The stock market rally continued to move sideways, with the major indexes trading tightly, between 2023 highs and their 50-day moving averages. Tesla plunged on diving gross margins and Elon Musk signaling more margin pressure ahead. China EV makers showed off a slew of new models. Bank earnings were mixed, but shares generally rose. Taiwan Semiconductor and Lam Research offered mixed results and guidance, but both rose. Intuitive Surgical, D.R. Horton and Las Vegas Sands jumped out of bases on earnings, also boosting related stocks.
Stock Market Trends Sideways
The Dow Jones, S&P 500 and Nasdaq composite fell slightly during the week, but continue to trade in a narrow range. Tesla was a big earnings loser, while Intuitive Surgical, D.R. Horton and Las Vegas Sands were earnings winners. Treasury yields rose, but came well off highs. Crude oil futures fell solidly from recent highs.
Economic Data Mixed
The U.S. economy appears to be in a growth lull that may get worse before it gets better. That was the message from the Federal Reserve's anecdotal Beige Book report of economic conditions. The latest Beige Book, out two weeks ahead of each Fed meeting, found economic activity "little changed," after having "increased slightly" ahead of the March meeting. Consumer spending levels were seen as "flat to down slightly." Meanwhile, both consumer and business lending volumes and demand for loans "generally declined" amid tighter lending standards. New claims for jobless benefits rose 5,000, to 245,000 in the week through April 15. Continuing claims rose 61,000 to 1.865 million, up 45% since September to the highest level since November 2021. But on Friday, the S&P Global preliminary April survey of U.S. businesses showed service-sector activity at a 12-month high and factory activity at an 11-month high.
Tesla Dives On Weak Margins, Musk Comments
The EV giant reported a 21% EPS decline, in line with views, while the 24% revenue gain to $23.33 billion slightly missed. Sharp price cuts fueled record deliveries in the first quarter but at the expense of margins. Tesla's gross margin tumbled to 19.3% from 23.8% in Q4 and 29.1% a year earlier. Margins excluding regulatory credits and leases skidded to 18.3% from 23.8% in Q4. That is below the 20% gross margin "floor" Tesla had previously targeted for 2023. Free cash flow tumbled 80% vs. a year earlier to $441 million vs. expectations for $3.2 billion. On the conference call, Elon Musk signaled he was willing to see profit margins fall further. Just before earnings, Tesla cut U.S. prices for the second time in just April. After earnings, the EV giant raised prices on the Model X and S. Tesla plunged on earnings, hitting its lowest levels since late January.
China EV Makers Show Off New Models
Headlined by the BYD Seagull, China's EV makers and their Western counterparts unleashed their latest electric vehicles at the Shanghai Auto Show. The small and cheap ($11,460) Seagull electric hatchback is a potential growth driver, but BYD also unveiled an EV crossover and a PHEV sedan that will likely start around $30,000, while also setting a $160,000 price for the U8 off-road vehicle from its super-premium brand Yangwang. Fast-growing startup Li Auto, a maker of premium hybrid EVs, said it will offer all-electric vehicles for the first time. Nio and XPeng also unveiled new models, as did Volkswagen, Polestar and others. The new EVs will add fodder to a fierce China price war. China is the world's biggest and fastest-growing EV market, but one that is expected to grow at a less-torrid pace in 2023.
Li Auto initially broke out, but then reversed lower. Nio stock and XPEV also reversed for sharp losses, while EV- and battery-giant BYD erased solid gains.
Intuitive Surgical Soars On Procedure Growth
The robotic surgery giant reported a massive surge in first-quarter procedures using its da Vinci robotic surgery system. During the March quarter, procedures grew 26%, well above the 14%-20% quarterly gains that Intuitive Surgical notched in 2022. Overall, sales increased 14% to $1.7 billion and adjusted profit climbed almost 9%, both beating. Intuitive Surgical stock gapped up out of a base.
Netflix Misses Subscriber Goal
Netflix added 1.75 million streaming video subscribers in the first quarter vs. forecasts for 2.2 million. The streaming giant slightly topped on EPS and missed on sales. Netflix guided lower on Q2 EPS and revenue, but raised its full-year free cash flow target.
Taiwan Semi Lowers Outlook
Taiwan Semiconductor Manufacturing, the world's largest contract chipmaker, reported a 3% EPS drop, slightly beating, while a 5% sales drop missed. TSMC guided below views for the current quarter and lowered its 2023 revenue outlook from "slight growth" to a low- to mid-single-digit decline. But it kept capital spending plans unchanged. Semiconductor equipment suppliers ASML and Lam Research both beat March-quarter targets but disappointed with their guidance. TSM rose slightly and LRCX popped, while ASML fell.
Banks Report Mixed Earnings, Deposits
Banks large and small released first-quarter results. Higher net interest income boosted most banks, though investment banking revenue fell for Goldman Sachs and Morgan Stanley. Bank of America beat. Among asset custodians, State Street missed views and Bank of New York Mellon was mixed. All these banks rose except STT. Among superregional banks, U.S. Bancorp beat views while KeyCorp and Truist fell short of views. Stocks were mixed. Phoenix-based Western Alliance Bancorp and New York City-focused Metropolitan Bank, among the hardest hit in March, jumped on results and deposit trends.
Schwab, Interactive Brokers Results Mixed
Charles Schwab reported a 20% EPS gain, slightly beating, but the 10% revenue rise to $5.12 billion was just below forecasts. Schwab paused its buyback amid banking uncertainty, noting a big drop in deposits. Interactive Brokers posted a 65% EPS jump while revenue bolted 63% to $1.06 billion, driven by a 126% increase in net interest income. But the third straight quarter of accelerating earnings growth wasn't enough to top views. Customer accounts jumped 21% over the year to 2.2 million. SCHW stock, hard hit in March, rose solidly. IBKR stock, which had held up better, fell slightly for the week.
Merck Announces Big Buy, Cancer trial Data
The Dow giant will buy Prometheus for $10.8 billion. Prometheus is working on a treatment for inflammatory bowel disease. RXDX stock, which tripled on clinical trial data in December, nearly doubled on the takeover news. Meanwhile, Merck and partner Moderna reported positive results from Moderna's personalized cancer vaccine with Merck's Keytruda in melanoma patients. But the results may not be strong enough for an accelerated approval. MRNA stock tumbled. Merck hit a record high, but pulled back slightly.
Medical Giants Top Views
Johnson & Johnson and Abbott Laboratories both beat first-quarter views but their shares diverged. J&J's adjusted EPS climbed a fraction while sales rose 5.6% to $24.75 billion, but JNJ stock fell on conservative guidance. Abbott's EPS tumbled 40% and sales sank 18% on declining numbers of Covid tests, but organic sales grew 10%. Shares jumped.
Rail Giants Top, Trucking Firms Miss
Union Pacific and CSX topped quarterly views, with UNP EPS up 4% and CSX up 23%. Shares of both rail giants rose. Knight-Swift Transport and J.B. Hunt both reported bigger EPS declines than expected, with the latter also missing on sales. But both trucking firms rose slightly for the week.
Chile To Nationalize Lithium
The leftist president said he will nationalize the lithium industry, eventually shifting Chile's lithium operations from SQM, Albemarle and others to a state-owned mining company. SQM and Albemarle, already down hard in recent weeks, fell sharply Friday. Base metal miners Rio Tinto and BHP also fell.
Oil Field Services Giants Top
SLB, formerly known as Schlumberger, and Baker Hughes beat first-quarter estimates, lifting shares even as crude oil prices retreated from recent five-month highs. Baker Hughes reported EPS jumped 86% while revenue increased 18% to $5.72 billion. SLB earnings soared 85% to 63 cents, with revenue up 30% to $7.74 billion. International revenue, 77% of SLB's total, increased 29% while North American revenue gained 32%.
News In Brief
Las Vegas Sands jumped after the casino giant easily beat EPS views and revenue more than doubled as Macau gaming booms with the end of China's Covid restrictions.
Procter & Gamble topped Q1 views with slim EPS and revenue gains, as higher prices offset weaker demand. The consumer products giant raised its full-year sales target and its buyback plans. PG stock rose.
HCA Healthcare easily beat Q1 views, with EPS and revenue unexpectedly rising. Shares of the hospital operator jumped out of a buy zone to a new high.
Dexcom popped after the Centers for Medicare and Medicaid Services said it would reimburse the cost of continuous glucose monitors for people age 65 and older who need insulin to manage their diabetes. Patients with a history of problematic glucose incidents will also receive coverage.
Lockheed Martin reported better-than-expected first-quarter sales and earnings, driven by supply-chain improvements and space sales. The defense giant broke out on earnings but then fell back.
Auto retailer AutoNation beat earnings estimates but growth slowed for a fifth quarter. Revenue missed on cooling used-car demand.
American Express missed Q1 EPS views as the credit-card firm increased loan-loss provisions. Revenue topped. AmEx stock plunged Thursday morning, but closed well off lows for the day.
AT&T reported a 5% EPS drop that topped views, but revenue slightly missed while free cash flow tumbled far below views. Wireless subscriber growth slowed down as expected.
Freeport-McMoRan reported a sharp EPS decline and 18% revenue rise, but both beat views. Shares of the copper giant fell solidly on Friday and for the week.
