Earnings Parade: Investors Mull GE, Lockheed and United While Awaiting Netflix (2024)

(Tuesday market open)Major indexes sang a flat note early Tuesday as investors dug into a host of earnings and pored over reports that China might be considering a stimulus. Rising Treasury yields could present a headwind after two days of all-time highs for the S&P 500® index (SPX), but the sizzling tech sector maintained its firm tone ahead of the opening bell.

Wall Street opens Tuesday awaiting this afternoon’s quarterly reports from Netflix (NFLX) and Texas Instruments (TXN). Today’s earnings so far look like a mixed bag. Procter & Gamble (PG), General Electric (GE), United Airlines (UAL), and Lockheed Martin (LMT) are among firms in the spotlight as the sun comes up.

In addition, central banks in Canada and Europe gather tomorrow and Thursday to consider rates ahead of next week’s Federal Reserve meeting. Analysts don’t expect policy changes from the banks that meet this week.

The central bank derby began early Tuesday with the Bank of Japan (BoJ) leaving its long-running negative rate policy unchanged. News from Asia Tuesday also turned to China, as Bloomberg reported that authorities are considering a $278 billion package of measures to stabilize the slumping stock market there. China’s economy has been sluggish the past year coming out of the pandemic, burdened by troubles in the real estate sector, and stocks there hit five-year lows this week.

Back home, U.S. indexes again set new all-time highs yesterday, and further gains are possible if market breadth firms up, said Schwab’s Chief Investment Strategist Liz Ann Sonders and Senior Investment Strategist Kevin Gordon in a post on Monday. “In terms of market breadth, the bloom has come a bit off the rose,” they wrote, adding that large caps are flexing their muscles again.

Transportation companies, often seen as a leading indicator for the economy, surged Monday, suggesting investors are gaining confidence a recession may be avoided. The Dow Jones Transportation Average (DJT) jumped 2.2% to its highest close of the year, fueled by sharp advances in member companies like J.B. Hunt Transport Services (JBHT).

Energy shares were also strong Monday, lifted by a 2% gain in crude oil futures. Though breadth isn’t what it was in December, Monday’s gains showed more broad-based action as some of the “Magnificent Seven” dipped while advancers led decliners on Wall Street by a wide margin.

Futures based on the SPX rose 0.16% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) fell 0.08% and Nasdaq-100® (NDX) futures climbed 0.3%.

Morning rush

• The 10-year U.S. Treasury Yield (TNX) ticked up three basis points to 4.13%.
• TheU.S. Dollar Index($DXY) steadied near 103.38.
• The Cboe Volatility Index® (VIX) was flat at 13.19.
• WTI Crude Oil(/CL) dropped 0.7% to $74.23 per barrel.

Stocks in spotlight

Up in the air: United Airlines shares climbed in premarket trading after the company easily surpassed Wall Street’s average Q4 earnings per share (EPS) estimate and reported revenue near expectations. EPS guidance for Q1 looked light versus the average analyst estimate, but that didn’t appear to hurt shares much. Perhaps that’s because the company’s guidance for fiscal 2024 met expectations. UAL’s CEO told CNBC this morning that the company encountered cost inflation and is struggling with a headwind from Boeing’s (BA) Max 9 issues.

Even before the Boeing troubles, it’s been a tough 12 months for shares of UAL and other airlines amid geopolitical tensions and profits still below pre-pandemic levels. Thursday brings earnings from Southwest Airlines (LUV) and American Airlines (AAL).

Lockheed Martin and Procter & Gamble shares both rose after the companies reported this morning (see more below).

Tesla and tech: This week’s earnings calendar puts info tech and Tesla in the driver’s seat as Texas Instruments, Intel, and IBM (IBM) report. TXN kicks things off this afternoon, followed tomorrow by IBM and Thursday by Intel.

Tesla reports tomorrow afternoon after the electric vehicle firm missed analysts’ earnings estimates back in October and painted a pessimistic picture in its earnings call. Shares are down sharply this year amid concerns about EV demand, pricing, and potential competition from a bounce in used EV inventories.

TXN and INTC could give investors a better look at the health of U.S. semiconductor firms after Taiwan Semiconductor (TSM) shared a rosy demand forecast last week that helped lift the sector to all-time highs. Artificial intelligence is likely to come under a microscope as chip firms report, along with efforts by Intel to expand its U.S. manufacturing footprint.

Netflix shares are up more than 50% over the last year as the streaming company made efforts to prevent password sharing and introduced a new ad-supported tier. When the company reports later today, subscriber growth is likely to be front and center, as usual. In its previous quarter, subscriber growth far surpassed analysts’ estimates. Investors might be interested to see how users reacted to last fall’s price hikes, too. The company made headlines late Monday when Variety reported its film chief Scott Stuber was leaving to start a new company.

Stocks on the move early Tuesday include:

• Lockheed Martin easily beat analysts’ earnings and revenue estimates despite falling sales of its missiles. Earnings guidance for the full year of 2024 looked a bit low compared to Wall Street’s thinking, but shares ticked slightly higher in premarket trading.
• Procter & Gamble is the first major consumer products firm to report this quarter and shares jumped 1% ahead of the open following mixed earnings results and guidance. Earnings per share beat expectations and revenue came in as analysts had expected but product volumes in the firm’s beauty and health care divisions were flat to lower. The company has been struggling with volume in China. Results from PG could help set the tone for other consumer product companies reporting later this quarter.
• Shares of D.R. Horton (DHI) plunged 6.4% in premarket trading after the home builder’s earnings per share missed Wall Street’s expectations despite revenues coming in stronger than anticipated. DHI did reaffirm its fiscal 2024 revenue guidance. In its earnings release, the company sounded positive, noting that while inflation and mortgage rates remain elevated, net sales orders rose 35% from the same quarter a year earlier.
• GE fell 1.7% ahead of the open despite beating analysts’ earnings and revenue expectations. Focus appeared to be on below-consensus Q1 earnings per share guidance. The company is spinning off its power and renewable energy businesses this spring, and revenue for both of those climbed sharply in Q4.

What to watch

Two reports stand out later this week: The U.S. government’s first look at Q4 Gross Domestic Product (GDP) early Thursday and Personal Consumption Expenditure (PCE) prices on Friday. That’s the Fed’s favorite inflation metric, and analysts expect a 3% year-over-year rise in core PCE stripping out food and energy, down from 3.2% in November. Analysts expect a 2% rise in GDP, less than half the 4.9% gain in Q3, according to Briefing.com.

The Bank of Canada gathers Wednesday, and the European Central Bank (ECB) meets Thursday. There’s a growing sense that rate cuts aren’t on the immediate horizon either in those regions or in the United States when the Fed holds its meeting next week. In the meantime, you may notice a silence on Wall Street this week as the Fed enters its “quiet period” ahead of the meeting. Before the quiet period began, Fed speakers for the most part quite loudly made clear the fight against inflation isn’t necessarily over and that rate cuts could take time to develop.

Eye on the Fed

Early today, futures trading pegged chances at 97.4% for the Federal Open Market Committee (FOMC) holding rates steady following its January 30–31 meeting, according to the CME FedWatch Tool. The market prices in a 42% chance the funds rate will be a quarter-point lower than now after the Fed’s March meeting. That’s down from 63% a week ago.

Calling traders: Anyone planning to make trades should consider glancing each Friday at Schwab’s Weekly Traders’ Outlook blog, a great resource to get an assessment on the various factors impacting markets, including technical, economic, and market breadth analysis, as well as what to watch in the coming week. Your guide is Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

CHART OF THE DAY:NO MORE “FOLLOW THE LEADER?” The last five years typically featured the S&P 500 index (SPX-purple line) falling during periods when the 10-year Treasury note yield (TNX-candlesticks) rose. The exception was late 2021/early 2022 coming out of the pandemic. The last two weeks saw a divergence, with the SPX climbing despite rising yields. It’s too soon to say if this is a trend, but it’s worth monitoring. Data sources: S&P Dow Jones Indices, Cboe.Chart source: Thethinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Year of the…: Chinese years are named after animals. If the U.S. stock market had annual names, 2023 might have been “the year of multiple expansion,” as the average price-to-earnings (P/E) ratio for the SPX rose from around 17 at the start of the year to above 19 by the end. The expansion of multiples reflected 24% growth in the index even as earnings per share growth for stocks in the SPX was just 0.7%. Nothing there really changed the first few weeks of 2024, as major indexes rallied to new record highs even as average analyst Q4 EPS expectations fell from December. At the same time, analysts expect around 12% EPS growth for 2024, something that would conceivably help justify current SPX levels. If that double-digit earnings growth doesn’t show up, waters might get choppy considering the market’s lofty elevation.

Fork in the road? Over the last year, anyone wanting to know the direction of equities could almost predict it by checking Treasury yields. This might be changing. Almost every major U.S. stock index hit record highs last week despite a 30-basis point rise in the benchmark 10-year Treasury note yield (TNX) from its late-December low just under 3.8%. Since then, the SPX is up nearly 2%. This month’s divergence is just a couple of weeks old—way too early to call a trend. But it could indicate investors becoming increasingly comfortable with the notion that the economy and corporate earnings can grow even with yields stabilizing at levels near 4%. The real test might come if economic data remain hot and yields rise further. As Schwab’s Peterson points out, last week’s rise in the 10-year yield took it only back to its mid-December levels. “I suspect if yields continue to climb higher, say above 4.25% on the 10-year, there will likely be a breaking point where the current bullish sentiment sours, since yields are tied to equity valuations,” he said.

Homework assignment: With major U.S. stock indexes posting record highs, you may want to dig out the portfolio and make sure your exposure to equities doesn’t exceed comfort levels. An unattended portfolio may have grown more aggressive as the stock portion outperformed other asset classes to account for more of the value. As you check the impact of this tech-driven rally, keep your current risk appetite and time horizon in mind. As a reminder, here’s a short video explaining how to monitor positions in your Schwab brokerage account.

Calendar

Jan. 24: Expected earnings from Abbott Laboratories (ABT), Kimberly-Clark (KMB), IBM (IBM), and Tesla (TSLA).

Jan. 25: December Durable Orders, December Durable Goods, Q4 GDP, December New Home Sales, and expected earnings from Alaska Air (ALK), American Airlines (AAL), Comcast (CMCSA), Dow (DOW), Intel (INTC), Union Pacific (UNP), and Visa (V).

Jan. 26: December Personal Income, December Personal Spending, December PCE Prices, and expected earnings from American Express (AXP).

Jan. 29: Expected earnings from Whirlpool (WHR).

Jan. 30: January Consumer Confidence and expected earnings from General Motors (GM), UPS (UPS), Marathon Petroleum (MPC), Pfizer (PFE), and Starbucks (SBUX).

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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