The stock market fell into a correction, with the Dow Jones, S&P 500, Nasdaq composite and Russell 2000 breaking below key support levels. Treasury yields spiked to two-year highs while crude oil prices hit their highest levels since 2014. Netflix crashed and Goldman Sachs tumbled on their earnings reports, along with several other big earnings-related sell-offs. Microsoft will buy Activision Blizzard for nearly $69 billion.
Stock Market Correction Underway
The major averages all sold off hard, breaking through multiple support levels during the week. Rebound attempts on Wednesday and Thursday fizzled for continued sharp losses. Growth woes continued, while even financials came under pressure, despite Treasury yields hitting pandemic highs during the week. Weak earnings from Goldman Sachs and several other big banks didn't help, while Netflix plunged on weak subscriber growth.
Jobless Claims Jump In Omicron Fallout
Omicron fallout was written all over Thursday's jobless claims report, which saw new filings jump to a three-month high 286,000 in the week through Jan. 15. That was up 55,000 from the prior week and nearly 100,000 from the half-century low seen at the start of December — before the omicron surge hit the U.S. Meanwhile, the housing outlook dampened somewhat as the average 30-year fixed-rate mortgage rose to 3.56% in the week through Jan. 20, up from 3.45% the prior week. Housing starts rose 1.4% to a 9-month-high in December. All the growth came in multifamily units, which surged 14%, likely reflecting high demand for rental housing. The backlog — housing units authorized but not yet under construction — hit a record 270,000 amid supply-chain backups and tight labor markets. Existing-home sales slipped 4.6% to a 6.18 million annual rate as the number of homes for sale fell to a record low 910,000. The median sales price rose 15.8% from a year ago to $358,000.
Microsoft Buying Activision
Microsoft will pay $68.7 billion for Activision Blizzard, which has faced numerous accusations that is has a culture that promotes sexual misconduct. The Dow tech giant said the deal will bolster its video game business and provide building blocks for the metaverse. The acquisition is Microsoft's largest ever and will make it the world's third-largest gaming company by revenue, behind Tencent and Sony. Regulatory approvals could be tricky, with ATVI stock soaring but well below the purchase price.
Schlumberger Sees 'Favorable' Oil Market
Schlumberger reported Q4 results that topped analyst expectations with EPS jumping 86% to 41 cents and revenue up 13% to $6.22 billion. The oil field services provider said that "industry macro fundamentals are very favorable" in 2022 and it sees oil demand exceeding pre-pandemic levels before the end of the year, barring any Covid-19 related disruptions. Baker Hughes reported mixed results. Crude oil prices hit their highest level since 2014 before paring weekly gains.
ASML Posts Mixed Q4 Report
The Dutch semiconductor equipment maker beat EPS views with a 36% gain, in local currency, but the 17% sales gain fell short. ASML's first-quarter sales outlook badly missed views due mostly to deferred revenue recognition of some systems pending formal customer acceptance. However, ASML forecast full-year revenue growth of around 20%, topping estimates.
Alcoa Earnings Skyrocket
The aluminum giant reported EPS vaulted 862%, easily beating Q4 views, as revenue jumped 36% to $3.34 billion. Guidance for similar earnings in Q1 also was well ahead of views, as high aluminum prices more than offset cost pressures. Alcoa, which rose on the results, is extended well beyond a buy point.
J.B. Hunt Trucks Past Views
J.B. Hunt reported a 58% jump in Q4 earnings to $2.28 per share with revenue up 28% to $3.5 billion. Both easily beat Wall Street estimates. Intermodal volumes fell 3% year over year as weather, train derailments and Covid-19 related labor shortages affected volume. Still, revenue per load, excluding fuel surcharge revenue, rose 22%.
Rail Giants Top Profit Estimates
Union Pacific posted a 13% EPS increase as revenue rose 12% to $5.733 billion, both beating forecasts. Pricing gains helped to offset "ongoing" global supply chain challenges that led to lower volumes, the rail giant said. CSX delivered an 18% EPS gain, just beating, on a 24% sales gain to $3.427 billion. CSX said "all major lines of business" grew, offsetting pandemic disruptions.
UnitedHealth Earnings Strong
UnitedHealth coasted past Wall Street estimates for Q4, with EPS up 78% from a Covid-hit year-earlier period. Revenue grew 12% to $73.7 billion, led by 15% growth at the Dow Jones giant's Optum health services arm. UNH eased concerns on two fronts. Medicare Advantage enrollment growth is on track. Meanwhile, the omicron surge hasn't dented the outlook, thanks to shorter hospital stays and fewer visits to physicians and specialists. UNH stock rose slightly after its Wednesday report, bucking the broad market downdraft.
Bank, Broker Stocks Tumble
Goldman Sachs tumbled after EPS fell 7%, missing views. Morgan Stanley rose on strong results but dipped for the week. Bank of America results were mixed. Many regional banks sold off after earnings, including Regions Financial, U.S. Bancorp and SVB Financial. Signature Bank beat views, but still fell on a stock offering and as Treasury yields fell late in the week. Schwab reported adjusted earnings per share rose 16% while revenue climbed 13% to $4.71 billion. Both stopped short of expectations. SCHW fell.
News In Brief
Matson now expects Q4 EPS of $8.70-$9.10 for the December-ended Q4, crushing views. Shares of the oceangoing shipping firm jumped Thursday.
Travelers reported Q4 EPS rose 6% while revenue grew 10% to $7.995 billion, both easily beating. Shares of the Dow Jones insurance giant moved back into a buy zone.
Signet holiday sales rose 30%, with the mall-based jewelry seller raising Q4 revenue estimates significantly. But shares reversed sharply lower Thursday.
