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Daily Market Report | May 20, 2022

US FINANCIAL MARKET

U.S. Stock Market Turns Negative, Extending Recent Losses – Wall Street Journal, 5/20/2022

  • U.S. stocks slipped Friday, extending recent losses that have major indexes on track for their longest streak of weekly declines in more than two decades.
  • The Dow Jones Industrial Average declined 108 points, or 0.3%, to 31144.
  • The Nasdaq Composite lost 0.2% and the S&P 500 fell 0.3% after narrowly avoiding entering a bear market, or a 20% decline from its last peak, during a choppy trading session Thursday.
  • The S&P 500 and Nasdaq are on course for their seventh straight weekly loss, their longest such losing streak since 2001, according to Dow Jones Market Data.
  • The Dow is on course for an eighth straight weekly decline, its longest such streak since 1932.
  • Earnings drove swings among individual stocks Friday.
  • Shares of Ross Stores fell 22% after it posted a decline in sales and said it expects another drop this quarter.
  • The retailer, like many other businesses, said its results were hurt by rising costs for transportation and labor.
  • Agricultural equipment maker Deere dropped 12% even though it posted higher sales and profit on strong demand. Its chief executive said supply-chain issues disrupted production levels and deliveries.
  • Meanwhile, Foot Locker rose 3.2% after its chief financial officer said he expects the retailer’s full-year earnings to be at the upper end of guidance.
  • Palo Alto Networks added 8.4% after the cybersecurity company reported quarterly revenue that beat analysts’ expectations.
  • The yield on the benchmark 10-year Treasury edged down on Friday to 2.825% from 2.854% on Thursday, heading for a third straight day of declines. Prices rise when yields fall.
  • Overseas, the Stoxx Europe 600 added 1.5%. Asian stocks also rose, with the Shanghai Composite climbing 1.6% and Hong Kong’s Hang Seng jumping 3%.

Deere Profit Rises Despite Supply-Chain Challenges – Wall Street Journal, 5/20/2022

  • Deere posted higher sales and profit in its fiscal second quarter on strong demand for its farm and construction equipment, even as the company confronts supply-chain challenges and inflation weighs on American farmers.
  • Sales rose 11% to $13.37 billion. Analysts surveyed by FactSet were looking for $13.23 billion.
  • The company’s production and precision agriculture saw sales rise 13% as price increases outpaced higher production and research costs.
  • Small agriculture and turf sales rose 5%, though operating profit fell due to higher costs and a less-favorable sales mix.
  • Construction and forestry sales increased 9%.
  • Overall for the period ended May 1, Deere reported a profit of $2.10 billion, or $6.81 a share, compared with $1.79 billion, or $5.68 a share, a year earlier.
  • Analysts surveyed by FactSet were looking for earnings of $6.75 a share.
  • Deere, like other companies, has seen its labor and other costs rise over the past year, but surging prices for wheat and other crops have boosted demand for Deere’s agricultural equipment.
  • The company has so far been able to pass much of its higher costs onto customers.

Palo Alto Networks stock jumps after company lifts full-year forecast – CNBC, 5/20/2022

  • Palo Alto Networks shares rose 12% in extended trading on Thursday after the network security hardware maker announced fiscal third-quarter results that came in stronger than analysts had expected.
  • Revenue: $1.39 billion, vs. $1.36 billion as expected by analysts, according to Refinitiv.
  • Palo Alto Networks said revenue grew 29% year-over-year in the quarter, which ended on April 30, according to a statement.
  • Revenue jumped 30% in the prior quarter.
  • Earnings: $1.79 per share, adjusted, vs. $1.68 per share as expected by analysts, according to Refinitiv.
  • They now expect adjusted earnings of $7.43 to $7.46 per share on $5.481 billion to $5.501 billion in revenue.
  • Analysts polled by Refinitiv had been looking for $7.29 in adjusted earnings per share on $5.46 billion in revenue.

Applied Materials Gives Weak Forecast as Shortages Drag On – Bloomberg, 5/20/2022

  • Applied Materials, the biggest maker of machinery used to manufacture semiconductors, slipped in late trading after persistent chip shortages weighed on its forecast for the current quarter.
  • Sales rose 12% to $6.25 billion, missing the $6.36 billion projection.
  • The Santa Clara, California-based company posted earnings of $1.85 a share, minus certain items, in the second quarter, compared with a prediction of $1.91.
  • Sales will be about $6.25 billion in the fiscal third quarter, which runs through July, the company said in a statement Thursday.
  • Analysts estimated $6.69 billion on average, according to data compiled by Bloomberg.
  • Profit will be $1.59 to $1.95 a share in the period, excluding some items, compared with an average prediction of $2.05.

Ross Stores Earnings Are the Latest Sign of Trouble in Retail. The Stock Is Plunging. – Barron’s, 5/20/2022

  • Ross Stores shares fell 20% Friday following the off-price retailer’s fiscal first-quarter results. Earnings, revenue, and same-store sales all fell short of Wall Street’s expectations.
  • Ross said Thursday it earned 97 cents a share from revenue of $4.33 billion, while analysts were looking for EPS of $1 with revenue of $4.53 billion. Same-store sales were off 7%.
  • For the full year, Ross expects to earn between $4.34 and $4.58 a share, well below the $5 consensus estimate among Wall Street analysts.
  • Management sees full-year same-store sales falling between 4% and 2%.

Surging Dollar Raises Possibility of Parity With Euro – Wall Street Journal, 5/20/2022

  • A roughly 7% slide in the euro against the dollar this year is breathing new life into a two-decade old question on Wall Street: Will this be the year the currencies finally reach parity?
  • The euro fell as low as around $1.035 earlier this month, down from the $1.137 level at which it ended last year.
  • It finished Thursday at about $1.059, putting it just 5.5% away from reaching parity, or equal value with the dollar.
  • Considered a psychological level for the currency pair, euro-dollar parity also has important implications for local economies and consumers’ wallets.
  • For Americans traveling abroad this summer, a weak euro means their dollars can go further.
  • For European economies, a weak euro makes imports more expensive, which can ripple to create higher local prices.
  • That could put further stress on economies at a time when European countries⁠—and others around the world⁠—are already dealing with soaring inflation.

Tinder Owner Match Group, Google Reach Deal on App Store Payment Rules – Wall Street Journal, 5/20/2022

  • Match Group withdrew its request for a temporary restraining order against Alphabet’s Google, saying Google has made some concessions over its app store payment practices that Match Group demanded.
  • The concessions include guaranteeing that Match apps, such as Tinder and Hinge, won’t be rejected or removed from Google’s app store for offering alternatives to Google’s billing system, Match said Friday.
  • Match said Google has also agreed to fix certain deficiencies in its billing systems, and Match will test the system on its apps, alongside current payment systems.
  • Google still plans to challenge claims that Match made earlier this month in a lawsuit filed in the U.S. District Court for the Northern District of California.
  • The suit argued that the fees Google demands for payments that occur outside of Google’s billing system are illegal.

US ECONOMY & POLITICS

US Growth Seen Outpacing China’s for First Time Since 1976 – Bloomberg, 5/20/2022

  • China’s coronavirus lockdowns mean its economic growth may undershoot the US for the first time since 1976, in a role reversal with potential political reverberations in both Beijing and Washington.
  • The world’s second-largest economy will grow just 2% this year, Bloomberg Economics wrote in a report Thursday.
  • By comparison, US gross domestic product will increase 2.8% this year, Bloomberg Economics predicts.
  • The Bloomberg Economics call is on the bearish end of the spectrum, with the median forecast for China’s 2022 GDP growth still over 4%.
  • If they have it right, this year would be the first time that China’s full-year growth pace has lagged behind that of its rival since 1976, when China was emerging from the tumultuous decade of the Cultural Revolution, World Bank data show.

Senate Passes $40 Billion Aid Package for Ukraine – Wall Street Journal, 5/20/2022

  • The Senate passed a nearly $40 billion military and economic aid package to help Ukraine repel Russia’s invasion, sending the bill to President Biden’s desk and bringing America’s commitment to almost $54 billion.
  • The 86-11 vote was overwhelmingly bipartisan, with all Democrats and most Republicans voting yes. The Republicans who opposed the bill cited its price tag and misgivings about long-term involvement in funding a foreign war.
  • Among the military equipment the U.S. plans to send Ukraine through this latest aid package are 18 howitzers, 18 tactical vehicles to tow the howitzers and 18 artillery tubes, Pentagon spokesman John Kirby said Thursday. That brings the total number of U.S. howitzers committed to Ukraine to 108.
  • The billions of military aid sent to Ukraine is an unprecedented international effort, and the total rivals Russia’s estimated $66 billion defense spending in 2021.

Biden’s South Korea Visit Aims to Boost Chip Ambitions, Outflank China – Wall Street Journal, 5/20/2022

  • President Biden began his three-day trip to South Korea with a visit to a Samsung Electronics Co. SSNHZ 0.00%▲ semiconductor plant, underscoring the technology ties between the countries as the U.S. seeks to strengthen supply chains and reboot its own manufacturing amid competition with China.
  • “These little chips—only a few nanometers thick—are the key to propelling us into the next era of technological development,” Mr. Biden said Friday at the plant. He added, ”Our two nations work together to make the best, most advanced technology in the world, and this factory is proof of that.”
  • Mr. Biden made the case that the U.S. should deepen its business ties with allies such as South Korea to counter “countries that don’t share our values.”
  • Though the president didn’t mention China by name, U.S. officials said one of the goals of the trip was to strengthen alliances in the region to counter Beijing’s influence.

A Third of Americans Report Financial Stress in Census Survey – Bloomberg, 5/20/2022

  • More than a third of Americans reported difficulties to pay bills in the latest US Census Bureau household survey, showing how much of a toll the surge in consumer prices has taken on budgets.
  • The share of respondents saying it has been somewhat or very difficult to pay for usual household expenses is now near its 2020 peak, at the worst of the Covid-19 pandemic.
  • In cities including Los Angeles and Miami, more than 4 in 10 households reported having financial stress, according the household pulse survey for the April 27-May 9 period.
  • In the latest survey, more than a quarter of households in Los Angeles said they were unable to pay an energy bill in full over the past year. In Miami, that share was over 20%.

EUROPE & WORLD

China Banks Cut Key Rate by Record to Boost Ailing Economy – Bloomberg, 5/20/2022

  • Chinese banks cut a key interest rate for long-term loans by a record amount, a move that would reduce mortgage costs and may help counter weak loan demand caused by a property slump and Covid lockdowns.
  • The five-year loan prime rate, a reference for home mortgages, was lowered to 4.45% from 4.6%, according to a statement by the People’s Bank of China Friday. That was the largest reduction since a revamp of the rate in 2019.
  • The one-year loan prime rate — the de facto benchmark lending rate — was kept unchanged at 3.7%.
  • The majority of economists surveyed by Bloomberg had predicted a cut of either five or 10 basis points.
  • The move is the latest action to boost the ailing housing market and comes after the PBOC cut the floor on the rate for new mortgages Sunday to 20 basis points below the five-year LPR.
  • Combined with Friday’s reduction that means the lowest possible rate banks can offer to homebuyers will be 4.25%.

Senior Executives, Board Members Leave Russian Oil Giant Rosneft – Wall Street Journal, 5/20/2022

  • Russian state oil giant Rosneft Oil is losing several senior executives and board members, a brain drain that stands to weaken a prime driver of the country’s economy while Moscow wages war on Ukraine.
  • Former German Chancellor Gerhard Schröder and Matthias Warnig, a longtime friend of President Vladimir Putin, are leaving the board of directors, the company said Friday.
  • Chief Executive Igor Sechin’s two top lieutenants, first vice presidents Didier Casimiro and Zeljko Runje, are leaving the company, people familiar with the departures said.
  • Their exit means Mr. Sechin, a close associate of Mr. Putin, will have to navigate a crisis in Russian oil markets without his most experienced deputies.

Factmonster – TODAY in HISTORY

  • Christopher Columbus died in Spain. (1506)
  • Charles Lindbergh began the first solo nonstop transatlantic flight, departing from Long Island aboard the Spirit of Saint Louis. (1927)
  • Amelia Earhart took off from Newfoundland to become the first woman to fly solo across the Atlantic. (1932)
  • A mob attacked a busload of “freedom riders” in Montgomery, Ala., setting the bus on fire. (1961)
  • In a 6-3 vote, the Supreme Court rejected a Colorado measure banning laws that protect homosexuals from discrimination. (1996)
  • East Timor became the what was then the world’s newest nation. (2002)

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