The stock market rally gained momentum, with the major indexes moving decisively above their 50-day moving averages and the Nasdaq moving above its early June highs. Tesla and Netflix were among the earnings winners, while United Airlines and American Airlines were notable losers. The 10-year Treasury yield fell below 3% amid weak economic data. Crude oil retreated as gasoline futures continue to slide.
Market Rally Gains Steam
The Nasdaq led the way, with the major indexes rallying above their 50-day moving averages. Tesla headlined big earnings movers. But a massive wave of earnings in the coming week, along with another big Fed rate hike, loom large for the market rally. Treasury yields and crude oil fell.
Economy Weakens
If you're looking for signs that the economy is holding up just fine under the Federal Reserve's tightening regime, you'll have trouble finding it in any of the week's reports covering the job market, housing and manufacturing. Initial jobless claims rose to 251,000 in the week through July 16, up 7,000 from the prior week. Claims are at the highest level since last November and up about 50% from lows seen in March. Existing-home sales fell for a fifth-straight month in June and are now down 14% from a year ago. Housing starts and building permits for private housing both fell to the lowest level since September. Still, amid supply and labor constraints, a record 1.68 million units are under construction. Meanwhile, the Philadelphia Fed's regional manufacturing index dived deeper into negative territory in July amid a sharp drop in new orders.
The European Central Bank on Thursday raised interest rates for the first time in 11 years. The half-point move was more than some had expected. That comes amid high inflation and a weakening eurozone economy.
Tesla Tops Earnings Views
The electric-vehicle maker reported better-than-expected second-quarter earnings, even as it dealt with plant closures in Shanghai and supply shortages. Tesla earnings climbed 57% vs. a year earlier while revenue soared 42% to $16.934 billion. EPS and sales did fall vs. Q1. Automotive gross margins came in at 27.9% vs. 32.9% the previous quarter. Tesla sold 75% of its Bitcoin in Q2, adding $936 million of cash and keeping free cash flow positive. CEO Elon Musk said the Cybertruck is on track for mid-2023, but 4680 batteries still face key technical challenges. Tesla stock soared.
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Netflix Loses 'Just' 1 Million Subscribers
Internet TV network Netflix lost 970,000 subscribers in the June quarter, but less than its forecast for 2 million fewer subscribers. It blamed the loss on recent price hikes and heightened competition. It ended Q2 with 220.67 million subscribers worldwide. For the current quarter, it predicted adding 1 million subscribers, but below Wall Street's third-quarter target of 1.41 million. Q2 EPS grew 8%, slightly beating, while revenue climbed 9% to $7.97 billion, just missing. It guided low on Q3 sales and earnings.
Snap Crashes On Ad Woes
For the fourth straight quarter, Snap crashed following disappointing earnings. A Q2 loss and its reported revenue both missed estimates, with the Snapchat parent also declining to provide Q3 guidance. It also will "substantially slow our rate of hiring, as well as the rate of operating expense growth." Twitter reported a surprise loss while Q2 revenue unexpectedly dipped 1%, blaming the overall ad weakness and "uncertainty" surrounding Elon Musk's contested takeover. Earlier in the week, the Delaware Court of Chancery agreed to expedite Twitter's lawsuit vs. Musk, who is trying to get out of the deal. TWTR stock rose solidly for the week.
ASML Beats Q2 Targets, Guides Down
ASML reported a 24% EPS gain while sales climbed 19% to $5.79 billion, both beating. But the chip-equipment giant guided low on Q3 revenue and cut its full-year sales growth target. It blamed delayed revenue recognition under its fast shipment program rather than reduced demand. However, it also is facing continued supply constraints for certain components needed to build its advanced lithography systems.
Transports Beat, Backups Endure
J.B. Hunt, CSX, Union Pacific and Knight-Swift, whose trucks and railroads move goods across the U.S., reported quarterly results that beat expectations. The companies reported the results even as spot trucking rates ease. But the nation's supply chains remain under pressure due to container backups at ports and rail yards and limited worker availability, and inventories at some retailers remain lopsided. J.B. Hunt said "healthy demand" remained for its services connecting trucks and railcars. Knight-Swift and CSX stock rose solidly.
Airline Earnings Miss
United Airlines and American Airlines reported their first quarterly per-share profits since the pandemic began. But the carriers' bottom-line results were below expectations. Higher fuel and operational costs — a product of Russia's war in Ukraine and weather and staffing disruptions — continued to compete with a resurgence in travel. Executives remained optimistic about the state of travel demand, even as concerns of a downturn grow. But both carriers forecast higher costs and more limited flight availability, compared to pre-pandemic levels, as they try to improve service. Both stocks plunged.
Metal Stocks Rally On Results
Upside earnings surprises sparked some bottom-fishing for industrial metal stocks, perhaps encouraged by hope that the Fed will relent before the economy really tanks. Steel was the standout, with both Nucor and Steel Dynamics posting record Q2 profits. Q3 won't be as great, with steel prices having given up gains seen after Russia's invasion of Ukraine, but both firms highlighted resilient demand and Nucor predicted record full-year earnings. NUE stock flew past its 50- and 200-day lines. Cleveland-Cliffs followed up with earnings falling short. CLF fell on earnings, but rose solidly for the week.
Gains were more muted for Alcoa, which is facing both price and cost pressures. Meanwhile, Freeport-McMoRan fell short of estimates on the dive in copper prices that's been exacerbated by economic weakness in China. But FCX rose too.
Oil Services Firms Mixed
Oil service firms Halliburton, Baker Hughes and Schlumberger reported second quarter earnings last week. HAL beat forecasts, earning 49 cents per share on $5.1 billion in sales. Schlumberger increased its full-year outlook while besting predictions with sales increasing 20% to $6.8 billion and EPS ballooning 66% to 50 cents. Meanwhile, BKR missed on predictions with $5 billion in revenue and earnings per share of 11 cents.
Boeing Racks Up Orders At Airshow
Boeing cranked out orders at the Farnborough International Airshow, near London, which returned after a pandemic hiatus. The embattled plane maker secured dozens of orders for 787 widebody jets and 737 narrow-body jets from Delta Air, AerCap, Qatar Airways, and other leasing and airline customers. Boeing has suffered from production and sales hits to the iconic 787 and 737 jets over safety issues. Airbus also saw orders pour in as the industry stabilizes after the pandemic, though supply chains and inflation dominated talk at the trade show.
Drug Giants Offer Mixed Picture
Medical giants Johnson & Johnson and Novartis offered mixed reports last week as J&J beat expectations but trimmed its full-year outlook and Novartis' sales came in below forecasts. J&J's adjusted EPS rose 4% while sales inched 3% higher to $24.02 billion. Novartis EPS fell 6% with sales dipping 1% to $12.78 billion.
Mattel earnings spiked 500%, crushing views, though margins came in light. Hasbro earnings grew 10%, also easily beating, but revenue slightly missed. Shares of both toy giants rose.
American Express earnings fell 8% while revenue grew 31% to $13.4 billion, both beating. The credit card giant raised full-year guidance.
AT&T and Verizon tumbled on weak guidance. AT&T topped Q2 EPS and sales views, with stronger-than-expected wireless gains, but cut full-year cash-flow targets. Verizon just missed EPS views and lowered full-year profit forecasts.
IBM fell as it reported second-quarter results that beat estimates, but with a forecast on free cash-flow that fell short
Amazon shook up the health care industry by announcing it will acquire One Medical, a health care services company, for $3.9 billion, including debt.
