The stock market rally suffered solid losses for a third straight week. The Dow Jones, S&P 500 and Nasdaq all tumbled below their 50-day moving averages, though they bounced from Thursday's intraday lows. A U.S. ban on some Nvidia and AMD chip sales to China sent the chip sector tumbling. China e-commerce giant Pinduoduo surged on blowout earnings, while Baidu struggled after its earnings report. BYD reported booming Q2 earnings and record August sales, but shares plunged as Warren Buffett's Berkshire Hathaway sold a small share of its big stake in the China EV and battery giant. China EV startups Nio, Xpeng and Li Auto reported August deliveries as well.
Economic Data Too Strong?
A big week of economic data focused on jobs and manufacturing showed that the U.S. economy still has some momentum — too much for the Fed's comfort. Employers added a solid 315,000 jobs in August, as annual wage growth held at a strong 5.2%. However, the Fed got some rare good news with a burst of 786,000 people joining the labor force, according to the separate household survey. Despite 442,000 joining the ranks of the employed, the labor force growth pushed up the unemployment rate to 3.7% from a longtime low of 3.5%. Still, that doesn't change the big picture of a labor market that's awfully tight. The percentage of prime-working-age adults (25-54) with jobs jumped to 80.3%. That's just off the pre-Covid peak, which was the highest since 2001.
Earlier in the week, the Labor Department reported that job openings rose by about 200,000 to 11.2 million in July. That amounted to 2 openings per unemployed worker, a key metric that the Fed has cited to show how unbalanced the job market is.
The ISM manufacturing index for August surprised on the upside, matching July's 52.8 level, still modestly above the neutral 50 level. The new-orders subindex moved back into expansion territory, while the employment gauge also rose solidly.
Stock Market Rally Keeps Falling
The Dow Jones, S&P 500 and Nasdaq composite all fell below their 50-day moving averages, down significantly for a third straight week. They rebounded from Thursday intraday lows, but the market rally remains under increasing pressure. Leaders and would-be leaders struggled. Chip stocks tumbled as the U.S. banned some sales of Nvidia and AMD chips to China. China lockdown concerns were another factor. The 10-year Treasury yield jumped to a two-month high, weighing on stocks, but pared gains slightly as unemployment rose.
Nvidia Hit With Export Restrictions
The U.S. government imposed export restrictions on high-end processors for data centers and artificial intelligence to China and Russia. That will impact sales of graphics processing units from Nvidia and Advanced Micro Devices. Analysts say the restrictions threaten about 7% of Nvidia's sales but will have a minimal impact on AMD. The U.S. government is concerned about the chips' military applications. Nvidia tumbled to a two-year low while AMD also sold off, with the broader chip sector also tumbling,
Broadcom Posts Beat-And-Raise Report
Chipmaker and infrastructure software provider Broadcom beat Wall Street's targets for its fiscal third quarter and guided higher for the current period. Semiconductor sales rose 32% to $6.62 billion while infrastructure software sales increased 5% to $1.84 billion. Meanwhile, other chip firms disappointed. They included chipmakers Ambarella and Semtech and semiconductor-equipment maker Photronics. Elsewhere AMD launched its Ryzen 7000 Series desktop processors, touting performance advantages over rival Intel.
Pinduoduo Soars On Blowout Earnings
The Chinese e-commerce giant reported a 157% EPS gain while sales growth accelerated to 31%. Pinduoduo is benefiting from pent-up demand following prolonged China Covid lockdowns, defying what's been said by competitors like Alibaba and JD.com. Baidu retreated on mixed results. EPS and revenue fell modestly amid a challenging environment and Covid lockdowns in Q2, though cloud revenue grew 31%.
BYD Dives On Warren Buffett Sales
BYD reported Q2 EPS surged 200%, easily beating views. On Friday, the China EV and battery giant announced it sold 174,915 NEVs in August, a 184% increase year-over-year and the sixth straight month of record sales. It sees monthly deliveries hitting 280,000 by year-end, targeting 4 million deliveries in 2023. But all of that was overshadowed by Warren Buffett's Berkshire Hathaway disclosing that it twice reduced its large holdings in BYD. Berkshire still owns somewhat less than 8% of BYD. BYDDF shares plunged to their worst levels in nearly four months.
Nio Leads China EV Startups
Nio reported higher August EV sales vs. July, while XPeng Motors and Li Auto saw their deliveries fall vs. the prior month. Nio delivered 10,677 vehicles in August, up 82% vs a year earlier. XPeng deliveries grew 33% vs. a year earlier to 9,578 vehicles. Li Auto delivered 4,571 vehicles, down 56% vs. July and 52% vs. a year earlier. August is somewhat of a transition period for the EV startups. Nio and Li Auto began deliveries of new models at the end of the month. Nio launches yet another new EV on Sept. 30. Li and XPeng will each begin deliveries of a new model in Q4.
Cybersecurity Stocks Fall On Earnings
Okta crashed on second-quarter results that, while beating estimates, struggled with integration issues tied to its 2021 acquisition of Auth0, including sales team exits. Cybersecurity software company, CrowdStrike handily beat Q2 estimates on the top and bottom lines, but shares fell. CrowdStrike said it delivered robust growth at scale with over 80% year-over-year growth in operating and free cash flow. SentinelOne beat views and guided higher. Shares fell, though they pared weekly losses.
Ollie's, Big Lots Stumble
Ollie's Bargain Outlet reported a 58% EPS decline, well below views. Sales rose 8.8%, slightly missing. Ollie's said it would hold the line on prices. Fellow closeout retailer Big Lots reported a big quarterly loss with sales down 8% to $1.35 billion, but both slightly beat views. Still, BIG stock fell for the week, and OLLI sold off.
News In Brief
Lululemon Athletica reported a 33% EPS gain with revenue up 29% and same-store sales jumping 23%. The athleisure retailer also guided higher. Shares jumped.
Best Buy beat reduced expectations for its fiscal second quarter but said spending on consumer electronics remains weak. In the quarter ended July 30, EPS tumbled 48% with sales off 13% to $10.33 billion.
Veeva Systems plummeted late Wednesday on lackluster sales guidance despite easily beating fiscal second-quarter expectations. Q2 EPS rose 10% with sales climbing more than 17% to $534.2 million.
HP tumbled after missing its fiscal Q3 sales target and guiding much lower than views for the current fiscal Q4. PC sales fell 3% and printer sales sank 6%.
Bed Bath & Beyond plunged after announcing plans for a big share offering, along with job cuts and store closures as the ailing housewares retailer struggles with sharp losses and tumbling sales. The meme stock reversed lower for big weekly losses, but after capping its best month since January 2021.
Five Below missed on earnings and sales, but was confident about store growth through next year.
Snap surged as the social media company said it would slash 20% of its workforce of more than 6,000 people as part of a companywide restructuring effort.
Seagate Technology lowered its business outlook for the fiscal first quarter against a worsening macroeconomic backdrop. Seagate said it is taking steps to minimize the impacts to the company.
MongoDB provided second-quarter results that beat estimates but shares of the database software company plunged after it suggested a coming slowdown in its third quarter.
Pure Storage reported quarterly results that beat estimates, which the data storage firm attributed to momentum in product and subscription services and revenue growth in the domestic and international segments. But shares fell.
