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February 27, 2024

Stocks Surge as Tech Earnings Impress and China Rescue Buoys Sentiment

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Jan 24, 2024

Stocks are rising in premarket trading Wednesday after strong earnings from Netflix and optimism around potential economic stimulus from China. S&P 500 futures are up 0.6% while Nasdaq futures have jumped 1.2%. The tech-heavy index is getting a boost from Netflix, which reported better-than-expected subscriber growth after Tuesday’s close.

Netflix Leads Tech Stock Surge After Blockbuster Earnings

Shares of Netflix are surging over 8% in premarket trading after the streaming giant reported adding 7.7 million subscribers in the fourth quarter, handily beating forecasts. The company’s revenue also topped expectations. Netflix gave a bullish forecast for 1.3 million new subscribers this quarter.

Netflix headlines a busy day of tech earnings, with Tesla set to report after the close. Semiconductor stocks are also climbing after positive earnings from ASML and Texas Instruments.

Daniel Morgan, portfolio manager at Synovus Trust Company, said “Obviously Netflix had a blowout quarter and a positive outlook for new subscribers. Combine that with the China news and we could see another solid day for stocks.”

Other tech stocks moving higher in premarket trading include:

  • SAP: up 4%
  • ASML: up 5%
  • AMD: up 2%
  • Nvidia: up 2%

Analysts say the strong results from Netflix bode well for other tech giants reporting this week, with expectations that upbeat earnings can extend the market’s rally.

“Netflix is a good bellwether for the other tech names,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments. “It’s a good gauge of the health of the consumer and their willingness to continue to subscribe to these services.”

China Stimulus Hopes Boost Global Markets

Sentiment is also being lifted by reports that China is preparing a rescue package to support its ailing real estate sector. Asian markets rallied on the news, with the Hang Seng in Hong Kong jumping 3.4%.

Reports indicate the stimulus could include measures like credit guarantees for builders, fiscal spending and easier real estate rules to revive the struggling housing market. China’s growth has slowed amid ongoing COVID-19 outbreaks and a real estate crisis.

“The positive lead from Wall Street, the hopes of easing regulatory burdens on the real estate sector in China, and optimism that corporate earnings will hold up despite worries about a recession are boosting risk sentiment,” said Anderson Alves at ActivTrades.

European shares are climbing as well, with the Euro Stoxx 50 up 0.6% in morning trading. S&P 500 futures point to a 0.5% gain at the open.

Strong Earnings Touted as Key Market Driver

With recession fears swirling, analysts have emphasized the importance of corporate profits in driving further upside for stocks. S&P 500 earnings are expected to grow by 2.2% this quarter.

“Strong earnings results should help stocks work their way higher as the earnings season progresses, as long as guidance holds up as well,” said Mark Hackett, Nationwide’s chief of investment research.

Companies reporting results that beat expectations this week include Goldman Sachs, Morgan Stanley, Procter & Gamble and United Airlines. Netflix is the first major tech name to post results. Still to come are reports from Tesla, IBM and Intel, among others.

Rick Meckler, partner at Cherry Lane Investments said “When earnings come out strong, like we saw from the banks last week, it gives investors confidence that the downturn will be mild.”

With stocks back near record highs, many are questioning how much more room the market has to run. Strategists have warned further gains may be limited.

“I do think we’re kind of due for a little bit of a pause here,” Erin Gibbs, managing director at Capital Wealth Planning, told Bloomberg TV. “The market has come a long way.”

Focus Turns to PMI Data, Tesla Earnings

Some key economic data is also on tap that will provide more clues about the health of the economy. IHS Markit’s flash manufacturing and services PMIs for January will be released at 0945 ET. The data is expected to show continued modest expansion in activity.

All eyes are also on Tesla’s fourth quarter results, due after the closing bell today. Investors will be watching for an update on demand and any commentary about the outlook for 2023 vehicle deliveries. Tesla shares are down 34% from their November high, underperforming the broader market.

Here are some of the factors analysts say could drive markets on Wednesday:

  • Strong tech earnings boosting sentiment
  • Optimism around potential China stimulus
  • Focus on economic data like PMI and home sales
  • Tesla results after the close
  • Continued earnings beats
  • Guidance from companies on 2023 outlook
  • Recession concerns and path of interest rates
  • Geopolitical events like Ukraine war

With many heavyweights still to report and key economic data ahead, this week is shaping up to be pivotal in determining whether the rally has more room to run.

S&P 500 and Dow Near Record Highs

The S&P 500 closed Tuesday at its highest level since early December, after gaining 1.2% on the session. The Dow Jones Industrial Average rose 0.8% to near the 34,000 level.

Chipmaker Nvidia was among the biggest gainers after UBS upgraded the stock to a buy rating. Nvidia shares jumped 8.2%.

All 11 S&P 500 sectors ended higher, with communication services, technology and consumer discretionary leading gains.

The market has now recovered around 85% of the losses suffered after its September peak, though trading volumes remain tepid. Many are questioning the rally’s sustainability given still elevated inflation, slowing growth and ongoing interest rate hikes.

“My feeling is investors are playing with fire here,” said Christian Fromhertz, CEO of The Tribeca Trade Group. But he added that “in the short term, you can’t fight momentum.”

The sharp rebound since October has lifted valuation metrics back near historical averages, fueling some concerns stocks aren’t pricing in enough risk, according to strategists at Morgan Stanley.

“The market has gone from pricing in disaster to pricing in Goldilocks,” said Mike Wilson, Morgan Stanley’s chief U.S. equity strategist. “Both narratives seem extreme versus the reality.”

Market Forecast: Watch Earnings, PMIs, Technical Levels

  • The S&P 500 could retest its 2022 lows near 3,500 if earnings disappoint and economic data weakens further, some strategists say.
  • Others see scope for more upside, with the S&P 500 potentially climbing to around 4,100 if earnings and guidance remain solid.
  • Breaking above technical resistance around 4,000 could open the door for a run at the 200-day moving average near 4,160.
  • Key levels to watch include the 50-day moving average at 3,790 and January highs around 3,970.
  • Volatility could remain elevated as the market weighs strong earnings against recession risk.

The path forward will depend heavily on upcoming economic data and guidance from companies on full-year 2023 earnings. Technical analysis shows potential for the S&P 500 to climb if it can break decisively above 4,000. But risks remain tilted to the downside amid rising concerns around corporate profits if the economy heads into recession.

S&P 500 Sector Performance YTD:

Sector YTD Returns
Energy 13%
Utilities 6%
Consumer Staples 4%
Healthcare 2%
Financials 2%
Industrials 1%
Materials 0%
Consumer Discretionary -1%
Real Estate -6%
Technology -7%
Communication Services -10%

Energy is the top-performing sector so far in 2023, while communication services and tech lag.

Outlook for Federal Reserve Policy

The Fed’s ongoing interest rate hikes remain a key focus for markets. The central bank is expected to slow the pace of increases at its meeting next week, with a 25 basis point hike seen as the likely outcome.

Markets are pricing in rates to peak around 5% in March before cuts start in the back half of 2023. But economists warn the Fed could keep rates elevated for longer if inflation remains sticky.

“The market is trying to find the right equilibrium between a soft landing and a recession,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.

Goodwin expects a mild recession starting in the second quarter as the effects of tighter policy take hold. She sees risks that corporate earnings optimism is overdone given likely margin pressures.

All eyes will be on the Fed’s policy statement and Chair Jerome Powell’s press conference next week for hints around the future path of rate hikes and balance sheet reduction. The central bank’s commitment to bringing inflation back down to its 2% target remains the key focus.

Bottom Line

Stocks are rallying Wednesday thanks to blowout results from Netflix and optimism around potential economic stimulus from China. The S&P 500 is looking to build on Tuesday’s gains that took the index back near record highs.

With many heavyweight tech earnings still on tap this week, along with key housing and manufacturing data, the positive momentum could continue. But risks around inflation, geopolitics, and corporate profits in a slowing economy persist.

The path forward relies heavily on earnings and guidance holding up. If companies can deliver upside surprises and maintain solid outlooks for 2023, it could spur further gains. But disappointments on either front may lead to increased volatility and a potential retest of 2022 lows.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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