Stock futures lower as markets re-set Fed rate destination; eBay surges after earnings beat, solid holiday outlook; Roku plummets on bleak holiday outlook amid fall ad sales; Qualcomm slumps as muted smartphone outlook clouds Q3 earnings beat and Starbucks earnings likely to focus on China growth, U.S. Wage talks.
Five things you need to know before the market opens on Wednesday, November 2:
1. — Stock Futures Lower As Markets Re-Set Fed Rate Destination
U.S. equity futures slipped lower Thursday, extending declines from last night’s post Fed-decision trading on Wall Street that included a 1,000 point swing for the Dow, as investors reacted to new market forecasts on the ultimate level of benchmark interest rates and change in focus for the central bank’s inflation fight.
Federal Reserve Chairman Jerome Powell quickly snuffed-out an early afternoon rally, triggered by changes in the statement that followed the central bank’s 75 basis points rate hike — the fourth in succession — which suggested it would consider the “lagging” impact of previous increases on the broader economy before making its next decision.
Powell’s question-and-answer session with the media, however, put that statement, and the Fed’s broader rate hike strategy, into context and essentially rejected the idea of a near-term ‘pivot’.
“When they hear lags, they think about a pause.” ,” Powell said. “It’s very premature, in my view, to think about or be talking about pausing our rate hike.”
He also indicated that while smaller rate hikes in the coming months could be warranted, the ultimate level of the benchmark Fed Funds rate will be higher than he and his colleagues had estimated. As a result, traders are now expecting a 50 basis point rate hike in December, with a terminal Fed Funds rate of between 5% and 5.25% by next spring.
“Powell made it clear that his bias is to err on the side of over-tightening rather than under-tightening in order to avoid the risk of inflation becoming entrenched,” said Yung-Yu Ma, Chief Investment Strategist at BMO Wealth Management.
“At the end of the day, it’s going to come down to inflation and labor market data in the coming months and quarters,” he added. “The Fed’s outlook may be less one-sided, but reaffirming its bias to fight hard against inflation is likely to remain a market headwind.”
To that end, the U.S. dollar index was marked 1.22% higher against its global peers in overnight trading, and changing hands at 112.695, while benchmark 10-year note yields surged to 4.151% and 2-year note yields rose to 4.676% in anticipation of the higher Fed Funds rate.
Stocks around the world reacted in kind, with Asia’s MSCI ex-Japan index falling 2.06% into the close of trading — thanks in part to Beijing’s reiteration of its ‘zero Covid’ policies while Europe’s Stoxx 600 fell 1.23%.
Britain’s FTSE 100 was marked 0.75% lower ahead of a mid-day rate decision from the Bank of England, which is expected to lift its benchmark lending rate by 75 basis points — the most since 1989 — to 3% as it steps-up its fight against the fastest inflation in forty years.
Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500 are priced for a 5 point opening bell pullback while those linked to the Dow Jones Industrial Average are priced for a 15 point decline following last night’s 505 point slump. The tech-focused Nasdaq is priced for a 25 point dip.
2. — Ebay Surges After Earnings Beat, Solid Holiday Outlook
eBay (EBAY) – Get eBay Inc. Report shares surged higher in pre-market trading after the online marketplace posted better-than-expected third quarter earnings and boosted its holiday sales forecast amid a renewed focus on value-focused
eBay posted an adjusted bottom line of $1 per share, topping Street forecasts by around 7 cents, with revenues of $2.32 billion. Looking into the final months of the year, Ebay said that figure would rise modestly, to between $2.42 billion and $2.5 billion, although the ongoing surge in the U.S. dollar would act as a headwind to its international sales.
“As consumers in our major markets face persistent inflation, higher interest rates and rising home energy costs, they are increasingly turning to eBay for better value,” CEO Jamie Iannone told investors on a conference call late Wednesday.
eBay shares were marked 7.23% higher in pre-market trading to indicate an opening bell price of $40.81 each.
3. — Roku Plummets On Bleak Holiday Outlook Amid Fall Ad Sales
Roku (ROKU) – Get Roku Inc. Report shares plunged lower in pre-market trading after the streaming service hub warned the holiday ad spending will likely prove sharply lower than last year’s levels, clouding a solid third quarter update.
Roku posted a narrower-than-expected third quarter loss of 88 cents per share, as revenues rose 12% to $761 million, topping Street forecasts.
Looking into the final months of the year, however, Roku said its expects the “macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market’, noting revenues will likely fall 7.5% from last year to $800 million.
“As we enter the holiday season, we expect the macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market,” CEO Anthony Wood said in the group’s quarterly investor letter.
Roku shares were marked 18.4% lower in pre-market trading to indicate a Wednesday opening bell price of $44.33 each.
4. — Qualcomm Slumps As Muted Smartphone Outlook Clouds Q3 Earnings Beat
Qualcomm (QCOM) – Get QUALCOMM Incorporated Report shares slumped lower in pre-market trading after the smartphone chipmaker forecast weaker-than-expected near-term profits amid a downturn in broader consumer demand.
Qualcomm, which topped Street profit forecasts with an adjusted bottom line of $3.13 for the three months ending in September, its fiscal fourth quarter, said revenues over the current period would likely come in between $9.2 billion and $10 billion, well shy of analysts’ estimates, citing what it called the “rapid deterioration in demand and easing of supply constraints across the semiconductor industry.”
Profits for its first first quarter are likely to fall to around $2.45 per share, Qualcomm said, thanks to a likely 80 cents per share hit as big customers “draw down on their inventory” and broader demand weakens thanks to deterioration of the macroeconomic environment and sustained Covid restrictions in China.”
Qualcomm shares were marked 6.7% lower in pre-market trading to indicate an opening bell price of $104.97 each.
5. — Starbucks Earnings Likely To Focus on China Growth, U.S. Wage Talks
Starbucks (SBUX) – Get Starbucks Corporation Report shares edged higher in pre-market trading ahead of the coffee chain giant’s fourth quarter earnings after the closing bell.
The group is expected to post non-GAAP earnings of 72 cents a share, down 28% from the same period last year, on modestly firmer revenues of $8.31 billion. Key to its 2023 update, however, will be the anticipated recovery in China, it’s fastest-growing market, and its ongoing negotiations with unions as it grapples with a surge in labor organization.
Starbucks said earlier this fall that it plans to invest around $3 billion on new technologies and in-store renovations, a move it sees lifting earnings growing to between 15% and 20% over the next three years, improving on its prior forecast of a gain of between 10% and 12%.
Comparable worldwide sales, Starbucks said, should rise by between 7% and 9% over the 2023 fiscal year, although it referenced the timing of China’s post-Covid recovery. The new forecasts come amid the group’s overall aim of reaching 45,000 stores — with 2,000 new U.S. additions and 4,500 in China — by the end of its 2025 fiscal year.
Starbucks shares were marked 0.14% lower in pre-market trading to indicate an opening bell price of $84.70 each.
