U.S. equities are modestly higher in pre-market action following the February labor report that was only modestly above estimates. The report is in stark contrast to January's blowout figures and may be soothing some of the anxiety over the Fed's future actions. Treasury yields are tumbling in the wake of the data, and the U.S. dollar continues to relinquish some of this week's rally, while crude oil prices are mixed, and gold is trading to the upside. Equity news is focused on earnings, as Ulta Beauty handily beat estimates and provided upbeat guidance, and Oracle eclipsed forecasts and increased its dividend, but Gap fell well short of expectations amid a tumble in online sales, and it saw a shakeup in management. Asia finished lower, and markets in Europe are seeing widespread losses, amid turbulence in the banking sector.
As of 8:50 a.m. ET, the March S&P 500 Index future is 15 points above fair value, the Nasdaq Index future is 114 points north of fair value, and the DJIA future is 40 points above fair value. WTI crude oil is increasing $0.33 to $76.09 per barrel, while Brent crude oil is declining $0.25 to $81.34 per barrel. The gold spot price is up $9.30 to $1,842.80 per ounce. Elsewhere, the Dollar Index is declining 0.5% to 104.80.
Oracle Corporation (ORCL $89) reported adjusted fiscal Q3 earnings-per-share (EPS) of $1.22, versus the $1.20 FactSet estimate, as revenues rose 17.9% year-over-year (y/y) to $12.40 billion, compared to the $12.43 billion that the Street was expecting. The computer technology company cited constant currency growth of 48% for total revenue of its two cloud businesses, infrastructure and applications. Additionally, ORCL upped its dividend by 25% to $0.40 per share.
Gap Inc. (GPS $12) posted an adjusted fiscal Q4 loss of $0.75 per share, far more than the $0.46 per share shortfall expected by analysts. Revenues fell 6.2% y/y to $4.23 billion, below the forecasted $4.36 billion. Same store sales fell 3% y/y, while online sales, which represent 41% of total sales, plunged 10% from the same period a year ago. The apparel retailer—which owns its namesake brand, Banana Republic and Athleta—also saw a shakeup in management, as it eliminated its Chief Growth Officer role, its CEO of Athleta stepped down Thursday, and it is still in search of a permanent CEO for Gap. Looking ahead, GPS said it expects fiscal Q1 sales to decline by mid-single-digits, and full-year revenues to fall within the low-to-mid-single-digit range.
Ulta Beauty Inc. (ULTA $525) reported adjusted fiscal Q4 EPS of $6.68, well ahead of the $5.70 FactSet estimate, as revenues jumped 18.2% y/y to $3.23 billion, compared to the $3.03 billion that the Street was forecasting. CEO Dave Kimball said that consumer spending across all income levels remained strong, with customers not trading down to cheaper options, despite higher prices amid persistently high inflation. Same store sales rose 15.6% y/y, a move downward from the 21.4% growth seen in the same period a year ago, but well above analysts' expectations for 8.4% growth. ULTA upped its full-year guidance for EPS within a range of $24.70 to $25.40 on revenues of between $10.95 billion and $11.05 billion, compared to the Street's forecasts of $24.37 per share and $10.47 billion, respectively.
The stock markets have seen increased volatility lately, but the S&P 500 and Nasdaq are holding on to gains for 2023. Investors have grappled with how much more aggressive the Fed will be to combat persistent inflation, and what the ultimate impact will be on the economy and financial conditions. Meanwhile, economic data has remained mostly positive to foster the uncertainty, with labor reports topping forecasts, consumer spending continuing, services sector growth expanding, and manufacturing output showing signs of improvement.
Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Caveat Emptor: Important Market Shifts Underway, how given the topsy-turvy nature of the market thus far in 2023, it remains crucial for investors to know what they are buying—especially as it relates to growth, value, and quality.
February job growth modestly ahead of forecasts, unemployment rate rises
Nonfarm payrolls (chart) rose by 311,000 jobs month-over-month (m/m) in February, compared to the Bloomberg consensus estimate of a 225,000 rise, while January's figure was downwardly adjusted at an increase of 504,000 from the initial 517,000. Excluding government hiring and firing, private sector payrolls advanced by 265,000, versus the forecasted rise of 215,000, after increasing by 386,000 in January, negatively revised from the preliminarily reported 443,000 gain. The labor force participation rate increased to 62.5% from January's unrevised 62.4% figure, where it was expected to remain.
The unemployment rate rose to 3.6%, compared to expectations for it to remain at January's 3.4% level. The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—increased to 6.8% from the prior month's 6.6% rate. Average hourly earnings were up 0.2% m/m, below expectations and January's 0.3% reading. Compared to last year, wages were 4.6% higher, below forecasts of a 4.7% increase, and higher than January's unadjusted 4.4% rise. Finally, average weekly hours fell to 34.5 from January's 34.6 rate, where it was expected to remain.
Treasury rates are sharply lower, as the yield on the 2-year note is down 19 basis points (bps) at 4.71%, the yield on the 10-year note is falling 14 bps to 3.78%, and the 30-year bond rate is losing 8 bps to 3.79%.
Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, How to Prepare for Landing, how a "soft landing," with declining inflation but positive growth, would be ideal. However, she points out that turbulence appears likely. Kathy offers insight on how to handle it.
Europe lower amid weakness in banks
Stocks in Europe are lower across the board, led by losses in the banking sector, following in the footsteps of the U.S. markets. The moves come following turbulence in the banking sector yesterday after SVB Financial Group (SIVB $106) announced that it sold "substantially all" of its available-for-sale securities, which will result in a post-tax loss, and crypto-focused bank Silvergate Capital Corp. (SI $3) shut down its operations and will voluntarily liquidate. Investors also continue to react to this week's Congressional testimony from Fed Chairman Jerome Powell where he signaled that the Central Bank could get more aggressive with rate hikes and could leave rates higher for longer than initially anticipated. The Fed, along with the European Central Bank and Bank of England, have aggressively tightened monetary policy as they work to cool persistent inflation. The markets have been volatile amid this backdrop.
However, despite the recent choppiness in the markets, equities in the region have had a strong start for 2023, buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, The Everything Everywhere All at Once Rally, how despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists.
Economic news in the region is robust today. Retail sales in Spain jumped well above expectations, wholesale prices in Italy cooled significantly last month, and consumer prices in Germany were steady and remained elevated. Meanwhile, industrial production in the U.K. fell more than forecasts, but Q4 GDP in the nation grew 0.3%, rebounding from last quarter to avoid a recession. The euro and the British pound are rising versus the U.S. dollar, while bond yields in the Eurozone and the U.K. are falling.
The U.K. FTSE 100 Index is down 1.8%, France's CAC-40 Index is declining 0.9%, Germany's DAX Index is falling 1.0%, Spain's IBEX 35 Index is decreasing 1.5%, Italy's FTSE MIB Index is dropping 1.7%, and Switzerland's Swiss Market Index is trading 1.1% lower.
Asia tumbles in wake of U.S. selloff
Stocks in Asia ended sharply lower following yesterday's selloff in the U.S that came amid weakness in the Financials sector. Caution was also prevalent ahead of the February labor report in the U.S., as it could offer some additional insight as to how aggressive the Fed may remain. Elsewhere, the Bank of Japan (BoJ) left rates unchanged, as widely expected, and Kazuo Ueda was approved as the next BoJ governor. Investors continue to wrestle with uncertainty on the ultimate impact of the monetary policy tightening on global financial conditions and the economy. However, Schwab's Jeffrey Kleintop discusses in his latest article, Are You Focused on the Wrong Central Bank?, how while investor attention is on the Fed, changes at the Bank of Japan might bring shifts to the economic environment, impacting the global markets. In light economic news, February wholesale prices in Japan cooled for a second-straight month, while household spending in the island nation fell more than expected in January.
Japan's Nikkei 225 Index fell 1.7%, with the yen losing ground against the U.S. dollar. China's Shanghai Composite Index declined 1.4%, and the Hong Kong Hang Seng Index plunged 3.0%. Australia's S&P/ASX 200 Index dropped 2.3%, South Korea's Kospi Index decreased 1.0%, and India's BSE Sensex 30 Index traded 1.1% lower.
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