Stocks rose this week as investors reacted to technology earnings and economic data.
The Personal Consumption Expenditure Price Index showed that overall prices were up 5% year-on-year in December, while core prices rose just 4.4% over the period.
The headline PCE rose 0.1% in line with November’s gains, beating expectations of flat prices. Meanwhile, core prices met expectations with a 0.3% gain, rising slightly from his 0.2% in November.
On the other hand, private consumption fell by 0.2% more than expected, and income rose as expected by 0.2%.
The report sets the stage for next week to be big as investors expect a smaller Fed rate hike on Wednesday.
Final readings from the University of Michigan’s Consumer Sentiment Report showed that sentiment rose more than expected to 64.9 after forecasting to remain stable at 64.6.
The report was boosted by a significant rise to the current economic conditions index due to easing inflation and rising incomes.
While the surge in sentiment is encouraging, two-thirds of consumers say they expect the recession to continue over the next year.
There is a one-month gap between today’s PCE and the sentiment report, but this expectation was proven by the PCE report. Not only did spending fall more than expected during the holiday season, but the savings rate rose for his third straight month to 3.4%. Consumers prepare for the worst.
Finally, tech company earnings dominated the week as investors awaited pivotal reports from the likes of Microsoft (MSFT), Tesla (TSLA) and Intel (INTC).
Microsoft’s report came out first and was mixed with negative reactions after the call. The Xbox maker, while missing out on revenue, slightly exceeded revenue estimates.
Azure has been a big story in its stock price, initially growing 38%, slightly above expectations. Microsoft didn’t provide specific numbers, but said in its earnings call that it expects Azure’s growth to drop by 4-5 percentage points, which will ultimately drive down the stock.
Investors had expected bearishness given the decline in PC sales and a more conservative software approach. But the report wasn’t as good as feared, as investors wanted guidance to suggest the trend had bottomed out.
Tesla’s report, on the other hand, was better than expected, allaying concerns about demand for the time being.
Markets assumed the latter as they feared Tesla’s high car margins would drop when it appeared in the report, and the price cuts weren’t because it was unclear whether it was a move made from a position of strength or weakness. It was of paramount importance to investors.
Tesla’s CFO says he expects profit margins to stay above 20%, and Musk has received record orders after the cut, which actually spurred a $500 price hike for the Model Y. He said that he had put
Price cuts aside, the company said it plans to build 1.8 million vehicles and boost production capacity to 2 million.
Finally, Intel had a sympathetic report after missing revenue and earnings estimates while lowering earnings and earnings for the first quarter.
Intel is trying to regain its foothold in the semiconductor industry, but it is investing heavily in expanding its manufacturing operations, which it could spend up to $100 billion on.
This leaves the company with no cash profit. This can be a big problem as it takes years to see the return on a large investment. A decline in earnings or margins could force a company to delay investments or cut dividends.
Unfortunately for Intel, both revenue and adjusted gross margin declined, leaving investors worried about the future.
All stocks rose this week. The S&P 500 has him up 2.27% and the Nasdaq has him up 3.87%. The Dow rose 1.58% for him and the Russell 2000 rose 2.22% for him.