The stock market rally suffered another solid weekly loss, extending a pullback. The major averages skidded on Monday, tried to bounce, but tumbled again Friday as Fed chief Jerome Powell gave a hawkish speech signaling rates will keep rising and stay high. Nvidia and Salesforce.com gave weak forecasts, while Snowflake jumped on strong revenue. Ulta Beauty was a retail winner while Dollar Tree was among several losers.
Market Rally Still In Pullback
Despite a Thursday rebound, the stock market rally retreated solidly for a second straight week, with the major indexes tumbling Friday on Fed chief Jerome Powell's speech, back below their 21-day moving averages. Still, a number of leading stocks showed bullish action during the week. Nvidia, Salesforce.com, Dollar Tree, Toll Bros. and Nordstrom were among many companies cutting guidance.
Powell Signals Rates Will Stay High
Federal Reserve chief Jerome Powell, with his Friday Jackson Hole, Wyo., speech tried to deliver a wake-up call to Wall Street, warning that a pivot to rate-cutting may be a long way off. Powell delved into the Fed's failures to stem inflation in the 1970s, when policymakers were too quick to cut rates as unemployment rose, only leading to renewed inflation flare-ups.
Powell's words had a purpose. Expectations of rate cuts in 2023 have had the effect of easing financial conditions, reflected in lower market interest rates and higher stock prices. Easier financial conditions could keep inflation higher than otherwise, perhaps forcing the Fed to tighten even more than anticipated.
Powell, however, didn't settle the question of whether the Fed will hike by 50 or 75 basis points on Sept. 21, as markets continue to price in nearly 50-50 odds.
Fed Chair Powell's 1970s Lesson Casts Doubt On Quick Pivot; S&P 500 Falls
Economy Strong, Outside Housing
A heavy week of economic data skewed mixed to slightly positive — outside of housing. The Fed's favored inflation gauge, the personal consumption expenditures price index fell 0.1% in July, lowering the annual inflation rate to 6.3% from 6.8% in June. Core prices edged up just 0.1% from June, as the core inflation rate eased to 4.6%, the lowest since October.
Personal spending edged up 0.2% in inflation-adjusted terms. That followed an upward revision to Q2 spending. Overall Q2 GDP slipped 0.6%, better than the initially reported 0.9% decline. New jobless claims slipped to 243,000 in the Aug. 20 week vs. a downwardly revised 245,000 the prior week.
Durable goods orders were flat in July vs. expectations of a 0.8% rise. But the details were encouraging. Nondefense capital goods orders, a proxy for capital spending, rose 0.4%.
However, new-home sales dived 12.6% to a 511,000 annual rate, the lowest since January 2016.
Software Earnings
Salesforce reported July-quarter earnings fell 19%, the fourth straight decline vs. a year earlier, but beating forecasts. Revenue climbed 22% to $7.72 billion, the third straight quarter of slowing growth. Salesforce guided low on Q3 and for full-year revenue. The Dow tech giant announced its first-ever stock buyback, up to $10 billion. Shares fell.
Snowflake reported a bigger-than-expected loss for the July quarter but revenue jumped 83% to $497.2 million, handily beating Wall Street views. Snowflake now has 246 customers with "trailing 12-month product revenue greater than $1 million," vs. 206 such customers as of April 30. SNOW stock soared.
Workday reported a 33% EPS decline and 22% revenue rise to $1.54 billion, modestly beating. The human resources and financial management software maker reaffirmed full-year revenue targets and slightly raised operating margin guidance. Shares jumped.
Nvidia Cuts Targets Again
Graphics-chip maker Nvidia matched its reduced targets for its fiscal second quarter, a 51% EPS decline and a 3% revenue rise to $6.7 billion But Nvidia forecast Q3 sales to fall 17% to $5.9 billion. Analysts had predicted $6.91 billion. Nvidia sees continued weakness in its video game chip business, but strength in data center and auto chips. Shares still rallied. Marvell Technology reported largely in-line results for Q2. But the maker of networking and data storage chips guided lower for Q3.
Toll Earnings Beat, Outlook Weak
Luxury homebuilder Toll Brothers reported a 26% EPS gain while sales climbed 9% to $2.24 billion, both beating. But homes delivered fell by 7% while the cancellation rate hit 13%. Toll cut its full-year deliveries target. The National Association of Home Builders and the National Association of Realtors have officially said the U.S. is in the midst of a housing recession.
Macy's, Nordstrom Beat Views, Cut Guidance
Macy's surprised analysts with smaller-than-expected earnings and sales declines of 22% and 1%, respectively, for fiscal Q2. More-upscale Nordstrom edged past views with a 65% EPS gain and 12% revenue rise. The department store giants cut their full-year outlooks based on rising inventories, deteriorating consumer spending and slowing foot traffic in stores beginning in June. Macy's stock fell modestly while JWN tumbled.
Dollar Tree Cuts Views On Price Cuts
Dollar Tree earnings jumped 30% to $1.60, matching views while revenue grew 7% to $6.56 billion, slightly missing. With consumers watching their wallets, Dollar Tree will focus on needs-based consumable products, which will cut into gross margins. Its Family Dollar chain will cut prices, after dollar stores previously sought to push through higher prices. Dollar Tree slashed EPS guidance on these moves, sending shares plunging. Dollar General also noted its higher spending on lower-margin consumables. Its EPS grew 11% with sales up 9% to $9.425 billion, both beating. Dollar General didn't cut guidance. Shares fell modestly.
Dick's, Hibbett Raise Guidance
Dick's Sporting Goods reported a 28% EPS drop while Q2 sales fell 5% to $3.1 billion. The sporting goods retailer raised full-year EPS and same-store sales targets somewhat after slashing views following Q1 results. Sporting goods retailer rival Hibbett missed with a 35% EPS drop. Sales fell 6% to $393 million, but beat views. Hibbett raised full-year estimates. DKS stock rose on earnings but fell slightly for the week. HIBB rose solidly on earnings, up modestly for the week.
XPeng Loss, Guidance Weak
The Chinese EV startup reported a wider-than-expected loss while sales grew 87% to $1.1 billion in the second quarter. Q3 revenue guidance was weak with XPeng expecting vehicle deliveries of just 29,000-31,000, down from 34,422 in Q2. With July deliveries of 11,524 vehicles in hand, XPeng is forecasting weak August-September results. Amid fierce competition in its key EV segments, XPeng could use a model refresh. It'll release the G9 SUV, replacing the aging G3, later this year. Shares fell to a five-month low.
News In Brief
Autodesk reported a 36% EPS gain in Q2 with sales up 17%, well above views. The maker of design software and tools for project workflow pointed higher for the current quarter.
Dell Technologies warned of slowing demand for PCs, servers and other enterprise gear after porting Q2 EPS rose 14%, beating, while sales grew 9%, missing.
Affirm reported a much-wider-than-expected fourth-quarter loss and guided sharply lower for fiscal Q1 and 2023 revenue. Shares tumbled Friday.
Ulta Beautyreported a 26% EPS gain in Q2 with revenue up 17% to $2.3 billion, the third straight quarter of decelerating gains for both but beating views. The beauty products retailer raised guidance. Shares rose sharply for the week.
Box exceeded analysts' Q2 expectations and said it is on pace for its first $250 million-revenue quarter. But shares fell.
Splunk beat Q2 estimates on the top and bottom lines as gave a bullish revenue outlook. But shares fell on a slowdown in the data analytics and security software's new business pipeline.
NetApp reported a 4% EPS gain a 9% rise, both beating, while also guiding higher.
JD.com reported Q2 EPS rose 36% and revenue edged up 2%, overcoming difficult conditions to beat views. Shares rose on earnings, then rallied with other Chinese firms on new stimulus and signs of progress on a U.S.-China audit deal that would end delisting fears.
Williams-Sonoma topped views with a 19% EPS gain and 10% sales rise.
Advance Auto Parts reported adjusted EPS rose 10% and revenue edged up 0.6% to $2.67 billion, both below estimates. Management also downshifted its full-year revenue guidance. AAP stock tumbled.
