The stock market rally continued to advance, with the S&P 500 and Dow Jones hitting fresh record highs on Friday. ASML, American Express, Netflix, United Rentals, Verizon and New Oriental Education were big earnings winners, while Tesla, Humana and Intel all notable losers. Economic data was near perfect, with strong growth and cooling inflation.
Stock Market Keeps Rising
The stock market rally saw solid gains for the major indexes, with the Dow Jones and S&P 500 hitting record highs. The Russell 2000, despite some wobbles also bounced from key support. Earnings season is picking up. Ailing China stocks rallied on various moves and hints by authorities to provide support. Treasury yields rose, but came off highs amid soft landing economic data. Crude oil hit two-month highs.
Economy In Sweet Spot
The latest batch of data confirmed that the U.S. economy is enjoying a rare, and pretty ideal, combination of strong growth and falling inflation. Real GDP grew at a 3.3% rate in the fourth quarter, after surging 4.9% in Q3. That means the economy has grown at a 4.1% rate over the past six months, while core inflation has run at a 2% annualized rate. Headline PCE inflation in December held at 2.6%. The Fed's primary inflation rate, the core PCE price index, fell to 2.9% from 3.2%. Over the past three months, core inflation is running at just a 1.5% annualized rate. That's happening amid solid consumer spending, including a surprisingly strong 0.7% gain in December. Inflation has clearly fallen enough for the Fed to start cutting its key interest rate from the current 5.25% to 5.5% range. But the strength of the economy means that policymakers probably won't feel any urgency to do so.
Tesla Dives On Earnings And Guidance
Tesla earnings plunged 40% in Q4 with revenue up just 3.5% vs. a year earlier, both slightly missing views. But TSLA stock plunged as the EV giant said 2024 delivery growth will be "notably lower" and said it's between "two major growth waves." Elon Musk said production of a yet-unseen next-generation EV should start in late 2025, but admits he's often optimistic about deadlines. Analysts, who have been cutting 2024 forecasts for the past year, slashed EPS targets again, suggesting little or no growth in 2024. Shares plunged to their worst levels since May.
Guidance Trips Up Chipmakers
Intel handily beat fourth-quarter revenue and earnings estimates, thanks to a resurgent PC market. But it badly missed views with its first-quarter guidance, amid weak server chip sales. Intel stock tumbled on the news. Fellow chipmaker Texas Instruments also disappointed with its Q1 outlook, but its Q4 results weren't so hot either. TI's earnings fell 30% and sales 13%, amidd weakness in the industrial and automotive markets. Chip-gear equipment vendors were a mixed bag. ASML jumped after its Q4 earnings beat and booming orders, despite giving cautious guidance. Lam Research topped Wall Street's targets for the December quarter and guided higher than views for the March quarter. And KLA beat analyst estimates for its fiscal second quarter but guided well below views for the current period.
Netflix Pins Q4 Subscriber Beat
The streaming video leader crushed estimates for new subscribers in the fourth quarter, adding 13.12 million users for a total of 260.28 million. Netflix earnings fell short but sales growth accelerated to 12%, slightly beating. Its Q1 financial guidance was mixed, up on EPS and short on revenue. Also, Netflix signed a 10-year deal worth over $5 billion to carry the WWE's flagship pro wrestling program "Raw" starting next year. NFLX stock gapped higher.
ServiceNow Earnings And Guidance Strong
The business software maker reported a 36% EPS gain, easily beating, while Q4 revenue climbed 26% to $2.44 billion, slightly topping. Subscription revenue also exceeded estimates, with ServiceNow guiding slightly higher on 2024 as well. NOW stock reversed lower on earnings, but rose for the week.
General Electric Guides Low Ahead Of Split
General Electric reported a 9% EPS drop, but that was better than expected. Revenue climbed 15% to $19.4 billion, defying views for a drop. But the conglomerate provided weak Q1 guidance. heading into its conversion to a pure-play aerospace company in early April, spinning off the energy business. The company expects adjusted revenue for GE Aerospace to grow in the low double digits with free cash flow greater than $5 billion. For GE Vernova, management pointed to revenue of $34 billion to $35 billion. General Electric erased brief, sharp losses to hit a fresh six-year high.
United Rentals Surged
United Rentals powered to new highs Thursday, seemingly a vote of confidence that the epic nonresidential construction expansion, fueled by big government spending packages, has more legs. URI topped Q4 estimates with 16% EPS growth and 13% sales growth, while offering an outlook range for 2024 revenue growth of 4% at the midpoint. The heavy equipment rental firm also announced $1.5 billion in buybacks and a 10% dividend hike. Caterpillar and Terex also muscled above buy points on United Rentals' results and guidance.
Verizon Subscribers Boom, AT&T Earnings Miss
Verizon added 449,000 postpaid phone subscribers — customers with the highest monthly bills vs. a 217,000 gain in the year-earlier period. Analysts had predicted a Q4 gain of 239,000. Q4 adjusted earnings fell 9%, meeting views. Revenue dipped 0.3% to $35.1 billion, slightly beating. AT&T added 526,000 postpaid wireless customers, down from 656,000 in the year-earlier period but modestly beating. Q4 revenue beat with a 2.2% gain to $32 billion. But EPS slightly missed an 11% drop, while AT&T guided low on 2024 profit. VZ stock jumped. AT&T fell on results, but rose for the week.
T-Mobile US missed EPS views with a 41% drop, with revenue surprising with a 1% gain to $20.4 billion. Postpaid wireless subscribers jumped by 934,000 in Q4, topping forecasts.
China School Stocks Get High Marks
New Oriental Education reported a 190% EPS gain with revenue up 36% to $870 million, both beating views. The China-based online education firm expects third-quarter revenue to jump more than 40%, far above forecasts. TAL Education missed on earnings but beat on revenue. EDU stock surged above an early entry while TAL regained key support.
Payment Giants Diverge
Dow Jones payments giants Visa and American Express diverged after their quarterly results this week. Visa reported an 11% adjusted earnings increase on a 9% revenue gain to $8.63 billion, slightly topping views, but guided to higher expenses. Visa shares fell slightly Friday from record highs. American Express EPS popped 27% while revenue grew 11%, though those slightly missed expectations. But AmEx shares gapped higher on strong 2024 guidance. Meanwhile, Capital One reported a 20% drop in Q4 EPS, badly missing amid higher loan loss provisions. Revenue growth slow to 5%, just edging past views. But COF stock popped above resistance on Friday.
United, American Airlines Bullish On 2024
United Airlines earnings fell 19% while revenue grew nearly 10%, both beating views. American Airlines earnings plunged 75% but easily topped forecasts. But carriers were upbeat on 2024 earnings, sending shares sharply higher. Alaska Airlinesexceeded estimates with a 67% drop. It sees a rough start to 2024 due to the Boeing in-flight incident on Jan. 5 and subsequent 737 Max 9 grounding, but those jets may soon return to service.
Spirit Airlines tumbled Friday after JetBlue warned it may terminate its takeover deal this weekend after a federal court blocked it on Jan. 16. The carriers had said they would appeal the ruling.
Rail Operators On Track
CSX, Union Pacific and Canadian National Railway reported slightly lower Q4 earnings, with CSX reporting in line and its rivals slightly beating. Norfolk Southern reported a larger EPS declined that missed views. All are trading in or near buy zones.
Defense Stocks Mixed On Earnings
Lockheed Martin earnings unexpectedly rose, but the defense giant tumbled on 2024 EPS guidance. Northrop Grumman retreated on a surprise Q4 loss. Raytheon jumped above its 200-day line a slim profit gain that topped views and strong 2024 EPS guidance. General Dynamics surged to a record high on mixed results that did see a return to slim profit growth. Textron broke out on a strong 30% EPS gain. L3Harris ended a four-quarter string of earnings declines. Defense-focused consultancy Booz Allen Hamilton vaulted out of a base on a 39% EPS gain and strong profit guidance.
Medical Giants See MedTech Growth
Johnson & Johnson and Abbott Laboratories offered a promising look for MedTech stocks last week — though shares of both fell on company-specific headwinds. Sales of J&J's MedTech division climbed 13.4% on an operational basis, while Abbott's medical devices segment tacked on 15.4% organic sales growth. The latter was helped by $1.4 billion in sales of body-worn glucose monitor FreeStyle Libre. Both companies bested total fourth-quarter sales expectations while J&J's adjusted profit beat forecasts by a penny and Abbott's met. But Johnson & Johnson fell on higher operating costs while Abbott's full-year earnings guidance slightly missed forecasts at the midpoint.
IN BRIEF
Paccar broke out of a base as the heavy truck maker reported a 53% EPS gain with revenue up 11%, both comfortably beating.
Brown & Brown topped views with a 16% EPS rise and revenue climbing 14% to $1.03 billion. Shares of the insurance broker gapped up out of a base.
Steel Dynamics reported a big drop in Q4 profit, but met views. A 12% revenue gain slightly beat.
Procter & Gamble reported a 16% EPS gain, topping views. The Dow Jones household products giant's sales rose 3% to $21.4 billion, slightly missing. But PG stock rallied as higher prices buoyed profit margins.
SAP touted strong growth in its cloud-order backlog and announced plans to cut 8,000 jobs in a restructuring to focus on artificial intelligence. The German software giant jumped to a record high.
3M plunged after guiding well below 2024 consensus. The Dow giant beat Q4 2023 views with a 6% EPS gain and sales down 5% to $7.69 billion.
FICO reported a 13% EPS gain with revenue up 11%, both missing and decelerating for a second straight quarter.
Freeport-McMoRan earnings tumbled 48% in Q4, while revenue climbed 3% to $5.905 billion, both topping estimates.
IBM shares surged to their highest levels in more than a decade. The Dow tech giant reported an 8% EPS gain with revenue up 4% to $17.4 billion, both beating. CEO Arvind Krishna said demand for AI products is accelerating. The company gave upbeat guidance on revenue and free cash flow.
