The attention of Wall Street is divided between Corporate America and the U.S. economy this morning, as we received a number of reports on both fronts. The news on the Federal Reserve will be scant, as the central bank is in a quiet period ahead of next week’s monetary policy decision, which most market pundits believe will result in a 0.25% increase to the benchmark short-term interest rate, to a range of 4.50% to 4.75%.
The economic news was headlined by the first reading on the fourth-quarter 2022 Gross Domestic Product (GDP). Specifically, the Commerce Department report showed that output advanced at an annualized rate of 2.9% during the final three months of last year. That figure was down from the third-quarter growth of 3.2%, but solid nonetheless, given that the holiday shopping season proved to be not as robust as the consensus predicted. The report also showed a smaller-than-expected increase in pricing component of the report. We also learned that initial jobless claims for the week ending January 21st totaled 186,000, which suggests that the labor market is still healthy. Moreover, durable goods orders, which represent goods with a life extending beyond three years, rose 5.6% in December, a stark reversal from the previous month’s decline of 2.1%, and well above the expectation of 2.3%. At 10:00 A.M. (EST), we will get the latest figures on new home sales. The equity futures, which were modestly higher heading into economic releases, are still holding those gains heading toward the opening bell.
On the earnings front, the big news came after the close of yesterday’s trading when electrical vehicle maker Tesla (TSLA) posted its latest quarterly results. The car maker reported earnings per share of $1.19, on a revenue advance of 37%, to $24.32 billion. Of note, the gross auto margin came in at 24.3%, which was well below expectations, but maybe better than some feared. The company also said that it expects delivery (volume) growth of 38%, to two million vehicles, in 2023, with demand increasing after the company began cutting prices on several models in October. Shares of Tesla, which were rallying into the release, are up sharply in pre-market action.
Meantime, International Business Machines (IBM) posted inline earnings of $3.60 a share, on a better-than-expected top-line showing. The company also delivered an upbeat outlook for full-year 2023. However, shares of the technology giant are trading lower in pre-market action, as the company’s guidance on free cash flow generation was slightly disappointing. Overall, IBM stock, which is yielding above 4.5%, has been in Wall Street’s good graces since early October.
It is worth noting that the U.S. equity market sold off sharply on dour outlooks from Microsoft (MSFT) and Boeing (BA) yesterday morning before recouping most of those losses by the closing bell, helped by the continued decline in Treasury market yields. News that the central bank of Canada plans to pause on the interest-rate hiking front going forward raised sentiment that the U.S. Federal Reserve may soon embark on similar less hawkish monetary policy course.
Other reports of note from Corporate America this morning included the latest results from MasterCard (MA), Dow, Inc. (DOW) and McCormick & CO. (MKC). Shares of both Dow and McCormick are looking at lower openings today. The chemicals producer’s fourth-quarter results fell short of Wall Street’s expectations, hurt by higher energy costs, weaker demand, and supply-chain disruptions, and the company said it would cut about 5% of its workforce. Likewise, McCormick’s fourth-quarter earnings and revenue fell short of consensus expectations, and the food processor said it would miss analyst profit expectations for 2023. The stock of MasterCard is little changed after the electronic payments processor posted adjusted diluted EPS of $2.65 on a revenue increase of 12%, to $5.8 billion.
After today’s closing bell the attention of Wall Street will turn to the latest results from Dow-30 components Visa (V) and Intel (INTC). The Intel results will be closely monitored by the Street for signs of how the semiconductor industry, which struggled mightily for much of last year due to supply-chain shortages, is performing. The semiconductor sector has been rallying in recent weeks, as Treasury market yields have fallen. The Intel results may play a big role in whether semiconductor stocks continue to rally or the recent momentum loses steam. – William G. Ferguson
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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