The market fell into a correction as Treasury yields surged to a 15-year high and Chinese economic concerns mounted. The major indexes fell below their 50-day lines with more and more leading stocks breaking down. Cisco Systems (CSCO) and TJX Cos. (TJX) were earnings winners. But On Holding (ONON), StoneCo (STNE) and Cava (CAVA) were earnings losers. Walmart (WMT), Target (TGT) and Home Depot (HD) were other notable retail reports. Tesla (TSLA) tumbled amid a spate of new price cuts and discounts.
Market In Correction
The Nasdaq led the way, but the S&P 500 and the Dow also fell below their 50-day lines as Treasury yields spiked. Nvidia (NVDA) fared relatively well, but more and more leaders broke down, with energy a notable exception. The market is now in a correction.
Consumers, Economy Strong
The latest batch of data shows that the U.S. economy has momentum in Q3 as consumer spending appetites perked up with a boost to retail sales from Amazon Prime Day and strong spending at food and drinking places. Meanwhile, minutes from the July 25-26 Fed meeting showed that most policymakers still saw “significant upside risks to inflation.” S&P Global’s GDP tracker currently shows the U.S. economy growing at an accelerated 3.2% rate in Q3, up from 2.4% a week ago. July retail sales grew 0.7% from June, nearly doubling forecasts. Outside of autos, sales rose 1%. Strong July housing starts and the August Philly Fed manufacturing index unexpectedly jumping into positive territory also contributed to the stronger growth backdrop. Single-family homebuilding is benefiting from a dearth of existing-home sales, because would-be sellers want to keep their existing low mortgage rates.
China’s economy continues to struggle, with July retail sales and industrial production rising less than expected vs. a year earlier, along with other weak data. China property giant Evergrande filed for bankruptcy protection in New York. China’s central bank cut rates unexpectedly.
Cisco Growth Accelerating
Cisco Systems (CSCO) reported that Q4 EPS rose 37%, the second straight quarter of acceleration, while revenue climbed 16% to $15.2 billion, the fourth quarter of faster growth. The networking giant gave some mixed guidance for fiscal 2024. But shares advanced as product orders jumped 30% vs. the April quarter.
Tesla Steps Up Price Cuts
The global EV giant announced a variety of price cuts, discounts and incentives this past week, signaling more pressure on profit margins. On Aug. 13, Tesla (TSLA) cut China Model Y prices on high-end variants by $1,930, but not base Model Y, the most popular version in China. The company also offered a fresh insurance subsidy for Model 3 buyers in China worth $1,100, amid swirling rumors that the new upgraded Model 3 will launch in the next few weeks. Tesla also nearly doubled discounts on its luxury Model S and Model X vehicles in China. Tesla launched new, range-limited versions of its Model S and Model X in the U.S. that are $10,000 cheaper than official list prices of the old base trim. However, for not much more buyers could find existing Model S and X inventory. TSLA stock plunged, extending a monthlong slide.
Walmart, Target Guidance, Stocks Diverge
Big-box discount giants Walmart (WMT) and Target (TGT) released varying results this week. Dow Jones giant Walmart reported a surprise earnings gain early Thursday with a 4% EPS rise as revenue climbed 5.7% to $161.6 billion. Walmart raised full-year forecasts, though largely on the Q2 beat. WMT stock fell after results from near record highs. Early Wednesday, Target earnings skyrocketed 362% after five straight EPS declines. But sales fell for the first time in almost six years, with the 4.9% decline to $24.8 billion, worse than expected. Target slashed its full-year outlook noting additional pressure on consumers. Shares, which hit a three-year low ahead of earnings, popped on results but were little changed for the week.
CVS Dives On Surprise Blue Shield Loss
CVS Health (CVS) shares slumped 8% on Thursday after Blue Shield of California, with 4.8 million members, said it would drop CVS Caremark’s prescription benefit management, or PBM, services. CVS will continue to provide specialty pharmacy services, which now accounts for more than 50% of pharmacy benefit spending, for the nonprofit insurer. Analysts were mixed over potential for Blue Shield of California to develop an alternative, more transparent drug-pricing model that could replace PBMs by weaving in an array of services, including from Amazon Pharmacy and the Mark Cuban Cost Plus Drug Co. Blue Shield says it hopes to save $500 million a year in drug costs.
Off-Price Retailers Shine
Off-price apparel and home-goods giant TJX Cos. (TJX) and apparel rival Ross Stores (ROST) both beat views. TJX reported a 23% EPS gain while revenue rose 8% to $12.8 billion, the strongest growth in five quarters. Ross reported a 19% EPS gain with sales up 7.6%; it also raised guidance. TJX stock cleared a short consolidation while ROST broke out.
Applied Materials, Synopsys
Applied Materials (AMAT) reported fiscal Q3 EPS of $1.95 vs. $1.94 a year earlier. Sales fell 1% to $6.43 billion. But both beat views, while the chip equipment giant guided up on Q4. AMAT stock rose modestly. Synopsys (SNPS) reported a 37% EPS gain as revenue rose 19% to $1.49 billion, the best gains for both in five quarters and beating views. The chip-design software maker also named a new CEO. SNPS stock initially jumped on earnings but quickly erased gains.
U.S. Steel Surges On Multiple Bids
U.S. Steel (X) said it’s mulling strategic options, including selling key assets or the entire company, after receiving multiple unsolicited bids. The steel giant rejected an offer from rival Cleveland-Cliffs (CLF), then much-smaller industrial firm Esmark offered $35 a share. U.S. Steel stock shot up 35% to near 31, suggesting investors have doubts about an Esmark deal. Global steel giant Arcelor Mittal (MT) reportedly could bid for much or all of U.S. Steel. Cleveland-Cliffs said the United Steelworkers union had given it the exclusive right to bid on U.S. Steel.
Home Depot Sees Fewer Big Projects
The Dow Jones home-improvement giant reported an 8% EPS decline with sales falling 2% to $42.92 billion, though both slightly topped Q2 views. Home Depot (HD) saw continued strength in smaller project categories, but said there is pressure on certain big-ticket, discretionary categories. The board also OK’d a $15 billion share buyback. HD stock briefly broke out but then erased gains.
On Holding Tumbles On Earnings
The Swiss parent of high-end athletic shoemaker reported a 66% EPS decline, well short of views. Revenue leapt 64.5% to $505 million, a fast pace and above views, though growth slowed for a second straight quarter. On Holding (ONON) guidance implied 30% revenue growth in the second half. ONON stock tumbled 14% on Tuesday in massive volume.
Fitch Warns On Banks
Fitch Ratings cautioned there’s additional pain ahead for the U.S. banking industry on Tuesday and warned it may downgrade dozens of banks, including JPMorgan Chase (JPM). Fitch cut its assessment of the industry’s health in June based on the string of March bank failures. Cutting the sector’s rating by another notch, to A+, would force Fitch to reevaluate ratings for more than 70 U.S. banks. Earlier this month, Moody’s downgraded several regional banks.
Chinese Internets Fall Amid Earnings
Amid concerns about a slowing Chinese economy and hopes for stimulus, several China internet firms reported. Gaming and messaging giant Tencent (TCEHY) reported a 24% EPS gain with revenue up 3%, with both showing accelerating growth but coming in below estimates. E-commerce giant JD.com (JD) reported a 23% EPS gain while revenue fell 1% in dollar terms, though they rose 7.6% in local currency. Both beat views. Smaller e-commerce play Vipshop (VIPS) reported better-than-expected Q2 earnings. All three stocks fell amid broader Chinese economic concerns and market woes.
Buffett-Backed Brazilian Fintechs’ Earnings Strong
Warren Buffett-backed Nu Holdings (NU) and StoneCo (STNE) both reported strong growth. Digital bank Nu Holdings reported a strong profit vs. a year-earlier loss, moving toward a first-ever annual profit. Revenue grew a robust 61%, though that was the fifth straight quarter of deceleration. Payments firm StoneCo reported booming Q2 growth and sees strong gains in Q3. Meanwhile, Uruguay-based DLocal (DLO) reported a second straight quarter of accelerating earnings and revenue growth It also named Pedro Arnt as co-CEO. Arnt stepped down as CFO of Latin American e-commerce and payments giant MercadoLibre (MELI) a few days earlier. DLO stock skyrocketed, while STNE and NU sold off.
Restaurant IPOs Dive On Earnings
Mediterranean-themed Cava Holding (CAVA) and Korean-BBQ-themed GEN Restaurant Group (GENK) reported earnings for the first time as public companies, with both stocks tumbling. Cava reported a strong profit with a 62.5% sales gain. GEN Restaurant reported results that beat some views and missed others.
Deere Earnings Top
The farm, forestry and highway construction equipment giant reported that Q3 EPS shot up 66% vs. a year earlier while revenue rose 12% to $15.8 billion, both comfortably beating. Deere (DE) modestly raised its full-year net income forecast. DE stock fell solidly for the week.
Buffett Buys Into Homebuilders
Warren Buffett’s Berkshire Hathaway (BRKB) opened positions in homebuilders D.R. Horton (DHI), Lennar (LEN) and NVR (NVR) in the second quarter. New-home sales are a pocket of strength in the housing market amid steep mortgage rates. The conglomerate also further grew a stake in Occidental Petroleum (OXY) and further cut its holding in Chevron (CVX). Buffett dialed up his energy bet last year as oil and gas prices soared after Russia’s Ukraine invasion. Apart from the two oil giants, Berkshire kept its top biggest stock holdings steady last quarter. Still, Apple (AAPL), the No. 1 holding, was a bigger holding thanks to its big advance in Q2.
News In Brief
Cardinal Health (CAH) reported that Q4 EPS surged 48% and revenue rose to $53.45 billion, both beating. The drug and medical devices wholesaler raised its full-year outlook, though Cardinal’s earnings guidance was slightly short at the midpoint. CAH stock reversed lower.
XPeng (XPEV) reported a wider-than-expected Q2 loss while revenue fell sharply. XPeng does expect deliveries to jump to roughly 40,000 in Q3 from Q2’s 23,205, but that was in line with some expectations. Shares continued to tumble after a huge run.
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