(Bloomberg) – A $246 billion exchange-traded fund (ETF) linked to the Nasdaq 100 (QQQ) has fallen after Microsoft Corp. and Alphabet Inc.’s earnings, two tech giants that had been the driving force behind their share prices. ) fell in the middle of the night.
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Alphabet’s fourth-quarter revenue from its core search advertising business fell short of analysts’ expectations, overshadowing a strong year-end. Microsoft’s cloud growth disappointed some on Wall Street, even as interest in new artificial intelligence products helped the company post its biggest revenue growth since 2022.
Stock markets are struggling to gain footing in regular trading as traders also scrutinize a range of economic indicators and wait for the Federal Reserve to decide on interest rates. Wall Street has to digest tougher-than-expected numbers on jobs and investors speculate on what Chairman Jerome Powell will say Wednesday as markets further pare back bets on the Fed’s March interest rate cut Became.
“Tomorrow will be important for markets as the intersection of Big Tech’s performance, ADP jobs data, Treasury issuance distribution, and Chairman Powell’s comments reach a critical juncture,” said Jose Torres of Interactive Brokers. It might happen,” he said. “I expect Mr. Powell to take some rate cuts off the table, perhaps by asserting the current outlook as aggressive.”
The S&P 500 index was little changed, but the Nasdaq 100 index underperformed, with Apple Inc. leading the big-cap losses. Traders also noted disappointing declines in results from United Parcel Service, a barometer of the economy. The delivery company plans to cut 12,000 jobs. Financial stocks rose after analysts expressed bullish views on large U.S. banks. The yield on two-year government bonds rose 4 basis points to 4.36%. The yield on the 10-year Treasury note fell 2 basis points to 4.05%.
According to a survey conducted by 22V Research, 38% of respondents expected Wednesday’s Fed meeting/press conference to be “risk-on,” while 39% were betting on a mixed or negligible reaction, calling it “risk-off.” Only 23% answered. Overall, investors are paying more attention to jobs (59%) than the Fed (41%) this week, according to our tally.
Swap contracts referencing the date of the next March Fed meeting this week are currently showing a decline of about a third of 25 basis points. A quarter-point rate cut in March was fully priced in, reflecting hopes late last year of a cooling labor market that did not materialize.
The number of job openings in the U.S. unexpectedly rose in December, hitting a three-month high, while fewer Americans are leaving their jobs. Tuesday’s data kicks off a slew of announcements providing insight into the current state of the labor market. A report released Wednesday is expected to point to easing in hiring costs at the end of 2023, while Friday’s government jobs report showed U.S. employers added about 185,000 positions in January. It is expected that the addition will be shown.
“The job market is key to future Fed policy,” said Jeffrey Roach of LPL Financial. “A strong job market, along with uncertainty over the impact of the Red Sea shipping disruption, is putting pressure on the Fed as it prepares markets for rate cuts.”
Separate data showed U.S. consumer confidence rose to the highest level since late 2021 in January as Americans became more optimistic about the economy and job market amid growing optimism about inflation.
“For the Federal Reserve, given that most statistical releases are interpreted through the Fed’s lens, whether inflation is likely to pick up again if consumers become more confident,” said Quincy Crosby of LPL Financial. is the center of concern.” “Nevertheless, consumer confidence will be key to ensuring economic conditions remain strong to ensure a soft landing.”
Lauren Goodwin of New York Life Investments says there’s significant volatility risk now because valuations improved significantly during the “Fed pivot rally.”
“But if 2023 has taught investors anything, it’s that timing the market is extremely difficult, and even when investors are calling for a recession or volatility, it’s best to sit tight and wait. “That means it’s unlikely to be an allocation approach,” he said. “As a result, we believe investors need to increasingly focus on quality and yield.”
BTIG’s Jonathan Krinsky noted that hedge funds’ basket of the 50 “most important” companies is growing about as much each day as it has for the past 20 years. Many of these holdings are in semiconductors, mega-cap technology and communications services, he noted.
The relative strength index for this gauge is near 81, which many chartists consider a sign of an overbought market.
“As we enter the heart of an EPS season with a significant amount of macro events, we believe the risk of unwinding during or after the event remains very high, so we decided to chase extended names here. will be cautious,” Krinsky said.
The dominance of the top 10 stocks increasingly resembles the dot-com bubble, raising the risk of a downside, according to quantitative strategists at JPMorgan Chase & Co.
The share of the top 10 stocks in the MSCI USA index, which includes all of the so-called “Magnificent Seven” tech stocks, rose to 29.3% by the end of December, the strategists wrote. This is slightly below the historic peak share of 33.2% that occurred in June 2000. Additionally, only four sectors are in the top 10, compared to the historical median of six sectors, the strategists said.
In addition to Microsoft and Alphabet, three major tech companies with a combined market value of more than $10 trillion are reporting earnings this week. These companies, like other members of the Magnificent Seven, command a forward price-earnings ratio of about 34% to the S&P 500, according to data compiled by Bloomberg.
“If we don’t get shocking negative news from large tech companies’ earnings this week, and (especially) if the Fed sticks to its current (even more) dovish rhetoric, investors will get the green light. “We expect the stock market to rally in February, similar to the strong February rally in 2020,” said Matt Maley of Miller Tabak.
Company highlights:
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PayPal Holdings Inc. plans to cut its workforce by about 9% as Chief Executive Officer Alex Criss, who took over in September, grapples with increased competition, profit pressures and a slew of analyst downgrades.
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Whirlpool Inc., which owns the Maytag and KitchenAid brands, predicts sales in 2024 will be lower than Wall Street expectations as consumers hold off on upgrading their appliances.
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Activist investor Nelson Peltz has announced that Walt Disney Co. is looking to expand its streaming business by tying its online service ESPN+ to major sports-focused companies like Netflix, according to people familiar with the matter. The company believes that it will be able to achieve profitability.
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Boeing has bowed to growing pressure to prioritize safety and speed up approval of its next 737 Max 7 plane after a near-disaster on one of its planes. withdrew a request for a critical safety waiver that would help.
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General Motors reported fourth-quarter results that beat Wall Street expectations and expects profits to rise this year on higher sales amid a strong U.S. economy.
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JetBlue Airways is considering further cost cuts, aircraft delays and a restructuring of its flight network in a bid to return to profitability after its planned takeover of Spirit Airlines nearly fell through.
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Pfizer reported fourth-quarter profit that beat analysts’ expectations after the U.S. government returned fewer doses of COVID-19 drugs than expected.
This week’s main events:
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China Non-Manufacturing PMI, Manufacturing PMI, Wednesday
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Japan’s industrial production, retail sales, housing starts, Wednesday
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The Bank of Japan announced a summary of its January policy meeting on Wednesday.
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Boeing releases financial results on Wednesday amid U.S. government safety investigation
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Wednesday’s Fed interest rate decision and Fed Chairman Powell’s press conference.
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U.S. Treasury Quarterly Refunds, Wednesday.
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China Caixin Manufacturing PMI Thursday
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Eurozone S&P World Manufacturing PMI, CPI, Unemployment Rate, Thursday
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US productivity, construction spending, ISM manufacturing, new unemployment claims, Thursday
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Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday
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Bank of England interest rate decision Thursday
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US employment statistics, University of Michigan consumer sentiment, factory orders, Friday
The main movements in the market are:
stock
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The S&P 500 was little changed as of 4 p.m. New York time.
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Nasdaq 100 fell 0.7%
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The Dow Jones Industrial Average rose 0.3%.
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MSCI World Index little changed
currency
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Bloomberg Dollar Spot Index little changed
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The euro rose 0.1% to $1.0844.
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The British pound fell 0.1% to $1.2696.
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The Japanese yen remained almost unchanged at 147.60 yen to the dollar.
cryptocurrency
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Bitcoin rose 0.9% to $43,565.51
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Ether rose 2.9% to $2,373.9
bond
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The 10-year Treasury yield fell 2 basis points to 4.05%.
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Germany’s 10-year bond yield rose 3 basis points to 2.27%.
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The UK 10-year bond yield rose 2 basis points to 3.90%.
merchandise
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West Texas Intermediate crude rose 1.4% to $77.82 per barrel.
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Spot gold rose 0.1% to $2,036.09 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Jessica Mentone, Ryan Vlastelica, Elizabeth Stanton, Michael McKenzie, Isabelle Lee, and Jon Viljoen.
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