The stock market rally came under pressure, with the Nasdaq breaking below its 50-day line and the other major indexes tumbling below key levels. Tuesday's strong gains on a tame inflation report quickly fizzled, then shares sold off as the Federal Reserve raised rates and signaled more to come. Weak economic data in the U.S. and China also didn't help, especially with the one exception to economic weakness being lower U.S. jobless claims.
Moderna soared on results of an mRNA cancer vaccine trial with Merck. Boeing got a huge United Airlines order. Tesla plunged on demand concerns and fresh Elon Musk share sales.
Stock Market Rally Under Pressure
On Tuesday morning, the Dow Jones, S&P 500 index and Nasdaq all topped their Dec. 1 highs following a tame CPI report, but then slashed gains. Another S&P 500 move above the 200-day fizzled Wednesday after the central bank and Fed chief Jerome Powell signaled more rate hikes in 2023. On Thursday, the Nasdaq and Russell 2000 tumbled below their 50-day moving averages, while the S&P 500 and Dow Jones undercut recent lows as they moved toward their 50-day lines. Treasury yields fell. Crude oil prices bounced, but from 2022 lows.
Fed Sees Higher Peak Rate
The Federal Reserve hiked its key rate by 50 basis points, as expected, to a range of 4.25%-4.5%, following four straight 75 basis-point moves. Policymakers also raised their expected peak rate to 5.1%, more than anticipated, from 4.6% in September. Fed chief Jerome Powell said he wants to see "substantially more evidence" that inflation is on a sustained downward path. He didn't rule out another step-down to a quarter-point hike in February, but said the peak rate and how long rates stay high matter more. Markets are now strongly expecting a quarter-point rate hike in February. They see another quarter-point move in March, but there are decent odds of no move.
The European Central Bank, Bank of England and the Swiss central bank all raised rates by 50 basis points as well.
Inflation Tame, Economy Weakens
The November consumer price index rose just 0.1% vs. October, less than expected. The CPI inflation rate fell to a one-year low of 7.1% vs. 7.7% in October. Core inflation slowed to 6%, also below views. Service prices excluding energy picked up yet again, to 6.8%, but housing-related costs should start to come down soon. Meanwhile, November retail sales fell solidly, surprising economists. The Philly Fed and New York Fed regional surveys for December also pointed to contraction. But initial jobless claims fell significantly in the latest week, as labor markets remain tight. The Fed is looking for the opposite, on the premise that a tight labor market drives up inflation numbers.
Tesla Continues Dive, As Musk Sells Again
Tesla stock plunged in heavy volume to fresh two-year lows, with the market cap falling below $500 billion. CEO Elon Musk sold nearly 22 million shares for about $3.6 billion on Dec. 12-14, bringing his TSLA sales to $39 billion since the stock peaked in November 2021. Tesla's China registrations disappointed in the latest week. Tesla added fresh U.S. incentives to take delivery before year-end. Goldman Sachs lowered its Q4 global delivery forecast and price target. Morgan Stanley sees Tesla as a top pick in 2023, but warned that the brakes are screeching on EV demand overall. It also cut its U.S. adoption forecasts for 2025 and 2030.
Amgen To Buy Horizon Therapeutics
Amgen agreed to buy Horizon Therapeutics for $28.3 billion, after Sanofi and Johnson & Johnson dropped out of the bidding process. The deal values HZNP stock at $116.50 per share and represents a 47.9% premium to the closing price on Nov. 29, the day before Horizon announced it was in acquisition talks. Horizon is well known for thyroid eye disease treatment Tepezza and gout treatment Krystexxa. One of its newer medicines is Uplizna, which treats an inflammatory condition.
Moderna Spikes On Cancer Vaccine
Moderna surged after reporting that its personalized mRNA (messenger RNA)-based cancer vaccine paired with Merck blockbuster Keytruda reduced the risk of relapse or death by 44% for patients with high-risk melanoma vs. Keytruda alone. The vaccine works by helping a patient's immune system develop T cells capable of taking on cancer if and when it returns. BioNTech, another mRNA player, also jumped.
Oracle Cloud Shift Gains Steam
Oracle indicated it was making progress with its transformation to cloud computing and health care as the company reported quarterly results that beat estimates and exceeded the high end of its guidance. In constant currency, revenue jumped 25% to $12.3 billion. For the current quarter, Oracle expects revenue of about $12.4 billion, above analyst estimates of $12.2 billion.
Lennar Rallies On Earnings
Homebuilder Lennar reported a 15% EPS gain in its fiscal Q4, with sales growth of 21%. Guidance for new orders in Q1 disappointed amid high mortgage rates. LEN stock initially fell on that outlook, but then rebounded. Shares rose solidly for the week to nine-month highs, with mortgage rates coming off long-term highs.
Ex-FTX Chief SBF Arrested
Sam Bankman-Fried was arrested in the Bahamas on Monday after the U.S. Justice Department filed criminal charges against the former FTX CEO. SBF was denied bail at his court hearing and will be held in a Bahamian prison as he faces extradition to the U.S. The DOJ charged Bankman-Fried with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering. The SEC filed civil charges for securities violations and orchestrating a scheme to defraud investors. SBF had been set to testify before Congress. New CEO John Ray testified that FTX appeared to use "old-fashioned embezzlement" to misappropriate billions in customer funds.
Adobe Earnings Top
Adobe reported fiscal Q4 earnings that topped estimates with a 12% EPS gain while a 10% revenue rise to $4.53 billion met views. Net new annual recurring revenue, or ARR, for digital media products came in at $576 million, topping estimates of $551.2 million. Adobe guided slightly higher for Q1 2023 EPS and a smidgen lower on revenue. Shares rose.
United Airlines To Buy Up To 200 Boeing 787 Dreamliner Jets
It's a record Dreamliner order, as United Airlines aims to replace its aging widebody fleet, pursuing growth as global air travel rebounds. United expects the new aircraft to deliver incremental margins and earnings, and is also buying 100 Boeing 737 Max narrow-body jets. Boeing rose modestly. But United share plunged on capex concerns and a broader sell-off in airlines and travel stocks.
Delta Guides Higher, JetBlue Warns
Delta Air Lines raised guidance for the current quarter and said EPS could nearly double in 2023. Airlines have seen robust demand for air travel this year as the industry recovers from widespread disruption caused by the Covid-19 pandemic. But JetBlue lowered its revenue outlook for the December quarter, saying demand did not reach its expectations. A November inflation report showed a decline in airfares and hotel prices, a sign that travel demand has lost some momentum after the summer surge.
Accenture Falls On Guidance
Accenture reported fiscal Q1 earnings and revenue that topped Wall Street targets, with gains of 11% and 5%, respectively. But the consulting giant guided slightly lower for the current Q2. ACN stock fell sharply.
News In Brief
Jabil reported 20% EPS growth, with fiscal Q1 revenue up 12% to $9.63 billion. Both beat views, though growth slowed for the contract electronics manufacturer. JBL stock fell after hitting a record high earlier in the week.
Nordson reported a 30% EPS gain for its Q4, with sales up 14% to $683.6 million, both picking up from the prior quarter and beating views. Shares of the industrial firm bounced on results, back into a buy zone.
Trip.com reported a 69% EPS gain and a 17% revenue rise, both topping views. The Chinese-based online travel firm should benefit from China easing Covid restrictions, especially on travel.
Nucor guided Q4 earnings slightly below views, even with 22 cents related to a state tax credit. The steelmaker earned $7.97 a year earlier. Shares tumbled. But U.S. Steel and Steel Dynamics guided higher.
Eli Lilly announced plans to move its next-generation obesity treatment into further testing. But shares dropped on lighter-than-expected 2023 earnings guidance.
Thoma Bravo agreed to buy Coupa Software in a $6.15 billion deal, or $8 billion including debt. Coupa shareholders will receive $81 a share in cash. That's a 77% premium to Coupa's price on Nov. 22, prior to media reports that Coupa could be acquired. Private equity firm Thoma Bravo, which has bought up many software makers, has a pending deal to acquire cybersecurity firm ForgeRock for $2.3 billion.
Darden Restaurants reported a 3% EPS gain and 9% revenue rise, topping Q2 forecasts. The Olive Garden parent raised full-year EPS guidance. But shares fell.
