US futures pointed to a mixed market open as the Dow was in the red, and the Nasdaq and S&P 500 pointed higher.
Nasdaq futures reflect the positive reception to quarterly results and tighter-than-expected expense controls announced by Meta Platforms (META) last night. Despite the Fed's insistence yesterday we are in the early stages of seeing progress on inflation, there are additional rate hikes ahead.
Although the Fed stated it will keep rates at elevated levels and did not see cause to start cutting rates this year, the decline in 10-year Treasury yields seems to suggest otherwise. We touched on this during the special post-Fed meeting AAP Podcast we shared with members last night.
During that conversation, we also shared that we are closely watching the market's reaction to earnings, especially to ones that include sharper downward revisions relative to expectations for either the current quarter or the first half of this year.
One of the big concerns has been excess inventory, especially in the chip space. Comments last night from Netgear (NTGR) and Qorvo (QRVO) as well as reduced expectations point to that. Netgear shared its retail partners continue to right-size the inventory levels and that is expected to continue in the first half of this year.
That led Netgear to issue downside revenue guidance of $185-$200 million vs. the $221 million consensus for the current quarter. Qorvo issued downside guidance for the current quarter with revenue and EPS of $600-$640 million and $0.10-$0.15 vs. the $725 million and $0.60 consensus, respectively. While it saw good inventory channel consumption during the quarter, Qorvo anticipates more of the same in the current one with unit volumes recovering later this year.
If the market only modestly bruises those stocks and others that are issuing similar guidance revisions, it would signal we are seeing a shift in market sentiment and that could prompt us to wade into the shares of Coty (COTY) , Marvell (MRVL) and perhaps other Bullpen names sooner than previously expected.
With the wave of Big Tech earnings after today's market close that includes the latest quarter results from Amazon (AMZN) , Alphabet (GOOGL) , and Apple (AAPL) , a clearer sense of that market shift is likely to be had as we close out the week. More than likely given the market's recent run, we would start any new positions off on the smaller side, looking to use share price retrenchments to build them out.
As the market further digests Fed Chair Powell's post-monetary policy meeting press conference and the corresponding Wall Street analysis, we along with other market watchers will be looking to see what happens with monetary policy outside of the US.
The Bank of England increased interest rates up half a percentage point to a 15-year high of 4% but also indicated future policy decisions would depend on the economic data ahead. As expected, the European Central Bank increased rates by another 50 basis points and points to another such boost at its March meeting after which it would "evaluate the subsequent path of its monetary policy."
The combination of those three outcomes suggest we are nearing the end of interest rates hikes between the Fed, BoE, and the ECB, something the stock market is likely to interpret as the worst being behind us even though rates will remain high for some time. While the market abhors the unknown, it also likes to know when the end of a known unknown becomes clearer. That along with the notion the global slowdown may not be as bad as earlier feared could lift stocks further in the coming days.
The market is also likely to embrace what was said yesterday about potential progress on the US debt ceiling and government spending. House Speaker Kevin McCarthy shared he had a "very good discussion" with President Biden about government spending. "We have different perspectives, but we both laid out some of our vision of where we'd want to get to. And I believe, after laying them both out, I can see where we can find common ground." Positive for the market, but as we shared before the details of those spending in terms of size and which programs are impacted will be of greater interest to us.
The ensuing improvement in market sentiment has us watching technical resistance, which currently looks to be around 4,240 for the S&P 500. That's roughly another 2% for the S&P 500, which would bring its year-to-date gain to more than 9%. Quite a fast move in five weeks, one that argues for some froth in the market and the likelihood we see some market softness ahead. That has us thinking about something famed chemist and microbiologist Louis Pasteur once said: Fortune favors the prepared mind.
Costco Wholesale (COST) reported its January net sales rose 6.9% year over year to $16.84 billion, nicely ahead of consensus forecasts. Comp sales for the month adjusted to exclude changes in gasoline and foreign exchange rose 7.4% year over year with the US up 6.9%, Canada 8.95, and Other International 8.7%, while e-commerce sales fell 14.4% vs. year-ago levels.
Once again we'll wait for the upcoming reports on January Retail Sales as well as January spending reports from Mastercard (MA) and others that will add more context for Costco's January results. Our thinking is, once again, that context will prove favorable for Costco. We continue to see consumers leaning into Costco, especially as the economy continues to slow and layoffs mount.