The stock market rally extended its strong gains to start the week, but then reversed slightly lower. Crude oil prices plunged late in the week as President Biden announced a big, extended tap of the emergency oil reserve. The jobs report and inflation data bolstered the case for big Fed rate hikes at upcoming meetings. Xpeng led a rebound in China EV sales while General Motors reported a big first-quarter sales drop due to supply woes. Tesla jumped on a stock-split plan. The two-year Treasury yield rose above the 10-year yield, inverting the yield curve.
Market Rally Hits Resistance
The stock market rally ran up to start the week, but the major indexes reversed for modest losses as of Friday afternoon. Crude oil prices tumbled, testing the $100 a barrel level. The 10-year Treasury yield fell below the 2-year yield, inverting a major part of the curve. Some see that as a recession warning.
Economic Data Signal Big Fed Rate Hikes
The latest batch of hot inflation and jobs data underscored that the Federal Reserve has its work cut out for it to rein in price pressures and cool off the labor market. Friday's March jobs report showed a solid gain of 431,000 jobs. While slightly below estimates, hiring was revised up by 95,000 in the two prior months. The jobless rate fell to 3.6% from 3.8%. Fed projections show the jobless rate falling only to 3.5% this year. Meanwhile, average hourly wage growth accelerated to 5.6% as the tight job market gives workers leverage to demand raises that keep up with inflation.
The inflation rate most closely watched by the Federal Reserve, the PCE price index, hit a 40-year high 6.4% in February, the Commerce Department said Thursday. The core inflation rate, excluding food and energy, was 5.4%.
After the jobs report, financial markets are expecting half-point Fed rate-hikes at the May, June and July meetings. Partly as a result, the Treasury yield-curve inverted, with the 2-year yield modestly eclipsing the 10-year yield.
Also on Friday, the ISM manufacturing index came in at 57.1, softer than expected, but still fairly robust. However, the details weren't great. Growth of production and new orders moderated to a significant degree, while price pressures spiked amid fallout from Russia's invasion of Ukraine.
Tesla Plans Another Stock Split
Tesla said Monday it will ask shareholders at its annual meeting later this year to OK a stock split. The EV maker's last 5-to-1 stock split occurred in August 2020. Shares have more than doubled since then. Meanwhile, Tesla paused production at its China plant due to a surge in Covid cases. Tesla stock jumped for the week, mostly on Monday's split-related spike.
China EV Sales Strong
Xpeng Motors tripled EV sales in March while sales more than doubled, year over year, for Li Auto and grew 38% for Nio. Alibaba-backed Xpeng outsold Nio and Li Auto last month, with 15,414 deliveries. All three EV startups, emerging rivals to Tesla in China, saw March sales rebound vs. February. Nio stock and its peers jumped, in part as fears of delisting on U.S. exchanges eased.
Xpeng lost 24 cents per ADR while Q4 revenue nearly tripled to $1.28 billion, an overall beat.
U.S. Auto Sales Fall Amid Supply Woes
General Motors and Toyota reported new vehicle sales for the first quarter sank 15%-20% year over year. Industrywide, the annualized pace of U.S. auto sales in March reached 12.7 million vehicles, down by more than 5 million units vs. a year ago, J.D. Power and LMC Automotive estimated. Lower sales are mainly due to tight vehicle supplies, as pandemic-fueled chip and parts shortages persist. Demand remains robust. GM and Ford plants in Michigan will see fresh production stoppages next week due to parts shortages.
Micron Earnings Double
Micron Technology reported a 188% EPS gain while fiscal Q2 sales rose 25% to $7.79 billion, both beating views. It was the memory-chip maker's fifth straight quarter of triple-digit EPS gains. For the current Q3, Micron predicted adjusted EPS would rise 31% with revenue up 17% to $8.7 billion. Shares initially rose, but then reversed sharply lower.
Upscale Retailers Diverge
Premium-furniture chain RH and yoga-wear maker Lululemon Athletica reported better-than-expected earnings late Tuesday but revenue that slightly missed expectations. Lululemon sprinted higher, after giving a bullish outlook and announcing a new buyback program. RH gave a weaker-than-expected full-year sales forecast, and warned about the potential demand impacts of inflation and Russia's invasion of Ukraine. Mattress maker Tempur-Sealy lowered guidance, also citing Russia's Ukraine invasion.
News In Brief
HP is bolstering its peripherals business with its $3.3 billion acquisition of enterprise headset maker Poly. The PC and printer maker says the deal is a play on the growth of hybrid work solutions following the Covid-19 pandemic.
Academy Sports & Outdoor reported a 48% EPS gain while revenue rose 13% to $1.81 billion, both beating views. Shares rose.
