The stock market continued to slide in another wild week. The major indexes all staged follow-through days to confirm the new market rally on Tuesday, but sold off furiously on Wednesday. Walmart and Target crashed on weak earnings and guidance, with both citing cost pressures and Target also noting a shift from discretionary items. That not only rocked discounters and retailers generally, but trucking firms, Apple and even food producers, which tend to be defensive names. Cisco Systems tumbled Thursday on weak revenue and guidance. The Dow Jones undercut its May 12 lows on Thursday, ending its rally, but the Nasdaq and S&P 500 rallies are still alive, but under pressure.
Stocks Continue To Slide
The major indexes confirmed a new market rally on Tuesday but a sharp sell-off put the uptrend under pressure right away, with the Dow soon undercutting its May 12 lows. Ultimately, stocks extended long weekly losing streaks. Walmart and Target dived on weak earnings and outlooks, rocking other retailers and several related sectors as hot inflation raises costs and curbs demand. Kohl's and Ross Stores were among other retailers with poor results and guidance. Cisco Systems and Applied Materials blamed supply-chain woes for weak results and guidance. Treasury yields retreated on economic growth concerns.
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Inflation Slams Retail Titans
Target dropped 25% after it was caught off-guard by "much higher than expected" freight costs during its first quarter and underestimated a slowdown in demand in core categories, leaving it with TVs, appliances and furniture that it couldn't sell. That marked Target's biggest decline since October 1987. That came after Walmart plunged after citing "unexpected" food and fuel costs, overstaffing and signs that some grocery customers were switching to cheaper brands. The results — and weak guidance — raised questions about smaller retailers' abilities to handle their own costs. The Walmart and Target reports triggered major sell-offs among retailers, trucking firms, food product makers and more.
Economy Holding Up As Fed Wants Slowdown
The economy isn't slowing down fast enough to satisfy the Federal Reserve. Strong retail sales and industrial production data for April made that clear early Tuesday, and Fed chief Jerome Powell hammered that message Tuesday afternoon. Powell cautioned that there "may be some pain involved" in restoring price stability. While he's still holding out hope for a "softish" landing, Powell said that the unemployment rate could "go up a few ticks" before the Fed is done. He said it will take "inflation coming down in a convincing way" for the Fed to stop hiking interest rates. Thursday's bump in new jobless claims might indicate the start of labor-market softening. But claims are historically low.
Cisco Dives On Weak Guidance
Cisco Systems reported fiscal Q3 earnings rose 5%, edging past views, while flat revenue of $12.8 billion slightly missed. Product order growth slowed to 8% in the April quarter versus 33% in its fiscal Q2. CSCO stock plunged on weak guidance as management blamed China's Covid lockdown for worsening supply chain issues. For the current quarter ending in July, the networking giant forecasts EPS of 80 cents vs. views for 92 cents. Revenue should fall 1%-5% vs. consensus for a 5.9% gain.
Twitter To Musk: Can't Delete This Deal
Twitter's board unanimously recommended that shareholders approve Elon Musk's bid to take the social media company private at $54.20 a share. The board effectively ignored Musk's earlier statement that the deal was "on hold," pending his demand that Twitter prove that less than 5% of tweets come from bots or spammers. Musk seems to be seeking to back out or renegotiate his offer. Twitter fell sharply again amid deal concerns.
Tesla stock fell amid the Musk-Twitter saga.
SQM Earnings Explode
Fertilizer-and-lithium play SQM demolished Q1 estimates, posting a nearly 1,000% rise in EPS to $2.76, as revenue nearly tripled to $2.02 billion. As strong as the fertilizer market has been, SQM's results were driven by lithium, as sales vaulted to $1.45 billion from $135 million in the year-ago quarter. With its lithium prices lagging market prices by 3 months, Q2 results should show solid sequential growth. SQM stock cleared a 90.97 buy point from a six-week consolidation. But SQM is well above its 50-day line.
Home Depot, Lowe's Earnings Top
Home Depot delivered a strong spring quarter and raised 2022 guidance, while Lowe's merely maintained guidance despite a sizable earnings beat. Dow giant Home Depot disclosed a 6% EPS gain and 3.8% revenue gain, defying views for declines. Shoppers haven't pulled back yet, Home Depot said, but the home improvement giant is watching the impact of rapid inflation on consumer behavior. Lowe's blamed a revenue miss, as a cooler spring hurt DIY sales, which account for 75%-80% of its business. HD stock rose on earnings but fell for the week. Lowe's also declined.
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Lilly Gets Sugar High From Drug OK
The FDA approved an Eli Lilly diabetes drug, with the agency saying it's "more effective" than other therapies. Mounjaro targets two hormones to improve blood sugar levels, while rival treatments only target one. Lilly is also eyeing the drug as an obesity treatment. Lilly stock rebounded from its 50-day line Monday on the news, briefly flashing an early entry. Shares fell below their 50-day line on Thursday, but recovered that level on Friday. Lilly and Incyte drug Olumiant got an EU panel's recommendation for regulators to approve it for hair loss disorder alopecia areata.
Ocean Freight Doing Great For Now
Commodities shipper Golden Ocean Group, container liner ZIM Integrated Shipping and containership lessor Danaos reported results that beat expectations, despite concerns of a freight downturn as economic growth cools. Golden Ocean said it expected a "strengthening of the freight market in the second half of the year" amid demand for slimmer supplies of things like coal and grain. ZIM downplayed concerns about slipping freight rates, and said U.S. demand was still strong despite swelling inventories. And it said a potential end of China's Covid lockdowns would add further supply-chain congestion, possibly keeping rates elevated. However, Danaos noted that despite minimal changes in freight and lease rates, "market participants have adopted a more conservative short-term attitude."
Analog Devices Tops Targets
Chipmaker Analog Devices easily beat fiscal Q2 targets and guided higher for the current period. Earnings per share rose 56% as sales swelled 79% to $2.97 billion. Chip gear maker Applied Materials (AMAT) reported a 13% EPS gain as sales rose 12% to $6.25 billion, both below fiscal Q2 forecasts, and guided low for the current Q3. It blamed continuing supply chain issues.
News In Brief
Kohl's reported first-quarter results that missed expectations, with EPS falling well short. The department store chain, which is looking for buyers, also announced two key executives left.
JD.com revenue rose 18% in Q1 to $37.8 billion, with the Chinese e-commerce giant beating expectations despite China lockdowns. Lockdowns will have a bigger impact on Q2, though Shanghai is starting to ease restrictions.
BJ's Wholesale topped forecasts with a 21% EPS gain and 16% sales rise. Shares of the warehouse club operator jumped on results, but fell sharply for the week as retailers sold off hard.
TJX Cos. topped earnings views, though the off-price apparel and home goods retailer missed on sales. Shares rose. Off-price apparel chain Ross Stores crashed after missing views and guiding lower.
Palo Alto Networks reported fiscal Q3 earnings and revenue that topped estimates while its outlook for the July quarter came in above expectations despite supply chain constraints. Palo Alto said profit rose 30% to $1.29 per share on an adjusted basis. Including acquisitions, revenue rose 29% to $1.4 billion. Analysts expected earnings of $1.68 per share on sales of $1.36 billion. For the current quarter ending in July, Palo Alto said it expects per-share earnings in a range of $2.26 to $2.29 on revenue of $1.54 billion. Analysts had projected earnings of $2.22 a share on revenue of $1.53 billion.
Synopsys reported adjusted EPS rose 47% while sales climbed 25% to $1.28 billion in the April-ended quarter, both easily beating. The chip design software maker raised its outlook for the current quarter and full fiscal year.
Deere reported stronger-than-expected first-quarter earnings and EPS guidance. But the farm equipment giant fell solidly.
