U.S. stock futures point to bounce back on Wall Street

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U.S. stocks opened higher on Thursday, reversing some of the prior day’s losses, as investors shrugged off talk of further interest-rate hikes from the Federal Reserve while cheering better-than-expected corporate earnings reports.

What’s happening

  • The Dow Jones Industrial Average rose 246 points, or 0.7%, to 34,196.
  • The S&P 500 gained 28 points, or 0.7%, to 4,146.
  • The Nasdaq Composite gained 117 points, or 1%, to 12,025.

On Wednesday, the Dow fell 208 points, or 0.61%, to 33949 as investors reacted to weak earnings and some hawkish commentary from New York Fed President John Williams.

What’s driving markets

After a bumpy week, all three U.S. equity benchmarks erased their week-to-date losses after the open on Thursday as cyclical sectors like technology and consumer discretionary resumed their leadership position. The ARK Innovation Fund seen as a popular gauge for speculative technology stocks, was up 1.4% in early trade.

The fact that Federal Reserve officials including Chairman Jerome Powell have largely stuck to their message this week has helped to bolster stocks, said Gene Goldman, CIO of Cetera Financial Group.

“There were no surprises from the Fed, they continued to stick to their message. Powell didn’t reverse anything he said from his presser in Washington,” Goldman said, referring to Powell’s Q&A at the Economic Club of Washington D.C. on Tuesday.

Markets have also started to come around to the Fed’s warnings about further interest rate rises, Goldman said, citing the rise in the 2-year Treasury yield which briefly touched its highest level since November earlier this week. It was down slightly at 4.442% on Thursday.

Amid a barrage of Fedspeak this week, “you see a consistent message from Fed officials saying interest rates will end the year anywhere from 5% and 5.5%,” Goldman added.

See: The bond market is flashing a warning that U.S. stocks could be headed lower

Earnings reports were also front-and-center on Thursday.

Strong results from Walt Disney Co. helped revive investors’ confidence overnight following a batch of weaker numbers from companies like eBay Inc. Chipotle Mexican Grill and Lumen Technologies Inc. a day earlier.

Another full slate of earnings is also due out Thursday including releases from PepsiCo PEP, Hilton HLT and Kelloggs K.

While corporate profits may have shrunk in the fourth quarter of 2022, companies have still managed to outperform Wall Street’s dour expectations, data show. In aggregate, S&P 500 firms have beaten Wall Street’s expectations by 1.8% so far since the start of earnings reporting season.

But that’s still below the long-term average of 4.1%, according to Refinitiv. Investors have also digested cuts to forecasts and guidance from both Wall Street and the companies themselves, which is making some strategists nervous.

“My general sense is that earnings weren’t as bad as people feared. Investors have rewarded that but what’s making them nervous is the downtrodden guidance that management has given,” said Callie Cox, U.S. equity strategist at eToro, during a phone call with MarketWatch.

As of Wednesday evening, the blended earnings estimate for the companies in the S&P 500 was -2.9%, according to Refinitiv data. If the energy sector is included, it falls to -7.1%.

Meanwhile, the bottom-up EPS estimate for 2023 fell 2.5% in January, a much larger decline than is historically seen during the first month of the year, according to FactSet data.

Markets confronted a relatively quiet U.S. economic data calendar on Thursday. Weekly data on jobless claims showed the number of Americans who applied for unemployment benefits in early February rose by 13,000 to 196,000, but still hovered near pandemic-era lows.

Companies in focus

  • Walt Disney Co. DIS shares jumped after reporting better-than-expected earnings report, a smaller-than-expected drop in streaming video subscribers, and the layoff of 7,000 staff.
  • PepsiCo – rose after reporting fourth-quarter earnings and revenue before the bell that beat expectations after price rises that boosted sales and announced a 10% increase in its dividend.
  • Hilton Worldwide was up after the hotel chain reported adjusted fourth-quarter earnings and revenues that beat estimates.
  • Robinhood Markets Inc.  was up sharply after its board had cleared the company to pursue buying shares owned by FTX founder Sam Bankman-Fried despite the brokers’s fourth quarter revenues coming short of expectations.
  • Lumen Technologies slumped after the telecoms company reported earnings and revenue that exceeded the consensus view, but came up far short in its 2023 projections for free-cash flow and adjusted earnings before interest, taxes, depreciation and amortization.
  • Credit Suisse Group AG ADRs crumbled after the bank revealed that customers had pulled $100 billion from the struggling Swiss lender.
  • Shares of Chinese companies working on artificial intelligence products, including Baidu Inc. BIDU, Cloudwalk Technology Co. CN:688327and Beijing Haitian Ruisheng Science Technology Ltd. CN:688787, fell sharply after a state-media outlet published a commentary on the risks associated with ChatGPT-concept stocks.
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