Markets “Clenched” Ahead of Megacap Tech Earnings

Traders got busy analyzing the latest corporate earnings this morning, with an eye on the upcoming Federal Reserve policy meeting. The S&P 500 and Dow Jones Industrial Average hovered just below the flatline, while the Nasdaq Composite retreated by 0.4%.

General Motors shares saw a 7% jump after it released better-than-expected earnings. Cybersecurity firm F5 also gained 2%, thanks to its strong financial report, and electronics manufacturer Sanmina surged over 27% with impressive earnings per share and guidance for the current quarter.

In contrast, Whirlpool’s shares fell more than 5% following its less-than-stellar full-year outlook. JetBlue also dropped 5%, despite reporting results that beat expectations.

A major talking point today was UPS. Just months after their workers ratified a hefty five-year labor deal, UPS announced a significant cut of 12,000 management jobs, about 14% of their total. CEO Carol Tomé cited declining package demand and increasing union labor costs as reasons for this decision, noting these cuts could save about $1 billion this year. Tomé emphasized a change in work operations, with no plans to refill these positions even if shipping volumes increase. She also reinstated a five-day office workweek.

Tomé said, “2023 was a unique and difficult year… we remained focused on controlling what we could control, stayed on strategy and strengthened our foundation for future growth.” Despite this focus, UPS’s fourth-quarter sales and 2024 guidance didn’t meet analysts’ expectations, mainly due to higher labor costs and slowing package demand. Bloomberg highlighted UPS’s exploration of alternative strategies for its truck brokerage business amidst a freight recession.

Following their labor deal, Teamsters General Secretary-Treasurer Fred Zuckerman pointed out that UPS drivers secured one of the “richest national contracts” ever. Yet, these developments indicate a challenging outcome for many UPS employees, raising questions about the impact of union-negotiated raises in a free market.

This afternoon, all eyes are on tech giants Microsoft and Alphabet, part of the “Magnificent 7,” known for their significant influence on the S&P 500’s recent surge. Amazon, Meta, and Apple are also set to release their quarterly reports later in the week.

Stocks are certainly overbought after 12 out of the last 13 weeks resulted in massive S&P gains, but strong earnings and forward guidance could easily power stocks higher. On the other hand, it may be hard to impress bulls at this point.

Traders should also note just how buried the VIX currently is. The last time the VIX was this low, this long was back in the months leading up to COVID. Does that mean we’re on the precipice of another pandemic? Probably not.

But, it does suggest that stocks are in a position to run fiercely lower if a sell catalyst emerges. And, we’ll probably get one sooner rather than later; stocks can’t rise forever without cooling off at least periodically. Looking at the VIX, though, the next cooldown could be a deep freeze.


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