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Capital 19 Catch-Up

Wall Street Finishes Flat Despite Impressive Earnings From Apple, Amazon, and Facebook

 

There was a lot of action on Wall Street last week as big-name earnings clashed with a host of economic data and inflation scares. The major indices couldn’t decide on a direction, however, with the benchmark S&P500 finishing dead flat over the five sessions, and the Dow and the Nasdaq losing less than 0.4%.

Friday also saw the last trading day of April with all three majors picking up monthly gains. The S&P500 had another solid month making a healthy 5%, while the Nasdaq more than matched it with a 5.4% gain. The Dow struggled for much of the month, weighed down by the heavy industrials, but still finished April with a positive 2.7% rise.

The beginning of the week saw a surge in commodity prices with notables such as corn hitting a seven-year high and copper racking up its highest price in a decade. That could potentially spell bad news for consumer staples, with the sector one of four underperformers last week along with materials, healthcare, and information technology. A rise in commodities means an increase in expenses, and companies have to choose whether to accept the costs or pass them onto consumers.

It also signifies a potential rise in inflation which is what the market is really worried about. Bank of America (BAC) compile data showing the number of times the word “inflation” appears in company earnings calls. It’s showed that the number of mentions has tripled since last year, which is the biggest jump it has measured since it began recording it in 2004. Head of equities at BAC Savita Subramanian stated in a note “Inflation is arguably the biggest topic during this earnings season. Raw materials, transportation, labor, etc. were cited as major drivers of inflation and many plan to (or already did) raise prices to pass through higher costs.”

Luckily we had the Federal Reserve riding to the rescue yet again to confirm their “play it safe” strategy. Interest rates were kept on hold as Chairman Jerome Powell stated it would likely take “some time” before the Fed’s inflation objectives are achieved. He advised it was also “not the time” to begin talking about tapering monthly asset purchases. It was exactly what Wall Street wanted to hear.

Earnings also led the news this week with some of the biggest names in the market announcing results. Winners included the likes of Facebook (FB) who boosted revenue to 48% for the quarter, a new record. The strong result was driven by higher-priced ads, and the share price jumped 7.3% after the announcement. Delivery Service UPS (UPS) also increased revenue by 27% and jumped 10% on the news.

Chipmaker Qualcomm (QCOM) increased their revenue by 52% and rose 4.4%. While Google parent company Alphabet (GOOGL), whose revenue rose by 34% from a year ago, saw its share price gain 3%. McDonald’s (MCD) saw its sales make it back to pre-pandemic levels and they also raised their outlook for the rest of 2021. Its share price rose 1.2% in response.

We had more earnings beats this week that failed to excite the market, seeing their share price fall. Apple (AAPL) finished flat despite increasing sales by 54% and seeing each of its product categories experiencing double-digit growth. It also increased its dividend by 7% and announced a $90 share buyback plan. Electric car maker Tesla (TSLA) posted a record income of $438 million, and a revenue rise of 74% but still dropped 4.5%. Vehicle deliveries of 184,800 Model 3 and Model Y cars beat expectations and was a new record. However, delays in the production of newer models put a dampener on the result.

Microsoft (MSFT) beat estimates and had its best revenue growth since 2018 but still fell 2.8%. While Boeing (BA) fell 3% after posting its sixth straight quarterly loss. Caterpillar (CAT) missed earnings and fell 2%, while Merck (MRK) did the same and lost 4.4%. Amazon (AMZN) also finished lower despite a record first-quarter profit of $8.1 billion and sales increasing by 44% to $108 billion. The world’s largest online retailer is still up 40% in the last twelve months, however.

Twitter (TWTR) was perhaps the biggest loser of the big names as it fell 15.2% after announcing numbers that beat expectations on the top and bottom line but missed on user growth and guidance. Daily active users still grew by 7 million but investors wanted to see 200 million, not the 199 million announced. The entire user base is now up 20% from a year ago. It was also the first quarter without the presence of former President Trump who was banned from the service on January 6 following the insurrection at the Capitol. A share price back in the low $40s could put Twitter back in prime buying range.

The economic data showed an economy that continues to improve. First-quarter GDP hit 6.4% in what was its second best showing since 2003. The best being the third quarter of last year which saw a reopening after the pandemic shutdowns. Capital goods rose less than expected, coming in at 0.9%. While March spending was up by 4.2% and personal incomes rose by 21.1% as more businesses opened up following recent shutdowns. Weekly jobless claims stayed low at 553,000, just above the expected 528,000.

The nonfarm payrolls will be the most watched number this week with economists expecting almost 1 million new jobs to be added to the economy. The unemployment rate is expected to fall from 6% to 5.8%. Other reports include Construction spending, Car sales, Factory Orders, and the ADP employment report.

Earnings will continue to be a focus with the Covid headliners Pfizer (PFE) and Moderna (MDNA) both releasing their results. We’ll also see report cards from the likes of General Motors (GM), Under Armour (UA), Uber (UBER) DraftKings (DKING), Beyond Meat (BYND), Anheuser Busch (BUD), and Estee Lauder (EL). So far 87% of S&P500 companies have beaten estimates, with earnings growth increasing by 46%. Let’s hope the great run continues.

Have a great week.

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