Daily Market Color

Markets Continue to Digest Earnings Results

Earnings season produces another risk-off day. Equities sold off as market participants continued to digest reported earnings results.   Today, it was Microsoft’s sales warning that sent stocks lower across the board, though they did moderate into the close. While equity indices nudged lower during the session, the S&P 500 is still on track for its best January since 2019, which has coincided with interest rate swap and bond market expectations that the Fed will soon moderate its pace of rate hikes. Futures are currently pricing in ~46bps of rate hikes over the next two FOMC meetings, suggesting that a 25bp rate hike at the FOMC’s meeting next week is a virtual guarantee.

U.S. regional banks saw higher earnings year-over-year in 4Q22. Of the 22 banks U.S. regional banks with $10 – $100 billion in total assets that have reported earnings so far, 14 saw sequential and annual earnings growth in 4Q22. Banks across asset categories have benefitted from NIM expansion largely driven by higher rates, with the S&P U.S. Banks index showing an increase from 2.13% in 4Q21 to 2.74% in 4Q22, as well as loan growth, with loan to deposit ratios increasing from 58.30% to 65.21% over the same time period.   

Day ahead. Tomorrow’s session will be data heavy. Durable goods orders for December will be released at 8:30 AM ET, where the cost of orders received by goods manufacturers is expected to rise to 2.5% after coming in at -2.1% last month. Wholesale and retail inventory data will also be released at 8:30 AM, with forecasts calling for an increase in retail inventories and a larger decrease in wholesale inventories. There will also be some PCE data released, though the more relevant and anticipated PCE data will come on Friday.

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