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Stocks Slide as Investors Digest Lackluster Earnings and Inflation Data

Weekly Update – January 20, 2023

  • The S&P 500 index lost 0.7% last week — the first such decline of 2023 — as lackluster Q4 earnings results contributed to investors’ recession fears.
  • The market benchmark ended Friday’s session at 3,972.61, down from last Friday’s closing level of 3,999.09. This is the S&P 500’s first weekly drop since the last week of 2022.
  • The decline comes as the Q4 earnings season is starting off with less-than-stellar results as companies grapple with the effects of both inflation and the Federal Reserve’s rate increases. Adding to investors’ concerns, executives at banks including JPMorgan Chase (JPM) have said they are adding to reserves to prepare for a recession.
  • All but three of the S&P 500’s sectors fell last week. Industrials had the largest percentage drop, falling 3.4%, followed by drops of 2.9% each in utilities and consumer staples while financials slipped 2.1%. The three gainers were communication services, which rose 3%; and energy and technology, up 0.7% each.
  • The industrial sector’s largest percentage decliner was Emerson Electric (EMR) as the technology and engineering company went public with a hostile takeover attempt for National Instruments (NATI) in a potential $7.6 billion deal. This follows several months of rejection by the maker of scientific measuring equipment and software. While shares of National Instruments rose nearly 16%, shares of Emerson Electric fell 11% on the week.
  • In the utilities sector, decliners included shares of American Water Works (AWK), which fell 4.6%. The company’s Virginia American Water subsidiary said it has agreed to buy the water and wastewater assets of the town of Cape Charles, Virginia, for up to $15 million.
  • In consumer staples, shares of Procter & Gamble (PG) shed 5.2% as the consumer products company reported lower fiscal Q2 results amid a challenging cost and operating environment. While the company raised its outlook for fiscal 2023 all-in sales, the P&G also said it sees fiscal 2023 earnings toward the low end of its original outlook range due to significant commodity and materials cost headwinds and foreign exchange impacts.
  • In the financial sector, shares of Allstate (ALL) tumbled 9.6% as the insurer said it expects to report it swung to a Q4 adjusted net loss of $335 million to $385 million from an adjusted profit of $796 million a year earlier.
  • Also among the financial sector’s decliners, shares of PNC Financial Services Group (PNC) fell 5.6% as the bank reported a weaker-than-expected Q4 adjusted profit per share.
  • On the upside, the gainers in communication services included shares of Alphabet (GOOGL), which rose 6.4% as the Google parent said it will slash 12,000 jobs as the macro backdrop had evolved over the past two years.
  • Also in communication services, shares of Netflix (NFLX) climbed 2.9%. The content streaming company reported stronger-than-expected Q4 subscriber growth although its per-share earnings and revenue missed Wall Street’s mean estimates.
  • Next week’s earnings calendar features a number of heavyweight companies including Microsoft (MSFT), Johnson & Johnson (JNJ), Tesla (TSLA), Boeing (BA), Visa (V), Mastercard (MA), Intel (INTC) and Chevron (CVX).
  • Key economic reports due next week include the first estimate of Q4 gross domestic product on Thursday and the personal consumption expenditures price index, a closely followed inflation measure, on Friday.
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