[New York Stock Market] Rises on Earnings Expectations... Tesla Up Despite Earnings Below Forecast

Watching Corporate Earnings as Earnings Season Begins
Tesla Earnings Miss Expectations...Shares Surge 6% in After-Hours
US Manufacturing Activity Contracts for First Time in Four Months

The three major indices of the U.S. New York stock market closed higher for the second consecutive day on the 23rd (local time). After falling last week due to expectations of delayed interest rate cuts, the market showed strength as buying surged in tech stocks with the full-scale start of the corporate earnings season. As the U.S. manufacturing sector entered a contraction phase for the first time in four months, Treasury yields declined.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 38,503.69, up 263.71 points (0.69%) from the previous trading day. The large-cap-focused S&P 500 index rose 59.95 points (1.2%) to 5,070.55, and the tech-heavy Nasdaq index gained 245.34 points (1.59%) to close at 15,696.64.

Investors viewed the market, which had fallen last week due to expectations of delayed rate cuts, as having entered an oversold zone and began to closely watch corporate earnings.

By individual stocks, Tesla rose 1.8% and, despite reporting earnings after the market close that missed expectations, it surged more than 6% in after-hours trading. Tesla announced that its first-quarter revenue was $21.3 billion and adjusted earnings per share (EPS) was $0.45. This fell short of LSEG's forecast of $22.15 billion and $0.51 EPS.

[Image source=Yonhap News]

During regular trading hours, other 'Magnificent 7' stocks (NVIDIA, Amazon, Meta, Alphabet, Microsoft (MS), Apple, Tesla) also rose collectively. AI leader NVIDIA jumped 3.65%, Amazon gained 1.9%, Meta rose 2.92%, and Alphabet increased 1.25%. MS and Apple rose 1.52% and 0.59%, respectively.

Spotify, which reported first-quarter earnings exceeding expectations, surged 11.41%. U.S. automaker General Motors (GM) and UPS also rose 4.37% and 2.41%, respectively, on strong earnings. On the other hand, PepsiCo fell 2.91% despite reporting better-than-expected results.

The biggest market focus this week is on big tech earnings. Starting with Tesla on this day, Meta will report on the 24th, and Microsoft (MS) and Alphabet will release earnings on the 25th. Next week, Apple and Amazon will report, and NVIDIA will announce earnings on the 22nd of next month. According to Bloomberg Intelligence (BI), the Magnificent 7's first-quarter profits are expected to grow 37.5% year-over-year, significantly outpacing the 2.4% earnings growth forecast for all S&P 500 companies. Additionally, more than 180 companies, accounting for over 40% of the S&P 500's market capitalization, will report quarterly earnings this week.

Citigroup stated, "We see the recent decline as a buying opportunity," adding, "The bullish stance has eased and become more neutral. During earnings seasons like this, investors may refocus on solid fundamentals."

Ayako Yoshioka, Senior Portfolio Manager at Wells Enhancement Group, said, "There is a reason for the market's short-term rebound," noting, "We had a tough time for more than a week, and now we are seeing a slight rebound in tech stocks."

However, some analysts believe that stock price gains will continue only if growth strategies through AI are confirmed in big tech earnings reports.

Eddie Chung, Senior Strategist at Cr?dit Agricole CIB, forecasted, "Whether the market shows further strength now depends on the assessment of the sustainability of AI demand after earnings announcements."

The U.S. manufacturing sector has entered a contraction phase for the first time in four months. The S&P Global U.S. Manufacturing Purchasing Managers' Index (PMI) for April, released that day, stood at 49.9. A PMI above 50 indicates expansion, while below 50 signals contraction. This figure fell short of both the previous month's 51.9 and market expectations of 52, indicating a cooling U.S. manufacturing sector.

Due to the cooling U.S. manufacturing economy, Treasury yields are trending downward. Expectations that the Fed might cut rates amid economic contraction are reflected. The 10-year U.S. Treasury yield, a global bond yield benchmark, fell 2 basis points (1bp = 0.01 percentage point) from the previous trading day to 4.6%, while the 2-year Treasury yield, sensitive to monetary policy, dropped 4 basis points to around 4.92%.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said, "U.S. economic activity lost momentum at the start of the second quarter," adding, "In April, new business inflows declined for the first time in six months, and concerns about future outlooks increased, causing companies' future production expectations to fall to the lowest level in five months."

The market is also awaiting the preliminary release of first-quarter GDP growth and the March Personal Consumption Expenditures (PCE) price index this week. The first-quarter GDP, to be released on the 25th, is expected to show 2.5% growth compared to the previous quarter. The core PCE price index, due on the 26th, is forecast to rise 2.6% year-over-year, a smaller increase than February's 2.8%. With the Consumer Price Index (CPI) exceeding market expectations for three consecutive months this year, investors are paying close attention to the PCE price index, the Fed's preferred inflation gauge, as it will help gauge the future path of interest rates.