The stock market rally retreated from near 2023 highs for most of the week amid renewed banking fears, another Fed rate hike, key economic data and a flurry of economic reports. But the major indexes rebounded Friday. The Federal Reserve hinted at a pause after Wednesday's hike, while markets are betting on rate cuts within a few months. After JPMorgan Chase agreed to buy First Republic Bank, PacWest Bancorp and Western Alliance Bancorp became the next regional banks under fire, with many other financials selling off too. But they slashed losses with big rebounds Friday, while Apple rallied on earnings.
Huge swings on quarterly results and guidance continued. Shopify, Uber, Super Micro Computer, Lantheus and Builders FirstSource were big earnings winners, while Arista Networks and Starbucks were notable losers.
Market Rally Finishes Strong
The major indexes retreated for most of the week, amid bank contagion fears, mixed earnings and the latest Fed hike. But they roared back Friday, finishing the week narrowly mixed, extending relatively tight weekly closes. Earnings season continued to generate huge winners and losers. Regional banks plummeted during the week, even with huge gains Friday. The 10-year Treasury yield erased losses while crude oil plunged.
Fed Delivers 'Dovish Hike'
The Federal Reserve raised its key rate just past 5%, then signaled a pause, delivering what economists call a "dovish hike." After 500 basis points of rate hikes starting in March 2022 and continued tightening via shrinking of the Fed balance sheet, chair Jerome Powell said, "We have the luxury" of observing a few months of data to confirm that the central bank "has got this right." The bank crisis, which is tightening credit for households and businesses, is likely to take a bigger toll on the economy in the months ahead, meaning the Fed won't have to tighten as much as it would if there was no crisis. Even after Friday's solid jobs report, markets see negligible odds of a rate hike in June and nearly 75% odds of a rate cut by September. Powell's not on board with that latter forecast. Rate cuts won't happen unless inflation falls faster than expected.
Market Roars, But Don't Go Wild; What To Do Now
Jobs Report Strong, But Not Too Strong
The April employment report saw stronger-than-expected job gains (258,000 vs. 178,000 forecast), faster average hourly wage growth (up 0.5% on the month vs. 0.3% expected) and a surprising fall in the unemployment rate to 3.4%, matching a half-century low. Revisions cut job growth by 149,000 for the prior two months, while other factors suggested some softness. Private jobs growth over three months slowed to 182,000 from 223,000 in March. Meanwhile, job openings continued to fall significantly, while fewer workers are quitting. The ISM manufacturing index showed another month of modestly contracting factory activity, while the ISM services index showed moderate growth.
Regional Banks Crash, Try To Bounce
Regulators closed First Republic Bank early Monday and immediately sold all of its deposits and most of its assets to JPMorgan Chase. First Republic's collapse was the second-largest bank failure in U.S. history and the third in just eight weeks. JPMorgan, President Biden and Fed chief Jerome Powell reiterated statements that the banking system is sound. But PacWest Bancorp sent bank stocks spiraling again Thursday on reports it's exploring strategic options, including a possible sale. Western Alliance denied reports Thursday that it's exploring its own potential sale. The American Bankers Association called for SEC Chair Gary Gensler to probe short sellers profiting off the bank crisis. PACW, WAL and other regional banks skyrocketed Friday, but still plunged for the week.
Apple Tops Quarterly Targets
The Consumer electronics giant beat Wall Street's targets for its fiscal second quarter on strong sales in iPhones and services. Apple earnings per share were flat as revenue fell nearly 3% to $94.8 billion. Apple's iPhone revenue increased 2% to $51.3 billion, beating views and offsetting declines in iPad, Mac and accessories sales. Services revenue increased 5% to $20.9 billion. Also, Apple increased its quarterly dividend by 4% to 24 cents a share. Plus, it announced an additional $90 billion in share repurchases. Apple stock rose.
Shopify Surges On Earnings, Logistics Sale
Shopify announced the sale of a majority stake in its delivery and logistics business to Flexport. For the first quarter, e-commerce firm Shopify earned 1 cent a share adjusted, down 50% but beating views for a loss. Revenue rose 25% to $1.5 billion, topping. Shares skyrocketed. Etsy reported a 12% EPS decline with revenue up 11% to $622 million, both beating. Gross merchandise sales, or the dollar value of items sold in all Etsy marketplaces, rose 4.6% to $3.1 billion. Shares tumbled to a six-month low. MercadoLibre, the largest e-commerce company in Central and South America, reported EPS of $3.97, up 205% from a year earlier. Revenue rose 35% to $3.04 billion, topping estimates of $2.88 billion. Gross merchandise volume jumped 43% to $9.4 billion, topping estimates of $8.9 billion. But shares reversed sharply lower.
Software Earnings, Guidance Mixed
HubSpot reported Q1 earnings per share up 122%, crushing views, with its growth accelerating for a third straight quarter. Revenue climbed 27% to $501.6 million, also comfortably beating. The maker of web marketing software gapped up out of a base. Datadog reported a 17% EPS gain while revenue jumped 33% to $482 million, beating views. Billings, a sales growth metric, fell short. The cloud monitoring software firm guided up on Q2 EPS and down on sales. Shares gapped up, but were still below its 200-day line. Fortinet reported Q1 profit, revenue and billings that topped analyst estimates. Earnings rose 79%, the fourth straight quarter of accelerating growth. Revenue climbed 32% to $1.26 billion. Billings, a sales growth metric, rose 30% to $1.5 billion. For the June quarter, Fortinet predicted revenue of $1.3 billion and billings of $1.58 billion, just above consensus. The cybersecurity leader also OK'd an additional $1 billion share buyback. FTNT surged on earnings. Paycom Software reported Q1 profit of $2.46, up 29%, while sales rose 28% to $451.6 million. Both topped estimates. The workforce-management software maker announced a $1.50 per share annual dividend. Shares tumbled.
Automotive Chipmakers Outperform
Chipmakers exposed to the automotive industry performed better than others with their earnings reports and guidance in the past week. These included Lattice Semiconductor, NXP Semiconductors, On Semiconductor and Power Integrations, which posted beat-and-raise reports for the March quarter. Meanwhile, chipmakers tied to the personal computer and smartphone markets guided below Wall Street estimates for the June quarter amid weak demand and high inventories. Semiconductor companies in that camp include Advanced Micro Devices, Cirrus Logic, Qorvo and Qualcomm. Among chip gear makers, Axcelis Technologies beat its first-quarter targets but offered mixed guidance.
AMD rebounded on a report that Microsoft is working with the chipmaker on AI processors, including helping to finance the project. Microsoft later said it's not involved in developing its own AI chip, but didn't say if it's financing AMD efforts.
Building Materials, Installers Strong
Builders FirstSource, Sterling Construction and Tecnoglas beat consensus forecast.
Builders FirstSource crushed views with a surprise 15% EPS gain while revenue fell 6%. Sterling reported flat profit and a 10% revenue gain, but both beat views. Tecnolgas EPS jumped 104% as revenue swelled 51%. BLDR stock blasted out of an ascending base, while STRL stock ran up to a buy point before backing off. TGLS stock jumped to a new high but then reversed lower. Meanwhile, insulation installers TopBuild and Installed Building Products topped EPS views, but TopBuild met on sales while IBP missed. Both stocks fell.
Arista Networks Beats, But ANET Beaten Down
Arista Networks reported a 70% EPS gain, snapping a five-quarter string of accelerating growth. Revenue jumped 54% to $1.35 billion vs. forecasts for $1.31 billion. The cloud networking gear maker guided slightly higher on Q2 revenue, but didn't raise guidance for the second half of the year. ANET stock plunged.
Biotechs Largely Beat
Biotechs largely beat first-quarter expectations last week with TG Therapeutics reporting $7.8 million in sales for multiple sclerosis drug Briumvi, crushing expectations after just two months on the market. Losses were lighter than expected, and TGTX stock spiked higher. Vertex Pharmaceuticals and Sarepta Therapeutics beat expectations, while Incyte missed. Vertex EPS fell 13% while sales grew 13% to $2.37 billion. Sarepta reported a narrower loss as revenue grew 20% to $254 million. But Incyte tumbled as EPS skidded 33% as sales climbed just 10% to $808.7 million. Regeneron topped Q1 views with a 12% EPS decline and a 7% revenue rise. But sales of its flagship Eylea drug fell short. REGN tumbled.
Lilly's Alzheimer Drug Effective
Eli Lilly pulled Alzheimer's stocks higher after saying its experimental drug, donanemab, succeeded in a Phase 3 study. Lilly studied donanemab in patients with a protein called tau in their brains. That protein is associated with Alzheimer's disease. On a scale of cognition, donanemab recipients with an intermediate level of tau experienced a 35% slower decline vs. the placebo group. Including patients with high levels of tau, the drug led to an overall 22% slower decline in cognition. But 24% of patients experienced brain swelling and more than 31% had bleeding in the brain. Both are expected side effects of this drug class. Lilly now plans to file for FDA approval this quarter.
Novo Nordisk topped Q1 forecasts with a 48% EPS jump and 33% revenue rise, but a 240% sales boom for weight loss drug Wegovy missed expectations. NVO fell.
Medical Product Earnings Strong
Medical products and systems continued showing strength last week with a number of companies beating expectations and raising guidance. Si-Bone reported a 46% sales gain while losses narrowed. Hologic outplayed a decline in Covid test sales to beat forecasts with a 22% revenue rise, even as EPS slid 49%. Penumbra, Zimmer Biomet and Stryker also topped quarterly expectations. Every company raised its full-year revenue outlook, while Hologic, Zimmer Biomet and Stryker also raised earnings outlooks. Lantheus delivered a 52% EPS gain while revenue leapt 44%, lifting its full-year EPS target. LNTH stock, Penumbra and Si-Bone rose strongly, but HOLX, Zimmer and Stryker retreated for the week. Meanwhile, InMode crumbled after retaining its outlook despite beating its own already bullish preannounced earnings. InMode's adjusted EPS climbed 30% while sales grew 24%.
Restaurants Beat Views
Wingstop, Starbucks, Restaurant Brands and Shake Shack all beat quarterly views. Wingstop reported a 79% EPS gain, well above views, amid strong same-store sales. The wings specialist sees strong domestic comps for the year. Burger King parent Restaurant Brands reported a smaller EPS gain while Shake Shack slashed losses. All three stocks rose strongly on earnings, but WING and QSR pared weekly gains. Starbucks rode a China rebound, but shares tumbled as full-year guidance was unchanged. Taco Bell and KFC parent Yum Brands missed on EPS. Shares fell back into a buy zone.
Olive Garden owner Darden Restaurants said it will buy Ruth's Hospitality, which runs its Ruth's Chris steakhouse chain, for $715 million cash. RUTH stock soared.
DraftKings Bets On Profits
DraftKings reported a smaller-than-expected loss with an 81% revenue gain solidly beating. The online sports betting giant raised guidance and hinted at profitability in the not-to-distant future. Shares surged out of a base. MGM Resorts swung back to a profit in Q1, easily beating views amid a Macau revival. Revenue growth accelerated. MGM stock broke out but then fell back. U.S. casino giant Caesars Entertainment reported a surprise loss though revenue slightly topped. CZR stock was little changed for the week.
Travel Stocks On Different Flights
Booking Holdings topped Q1 EPS and revenue views, but adjusted EBITDA came in light. Marriott International reported a 67% EPS gain, but Hyatt Hotels missed. Royal Caribbean and Norwegian Cruise Line reported smaller-than-expected losses and were bullish on bookings.
Uber Surges, Lyft Dives
Uber Technologies reported a smaller-than-expected Q1 loss with revenue up 29% and bookings strong, fueled by international growth. Lyft reported a smaller-than-expected Q1 loss as revenue topped. But active riders fell short while Lyft gave weak guidance. Uber benefits from a global operation and food-delivery, while Lyft is largely a U.S. ride-hailing operation. UBER stock skyrocketed from the bottom of a base to breakout. LYFT stock plunged, trading below all its moving averages.
Payment Plays Beat Q1 Views
Shift4 Payments reported a 240% gain with revenue up 36% to $547 million amid acquisitions. But Shift4 raised full-year revenue guidance by less than the March sales beat. Shift4 also announced a $250 million share buyback and the acquisition of restaurant service provider Focus. FOUR stock plunged. Square-parent Block reported earnings and revenue that topped estimates. EPS swelled 122% while net revenue rose 26% to $4.99 billion, including Cash App transactions for digital cryptocurrency Bitcoin. Cash App had 53 million "monthly transacting actives" as of March 30, up 17% from 46 million a year earlier. Shares bounced after flirting with six-month lows.
Oil Earnings
Europe oil majors BP and Shell reported Q1 results. BP reported a 13% EPS decline, topping views, but a 14% revenue rise to $56.18 billion fell short. Surplus cash flow decreased 43% to $2.28 billion. BP reduced buybacks in Q1 and will further curb repurchases in Q2. Shell saw EPS grow 16% while sales edged up 3% to $86.96 billion. Shell cited improved operational performance and lower underlying operational costs that offset lower oil and gas prices. Meanwhile U.S.-based ConocoPhillips reported a 27% EPS decline while revenue missed with a 22% drop to $15.01 billion. BP plunged while Shell and Conoco also retreated, as crude oil prices dived
Li Auto Races Ahead In China EVs
Amid slowing demand that fueled a price war, China EV sales in April came in better than feared, market watchers said. Li Auto shone again. The Chinese startup, which specializes in premium hybrid vehicles, grew April sales 23% month over month. It was helped by strong demand for the new L7 SUV, a Tesla Model Y rival. Its startup peer Nio struggled, with sales down 36% from March. Even Chinese EV giant BYD grew sales an anemic 1.6% from March. BYD is now banking on the new Seagull, an extremely small and cheap electric hatchback launched in April, for renewed momentum.
Ford Steps On The Gas
Ford crushed Q1 views but merely maintained its 2023 outlook. As expected, the report showed that legacy gas-fueled vehicles underpinned quarterly earnings, while electric vehicles are money pits for now. But Ford is cutting its Mustang Mach E prices and says it plans to ramp up output. Stellantis shipments rose 7% in Q1 as chip supplies improved. Its net revenue grew 14% to $52 billion.
Gym Operators Miss On Earnings
Big box gym chain Planet Fitness and boutique gym franchiser Xponential Fitness announced first-quarter financials. Planet Fitness missed estimates with EPS up 28% and sales increasing 19% to $222 million. Same-store sales climbed 9.9%. Planet Fitness reiterated its previous 2023 guidance. Xponential Fitness reported an unexpected loss, but sales jumped to $70.7 million as same-store sales grew 17.5%. The company also opened 115 studios in the first quarter. Xponential raised full-year guidance. PLNT stock plunged. XPOF fell sharply for the week.
Lithium Plays Top Views
Battered lithium stocks showed some resilience after an earnings period notable for Albemarle's slashed guidance. Its slashed guidance reflects the 70% dive in lithium prices since last November as supply temporarily catches up with demand. Albemarle and Livent both blew past earnings estimates, with 334% and 186% EPS growth, respectively. Yet while Livent nudged up its full-year guidance, Albemarle dropped its EPS outlook to $20.75-$25.75 from $26-$33. The difference: Livent has mainly fixed-price contracts. Lithium prices have bounced recently in China.
News In Brief
Floor & Decor slightly beat Q1 views, with EPS rising 2% and sales up 8.7%. Same-store sales fell 3.3%. The flooring retailer guided in line for the full year. FND stock tumbled.
Cardinal Health handily beat adjusted first-quarter earnings estimates with a 20% EPS gain while revenue climbed 13% to $50.49 billion. But shares fell.
Super Micro Computer rocketed after the server maker delivered roughly in-line fiscal third-quarter results but guided much higher than views for the current period. Supermicro is seeing strong demand for AI systems.
Anheuser-Busch beat forecasts as Q1 earnings unexpectedly rose 8%, with sales up 13% to $14.2 billion. But the beer behemoth saw its flagship Bud Light sales decline by double digits in April as some consumers protested an ad featuring a transgender influencer. Shares edged lower. Meanwhile, Molson Coors surged as earnings soared 86%.
