Tech Earnings Tasked With Sustaining Rally Post-Mixed Bank Results, Economic Data

 | Jan 22, 2024 21:57

  • Regional banks and economic data add to market jitters last week, tech comes to the rescue

  • The LERI shows corporate uncertainty easing to its lowest level in nearly two years

  • In focus this week: Netflix, Tesla, International Business Machines, Intel

  • Peak weeks for Q4 season run from January 29 - March 1

    • Mixed earnings results and strong economic data out last week induced some market jitters and a VIX that rose to its highest level in over two months.

    After lackluster big bank results at the kickoff of the Q4 2023 season, Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) started off last week on a more positive note. Both handily beat analyst expectations on the top and bottom line thanks to year-over-year improvements in asset management, investment banking and equities trading.

    Smaller US banks, however, didn't fare as well. In order to compete with higher-yielding instruments, regional banks had to increase payouts on deposits to retain customers which lowered Net Interest Income (NII). Charles Schwab (NYSE:SCHW), US Bancorp (NYSE:USB), PNC Financial (NYSE:PNC) and Citizens Financial (CFG) all pointed to this in their results.

    In addition, these banks also saw a hit to the bottom line from fees paid to the FDIC as they replenish the government insurance fund that was depleted after the failures of Silicon Valley Bank and Signature Bank last year.

    Then there was the better-than-expected jobs and consumer data out last week, continuing the trend of "good news is bad news".

    On Wednesday, December Retail Sales increased 0.6% vs. economists expectations of 0.4%, pointing to a holiday shopping season that was more robust than previously thought.

    On Thursday, Weekly Initial Jobless Claims came in at their lowest level since September 2022, showing that a tight labor market is still in play. Markets retreated after both of these reports as investors are likely worried that a hot labor market and resilient consumer may mean fewer rate cuts in 2024. Expectations for a March rate cut dropped to 54% according to the CME FedWatch Tool.

    Coming to the rescue late in the week however, were once again the tech stocks. A blowout report from the world's largest chipmaker, Taiwan Semiconductor Manufacturing (NYSE:TSM), helped push the Nasdaq Composite higher for the week, and into positive territory for the year after getting off to a rough start. Shares of Apple (NASDAQ:AAPL) also added to that boost after Bank of America upgraded the stock to a buy.

    After the mixed earnings results from last week, the blended S&P 500 EPS growth rate fell to -1.7% from -0.1% the week prior.[12]

    h2 Corporate Uncertainty Eases to the Lowest Level in Nearly 2 Years/h2
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    Even as the Q4 season gets underway with some shaky results and commentary, our proprietary gauge of corporate uncertainty continues to sport a very low reading. The most recent reading of the Late Earnings Report Index (LERI) shows that fewer companies are delaying earnings reports than advancing them.

    The LERI tracks outlier earnings date changes among publicly traded companies with market capitalizations of $250M and higher. The LERI has a baseline reading of 100, anything above that indicates companies are feeling uncertain about their current and short-term prospects. A LERI reading under 100 suggests companies feel they have a pretty good crystal ball for the near-term.

    The pre-peak season LERI reading for Q4 (data collected in Q1) stands at 74, the lowest reading in nearly two years. As of January 19, there were 55 late outliers and 67 early outliers. This is in stark contrast to the LERI readings from the Q2 and Q3 earnings seasons which showed CEOs at their most uncertain since the COVID-19 pandemic.