The stock market rally continued to power higher, shrugging off a surprisingly hawkish Fed rate-hike outlook, helped by tame inflation. The Dow Jones hit a 2023 high. The S&P 500 and Nasdaq kept setting 52-week bests, though they are getting extended. Lennar, Oracle and Adobe were earnings winners. UnitedHealth warned of rising health care usage, which is slamming health insurers but giving a boost to hospitals and medical product firms.
Stock Market Rally Looking Extended
The stock market rally took a hawkish Fed outlook in stride, with strong, broad-based gains. The Nasdaq and S&P 500 hit fresh 52-week highs but are looking extended, especially the Nasdaq. The Dow Jones hit a 2023 best. Market breadth was solid.
Fed Sees Two More Rate Hikes
The Federal Reserve left interest rates steady on Wednesday, as expected, but indicated that two more quarter-point hikes will come this year. Markets had only expected one more hike, and even that wasn't a lock. Fed chief Jerome Powell gave more-dovish comments, pointing to signs of easing labor markets and inflation. But core inflation remains stubbornly high. Markets slightly raised the odds for a rate hike in July or September, but see almost no chance of a second increase.
Inflation Cools, But Core Is An Issue
The CPI inflation rate fell to a two-year low of 4% in May, slightly below views and down sharply from April's 4.9%. The core inflation rate dipped to 5.3%, in line with views and still far too high for the Fed's liking. Producer prices fell 0.3% last month, with the annual gain sliding to just 1.1% vs. 2.3% in April. Core PPI inflation slowed to 2.8% from 3.2%. Meanwhile, retail sales rose modestly for a second straight month in May, while manufacturing continued to struggle, according to various reports.
UnitedHealth Warns On Medical Costs
The health insurance giant said medical care usage was normalizing after a pandemic-induced slowdown, noting that seniors in particular are "just more comfortable accessing services." That sent UnitedHealth tumbling, along with peers such as Humana. But it was good news for hospitals, with Surgery Partners breaking out. A number of medical products and systems makers also flashed buy signals.
Adobe Tops Estimates, Hails 'AI Era'
Adobe reported a 17% EPS gain, beating fiscal Q2 views. Revenue climbed 10% to $4.82 billion, slightly topping. The digital media and marketing software firm guided up on EPS but in line, at best, for revenue. But Adobe vowed to lead the "new era of generative AI" with its expertise in creative software and digital content workflows. Shares rose sharply for the week.
Oracle Soars On Cloud Boom
Oracle reported an 8% EPS gain in its fiscal Q4, with revenue up 17% to $13.8 billion. Cloud services and license support revenue grew 23% to $9.4 billion, just beating. Cloud infrastructure as a service and software as a service surged 54% to $4.4 billion. Shares soared.
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Lennar Beats, Guides Up
Lennar reported a 37% EPS decline with revenue down 4% to $8 billion, but both easily beat views. Deliveries rose 3% vs. a year earlier to 17,074 homes. The homebuilder also guided higher for deliveries in the current fiscal Q3 and the full year. The U.S. is in a long-term housing shortage, with the construction of new homes failing to keep pace with the growing population. Rising materials costs, supply chain issues and labor shortages since the Covid pandemic have exacerbated the issue. Meanwhile, existing homeowners have been reluctant to sell. LEN stock rose to a fresh high.
Regional Banks See Weaker Interest Income
KeyCorp lowered its net interest income guidance for Q2 on Monday, causing KEY shares to retreat 5.6% on the week. The Cleveland, Ohio-based bank now expects net interest income (NII) to decline 12% in the second quarter, compared to the previous outlook of a 4%-to-5% slide. KeyCorp's Q1 NII warning helped trigger the regional bank crisis in March. Zions Bancorp also cut its net interest income guidance to "decreasing" from "moderately decreasing" on Wednesday. Following the update, Truist analysts said Zions' net interest margin is trending toward 2.85%, below the 3.07% analyst consensus. Regional banks no longer appear to facing deposit flight, but they are having to pay more for deposits as Americans belatedly opt for higher-yielding money markets, CDs or T-Bills. KEY stock and ZION fell solidly, but regional banks overall held up.
Charles Schwab said total client assets rose 5% over the year to $7.65 trillion as of May 30. Average daily net outflows from bank sweep and deposit accounts declined for a fourth straight month. Client cash as a percentage of assets was 11.5% as of May 30, improving from 11.3% in April but down from 12% in May 2022.
News In Brief
Axsome Therapeutics jumped Wednesday after forecasting $5.8 billion to $11.5 billion in peak U.S. sales of its eight products, including depression treatment Auvelity. The guidance easily beat analysts' predictions, though their estimates don't include all eight drugs.
Advanced Micro Devices introduced new semiconductor and data center products optimized for artificial intelligence. AMD's Instinct MI300 Series accelerator family of graphics processing units is aimed at AI chip leader Nvidia.
Jabil beat expectations for its fiscal third quarter ended May 31, though its guidance was mixed. The electronics contract manufacturer reported a 16% EPS gain with sales up 2% to $8.48 billion.
Novartis agreed Monday to pay $3.5 billion to buy Chinook Therapeutics, a kidney disease-focused biotech company. The deal values Chinook stock at $40 per share and includes two contingent value rights worth a combined $4 per share tied to approvals for atrasentan in kidney diseases known as immunoglobulin A nephrology, and focal segmental glomerulosclerosis.
Kroger earnings growth slowed to 4%, but slightly beat fiscal Q1 views. Revenue climbed 1% to $45.16 billion, slightly missing. Shares of the grocery giant fell.
Cava soared in its trading debut, opening at 42 on Thursday after pricing its IPO at 22 a share, above the expected range. The Mediterranean food fast-casual restaurant is not profitable yet but growing rapidly.
XPeng on Monday reported more than 25,000 orders within 72 hours for its new G6 EV crossover. It's a direct competitor to the Tesla Model Y, but for far less. XPeng desperately needs a big hit. Meanwhile, Nio cut prices on its lineup, in large part by scrapping some incentives. It also launched an ET5 Touring version on its mainstream EV sedan, but for the same price. XPeng stock and Nio soared, while Li Auto and EV giant BYD rose strongly to fresh 2023 highs.
Dave & Buster's spiked 19% on Tuesday as the gaming and dining chain plans to open new locations, upgrade existing restaurants, refresh menus and raise some prices. Shares briefly topped a base to hit a 52-week high, but pared gains somewhat. The move came a week after PLAY stock skyrocketed on mixed Q1 earnings results.
