A new stock market rally gained steam, with the Nasdaq staging a follow-through day on Thursday to confirm the new uptrend. The major indexes snapped long losing streaks with strong weekly gains.
Snap plunged early in the week with a major earnings warning. But retailers, which helped smash the prior week's rally, rebounded this week amid strong results from Dollar Tree, Williams-Sonoma and Macy's. Several retailers that had poor results or guidance still rallied, such as Dick's Sporting Goods. Chip giant Nvidia, which beat views but guided lower, still rebounded. Broadcom will buy software maker VMware for $61 billion. Albemarle sharply raised earnings targets for the second time in a month.
Stock Market Rally Confirmed
The Nasdaq staged a follow-through day on Thursday, confirming the new rally attempt. The stock market has had several confirmed rallies in 2022, none of them lasting long. Retail stocks were big winners, notably Dollar Tree and Macy's, but several rallied despite weak results or guidance. So did Nvidia. Broadcom will buy software maker VMware for $61 billion. Treasury yields pulled back as investors slightly curbed Fed rate-hike forecasts amid rising recession risks. But crude oil prices rose.
Fed Hawkish Tone Clear
Minutes of the Federal Reserve's May 3-4 meeting — when policymakers hiked their key interest rate by a half point and initiated the runoff of assets purchased during the pandemic — contained no real surprises, but the hawkish tone was clear. Policymakers noted the historically fast tightening of financial conditions, but still saw inflation risks on the upside. "Many" committee members expected the job market to stay tight and wage pressures elevated "for some time." Some highlighted the risk that high inflation could become embedded in expectations. There was a consensus that the Fed hike expeditiously at coming meetings, then take stock to see if rates needed to move to more restrictive levels.
On Friday, the Fed's preferred inflation gauge, the personal consumption expenditures price index, showed the overall inflation rate easing to 6.3% from 6.6%, as goods prices fell. But services inflation showed staying power, picking up to 4.6% from 4.5%. The report also showed stronger-than-expected consumption, with spending up 0.9% on the month and March's figure revised up to 1.4%.
Home Sales Skid
The week's real head-turning data came from the housing sector. The National Association of Realtors' index of pending home sales — new contracts that will take a while to close — slid 3.9% to a two-year low as high mortgage rates hit affordability. Meanwhile, sales of newly built homes dived nearly 17% to a two-year low. The supply of new homes jumped to nine months' worth at the current sales pace, the most since the post-housing crash in 2010.
Broadcom Buys VMware, Tops Targets
Chipmaker and infrastructure software provider Broadcom agreed to acquire virtualization software maker VMware for about $61 billion in cash and stock, confirming news leaks from earlier in the week. With the addition of VMware, software sales are predicted to reach 49% of Broadcom's total revenue, up from 23% in the fiscal second quarter. Broadcom reported Q2 EPS rose 37% while sales grew 23% to $8.1 billion. VMware reported quarterly results below views.
The Federal Reserve's 'Most Anticipated' Recession In History May Be Coming
Macy's Guides Up After Hot Earnings
Macy's reaffirmed its 2022 sales outlook and raised its profit guidance after beating Q1 expectations, as shoppers returned to malls despite high inflation. The department store operator, which also runs Bloomingdale's, joined Nordstrom with an upbeat forecast, bucking the trend of retail warnings of a consumer spending pullback. Macy's earnings nearly tripled to $1.08 per share as sales increased 14% to $5.35 billion. Nordstrom sharply narrowed losses to 6 cents per share, missing by a penny, as revenue jumped 19%.
Groceries Vs. Apparel
Dollar Tree and Dollar General rallied after reporting upbeat quarterly results and outlooks, following concerns over rising prices. The dollar stores reported amid signs that some customers were diverting spending toward groceries, as inflation forces more shoppers to prioritize basics. Moody's said the two chains' results showed that "the consumer is trading down and looking for the best value." Meanwhile, off-price clothing chain Burlington Stores missed views and guided low. And it said "the impact of inflation on lower income shoppers" was "having a greater impact than we had expected." But shares still rebounded.
Snap Cracks On Economic Woes
Snap stock crashed to a two-year low as the social media firm slashed its outlook, saying the macroeconomic environment has deteriorated further and faster than anticipated, causing a slowdown in advertising. The report brought down other ad-reliant internet firm, including Google parent Alphabet, Facebook parent Meta Platforms, Twitter and Pinterest.
Albemarle Earnings Guidance Raised Again
Albemarle now sees full-year earnings of $12.30-$15 a share, the second big upward revision this month alone. On May 5, Albemarle raised its full-year EPS target to $9.25-$12.25 from just $5.65-$6.65. The lithium and bromine producer cited increased variable-priced contracts, taking better advantage of skyrocketing lithium prices. ALB stock skyrocketed above an early entry. So did lithium rival Livent.
Nvidia Outlook Misses Mark
Nvidia beat Wall Street's targets for its fiscal first quarter but came up short with its sales guidance for the current quarter. The graphics-chip maker reported a 49% EPS gain with sales up 46% to $8.29 billion. Nvidia cut its Q2 revenue guidance by about $500 million due to the loss of business in Russia during its war with Ukraine and the impact of Covid lockdowns in China. Its implied Q2 EPS guidance is a dime below consensus.
Ulta Beauty Sitting Pretty
Ulta Beauty raised its full-year sales and profit guidance Thursday after crushing earnings estimates for the first quarter. Earnings jumped 54% to $6.28 per share as revenue rose 21% to $2.23 billion. Ulta's Same-store sales climbed 18%. Peer e.l.f. Beauty earned 13 cents per share, down 19% but more than double views. Ulta Beauty and Elf both rebounded above their 50-day lines.
Mining Firm Soars With Electric-Vehicle Demand For 'White Gold'
Costco Earnings In Line
Costco Wholesale reported fiscal Q3 EPS climbed 11%, meeting analyst estimates. Revenue grew 16% to $51.61 billion, just edging past views. Same-store sales grew 14.9%, topping forecasts. Membership fees, which account for the bulk of Costco's net income, rose to $984 million vs. $901 million. COST fell slightly on earnings but jumped for the week.
'Dislocations' Help Carriers
Commodities ocean carriers Star Bulk Carriers and Diana Shipping reported booming first-quarter results that beat expectations, helped by demand for harder-to-get basic materials. Star Bulk also noted "continued strong commodity flows over longer distances due to infrastructure investments and trade dislocations." The two companies, which ship goods like iron ore, coal and grain, report amid concerns over food and energy shortages, and as China's Covid and pollution restrictions and Russia's invasion of Ukraine disrupt the buying and selling of bulk goods.
Alibaba Earnings Beat
Fiscal second-quarter results beat estimates, driven by better-than-expected sales in China's domestic e-commerce market. Pinduoduo easily beat quarterly EPS views, with revenue also comfortably beating. That raises hope for Chinese online sales. But the reports are for the March-ended quarter, largely before strict Covid lockdowns in Shanghai and elsewhere. Alibaba and PDD stock jumped.
NetEase Tops Q1 Targets
China-based online games and internet services company NetEase beat first-quarter expectations with EPS up 2.5% and sales rising 15% to $3.7 billion. Online game revenue rose 15.3% to $2.7 billion. The next major catalyst for NetEase's gaming business is the June launch of "Diablo Immortal," a game it codeveloped with Activision Blizzard. NetEase stock rose to a three-month high.
Williams-Sonoma beats first-quarter views with a 19% EPS gain and 8% sales gain, with margins and same-store sales also strong. The upscale retailer of household goods and furnishings sees 2022 results in line with long-term guidance. Shares jumped.
Best Buy matched Wall Street's target for earnings in its fiscal first quarter on better-than-expected sales. But the consumer electronics retailer cut its outlook for Q2 and full year on softer consumer spending.
Dick's Sporting Goods beat Q1 EPS and sales targets, but inventories rose and the retailer slashed full-year guidance amid an increasingly "uncertain macroeconomic backdrop." But shares rebounded from a 52-week low. Hibbett Sports later also reported weaker-than-expected quarterly results. Shares tumbled on earnings but rose for the week.
Twitter rose after Tesla CEO Elon Musk upped his financing commitment to the $44 billion takeover deal of the social network. TWTR stock remains below the $54.20 takeover price, with Musk signaling he may want to exit the deal or pay a much-lower price.
Ford delivered its first F-150 Lightning EV on Thursday to a Tesla Model 3 owner who had a Cybertruck reservation at one point.
