(Bloomberg) — Stocks came well off session lows as banks gained and Tesla Inc. erased losses ahead of its earnings report, with the moves tempering the gloom with Microsoft Corp.’s dour sales warning.
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Elon Musk’s electric-vehicle giant wiped out a slide of as much as 4%. Its results may inject another dose of volatility, with options pricing suggesting the stock might fluctuate 11% in either direction after the report, which would be the biggest such move since the fourth quarter of 2021, according to data compiled by Bloomberg. Most major groups in the S&P 500 still remained lower and the tech-heavy Nasdaq 100 underperformed major benchmarks.
Fourth-quarter earnings for tech firms in the S&P 500 are projected to have dropped 9.2% from the same period a year earlier, the steepest slide since 2016, data compiled by Bloomberg Intelligence show. Three months ago, profits were seen coming in flat.
“If earnings reports continue to be disappointing, it’s going to be very hard to argue that the market can rally further because the negative news has already been priced in — given that the stock market has rallied quite nicely so far this month,” said Matt Maley, chief market strategist at Miller Tabak.
The recent rebound in equities came at a time when the economy is heading for a downturn — which could set the stage for a selloff, JPMorgan Chase & Co.’s Marko Kolanovic told CNBC. One of Wall Street’s biggest optimists through most of the rout last year, Kolanovic has since reversed his view, cutting his equity allocation in mid-December due to a soft economic outlook.
Investors should use any rallies to reduce exposure to the equity market, according to Richard Saperstein at Treasury Partners. Slower economic growth caused by the Fed’s tightening and its impact on corporate earnings will likely be priced into stocks over the next several months, he added.
“We have not been impressed with the quality of earnings in recent weeks. Looking forward, margins remain at risk as inflation softens and economic growth slows,” Saperstein noted.
The Fed’s preferred inflation gauges probably cooled in December to the slowest pace in over a year, reinforcing a step down in the pace of rate hikes, but likely not enough for officials to discuss a pause. Economists project a 5% annual increase in the personal consumption expenditures index Friday. A day before, they will be watching the government’s initial estimate of fourth-quarter gross domestic product.
In other corporate news, Boeing Co. reported a surprise loss to end 2022 — its sixth straight money-losing quarter — as higher costs slowed the planemaker’s recovery even though a late flurry of jet deliveries drove a surge in cash. AT&T Inc.’s profit and free cash flow forecast for 2023 missed analyst estimates as the wireless carrier invests in network improvements.
The New York Stock Exchange said a manual error caused wild price swings and trading halts for hundreds of company stocks when the market opened on Tuesday.
The root cause of the issue, which the exchange operator says has been resolved, was tied to the company’s so-called “disaster recovery configuration” at the start of the day. Over 1,300 trades and some 84 stocks were impacted and marked as “aberrant,” NYSE said in an updated statement on its website.
Elsewhere, the loonie fell as the Bank of Canada raised rates for an eighth consecutive and potentially final time — saying it expects to move to the sidelines and weigh the impact of its rapid tightening.
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Traders also kept an eye on the latest geopolitical developments.
The US will send Ukraine 31 of its M1 Abrams battle tanks, adding to a German commitment to supply some of its top-line armor and infusing the country with a major new capability as it looks to pry Russian forces from the east.
Earnings for the week include: American Airlines, Blackstone, Comcast, Diageo, Intel, LVMH Moet Hennessy Louis Vuitton, Mastercard, SAP, Southwest Airlines, Visa (Thursday); American Express, Charter Communications, Chevron, HCA Healthcare (Friday)
US fourth-quarter GDP, new home sales, initial jobless claims, Thursday
US personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday
Some of the main moves in markets:
The S&P 500 fell 0.5% as of 1:24 p.m. New York time
The Nasdaq 100 fell 0.9%
The Dow Jones Industrial Average fell 0.3%
The MSCI World index fell 0.2%
The Bloomberg Dollar Spot Index fell 0.3%
The euro rose 0.2% to $1.0913
The British pound rose 0.5% to $1.2394
The Japanese yen rose 0.6% to 129.45 per dollar
Bitcoin fell 1.2% to $22,640.56
Ether fell 2.9% to $1,552.72
The yield on 10-year Treasuries declined one basis point to 3.44%
Germany’s 10-year yield was little changed at 2.16%
Britain’s 10-year yield declined three basis points to 3.24%
West Texas Intermediate crude was little changed
Gold futures rose 0.4% to $1,959.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Peyton Forte, John McCorry, Vildana Hajric and Isabelle Lee.
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