U.S. stocks end lower, led by 1% Nasdaq fall

U.S. STOCKS END LOWER, LED BY 1% NASDAQ FALL (1605 EST/2105 GMT)

Major U.S. stock indexes finished lower on Monday, led by a 1% decline in the Nasdaq IXIC while tech heavyweights Apple AAPL and Microsoft MSFT were the biggest weights on the S&P 500 SPX.

Among sectors, tech S5INFT and communication services S5TELS saw the biggest losses, while utilities S5UTIL and consumer staples S5CONS were the only gainers on the day.

Investors were still digesting a blowout U.S. employment number Friday that suggests the Federal Reserve may need to remain hawkish in its approach to lowering inflation.

Benchmark 10-year U.S. Treasury yields hit four-week highs Monday.

Also, fourth-quarter earnings reports so far have mostly failed to ease worries about how higher rates are affecting demand for U.S. companies.

With results in from more than half of the S&P 500 companies, earnings are expected to have declined 2.8% in the fourth quarter of 2022 from the year-ago period, according to IBES data from Refinitiv.

Here is the closing market snapshot:

(Caroline Valetkevitch)

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TOO SOON TO CALL AN END TO THE BEAR -MORGAN STANLEY (1400 EST/1900 GMT)

Enough uncertainty remains about the outlook for U.S. earnings and the Federal Reserve's actions to suggest it may be too soon to call an end to the latest bear market, Michael Wilson, equity strategist at Morgan Stanley, wrote in a note Monday.

Earnings per share estimates are declining and investors may not have priced in an earnings recession, he wrote.

"Forward EPS growth has just gone negative," he wrote. "This has only previously happened 4 times over the past 23 years."

In each instance, equities faced "significant price downside" because of the shift from positive to negative earnings growth.

"The path of our earnings forecasts going forward implies a further significant deceleration in earnings growth," he noted.

Moreover, monetary policy is still likely restrictive, given Friday's surprisingly strong jobs report, he wrote.

"Price action post FOMC (last week) in both equities and rates convinced many that it was a dovish outcome," Wilson wrote. "However, reversals in real rates and the dollar on the back of a surprisingly strong jobs report suggest the path may be more hawkish than initially thought from here."

(Caroline Valetkevitch)

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LEAN NEGATIVE ON EQUITIES SHORTER-TERM -CROSSMARK GLOBAL (1215 EST/1715 GMT)

Many investors are finding current market conditions to be especially confusing. Indeed, amid high inflation, a tight labor market, and weak manufacturing PMIs, it all seems to be a bit of a mess.

Still, the S&P 500 index SPX has kicked off the year with strong gains, up more than 7%.

In his latest "Deliberations," Bob Doll, chief investment officer at Crossmark Global Investments, says that the upward move in stocks has come on the back of investors increasingly believing in a soft landing in the United States, the end of Federal Reserve rate hikes, Fed cuts by year-end, no European energy crisis and China reopening.

In Doll's view, however, bulls are dismissing a number of big negatives for equities including a very negative yield curve, negative money growth, declining leading economic indicators, PMIs in contraction territory, and the lagged economic impact of the second fastest Fed funds increase in history.

Therefore, he believes investors "should fade the year-to-date rally as recession risks are merely postponed rather than diminished."

Doll thinks market upside is limited shorter-term, and he remains concerned that growth and earnings are still slowing, while wage growth might not fall enough.

"It is time for a break, and we lean negative on equities in the short-term."

(Terence Gabriel)

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INTERNET NAMES TO FACE LITMUS TEST AFTER BUMPER JANUARY (1100 EST/1600 GMT)

Internet stocks rang in the new year with gains last month. Now, investors will be looking to see what their earnings bring, with industry leaders Uber UBER, Lyft LYFT and Airbnb ABNB all reporting earnings this month.

The median stock return for the group is 33% so far in 2023, while the S&P 500 index SPX is up 8% in that period, according to a note from brokerage Bernstein. Heavily shorted shares have been the big winners.

Expectations of a peak in interest rates and moves to cut costs have wooed Wall Street, with Meta Platforms Inc META promising a "year of efficiency" and Spotify Technology SPOT saying it would pull the plug on its aggressive spending.

"Big beats may not be needed with investor attention shifting to 2024, but it's a tough set-up for stocks that may end up missing numbers this earnings cycle," Bernstein analyst Nikhil Devnani wrote in the note.

Uber and Airbnb have benefited in the past year from a rebound in consumer spending and pent-up demand for travel. But those trends might be fading as high inflation and rising interest rates prompt people to rethink non-essential spending.

There's a chance that "the group has gotten ahead of itself far too quickly, and it's unclear if we've found the bottom on estimates," Devnani wrote.

(Nivedita Balu)

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WALL STREET EXTENDS FRIDAY'S DECLINES EARLY (1030 EST/1530 GMT)

Major U.S. stock indexes are lower in early trading on Monday, with the benchmark S&P 500 SPX dragged down the most by tech-focused shares including Microsoft MSFT, Alphabet GOOG and Amazon.com AMZN.

All 11 S&P 500 SPX sectors are down early.

The benchmark 10-year U.S. Treasury yield US10Y hit four-week highs Monday, with investors still digesting a blowout employment number Friday that sparked concern about more aggressive action from the Federal Reserve.

Also, fourth-quarter earnings reports so far have mostly failed to ease worries about how higher rates are affecting demand for U.S. companies.

Here is the early market snapshot:

(Caroline Valetkevitch)

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EUROZONE BANKS: SELLSIDE LEAST BULLISH IN A YEAR (0940 EST/1440 GMT)

The latest BofA survey last month has shown that European banks are back in favour with global investors looking to position for high interest rates, but the sector's multi-month outperformance begs the question of what upside is left.

One way to answer that is to look at sellside views.

Median price targets for the top six euro zone lenders — BNP, Santander, ING, Intesa, BBVA and Nordea — imply an upside of between 6% and 19%. That's still a good number but in most cases it is the lowest rate in around a year. Is this a sign that easy gains are behind us?

The Euro STOXX Banks index (.SX7E) is up more than 50% from its July 2022 lows and is trading near its highest since May 2019 relative to the broader Euro STOXX (.STOXXE) index.

(Danilo Masoni)

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TECH DOWNSIZING, MORE LIKE RIGHT-SIZING (0915 EST/1415 GMT)

Data last week hinted at a robust labor market with plentiful job openings, but layoffs across Big Tech and major Wall Street firms have sparked concerns about an economic slowdown.

"You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years," U.S. Treasury Secretary Janet Yellen told ABC's Good Morning America program.

Analysts at Goldman Sachs echoed a similar refrain in their note, adding that they believe the companies conducting layoffs are not representative of the broader economy and many of the recent layoff announcements do not necessarily signal weaker demand.

Companies that are laying off have three things in common, according to Goldman Sachs - they are likely to be in the tech sector, they've hired aggressively during the pandemic and they've have seen sharp drops in their share prices.

Tech companies laid off more than 150,000 workers in 2022 amid a rapidly fading pandemic-led demand boom, according to tracking site Layoffs.fyi.

"Some of these companies have conducted layoffs to right-size their workforce after over-extrapolating pandemic-related trends that ultimately proved more fleeting than expected, such as the preference for goods over services or spending more time online," the analysts added.

"Some were more an effort to improve company valuations by responding to investor demands to shrink workforces that were perceived to have grown too large and expensive, rather than a signal that the demand outlook had worsened."

Not every layoff translates into a lasting increase in unemployment because most workers find new jobs, Goldman Sachs said, adding that the job finding rate in recent months among unemployed individuals has been high by historical standards.

(Bansari Mayur Kamdar)

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S&P 500 INDEX: REST OR RELAPSE? (0900 EST/1400 GMT)

The S&P 500 index SPX has backed away from some significant resistance hurdles. It now remains to be seen if a setback will prove to be just a pause in what is a new bull-phase, or if weakness will soon re-intensify, leading to a resumption of the prevailing bear trend:

Last week, the SPX hit a high of 4,195.44, rallying as much as 20% off its October 13 intraday low. With this recovery, the benchmark index recouped as much as 84% of its August-October down-leg, and as much as 53% of all its bear-market losses on a intraday basis.

However, the benchmark index failed to overwhelm the 4,198.70-4,203.04 area. This zone includes the 23.6% Fibonacci retracement of the March 2020-January 2022 advance, now acting as resistance, and the August 26 high, which was established the day of the market's vicious downside reversal stoked by Fed Chair Powell's especially hawkish speech at the Jackson Hole Symposium.

The late-August reversal left an unfilled gap to 4,218.70 on the charts.

With e-mini S&P 500 futures ES1! suggesting the SPX, which ended at 4,136.48 on Friday, is poised to fall around 30 points early in Monday's session, a support shelf defined by September-to-January highs in the 4,119.28-4,094.21 area can come under fire.

Traders will be watching to see how the SPX behaves around this zone. The January 30 low was at 4,015.55, and the support line from the October low is now around 3,925.

Meanwhile, last Thursday, the SPX saw a golden cross, suggesting the potential that bulls are arresting control of the primary trend.

(Terence Gabriel)

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