Stocks Ended Higher as Dow Members Post Mixed Earnings Data

U.S. equities closed out the week on a positive note, as investors sifted through another heavy dose of earnings and economic data. Dow components posted mixed earnings results, as Visa bested expectations, and American Express missed forecasts but offered upbeat guidance. Additionally, Dow member Chevron also fell short, and Intel disappointed the Street amid a fourth-consecutive quarter of declining sales and warned of future losses. Meanwhile, KLA Corporation beat estimates but offered lackluster guidance. News on the economic front was upbeat, as personal income rose, pending home sales posted a gain for last month, and consumer sentiment was positively revised. Treasury yields were higher, and the U.S. dollar increased, while crude oil and gold prices declined. Asian stocks finished out the week with gains in continued light volume as mainland Chinese markets remained closed for the Lunar New Year holiday, and markets in Europe were higher for the most part amid some cautious trading ahead of a host of monetary policy decisions slated for next week.

The Dow Jones Industrial Average increased 29 points (0.1%) to 33,978, the S&P 500 Index went up 10 points (0.3%) to 4,071, and the Nasdaq Composite rose 109 points (1.0%) to 11,622. In moderate volume, 3.9 billion shares of NYSE-listed stocks were traded, and 6.2 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.33 to $79.68 per barrel. Elsewhere, the gold spot price went down $2.40 to $1,927.60 per ounce, and the Dollar Index gained 0.1% to 101.95. Markets ended higher for the week, as the S&P 500 climbed 2.5%, the Nasdaq Composite soared 4.3%, and the DJIA advanced 1.8%.

Dow member Intel Corporation (INTC $28) reported adjusted Q4 earnings-per-share (EPS) of $0.10, well short of the $0.21 FactSet estimate, with revenues tumbling 28.1% year-over-year (y/y) to $14.04 billion, compared to the Street's expected $14.45 billion, marking the fourth-consecutive quarter of declining sales. Looking ahead, the chipmaker said it expects to post a Q1 loss of $0.15 per share on revenues within a range of $10.5 billion to $11.5 billion, compared to analysts’ forecasts for a profit of $0.24 per share on sales of $13.9 billion. Shares were solidly lower.

Dow component Visa Inc. (V $231) posted adjusted fiscal Q1 EPS of $2.18, above the $2.01 that the Street was expecting, as revenues rose 12.4% y/y to $7.94 billion, ahead of the forecasted $7.70 billion. CEO Al Kelly, who will step down from his role at the start of February, said it continued to benefit from a "continued cross-border travel recovery,", which grew 22% during the quarter, while payments rose 7% citing "remarkably resilient" consumer spending. V traded higher.

Dow member American Express Company (AXP $172) reported adjusted Q4 earnings of $2.07 per share, below the expected $2.23, with revenues declining 17.4% y/y to $14.18 billion, south of the forecasted $14.23 billion. However, AXP said it sees FY2023 EPS within a range of $11.00 to $11.40, and revenue growth of between 15-17%, above the Street's respective forecasts of $10.53 per share and an 11.1% increase in sales. Additionally, the company said it plans to up its quarterly dividend by 15% to $0.60 per share. AXP was over 10% higher.

Dow component Chevron Corporation (CVX $179) reported Q4 earnings of $4.09 per share ex-items, missing the $4.33 that analysts were expecting, while revenues rose 17.3% y/y to $56.47 billion, compared to forecasts calling for $52.68 billion. The second largest oil producer in the U.S. cited $1.1 billion in writedowns in its international operations, as well as the decline in oil and gas prices. The results come in the wake of its announcement yesterday that it will increase its quarterly dividend by roughly 6.0% to $1.51 per share, and that it will repurchase $75.0 billion of its shares. CVX traded to the downside.

KLA Corporation (KLAC $399) reported an adjusted fiscal Q2 profit of $7.38 per share, beating the $7.10 that the Street was projecting. Revenues rose 12.4% y/y to $2.98 billion, ahead of the forecasted $2.82 billion. However, the capital equipment company said it sees EPS for the current period with a midpoint of $5.22 per share on revenues of $2.35 billion, compared to the Street's respective forecasts of $5.90 per share and $2.53 billion. Shares were lower.

Q4 earnings season shifted into a higher gear, and of the 143 S&P 500 companies that have reported thus far, about 51% have topped revenue forecasts, and 70% have exceeded earnings estimates, per data compiled by Bloomberg. Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Helpless? Recession Risks Abound, how leading indicators continue to point toward further economic weakness, making it difficult and premature to determine whether the labor market can maintain its relative strength. You can follow Liz Ann on Twitter: @LizAnnSonders.

With the February 1 monetary policy decision approaching, the Fed is expected to continue to downshift to a 25-basis point (bp) rate hike after following up four 75-bp rate increases with a 50-bp rise in December. However, 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.Economic calendar provides upbeat reports

Personal income (chart) rose 0.2% month-over-month (m/m) in December, matching the Bloomberg consensus forecast, while November’s figure was downwardly revised to a 0.3% rise. Personal spending declined 0.2%, also matching the Street's expectation, and compared to the prior month's downwardly adjusted 0.1% decrease. The December savings rate as a percentage of disposable income was 3.4%, up from November's positively revised 2.9% rate.

The PCE Deflator rose 0.1% m/m, above expectations for a flat reading, and compared to November’s unadjusted 0.1% gain. Compared to last year, the deflator was 5.0% higher, matching estimates, and compared to the prior month's unadjusted 5.5% rise. Excluding food and energy, the PCE Core Price Index rose 0.3% m/m, matching the forecast, and compared to November’s unrevised 0.2% rise. The index was 4.4% higher y/y, in line with estimates, and after November's unadjusted 4.7% rise.

Pending home sales rose 2.5% m/m in December, compared to the Bloomberg consensus estimate of a 1.0% decrease and following November's positively revised 2.9% decline. Sales tumbled 33.8% y/y on the heels of November's favorably revised 32.5% fall. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, as properties typically go under contract a month or two before the contract is closed.

The final University of Michigan Consumer Sentiment Index (chart) for January was unexpectedly revised higher to 64.9, from the preliminary 64.6 figure, where it was expected to remain. The upward revision came as a modest downward adjustment to the current conditions portion of the index was more than offset by an upward revision to the expectation component of the survey. The 1-year inflation forecast was adjusted lower to 3.9% from the preliminary estimate of 4.0%, where it was expected to remain, and down from December's 4.4% rate. The 5-10 year inflation forecast was downwardly adjusted to 2.9%, versus expectations to be unadjusted at December's rate of 3.0%. Treasury rates were higher, as the yield on the 2-year went up 2 bps to 4.20%, the yield on the 10-year notes advanced 3 bps to 3.52%, and the 30-year bond rate gained 1 bp to 3.64%.

Bond yields have seen heightened volatility lately but remain solidly higher over the past 12 months 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.

European stocks mostly higher in cautious trading

Stocks in Europe were mostly higher as the markets continued to digest a host of earnings data coming out of the U.S. while exuding some caution ahead of monetary policy decisions from the Fed in the U.S., the Bank of England and the European Central Bank that are slated for next week. European markets have experienced a strong start to 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 global central bank 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, 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. In light of economic news in the region, Spanish Q4 GDP expanded by 0.2% quarter-over-quarter, a tick above estimates and matching Q3's growth rate. The euro and British pound were lower versus the U.S. dollar, while bond yields in the Eurozone and the U.K. gained ground.

The U.K. FTSE 100 Index, Switzerland's Swiss Market Index, and Germany's DAX Index all advanced 0.1%, Spain's IBEX 35 Index increased 0.2%, and Italy's FTSE MIB Index rose 0.8%, while France's CAC-40 Index was unchanged.

Asia closes out the week higher

Stocks in Asia finished higher, but volume remained thin with mainland Chinese markets remaining closed for the Lunar New Year holiday. Investors also digested some inflation data in the region, as core CPI in Tokyo rose 4.3% y/y, above expectations and within a stone's throw of highs not seen since mid-1981. Meanwhile, wholesale price inflation in Australia moderated on a quarterly and yearly basis, while export prices declined less than expected but import prices rose more than forecasts. Stocks in the region have seen solid gains, with markets in South Korea at their highest point in 11 months and Australia nearing levels not seen since April 2022, aided by China’s reopening and expectations that central banks across the globe, including the Fed in the U.S., may be set to slow down monetary policy tightening.

Optimism of China’s reopening has countered uncertainty regarding the ultimate impact of 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 inched 0.1% higher, with the yen holding onto gains versus the U.S. dollar. The Hong Kong Hang Seng Index rose 0.5% with technology issues leading the way, and South Korea's Kospi Index also finished nicely higher, rising 0.6%. Elsewhere, Australia's S&P/ASX 200 Index increased 0.3%, but India's S&P BSE Sensex 30 Index declined 1.5%, with both returning to action following the holidays yesterday.

Markets back in the plus column for the year

This week, the U.S. equity markets rebounded from suffering their worst week of the new year, with all three of the major indexes moving back into the green for the year. Q4 earnings season kicked into a higher gear with a number of companies, including a slew of Dow components, offering diverging results. The week’s gains came despite some economic data that painted a mixed picture, as an increase in new and pending home sales, a third consecutive weekly increase in mortgage applications, upbeat consumer sentiment, and a Q4 GDP report that showed continued expansion came up against a tenth-straight decline in the Leading Economic Index, and reads on domestic manufacturing and services activity remained contractionary. Meanwhile, Treasury yields were rangebound after a choppy week of trading, and the U.S. dollar continued to come off the highs seen in September and October. Crude oil prices moderated somewhat, but gold continued to rally.

Next week will have a flurry of economic data for investors to process and Q4 earnings season will continue in earnest, likely garnering heightened focus. The headlining event for the economic calendar is liable to be the monetary policy decision from the Federal Open Market Committee, with the Street forecasting a 25 bp increase. Also likely to gain attention is a host of employment data, with the ADP Employment Change report, the Job Openings and Labor Turnover Survey(JOLTS), and initial jobless claims for the week ended January 28 preceding the highly-anticipated January labor report. A look at domestic economic activity is also in tap, courtesy of the ISM Manufacturing Index and the ISM Services Index, as well as the Chicago PMI. Other reports of note include the S&P CoreLogic Case Shiller Home Price Index, the Dallas Fed Manufacturing Index, Q4 nonfarm productivity and unit labor costs, factory orders, and the MBA Mortgage Applications Index for the week ended January 27.

The international economic calendar for next week will be highlighted by the monetary policy decisions from the Bank of England and the European Central Bank, as well as a host of January manufacturing and services PMIs. Other reports of note include China—industrial profits. Japan—industrial production, employment figures, and retail sales. Australia—retail sales. Eurozone—business and consumer confidence, CPI, PPI, and the unemployment rate, as well as German Q4 GDP, import prices, retail sales, CPI, and trade balance. U.K.—housing prices.

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