Here are five things you must know for Friday, May 27:
1. -- Stock Futures Higher As Fed 'Pause' Hint Boosts Sentiment
U.S. equity futures extended gains Friday, putting stocks on pace for their best weekly gain in two months, as investors bet that the Federal Reserve's suggestion of an autumn pause in rate hikes, paired with what could be a peak in inflation readings, will lift markets from one of their worst starts to the year since the 1930s.
Solid retail earnings have also indicated that consumers aren't ready to roll over amid the fastest inflation in forty years, adding to optimism that the underlying economy remains firm and the Fed will be able to engineer the 'soft landing' it desires from higher interest rates that tame inflation pressures.
An important piece of that task will arrive this morning, with an 8:30 am Eastern time reading of the Fed's preferred inflation gauge, the core PCE Price Index, which is expected to ease modestly from its multi-decade highs.
A softer reading could add to bets that the Fed is prepared to pause rate hikes in the fall, following 50 basis point increases that are largely price-in for its June and July meetings, and confirm some analysts' assessments that domestic inflation has peaked.
"The overall economy is still underpinned by a very strong labor market and while challenges to margins have emerged for some big-box retailers, there are other signals in the economy that show consumers still have the ability to spend," said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management in Minneapolis. "Overall, markets were hovering near oversold territory and (Thursday's) rally was a result of walking back some of the recent recession fears," he added.
Bank of America's Flow Show suggests others are spotting the trend: nearly $22 billion has poured into U.S. equity funds this week, the most in more than 10 weeks, while the U.S. dollar index, a good gauge of global risk appetite, fell to a one month low of 101.684 in overnight trading. Benchmark 10-year Treasury bond yields -- which move inversely to prices -- were little-changed at 2.758%
In overseas markets, European stocks added to yesterday's gain by rising 0.58% in early Frankfurt trading while the region-wide MSCI ex-Japan index jumped 2.09% in a follow-on rally from last night's close on Wall Street.
Heading into the final trading day before the Memorial Day long weekend, futures tied to the Dow Jones Industrial Average indicating a 15 point opening bell gain while those linked the S&P 500 were priced for a 7 point bump. Futures linked to the tech-focused Nasdaq, which id down 25.85% for the year, are looking at 35 point opening bell advance.
2. -- Costco Slips After Q1 Earnings Beat As Margins Narrow
Costco Wholesale (COST) share moved lower in pre-market trading after the big-box discount retailer posted weaker-than-expected same-store sales despite luring more members to its club with cheaper gasoline.
Costco earned $3.04 per share for its fiscal third quarter, which ended on May 8, on revenues of $51.61 billion, although gross margins fell by around 100 basis points from the same period last year thanks to higher fuel and shipping costs. Membership revenues rose 9.2% to $984 million.
Adjusted same-store sales were up 10.8% from last year, Costco said, around 200 basis points south of the Street forecast, while e-commerce sales were up 7.9%.
"Pressures from higher commodity prices, higher wages, higher transportation costs and supply chain disruptions all still in play," Bob Nelson, senior vice president for finance & investor relations told investors on a conference call.
Costco shares, which rose 5.65% during the Thursday session, were marked 1.8% lower in pre-market trading to indicate an opening bell price o $456.50 each..
3. -- Gap Tumbles After Wider Q1 Loss, Grim Full-Year Outlook
Gap Inc (GPS) shares tumbled in pre-market trading after the casual clothing retailer posted a wider-than-expected first quarter loss while slashing its full-year profit forecast.
Gap, which also operates the Old Navy and Banana Republic brands, said it sees full-year earnings of between 30 cents and 60 cents per share, down from its prior forecast of a $1.85 to $2.05 pe share range, as shoppers shift spending to more upscale and formal apparel retailers. For the three months ending in April, Gap posted a loss of 44 cents per share on revenues of $3.5 billion.
"When spring product finally began to arrive in March it became apparent we also had product acceptance issue," CEO Sonia Syngal told investors on a conference call late Thursday. "However, supply chain challenges and persistent delays significantly limited the brand's responsive abilities."
"Reverting to a longer inventory push model, not only diluted economic value, but meant we were defining customer trends too early in the process and we're unable to chase into the right fashion choices closer in," she added.
Gap shares were marked 16.8% lower in premarket trading to indicate an opening bell price of $9.25 each, a move that would extend the stock's year-to-date gain to around 47.6%.
4. -- Dell Surges As Q1 Earning Impress After VMware Deal
Dell Technologies (DELL) shares surged higher in pre-market trading after the PC and laptop maker posted stronger-than-expected first quarter earnings and boosted its near-term profit outlook.
Dell, a major shareholder in VMmare (VMW), which agreed to a $61 billion cash-and-stock takeover by Broadcom (AVGO) yesterday, earned an adjusted $1.47 per share over the three months ending in April as sales climbed 16% to a record $26.12 billion, thanks in part to extended demand from companies looking to promote hybrid workspaces.
Looking into the 2022 financial year, Dell said it sees sales rising to $27.1 billion with earnings in the region of $1.47 per share.
"We are positioned to pursue growth wherever it materializes in the IT market, given the predictability, durability and flexibility in our business," said co-CEO Chuck Whitten.
Dell shares were marked 13.5% higher in premarket trading to indicate an opening bell price of $43.93 each, a move that would trim the stock's year-to-date decline to around 21.8%.
5. -- Marvell Jumps As Data Center Chip Demand Boosts Earnings, Outlook
Marvell Technology (MRVL) shares moved higher in pre-market trading after the chipmaker posted better-than-expected first quarter earnings and a robust outlook for data center semiconductor demand.
Marvell reported adjusted net income of $448 million for the three months ending in April, around $8 million ahead of the Street consensus forecast. Revenues rose 74% from last year to $1.447 billion thanks to what CEO Matt Murphy called "higher-than-forecasted results from the data center end market."
That tally could reach $1.515 billion in the current quarter, Marvell said, with diluted earnings of around 56 cents per share, plus or minus 3 cents.
"The second quarter of fiscal 2023, we expect a continuation of strong demand for our products from the enterprise networking end market and further improvements in supply," Murphy told investors on a conference call late Thursday. "As a result, we are projecting revenue to be up sequentially in the mid-teens on a percentage basis and year-over-year growth of approximately 45%."
Marvell shares were marked 5.3% higher in pre-market trading to indicate an opening bell price of $56.99 each.
