Tech Bulls Rest At Resistance
Stock market bulls’ momentum stalled as the Nasdaq 100 sits just below its July highs, with investors awaiting a catalyst to push the index back toward its 2022 peak. Nvidia earnings after the bell next Tuesday are expected to be that catalyst. Let’s see what else you missed.
Today’s issue covers Walmart rolling back its share price, Alibaba backtracking on its spinoff plans, and news you “auto” know.
Here’s today’s heat map:
7 of 11 sectors closed green. Utilities (+0.53%) led, & energy (-1.95%) lagged.
In economic news, U.S. continuing jobless claims rose to their highest level in two years as the labor market’s softening progresses. Strikes weighed on October’s industrial production and the Philadelphia Fed manufacturing index continued its long trend in contractionary territory.
Homebuilder sentiment fell to its lowest level in nearly a year as high-interest rates and low affordability weigh on demand. Roughly 36% of builders reported cutting prices in November, with the average price cut being 6%. Looking ahead, they expect a 5% increase for single-family starts in 2024 as low existing inventory buoys demand for new construction.
Luxury fashion house Burberry fell 11% after its comparable store sales growth slowed from 18% in the previous quarter to 1% in the second quarter. It said momentum in China waned as global demand for luxury goods remains challenged in the current environment.
Home sound system and wireless speaker company Sonos jumped 17% after its revenues and loss per share beat expectations. CEO Patrick Spence told analysts the company is entering a multiyear product cycle that will include an entry “into a new multi-billion dollar category” in the second half of fiscal 2024. It also announced a $200 million buyback.
Children’s Place plummeted 25% after its earnings fell below expectations, with executives blaming higher fulfillment and labor costs. On the other hand, Gap shares popped 15% after its sales and earnings both beat expectations, driven by strength in Old Navy and its namesake Gap banner.
The crypto market remains in focus, with several headlines catching attention. First, Solana continued its rally after Cathie Wood praised its speed and cost vs. Ethereum. BlackRock filed a spot Ethereum ETF prospectus with the Securities and Exchange Commission (SEC). And JPMorgan is reportedly testing tokenized portfolios using Avalanche blockchain technology.
$SOFI(-8.96%), $ROST (+2.52%), $MULN(-4.05%)
Here are the closing prices:
| S&P 500 | 4,508 | +0.12% |
| Nasdaq | 14,114 | +0.07% |
| Russell 2000 | 1,774 | -1.52% |
| Dow Jones | 34,945 | -0.13% |
Walmart Rolls Back Its Share Price
Yesterday, we heard from Target, which soared after getting its earnings back on track despite declining sales. Today, we heard from Walmart, which plunged after growing sales and beating on earnings. Let’s talk about why that happened.
Today’s earnings in Walmart contrasted Target’s, but the underlying cautious tone about the U.S. consumer remained. The big-box retailer reported adjusted earnings per share of $1.53 on $168.80 in revenues, topping the $1.52 and $159.72 billion expected by analysts.
Walmart’s net sales rose 4.9% YoY, while Target’s declined a similar amount, as its reputation for low prices and a wider selection of groceries and necessities enticed shoppers. The nation’s largest grocer saw transaction volumes rise 3.4% and average ticket size jump 1.5%. Meanwhile, Target saw both figures decline, as more of its sales are derived from clothing, home goods, and other discretionary items.
Like Target, Home Depot, and other retailers, Walmart’s CFO said consumers are “leaning heavily” into major promotions. He explained, “Our events have been strong … But in the last couple of weeks of October, there were certainly some trends in the business that made us pause and kind of rethink the health of the consumer.”
Hence, the overall cautious tone we’re seeing across the board.
Investors were also happy to see that its advertising business and Walmart+ subscription business continue to grow. Even if those businesses are relatively small, they have much higher margins, so they can still have a material impact on their results.
The other factor to consider regarding the stocks is the significant difference in expectations going into these results. Target shares were sitting at 3.5-year lows ahead of its results, so its earnings and revenue beat helped spark a significant rebound. On the other hand, Walmart shares were at all-time highs ahead of its report. So good news — but not great news — was enough to send the stock lower.
Sentiment among the community remains bullish despite the stock’s initial reaction. Investors are betting the challenging macroeconomic environment will cause more consumers to continue “trading down” from other retailers to Walmart. $WMT was a top trending ticker most of the day as investors/traders debated the earnings report and outlook.
Big-box retailers aren’t the only ones expressing caution and focusing on costs. For example, Macy’s experienced a 15% jump today but faded throughout the day. The department store’s third-quarter earnings beat was driven by cost and inventory management, not sales growth. So, investors remain concerned about the ability to drive performance in a prolonged slowdown.
Defense continues to win Wall Street over, with companies focused on boosting earnings through cost and inventory management and not allowing sales to fall more than analysts expect. The retailers that can do that are currently being rewarded in the market, especially if expectations are low going into their reports. As for Walmart, it was down today, but many say it’s approaching the holiday quarter and 2024 from a position of strength if the consensus consumer view proves true.
Alibaba Backtracks Its Spinoff Plans
Yesterday, some better economic news and strong results from JD.com put Chinese stocks back on the map. Today, they stayed on the map but went in the opposite direction.
Driving the news was Alibaba’s earnings report, where the company revealed some unnerving news for investors. Although the company had a pretty good quarter that beat earnings and revenue expectations, it said it’s canceling its cloud unit spinoff because of geopolitical tensions.
That will prevent it from unlocking significant shareholder value, reducing one of the key value propositions investors had touted. There’s a belief among Wall Street and management that the company would be worth more as a holding company than as a conglomerate, which is why it outlined plans to break into six separate entities last March.
However, management warned in October that U.S. export controls on advanced computer chips “may materially and adversely affect Cloud Intelligence Group’s ability to offer products and services and to perform under existing contracts.” Those fears came to fruition, creating an uncertain future for the company and investors as it navigates a fluid geopolitical environment.
It’s the first major causality of the growing tensions between China and the U.S. (and other Western countries). While other companies have seen an impact, this is by far the most material impact a public company has experienced.
$BABA shares fell 9% towards 1-year lows on the news. Currently, the community looks interested in “buying the dip,” with message volume high and sentiment reading extremely bullish.
Additionally, news broke after the bell that semiconductor equipment maker Applied Materials is facing a U.S. criminal probe for its shipments to China. While there are few confirmed details about the situation so far, the news overshadowed its earnings and revenue beat, sending $AMAT shares down about 7%.
With the Asia-Pacific Economic Cooperation (APEC) summit in California wrapping up, there’s been little progress between President Joe Biden and China’s Xi Jinping. However, the two promise to keep talking. So we’ll see where that goes…
Given the uncertainty around this geopolitical situation, investors in Chinese stocks and those with significant exposure to the country will likely remain skittish. That’s despite a seemingly improving Chinese economic status, stronger earnings outlooks from some of the country’s most prominent players, and lower valuations than other emerging markets.
News You Auto Know
While the focus was elsewhere, some auto industry news flew under the radar. Let’s recap.
First up, General Motors union workers ratified their record deal with the United Auto Workers (UAW) union. It looked dicey there for several days after seven of GM’s eleven U.S. assembly plants rejected the terms. However, today, it was confirmed the deal passed with roughly 54.7% of the 36,000 autoworkers who voted supporting it. With GM’s vote out of the way, investors await results from Ford and Stellantis workers, who are expected to approve the deal by a 2:1 margin.
The U.S. Department of Energy continues its push to strengthen the U.S. battery supply chain, announcing up to $3.5 billion in funding for companies producing batteries and the critical minerals that go into them. The funding is seen as necessary to support the Biden-Harris administration’s goal of half of all new car sales to be electric by 2030.
Meanwhile, Toyota is the latest automaker to partner with startup Redwood Materials to secure its supply of critical battery materials. The recycling startup aims to create a circular supply chain for Lithium-Ion batteries, supporting the transition of the U.S. (and the world) to cleaner energy solutions. The deal’s terms were not disclosed, but it marks an expansion of a partnership between the companies that began in June 2022. Redwood will supply cathode material and anode copper foil for battery cells in Toyota’s $13.9 billion North Carolina factory slated to start production in 2025.
And speaking of Toyota, America’s top-selling car will soon come only as a hybrid. The Toyota Camry is going hybrid-only, combining a gasoline engine with electric motors, beginning with the 2025 model. The decision to go fully hybrid with this car model shows how far the technology’s acceptance has come. It also reaffirms the Japanese automaker’s bet against going “full-throttle” into fully electric vehicles.
Amazon is furthering its venture into the automobile space. Next year, the company will allow auto dealers to sell cars through its site, starting with South Korean automaker Hyundai. This will add to its current experience, which enables shoppers to research and compare vehicles via “digital showrooms” on its site. But up until now, consumers could not buy vehicles directly through Amazon, just car products like replacement parts.
And lastly, Lucid moved into the electric SUV market by unveiling its three-row “Gravity.” The vehicle has 440 miles of estimated range and starts at $80,000. But one feature stole the show and had social media saying, “What the frunk?”
Bullets From The Day:
📺 Mattel looks to beef up its TV studio with ex-Fox, Sony executive. The toy company is looking to expand on its Barbie success by introducing more television content in the coming year, including a “Barney” reboot. To lead that effort, it’s hired former Fox and Sony executive Michelle Mendelovitz as head of Mattel Television Studios. Last month, Mattel CEO Ynon Kreiz said the company is focused on “capturing the full value of our intellectual property (IP) outside of the toy aisle.” This move shows a commitment to that mission. CNBC has more.
📰 One-third of U.S. newspapers that existed in 2005 will be gone by 2024. The recent advertising slowdown, cut in media and tech valuations, and higher capital costs have put the media industry under the most pressure it’s seen in recent history. A new report indicates that there are only 6,000 newspapers left in America, down from 8,891 in 2005, with most communities that lose a local newspaper not receiving a replacement (even online). The local news space faces its own structural headwinds, causing previous backers like hedge funds to avoid situations they would have otherwise viewed as profit-making opportunities. More from Axios.
⚡ Apple says iPhones will support RCS in 2024.The company has resisted supporting rich communication services (RCS) on its hardware for years, causing a rift between its iMessage users and others dubbed the “green bubblers.” However, that debate may finally be winding down as Apple says it will add iPhone support for the RCS messaging standard used by most Android phones. To be clear, though, the company is not opening up iMessage to their platforms. Instead, it’s simply replacing SMS and MMS messages that currently operate separately from iMessage when available. It should lead to a better messaging experience between iPhones and Androids. The Verge has more.
⚔️ TikTok joins Meta in challenging the European Union’s (EU) “gatekeeper” status. The EU law brings tougher rules for tech companies and makes it easier for users to move between competing services. Meta challenged the designations for its Messenger and Marketplace platforms but did not appeal against the status for Facebook, Instagram, and WhatsApp. Today, TikTok joined in protest, saying it was designated a gatekeeper based on the size of its parent company, ByteDance, even though most of its business lines don’t operate in Europe. It appears Apple, Amazon, Microsoft, and Google will not challenge their designations as today is the deadline. More from Reuters.
🤖 Meta brings us a step closer to AI-generated movies. Several artificial intelligence tools revealed over the last few months have given glimpses into a new frontier of content creation. Meta joined the frey today, debuting Emu Video, an evolution of the tech giant’s image generation tool. Emu Video can generate a four-second-long animated clip from a short caption, image, or photo paired with a description. Then, creators can use Emu Edit to modify the clip further, seeing changes reflected in a newly generated video. TechCrunch has more.