S&P 500 slides as traders brace for a busy week of earnings, Fed rate decision

The Dow Jones Industrial Average fell to session lows during afternoon trading after vacillating between gains and losses earlier in the day.

The major index dropped about 187 points, or nearly 0.6%, to 33,790.87 at around 2:25 p.m. ET. It was previously up as much as 77 points, or 0.2%.

— Sarah Min

Federal Reserve Chairman Jerome Powell’s posture towards battling inflation—scheduled for Wednesday afternoon—will be critical, says Wolfe Research. 

Barring any major surprises, Chief Investment Strategist Chris Senyek expects Powell’s tone to be more hawkish than expected as he attempts to rein in the “vicious rally” across the market. 

“We attribute the latest leg of this ‘melt up’ to growing expectations for the U.S. economy to glide down for a ‘soft landing’ while the Fed embarks on a prolonged cutting cycle at the same time,” Senyek wrote in an client note. 

However, concerns of a resurgence in inflation, as seen in the 1970’s during Paul Volcker’s term as Fed Chairman, is one of the central bank’s biggest worries. 

Senyek said that he sees “two potential paths ahead: (1) there’s a “soft landing”, but the Fed hikes to 5%+ and stays there at least into 2024, or (2) the Fed does end up cutting this year, but it’s because the U.S. is hurtling toward a deep recession. Either way, big disappointments are likely!”

The analyst notes that the recent market gains have been consistent with anticipation that the Fed will soon start to reverse course and cut back on interest rates. The Consumer Price Index, which tracks overall inflation across a basket of household goods, fell to 4.4% in December. Since this is still more than double the Fed’s target inflation rate, Wolfe does not expect the Fed to relax its rate hikes so quickly. 

Investors therefore should be more wary about the strength of the current bear market rally, according to Senyek.

“Bullish investors should be aware that the growth outlook typically takes over and drives multiples down heading into recessions. This clearly hasn’t happened yet!” he wrote. “Current valuations look very precarious to us!”

— Hakyung Kim

American Express has jumped about 13% since Thursday’s close, driven by a rally on the back of its Friday earnings report. That’s because investors found reasons to be optimistic in its forward guidance despite missing expectations for the fourth quarter, according to Bank of America.

American Express’ fourth-quarter earnings per-share and revenue both came in under the consensus estimate of analysts polled by Refinitiv. Yet Bank of America analyst Mihir Bhatia said in a note to clients that the company’s guidance for how it will perform going forward “proves the doubters wrong,” exceeding firm estimates on both the top and bottom line.

Bhatia reiterated his buy rating on the stock coming out of the earnings report.

“We continue to view AXP as best positioned to deal with macro volatility among the card issuers,” he said in a note to clients Monday. “While expenses and margins sometimes disappoint some investors, management has proven that investments are driving card member acquisition and retention, keeping the top line robust.”

Goldman Sachs is optimistic about Macy’s as 2023 kicks off despite what is expected to be a tough year in retail.

Analyst Brooke Roach initiated coverage of the stock as a buy. Her $28 price target implies an upside of 21.3% over where the stock closed Friday.

“We believe M is best-positioned to navigate an uncertain but softer landing economic environment,” Roach said in a note Monday to clients.

On the other hand, she’s less bullish about Nordstrom and Kohl’s.

CNBC Pro subscribers can read more about her call here.

Credit Suisse is bullish on Apple shares as the tech company prepares to announce its earnings report this week. 

The bank reiterated Apple’s stock as outperform and maintained its price target of $184, which implies upside of 26% from where shares closed on Friday. Credit Suisse also held steady on its revenue estimate of $121.6 billion for Apple’s fiscal first quarter and per-share earnings of $1.92.

“We see potential upside to our estimates which are below the Street,” analyst Shannon Cross said in a note to clients on Monday. 

However, Cross also cited potential challenges to the iPhone’s revenue in this past quarter due to production difficulties at a manufacturing site in China. 

Revenue for Macs is also estimated to having declined $3.1 billion, or 27% on a quarterly basis due to backlog fulfilled during the fiscal fourth quarter. Currency headwinds and the timing of inventory wind down prior to the M2 MacBook Pro’s January launch are believed to have contributed to the drop in revenue. 

While shares have rallied more than 10% since the beginning of 2023, the stock is down 15% in the past 12 months.

CNBC Pro subscribers can read the full story here.

— Hakyung Kim

Major U.S. indexes were down in early afternoon trading, as investors brace for earnings from dozens of major companies this week as well as a potential interest rate hike from the Fed on Wednesday.

• The S&P 500 was recently down 0.9%.
• The Dow industrials shed 0.3%.
• The tech-heavy Nasdaq Composite was down 1.4%.
• The yield on the benchmark 10-year U.S. Treasury note recently rose to 3.551%.

— Pia Singh

These stocks are among those making the biggest moves in midday trading:

• Colgate-Palmolive — Shares gained 2.4% after Morgan Stanley upgraded the stock to overweight from equal weight and named it the top pick in the household and personal care industry. The firm said the stock was at a good price point after a recent selloff.
• GE HealthCare Technologies — The stock rose 3.9% after the company reported its first earnings after being spun off as a public company from General Electric. GE Healthcare’s revenue came in at $4.9 billion, an 8% year-over-year increase, and its fourth-quarter adjusted EPS was $1.31.
• Ford Motor Company — Shares fell nearly 1.8% after the company announced price cuts for its electric Mustang Mach-E crossover. The move in Ford comes after Tesla said earlier this month it would trim prices to counteract dwindling demand.
• Carvana — Shares surged more than 27% as an apparent short squeeze boosted the beleaguered stock. It was also briefly paused in early morning trading due to the rapid runup.

Click here to see more stocks making midday moves today.

— Pia Singh

After a brutal 2022, the Cathie Wood’s Ark Innovation ETF is on pace for its best month since its 2014 inception.

As of 12:30 p.m. EST the fund traded up nearly 25.9% for the month. It fells about 3% during Monday’s as investors sold some riskier assets. The monthly surge in shares puts the stock ahead of April 2020, when shares rose 25.75%.

Ark’s gains stem from soaring Tesla shares, up more than 40% and on pace for their best month since October 2021. Shopify and Roku shares have added to Ark’s rally, up more than 34% month to date.

Coinbase shares are also helping boost Ark. The stock’s on pace for its best month ever since the going public in 2021, and up 66%.

The ETF plummeted 67% amid the tech sector’s 2022 shakeout.

Jefferies is getting more positive on Meta Platforms ahead of its fourth-quarter earnings report Wednesday, viewing revenue reductions as “limited” as investors get more optimistic on the stock.

Shares have already surged nearly 23% this year after cratering more than 64% in 2022. Analyst Brent Thill expects more stock growth ahead, upping his price target on shares to $175 from $155, which implies 15% upside from Friday’s close.

“We believe the risk-reward for the stock is attractive given our expectation of positive EPS estimate revisions over the next few quarters,” he wrote in a note to clients Sunday. “Our checks indicate that, although overall ad budgets will likely be pressured, META’s ROI has improved and that they are starting to receive some ad incremental budgets.”

Improving engagement trends and investments in the company’s Reels product, combined with a better-than-expected return on investment for advertisers, should drive upside. Thill also views easing foreign exchange headwinds as another potential catalyst for shares.

Going forward, Thill expects Meta Platforms to lower operating expense and capital expenditure guidance, which should provide upside to earnings per share.

“Our analysis indicates that if 2023 total expenses are ~$4B below our base case there is ~20% EPS upside,” he wrote.

In Jefferies’ bull case, shares could rally about 65% to $250 a share and yield EPS of $10 in 2023.

— Samantha Subin

Morgan Stanley upgraded shares of Colgate-Palmolive and named the stock its top pick within household and personal care companies. The stock advanced 2.6%.

Analyst Dara Mohsenian upgraded the stock to overweight from equal weight, noting that the stock is attractive following a recent selloff on the back of earnings. Her price target of $82 implies 14.5% upside from Friday’s close.

CNBC Pro subscribers can click here to read about her thoughts about the company’s shares and its most recent earnings report.

Tech giants are slated to report earnings this week, as investors parse through mixed signals around companies’ recent layoffs, increasingly prudent spending, and an uncertain macroeconomic environment.

Spotify and Snap are set to report fourth-quarter earnings Tuesday, and Meta is set to report earnings Wednesday. Google parent Alphabet, Amazon, and Apple will report on Thursday. 

According to a Sunday note from Wedbush Securities Managing Director Dan Ives, this week’s key narratives will revolve around: tech layoffs accelerating to curb expenses; digital advertising remaining under pressure with signs of stabilization from Meta and Google; conservative 2023 expectations; and relatively stable growth in cloud and cybersecurity spending with “pockets of demand weakness.”

Ives expects Apple to avoid layoffs and weather the storm better than its peers, noting that roughly 20% of its installed base has not upgraded their iPhone in about 4 years. Apple and Amazon were the biggest losers of market value in 2022, with both companies shedding more than $800 billion in value.

“The most important earnings for the market will be Apple’s, which will give a glimpse into the overall demand story for consumers globally while giving a snapshot of the China supply chain issues starting to slowly abate,” Ives wrote in the note to clients.

More than 100 companies in the S&P 500 are reporting earnings in the week ahead.

— Pia Singh

The S&P 500 is set for its best January since 2019 when it gained nearly 8%.

The broader market index is off to a strong start in 2023 following a series of softer inflation reports, including both consumer and wholesale data that showed prices fall on a monthly basis in December. The latest personal consumption expenditures data also showed an easing last month.

Meanwhile, a reopening in China also supported risk-on sentiment in markets. Investors bought the dip in tech in January, with communication services the biggest advancer in the S&P 500 this month. The sector is up more than 13% through Monday morning.

— Sarah Min

The S&P 500 was trading nearly 0.9% lower Monday morning, with communications services and information technology falling the most in the broader market index.

Communication services was down about 1.9%. Information technology was about 1.8% lower.

Mega-cap tech stocks dragged on communication services. Shares of Meta Platforms and Alphabet were down nearly 3% each.

Shares of semiconductor company Advanced Micro Devices was off by more than 3%.

— Sarah Min

Shares of used car company Carvana were briefly halted Monday morning amid a 28% surge in the stock price. The stock was paused from about 9:45 a.m. ET until 9:50 a.m. ET according to Nasdaq Trader.

The surge could be due to a short squeeze, or when traders betting against the company are forced to sell to cover their losses, sending shares higher. Nearly 60% of the float, or outstanding shares of the company, are currently sold short, according to the latest figures from FactSet.

The company has been struggling, and the stock has shed nearly 100% since the all-time high it hit in 2021.

—Carmen Reinicke

— Samantha Subin, Michael Wayland

Goldilocks will continue for now, according to HSBC.

The investment bank expects “better-than-consensus” growth in the first half of 2023, implying recession concerns would be pushed out to the latter half of the year, according to a Monday note.

“So rather than being the dismal start, H1 could in fact turn out to be a period of ‘easy gains,'” wrote Max Kettner, chief multi-asset strategist at HSBC Bank.

The strategist cited expectations for falling inflation, as well as a possible temporary recovery in consumer sentiment for his view.

“For H1 this all creates the perfect backdrop for a temporary goldilocks period – something our machine learning models agree with,” Kettner wrote.

— Sarah Min

Stocks opened lower on Monday.

The Dow Jones Industrial Average slipped 83 points, or about 0.3%. S&P 500 fell 0.6%, and the Nasdaq Composite dropped by 1%.

— Sarah Min

Berenberg upgraded Tesla to buy from hold, noting it was worth buying after the electric vehicle maker cut prices and saw shares tumble in recent months.

Analyst Adrian Yanoshik upgraded the stock to buy from hold. Yanoshik lowered his price target by $55 to $200, which still implies a 12.4% upside from where the stock closed Friday.

“We believe that Tesla’s price cuts reflect its cost leadership strategy,” Yanoshik said in a note to clients Friday.

CNBC Pro subscribers can read the full story here.

— Alex Harring

March natural gas contracts tumbled as low as $2.612 per thousand cubic feet early Monday — the lowest since April 2021 when natgas touched $2.583.

Month-to-date natgas has collapsed nearly 40% and is on pace for its worst month and worst start to the year since January 2001, when natgas slid almost 42%.

United States Natural Gas Fund (UNG) is off 6.6% in premarket trading Monday, while EQT Corp. (EQT) is down 1.1%, Black Stone Minerals (BSM) is lower by 0.2% and Woodside Energy (WDS) dropped 0.3%.

— Scott Schnipper, Gina Francolla

Here are some of the names making moves in premarket trading:

• Boot Barn — The retailer shed 2.5% in premarket trading after being downgraded by Baird to neutral from outperform. The Wall Street firm cited concerns over macroeconomic risks for the sector.
• Retail stocks — Macy’s rose 0.48% in early trading after Goldman Sachs said it is best-positioned in retail with solid upside. Kohl’s slipped 2.8% after the firm rated it a sell.
• Intel — The chipmaker shed 1.5% in the premarket, after its fourth-quarter financial results missed Wall Street’s expectations on Friday. Intel, which lost 9% on Friday, also forecast a loss for the current quarter.

Click here for more premarket movers.

— Michelle Fox

Traders are overwhelmingly confident that the Federal Reserve will hike its benchmark interest rate by one-quarter of a percentage point on Wednesday.

According the CME FedWatch tool, there is a 99.9% probability of that relatively small hike this week.

If that proves true, the Fed’s new target range will be between 4.50% and 4.75%.

— Jesse Pound

The S&P 500 has not yet hit its bear market low and could swing down as far as 3,000, Bank of America’s Savita Subramanian said, while adding that it is not her base case for the market’s performance this year.

The biggest catalyst is how the Federal Reserve continues to fight inflation, she said.

“Let’s say the Fed hasn’t controlled inflation, they’re going to tighten much more aggressively than what the market is pricing in,” she said on CNBC’s “Squawk Box” on Monday.

She added that markets are pricing in inflation of about 3%.

“We’re nowhere near that,” she said. “So that’s the swing factor that could make things worse rather than better.”

—Carmen Reinicke

Automobile giants Renault and Nissan on Monday agreed to restructure their decades-long alliance, in a move that would see Renault’s shareholdings in Nissan reduced from around 43% to 15%.

The deal, which still pends board approvals, would equalize the companies’ cross-shareholdings, with the carmakers now able to “freely exercise the voting rights attached to their 15% direct shareholdings, with a 15% cap,” the companies said.

Read the full story here.

– Elliot Smith

U.S. equity futures had a quiet open on Sunday night. The futures for the three major averages all showed losses of about 0.1%.

— Jesse Pound

Last week’s market rally put the three major averages comfortably higher for the month of January. Here’s where things stand after Friday’s results:

S&P 500:

• Gained 2.47% for the week
• Up 6.2% for the month

Nasdaq Composite:

• Gained 4.32% for the week
• Up 11.04% for the month

Dow Jones Industrial Average:

• Gained 1.81% for the week
• Up 2.5% for the month
• Six-day winning streak

— Jesse Pound, Christopher Hayes