Asian shares were trading mostly lower on Wednesday following a decline on Wall Street, while Tokyo's main benchmark momentarily reached another 30-year high. The Nikkei 225 in Japan gained 0.2%, continuing its upward trajectory and hitting new 34-year highs. The buying spree was centered around semiconductor-related shares, with the help of a cheap yen that boosted exporter issues.
However, Australia's S&P/ASX 200 slipped 0.3% and South Korea's Kospi dropped 2%, reflecting the overall negative sentiment in the region. Hong Kong's Hang Seng experienced a significant drop of nearly 3.1%, while the Shanghai Composite shed 0.9%.
The release of official Chinese data indicated that the Chinese economy grew by 5.2% in 2023, surpassing the government's target of 'about 5%.' This growth was likely supported by the recovery from the slowdown caused by the COVID-19 pandemic and nationwide lockdowns during the previous year.
Investors were keeping a close watch on upcoming earnings reports and potential moves by central banks worldwide to gauge their next steps. On Wall Street, the S&P 500 fell 0.4%, the Dow Jones Industrial Average dropped 0.6%, and the Nasdaq composite sank 0.2% in a lackluster return to trading after the three-day holiday weekend.
One notable event was the U.S. judge's decision to block the takeover of Spirit Airlines by JetBlue Airways, causing Spirit Airlines' stock to plummet by 47.1%. Conversely, JetBlue saw a 4.9% increase.
With the earnings reporting season ramping up for the final quarter of 2023, the stock performance of banks varied. Morgan Stanley experienced a 4.2% decline after reporting a loss of $535 million due to a legal matter and a special assessment. On the other hand, Goldman Sachs edged 0.7% higher after exceeding Wall Street's expectations with its financial results.
Analysts predict that companies across the S&P 500 are likely to report modest profit growth or none at all for the fourth quarter compared to the previous year. This underperformance can be attributed to the ongoing rise in costs amidst high inflation. However, there is growing optimism for 2024, with analysts forecasting a strong 11.8% growth in earnings per share for S&P 500 companies.
This positive outlook, combined with expectations for several interest rate cuts by the Federal Reserve throughout the year, has fueled the S&P 500's recent rally. The index remains just 0.6% away from its all-time high set two years ago.
In the bond market, Treasury yields have already lowered as traders anticipate upcoming rate cuts, which may begin as early as March. This marks a significant shift from previous years when the Federal Reserve implemented rate hikes to combat high inflation.
Lower interest rates and yields relieve pressure on the economy and financial system while boosting investment prices. For the past six months, interest rates have played a pivotal role in driving movement in the stock market. According to strategist Michael Wilson from Morgan Stanley, this dynamic is expected to continue in the near term, with the 'bond market still in charge.'
Traders currently anticipate more rate cuts throughout 2024 than the Federal Reserve has indicated, leading to potentially significant market fluctuations following each Fed official's speech or economic report.
As for energy trading, benchmark U.S. crude lost 59 cents, trading at $71.81 a barrel, while Brent crude, the international standard, fell 56 cents to $77.73 a barrel.
In currency trading, the U.S. dollar slightly strengthened against the Japanese yen, trading at 147.46 yen compared to 147.09 yen. The euro declined slightly, costing $1.0868 compared to $1.0880.
The current market conditions present a mix of caution and optimism as investors closely monitor earnings reports, central bank actions, and the potential impact of interest rate cuts. With ongoing uncertainties, the financial landscape remains in a state of flux, awaiting further developments.
