The stock market rally, building on the Jan. 6 bounce, continued to advance in the latest week amid optimism over China's reopening and slowing inflation. The S&P 500 reclaimed its 50-day line and moved up to its 200-day line. Tesla slashed U.S. and European prices, hitting auto stocks. Earnings season picked up, led by JPMorgan Chase, UnitedHealth, Taiwan Semiconductor, KB Home and Delta Air Lines. A slew of medical and retail names gave preliminary results or guidance, including Lululemon Athletica, Exact Sciences and Intuitive Surgical. Crude oil and copper rebounded on economic optimism and a weaker dollar.
Stock Market Rally
The stock market rally extended a recent string of gains, but with the S&P 500 retaking the 50-day moving average and coming up to its 200-day line. A number of leading stocks flashed buy signals and continued moving higher. Treasury yields fell toward recent lows as inflation continued to cool, raising the prospect of the Fed halting rate hikes relatively soon. Crude oil and copper prices continued to advance, buoyed by China reopening optimism and a weaker dollar.
Inflation Keeps Slowing
A mostly tame December CPI inflation reading sealed the deal for another downshift in the pace of Fed rate hikes to just a quarter point on Feb. 1. The overall consumer price index fell 0.1% on the month, pulling the annual inflation rate down to 6.5% from 7.1% in November. The core CPI rose 0.3% as the core inflation rate eased to 5.7% from 6%. Fed Chair Jerome Powell has put the focus on inflation in services excluding energy and housing. While prices for this batch of services rose 6.5% from a year ago, the 3-month trend cooled to an annualized 5% from 6.5% in November.
However, new claims for jobless benefits remain at historically very low levels, slipping 1,000 to 205,000 in the week through Dec. 31. That will keep the Fed worried about an overly tight labor market.
Banks Largely Top EPS Views
Major banks largely beat Q4 earnings expectations amid strong net interest income gains, though several raised loan loss provisions. JPMorgan and Bank of America reported single-digit EPS gains, but beat forecasts for small declines. Revenue also topped. Wells Fargo earnings roughly halved to 67 cents per share, but rose 35% excluding various items. EPS topped but revenue fell more than expected. Citigroup earnings fell 20% as revenue grew 6%. Both topped estimates.
Delta Earnings Surge, But Q1 Guidance Low
Delta Air Lines reported a 573% EPS surge with revenue up 42% to $13.435 billion, both beating views. It also maintained guidance for "significant" growth in 2023, saying "the industry backdrop for air travel remains favorable." But it gave soft guidance for the current first quarter, citing higher non-fuel costs. Peer American Airlines raised EPS and revenue guidance for the final quarter of 2022, citing robust demand and high fares. Delta fell Friday on weak guidance, but DAL and other airline stocks rallied strongly for the week.
Medical Firms Rise, Fall On Early Results
Many medical companies preannounced December-quarter results during the annual J.P. Morgan Healthcare Conference. Exact Sciences blew projections out of the water with a preliminary sales report, sending EXAS spiking almost 25%. Meanwhile, Hologic, Dexcom and InMode beat preliminary expectations, but shares of the latter two tumbled. Intuitive Surgical and Halozyme disappointed investors with their preannouncements. Illumina skidded on a light 2023 outlook. Danaher sales were in line with views, though Covid testing sales topped. But Regeneron toppled after its preliminary report on sales of its blockbuster eye drug, Eylea, were below expectations for the fourth quarter and full year.
Retailers Guide Up, Down
Retailers gave mixed preannouncements or guidance amid high inventories and pressured-but-still-spending consumers. Lululemon Athletica warned its Q4 gross margin would decline, pressured by cost increases and cautious consumer spending. At the same time, the fitness clothing retailer raised its revenue guidance and tightened the range of its earnings guidance. Meanwhile, Abercrombie & Fitch guided above expectations, raising fourth-quarter sales and margin guidance. American Eagle Outfitters sees holiday Q4 sales down 3%, but above prior targets. Women's apparel chain Chico's FAS guided low. The slew of news comes after retail giant Macy's said late on Jan. 6 that Q4 revenue would come in near the low end of expectations.
Tesla Slashes U.S., Europe Prices
On Jan. 13, Tesla cut prices sharply in the U.S., making more of its models eligible for tax credits of up to $7,500. The base Model Standard Range RWD was cut $3,000 to $43,990, which means it would be $36,240 after the IRA tax credits. The Performance version was cut $9,000 to $53,990, getting under the $55,000 limit for tax credits. The base Model Y has been slashed $13,000, or nearly 20%, to $52,990. The Performance variant has been cut to $56,990, also down $13,000. Meanwhile, Tesla cut Model 3 and Y prices in at least Austria, France, Germany, the Netherlands, Norway, Switzerland and the U.K. The price cuts should significantly boost sales in the U.S. and provide a boost in Europe, where backlogs had been falling significantly. But they also raise concerns about Tesla's prized profit margins. The move comes a week after Tesla slashed prices in China for the second time in less than three months.
Tesla stock tumbled on Friday, but still rose for the week. General Motors, Ford, Rivian, Chrysler and Fiat parent Stellantis and Lucid skidded Friday on concerns that Tesla's price cuts will hit their prices and demand.
UnitedHealth Earnings Top
UnitedHealth EPS grew 25% to $5.34, topping Q4 estimates amid a drop in the medical cost ratio, or benefits paid as a percentage of premiums. Revenue grew 12% to $82.8 billion, also above views. UnitedHealth stuck by 2023 earnings guidance, which factors in higher health costs due to care deferred during the pandemic. UNH stock rose modestly after tumbling to start 2023.
TSMC Posts Mixed Q4 Report
Taiwan Semiconductor Manufacturing beat expectations for earnings in the fourth quarter but missed on sales. It also guided below views for the current quarter as chip demand weakens. Better known as TSMC, the contract chipmaker warned that end market weakness had expanded to data center chips and said demand for PC and smartphone chips continues to be soft. TSMC predicted that the second quarter will be its revenue bottom for the year. It forecast revenue growth of just 1% year over year for the current quarter. That compares with 30% sales growth in the fourth quarter. But shares still jumped.
Commercial Metals Earnings Strong
Commercial Metals earnings jumped 38% to $2.24 per share, and revenue rose 12% to $2.23 billion. Analysts expected the steel recycler to report earnings of $1.96 per share on $2.2 billion in revenue. However, earnings growth has slowed for the past two quarters while revenue gains have decelerated for the past five quarters. CMC stock wavered on earnings, but ran sharply higher for the week.
KB Home Misses Views, Guides Low
KB Home reported a 29% EPS increase, with revenue up 16% to $1.94 billion, missing on the top and bottom lines. Its housing revenue guidance for the current quarter also came in below views. High mortgage rates and economic uncertainty are putting off homebuyers. KB Home will cut prices to boost demand this spring. KBH stock fell on earnings but rose for the week, continuing a strong run since late September, along with other housing plays.
News In Brief
Neurocrine Biosciences and Voyager Therapeutics entered a strategic collaboration to develop and test Voyager's gene therapies in neurological diseases. NBIX stock dived while Voyager rallied.
AstraZeneca agreed to buy CinCor Pharmaceuticals for $1.8 billion. CinCor makes an experimental treatment for high blood pressure.
