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What we're watching | 🌡️ January's inflation check: Economists expect the Consumer Price Index (CPI) to show prices rose 2.9% in January over the prior year — a notable decrease from December's 3.4% — when the data comes out Tuesday morning at 8:30 a.m. ET. Lately, Fed officials have been underscoring the need for hard data showing inflation is being brought to heel if any interest rate cuts are going to happen anytime soon.
😃 Small business sentiment: The NFIB Small Business Optimism numbers are out Tuesday. The metric ticked a little higher to 91.9 last month, but has been mostly flat of late, continuing a two-year slump under its 50-year average of 98. It remains somewhat of an outlier amid an increasingly happy and confident consumer, record S&P 500 highs, a healthy labor market, broad earnings beats, and moderating inflation.
💰 More big business reports: Tuesday's batch of earnings has some big names across tech, consumer discretionary, hospitality, and more, with Airbnb, Biogen, Coca-Cola, Hasbro, Instacart, Marriott, Lyft, MGM Resorts, Robinhood, Shopify, and Zillow opening their books. |
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What we're reading | 🛢️ A land grab in the Permian: Diamondback Energy announced the acquisition of Endeavor Energy on Monday, yet another instance of consolidation sweeping one of the country's most oil and gas-rich regions. Diamondback is now the third-biggest player in the region, which spans from West Texas to southeastern New Mexico.
📈 Rates could still go up: The widely accepted narrative is that at some point soon, the Fed will begin cutting its interest rates. But one scenario that Citigroup sees as possible and underappreciated is a few rapid-fire cuts followed by more hikes. It would be a situation akin to 1998. Citigroup says the market should price in this possibility.
🚙 GM has a new Equinox EV: Chevy's new entry-level EV starts at $34,995 — the lower end of the market. It has a 300+ mile range, which is more than other value-forward cars like the Nissan Leaf's 212. The big question for investors, and GM itself, is whether it can keep costs down and cheaper cars profitable. |
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Note: Data is as of the time of opening this email. To view real-time markets data click here. |
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| The case for a market broadening is building | Today's Takeaway is by Josh Schafer, Markets Reporter.
The S&P 500 (^GSPC) has surged over 5,000 for the first time largely due to significant increases in a few massive tech stocks.
The runs of stocks like Nvidia (NVDA), Meta (META), and Microsoft (MSFT), who are among the group that was dubbed the Magnificent Seven, have been well documented to this point. And we recently pointed out that their market dominance has made sense when considering their outsized contribution to the benchmark's earnings projections.
If earnings are the ultimate driver of long-term stock performance, then it's logical that the companies that contribute the most earnings growth to the benchmark will see outsized stock returns.
But the run of Magnificent Seven tech stocks leading earnings projections isn't projected to last for all of 2024.
New research from Bank of America's head of US equity and quantitative strategy Savita Subramanian shows the other 493 companies in the S&P 500 are expected to grow earnings by more than the Seven in the fourth quarter of 2024.
As seen in our chart of the day, the earnings recovery of the other 493 stocks would mark a significant reversal of earnings leadership in recent quarters. To Subramanian, this could signal a shift in stock market leadership too.
"We believe the narrowing growth differential will be the catalyst for the market broadening out," Subramanian and her Bank of America colleague Ohsung Kwon wrote in a note to clients on Monday. |
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This earnings shift puts fundamental backing to one of the most prominent calls on Wall Street to start 2024: The stock market rally will broaden. Subramanian says this will likely come in "June or earlier."
On top of the earnings turnaround, Subramanian also highlights the Fed's interest rate path will play a key role in why market returns are expected to broaden. The June prediction is in line with projections from the bank's economics team for the first rate cut to come in June.
And this speaks to a larger thread that's formed among the folks who see a broadening coming — that the Fed's rate path needs to be more certain first.
Fundstrat head of research Tom Lee wrote on Friday that his prediction for the S&P 500 to end this year at 5,200 is "looking too conservative." But in the shorter term Lee believes "uncertainty" around the Fed could cause investors to get anxious.
Goldman Sachs equity strategist Ben Snider recently explained a similar theory to Yahoo Finance that once investors stop "worrying so much" about when exactly the Fed will cut, the rally can broaden as investor's come to terms with earnings expectations like those seen in Subramanian's chart. "If I'm looking out over the next six or 12 markets, I do think we'll see an expansion in market breadth," Snider said.
And it's not about seeing the Big Tech stocks tumble, he added. "I think it's more likely you start to see more robust performance across the remainder of the equity market." |
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| Stocks on the move | Arm Holdings (ARM) rallied to new record highs on Monday, extending gains from last week following better-than-expected revenue guidance. Arm shares gained almost 30% and the stock is up 100% since last Wednesday when Arm's quarterly results were released.
- Diamondback Energy (FANG) shares jumped 9% on Monday after the oil and gas producer announced the acquisition of privately held Endeavor Energy for $26 billion in a cash and stock deal.
Airbnb (ABNB) stock went up more than 4% on Monday ahead of its quarterly results slated for release on Tuesday. "We saw a pickup in travel trends (with healthy ADRs), since Airbnb guided in early November, and AirDNA's estimates suggest some upside in 4Q," wrote BofA analysts in a note on Monday. The firm's analysts reiterated their Neutral rating on the stock. Year to date Airbnb shares are up about 15%.
— Ines Ferré, Senior Reporter |
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| Watch on Yahoo Finance Live | - Stephanie Roth, Wolfe Research chief economist, and Claudia Sahm, former Federal Reserve Board economist, on January's CPI and inflation at 8:30 a.m.
- Ryan Detrick, Carson Group chief market strategist, on the bull market at 9:40 a.m.
- Peter Kern, Expedia CEO, at 10:30 a.m.
- Anthony Noto, SoFi CEO, at 11:20 a.m.
- Dawoon Kang, Coffee Meets Bagel CEO, on the business of love at 11:40 a.m.
- Zoetis CFO Wetteny Joseph on the business of animal health at 3 p.m.
All times ET. |
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 | With only a quarter of corporate results remaining this earnings season, analysts have plenty of data to show that while the S&P 500 may be concentrated in terms of market capitalization, there are a lot of companies beating expectations.
As of Friday, according to Deutsche Bank's data, 83% of companies have beat analyst expectations — above the 74% historical median. That's the second sign of breadth in today's Morning Brief, for those counting. |
| For more graphics like this, follow Yahoo Finance on Instagram. |
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Earnings and economic calendar | Tuesday
- Economic data: NFIB Small Business Optimism, January (91.9 previously) Consumer Price Index, month-over-month, January (+0.2% expected, +0.3% previously); Core CPI, month-over-month, January (+0.3% expected, +0.3% previously); CPI, year-over-year, January (+2.9% expected, +3.4% previously); Core CPI, year-over-year, January (+3.7% expected, +3.9% previously); Real average hourly earnings, year-over-year, January (+0.8% previously)
- Earnings: Airbnb (ABNB), AutoNation (AN), Biogen (BIIB), Coca-Cola (KO), Datadog (DDOG), Hasbro (HAS), Instacart (CART), Marriott International (MAR), Lyft (LYFT), MGM Resorts (MGM), Moody's (MCO), Robinhood (HOOD), Shopify (SHOP), Upstart (UPST), Zillow Group (ZG)
Wednesday
- Economic data: MBA Mortgage Applications, week ending Feb. 9 (+3.7%)
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