Market snapshot: investors unsure as results season kicks off

There's still little conviction among investors at the beginning of 2024, and UK stocks are likely to remain cautious today as US traders enjoy a public holiday. ii's head of markets runs through latest events.

15th January 2024 08:23

by Richard Hunter from interactive investor

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Markets continued their hesitant start to the year as mixed corporate earnings offset a positive slant arising from the latest inflation reading.

The fourth-quarter earnings season comes with high expectations, especially given the current impasse between investors and the Federal Reserve on the timing of any interest rate cuts. By the same token, any slight misses look likely to be dealt with harshly, as evidenced by the market reaction to the first batch of earnings at the end of the week.

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The banks were caught in these uncertain crosshairs as their updates met with mixed reactions. Bank of America Corp (NYSE:BAC) shares fell over 1% following a decline in quarterly profit, while Wells Fargo & Co (NYSE:WFC) lost more than 3% despite posting higher profit for the period. JPMorgan Chase & Co (NYSE:JPM) revealed a drop of 15% in earnings but shares were relatively unaffected, while Citigroup Inc (NYSE:C) edged higher after revealing a 10% cut to its workforce and a quarterly loss.

Outlook comments maintained that the consumer remains resilient, although there was a concerning trend in increased loan defaults. Elsewhere, airline stocks were weaker on trimmed forecasts, while UnitedHealth Group Inc (NYSE:UNH) weighed on the Dow Jones as its shares fell by over 3% despite higher earnings and revenues in the final quarter.

More positively, the inflation outlook received a boost as the latest producer price index reading showed an unexpected fall in prices in December. The report followed a higher-than-expected consumer inflation print on Thursday, reigniting the debate on the timing of the first Fed cut, where the consensus has now reverted to its original March forecast.

With the producer price index showing falls in food and diesel prices and with services staying unchanged, there were renewed hopes that cooling inflation in coming months could prompt the Fed to move, even though the overall economy is still showing limited signs of creaking.

Given the lack of a catalyst to continue the year end momentum, the main indices have barely moved in 2024, with the Dow Jones and Nasdaq having fallen 0.3% and the S&P500 having risen by 0.3%.

In a shortened trading week following the Martin Luther King holiday today, investors will continue to scrutinise results from the likes of The Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS), while economists will gauge the current state of play with the vitally important consumer, as sentiment and retail sales releases come due.

Asian markets continued with their own separate momentum, as Japan continued to please and China continued to disappoint.

The Nikkei index ploughed ahead once more on the back of renewed confidence and prospects in the region, while in China the central bank unexpectedly left rates unchanged despite the economy’s current travails. While the bank may consider boosting liquidity in other ways, the news nonetheless put investors on the back foot once more as hopes for a sustained bout of stimulus to prop up an ailing economy were again dashed.

UK markets also stayed undecided in opening trade in the absence of any major news and with the likelihood of a lighter trading day given the closure of Wall Street later.

A broker upgrade lifted Sainsbury (J) (LSE:SBRY) shares after last week’s partially disappointing update, while the banks showed some signs of life despite the lack of a concrete read across from those which reported in the States on Friday.

The fourth-quarter reporting season is yet to get into full swing in the UK as yet, and in terms of economic releases there are readings on the unemployment and inflation rates to come this week, as well as a retail sales reading which should provide further colour on trading over the festive period.

In the meantime, the main indices have been unable to build any momentum so far this year, with the FTSE100 down by 1.3% and the FTSE250 already languishing by 2.3%.

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