Market Snapshot: Nasdaq leads market higher as U.S. stocks turn positive for the week on earnings

What’s driving markets

After a bumpy week, on Thursday all three U.S. equity benchmarks were on track to finish the week flat to slightly lower. While stocks traded off their highs, technology and consumer discretionary stocks, along with speculative technology plays like the ARK Innovation Fund
ARKK,
-0.93%,
continued to outperform.

Ultimately, the fact that Federal Reserve officials including Chairman Jerome Powell have largely stuck to their message this week has helped to keep stocks from falling off a cliff, said Gene Goldman, CIO of Cetera Financial Group.

“There were no surprises from the Fed, they continued to stick to their message. Powell didn’t reverse anything he said from his presser in Washington,” Goldman said, referring to Powell’s Q&A at the Economic Club of Washington D.C. on Tuesday.

However, in what could be a discouraging sign for equity investors, markets have started to come around to the Fed’s warnings about further interest rate rises, Goldman said.

He cited the rise in the 2-year Treasury yield
TMUBMUSD02Y,
4.488%,
which briefly touched its highest level since November earlier this week, as a sign that investors are beginning to factor in higher interest rates for longer. The 2-year yield was down slightly at 4.442% on Thursday. Yields move inversely to prices.

Investors have received a “consistent message from Fed officials saying interest rates will end the year anywhere from 5% and 5.5%,” Goldman added.

See: The bond market is flashing a warning that U.S. stocks could be headed lower

Strong results from Walt Disney Co. helped revive investors’ confidence overnight following a batch of weaker numbers from companies like eBay Inc.
EBAY,
-1.06%,
Chipotle Mexican Grill
CMG,
-0.73%
and Lumen Technologies Inc.
LUMN,
+2.41%
a day earlier.

While corporate profits may have shrunk in the fourth quarter of 2022, companies have still managed to outperform Wall Street’s dour expectations, data show. In aggregate, S&P 500 firms have beaten Wall Street’s expectations by 1.6% so far since the start of earnings reporting season, according to Refinitiv data.

But that’s still below the long-term average of 4.1%. Investors have also digested cuts to forecasts and guidance from both Wall Street and the companies themselves, which is making some strategists nervous.

“My general sense is that earnings weren’t as bad as people feared. Investors have rewarded that but what’s making them nervous is the downtrodden guidance that management has given,” said Callie Cox, U.S. equity strategist at eToro, during a phone call with MarketWatch.

As of Thursday morning, the blended earnings estimate for the companies in the S&P 500 was -2.9%, according to Refinitiv data. If the energy sector is included, it falls to -7.1%.

Meanwhile, the bottom-up EPS estimate for 2023 fell 2.5% in January, a much larger decline than is historically seen during the first month of the year, according to FactSet data.

Markets confronted a relatively quiet U.S. economic data calendar on Thursday. Weekly data on jobless claims showed the number of Americans who applied for unemployment benefits in early February rose by 13,000 to 196,000, but still hovered near pandemic-era lows.

Investors are already looking ahead to next week’s U.S. consumer-price inflation data for January, due out Tuesday, but before the week ends, they will receive an update on the University of Michigan’s consumer-sentiment gauge Friday morning in New York, as well as more commentary from senior Fed officials.

Inflation has waned over the past six months by a faster-than-expected pace, with headline CPI slowing to 7% year-over-year in December, down from a peak of more than 9% over the summer, which was the hottest inflation in more than four decades.

Companies in focus

• Walt Disney Co. DIS shares jumped after reporting better-than-expected earnings report, a smaller-than-expected drop in streaming video subscribers, and the layoff of 7,000 staff.

• PepsiCo
  PEP,
  +1.24%
  – rose after reporting fourth-quarter earnings and revenue before the bell that beat expectations after price rises that boosted sales and announced a 10% increase in its dividend.

• Hilton Worldwide
  HLT,
  +2.97%
  was up after the hotel chain reported adjusted fourth-quarter earnings and revenues that beat estimates.

• Robinhood Markets Inc. 
  HOOD,
  -2.29%
  was up sharply after its board had cleared the company to pursue buying shares owned by FTX founder Sam Bankman-Fried despite the brokers’s fourth quarter revenues coming short of expectations.

• Lumen Technologies
  LUMN,
  +2.41%
  slumped after the telecoms company reported earnings and revenue that exceeded the consensus view, but came up far short in its 2023 projections for free-cash flow and adjusted earnings before interest, taxes, depreciation and amortization.

• Credit Suisse Group AG
  CS,
  -14.80%
  ADRs crumbled after the bank revealed that customers had pulled $100 billion from the struggling Swiss lender.

• Shares of Chinese companies working on artificial intelligence products, including Baidu Inc. BIDU, Cloudwalk Technology Co. CN:688327and Beijing Haitian Ruisheng Science Technology Ltd. CN:688787, fell sharply after a state-media outlet published a commentary on the risks associated with ChatGPT-concept stocks.