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Wall Street moves higher despite rates and Microsoft

The day after a correction session, the main American stock market indices appear uncertain on Thursday...

The trend remains volatile on Wall Street on Thursday, where the indices turned higher in the evening, despite the profit warning from Microsoft and the persistent tensions on interest rates. The Fed’s number two, Lael Brainard, hinted that there would be no pause in the hike in key rates in September. Oil continues to climb despite the surprise announcement by OPEC+ of a higher than expected increase in its production quotas from July.

Two hours before closing, the Dow Jones gained 0.6% to 33,011 points, while the broad S&P 500 index recovered 1.18% to 4,149 pts, and the Nasdaq Composite, rich in technology and biotech stocks, rebounded from 2.17% to 12,254 pts.

Towards a third tightening of half a point by the Fed in September?

Markets remain nervous about the US Federal Reserve’s monetary tightening cycle, which could tip the economy into recession, according to some economists. Futures markets now project three, not two, half-point hikes in June and July, but also in September, before considering a pause or a slowdown by the Fed… After a hike of a quarter-point in March and half a point in April, the fed funds rate is currently between 0.75% and 1%.

On Thursday, Fed Vice Chair Lael Brainard said she supported interest rate hikes of at least half a point in June and July, and possibly more in subsequent months if inflation, which she called “challenge number one”, does not subside.

“Market expectations for a likely 50 basis point rally in June and July, given the data we have today, seems like a reasonable trajectory,” she told CNBC. “September is less clear,” she added. “But if we don’t see a deceleration in the monthly inflation numbers, if we don’t see some of that really high (price) upside starting to subside a bit, then it might just be opportune to have another meeting where we will proceed (with increases) at the same pace,” she explained.

On the bond markets, US rates stabilized on Thursday after 3 sessions of high tension. The 10-year T-Bond yield fell 1 basis point to 2.90% (vs. 2.74% on Friday), while the 2-year T-Bond rate was stable at 2.64% (vs. 2.74% on Friday). 48% Friday). In the eurozone, the yield on the 10-year German Bund gained another 5bp to 1.23%.

Wall Street ends sharply higher, fueled by Apple, Tesla, other growth  stocks - BusinessToday

US job market still under pressure

Awaiting the full monthly jobs report in May, ADP’s private-sector report on Friday reported lower-than-expected job creations in May. They came in at 128,000, versus the FactSet consensus of 302,000 and the revised (down) reading of 202,000 in April. In addition, the Challenger study reported 20,712 layoffs scheduled in May, against 24,286 in April.

The weekly employment data came out stronger than expected, with 200,000 jobless claims for the week ended May 28 against 205,000 expected by the FactSet consensus and after 211,000 the previous week.

For the monthly data expected on Friday, the consensus of economists expect 322,000 to 325,000 job creations, including 302,000 in the private sector, for an expected unemployment rate of 3.5% against 3.6% in April.

Final US non-farm productivity numbers for the first quarter were also released on Thursday. Productivity fell at a rate of 7.3% over the period, against -7.5% consensus and -7.5% for the previous assessment. Unit labor costs rose at a rate of 12.6%, against 11.6% consensus.

Industrial orders increased by 0.3% in April over one month against +0.9% expected. Lastly, final durable goods orders over the same month rose, as expected, by 0.5% compared to the previous month.

OPEC+ opens the floodgates of oil a little more

Faced with pressure from consumer countries suffering from inflation, the OPEC + countries finally agreed on Thursday to accelerate the monthly production increase of the group of producing countries to 648,000 barrels per day in July and August, against a monthly increase. around 430,000 so far.

The announcement came Thursday afternoon after a short meeting by videoconference of the 23 allied countries (including Russia), which together represent more than half of the world’s oil supply. But this new situation was not enough to drive down oil prices, which were also supported by the announcement of a stronger than expected drop in weekly crude inventories in the United States.

The barrel of American light crude WTI (July futures contract) thus gained Thursday evening 1.2% to $ 116.93 on the Nymex, while Brent North Sea August maturity advanced 1.3% at $117.78 on ICE.

Investors (who were nevertheless expecting the status quo) seemed disappointed by the announcement, insofar as an additional 648,000 barrels per day only represent an anticipation of the increase which was already planned from September.

VALUES TO FOLLOW

Microsoft (+0.06%) is stabilizing after a loss of 2% at the start of the session. The Redmond software giant has just lowered its estimates for the fourth fiscal quarter, citing, in presentation documents to investors, the impact of the strong dollar. The greenback has just climbed 14% against a basket of currencies over the past year, supported by the Fed’s tougher policy and geopolitical tensions. The group, which now derives most of its revenue from cloud services, expects fourth-quarter revenue of $51.94-52.74 billion, down from an earlier range of $52.4-53.2 billion. of dollars. Earnings per share guidance now ranges from $2.24 to $2.32, down from a previous range of $2.28 to $2.35.

Analysts’ consensus was for its part at $2.33 in quarterly earnings per share and $52.9 billion in billings over the period. In April, the software colossus said it was expecting double-digit revenue growth for the year, with cloud computing services. However, Amy Hood, the group’s chief financial officer, had already suggested in April that exchange rates could have an impact on its income.

Meta Platforms (+6.2%). A twist at Facebook’s parent company! COO Sheryl Sandberg, who joined Facebook in 2008 as Mark Zuckerberg’s No. 2, will step down from her post, the group announced Wednesday evening. Javier Olivan, the current Chief Growth Officer (CGO) will take over as COO in the fall. Ms. Sandberg will remain a member of Meta’s board of directors.

Ms. Sandberg has strongly contributed, with Mark Zuckerberg, founder and CEO of Facebook, to transform the social network into a world leader, with the contribution of its subsidiaries Instagram and WhatsApp, and into an online advertising giant.

Hewlett Packard Enterprise (-6%) posted adjusted earnings per share of 44 cents, against 45 cents consensus and 46 cents a year earlier. Revenues were $6.71 billion, missing consensus by 2% from a level of $6.7 billion a year earlier. HPE is also reducing its annual profit guidance, due to currency, supply chain and Russian withdrawal costs. Annual adjusted profit is expected up to $2.1. In the July quarter, this adjusted EPS is expected to be between 44 and 54 cents. Antonio Neri, CEO of the group, judges that despite the adverse elements, customer demand remains strong, with a backlog “of incredible quality”.

GameStop (+8%) published larger than expected losses last night for the quarter ended, but the title is progressing on Wall Street. This somewhat contradictory stock market reaction comes as the Securities & Exchange Commission, the watchdog of the US stock market, has just issued a warning about ‘meme stocks’, these stocks moving in a very volatile way with the flows of purchases and sales. of ‘social traders’.

For its first fiscal quarter, GameStop published an adjusted loss per share of $2.08 last night, compared to -$1.16 Bloomberg consensus and -45 cents a year earlier, in the same period. Revenues totaled $1.38 billion in the quarter ended April, 2% above market expectations, compared to $1.28 billion a year earlier. The American video game retailer, which is also getting into cryptocurrency and NFT, therefore beat the revenue consensus with this 8% growth but also doubled its net loss to $157.9 million. Ryan Cohen, who joined the board and became chairman last year, has tried to revive GameStop’s growth, which had slowed as gamers shifted from buying physical games to digital downloads. It seems to have succeeded, but profitability is still lacking. GameStop recently launched a digital asset wallet allowing gamers to store, send or receive cryptocurrencies and NFTs.

Chewy, the US online retailer of pet food and products, soared 22% on Wall Street. The group co-founded by Ryan Cohen, the businessman who has become a ‘star’ of small shareholders on Wall Street with the GameStop file, reported last night an unexpected profit for its first quarter. Over the period, the group posted adjusted earnings per share of 4 cents, against a loss expected by analysts and EPS of 15 cents a year earlier. Revenues for the quarter ended in April were $2.43 billion, slightly below expectations, versus $2.14 billion a year earlier. Growth therefore reached 14%, gross margin 27.5% and net profit 18.5 million dollars.

NetApp (-0.2%), the Californian software group, beat the profit consensus for its fourth fiscal quarter. Adjusted earnings per share were $1.42, versus $1.27 consensus and $1.17 a year earlier. Revenues were $1.68 billion, in line with expectations, versus $1.56 billion a year earlier. Adjusted net profit was $324 million, compared to $268 million a year earlier. Over the year, revenue totaled $6.32 billion, while adjusted net profit was $1.21 billion. In its first fiscal quarter of 2023 just started, the group is considering adjusted EPS ranging from $1.05 to $1.15, as well as revenues ranging from 1.475 to 1.625 billion. Over the year, revenue growth is expected between 6 and 8%, while adjusted EPS is expected between $5.4 and $5.6.

Hormel Foods (-5.6%), the American group active in pre-cooked meats, with the Planters, Skippy, Spam, Applegate, and Jennie-O brands, announced accounts that exceeded market expectations for its second fiscal quarter and confirmed its annual forecast. Over the period ended in early May, the group posted a net profit of 262 million dollars or 48 cents per title, against 228 million dollars a year earlier. Revenue improved to $3.097 billion from $2.607 billion a year earlier. The FactSet consensus was 47 cents in earnings per share on $3.07 billion in revenue.

Ciena (-2.8%), the network equipment manufacturer, announced for its second fiscal quarter revenues and profits below market expectations, in an increasingly complex supply chain context. Net income for the quarter ended April 2022 was $38.9 million, 25 cents per share, compared to $103 million for the corresponding period last year. Adjusted earnings per share were 50 cents, versus a FactSet consensus of 54 cents. Revenues rose nearly 14% to $949 million, versus the market consensus of $951 million.

Moderna (-2.6%) announced a modification to the contract for the supply of Covid-19 vaccines signed with the European Commission, in order to allow the postponement of deliveries initially planned for the second quarter.

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