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North American Morning Briefing: Big Tech Disappointment to Drag on Nasdaq

03/02/2023 11:41am

Dow Jones News


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From Dec 2022 to Jun 2023

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MARKET WRAPS

Watch For:

Employment Report for January; Services PMI; ISM Report on Business Services; Canada Official International Reserves for January; Earnings from Cigna, Cboe Global Markets and Regeneron Pharmaceuticals

Today's Top Headlines/Must Reads:

- Jobs Report to Show Whether Labor Market Cooling Extended Into January

- Bitcoin Prices Rally as Larger Traders Take Charge

- Ryan Cohen Takes Stake in Nordstrom

- Elon Musk's Twitter Pushes to Win Back Advertisers During Super Bowl Weekend

- China Says It Is Looking Into Spy-Balloon Allegation by U.S.

Follow WSJ market coverage here

Opening Call:

Stock futures were stumbling Friday, with disappointing results from the Big Tech trio of Apple, Amazon and Alphabet weighing on Nasdaq futures in particular.

Today's jobs report will give investors another read on the labor market.

Economists expect nonfarm payrolls grew by 187,000 in January and the unemployment rate rose to 3.6% from 3.5%.

Stocks to Watch

Alphabet reported slowing revenue growth in the fourth quarter and an earnings miss, sending the stock down 3.9% in premarket trading.

Amazon.com was falling 5.5% after reporting better-than-expected fourth-quarter sales growth but weaker-than-anticipated profit.

Apple was down 3.1% premarket after it reported fiscal first-quarter earnings and sales that missed estimates.

Clorox reported better-than-expected profit in its fiscal second quarter. Shares increased 3.6% in after-hours trading.

Ford's fourth-quarter earnings missed analysts' expectations and the stock was falling more than 5% in premarket trading.

Magenta Therapeutics said it could be up for sale as part of review of strategic alternatives. Shares rose 47% in after-hours trading.

Nordstrom rose more than 31% after WSJ reported activist investor Ryan Cohen has taken a big stake in the retailer.

Qualcomm was down 3.6% after the chip company issued a revenue outlook below expectations.

Starbucks was down 2% after reporting fiscal first-quarter earnings that missed forecasts.

Economic Insight

With the end of central banks' interest rate rises in sight, it seems like investors no longer worry about inflation or about going long duration, Societe Generale said.

"This seems premature in Europe, with core inflation still rising and showing no signs of a turn. A pause [in interest rate rises] beyond the summer is highly likely, but the pricing of rate cuts from late 2023 relies on inflation quickly returning to sensible levels."

Societe Generale continues to underweight EUR rates versus U.S. rates, seeing a bullish outlook more plausible in Treasurys as the Federal Reserve is approaching the pivot, while the European Central Bank is lagging.

Forex:

The dollar could fall if the nonfarm payrolls data for January are weaker, Unicredit Research said.

"A slide in the number of nonfarm payrolls (we expect 190,000 from the previous 223,000) is not too heavy but, coupled with a rise in the unemployment rate to 3.6%, might still weigh on the greenback [dollar] and allow EUR/USD to steady back above 1.10 as the week concludes."

The recovery in EUR/USD might be even more evident if the ISM non-manufacturing survey disappoints expectations with the index remaining below 50, signaling a contraction in sector activity, as Unicredit expects, it said.

---

Sterling faces further weakness after the Bank of England signalled Thursday that further interest-rate rises should only be expected if inflationary pressures persist, Commerzbank said.

"A further rate hike in March is no longer that certain, and it is possible that the BOE has already reached the end of the rate hike cycle."

While the BOE left the door open to further rate rises, the forex market would have liked to see a more decisive approach given high uncertainty so it's hardly surprising that sterling fell, Commerzbank said.

Read Sterling Drops as UK Rate Rise Bets Fall More Than Elsewhere

---

The ECB's unclear communications at yesterday's policy meeting is causing the euro to weaken, ING said.

Lagarde's press conference brought "more fog than clarity" about the rate path beyond March, ING said.

"We remain of the view that at least 75bp of extra tightening will be delivered by the ECB, which still puts EUR/USD in a position for a big rally in the second quarter--when U.S. short-term rates may come off more steadily."

"The ECB communication troubles may cap EUR/USD before then," ING added.

Energy:

Oil prices ticked lower in Europe despite an impending EU ban on Russian oil product exports which is expected to tighten crude markets further.

The EU's ban is set to come into force Sunday. Ample time to prepare and strong Russian exports of crude and oil products ahead of the ban are keeping prices in check, ING said.

"Despite this imminent disruption to flows, the market appears relatively calm...the market has had a significant amount of time to prepare for the ban. We have seen strong inflows of middle distillates into Europe ahead of Feb. 5,"

Metals:

Base metals were mixed in early London trade, with gold slightly lower, ahead of the nonfarm payroll data due later.

This week has been a bumper data week, with more positive data out of China meeting Western central banks indicating more monetary tightening may be needed in March as they seek to taper inflation.

"Despite Chinese growth outperforming, slowing economic growth elsewhere globally will result in muted global demand growth for metals," Fitch Solutions said.

It sees metal prices climbing this year on Chinese demand but elsewhere the picture looks less clear.

   
 
 
   
 
 

TODAY'S TOP HEADLINES

 
 

Ryan Cohen Takes Stake in Nordstrom

Activist investor Ryan Cohen is amassing a sizable stake in Nordstrom Inc. and intends to urge the upscale department-store chain to make changes to its board following a steep share-price decline, according to people familiar with the matter.

Mr. Cohen, known for helping ignite big rallies in so-called meme stocks including GameStop Corp., is one of the top-five nonfamily shareholders of Nordstrom, the people said.

   
 
 

Big Tech Didn't Quite Clear the Bar

Big tech just closed out a rough year. The current one won't get much better soon.

Apple, Amazon.com and Google parent Alphabet Inc. all reported December quarter results Thursday afternoon that showed the effects of the weakening global economy across most of the companies' diverse business lines. These include online advertising, cloud-computing services, e-commerce and tech gadgets such as smartphones, laptops and smartwatches. These are big businesses, totaling nearly $1.2 trillion in revenue for the three companies in 2022.

   
 
 

Activist Investor Nelson Peltz Steps Up Pressure on Disney Board

Activist investor Nelson Peltz escalated his criticism of the Walt Disney Co.'s board and advocated for the removal of director Michael B.G. Froman, blaming him for backing governance and compensation decisions that Mr. Peltz says have harmed the company.Mr. Peltz's Trian Fund Management LP said Thursday in a letter that Disney's board was responsible for the company's recent share-price declines, falling income and other examples of "destruction of value," because it had failed to plan properly for CEO succession and align the incentives of management and the board with those of shareholders."We cannot sit idly by," Trian said in the letter, part of its proxy battle that seeks to add Mr. Peltz, an 80-year-old corporate-raider-turned-activist-investor, to Disney's board. Trian pushed shareholders to demand "an ownership mentality in the boardroom," or risk further stock-price declines.

   
 
 

Elon Musk's Twitter Pushes to Win Back Advertisers During Super Bowl Weekend

Twitter Inc. is leveraging its most important night of the year to help it win back the long list of advertisers that ditched the social-media platform after Elon Musk's $44 billion takeover of the company.

The San Francisco-based company has been ramping up its Super Bowl pitch to advertisers, offering a last-minute deal on one of its most high-profile, big-game ad packages, according to an email viewed by The Wall Street Journal. It is also telling advertisers that the number of conversations on its platform about the Super Bowl and the National Football League is up significantly from a year earlier, according to other emails sent to advertisers and ad agencies.

   
 
 

Adani Group Selloff Deepens, Taking Flagship Company's Weekly Losses Above 50%

Shares in Adani Group companies were trading lower Friday, extending a weeklong selloff that has wiped out more than $100 billion in market value and forced its flagship business to cancel a share sale that would have raised more than $2.0 billion.

Adani Enterprises Ltd. fell 15% in early trading, taking its losses this week to 52%. Adani Transmission Ltd. and Adani Green Energy Ltd. both lost 10%, while Adani Power Ltd., Adani Total Gas Ltd. and Adani Wilmar Ltd. all dropped 5.0% and Adani Ports & Special Economic Zone Ltd. fell 9.7%.

   
 
 

Ford Posts $1.3 Billion Fourth-Quarter Profit, Misses Full-Year Profit Guidance

Ford Motor Co. posted disappointing quarterly results Thursday, leading the U.S. auto maker to miss its full-year profit guidance for 2022, as supply-chain snags, quality problems and structural inefficiencies continued to drag on earnings.

The Dearborn, Mich. auto maker posted $1.3 billion in net income for the fourth quarter, an 89% drop from the prior-year period, when its profits were lifted by one-time items, items, such as a multibillion paper gain on its investment in EV startup Rivian Automotive Inc.

   
 
 

Starbucks Reports Record Quarterly Revenue While Costs Rise

Starbucks Corp. said Thursday it generated record revenue during its last quarter, though higher costs ate into its profit.

For the three months ended Jan. 1, Starbucks reported earnings per share of 75 cents, adjusted for one-time items, below the 77 cents a share expected by analysts polled by FactSet. The chain reported net income of $855 million, about 5% higher than the $816 million generated in the same quarter a year earlier.

   
 
 

Qualcomm Posts 12% Drop in Sales

Qualcomm Inc. gave a muted outlook as it posted a 12% drop in sales, reflecting softness in the global smartphone market.

The designer of mobile-phone chips on Thursday said sales in the quarter fell to $9.5 billion, short of Wall Street's expectation of $9.6 billion. The company said sales in the current quarter could fall even more steeply as it forecast revenue between $8.7 billion and $9.5 billion, also missing estimates from analysts surveyed by FactSet.

   
 
 

Meta Platforms Shares Surge 23% on Cost Cuts, Stock Buyback

Facebook parent Meta Platforms Inc. shares soared to their best day in nearly a decade after the company embraced investor-friendly moves including boosting its stock through a $40 billion buyback and cutting expenses in the face of increased competition.

Shares of the social-media company closed Thursday up 23% to $188.87 and are up 57% year to date. The stock recorded its largest percentage increase since July 2013, when it rose nearly 30%.

   
 
 

Google Parent Alphabet Posts Drop in Ad Revenue Amid Slowdown

Google reported its first drop in advertising revenue since the beginning of the pandemic, as a slowdown in online marketing continues to weigh on the search giant's business.

Alphabet Inc., Google's parent company, reported $59 billion in advertising revenue for the fourth quarter, a decrease of 3.6% from the same period in 2021. Those results marked the second time ad sales fell since Google became a publicly traded company in 2004.

   
 
 

McDonald's Ruling Shifts Oversight Liability Focus to Corporate Officers

A judge's decision to allow a shareholder lawsuit against a former McDonald's Corp. human resources chief has put corporate executives on alert that they can be held personally liable for failing to oversee the biggest risks confronted by their companies.

The ruling follows a series of Delaware Court of Chancery decisions that have set off alarm bells in corporate boardrooms by making clear that directors can be sued for serious compliance failures. The latest decision by Vice Chancellor J. Travis Laster clarifies that the legal scrutiny doesn't stop with the board. Corporate officers can also be held to account for failing to do their part, the judge ruled.

   
 
 

Bitcoin Prices Rally as Larger Traders Take Charge

Larger investors appear to be powering a recovery in bitcoin prices, as the sway of smaller individual traders over cryptocurrency markets wanes.

Based on end-of-day trading prices, bitcoin has rallied about 51% from a nadir hit in November, after the collapse of the crypto exchange FTX, according to Dow Jones Market Data. It was quoted late Thursday at about $23,600, and drifted slightly lower in early trading Friday. Other tokens such as ether and dogecoin have also rebounded. The recovery mirrors a rebound in other risky assets, such as some high-growth technology stocks.

   
 
 

Jobs Report to Show Whether Labor Market Cooling Extended Into January

January's employment report will offer clues about the state of the labor market and overall economy at the start of 2023.

Recent figures paint a mixed picture of U.S. economic health. Consumer spending, the main driver of economic growth, is starting to falter. Manufacturing activity is declining. Price increases are easing, partly as a result of the Federal Reserve's interest-rate increases aimed at slowing the economy to bring down high inflation.

   
 
 

Bonds Take Flight. But Investors Should Brace for Bumps Ahead.

Fixed income is off to a flying start in 2023, a major turnaround from last year. But the path ahead looks bumpier.

The rally has swept through nearly all fixed-income sectors. In investment-grade bonds, the iShares Core U.S. Aggregate Bond exchange-traded fund (ticker: AGG) is up 4.1%. More impressive are gains in long-term bonds, with the iShares 20+ Year Treasury Bond ETF (TLT) ahead 8.9%, clawing back a bit of last year's 31% fall.

   
 
 

China Caixin Services PMI Bounced Back in January

A private gauge of China's service-sector activity bounced back in January to expansionary territory, signaling a quick economic recovery following Beijing's removal of its stringent Covid-19 containment regime in December.

   
 
 

The Market Tanked, but Americans Kept Piling Money Into Their 401(k)s

Americans largely stifled the urge to reduce their savings rates and sell stocks in their retirement accounts last year, even as the market declined and inflation soared.

About 90% of investors in the 401(k)-style retirement plans administered by Vanguard Group maintained or increased their savings rate in 2022. And trading activity fell to a two-decade low among participants who manage their own investments, according to data from the Malvern, Pa.-based company.

   
 
 

Mark Cuban and Amazon Are Shaking Up Generic Drugs

Americans tremble at the idea of losing their health coverage, but bypassing giant insurers saves some people serious money on prescriptions in a topsy-turvy system.

Consider the story of Ohio pharmacist Nate Hux. Since 2016, his Pickerington Pharmacy has accepted many types of insurance. But, due to his frustration with the way middlemen, known as pharmacy-benefit managers, pocket large profits through opaque pricing methods, he decided to open another pharmacy right next door that takes no insurance. It sells generic drugs for their cost plus a markup, sometimes saving customers hundreds of dollars.

   
 
 

China Says It Is Looking Into Spy-Balloon Allegation by U.S.

China declined to confirm whether it sent a spy balloon over the continental U.S. but said it wanted to handle the allegation calmly with Washington.

U.S. officials said on Thursday that a Chinese reconnaissance balloon had been spotted over Montana, adding that it was expected to pass in a southeasterly direction over the country for a few days.

   
 
 

Ukraine Hopes New Bombs From U.S. Will Help It Push Back Russia

ORIKHIV, Ukraine-Ukraine last summer stunned Russian troops with precision strikes from U.S.-supplied Himars mobile rocket launchers. Now an even more potent rocket system holds the potential to re-energize Kyiv's troops.

U.S. officials are expected Friday to say they will give Ukraine new Ground-Launched Small Diameter Bombs, precision-guided, 250-pound explosives that are strapped to rockets and can be fired from a Himars or another launcher. The armament, which has never been deployed and is only at the start of production, has a range of roughly 94 miles, or around twice the range of current Himars shells.

   
 
 

Northeast Braces for Bitter Cold as Wind Chill Could Hit Minus 65 Degrees in Some Areas

A blast of bitter cold will sweep across the Midwest and Northeast Friday, with snow squalls and sudden whiteout conditions making driving, particularly on highways, dangerous.

Wind chill from gusty northwesterly winds will make for the coldest weather in decades, the National Weather Service said. Wind-chill warnings and advisories are in effect for the Northern Plains as well as the Northeast. Record-breaking lows are forecast for the New York City, Boston and Providence areas.

   
 
 

Nearly 1,000 Migrant Children Separated From Parents at Border Haven't Been Reunited, Data Shows

Nearly 1,000 children separated from their parents at the U.S. border under the Trump administration's zero-tolerance policy on illegal immigration haven't been reunited, federal data shows, despite a multiyear effort to do so.

The federal program has reunited 600 migrant children with their parents, according to numbers released by the Department of Homeland Security on Thursday, the second anniversary of the establishment of the Family Reunification Task Force by President Biden soon after he assumed office.

   
 
 

Texas Storms Leave Hundreds of Thousands Without Power

Hundreds of thousands of Texans remained without power as utility crews worked to fix power lines and poles downed or iced over by storms this week.

More than 300,000 customers had no power Thursday afternoon, with most of the outages concentrated in central and northern Texas communities, according to tracking site PowerOutage.us.

   
 
 

Write to ina.kreutz@wsj.com TODAY IN CANADA

Earnings:

Brookfield Renewable Partners 4Q

Trilogy Metals 4Q

Economic Events (ET):

0815 Jan Official International Reserves

Stocks to Watch:

Constellation Software Announces Delayed Release Date of Its Results for the 4Q and Yr Ended Dec 31, 2022; Cites Complexities Caused by Carve-Out Acctg Associated With Acquisition of Altera Digital Health; Expects to 4Q Results in March

Diversified Royalty: Stuart Suls Retired, Effective Jan 20

Firm Cap Property Trust Announces Acquisition of 50% Interest in Two Manufactured Home Communities for C$5.7 M

Lion Electric Completed Sale-Leaseback for Mirabel Mattery Manufacturing Building

Methanex 4Q EPS 59c; 4Q Rev $986M

   
 
 

Expected Major Events for Friday

00:01/UK: Jan BRC-Sensormatic IQ Footfall Monitor

00:30/JPN: Jan Japan Services PMI

06:00/RUS: Jan Russian Services PMI

07:45/FRA: Dec Industrial production index

08:45/ITA: Jan Italy Services PMI

08:50/FRA: Jan France Services PMI

08:55/GER: Jan Germany Services PMI

09:30/UK: Jan S&P Global / CIPS UK Services PMI

09:30/UK: Jan UK Official Reserves

13:15/CAN: Jan Official International Reserves

13:30/US: Jan U.S. Employment Report

14:45/US: Jan US Services PMI

15:00/US: Jan ISM Report On Business Services PMI

16:00/US: Jan Global Services PMI

All times in GMT. Powered by Onclusive and Dow Jones.

   
 
 

Expected Earnings for Friday

ArcBest Corp (ARCB) is expected to report $2.67 for 4Q.

Associated Capital Group Inc (AC) is expected to report for 4Q.

Avantor Inc (AVTR) is expected to report for 4Q.

Blade Air Mobility Inc (BLDE) is expected to report for 4Q.

Brookfield Business Corp (BBUC) is expected to report for 4Q.

Brookfield Renewable Corp (BEPC,BEPC.T) is expected to report for 4Q.

Brookfield Renewable Partners LP (BEP,BEP.UN.T) is expected to report $-0.10 for 4Q.

CIGNA Corp (CI) is expected to report $3.63 for 4Q.

Cboe Global Markets Inc (CBOE) is expected to report $1.53 for 4Q.

Church & Dwight Inc (CHD) is expected to report $0.59 for 4Q.

First United Corp (FUNC) is expected to report for 4Q.

Gorman-Rupp Co (GRC) is expected to report for 4Q.

GrafTech International Ltd (EAF) is expected to report for 4Q.

IES Holdings Inc (IESC) is expected to report for 1Q.

Immunovant Inc (IMVT) is expected to report for 3Q.

Johnson Outdoors (JOUT) is expected to report $0.73 for 1Q.

Moog Inc - Class A (MOGA,MOGB) is expected to report $1.33 for 1Q.

Piper Sandler Cos (PIPR) is expected to report for 4Q.

Potomac Bancshares (PTBS) is expected to report for 4Q.

Regeneron Pharmaceuticals Inc (REGN) is expected to report $9.67 for 4Q.

SIFCO Industries (SIF) is expected to report for 1Q.

Saia Inc (SAIA) is expected to report $2.94 for 4Q.

Schmitt Industries (SMIT) is expected to report for 2Q.

Sun Country Airlines Holdings Inc (SNCY) is expected to report for 4Q.

System1 Inc (SST) is expected to report for 4Q.

Twin Disc Inc (TWIN) is expected to report $0.07 for 2Q.

Twist Bioscience Corp (TWST) is expected to report $-0.99 for 1Q.

Ubiquiti Inc (UI) is expected to report for 2Q.

Virtus Investment Partners Inc (VRTS) is expected to report for 4Q.

WisdomTree Inc (WT) is expected to report $0.05 for 4Q.

Zimmer Biomet Holdings (ZBH) is expected to report for 4Q.

Powered by Onclusive and Dow Jones.

   
 
 

ANALYST RATINGS ACTIONS

Align Technology Raised to Neutral From Sell by Goldman Sachs

Align Technology Shares Rally Amid 4Q Beat, Bullish Analyst Views

Ashland Global Holdings Cut to Underweight From Neutral by JP Morgan

Astra Space Cut to Hold From Buy by Deutsche Bank

FedEx Raised to Buy From Neutral by B of A Securities

FedEx Raised to Buy From Neutral by Citigroup

First Solar Cut to Neutral From Buy by B of A Securities

Fortinet Cut to Market Perform From Outperform by BMO Capital

Fortune Brands Cut to Hold From Buy by Loop Capital

Graco Raised to Buy From Neutral by Seaport Global

GXO Logistics Cut to Underperform From Neutral by Exane BNP Paribas

Ingevity Raised to Buy From Hold by Loop Capital

Match Group Cut to Perform From Outperform by Oppenheimer

McGrath RentCorp Raised to Buy From Neutral by Sidoti & Co.

Meta Platforms Raised to Buy From Neutral by B of A Securities

Meta Platforms Raised to Buy From Neutral by Rosenblatt

Meta Platforms Raised to Overweight From Neutral by Piper Sandler

O-I Glass Raised to Outperform From Sector Perform by RBC Capital

Okta Raised to Buy From Hold by Needham

Peloton Interactive Cut to Market Perform From Market Outperform by JMP Securities

Peloton Interactive Cut to Underperform From Neutral by Exane BNP Paribas

Qualtrics International Cut to Hold From Buy by Deutsche Bank

R1 RCM Cut to Hold From Buy by Truist Securities

Silicon Laboratories Raised to Buy From Hold by Summit Insights Group

Sysco Cut to Hold From Buy by Argus Research

Taysha Gene Therapies Cut to Neutral From Buy by BTIG

Varonis Systems Cut to Hold From Buy by Needham

This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

February 03, 2023 06:26 ET (11:26 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.

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