Market Snapshot
briefing.com
| Dow | 33858.35 | -234.56 | (-0.69%) | | Nasdaq | 12079.88 | +263.55 | (2.23%) | | SP 500 | 4153.36 | +34.15 | (0.83%) | | 10-yr Note | 0/32 | 3.40 |
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| | NYSE | Adv 2120 | Dec 866 | Vol 1.1 bln | | Nasdaq | Adv 3262 | Dec 1324 | Vol 6.9 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Information Technology, Real Estate |
| | Weak: Energy, Materials, Health Care, Consumer Staples |
Moving the Market
-- Big gain in Meta Platforms (META) following pleasing earnings, stoking buying interest in the mega cap space
-- Continued pullback in Treasury yields following Fed Chair Powell's comments yesterday
-- Favorable results from this morning's data releases, including jobless claims and preliminary Q4 productivity and labor unit costs
-- Slight pullback when the S&P 500 failed to breach 4,200
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Closing Summary
02-Feb-23 16:30 ET
Dow -39.02 at 34053.89, Nasdaq +384.50 at 12200.83, S&P +60.55 at 4179.76
[BRIEFING.COM] It was another strong session for the broader market as investors digested the latest slate of earnings news, although a sizable loss in Merck (MRK 103.46, -3.52, -3.3%) following its quarterly results kept the price-weighted Dow Jones Industrial Average in negative territory for most of the session. The Nasdaq Composite (+3.2%) led the upside charge thanks to a huge earnings-driven gain in Meta Platforms (META 188.77, +35.65, +23.3%).
Meta's pleasing results on the heels of Fed Chair Powell's press conference, where he took a less aggressive tone, fueled a sense that earnings growth and monetary policy may be better than feared this year.
Other mega cap stocks registered outsized gains in solidarity with Meta, bolstering the broader market. The Vanguard Mega Cap Growth ETF (MGK) rose 3.2% versus a 1.1% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.5% gain in the S&P 500.
Positive reactions to some data releases this morning also helped along the upside bias. A pleasing Q4 Productivity report, which featured a moderation in unit labor costs, left the market feeling good about inflation trends. Separately, weekly initial jobless claims hit their lowest level (183,000) since April 2022, but that did not deter the rally effort, as it was construed as another good portent for a possible soft landing.
The rally did hit an air pocket, though, when the S&P 500 failed to clear the 4,200 level. The pullback was likely driven by a feeling that the market had gotten overbought/overextended and was due for some consolidation. The downturn did not last long, however, and the main indices were able to climb back towards session highs ahead of the closing bell.
Most of the S&P 500 sectors logged a gain today. The communication services sector (+6.7%) held the top spot a wide margin, followed by consumer discretionary (+3.1%) and information technology (+2.8%). The energy sector (-2.5%), meanwhile, was the worst performer as oil prices continued to lose ground ($75.68/bbl, -1.14, -1.5%).
Treasury yields pulled back noticeably yesterday in response to Fed Chair Powell's comments, but ultimately settled today's session little changed. The 2-yr note yield fell three basis points to 4.08% and the 10-yr note yield was unchanged at 3.40%.
- Nasdaq Composite: +16.6% YTD
- Russell 2000: +13.6% YTD
- S&P Midcap 400: +12.2% YTD
- S&P 500: +8.9% YTD
- Dow Jones Industrial Average: +2.7% YTD
Reviewing today's economic data:
- Weekly Initial Claims 183K (Briefing.com consensus 201K); Prior 186K; Weekly Continuing Claims 1.655 mln; Prior was revised to 1.666 mln from 1.675 mln
- The key takeaway from the report is that the low level of initial claims is an encouraging signal for the labor market, which, in light of Fed Chair Powell's comments yesterday, is not the scare factor for the market that it has been in the past. On the contrary, the default view for the market now is to perceive it as good portent for a soft landing.
- Q4 Productivity-Prel 3.0% (Briefing.com consensus 2.5%); Prior was revised to 1.4% from 0.8%; Q4 Unit Labor Costs-Prel 1.1% (Briefing.com consensus 1.5%); Prior was revised to 2.0% from 2.4%
- The key takeaway from the report is that the pickup in productivity helped tame unit labor costs, which is something the Fed will be pleased to see.
- December Factory Orders 1.8% (Briefing.com consensus 2.2%); Prior was revised to -1.9% from -1.8%
- The key takeaway from the report is that it shows manufacturing activity was otherwise weak in December when nondefense aircraft and parts orders are removed from the equation.
ArcBest (ARCB), Church & Dwight (CHD), Cigna (CI), Regeneron Pharma (REGN), and Zimmer Biomet (ZBH) headline the earnings reports ahead of tomorrow's open.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: January Nonfarm Payrolls (Briefing.com consensus 190,000; prior 223,000), Nonfarm Private Payrolls (Briefing.com consensus 175,000; prior 220,000), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.5%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), and Average Workweek (Briefing.com consensus 34.4; prior 34.3)
- 9:45 ET: Final January IHS Markit Services PMI (prior 46.6)
- 10:00 ET: January ISM Non-Manufacturing Index (Briefing.com consensus 50.3%; prior 49.6%)
Market climbs again after recent dip
02-Feb-23 15:35 ET
Dow -91.90 at 34001.01, Nasdaq +332.56 at 12148.89, S&P +50.12 at 4169.33
[BRIEFING.COM] The main indices are climbing again after taking a sharp turn lower when the S&P 500 failed to clear the 4,200 level.
ArcBest (ARCB), Church & Dwight (CHD), Cigna (CI), Regeneron Pharma (REGN), and Zimmer Biomet (ZBH) headline the earnings reports ahead of tomorrow's open.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: January Nonfarm Payrolls (Briefing.com consensus 190,000; prior 223,000), Nonfarm Private Payrolls (Briefing.com consensus 175,000; prior 220,000), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.5%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), and Average Workweek (Briefing.com consensus 34.4; prior 34.3)
- 9:45 ET: Final January IHS Markit Services PMI (prior 46.6)
- 10:00 ET: January ISM Non-Manufacturing Index (Briefing.com consensus 50.3%; prior 49.6%)
Earnings after the close
02-Feb-23 15:00 ET
Dow -234.56 at 33858.35, Nasdaq +263.55 at 12079.88, S&P +34.15 at 4153.36
[BRIEFING.COM] The main indices are on a steady decline.
Energy complex futures settled the session lower. WTI crude oil futures fell 1.5% to $75.68/bbl and natural gas futures fell 2.2% to $2.45/mmbtu.
After the close today, Apple (AAPL), Alphabet (GOOG), Amazon.com (AMZN), Cirrus Logic (CRUS), Clorox (CLX), Deckers Outdoors (DECK), Ford (F), Gilead Sciences (GILD), Microchip Technology (MCHP), MicroStrategy (MSTR), Qualcomm (QCOM), Skechers (SKX), and Starbucks (SBUX) will headline the earnings reports.
Align Tech, Grainger outperforming in S&P 500 following earnings
02-Feb-23 14:30 ET
Dow -149.21 at 33943.70, Nasdaq +360.89 at 12177.22, S&P +50.97 at 4170.18
[BRIEFING.COM] In the last half hour the markets have faded off their best levels of the day, the benchmark S&P 500 (+1.24%) now holding gains just above 50 points.
S&P 500 constituents Align Tech (ALGN 352.79, +70.26, +24.87%), Grainger (GWW 669.74, +71.69, +11.99%), and T. Rowe Price (TROW 130.98, +10.94, +9.11%) pepper the top of today's standings. ALGN and GWW enjoy solid gains following earnings, while TROW moves higher in sympathy to peer Janus Henderson Group's (JHG 30.87, +4.47, +16.93%) upside print.
Meanwhile, Air Products (APD 295.69, -22.44, -7.05%) is at the bottom of the S&P in light of this morning's Q1 miss.
Gold lower on Thursday as dollar rebounds
02-Feb-23 14:00 ET
Dow -36.83 at 34056.08, Nasdaq +424.92 at 12241.25, S&P +69.46 at 4188.67
[BRIEFING.COM] With about two hours to go the markets are near HoDs, the tech-heavy Nasdaq Composite (+3.60%) powering to a commanding lead having moved slightly higher over the previous half hour.
Gold futures settled $12.00 lower (-0.6%) to $1,930.80/oz, in part trimmed by likely profit taking as well as a rebound in the greenback.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $101.62.
C.H. Robinson erases initial losses following weak Q4 results, transporting nicely higher (CHRW)
C.H. Robinson (CHRW +3%), a transportation broker that links shippers with carriers, rolled right over its initial losses of as high as 4% today, climbing toward levels not seen since September. CHRW's earlier stock losses resulted from disappointing Q4 numbers headlined by a second-straight double-digit EPS miss and a more severe yr/yr sales decline than expected.
So why are shares of CHRW trucking higher? With the market seeing considerable buying activity today, CHRW is being swept up with the broader market rise. Additionally, investors are focusing on the positives from Q4. For instance, CHRW is focused on managing its expenses throughout the year while continuing to build a scalable operating model, emphasizing digitization as a critical element. As such, investors quickly bought the dip with the expectation that CHRW's scalable operating model would likely result in Q4 being a bottom in terms of financial struggles.
- Still, CHRW's challenges in Q4 were numerous. It has already been well-known that companies, from tech firms to department stores, are working through elevated inventories clipping demand for new orders. As a transportation broker, CHRW falls victim to this unfavorable dynamic.
- As a result, prices for ground transport and global freight forwarding are declining. CHRW noted that it did expect a correction but did not foresee the speed and magnitude of the current correction. For example, ocean rates on some trade lanes already reverted to pre-pandemic levels in just two quarters. This environment caused CHRW's operating costs to be misaligned.
- To better navigate the situation, CHRW announced it would structurally reduce its overall cost structure last quarter, resulting in an estimated net annualized cost savings of $150 mln by 4Q23 compared to the annualized 3Q22 run rate. Part of the savings stemmed from a workforce reduction initiated in November. CHRW anticipates its headcount to further decline throughout 2023 as productivity improves.
- The culmination of CHRW's headwinds in Q4 was a 40.8% tumble in adjusted EPS yr/yr to $1.03 and a 22.1% drop in revs to $5.07 bln.
Overall, investors were quick to shrug off the macroeconomic problems CHRW encountered in Q4. There are a few reasons to be optimistic about CHRW's future. The company is focused on building a scalable operating model that should help the firm return to growth. Also, CHRW is set to name a new CEO following former CEO Robert Biesterfeld's announcement last month that he would step down. Still, we believe the issues carried forward into Q4 should not be so readily brushed aside. A global demand slowdown could weigh heavily on CHRW this year, especially given the highly competitive industry in which it operates.
Meta Platforms gets huge thumbs up as it focuses on profitable businesses and cuts more costs (META)
Three months ago, Meta Platforms (META) was trading at its lowest levels in about seven years as Mark Zuckerberg's metaverse aspirations and the associated spending spree to support that buildout caused investors to leave the stock in droves. Just as it seemed META completely lost its way by shunning the bread-and-butter social media/digital advertising business that made it a must-own stock, the company began a game-changing pivot last November that has lit a fire under its shares. That pivot to rein in costs, while refocusing on what has made META so successful in the past -- namely, its Family of Apps business -- was on display last night when the company issued its 4Q22 earnings report.
- On November 9, META reaffirmed its Q4 revenue guidance of $30.0-$32.5 bln, but that wasn't the main story. Instead, the focal point rested on META's reduced FY23 operating expense guidance of $94-$100 bln, which was made possible by its simultaneous announcement of a workforce reduction of 11,000 positions.
- It was only two weeks earlier that the stock was pummeled by nearly 25% in the wake of a Q3 earnings miss and a FY23 forecast that called for operating expenses to jump by about 15% to $96-$101 bln. Furthermore, META's capex outlook of $34-$39 bln represented a 12% increase at the midpoint, signaling that Zuckerberg had no intention of scaling back his metaverse investments, even as concerns of a looming recession intensified.
- Following a 64% nosedive for the stock in 2022, the post-Q3 earnings report collapse was the proverbial straw that broke the camel's back for Zuckerberg. Suddenly, 2023 is now the "year of efficiency", according to Zuckerberg, with the CEO aiming to slash even more costs this year.
- One key catalyst for the stock's meteoric rise today is the further reduction in FY23 total expense guidance to $89-$95 bln, and the reduced capex forecast to $30-$33 bln. Perhaps as important as the capex cut itself is the disclosure that META expects nearly all of its expenditures to support the Family of Apps segment, rather than the loss-generating Reality Labs (metaverse) segment. On that note, Family of Apps posted Q4 operating income of $10.7 bln, compared to an operating loss of ($4.3) for Reality Labs.
- The change of heart from Zuckerberg has ignited a dramatic turnaround. Since the November 9 update, the stock has soared by an incredible 80%, despite the fact that revenue and earnings growth have both evaporated. In Q4, revenue and GAAP EPS fell by 4.5% and 52%, respectively, offering a not-so-subtle reminder that META is still facing numerous challenges.
- A soft digital advertising market is at the top of that list, with competitive pressures from TikTok, and Apple's (AAPL) iOS changes from last year, also weighing on META's growth.
- However, META's inline revenue guidance of $26.0-$28.5 bln, which reflects a 2.1% yr/yr increase at the high end, shows that it's faring much better than rival Snap (SNAP). Recall that on Tuesday night, SNAP noted in its Q4 earnings report that quarter-to-date revenue for 1Q23 was down by about 7%, prompting it to forecast a 2-10% drop for the quarter. It's now evident that SNAP's troubles are amplified by company-specific issues, including its decision to implement some changes to its direct response advertising platform that will be disruptive for its partners.
- The emergence of Reels -- META's answer to TikTok's ultra-popular short-format video platform -- is another encouraging development that's fueling the stock's gains. Reels plays on Facebook and Instagram more than doubled on a yr/yr basis, and users resharing Reels more than doubled over the past six months. It will take some time for Reels monetization efficiency to catch up to the more mature apps, but META believes it can be revenue neutral by the end of the year.
The main takeaway is that META's "transformation in reverse" is reawakening the company as it returns to its profitable roots. In addition to its accelerating cost-cutting measures, and its new $40 bln share buyback program, the prioritization of its cash flow generating Family of Apps segment is a signal to investors that a return to earnings growth is on the horizon.
e.l.f. Beauty zooms to new highs as it outpaces cosmetic and skin care categories in DecQ (ELF)
Shares of the value-priced cosmetic manufacturer e.l.f. Beauty (ELF +8%) are soaring toward all-time highs today following another monster quarter. ELF crushed earnings and sales estimates in Q3 (Dec) and followed it up with raised FY23 (Mar) guidance. CEO Tarang Amin noted that the company is encouraged by the continued resilience it is seeing across the color cosmetics category.
ELF's focus on fulfilling a niche in the cosmetics industry by supplying high-quality beauty products at attractive price points has been paying dividends over the past year. Although we have seen premiumization succeed during the inflationary environment, ELF's ability to cater to all income levels has separated it from the competition.
- ELF's differentiation was on full display in Q3. The company doubled adjusted EPS yr/yr to $0.48 on robust top-line growth of 49.3% to $146.54 mln. ELF also grew its market share by 150 bps yr/yr. ELF attributed its attractive price points, innovation, and marketing as keys to its success during the quarter.
- Speaking of marketing, ELF has upped its marketing spending from 7% of sales to 16% over the past three years. For FY23, the company continues to target the high end of its 17-19% range.
- ELF outperformed the industry in the cosmetic and skin care categories handily, boasting 36% and 34% growth yr/yr, respectively, in tracked channels. In comparison, category trends in cosmetics and skin care grew by just 8% and 6%.
- This outperformance acted as the primary catalyst behind gross margin expansion. After climbing 180 bps yr/yr to 67% in Q3, ELF is raising its FY23 gross margin forecast by 25 bps to a 200 bp improvement yr/yr.
- Additionally, the combination of strong sales growth and price increases implemented in March 2022 offset higher transportation costs and inventory adjustments by ELF's retail partners.
- ELF's Q3 results also drove the company's raised FY23 outlook. ELF is now targeting adjusted EPS of $1.37-1.40 from $1.07-1.10 and revs of $541-545 mln from $478-486 mln. Also, ELF hiked its adjusted EBITDA growth forecast to +48-50%, up considerably from +25-27%.
ELF's Q3 report and raised FY23 guidance speak to the resiliency of the underlying demand for cosmetics despite a shaky economic environment. It is also impressive that despite most of its production occurring in China, where headwinds are aplenty and were a significant factor in Estee Lauder's (EL) reduced FY23 (Jun) outlook today, ELF has continuously boasted in-stock levels of over 95%. Although we do not advise chasing ELF at current prices, it is building on exceptionally positive momentum, which could lead to continual new highs throughout the year. Still, it may be best to wait for a pullback.
Qorvo under pressure on weak guidance as channel inventories remain elevated (QRVO)
Qorvo (QRVO -7%) is heading lower after reporting Q3 (Dec) earnings last night. The results were actually quite good with Qorvo reporting its usual double digit EPS beat for the 19th consecutive quarter with nice revenue upside. The main problem was the Q4 (Mar) guidance with EPS at $0.10-0.15 and revs at $600-640 mln both well below analyst expectations. In fairness, the company tends to be conservative with guidance, then it reports a nice beat. However, the guidance is still troubling.
- Both Qorvo and Cirrus Logic (CRUS) supply mobile components and both list Apple (AAPL) as their largest customer, but at 33% of FY22 sales, Qorvo does not have nearly the same exposure as CRUS which gets 79% of revs from Apple. Qorvo has much more Android exposure. CRUS reports earnings tonight.
- Qorvo had a relatively strong DecQ performance in automotive, broadband, defense, and silicon carbide power devices. However, elevated channel inventories and weak end market demand pressured revenue and order activity across all three operating segments. Non-GAAP gross margin dropped sharply to 40.9% from 52.6% a year ago and 49.2% in SepQ. This was due to lower factory utilization and higher inventory-related charges, including a quality issue at a supplier.
- In terms of why the outlook is so weak, Qorvo cites ongoing demand weakness as well as expectations for further consumption of channel inventory. Basically, customers are focusing on using up current inventory before buying new chips from Qorvo. The good news is that Qorvo expects sales to Android smartphone customers will increase sequentially in MarQ. Also, in terms of channel inventory, Qorvo says the picture has begun to improve. For example, total channel inventory for Qorvo's components in the Android ecosystem was reduced by over 20% in DecQ with continued improvement expected in MarQ. The company expects the channel to normalize later this calendar year.
- Qorvo is actively working with customers to consume channel inventories. However, in doing so, production levels will remain compressed. As such, this underutilization of production assets leads to inefficiencies which will weigh on gross margin during Q4 (Mar) and carry into next fiscal year.
The stock is under pressure today. We think it's a combination of the weak MarQ guidance spooking investors plus the stock had run 50% from its October lows. As such, we think expectations were running a bit high heading into this report. Investors were likely expecting language from Qorvo that it was turning a corner.
The main problem is that there are too many chips in the channel and inventories need to come down before Qorvo will see a true recovery. It sounds like conditions are improving and will normalize later this calendar year. Finally, this is where we think Qorvo's lower relative exposure to Apple hurts them. All new iPhones are 5G, but fewer than half of Android devices were 5G in 2022. However, Qorvo will benefit as the migration to 5G unfolds over the next few years.
Electronic Arts sells off as Q4 guidance fails to score any points with investors (EA)
Electronic Arts (EA -12%) is selling off today despite registering a double-digit earnings beat in Q3 (Dec) as Q4 (Mar) guidance fails to score any points with investors. EA expects EPS of $0.05-0.20 and net bookings of $1.675-1.775 bln in Q4, coming up considerably short of analyst targets. The weak outlook stems primarily from EA's decision to delay the release of one of its highly anticipated titles, Star Wars Jedi: Survivor, by six weeks, causing net bookings from the game to shift into 1Q24 (Jun).
Furthermore, EA also stopped development on its mobile games Apex Mobile Legends and Battlefield Mobile due to a few factors. Alongside the fact that team-based gameplay not translating well to mobile devices or retaining enough players for games relying heavily on teamplay, EA launched its mobile titles into a soft market.
Over the past few quarters, we heard from rival Take-Two (TTWO) that mobile gaming is experiencing pronounced softness due to macroeconomic factors clipping in-app purchases. EA also touched on an unfavorable mobile market in recent quarters but was excited at the possibility of mobile remaining the largest platform in the games business and an expansion in multiplayer for its major franchises like Apex. As such, its decision to stop development just three months after these comments comes as a shock to investors.
- At the same time, Q3 results did not live up to expectations. EA stated that its Q3 guidance was based on five underlying assumptions: an expanding player network, healthy engagement metrics, strong momentum for FIFA, new releases, and Apex enduring typical seasonal lows. While EA did achieve new highs in its player network, sustained favorable engagement trends, and saw excellent growth in its FIFA franchise, net bookings of $2.34 bln, a 9.1% decline yr/yr, still did not meet expectations. Likewise, the performance of new games was below anticipated levels, underpinning challenging market dynamics.
- As a result, EA implemented measures during the quarter to cut costs and reduce the impact on its profitability. Specifically, EA moderated hiring and prioritized its variable spending in Q3, helping reduce costs by over $60 mln, allowing operating expenses to fall 3% yr/yr.
- Looking ahead, EA still expects to continue executing its two most important drivers of long-term growth: player engagement and high-quality game production. These themes should buoy FY24 (Mar) performance. EA expects mid-single-digit net bookings growth and low double-digit underlying profitability growth yr/yr in FY24, excluding FX headwinds.
The main takeaway is that numerous headwinds are weighing on EA today. We think EA's decision to delay its Star Wars title is less significant as the lingering weak demand dynamics. Additionally, ending development on two of its mobile titles due partly to the lackluster mobile gaming market is only adding fire to today's sell-off. EA is ending a challenged FY23 on a sour note, which could remain the theme throughout FY24 if the ongoing gaming slowdown taps the brakes further. Finally, EA's report does not carry an uplifting tone leading into TTWO's DecQ report on February 6.
Page One
Last Updated: 02-Feb-23 09:04 ET | Archive
A feel-good mentality
We surmised yesterday that the market could fight back against a hawkish-sounding Fed Chair Powell. That fight would be evident, we said, in a weakening dollar, a nonplussed Treasury market, and a more resilient stock market than one might expect to see.
Mr. Powell led off his press conference with an acclimation that the "Full effects of rapid tightening so far have yet to be felt and we have more work to do." As he continued to talk, the dollar weakened noticeably, Treasury yields shot lower, and stock prices shot higher.
The irony is that those reactions had little to do with the market fighting back against the Fed Chair's hawkish-sounding comments. Instead, they had everything to do with the conclusion that the Fed Chair did not fight back strongly against the stock market's rally effort nor its expectation that the Fed will cut rates before the end of the year.
Granted he did say that rate cuts in 2023 would not be appropriate if economic conditions evolved in-line with the Fed's expectations, yet he tempered that view with the acknowledgment that, if the Fed sees inflation coming down much more quickly, it will play into the Fed's policy setting (i.e., the Fed just might be compelled to cut rate before the end of the year).
Overall, the capital markets behaved as if they are confident in the idea that the Fed will be pausing its rate hikes soon and that a rate cut before the end of the year is not out of the question.
The 2-yr note yield sank to 4.11% (from 4.24%) and the 10-yr note yield dropped to 3.40% (from 3.49%). They are sitting at 4.05% and 3.36%, respectively, this morning.
That is one factor that has been supportive for the broader market. The primary factor this morning, though, is a 20% gain in Meta Platforms (META) following its earnings report, better-than-expected guidance, and announcement of a $40 billion share repurchase authorization.
That's not a metaverse reaction either. It's the real thing and it has fostered some nice gains in other mega-cap stocks, including Apple (AAPL), Alphabet (GOOG), and Amazon.com (AMZN), all of which report their earnings results after today's close.
The strength there is manifesting itself in the Nasdaq 100 futures, which are up 242 points and are trading 2.0% above fair value, and in the S&P 500 futures, which are up 40 points and are trading 1.0% above fair value. The Dow Jones Industrial Average futures, though, are trailing behind. They are up 40 points and are trading 0.1% above fair value, weighed down by losses in Honeywell (HON) and Merck (MRK) following their earnings reports and guidance.
It isn't all good then, yet there is certainly a feel-good mentality underpinning the broader market and this morning's economic data is feeding into that.
Q4 productivity increased 3.0% (Briefing.com consensus 2.5%), as output increased 3.5% and hours worked increased 0.5%, following an upwardly revised 1.4% increase (from 0.8%) in the third quarter. Unit labor costs rose 1.1% (Briefing.com consensus 1.5%) following a downwardly revised 2.0% (from 2.4%) in the third quarter.
The key takeaway from the report is that the pickup in productivity helped tame unit labor costs, which is something the Fed will be pleased to see.
Separately, initial jobless claims for the week ending January 28 decreased by 3,000 to 183,000 (Briefing.com consensus 201,000), which is the lowest number of initial claims since April 2022. Continuing jobless claims for the week ending January 21 decreased by 11,000 to 1.655 million.
The key takeaway from the report is that the low level of initial claims is an encouraging signal for the labor market, which, in light of Fed Chair Powell's comments yesterday, is not the scare factor for the market that it has been in the past. On the contrary, the default view for the market now is to perceive it as good portent for a soft landing.
The futures for the main indices all improved in the wake of this morning's economic data. We would add, too, that there were no ruffled feathers after the Bank of England (BOE) and European Central Bank (ECB) earlier raised their key lending rates by 50 basis points, as expected.
Notably, the BOE vote was 7-2 and the two dissents favored no rate hike; meanwhile, the ECB directive indicated the Governing Council intends to raise interest rates by another 50 basis points at its next meeting in March.
The stock market has had a lot to process since yesterday's FOMC decision. It is showing some processing power this morning, though, heartened by a belief that the outlook for the Fed's monetary policy, and earnings, just might turn out better than feared.
How far it runs with that idea will hinge a lot on how comfortable it is trading at a premium valuation.
-- Patrick J. O'Hare, Briefing.com
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