Five things you need to know before the market opens on Thursday February 2:
1. -- Stock Futures Extend Gains As Powell Comments Feed Bulls
U.S. equity futures extended gains Thursday, while the dollar drifted lower against its global peers and Treasury yields steadied, as markets around the world reacted to a dovish rate hike from the Federal Reserve and focused on a trio of mega cap tech earnings after the close of trading.
The Fed's eighth consecutive rate hike lifted its benchmark Fed Funds rate to a range of between 4.5% and 4.75% late Wednesday, but small changes in the statement that followed -- which indicated a focus on the "extent" of future rate increases rather than their "pace" -- suggested the Fed may be nearing the end of its most aggressive tightening cycle in four decades.
Stocks ripped, as expected, when Chairman Jerome Powell provided only minimal resistance to the market's forecast of both a lower terminal rate and the chances for a cut later in the year, helping the S&P 500 close 42.6 points higher to boost the benchmark's year-to-date gain to around 7.7%.
"Many things affect financial conditions, not just our policy, and we will take into account overall financial conditions along with many other factors as we set policy,.
Benchmark 10-year Treasury note yields tumbled around 10 basis points as Powell spoke to the media in Washington, and were pegged only modestly higher at 3.411% in overnight trading, while 2-year notes fell to 4.115%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.1% lower at 101.106.
The CMEGroup's FedWatch tool now suggests an 85.6% chance of a follow-on hike of 25 basis points in March, but sees that as the likely last hike of the cycle, even as Powell indicated a preference for "a couple more" moves to the upside.
"Investors appears willing to fight the Fed – one of the many aphorisms on Wall Street that seasoned traders usually heed – and they do so at their own peril," said Chris Zaccarelli, CIO for Independent Advisor Alliance in Charlotte, North Carolina.
"This economy is much stronger than almost everyone believed and it is going to cause the Fed to overshoot on tightening, which will ultimately prove an even bigger risk to markets down the road, but in the meantime we are in a risk-on regime," he added.
With Fed risk neutralized, at least for the moment, investors are likely to switch focus to the trio of tech earnings -- from Amazon, Apple and Google -- after the closing bell.
Key central bank decisions in Europe, as well as the United Kingdom, will come prior to the start of U.S. trading, as well a reading on weekly jobless claims at 8:30 am eastern time, a precursor to tomorrow's January non-farm payroll report.
Heading into the start of the trading day on Wall Street, futures tied to the S&P 500 are priced for a 22 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 30 point pullback. The tech-focused Nasdaq was marked 185 points higher
In overseas markets, Europe's Stoxx 600 gained 0.69% in early Frankfurt trading, following the softer-than-expected inflation figures and modestly improving manufacturing PMI data, while Asia's region-wide MSCI ex-Japan index gained 0.3% and Japan's Nikkei 225 gained 0.20%
2. -- Fed Chair Powell Talks 'Disinflation' Amid Rate Hike Push
Federal Reserve Chairman Jerome Powell left just enough room for doves to squeeze through in an otherwise routine post-rate decision press conference in which he called for tighter policy and warned on the perils of unchecked inflation.
Powell's tone, however, was far less combative than in past press events, and his decision not to push back on both market forecasts for a 2023 rate cut -- even though he said that wasn't in his plans -- and its suggestion that rates will peak south of the Fed's current forecast -- even as he said a 'couple more' hikes were needed -- allowed rate doves to take flight.
His comments, while guarded, on the notion that price pressures were moving firmly to the downside were also noted by market participants, particularly in the bond market.
"I would say it is a good thing that the disinflation that we have seen so far has not come at the expense of a weaker labor market," Powell told reporters in Washington. "But I would also say that that disinflationary process that you now see under way is really at an early stage. What you see is really in the goods sector. You see inflation now coming down because supply chains have been fixed, demand is shifting back to services, and shortages have been abated."
Services inflation, the Chairman stressed, remains sticky enough that the Fed will likely need two more hikes to fully control it, but markets are looking well past those remarks -- while noting big month-on-month changes and a sustained downward path.
"Whether that is enough to persuade the Fed to refrain from hiking again is another question," said Ian Shepherdson of Pantheon Macroeconoimcs. "But it makes us even more confident that if the Fed hikes in March, they won’t be going again in May."
3. -- Meta Soars On $40 Billion Buyback, Solid Revenue Forecast
Meta Platforms (META) shares rocketed higher in pre-market trading after the social media group unveiled plans for a $40 billion stock buyback and forecast better-than-expected current quarter revenues despite a broader global slowdown in ad spending.
Meta, the parent company of Facebook, Instagram and WhatsApp, posted softer-than-expected fourth quarter earnings of $1.76 per share, well shy of the Street's $2.22 forecast, thanks in part to a $4.2 billion charge linked to last year's massive layoffs and office closures.
Meta edged past analysts' revenue estimates with a $32.17 billion tally - around 97.2% of which came from advertising sales, and while that figure is set to fall to between $26 billion and $28.5 billion this quarter, it was just in front of the Refinitiv estimate of $27.1 billion.
The $40 billion buyback, however, is what mostly moved the stock, with help from Meta's pledged to lower operating expenses -- still expected at between $89 billion and $95 billion -- amid what CEO Mark Zuckerberg called a 'year of efficiency'.
Meta shares were marked 18.9% higher in pre-market trading to indicate an opening bell price of $182.09 each.
4. -- Apple Earnings On Deck, Supply Chain Impact In Focus
Apple Inc (AAPL) shares edged higher in pre-market trading ahead of the tech giant's highly-anticipated December quarter earnings after the closing bell.
Apple is expected to post a bottom line of $1.94 per share for its fiscal first quarter, down 7.6% from the same period last year, with revenues in the region of $121.2 billion, although supply chain disruptions that have prevented some of its high-end iPhones making their way to U.S. markets, as well as China's evolving Covid crisis, could dent that figure.
Apple's near-term forecast, then, could prove crucial for investors to discern if demand will remain in place in order to take up sales that were delayed in December.
Last month, Taiwan Semiconductor Manufacturing (TSMWF) , the world's biggest contract chipmaker and key Apple assembler, lowered its capital spending plans for the coming year amid a pullback in global demand.
Apple's leading smartphone rival, Samsung, told investors earlier this week that the global handset market is likely to contract this year, with lower-end phones impacted the most, amid what it described as "high demand uncertainty".
Apple shares were marked 1.07% higher in pre-market trading to indicate an opening bell price of $146.98 each.
5. -- Amazon Earnings To Key On Cash Flow, Consumer Spending Strength
Amazon (AMZN) shares moved firmly higher in pre-market trading ahead of its fourth quarter earnings after the closing bell, powered in part by Meta Platform's solid ad sales outlook.
Analysts see Amazon posted a muted bottom line of just 17 cents per share, down from the $1.39 reported last year, but revenues are expected to rise 5.85% from last year to $145.45 billion.
David Trainer, CEO of Nashville-based investment research group New Constructs, cautions that Amazon's fourth quarter cash flows, while supported by holiday spending, will likely remain negative and its earnings per share can often be affected by investments in companies -- such as Rivian Automotive (RIVN) -- that aren't related to its core business.
Investors are also likely to focus on growth rates for the group's Amazon Web Services division, following a cautious update from Microsoft (MSFT) last week, as well as spending trends in its e-commerce business over the holiday season.
Amazon shares were marked 4.3% higher in pre-market trading to indicate an opening bell price of $109.67 each.
