Schwab Market Update: Stocks Mostly Higher as Markets Digest Data and Policy Decisions

February 2, 2023
U.S. stocks are continuing yesterday's rally that came as the Fed hiked rates by a decelerated amount and suggested that it may be nearing the end of its tightening cycle.

Published as of: February 2, 2023 11:15 AM ET

Audio Schwab Market Update

Listen to the latest audio Schwab Market Update. Or listen and subscribe for free to the end-of-day Schwab Market Update podcast in your podcast app of choice.

U.S. stocks are continuing yesterday's rally that came as the Fed hiked rates by a decelerated amount and suggested that it may be nearing the end of its tightening cycle. The global markets are also reacting to 50-basis point rate hikes from the European Central Bank and Bank of England. Earnings continue to pour in, with Meta Platform jumping after its results and Eli Lilly and Company seeing pressure after its release. The economic calendar delivered some positive news, with Q4 productivity much stronger than expected and unit labor costs slowing more than anticipated, and jobless claims continued to slide, while factory orders missed estimates. Treasury yields are lower, and the U.S. dollar is gaining ground. Crude oil and gold prices are dipping. Asia finished mixed following the Fed's decision, and Europe is mostly higher in the wake of the monetary policy decisions in the region.

At 10:53 a.m. ET, the Dow Jones Industrial Average is dipping 0.1%, while the S&P 500 Index is rallying 1.6%, and the Nasdaq Composite is jumping 3.1%. WTI crude oil is edging $0.15 lower to $76.26 per barrel, and Brent crude oil is trading $0.71 lower to $82.13 per barrel. The gold spot price is down $2.00 to $1,940.80 per ounce, and the Dollar Index is advancing 0.3% to 101.57.

Meta Platforms Inc. (META $189) reported Q4 earnings-per-share (EPS) of $1.76, but FactSet is noting that it is unclear if it is comparable to its $2.26 estimate. Revenues declined 4.0% year-over-year (y/y) to $32.17 billion, above the Street's expectation of $31.55 billion. The social media company said its advertising revenues came in above estimates, while daily active users and average revenue per user both also topped forecasts. META issued Q1 revenue guidance with a midpoint slightly above projections. The company also estimated that its restructuring charges will be below prior estimates and announced an additional $40 billion to its share repurchase program. Shares are rallying over 20.0%.  

Eli Lilly and Company (LLY $322) reported adjusted Q4 EPS of $2.09, versus the expected $1.78, with revenues declining 9.0% y/y to $7.30 billion, versus the estimated $7.33 billion. LLY raised its full-year earnings outlook and reaffirmed its revenue forecast. Shares are solidly lower as the Street is scrutinizing its softer-than-expected revenue growth from its key diabetes drug.

Q4 earnings season is hitting a high gear and of the 231 S&P 500 companies that have reported thus far, about 52.0% have topped revenue estimates and approximately 70.0% have exceeded earnings projections, per data compiled by Bloomberg. Results have been mixed, along with guidance as corporations try to determine the ultimate impact of the aggressive Fed monetary policy tightening on the economy and profit margins.

Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Helpless? Recession Risks Abound, how leading indicators continue to point toward further economic weakness, making it difficult and premature to determine whether the labor market can maintain its relative strength. You can follow Liz Ann on Twitter: @LizAnnSonders.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.

Nonfarm productivity and unit labor costs report upbeat, jobless claims continue to slide

Preliminary Q4 nonfarm productivity (chart) rose by 3.0% on an annualized basis, above the Bloomberg consensus estimate calling for a 2.4% increase, and following the upwardly revised 1.4% gain seen in Q3. Unit labor costs were up by 1.1%, but below forecasts of a 1.5% rise. The figure decreased from Q3's downwardly adjusted 2.0% increase in unit labor costs.

Weekly initial jobless claims (chart) came in at a level of 183,000 for the week ended January 28, below estimates of 195,000 and compared to the prior week's unrevised 186,000 level. The four-week moving average declined by 5,750 to 191,750, and continuing claims for the week ended January 21 decreased by 11,000 to 1,655,000, south of estimates calling for 1,684,000. The four-week moving average of continuing claims fell by 10,500 to 1,651,500.

Factory orders (chart) for December increased 1.8% month-over-month (m/m), below the forecasted 2.3% gain, and versus the prior month's negatively revised 1.9% decline. Durable goods orders—preliminarily reported last week—was unadjusted at the previously reported 5.6% m/m increase, matching forecasts, and excluding transportation, orders were adjusted lower to a 0.2% decrease from the previously-reported 0.1% dip. As well, December's final read on nondefense capital goods orders excluding aircraft—considered a proxy for capital spending—was positively adjusted to a 0.1% m/m dip from the 0.2% decline in the preliminary reading.

The markets continue to digest yesterday's monetary policy decision from the Fed, which raised its target for the fed funds rate by 25 basis points (bps), a continued deceleration from the aggressive pace set in 2022. Schwab's Liz Ann Sonders discusses the decision in her commentary, Waiting for the End…Just Not Yet, noting that though the Fed is close to the end of its rate-hiking cycle, additional increases in the fed funds rate are still likely, albeit less aggressive in magnitude.

Treasury rates are lower, as the yield on the 2-year note is down 5 bps to 4.06%, the yield on the 10-year note is decreasing 4 bps to 3.36%, and the 30-year bond rate is losing 3 bps to 3.52%.

Bond yields have seen heightened volatility lately but remain solidly higher over the past 12 months as the markets react to aggressive Fed monetary policy actions. Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article, Fixed Income Outlook: Bonds Are Back, how we see opportunities in 2023 for the bond market to provide attractive yields at lower risk than we've seen for several years. You can follow Kathy on Twitter: @KathyJones.

Later this morning the economic calendar will bring the release of the factory orders report, with the headline figure expected to rise 2.3% m/m during December.

Europe mostly higher as markets digest monetary policy decisions

Stocks in Europe are mostly higher in late-day action, as the markets digest yesterday's 25-bp rate increase out of the Fed in the U.S., and today's 50-bp rate hikes by the European Central Bank (ECB) and Bank of England (BoE). Inflation has been the big driver of rate hikes around the globe. The ECB signaled that a similar action could come in March and the BoE offered a bit more dovish outlook, but continued to suggest another rate hike in March at a decelerated pace. The euro and British pound are falling versus the U.S. dollar and bond yields in the Eurozone and the U.K. are dropping. In other economic news, German exports fell much more than expected in December. 

European markets have experienced a strong start to 2023, as stocks have been buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening, and expectations that global central bank aggressive tightening may cool off. These positive developments have countered uncertainty regarding the ultimate implications of aggressive monetary policy tightening around the world on the global economy and financial conditions. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his latest 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. You can follow Jeff on Twitter: @JeffreyKleintop. 

The U.K. FTSE 100 Index is up 0.5%, France's CAC-40 Index is gaining 1.3%, Germany's DAX Index is rising 2.0%, Italy's FTSE MIB Index is advancing 1.2%, and Spain's IBEX 35 Index increasing 1.5%, while Switzerland's Swiss Market Index is decreasing 0.3%.

Asia mixed following Fed decision and ahead of Europe monetary policy announcements

Stocks in Asia finished mixed with the markets digesting yesterday's monetary policy decision out of the U.S., which saw the Central Bank hike rates by a decelerated 25-bp pace. Meanwhile, the markets awaited monetary policy decisions out of the Eurozone, and the U.K. Aggressive monetary policy tightening has caused volatility in the currency and bond markets but most markets in the region have seen solid year-to-date gains, led by the Hong Kong markets. The moves have been aided by China’s reopening, the potential for eased regulatory crackdowns on the Technology sector, property market support, and expectations that central banks across the globe, including the Fed in the U.S., may be set to slow down monetary policy tightening. In economic news, South Korea's consumer price inflation for January rose more than expected, and the nation's December retail sales rose, while Australia's building approvals jumped much more than expected for December.

Optimism of China’s reopening has countered uncertainty regarding the ultimate impact of the aggressive monetary policy tightening from most central banks around the world. In his article, Global Outlook: Recovery and Risk, Schwab's Jeffrey Kleintop notes how markets may continue to see volatility in 2023 as they navigate between global economic growth and inflation fears, with central banks' decreasing rate hikes and China's reopening.

Japan's Nikkei 225 Index increased 0.2%, with the yen rallying versus the U.S. dollar in the wake of the Fed's decision. China's Shanghai Composite Index finished little changed, and the Hong Kong Hang Seng Index decreased 0.5%. Australia's S&P/ASX 200 Index ticked 0.1% higher, India's S&P BSE Sensex 30 Index advanced 0.4%, and South Korea's Kospi Index rose 0.8%.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

Apple Podcasts and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries.

0223-3HM8