By Stan Choe
US stocks are ticking higher following signals that the economy is growing much more powerfully than economists expected but Tesla shares have plunged after the release of its results.
The S&P 500 was up 0.2 per cent in afternoon trading and on track to set a record for a fifth straight day. The Dow Jones was up 5 points, or less than 0.1 per cent, and the Nasdaq composite was 0.2 per cent higher. The Australian sharemarket is closed on Friday for the Australia Day public holiday. It added 0.5 per cent on Thursday.
IBM was helping to lead the market with a gain of 10.8 per cent after it reported a stronger profit for the latest quarter than analysts expected. It helped offset a 13.1 per cent tumble for Tesla, whose earnings and revenue fell short of forecasts. The electric-vehicle maker also warned of notably lower sales growth this year.
The company spent all of 2023 cutting prices to boost sales, which ate into profits.
The effectiveness of that strategy is waning, and executives cautioned they’re approaching the limits of efforts to cut costs on the current vehicle lineup.
Wedbush Securities analyst Dan Ives scolded the company and founder Elon Musk in a note to investors after the company’s call.
“We were dead wrong expecting Musk and team to step up like adults in the room on the call and give a strategic and financial overview of the ongoing price cuts, margin structure, and fluctuating demand….instead we got a high-level Tesla long-term view with another train wreck conference call.”
Tesla faces stiff competition in the form of Chinese EV makers, which Musk said are “the most competitive car companies in the world.” Chinese brands probably will succeed exporting abroad, he said, unless tariffs or other trade barriers are implemented to halt their advance. The CEO has witnessed the threat firsthand, with BYD overtaking Tesla as the world’s top seller of EVs in the quarter.
“Frankly, I think if there are not trade barriers established, they will pretty much demolish most other car companies in the world,” Musk said of China’s automakers.
But Wall Street’s main focus was on a report indicating the US economy continues to steam ahead, demolishing last year’s forecasts for an imminent recession because of high interest rates.
The economy grew at a 3.3 per cent annual rate in the last three months of 2023, according to an initial estimate by the US government. That was much stronger than the 1.8per cent growth economists expected, according to FactSet. Such a resilient economy should drive profits for companies, which are one of the main inputs that set stock prices.
The report also gave encouraging corroboration that inflation continued to moderate at the end of 2023. Hopes are high that inflation has cooled enough from its peak two summers ago for the Federal Reserve to start cutting interest rates this year. That in turn would ease the pressure on financial markets and boost investment prices.
Such cuts would be a sharp turnaround from the prior two years of dramatic hikes to rates by the Fed, which was trying to get painfully high inflation under control.
“The headline data are the perfect mix of strong consumption and dropping inflation,” said Jamie Cox, managing partner for Harris Financial Group. “This is exactly what you want to see if you are running the Fed and want to move rates lower this year.”
A separate report showed that more US workers applied for unemployment benefits last week, but the number remains low relative to history and indicates a still-resilient job market.
Of course, critics say traders on Wall Street are still overly optimistic about how many times the Federal Reserve will cut interest rates in 2024, and when it will begin. Traders are betting on a roughly coin flip’s chance for six cuts this year, which would be double what the Fed has indicated.
Wall Street also added to bets that the Fed would begin cutting rates as soon as March following the morning’s economic report. They bumped the perceived probability closer to 47 per cent, according to data from CME Group.
Elsewhere on Wall Street, earnings season continued to pick up the pace with more than two dozen companies in the S&P 500 reporting their latest results late Wednesday or early Thursday.
American Airlines rose 8.8 per cent after reporting profit for the latest quarter that was more than double what analysts were expecting. United Rentals jumped 12.9 per cent after the equipment rental company reported stronger profit than expected, raised its dividend and said it would buy back $US1.5 billion of its stock this year.
On the losing end of Wall Street, Humana tumbled 12 per cent after the insurer reported worse results for the end of 2023 than expected. It also gave a forecast for the full year of 2024 that fell well below Wall Street’s estimate because of higher medical costs. Other insurers also dropped, including a 6.3 per cent fall for UnitedHealth Group.
In Europe, stock indexes were mixed after the European Central Bank held interest rates steady.
In Asia, stocks jumped more in China after authorities made moves in hopes of bolstering financial markets and the economy. They rose 2 per cent in Hong Kong and 3 per cent in Shanghai but remain down for the year so far.
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Source: Thanks smh.com