Julex Weekly Market Review – August 4, 2023

Stocks ended the week down, as the Dow fell 1.13%, the S&P 500 decreased 2.32%, and the Nasdaq Composite dropped nearly 3%.  

Fitch Downgrades US Credit Rating

The rating agency cut the US rating from AAA, the highest rating, to AA+, the second highest, due to an anticipated “fiscal deterioration over the next three years,” and repeated debt ceiling crises that show “a steady deterioration in standards of governance.”  Fitch was the second agency to lower the US’ rating to AA+, the first being Standard & Poor in 2011.  

The Biden administration ”strongly disagree(d)” with the decision, believing it to be “arbitrary and based on outdated data.”  Many economists agreed with that stance.  The Goldman Sachs Chief Political Economist stated “the downgrade does not reflect new information or a major difference of opinion about the fiscal outlook,”  as he believes there is little reason to sell due to the decision.  

Global markets dropped upon the news Wednesday, such as the European Stoxx 600 Index which fell 1.4%, and the Nasdaq Composite Index which lost 2.17%.  

July Jobs Report

According to a Labor Department report, the US economy added 187,000 jobs, lower than analyst estimates.  The report also revised earlier job numbers, with the June additions reduced by 24,000 to 185,000, and the May job growth cut by 25,000 to 281,000.  These lower figures may have resulted from a lack of demand for new workers amid high interest rates, or difficulties in finding workers, as the unemployment rate dropped from 3.6% to 3.5%, the lowest since 1969.  

Average hourly earnings rose 0.4% during the month, for a 4.4% pace on the year.  This exceeds the rate of inflation, increasing consumer spending power.   The labor force participation rate remained at 62.6%, and that of people aged 25-64 decreased slightly to 83.4%.  

In another report, the Labor Department outlined a tight labor market, though the number of job openings decreased by 34,000 to 9.6 million in June, the lowest in over two years.  This means there are approximately 1.6 jobs for every unemployed worker, down from a peak of 1.9, but still significantly higher than before the pandemic.  

Earnings Reports

Advanced Micro Devices beat estimates in Q2, reporting $5.36 billion in revenue.  This is down 18% from the previous quarter, and from $6.55 billion in 2022, as the chipmaker navigates through a PC slump.  However, the losses were less than expected, and additional cause for optimism came from the company’s “strong progress” in artificial intelligence, and increases in spending for AI development.  AMD shares rose 3.5% after the report.  This came after top competitor Intel reported strong earnings last week.  

Paypal shares dropped 12% following the company’s earnings release, and over 16% on the week.  Despite beating estimates in revenue and profit, the firm reported a drop in operating margins from 22.7% in Q1 to 21.4%.  Paypal also lost 2 million users over this period.  These factors combined with leadership uncertainties after CEO Dan Schulman retires at the end of the year, led to questions about the company’s outlook.  

Wayfair shares soared 16% as the company reported a surprise profit.  The furniture retailer was largely expected to lose money as high interest rates slow the furniture industry as a whole.  Wayfair stock price is up over 153% in 2023.  

Expedia shares dropped over 16% as the travel site exceeded profit estimates, but gave a weak forecast.  The company also missed revenue and booking expectations, as domestic travel struggles as a sector.  Airlines such as Southwest and Spirit have also seen share prices drop amid weak earnings reports, along with other travel sites such as Tripadvisor and Trivago.  

Amazon stock rose over 8% after the online retailer greatly exceeded expectations in Q2, for the highest profit beat since 2020.  The company’s revenue increased 11% from 2022, and cost-cutting measures proved effective.  

Apple revenue fell 1% in Q2, marking the third straight quarter of declines.  The tech giant faced a slower phone market, and lost about 2% in iPhone revenue year over year.  iPhones make up around half of the company’s revenue.  Additional losses in revenue came from the Mac and iPad, which lost 7% and 20% respectively.  The services division saw growth, however, with revenue reaching an all-time high.  Share prices dropped 4.8% following the release. 

Next Week

Earnings reports next week include AMC, Under Armour, WeWork, Disney, Wendy’s, Alibaba, and Dillards.  

The Consumer Price Index for July will be released on Thursday. Analysts expect a 3.3% inflation rate from July, 2022.  

The Biden administration is expected to issue an executive order to screen investments into China, as it tries to prevent a US-aided acceleration of China’s military technology.  

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