Title: Stock Market Rally Hits Week Highs, but Nasdaq Faces Sell-Offs from Tesla, Netflix, and Taiwan Semiconductor
Subtitle: Bank Stocks Rally on Results, while Economic Data Remains Mixed
Date: [Current Date]
The stock market rally witnessed a surge in the Dow Jones, joining the S&P 500 and Nasdaq composite in hitting 52-week highs. However, the Nasdaq abruptly sold off on Thursday, erasing weekly gains, as Tesla, Netflix, and Taiwan Semiconductor experienced sell-offs related to their earnings reports. Bank stocks continued to rally despite mixed results. Johnson & Johnson’s earnings provided a boost to the Dow. Treasury yields bounced back after a sharp sell-off earlier in the month.
Dow Takes Market Leadership
After lagging for a considerable period, the Dow Jones experienced a significant spike, reaching a 15-month high last week. Although the S&P 500 and Nasdaq were already at 15-month bests, they slipped due to sell-offs in growth plays. Most market leaders surrendered recent gains but still maintained a healthy outlook. The Russell 2000 had a strong week as financials rebounded. Treasury yields extended their recent sell-off but ultimately rebounded for a weekly gain.
Mixed Economic Data
Despite five percentage points of Fed rate hikes, the latest economic data suggests that the consumer and overall economy are resilient. June retail sales rose 0.2% from May, slightly below expectations, but May sales growth was revised up to 0.5%. New claims for jobless benefits fell 9,000 to 228,000 in the week ending July 15. Industrial production fell 0.5% in June, primarily driven by a 3% decline in auto production. Homebuilder sentiment remained strong for the seventh consecutive month in July, although building permits and housing starts dipped in June, offsetting some of May’s surge. Existing home sales fell 3% from May and 19% from a year ago due to tight supply.
Tesla Tumbles on Margin Concerns
Tesla reported a 20% increase in earnings-per-share (EPS), with revenue rising 47% to $24.93 billion. However, gross margins fell to 18.2%, and operating income declined 2.6% compared to the previous year, missing expectations. Despite these challenges, CEO Elon Musk expressed confidence in the company’s future, stating that full autonomy would alleviate short-term margin concerns. Tesla also announced that initial production of the Cybertruck would begin later this year, dispelling rumors of an already manufactured Austin-made Cybertruck.
Chip Stocks Fall on Quarterly Reports
Semiconductor stocks reacted negatively to second-quarter earnings reports from chip gear maker ASML and chip foundry Taiwan Semiconductor Manufacturing. Both companies beat Wall Street estimates for the quarter but signaled ongoing weakness in the semiconductor market. ASML voiced concerns about cautious spending by customers and predicted a delayed recovery in semiconductor demand. Taiwan Semiconductor revised its revenue forecast, expecting a 10% decline for the full year. Chip stocks plummeted following these reports.
Microsoft and Salesforce Monetize AI Efforts
Software giants Microsoft and Salesforce announced pricing plans for their respective artificial intelligence (AI) offerings aimed at enterprise customers. Microsoft 365 Copilot, an AI-based productivity tool, revealed pricing above expectations, indicating confidence in the product. Salesforce announced earlier-than-expected general availability of its generative AI products, aligning with estimated pricing. Despite stock gains, both companies saw their gains erased.
Netflix Smashes Subscriber Goal
Netflix exceeded expectations for Q2 subscriber growth, with a significant boost from cracking down on password sharing. However, the streaming TV giant disappointed with its Q2 sales and Q3 revenue outlook. Despite adding 5.89 million subscribers, NFLX stock tumbled following the earnings report, resulting in a weekly loss.
Banks Rally on Earnings
Bank stocks continued to rally on earnings, even when falling short of estimates. Bank of America narrowly beat views with solid growth, while Morgan Stanley beat on EPS but saw a slight revenue increase. Goldman Sachs reported a 48% EPS drop, missing expectations. Regional banks U.S. Bancorp and Western Alliance Bancorp both beat estimates, despite concerns about net interest income or margins.
Schwab Spikes on Results
Charles Schwab reported a 23% decline in earnings, while revenue fell 9% to $4.66 billion, narrowly surpassing expectations. Schwab experienced a $52 billion increase in core net new assets during the quarter, bringing the total for the year to $180 billion. By contrast, Interactive Brokers saw a 57% surge in adjusted EPS, falling just short of estimates. The company’s net revenue rose 52% to $1 billion, but commission revenue remained flat due to lower client trading volumes.
AT&T Fights Back Over Lead-Sheathed Cables
In response to a Wall Street Journal report that negatively impacted telecom stocks, AT&T defended itself in a court filing, stating that lead-sheathed cables accounted for less than 10% of its copper footprint. Analysts estimated that AT&T’s cost to remove these cables would range from $84 million to $246 million. AT&T also decided not to proceed with the removal of two telecom cables from the bottom of Lake Tahoe.
D.R. Horton Earnings, Orders Strong
Homebuilder giant D.R. Horton reported a 16% decline in EPS, with revenue dipping 1% to $8.68 billion. However, both figures surpassed expectations for the fiscal third quarter. The company witnessed an 8% increase in homes delivered and a significant jump of 37% in net sales orders. Relatively high mortgage rates have impacted home buying demand, but the scarcity of supply due to existing homeowners refraining from selling has helped support the market.
Airlines Take Different Flight Paths
American Airlines and United Airlines reported better-than-expected financial results for the second quarter as airline stocks and the broader travel sector rebounded. United Airlines saw a 252% spike in EPS, with a 17.5% increase in capacity. American Airlines raised its full-year guidance after a 153% leap in Q2 EPS. However, AAL stock tumbled, while UAL stock experienced a significant increase.
Transport Firms Miss Views
Freight transportation companies CSX and J.B. Hunt Transport Services reported weaker-than-expected Q2 results. J.B. Hunt’s earnings fell by 25%, and revenue dropped 18% to $3.13 billion. However, there were indications that the freight rates may be recovering. CSX disclosed a 9% EPS drop with sales decreasing 3% to $3.69 billion. Despite solid volume gains in coal and merchandise transportation, CSX stock slumped, while J.B. Hunt experienced a rally.
Medical Giants Jump on Earnings
Johnson & Johnson and Abbott Laboratories surged after topping expectations for the second quarter. J&J witnessed an 8% increase in EPS, with sales climbing 6% to $25.53 billion. Abbott beat forecasts, reporting an 11.5% increase in revenue when excluding strong year-earlier Covid testing sales. Both companies raised their outlooks, leading to significant stock gains.
Biotechs Soar, Dive on Drug News
Argenx and BridgeBio Pharma experienced surges in stock prices following positive clinical study updates. Argenx showcased promising results for its drug Vyvgart Hytrulo, demonstrating a 61% reduction in the risk of relapse compared to the placebo. Meanwhile, Apellis Pharmaceuticals faced a significant decline following reports of side effects from an approved drug.
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