ASX set to open higher; Wall Street’s winning streak ends

By Stan Choe

Wall Street closed out its latest winning week with a mixed finish, as drops for technology stocks dragged on the market.

The S&P 500 slipped by 0.1 per cent. It’s the first decline for the index after a six-day winning streak led it to set record highs for five straight days.

Wall Street’s six-session winning streak ended on Friday.
Wall Street’s six-session winning streak ended on Friday.Credit: AP

The Dow Jones rose 0.2 per cent. The weakness for tech stocks, meanwhile, dragged the Nasdaq composite to a loss of 0.4 per cent. The Australian sharemarket is set for a positive start to the week, with futures pointing to a rise of 14 points, or 0.2 per cent, at the open.

Intel led chip stocks lower even though it reported stronger profit for the last three months of 2023 than analysts expected. It dropped 11.9 per cent after giving forecasts for revenue and profit for the start of 2024 that fell short of Wall Street’s estimates.

KLA, a supplier for the chip industry, also dragged on tech stocks despite reporting better quarterly results than expected. It sank 6.6 per cent after saying it still sees market conditions as challenging in the near term and giving a forecast for upcoming revenue that fell short of analysts’ estimates.

The US stock market nevertheless closed out another winning week as reports keep suggesting inflation is cooling while the economy continues to power higher. The unexpected backdrop has hopes high that Wall Street’s dream scenario can come true: one where a resilient economy drives profits higher for companies, while inflation moderates enough to get the Federal Reserve to cut interest rates many times this year.

The latest report on Friday showed the measure of inflation the Fed prefers to use behaved just about exactly as expected in December. Overall inflation by that measure was 2.6 per cent during the month, matching November’s rate.

The Fed pays more attention to the inflation figure after ignoring prices for food and fuel, which can zigzag sharply month to month. That figure cooled to 2.9 per cent from 3.2 per cent and was a bit better than economists expected.

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At the same time, spending by US consumers strengthened by more in December than expected. That helped calm worries that a resilient US economy, which has so far refused to fall into a long-predicted recession, would mean upward pressure on inflation.

The expectation is for the labor market to soften some in upcoming months, which would further cool pressure on inflation, but not enough to halt the economy’s growth. That has the market looking forward to what EY Chief Economist Gregory Daco calls “the ‘holy grail’ of non-inflationary growth.”

Treasury yields yo-yoed in the bond market following the report but later rose modestly. The yield on the 10-year Treasury edged up to 4.13 per cent from 4.12 per cent late Thursday.

The Federal Reserve’s next meeting next week will likely end with no change to interest rates, but traders are split on whether it could begin cutting rates in March. That would be a sharp turnaround from the last two years, when the Fed hiked its main interest rate to the highest level since 2001. It’s trying to slow the economy and hurt investment prices enough through high interest rates to get inflation fully under control.

Traders are betting the Fed will cut interest rates as many as six times this year, according to data from CME Group. That would be double what the Fed itself has indicated.

Critics say that overzealousness may be setting financial markets up for disappointment after their big rallies in recent months.

For now, though, the mood is still mostly ebullient on Wall Street.

American Express jumped 7.1 per cent for the biggest gain in the S&P 500, even though it reported weaker results for the latest quarter than expected. It gave forecasts for revenue and profit for the full year of 2024 that were stronger than analysts’, while also announcing plans to boost its dividend payout to investors.

Colgate-Palmolive climbed 2 per cent after the company in control of more than 40 per cent of the global toothpaste market reported stronger profit and revenue for the latest quarter than analysts forecast.

JetBlue Airways rose 3.6 per cent after it said it may end its bid to buy rival Spirit Airlines as soon as this weekend. A federal judge has already blocked the deal because of worries it could lead to higher fares for customers, which both airlines had said they intended to appeal.

Spirit’s stock tumbled 13.4 per cent to bring its loss for the year so far to nearly 62 per cent.

In stock markets abroad, indexes were higher across much of Europe but mixed in Asia.

Hong Kong’s Hang Seng slumped 1.6 per cent to give back some of its strong gain for the week, which was spurred by Chinese authorities’ moves to stabilise markets and the world’s second-largest economy. Japan’s Nikkei 225 fell 1.3 per cent to pare its big gain for the year so far.

AP

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