A look at the day ahead in U.S. and global markets from Mike Dolan.
The coast may be clearing on interest rates but a spluttering economy still has the power to check runaway stock markets.
What investors have to work out is how much the economic drag is simply the condition for relief on rates. Friday’s release of January’s U.S. employment report will provide some clues – but Big Tech gave its own readout on Thursday.
Underwhelming quarterly results from mega cap technology giants Apple, Alphabet and Amazon provided the reality check after the bell late on Thursday – enough to send their share prices down 3%-5% in out-of-hours trading and knock futures on this week’s soaring Nasdaq and S&P500 indices back about 1% too.
The updates have been enough to curb what had been the best three days for Wall St indices in about four months – after the best January for the Nasdaq in 22 years – as investors bet the U.S. Federal Reserve’s credit squeeze is near done.
Apple earnings fell short of expectations and it forecast revenue would fall for a second quarter in a row. But even though iPhone sales fell for the first time since 2020, it said sales were likely to improve as production had returned to normal in China after COVID-related shutdowns.
Data on Friday backed that assertion as China’s services sector activity in January expanded for the first time in five months. Spending and travel got a boost from the lifting of stringent COVID-19 curbs and business confidence hit near 12-year highs.
But Alphabet also posted fourth-quarter profit and sales short of expectations as Google’s advertising clients pulled back spending from a period of pandemic-led excess.
And Amazon said operating profit could fall to zero in the current quarter as savings from layoffs do not make up for the financial impact of consumers and cloud customers clamping down on spending.
To what extent layoffs in the tech sector are fanning out across the economy will be monitored in the payrolls report later and the Fed will be watching wage growth like a hawk.
Payrolls are expected to have risen by another brisk 185,000 last month, although the unemployment rate likely ticked up to 3.6% from a more than 50-year low of 3.5% in December.
Annual wage growth is expected to have slowed to 4.3% from 4.6% in December.
The extent to which the market thinks the Fed has nearly finished its rate rise campaign – and seeding some of the FOMO, or fear of missing out, behaviour on Wall St – can be seen in the drop in two- and 10-year Treasury yields to their lowest since September.
Ten-year yields have fallen a full percentage point since the peaks of October.
Elsewhere, shares of India’s Adani Group companies fell sharply again on Friday as ripples from a market rout disrupted parliament for a second day, driving fears of investment contagion across the country following last week’s critical research report by a U.S. short-seller.
Seven listed Adani enterprises lost more than half their market capitalisation, which shrivelled to less than $100 billion, after the Hindenburg Research report raised questions about the conglomerate’s debt levels and use of tax havens. The group shelved its $2.5-billion share sale on Wednesday,
S&P Dow Jones Indices said it would drop the Adani Enterprises flagship from widely-used sustainability indices on Feb. 7, blunting their appeal for environment-conscious investors.
Key developments that may provide direction to U.S. markets later on Friday:
* U.S. Jan employment report, Jan ISM service sector survey
* U.S. corp earnings: Cigna, Aon, Regeneron Pharmaceuticals, Zimmer Biomet, LyondellBasell, Cboe Global Markets, Church & Dwight.
Apple’s Q1 revenue falls on lower iPhone sales https://www.reuters.com/graphics/APPLE-RESULTS/egpbyaadqvq/chart.png
Alphabet records slowest revenue growth since 2004 https://www.reuters.com/graphics/ALPHABEST-RESULTS/xmvjkrraypr/chart.png
Amazon earnings and net sales https://www.reuters.com/graphics/USA-AMAZON-EARNINGS/xegvbxrylvq/usa-results-amazon.jpg
Is the selloff in tech stocks over? https://www.reuters.com/graphics/TECH-STOCKS/TECH-STOCKS/egpbyaaeqvq/graphic.jpg
(By Mike Dolan, editing by Barbara Lewis email@example.com. Twitter: @reutersMikeD)