[New York Stock Market] Slightly Firm on GDP Surpassing Expectations... Tesla Plummets Over 12%

S&P 500 Index Hits Record High Again

The three major indices of the U.S. New York stock market closed higher on the 25th (local time), digesting better-than-expected economic growth rates and corporate earnings. The S&P 500 index, centered on large-cap stocks, continued its rally and set a new all-time high.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 38,049.13, up 242.74 points (0.64%) from the previous session. The large-cap-focused S&P 500 index rose 25.61 points (0.53%) to 4,894.16, and the tech-heavy Nasdaq Composite index closed at 15,510.5, up 28.58 points (0.18%).

Among the sectors in the S&P 500, nine out of eleven sectors rose, excluding discretionary consumer goods and healthcare-related stocks. Tesla plunged more than 12% from the previous close after releasing earnings and guidance that fell short of Wall Street expectations after the market closed the day before. Concerns over weakening demand for electric vehicles highlighted a broad decline in other EV-related stocks such as Nio, Rivian, and Lucid. On the other hand, IBM rose 9% on earnings that exceeded Wall Street forecasts. American Airlines, which reported earnings before the market opened, rose 10%. Microsoft (MS), which surpassed a market capitalization of $3 trillion for the first time during the previous day's session, traded slightly higher.

[Image source=Reuters Yonhap News]

Investors focused on key economic indicators such as Gross Domestic Product (GDP) and weekly unemployment claims, as well as corporate earnings and guidance. The U.S. fourth-quarter growth rate released that morning showed a stronger-than-expected performance based on solid consumer spending. According to the Commerce Department, the Q4 GDP growth rate was recorded at an annualized 3.3%. Although this was a slowdown from the 4.9% growth in Q3 of last year, it significantly exceeded market expectations of 2%. The annual growth rate for 2023 was recorded at 2.5%.

This robust growth rate further strengthened expectations for a soft landing of the U.S. economy. This contrasts with earlier forecasts that anticipated an economic slowdown starting around Q4 last year due to the Federal Reserve's (Fed) aggressive tightening. This was supported by strong consumer spending, which accounts for about 70% of GDP. U.S. personal consumption expenditures increased by 2.8% in Q4 last year.

Kevin Gordon, Chief Investment Strategist at Charles Schwab, described it as "a really healthy data combination," adding that it represents the level achievable when the Fed pursues growth without inflation. David Russell, Market Strategist at TradeStation, said, "Consumers are recovering from the shock of inflation," and assessed that "the economic situation could improve further."

However, this could reinforce hawkish voices favoring maintaining high interest rates longer than expected. The market's early rate cut expectations have also somewhat diminished compared to the beginning of the year. According to the Chicago Mercantile Exchange (CME) FedWatch, the futures market currently reflects about a 51% probability that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in March after holding rates steady in January.

On the same day, the U.S. Department of Labor announced that new weekly unemployment claims for the week of January 14?20 rose by 25,000 to 214,000, exceeding expert forecasts by 14,000.

On the following day, January 26, the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, is scheduled to be released. The core PCE for December last year is expected to rise 0.2% month-over-month, slightly exceeding the previous month's increase. However, it is forecasted to show a slowdown with a 3% year-over-year increase.

Corporate earnings announcements are also ongoing. According to FactSet, more than one-fifth of S&P 500-listed companies have reported earnings so far, with 74% beating Wall Street estimates. However, Tesla's disappointing earnings released after the previous day's close triggered a sell-off among investors, weighing on the market that day.

Dan Ives, a well-known Wall Street analyst and a prominent Tesla bull at Wedbush, likened Tesla's earnings report to a "train wreck" and lowered the 12-month target price from $350 to $315. Barclays also cut Tesla's target price by about 10% to $225 per share. UBS similarly lowered its target price to $225 and recommended a wait-and-see approach, stating that "there is little reason for investors to buy more Tesla shares."

In the New York bond market that day, Treasury yields declined. The benchmark 10-year U.S. Treasury yield hovered around 4.12%, while the 2-year yield, sensitive to monetary policy, was around 4.31%. The dollar index, which measures the value of the U.S. dollar against six major currencies, rose about 0.2% to 103.5.

The European Central Bank (ECB) kept its key policy rates unchanged. At its monetary policy meeting that day, the ECB announced that the main refinancing rate was held at 4.50% annually, with the deposit rate and marginal lending rate maintained at 4.00% and 4.75% annually, respectively.

International crude oil prices rose for the second consecutive trading day. On the New York Mercantile Exchange, the March delivery West Texas Intermediate (WTI) crude oil price closed at $77.36 per barrel, up $2.27 (3.02%) from the previous day.