The stock market recovered from huge intraday losses Monday but struggled to make headway, reversing sharply lower Wednesday as the Federal Reserve signaled an even more hawkish policy in the coming months, sending Treasury yields jumping. Tech titans and Microsoft and Apple rose on earnings, though they were little changed for the week. Tesla plunged despite beating earnings views, as investors were disappointed by the lack of new models in 2022. Several chipmakers sold off hard on earnings or guidance.
Stock Market Whipsaws Lower
An upside reversal from steep losses Monday triggered the start of a market rally attempt, but the major indexes retreated for the week amid broad-based losses in whipsaw fashion. Treasury yields rose sharply on the hawkish Fed, but the yield curve continued to flatten. Microsoft and Apple held up reasonably well on its earnings and guidance, while shipping stocks weathered the market storm. Crude oil futures hit fresh multiyear highs.
Fed Signals Aggressive Tightening
This week's Federal Reserve meeting clarified that monetary policy is now focused on managing the risk created by the inflation overshoot. That will begin with the first rate-hike of the cycle in March, along with an end to asset purchases. And market pricing indicates expectations that the Fed will follow with additional hikes in May and June, along with two more later in the year. Balance-sheet tightening could also be announced in May or June. "There's a substantial amount of shrinkage in the balance sheet to be done," Fed chief Jerome Powell said, after $4.5 trillion in bond purchases since March 2020. Powell made clear he sees the risk of sustained high inflation — even though it's not his base case — as a much bigger threat to the economic expansion than a moderate stock market drawdown.
Apple Beats Holiday Sales Goal
The consumer electronics giant easily beat Wall Street's targets for the December quarter. Sales rose 11% to $123.9 billion in fiscal Q1 while EPS grew 25%. The iPhone business accounted for 58% of total revenue. The Cupertino, Calif.-based company did not give specific financial guidance for the March quarter but said it expects "solid" year-over-year revenue growth. Apple expects supply constraints to continue due to chip shortages but to ease. Apple stock rallied Friday.
Microsoft Tops Earnings Target
Microsoft topped fiscal Q2 views with a 22% EPS gain as revenue climbed 20% to $51.7 billion. For the March quarter, Microsoft guided to sales of $48.9 billion, up 17%. It also expects revenue growth to accelerate in its Azure cloud infrastructure business. Microsoft rallied on the news but were little changed for the week.
Chip Stocks Stumble On Outlook
Chip-gear suppliers KLA and Lam Research guided well below estimates for the March quarter, driving their shares lower. Industry peers Teradyne and MKS Instruments also missed views for the current quarter. Among chipmakers, Texas Instruments delivered a beat-and-raise quarterly report while Intel beat Q4 estimates but gave a mixed outlook. Silicon Motion Technology posted better-than-expected results for the fourth quarter but disappointed with its outlook for the first quarter.
Chip Deals At Turning Point
Chinese authorities approved the AMD takeover of Xilinx, which now could close in early February. Meanwhile, Nvidia reportedly is planning to abandon its long-shot bid to buy chip designer Arm because of regulatory challenges in the U.S., China and Europe.
Tesla Beats Views, But No Cybertruck Soon
Tesla earnings shot up 218% with revenue up 65% to $17.719 billion., easily beating Q4 views though by less than in some prior quarters. CEO Elon Musk said the Cybertruck won't enter production until "hopefully 2023," while there are no current plans for a $25,000 sedan. Tesla will instead focus on ramping up production of current models. Musk once again claimed that Tesla will achieve self-driving in the current year. Tesla stock plunged on earnings and for the week, hitting a three-month low.
Card Giants Beat Views
American Express jumped after beating Q4 views, citing "record" card-member spending amid the broader economic recovery and its focus on attracting younger customers. American Express gave a mixed full-year outlook, but plans to boost its regular quarterly dividend by around 20%. Visa and Mastercard, which don't benefit from higher interest rates like AmEx, also topped estimates. Visa and Mastercard also rose.
Steel Earnings Strong, Pricing Cooling
Nucor, Steel Dynamics and U.S. Steel reported record profits. But all three companies had offered guidance in mid-December, so investors were focused more on the outlook. STLD predicted further domestic steel demand growth in 2022, yet rising supply already is seeing steel prices sink toward more normal levels. That's killed momentum, pushing NUE, STLD and X below their 200-day lines. Still, the windfall from 2021 pricing will continue to pay dividends. U.S. Steel boosted its stock buyback by $500 million.
AT&T Stock Hits Static
AT&T reported fourth-quarter EPS rose 4% while revenue fell 10% to $41 billion including the divestiture of DirecTV. Both modestly beat. AT&T guided slightly lower on 2022 EPS. Also, investors are unsure over the pending WarnerMedia merger with Discovery. Meanwhile, Verizon EPS rose 8% as revenue fell 2% to $34.1 billion, including the Verizon Media divestiture. Both slightly beat views, but postpaid wireless subscribers missed. Verizon guided up on 2022. But shares of Verizon, AT&T and Discovery sold off.
Defense Giants Top Earnings Views
Lockheed Martin beat analyst expectations, but the Federal Trade Commission is suing the F-35 maker over its $4.4 billion acquisition of Aerojet Rocketdyne. Northrop Grumman and General Dynamics reported slightly lower EPS that beat views, but revenue missed views. Lockheed rose solidly, General Dynamics rose slightly while Northrop tumbled.
Boeing Misses Views, Takes Big Charge
Boeing reported a Q4 loss of $7.69 per share as revenue fell 3% to $14.79 billion. FactSet analysts had projected a loss of 36 cents per share on revenue of $16.54 billion. The loss was largely due to Boeing taking a $3.5 billion pretax noncash charge on the 787 Dreamliner program as the halt in deliveries amid talks with regulators is "taking longer than previously expected. The Dow aerospace giant sees abnormal costs related to the 787 increasing to $2 billion, up from an estimate of $1 billion in Q3. It also took a charge on the troubled KC-46 tanker for the Air Force. Shares tumbled.
Aerospace Giants See Cloudy Skies
General Electric, Raytheon Technologies and Textron gave weaker-than-expected guidance for 2022 after earnings and revenue for the final quarter of 2021 largely fell short of views. GE earnings jumped 39% per share but sales fell 7%. Raytheon earnings jumped 56% as revenue climbed 13%. Textron earnings declined 11% as sales fell 9%. Aerospace suppliers are battling headwinds from commodity price inflation and supply chain disruptions, as the pandemic lingers. GE and Textron shares tumbled while Raytheon edged higher.
Medical Giants Report
Johnson & Johnson and Abbott Laboratories reported Q4 results. J&J EPS rose 15%, just above views. Revenue climbed 10% to $28.4 billion, below expectations. Abbott Labs' EPS fell 9% and sales grew over 7%, both topping.
Edwards Lifesciences sold off after reporting EPS rose 2% and sales 12% to $1.33 billion, both missing.
ServiceNow reported Q4 EPS rose 25%, slightly beating views, as revenue climbed 29% to $1.61 billion, a hair above consensus. The business software giant guided fractionally higher on 2022 subscription revenue. Shares jumped after tumbled in recent weeks.
Vertex Pharmaceuticals earnings rose 37% per share, with sales up 27% to $2.07 billion, both easily beats. Shares rose slightly.
IBM jumped as quarterly results beat estimates and showed signs that its multiyear restructuring is gaining traction.
Chevron earnings missed Q4 views even as revenue topped forecasts. CVX stock fell Friday from record highs.
Seagate Technology beat earnings views, raised fiscal 2022 revenue forecasts and hiked its long-term operating margin target. Shares spiked Thursday but came off intraday highs.
