Julex Weekly Market Review – July 28, 2023

This week, the Dow rose 0.65%, although it ended a 13 day winning streak on Thursday.  The S&P 500 gained  0.79%, and the Nasdaq Composite increased by 1.67%.  A large part of the gains  stemmed from positive earnings reports, and the Federal Reserve’s more positive outlook on the economy.   

US Federal Reserve Meeting

The Fed unanimously voted to hike rates by 25 basis points, in an effort to curb inflation which it still believes are too high.  This marks the 11th time the Fed has raised rates since March 2022, the most aggressive cycle since the early 1980s.  

The Fed’s benchmark target is a 2% inflation rate, which is way below the current level.  Thus Fed chairman Jerome Powell has indicated the possibility of a further rate hike during the next meeting in September, depending on the “totality of the incoming data. ” He also stated  the rate-hiking process will have “a lot left to go” in order to reach their target. 

As the markets had priced in the expected rate hike, many share prices were largely unchanged from the news.  

Due to the resiliency of the economy despite rate hikes, the Fed is no longer forecasting a recession, instead projecting a potential soft landing as it works to reduce inflation, with its recent indications of a “moderate” rate of growth.  

Tech Earnings Reports

Snap stocks dropped 18% after the company’s Q3 projections failed to meet analyst expectations as it faces a slowing advertisement market and reductions in daily active user growth.  Despite exceeding revenue and user estimates in Q2, the company lost $377 million during the quarter, down from $422 million in 2022.  

Alphabet stock leaped 8% after the Google parent exceeded  its second-quarter profit projections, primarily driven by increased advertisement sales, as well as excitement about the company’s investments in artificial intelligence.  Meta rose by 2%  largely due to better ad sales on Tuesday.  

Microsoft increased spendings significantly from $7.8 billion to $10.7 billion to  build infrastructure to support AI, and expected further increases through the fiscal year 2024.  However, its share price dropped 4% because the company has to  continue to work through a slump in the PC business. 

T-Mobile added 760,000 new postpaid phone subscribers, the largest number in eight years. However, its revenue missed estimates, falling 2.6%. The share price dropped 1% as investors  questioned  the company’s aggressive pricing strategy. Verizon exceeded profit projections through cost reductions, and also saw an unexpected increase in wireless subscribers.  The stock traded 0.9% higher.  

Intel shares jumped 6.60% as it reported a net income of $1.5 billion, after the company had faced two straight quarters of losses amid a slump in PC and server markets.  Revenue declined, however, marking the sixth straight quarter of lower sales, and a 15% drop from 2022.  

Aviation Earnings Reports

Boeing shares rallied almost 9%, as the airplane manufacturer delivered 136 planes in the second quarter, compared  to 121 in 2022.  Both revenue and  free cash flow exceeded estimates, although the company posted a quarterly loss primarily from its defense and space businesses.  The company’s first delivery of the new 737 MAX 7 has been further delayed to early 2024, as the manufacturer continues to work towards FAA certification.  

Southwest Airlines saw a 10% drop in share price, as it missed earnings estimates and delivered a disappointing outlook for the next quarter and the whole year.  As the largest domestic carrier, the company is particularly impacted by the negative developments in the industry such as a surge in international travel among other factors driving a decrease in demand and pricing power.  In addition, increasing labor costs leads to expectations of a sector-wide decrease in profits. 

American Airlines reached a deal with the Allied Pilots Association on pay rate adjustments and other provisions, leaving Southwest as the only major US airline without a new deal with their pilots.  

Ford Earnings Report

Ford exceeded  revenue and earnings expectations in the quarter, and raised its full-year forecasts. However, the company faces challenges in its electric vehicles division, as it lost over $32,000 per EV sold in the second quarter.  The company now projects a $45 billion loss over the year from EVs, and plans to slow their rollout, with the goal of producing 600,000 EVs annually being pushed back to 2024.  Ford stock dropped 3.42% on Friday.  

Potential Amazon Breakup

The Federal Trade Commission is working towards an antitrust lawsuit to potentially break up Amazon.  While it is unknown what this lawsuit alleges, it is expected to focus on the company’s business practices, in particular regarding Amazon Prime. The lawsuit could be a landmark case for FTC chair Lina Khan, who has repeatedly promised to break up monopolies, and made aggressive antitrust moves such as contesting the Microsoft acquisition of Activision Blizzard.  

Other News

Wells Fargo announced a share buyback program of up to $30 billion, after a positive earnings report.  The stock increased 1% in extended trading.

Tupperware shares increased 165% on the week, up almost 360% from July 20th.  The jump is largely unexplained. The stock is seen as a “meme stock,” similarly to companies such as Bed Bath & Beyond and AMC, as the surge defies conventional financial wisdom.  Many have shorted the stock, expecting volatility and a downturn.  

US regulators proposed a 16% rise to necessary bank capital to reduce risk.  This is expected to be contested in a process that may last years.  The proposal comes after a spring in which three large financial firms failed. 

What Will Happen Next Week

Earnings reports include Paramount, SoFi, Advanced Micro Devices, Allstate, Caesars Entertainment, FirstEnergy, Marriott, Prudential, Uber, Starbucks, Clorox, CVS, Metlife, Paypal, Robinhood, Amazon, Apple, Airbnb, Expedia Group, Kellogg, Wayfair, and AMC among others.