This morning, one that is light on economic news, has investors again eying the Federal Reserve and some notable reports from Corporate America. The headline news came after yesterday’s closing bell with the latest quarterly results from Dow-30 component The Walt Disney Company (DIS).
The entertainment giant posted adjusted fiscal first-quarter (ended December 31st) earnings per share of $0.99, on a 7.7% gain in revenues, to $23.51 billion. The bottom-line figure was well above Wall Street’s forecast, but what investors cheered most was the company’s unveiling of a restructuring plan that includes layoffs, $5.5 billion in potential cost cuts, and a new three-part organizational structure focused on Parks, Entertainment, and ESPN. Disney also said it will reinstate the dividend, which was suspended during the peak of the pandemic in 2020. Shares of Disney are up sharply in pre-market action.
In general, the quarterly results since yesterday afternoon have been well-received by investors. The stocks of casino operators Wynn Resorts (WYNN) and MGM Resorts International (MGM) are higher in pre-market action after the release of fourth-quarter results. Wall Street was most pleased with commentary from Wynn about a significant return of visitation and demand in Macau during the recent lunar New Year holiday period. Shares of beverage giant PepsiCo (PEP) also are pointing to a higher opening after the company reported better-than-expected results for its fourth quarter. The earnings news, at least for the moment, is taking attention away from the possibility of a more-hawkish-than-expected Federal Reserve this year. The U.S. equity market is looking at a higher opening this morning, with the Dow, NASDAQ, and S&P 500 futures all nicely in the green.
This week, trading has been driven mostly by Federal Reserve news and a reaction to some of the data the bank said is expected to dictate its monetary policy decisions this year. Indeed, last week’s labor market report showed outsized job growth in January and a drop in the unemployment rate. That drove Treasury yields higher and short-circuited the recent equity market rally. The S&P 500 Index finished lower in three of the last four trading sessions, while the technology-driven NASDAQ Composite, which was on a roll entering February, has cooled significantly since the January jobs report.
Investors are worried that the strong jobs data will prompt the Federal Reserve to continue its interest-rate hikes in an effort to push the federal funds rate comfortably above the 5.00% level and keep it there for a period long enough to effectively fight inflation. Commentary from senior Fed officials this week did nothing to quell such sentiment. In fact, Federal Reserve Chairman Jerome Powell said on Tuesday that if the U.S. job market further strengthens in the coming months or inflation readings accelerate, the Fed might have to raise its benchmark interest rate higher than it now projects. The spread between the central bank’s 2023 federal funds rate and what the market expected narrowed on the labor market data. Next Tuesday’s Consumer Price Index report is expected to be highly scrutinized for all of the reasons noted above and thus, has to the potential to be a big equity and bond markets mover.
As noted, the economic schedule was very sparse this morning, which is atypical for a Thursday. At 8:30 A.M. (EST), the Department of Labor reported that initial unemployment claims for the week ending February 4th totaled 196,000. The figure was up modestly from the prior week, but still indicates a tight labor market. This data does not change the narrative about the health of the labor market. Tomorrow will be another light day for earnings news, save for the latest reading on U.S. consumer sentiment from the University of Michigan.
Today’s news from Corporate America is helping to stem a selloff that began with last Friday’s jobs report. That said, there still remains a lot of uncertainty for investors, particularly with regard to the Fed’s forthcoming monetary policy decisions and the health of the U.S. economy. Historically, Wall Street does not like uncertainty and stocks don’t tend to fare as well in such an environment. Given this backdrop, we continue to recommend that investors maintain a portfolio consisting mostly of high-quality stocks and cash, while sprinkling in some bond holdings, which tend to do relatively better during weaker economic periods. On point, the Treasury market yield curve remains inverted and the Conference Board’s Measure of CEO Confidence survey shows that most corporate officers see a recession on the horizon.
At the time of this article’s writing, the author did not hold any positions in any of the companies mentioned.
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