • Dow Jones Industrial Average: +2.4% YTD

Reviewing overnight developments:

  • Q4 GDP-Adv. 2.9% (consensus 2.6%); Prior 3.2%; Q4 Chain Deflator-Adv. 3.5% (consensus 3.2%); Prior 4.4%
    • The key takeaway from the report is that the economy was a long way from a recession in the fourth quarter, although consumer spending (and inflation) did moderate some.
  • December Durable Orders 5.6% (consensus 2.9%); Prior was revised to -1.7% from -2.1%; December Durable Goods-ex transportation -0.1% (consensus -0.2%); Prior was revised to 0.1% from 0.2%
    • The key takeaway from the report is that overall manufacturing activity was actually quite subdued in December, evidenced by the 0.2% decline in nondefense capital goods orders excluding aircraft, which is a proxy for business spending.
  • Weekly Initial Claims 186K (consensus 205K); Prior was revised to 192K from 190K; Weekly Continuing Claims 1.675 mln; Prior was revised to 1.655 mln from 1.647 mln
    • The key takeaway from the report is that the low level of initial claims is indicative of a tight labor market, which is something that should keep the Fed concerned about wage pressures remaining persistently high.
  • December Adv. Intl. Trade in Goods -$90.3 bln; Prior was revised to -$82.9 bln from -$83.3 bln
  • December Adv. Retail Inventories 0.5%; Prior was revised to 0.0% from 0.1%
  • December Adv. Wholesale Inventories 0.1%; Prior was revised to 0.9% from 1.0%
  • December New Home Sales 616K (consensus 614K); Prior was revised to 602K from 640K
    • The key takeaway from the report is that it reflects how the pullback in mortgage rates has spurred some renewed demand among home buyers; however, affordability and supply pressures remain for many prospective buyers and that is holding back overall sales.

American Express (AXP), Chevron (CVX), and Colgate-Palmolive (CL) are among the notable names reporting earnings ahead of tomorrow's open. 

Looking ahead to Friday, market participants will receive the following economic data:

  • 8:30 a.m. ET: December Personal Income (consensus +0.2%; prior +0.4%) and Spending (consensus -0.1%; prior +0.1%), PCE Price Index (consensus 0.0%; prior +0.1%) and core-PCE Price Index (consensus +0.3%; prior +0.2%)
  • 10:00 a.m. ET: December Pending Homes Sales ( consensus -1.0%; prior -4.0%), January University of Michigan Consumer Sentiment - Final (consensus 64.6; prior 64.6)

FT : Smartphones: better kit could depress long-term growth

Smartphones: better kit could depress long-term growth
Extended ownership and less consumer Fomo is bad news for the entire sector

Mobile phone operators once successfully instilled the fear of missing out into their customers, encouraging the replacement of smartphones for the latest models every two years. Network phone subsidies helped keep shipments and earnings at global phonemakers strong. Industry data for past year suggests that is ending.

Global smartphone shipments dropped 18.3 per cent — the most on record — to about 300mn units in the December quarter, according to research group IDC. For the year shipments fell 11.3 per cent, the lowest total for a decade.

Blame temporary disruptions resulting from year-end violent protests over Covid-19 restrictions at Apple’s main iPhone factory in China. Price inflation and slowing global economic growth too affected holiday shopping. Buyers increasingly seek cheaper, older models.

But there is good reason to believe that the poor shipment figures are part of a longer lasting trend. Seven years ago, two-thirds of US consumers replaced their smartphones in two years or less. That gap has widened to about three years owing to more durable materials and increased software updates. Pricier Apple and Samsung flagship models have created a robust market for second-hand phones.

Longer ownership offers green perks. Consider that 80 per cent of a smartphone’s carbon footprint is created during manufacture. About 5bn mobile phones are thrown away each year. Not all parts can be recycled and some can release toxic chemicals.

All this is bad news for the companies. The iPhone is Apple’s most important product, accounting for about half of overall revenue. Samsung Electronics earned more than 40 per cent from its mobile business in the third quarter 2022. Shares of both companies are down a tenth in the past year, reflecting waning demand.

There will be knock-on effects on a larger range of sectors. The duo are the main clients for component makers (flash memory through displays) in Japan, Vietnam, China and South Korea. Less consumer Fomo means more oh-no for the entire smartphone industry.

>>> US Gapping down


Gapping down
In reaction to earnings/guidance:

  • HZO -9.5%, LC -9.4%, SHW -8.9%, WOLF -6.7%, DEO -6.2%, AZPN -5.3%, SAP -4.1%, BOOT -4%, MKC -3.7%, VIRT -3.4%, CCI -3.3%, DOW -3.3% (also outlines series of targeted actions aligned to its previously stated plan to achieve $1 bln in cost savings in 2023), PLXS -2.9%, TER -2.8% (also authorizes new $2 bln share repurchase program), CLS -2.7%, LUV -2.3%, IBM -2% (also will cut about 3,900 jobs, according to Bloomberg), WBS -2%, LRCX -1.5% (also commences 7% workforce reduction), NOW -1.4%, VLY -1.4%, LCII -1.2%, CSX -1.2%, FLEX -1.1%, TROW -0.8%, CMCSA -0.7%, BX -0.7%, JBLU -0.7%

Other news:

  • FNA -10.9% (prices offering of 6.5 mln shares of common stock at $17.00 per share)
  • SNX -7.4% (prices secondary offering of 4.5 mln shares of common stock at $97.00 per share)

Analyst comments:

  • LC -9.5% (downgraded to Neutral from Buy at Janney)
  • BPOP -0.8% (downgraded to Mkt Perform from Outperform at Keefe Bruyette)
  • H -0.7% (downgraded to Equal Weight from Overweight at Wells Fargo)

>>> US Gapping up


Gapping up
In reaction to earnings/guidance:

  • XM +29.9%, STX +9.2%, MBLY +8.5%, TSLA +7.1%, LEVI +6.4%, CNX +4.8%, ETD +4.4%, URI +4.4% (also initiates dividend; also plans to restart its share repurchase program), STM +4.3%, LVS +3.9%, TSCO +3.8%, ROK +3.6%, NOK +3%, XRX +2.8%, BHLB +2.3%, HXL +2% (also increases dividend), AXS +2%, AAL +2%, XEL +1.7%, ADM +1.6%, CALX +1.3%, AIT +1.3%, AXTA +1.2%, NOC +1.1%, RLI +1%, LBRT +1%, NTCT +1%, PLUG +0.9%, STLD +0.8%, MUR +0.6%, VLO +0.6%, CNS +0.5%

Other news:

  • ACIU +11.5% (ACI-24.060 Anti-Amyloid Beta Vaccine for Alzheimer's Shows Positive Initial Interim Safety and Immunogenicity in Phase 1b/2 ABATE Trial)
  • DV +8.2% (to join S&P SmallCap 600)
  • LTRX +4.5% (announces record $40 mln contract with Gridspertise)
  • CVX +3.3% (authorizes new $75 bln share repurchase program; also increases dividend)
  • ET +2.4% (increases dividend)
  • BHLB +2.3% (names new CFO; also authorizes new $50 mln share repurchase program)
  • NKLA +1.9% (introduces new hydrogen energy brand "HYLA")

Analyst comments:

  • FGEN +3.5% (upgraded to Outperform from Mkt Perform at Raymond James)

FT : Blackstone says property fund withdrawals continue as profits fall

Blackstone says property fund withdrawals continue as profits fall
President of alternative asset manager says ‘tone’ of conversations with investors ‘is much improved’

Blackstone is facing ongoing redemption requests from its $69bn real estate investment fund, which limited withdraws at the end of last year as investors rushed to pull cash from the world’s largest alternative asset manager.

Jonathan Gray, president of Blackstone, said in an interview with the Financial Times that it was “a little early” to say redemption requests were slowing at the fund, called Blackstone Real Estate Income Trust, or Breit.

“We have a backlog from November and December,” said Gray. “I will say the tone of the conversations with our advisers is much improved.”

In December, Blackstone limited investor withdrawals from the fund, as investors grew concerned about the long-term health of the property market.

Breit is designed to give wealthy investors exposure to the New York-based group’s sprawling portfolio of commercial real estate properties such as warehouses, apartment buildings and office towers.

The fund has attracted tens of billions of dollars in assets in recent years, fuelling fee and asset growth inside Blackstone.

However, the rapid and sustained redemption requests that kicked off last summer have underscored the risks of offering liquidity for illiquid assets and may drive changes to the way Blackstone builds such funds.

“I think there will be an evolution of private wealth products,” said Gray. “This product has worked as designed, but can there be tweaks that improve things? Sure.” Gray noted that newer funds didn’t allow monthly redemptions.

In fourth-quarter results released on Thursday, Blackstone posted a sharp drop in profits as its fee-based earnings were hit by falling performance at Breit and worsening economic conditions.

Blackstone’s fee-related earnings, a proxy for the management fees it earns, plunged 42 per cent to $1.1bn. Its distributable earnings — a metric that is favoured by analysts as a proxy for overall cash flows — fell a similar amount to $1.3bn. On a per-share basis, the results either met or exceeded analyst forecasts polled by Bloomberg.

The decline in fee-based earnings was caused by a sharp drop in incentive fees — profits Blackstone makes once it has achieved a certain level of return for investors — earned by Breit due to falling performance and an accounting change.

Blackstone marked Breit down by about 1.5 per cent during the quarter, meaning the fund did not earn significant incentive fees. “Nobody was immune to a higher cost to capital and higher cap rates, but we saw really strong cash flow growth,” said Gray of Blackstone’s property portfolio.

At the beginning of 2022, Blackstone began recording incentive fees earned by Breit on a quarterly basis, instead of an annual basis.

Had the policy been in place in 2021, Blackstone’s fee-related earnings would have declined 19 per cent, due to the lack of incentive fees.

Blackstone shares initially tumbled sharply when Breit limited withdrawals, but they have recovered most of their losses, fuelled by a broad market rebound and a $4bn investment made by the University of California into the fund this month. On Wednesday, the university invested a further $500mn into Breit.

Institutional investors such as UC continue to pour money into Blackstone, which raised more than $43bn for the quarter, propelling overall assets under management to a record $975bn.

Gray said he remained optimistic about the long-term opportunity in attracting new assets from wealthy investors despite the troubles at Breit.

He said that while only 1 per cent of the $85tn in wealth available to be invested was in alternatives, that would rise over time.

“I remember in the 2008 and 2009 time period, people saying institutions wouldn’t invest in alternatives anymore. Obviously, that didn’t prove to be the case,” said Gray.