Stocks are little changed as investors await Tesla earnings after the market close today.
The company is the first of the critical "Magnificent Seven" stocks that have dominated market gains and account for roughly 30% of the S&P 500's market cap. The other six include Apple, Google-parent Alphabet, Microsoft, Amazon, Facebook-parent Meta, and Nvidia.
While Tesla stock tends to trade more like a big tech company, it is nonetheless an automaker that faces the same headwinds that other vehicle manufacturers are currently struggling with. Right now, one of the biggest is slowing demand for EVs. Analysts expect Tesla to report a double-digit loss for both Q4 and full-year 2023. The bigger question is Tesla's outlook for 2024 with many investors worried about deeper price cuts that could sink margins even further.
IBM earnings (also after the close today) will be of high interest with investors anxious to see how the company's AI business is contributing to the bottom line. Abbott Labs, ASML Holding, AT&T, CSX, FreeportMcMoRan, General Dynamics, IBM, KimberlyClark, Las Vegas Sands, and The Progressive also report results today. Earnings so far this week have been mixed. Notably, consumer products giant Procter & Gamble yesterday said that while price hikes continue to drive revenue gains, shoppers have stepped up the volume of items purchased across several categories. However, the company expects earnings in fiscal 2024 to be flat to down -1%, with low single-digit sales growth.
For investors, P&G's results imply that while consumers may not be pulling back, consumer goods companies may have maxed out their pricing power, and in turn reached the end of price-driven profit gains. In economic data, PMI Composite Flash for January is the only report of note today. Investors are also keeping an eye on Treasury markets as reduced expectations for Federal Reserve rate cuts this year have seen yields drifting higher. It's not a huge increase - the 10-year Treasury yield has risen to just over 4.1% from just below 3.9% at the close of 2023. Still, yields at this level continue to provide stiff competition for stocks, and at much lower risk. Keep in mind, bonds could look even more attractive if big tech results fail to deliver next week. There is also the risk that various geopolitical threats drive more money into US Treasuries which could push yields even higher.
What About Natural Gas Prices? The Wall Street Journal ran an article yesterday that caught my attention... " Winter is warmer than usual in Northeast Asia and the Chinese economy is cooler. One result: Prices of liquefied natural gas are chilling quickly and will probably remain muted. Unlike 2022, when shipping and natural gas pipeline disruptions thrust Europe into an energy crisis, high inventories and muted Asian demand in 2024 make a repeat unlikely. Asian LNG prices have fallen over -40% to $9.41 per million British thermal units, or MMBtu, in the past two months, according to Refinitiv. Over the past year they have more than halved Source WSJ
Wall Street is Already Weighing Potential Market Impact of a Trump Presidency: As Trump faced off with challenger Nikki Haley in the New Hampshire Republican primary yesterday, Dominic Wilson and Vickie Chang of Goldman Sachs looked back to the market reaction seen from the results of last week’s Iowa caucuses. In particular, they zeroed in on a 13-hour window after the caucus took place at 7 p.m. local time on Jan. 15 and pointed out that the US dollar strengthened against its major peers by enough to look unusual relative to normal levels of volatility. The greenback’s pronounced moves during that window suggest that Trump’s likely focus on trade and international policies could provide a meaningful further boost to the dollar, Wilson, a senior adviser in Goldman Sach’s global markets research group, and Chang, a strategist, wrote in a note early this week. Treasury yields also moved higher, helping to support their view that a Trump-led Republican sweep could affect the government-debt market as well. It seems like many on Wall Street are thinking Trump could win the White House and that Republicans recapture the Senate, while control of the House may go to the Democrats by a tight margin. this is leading many to belive that a Trump victory and split congressional control could add a tailwind to US equities amid expectations that corporate taxes will remain low and the dollar strong. Some are saying these thoughts are already giving the Russell 2000 index of small companies a bit of a tailwind. Source WSJ
WWE Going to Netflix and Getting Paid! Netflix and TKO Group Holdings said Tuesday that the streaming platform will air WWE’s flagship program “Raw” starting next year, in Netflix’s first major foray into live sports. The 10-year deal is valued at more than +$5 billion, according to a company filing. Netflix will have the option to exit the deal after five years and to extend it for another decade. This is a super game changer, said TKO President and Chief Operating Officer Mark Shapiro in an interview. When you look back at the chapters of sports media history, new chapters are driven by extraordinary new paradigms. ESPN and Turner brought the NFL to cable in 1987. Rupert Murdoch brought football to Fox in 1994. And now we have Raw going exclusively with Netflix. Keep in mind, “Raw” is the top program on the USA cable network, drawing +17.5 million unique viewers per year Source CNBC
China Weighs Stock Market Rescue Package Backed by $278 Billion: Chinese authorities are considering a package of measures to stabilize the slumping stock market, according to people familiar with the matter, after earlier attempts to restore investor confidence fell short and prompted Premier Li Qiang to call for “forceful” steps. Policymakers are seeking to mobilize about 2 trillion yuan ($278 billion) as part of a stabilization fund to buy shares onshore through the Hong Kong exchange link. They have also earmarked at least 300 billion yuan of local funds to invest in onshore shares. The deliberations underscore the elevated sense of urgency among Chinese authorities to stem a selloff that sent the benchmark CSI 300 Index to a five-year low this week. Calming the nation’s retail investors, many of whom have been bruised by the protracted property downturn, is also seen as key to maintaining social stability. In all, more than $6 trillion has been wiped out from the market value of Chinese and Hong Kong stocks since a peak reached in 2021. Source Bloomberg
Despite 2023's "Hot Labor Summer," Union Membership Hits New Low: Last year saw the most labor activity in decades, with high-profile strikes from auto workers, Hollywood actors, writers, and educators. But despite headlines, the “hot labor summer” of 2023 did not translate into substantially higher membership rates, according to government data released Tuesday. The U.S. Bureau of Labor Statistics said that 10% of hourly and salaried workers were members of unions in 2023, or around 14.4 million people. That’s a +400,000 increase in membership from the year before, but because of the growth of the labor force, the share of union members shrank from 10.1% in 2022. Union membership has been on the decline for decades, even as unions are enjoying some of their highest favorability ratings since the 1960s, with two-thirds of Americans reporting a positive opinion of labor unions. In 1983, the first year for which comparable data are available, the U.S. union membership rate was 20.1% and nearly 18 million workers were union members, the Bureau of Labor Statistics said. The unionization rate for public-sector employees, including government workers, teachers, and police, was far higher, at 32.5%. But that sector didn’t see as much growth in employment. About 7 million public-sector workers were union members in 2023, which was unchanged from the year before. Source Fortune
CIA Using Videos to Persuade Russians to Betray Their Leaders: The CIA released a new video appealing to disaffected Russians who might pass secrets on to the spy agency — a tactic it says is already bearing fruit. The video was posted to the CIA's social channels on Monday, the third such propaganda video released. A prior one, in May 2023, appeared to target Russian officials instead of civilians. The latest video seeks to tap into domestic frustration with the war in Ukraine, with its narrator saying that the country's elites "sell out the country for palaces and yachts while our soldiers chew rotten potatoes and fire ancient weapons," according to NBC News' translation Source Business Insider
How High are Corporate Tax Rates in Your State? Corporate income taxes are levied in 44 states. Though often thought of as a major tax type, corporate income taxes accounted for only 7.07 percent of state tax collections and 3.32 percent of state general revenue in fiscal year (FY) 2021. Minnesota levies the highest top statutory corporate tax rate at 9.8 percent, followed by Illinois (9.5 percent) and Alaska (9.4 percent). New Jersey, which levied the highest corporate rate in the country of 11.5 percent from 2021-2023, now has the fourth-highest rate (9 percent), as the state’s 2.5 percentage-point corporation business tax surcharge expired at the end of 2023. Conversely, North Carolina’s flat rate of 2.5 percent is the lowest in the country, followed by rates in Missouri and Oklahoma (both at 4 percent) and North Dakota (4.31 percent). Eight other states impose top rates at or below 5 percent: Colorado (4.4 percent), Utah (4.65 percent), Arkansas (4.8 percent), Arizona and Indiana (4.9 percent), and Kentucky, Mississippi, and South Carolina (5 percent).Source Tax Foundation
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