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Daily Market Report | May 10, 2022

US FINANCIAL MARKET

U.S. Stocks Turn Lower, Extending Selloff – Wall Street Journal, 5/10/2022

  • U.S. stock indexes rebounded early Tuesday, before dropping back into negative territory, following three days of punishing declines.
  • The S&P 500 was recently down 0.5% in morning trading, a day after the broad index slumped 3.2% to its lowest level for the year.
  • The technology-heavy Nasdaq Composite dropped 0.4% while the Dow Jones Industrial Average fell about 0.5%. All three indexes retreated over the course of the morning after rising at least 1.6% early.
  • Federal Reserve Bank of New York President John Williams said Tuesday that he believes the Fed can achieve a “softish landing” for the U.S. economy while raising rates, though the unemployment rate could rise.
  • Peloton Interactive fell 11% after reporting declining sales and mounting losses as the stationary-bike maker struggles with the return to prepandemic consumer habits.
  • Biohaven Pharmaceutical surged more than 70% after Pfizer said it would buy the rest of the company for around $11.6 billion.
  • AMC Entertainment Holdings rose more than 8% after reporting a strong jump in first-quarter sales.
  • Brent crude oil fell 0.3% to $105.59 a barrel.
  • Oil prices had been rising for the past few months, but concerns that China’s lockdowns will sap demand for commodities have taken some steam off the rally.
  • Overseas, the pan-continental Stoxx Europe 600 rose 1.5%.
  • In Asia, Japan’s Nikkei 225 closed 0.6% lower, the Shanghai Composite rose 1.1% and Hong Kong’s Hang Seng Index dropped 1.8%.

Upstart Stock Plunges 54% as Full-Year Revenue Outlook Is Cut – Barron’s, 5/10/2022

  • Shares of Upstart were falling more than 54% Tuesday after the artificial-intelligence lending company slashed its full-year revenue outlook, noting the possibilities of a recession.
  • Upstart reported first-quarter adjusted earnings of 61 cents a share, beating forecasts of 53 cents, and revenue of $310.1 million, higher than estimates of $300 million.
  • Upstart said it expects revenue in 2022 of about $1.25 billion, down from its previous forecast of $1.4 billion. The company said revenue in its second quarter will be about $295 million to $305 million, below Wall Street forecasts of $335 million.
  • “Given the hawkish signals from the Fed, we anticipate prices will move even higher later this year, which will have the effect of reducing our transaction volume, all else being equal,” Chief Executive Dave Girouard said.
  • Upstart Chief Financial Officer Sanjay Datta also highlighted rising interest rates and said higher inflation and monetary tightening from the Fed implied “the non-trivial risk of a recession potentially later this year.”

Peloton shares fall after company posts huge loss and offers weak guidance – CNBC, 5/10/2022

  • Peloton on Tuesday reported a wider-than-expected quarterly loss and a steep decline in sales, as inventory piled up in warehouses and ate away at the company’s cash.
  • Revenue dropped to $964.3 million from $1.26 billion a year earlier. That was short of expectations for $972.9 million and marked the company’s first year-over-year decline in sales since it went public in 2019.
  • Peloton generated $594 million in sales from its connected fitness products and $370 million from subscriptions in the latest period.
  • The company ended the quarter with 2.96 million connected fitness subscribers, representing a net addition of 195,000.
  • Average net monthly connected fitness churn, which Peloton uses to measure its retention of connected fitness subscribers, improved to 0.75% during the period, compared with 0.79% in the second quarter.
  • Peloton’s losses widened in the fiscal third quarter to $757.1 million, or $2.27 per share, from a net loss of $8.6 million, or 3 cents a share, a year earlier. That came in larger than the per-share loss of 83 cents that analysts had been looking for.
  • Peloton is calling for fourth-quarter revenue to be between $675 million and $700 million.
  • Analysts had been looking for $821.7 million, according to Refinitiv estimates.
  • The company expects connected fitness subscribers to total 2.98 million, which would represent just a 1% increase from the third quarter.

Fox’s Revenue Rises With Higher Ad Sales, Fox News Ratings – Wall Street Journal, 5/10/2022

  • Fox won’t use its portfolio of live sports to boost its streaming platforms, Executive Chairman and Chief Executive Lachlan Murdoch said on a call with analysts to discuss quarterly results.
  • Quarterly revenue rose 7.5% to $3.46 billion.
  • Fox said advertising revenue rose about 9% to $1.31 billion.
  • That was offset by higher preemptions related to its coverage of the war in Ukraine.
  • Affiliate revenues rose as well, largely on contractual price increases and higher fees from pay-TV distributors.
  • Tubi has 51 million active users, the company said earlier this month. It also has a library of 42,000 titles and is increasing its original programming.
  • Net profit halved to $283 million, a decline that the company partly attributed to a change in the fair value of its investments.
  • Mr. Murdoch reiterated that Fox is projecting investing between $200 million and $300 million in 2022 on its streaming services.

Novavax shares slide 20% on COVID vaccine demand uncertainty – Reuters, 5/10/2022

  • Novavax’s shares plunged nearly 20% in premarket trading on Tuesday due to uncertainty over global demand for the company’s COVID-19 vaccine following a slow start to deliveries.
  • The company said in September it had targeted for the delivery of at least 2 billion doses of its COVID-19 vaccine in 2022.
  • Novavax said on Monday it delivered about 42 million doses globally in the first quarter.
  • Novavax’s COVID-19 vaccine is based on a more conventional technology and was expected to persuade some skeptics of the mRNA technology used by companies such as Pfizer and Moderna.
  • However, Novavax has been plagued by manufacturing and regulatory delays, as well as a slow uptake in key markets such as the European Union.
  • The company on Monday reiterated its forecast for total revenue of $4 billion to $5 billion for 2022, saying it expects shipments to key markets and sales to increase in the second quarter.

AMC shares rise after results outpace Wall Street expectations – CNBC, 5/10/2022

  • Not even the tag-team of Spider-Man and Batman could make AMC Entertainment profitable during the first quarter. Still, shares of the movie theater chain rose more than 4% after hours Monday after it posted a narrower-than-expected loss during the period.
  • Revenue rose to $785.7 million from $148.3 million last year and topped the $743 million analysts had expected.
  • While “No Way Home” and “The Batman” had solid runs in theaters and AMC saw nearly 40 million visitors during the quarter, revenues collected during the period did not outweigh the nearly $1 billion AMC spent on operating expenses and rent.
  • The movie theater chain reported a net loss of $337.4 million, or 65 cents a share, as compared with a loss of $567.2 million, or $1.42 per share, a year ago.

Pfizer to Buy Rest of Biohaven for $11.6 Billion – Wall Street Journal, 5/10/2022

  • Pfizer agreed to buy the rest of Biohaven Pharmaceutical Holding for about $11.6 billion, deploying its pile of cash earned from Covid-19 sales to acquire a new migraine drug.
  • Pfizer said it would pay $148.50 a share in cash for the Biohaven shares that it doesn’t already own, a nearly 79% premium to Monday’s closing price of $83.14 for the New Haven, Conn., drugmaker.
  • Through the deal, Pfizer will gain Biohaven’s migraine drug Nurtec, a potential blockbuster that analysts say could add billions of dollars in yearly sales to a big drugmaker facing several costly patent expirations in the coming years.

Exclusive: Tesla halts most output at Shanghai plant, April sales dive – Reuters, 5/10/2022

  • Tesla has halted most of its production at its Shanghai plant due to problems securing parts for its electric vehicles, according to an internal memo seen by Reuters, the latest in a series of difficulties for the factory.
  • Shanghai is in its sixth week of an intensifying lockdown that has tested the ability of manufacturers to operate amid hard restrictions on the movement of people and materials.
  • Tesla planned to manufacture fewer than 200 vehicles at its factory in the city on Tuesday, according to the memo, far below the roughly 1,200 units per day it had ramped up to shortly after reopening on April 19 following a 22-day closure.
  • The automaker’s sales in China had already slumped by 98% in April from a month earlier, data released by the China Passenger Car Association (CPCA) showed on Tuesday, underscoring the hit from China’s hard COVID-19 lockdowns.

Netflix tells employees ads may appear by end of 2022, NYT reports – Reuters, 5/10/2022

  • Netflix could introduce its lower-priced ad-supported subscription plan by the end of the year, earlier than originally planned, the New York Times reported on Tuesday.
  • The streaming pioneer is also planning to start cracking down on password sharing among its subscriber base around the same time, the report said, citing an internal note to employees.
  • The lagging subscriber growth prompted Netflix to contemplate offering a lower-priced version of the service with advertising, citing the success of similar offerings from rivals HBO Max and Disney+.

Some Covid-19 Patients Relapse After Taking Paxlovid, Puzzling Doctors – Wall Street Journal, 5/10/2022

  • U.S. health authorities and researchers are investigating why some people who appeared to recover from Covid-19 after taking Pfizer Inc.’s antiviral pill developed symptoms again soon after.
  • Paxlovid is supposed to treat the newly infected, keeping them out of the hospital. Within two weeks of appearing to get better, however, some users experienced cold-like symptoms such as sore throat and cough, according to physicians and published case reports.
  • The health experts said they aren’t sure if the relapsed patients are contagious.
  • Nor are they sure what causes the rebounds, theorizing that patients may be taking Paxlovid too early or not long enough.
  • The experts also don’t know how common the rebounds are, though Pfizer said its real-world data indicates the relapses occur in fewer than 1 in 3,000 patients.
  • The rebound cases haven’t resulted in severe disease so far. Doctors and health authorities still encourage Paxlovid’s use among people at high risk of developing severe Covid-19.

Intel launches new AI chips, challenging Nvidia’s market – Reuters, 5/10/2022

  • Intel on Tuesday launched a new chip called Gaudi2 focused on artificial intelligence computing, as the chip manufacturer makes a bigger push into the AI chip market currently dominated by Nvidia.
  • Gaudi2 is the second generation processor by Habana Labs, an Israeli AI chip startup Intel bought in late 2019 for about $2 billion.
  • Chief business officer at Habana Labs Eitan Medina said the Gaudi2 was twice as fast as Habana’s previous AI chip and manufactured at Taiwan Semiconductor Manufacturing Co’s 7-nanometer transistor technology from 16-nanometers previously.
  • AI chip startups have been getting huge investments in recent years as AI computing is one of the fastest growing areas for data centers.
  • Sandra Rivera, who heads Intel’s data center and AI, said the AI chip market is estimated to grow some 25% a year in the next five years to reach around $50 billion.

Ford Sells About 8% of Its Stake in Electric-Vehicle Startup Rivian – Wall Street Journal, 5/10/2022

  • Ford Motor has sold off about 8% of its stockholdings in Rivian Automotive, according to people familiar with the matter, pushing shares of the electric-vehicle startup to an all-time low.
  • Rivian’s stock closed down 21% to $22.78 Monday, continuing a slide that began earlier this year as the company has had to curtail factory production due to supply-chain challenges.
  • Ford sold about 8 million shares between late Sunday and Monday morning through Goldman Sachs, the people familiar with the move said.
  • Before the sale, Ford held about 102 million shares in Rivian overall, about 11.4% of the company.

Caterpillar Works to Turn Old Engines Into New Profits – Wall Street Journal, 5/10/2022

  • Construction equipment maker Caterpillar wants to sell engines—again and again.
  • Caterpillar, like other major manufacturers, has been pressured by investors over the environmental impact of its factories and machines. Last year, 48% of voting Caterpillar shareholders supported a resolution to increase climate disclosures, which the Deerfield, Ill.-based company’s board opposed.
  • This year, Caterpillar’s board is supporting a similar shareholder resolution. The company in 2021 made the remanufacturing operation into its own division, and named its first chief sustainability officer.
  • The effort, which in 2021 took in an estimated 127 million pounds of equipment to be reprocessed, is part of a push by the construction equipment giant to meet environmental goals and boost revenue from services, which Caterpillar said could also give the company an edge over rivals.
  • Caterpillar now aims by 2030 to increase its remanufacturing revenue by 25% above 2018 levels, and wants to double services revenue to $28 billion by 2026.

US ECONOMY & POLITICS

Longer-Term Inflation Expectations Rise in New York Fed Survey – Bloomberg, 5/10/2022

  • U.S. consumers project inflation in three years to be higher compared with a month ago, a potentially worrying sign for the Federal Reserve as the central bank tries to keep longer-term expectations anchored.
  • The median three-year inflation expectation rose in April to 3.9%, the highest since December, according to the latest consumer survey by the New York Fed. The one-year estimate softened to 6.35% from a record in March, largely thanks to a sharp drop in projections for the price of gas.
  • Three-year ahead inflation expectations rose to a record 4% for Americans under age 40, and also jumped sharply for those who live in the South and for people with incomes under $50,000.
  • Respondents also anticipate solid earnings growth.
  • Median one-year-ahead expected earnings growth remained at a series high of 3% in April.
  • Spending growth expectations ranged from 9.1% for those with incomes below $50,000 to 8.1% for those earning over $100,000.
  • For perspective, in 2019, wealthier households on average expected to spend 2.8% more in the year ahead.

U.S. small business confidence steady in April, NFIB survey shows – Reuters, 5/10/2022

  • U.S. small business confidence held steady in April after three straight monthly declines, but owners remained worried about high inflation and worker shortages, a survey showed on Tuesday.
  • The National Federation of Independent Business (NFIB) said its Small Business Optimism Index was unchanged at a reading of 93.2 last month. The index had declined since January.
  • Thirty-two percent of owners reported that inflation was their single most important problem in operating their business. That was the largest share since the fourth quarter of 1980 and was up a point from March.
  • According to the NFIB survey, more owners expected business conditions to worsen over the next six months.
  • But there are signs inflation has likely peaked. The share of owners raising average selling prices eased slightly from March’s record high.
  • Also hinting at a peak in price pressures, the share of businesses reporting they had increased compensation fell three points to 46%. There was also a dip in the proportion intending to raise compensation over the next three months.

House to Vote on Nearly $40 Billion Ukraine Aid Package – Wall Street Journal, 5/10/2022

  • The House of Representatives plans to vote early this week on a nearly $40 billion U.S. aid package for Ukraine to help the beleaguered nation fight against the Russian invasion and sustain its economy, according to Democratic aides.
  • The package won’t include money the Biden administration has requested to continue addressing the coronavirus pandemic, the aides said.
  • The package can pass the House with a simple majority, but in the Senate it needs Republican support and at least 60 votes. The Senate hasn’t agreed to the package the House plans to vote on.
  • Congress also plans to add on an additional $3.4 billion in defense aid and $3.4 billion for humanitarian aid to the White House package, aides said. The total amount of the package is $39.8 billion.

EUROPE & WORLD

Shanghai’s Covid Lockdown Gets Tougher: ‘If One Person Tests Positive, the Whole Building Isolates’ – Wall Street Journal, 5/10/2022

  • After six weeks of strict lockdown, Shanghai authorities are again tightening Covid-19 restrictions amid a renewed push by central-government officials to eradicate the virus, sparking a new wave of frustration in the coastal city of 25 million people.
  • Though Shanghai officials haven’t formally announced any new citywide measures, residential communities and grass-roots authorities have expanded the scope of people being taken into centralized quarantine while cutting off deliveries of nonessentials to swaths of the city, according to half a dozen Shanghai residents who have received notices and shared them with The Wall Street Journal.
  • On Sunday and Monday, many residents received written statements and messages from neighborhood committees that manage residential communities announcing a “quiet period,” effective immediately and lasting between three and seven days, depending on the neighborhood, during which most deliveries would be halted and residents would be barred from stepping outside.
  • Despite the steady decline in infections, Shanghai authorities’ tighter measures appear to be a response to a renewed push by senior Communist Party officials in Beijing to smother any traces of the highly transmissible Omicron variant of the coronavirus.
  • Following a meeting Thursday, the Communist Party’s Politburo Standing Committee, China’s top decision-making body, compared the pandemic measures in Shanghai with a war that must be won.

Sony aims to sell 18 million PS5 consoles this year amid China lockdown risk – Reuters, 5/10/2022

  • Sony Group on Tuesday said it planned to sell 18 million PlayStation 5 consoles this business year as robust game sales helped it more than double fourth-quarter operating profit.
  • Sony’s profit for the three months to March 31 rose to 138.6 billion yen ($1.06 billion) from 66.5 billion yen a year earlier.
  • It was, however, lower than an average 147 billion yen profit estimate from 10 analyst surveyed by Refinitiv.
  • Earnings at its gaming and network services business almost tripled in the quarter to 55.6 billion yen.
  • This business year Sony expects profits from the unit to fall 12% as it invests in game development and spends on acquisitions.
  • This business year, the Japanese company forecast operating profit to fall to 1.16 trillion yen from 1.2 trillion yen.
  • That prediction is lower than a mean 1.21 trillion yen profit based on forecasts from 23 analysts, Refinitiv data showed.
  • Sony on Tuesday also announced that it will buy up to 200 billion of its own shares over the next twelve months to avoid dilution of its shares from stock option compensation plans.

Nintendo announces surprise 10-for-1 stock split; expects Switch sales to fall 9% – CNBC, 5/10/2022

  • Nintendo announced a 10-for-1 stock split on Tuesday as the Japanese gaming giant aims to make its shares more appealing to retail investors.
  • Revenue totalled 1.69 trillion Japanese yen, down 3.6% year-on-year. Net profit dropped 0.6% to 477.6 billion yen.
  • Part of that weakness is due to a fall in Switch sales, despite the company launching a new OLED (organic light-emitting diode) model during the fiscal year.
  • Sales of the console range totaled 23.06 million units last financial year, down from 28.83 million in the previous 12 months.
  • Software sales increased 1.8% over the last fiscal year, driven by demand for popular games including “Pokemon Legends: Arceus” and “Mario Kart 8 Deluxe.”
  • The Japanese giant forecast sales of 21 million units of the Switch in the current fiscal year which ends in March 2023. That’s a 9% year-on-year fall.
  • The Kyoto-headquartered company also announced plans to buy back 56.36 billion Japanese yen ($432.9 million) worth of shares. The transaction will take place on Wednesday.

Toyota to slash production plan, suspend some domestic operation due to COVID lockdown in China – Reuters, 5/10/2022

  • Toyota Motor said on Tuesday it would suspend operations on 14 lines at eight domestic factories for up to six days in May due to the COVID lockdown in China.
  • The duration will be between May 16 and May 21, the company said, expanding the number of lines and factories affected by partial suspension to a total of 20 and 12, respectively.
  • The partial suspension would affect output of about 30,000 vehicles.
  • It also slashed global production target for the month by around 50,000 to 700,000.

Norwegian Cruise Line forecasts positive second-quarter operating cash flow – Reuters, 5/10/2022

  • Norwegian Cruise Line forecast operating cash flow to be positive for the current quarter on Tuesday, as the U.S. cruise operator’s entire fleet returns to sailing after a hiatus due to the pandemic.
  • Shares of the company rose about 1% in pre-market trading, as the company also said that booking trends remained strong despite a hit from Omicron variant of the coronavirus and the Russia-Ukraine conflict.
  • The cruise operator also posted a bigger-than-expected loss of $1.82 per share in the first quarter.
  • Norwegian, which completed its phased restart of operations earlier this week with all of its ships returning to sail, said higher ticket prices and onboard revenue also helped the company see improved cash flow in the first quarter ended March 31.
  • However, the company still expects to post a net loss in the current quarter, as it accounted for higher costs including fuel expenses.

Factmonster – TODAY in HISTORY

  • Confederate General Stonewall Jackson died after being accidentally shot by his own troops. (1863)
  • The United States’ first transcontinental railroad was completed with a ceremony in Promontory Summit, Utah. (1869)
  • Edgar Hoover became director of the FBI. (1924)
  • Winston Churchill succeeded Neville Chamberlain as British prime minister. (1940)
  • Nelson Mandela was sworn in as South Africa’s first black president. (1994)

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