Markets Post a Weekly Decline
U.S. equities ended the day mixed in a quiet trading session, while the major indexes posted solid losses for the week. Investors sifted through more mixed earnings results, as Expedia Group and Lyft fell well short of the Street's expectations, with the latter also disappointing with its Q1 guidance, while PayPal Holdings bested forecasts and offered an upbeat outlook. Economic news remained light, as the lone report showed a better-than-expected increase in consumer sentiment for February. Treasury yields were mixed, and the U.S. dollar traded to the upside, while crude oil prices rose, and gold declined. Asian and European stocks finished lower, as the international markets digested regional data and continued to grapple with the implications of monetary policy tightening.
The Dow Jones Industrial Average rose 169 points (0.5%) to 33,869, and the S&P 500 Index went up 9 points (0.2%) to 4,090, while the Nasdaq Composite lost 71 points (0.6%) to 11,718. In moderate volume, 3.8 billion shares of NYSE-listed stocks were traded, and 4.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.66 to $79.72 per barrel. Elsewhere, the gold spot price went down $3.60 to $1,874.90 per ounce, and the Dollar Index gained 0.3% to 103.56. Markets ended lower for the week, as the S&P 500 declined 1.1%, the DJIA dipped 0.2%, and the Nasdaq Composite fell 2.4%.
Expedia Group Inc. (EXPE $108) reported adjusted Q4 earnings-per-share (EPS) of $1.26, below the $1.69 FactSet estimate, as revenues rose 14.9% year-over-year (y/y) to $2.62 billion, versus the Street's forecast of $2.70 billion. Gross bookings rose 17.0% y/y, and its free cash flow rose to $2.8 billion, down 9.7% from a year ago, but over 70.0% higher compared to 2019. The online travel shopping company said it delivered its most profitable year in 2022, and that demand for travel was strong and accelerating, despite the negative impacts of severe weather. EXPE traded solidly lower.
Lyft Inc. (LYFT $10) posted an adjusted Q4 loss of $0.76 per share, well below the forecasted $0.13 profit that the Street was looking for, as revenues grew 21.1% y/y to $1.18 billion, mostly matching expectations. LYFT said it recorded 20.3 million active riders during the period, essentially flat from Q3 and still below pre-pandemic levels, but 8.7% higher y/y. However, the rideshare company said it sees Q1 2023 revenue of roughly $975 million, compared to the $1.09 billion FactSet estimate, citing seasonality and lower prices. Shares of LYFT plunged over 35%.
PayPal Holdings Inc. (PYPL $81) posted adjusted Q4 EPS of $1.24, besting expectations for $1.20, on a 6.7% y/y increase in revenues to $7.38 billion, nearly in line with projections. Looking ahead, the digital payment and financial firm said it sees EPS within a range of $1.08 to $1.10, compared to the Street's $1.07 forecast, on roughly 7.5% revenue growth. Additionally, PYPL said CEO Dan Schulman will retire and leave the company at the end of 2023 but remain a member of the board of directors. Shares were higher.
Q4 earnings season revved up this week. Results have been mixed, along with guidance as corporations try to determine the ultimate impact of the aggressive Fed monetary policy tightening on the economy and profit margins. Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article Beat it (or Don’t): An Update to a Chilly Earnings Season, how in the face of persistent macro headwinds, earnings growth continues to deteriorate, putting the fundamental backdrop for the market at risk. You can follow Liz Ann on Twitter: @LizAnnSonders.
Consumer sentiment better than forecasts
The preliminary University of Michigan Consumer Sentiment Index (chart) for February showed that sentiment increased more than expected, rising to 66.4 from January's final reading of 64.9, and above the Bloomberg consensus estimate calling for a slight increase to 65.0. A solid rise in the current conditions portion of the index more than offset a slight decline in the expectations component of the report. The 1-year inflation forecast rose to 4.2% from 3.9% in January, and the 5-10-year inflation outlook remained at the prior month's 2.9% rate.
Treasury rates were mixed, as the yield on the 2-year note was down 1 basis point (bp) at 4.51%, while the yield on the 10-year note increased 6 bps to 3.74%, and the 30-year bond rate rose 9 bps to 3.83%.
Treasury yields have jumped in the wake of last week's monetary policy decision from the Federal Open Market Committee (FOMC), where it raised its target for the fed funds rate by 25 basis points (bps). In comments earlier this week at the Economic Club in Washington D.C., Fed Chair Jerome Powell reiterated the Committee's stance that future increases are likely, despite the welcome sign of inflation ebbing, noting that a still-tight labor market, along with persistent inflation, have been drivers in its rate hike campaign. In the latest WashingtonWISE podcast, Economy Is Thriving but Fed Not Ready to Let Go, Schwab's Chief Fixed Income Strategist Kathy Jones and Managing Director of Legislative and Regulatory Affairs Michael Townsend discuss how the economy is thriving, jobs and wages are growing, but the Fed is promising more rate hikes, and what the markets and investors are to make of these mixed messages. You can follow Kathy on Twitter @KathyJones, and Michael @MikeTownsendCS.
Next week’s economic calendar will be far more robust and likely to garner heightened attention along with a Q4 earnings season that will continue in earnest. Investors will get the complete January inflation picture, courtesy of the Consumer Price Index (CPI), the Producer Price Index (PPI), and the Import Price Index. Housing will also be on display, with the NAHB Housing Market Index and housing starts and building permits joining the weekly read on MBA Mortgage Applications. Reads on business activity will come via the Fed's industrial production and capacity utilization report, as well as the Empire Manufacturing Index and the Philadelphia Fed Index. Meanwhile, January retail sales, initial jobless claims for the week ended February 11, January's Leading Economic Index (LEI), and business inventories are also slated for release. Fedspeak will again be heavy and likely to garner some attention as the markets continue to assess the Fed's recent policy moves and what the future may hold.
Europe trimmed some of a strong start to 2023
Stocks in Europe were lower across the board as investors sifted through a host of economic data in the region. Q4 GDP growth in the U.K. matched expectations, the nation's trade balance widened more than forecasts, and industrial production declined at a slower-than-projected rate, while industrial production in Italy surprised to the upside. Meanwhile, investors continue to assess the outlook for monetary policy, as a rate increase last week by the Fed in the U.S. was followed by rate hikes by the European Central Bank (ECB) and Bank of England (BoE). The euro and British pound moved lower versus the U.S. dollar, while bond yields in the Eurozone and the U.K. gained ground.
European markets have had a strong start for 2023, as stocks have been buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening, and expectations that the global central bank's aggressive tightening may cool off. These positive developments have countered uncertainty regarding the ultimate implications of aggressive monetary policy tightening around the world on the global economy and financial conditions. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his latest article, The Everything Everywhere All at Once Rally, how despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists. You can follow Jeff on Twitter: @JeffreyKleintop.
The U.K. FTSE 100 Index was down 0.4%, France's CAC-40 Index declined 0.8%, Germany's DAX Index dropped 1.4%, Spain's IBEX 35 Index fell 1.2%, Italy's FTSE MIB Index lost 0.9%, and Switzerland's Swiss Market Index traded 0.8% lower.
Asia closes out week lower
Stocks in Asia followed in the footsteps of the U.S. markets to finish lower to end the week. The global markets continued to wrestle with uncertainty regarding how long global central banks will remain in monetary policy tightening mode. Last week, the Fed in the U.S., the European Central Bank, and the Bank of England all raised rates, while the Reserve Bank of Australia and the Reserve Bank of India followed suit with their own increases. Equities in mainland China and Hong Kong led to the downside amid weakness in the Technology sector. Geopolitical tensions between the U.S. and China remained heightened in the wake of the U.S. downing what was believed to be a Chinese spy balloon that was floating over U.S. soil. In economic news, wholesale prices in China fell more than forecasts, but consumer prices continued to rise.
Optimism of China’s reopening has countered the uncertainty regarding the ultimate impact of the aggressive monetary policy tightening from most central banks around the world. 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 was the lone market in the region to close in the green, up 0.3%, with the yen seeing some strength amid a Nikkei report that Kazuo Ueda will be appointed the Bank of Japan's next governor. China's Shanghai Composite Index finished 0.3% lower, and the Hong Kong Hang Seng Index tumbled 2.0% after a tumultuous week of trading. Australia's S&P/ASX 200 Index declined 0.8%, India's S&P BSE Sensex 30 Index declined 0.2%, and South Korea's Kospi Index lost 0.5%.
The international economic calendar for next week will offer some reports that may shape market action, including Japan—Q4 GDP, industrial production, Tertiary Industry Index, trade balance, and core machinery orders. Australia—consumer and business confidence, and employment data. Eurozone—Q4 GDP, industrial production, trade balance, as well as German wholesale prices. U.K.—employment figures, CPI, PPI, Retail Price Index, and retail sales.
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 is 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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