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Stock Market Rally Weakens On Russia Invasion Fears: Weekly Review

The stock market rally, already under pressure, tried to bounce but soon erased those gains amid heightened fears of a Russian invasion of Ukraine. Fed minutes offered no new surprises, while economic data was mixed. Nvidia delivered strong earnings, but fell on margin concerns. Upstart soared on results, but several other beaten-down former leaders plunged on earnings, including Shopify and Roku. Marriott led a slew of mostly positive hotel earnings. Oceangoing shipping firms such as Star Bulk Carriers rallied on booming earnings.

Stock Market Rally Tested

After briefly reclaiming the 200-day line, the S&P 500 fell back below that key level, while the Nasdaq neared the low of its recent range. The Dow Jones undercut its February lows. Earnings remained heavy, but stocks swung primarily on Russia/Ukraine headlines.

Retail Sales Strong

January's 3.8% jump in retail sales spurred talk that consumer spending remains robust — no matter how pessimistic households say they are. Still, that followed December's 2.5% drop. With CPI inflation running at 7.5%, the key question is whether high prices will erode consumer demand. At the moment, there's a bit more reason to think that demand, boosted by wage gains and pandemic savings, can withstand price pressures. The producer price index shot up 9.7% vs. a year earlier, while core PPI spiked 6.9%.

Hotel Stocks In Favor

Wyndham Hotels & Resorts, Marriott International and Choice Hotels International beat earnings and revenue estimates despite the omicron surge last quarter. Hilton Worldwide gave a mixed Q4 report while Hyatt Hotels posted a far-worse-than-feared loss. Earnings rebounded 983% for Marriott, 886% for Wyndham Hotels, which owns the Days Inn brand, and 94% for Choice Hotels. In 2020, earnings and sales fell severely for hotel stocks due to pandemic shutdowns and travel curbs. But hotel stocks have been rallying as Covid-19 cases fall and mask mandates ease. Several broke out ahead of or after Q4 earnings, which generally showed rising revenue per available room, or RevPAR, as occupancy rates improve.

Airbnb reported better-than-expected Q4 earnings while revenue climbed 38% to $1.53 billion. The online travel site projected Q1 revenue above views.

Networking Giants Beat Views

Cisco Systems said fiscal Q2 EPS rose 6%, with revenue also up 6% to $12.72 billion, including acquisitions. Both modestly beat views. Management lifted fiscal 2022 revenue guidance slightly to 5.5%-6.5% from 4.5%-6.5%. The board of directors authorized an additional $15 billion stock buyback. Arista Networks reported Q4 EPS grew 32% with revenue up 27% to $824.5 million, both comfortably beating. Arista guided higher on Q1 revenue, though operating margin will dip vs. Q4. Cisco rose on earnings. ANET stock popped on results, but pared weekly gains.

Fertilizer Earnings Boom

CF Industries earnings surged 718% vs. a year earlier, but still came up short of Q4 views. But after briefly tumbling, CF stock roared back above a buy point. Nutrien, after blowing past Q4 estimates with 929% EPS growth and offering guidance for a monster year, flirted with a buy point. Amid high natural gas prices in Europe and tight supplies, CF and Nutrien are benefiting from access to relatively low-cost supply. A potential Russian invasion of Ukraine could exacerbate tight supplies.

Ocean Shipping Earnings Surge

Star Bulk Carriers earned $2.96 a share in the fiscal fourth quarter, nearly 10 times more than the year-ago profit of 30 cents a share and beating estimates for $2.52. Revenue surged 169% to nearly $500 million. Star Bulk also hiked its quarterly dividend 60% to $2 per share. Fellow dry bulk shippers Golden Ocean Group and Grinrod Shipping also delivered blowout earnings. All three stocks rallied. Container ship play Matson spiked on earnings, even after giving preliminary figures a few weeks earlier.

Dips For Some Chips

Nvidia, Analog Devices and Lattice Semiconductor delivered beat-and-raise earnings reports. While ADI and Lattice shares rose, Nvidia stock fell, slashing weekly gains, as investors groused about current-quarter guidance for an unchanged gross profit margin. Semiconductor equipment maker Applied Materials topped estimates but guided low. Like other chip gear firms, it blamed component shortages that have slowed its manufacturing operations. Applied Materials stock retreated.

Lithium Earnings

Top lithium play Albemarle delivered a shock to investors, who sent ALB stock crashing amid disappointment about the below-expected profit outlook despite surging spot prices for the key material used to make batteries. While inflation and accelerated capital spending are an issue, the bigger frustration seems to be how Albemarle contracts out its supply. About 40% of supply is subject to fixed prices set before the price boom. Livent, which already scored 50% revenue growth in Q4, said 100% of its sales will reflect contracts set in late 2021 or market prices. But LTHM stock barely rose Friday after tumbling Thursday in reaction to Albemarle's guidance.

Shale Operators Still Pledge Discipline

Pioneer Natural Resources reported mixed Q4 results but promised "durable cash distributions through commodity price cycles," even with crude oil prices around $90 a barrel. Devon Energy topped Wall Street expectations and said it would be "prioritizing value over the pursuit of volume." Continental Resources beat expectations. It sees a capital spending plan of $2.3 billion for 2022, including a 15% increase in spending in the Bakken and Anadarko Basins.

Shopify Plunges On Outlook

Shopify earnings fell 14% while revenue rose 41% to $1.38 billion, both beating Q4 views. But management said capital spending and marketing investments would climb as the coronavirus pandemic fades and e-commerce growth normalizes. Shopify said it plans to spend $1 billion annually on a U.S. distribution network to store and ship products for its merchant customers. For full-year 2022, Shopify expects "Year-over-year revenue growth to be lower in the first quarter of 2022 and highest in the fourth quarter of 2022." SHOP stock plunged to its lowest level since May 2020.

Deere Earnings Top Views

Deere earnings fell 25% vs. a year earlier, but topped estimates, as the farm equipment giant dealt with a workers strike and supply-chain issues during fiscal Q1. Revenue rose slightly, also topping. Deere raised its full-year revenue estimate slightly. Shares fell from a buy zone.

Tesla China Sales Fall

Tesla sold 59,845 made-in-China Model 3 sedans and Model Y SUVs last month. Most of those, 40,499, were exported mainly to Europe. Only 19,346 were sold locally, vs. 70,602 in December. Meanwhile, the National Highway Traffic Safety Administration confirmed it is investigating claims that a Tesla Autopilot system glitch causes phantom braking. And Consumer Reports crowned Ford's Mustang Mach-E its top EV of 2022, dethroning Tesla's Model 3. Tesla stock fell about 1.5% for the week.

News In Brief

Walmart reported EPS rose 10% with sales edging up 1%, including some divestitures, both beating Q4 views. U.S. Walmart same-store sales excluding fuel rose 5.6%, in line with forecasts, with the retail giant expecting those comps up slightly more than 3% in the new fiscal year. Shares rose modestly.

Upstart Holdings surged Wednesday after the AI-driven lending platform reported 1,125% EPS growth as revenue soared 252%, both crushing views.

Intel plans to buy Tower Semiconductor for $5.4 billion to accelerate Intel's plans to become a major provider of foundry services to fabless chipmakers. Intel also guided higher for 2022 EPS but signaled a delay in a next-generation chip.

Roku missed Q4 sales targets and guided lower for the current quarter and year ahead. The streaming media platform blamed supply-chain issues that have reduced the availability of streaming devices including smart TVs. Some ad segments were weak due to supply-chain disruptions such as cars and consumer packaged goods.

Roblox tumbled after the video game platform missed consensus estimates for the fourth quarter. Analysts expressed concerns about slowing bookings growth and monetization as the world reopens as the Covid-19 pandemic wanes.

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