So far, so good in February's early days, as Wednesday's session saw stocks continue their recent rebound on the back of encouraging corporate earnings.
The day started off with a potential blow to the nascent rally: ADP reported that private payrolls dropped by 301,000 in January – a huge whiff from estimates for 200,000 and the first decline since December 2020.
"The details of the ADP employment report indicate a large and likely temporary drag from omicron on January employment," say Goldman Sachs Economics Research strategists. "We continue to expect a 250,000 decline in nonfarm payrolls in Friday's report."
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However, "expectations for the January jobs data have ratcheted lower due to the recent omicron wave," says New York Stock Exchange Senior Market Strategist Michael Reinking, which could explain the market's lack of a reaction to the downbeat news. Reinking adds that small businesses accounted for half of the overall job losses.
Rather, investors were more interested in the earnings calendar (opens in new tab).
Alphabet (GOOGL (opens in new tab), +7.5%) made a splash by announcing a 20-for-1 stock split (opens in new tab) that, if approved, would take place in July. Moreover, the tech giant easily eclipsed Wall Street estimates for fourth-quarter income and revenue, thanks to a strong performance and upbeat outlook in search.
"We expect search to continue to gain relevance as commerce continues to shift to omnichannel," says Wedbush analyst Ygal Arounian, noting that GOOGL remains the firm's favorite large-cap stock.
Match Group (MTCH (opens in new tab), +5.3%) and Advanced Micro Devices (AMD (opens in new tab), +5.1%) also helped propel Wednesday's session with Street-beating results of their own.
The S&P 500 led the major indexes with a 0.9% gain to 4,589, while the Dow Jones Industrial Average (+0.6% to 35,629) and Nasdaq Composite (+0.5% to 14,417) also closed higher.
Other news in the stock market today:
- The small-cap Russell 2000 didn't join its larger-cap brethren, declining 1.0% to 2,029.
- U.S. crude oil futures posted a modest gain to settle at $88.26 per barrel after the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to increase output by an additional 400,000 barrels in March – in line with their previously outlined plan.
- Gold futures edged up 0.5% to finish at $1,810.30 an ounce.
- Bitcoin did not join the markets in their rally, declining 2.4% to $37,606.65. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- It was a bruising session for PayPal Holdings (PYPL (opens in new tab)), which plunged 24.6% after earnings. While the digital payments company reported better-than-expected revenue in its fourth quarter ($6.92 billion actual vs. $6.87 billion expected), adjusted earnings per share of $1.11 fell short of the $1.12 per share anticipated. PYPL also projected current-quarter earnings of 87 cents per share, well below analysts' consensus estimate of $1.16 per share, and said revenue is likely to grow at a slower-than-expected pace in fiscal 2022. This soft forecast comes amid eBay's (EBAY (opens in new tab), -3.2%) challenging migration to its own payments processor and other factors like inflation negatively impacting cross-border payments, according to PayPal CEO Dan Schulman. PYPL's really bad day spread to other fintech stocks, with Block (SQ (opens in new tab), -10.6%) and Shopify (SHOP (opens in new tab), -10.0%) also ending the day solidly in the red.
- Under Armour (UAA (opens in new tab)) rose 2.7% today after Morgan Stanley analyst Kimberly Greenberger upgraded the athletic apparel and footwear maker to Overweight from Equalweight (the equivalents of Buy and Hold, respectively). "Current trading levels suggest the market 1) may have unfairly penalized UAA's stock for holiday weakness in specialty retail without considering its differentiated model and product exposure, and 2) may not recognize the opportunity for positive 2022 earnings per share revisions," the note says. As such, Under Armour could be poised for a first-half outperformance relative to its sportswear peers. On Tuesday, UBS analyst Jay Sole reiterated his Buy rating on UAA, saying its "turnaround story continues." Sole expects Under Armour to turn in a solid earnings beat when it reports earnings the morning of Friday, Feb. 11, which he believes will "boost sentiment" on the stock.
Can Growth Pick Up the Slack?
The market's weak start to 2022 is partly due to the underperformance of the growth investing style, which relies on many of the S&P 500's biggest companies. But at least the beginnings of a shift are starting to appear.
"Both Apple (AAPL (opens in new tab)) and Microsoft (MSFT (opens in new tab)) are performing well after their earnings releases last week, with both stocks regaining much of their losses from the first few weeks of 2022," says David Keller, chief market strategist for financial charting platform StockCharts.com.
He adds that, in the short term, this week's reports from Alphabet, Facebook (FB (opens in new tab)) and Amazon.com (AMZN (opens in new tab)) could be pivotal in where the broader market goes from here.
Heading into the new year, most picks for the best stocks for 2022 (opens in new tab) came from the value camp. And thus far that investing style has lived up to its promise, with value outperforming growth by nearly 9 percentage points. However, strong returns from the aforementioned mega-caps offer reassuring signs that growth stocks (opens in new tab) still have life in them.
UBS analysts, for example, say growth stocks' year-to-date weakness affords investors a prime opportunity to buy high-upside stocks on the cheap. These 15 growth investing names in particular look like bargains, notes UBS.
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