US FINANCIAL MARKET
Stocks Open Higher, Pointing to Weekly Gain for Major Indexes – Wall Street Journal, 5/27/2022
- All three major indexes headed into Friday’s session with solid gains for the week, a sharp reversal from a stretch of weekly losses.
- Many pointed to strong earnings this week as a reason for the optimism, with stores such as Macy’s and Dollar Tree reporting strong sales increases.
- On Friday, investors found good news in a fresh round of data, which showed that Americans boosted spending by 0.9% in April from the month before, beating expectations.
- Nearly $21 billion flowed into global equity funds in the week through Wednesday, a BofA Global Research analysis of EPFR data show, the largest inflow in 10 weeks.
- Shares of Dell Technologies jumped 15% after reporting a rise in profit and a decline in some operating expenses.
- Ulta Beauty climbed 10.2% after the retailer raised its full-year sales and earnings guidance following better-than-expected first-quarter results.
- Gap shares fell 13% after the retailer swung to a loss amid a drop in net sales.
- Shares of the human resources cloud-software company Workday dropped 7.2% after it reported first-quarter adjusted earnings that came up short of expectations.
- In the bond market Friday, the yield on the benchmark 10-year U.S. Treasury note fell to 2.739%, from 2.756% Thursday.
- Oil prices fell, with Brent crude, the international benchmark, declining 0.2% to $113.94 a barrel.
- Overseas, the pan-continental Stoxx Europe 600 added 1%.
- In Asia, Hong Kong’s Hang Seng rose 2.9%, led by shares of Alibaba, which jumped 12% after posting earnings that beat analyst expectations.
- Japan’s Nikkei 225 added 0.7% and the Shanghai Composite gained 0.2%.
Costco Sales Top Estimates by $1 billion, but Misses on Same-Store Sales – MarketWatch, 5/26/2022
- Costco Wholesale brought in $1 billion more than expected in revenue in its latest quarter, keeping the retailer on track for its first $200 billion year.
- Costco reported third-quarter earnings of $1.35 billion, or $3.04 a share, on sales of $52.6 billion, up from profit of $2.75 a share on revenue of $45.28 billion a year ago.
- Analysts on average expected earnings of $3.04 a share on sales of $51.56 billion, according to FactSet.
- Through nine months of its fiscal year, Costco has reaped sales of $151.97 billion, with analysts projecting annual revenue of $223.38 billion.
- Costco finished last year just short of the $200 billion mark, producing revenue of $195.93 billion.
- The company’s sales increase at stores open at least a year came up short of analysts’ average estimate, however.
- Same-store sales increased 10.8%, while analysts on average were projecting 11.8%, according to FactSet.
Dell Beats Estimates for Quarterly Results on Strong Enterprise Demand – Reuters, 5/26/2022
- Dell Technologies on Thursday beat Wall Street estimates for quarterly profit and revenue, as enterprises invested heavily in the company’s desktops and laptops to support hybrid work.
- Revenue at Dell’s client solutions group (CSG)—home to its hardware units—rose 17% in the quarter ended April 29.
- Dell’s commercial PC revenue jumped 22% to $12 billion in the quarter.
- The company, however, added that some impact from the global chip shortage and supply chain disruptions, exacerbated by the China lockdowns, was seen in the quarter.
- The company expects revenue to be in the range of $26.1 billion to $27.1 billion in the current quarter and forecast adjusted profit per share of between $1.55 and $1.70.
- Analysts estimate second-quarter profit of $1.47 per share and revenue of $25.6 billion, according to Refinitiv IBES data.
- For the first quarter, the company reported adjusted profit of $1.84 per share and revenue of $26.12 billion, compared with estimates for a profit of $1.39 per share and revenue of $25.04 billion.
Ulta Beauty Stock Pops on Strong Earnings – Barron’s, 5/27/2022
- Ulta Beauty said it earned $6.30 a share as revenue climbed 21% year over year to $2.35 billion.
- Analysts were looking for EPS of $4.49 from revenue of $2.12 billion. Same-store sales rose 18% in the quarter.
- For the full year, Ulta said it expects to earn between $19.20 and $20.10 a share from revenue of $9.35 billion to $9.55 billion.
- Previously, it had forecast earnings of $18.20 to $18.70 from revenue of $9.05 to $9.15 billion.
- The Wall Street consensus calls for EPS of $18.60 and revenue of $9.16 billion.
- Management expects same-store sales to rise by between 6% and 8%, up from prior guidance of 3% to 4%.
Big Lots Shares Tumble Over 20% After 1Q Loss – MarketWatch, 5/27/2022
- The company said same-store sales were strong in February and March, but slowed in April, prompting the company to mark down prices.
- Chief Executive Bruce Thorn blamed the slowdown on inflationary pressures reducing discretionary spending.
- The company said it expects its gross margin to contract in the second quarter as Big Lots works through its inventory.
- The stock was down 32% so far this year, before Friday’s tumble. It is down more than 52% over the past 12 months
- The Columbus, Ohio-based company reported a loss of $11.1 million for the quarter ended April 30, compared with a profit of $94.6 million a year earlier.
- The loss was 39 cents a share, swinging from a per-share profit of $2.62 a share in the year-earlier quarter.
- Analysts polled by FactSet were expecting a profit of 91 cents a share.
- Net sales for the quarter fell more than 15% to $1.37 billion. Analysts surveyed by FactSet were expecting sales of $1.46 billion.
Gap Shares Tumble Nearly 20% After Retailer Slashes Profit Guidance for the Year – CNBC, 5/26/2022
- Gap on Thursday slashed its profit guidance for the full year as it reported a decline in fiscal first-quarter sales, which were dragged down by its Old Navy business.
- An imbalanced mix of clothing sizes, ongoing inventory delays and an uptick in price-lowering promotions put a dent in Old Navy’s performance during the quarter.
- For the fiscal year 2022, Gap now expects to earn between 30 cents and 60 cents per share, on an adjusted basis.
- That’s down from a prior range of 1.85 and $2.05. And well below analysts’ expectations for $1.34 per share, based on Refinitiv data.
- Gap swung to a net loss in the three-month period ended April 30 of $162 million, or 44 cents per share, compared with net income of $166 million, or earnings of 43 cents a share, a year earlier.
- Revenue fell roughly 13% to $3.48 billion from $3.99 billion a year earlier. That came in slightly ahead of expectations for $3.46 billion.
- Overall, same-store sales fell 14% from the prior year, more than the 12.2% drop that analysts had been looking for.
- Within that figure, Gap said its online sales declined 17% and in-store sales dropped 10% versus last year.
US ECONOMY & POLITICS
U.S. Consumer Spending Increases Strongly; Rise in Inflation Slows – Reuters, 5/27/2022
- U.S. consumer spending rose more than expected in April as households boosted purchases of goods and services, and the increase in inflation slowed, which could underpin economic growth in the second quarter amid rising fears of a recession.
- The economy’s near-term prospects were also brightened by other data from the Commerce Department on Friday showing the goods trade deficit narrowed sharply last month.
- Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.9% last month.
- Data for March was revised higher to show outlays racing 1.4% instead of 1.1% as previously reported.
- Consumers bought more new motor vehicles, clothing, recreational goods as well as furnishings and household equipment.
- The economy contracted at a 1.5% pace in the January-March quarter, weighed down a record trade deficit and slower inventory accumulation relative to the fourth-quarter’s robust rate.
- In a second report, the Commerce Department said the goods trade deficit dropped 15.9% to $105.9 billion in April.
- The personal consumption expenditures (PCE) price index rose 0.2%, the smallest gain November 2020, after shooting up 0.9% in March.
- In the 12 months through April, the PCE price index advanced 6.3% after jumping 6.6% in March.
- Excluding the volatile food and energy components, the PCE price index gained 0.3%, rising by the same margin for three straight months.
- The so-called core PCE price index increased 4.9% year-on-year in April, the smallest gain since last December, after rising 5.2% in March.
Americans’ Savings Rate Drops to Lowest Since 2008 as Inflation Bites – Bloomberg, 5/27/2022
- The personal savings rate as a share of disposable income dropped to 4.4% in April, the lowest since September 2008, according to data from the Bureau of Economic Analysis released Friday.
- Consumers so far appear to be largely undeterred by the highest inflation in about 40 years, eager to spend after pandemic-era restrictions.
- Americans are also putting more on their credit cards, and borrowing soared the most on record in March as everyday essentials become more expensive.
- The spending binge is at risk of slowing as gas prices are now back at record highs and grocery bills are climbing, taking a bigger chunk out of household budgets.
US Consumer Sentiment Falls to Fresh Decade Low on Inflation – Bloomberg, 5/27/2022
- The University of Michigan’s final May sentiment index decreased to 58.4 from a preliminary reading of 59.1, data released Friday showed. In April, the gauge stood at 65.2.
- A gauge of current conditions fell to a 13-year low of 63.3, while a measure of future expectations dropped to 55.2.
- Consumers expect prices to rise 5.3% over the next year, holding close to a four-decade high.
- They expect prices will climb at an annual rate of 3% over the next five to 10 years.
- The university’s index of buying conditions for durable goods dropped in May to the lowest level on record.
- Inflation is outpacing wage gains, stressing Americans’ finances and leaving less discretionary income after covering for higher costs of food and gas.
EUROPE & WORLD
China’s Pinduoduo Beats Quarterly Revenue Estimate, Warns of Slower Growth – Reuters, 5/27/2022
- Chinese e-commerce platform Pinduoduo on Friday reported better-than-expected quarterly revenue, as more people shopped online due to a resurgence in COVID-19 cases in parts of the country.
- However, the firm warned that its growth rate might slow due to adjustments to its business strategy that are underway.
- As China fights its worst coronavirus outbreak since March, its uncompromising “zero-COVID” policy has placed hundreds of millions of people under strict lockdown.
- Government enforced control measures continued to disrupt logistics in China in April, hurting e-commerce sellers’ ability to deliver purchases.
- Total revenue rose 7% to 23.79 billion yuan ($3.55 billion) in the first quarter, compared with estimates of 20.61 billion yuan, according to IBES data from Refinitiv.
- The company’s net income attributable to ordinary shareholders was 2.6 billion yuan during the quarter ended March 31, compared with a loss of 2.91 billion yuan a year ago.
- On an adjusted basis, the interactive e-commerce platform earned 2.95 yuan per share, compared to Wall Street estimates of 1.68 yuan per share, according to Refinitiv IBES data.
Colombia Election This Weekend Sees Leftist Petro in Pole Position – Reuters, 5/27/2022
- Gustavo Petro, the leftist, has consistently led opinion polls, with around 40% of voting intentions.
- If no one secures more than 50% a run-off will take place on June 19, which surveys suggest Petro would win.
- Petro, a former mayor of capital Bogota, has promised to address profound income inequality and provide free public university education, as well opposing expansion of the oil and gas industry.
- Petro will likely face off against either Federico Gutierrez, the center-right former mayor of Colombia’s second city of Medellin, or business magnate Rodolfo Hernandez in a second round.
- Gutierrez and Hernandez counted on support of 27.1% and 20.9% respectively in a recent Invamer poll.
- Gutierrez is supported by a mix of Colombia’s traditional political parties and is seen as the ideological heir to current President Ivan Duque.
- Hernandez, who is running independently with his own funds, has won support with whimsical social media videos and anti-corruption promises.
- Polls will close at 4 p.m. local time (2100 GMT) and officials expect the result around four hours after.
China Eases Covid Rules for Students to Avoid Tiananmen Linkages – Bloomberg, 5/27/2022
- Chinese officials eased Covid restrictions at Beijing universities in recent days to avoid the possibility any protests over virus measures would be linked to the anniversary of the Tiananmen Square massacre on June 4, people familiar with the matter said.
- Officials allowed students at Beijing universities to leave campus and return to their homes following a series of demands.
- Beijing Normal University also reopened canteens after students said they were forced to eat outside on the road due to cramped living conditions, a move that other schools soon followed.
- Beijing has pledged to strengthen virus controls among essential workers such as security guards, maintenance staff and workers at internal dining halls.
- But protests such as those by university students point to mounting frustration with President Xi Jinping’s zero-tolerance Covid-19 policy.
- St. Petersburg was founded by Czar Peter the Great. (1703)
- The Queen Mary left England on its maiden voyage, arriving in France four hours later. (1936)
- Golden Gate Bridge in San Francisco opened. (1937)
- British ships sank the German battleship Bismarck off the coast of France, resulting in the loss of 2,300 lives. (1941)
- After a year and a half of bloodshed, Russian President Boris Yeltsin met with the leader of the Chechen rebels and negotiated a cease-fire. (1996)
- Slobodan Milosevic was indicted by the International War Crimes Tribunal at the Hague for crimes against humanity. (1999)