US stocks crashed on Friday and logged their worst week of 2023. Here are the key earnings and economic indicators that investors would watch next week.
Last week, the Nasdaq Composite fell 3.3%. The S&P 500 lost 2.7% and has its worst week since December. The world’s most popular index has now closed with losses for three consecutive weeks. The Dow Jones too lost 3% in the week and extended its losing streak to four weeks.
While the last week was holiday-shortened, there were several key earnings and economic indicators. Retail earnings, Fed meeting minutes, and PCE (personal consumption expenditure) were the key events last week, and all these spooked investors.
Both Walmart and Home Depot provided tepid guidance for the current quarter and sounded circumspect on the outlook.
Walmart’s CFO John David Rainey said, There’s still a lot of trepidation and uncertainty with the economic outlook. Balance sheets are continuing to get thinner, savings rate is roughly half of what it was at a pre-pandemic level and we’ve not been in a situation like this where the Fed is raising at the rate that it does.”
The minutes of the Fed’s meeting failed to please the market either. The summary showed that FOMC members see more rate hikes ahead.
US Stocks Crashed as PCE Came in Ahead of Estimates
The PCE rose 0.6% on a monthly basis in January which was ahead of estimates. PCE is the Fed’s preferred inflation gauge. Also, previously the January CPI data was higher than what the markets were expecting.
High inflation and the resultant rate hikes took a toll on risk assets last year. However, some investment strategies can outperform during high inflation.
Among other earnings, Nvidia stock popped after the earnings release as AI chips saved the day despite the continued slowdown in gaming revenues.
Baidu too rose after its Q4 2022 earnings release. The company also touted AI as a key growth driver.
Also, an internal memo showed that Ernie, its AI chatbot would be available from March only. Amid ChatGPT’s success, companies ranging from Alibaba to Google have announced rival offerings. There is a list of companies that are a play on AI.
Key Earnings to Watch Next Week
Retail earnings would be the focus next week also as Target, Dollar Tree, Kroger, Macy’s, Best Buy, Lowe’s, and Costco release their quarterly reports. Retail earnings would provide more insights into the health of US consumers’ health.
The earnings calendar for the next week looks quite heavy. In the tech space, Snowflake, Zoom Video Communications, Okta, and Coupang are expected to release their earnings next week.
We’ll also get quarterly reports of several EV (electric vehicle) names including Li Auto, NIO, and Rivian. Last week, Lucid Motors released its Q4 2022 earnings and the stock crashed as the company spooked markets with its guidance.
At the upper end of its guidance, Lucid Motors expects to produce 14,000 cars in 2023. It emphasized that it is no longer production constrained and has the capacity to produce more cars.
Lucid Motors’ Earnings Raised Demand Concerns
It however said that the company needs to work on brand awareness. The company’s CEO Peter Rawlinson said, “we need to amply focus now away from production to amplifying customer awareness that we’ve got this amazing car with unprecedented range technology efficiency, incredible driving machine, a great driver’s car.”
Notably, Lucid Motors’ reservations have now dropped for two consecutive quarters. It would also not provide the reservation number from now on.
The company meanwhile refused to comment on the rumored acquisition by Saudi Arabia’s PIF (public investment fund), which is its biggest stockholder.
All said, Lucid Motors’ earnings further compounded fears over demand for electric cars. We have anyways seen a price war in the industry and even Lucid offers a “credit” of $7,500 on select Air models.
Look Out for PC Company Earnings Next Week
Next week, HP and Dell would also release their earnings. Broadcom has also scheduled its earnings for the next week. PC sales have weakened considerably over the last year which has also negatively impacted chipmakers like Intel.
Markets would watch the reports of PC companies for more insights into the demand for PCs and the inventory situation. The industry has been witnessing a glut of inventory amid tepid sales. Last year, HP announced mass layoffs as it tries to cut costs. Dell too announced 6,500 layoffs earlier this month.
Overall, the week looked action-packed as companies from diverse industries report their quarterly earnings. We also have speeches from several Fed officials which would provide insights into the thought process of the US central bank after the recent economic indicators that show inflation is still sticky.
Key Economic Indicators to Watch Next Week
Looking at the economic calendar, we’ll get durable goods order data. Also, pending home sales, construction spending, and consumer confidence index would be released next week.
Geopolitics would also be in focus next week as the Russia-Ukraine war heads into its second year.
US stocks have given up most of their January gains as optimism over “disinflation” has waned. Quincy Krosby, chief global strategist for LPL Financial said, “The market is recalibrating and acknowledging that the path toward price stability is fraught with obstacles”
Krosby added, “The market is telling us to be careful, with a Fed that has to vanquish inflation and hurt the economy to do it.”
Many now fear a recession as the Fed takes an even harder line to tame inflation.
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