Wall Street’s monster-sized rally since Halloween is easing off the accelerator Wednesday following mixed reports showing disappointing profits at companies but unexpected strength for the economy.
Quick Read
- Wall Street Rally Slows: The S&P 500 was nearly unchanged, the Dow Jones Industrial Average slightly down, and the Nasdaq composite slightly up in morning trading. The S&P 500 remains close to its record high.
- FedEx Earnings Disappoint: FedEx reported lower-than-expected revenue and profit, along with a reduced fiscal year revenue forecast, contributing to a 10.6% drop in its stock.
- Impact on Market Sentiment: FedEx’s weaker performance could affect the market’s optimism about the Federal Reserve achieving a ‘soft landing’ for the economy.
- Winnebago and General Mills Earnings: Winnebago Industries and General Mills also reported disappointing results, with their stocks dropping 4.1% and 2.9% respectively.
- Positive Economic Reports: Consumer confidence in December and sales of previously occupied homes in November exceeded expectations, indicating stronger economic conditions.
- Global Inflation Cooling: Inflation rates are declining globally, including a notable drop in the UK’s November inflation rate.
- Federal Reserve’s Rate Expectations: Expectations are growing for the Fed to decrease interest rates in 2024, with the current rate at its highest in over two decades.
- Treasury Yields Fall: The yield on the 10-year Treasury dropped, continuing its decline since October.
- Impact on Investments: Lower interest rates and yields tend to boost investment prices and ease financial pressure.
- Tech and Energy Stocks Perform Well: Big tech companies like Alphabet and Amazon saw gains, as did oil and gas companies.
- Market Criticisms: Despite recent gains, there are concerns that stocks may have rallied too much, and doubts remain about the Fed’s ability to avoid a recession.
- Fed Officials on Rate Cuts: Some Federal Reserve officials have expressed it’s too early to consider rate cuts as soon as March 2023.
- Global Stock Markets Mixed: London’s FTSE 100 rose following the UK inflation report, while Asian markets had mixed results, and Shanghai’s index fell after China maintained its benchmark lending rates.
The Associated Press has the story:
Wall Street stalls after disappointing profit reports, strong economic data
Newslooks- NEW YORK (AP)
Wall Street’s monster-sized rally since Halloween is easing off the accelerator Wednesday following mixed reports showing disappointing profits at companies but unexpected strength for the economy.
The S&P 500 was virtually unchanged in morning trading, remaining within 0.6% of its record set nearly two years ago. The Dow Jones Industrial Average was down 40 points, or 0.1%, coming off its own record. The Nasdaq composite was edging up by 0.2%, as of 10:10 a.m. Eastern time.
FedEx tumbled 10.6% after reporting weaker revenue and profit for the latest quarter than analysts expected. It also now expects its revenue for the full fiscal year to fall from year-earlier levels, rather than being roughly flat, because of pressures on demand.
The package delivery company pumps commerce around the world and the signaling of could chip away at one of the things fueling Wall Street’s big recent rally: that the Federal Reserve can pull off a perfect landing for the economy by slowing it enough to stifle high inflation but not so much to cause a recession.
Winnebago Industries, the maker of motorhomes and other recreational products, also fell short of analysts’ profit expectations for the latest quarter. It said it sold fewer units than a year earlier because of “market conditions” and had to offer higher discounts. Its stock sank 4.1%.
General Mills, which sells Progresso soup and Yoplait yogurt, reported stronger profit for the latest quarter than expected, but its revenue fell short as a recovery in its sales volume was slower than expected. The company said a key sales measure may now fall for its full fiscal year because of “a more cautious consumer economic outlook” and other factors. Its stock fell 2.9%.
Still, a pair of reports showed the U.S. economy may be in stronger overall shape than expected. Both consumer confidence in December and sales of previously occupied homes in November improved more than economists had expected.
Encouraging signs that inflation is cooling globally continues. In the United Kingdom, inflation in November unexpectedly slowed to 3.9% from October’s 4.6% rate, reaching its lowest level since 2021.
Milder inflation is raising hopes that central banks around the world can pivot in 2024 from their campaigns to hike interest rates sharply in order to snuff out high costs. For the Federal Reserve in particular, the expectation is for its main interest rate to fall by at least 1.50 percentage points in 2024 from its current range of 5.25% to 5.50%, which is its highest level in more than two decades.
Treasury yields have been tumbling since late October on such hopes, and they fell again following the U.K. inflation report.
The yield on the 10-year Treasury sank to 3.89% from 3.93% late Tuesday. It had been above 5% in October, at its highest level since 2007 and putting harsh downward pressure on the stock market.
Lower interest rates and yields not only help the economy grow by making borrowing less expensive, they also boost prices for investments and relax the pressure on the overall financial system.
With yields down, U.S. stocks are still on track for another winning week. Big internet-related companies were among the market’s leaders Wednesday, including a 3% rise for Alphabet and 0.7% gain for Amazon.
Stocks of oil and gas companies were also strong as the price of crude clawed back some more of its sharp losses from recent months.
Overall, the S&P 500 just came off its seventh straight week of gains, its longest such streak in six years. But that strength and length has also raised criticism that stocks have simply rallied too much.
It’s still not certain the Fed can pull off what was seen as a nearly impossible tightrope walk not long ago. And critics say the number of cuts to rates that Wall Street is forecasting for 2024 seems unlikely unless the economy falls into a recession, which would hurt corporate profits and thus stock prices.
Some officials from the Federal Reserve have also made comments recently saying it’s too early to consider a cut to rates in March, which is when the majority of traders expect them to begin, according to data from CME Group.
In stock markets abroad, the FTSE 100 in London rose 0.9% following the encouraging U.K. inflation report. Indexes also rose across much of Asia, but stocks fell 1% in Shanghai after China kept its benchmark lending rates unchanged at the monthly fixing on Wednesday.
