Earnings News May Take A Backseat To The Jobs Report And Rising Interest Rates

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(Friday Market Open) Equity index futures were mixed and a bit volatile in premarket trading as investors battle with the January jobs report, spiking oil prices, and mixed earnings reports from the big-tech stocks. On Friday, investors hope that Amazon (NASDAQ: AMZN) and Snap (NYSE: SNAP) can undo what Meta Platforms (NASDAQ: FB) and Spotify (NYSE: SPOT) did on Thursday. However, rising oil prices and the Employment Situation reports are additional factors that investors must consider because they have the ability to overshadow earnings.

Before the market open, the Bureau of Labor Statistics (BLS) released its Employment Situation Report that showed the jobs market created many more jobs than expected, adding 467,000 jobs, which was well above the estimate of 150,000. Over 444,000 jobs were added in the private jobs market. Additionally, the BLS adjusted the December payrolls up from 125,000 to 500,000. The leisure and hospitality group were a big gainer, adding 150,000 jobs.

The unemployment rate did actually rise from 3.9% to 4%, but this was because many more people came back into the workforce. The workforce participation rate grew from 61.9% to 62.2%, which suggests that the labor market is much more appealing to workers. Higher wages are an attraction for workers because the average hourly earnings rose 0.7% month over month and 5.7% year over year. Some of the true bright spots included, Professional Business Services and Transportation and Warehouse Services. both sectors added more than 500,00 jobs since February of 2020.

While the jobs number is fantastic news for the economy and workers, it’s likely that to give the Federal Reserve more confidence in raising interest rates quicker as concerns over wage inflation will rise. In fact, the 10-year Treasury yield (TNX) shot up nearly 4% before the open, prompting the U.S. Dollar Index to also rally. The S&P 500 futures sold off and was 0.30% lower in premarket trading.

Oil prices were up more than 2% in premarket trading at $92.15 per barrel, creating a new seven-year high. Stocks were already trading lower on Thursday but dropped even lower after oil closed above $90 per barrel. This morning’s move could weigh heavy on stocks again.

The Cboe Market Volatility Index (VIX) was up about 3% with the higher oil price and after the strong jobs report moved rose to 5.3% higher. It could be a good sign for stocks that the VIX hasn’t moved significantly higher because it may suggest that the new developments won’t spark panic selling but rather continued reallocation.   

With that said, the overnight trading was a bit disappointing not just because of its wild swings but because stocks were unable to maintain their extended-hours trading gains. Now with these additionally factors weighing on stocks, we may see investors looking to take risk off over the weekend instead of creating momentum going into next Monday.

On Thursday, internet stocks Meta Platforms (FB) and Spotify (SPOT) fell on disappointing earnings reports and outlooks that sparked a broad sell-off in the overall market. However, after the close, earnings announcements from Amazon (AMZN) and Snap (SNAP) are doing their best to help stocks recover on Friday.

Amazon (AMZN) fell 7.81% on the day but immediately switched course after smashing the analysts’ earnings estimate thanks to its AWS cloud services increasing 42%. AMZN rallied 18% in after-hours trading in reaction to the news but has pulled back a little in premarket trading to about 11.5% higher. The company also announced that it will increase the price of its Prime membership from $12.99 per month to $14.99, and investors appear confident that the company has the pricing power to pass on the cost. Unfortunately, Amazon did have slightly lower forward guidance for Q1, but currently investors appear willing to look past it.

Snap (SNAP) is showing up its social media competitors by announcing its first profitable quarter and beating analyst estimates. The stock shot up an astonishing 55% in after-hours trading but has given back some gains before the bell and is now 44% higher. Snap claims to have found a way to deal with Apple’s (AAPL) privacy changes that hurt Meta Platforms (FB) so much. It also appears to be benefiting from the fact that’s it’s more of a communications platform than a social media platform.

Pinterest (NYSE: PINS) is trying to keep up with Snap by rallying 26% in after-hours trading. The stock had fallen 10.32% on Thursday in sympathy with Meta but appears to be reversing course by beating on earnings and revenue estimates. This morning, PINS is up 10.5% in premarket trading giving back some of last night’s gains. PINS reported a 20% increase in advertising revenues. However, the company saw another decline in monthly active users.

Looking outside of internet stocks, Ford (NYSE: F) also reported earnings, but it had a big miss on earnings due to some larger-than-expected write-offs. Ford had already fallen 3.59% on the day and fell another 4.58% in after-hours trading. The company did lift its forward guidance projecting operating profits to rise as much as 25% in 2022.

Throughout the trading day on Thursday, Meta (FB) fell more than 26% while Spotify (SPOT) dropped nearly 17%. Not surprisingly, the pair were a drag on the technology sector and the Nasdaq Composite ($COMP), which fell 3.74%. Thursday ended up being the worst day in the Nasdaq since October 2020.

Meta is also an S&P 500 (SPX) component, which fell 2.44% on the day. Despite the influence of these stocks, the sell-off was fairly broad with about 80% of New York Stock Exchange companies declining on the day. However, the major indices are still positive for the week.

Technology and manufacturing company, Honeywell (NASDAQ: HON), was a drag on the Dow Jones Industrial Average ($DJI) after falling 7.62% on lower-than-expected guidance. The company did beat on earnings estimates and fell a little short on revenues. But the lower earnings guidance that projected $35.9 billion in sales instead of the $36.7 billion that analysts were expecting. The Dow Jones closed 1.45% lower on the day.

Internet Outage

Meta’s (FB) miss and subsequent fall was related in part to privacy changes on devices where users access Meta’s platforms that include Facebook and Instagram. Privacy changes by Apple (AAPL) have hurt the company’s ability to gather and sell marketing data as well as sell items from Meta’s platforms.

Throughout the day, Meta dragged down other social media contemporaries with Twitter (NYSE: TWTR) and Pinterest (PINS) falling 5.56% and 10.32% respectively. While Friday may be setting up to be a better day for internet stocks, these companies are struggling in the post-pandemic reopening trade. On Thursday, TWTR was down about 58% from its all-time high, while PINS was down about 73%. Snap (SNAP) had fallen more than both stocks at 23.6% on the day before its earnings announcement and was down about 71% from its all-time high.  

The better-than-expected earnings in a group of stocks that may appear to some investors as oversold could benefit from a bit of relief rally.

Outside of social media, another internet stock, Spotify (SPOT), dropped more 16.76% despite reporting better-than-expected earnings and revenue. The problem came in the fact that the company failed to grow its subscribers at the expected pace. Adding subscribers has been a common problem among many internet stocks as well as getting users back on a daily basis.

Other well-known internet stocks also traded lower on Thursday. Netflix (NASDAQ: NFLX) fell more than 5%. Groupon (NASDAQ: GRPN) fell 2%, adding to its three-day, 24% skid. SquareSpace (NYSE: SQSP) dropped 6.11%. The S&P Internet Select Sector Industry Index fell 5.48% and is down about 40% from its all-time high that was set almost one year ago.

As we move into a post-pandemic world, it’s likely that many of these internet companies will continue to struggle as users find themselves seeking out sunlight instead of the screen light. 

CHART OF THE DAY: NASDAQ ATTACK. The Nasdaq Composite’s ($COMP—candlesticks) recent rally took the index above support, but it fell back below this key level during today’s sell-off. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thick Lines: A common frustration people have with technical analysis is the subjectivity of it. It’s difficult to know where to draw support, resistance, and trendlines. One way to address this, according to my technical analysis friends, is to think of the line as more of a crayon than a pencil. A thicker line opens the range of potential turn arounds.  

However, drawing lines can be even more difficult when it comes to particularly volatile securities. The resistance line for the Nasdaq Composite ($COMP) appeared to be clean and well set before the recent rally, but the price shot well above and back down again.

Support Groups: Traders looking to draw support levels from this point could find several possibilities in the two other previous lows going back to March or May of last year. Or they could use the highs from August and September 2020. In times like this you might just throw out the pencil and the crayon and use a jumbo highlighter. It may not be ideal for people looking for trading opportunities, but it can help investors just trying to identify areas of congestion.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image sourced from Unsplash

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