Stocks rallied Monday as investors contemplated a potential slowdown in rate hikes from the Federal Reserve and braced for a busy week of earnings.
The Dow Jones Industrial Average jumped 318 points, or 0.9%, while the S&P 500 added 1.4%. The Nasdaq Composite surged 2.1%.
Semiconductor stocks and shares of Tesla and Apple gained on hopes that a reopening in China would boost their businesses. Both big tech names recently grappled with temporary shutdowns and blows to production as the country dealt with surging Covid-19 cases.
Investors have begun weighing the possibility that the Fed is preparing to slow the pace of its inflation-fighting rate hikes after months of aggressive tightening. Economic data released last week showed a decline in wholesale prices and retail sales, along with commentary from central bank officials, seemed to signal a slowdown.
Remarks from Fed Governor Christopher Waller Friday seeming to favor a quarter percentage point rate increase at the next meeting lifted investors’ hopes for a downshift. A Wall Street Journal report Sunday raised the possibility of a spring pause to rate increases — a sign that the Fed could be nearing the end of its rate hiking campaign.
“Bulls are running with the near-term momentum, the ‘soft landing’ narrative, and it’s hard to argue with recent price action,” wrote Jonathan Krinsky, BTIG’s chief market technician in a note Monday. “On the other hand, long term trends are still somewhat bearish, and we are always skeptical of such a widely watched ‘breakout’, especially after big run.”
Markets have priced in a nearly 100% chance of a 25-basis point hike, according to CME Group data, which would bring the interest rate to a targeted range of 4.5%-4.75%.
Earnings reports could keep the market on edge, with about 40% of the Dow scheduled to release their latest financial results and offer more insight into how companies are weathering inflation and interest rates. Some big names on deck include Microsoft, IBM, Tesla, Visa and Mastercard.
(An excerpt from the book, “Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange,” by Bob Pisani.)
Thirty years ago this week, State Street Global Advisors launched the Standard & Poor’s Depositary Receipt (SPY), the first U.S.-based Exchange Traded Fund (ETF), which tracked the S&P 500.
Today, it’s known as the SPDR S&P 500 ETF Trust, or just “SPDR” (pronounced “Spider”). It is the largest ETF in the world with over $370 billion in assets under management, and is also the most actively traded, routinely trading over 80 million shares daily with a dollar volume north of $32 billion every day.
How ETFs differ from mutual funds
Holding an investment in an ETF structure has many advantages over a mutual fund.
An ETF:
Can be traded intraday, just like a stock.
Has no minimum purchase requirement.
Has annual fees that are lower than most comparable mutual funds.
Are more tax efficient than a mutual fund.
Not a great start
For a product that would end up changing the investment world, ETFs started off poorly.
Vanguard founder Jack Bogle had launched the first index fund, the Vanguard 500 Index Fund, 17 years before, in 1976.
The SPDR encountered a similar problem. Wall Street was not in love with a low-cost index fund.
“There was tremendous resistance to change,” Bob Tull, who was developing new products for Morgan Stanley at the time and was a key figure in the development of ETFs, told me.
The reason was mutual funds and broker-dealers quickly realized there was little money in the product.
“There was a small asset management fee, but the Street hated it because there was no annual shareholder servicing fee,” Tull told me. “The only thing they could charge was a commission. There was also no minimum amount, so they could have got a $5,000 ticket or a $50 ticket.”
It was retail investors, who began buying through discount brokers, that helped the product break out.
But success took a long time. By 1996, as the Dotcom era started, ETFs as a whole had only $2.4 billion in assets under management. In 1997, there were a measly 19 ETFs in existence. By 2000, there were still only 80.
So what happened?
The right product at the right time
While it started off slowly, the ETF business came along at the right moment.
Its growth was aided by a confluence of two events: 1) the growing awareness that indexing was a superior way of owning the market over stock picking; and 2) the explosion of the internet and Dotcom phenomenon, which helped the S&P 500 rocket up an average of 28% a year between 1995 and 1999.
By 2000, ETFs had $65 billion in assets, by 2005 $300 billion, and by 2010 $991 billion.
The Dotcom bust slowed down the entire financial industry, but within a few years the number of funds began to increase again.
The ETF business soon expanded beyond equities, into bonds and then commodities.
On November 18, 2004, the StreetTracks Gold Shares (now called SPDR Gold Shares, symbol GLD) went public. It represented a quantum leap in making gold more widely available. The gold was held in vaults by a custodian. It tracked gold prices well, though as with all ETFs there was a fee (currently 0.4%). It could be bought and sold in a brokerage account, and even traded intraday.
CNBC’s Bob Pisani on the floor of the New York Stock Exchange in 2004 covering the launch of the StreetTRACKS Gold Shares ETF, or GLD, now known as the SPDR Gold Trust.
Source: CNBC
Staying in low-cost, well-diversified funds with low turnover and tax advantages (ETFs) gained even more adherents after the Great Financial Crisis in 2008-2009, which convinced more investors that trying to beat the markets was almost impossible, and that high-cost funds ate away at any market-beating returns most funds could claim to make.
ETFs: poised to take over from mutual funds?
After pausing during the Great Financial Crisis, ETF assets under management took off and have been more than doubling roughly every five years.
The Covid pandemic pushed even more money into ETFs, the vast majority into index-based products like those tied to the S&P 500.
From a measly 80 ETFs in 2000, there are roughly 2,700 ETFs operating in the U.S., worth about $7 trillion.
The mutual fund industry still has significantly more assets (about $23 trillion), but that gap is closing fast.
“ETFs are still the largest growing asset wrapper in the world,” said Tull, who has built ETFs in 18 countries. “It is the one product regulators trust because of its transparency. People know what they are getting the day they buy it.”
Note: Rory Tobin, Global Head of SPDR ETF Business at State Street Global Advisors, will be on Halftime Report Monday at 12:35 PM and again at 3 PM Monday on ETFedge.cnbc.com.
Stock futures ticked higher early Friday morning as investors tried to hang onto the January rally amid worries about monetary policy and slowing earnings.
Futures tied to the Dow Jones Industrial Average rose 45 points, or 0.14%. S&P 500 and Nasdaq 100 futures gained 0.24% and 0.43%, respectively. Nordstrom slipped more than 5% in after hours trading after reporting weak holiday sales and cutting its year-end forecast. Netflix jumped 7% after reporting more subscribers than expected even though its quarterly earnings missed analysts’ estimates.
During Thursday’s session, the Dow and the S&P 500 both closed lower to hit their third negative days in a row as corporate earnings and economic data signal a slowing economy. The Dow slipped more than 252 points, or 0.76% and is now down 0.31% year to date. The S&P 500 shed 0.76% and the Nasdaq Composite lost 0.96%, but both indexes are positive for the year.
For the week, however, all three indexes are on track to close lower. The Dow is down 3.67%, on track for its worst week since September. The S&P 500 is down more than 2.5% and could notch its worst weekly performance since December. The Nasdaq is down more than 2% and on pace to break a two-week win streak.
“The market is focused and is not sure how to react between the backward looking Fed analysis of the market versus the forward and leading indicators of the market,” said Tim Seymour, founder and chief investment officer of Seymour Asset Management, on CNBC’s “Fast Money.”
Those forward indicators include economic data such as retail sales and industrial production. “This is where the market is starting to break down,” he said.
Going forward, investors will continue to watch corporate earnings with oilfield services name SLB and Ally Financial set to report Friday. They will also listen closely to speeches from Fed officials ahead of the central bank’s February meeting, seeking clues on the size of the rate hike that’s likely forthcoming.
Stock futures traded lower Thursday, building on the losses from the previous session, as rate and recession fears dented market sentiment.
Futures tied to the Dow Jones Industrial Average fell 224 points, or 0.7%. S&P 500 futures and Nasdaq 100 futures shed 0.7% and 0.9%, respectively.
Wall Street is coming off a losing session. The S&P 500 tumbled 1.56% on Wednesday for its worst day since Dec. 15. The Dow shed more than 613 points, or 1.81%. The tech-heavy Nasdaq Composite fell 1.24%, snapping seven-straight days of gains. Bank stocks such as JPMorgan, Bank of America and Wells Fargo slid, weighing on the broader market.
Disappointing retail sales and a weaker-than-expected producer price index reading ignited recession fears, sending stocks lower.
On Thursday, investors will weigh more economic data that could give further clues as how much the Fed may raise interest rates in its upcoming meeting. Initial jobless claims, housing starts and the Philadelphia Federal Reserve’s manufacturing survey will be released in the morning. Several central bank leaders including Fed Vice Chair Lael Brainard will also speak throughout the day on the path forward.
Investors have been parsing through the latest data and Fed remarks for clues on how high rates will go. But, while recent numbers point to easing inflation, JPMorgan Chase CEO Jamie Dimon thinks rates will top 5%.
“I think there’s a lot of underlying inflation, which won’t go away so quick,” Dimon told CNBC’s “Squawk Box” from the World Economic Forum in Davos, Switzerland.
Investors will also be watching key quarterly reports to see if there is an earnings recession brewing. Netflix and Truist Financial are among companies reporting earnings on Thursday.
Traders work on the floor of the New York Stock Exchange during morning trading on January 17, 2023 in New York City.
Michael M. Santiago | Getty Images
The Dow Jones Industrial average tumbled more than 600 points on Wednesday as investors took profits on some of the strong 2023 January gains and as a disappointing December retail sales reading raised concerns about a recession. Shares of banks led the losses.
The Dow Jones Industrial Average fell 612 points, or 1.8%, while the S&P 500 lost 1.6%. The Nasdaq Composite lost 1.2% and was on pace for its first down day in the last eight.
Yung-Yu Ma, chief investment strategist at BMO Wealth Management, attributed the reversal to a combination of skittishness and profit taking.
“We’ve had such a strong start to the year, but now we’re amid a tense earnings season, recently got weaker data — retail sales and yesterday’s Empire State Manufacturing Survey. Plus the Fed meeting on Feb. 1st is looming large,” he said. “There’s not a whole lot of reason to get aggressive here, but all of those factors above suggest that caution is warranted in the near term.”
The Dow Jones Industrial Average on Wednesday
Microsoft announced plans to lay off about 10,000 employees, which hurt investor sentiment. The stock fell and dragged the Dow lower with it.
Investors were also digesting the latest retail sales data, which showed a drop of 1.1% in December, slightly more than the 1% forecast.
They also weighed the latest reading on the producer price index, which measures input costs from companies. The PPI showed a 0.5% decline for December. Economists surveyed by Dow Jones expected a 0.1% decline. That briefly gave relief to investors who have hoped for inflation to retreat and for the Federal Reserve to slow its rate-hiking campaign.
Investors have been enjoying strong upward momentum for stocks since the start of the year, although many have begun to doubt the market’s strength. The Dow is still higher by 1% for the month, while the S&P and Nasdaq are still up by 3% and 5%, respectively.
Traders work on the floor of the New York Stock Exchange.
Getty Images
Stock futures traded lower Tuesday as investors attempted to keep building on early 2023 momentum and weighed the latest earnings results.
Futures tied to the Dow Jones Industrial Average lost 81 points, or 0.2%. S&P 500 futures dropped 0.1%, while Nasdaq-100 futures slid 0.2%.
Goldman Sachs reported a smaller-than-expected profit for the fourth quarter, sending the stock down more than 2% in the premarket. The bank’s results were pressured by declines in investment banking and asset management revenues. Meanwhile, rival Morgan Stanley posted better-than-expected numbers thank in part to record wealth management revenue.
Those results come after other major banks such as JPMorgan and Citigroup reported mixed quarterly results.
Wall Street is coming off positive back-to-back weeks to start the new year. The Nasdaq Composite is leading the way up 5.9%, as investors bought beat-up technology shares amid rising hopes of an improving landscape for growth stocks. The S&P 500 and Dow have advanced 4.2% and 3.5%, respectively, since the start of the year.
Gains have come on the back of the first crop of inflation-related data that investors saw as indicating a contracting economy, with hopes that will give the Federal Reserve justification to slow interest rate hikes once again. Last week, the consumer price index for December showed prices cooled 0.1% from the prior month, but prices were still 6.5% higher than the same month a year ago.
Goldman Sachs: China’s ‘exit wave’ on reopening is taking a toll on economy
China’s “exit wave” during its reopening process has dragged down the economy significantly, Goldman Sachs economists said in a report.
“The ongoing ‘exit wave’ on the back of China’s faster-than-expected reopening has taken a heavy toll on economic activity in recent months, due to surging infections, a temporary labor shortage and supply chain disruptions,” it said in a report.
“It is very surprising in our view that the reported numbers for December were not worse,” the economists said.
– Jihye Lee
Credit Suisse says iron ore prices to peak at around $130 to $140 this year
Iron ore prices are forecast to be around $130 to $140 as traders keep China’s reopening in focus, said Credit Suisse’s Head of Energy and Resources Research, Saul Kavonic.
“We are expecting that $130 to $140 mark to be where prices kind of end up and top out this year,” he said.
While the last few weeks of iron ore demand strength is buoyed by speculative buying and holiday period purchases, he said the markets are currently watching how China’s reopening plays out and the rolling out of any infrastructure stimulus.
He said these measures will “sustain that demand for iron ore throughout the course of this year well into next year.”
Australia’s mining giant Rio Tinto posted their fourth quarter production results which slightly beat estimates.
“The real focus [of] Rio has been on iron ore, which is supportive the whole sector over the last few months which has been a call that’s finally come good at the end of last year and early this year,” he said.
Rio Tinto‘s shares last traded down 1.11%.
—Lee Ying Shan
China’s retail sales beat estimates, economy expands more than expected
China’s December retail sales beat estimates, falling only 1.8% on an annualized basis, significantly better than the decline of 8.6% projected in a Reuters poll.
Industrial output also grew 1.3% in December, higher than expectations for an increase of 0.2%.
In the fourth quarter, China’s economy expanded by 2.9% on an annualized basis, better than the expected 1.8% growth. While quarterly growth was flat, it still beat expectations for a 0.8% contraction.
Despite better-than-expected data, the Chinese offshore yuan weakened sharply from 6.7403 to 6.7563 against the U.S. dollar shortly after the release.
Alibaba stock inches up after Ryan Cohen reportedly takes stake in company
Shares of Alibaba rose after the Wall Street Journal reported that Ryan Cohen built a stake in the company “worth hundreds of millions of dollars.”
Cohen, who founded online pet retailer Chewy and is also chairman of GameStop, is privately pushing Alibaba to accelerate and further boost its share-repurchase program, the Journal report said.
Hong Kong-listed shares of Alibaba rose 2% in the first hour of trade. The stock has since pared its gains to trade roughly flat.
– Jihye Lee
China’s Liu He to meet with U.S. Treasury Secretary Janet Yellen
U.S. Treasury Secretary Janet Yellen is scheduled to hold a meeting with Chinese Vice Premier Liu He on the sidelines of the World Economic Forum, China’s commerce ministry said in a statement.
The two will hold a meeting to “strengthen macroeconomic and financial policy coordination,” the ministry said.
The meeting will take place in Zurich on Jan. 18, according to the statement, adding that the two will discuss the implementation of the agreements reached between U.S. President Joe Biden and Chinese President Xi Jinping late last year in Bali, Indonesia.
The sit-down will mark the first face-to-face meeting between Yellen and Liu.
Separately, Politico reported U.S. Secretary of State Antony Blinken will meet newly appointed Chinese foreign minister Qin Gang in Beijing on Feb. 5-6, citing Washington-based diplomats familiar with the matter.
– Jihye Lee
Singapore’s non-oil domestic exports fall by more than 20% in December
Singapore’s non-oil domestic exports fell 20.6% in December on an annualized basis, a further drop from a decline of 14.7% seen in November.
The steep decline was driven mainly by exports to China, Indonesia and Hong Kong, according to the government release. Exports to South Korea and Japan rose, it said.
The nation’s total trade declined 7.7% in the month of December compared with a year ago – with exports dropping 7.1% and imports also dropping 8.2%.
– Jihye Lee
CNBC Pro: This under-the-radar global carbon capture stock could soar by 65%, investment banks say
Shares of an under-the-radar carbon capture company are expected to rise by 65% due to increasing global demand for emissions reduction technology, according to investment banks analyzing the stock.
The company’s latest innovation, revealed last week, could cut the energy needed to capture carbon and improve the company’s profitability in the future, according to analysts at a German investment bank.
CNBC Pro subscribers can read more here.
— Ganesh Rao
Where the major indexes stand coming off the first two weeks of 2023 trading
With the first two weeks of 2023 trading done, the three major indexes are up so far for the year.
The Nasdaq Composite is leading the way, adding 5.9% as investors bought beaten-down technology stocks on rising hopes of an improving landscape for growth holdings. The S&P 500 and Dow followed, gaining 4.2% and 3.5%, respectively.
— Alex Harring
Stock futures open lower
Stock futures were lower despite the market coming off a winning week.
Futures tied to the Dow dipped 0.1%. S&P 500 and Nasdaq-100 futures fell 0.2% and 0.4%, respectively.
Traders work on the floor of the New York Stock Exchange.
Getty Images
Stock futures were down slightly Monday night as investors attempted to keep building on early 2023 momentum and looked ahead to more corporate earnings.
Futures tied to the Dow Jones Industrial Average lost 15 points, near flat. S&P 500 futures dropped 0.1%, while Nasdaq-100 futures slid 0.2%.
All three of the major indexes are up coming off a positive first two weeks of trading in the new year. The Nasdaq Composite is leading the way up 5.9%, as investors bought beat-up technology shares amid rising hopes of an improving landscape for growth stocks. The S&P 500 and Dow have advanced 4.2% and 3.5%, respectively, since the start of the year.
Gains have come on the back of the first crop of inflation-related data that investors saw as indicating a contracting economy, with hopes that will give the Federal Reserve justification to slow interest rate hikes once again. Last week, the consumer price index for December showed prices cooled 0.1% from the prior month, but prices were still 6.5% higher than the same month a year ago.
Investor focus now turns to corporate financials as earnings season kicks off. Banks took center stage Friday as investors digested comments about the likelihood of a recession. Goldman Sachs and Morgan Stanley are set to report before the bell Tuesday, followed by United Airlines after the market close.
“The economic data has been kind, to say the least, which is not something we were afforded for the vast majority of the year just gone,” said Craig Erlam, senior market analyst at OANDA. “The question now is whether earnings season will enhance that new sense of hope or spoil the party before it really gets going.”
Investors will also be closely watching for news out of the World Economic Forum’s summit in Davos taking place this week.
Stocks rose Friday as investors digested bank earnings and bet inflation would ease in 2023.
All of the major indexes fought their way into the green after beginning the day deep in the red.The Dow Jones Industrial Average rose 112.77 points, or 0.33%, to 34,302.74. The S&P 500 rose 0.4% to 3,999.08, and the Nasdaq Composite advanced 0.71% to 11,079.16.
The S&P and Nasdaq each posted their second consecutive up week and best weekly performance since November. The tech-heavy Nasdaq was the outperformer for the week after rising 4.82%. The S&P advanced 2.67%, and the Dow added 2%.
Bank earnings weighed on equities to start the day, but sentiment reversed as investors appeared to shrug off negative news that was expected anyway to some degree, according to Ross Mayfield, investment strategy analyst at Baird.
“Financials weren’t really quite expected to have a blockbuster quarter,” he said. “It’s just providing a bit of a sentiment wave, and since the banks lead earnings season they can kind of set the tone for how investors look at the broader picture.”
“Frankly, the market has rallied pretty nicely over the last few weeks, absent a catalyst, and so there might be a little bit of profit taking out of earnings season going,” Mayfield added.
Wells Fargo, whose profits for the last quarter had been cut by half, said it’s preparing for the economy to “get worse than it’s been over the last few quarters.”
JPMorgan Chase posted revenue that beat expectations, but even so, the bank warned it’s setting aside more money to cover credit losses because a “mild recession” is its “central case.” The bank posted a $2.3 billion provision for credit losses in the quarter, a 49% increase from the third quarter.
The CEOs of Citigroup and Bank of America also said they’re anticipating a “mild recession.”
Elsewhere, Delta Air Lines reported earnings and revenue that beat estimates for the final quarter of 2022. However, the stock slid about 4%. Investors have been awaiting these results to gain more insight into the health of the economy.
In economic data, the University of Michigan consumer sentiment survey showed the one-year inflation outlook down to 4%, the third straight monthly decrease and the lowest level since April 2021.
That followed December’s CPI report, released Thursday, which showed prices declined 0.1% over November. While prices rose at a 6.5% pace compared to the previous year, the results heightened hopes that the Federal Reserve may soon slow its hiking.
A sign is posted in front of a Wendy’s restaurant on August 10, 2022 in Petaluma, California.
Justin Sullivan | Getty Images
Check out the companies making headlines in midday trading.
JPMorgan – Shares of the biggest U.S. bank by assets rose more than 2% after the firm posted fourth-quarter profit and revenue that topped expectations. The New York-based bank said profit jumped 6% from the year earlier period to $11.01 billion, or $3.57 per share. Interest income at the bank surged 48% on higher rates and loan growth.
Citigroup — Citigroup’s stock added more than 1% as the company reported a record fourth quarter for fixed income. The bank said net income decreased during the period by more than 21% over last year as it set aside more money for potential credit losses.
Delta Air Lines — The airline stock edged about 4% lower after the company said in its outlook that higher labor costs would hurt its first-quarter profits. Delta topped analysts’ expectations on the top and bottom lines for the fourth quarter.
Wendy’s — The fast-food chain’s stock added 5.7% after Wendy’s shared positive preliminary fourth-quarter results and announced a handful of reshuffles within its corporate structure. A regulatory filing also indicated that Nelson Peltz does not want to take over Wendy’s.
Wells Fargo – The bank stock dipped 0.1% after the firm reported shrinking profits, weighed down by a recent settlement and the need to build up reserves amid a deteriorating economy. Wells Fargo’s net income tumbled 50% to $2.86 billion from $5.75 billion a year ago. The bank set aside $957 million for credit losses after reducing its provisions by $452 million a year ago.
Bank of America —The financial stock rose less than 1% on Friday after Bank of America beat estimates on the top and bottom lines for the fourth quarter. A sharp rise in net interest income helped the results, though management cautioned that the metric could decline sequentially in the first quarter. CEO Brian Moynihan also said that a mild recession was the firm’s baseline assumption for 2023.
Virgin Galactic Holdings — The space tourism company jumped nearly 13% after it said it was on track for a commercial launch in the second quarter of 2023. The company also announced its president of aerospace systems, Swami Iyer, was leaving.
Tesla — Shares of the electric-vehicle maker shed more than 2% after being downgraded to sell from neutral by Guggenheim and cutting prices on its vehicles in the U.S. and Europe. In its downgrade, Guggenheim cited concerns with Tesla’s fourth-quarter estimates.
Bank of New York Mellon — Shares of the mid-sized bank rose 2.5% on Friday after the company reported net income of $509 million for the fourth quarter. That was down 38% year over year but up about 60% from the third quarter. That profit rose to $1.1 billion, or $1.30 per share, when excluding certain items, but it is unclear if those results were comparable to analysts’ estimates.
UnitedHealth — The health-care stock advanced more than 1% after the company surpassed Wall Street’s fourth-quarter expectations. UnitedHealth reported adjusted earnings of $5.34 a share on $82.8 billion in revenue. Analysts polled by Refinitiv expected earnings of $5.17 per share on revenues of $82.59 billion.
Lockheed Martin — The defense stock slipped more than 3% after Goldman Sachs downgraded shares to sell from a neutral rating. The firm said shares could fall if the government trims defense spending. Northrop Grumman shares also dove 5% on Goldman’s downgrade to a sell from neutral rating.
Salesforce — The software stock shed 1% following a downgrade to neutral from overweight by Atlantic Equities. The firm said the stock would likely be hurt by executive departures and slowed growth.
Logitech — Shares of the consumer electronics company dipped 3.3% after Deutsche Bank downgraded the shares to a hold from a buy rating. The decline built on Thursday’s losses after reporting preliminary results that signaled slowing sales and earnings.
Warner Music Group – Shares of Warner Music Group shed 5.5% after Guggenheim cut its rating on the stock to neutral from buy and trimmed its price target to $35 from $38, citing worries about revenue from the music streaming service.
Copa — Shares of the Latin American airline jumped 4.9% following an upgrade to overweight from a neutral rating by analysts at JPMorgan. The bank said shares could rally 50% as air travels resurges.
AutoNation — AutoNation’s stock fell 4.3% as Wells Fargo downgraded the automotive retailer to equal weight from an overweight rating, saying that its valuation looks “reasonable” and estimates look too high.
— CNBC’s Jesse Pound, Yun Li, Michelle Fox, Alex Harring and Carmen Reinicke contributed reporting