The stock market rally ran toward 2023 highs again with broad-based gains, as many of the major indexes rebound from or near their 21-day moving averages. A number of stocks flashed buy signals, either from traditional breakouts or from pullbacks or early entries. Carnival and Delta earnings and guidance news fueled travel stocks. Nvidia erased weekly losses despite reports of possible increased AI chip export bans to China.
Stock Market Rally
After pulling back in the prior week, the S&P 500 rebounded back to a 52-week high while the Dow Jones and Nasdaq neared their 2023 bests, all staging upside, outside weeks. Market breadth rebounded. Software, travel, and chip sectors were among the many areas showing strength and stocks flashing buy signals. Treasury yields jumped.
Economy Resilient, Inflation Cools
The Fed's primary inflation gauge showed core prices, excluding food and energy, rose a slower-than-expected 0.3% in May as the annual core inflation rate eased to 4.6% from 4.7%. Overall inflation slowed to 3.8% from 4.2% the prior month, as prices edged up just 0.1% on the month. The Fed's recent focus, core services prices excluding housing, rose just 0.2% in May. Personal spending rose just 0.1% in May and edged lower in inflation-adjusted terms, suggesting a consumer slowdown after a 4.2% annualized gain in Q1. Meanwhile, new-home sales surged 20% in May to a 773,000 annual pace, the highest since February 2022. Durable goods orders unexpectedly rose 1.7%, partly due to aircraft orders. Still, core capital goods orders, tied to business investment plans, rose a solid 0.6%.
U.S. Mulls Tougher Chip Curbs On China
The Biden administration is weighing tougher restrictions on exports of computer chips that process AI software. The new restrictions would also apply to Nvidia's less-powerful A800 AI chips, which were designed to avoid export curbs. Speaking at the Piper Sandler financial conference, Nvidia CFO Colette Kress said: "Given the strength of our demand for our products worldwide, we do not anticipate that such additional restrictions, if adopted, would have an immediate material impact on our financial results." Analysts estimate that Nvidia gets about 10% of its revenue from China. Nvidia stock fell slightly on the news but was little changed for the week.
Micron Tops Views, But Guidance Mixed
The memory chip giant reported a smaller-than-expected Q3 loss while revenue plunged 57% to $3.75 billion, both slightly beating grim Q3 estimates. Micron Technology said memory-chip demand has bottomed, but reiterated that recent China restrictions on sales of its chips there will be a "significant headwind." For the current quarter, Micron guided in line for revenue but guided for a wider-than-expected loss. MU stock fell on results.
Carnival Goes On Wild, Fun Ride
Carnival topped Q2 expectations early Monday as industry and travel demand remains strong heading into the summer vacation season. Carnival's adjusted per-share loss improved to 31 cents vs. a loss of $1.65 last year. Revenue doubled to a second-quarter record of $4.91 billion while customer deposits jumped 20% to a record $7.2 billion. The cruise giant expects to return to profitability in the second half of fiscal 2023 while it works to pay down its debt. CCL stock initially tumbled Tuesday, but found support. Shares then soared for huge weekly gains.
Airlines Take Off On Delta Guidance
Airline stocks soared this week after Delta Air Lines raised its 2023 outlook and maintained its fiscal 2024 view, citing a bullish outlook for travel. Delta expects earnings for fiscal 2023, which ends Dec. 31, at the top end of its prior target for EPS of $5-$6. The carrier also raised cash flow and operating margin goals. Further, the company raised its second-quarter revenue growth outlook to 17%-18%. It had predicted 15%-17%. Delta shares jumped to a two-year high. American Airlines and Alaska Air broke out. So did United Airlines, though it slashed weekly gains amid flight cancellation issues.
Constellation Earnings Top
Constellation Brands reported a 9% EPS gain while revenue grew 6.4% to $2.52 billion, both beating fiscal Q1 views. Beer operations posted double-digit net sales growth, driven by momentum from its Modelo brand. Constellation Brands is the U.S. seller of Modelo Especial, which dethroned Bud Light as the top beer in the U.S. at the beginning of June. Constellation Brands guided higher on fiscal 2024 EPS but low on free cash flow. STZ shares initially fell Friday on earnings, but reversed slightly higher to just below a buy point.
Weight-Loss Setback Weighs On Pfizer
Pfizer and Eli Lilly shares diverged last week on updates for their diabetes and obesity treatments. Pfizer tumbled as it scrapped development of its once-daily pill for type 1 diabetes. The drug leads to elevated liver enzymes. Instead, Pfizer will move ahead with a twice-daily pill, which analysts say puts it at a disadvantage to other drugmakers. Meanwhile, Lilly shares rose after the company announced results for its next-generation obesity treatment. Patients without diabetes lost an average 24.2% of their body weight over 48 weeks. The drug also lowered liver fat by 82%. That sent shares of drugmakers working on nonalcoholic steatohepatitis (NASH) treatments into free fall.
Futures: Rally Back At Highs; 5 Stocks In Buy Zones
Biotech Drug News Mixed
Reata Pharmaceuticals, Sigilon Therapeutics and MoonLake Immunotherapeutics soared while Regeneron Pharmaceuticals tumbled, and BioXcel Therapeutics and FibroGen crashed. Reata won the FDA's final approval to launch its Friedreich's ataxia treatment. Eli Lilly said it would buy Sigilon, its partner in developing an experimental diabetes treatment. MoonLake surged after its skin disease treatment led to a 75% reduction in under-the-skin abscesses for a statistically significant portion of patients. On the flip side, the FDA rejected Regeneron's high dose of its eye disease drug Eylea due to an issue at a third-party manufacturer. BioXcel plummeted after unveiling a fraud probe related to its Alzheimer's disease agitation study. FibroGen plunged to a record low after its lung disease treatment missed the bar in a key study.
Worthington Industries Is Worthy
The steel processing and building products firm reported a 73% EPS gain, crushing Q4 views and ending a five-quarter string of year-over-year declines. Revenue fell 19% to $1.23 billion, slightly missing. But Worthington Industries sees "healthy" end-market demand and says it's "very well positioned" for the new fiscal year. Shares skyrocketed out of a base to a two-year high. Schnitzer Steel reported a 74% EPS decline that narrowly topped fiscal Q3 views while revenue sank 20% to $810 million, slightly missing. The steel recycling firm sees "some signs of slowdown" in demand. SCHN stock fell, but it later slashed losses.
Lucid Rallies On Alliances
Saudi Arabia's Public Investment Fund plowed $1.8 billion more into EV maker Lucid, maintaining its 60.5% stake. Lucid, whose Air electric car starts at $87,400, also said it will supply electric powertrains and battery systems to Britain's Aston Martin, whose sports cars were popularized in James Bond movies. LCID stock soared from a 52-week low. Lordstown Motors filed for bankruptcy protection after failing to resolve a conflict with Taiwanese contract manufacturing partner Foxconn. RIDE stock plunged. Nikola disclosed that several of its electric semitrucks caught fire at its Phoenix headquarters. It suspects foul play. NKLA rose for the week.
News In Brief
General Mills reported flat Q4 profit, slightly topping, but a 2.9% revenue gain to $5.03 billion fell short on disappointing organic sales growth.
Snowflake hosted an investor day during its annual user conference. The software maker maintained its $10 billion in product revenue target by fiscal 2029. In artificial intelligence, Snowflake said it plans to partner with AI giants Microsoft and Nvidia. Snowflake also rolled out Snowpark Container Services, which lets customers securely develop large language models to train AI-driven applications. Privately held Databricks, a Snowflake rival, acquired generative AI startup MosaicML on June 26 for $1.3 billion.
