US FINANCIAL MARKET
Stocks Drop in Volatile Trading – Wall Street Journal, 5/24/2022
- U.S. stock indexes moved lower and a selloff in technology stocks deepened, as growing investor concerns about the outlook for economic growth weighed on the market.
- The S&P 500 fell 1.5% Tuesday morning, while the Dow Jones Industrial Average lost 0.5%.
- The tech-heavy Nasdaq Composite slid 2.8%.
- The losses point to a sharp turnaround from Monday, when major U.S. indexes rallied after a volatile trading session the previous week. But a profit and revenue warning later on Monday from social-media company Snap soured investor sentiment again. Asian indexes broadly fell amid declines in technology stocks. European markets also traded lower.
- Snap’s shares fell about 40% Tuesday as investors digested comments that the macroeconomic environment has deteriorated more than expected.
- Worries about disruptions to Snap’s advertising revenue rippled to other tech stocks that have been battered this year.
- Meta Platforms shed 9.8% and Google-parent Alphabet fell 6.3%.
- On Tuesday, as big tech companies took a drubbing, stocks with more of a foothold in the physical economy sustained narrower losses or gains.
- The consumer-staples and packaged-foods sectors of the S&P 500 were the only two of the index’s 11 components in positive territory.
- Disappointing earnings and warnings across the corporate landscape have exacerbated the fears. Abercrombie & Fitch became the latest retailer Tuesday to dent investor sentiment after it swung to a first-quarter loss amid higher costs. The company’s shares tumbled 28%.
- Despite Tuesday’s broad technology selloff, there were bright spots in the market.
- Zoom Video Communications was up 0.6% after the videoconferencing services company raised its profit outlook.
- Later Tuesday, Fed Chairman Jerome Powell will give remarks at an economic summit in Las Vegas. Investors will be looking for fresh clues about his outlook for inflation, the economy and the path of interest-rate increases.
- Brent crude, the international oil benchmark, rose 0.2% to $113.66 a barrel, reversing losses from earlier in the session.
- In Europe, the pan-continental Stoxx Europe 600 lost 0.6%. In Asia, Hong Kong’s Hang Seng fell 1.7%. Japan’s Nikkei 225 lost 0.9% while China’s Shanghai Composite declined 2.4%.
Snap Issues Profit Warning on Economic Conditions Including Inflation – Wall Street Journal, 5/24/2022
- Snap issued a profit warning Monday and said it planned to slow hiring and spending, adding to adjustments social-media companies are making to adapt to disruptions in the digital ad market.
- “There is a lot to deal with in the macro environment today,” Chief Executive Evan Spiegel said Monday at a JP Morgan Chase & Co. conference.
- Conditions have deteriorated “further and faster” than expected since the company issued its guidance for the current quarter, he said.
- Mr. Spiegel in a memo to staff reviewed by The Wall Street Journal said “while our revenue continues to grow year-over-year, it is growing more slowly than we expected at this time.”
- The company said it would slow hiring and push some of its planned staff additions to next year, as well as evaluate the remainder of its 2022 budget to look for additional cost savings, according to the memo.
Zoom Sales Growth Slows as Pandemic Boom Wanes – Wall Street Journal, 5/24/2022
- Zoom Video Communications sales continued to slow as work life returns to normal and the demand for the company’s videoconferencing services winds down.
- The San Jose, Calif.-based company on Monday said that sales rose 12% in its first quarter, the slowest growth rate on record, and that the top line is expected to rise less than 10% in the current period.
- Sales came in at $1.07 billion, matching the Wall Street consensus.
- The company said it had 2,916 customers contributing more than $100,000 over the prior 12 months, a 46% increase from the year-ago period.
- For the current quarter, Zoom’s revenue forecast of as much as $1.12 billion is just above analysts’ estimates, according to FactSet.
- The company is now forecasting adjusted per-share earnings of $3.70 to $3.77 for the year, up from a prior view of $3.45 to $3.51 a share.
Best Buy’s Sales Cool, and It Warns of a Rough Year Ahead – Wall Street Journal, 5/24/2022
- Electronics retailer Best Buy reported falling sales and profits for the latest quarter and said its results for the current fiscal year will be worse than it had previously predicted amid increased promotions and higher supply-chain expenses.
- The company’s revenue for the quarter fell roughly $1 billion from the previous year to $10.6 billion.
- Comparable sales dropped 8%, compared with a rise of 37% in the quarter a year ago.
- Best Buy reported earnings of $341 million for the quarter ended April 30, compared with $595 million a year earlier.
- Adjusted earnings were $1.57 a share for the quarter, compared with expectations of $1.60 a share, according to FactSet.
- The company hadn’t released guidance for the first quarter but did say after the holiday quarter that it expected sales to fall in fiscal 2023, the retailer’s current year.
- On Tuesday, Best Buy said revenue for the year would now be between $48.3 billion and $49.9 billion, cut from its March forecast of $49.3 billion to $50.8 billion.
- Comparable sales are now expected to decline 3% to 6%, compared with the prior guidance of a decline of 1% to 4%.
Abercrombie forecasts weaker sales, margins as cost woes persist; shares plunge – Reuters, 5/24/2022
- Abercrombie & Fitch on Tuesday cut its annual forecasts for sales and margins after posting a surprise quarterly loss amid a surge in freight and raw material costs, sending its shares down 30% in premarket trade.
- Known for brands such as Hollister and Gilly Hicks, the Ohio-based retailer reported an 810-basis-point fall in first-quarter margins, as it spent $80 million more on transportation.
- For the three months ending April 30, Abercrombie reported an adjusted per-share loss of 27 cents, while analysts expected a profit of 2 cents.
- The millennial-focused retailer expects net sales to be flat to up 2% in fiscal 2022, compared with its earlier forecast of a 2% to 4% growth.
- Analysts on average expect sales to increase 3.5% to $3.84 billion, according to Refinitiv IBES data.
- The company also cut its full-year operating margin to between 5% and 6% from 7% to 8% forecast earlier.
Ralph Lauren expects margins to grow as rich customers shrug off inflation – Reuters, 5/24/2022
- Ralph Lauren forecast higher sales and improved margins for the year as demand for its luxury apparel in its biggest markets in North America and Europe stays strong at a time when inflation is denting profits at major U.S. retailers.
- For Ralph Lauren, which increased its quarterly dividend by 9%, fourth-quarter net revenue rose 18% to $1.52 billion, beating estimates of $1.46 billion.
- Adjusted per-share profit was 49 cents, above estimates of 36 cents.
- Ralph Lauren, which said it could raise prices further to counter increased freight and product costs, forecast fiscal 2023 gross margin to increase 30 to 50 basis points on a comparable, constant currency basis.
- The 55-year-old brand also forecast revenue to increase in high single digits, versus Wall Street’s expectation of a 3.6% increase, according to Refinitiv IBES.
U.S. bank profits dip as loan loss provisions jump in response to global uncertainty – FDIC – Reuters, 5/24/2022
- U.S. bank profits dropped 6.5% in the first quarter of 2022 to $59.7 billion, as larger firms grew their loan loss provisions in response to heightened economic and geopolitical uncertainty, the Federal Deposit Insurance Corporation reported Tuesday.
- Bank profits were down 22.2% compared to the first quarter of 2021, and was driven by banks with over $10 billion in assets setting aside more funds to guard against loan losses.
- The growth in loan loss provisions marks a reversal from recent history, which saw banks enjoy higher profits as they shrank large cushions built up during the pandemic. Growing uncertainty drove firms to resume growing those reserves, which climbed $19.7 billion from the first quarter of 2021.
- That reserve growth was also primarily driven by larger banks with over $10 billion in assets, as only 25% of all banks reported higher loan loss provisions.
- However, banks reported loan balances grew another 1% in the first quarter, driven primarily by increased lending in commercial and industrial loans.
- And noncurrent loan balances continued to fall, dropping 4.5% in the first quarter to a noncurrent loan rate of just 0.84%.
Walmart Expanding Drone Delivery Network to Six States – Wall Street Journal, 5/24/2022
- Walmart is expanding its drone delivery operations to some 4 million households in six states, as the big-box retailer looks to add speedy delivery to compete in the nascent space with the likes of Amazon.com and FedEx.
- Walmart said Tuesday that it will be able to deliver more than 1 million packages by drone a year in as little as 30 minutes to households in parts of Arizona, Arkansas, Florida, Texas, Utah and Virginia.
- The service will have a $3.99 delivery fee per order and can deliver up to 10 pounds at a time.
- The announcement is an expansion of a partnership with operator DroneUp LLC, which began operating drone-delivery hubs out of Walmart stores in Arkansas in November.
- Orders are fulfilled from stores, loaded onto the drones and delivered to yards using a cable that lowers the package to the ground. Walmart invested in DroneUp last June.
Airbnb to shut domestic business in China from July 30 – Reuters, 5/24/2022
- Vacation rental company Airbnb will shut down all listings and experiences in mainland China from July 30, it said on Tuesday, joining a long list of Western internet platforms that have opted out of the Chinese market.
- The company made the announcement on its official WeChat account without elaborating on the reasons behind the decision.
- The San Francisco-based company said Chinese users would still be allowed to book listings and experiences abroad.
- The Global Times newspaper, citing a source close to the company, said Airbnb had decided to shut the domestic business because it was too costly and complex to operate, which had been further exacerbated by the COVID-19 pandemic.
Klarna to lay off 10% of its workforce as souring economy hits buy now, pay later space – CNBC, 5/24/2022
- Klarna plans to lay off about 10% of its global workforce, making the buy now, pay later company the latest major tech name to announce job cuts.
- Sebastian Siemiatkowski, Klarna’s CEO and co-founder, made the announcement to his employees in a pre-recorded video message Monday. The “vast majority” of Klarna employees won’t be affected by the measures, he said, however some will be informed that they are being let go.
- “When we set our business plans for 2022 in the autumn of last year, it was a very different world than the one we are in today,” Siemiatkowski said.
- The layoff announcement comes after media reports last week said Klarna is set to lose a third of its valuation in a new round of funding.
- The privately held company was last valued at $46 billion in an investment led by SoftBank.
US ECONOMY & POLITICS
US Business Activity Softens as Inflation Tempers Demand – Bloomberg, 5/24/2022
- US business activity settled back to a four-month low in early May as costs ballooned and high selling prices tempered demand at service providers.
- The S&P Global flash May composite purchasing managers index slipped 2.2 points to 53.8, the group reported Tuesday.
- A measure of input prices edged up to the highest in data back to 2009, while output price growth slowed from the record pace seen in April.
- The group’s gauge of new business at service providers fell to the lowest level since August 2020, indicating some customers are beginning to balk at higher prices. But costs continue to balloon for businesses amid rising wages, interest rates, fuel costs and material prices.
- While at a still-robust 57.5, the S&P Global index of US manufacturing settled back to a three-month low in May. The new orders gauge eased, and production growth cooled.
- Order backlogs mounted amid persistent logistics challenges, and manufacturer output prices grew at the third-fastest pace in data back to 2007, though improved somewhat from April.
- Meantime, a measure of factory hiring improved to the highest level since July.
US New-Home Sales Plunge to Lowest Since Start of Pandemic – Bloomberg, 5/24/2022
- Sales of new US homes plummeted in April by the most in nearly nine years, dented by the combination of high prices and a steep climb in mortgage rates.
- Purchases of new single-family homes decreased 16.6% to an annualized 591,000 pace, the weakest since April 2020, government data showed Tuesday.
- The figure fell well short of all estimates in a Bloomberg survey of economists, which called for a 749,000 rate.
- Sales declined in all four US regions, including by double digits in three.
- Purchases sank by 19.8% in the South, the largest region, and by 15.1% in the West.
- The new-home sales report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home rose 19.6% from a year earlier, to a record $450,600.
- There were 444,000 new homes for sale as of the end of the month, the most since 2008.
- However, nearly all had yet to be completed.
- At the current sales pace, it would take 9 months to exhaust the supply of new homes. That compares with 6.9 months in the prior month and 4.7 months one year ago.
- The number of homes sold in April and awaiting the start of construction — a measure of backlogs — rose slightly to 185,000 from a month earlier, Tuesday’s report showed.
Biden Exploring Release of Diesel Fuel Reserves Amid High Prices – Wall Street Journal, 5/24/2022
- The Biden administration is considering a release of diesel fuel from federal reserves to address skyrocketing prices and the threat of supply outages on the East Coast.
- Officials have drafted an emergency declaration as prices have soared to record highs in recent weeks, White House spokeswoman Emilie Simons said on Twitter on Monday.
- Such a declaration would allow for the quick release of some of the 1 million barrels of diesel in the Northeast Home Heating Oil Reserve “if necessary,” she said.
- Supplies are particularly tight along the U.S. East Coast where inventories have dropped to their lowest level since at least 1990.
- U.S. average retail prices for ultra-low-sulfur diesel rose more than 37% in just 10 weeks after Russia’s invasion of Ukraine, setting a new nominal record of $5.62 a gallon in the week ended May 9, according to the U.S. Energy Information Administration.
U.S. Births Increase for First Time Since 2014 – Wall Street Journal, 5/24/2022
- U.S. births increased last year for the first time in seven years, according to federal figures released Tuesday that offer the latest indication the pandemic baby bust was smaller than expected.
- American women had about 3.66 million babies in 2021, up 1% from the prior year, according to provisional data from the Centers for Disease Control and Prevention’s National Center for Health Statistics.
- It was the first increase since 2014.
- The rebound spanned age groups, with birthrates rising for every cohort of women age 25 and older.
- The total fertility rate—a snapshot of the average number of babies a woman would have over her lifetime—was 1.66 last year, up from 1.64 the prior year, when it fell to the lowest level since the government began tracking it in the 1930s.
- The U.S. recorded about 198,000 more births than deaths in 2021, according to provisional CDC death data.
- If that level holds when final data are released, it will be narrower than the 230,000 surplus of births over deaths in 2020.
EUROPE & WORLD
High Inflation Weighs on U.S., Global Economies – Wall Street Journal, 5/24/2022
- Growth in the U.S. and global economies slowed in May as high inflation dented demand, business surveys said Tuesday.
- S&P Global said its index for the eurozone’s services and manufacturing sectors fell to 54.9 in May from 55.8 in April.
- Data firm S&P Global said its Purchasing Managers Index for the eurozone’s services and manufacturing sectors fell to 54.9 in May from 55.8 in April.
- Similar surveys indicated that Australia suffered a similar fate, while Japan recorded modest pickup in total economic activity even as its manufacturing sector slowed.
- At the same time, factories in Europe and Japan reported a weakening of new orders as costs and prices surge, a sign that manufacturing output will slow further over coming months.
- According to the surveys of purchasing managers, the U.K. has suffered the sharpest blow to activity in the wake of the invasion. S&P Global said its PMI for the country slumped to 51.8 in May from 58.2 in April to hit its lowest level in 15 months.
Samsung to invest $356 billion over five years in strategic sectors – Reuters, 5/24/2022
- Samsung Group will invest 450 trillion won ($356 billion) in the next five years to accelerate growth in semiconductors, biopharmaceutical and other next-generation technologies, Samsung Electronics said.
- Samsung Electronics, the world’s largest memory chip maker, did not provide a breakdown of the figures, though it added that 80% of investments will be made in South Korea and that Tuesday’s announcement includes a 240 trillion won investment pledge made in August 2021.
- The 450 trillion won investments, expected to create 1.07 million jobs, are over 30% greater than the 330 trillion won Samsung invested in the five years to 2021.
Toyota to cut global production plan by 100,000 in June – Reuters, 5/24/2022
- Toyota Motor will cut its global production plan by about 100,000 to roughly 850,000 vehicles in June due to the semiconductor shortage, it said on Tuesday.
- The company did not change its estimate of producing about 9.7 million vehicles worldwide by March 2023.
- It is planning to produce about 850,000 vehicles globally a month on average from June through August, it said, adding chips shortage and COVID-19 outbreaks and other factors “are making it difficult to look ahead.”
- Samuel Morse transmitted the first telegraph message, in which he asked, “What hath God wrought?” (1844)
- The Brooklyn Bridge, linking Manhattan and Brooklyn in New York City, opened to traffic. (1883)
- The British and French Concordes made their first commercial flights. (1976)
- Israeli troops pulled out of Lebanon after 18 consecutive years of occupation. (2000)
- Vermont senator James Jeffords quit the Republican Party and became an Independent, giving Democrats control of the Senate. (2001)