The stock market rally continued to diverge. The Nasdaq rose solidly, as Nvidia skyrocketed on strong Q1 earnings and blowout guidance, lifting many other chip and AI chips. The S&P 500 was little changed after erasing losses. The Dow Jones fell but did rally back above a key level. Debt-ceiling talks seemed to be moving toward a deal. Rising Fed rate hike odds and a stronger dollar are headwinds. Palo Alto Networks, Workday, ELF Beauty and Marvell Technology also were big earnings winners. Snowflake was among notable losers.
Market Rally Split
The Nasdaq rose sharply, nearing its August 2022 peak backs of Nvidia and a slew of other chip and AI plays, S&P 500, which fell back into its sideways range midweek, moved back toward 2023 highs by Friday. The Dow Jones fell, but rallied back above its 200-day line. Market breadth remains lackluster, though Friday's advance was broad. Debt-ceiling fears eased late in the week on signs of progress. Treasury yields and the dollar jumped.
Economy Stronger; Inflation Is, Too
With the latest batch of data showing pesky inflation, a big bounce in spending and downward revisions to jobless claims, the economy appears to be on a firmer footing. Maybe too firm. Suddenly, markets are pricing in better-than-even odds of a Fed rate hike at the June 13-14 meeting. The Fed's favorite inflation gauge, the PCE price index rose a stronger-than-expected 0.4% in April. Core prices also rose 0.4%, and so did supercore prices, a new focus of the Fed that includes services excluding housing and energy. The core PCE inflation rate ticked up to 4.7%, matching the highest level since November.
Personal spending rose 0.8%, doubling forecasts, though that came after two soft months for spending. The Labor Department revised down new jobless benefits for recent weeks, apparently due to the removal of fraudulent claims in Massachusetts. Claims are no longer pointing to a sharp jobs slowdown.
Debt-Limit Come-Down: Fiscal Reckoning May Derail Economy
Nvidia Rockets On AI Outlook
Graphics-chip maker Nvidia obliterated Wall Street's targets for the current quarter on a massive increase in data-center sales related to artificial intelligence. Nvidia stock soared 24% Thursday after its fiscal first-quarter beat-and-raise earnings report. Before the report, Nvidia stock was already up 109% year to date. Other AI-focused stocks also jumped on the news including graphics-chip rival AMD, chip foundry Taiwan Semiconductor and computer hardware firms Dell and Supermicro. Meanwhile, chipmaker Marvell Technology surged after it called out artificial intelligence as a major growth driver.
ELF Is A Giant, Ulta No Beauty
ELF Beauty reported a 254% EPS gain as sales surged 78% to $187.4 million, crushing fiscal Q4 views. It was the fourth straight quarter of accelerating profit growth and fifth straight quarter of faster sales. The budget cosmetics leader guided estimates high for fiscal 2024. ELF stock skyrocketed to a new high. Beauty products retailer Ulta Beauty reported a 7% EPS gain, slowing but slightly beating Revenue climbed 12% to $2.6 billion, just missing. ULTA stock tumbled 11% Friday to a six-month low.
Software Earnings
Several notable software makers reported earnings this week:
Cybersecurity firm Palo Alto Networks reported fiscal Q3 adjusted earnings leapt 83%, solidly beating. Revenue rose 24% to $1.72 billion, just edging past views. Billings, a sales growth metric, rose 26% to $2.3 billion, edging by estimates. Management raised fiscal 2023 product revenue growth guidance to 15%-16% from 10%. PANW soared. Meanwhile, Fortinet fell as Microsoft said China-backed hackers had infiltrated key systems via a Fortiguard flaw.
Workday reported Q1 earnings and revenue that topped estimates while order backlog growth beat views. EPS jumped 58% with revenue up 17% to $1.68 billion. Zane Rowe will join as CFO, after holding that post at VMware.
Snowflake plunged after the data analytics firm cut its full-year fiscal 2024 outlook amid slowing growth for cloud computing partners such as Amazon.com. Fiscal Q1 EPS easily beat views while revenue jumped 48% to $623.6 million.
Splunk said Q1 adjusted profit jumped 156% to 18 cents while revenue rose 11% to $751.1 million, both easily Both easily beat. The data analytics and security software marker guided Q2 revenue growth up slightly to 11%. Shares initially jumped Thursday but slashed gains.
New Relic comfortably beat fiscal Q4 EPS views and just topped revenue targets. But the data analytics firm guided lower. Shares, which surged in the prior week on a report of a possible buyout bid, tumbled back.
Toll Brothers Earnings Strong
The luxury homebuilder beat fiscal Q2 views on increased home deliveries and strong prices vs. a year earlier. EPS grew 54% to $2.85 with revenue up 10% to $2.25. Toll Brothers delivered 2,492 homes, up 3% vs. a year earlier and well above its targets. The average price jumped 10% to $999,200. Toll expects deliveries in Q3 of 2,350-2,450 units with an average price of $1.005 million-$1.025 million. CEO Douglas Yearley said there will be "long-term tail winds" for homebuilders due to the current imbalance in supply and demand in the U.S. housing market. TOL stock rose to a 52-week high, but many builders retreated amid rising mortgage rates.
Youth Apparel Chains Mixed
Urban Outfitters and Abercrombie & Fitch were a bright spot in a mixed week for retail earnings while American Eagle Outfitters struggled. Urban Outfitters reported a 70% EPS gain, crushing views, after four straight quarters of declines Abercrombie & Fitch easily beat quarterly views as well. URBN gapped out of a base while ANF stock skyrocketed 31% on Wednesday, surging above its 50-day line toward 2023 highs. American Eagle slightly topped quarterly views, but lowered its full-year revenue forecast. AEO tumbled.
Deckers Tries To Step Up
Deckers Outdoor reported a 7.5% sales gain to $791.6 million, with roughly half of that coming from fast-rising Hoka brand running shoes. Earnings climbed 38%. The footwear maker guided slightly on fiscal 2024. DECK stock initially tumbled Friday, but roared back to reclaim the 50-day. Meanwhile, Dick's Sporting Goods reported a 19% EPS gain with sales up 5% to $2.842, beating Q1 views. But it didn't raise full-year guidance. DKS stock, which had plunged on weak Foot Locker results and guidance, kept falling, though it did rebound back above its 200-day. Hibbett plunged on grim results and guidance.
Discount Retailers Struggle
Dollar Tree, Costco Wholesale and Big Lots missed quarterly earnings forecasts. Dollar Tree adjusted earnings fell 38%. Sales climbed 6.1% to $7.32 billion, slightly topping, but the dollar store giant narrowed its EPS guidance due to weaker margins. DLTR stock dived. Costco earnings fell 4%, well below views. Sales rose 1.9% to $52.65 billion, missing views, with growth slowing for the fourth straight quarter. COST stock rose on earnings, erasing weekly losses. Closeout retailer Big Lots plunged to a long-term low on a huge loss and weak guidance.
Chevron Buys PDC Energy
Chevron will pay $6.3 billion for PDC Energy in a $6.3 billion deal, plus $1.3 billion in assumed debt, giving the oil major a stronger foothold in the resource-rich Denver-Julesberg Basin. Chevron said it expects the deal to add to "all key financial measures" within the first year after closing. It also expects the acquisition to result in around a $1 billion increase in average annual capital spending, boosting its spending guidance to $14-$16 billion annually through 2027. Several analysts upgraded CVX stock after the deal announcement.
News In Brief
Zoom Video Communications topped Q1 views but signaled slowing enterprise revenue growth in the second half of 2023. Q1 EPS rose 13% amid cost-cutting moves. Revenue climbed 3% to $1.105 billion.
Lowe's topped Q1 views with a 5% EPS gain while sales fell more than 5%. But the home improvement giant cut its full-year guidance amid falling lumber prices and waning home-improvement enthusiasm.
Ford Motor announced several lithium deals for EV batteries at an investor event while backing earnings guidance for the full year. Albemarle and Compass Mineral are among the new partners that will supply lithium hydroxide and lithium carbonate to the auto giant. Meanwhile, Ford will use Tesla Superchargers starting in 2024.
Kohl's reported a surprise 18% EPS gain, defying views for a loss. Revenue fell for a fifth straight quarter, sliding 3.8% to $3.57 billion, but that also topped. Shares initially jumped Wednesday but pared gains and was up modestly for the week, below key moving averages.
Intuit fell after the financial software firm delivered mixed results for its fiscal third quarter and offered mixed guidance. TurboTax unit sales dropped 5% this tax season, a first-ever decline.
Best Buy delivered better-than-expected earnings on lighter-than-expected sales in its fiscal first quarter. Sales and earnings now have fallen for six consecutive quarters year over year. But the consumer electronics retailer maintained its guidance for the full year.
