The stock market rally diverged in the latest week. The Nasdaq hit a 2023 high, fueled by Google stock and other tech megacaps. But the S&P 500 and Dow Jones fell for a second straight week. Market breadth also remained poor. Bank concerns flared up again, while crude oil, copper and silver retreated. Li Auto raced higher, while Disney plunged on Disney+ subscriber losses. Airbnb and Catalyst Pharmaceuticals plunged on results. Inflation continued to cool, while other data suggested a slowing economy. Banking concerns flared up again late in the week.
Stock Market Rally Mixed
The Nasdaq composite hit its best levels since August, pushing the market rally back to "confirmed uptrend." But there were caveats. The S&P 500 and Dow Jones did not follow suit, trading lower for a second straight week. Even the Nasdaq's advance was fueled by Google parent Alphabet and other megacap stocks, as well as beaten-down software names. Treasury yields and crude oil fell while metals tumbled.
Inflation Cools, Jobs Slump
The week's batch of economic data brought some mildly good news on the inflation front, but clearer evidence of labor market deterioration, which will bring inflation down even faster. The consumer price index for April came in about as expected, with 0.4% increases from March in both the overall index and for core prices, excluding food and energy. Headline inflation inched down to 4.9% and core inflation to 5.5%. Prices for nonhousing core services rose just 0.3% after several monthly gains of 0.5%-0.6%. That lowered the three-month annualized rate to 5.7% from 6.6% — too high but moving in the right direction. Initial claims for jobless benefits jumped 22,000 to 264,000, the highest since October 2021.
Google Soars On AI Announcements
Google made a slew of announcements related to artificial intelligence as it seeks to keep pace with Microsoft. Crucially for investors, the internet giant discussed how it'll continue advertising in AI search results. Google parent Alphabet said advertising is here to stay no matter how much internet search changes. GOOGL stock jumped to the best level since last August.
Li Auto Shines As U.S. Startups Struggle
Li Auto reported a 163% EPS surge, much better than expected, along with a solid delivery outlook. The Chinese startup's premium hybrid SUVs are booming, without getting drawn into China's EV price war. Shares soared, blasting out of a base. Stateside, Rivian maintained 2023 production guidance, unlike Nikola, Lucid Motors and Fisker.
Elon Musk said he's hired a Twitter CEO, while he'll shift to being in charge of product for the social site. The Wall Street Journal reported that Linda Yaccarino, NBCUniversal's advertising chief, is in talks to be Twitter's CEO. Also, Tesla raised prices on U.S. models except the Model 3.
Disney Plunges On Subscriber Losses
Fiscal Q2 EPS fell 13% while revenue grew 13% to $21.82 billion, both roughly in line with views. Disney+ subscribers unexpectedly declined for a second straight quarter, down 2% vs. Q1 to 157.8 million. Total streaming customers, including Hulu and ESPN+, dipped 1.4% vs. Q1 to 231.1 million. But streaming losses declined on higher prices. Disney plans to remove some titles from its streaming platforms and produce less content, expecting a $1.5 billion to $1.8 billion impairment charge as part of that. DIS stock plunged. Netflix rose solidly on hopes of a less-competitive streaming market.
Allegro MicroSystems Bucks Trend
GlobalFoundries and Skyworks joined the parade of semiconductor firms guiding analysts lower for sales and earnings in the June-ending quarter. Allegro MicroSystems defied the trend, delivering a beat-and-raise quarterly report. Chip gear supplier Entegris saw its shares rocket after it smashed first-quarter estimates, though its guidance was mixed.
Payment Stocks
Flywire, an education payment software and services firm, reported a smaller-than-expected Q1 loss as revenue rose 46% to $94.4 million, topping estimates. Earnings before interest, taxes, depreciation and amortization came in at $7 million, also above consensus. Total payment volume increased 36% to $5.7 billion. FLYW stock nudged higher, flirting with an early buy point. Digital payments giant PayPal reported a 33% EPS gain while revenue climbed 9% to $7.04 billion and payment volume grew 10% to $354.5 billion. All slightly exceeded estimates. But the size of the guidance raise disappointed. Shares plunged to their worst levels in over five years.
Biotech Stocks Diverge
Axsome Therapeutics and Catalyst Pharmaceuticals diverged last week as Axsome soundly beat expectations, but Catalyst came up with a mixed report. Axsome posted $94.6 million in sales. That included $28.6 million from its two drugs — a new depression treatment called Auvelity and narcolepsy drug Sunosi. The remainder stemmed from license and royalty revenue. Axsome narrowed its loss and easily beat views. Catalyst earned 26 cents a share, missing forecasts by 6 cents, though unadjusted earnings leapt 117%. Sales rose bullishly to $81.6 million and included anti-seizure medicine Fycompa for the first time.
Airbnb Tumbles On Weak Guidance
Airbnb reported Q1 earnings per share well above views while it recorded a 20% revenue gain. But bookings fell short and the vacation-rental site gave weak guidance. Despite a new $2.5 billion buyback, ABNB stock tumbled, though it found support at the 200-day line. Hotel stocks also retreated on Airbnb's guidance. Choice Hotels also slid on guidance despite topping Q1 views. Clear Secure, which lets users bypass some airport security lines, narrowly topped views.
Digital Ad Plays Top Views
The Trade Desk on Wednesday reported Q1 EPS up 10%. Revenue rose 21% to $383 million, the fourth straight quarter of slowing growth but comfortably topping views as well. Trade Desk guided slightly higher on Q2 revenue. Its automated platform enables brands and ad agencies to buy online and mobile ads in real time. Shares initially broke out on earnings, but reversed lower. DoubleVerify, another digital ad play, reported a 133% EPS spike with revenue up 27%, both topping. It raised full-year guidance. Shares jumped back above the 50-day line.
Building Products Firms
Trex, maker of fake wood products for residential and commercial projects, beat views with 39% EPS and sales declines. TREX stock soared on strong guidance. Atkore, which makes electrical and mechanical products for nonresidential projects, on Tuesday raised full-year EPS targets after topping fiscal Q2 EPS views but falling short on sales. Shares retreated 4.2% Wednesday and another 0.8% Thursday.
News In Brief
Tempur-Sealy reported a 23% EPS decline, better than expected, while the 2.4% revenue drop was in line. The mattress maker will buy retailer Mattress Firm for $4 billion.
TransDigm reported a 55% EPS gain in fiscal Q2 with revenue up 19.5%, both beating and the best gains in several quarters. The aerospace components maker also guided up for fiscal 2023. TDG rose to a new high.
Ryanair will buy 150 Boeing 737 Max jets, with the European discount carrier also having an option to buy 150 more.
Bentley Systems surged after reporting flat profit and a 14% revenue gain, both better than expected.
GXO Logistics beat Q1 EPS views with a 17% decline while revenue met with a 12% gain. The logistics firm raised full-year EPS targets slightly above consensus.
Wynn Resorts reported a slim, unexpected loss, while a 49% revenue gain slightly beat. North American properties shined.
Duolingo reported a smaller-than-expected loss while Q1 revenue popped 42%, slightly beating. Bookings and active users rose sharply for the foreign-language education platform. DUOL stock jumped after tumbling in the prior week on AI concerns.
Celsius Holdings erupted as the energy drink maker delivered a 344% earnings per share gain while revenue jumped 95%, easily beating.
Performance Food Group reported a 63% EPS gain, beating fiscal Q3 views. Revenue rose 5%, falling short. Shares fell, but found support at the 50-day line.
Livent and Argentina-based Allkem will merge, creating a $10.6 billion lithium company. LTHM stock popped, also boosted by rebounding lithium prices following a huge plunge to start 2023.
JD.com reported a 74% Q1 EPS gain, with sales up 12%, both beating views. The Chinese e-commerce giant expressed confidence about the future.
Occidental Petroleum reported a 48% EPS decline as revenue fell 13% to $7.26 billion, both missing views as sagging oil and natural gas prices offset higher than expected production. Ahead of earnings, Warren Buffett told investors he has no intention to take over Occidental Petroleum even though he and Berkshire Hathaway "love" their current OXY investment.
Shockwave Medical rose solidly after easily beating first-quarter forecasts. Adjusted profit surged 164% as sales swelled 72% to $161.1 million. It also guided higher for full-year revenue.
Zscaler preannounced fiscal third-quarter results above prior targets and raised its full fiscal-year outlook. Shares of the cybersecurity firm soared, lifting other cybersecurity stocks and highly valued software names.
Palantir Technologies March quarter earnings leapt 150% per share while revenue rose 18% to $525 million on Monday, both beating. Government revenue rose 20% to $289 million, in line. Commercial revenue climbed 15% to $236 million, topping views. The data analytics software maker guided slightly lower on revenue. But PLTR stock bolted higher in strong volume.
Axon Enterprise reported a 96% EPS gain, crushing views, while revenue rose 34% to $343 million. But the Taser and body camera maker sees a tougher second half of the year as customers delay buying decisions, awaiting new products. AXON plunged.
