The stock market rally diverged, with the Nasdaq and S&P 500 falling below their 50-day lines while small caps jumped. Tesla and Google-parent Alphabet tumbled on earnings, while there were growing concerns about AI investment fatigue. ServiceNow, IBM, RTX and Tenet Healthcare were among the notable earnings winners.
Stock Market Split, Pressured
The market rally came under pressure, especially on the tech side. The Nasdaq fell sharply, led by Tesla, Google-parent Alphabet and other megacaps. The Nasdaq and S&P 500 fell below their 50-day lines, though the latter fought for that key level on Friday. The Dow Jones rose modestly, while the small-cap Russell 2000 jumped. Hospitals and aerospace/defense firms were strong performers. Treasury yields were little changed after mixed inflation data.
Inflation Stalls, Rate Cuts Still Seen
The Federal Reserve's favorite inflation gauge, the core PCE price index, rose 0.2% in June, slightly above forecasts. Core PCE inflation was 2.6% vs. a year earlier, unchanged from May but above forecasts for 2.5%. The Q2 GDP report showed economic growth picking up to a 2.8% annualized rate, well above views. The report's core PCE inflation measure came in a 2.9% pace, higher than expected, though some underlying measures were less concerning. Core durable goods and jobless claims showed a little more strength than expected while new- and existing-home sales fell short of consensus.
Still, the Fed is expected to signal a shift toward near-term rate cuts at next week's Fed meeting.
Tesla Dives On Earnings Miss
Tesla earnings plunged 43%, missing views once again. Sales unexpectedly rose 2% to $25.5 billion, boosted by a massive $890 million in regulatory credits. Auto gross margins excluding credits and leases came in below views. On the earnings call, Tesla Chief Executive Elon Musk didn't provide much new information, continuing to express optimism about self-driving, the Optimus robot and robotaxi. Musk did confirm the robotaxi reveal event will held on Oct. 10 vs. the previous plan for Aug. 8. Tesla stock fell sharply for the week.
Software Giants Jump
ServiceNow said Q2 adjusted EPS rose 33% to $3.16 while revenue rose 22% to $2.627 billion, both topping views. Current remaining performance obligations, or CRPO, rose 22% to $8.78 billion, above estimates. For Q3, ServiceNow forecast subscription revenue just below views but guided up slightly for the full year, as it gains traction with generative AI revenue. Also, ServiceNow said its president and chief operating officer, Chirantan "CJ" Desai, has resigned. Meanwhile, German software giant SAP reported a 57% EPS gain with revenue up 8% for a third straight quarter. Both software stocks gapped up to highs.
Semiconductor Stocks Sell Off
Shares of highflying chip stocks like Nvidia and Arm took a dive in the past week, pulling the semiconductor sector down. Computer hardware stocks such as Dell and Super Micro also tumbled. Earnings reports were mixed for chipmakers. Tracking-chip maker Impinj posted a beat-and-raise Q2 report. Texas Instruments delivered in-line Q2 results and guidance. But MaxLinear, NXP Semiconductors and STMicroelectronics saw their shares plummet on weak Q3 guidance. Among chip-equipment stocks, KLA handily beat Wall Street's fiscal Q4 targets and with its guidance for the current period.
GE Aerospace EPS Jumps 62%
GE Aerospace comfortably beat EPS views, while revenue rose nearly 4% to $9.09 billion, also topping. Orders for GE's commercial engines and services business leapt 38% to $9.15 billion. GE stock jumped on earnings, breaking out, but fell back the next day.
Hospital Earnings, Stocks Strong
Tenet Healthcare, Universal Health Services and HCA Healthcare all jumped to record highs on earnings amid a tailwind of growing demand for medical care. HCA, the largest U.S. for-profit hospital operator, announced a 28% EPS gain while also raising its full-year profit expectations. Admissions rose more than 5% in Q2 while emergency room visits grew 5.5%. Revenue per equivalent admission climbed 4.4%. Tenet Healthcare reported a 60% EPS gain and raised EBITDA and cash-flow guidance. Universal Health also beat views and guided much higher on full-year EPS.
Medical Products Stocks Fall
Boston Scientific, Edwards Lifesciences and Dexcom delivered divergent earnings reports on Wednesday. Boston Scientific reported adjusted earnings grew 17% while revenue rose 14.5% to $4.12 billion, both slightly beating. Organically, sales growth accelerated to 125% for the electrophysiology business, beating projections. BSX stock initially hit a record high, but fell solidly for the week. Edwards crashed after cutting its full-year growth outlook for transcatheter aortic heart-valve replacements. Q2 EPS rose 6% as sales grew 7% to $1.63 billion, both beating. Dexcom beat Q2 EPS views while revenue fell short. The diabetes products giant slashed full-year guidance.
Oil Services Leaders Mixed
Weatherford slightly missed Q2 views, with EPS up 48% and revenue 10%. Oceaneering International EPS missed despite a 56% gain while revenue topped with a 12% advance. TechnipFMC reported better-than-projected results, with earnings ballooning 330% to 43 cents per share. The company cited expansion in oil-rich Guyana for its financial performance. It also raised full-year revenue and cash-flow targets. Weatherford tumbled on results while Oceaneering soared and TechnipFMC popped.
Restaurant Stocks Mixed
Chipotle Mexican Grill slightly topped Q2 views with a 25% EPS gain and revenue up 18% to $3 billion, including an 11.1% comparable sales rise. But shares fell, continuing a sharp downturn, on near-margin pressures, including more generous portions. Texas Roadhouse reported a 47% EPS gain, with growth accelerating for a third straight quarter. Revenue rose 15% to $1.34 billion. Shares rose solidly on earnings, erasing weekly losses. BJ's Restaurants reported a 44% EPS rise, topping, while fractionally higher sales eked past consensus. Shares plunged Friday after flirting with a buy point earlier in the week.
Defense Giants Go On Offense
Defense and aerospace giants Lockheed Martin and RTX broke out on quarterly results, with Northrop Grumman jumping and General Dynamics up slightly. Lockheed reported a surprise 6% EPS gain while sales climbed 9% to $18.1 billion, also beating. RTX delivered a 9% EPS rise and 7.5% sales gain to $19.7 billion. Northrop turned in a 14% EPS gain and a 7% sales increase to $10.2 billion. All three also raised guidance. General Dynamics reported a 21% EPS gain that just missed views, though its 18% revenue rise topped.
Big Three Fall On Earnings
General Motors earnings raced 60% higher to $3.06 a share, a big acceleration from Q1's 19%. Revenue rose 7% to $47.97 billion, dipping from Q1's 8% gain. GM raised full-year EPS and EBITDA targets. Ford Motor reported a 35% EPS decline, far below views, amid warranty costs and EV losses. A 6% revenue gain to $47.8 billion was in line. GM stock fell sharply while Ford plunged, both from near 52-week highs. Chrysler and Fiat parent Stellantis reported a 48% EPS decline for the first half, with shares hitting an 11-month low.
Cooling Stocks Chilled
Vertiv, which makes cooling systems for data centers, reported a 46% EPS gain, topping views, though growth slowed for a fifth straight quarter. Revenue rose 13% to $1.95 billion, slightly beating and snapping a four-quarter string of slowing top-line growth. Vertiv announced booming orders and raised guidance for Q3 EPS. Shares tumbled. Carrier reported a 10% EPS gain, which slightly beat estimates, while revenue climbed 12% to $6.69 billion, slightly missing. The air conditioning giant, with less AI exposure than some in its group, fell below a buy point. Other AI-adjacent cooling plays retreated.
In Brief
Celestica earnings soared 65% while revenue growth accelerated for a second straight quarter, to 23%. The contract electronics manufacturer fell solidly.
Viking Therapeutics surged more than 30% on Thursday after the company said it's exploring a monthly injection for weight loss. The news rocked shares of obesity treatment leaders Eli Lilly and Novo Nordisk. Viking is also planning to test an oral version of the same drug in a 13-week study beginning in the fourth quarter.
MakeMyTrip reported fiscal Q1 EPS climbed 30% while revenue grew 29% year over year to $254.5 million. The India-based online travel agency jumped on earnings but then slashed weekly gains.
IBM beat analyst expectations with adjusted Q2 EPS up 11.5% and sales up 2% to $15.77 billion. CEO Arvind Krishna said IBM's AI "book of business" has grown to more than $2 billion. IBM stock jumped, clearing a buy point.
GE Vernova earned $4.65 a share vs. a 47-cent loss in Q1, with revenue up 14% sequentially to $8.2 billion, It raised 2024 guidance.
PulteGroup topped Q2 views, with EPS rising 19% to $3.83 while sales increased 10% to $4.6 billion.
Seagate Technology reported stronger-than-expected fiscal Q4 views, swinging to a per-share profit of $1.05 from a year-earlier 18-cent loss. Sales increased 18% to $1.89 billion.
Visa reported a 12% EPS rise, meeting fiscal Q3 views. Revenue climbed 10% to $8.9 billion, falling short as payment volume growth slowed. Shares fell, extending a downtrend.
AppFolio reported a 387% EPS gain while revenue climbed 31% to $197.38 million. Both beat, but shares reversed lower.
3M jumped out of a base after the Dow Jones diversified industrial firm beat Q2 views. Earnings fell 11% while revenue climbed 1% to $6 billion. 3M also raised EPS guidance.
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