The stock market rally tested key levels as the 10-year Treasury yield ran back above 4% on Thursday, but the major indexes rebounded for solid weekly gains. Salesforce and Okta soared on earnings, but several other software plays sold off. Tesla Investor Day didn't include a new EV unveiling, though Tesla CEO Elon Musk did confirm plans for an EV plant in Mexico. Oil prices rose modestly.
Stock Market Rally Shows Resilience, Strength
On Thursday morning, the S&P 500 was below its 50-day and 200-day lines. On Friday, the S&P 500 was running up toward its 21-day moving average. The Nasdaq and Russell 2000 moved above that key level Friday, while the laggard Dow Jones came off 2023 lows. The 10-year Treasury yield ran above 4% on Thursday amid stronger economic data around the world, but pulled back to around 4% on Friday.
Economic Data Strong
Initial reads on the U.S. economy in February show growth may have remained too hot after a sizzling January. The Institute for Supply Management's service-sector activity index dipped just one-tenth of a point, less than expected, to 55.1, far above the neutral 50 level. The current business index, which had jumped 6.9 points in January amid unusually warm weather, gave back 4.1 points but remained robust at 56.3. The factory sector remains in the doldrums. However, the ISM manufacturing index edged up three-tenths of a point to 47.7, still modestly below neutral. New jobless claims dipped 2,000 to 190,000 in the week through Feb. 25, remaining below 200,000 for a seventh week. Unit labor costs were revised significantly higher for Q4.
China's official manufacturing index jumped to the best level in nearly 11 years, while a services gauge ramped up in February as well. Momentum is building following the end of the "zero-Covid" policy and with China New Year over.
Tesla Investor Day Quiet
After much anticipation, Tesla Investor Day yielded few specifics on new products or details regarding short-term challenges. Executives stressed cost reduction efforts, aiming to halve assembly costs in its next-generation vehicle platform. Tesla did confirm it will build manufacturing plant in Monterrey, Mexico, and that its next generation vehicle will be produced there. However, Tesla did not unveil its next-gen vehicle, saying that would come at a "later date." Earlier in the week, Tesla EV registrations rose in China, but by less than expected. Tesla stock was little changed for the week, up massively in 2023.
Silicon carbide chip stocks sold off Thursday after Tesla said it aimed to cut silicon carbide use by 75% in its next-generation EV. But On Semiconductor, Aehr Test Systems and more slashed losses by Thursday's close, with many rallying for the week. MP Materials tumbled Thursday as Tesla said its next-gen EV's electric motors would not use rare earths.
Business Software
Salesforce surged on strong earnings, revenue guidance and an increased buyback, while also signaling no more big deals. EPS doubled while revenue climbed 14% to $8.38 billion, both comfortably beating. Workday reported Q4 EPS up 27% with revenue rising 20% to $1.65 billion, both above consensus. The human resources and financial planning software maker forecast April quarter subscription revenue roughly in line. Snowflake tumbled on a weaker-than-expected revenue outlook. For the quarter ended Jan. 31, Snowflake reported a Q4 GAAP loss that was slightly better than expected. Revenue climbed 53% to $589 million, also topping.
Futures: As Market Rally Revives, Do This
Cybersecurity
Okta reported Q4 EPS leapt 267%, crushing views. Revenue rose 33% to $510 million, also beating. Okta guided slightly higher on Q1 revenue. Shares jumped. Zscaler reported fiscal Q2 earnings surged 184% with revenue up 52%, both solidly beating. Billings rose 34%, slightly topping estimates, but shares tumbled.
Splunk, Box Slump On Guidance
Database software makers Splunk and Box topped Q4 views, but guided low. Both stocks tumbled. ElasticESTC topped views. ESTC gapped up on earnings, but hit resistance.
Reata Leads Big Winners On Drug News
Reata Pharmaceuticals, Sarepta Therapeutics and Intellia Therapeutics surged on positive regulatory developments. Reata stock nearly tripled on Wednesday after the FDA approved its treatment for Friedreich's ataxia, a neurological disease that causes progressive difficulty walking. Sarepta broke out after the FDA said it wouldn't hold an advisory committee meeting to debate the merits of its gene therapy for Duchenne muscular dystrophy. This eases the path to approval for Sarepta's drug. On Thursday, Intellia popped on news the FDA would let it test its gene-editing treatment in U.S. patients with a swelling disorder known as hereditary angioedema. This is a first for a CRISPR-based drug that edits genes inside the body and uses a so-called systemic approach.
Novavax plummeted on wide fourth-quarter losses and light sales. The vaccine maker says its future is now uncertain.
First Solar Shines On Guidance
First Solar reported a smaller-than-expected Q4 loss while revenue was in line. Shares gapped higher on bullish 2023 guidance. China's Daqo New Energy reported a 173% EPS gain with revenue up 118%, while JinkoSolar gave bullish preliminary figures. Both stocks rose solidly.
Chip Earnings Are Mixed Bag
Broadcom delivered a beat-and-raise quarterly report while Marvell Technology and Ambarella disappointed with their reports. Broadcom's adjusted earnings rose 23% in its fiscal first quarter as sales increased 16%. It sees sales rising 7% in the current quarter. Marvell posted in-line results, with earnings declining 8% and sales advancing 6%. But its outlook was well below Wall Street's targets for the current quarter. Ambarella beat estimates for its fiscal Q4, but earnings dropped 49% while sales slid 8%. It also forecast a 31% sales decline for the current quarter, far below consensus.
Taser Maker Soars Past Estimates
Axon, the supplier of Tasers, body cameras and cloud-based software to law enforcement, blew past Q4 estimates as EPS grew 52% and revenue growth accelerated to 54.5%. Axon's guidance of at least 20% sales growth in 2023 also topped guidance. Even as it takes on added expense to launch its new Taser 10, Axon said its adjusted EBITDA margin should widen slightly to 20% this year. Axon stock surge on the news, taking out its prior high hit in February 2021.
Building Products Firms Hit Highs
Specialty glass maker Technoglass and Builders FirstSource hit record highs on earnings. TGLS stock spiked as earnings jumped 118% with revenue rising 60%, the third straight quarter of accelerating growth. Builders FirstSource reported a 15% EPS gain though revenue fell 6% after top-line growth slowed for five quarters. BLDR stock broke out of a 14-month base.
Pollution Control Stocks Strong
Clean Harbors reported a 62% EPS gain while revenue rose 14%, both beating but slowing from Q3. Shares initially tumbled to just above the 50-day line and a buy point, but quickly rebounded to a record close. Donaldson Co. reported a 32% EPS gain, topping Q2 views, but 3% sales growth slightly missed. The filtration systems maker also guided low of fiscal 2023 EPS. But shares rose solidly to their best levels since late 2021.
China Sales Bounce In February
China EV sales rebounded in February vs. a seasonally weak January due to the China New Year holiday. EV giant BYD saw a solid bounce, though sales are still below their late 2022 pace. Startups Li Auto, Nio and XPeng also showed gains vs. January. Li Auto gave an upbeat outlook for the current quarter after mostly in-line earnings for the fourth quarter of 2022. Nio went the other way, guiding low after a worse-than-feared Q4 loss.
Auto Parts Retailers Beat Views
AutoZone EPS rose 10.5% while revenue grew 9.5%. Advance Auto Parts earnings were up 39% with sales up 3%. But AZO stock fell on further signs of commercial, or do-it-for-me, deceleration. Advance Auto announced CEO Tom Greco is retiring at year end. AAP stock was little changed for the week.
U.S. EV Startups Mixed
U.S. EV startups Rivian and Fisker both missed revenue estimates for the fourth quarter. Rivian posted a smaller-than-expected loss, but its production forecast disappointed. Fisker delivered a wider-than-feared loss, but said it's on track to begin delivering its Ocean SUV this spring. But Polestar, owned by China's Geely, slashed losses for the year while revenue surged as the upscale EV brand exceeded its delivery target. RIVN stock fell, Polestar rose while Fisker surged.
Auto Giants See Supply Woes Easing
Volkswagen sees strong sales momentum in 2023 with supply chain constraints easing. It expects to sell 9.5 million vehicles in 2023, up from 8.23 million in 2022. Ford U.S. auto sales rose 22% in February vs. a year earlier amid receding supply-chain woes, and said it will step up production of its EV and hybrid vehicles. Overall U.S. industry sales rose 9.5% in February vs. a year earlier. VWAGY stock gapped up Friday on its bullish forecast. Ford also popped on Friday, along with General Motors.
Target, Lowe's Guide Low
Target adjusted earnings fell less than expected, dropping 40% while revenue climbed 1.3% to $31.48 billion. Meanwhile, Lowe's earnings and sales growth picked up for a third straight quarter, with a 28% EPS rise. But the 5% sales advanced just missed. Both retail giants forecast a drop in foot traffic for the upcoming quarter.
Department Stores Mixed
Nordstrom topped earnings with a better-than-expected decline but missed sales estimates. Kohl's posted a huge loss, defying views for a profit, as holiday sales fell 7%. Both gave weak outlooks for the year ahead. Macy's was the bright spot, with better-than-expected EPS and a generally upbeat profit guidance for the current fiscal year.
News In Brief
Monster Beverage and faster-growing, money-losing rival Celsius missed quarterly views. But shares of both energy drink makers rebounded for the week.
Shift4 Payments reported Q4 adjusted earnings of 47 cents, up 480%, while revenue rose 36% to $199.4 million. Analysts had projected earnings of 37 cents a share on sales of $198 million for the period ended Jan. 31. For fiscal 2024, Shift4 said it expects revenue of $935 million at the midpoint of guidance versus estimates of $925.5 million.
DoubleVerify reported Q4 profit of 10 cents, down 44% from a year earlier, missing estimates of 11 cents. Revenue rose 27% to nearly $134 million, edging by estimates of $133 million. The digital advertising play forecast Q1 revenue of $118 million, in-line with views.
Dexcom jumped after Medicare said it would cover continuous glucose monitors for patients with type 2 diabetes, not just the less-common type 1.
Best Buy beat Wall Street's targets for its fiscal fourth quarter ended Jan. 28. But the consumer electronics retailer offered a soft outlook for the current year. It sees earnings dropping 14% and sales falling 4%.
C3.ai reported a smaller-than-expected loss while revenue fell 4.5%, but beat views. The AI play soared Friday on bullish guidance and commentary, on track to be profitable on a non-GAAP basis by the end of the new fiscal year.
