Stocks struggled for direction Tuesday as investors took in the latest round of corporate earnings reports and a mid-afternoon speech from Fed Chair Jerome Powell.
At the close, the S&P 500 (-0.2% at 5,051) and the Nasdaq Composite (-0.1% at 15,865) suffered modest losses but were well off their session lows. The Dow Jones Industrial Average (+0.2% at 37,798) held on for a win as UnitedHealth Group (UNH) soared 5.2% after earnings.
In its first quarter, the insurance giant disclosed earnings of $6.91 per share on revenue of $99.8 billion. Analysts were expecting earnings of $6.14 per share on revenue of $92.4 billion. The earnings are adjusted and don't include the $682 million loss UnitedHealth incurred from the Change Healthcare data leak.
At roughly $470, UNH stock has the greatest weighting of all 30 stocks in the price-weighted Dow. As such, its gains helped offset post-earnings losses for fellow Dow Jones stock Johnson & Johnson (JNJ, -2.1%).
Bank of America sinks after earnings
Elsewhere on the earnings calendar, Bank of America (BAC) stock fell 3.5% as a year-over-year decline in Q1 net interest income – caused by "higher deposit costs," according to the press release – overshadowed top- and bottom-line beats.
Morgan Stanley (MS) saw its shares climb 2.5% on higher-than-expected first-quarter earnings and revenue. The company also said its return on tangible common equity (ROTCE) – a profitability measure for banks – rose to 19.7% from 16.9% in the year-ago period.
"The performance here was excellent, like Goldman Sachs (GS, -1.0%), but wealth management was the best aspect of the report for me," says David Wagner, portfolio manager at Aptus Capital Advisors, while adding that capital markets have been a positive for all of the major banks so far this earnings season. "Historically, it's been about where many of these banks are positioned within investment banking, but it appears that a rising tide has been lifting all capital market boats here," Wagner notes.
Loop Capital gives Super Micro Computer a Street-high price target
In non-earnings news, Super Micro Computer (SMCI) surged 10.6% after Loop Capital analyst Ananda Baruah lifted his price target on the recent addition to the S&P 500 to $1,500 from $600. This represents implied upside of more than 50% to current levels.
SMCI has already been a powerhouse on the price charts, having more than tripled for the year-to-date. "Our work suggests business remains healthy [for the AI server, software and infrastructure company], and we're anticipating robust March quarter results and a strong June quarter guide," Baruah wrote in a note to clients.
The analyst believes Super Micro Computer can post annual earnings of $50 to $60 per share by fiscal 2026 on revenue of $30 billion to $40 billion. For context, the company reported fiscal 2023 earnings of $11.81 per share on $7.1 billion in revenue.
Powell speech temporarily rocks stocks
A mid-afternoon speech from Fed Chair Powell temporarily sent a jolt through the stock market, though the main indexes quickly came off their session lows.
At the Wilson Center think tank in Washington, D.C., Powell said "more recent data show solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal." Powell added that the data are not giving the Fed the confidence it needs to start cutting interest rates. "If higher inflation does persist, we can maintain the current level of restriction for as long as needed," he said.
"Fed Chair Powell moved more decidedly in a hawkish direction as he essentially underscored that the downward trajectory of inflation has essentially stalled," said Quincy Krosby, chief global strategist for LPL Financial. "Moreover, he made it clear – rather than his more ambiguous stance regarding a rate easing timetable – that the 'higher for longer' narrative remains intact."
Heading into 2024, most folks anticipated four to six quarter-point rate cuts this year, with the first expected to occur at the Fed's March meeting. These expectations have drastically shifted following a steady stream of strong jobs data and hotter-than-anticipated inflation reports. According to CME Group's FedWatch Tool, futures traders are currently pricing in a 46% chance the Fed will announce its first rate cut in September, up from 30% one month ago.
