Stock futures mixed with Fed talk, earnings in focus; Netflix surges as blowout subscriber gains offset earnings miss; Costco shares gain as bulk retail unveils $4 billion buyback plan; Nordstrom slumps after slashing profit forecast following weak holiday sales and Eli Lilly slides as FDA rejects fast track review of Alzheimer’s treatment.
U.S. equity futures traded mixed Friday, following three consecutive session declines, as investors continue to track comments from Fed officials while gearing-up for series of big tech earnings later next week.
Federal Reserve vice chair Lael Brainard told an event in Chicago late Thursday that while the central bank is still “probing” for the correct level of interest rates that will both tame inflation and ensure the economy avoids recession, but added that borrowing costs are likely to remain elevated “for some time”, even if she favors smaller hikes going forward.
That view, echoed in part by Boston Fed President Susan Collins in a speech last night, suggests again the the Fed Funds rate is likely to rise past 5% by the spring and stay there for several months after. Market forecasts, however, suggest rates topping out at 4.75%, with the possibility of a rate cut late in the year still holding firm.
With respect to the Fed’s next policy meeting, which begins on January 31, the CME Group’s FedWatch is indicating a 97.2% chance of a 25 basis point rate hike, up from around 76.7% this time last week.
Benchmark 10-year Treasury note yields were marked modestly higher in overnight trading, as well, following some hawkish comments on rate hikes from a key European Central Bank policymaker and were last seen changing hands at 3.429%. Meanwhile, 2-year notes were pegged at 4.162% and the U.S. dollar index gained 0.13% against its global peers to trade at 102.187.
With big tech earnings in the window for next week, including updates from Microsoft (MSFT), IBM (IBM) and Intel (INTC), as well as Boeing (BA), Tesla (TSLA) and General Electric GE, investors are likely to be looking past a muted Friday open despite the expected boost for the Nasdaq from last night’s stronger-than-expected fourth quarter earnings from Netflix (NFLX).
Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 are priced for a 27 point opening bell dip while those linked to the Dow Jones Industrial Average are set for a 27 point pullback. The tech-focused Nasdaq is priced for a 20 point gain.
In overseas markets, the the region-wide MSCI ex-Japan index gained 0.8% into the close of trading as investors rallied ahead of the coming Lunar New Year holiday that will keep major markets around the region closed for much of the week. Tokyo’s Nikkei 225 gained 0.56% following data showing headline and core inflation hit 4% last month, the fastest in 41 years.
Europe’s Stoxx 600 was marked 0.22% lower in early Frankfurt dealing, while London’s FTSE 100 gain 0.34%.
Netflix (NFLX) – shares moved firmly higher in pre-market trading after the streaming entertainment group posted better-than-expected subscriber gains that offset a big earnings miss and the departure of founder and co-CEO Reed Hastings.
Netflix added 7.66 million paid subscribers over the three months ending in December, nearly double Street forecasts, thanks in part to the launch of its lower-cost ad-supported platform. Revenue growth, however, was only 1.8% — the slowest since the group went public in 2002 — and the group’s bottom line of 12 per share was well shy of the Street’s 44 cent forecast and down more than 90% from last year’s levels.
“A lot of it really fundamentally is about executing that core model better,” said Greg Peters, who will join Ted Sarandos as co-CEO, during a conference call with Bank of America analyst Jessica Ehrlich. “There’s not a lot of massive pivots away from a traditional legacy business model that we have to go figure out … we’re excited about the progress we’re seeing so far, will represent the future potential for us in terms of growth and more profit opportunities.”
Netflix shares were marked 5.9% higher in pre-market trading to indicate an opening bell price of $334.41, a move that would extend the stock’s six-month gain to around 46%.
Costco (COST) – shares moved higher in pre-market trading after the bulk discount retailer declared a cash quarterly dividend and unveiled plans for a new $4 billion share buyback program.
Costco said the new plan replaces a 2019 authorization that has purchased around $1.4 billion in company stock and was set to expire in April. The new $4 billion plan will expire in 2027. Costco also said it would pay a quarterly dividend on February 17 of 90 cents per share.
Earlier this month, Costco said sales for the five weeks ending on January 5 were up 7% from last year to $23.8 billion, well ahead of the 5.3% pace recorded over the retail month of November and firmly ahead of Street forecasts of a 3.5% gain.
Comparable U.S. sales were up 3.6%, the biggest gain since June, while a pullback in gas prices kept average ticket size gains in check, rising only 1% from last year compared to the 7% to 8% growth rates recorded over the summer and early autumn months.
Costco shares were marked 1% higher in pre-market trading to indicate an opening bell price of $474.00 each.
Nordstrom (JWN) – slumped lower in pre-market trading after the retailer slashed it full-year profit forecast following a weaker-than-expected holiday sales update.
Nordstrom said earnings for its fiscal 2022 year, which ends in February, would like come in between $1.50 to $1.70 per share, well south of the $2.13 to $2.43 per share forecast it issued in late November, as holiday sales — which were already heavily discounted — fell to below pre-pandemic levels.
“While we continue to see greater resilience in our higher income cohorts, it is clear that consumers are being more selective with their spending given the broader macro environment,” said CEO Erik Nordstrom.
Nordstrom shares were marked 3.3% lower in pre-market trading to indicate an opening bell price of $16.87 each.
Eli Lilly (LLY) – shares moved lower in pre-market trading after the drugmaker said its request for an accelerated review of its developing Alzheimer’s treatment was rejected by the U.S. Food & Drug Administration.
Eli Lilly, which says it will publish Phase 3 trial data of the drug, known as donanemab, by the middle of the year, said the FDA sent a so-called ‘complete response letter’ outlining issues that the drugmaker needs, including “the limited number of patients with at least 12 months of drug exposure data provided in the submission.”
Last year, Eli Lilly said donanemab, showed a 32% reduction in a composite measure of cognition and daily function in trial patients suffering early symptomatic Alzheimer’s disease following Phase 2 trials.
Eli Lilly shares were marked1.2% lower in pre-market trading to indicate an opening bell price of $346.90 each.