U.S. stocks lose momentum as profits soar

U.S. stocks were initially higher in early trading on Tuesday, but were volatile in the second half of the session as investors continued to debate the possibility of interest rate cuts ahead of new quarterly results.

By midday trading, the S&P 500 (^GSPC) was flat, while the tech-heavy Nasdaq Composite Index (^IXIC) was down about 0.4%. The Dow Jones Industrial Average (^DJI) initially started flat, but rose about 0.2%.

Monday's rise in stocks disappointed those who had bet on an early rate cut as the market heeded Fed Chairman Jerome Powell's repeated warnings that the Fed would move cautiously on policy, and the rally hit a buffer. .

read more: Impact of Fed interest rate decisions on bank accounts, CDs, loans, and credit cards

As we reach the midway point of the earnings season, all eyes are on whether Tuesday's corporate results will provide momentum for a recovery in stock prices.

Early on, Spotify (SPOT) stock soared on the music streamer's strong guidance, while Eli Lilly (LLY) stock soared after the company's 2024 earnings forecast beat expectations. Ford (F) is expected to report after the market closes.

Meanwhile, investors also said in a Tuesday speech by Cleveland Fed President Loretta Mester, “We are not raising interest rates too soon or too soon without sufficient evidence that inflation is on a sustainable and timely trajectory.” This is a mistake,'' he said. Return to 2%. ”

Still, he believes that if the economy improves as expected, the Fed “will gain that confidence later this year and then we can start lowering interest rates.”

Federal Reserve officials Patrick Harker, Susan Collins and Neel Kashkari are also scheduled to speak later today.

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Tuesday, February 6, 2024, 12:27 PM ET

Loretta Mester: “It was a mistake to cut interest rates too soon''

Cleveland Fed President Loretta Mester has been involved in interest rate cut discussions.

In a speech Tuesday at the Ohio Bankers League Economic Summit in Columbus, Mester reiterated Powell's earlier comments about the risks of cutting interest rates too soon.

“It would be a mistake to cut interest rates too soon without sufficient evidence that inflation is on a path to a sustainable and timely return to 2%,” he said. “That would undo all the effort we've put into getting inflation to this point.”

“On the other hand, if inflation expectations over the next year continue to decline, maintaining the current level of the nominal federal funds rate for an extended period of time would effectively tighten the policy stance and increase risks to the highest employment segment. “It's within our mission,” she warned.

The year-on-year inflation rate is well above the US Federal Reserve's target of 2%, but the core inflation rate is below 2% on a six-month annualized basis.

Still, Chairman Jerome Powell ruled out a March rate cut at last month's central bank meeting, saying it was “probably not what I would call the most likely case or the base case.”

Markets generally expect the central bank to start cutting interest rates at its May meeting, with the probability of that happening priced in at around 66%. But investors have been cutting back on their bets lately. Just a week ago, markets were pricing in an 85% chance of a rate cut by the end of the May Fed meeting.

“Risk management will be a feature of future monetary policy decisions,” Mester said. “If the economy progresses as expected, I think we will have that confidence later this year, and then we can start lowering interest rates.”
Tuesday, February 6, 2024, 11:58 a.m. ET

Stock prices fluctuate wildly during intraday trading

U.S. stocks lost momentum by midday trading Tuesday as investors continued to debate the possibility of interest rate cuts ahead of new quarterly results.

By midday trading, the S&P 500 Index (^GSPC) was down about 0.1%, and the tech-heavy Nasdaq Composite Index (^IXIC) was down about 0.3%. The Dow Jones Industrial Average (^DJI) initially started flat, but rose about 0.1%.
Tuesday, February 6, 2024, 11:10 a.m. ET

Palantir’s AI push

Palantir (PLTR) stock soared more than 25% Tuesday morning as investors cheered the defense software maker's latest artificial intelligence advances.

“We have never seen the level of customer enthusiasm and demand that we are seeing now. [artificial intelligence platforms] Palantir Chief Financial Officer Ryan Taylor told investors on an earnings call Monday night.

The software company's artificial intelligence platform (AIP) was mentioned nearly 50 times throughout the call. And Palantir says this is a key reason it expects U.S. commercial revenue to rise nearly 40% in 2024.

The hype around AI has sent many tech stocks soaring, which is also why stock prices have risen more than 100% over the past year. Tuesday's market action comes amid calls that Denver-based Palantir's stock is already overvalued, even if Wall Street believes some of the trades extend beyond fundamental support. Even if you believe that, it's the latest sign that investors aren't fully satisfied with AI trading.

“We're incredibly bullish on Palantir,” Morningstar equity analyst Malik Ahmed Khan told Yahoo Finance Live. “If you look at our forecasts, you'll see that we're beating consensus on things like profitability and revenue.”

“At the same time, Palantir's current valuation cannot be rationalized in the base case,” he added.

Jefferies equity analyst Brent Till rated Palantir a “sell” in the company's earnings report, but acknowledged in a post-release research note that AIP growth was faster than expected. But even after upgrading the stock to a hold rating, Till still warned about the cost of the stock.

“The biggest concern is valuation. [the] “The stock is trading at a 23% premium to the large-cap average,” Till wrote.

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Tuesday, February 6, 2024, 10:40 a.m. ET

Spotify jumps into strong guidance and user growth

Spotify Technology (SPOT) on Tuesday reported fourth-quarter financial results that fell short of expectations. However, strong guidance helped push the stock higher in early trading as the music streaming platform continues to focus on profitability amid recent price increases and changes to its podcasting strategy.

The company reported an operating loss of 75 million euros ($80.6 million) in the quarter, due to severance and real estate-related expenses. This beat the company's latest guidance for a fourth-quarter operating loss of between 93 million euros and 108 million euros.

The audio giant also delivered a strong first-quarter operating profit of 180 million euros, well above Wall Street consensus estimates. Spotify reported an operating loss of 231 million euros in the same period last year.

During the earnings call, Spotify CEO Daniel Ek highlighted the company's recent “efficiency” strategy.

“The hurdle rate for any new type of investment will be much higher than it has been in the past,” he said, adding that Spotify will be more diligent and disciplined in closing down previous processes that no longer serve this new mission. He added that he would.

“That doesn't mean the company is at any risk,” he said. “We're just asking, 'Is there a better way?'”

The company also increased subscriber growth, gross profit, free cash flow, and average revenue per user. The stock price rose as much as 11% immediately after the opening bell.

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Tuesday, February 6, 2024, 9:33 a.m. ET

US stocks start mostly higher

U.S. stocks opened the trading day mostly higher on Tuesday as investors focused on new earnings results and several Fed speakers.

The S&P 500 (^GSPC) rose about 0.2%, and the tech-heavy Nasdaq Composite Index (^IXIC) rose about 0.3%. The Dow Jones Industrial Average (^DJI) traded flat.