1/24/2024

The market is waiting for company reports

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Key points:

  • The S&P 500 index hit an all-time high amid mixed results from its first quarterly reports.
  • Shares of Netflix, Verizon and Procter & Gamble rose after strong results, but shares of 3M, Johnson & Johnson and Horton fell.
  • Stock market valuations are quite high, and analysts believe earnings across all share classes have peaked and will decline in the future.

The stock market reached a new record high on Tuesday as investors awaited quarterly earnings reports from Tesla and other major companies this week.

This is the third consecutive record high for the S&P 500, and many investors are looking to these reports from the influential Magnificent Seven group of large-cap companies to determine if the current rally on Wall Street will continue or lose momentum.

The S&P 500 rose 0.29% to close at 4,864.59, while the Nasdaq gained 0.43% to 15,425.94. The Dow Jones Industrial Average, however, fell 0.25% to 37,905.45.

Stocks fluctuate following earnings

Netflix shares surged 8.6% in pre-market trading after the video streaming platform surpassed Wall Street’s subscriber forecasts for the fourth quarter, bolstered by a robust pipeline of new series scheduled for this year.

Verizon Communications shares climbed 6.7% after projecting robust full-year earnings and announcing its highest quarterly subscriber growth in almost two years. Additionally, Procter & Gamble shares gained 4.2% after exceeding expectations for second-quarter earnings.

3M shares plunged 11% after anticipating weak full-year results, while Johnson & Johnson shares fell 1.6% following the release of quarterly earnings that were marginally better than expected.

Horton shares plummeted more than 9% after the homebuilder fell short of first-quarter profit estimates.

Tesla shares ticked up 0.2% ahead of its earnings report, scheduled to be released late Wednesday.

Will the S&P 500 continue to rise?

On average, analysts anticipate fourth-quarter earnings for the S&P 500 to rise by 4.6% year-over-year, a deceleration from the 7.5% growth recorded in the third quarter.

Market valuations are currently elevated. The S&P 500 is trading at around 20 times expected 12-month earnings, well above its long-term average of 16 times. However, analysts remain cautious.

“Earnings across all share classes have peaked and will decline as the economy weakens and earnings growth slows.”

— Samir Samana, senior global market strategist at Wells Fargo, said in a note.

The S&P 500 logged 34 new highs and a single new low. The Nasdaq registered 102 new highs and 90 new lows.

Trading volume on U.S. exchanges remained moderate, with 10.9 billion shares traded compared to an average of 11.4 billion shares over the previous 20 sessions.

Publication of macro data this week

Key economic indicators, including the Personal Consumer Expenditures (PCE) index, S&P Global PMI readings, and preliminary fourth-quarter GDP data released this week, will play a crucial role in shaping the Federal Reserve’s interest rate decision scheduled for January 31.

Expectations for rate cuts are being put on hold again. Traders are increasingly leaning toward the Fed delaying rate cuts until the second quarter, with June now appearing more probable than May.

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