Nasdaq closes slightly lower for a second day as earnings season rolls on

Pro Picks: Watch all of Wednesday's big stock calls on CNBC
Pro Picks: Watch all of Wednesday's big stock calls on CNBC

The Nasdaq closed lower Wednesday for a second day as investors studied the latest batch of corporate earnings, and assessed how the largest companies are faring amid rising rates and mounting recession fears.

The tech-heavy index dipped 0.18% to close at 11,313.36, while the S&P 500 dipped 0.02% to settle at 4,016.22. The Dow Jones Industrial Average eked out a small gain, rising 9.88 points, or 0.03%, to end at 33,743.84.

Stocks pared their losses during afternoon trading, with the Dow bouncing back from a more than 460-point tumble. At its lows, the Nasdaq shed 2.34%.

Technology stocks languished for most of the session after Microsoft's lackluster guidance further fueled growth concerns. The software giant closed slightly lower. Boeing finished slightly higher despite a top-and bottom-line miss.

"If the company is bearish on its own future, why should investors be bullish? That's pretty much the message we're getting from earnings season so far," said Adam Sarhan CEO of 50 Park Investments.

Investors bought stocks heading into the reporting period, anticipating better-than-expected prints as companies reset and lowered expectations. But reports so far across sectors have mostly dashed those hopes as many companies share dismal outlooks, he said.

Investors are bracing for more high-profile corporate earnings this week as fears of a recession persist, with Tesla and IBM among the companies slated to post numbers after the bell. Through Wednesday's open, more than 19% of S&P 500 companies have reported fourth-quarter earnings, with 68% of them posting stronger-than-expected results, according to FactSet.

This beat rate, however, lags historical trends, according to The Earnings Scout CEO Nick Raich. The average beat rate for fourth-quarter earnings is 79%, he pointed out in a Friday note.

As of Wednesday's close, all three major averages are higher for the week, with the Nasdaq up 1.55%. The S&P and Dow have gained 1.1% each.

Stocks finish mixed

Stocks were mixed Wednesday.

The Dow Jones Industrial Average rose 9.88 points, or 0.03%, to end at 33,743.84. The Nasdaq Composite dipped 0.18% to close at 11,313.36, and the S&P 500 dipped 0.02% to settle at 4,016.22.

— Samantha Subin

Emerging markets' stunning January may herald further outperformance

The iShares MSCI Emerging Markets ETF (EEM) is higher by about 10.5% so far in January and on pace for its best January to start the year since 2012 (when it rose about 11% and the S&P 500 gained about 4.4%).

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Emerging market ETF in January

So, just out of curiosity, what did emerging markets go on to do the rest of the way in 2012?

The emerging markets ETF ended 2012 higher by 16.9%, beating out the S&P 500's 13.4% advance.

Emerging markets have seen surging inflows of new capital lately. Toronto-Dominion Wednesday said EM equities attracted $13 billion in new money in January alone, while EM bonds drew $3.6 billion.

"Reduced positioning, cheaper valuations, softer USD, peak Fed rates pricing, lower [Treasury] yields, China opening and the approaching onset of an easing cycle across EM are sharply improving the attractiveness of EM assets," said Mitul Kotecha, TD head of emerging markets strategy, in a report.

— Scott Schnipper, Gina Francolla

2023 could be ‘transformational’ for Robinhood, Mizuho says

Mizuho is raising its estimates on Robinhood's fourth quarter transaction revenue thanks to strength in the fintech company's options volumes, analyst Dan Dolev said in a note Wednesday, and lowering estimates for revenue from crypto trading.

"We expect the upside to arise from better than expected options trading volumes paired with higher net interest revenues, somewhat offset by lower crypto trading volumes," Dolev said. "Beyond 4Q, we continue to view 2023 as a transformational year for HOOD as it should benefit from new products, such as its new IRA offering."

— Tanaya Macheel

Bank of America initiates Papa Johns with a buy rating

Bank of America has initiated coverage of pizza chain Papa Johns with a buy rating and a price target implying about 20% upside from its current share price, the firm said in a note Wednesday.

Demand for pizza was above trend during the pandemic and pizza comps are softening now as a demand normalizes. However, franchise growth could generate low-20% unlevered returns, and Bank of America sees "significant" white space in the U.S. and room for the company to add more than 1,300 stores internationally.

— Tanaya Macheel

Toast is 'an incredible growth story just getting started,' says D.A. Davidson

D.A. Davidson enthusiastically issued a buy rating for the cloud-based restaurant management company Toast, calling it an innovative "market leader." 

"As a pure-play restaurant-focused fintech, Toast is transforming how restaurants manage operations with software that yields dramatic top and bottom line benefits," wrote analyst Christopher Brendler in a client note. "With fantastic hardware, superior software, and attractive pricing, Toast makes it easy and as a result, it recently crossed ~10% market share in the US."

Toast's shares have increased 19.08% year-to-date. The company has reached 11% market share domestically, and has recently begun to expand internationally to Canada, the UK, and Ireland.

Despite what several analysts anticipate will be a rocky year ahead for tech and e-commerce stocks, the firm is optimistic that Toast can maintain its success. 

"Although macro is a concern, we note Toast has already proven its ability to power through tough times," citing the company's 24% revenue growth in 2020, during which restaurants and merchants — Toast's customer base — struggled. 

— Hakyung Kim