The stock market rallied to start the week, including a big jump Wednesday after the Federal Reserve hiked rates by 50 basis points but Fed chief Jerome Powell signaled that 75-basis-point hikes aren't on the table for the June and July meetings. But the major indexes plunged Thursday as the 10-year Treasury yield spiked above 3% in a delayed Fed reaction.
A slew of oil and gas companies reported booming earnings but they're focused on shareholder returns. Lithium stocks Albemarle and Livent soared on blowout earnings and guidance. Fertilizer stocks also delivered hot profits. Shopify and other e-commerce firms crashed on weak results and guidance.
Stocks Try To Rally, Then Dive
The major indexes rallied to start the week, but then gave up those gains Thursday in a huge day two reaction to the Fed meeting. The 10-year Treasury yield shot up above 3%, to the highest level since late 2018, sending stocks plunging. Oil, fertilizer and lithium plays reported strong earnings, while e-commerce firms signaled weakening demand. Crude oil prices jumped.
Fed Hikes Rates, Powell Downplays Super-Size Move
As expected, the Federal Reserve approved its first half-point Fed funds rate-hike since 2000, lifting the range to 0.75%-1%. Policymakers also set a June 1 start date for unloading some of the $4.5 trillion in assets purchased during the pandemic, ramping up to $95 billion per month by September. Fed chief Jerome Powell indicated that additional half-point rate-hikes could be expected in the next couple of meetings. But Powell downplayed, if not quite ruling out, a 75-basis-point rate hike at the June meeting. Futures markets had been pricing in a super-size hike. That briefly cheered investors, along with Powell's assurance that the Fed will be able to tame inflation without an economic hard landing. But the next day, the 10-year Treasury yield shot above 3% to new cycle highs.
Jobs Report Strong
The U.S. added 428,000 jobs in April as hiring remains solid. The monthly wage gain eased to 0.3%, the lowest since last August. It may take a string of such readings to alter the picture of an overheated job market. However, the labor force shrank by 363,000 last month, a worrisome sign. The ISM manufacturing index fell 1.7 points to 55.4, pointing to slower growth. But that reflects labor shortages and slower deliveries from suppliers.
Oil Earnings Soar, Focus On Payouts
Oil stocks Shell and ConocoPhillips topped Q1 views, while BP reported a massive profit and an even larger write-down on assets in Russia. Oil majors opted to boost dividends and maintain previously planned production increases, despite rising demand. Shale plays such as Devon Energy, Diamondback Energy and Pioneer Natural Resources reported booming earnings, but also focused on shareholder returns vs. spending to ramp up drilling. LNG play Cheniere Energy reported booming revenue growth. The price of crude oil rose sharply. The European Union is working on a plan to phase out Russian crude oil imports over six months. OPEC+, which includes Russia, opted to continue modest production quota increases.
Fertilizer Earnings Bloom
Fertilizer stocks Mosaic, Nutrien and CF Industries put up huge earnings increases in Q1 amid surging market prices, though EPS came in mixed relative to analyst estimates. Mosaic highlighted logistics challenges, while CF is facing a doubling of natural gas feedstock costs. But Nutrien sharply raised its full-year profit forecast. Despite the differences, all three stocks in one of the market's hottest groups ended the week in a cooling-off period, dipping below their 50-day lines.
Lithium Stocks White Hot Again
Lithium stocks surged on Q2 earnings after diving on Q1's results and outlook. Both Livent and Albemarle massively raised guidance for the year. Neither changed their output projections. The difference was all in pricing. Both companies now see the surge in spot lithium prices as sustainable, whereas before there was some skepticism. Plus, Albemarle, which was criticized for fixed contracts that locked in lower prices, has made progress in shifting to variable-price contracts. Both LTHM and ALB stocks broke above trend lines, offering early entry points.
Biotech Earnings Mixed
Biogen sales fell 6%, beating views, while EPS sank 32%, missing views. The biotech also announced plans to suspend most of its sales efforts for Alzheimer's drug Aduhelm and seek a new CEO. Moderna, Regeneron and Horizon Therapeutics posted clean first-quarter beats. Moderna tripled earnings, easily beating its full-year projections. Vertex Pharmaceuticals reported an 18% EPS gain that fell short, while sales climbed 22%, just beating.
E-Commerce Firms Struggle
Shopify, Etsy, eBay and Wayfair plunged to their worst levels since 2020. Results and guidance pointed to weaker e-commerce spending as Covid restrictions fade and consumers cut discretionary spending. Shopify reported EPS dived 90% to 20 cents vs. views for 64 cents. Revenue climbed 22% to $1.2 billion, just missing, with growth decelerating once again. The e-commerce software firm announced the acquisition of fulfillment operator Deliverr for $2.1 billion cash and stock. E-commerce sites eBay and Etsy reported lower Q1 earnings and slashed guidance. Online furniture site Wayfair reported a wider-than-expected loss.
Security Software
Fortinet reported Q1 profit grew 16% vs. a year earlier as revenue climbed 34% to $954.8 million and billings jumped 36% to $1.16 billion. All topped estimates. For Q2, Fortinet guided slightly lower on EPS and fractionally higher on revenue. Qualys said Q1 EPS grew 20%, topping views. Revenue rose 17% to $113.4 million, edging by estimates. Datadog reported Q1 EPS leapt 300% while revenue jumped 83% to $363 million, both easily beating. The app monitoring software maker also guided up for Q2. Datadog also said it will buy Hdiv Security. Cloudflare slightly beat views with a 1-cent profit with revenue up 54%. The revenue beat was modest, while the networking and cybersecurity firm said it might post a loss in Q2. NET stock plunged.
Chip Earnings Mostly Positive
The first week of May saw beat-and-raise earnings reports from a bunch of semiconductor companies. They included Advanced Micro Devices, Cirrus Logic, Lattice Semiconductor, Monolithic Power Systems, NXP Semiconductors, Onsemi, Rambus, SiTime and Synaptics. Chipmakers that disappointed with their March-quarter results and guidance included Alpha & Omega Semiconductor, Qorvo, Skyworks and Wolfspeed. Several chipmakers blamed Covid-related supply chain disruptions in China for their weak outlook.
MaxLinear agreed to buy Silicon Motion Technology in a cash-and-stock deal worth $3.8 billion.
Travel Demand Overrides Inflation
Hotel giant Marriott reported better-than-expected first-quarter earnings early Wednesday, helped by pent-up leisure and luxury demand after two years of muted travel due to the pandemic. Hilton Worldwide offered up mixed results and a weak outlook. But both chains reported little pushback to higher rates they're charging, even as prices for consumer basics run higher, and said their ability to more quickly reprice rooms helped pad results. Results from Booking Holdings and Airbnb beat. Expedia results were largely in-line.
China EV Sales Tumble, But Not BYD's
China EV startups posted sharp sequential drops in April sales, as harsh Covid-19 lockdown measures hurt supply chains and halted some production lines. April sales cratered 49% from March for Nio, 42% for Xpeng and 62% for Li Auto. In sharp contrast, Chinese EV giant BYD grew April deliveries 1% from March and 313% from a year ago. BYD makes its own chips and batteries, which likely insulated it from supply disruptions that hurt EV startup rivals. Tesla China production likely fell more than 50% in April with the Shanghai plant shut for most of the month and still not back to full output.
News In Brief
Matson, an ocean-shipping company focused on the Pacific, reported first-quarter earnings that beat expectations, boosted by demand for its China shipping services.
Service Corp., a funeral-services provider, reported first-quarter results that beat expectations, on continued "elevated levels" of funerals amid the pandemic. It also hiked its full-year profit outlook.
Uber revenue more than doubled in Q1 as demand for rides rebounded and food delivery grew despite restaurant reopenings. But Lyft spooked investors after providing weak Q2 guidance and warned investors it will have to keep spending on driver incentives.
Akamai Technologies lowered 2022 guidance amid currency headwinds and the Russia-Ukraine war. Akamai's Q1 EPS rose 1% to $1.39, slightly missing, while Akamai revenue climbed 7% to $904 million, in line.
Arista Networks said Q1 EPS rose 33% while revenue grew 31% to $877 million, modestly beating forecasts. The networking firm guided solidly higher for Q2 revenue.
Sprouts Farmers Market reported a 13% EPS gain, beating Q1 views. Sales grew 4% to $1.641 billion, slightly missing some forecasts.
Hostess Brands topped Q1 expectations with earnings per share up 35% as sales rose 25% to $332.1 million.
