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Investors Business Daily

Stock Market Rally Tumbles On Hawkish Fed Chief Powell; Jobs, Earnings Also In Focus: Weekly Review

The stock market rally came under pressure as the major indexes reversed sharply lower following the latest big Fed rate hike and Fed chief Jerome Powell's hawkish comments about peak rates. The jobs report was mixed, with nonfarm payrolls higher than expected but unemployment also climbing. Treasury yields rebounded toward a 14-year high.

Meanwhile, earnings season remained heavy, with some big winners but also a number of sharp losers. Chinese stocks rallied on unconfirmed chatter that China will ease its strict Covid policies.

Stock Market Rally Pressured

The major indexes suffered sharp weekly losses on Fed chief Jerome Powell's hawkish comments about peak rates, then whipsawed Friday following a mixed jobs report. During the week, the Nasdaq closed below the low of its follow-through day while the Dow Jones dropped back below its 200-day line and the S&P 500 retreated under its 50-day. Megacap techs continued to sell off, while there were many losers on earnings or guidance, including cloud software. China-related stocks rallied on rumors that Covid restrictions will ease. Treasury yields rebounded in a volatile week.

Fed Signals Slower, Longer Rate Hikes

As the Federal Reserve delivered a 75-basis-point rate hike for the fourth straight meeting on Wednesday, the Fed statement suggested that the pace of hikes could slow. Fed chief Jerome Powell's news conference flipped the script. "The important question, we think now, is how far to go," not the pace, he said. Powell indicated his view that rates should rise to the 5% range, higher than the 4.5%-4.75% range seen in policymakers' September projections. Powell also made clear that he wants to err on the side of causing a recession. "If we were to over-tighten, we could then use our tools strongly to support the economy," he said. The costs of not tightening enough and letting inflation become entrenched "will be much higher potentially."

Economic Data Mixed

The job market continued to defy Fed tightening in October, with payrolls rising a stronger-than-expected 261,000. The average hourly wage also topped expectations with a 0.4% gain, though the annual rate decelerated to 4.7%. Yet the October jobs report widened the puzzling gap between the employment survey, from which the headline payrolls figure is derived, and the household survey that yields the unemployment rate. The unemployment rate rose to 3.7% even though the labor force actually shrunk by 22,000. The household survey showed 328,000 fewer workers. Other labor data during the week signaled strength notably Tuesday's JOLTs survey, which showed job openings rebounded by 400,000 to 10.7 million in September.

Apart from housing, the U.S. economy appears to be holding up. The ISM manufacturing index eased to 50.2 from 50.9, holding just above the neutral 50 level. But the forward-looking new orders index remains below 50 while the backlog index tumbled.

Arista Networks Growth Accelerates

Arista Networks reported Q3 earnings of $1.25, up 69% from a year earlier while revenue grew 57% to $1.18 billion, with top- and bottom-line growth accelerating for a fourth straight quarter. The networking gear maker guided up for Q4. Later, Arista gave bullish 2023 guidance at its investor day. Shares rose sharply for the week after jumping the prior week with Arista seen as beneficiary of the Meta Platforms spending splurge.

Rally Buckling From Fed, Megacaps, Cloud Stocks; What To Do Now

Drug Giants Top Views

Eli Lilly, Pfizer and GSKGSK easily beat third-quarter expectations, but Lily slashing its outlook while Pfizer and GSK raised theirs. Still, adjusted Lilly earnings rose 12% to $1.98 per share and sales climbed 2% to $6.94 billion. Pfizer put up 40% earnings growth, though sales fell 6% to $22.64 billion. GSK's sales ramped 9% on a strict, as-reported basis. LLY stock was little changed while Pfizer and GSK reversed lower for modest weekly losses.

Biotech Earnings Mixed

Moderna posted wide miss with EPS down 67% and sales off 32% to $3.32 billion, with the Covid vaccine maker also cutting its outlook. Neurocrine Biosciences did the opposite: Adjusted EPS leapt 69% with sales up 31% to $387.9 million, while also guiding higher for full-year Ingrezza sales. Meanwhile, Regeneron earnings fell 28% while sales sank 15%, reflecting plunging Covid-related business, but handily beat forecasts. NBIX stock jumped to a two-year high. REGN fell, but near highs. Moderna also retreated.

Drug Distributors Rise

AmerisourceBergen beat fiscal Q4 views with a 9% EPS rise and sales up 4%. McKesson missed forecasts with adjusted profit down 1% and sales climbing 5% to $70.16 billion. Still, McKesson raised its earnings outlook, noting strength from Covid vaccine distribution. Cardinal Health reported adjusted Q1 profit fell 7% while sales jumped 13% to $49.6 billion. The company maintained its full-year EPS outlook. All 3 stocks rose.

Lithium Profits Soar, But Sales Lag

Lithium producers Albemarle and Livent, after major boosts to guidance following Q1 and Q2, both rolled back the top end of earnings and revenue guidance for the full year. Both reported booming growth but revenue that came in light. For Albemarle, whose lithium division is still on track for 500%-550% EBITDA growth this year, the weakness came from its bromine unit, whose electronics and construction end markets have turned soft. Livent, a lithium pure play, said logistics issues are pushing deliveries into the next quarter. Profitability is also being restrained because 70% of sales are via fixed-price contracts based on stale prices. Livent will get a boost in 2023 as output grows 25%, increasing exposure to market prices. In 2024, the company says it won't be renewing those fixed-price deals. ALB stock shook off early selling and reclaimed its 50-day line on Thursday. LTHM stock fell for the week but pared losses.

Cheniere Energy Surprises With Loss

The liquefied natural gas giant reported a net loss of $9.54 a share vs. views for a booming EPS of $5.58. Cheniere Energy cited an in derivative losses of more than $2 billion and settlements worth $6 billion. Sales soared 175% to $8.8 billion, beating views, helped by increased volumes and margins.

AMD, Qualcomm Give Weak Outlooks

Chipmakers exposed to Android smartphones and personal computers delivered disappointing September-quarter results and guidance in the past week. PC-chip maker AMD missed its third quarter targets and offered a weak forecast for the fourth quarter. Wireless-chip maker Qualcomm posted in-line results and slashed its outlook for the current quarter. Other smartphone chipmakers that guided much lower for the current quarter included Qorvo and Skyworks Solutions. Rambus was a rare outperformer. Its stock surged higher and broke out of a cup base after its bullish beat-and-raise report.

Dark Days For Cloud Software

Atlassian, Twilio and Cloudflare plunged Friday after quarterly results. Atlassian missed on earnings and billings, while also warning on current-quarter revenue. Twilio topped views, but guided low on revenue. Cloudflare topped views and guided slightly higher. Cloudflare announced that Chris Meritt, the chief revenue officer, will step down. He will be replaced by former Twilio executive Marc Boroditsky.


Devon Energy reported third-quarter EPS jumping 96% with sales up 20% to $4.15 billion. Shares tumbled as Devon cut its dividend. Marathon Oil topped views with earnings surging 218% while revenue increased 57% to $2.2 billion. EOG Resources reported a 72% EPS gain that just missed while revenue rose 59%.

Refining play Marathon Petroleum earnings exploded 969% while revenue came in at $47.2 billion, up 45%.

BYD Sales Boom, China EV Startups Mixed

BYD reported October sales of fully electric and hybrid-electric vehicles shooting to 217,816, up 169% from a year ago and 8% from September. The Warren Buffett-backed Chinese EV and battery giant topped 100,000 monthly sales of all-electric vehicles for the first time, sharpening its rivalry vs. Tesla. However, Buffett's Berkshire Hathaway disclosed selling another sliver of its big BYD holdings. Nio sold 10,059 electric vehicles in October, with deliveries surging 174% from a year ago but down nearly 8% from September. China's harsh "zero-Covid" policy weighed on Nio' suppliers last month. Nio outsold EV startup peers Li Auto and especially XPeng, which also saw sales fall vs. September despite new models. EV stocks rallied on broader hopes for relaxed Covid restrictions.

Cybersecurity Stocks Mixed

Fortinet earnings surged 65% vs. a year earlier, solidly beating. Revenue grew 33% to $1.15 billion, but the size of the beat disappointed. Billings guidance fell short, as corporations start to balk at big deals. FTNT stock plunged. Qualys reported EPS up 9% and revenue 20% to $125.6 million, both topping. But billings growth missed estimates. QLYS dived as well. CyberArk reported a smaller-than-expected loss while revenue rose 25% to $152.6 million, slightly topping. Annual recurring revenue rose 49% to $512 million, also beating. CYBR stock rose on earnings.

Block Parties While PayPal Cuts Guidance

Square-parent Block reported adjusted Q3 EPS rose 13%, easily beating. Net revenue rose 17% to $4.52 billion, including Cash App transactions for digital cryptocurrency Bitcoin, slightly topping. Gross payment volume from merchant customers rose 20% to $54.4 billion, slightly missing. Earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 40% to $327 million, crushing views. PayPal reported Q3 EPS dipped 2% while revenue rose 11%, both beating. But total payment volume fell short while PayPal guided lower for Q4 revenue. SQ stock jumped on earnings after falling earlier in the week. PYPL extended weekly losses.

Payroll Software Firms Top

Paycom Software reported Q3 earnings grew 38% while revenue rose 30% to $334 million, both topping. Paylocity Holdings reported fiscal Q1 EPS jumped 66%, while revenue rose 39% to $253.3 million, both beating. The human resources software makers both guided up on current-quarter revenue. Shares fell in a tough week for software.

Top Health Insurers Beat

Humana zipped past Q3 earnings estimates by 60 cents a share as EPS surged 42% to $6.88 amid lower costs, despite roughly in-line revenue growth of 10%. Humana provided guidance of 8% Medicare Advantage membership growth in 2023, up from 3% this year. Cigna EPS rose 5% to $6.04, also topping, on 2% revenue growth. Cigna stock rallied out of buy range a week earlier as its Express Scripts unit won the prescription benefit management account from Centene. But Cigna said in the Q3 call that it will spend $200 million next year on systems integration as it gears up to serve 20 million Centene members.

Hotels, Travel Firms Sees Strong Quarter

Hotel companies and booking agencies saw a boost in the third quarter as travel returned near pre-pandemic levels. Most firms reported improvements in earnings and major leaps in revenue. Marriott International earnings per share skyrocketed 71%  and revenue grew 34% to $5.31 billion. Hyatt Hotels earnings sank 72% to 64 cents per share while revenue catapulted 81% to $1.54 billion, still managing to beat earnings estimates. Airbnb topped forecasts with record 47% earnings growth on 28% revenue growth, but warned of weaker bookings. Expedia reported 15% EPS growth on 22% revenue growth to $3.62 billion, beating on the bottom line but missing on the top.

News In Brief

Abiomed rocketed by almost 50% Tuesday after Johnson & Johnson pledged to buy it for $16.6 billion.

Boeing laid out a path to $100 billion in revenue and $10 billion in free cash flow by 2025-26, underpinned by rising deliveries of the top-selling, narrow-body 737 Max jet. Shares jumped.

Chesapeake Energy topped EPS views with a 113% gain but revenue missed with a 13% rise to $1.7 billion.

Illumina tumbled late Thursday after the gene sequencing machine maker cut full-year guidance despite beating third-quarter estimates.

Roku stock fell after warning of a tough holiday season ahead. The streaming video platform blamed a sharp drop in advertising spending for its poor guidance for the fourth quarter.

Tempur Sealy reported EPS fell 11%, slightly beating, while sales fell 6%, slightly missing. The mattress maker and retailer also cut full-year guidance. TPX stock gapped up on earnings after tumbling earlier in the week.

Crocs earnings stepped up 20% while sales jumped 57%. The specialty footwear maker also guided higher. CROX stock jumped.

Coinbase reported a loss of $2.43 per share in Q3, down from earnings of $1.62 per share last year. While sales fell 56% to $576.4 million as retail transaction revenue fell by two-thirds. Those were both worse than expected.

Uber reported a loss that was worse than expected but beat on revenue. Uber expects fourth-quarter gross bookings to jump 23% to 27% year-over-year.

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