The stock market rally saw the Dow Jones join the S&P 500 and Nasdaq composite in hitting 52-week highs, but then the Nasdaq sold off hard Thursday, wiping out weekly gains, amid earnings-related sell-offs from Tesla (TSLA), Netflix (NFLX) and Taiwan Semiconductor (TSM). Bank stocks kept rallying on results, even when the results weren’t great. Johnson & Johnson (JNJ) earnings helped buoy the Dow. Treasury yields rebounded after a sharp sell-off from 2023 highs earlier in the month.
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Dow Takes Market Leadership
The Dow Jones has been lagging for a long time, but ran up to a 15-month high during the past week. The S&P 500 and Nasdaq already were at 15-month bests, but slid as growth plays sold off. Most leaders gave up recent gains, but still look healthy. The Russell 2000 had a strong week as financials rebounded. Treasury yields extended a recent sell-off, but the rebounded for a weekly gain.
Economic Data Mixed
The latest batch of data suggests the consumer and overall economy are hanging in there despite five percentage points of Fed rate hikes, and counting. June retail sales rose a softer-than-expected 0.2% from May and a tepid 1.5% from a year ago. But May sales growth was revised up to 0.5%. The data led economists to nudge up Q2 GDP growth forecasts. New claims for jobless benefits fell 9,000 to a modest 228,000 in the week through July 15. Industrial production fell 0.5% in June as factory output fell 0.3%. Auto production was a major drag, falling 3%, though that reversed only a fraction of an 11% surge in April and May. Homebuilder sentiment rose for a seventh straight month in July. Meanwhile, building permits and housing starts slipped in June, but gave back only a portion of May’s surge. The uptrend remains intact as the supply of existing homes for sale remains tight. Tight supply explains why existing home sales fell 3% from May and 19% from a year ago.
Tesla Tumbles On Margin Concerns
Tesla (TSLA) reported a 20% EPS gain with revenue up 47% to $24.93 billion, with price cuts and easy year-over-year comparisons fueling sales gains. Both beat forecasts. Gross margins fell to 18.2%, down 110 basis points vs. Q1 and 682 basis points vs. a year earlier. Operating income actually fell 2.6% vs. a year earlier, missing views. CEO Elon Musk said full autonomy will make short-term margin woes “look silly.” Tesla said “initial production” of the Cybertruck will start later this year, suggesting that a recently touted Austin-made Cybertruck was not built on the production. Musk also said Q3 production may be down slightly due to factory upgrades. Output has exceeded deliveries for several quarters, even with production below capacity. TSLA stock tumbled x% on Thursday, falling modestly for the week.
Chip Stocks Fall On Quarterly Reports
Semiconductor stocks reacted negatively to second-quarter earnings reports from chip gear maker ASML (ASML) and chip foundry Taiwan Semiconductor Manufacturing (TSM). While both companies beat Wall Street estimates for the June quarter, they signaled continued weakness in the market. ASML said customers are increasingly cautious about spending and are forecasting a later recovery for semiconductor demand. Taiwan Semi cut its revenue forecast for the full year to a 10% decline from a mid-single-digit decline, while also signaling capital spending at the low end of its target. Chip stocks fell sharply on the reports.
Microsoft, Salesforce Monetize AI Efforts
Dow software giants Microsoft (MSFT) and Salesforce (CRM) announced pricing plans for their artificial intelligence offerings for enterprise customers. Pricing for Microsoft 365 Copilot, an AI-based productivity tool, came in above views, a sign of the company’s confidence in the product. Salesforce announced earlier-than-expected general availability of its generative AI products, with pricing that matched estimates. MSFT stock hit a record high and CRM stock hit a 52-week high, but both erased gains.
Netflix Smashes Subscriber Goal
Netflix (NFLX) crushed estimates for Q2 subscriber growth, helped by a password crackdown on account borrowers. But the streaming TV giant disappointed with its Q2 sales and Q3 revenue outlook. Netflix added 5.89 million subscribers vs. views for 1.81 million. It ended June with 238.39 million subscribers worldwide. But declining average revenue per membership caused it to miss its revenue target and weighed on its forecast. NFLX stock tumbled on earnings, turning big weekly gains into a small loss.
Banks Rally On Earnings
Bank stocks continued to rally on earnings, with even those missing views generally gaining. Bank of America (BAC) narrowly beat views with solid growth, while Morgan Stanley (MS) beat on EPS declining and revenue edging higher. Goldman Sachs (GS) reported a 48% EPS drop, missing views. Regional banks U.S. Bancorp (USB) and Western Alliance Bancorp (WAL) beat despite concerns about net interest income or margins.
Schwab Spikes On Results
Charles Schwab (SCHW) earnings tumbled 23% while revenue fell 9% to $4.66 billion, both narrowly topping views. Schwab added $52 billion in core net new assets during the quarter, bringing the total so far this year to $180 billion. Elsewhere, Interactive Brokers (IBKR) adjusted EPS bolted 57% to $1.32 per share but fell short of estimates. Net revenue rose 52% to $1 billion, narrowly missing, as net interest income nearly doubled to $694 million. Commission revenue was flat due to lower client trading volumes, with a 28% drop in stock trading volumes. IBKR stock fell.
AT&T Fights Back Over Lead-Sheathed Cables
Responding to a Wall Street Journal investigative report that has pummeled telecom stocks, AT&T (T) in a court filing said lead-sheathed cables “represent less than 10% of its copper footprint of roughly two million sheath miles of cable.” Based on that data, a TD Cowen analyst estimated AT&T’s annual cost to remove lead-sheathing cables at $246 million. A Raymond James analyst put the figure at $84 million. AT&T said it has decided not to proceed with the removal of the two telecom cables from the bottom of Lake Tahoe.
D.R. Horton Earnings, Orders Strong
The homebuilder giant reported a 16% EPS decline revenue dipped 1% to $8.68 billion, but both beat fiscal Q3 views. Homes delivered climbed 8% to $22,985. Net sales orders jumped 37%. Relatively high mortgage rates curb home buying demand, but they are also deterring existing homeowners from selling. So there’s a lack of supply. DHI stock initially jumped to a record high, but reversed solidly lower.
Airlines Take Different Flight Paths
American Airlines (AAL) and United Airlines (UAL) reported better-than-expected second-quarter financials as airline stocks and the broader travel sector rebound. United’s EPS spiked 252%, with capacity up 17.5%. American Air raised full-year guidance after Q2 EPS leapt 153%, but perhaps note enough. AAL stock tumbled. UAL stock popped.
Transport Firms Miss Views
Freight transportation stocks CSX (CSX) and J.B. Hunt Transport Services (JBHT) reported weaker-than-expected Q2 results. But J.B. Hunt stock rallied while CSX slumped. Trucking firm J.B. Hunt’s earnings fell 25% and revenue dropped 18% to $3.13 billion, but there were some hints that the worst may be ending for freight rates. Rail giant CSX disclosed a 9% EPS drop with sales off 3% to $3.69 billion, with coal and merchandise transportation seeing solid volume gains.
Medical Giants Jump On Earnings
Johnson & Johnson (JNJ) and Abbott Laboratories (ABT) surged on Thursday after the diversified medical giants beat second-quarter expectations. J&J EPS grew 8% with sales up 6% to $25.53 billion in sales, rising a respective 8.1% and 6.3%, with cancer drug Carvykti delivering 388% growth. The Dow giant also raised its full-year outlook. Abbott also beat forecasts, helped by recoveries in its medical devices and nutrition segments. Sales tumbled 11.4% to $9.98 billion while adjusted earnings skidded 24.5%. But, excluding the impact of strong year-earlier Covid testing sales, Abbott’s revenue climbed 11.5%. Abbott also raised its organic sales growth forecast, though trimmed its Covid testing sales projection down to $1.3 billion.
Biotechs Soar, Dive On Drug News
Argenx (ARGX) and BridgeBio Pharma (BBIO) soared on positive news from their clinical studies, while Apellis Pharmaceuticals (APLS) plummeted on fresh reports of side effects from an approved drug. Argenx tested its drug, Vyvgart Hytrulo, in patients with a neurological disorder that leads to progressive weakness in the arms and legs. Over 48 weeks of treatment, Vyvgart-treated patients had a 61% reduction in the risk of relapse vs. placebo patients. The same day, BridgeBio stock catapulted higher after reporting the results for its drug, acoramidis, in patients with a heart disease. After 30 months, 81% of acoramidis recipients were still alive, compared with 74% of the placebo group. Meanwhile, Apellis stock tanked after the American Society of Retina Specialists reported six cases of severe eye inflammation in recipients of Apellis’ Syfovre. Syfovre is approved for patients with geographic atrophy, a disease in which the eye’s macula degenerates over time.
Lockheed Beats, But Shares Skid
Lockheed Martin (LMT) reported adjusted earnings rose 6.5% to $6.73 per share Tuesday while net sales climbed 8% to $16.69 billion for the quarter, driven by a 17% sales jump in its aeronautics segment. Both beat views. The defense giant’s backlog rose 5.3% to a record $158 billion compared to the quarter ending Dec. 31, led by an 18% jump in missiles and fire control orders. The F-22 maker lifted its 2023 outlook following results, though much of that reflected the Q2 beat. Shares reversed sharply lower.
News In Brief
Novartis (NVS) broke out after reporting core EPS rose 17% in Q2 with sales up 7% to $13.62 billion in second-quarter sales. Both measures topped expectations. The drug giant raised sales guidance and announced a $15 billion buyback.
Toast (TOST) plunged 16% Wednesday after removing a 99-cent order processing fee from its latest suite. The restaurant software maker said it doesn’t expect a material impact on 2023. Shift4Payments (FOUR), which has a lot of restaurant business, cleared an early buy point amid TOST stock’s dive.
Ford Motor (F) slashed prices for its F-150 Lightning all-electric truck by as much as $10,000. It cited capacity improvements and lower battery costs though competitive pressure probably are also at play. Ford stock tumbled.
Carvana (CVNA) announced a deal to slash its heavy debt load by $1.2 billion and signaled a $1 billion capital raise. The troubled online used-car seller also posted quarterly results that exceeded expectations, while predicting positive adjusted EBITDA in the current quarter. Shares spike higher.
Freeport-McMoRan (FCX)reported a 40% EPS drop, slightly missing views, though the 5.9% sales gain to $5.74 billion. FCX stock still rose, testing an aggressive entry, as copper prices bounced.
SAP (SAP) said Q2 operating profit rose 22% to 2.06 billion euros ($2.29 billion) while revenue rose 5% to 7.55 billion euros ($8.40 billion). Cloud revenue rose 22% to 3.32 billion euros, missing estimates. The German software maker trimmed its fiscal 2023 cloud revenue growth guidance.
Intuitive Surgical (ISRG) crumbled as procedure growth using its da Vinci robotic surgery systems moderated, though the company beat second-quarter sales and profit expectations. Adjusted earnings ballooned nearly 25% and sales grew 15% to $1.76 billion.
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