U.S. equities are higher, as the markets look to get back to their winning ways after a two-day losing streak. Equity news remains focused on earnings, as Netflix fell well short of estimates but easily beat the Street's forecasts for subscribers, and PPG Industries bested expectations. Meanwhile, Alphabet announced it will slash its workforce by 12,000 jobs. Economic news is on the light side today, with the lone report showing an eleventh-straight decline in existing home sales. Treasury yields are gaining ground, and the U.S. dollar is ticking to the upside, while crude oil prices are little changed, and gold is rising. Asia finished higher, and Europe is seeing gains across the board, as investors digest economic data in their respective regions.
At 10:58 a.m. ET, the Dow Jones Industrial Average is up 0.1%, the S&P 500 Index is gaining 0.6%, and the Nasdaq Composite is 1.0% higher. WTI crude oil is increasing $0.03 to $80.64 per barrel, and Brent crude oil is advancing $0.07 at $86.23 per barrel. The gold spot price is trading $8.00 higher to $1,932.20 per ounce, and the Dollar Index is trading 0.1% to the upside at 102.12.
Netflix Inc. (NFLX $337) reported adjusted Q4 earnings-per-share (EPS) of $0.12, well short of the $0.45 the FactSet estimate, while revenues were mostly in line with expectations at $7.85 billion, an 18.5% increase year-over-year (y/y). The on-demand video streaming service company cited a $462 million loss related to Euro-denominated debt for the lower-than-expected EPS figure, but posted an operating margin of 7%, which eclipsed analysts' expectations, and added 7.66 million net subscribers during the quarter, trouncing the Street's forecast of 4.57 million additions. NFLX also announced that co-CEO Reed Hastings will step down from his position and transition to Executive Chairman, with the company's current Chief Operating Officer, Greg Peters, promoted to join Ted Sarandos in the role. Looking ahead, NFLX said it sees Q1 2023 EPS of $2.82 versus estimates for $2.98, on revenues of $8.17 billion, a shade above the Street's $8.15 billion forecast. Shares are nicely higher.
PPG Industries Inc. (PPG $131) posted Q4 EPS of $1.22 ex-items, above the expected $1.13, with revenues nearly flat y/y at $4.19 billion, versus the forecasted $4.11 billion. President and CEO Tim Knavish said the company "continued to make good progress on our focus to achieve full operating margin recovery…despite more acute pandemic-related demand disruptions in China," adding that the earnings improvement was driven by aggregate selling price increases, and that it remained focused on alleviating the significant cost inflation incurred the past two years. The paints and coatings maker said it sees Q1 EPS within a range of $1.10-1.20, compared to the FactSet estimate of $1.35, with higher corporate and interest expenses estimated to negatively impact adjusted EPS by roughly $0.20 on a y/y basis. PPG is trading to the upside.
Google parent Alphabet Inc. (GOOGL $97) said it will lay off 12,000 employees, or roughly 6% of its workforce, adding to the list of major tech companies shedding workers amid fears of an oncoming recession. In an email to staff, CEO Sundar Pichai said the cuts in the U.S. will begin immediately, but those in other countries could take longer as a result of local laws and practices. Shares are higher.
Q4 earnings season has gained steam and investors continue to grapple with the ultimate impact of aggressive Fed actions to try to combat rising prices. Schwab’s Chief Investment Strategist Liz Ann Sonders notes in our latest Schwab Market Perspective: Slowdown or Recession?, how although it's possible the Federal Reserve will guide the economy to a "soft landing," evidence has been pointing toward recession.
The Central Bank downshifted in December from a string of four-straight 75-basis point (bp) rate hikes to a 50-bp increase. However, the deceleration remained unusually aggressive, and the Fed signaled that restrictive policy will likely have to remain in place for longer and at a potentially higher "terminal rate" than expected.
Existing home sales fall for an eleventh-straight month
Existing home sales were down 1.5% month-over-month (m/m) in December to an annual rate of 4.02 million units, but above the Bloomberg consensus estimate of a 3.96 million-unit pace, while November's figure was adjusted downward to 4.08 million units. Contract closings declined for the eleventh-straight month, marking the lowest level since November 2010, and were down 34.0% versus a year ago. Sales in nearly all four major U.S. regions were down m/m, compared to last year, except for the West, which was unchanged.
The median existing home price was up 2.3% from a year ago at $366,900—marking the 130th straight y/y gain and the longest-running streak on record—but the sixth month in a row that the median sales price decelerated from the record high of $413,800 in June. The number of homes for sale declined 13.4% m/m, with unsold inventory at a 2.9 month's supply at the current sales pace, but up from the 1.7 months pace in the same period last year.
National Association of Realtors Chief Economist Lawrence Yun said, "December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates. However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year."
Treasury rates are higher, as the yield on the 2-year note is up 7 bps to 4.19%, while the yields on the 10-year note and the 30-year bond are rising 6 bps to 3.46% and 3.63%, respectively.
Bond yields have seen heightened volatility lately but remain solidly higher over the past year 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.
Europe seeing gains as markets assess data and future policy uncertainty
Stocks in Europe are higher in late-day action, recouping some of yesterday's losses in a volatile week, in what has otherwise been a strong start to 2023 for equities in the region. The markets continue to wrestle with the global economic outlook, as well as the uncertainty regarding the ultimate impact on the economy and financial conditions of recent global monetary policy decisions to aggressively tighten policies to combat inflation. 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. Economic data was light today in the region, and the euro and British pound rose versus the U.S. dollar. Bond yields in the Eurozone were higher, while rates in the U.K. declined.
In economic news, December producer price growth in Germany slowed to 21.6%, down from the 28.2% posted in the prior month, and the lowest level since November 2021. Meanwhile, retail sales in the U.K. tumbled 5.8% y/y last month, more than the 4.1% shortfall forecasted, and down from the prior month. The euro and the British pound are trading lower versus the U.S. dollar. Bond yields in the Eurozone and U.K. are higher.
The U.K. FTSE 100 Index is up 0.2%, France's CAC-40 Index and Italy's FTSE MIB Index are gaining 0.5%, Germany's DAX Index is increasing 0.6%, Spain's IBEX 35 Index is rising 1.3%, and Switzerland's Swiss Market Index is trading 0.3% higher.
Asia higher amid data and PBoC moves
Stocks in Asia finished higher as investors digested inflation data out of Japan, as well as moves by the People's Bank of China (PBoC). Core nationwide consumer inflation in the island nation rose 4.0% y/y in December, matching expectations and its highest level since 1981. The data comes days after the monetary policy decision from the Bank of Japan (BoJ) to keep its policy stance unchanged, as well as comments aimed at tamping down speculation that it was on the verge of a major policy shift. Meanwhile, the PBoC left its 1-year and 5-year Loan Prime Rates (LPR) unchanged as widely expected, as many analysts noted the unlikelihood of policymakers to make any change on the last day before the Lunar New Year holidays, which will have the Chinese markets closed all next week.
Optimism has ramped up as China has eased COVID restrictions and is continuing to reopen. Meanwhile, the global markets continue to grapple with the aggressive monetary policy tightening from most central banks around the world and what the implications could be. 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 finished 0.6% higher, with the yen losing ground against the U.S. dollar, China's Shanghai Composite Index rose 0.8%, and the Hong Kong Hang Seng Index rallied 1.8% amid solid gains in technology stocks. Australia's S&P/ASX 200 Index increased 0.2% and South Korea's Kospi Index moved 0.6% higher, while India's S&P BSE Sensex 30 Index declined 0.4%.
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