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- The Weekly Wrap-Up - February 3rd, 2024
The Weekly Wrap-Up - February 3rd, 2024
Mag7 Earnings, the Fed, and the Jobs Market
CMG Venture & Mark Roussin
February 03, 2024
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Market Talk
For the third week in a row, the S&P 500 closed at new all time highs. The move came after a huge week of earnings, the Fed keeping rates steady and a blowout nonfarm payrolls number.
👉 EARNINGS EDGE: 5 of the Mag7 stock reported earnings this week and we covered them all in our Earnings Edge report. Meta was the big winner of the week as…upgrade to VIP to read the full Earnings Edge.
5 Stories Moving the Market
These are some of the biggest stories from the past week that had an influence on market action.
Fed holds rates steady, indicates it is not ready to start cutting
The Federal Reserve decided to keep rates unchanged in their latest meeting, which was expected by many. The statement revealed a notable change by removing language indicating a willingness to raise rates until inflation was under control and moving toward the Fed's 2% goal.
Although the decision to keep rates unchanged was expected, what came as a surprise was the fact that the Fed does not intend to cut rates any time soon. Although it goes again what we here at The Investor’s Edge have thought, many investors believed the Fed would cut rates six times in 2024, beginning in March, but during Fed Chair Jerome Powell’s conference, he noted that a March rate cut was “unlikely.”
Given this, rate cuts are still on the table, but probably closer to half the expected number of cuts in 2024. Investing models will likely change moving forward as the Fed wants to remain cautious, as they were late to fighting inflation and they do not want to react too early.
Meta announces first-ever dividend and $50 billion in share buybacks
Meta's shares surged 20% following the announcement of the company’s latest earnings report that also coincided with the announcement of the company’s first-ever dividend. Meta revealed plans to pay a quarterly dividend of 50 cents per share on March 26, reflecting its strong financial position with cash and equivalents increasing from $40.7 billion to $65.4 billion by the end of 2023. In addition to the dividend, Meta unveiled a substantial $50 billion share buyback plan.
CEO Mark Zuckerberg's emphasis on making 2023 a "year of efficiency" for Meta has translated into positive financial outcomes. The company's cost-cutting measures, which included a significant reduction of over 20,000 jobs in response to economic changes, Apple's iOS update, and rising interest rates, have proven successful.
Meta's strategic moves are reflected in the improved financial performance, contributing to the positive market response, and it shows the faith management has in the future growth for the company moving forward.
U.S. economy added 353,000 jobs in January, much better than expected
January witnessed a surprisingly robust increase in job growth, reaffirming the strength of the U.S. labor market. Nonfarm payrolls expanded by 353,000, far surpassing the estimated 185,000, while the unemployment rate held steady at 3.7%, against the expected 3.8%.
Wage growth exhibited notable strength, with average hourly earnings rising by 0.6%, double the monthly estimate. On a year-over-year basis, wages saw a substantial 4.5% increase, surpassing the forecasted 4.1%. The wage gains came amid a decline in average hours worked, down to 34.1, or 0.2 hour lower for the month.
Additionally, the report revised December's job gains upward to 333,000, an increase of 117,000 from the initial estimate. November was also revised up to 182,000, marking a 9,000 increase from the last estimate.
While the report underscored the economic resilience, it triggered speculation about the timing of potential interest rate cuts by the Federal Reserve. Following the release, futures markets indicated an 82% chance that the Fed would not cut interest rates at its March meeting.
Elon Musk’s $56 billion Tesla compensation voided by judge
A Delaware judge voided Tesla CEO Elon Musk's $56 billion pay package, ruling that Tesla's board failed to demonstrate the fairness of the compensation plan or provide sufficient evidence of negotiations with Musk.
The 2018 pay package was the largest in public corporate history, making Musk a centibillionaire and the world's richest person.
Chancellor Kathaleen McCormick stated that Musk controlled Tesla, and the process leading to board approval was "deeply flawed." She emphasized that neither the Compensation Committee nor the Board acted in the company's best interests during the compensation plan negotiations.
In response, Musk tweeted, "Never incorporate your company in the state of Delaware" and later conducted a poll asking if Tesla should change its state of incorporation to Texas, home of its physical headquarters.
The regional bank sell-off may be a cautionary sign of more pain to come
Investors, who may have thought U.S. regional banks were past last year's challenges, faced a wake-up call with New York Community Bank's recent earnings report.
The under-the-radar lender's results triggered a sell-off in regional bank shares, signaling a warning to investors who had become accustomed to the sector's resilience to high Federal Reserve interest rates, even a year after two banks failed.
While NYCB's specific issues are unique to its balance sheet, its earnings highlighted the ongoing sensitivity of regional lenders to high Fed rates, particularly the impact on commercial real estate portfolios and lending margins.
NYCB's stock experienced a significant 42% drop this week, contributing to a more than 7% decline in the broader KRE Regional Banking Index.
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Premium Posts of the Week
We continue to push out more and more content every week to give investors that edge. Here are the posts premium subscribers received this week.
Edge Report
Mondays are for the investors. Every Monday morning we share exactly what we’re watching in the week ahead, how we’re positioning, and even get a sneak peek into our systems and models. This week we offered our view on upcoming earnings and shared an options strategy based on the Fed’s rate announcement. See the full report here:
Stock Deep Dive
There was no Deep Dive this week as we were fully focused on the earnings reports for the stocks we cover. With nearly 20% of our stocks reporting, we put a lot of time and effort into our earnings recaps so we hope you enjoyed them.
Earnings Recap
Every week during earnings season we share a recap of the quarterly reports from stocks that we cover. With so many reports this week, 19 of which we broke down for our members, we separated the recap into 2 parts. You can see this week’s earnings recaps here:
The Week Ahead
Earnings reports and Fed speeches will shape the week ahead.
Earnings Reports
The biggest reports of the earnings season may be behind us, but there are still some heavy hitters left to report. Eli Lilly, McDonald’s, Disney, Caterpillar, Ford, PayPal, CVS, Uber and Pepsi are just a few big names reporting next week. We will be covering all of these companies and then some.
Economic Reports
It will be a quiet week on the economic news front, with PMI data being the biggest report of the week. There will be several speeches from Fed members though, and you can bet investors will be listening very closely for clues on interest rate policy going forward.
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Mark & Chris
The Investor’s Edge
Disclosure
This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.
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