Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Investors Business Daily
Investors Business Daily

Market Rally Under Pressure As Yields Soar; Amazon, ELF, Caterpillar Are Earnings Winners: Weekly Review

The stock market rally came under pressure amid surging Treasury yields, fueled by a U.S. credit-rating downgrade as well, swelling Treasury issuance and improving U.S. economic growth. But yields pared gains following a mixed jobs report.

Apple and Amazon capped a huge week of earnings. Arista Networks, ELF Beauty, MercadoLibre and Caterpillar were big earnings winners, while Rambus, Allegro MicroSystems, Paycom Software, DoubleVerify, Fortinet, Dynatrace, HubSpot and Generac Holdings were earnings losers.

Market Rally Under Pressure

The major indexes retreated amid soaring Treasury yields. The Nasdaq fell below its 21-day moving average for the first time in three months. The uptrend moved to "under pressure" after Wednesday's market slide. Earnings season remained at full force, with major winners and losers.

The 10-year Treasury yield surged above 4% to 2023 highs, though it did cool off on Friday. Fitch downgraded U.S. sovereign debt, but the bigger factors may have been surging Treasury issuance, Fed quantitative tightening and an improved U.S. economic outlook.

Job Growth Cooling, Wages Hot

The U.S. economy added 187,000 jobs in July, below views for 200,000. That follows a downwardly revised 185,000 in June. Private hiring picked up to 172,000 from a downwardly revised 128,000. But manufacturing jobs dipped by 2,000. The jobless rate unexpectedly ticked down to 3.5%. Notably, average hourly wages once again rose 0.4% vs. the prior month, hotter than expected. Wages grew 4.4% vs. a year earlier, defying views for a dip to 4.2%. Earlier in the week, the ISM manufacturing index showed continued contraction in July while the ISM services gauge pointed to slightly slower growth. June job openings fell more than expected while weekly jobless claims rose, but both remain too hot for the Fed's liking.

Overall, the odds of another Fed rate hike in September or November remained modest, little changed from a week earlier.

Apple Sales Drop For Third Straight Quarter

Apple beat Wall Street's target for its earnings in its fiscal third quarter while matching views for sales. Apple EPS rose 5% with sales were down 1% to $81.8 billion, the third straight quarter of declining revenue vs. a year earlier. Hardware sales, including iPhones, fell 4% year over year to $60.58 billion while services revenue rose 8% to $21.21 billion. Investor attention now shifts to the September quarter and the launch of Apple's iPhone 15 series handsets. Shares fell.

Amazon Beats Q2 Goals, Raises Outlook

The e-commerce and cloud computing giant topped analyst expectations for the second quarter and offered a better-than-expected outlook. earned 65 cents a share in the June quarter, vs. a year-earlier loss of 20 cents. Total sales rose 11% to $134.4 billion. The cloud computing unit, Amazon Web Services, saw revenue increase 12% to $22.1 billion. That was slower than the 16% growth in the first quarter, but topped estimates for 10% growth. For the current quarter, Amazon forecast operating income of $7 billion on sales of $140.5 billion. Analysts had been calling for operating income of $5.5 billion on sales of $138.3 billion. The tech giant said AI will be "at the heart" of what it does. AMZN stock soared.

Caterpillar Takes Flight On Earnings

The Dow Jones heavy equipment maker reported a 75% EPS gain with revenue up 22%, both beating views and showing accelerating growth. Caterpillar jumped to a record high. Terex reported a 120% EPS spike while sales swelled 30%, both picking up from the prior quarter. TEX stock jumped back into and through a buy zone.

Shopify Earnings

Shopify Q2 earnings came in at 14 cents, swinging to a profit from a year earlier and topping views for 6 cents. Revenue rose 31% to $1.7 billion, modestly beating. Management guided Q3 revenue growth targets slightly higher. But SHOP stock tumbled.


A slew of business software firms reported this week.

HubSpot reported Q2 EPS jumped 205%, while revenue grew 25% to $529.1 million, both beating. But management raised full-year 2023 revenue guidance only by the size of the Q2 beat. HUBS tumbled.

Dynatrace earnings per share grew 50% with revenue up 25% to $332.9 million. That topped estimates. But management maintained its full-year annual recurring revenue growth guidance at 18% to 19%. DT stock dived.

Paycom Software reported a 29% EPS gain, topping views. Revenue climbed 27% to $401.1 million, just eking past views. PAYC stock plunged.

DigitalOcean delayed reporting Q2 EPS, citing tax expense errors, though it did suggest earnings would be above its prior guidance. Revenue rose 27% to $169.8 million, just below views. DigitalOcean also cut its implied 2023 growth outlook. DOCN plummeted.

Cloudflare earnings were 10 cents a share, up from zero a year earlier. Revenue climbed 32% to $308 million, slightly topping. Cash flow also beat. NET stock jumped.

Analysts predicted profit of 7 cents a share and revenue of $305.6 million. Cash flow rose to $64.5 million, topping estimates of $51.7 million.

Fortinet Dives On Weak Revenue, Guidance

The cybersecurity firm reported Q2 EPS jumped 58%, topping estimates. But revenue rose 26% to $1.29 billion, just below views, with billings also missing. Fortinet also guided low, saying macroeconomic conditions are spurring delayed big deals. FTNT stock plunged, also dragging down some other cybersecurity plays. Qualys said Q2 earnings rose 43%, easily beating. Revenue climbed 14% to $137.2 million, edging by estimates of $135.5 million. QLYS initially jumped Friday but then slashed gains.

ELF Remains An Earnings Giant

Once again, ELF Beauty raised its full-year outlook after crushing quarterly estimates. Year over year, Elf earnings vaulted 182% to $1.10 per share while sales surged 76.5% to $216.3 million. Bank of America analysts called its raised guidance potentially conservative, saying "the company is still in a high growth phase." The IBD 50 stock rocketed to a new high. ELF has more than doubled year to date and more than tripled in the past year. Consumers are spending more selectively amid economic uncertainty, and leaning toward cheaper mass-market cosmetics brands like ELF, which says it makes clean, vegan makeup.

Chipmakers Give Weak Outlook

A host of semiconductor companies beat Wall Street's targets for the second quarter, but many disappointed with their outlook for the current period. Chipmakers guiding lower than views included AMD, Power Integrations, Qualcomm, Rambus and Synaptics. Even chipmakers that delivered beat-and-raise reports gave cautious commentary, such as Allegro MicroSystems. Several firms pointed to market weakness in China as a factor. Wall Street also appeared let down by Lattice Semiconductor and Monolithic Power Systems, which only edged above estimates. Still, some chip stocks got at least an initial lift from upbeat earnings reports, including Cirrus Logic, Macom Technology Solutions, ON Semiconductor and SiTime.
Among chip gear makers, Axcelis Technologies delivered a big beat-and-raise report. But investors took profits in the highflying stock.

Travel Stocks Have Uneven Trip

Hotel operators Marriott International and Hyatt, online booking firms Expedia, Booking Holdings, Airbnb and Norwegian Cruise Line reported this week. Marriott reported a solid Q2 beat, while Hyatt fell short on EPS. Norwegian Cruise returned to a profit on better-than-expected Q2 results, but it guided low on Q3 EPS. Expedia missed on revenue and bookings, but Booking Holdings reported blowout results. Airbnb modestly beat views. BKNG stock soared, while Marriott edged higher. NCLH, EXPE and Hyatt plunged. ABNB fell strongly for the week.

Futures: What To Do After Market Skids; 5 Stocks Near Buy Points

Networking Leaders Shine

Arista Networks and Extreme Networks both reported strong quarterly growth that topped views. Arista's Q2 earnings climbed 46%, with revenue up 39% to $1.46 billion. Arista said it expects at least double-digit revenue growth in 2024, slowing from this year. Arista sells switches that speed up communications among racks of computer servers packed into internet data centers. Meanwhile, Extreme Networks' EPS leapt 120% with revenue rising 31% to $364 million. ANET stock skyrocketed from the bottom of a base to a record high. EXTR rose strongly, clearing a short consolidation to a high.

Payment Stocks

PayPal said it was in the "final stages" of picking a new chief executive. Current CEO Dan Schulman plans to retire at the end of 2023. Q2 earnings rose 24% with revenue up 7% to $7.3 billion, edging past views. But operating margins missed while users fell by 2.5 million, more than expected. PYPL tumbled. Square parent Block reported a 116% EPS gain while revenue popped 26% to $5.53 billion. But gross payment volume from merchant customers just missed. Shares plunged. Shift4 Q2 EPS jumped 124% to 74 cents, easily beating. Revenue climbed 25% to $228 million, slightly topping. FOUR stock rose on earnings but fell for the week.

China EV Sales Strong

Chinese EV startups, as well as BYD, reported strong July sales. Li Auto outsold startup peers, with its deliveries surpassing 30,000 for the second straight month. Nio saw monthly deliveries top 20,000 for the first time. XPeng recovered further but its EV sales lagged vs. peers. Deliveries rebounded for Nio and XPeng as their new ES6 and G6 SUVs, respectively, ramped up. In the second half of 2023, Deutsche Bank analysts expect big volume improvements from Nio and XPeng. They see Li Auto in a more defensive position as competition intensifies. EV giant BYD reported record July sales and extended its lead over Tesla in China after the launch of lower-priced electric vehicles. Tesla also idled some production ahead of an expected remodeled Model 3 launch.

BYDDF stock fell modestly, dropping below a buy point. Li Auto and Nio stock soared while XPeng tumbled after a huge run.

U.S. Auto Sales Picking Up

The annualized pace of U.S. new vehicle sales in July reached 16 million, up from 15.8 million in June. Major automakers have generally seen supply headwinds ease while demand is holding up despite economic uncertainty. In the months ahead, analysts expect vehicle production to improve and inventories to steadily grow, eventually putting downward pressure on prices. Ford's sales rose nearly 6% from the year-ago July, which was marked by the chip shortage. Its EV sales continue to lag, with Lightning sales down 28%. But Ford said orders for the electric truck jumped sixfold after price cuts in July, with production starting to ramp up again.

Biotechs Are Mixed Batch

Vertex Pharmaceuticals and Regeneron Pharmaceuticals topped views. Vertex came in with adjusted profit up 8%, while sales climbed 13.5% to $2.49 billion. VRTX rose modestly, in buy range. Regeneron earnings climbed 5%, ending a string of year-over-year declines. Sales grew 11%, with growth accelerating for a second straight quarter. REGN bounded higher, offering an early entry, after the company offered a tighter-than-expected timeline for potential FDA approval of its high-dose Eylea eye medicine. Exact Sciences reported a smaller-than-expected loss, but screening revenue missed analysts' expectations. Gilead Sciences missed analysts' earnings views with a 15% drop. But sales climbed 5% to $6.6 billion and beat.

Medical Products Firms

TransMedics, 10x Genomics and Idexx Laboratories topped Wall Street's second-quarter sales views. TransMedics met per-share loss views and raised views, but TMDX plunged. TXG stock skidded on a worse-than-expected loss. Idexx EPS soared 77%, beating views. But shares fell back below a buy point.

News In Brief

DoubleVerify reported a 17% EPS gain and 22% revenue rise, both eking past Q2 views. The online advertising play also will buy AI-powered Scibids for $125 million. DV stock plunged.

Tempur-Sealy reported flat EPS for Q2 with sales up 4.8%, both ending several quarters of year-over-year declines. The mattress maker and retailer guided slightly lower on full-year EPS. But TPX stock popped back into a buy zone on earnings, after retreating modestly on grim guidance from rival Sleep Number.

Toyotareported a 70% EPS jump, ending six quarters of year-over-year declines. Revenue rose 17%, the biggest increase in years. Shares broke out, but later slashed weekly gains.

New Relic agreed to be taken private by Francisco Partners and TPG for $87 per share, reflecting an equity value of $6.5 billion. The transaction is expected to close in late 2023 or early 2024.

MercadoLibre skyrocketed, flashing buy signals, as the Latin American e-commerce and payments giant reported a 112% EPS gain with revenue up 31%, both beating.

DraftKings unexpectedly reported its first-ever adjusted profit as revenue boomed 88%. The online sports betting giant guided strongly higher.

Floor & Decor edged past EPS views while a 4% sales gain just missed. FND stock tumbled.

Monster Beverage reported in-line earnings while an 11% revenue gain slightly missed Q2 views. The energy drink maker fell.

Howmet Aerospace posted a 26% EPS jump on 18% revenue growth. Both beat views but the gains decelerated.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.