The stock market rally advanced amid a massive wave of earnings reports, a new Fed rate hike and tame inflation data, though the Dow Jones ended a long winning streak. Microsoft guidance disappointed, hitting many related stocks. But Google-parent Alphabet, Facebook-parent Meta Platforms and Boeing jumped on results, along with solar IPO Nextracker. Treasury yields jumped following the Fed hike and stronger-than-expected economic data.
Stocks Rally Amid Earnings Wave, Fed Hike
The major indexes showed solid-to-strong weekly gains amid a huge amount of economic data, earnings reports and the latest Fed meeting. The Dow Jones ended a 13-day win streak in Thursday's downside market reversal as the 10-year Treasury yield briefly topped 4%, but then dropped back Friday. The Fed raised rates as expected, with Fed chief Jerome Powell giving slightly dovish hints. Tame inflation data bolstered hopes for no more hikes. Microsoft guidance disappointed, hitting MSFT and many related stocks. But Google-parent Alphabet, Facebook-parent Meta Platforms and Boeing were notable winners Crude oil prices jumped to the $80 level.
Fed Hikes Rates, Powell Dovish
The Federal Reserve hiked its key interest rate a quarter-point to a 22-year high on Wednesday, but chair Jerome Powell's news conference took a somewhat dovish tilt.
At the June meeting, inflation risks were still to the upside. But with this week's hike, Powell said, "We're coming to a place where there really are risks on both sides." Monetary policy, he said, is now putting downward pressure on economic activity and inflation, so the Fed can afford to be patient. Now, policy is truly data-dependent. Powell seemed open to standing pat or raising rates at the next Sept. 19-20 Fed meeting.
Economy On Soft Landing Track?
While the economy is running hotter than expected, the cooling off of inflation and wages is on track. The Fed's primary inflation rate, the PCE price index, showed core prices up just 0.2% in June. The core inflation rate eased a bit more than expected, to 4.1% from 4.6% in May. Overall inflation fell to 3% from 3.8%. The Fed's favorite report on wage trends, the employment cost index, reinforced the better inflation backdrop. The ECI's annual increase slowed to 4.5% from 4.8%. Meanwhile. U.S. GDP growth accelerated to 2.4% annual rate in Q2 from 2% in Q1. Business investment is ramping up as consumer spending cools. Initial and ongoing jobless claims were surprisingly low.
Microsoft Disappoints With Outlook
Software giant Microsoft beat expectations for its fiscal fourth quarter ended June 30, thanks to continued growth in its cloud computing businesses. But it offered a disappointing sales outlook and disclosed increased capital spending requirements for its artificial intelligence initiatives. Further, executives predicted a "gradual" ramp in AI-related revenue. In the June quarter, Microsoft's sales rose 8% to $56.2 billion while earnings increased 21% to $2.69 a share. For the current quarter, Microsoft forecast sales of $54.3 billion, missing views for $55 billion. MSFT stock tumbled.
Google Soars On Earnings
Google-parent Alphabet reported Q2 earnings grew 19% while gross revenue rose 7% to $74.60 billion, beating views. Advertising revenue edged up 3% to $58.14 billion while YouTube ad revenue rose 4% to $7.66 billion, both slightly topping estimates. Cloud computing revenue rose 28% to $8.03 billion, also topping. Google remained confident that it can integrate AI chatbots with search ads. CFO Ruth Porat will assume the newly created role of President and Chief Investment Officer effective Sept. 1. Shares jumped, breaking out of a base.
Facebook Parent Breaks Losing Streak
Meta Platforms, parent company of Facebook, Instagram and WhatsApp, beat Wall Street's targets for the second quarter and upped its outlook for the current period. The social media giant said earnings rose 21% year over year to $2.98 a share, while sales increased 11% to $32 billion in the June quarter. Meta's second-quarter results broke a losing streak of six consecutive quarters of year-over-year declines in earnings. Meanwhile, Meta's revenue rose for the second quarter in a row after three straight quarters of declines.
ServiceNow
ServiceNow reported Q2 EPS jumped 46%, easily beating. Revenue climbed 23% to $2.15 billion, edging past views. Current remaining performance obligations, or CRPO, rose 25% to $7.2 billion, slightly topping views. CRPO bookings are an aggregate of deferred revenue and order backlog and serve as a sales growth metric. ServiceNow raised its full-year subscription revenue outlook. The company also announced a $1.5 billion stock buyback. But NOW stock reversed lower following earnings.
Boeing Takes Off On Q2 Results, Guidance
Boeing said it is raising production of its flagship 737 Max and 787 Dreamliner jets, assuaging investor worries and keeping the Dow aerospace giant on track for a return to profitability. In Q2, Boeing lost 82 cents per share, less than feared. Revenue rose 18% to $19.75 billion, also beating, with commercial strength offsetting defense weakness. The company reaffirmed cash flow guidance for the full year after surprisingly strong cash in Q2. Plane makers are trying to ramp up production after struggling to meet robust demand from airline customers. Airbus reported better-than-expected underlying operating profit for a second straight quarter.
General Electric
General Electric posted an 89% EPS jump as revenue rose 18%, an overall beat. Orders surged 59% to $22 billion. GE's jet-engine business again drove results, while orders notably rose in the troubled renewable energy business. CEO Larry Culp maintained that GE remains on track to spin off its energy businesses as independent, public companies in early 2024, leaving GE as an aerospace pure play. GE lifted earnings, revenue and cash flow guidance for the full year. Share price rose to the best in nearly six years.
Restaurant Earnings Mixed
Domino's Pizza and Chipotle Mexican Grill delivered mixed results while Dow Jones giant McDonald's topped. Domino's EPS grew 9% but revenue fell 3.8% to $1.02 billion, slightly more than expected. Chipotle earnings jumped 36%, but the 13.6% revenue gain to $2.5 billion fell short, as did same-store guidance. McDonald's reported 24% EPS growth while revenue swelled 14% to $6.5 billion, both the best in several quarters. EPS rose for the third consecutive quarter for its Monday report, increasing 9.2% to $3.08 per share. Revenue declined 3.8% to $1.02 billion, compared to forecasts of $1.07 billion. Domino's stock rose, Chipotle tumbled, while MCD stock was little changed, trading near a buy point.
Skechers Steps Up, Crocs Bites
Crocs, Deckers and Skechers topped forecasts, but the footwear makers diverged on guidance. CROX stock plunged on Q3 guidance that was weaker than expected. Deckers reported a fourth straight quarter of accelerating EPS growth, with Hoka brand running shoe sales up 27%, but its other shoe brands struggled. The company raised guidance to more in line with Wall Street. DECK tumbled to the 50-day line, but closed flat for the week. Skechers earnings soared 69%, defying views for a decline. Despite weak Q3 guidance, SKX stock ran up to a buy zone.
Market Rally Powers Higher; Apple, Tesla Lead 10 Stocks To Watch
Auto Giants Top Views
General Motors delivered a 68% EPS increase as revenue surged 25%, on strong truck and SUV demand. The auto giant boosted its full-year earnings outlook for the second time in a row. GM plans to start producing roughly five new all-electric models in the second half, including three from its mass-market Chevrolet brand. The Chevy Bolt will also live on, GM said in a reversal. But the current slow pace of its EV ramp came under scrutiny on an investor call. GM fell slightly for the week. Ford reported a surprise Q2 EPS gain, but there are concerns that profits will fade in the second half. Shares tumbled. Netherlands-based Stellantis posted record results for the first half of 2023, with revenue, operating income and net profit all up over last year. Its global EV sales rose 24%. The Jeep and Ram owner touted better margins than that of GM and Tesla ahead of its EV offensive in North America coming next year. STLA stock soared to an 18-month high.
XPeng Skyrockets On VW Investment
Volkswagen will invest $700 million in XPeng for an eventual 5% stake in the Chinese EV startup. They will jointly develop two electric vehicles for China, using VW branding and XPeng's EV platform and software. U.S.-listed shares of XPeng rocketed, building on its recent rally tied to a new product cycle. Some analysts called the partnership another sign of the hypercompetitive Chinese EV market, which is forcing legacy Western automakers to make big changes. Once considered the leader in China's auto industry, Volkswagen has seen its share shrink as homegrown EV makers like BYD, Nio, Li Auto and Xpeng win over shoppers.
Homebuilder Earnings
Pulte Group reported an 18% EPS gain in Q2 with sales up 8%, both beating despite showing continued decelerating growth. New orders jumped 24% to 7,947 homes. Shares jumped. M/I Homes, M.D.C. Holdings, Beazer Homes and Century Communities beat Q2 views, sending their shares higher. Taylor Morrison Home also topped views, but sees Q3 closings and prices below Q2's levels. Tri Pointe Homes reported in-line EPS but a solid revenue beat. TMHC and TPH fell, but are up sharply in 2023.
Miners, Steel Plays
Base metal miners and steel plays flashed buy signals on Tuesday as China's pledge to support its property sector buoyed copper and other metal prices, but they slashed weekly gains. Rio Tinto reported a 30% EPS drop for the first half, as China's sluggish economy has weighed on prices. Meanwhile U.S. steelmakers Nucor and Cleveland-Cliffs reported mixed quarterly results, with EPS tumbling vs. a year earlier. CLF said auto industry demand for steel is back near pre-Covid levels. Nucor sees Q3 profit falling vs. Q2. United States Steel topped forecasts.
Chip Gear Makers Surge On Earnings
Semiconductor equipment suppliers KLA and Lam Research delivered beat-and-raise quarterly reports, sending their shares sharply higher. Among semiconductor manufacturers, Intel shares jumped after the Dow giant posted a surprise Q2 profit and a bullish outlook. NXP Semiconductors and STMicroelectronics gave upbeat quarterly earnings reports thanks to their exposure to the automotive market, where chip demand remains strong. Chipmakers falling on disappointing reports included Impinj, MaxLinear, Silicon Labs and Texas Instruments. MaxLinear also moved to scrap its planned takeover of Silicon Motion, which plans to fight that.
Solar Isn't All Bright
Industry giant First Solar reported strong earnings and sales, with plans for another U.S. plant. But after spiking at Friday's open, shares slashed gains. Solar IPO Nextracker reported a 167% EPS gain. Shares of the solar tracking equipment maker soared to a record high Thursday. But Enphase Energy tumbled on mixed results and weak guidance while SunPower dived on weak preliminary Q2 figures and Q3 guidance.
Royal Caribbean Sails Into Profitability
Royal Caribbean ended years of losses with better-than-expected EPS as revenue spiked 61% to $3.52, while also hiking guidance amid bullish booking trends. RCL stock sailed to a three-year high. Carnival and Norwegian Cruise Line both swung higher, with NCLH earnings due this coming week. Domestic-focused carriers Southwest Airlines and Alaska Air descended on concerns about travel demand. U.S. airline giants are benefitting from more-lucrative international flights.
Transportation Stocks
Old Dominion Freight Line topped EPS views but slightly missed on revenue. Still, ODFL stock jumped on relatively strong pricing and a $3 billion buyback. ArcBest and Saia, which also serve the less-than-truckload shipping segment, reported mixed results later in the week. ARCB slumped as Saia popped. Meanwhile, ailing rival Yellow plunged on bankruptcy fears, with customers ditching the trucking firm. Meanwhile, Union Pacific missed Q2 views, but shares jumped as the rail giant named a new CEO. UPS and Teamsters reached a deal to avert a strike.
Exxon, Chevron Earnings Halve
The oil majors reported big year-over-year declines, with EPS down due to lower oil and natural gas prices, though crude oil and gasoline prices rebounded recently. Chevron earnings plunged 50% with revenue down 29% to $48.89 billion. The Dow energy giant waived the mandatory retirement age of 65 for CEO Mike Wirth, 62. Exxon Mobil profit dived 53% with sales off 28% to $82.91 billion.
Card Giants Beat Views
Visa and Mastercard beat forecasts on strong payments and cross-border volume growth. Visa's Q3 adjusted EPS rose 9% on a 12% revenue increase. Payments volume increased 9% for the quarter while cross-border volume popped 17%. Mastercard's EPS grew 13% as revenue gained 15%. Cross-border volume spiked 24% year over year. But both stocks fell modestly to just below buy points.
RTX Dives On Engine Defect
Defense and aerospace giant RTX, formerly Raytheon Technologies, reported an 11% EPS gain while sales grew 12% to $18.3 billion, both slightly beating. But RTX disclosed an engine defect in its Pratt & Whitney unit related to powdered metals used to make engine parts. The defect requires "accelerated fleet inspection" for its PW1100G-JM engine fleet, which power A32neo commercial planes made by Airbus. RTX will pull roughly 200 engines by mid-September, which is expected to reduce free cash flow by $500 million this year. Shares plunged to 2023 lows.
News In Brief
Biogen will buy Reata Pharmaceuticals for $172.50 per share in cash, or an enterprise value of $7.3 billion. RETA stock skyrocketed.
Medpace reported a 32% EPS gain as revenue climbed 31%, both topping views, but the contract research organization gave weak guidance. MEDP stock initially dived, but reversed to an all-time high.
United Rentals reported a 26% EPS gain for Q2 while revenue rose 28%, both slightly slowing from Q1's pace but beating views. Shares of the heavy construction rental firm initially tumbled Thursday, but did pare losses.
Snap reported a smaller-than-expected loss while a 3.6% revenue drop slightly beat views, as did user growth. But the Snapchat parent guided low. Shares plunged.
F5 posted a 25% EPS gain while revenue rose 4%, both topping views, while guidance also was strong. Shares popped on results, but did come well off highs.
Spotify Technology added 10 million premium subscribers in the June quarter, topping estimates for 6.9 million. It also added more listeners than expected for its free, ad-supported streaming music service. But Spotify reported a wider-than-predicted loss for the period.
Dexcom said second-quarter profit doubled while revenue climbed 25% to $871.3 million, both beating. The diabetes products specialist raised full-year sales guidance.
