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The three major stock market benchmarks were trading lower Tuesday as the latest batch of company earnings across various sectors met or beat estimates. But investors were worried about downbeat outlooks that could possibly foretell a coming recession.
How stocks are trading
- The S&P 500 dipped 11 points, almost 0.3%, to 4,008
- The Dow Jones Industrial Average fell 102 points, or 0.3%, to 33,527
- The Nasdaq Composite dropped almost 12 points, or 0.1%, to 11,352
On Monday, the Dow Jones Industrial Average
DJIA,
rose 254 points, or 0.76%, to 33,630, the S&P 500
SPX,
increased 47 points, or 1.19%, to 4,020, and the Nasdaq Composite
COMP,
gained 224 points, or 2.01%, to 11,364. The Nasdaq is up 8.6% for the year but remains down 29.2% from its November 2021 record high.
What’s driving markets
The three indices were lower at the start of Tuesday’s session, following two days of gains that came in the middle of the corporate earnings reporting season.
Companies presenting their results on Tuesday morning included GE GE, Johnson & Johnson JNJ, Verizon VZ, 3M MMM, Lockheed LMT, Raytheon RTX and Travelers TRV. With the tech sector under pressure, Microsoft MSFT and Texas Instruments TXN report after market close on Tuesday.
The fourth quarter earnings come with cross-currents at play. The S&P 500 index is up 3.1% over the last two sessions, taking its gain for the year so far to 4.7%, as investors show conviction the Federal Reserve is going to further slow its pace of interest rate rises amid easing inflation and weakening economic indicators.
The S&P 500 dropped about 20% last year, primarily the result of the Fed swiftly raising its base rate from effectively zero to a range of 4.25% to 4.50%. The Fed hiked rates by 75 basis points in November and 50 basis points in December. Traders are pricing in a near 100% certainty that the fed funds rate will go up by just 25 basis points next week.
The hope among investors is that a less hawkish Fed will help the U.S. economy avoid a hard landing and this will support company earnings, according to analysts.
But the fear is that a hard-landing recession is still coming, as much as investors hope against it. Fourth-quarter earnings and forward guidance are a way to read the tea leaves on what could be ahead.
“Hold onto your hats as this week’s ride could be on the wild side. And judging by the wave of New Year optimism that markets seemed to have been surfing pretty happily, investors are ready to believe in soft landings,” said Danni Hewson, AJ Bell financial analyst. “The question at hand is what kind of cushioning do some of the world’s biggest companies have wrapped around them in case things end with more of a jolt?”
“A slew of earnings data is heading our way and we’ll finally get a chance to see just how much falling consumer confidence and dwindling discretionary spend has impacted the bottom line of global behemoths, from both the old and new guard,” Hewson added.
The latest bounce for Wall Street has taken the S&P 500 through some important technical milestones — closing above 4,000 and its 200-day moving average — and this may bode well for the medium term, analysts said.
“The 2022 bear market looks to be on thin ice. The SPX’s second straight day higher has successfully broken out above January 2023 highs. This is a positive development which not only has surpassed minor downtrends from last fall, but also is serving to exceed the entire downtrend from last January,” wrote Mark Newton, head of technical strategy at Fundstrat, in a note to clients.
U.S. economic updates include the ‘flash’ S&P U.S. manufacturing and services PMIs for January. The manufacturing PMI climbed to 46.7 from 46.2, while the services PMI rose to 46.6 from 44.7.
Companies in focus
-
Verizon
VZ,
-1.78%
stock rose in early trading after fourth-quarter earnings matched earnings per share expectations at $1.19 and beat revenue expectations, bringing in $35.3 billion, but the full-year earnings outlook for the telecoms giant did not meet analyst expectations. -
3M
MMM,
-6.31%
stock dropped after a miss on earnings per share and guidance that did not meet analyst expectations. The manufacturing giant said it is also planning to cut 2,500 jobs from its global manufacturing roles. -
Johnson & Johnson
JNJ,
-0.33%
shares were slightly higher after the drug company reported earnings that beat profit estimates but missed revenue forecasts and full-year earnings outlook above estimates. -
Lockheed Martin
LMT,
-0.22%
were slightly lower after the defense company posted both earnings and revenue that topped forecasts. -
Travelers Companies Inc.
TRV,
+2.00%
matched profit expectations and beat revenue forecasts, even with the insurer’s warnings about the financial aftermath of a massive winter storm in late December. Shares were trading higher in the early session. -
General Electric Co.
GE,
-0.84%
shares were off after a downbeat earnings outlook, even with profit, revenue and free cash flow numbers that exceeded analyst expectations. The industrial conglomerate was anticipating continuing earnings per share in 2023 of around $1.60 to $2.00. That’s below the FactSet consensus of $2.37.
