Stocks Rose in Final Trading Session of the Week

U.S. equities ended higher for the day and mixed for the week, with the Dow and S&P 500 posting their first weekly declines of the new year. Equity news remained focused on earnings, as Netflix fell well short of estimates but easily beat the Street's forecasts for subscribers, and PPG Industries bested expectations. Meanwhile, Alphabet announced it will slash its workforce by 12,000 jobs. Economic news was on the light side today, with the lone report showing an eleventh-straight month-over-month decline in existing home sales. Treasury yields ended higher, and the U.S. dollar dipped slightly, while crude oil and gold prices rose. Asian and European stocks saw gains across the board, as investors digested economic data in their respective regions.

The Dow Jones Industrial Average rose 331 points (1.0%) to 33,375, the S&P 500 Index climbed 74 points (1.9%) to 3,973, and the Nasdaq Composite soared 288 points (2.7%) to 11,140. In moderate volume, 3.9 billion shares of NYSE-listed stocks were traded, and 5.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.03 to $81.64 per barrel. Elsewhere, the gold spot price went up $5.20 to $1,929.10 per ounce, and the Dollar Index dipped 0.1% to 101.98. Markets ended mixed for the week, as the S&P 500 declined 0.7%, and the DJIA fell 2.7%, while the Nasdaq Composite increased 0.6%.

Netflix Inc. (NFLX $343) reported adjusted Q4 earnings-per-share (EPS) of $0.12, well short of the $0.45 the FactSet estimate, while revenues were mostly in line with expectations at $7.85 billion, an 18.5% increase year-over-year (y/y). The on-demand video streaming service company cited a $462 million loss related to Euro-denominated debt for the lower-than-expected EPS figure, but posted an operating margin of 7%, which eclipsed analysts' expectations, and added 7.66 million net subscribers during the quarter, trouncing the Street's forecast of 4.57 million additions. NFLX also announced that co-CEO Reed Hastings will step down from his position and transition to Executive Chairman, with the company's current Chief Operating Officer, Greg Peters, promoted to join Ted Sarandos in the role. Looking ahead, NFLX said it sees Q1 2023 EPS of $2.82 versus estimates for $2.98, on revenues of $8.17 billion, a shade above the Street's $8.15 billion forecast. Shares were nicely higher.

PPG Industries Inc. (PPG $131) posted Q4 EPS of $1.22 ex-items, above the expected $1.13, with revenues nearly flat y/y at $4.19 billion, versus the forecasted $4.11 billion. President and CEO Tim Knavish said the company "continued to make good progress on our focus to achieve full operating margin recovery…despite more acute pandemic-related demand disruptions in China," adding that the earnings improvement was driven by aggregate selling price increases and that it remained focused on alleviating the significant cost inflation incurred the past two years. The paints and coatings maker said it sees Q1 EPS within a range of $1.10-1.20, compared to the FactSet estimate of $1.35, with higher corporate and interest expenses estimated to negatively impact adjusted EPS by roughly $0.20 on a y/y basis. PPG traded to the upside.

Google parent Alphabet Inc. (GOOGL $98) said it will lay off 12,000 employees, or roughly 6% of its workforce, adding to the list of major tech companies shedding workers amid fears of an oncoming recession. In an email to staff, CEO Sundar Pichai said the cuts in the U.S. will begin immediately, but those in other countries could take longer as a result of local laws and practices. Shares were higher.

Q4 earnings season has gained steam and investors continue to grapple with the ultimate impact of aggressive Fed actions to try to combat rising prices. Schwab’s Chief Investment Strategist Liz Ann Sonders notes in our latest Schwab Market Perspective: Slowdown or Recession?, how although it's possible the Federal Reserve will guide the economy to a "soft landing," evidence has been pointing toward recession. You can follow Liz Ann on Twitter: @LizAnnSonders.

The Central Bank downshifted in December from a string of four-straight 75-basis point (bp) rate hikes to a 50-bp increase. However, the deceleration remained unusually aggressive, and the Fed signaled that restrictive policy will likely have to remain in place for longer and at a potentially higher "terminal rate" than expected.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.Existing home sales fall for an eleventh-straight monthExisting home sales were down 1.5% month-over-month (m/m) in December to an annual rate of 4.02 million units, but above the Bloomberg consensus estimate of a 3.96 million-unit pace, while November's figure was adjusted downward to 4.08 million units. Contract closings declined for the eleventh-straight month, marking the lowest level since November 2010, and were down 34.0% versus a year ago. Sales in nearly all four major U.S. regions were down m/m, compared to last year, except for the West, which was unchanged.

The median existing home price was up 2.3% from a year ago at $366,900—marking the 130th straight y/y gain and the longest-running streak on record—but the sixth month in a row that the median sales price decelerated from the record high of $413,800 in June. The number of homes for sale declined 13.4% m/m, with unsold inventory at a 2.9 month's supply at the current sales pace, but up from the 1.7 months pace in the same period last year.

National Association of Realtors Chief Economist Lawrence Yun said, "December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates. However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year."

Treasury rates were higher, as the yield on the 2-year note was up 7 bps to 4.19%, the yield on the 10-year note rose 8 bps to 3.48%, and the 30-year bond rate advanced 9 bps to 3.65%.

Bond yields have seen heightened volatility lately but remain solidly higher over the past year as the markets react to aggressive Fed monetary policy actions. Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article, Fixed Income Outlook: Bonds Are Back, how we see opportunities in 2023 for the bond market to provide attractive yields at lower risk than we've seen for several years. You can follow Kathy on Twitter: @KathyJones.Europe saw gains as markets assess data and future policy uncertaintyStocks in Europe were higher, recouping some of yesterday's losses in a volatile week, in what has otherwise been a strong start to 2023 for equities in the region. The markets continued to wrestle with the global economic outlook, as well as the uncertainty regarding the ultimate impact on the economy and financial conditions of recent global monetary policy decisions to aggressively tighten policies to combat inflation. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his latest article, Go With the Flow, how volatility waves and changing-news tides elicit short-term market moves; economic currents tend to affect longer-term market shifts which may now favor international stocks. You can follow Jeff on Twitter: @JeffreyKleintop. Economic data was light today in the region, and the euro and British pound rose versus the U.S. dollar. Bond yields in the Eurozone were higher, while rates in the U.K. declined.

In economic news, December producer price growth in Germany slowed to 21.6%, down from the 28.2% posted in the prior month, and the lowest level since November 2021. Meanwhile, retail sales in the U.K. tumbled 5.8% y/y last month, more than the 4.1% shortfall forecasted, and down from the prior month. The euro was mostly unchanged versus the U.S. dollar, and the British pound traded lower, while bond yields in the Eurozone and U.K. gained solid ground.

The U.K. FTSE 100 Index was up 0.3%, France's CAC-40 Index gained 0.6%, Italy's FTSE MIB Index advanced 0.7%, Germany's DAX Index increased 0.8%, Spain's IBEX 35 Index rose 1.4%, and Switzerland's Swiss Market Index traded 0.3% higher.

Asia higher amid data and PBoC moves

Stocks in Asia finished higher as investors digested inflation data out of Japan, as well as moves by the People's Bank of China (PBoC). Core nationwide consumer inflation in the island nation rose 4.0% y/y in December, matching expectations and its highest level since 1981. The data comes days after the monetary policy decision from the Bank of Japan (BoJ) to keep its policy stance unchanged, as well as comments aimed at tamping down speculation that it was on the verge of a major policy shift. Meanwhile, the PBoC left its 1-year and 5-year Loan Prime Rates (LPR) unchanged as widely expected, as many analysts noted the unlikelihood of policymakers to make any change on the last day before the Lunar New Year holidays, which will have the Chinese markets closed all next week.

Optimism has ramped up as China has eased COVID restrictions and is continuing to reopen. Meanwhile, the global markets continue to grapple with the aggressive monetary policy tightening from most central banks around the world and what the implications could be. In his article, Global Outlook: Recovery and Risk, Schwab's Jeffrey Kleintop notes how markets may continue to see volatility in 2023 as they navigate between global economic growth and inflation fears, with central banks' decreasing rate hikes and China's reopening.

Japan's Nikkei 225 Index finished 0.6% higher, with the yen losing ground against the U.S. dollar, China's Shanghai Composite Index rose 0.8%, and the Hong Kong Hang Seng Index rallied 1.8% amid solid gains in technology stocks. Australia's S&P/ASX 200 Index increased 0.2% and South Korea's Kospi Index moved 0.6% higher, while India's S&P BSE Sensex 30 Index declined 0.4%.

Markets pare bullish start to the year

The U.S. equity markets suffered their worst week of the new year after starting off 2023 with a bang. All three of the major indexes posted solid losses for the week, with the Dow erasing nearly all its year-to-date (YTD) gains, and the S&P 500 paring its respective advance for the year, while the Nasdaq extended its YTD increase. Worries over future growth appeared to be the main culprit, as worse-than-expected reads on retail sales, building permits, industrial production, and regional manufacturing activity, as well as the eleventh-straight monthly decline in existing home sales, overshadowed a better-than-forecasted Producer Price Index report. As well, the Fed released its Beige Book—an anecdotal read on business activity across the nation used by the Fed to prepare for the next monetary policy decision—which indicated that overall economic activity was relatively unchanged from its last report, with most Districts expecting little difference to growth ahead. Adding to the mix, Q4 earnings season gained some steam, but offered mixed results after a shaky start amid divergent reports from banking heavyweights. Elsewhere, Treasury yields were subdued, crude oil prices were able to rebound after a mid-week drop, the U.S. dollar was rangebound for the week, and gold continued to push higher.

Next week, Q4 earnings season shifts into a higher gear and will likely be the focus. However, the economic calendar will be a busy one and offer a number of reports that could garner interest. More housing data will be released, courtesy of the S&P CoreLogic Case-Shiller Home Price Index for November, new home sales and pending home sales for December, as well as the weekly read on the MBA Mortgage Applications Index. The first look (of three) at Q4 Gross Domestic Product (GDP) is also on tap, as well as durable goods orders for last month, the December Leading Economic Index(LEI), preliminary data on January manufacturing and services activity from S&P Global, and initial jobless claims for the week ended January 21. Rounding out the docket will be a look at the consumer, via personal income and spending for the month of December, as well as the final read on the University of Michigan's Consumer Sentiment Index for January.

The international economic calendar for next week will be highlighted by a host of preliminary reads on manufacturing and services activity, while other reports of note include: China—1-year and 5-year Loan Prime Rates. Japan—department store sales, Leading Index, CPI, and trade balance. Australia—business confidence, CPI, and PPI. Eurozone—consumer confidence, along with German consumer confidence, and the Ifo Business Climate Index. U.K.—public sector net borrowing, and PPI.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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