Today, after the market close, Tesla (TSLA) reported fourth-quarter earnings of 71 cents a share. The missed the consensus Wall Street forecast of 73 cents. Sales of $25.2 billion missed forecasts for $25.6 billion. But I’d argue that the earnings and sales misses weren’t the worst news in the report.
3M (MMM) fell 11.03% today, Tuesday, January 23, the most in nearly five years, after announcing projections for 2024 sales and earnings below Wall Street expectations. Now granted that 3M is a special case–the company is engaged in a huge restructuring effort that has met with a high degree of investor skepticism. In short, investors doubt that the company can pull it off without cutting its dividend. So the stock is especially sensitive to any news that suggest that the restructuring is failing. But the stock’s big drop today is also an indication of how worried this market, trading at record highs, is about the possibility that earnings growth for the fourth quarter, the subject of the current earnings season, won’t support prices at these levels.
On Friday the University of Michigan’s consumer sentiment index reported a rise of 9.1 points, the biggest monthly advance since 2005, to 78.8. The preliminary January reading stands at the highest level since July 2021. Consumer sentiment jumped 13% in January to its highest level since mid-2021. Since November, consumer sentiment has risen 29%, marking the largest two-month increase in more than 30 years. And that was just the top line in a report with lots of good news for stocks and the current rally.
The Magnificent Seven stocks accounted for virtually all of 2023’s 24% stock market gain. The Magnificent Seven stocks are Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA). And according to Wall Street analysts these stocks are set to do it again when they report fourth quarter earnings beginning this week (on Wednesday, Jonuary 24, with Tesla and continuing into the following week.The Magnificent Seven are expected to deliver combined earnings growth of about 46%, according to data from Bloomberg. That’s down slightly from the third quarter’s 53% expansion, but it still dwarfs almost all of the main sectors in the S&P 500 Index. It’s not surprising, therefore, that the long Magnificent Seven (and other tech stocks) is the most common trade in the current market. Nor that the options market is pricing in “virtually no risk” for mega-cap stocks, Brian Donlin, head of equity derivatives strategy at Stifel Nicolaus, told Bloomberg. All of which makes the recent weakness in some of the Mgnificent Seven stocks a bit worrying. Apple and Tesla are most likely to deliver disappointing numbers.
Shares in Taiwan Semiconductor Manufacturing (TSM) were up almost 10% yesterday after the company announced an unexpectedly strong return to growth. That has in turn pushed chip stocks higher across the sector. For example, shares of Advanced Micro Devices (AMD), which were already moving higher this week ahead of the news, hit a new record high today. The good news from semiconductor companies and the moves on their stock have also rallied the general market.
Today, January 18, with plenty of time to beat the January 19 deadline for funding the government or shutting it down, Congress passed yet another temporary spending bill. The interim measure would fund some agencies-—set to run out of money after Friday–through March 1 and others through March 8.
Today’s video is Exogenous Factors: Middle East and Taiwan. The market has been focused on earnings and the Fed as of late, but, there are a lot of big exogenous factors that should also be on the radar. Two of those factors are Taiwan and the Middle East.
Last month, the bond market was almost fully pricing the first interest rate cuts from the Federal Reserve in March. Now, though the odds for a 25 basis point cut are down to more like 50/50. Today, January 17, the yield on the 10-year Treasury rose another 5 basis points to 4.10%.
Mae West said, “Too much of a good thing is never enough.” For the financial markets that’s just not true, however. The markets are prone to swing to excess and then to painfully retrace the extreme end of the swing. You can see it happening now with interest rates and the bond market.
CPI inflation isn’t falling as quickly as economists had predicted and as investors and traders had hoped. At the least, the numbers call into question the belief that the Federal Reserve will begin to cut interest rates as early as its March 20 meeting.
Right now all that the bond market and indeed all the financial markets care about is when will the Federal Reserve begin to cut interest rates. The consensus is that sometime relatively soon–March or more likely June–the Fed will begin to deliver interest rate cuts that will total somewhere around 100 basis points (at least) for 2024. But what if the Federal Reserve and other central banks around the world really aren’t in control of interest rates in the bond market anymore?
In November global chip sales rose for the first time in more than a year. Global semiconductor revenue added up to $48 billion in November, a 5.3% increase from a year earlier, according to the Semiconductor Industry Association. Sales rose a more moderate 2.9% from October. But the good news didn’t extend to all chip segments.
