What we're watching
📈 Nvidia keeps morale high: The S&P 500 may have been knocked off its record high, but a fresh $800 price target on Nvidia stock from analysts at Goldman Sachs lifted the chip giant to a record close. Proving AI hype remains, for now, no match for the Powell Fed.
💻 Snap, Spotify, and Eli Lilly report: Efficiency and profitability are once again putting growth in the back seat as two more tech companies report. Snap announced big layoffs on Monday, and margins are also a main investor focus for Spotify as the company pivots its podcasting strategies. Meanwhile, Eli Lilly will likely update investors on its supply challenges with the very in-demand GLP-1 drugs. Last week saw Novo Nordisk buy a company to ramp up its own supply of Wegovy.
🌯 Ford, Chipotle, and Hertz round out a big day of earnings: Investors will be on the lookout for softer-than-expected demand in Q4 results for the burrito purveyor after McDonald's missed earnings estimates. At Ford, the earnings materials will hopefully provide an updated EV outlook as the company shifts to hybrid production. And also reporting is memestock OG Hertz, which has recently become a Tesla dealership.
What we're reading
🐂 Wall Street doesn't need cuts to be bullish: Investor hopes of a March rate cut are largely shut down. But the 2023 narrative has continued into this year: Investors shrug off disappointment quickly. The good economic news that is keeping Powell and the Fed from signaling imminent rate cuts is simply indicative of a healthy economy. And since it's not too hot, Wall Street is feeling good about it.
🛢️ Big Oil is doubling down: As the world moves (slowly) toward greener energy sources, the movement seems to have stalled with energy companies, which have slowed their own transition. Instead, as ExxonMobile and Chevron's recent acquisitions and quarterly presentations illustrated last week, energy companies are facing activist investors on both sides — and largely staying the course.
🏢 Commercial real estate hits banking: The Fed noted recently that the banking industry's woes aren't over for smaller institutions, largely due to a slowdown in commercial real estate. But, Chair Jerome Powell said in a "60 Minutes" interview Sunday night, it'll be a "manageable" problem.
Snap layoffs follow Big Tech and everyone else
Today's Takeaway is by Myles Udland, Head of News.
Snap (SNAP) on Monday became the latest tech company to announce layoffs, cutting 10% of its staff "to ensure we have the capacity to invest incrementally to support our growth over time." This followed the company's 2022 decision to cut 20% of its staff, in addition to smaller cuts last year.
And in doing so, Snap made the easiest decision available to every tech company today — trim head count, cut costs, and frame it as offering flexibility to invest tomorrow.
This logic invoked by Snap and so many others during head count reductions holds water because it is plainly true. The tech industry at large underwent an enormous hiring binge during the pandemic, and many dynamics these investments were designed to target have either cooled off or never materialized.
Cutting costs to ensure future flexibility, by this logic, just makes business sense. According to data from layoffs.fyi, job cuts in the tech industry this year now total more than 32,000, with giants ranging from Microsoft (MSFT) to PayPal (PYPL) and eBay (EBAY) all participating.
But the trend to cut jobs started by Big Tech firms a year ago has spread throughout the corporate world and almost come to require that management teams find a way to participate.
Estée Lauder (EL) stock rose 12% after the beauty giant announced its own workforce reduction on Monday. Companies ranging from Xerox (XRX) to UPS (UPS) have also made deep cuts to their employee bases this year.
The stock market is clearly indicating that management teams have an incentive to cut.
And the overall US labor market climate — one in which a regular drumbeat of white collar job cuts is contrasted by strong overall job growth — offers additional cover for leaders to make these calls.
Because not only are you matching the industry's ebbs and flows by cutting staff, but you're doing so in a labor market that, in the aggregate, suggests there remains plenty of demand for these workers' services elsewhere.
Back in March 2023, we argued the wave of tech-related job cuts and the swift demise of Silicon Valley Bank taken together showed how the tech industry moves in a tight pack, riding the same currents.
The corporate strategy playbook being used outside the confines of this industry in 2024 shows the inclination to follow is a stronger and deeper force in corporate America than we'd previously given credence.
Stocks on the move
Tesla (TSLA) stock was the No. 1 trending ticker on Yahoo Finance on Monday as shares fell 3.7%. Shares of the EV maker have been on a downward trend this year, down more than 27% year to date.
McDonald's (MCD) stock slumped 3.8% following mixed fourth quarter earnings results. McDonald's same-store sales growth fell below Wall Street expectations as geopolitical tensions in the Middle East hindered the fast food chain's exposure in other regions and global expansion plans.
Nvidia (NVDA) shares touched new highs after Goldman Sachs analyst Toshiya Hari raised the firm's price target on the chipmaking giant from $625 to $800 per share. Hari cited "sustained strength" and optimism for the company's growth potential amid an artificial intelligence boom. Nvidia stock gained 4.8% on Monday.
Chart of the day
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Earnings and economic calendar
Tuesday
Earnings: Amgen (AMGN), Chipotle (CMG), e.l.f. Beauty (ELF ), Eli Lilly (LLY), Spotify (SPOT), Fiserv (FI), Ford (F), Hertz (HTZ), BP (BP), Snap (SNAP), Toyota (TM)
No notable economic news.
Wednesday
Earnings: Alibaba (BABA), Arm Holdings (ARM), CVS (CVS), Mattel (MAT), Paycom (PAYC), Paypal (PYPL), Roblox (RBLX), Uber (UBER), Walt Disney (DIS), Wynn Resorts (WYNN)
Economic news: MBA Mortgage Applications, Feb. 2 (-7.2% prior), consumer credit, December ($16.5 billion expected, $23.75 billion prior)
