Chile Heads LatAm Market Gains; Tech Stocks Push NYSE Higher

Latin America’s stock markets closed mixed on Monday, with Chile’s IPSA index leading the gains, while US tech shares gained ahead of quarterly results

Traders on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Michael Nagle/Bloomberg
By Bloomberg Línea
January 23, 2023 | 09:37 PM

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A roundup of Monday’s stock market results from across the Americas

👑 Chile leads LatAm gains:

Latin American stock markets closed mixed on Monday, with Chile’s IPSA (IPSA) index seeing the biggest gains, closing with a gain of 1.45%, driven by the good performance of the non-basic consumer products, communication services and materials sectors. Shares of Falabella (FALAB), Sociedad Química y Minera de Chile (SQM/B) and Empresa Nacional de Telecomunicaciones (ENTEL) were the best performers of the day.

The Chilean government expressed caution Monday about Brazil and Argentina’s intentions to move toward a common South American currency. “We are comfortable having our own fiscal and monetary policy, which have been especially helpful in reducing inflation this year,” said Mario Marcel, Chile’s finance minister, on Monday.

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The idea gained relevance in the last hours after the Presidency of Argentina launched this Sunday a communiqué where it advanced that the governments of Alberto Fernández and Luiz Inácio Lula da Silva decided to “advance in the discussions on a common South American currency” that reduces the “external vulnerability”. In the past, President Gabriel Boric said he was available to discuss this proposal, but the matter was not addressed again.

On the other hand, financial operators estimate that the central bank of Chile will maintain the reference interest rate at 11.25% in its next monetary policy meeting to be held this week, according to a survey published Monday by the issuing entity.

Those consulted point out that it will be in April when the monetary policy rate (TPM) will be cut, taking it to 10.75%, after several months of consecutive increases to control the strong inflation. According to the Financial Operators Survey, borrowing costs would be brought to 8.50% in July of this year, and would continue to fall in 2024.

📉 A bad day for Colombia’s COLCAP:

Colombia’s COLCAP (COLCAP) closed with the sharpest losses in the region, shedding 0.42%, dragged down by the performance of the materials, utilities and consumer staples sectors.

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Shares of Cementos Argos (CEMARGOS), Grupo Bolívar (GRUPOBOL) and Celsia (CELSIA) saw the sharpest declines.

Colombian President Gustavo Petro will attempt to give Colpensiones greater powers to operate not only in the medium premium regime, but also to become a bank and compete with private pension funds, and become one of them. Sources working on the proposal told Bloomberg Línea that Colpensiones would operate as a national bank and in principle would lend to individuals. As it would have to be capitalized, its first resources to operate could come from the Bicentenario Group, a mixed economy company, linked to the Ministry of Finance and Public Credit, which includes entities such as Banco Agrario, Fondo Nacional del Ahorro, Findeter, Bancoldex, among others.

🗽On Wall Street:

Tech stocks led gains on Monday, with earnings for the most-influential segment of the US equity market about to get underway in a test of the 12% surge in the S&P 500 from its October low.

The S&P 500 gained 1.19%, the Nasdaq Composite (CCMPDL) 2.01% and the Dow Jones Industrial Average 0.76%.

Marquee names like Microsoft Corp. and Tesla Inc. are set to report results in the next few days, helping shape the fate of a sector that last year faced a reckoning on Wall Street amid higher rates. Such pessimism has faded in recent weeks as tech firms shift their focus to cost cuts and inflation shows signs of easing, with the Nasdaq 100 set for its best back-to-back rally since November.

The latest notable company to announce job cuts to lower expenses was Spotify Technology SA, which climbed on plans to slash about 6% of its employees. Also emboldening traders was a call from Barclays Plc upgrading Advanced Micro Devices Inc. and Qualcomm Inc., which spurred an almost 5% jump in the Philadelphia Semiconductor Index.

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The S&P 500 crossed its key 4,000 mark — seen by several technical analysts as a make-or-break level that could define the gauge’s direction.

“We’re likely to find out soon whether this latest run is just another one of many false alarms or if it’s really ‘the one’,” according to strategists at Bespoke Investment Group. “One thing bulls have working in their favor is that following the last unsuccessful test in mid-December, the market didn’t go on to make new lows.”

Now one aspect to keep in mind — especially when it comes to corporate profits — is that stocks aren’t necessarily cheap at this stage. In fact, the S&P 500 may look expensive compared with historical levels given that earnings estimates have been falling for a while.

Another thing to consider is that if the US equity benchmark in fact bottomed on Oct. 12, that would be one of highest valuation troughs ever, noted David Bahnsen, chief investment officer of his namesake wealth management firm. The S&P 500 was trading around 17 times relative to earnings at that time — and bear-market bottom multiples are historically much lower than that, he added.

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“Investors should not assume that the easy times in the market are coming back,” Bahnsen said. “We expect enhanced volatility and a focus on cash flow and quality for the foreseeable future.

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To Matt Maley at Miller Tabak + Co., the S&P 500′s current valuations don’t leave “a lot of leeway for disappointments.” And with higher interest rates, it’s going to be tough for the markets to keep rallying should earnings projections for 2023 come down further, he added.

Early fourth-quarter results show that the companies in the US equity benchmark are on track to miss expectations by 1% after analysts lowered their projections, Bank of America Corp. strategists including Savita Subramanian wrote.

The recent weakening of economic data alongside the anticipated decline in earnings expectations and weak 2023 guidance are pointing to markets that are likely to move lower, according to JPMorgan Chase & Co. strategists led by Marko Kolanovic.

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“A recession is currently not priced into equity markets, in our view,” they added.

Investors are failing to price in a backdrop of weakening economic data and earnings, according to Morgan Stanley’s strategist Michael Wilson. Recent optimism around a less hawkish Federal Reserve, China reopening and a weaker dollar is already priced in, he wrote. Nevertheless, he does expect a stock rally in 2024 following a challenging 2023 as the US economy suffers through an earnings recession.

“Markets have leapt ahead this year, driven by China’s reopening, falling energy prices and slowing inflation,” strategists at BlackRock Investment Institute wrote. “This has spurred hopes of a soft economic landing, plummeting inflation and interest rate cuts. We see markets vulnerable to negative surprises – and unprepared for recession.”

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As the Fed enters the blackout period ahead of its Jan. 31-Feb. 1 meeting, markets have priced in a smaller — and more traditional — 25-basis-point hike. Even as several officials say rates must peak above 5% and stay higher for longer, markets remain skeptical. They still don’t believe policymakers will go above 5%, and they see the Fed cutting rates aggressively by the end of the year, according to Anna Wong at Bloomberg Economics.

Meantime, Treasury Secretary Janet Yellen said she’s encouraged by progress on inflation, with energy prices and supply-chain issues easing across the globe even as the US labor market remains strong.

“Investors should be careful to temper their expectations for premature rate cuts, as the Fed will likely need to keep a restrictive footing on monetary policy throughout the year to fight inflation,” said Jason Pride, chief investment officer of private wealth at Glenmede.

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The Bloomberg Dollar Spot Index was little changed, the euro was little changed at $1.0861, the British pound fell 0.2% to $1.2369 and the Japanese yen fell 0.8% to 130.63 per dollar.

🔑 The day’s key events:

Oil closed a mixed day on Monday. West Texas Intermediate crude oil fell slightly by 0.02% to settle at $81.62 a barrel, which is the second price decline in the last 12 trading sessions. Meanwhile, Brent rose by 0.48% to settle at $88.05 a barrel for March delivery.

The increase in US stockpiles weighed on WTI more than the optimism that the Lunar New Year festivities in China would boost demand in the world’s largest crude importer. The inventory at Cushing, Oklahoma, rose by about 1.6 million barrels between Jan. 13 and Jan. 17, according to traders citing data from Wood Mackenzie.

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Oil has rebounded from a weak start to the year as the end of China’s Covid-Zero policies prompted the country to increase its import quotas and prompted analysts to raise their demand forecasts. Expectations that the Federal Reserve is close to ending its series of aggressive rate hikes have also boosted prices.

🍝For the dinner table debate:

An anticipated mixed reality viewer from Apple Inc. (AAPL) will be the company’s ambitious attempt to create a 3D version of the iPhone operating system with eye-tracking and handheld systems that could differentiate it from other products.

The device, which will cost about $3,000 and is expected to be launched later this year under the name Reality Pro, will take a novel approach to virtual meetings and immersive video as it seeks to break into an industry dominated by Meta Platforms Inc (META).

It’s a high-risk bet for Apple, which is entering a major new category since launching a smartwatch in 2015.

Apple is entering an uncertain market with a high-end product. The company’s Technology Development Group of more than 1,000 people has spent more than seven years on the project, and Apple is counting on it becoming a new revenue stream, especially as sales growth is set to stall this year.

But virtual reality has proven to be a challenge for the biggest tech titans. Although some forecasts point to the sector reaching a $100-billion value by the end of the decade, visors are still considered a niche, and Meta has lost billions with its efforts.

Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.