This morning, the economic news is on the light side, with only a few notable reports released at 8:30 A.M. (EST). The headline report came from the Commerce Department in the form of the first revision to the fourth-quarter GDP estimate. The figure was revised to 2.7%, down from the previous reading of 2.9%, with the consumption figure revised significantly lower (from 2.1% to 1.4%). Of note, the Personal Consumption Expenditures (PCE) Price index jumped to 3.9%, from 3.5%, which only adds more fuel to the sentiment that the Fed will remain on its restrictive monetary policy course to tame inflation. Meantime, the Labor Department reported that initial jobless claims for the week ending February 18th totaled 192,000, which was down modestly from the previous-week figure, and still a positive indicator about the strength of the U.S. labor market.
The futures, which were higher heading into the economic releases, are still indicating a positive start to the trading day stateside. The Dow, NASDAQ, and S&P futures are up 0.2%, 0.9%, and 0.4%, respectively. The move higher in pre-market action is likely being driven by decent quarterly results (see below) and some selective bargain hunting after a tough stretch of trading that has seen the broader S&P 500 Index decline for four consecutive sessions.
Today’s trading is likely to again focus on the Federal Reserve and its outlook for the benchmark short-term interest rate. Yesterday, the minutes from the central bank’s early February Federal Open Market Committee (FOMC) meeting showed that senior Fed officials believe that maintaining a restrictive monetary policy path is warranted until the rate of inflation moves closer to the bank’s target of 2%. The readout also showed that a few Fed leaders wanted to increase the federal funds rate by 50 basis points, despite most thinking that a quarter-point hike was appropriate. The Fed said that the trajectory on inflation has proven stickier and is still “unacceptably high”, as economic growth has been stronger than anticipated.
It should be noted that the Fed meeting came before the recent data showing stronger-than-expected consumer and producer (wholesale) prices in January. The equity and bond markets sold off some after the release, but the selling was contained, as investors will get another round of jobs, pricing, and retail sales data before the Fed’s late-March FOMC meeting. The February price and jobs data are likely to determine whether the Fed moves more aggressively. Wall Street is still anticipating another quarter-point hike at the next monetary policy meeting. Given the importance of the next round of economic news to the Fed’s thinking, we would not be surprised if the market vacillated over the next fortnight of trading. U.S. Treasury yields resumed their ascent, with the benchmark 10-year note topping 3.95% early this morning.
As noted above, there was some notable earnings news since the close of trading yesterday afternoon for investors to digest. The headline event report came from NVIDIA (NVDA). Specifically, the technology company posted adjusted earnings per share of $0.88, on revenue of $6.05 billion; both figures exceeded Wall Street’s expectations. The semiconductor maker noted that its artificial intelligence (AI)-powered data center business revenue jumped to $3.62 billion in the latest quarter, as compared to $968 million just three years prior. Shares of NVIDIA, which were up more than 40% year to date heading into the release, are expected to make another move higher today. Likewise, shares of Alibaba (BABA) are pointing to a higher start after the China-based technology company reported better-than-expected earnings in the fourth quarter of 2022, though disappointing revenue growth underscored the lingering impact of the COVID-19 lockdowns on the technology company’s business.
In the retailing sector, the results were mixed. On the positive side, the stock of Etsy (ETSY) is pointing to a higher opening after the online marketplace operator reported better-than-expected revenues, powered by merchandise sales growth. Conversely, the shares of online auctioneer eBay (EBAY) are lower in pre-market action after the company reported a decline in sales and profits. The company’s projected revenue for the current quarter also didn’t convince Wall Street that the company’s efforts to revive sales are starting to work. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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