2023 Oct 24, US Market
Nasdaq Climbs as Earnings Season Gets Under Way - US Market Wrap
Stocks rose after their longest drop of the year, as bond market volatility eased and traders digested a slew of earnings. Microsoft rose in late trading after reporting earnings, while Alphabet, Google's parent company, fell.
The S&P 500 ended a five-day losing streak, while the Nasdaq 100 gained 1%. Forecasts from Verizon Communications, 3M, and General Electric all raised the stock. Meta Platforms was taken down after being sued by California and a group of states over claims of harmful youth marketing. Following Monday's high volatility, Treasury 10-year yields fell slightly. Bitcoin briefly surpassed the $35,000 mark. Oil fell below $84 per barrel.
Investors hoping for good news during earnings season are putting their faith in big tech. The S&P 500's five largest companies - Apple, Microsoft, Alphabet, Amazon, and Nvidia - account for roughly a quarter of the benchmark's market capitalization. According to analyst estimates compiled by economists, their earnings are expected to rise 34% from a year ago on average.
Alphabet Q3 23 Earnings $GOOGL
EPS $1.55, Est. $1.45.
Rev. $76.69b, Est. $75.54b
Google services Rev. $67.99b, est. $66.89b
Google Ad Rev. $59.65b, est. $58.94b
YouTube Ads Rev. $7.95b, est. $7.8b.
Google cloud Rev. $8.41b, est. $8.6b
Google other Rev. $8.34b, est. $7.94b
Operating Income $21.34b, est. $21.44b
Microsoft Q1 24 Earnings $MSFT
EPS $2.99 vs est. $2.24
Rev. $56.5b, est. $54.54b
Productivity Rev $18.59b, est. $18.29b
Intelligent cloud Rev. $24.26b, est. $23.61b
More personal computing Rev. $13.67b, Est. $12.89b
Returned $9.1b to holders
Makers of everything from Post-it Notes to jet engines to business software clued in Wall Street Tuesday on their 2023 outlooks. Markets were cautiously optimistic.
The three major stock indexes opened in the green and didn’t look back. The Dow Jones Industrial Average edged higher 0.6%, or 205 points. The S&P 500 climbed 0.7% while the tech-heavy Nasdaq Composite rose 0.9%.
Wall Street is hoping that companies can reverse three quarters of year-over-year declines in profits that have weighed on stock valuations. Firms’ projections, meanwhile, could provide hints about if and when the Fed’s interest-rate hikes will begin to weaken the U.S. economy.
Dramatic swings in government bonds in recent weeks have raised Americans’ borrowing costs and complicated investors’ outlook for when the central bank may lower rates, rattling financial markets. The benchmark 10-year Treasury yield stabilized Tuesday at 4.840%.
That helped lift the shares of all but one of the “Magnificent Seven” technology companies that powered a rally in the first-half of this year. Meta Platforms ticked 0.5% lower after a coalition of 41 states and the District of Columbia alleged in lawsuits that the company built addictive features that harm young users in Facebook and Instagram.
Traders are closely watching big tech as bellwethers while they weigh whether to keep money in stocks or to snap up ultrasafe U.S. government bonds. On Tuesday, Microsoft and Google-owner Alphabet stocks both posted gains but diverged in after-hours trading. Microsoft shares extended their rally after better-than-expected earnings, while Alphabet slipped despite them.
Some equity investors hope strong tech earnings and projections could foreshadow a more bullish end of the year.
The market’s grind upward Tuesday spanned every sector of the S&P 500, aside from energy, where lower oil prices weighed on businesses’ prospects. Although uncertainty around the Israel-Hamas war drove up crude prices earlier this month, benchmark U.S. futures have fallen for three straight days, to $83.74 a barrel, as traders parse a hazy outlook for fuel consumption.
In one of the sector’s first major earnings reports, oil-field services firm Halliburton posted better-than-expected profit from strong international drilling demand and lower-than-anticipated growth. Shares slipped by 3.4%.
Chevron stock, meanwhile, extended its declines for the second straight day after the company announced its $53 billion purchase of oil-producer Hess.
So far, firms’ results have largely exceeded Wall Street’s expectations. About 81% of the 118 companies in the S&P 500 that reported as of Tuesday morning beat analysts’ estimates, according to data firm Refinitiv. That is compared with a 67% average since 1994.
Key corporate forecasts on Tuesday also surprised to the upside. Scotch-tape producer 3M rose 5.3% after it boosted its earnings projections while Coca-Cola rose 2.9% after similarly bumping up its forward-looking estimates. General Electric GE 6.50%increase; green up pointing triangle jumped 6.5% after it raised its outlook and said it would spin off its power business in the spring.
For RTX, formerly known as Raytheon Technologies, $10 billion in new stock buybacks cushioned the blow of a quarterly loss from compensation and repairs linked to faulty geared turbofan engines. Shares in the aerospace and defense firm jumped 7.2%.
The market’s biggest mover was Verizon, whose 9.3% leap upward led the Dow and S&P 500 after the telecom giant said it expected to pump out more $1 billion more cash this year than previously anticipated.
Analysts believe more big companies will have to rack up such performances to put the stock market’s faltering rally on firmer footing.
A shrinking pool of investors is still holding out hope for a return to the easy money policies that helped catapult speculative investments to monster stock valuations in recent years. But many others, including Simeon Hyman, global investment strategist at ProShares, believe the U.S. is returning to the pre-financial crisis paradigm of higher borrowing costs.
Piper Sandler upgraded American Express (AXP) to Neutral from Underweight with a price target of $151, up from $150. American Express shares are down over 20% since last earnings and now trade at a valuation level "rarely seen" for AmEx, the firm tells investors.
Evercore ISI upgraded Alkermes (ALKS) to Outperform from In Line after the company announced preliminary results, including initial proof-of-concept data, from a phase 1 study evaluating ALKS 2680, the company's novel, investigational orexin 2 receptor agonist in development for the treatment of narcolepsy.
JPMorgan upgraded PVH Corp. (PVH) to Overweight from Neutral with a price target of $119, down from $122. The firm sees a favorable risk/reward profile with a "multi-year brand 'unlock' underway."
Citi upgraded Editas Medicine (EDIT) to Buy from Neutral with an $11 price target. The firm also opened a "30-day positive catalyst watch" on the shares. Citi sees potential for near-term share upside in two key catalysts through the end of the year, namely potential readthrough from the upcoming exa-cel FDA panel vote on October and Editas reporting updated EDIT-301 data by the end of 2023.
Baird upgraded Medpace (MEDP) to Outperform from Neutral with a price target of $289, up from $270. Baird views the shares as attractively valued.
Top 5 Downgrades:
JPMorgan downgraded Foot Locker (FL) to Underweight from Neutral with a price target of $17, down from $20. The company faces headwinds from "choppy" mall-retail traffic and key brand allocation shifts like Nike (NKE), the firm tells investors in a research note.
Piper Sandler downgraded Monster Beverage (MNST) to Neutral from Overweight with a price target of $50, down from $63. The firm says Monster's near-term and long-term growth momentum "look likely to lag historical levels."
JPMorgan downgraded Bath & Body Works (BBWI) to Underweight from Neutral with a price target of $27, down from $41. The firm says the combination of moderating same-store-sales relative to pre-pandemic comp growth, ongoing separation-related investments, and pressure as the model returns to a normalized cadence of promotions present potential earnings headwinds.
Daiwa downgraded Enphase Energy (ENPH) to Neutral from Outperform with a price target of $100, down from $145. The firm believes inventory destocking will continue into the first half of 2024.
Morgan Stanley downgraded FMC Corporation (FMC) to Equal Weight from Overweight with a price target of $70, down from $100. The severity of the company's sales and EBITDA rebase resets risk/reward balance and no longer provides suitable base case upside for an Overweight rating, the firm tells investors in a research note.
Seaport Research initiated coverage of ten companies within the Internet sector, saying it is constructive on the long-term growth of the sector, though revenue growth is "generally mixed," with some companies still recovering from the pandemic and others facing tougher comps, the analyst tells investors. Among the group, Seaport starts Amazon (AMZN) with a Buy rating and $145 price target; Godaddy (GDDY) with a Buy and $85 target; Meta Platforms (META) with a Buy and $365 target; Pinterest (PINS) with a Buy and $33 target; Squarespace (SQSP) with a Buy and $35 target; Uber (UBER) with a Buy and $51 target; Wix.com (WIX) with a Buy and $103 target; Airbnb (ABNB) with a Neutral rating; Alphabet (GOOGL) with a Neutral and DoorDash (DASH) with a Neutral rating.
Wells Fargo initiated coverage of Public Storage (PSA) with an Overweight rating and $270 price target. The company has industry-leading scale, a conservative balance sheet, and expected growth outperformance versus industry averages through 2025, the firm argues.
Loop Capital initiated coverage of Trade Desk (TTD) with a Buy rating and $95 price target. The firm views Trade Desk as one of the best long-term growth opportunities available to technology and media investors today.
Wells Fargo initiated coverage of Extra Space Storage (EXR) with an Underweight rating and $115 price target. The firm sees elevated near-term risks from the LSI integration, and says recent declines in Street rates puts pressure on estimates for 2023 and 2024.
KeyBanc initiated coverage of Criteo (CRTO) with an Overweight rating and $40 price target. The firm believes Criteo's model transition and advertising technology sector volatility has masked the company's progress in retail media.
General Electric (GE) provided a "beat and raise" report for Q3 and announced it plans to spin off GE Vernova in Q2 of 2024
General Motors (GM) reported upbeat Q3 results and said it remains "on track" for its net $2B fixed cost reduction program by 2024
3M (MMM) reported upbeat Q3 results but provided a earnings guidance for FY23 below the consensus view
Verizon (VZ) reported better-than-expected Q3 earnings and revenue
The UAW said that 5,000 of its members at General Motors' (GM) Arlington Assembly have joined the Stand Up Strike
Columbia Sportswear (COLM) is scouting factories in Central America, NY Times says
Paramount (PARA) pushed the new "Mission: Impossible" film to 2025, THR says
IFF (IFF) is weighing a potential $3.5B sale of its pharma solutions unit, Bloomberg reports
Instagram (META) is testing a new control toggle for a verified-only feed, The Verge reports
Apple (AAPL) is prepping a new version of its TV app for release around December, Bloomberg says
LianBio (LIAN) higher after entering a pact with Bristol Myers Squibb (BMY), whereby Bristol has obtain exclusive rights to develop and commercialize mavacamten in Mainland China
Aspen Aerogels (ASPN) gains after raising its FY23 guidance
Amneal Pharmaceuticals (AMRX) advances after reporting preliminary Q3 results and raising its FY23 guidance
TransUnion (TRU) falls after reporting quarterly results
IonQ (IONQ) declines after announcing Chief Science Officer Monroe left the company
Coca-Cola (KO) reported upbeat Q3 results and provided FY23 organic revenue growth guidance
RTX (RTX) reported Q3 results and narrowed its FY23 guidance
Spotify (SPOT) reported Q3 revenue that was higher year-over-year
Cleveland-Cliffs (CLF) reported Q3 EPS and revenue that beat consensus
Kimberly-Clark (KMB) reported Q3 results, with CEO Mike Hsu commenting "We delivered another strong quarter, with organic growth across all segments and continued margin progress"
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