Wall Street Muted as Market Digests Earnings, Jobs Data Ahead

Wall Street Digests Earnings, Braces for Jobs Data and Fed Revision

Traders on Wall Street displayed a heightened sense of caution as they navigated a deluge of corporate earnings reports leading up to Amazon.com Inc.'s results and Friday's key jobs data release, which will be accompanied by revisions.

Stocks ticked higher slightly but struggled to gain significant traction. Disappointing results from cloud-computing giants raised concerns about the performance of Amazon Web Services, the industry leader. Qualcomm Inc. dropped amidst fears of waning demand for new handsets. Conversely, a positive outlook lifted Peloton Interactive Inc., while Philip Morris International Inc. hit record highs due to strong sales of Zyn nicotine pouches. Ford Motor Co. slid amid a warning about reduced profit margins.

Ahead of the crucial US nonfarm payrolls report, weekly jobless claims data indicated an uptick while remaining relatively contained. Separate statistics revealed an increase in labor productivity. In addition to the employment figures on Friday, investors will closely monitor the revision to job growth estimations. Economists anticipate a substantial downward adjustment but not as drastic as initially projected.

"This week's data so far has highlighted a labor market that has not been hiring or firing much," said Chris Larkin at E*Trade from Morgan Stanley.

Meanwhile, the options market suggests a possible 0.9% move in either direction for the S&P 500 following Friday's employment figures, aligning with the average realized move on jobs day over the past year.

Gains in the S&P 500 (0.2%) were modest, while the Nasdaq 100 remained mostly flat. The Dow Jones Industrial Average declined by 0.3%. The "Magnificent Seven" megacaps exhibited mixed performance, and the Russell 2000 shed 0.1%.

The yield on 10-year Treasuries increased by four basis points to 4.46%, while the Bloomberg Dollar Spot Index rose marginally. The British pound depreciated by 0.6%. Following the Bank of England's interest rate reduction to a 19-month low, markets anticipate further easing measures.

According to Tom Essaye of The Sevens Report, "Friday's jobs report is crucial for markets because a 'Goldilocks' outcome would support the market amidst ongoing trade and policy uncertainties. However, a deviation from that scenario could introduce additional headwinds for risk assets and pressure stocks."

The Bureau of Labor Statistics' January employment report typically includes revisions for the preceding 12 months. While these adjustments often receive less attention, this week's revision is expected to be significant. Preliminary estimates released in August suggested a downward revision of 818,000 jobs, the largest since 2009. Economists now project a smaller reduction of 600,000 to 700,000 jobs in the January report due out Friday.

The standard monthly jobs data is expected to show a payroll increase of 170,000 for the previous month, following larger gains in the past two months partly driven by the recovery from severe hurricanes.

"As long as Friday's jobs report indicates a job growth of 170,000-200,000, the market should absorb it with minimal volatility," said Gaurav Mallik at Pallas Capital Advisors. "A stronger number could eliminate prospects of rate cuts this year, while a significantly lower number could raise concerns about a weakening labor market."

A survey by 22V Research revealed that only 24% of respondents anticipate a "risk-on" scenario for Friday's data, while 30% predict a "risk-off" outcome and 46% project a "mixed/negligible" impact.

Investors are now focusing on average hourly earnings after prioritizing payrolls and unemployment rates last month, according to Dennis DeBusschere at 22V.

Meanwhile, Treasury Secretary Scott Bessent indicated that the Trump administration is emphasizing the 10-year Treasury yield rather than the Federal Reserve's benchmark short-term interest rate in its efforts to reduce borrowing costs.

Despite the market volatility at the start of the year, retail traders' enthusiasm for the US stock market and the "Magnificent Seven" companies remains high. According to Emma Wu, JPMorgan's global quantitative and derivatives strategist, retail investor sentiment has reached record levels, surpassing the heights seen during the meme-stock craze of 2021.

Alexander Altmann, Barclays' global head of equities tactical strategies, found that individual investor exposure to stocks is approaching its highest levels since 1997.

"While we emphasize the importance of portfolio diversification and hedging strategies to navigate policy uncertainty, we believe there is room for further growth in equities," said Solita Marcelli at UBS Global Wealth Management. "Our base case remains a S&P 500 target of 6,600 by year-end, with a preference for technology, financials, and utilities."

Corporate Highlights

* Eli Lilly & Co.'s full-year earnings forecast aligned with analysts' estimates despite ongoing inventory issues with its new drugs.
* Roblox Corp. tumbled after reporting lower-than-expected daily active users for the fourth quarter.
* Honeywell International Inc. will separate into distinct publicly traded entities, following activist investor pressure.
* Arm Holdings Plc offered a conservative revenue forecast, raising concerns about a potential slowdown in AI spending.
* Bristol Myers Squibb Co. projected sales and profit below Wall Street expectations, indicating the impact of declining revenue from older drugs on its recovery.
* Tapestry Inc. upgraded its annual guidance due to stronger-than-anticipated sales at Coach.
* Under Armour Inc. raised its profit forecast, signaling progress in its turnaround strategy.
* Yum! Brands Inc. rose on sales that beat estimates, driven by growth at Taco Bell.
* Hershey Co. climbed after reporting better-than-expected sales for the fourth quarter.
* MetLife Inc. anticipates a 70% jump in profits from private equity and real estate investments by 2025.
* Salesforce Inc. appointed Robin Washington, a veteran technology executive, to the newly created role of chief financial and operations officer.
* Paysafe Ltd., the online payments company that went public through a merger with Bill Foley's blank-check company, is exploring a sale after receiving takeover interest.

Key Upcoming Events

* US nonfarm payrolls, unemployment, and University of Michigan consumer sentiment (Friday)
* Federal Reserve speeches by Michelle Bowman and Adriana Kugler (Friday)

Market Movements

Stocks

* S&P 500: +0.2%
* Nasdaq 100: Flat
* Dow Jones Industrial Average: -0.3%
* Stoxx Europe 600: +1.2%
* MSCI World Index: +0.3%
* Bloomberg Magnificent 7 Total Return Index: Flat
* Russell 2000: -0.1%

Currencies

* Bloomberg Dollar Spot Index: +0.1%
* Euro: -0.3% to $1.0368
* British pound: -0.6% to $1.2435
* Japanese yen: +0.4% to 152.03 per dollar

Cryptocurrencies

* Bitcoin: -0.4% to $96,557.84
* Ether: -2.9% to $2,706.92

Bonds

* 10-year Treasuries: +4 bps to 4.46%
* 10-year German Bund: +1 bp to 2.38%
* 10-year British Gilt: +5 bps to 4.49%

Commodities

* WTI Crude Oil: +0.2% to $71.17 per barrel
* Gold: -0.6% to $2,849.58 per ounce

This report was generated with the assistance of Bloomberg Automation.