Stocks Tumble as a Robust U.S. Labor Market Keeps Aggressive Fed in Play

Rich Asplund - Barchart - Fri Feb 3, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed down -1.04%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.79%.

Stock indexes Friday settled moderately lower. Weakness in technology stocks weighed on the overall market Friday after Apple, Alphabet, and Amazon.com reported disappointing quarterly earnings results. However, Apple erased early losses, moved higher, and pulled the indexes up from their worst levels.

Friday’s stronger-than-expected U.S economic reports on Jan payrolls and Jan ISM services sent bond yields soaring and weighed on stocks on concern the Fed will need to keep raising interest rates.

U.S. Jan nonfarm payrolls surged +517,000, much stronger than expectations of +188,000 and the largest increase in 6 months. Also, the Jan unemployment rate unexpectedly fell -0.1 to a 53-year low of 3.4%, showing a stronger labor market than expectations for an increase to 3.6%.

U.S. Jan average hourly earnings eased to +4.4% y/y from 4.8% y/y in Dec, the slowest pace of increase in 17 months but stronger than expectations of +4.3% y/y.

The U.S. Jan ISM services index rose +6.0 to 55.2, stronger than expectations of 50.5.

Weakness in technology stocks Friday weighed on the overall market, with Amazon.com closing down more than -8% and Alphabet closing down more than -2% after they reported disappointing earnings results. Also, Ford Motor closed down more than -7% after reporting weaker-than-expected Q4 adjusted Ebitda, and Starbucks closed down more than -4% after reporting weaker-than-expected Q1 comparable same-store sales.

A surge in global bond yields Friday also undercut stock prices, as the 10-year T-note yield rose +14.1 bp to 3.534%, and the 10-year German bund yield rose +11.3 bp to 2.193%.

Overseas markets Friday settled higher. The Euro Stoxx 50 index closed up +0.40%. China’s Shanghai Composite stock index closed up +0.02%, and Japan’s Nikkei Stock index closed up +0.20%.

Today’s stock movers…

Gen Digital (GEN) closed down by more than -9% Friday to lead losers in the S&P 500 after forecasting Q4 adjusted revenue of $935 million-$945 million, the midpoint below the consensus of $942.3 million.

Amazon.com (AMZN) closed down more than -8% after reporting Q4 Amazon Web Services net sales excluding F/X up +20%, weaker than the consensus of up +23.5% and forecasting Q1 net sales of $121.0 billion-$126.0 billion, the midpoint below the consensus of $125.5 billion.

Ford Motor (F) closed down more than -7% after reporting Q4 adjusted Ebitda of $2.60 billion, weaker than the consensus of $3.45 billion.

Atlassian Corp (TEAM) closed down more than -7% after reporting Q2 new customers rose +4,004, weaker than the consensus of +6,102, and Q2 total customers of 253,177 was below the consensus of 255,449.

Bill.com (BILL) closed down more than -26% after forecasting Q3 total revenue of $245 million to $248 million, weaker than the consensus of $251.4 million. Intuit (INTU) closed down more than -6% after Bill.com’s results raised concerns about a slowdown in spending by small and midsize businesses.

Generac Holdings (GNRC) closed down more than -6% after Guggenheim Securities downgraded the stock to neutral from buy.

Starbucks (SBUX) closed down more than -4% after reporting Q1 comparable same-store sales rose +5%, weaker than the consensus of +6.79%.

Alphabet (GOOGL) closed down more than -2% after reporting Q4 advertising revenue of $59.04 billion, below the consensus of $60.64 billion.

Clorox (CLX) closed up more than +9% to lead gainers in the S&P 500 after reporting Q2 net sales of $1.72 billion, stronger than the consensus $1.66 billion and forecasting full-year organic sales of 0% to +3%, the midpoint above the consensus of +0.94%.

Regeneron Pharmaceuticals (REGN) closed up more than +4% to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $3.41 billion, stronger than the consensus of $3.12 billion.

Apple (AAPL) recovered from losses of more than -4% and closed up more than +2% after reporting Q1 service revenue of $20.77 billion, better than the consensus of $20.47 billion. Apple initially fell after reporting Q1 total revenue of $117.15 billion, below the consensus of $121.14 billion.

Gilead Sciences (GILD) closed up more than +3% after reporting Q4 adjusted EPS of $1.67, stronger than the consensus of $1.51 and forecasting full-year adjusted EPS of $6.60-$7.00, above the consensus of $6.63.

Church & Dwight (CHD) closed up more than +3% after reporting Q4 net sales of $1.44 billion, better than the consensus of $1.40 billion, and raising its quarterly cash dividend to 27.25 cents per share from 26.25 cents per share.

Nordstrom (JWN) closed up more than +24% on news that activist investor Ryan Cohen is building a significant stake in the company.

Across the markets…

March 10-year T-notes (ZNH23) on Friday closed down -1-4/32 points, and the 10-year T-note yield rose by +14.1 bp to 3.534%. Mar T-notes Friday sold off sharply after stronger-than-expected U.S. economic reports on Jan payrolls and Jan ISM services bolstered the outlook for the Fed to keep raising interest rates. T-notes also had carry-over pressure from a slump in 10-year German bunds Friday after hawkish ECB comments and stronger-than-expected Eurozone Dec producer prices pushed up the 10-year German bund yield by +11.2 bp to 2.205%.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.