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Stocks Rally Following Week of Tech Earnings, Economic Data

Friday, January 27, 2023 04:58 PM | Nick Dey

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Stocks Rally Following Week of Tech Earnings, Economic Data

Stocks rallied this week as investors reacted to tech earnings and economic data.

PCE Prices

The Personal Consumption Expenditures Price Index showed overall prices rise 5% year-over-year as of December with core prices seeing a smaller 4.4% increase during that period.

Headline PCE matched November’s rise with a 0.1% advance that was against estimates for prices to remain flat. Meanwhile, core prices met expectations with a 0.3% increase, slightly picking up from 0.2% in November.

Meanwhile, personal spending decreased more than expected by 0.2% and income met expectations for a 0.2% rise.

This report sets the stage to make next week a big one as investors are expecting a smaller Fed rate hike on Wednesday.

Sentiment

The final reading of the University of Michigan’s Consumer Sentiment report showed sentiment rise more than expected to 64.9 after being projected to remain steady at 64.6.

Boosting the report was a strong jump to the Current Economic Conditions index, which can be attributed to easing inflation and higher income.

While rising sentiment was encouraging, two-thirds of consumers noted that they still expect a recession in the year ahead.

While there is a month lag between today’s PCE and sentiment reports, this expectation was evidenced by the PCE report, as not only did spending decline more than expected during the holiday month, the savings rate ticked higher for the third consecutive month to 3.4% as consumers brace for the worst.

Tech Earnings

Lastly, tech earnings were a big talking point throughout the week as investors braced for pivotal reports from Microsoft (MSFT), Tesla (TSLA), and Intel (INTC), among many others.

Microsoft’s report came first, and it was mixed with negative reactions following the call. The Xbox maker narrowly topped earnings estimates while missing on revenues.

Azure was the big talking point for the stock, and it initially impressed with 38% growth, which slightly topped estimates. While Microsoft didn’t give any concrete numbers, it said on the earnings call that it expects a 4-5 point decline in Azure growth, which ultimately sent the stock lower.

Given declining PC sales and more conservative software approaches, investors were expecting weakness. However, the report fell short of being better than feared as investors were hoping guidance would suggest that this trend has bottomed out.

Meanwhile, Tesla’s report was better than expected and feared as it, for the time being, assuaged demand concerns.

Coming into the report, price cuts were front and center for investors as it was unclear whether that was a move made from a position of strength or weakness, with markets assuming the latter as they feared Tesla’s high-automotive margins would fall.

Tesla's CFO said he expects margins to remain above 20% and Musk noted that, following cuts, it is experiencing its highest-ever level of orders, which actually spurred a $500 price increase to the Model Y.

Price cuts aside, the company said it expects to produce 1.8 million vehicles and that its capacity should rise to 2 million.

Lastly, Intel had a report to commiserate after it missed earnings and revenue estimates while guiding first-quarter earnings and revenues lower.

While Intel tries to regain a foothold in the semiconductor industry, it is investing heavily in expanding its fabrication operations and could spend as much as $100 billion to do so.

This leaves the company with no cash profits, which could be a big problem as benefits from the heavy investment are years away. Declining revenues or margins could force the company to slow its investment or cut its dividend.

Unfortunately for Intel, both its revenue and adjusted gross margin fell, leaving investors unsure about the road ahead.

All said stocks rose this week. The S&P 500 increased 2.27% while the Nasdaq jumped 3.87%. The Dow advanced 1.58% and the Russell 2000 rose 2.22%.

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