The stock market rally attempt made solid gains to start the week, but then hit resistance as Treasury yields continued to spike higher. Tesla reported mixed earnings, while also giving mixed signals about demand. Netflix surged as subscriber growth and forecasts were much stronger than expected. ASML and Lam Research earnings and guidance gave a boost to battered chip names, while Steel Dynamics popped on results as well. Snap crashed yet again on earnings.
Stock Market Rally Attempt Bounces, Then Fades
The stock market rally attempt gapped up on Monday and added to gains intraday Tuesday, but fell back, with the major indexes hitting resistance at their 21-day lines. They still rose for the week. Treasury yields soared far above 4% to fresh 14-year highs, weighing on stocks, though there was renewed speculation Friday that the Fed could start to slow rate hikes in December. Crude oil prices rose, even as the Biden administration mulls further Strategic Petroleum Reserve releases. But natural gas prices plunged.
Falling jobless claims and other data signaled still-tight labor markets, while Fed officials remained hawkish. Housing data continues to weak in the faces of soaring mortgage rates, while factory reports were mixed.
Tesla Sales Miss
Tesla earnings jumped 69%, slightly beating views. Revenue grew 56% to $21.5 billion, but that fell short as deliveries lagged. The EV giant cited logistics challenges, but China demand concerns are growing. Ramping-up production is expected to exceed deliveries again in Q3. Automotive gross margins slightly missed. TSLA stock tumbled to a 16-month low, as analysts focused on lower-than-expected automotive gross margins, with the EPS beat due to a lower tax rate and corporate spend. Yet bulls saw the margin compression as temporary, due to costs associated with ramping production in Texas and Germany.
BYD gave preliminary third-quarter earnings. The Chinese EV and battery giant sees net income up 334%-365%, with adjusted profit skyrocketing 879%-1,015%.
Tesla Vs. BYD: Which EV Giant Is The Better Buy?
Netflix Jumps On Subscriber Gains
Subscription streaming video leader Netflix added 2.4 million subscribers in the third quarter, topping estimates for 1.1 million. It ended the period with 223.1 million total subscribers worldwide. For the current quarter, Netflix forecast adding 4.5 million subscribers. But this is the last quarter that Netflix will provide a prediction for new subscribers. It wants investors to focus on revenue growth instead, especially as it generates advertising sales from a new ad-supported service launching Nov. 3. Netflix earnings fell 3% in Q3 as revenue grew 6% to $7.93 billion, both topping.
China Trade Curbs Hit Lam Research
Lam Research warned that new U.S. export restrictions targeting China will reduce its revenue by as much as $2.5 billion in 2023. Meanwhile, fellow chip-equipment giant ASML expects limited impact from the trade restrictions. The Biden administration is banning the sale of advanced semiconductor technology in China. It is concerned about possible military use of the technology as well as anticompetitive behavior by Chinese chipmakers. In their September-quarter earnings reports, Lam and ASML noted weakening demand for chip gear in some segments. But both companies have sizable order backlogs to cushion their businesses near term. Both stocks jumped, but from near bear-market low.
Airlines Beat, Upbeat
American Airlines and United Airlines topped earnings estimates and issued upbeat guidance going forward, following a strong outlook from Delta Air Lines a week earlier. Both reported strong revenue growth and big earnings, reversing from year-earlier losses. Domestic-focused Alaska Air also beat earnings views with a 72% gain. United and America rose for the week but ALK fell.
Steelmakers Top Views
Steel Dynamics posted 10% EPS growth amid lower prices but record shipments, as its Sinton, Texas, mill ramps up. Steel fabrication for nonresidential and multistory residential provided 50% of income, up from 7% a year ago. Nucor EPS slid 10%, as strong fabrication partly offset lower shipments and pricing. STLD stock jumped to a buy point, while NUE moved above its 50-day line.
Freeport-McMoRan Bullish On Copper Prices
Freeport-McMoRan reported Q3 EPS tumbled 71%. A 17% drop in the average copper price and a 41% jump in unit cash costs swamped a 2.6% rise in copper sales volume. FCX stock jumped as the copper mining giant highlighted robust demand and tight inventories. While copper prices could go lower in a recession, that could slow new mine development, adding to future deficits.
Alcoa posted a 33-cent loss per share vs. EPS of $2.05 a year ago, hurt by lower prices and higher costs for energy and raw materials. Revenue fell 8% to $2.85 billion. But AA stock jumped on the week, helped by a less-negative Q4 cost outlook.
Bank Earnings
Bank of America reported a 5% EPS drop while revenue grew 26%, topping forecasts. Goldman Sachs earnings dropped 44% while revenue fell 12% to $11.98 billion, but still topped. Some regional banks plunged on earnings, including M&T Bank and SVB Financial Group.
Medical Giants Fall Despite Q3 Beats
Johnson & Johnson and Abbott Laboratories beat third-quarter expectations last week, and Abbott boosted its earnings outlook. But both stocks slumped. J&J's EPS fell nearly 2% while sales rose about 2%. Its drug business led the way, helped by treatments for cancer, psoriasis and schizophrenia. Abbott's sales fell 5% to $10.41 billion and adjusted EPS declined 18%. Much of the beat stemmed from Covid tests. but Abbott expects those sales to significantly decelerate in the fourth quarter.
Rail, Trucking Firms
For the third quarter, railroad giant Union Pacific grew EPS 24% to $3.19 as revenue rose 18%, but UNP sank Thursday on ongoing efficiency concerns. CSX also topped views. Trucking firms JB Hunt and Marten Transport grew both earnings and revenue by double digits, but MRTN stock tumbled on a slight EPS miss. XPO Logistics increased EPS 43% but revenue fell 6% in preliminary Q3 results that fell short. Freight industry fundamentals continue to soften, with volumes and rates down sharply.
News In Brief
Snap earnings tumbled 53%, with revenue up a record-low 6%, just missing views. The Snapchat parent also didn't offer guidance. Snap stock plunged Friday after massive drops following the prior 2 earnings reports. Meta Platforms and Pinterest also fell.
Elon Musk is closing on a Twitter takeover, but a report said U.S. government officials are mulling subjecting various Musk deals to national security reviews. However, the White House said it's not aware of any security reviews. TWTR stock fell on Friday.
Procter & Gamble posted a 3% EPS decline to $1.57 despite a 1% revenue gain, with higher prices offsetting lower volumes. The Tide detergent maker cut full-year outlook. PG stock rose for the week, but well off highs.
Intuitive Surgical surged Wednesday with 20% procedure growth helping drive a third-quarter beat. The better-than-expected procedure growth led to strong sales of single-use tools for the company's robotic surgery systems. Adjusted EPS was flat at $1.19, while revenue climbed 11% to $1.56 billion.
Winnebago Industries reported a 17% EPS gain as revenue rose 15% to $1.18 billion, both beating Q4 views. But the RV and motor home manufacturer warned of "uncertain market conditions," sending WGO stock plunging.
Activist investor Starboard Value disclosed that it has taken stakes in enterprise software makers Salesforce and Splunk. Starboard founder Jeff Smith didn't disclose the size of the hedge fund's stake in Salesforce. It holds a 5% stake in Splunk. Starboard aims to improve Salesforce's profit margins, which lag other software giants'. Starboard aims to improve Splunk's free cash flow.
AT&T topped Q3 views, with EPS from continuing operations up 3% as revenue fell 4.1% to $30 billion. It added 708,000 postpaid wireless postpaid phone customers vs. estimates for a 552,000 gain. In addition, AT&T added 338,000 fiber broadband subscribers, slightly topping estimates. Verizon reported EPS slid 7% as revenue grew 4% to $34.2 billion, both beating. But Verizon added just 12,000 postpaid phone subscribers.
Charles Schwab and Interactive Brokers received a major boost in the latest quarter from higher interest rates. Charles earnings leapt 30% on 20% revenue growth to $5.5 billion, beating estimates. Interactive Brokers' EPS jumped 38%. Revenue rose 21% to $790 million, slightly short of consensus.
Lockheed Martin earnings rose 4%, slightly topping as revenue grew 14% to $18.2 billion, solidly beat. The defense giant also announced a $14 billion buyback. LMT stock surged, with other defense stocks also rallying
Baker Hughes and Schlumberger kicked off earnings for oilfield service firms. Hughes topped earnings estimates but missed on revenue views for Q3. The Texas-based company reported EPS growing 62% to 26 cents per share while sales edged up 6% to $5.4 billion. Schlumberger followed Friday, beating earnings and revenue estimates on worldwide oil and gas drilling momentum. Schlumberger earnings grew 75% to 63 cents per share while revenue increased 10% to $7.5 billion.
