Julex Weekly Market Review – August 11, 2023

The markets had a mixed week.  The Dow ended up 1.06%, while the S&P 500 lost 0.61% and the Nasdaq Composite fell 2.34%.  

Moody’s Downgrades 10 Banks’ Credit Ratings

The banks downgraded by the rating agency were primarily small to mid-sized banks, including M&T, Webster, and Pinnacle.  Six other banks were placed under review for a potential future downgrade.  Eleven banks’ outlooks were also changed from stable to negative.  

Moody’s emphasized the continued danger of a mass-withdrawal from banks similar to the earlier banking crisis, which affected firms such as First Republic following the collapse of Silicon Valley Bank, especially if they have significant unrealized losses.  

Furthermore, the agency is also concerned about a decrease in profitability, as investments made with lower interest rates continue to lose value.  Additionally the value of bank assets, especially commercial real estate portfolios, may decline if the economy enters into a recession next year.  

The share prices  of banks whose ratings were cut declined  as a result.  For example, M&T dropped over 3% this week.   

July Inflation Report

The Consumer Price Index(CPI) increased 3.2% in the year through July, up from 3% in the year since June.  This marks the first acceleration of the CPI  in 13 months.  However, the core inflation index-which excludes food and fuel, increased 4.7% in the year through July, a decrease from 4.8% in June.  The results were largely expected, and many analysts believe the slowing core inflation numbers among other factors may keep the Fed from hiking rates again in the September meeting.  Markets rose initially upon the release before ending the day mixed.  

Earnings Reports

Paramount shares increased 4% in extended trading after the company reduced its streaming losses from $511 million in Q1 to $424 million in Q2.  The media giant also stated the streaming losses will peak in 2023.  However, linear ad revenue decreased 10% year over year amid a TV-ad slump, better than the 11% drop in Q1.  Both total revenue and earnings per share exceeded expectations, but are still down from a year earlier.  

Lyft shares initially rocketed up 14% after earnings per share was reported to greatly exceed expectations, but  fell 7% subsequently in after-hours trading as further metrics discouraged investors.  The company’s revenue grew a mere 2% in Q2, and analysts project further single-digit percent growth through Q4.  Additionally, as the ride-sharing app tries to compete in price with rival Uber, revenue per active user fell by 5%. 

Disney stock rose 4% with strong earnings per share of $1.03 compared to the projected $0.95.  However, the media giant failed to meet revenue expectations.   There were significant losses in streaming as the platform Disney+ lost 7.4% of its subscribers.  To reduce losses, the corporation plans to crack down on password-sharing, and increase the price of the ad-free Disney+ tier.  The attendance and hotel-room purchases also slowed down in domestic Disney parks, particularly at Disneyland in Florida, but the attendance in the international parks  gained 13% during the quarter. 

Alibaba shares initially rose 4% as the Chinese e-commerce brand beatrevenue expectations with $32.29 billion in Q2.  The stock is up 14% from the previous year when  pandemic restrictions were in place.  However, the company faces concerns about the health of the Chinese economy which struggles with slowdown and deflation.  Additionally, Alibaba also faces increased competition from firms such as  PDD Holdings and Douyin.  Overall, the stock price dropped 2.11% on the week.  

United Parcel Service(UPS) shares dropped 3.14% this week as the company reduced the revenue target from $97 billion to $93 billion and profit margin goal from 12.8% to 11.8% for the year.  The company lost about 1 million shipments per day to rivals and around $200 million in the wake of a potential strike as customers tried to guarantee their delivery. .  Although it signed a tentative deal to prevent the strike, the package-delivery giant now has to attempt to reclaim its market share and deal with higher labor costs.  In Q2, UPS exceeded estimates in earnings per share due to cost-cutting measures, but missed revenue projections.

Biden Restricts Tech Investments Into China

Biden signed an executive order to ban certain US investments into semiconductors,  microelectronics, quantum information technologies, and sensitive AI systems in China.  The measure aims to hinder Chinese military development, which many believe to have been aided by American investment.  The Chinese foreign ministry “resolutely opposes” the order and reserves the right to retaliate.  Many Republicans believe the scope of the order is too narrow and it has many loopholes.   

Other News

Disney-owned sports broadcaster ESPN and the casino operator Penn Entertainment agreed to a $2 billion deal to create a new online betting platform, ESPN Bet.  The partnership hopes to use the ESPN platform to promote ESPN Bet, especially to a younger audience.  Similar previous partnerships such as the one between PointBets and NBC have failed to capture a large number of customers.

A survey conducted by Fannie Mae reports the number of consumers who believe it is a bad time to buy a house increased by 4% to 82%, the highest since Fannie Mae started the survey.  Only 17% believe housing prices will increase in the next year.  

Paramount will sell book publisher Simon & Schuster to private equity firm KKR & Co. for $1.62 billion.  This deal comes after a judge blocked a previous sale of Simon & Schuster, to Penguin Random House.  

Next Week

Earnings reports next week include Home Depot, H&R Block, Target, Cisco Systems, Wynn Resorts, Walmart, and Wendy’s.  

The Census Bureau will release data about nationwide retail sales on Tuesday.  The Federal Reserve will provide meeting minutes from the July meeting on Wednesday, potentially providing projections about future rate hikes.  

Are you a financial advisor or institutional investor?

You must be a financial advisor or institutional investor to visit this site.