The stock market correction intensified, fueled by big-cap tech earnings, even as Treasury yields pulled back from a Monday spike above 5%. The major indexes broke below recent lows, with the S&P 500 and Nasdaq dropping below their 200-day lines. Google parent Alphabet dived on weak cloud revenue while Meta Platforms sank on signs of weaker ad trends, while softer capex plans hit many other techs.
Microsoft had strong earnings and guidance, but slashed weekly gains. Amazon.com jumped on results, erasing weekly losses. General Electric and ServiceNow were earnings winners, at least for that day, while Ford announced a tentative labor deal with the UAW.
Stocks Keep Falling Despite Earnings Beats
The major indexes all broke below recent lows, ending their short-lived rally attempts. The S&P 500 and Nasdaq broke below their 200-day moving averages. Alphabet and Meta Platforms fell on earnings, spurring broad tech losses. the 10-year Treasury yield topped 5% early Monday, but whipsawed lower for the week. Crude oil futures fell for the week. Bitcoin and related stocks surged on mounting hopes for a spot Bitcoin ETF.
Economy Remains Strong
At least through September, the economy remained just as strong as the Fed feared in arguing for higher-for-longer interest rates. Consumers helped fuel a 4.9% annualized rise in Q3 GDP. But the Fed's primary gauge of inflation, the core PCE price index, slowed to a 2.4% annual rate in Q3 from 3.7% in Q2. Beneath the surface, the picture was mixed, with core goods prices falling at a 2.1% annual rate, but core services prices excluding housing rising at a 3.5% rate, too high for the Fed. The picture was somewhat worse in September, as goods prices fell 0.5%, while core non-housing services prices rose 0.4%. Meanwhile, consumer spending surged 0.7% on the month. But the strong September data, including a 12% jump in new-home sales to a 759,000 annual rate, didn't reflect the full force of the 10-year Treasury yield, which didn't break above 4.4% until Sept. 21.
Microsoft Trounces Estimates
Software leader Microsoft crushed Wall Street's targets for its fiscal first quarter thanks to strong cloud computing sales. It also guided analysts higher for the current quarter. Microsoft's cloud revenue rose 24% year over year to $31.8 billion in the quarter ended Sept. 30. Azure cloud infrastructure sales surged 29%, beating Wall Street's goal of 26% growth. Overall EPS rose 27% with revenue up 13% to $56.5 billion, the third straight quarter of accelerating growth for both. For the current quarter, Microsoft predicted sales of $60.9 billion, up 16%. Wall Street had been looking for $58.7 billion in the fiscal second quarter.
Cloud Hangs Over Google Earnings
Google parent Alphabet reported Q3 EPS grew 46% with gross revenue up 11% to $76.69 billion, both slightly beating. Advertising revenue rose 9% to $59.6 billion while YouTube ad revenue rose 12% to $7.95 billion, both edging past views. But Google Cloud revenue growth slowed slightly more than expected. GOOGL stock tumbled.
Meta Beats Views, Falls On Ad Concerns
Meta Platforms earnings skyrocketed while revenue grew 23% to $34.1 billion, both easily beating views amid strong ad sales growth. But the Facebook and Instagram parent guided slightly below Q4 revenue views. On the earnings call, CFO Susan Li said Meta has "observed softer ad spend" to start Q4, perhaps due to the Israel-Hamas war. Shares tumbled. Snapchat-parent company Snap topped Q3 views, with its first revenue gain in a year. But Snap warned that the Israel-Hamas war introduced uncertainty for ad sales in the fourth quarter.
Amazon Beats, Sees AWS Momentum
Amazon.com earnings soared 236%, easily beating. Revenue rose 13% to $143.1 billion, with growth accelerating for a second straight quarter. The e-commerce and cloud-computing services firm guided slightly lower on revenue for the key holiday quarter. Amazon Web Services revenue rose 12% in Q3 to $23.1 billion, just missing views. But on the earnings call, CEO Andy Jassy said AWS saw better deal momentum heading into Q4 and also sees generative AI buoying AWS. Shares jumped on earnings, erasing weekly losses.
Intel Tops Q3 Views
Intel reported a 31% EPS decline while sales fell 8% to $14.16 billion, but those beat views thanks to an improving PC market and cost cuts. The Dow chip giant guided up for Q4, predicting a return to sales and earnings growth. Meanwhile, Texas Instruments beat on earnings but missed on sales and guided lower. Industry peer STMicroelectronics beat Q3 expectations but its Q4 sales guidance was below views.
Meanwhile, semiconductor equipment vendor KLA beat targets for its fiscal first quarter and with its guidance for the current period. Smaller chip-equipment maker ACM Research crashed Friday after reporting preliminary Q4 revenue below views.
ServiceNow Strong
Boosted by strong federal government sales, ServiceNow reported Q3 earnings and revenue that topped consensus. The enterprise software maker's earnings popped 49% to $2.92 while revenue climbed 25% to $2.29 billion. In addition, ServiceNow also guided higher on subscription revenue.
Manhattan Associates said Q3 earnings rose 59% while revenue climbed 20% to $238.4 million, both beating. The supply-chain management software maker, shifting to a cloud-based model, guided up on full-year revenue, beyond Q3's beat.
GE Growth Strong
General Electric comfortably beat Q3 EPS views, with revenue growth improving for a sixth straight quarter, to 20%. GE said its Vernova energy division is on track for a Q2 2024 spinoff. GE Aerospace growth remains strong. The industrial giant jumped on earnings, but then gave up gains.
Boeing Reports Another Big Loss
The Dow Jones aerospace giant narrowed its Q3 loss, but not as much as Wall Street expected. Revenue rose 13% to $18.1 billion, a slower pace but beating. Boeing stuck to its 2023 cash-flow targets, even as it trimmed 737 Max delivery targets amid a series of production issues. Shares hit a 2023 low.
Data Center Play Whipsaws Lower
Data center and AI infrastructure play Vertiv reported a 126% EPS gain, beating views. Revenue grew 18% to $1.743 billion, just missing. Orders rose 11%. Vertiv guided up on full-year results, but largely on the Q3 beat. After initially spiking higher, VRT stock reversed sharply lower.
Ford, UAW Reach Tentative Deal
Ford Motor and the United Auto Workers reached a tentative deal that would end the strike. UAW workers at Ford need to ratify the agreement, which would boost pay by 25% over the contract and provide other key benefits. The deal would likely serve as a template for agreements with General Motors and Chrysler parent Stellantis, with GM reportedly near an accord on Friday. Ford earnings came in lower than expected Thursday night, reporting that it lost $36,000 on each EV sold. Earlier in the week, GM topped Q3 views. Both Ford and GM pulled guidance due to the UAW strike. Ford said it will curb EV investments, while GM would slow the pace of EV production. Also, California regulators pulled the self-driving permit for GM's Cruise, and that suspended self-driving tests everywhere. GM stock fell, hitting a three-year low.
Stellantis, which reports Oct. 31, announced it'll pay $1.8 billion for a 20% stake in China EV maker Leapmotor, forging a joint venture to fuel exports. STLA fell solidly, below its 50-day.
Chevron Makes Huge Deal; EPS Misses
Chevron agreed to buy Hess for $53 billion, bolstering its hold on oil production. That comes just two weeks after ExxonMobil agreed to pay nearly $60 billion in a grab for Permian Shale giant Pioneer Natural Resources. However, Chevron's sharp weekly loss raises questions about the all-share deal. Both oil majors reported steep EPS declines that missed views Friday, though Exxon modestly increased its dividend. Exxon stock fell modestly for the week. Oil machinery play Weatherford held up after delivering strong earnings, while specialty services firm Oceaneering tumbled on mixed results.
Wireless Giants See Subscriber, Cash Gains
Verizon Communications and T-Mobile US beat views on earnings and subscriber growth while also raising cash-flow targets, following similar news from AT&T in the prior week. Verizon EPS fell 7% while revenue was in line, down 2.6% to $33.3 billion. The Dow telecom giant added 100,000 postpaid phone customers vs. just 8,000 a year earlier. In Q3, free cash flow jumped 28% to 6.7 billion, trouncing expectations of $5.2 billion. T-Mobile earnings spiked 355%, though the 1% revenue dip to $19.25 billion slightly missed. T-Mobile added 850,000 postpaid phone subscribers. The No. 3 wireless company raised its free cash-flow target. Both Verizon and T-Mobile stocks rose for the week.
Visa, Mastercard Earnings Top
Dow Jones credit card giant Visa reported better-than-expected fiscal Q4 earnings late Tuesday, citing resilient consumers and strong international transaction growth. Adjusted earnings increased 21% on 10.6% revenue growth to $8.6 billion. Cross-border payments climbed 16%. Visa also raised its quarterly dividend nearly 16% to 62 cents per share and announced a $25 billion buyback. Mastercard reported Q3 EPS growth of 26.5%, beating views. Revenue rose 14% to $6.53 billion, in line, with cross-border payments up 21%. Switched transactions, which encompass authorization, clearing and settlement activities, appear to be slowing through the first three weeks of October. Mastercard guided for low double-digit revenue growth for Q4. MA stock tumbled and Visa fell slightly, both below the 200-day.
Drug Earnings Are Uppers, Downers
Bristol-Myers Squibb and Sanofi sold off on their third-quarter reports, while Merck posted a moderate gain. Bristol-Myers beat expectations with a 1% EPS gain and a 2% sales drop to $10.97 billion in sales. But it warned that its new products won't reach $10 billion in sales until 2026 vs. Bristol's prior goal of $10 billion to $13 billion in 2025. Sanofi stock plummeted Friday after the drugmaker reported light but bigger-than-expected profit and revenue declines. Merck beat forecasts with a 15% EPS increase and a 7% sales gain to $15.96 billion. The U.S. drug giant raised its sales outlook.
Defense Giants Beat Views
RTX, formerly known as Raytheon, Northrop Grumman and General Dynamics all topped views, with RTX and Northrop reporting small EPS gains while General Dynamics saw slightly lower profit. RTX stock jumped after its CEO said the aerospace giant made "significant progress" on its assessment of the Pratt & Whitney engine defect reported in Q2. The company also lifted its guidance and announced plans to repurchase $12.8 billion in stock. General Dynamics rose slightly, helped by a record backlog. NOC stock slipped despite lifting its sales outlook. Smaller defense firm Hexcel delivered a rare miss, with shares tumbling.
News In Brief
Paccar reported third-quarter EPS up 59% and revenue rising 23%, beating views, but the second straight quarter of slowing growth for both. Shares of the heavy-truck maker rose.
Allison Transmission reported a 21% EPS gain, modestly beating Q3 views. But the 4% revenue gain fell short. ALSN stock plunged.
Chipotle Mexican Grill earnings rose 19% as revenue climbed to $2.5 billion, helped by menu price hikes. Both beat views. Same-store sales grew 5%.
Flowserve reported a 456% EPS gain in Q3. Revenue rose 25% to $1.09 billion, the fifth straight quarter of accelerating growth. Shares fell for the week.
Tradeweb Markets reported a 22% EPS gain with revenue up 14%, both roughly in line. Shares of the electronic bond-trading firm surged out of a base.
Cadence Design Systems, a maker of electronic design automation software, beat Wall Street's targets for the third quarter, but disappointed with its outlook for the current period. EPS rose 19% in Q3 while sales increased 13%.
Deckers Outdoor reported a 79% earnings increase to $6.82 per share, the fifth quarter of accelerating gains. Revenue spiked 25% to $1.09 billion, the best increase in six quarters. Hoka running shoe sales are surging, with Ugg boots also strong. DECK spiked to a new high.
CME Group reported a 14% increase in adjusted earnings on Wednesday, marking nine straight quarters of double-digit gains and just above views. Revenue increased roughly 9% to $1.337 billion, in line. CME stock fell slightly, holding in a buy zone.
