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A hotter-than-expected personal consumption expenditures price index for January reading sent stocks sharply lower on Friday, causing the three major averages to book yet another weekly loss. The inflation metric cemented expectations that the Federal Reserve , in an effort to rein in the cost of living expenses, is likely to move interest rates higher than investors expected.
The inflationary concern, and subsequent Fed action, has taken life out of stocks over the past three weeks, prompting investors to ask yet again when will the bottom be reached. On Friday the Dow Jones Industrial Average fell by 336.99 points, or 1.0%, to end at 32,816.92. At one point during the trading session, the Dow had fallen by as much as 510 points, or 1.54%. The S&P 500 dropped 1%, giving up 42.28 points, to close at 3,970.04.
The largest decline came in the technology-heavy Nasdaq Composite index lost 195.46 points, or 1.69%, to close at 11,394.94. Declines in tech heavyweights Tesla (TSLA), Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOG , GOOGL) pressured the Nasdaq. For the week, the major averages their largest weekly decline so far in 2023. The Dow suffered a 3.7% decline, marking its fourth straight losing week. The S&P 500 was down 2.6%, while the Nasdaq closed 3.3% lower, logging its second negative week in three.
The core personal consumption expenditures price index rose 0.6% in January and 4.7% from the previous year, which is higher than economists had expected. The personal consumption expenditures price index is the Fed’s preferred measurement of inflation. The market had anticipated when Fed might move on from its hawkish policy. The broad consensus among Wall Street analysts is that the Fed, in its March meeting, will hike rates by another 25 basis points, as it did at its last policy meeting.
However, there’s now a sense that the increase might be have to be higher at 50 basis points. It remains to be seen what the ultimate increase is, assuming there is an increase. Nonetheless, beyond the March meeting, the PCI number suggests Fed may have to keep rates higher for longer.
In the meantime, evidenced by the solid Q4 earnings reports we have seen so far, companies are controlling the things they can. Here are the earnings I’ll be watching for this week.
Novavax (NVAX) – Reports after the close, Tuesday, Feb. 28
Wall Street expects Novavax to post a per-share loss of 92 cents on revenue of $383.14 million. This compares to the year-ago quarter loss of $11.18 per share on $222.2 million in revenue.
What to watch: Can Novavax still provide healthy returns? The stock is now worth less than it was in May 2020, in the early days of the pandemic. The shares, which hit an all-time high of $290 in February 2021, recently fell to a 52-week low of $8.64. This is even though the company’s Covid vaccine, by comparison with Pfizer (PFE) and Moderna’s (MRNA), has comparable safety and efficacy and have sold in excess of $40 billion. However, the company’s prospects for 2023 remain bright, assuming strong execution. Marketing and selling its existing vaccine to governments as a booster shot is one area the management can focus on. To be sure, both Pfizer and Moderna vaccines have similar initiatives lined up. But Novavax has a strong start, recently announcing that the U.S. government extended the partnership, ordering up to $1.5 million of additional doses of its protein-based shot. Novavax can also focus on selling its vaccines to emerging private market, while also investing in research and development for new vaccines. All told, while the stock price has been under heavy selling pressure, Novavax’s business fundamentals are looking up. Nonetheless, investors are anxious to hear a healthy does of good news on Wednesday about the company’s growth expectations for 2023 and beyond.
Nio Limited (NIO) – Before the open, Wednesday, Mar. 1
Wall Street expects Nio to report a per-share loss of 23 cents on revenue of $2.56 billion. This compares to the year-ago quarter when it reported a per-share loss of 21 cents on revenue of $1.55 billion.
What to watch: NIO stock has driven in reverse over the past six months, falling close to 50%, compared to a 3% decline in the S&P 500 index. The Chinese electric vehicle maker recently reported its January delivery numbers that reveled just over 8,500 vehicles, which marks a 12% year over year decline. That total amounted to the lowest figure in nine months. However, that has likely reached the low point of the decline as growth picture looks favorable in 2023. In the most recent quarter, the management touted production capacity of 20,000 vehicles per month in December. However, this is down from prior projections of 30,000 vehicles per month. The decline has been due to major Covid shutdowns in China, among other headwinds. However, entering 2023 revenue and delivery expectations are much higher, given that the company continues to ramp up additional production capacity. The major question is whether there will be significant demand to meet the production ramp. Electric vehicle giant Tesla (TSLA) lowered prices to boost market share, and other EV competitors have followed suit. NIO management forecasts a 90% rise in fiscal 2023 revenue, driven by higher volumes. But if Nio is forced to cut prices to keep up with Tesla, its profit margins might not be as strong as expected. The company on Wednesday can make a strong case for its value by delivering a top- and bottom line beat, along with strong delivery guidance for the next quarter and full year.
Plug Power (PLUG) – Reports after the close, Wednesday, Mar. 1
Wall Street expects Plug Power to report a per-share loss of 25 cents on revenue of $277.39 million. This compares to the year-ago quarter loss of 33 cents per share on revenue of $161.91 million.
What to watch: Long-term investors in Plug Power who have waited patiently for power play are feeling energized so far in 2023. Shares of clean hydrogen and fuel-cell technology company have risen close to 20% year to date, besting the 4% rise in S&P 500 index. But the full picture is not as rosy. The shares are down some 45% over the past six months, compared to just a 3% decline in the S&P 500 index. The company has struggled recently with execution. In the most recent quarter, not only were core material handling revenues down year-over-year, the company showed little progress in gross margin improvement. On the bright side, compared to the second quarter, the company’s backlog was higher, which is a predictor of higher future revenue. Shares are about to go higher, according to Manav Gupta, analyst at UBS. Citing the company’s potential in the “green hydrogen” industry as it “aims to be a one stop shop and market leader in the space,” Gupta initiated coverage of the stock a Buy rating and 12-month price target of $26. From current levels of around $14 per share, Gupta’s target assumes 85% potential premium. Gupta noted that Plug Power is in strong position to lead the clean hydrogen and fuel-cell market which could be worth as much as $10 trillion. Investors are anxious to hear what the company has to say on Wednesday about its growth expectations for both the near term and long term.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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