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Daily Market Report | August 4, 2022

US FINANCIAL MARKET

Stocks Edge Lower as Earnings Roll In – Wall Street Journal, 8/4/2022

  • U.S. stocks turned lower in early Thursday trading as investors considered a fresh batch of corporate earnings reports and the number of Americans applying for unemployment benefits increased.
  • The S&P 500 shed 0.4% early Thursday. The technology-focused Nasdaq Composite fell 0.5% and the Dow Jones Industrial Average dipped 0.5%.
  • Treasury yields fell, extending a spell of volatility as investors weighed high inflation and rising interest rates against a worsening outlook for the economy. The yield on 10-year Treasury notes fell to 2.689% on Thursday from 2.747% Wednesday, a decline that accelerated after the Bank of England forecast a prolonged recession in the U.K.
  • Shares of Coinbase surged 15% after the cryptocurrency exchange announced a partnership with money manager BlackRock.
  • Lucid Group fell 10% after the electric-vehicle maker cut its forecast for car production.
  • Clorox lost 3.6% after the cleaning-product manufacturer posted flat revenue for its latest quarter.
  • Eli Lilly lost 2.8% after the pharmaceuticals company said revenue fell in the second quarter. Alibaba’s New York-listed shares rose 1.4% after the Chinese e-commerce company posted results.
  • Earnings are due after the close from Lyft, Beyond Meat, Carvana, Virgin Galactic and day-trader favorite AMC Entertainment.
  • The Bank of England raised its key interest rate by a half percentage point Thursday, the largest single step in more than a quarter-century. The central bank’s move follows the Federal Reserve in giving priority to the fight against inflation over the risk of hurting growth.
  • On the economic front, the number of people applying for unemployment benefits rose to 260,000 at the end of July, up by 6,000 from the previous week. New filings fell as low as 166,000 in late March but have edged up as the economy has slowed.
  • In overseas markets the Stoxx Europe 600 rose 0.2%, led by shares of retailers and travel and auto companies.
  • Deutsche Lufthansa rose 6.9% after the airline swung to a profit and forecast high ticket demand. Rolls-Royce fell 9.5% after the engine maker posted a loss for the first half.
  • In Asia the Shanghai Composite Index rose 0.8%, recouping some losses sparked by tensions over Taiwan. Hong Kong’s Hang Seng Index rose 2.1%.

MercadoLibre Sales Top Estimates as Mexico Becomes Profitable – Bloomberg, 8/4/2022

  • Latin American e-commerce retailer and fintech provider MercadoLibre is reaping the rewards of its investment across the region over the past years, posting record revenue even as the region’s economies cool down.
  • Net sales in the three months through June 30 jumped 53% from a year earlier to $2.6 billion, according to a statement Wednesday, topping the $2.5 billion average estimate of analysts surveyed by Bloomberg.
  • Operating margins fell to 9.6% from 9.8% in the same period last year, while Wall Street was bracing for a sharper contraction to about 7%.
  • Operations in Mexico had their first profitable quarter since starting up five years ago, Chief Financial Officer Pedro Arnt said in an interview. That’s a key milestone as it’s one of the most competitive markets in the region, he said.
  • Meanwhile, the company’s credit portfolio rose to almost $2.7 billion from about $2.4 billion at the end of March, accounting for 46% of total revenue. Even as credit quality deteriorates alongside the tougher economic scenarios in the region, the company “adequately priced” this risk and saw margins improve, Arnt added.

Eli Lilly Revenue Falls as Sales of Covid-19 Treatment Wane – Wall Street Journal, 8/4/2022

  • Eli Lilly posted a 4% decline in second-quarter revenue, driven by a drop in sales of the company’s Covid-19 antibody treatment.
  • The pharmaceutical company on Thursday cut its profit outlook for the year as the stronger U.S. dollar impacts results.
  • Lilly said lower prices and currency translation also contributed to the declining sales, which came in below Wall Street expectations.
  • The company lowered its full-year adjusted earnings guidance by 25 cents a share to a range of $7.90 a share to $8.05 a share. Lilly maintained its 2022 sales guidance of between $28.8 billion and $29.3 billion.
  • Overall, Lilly posted a quarterly profit of $952.5 million, or $1.05 a share, down from $1.39 billion, or $1.53 a share. Adjusted earnings were $1.25 a share, below the $1.70 a share expected by analysts, according to FactSet.
  • Sales came in at $6.49 billion, compared with analyst estimates of $6.85 billion. The drop was driven by an 11% hit due to lower prices and a 3% decrease from the impact of foreign-exchange rates.

Kellogg Raises Outlook After Quarterly Sales Rise – Wall Street Journal, 8/4/2022

  • Kellogg lifted its outlook for the year and said consumer demand held up despite the cereal company raising its prices in recent months.
  • The maker of Pop-Tarts and Cheez-It said Thursday that charging more for its food helped the company offset higher costs for ingredients, trucking and labor.
  • Kellogg also said it faced supply shortages in the second quarter.
  • Kellogg’s price increases, which led to its products costing nearly 14% more on average, drove the sales growth in the quarter. Consumers pulled back slightly, in part due to its lack of cereal inventory, Kellogg said, and sales volume slipped 1.5%.
  • Kellogg said its quarterly sales rose 12% on an organic basis, which strips out impacts from currency, acquisitions and divestitures.
  • The company raised its outlook for organic sales to grow between 7% and 8% this year, up from its previous view of about 4%.
  • For the period ended July 2, Kellogg reported a decline in profit to $415 million, or 95 cents a share.
  • On an adjusted basis, per-share earnings were $1.18. Revenue rose 9% to $3.86 billion.
  • The results topped analyst expectations of $1.05 per-share earnings on revenue of $3.64 billion, according to FactSet.

Clorox Expects Inflation Will Curb Profit for Another Year – Bloomberg, 8/4/2022

  • Clorox tumbled after its earnings guidance fell well short of analyst estimates, underscoring how inflation could continue to plague companies long into 2023.
  • Net sales during the same period are seen in a range of negative 4% to positive 2%, according to a company statement that included results for its fiscal fourth-quarter. Clorox aims for a long-term target of 3% to 5%.
  • While consumers flocked to Clorox products such as disinfectant wipes during the early days of the pandemic, sales growth has moderated in recent quarters as demand for cleaning supplies returns to pre-Covid levels and inflation pressures shoppers’ budgets. Meanwhile, higher costs for commodities and transportation have eroded the company’s profitability.
  • The Oakland, California-based company sees its gross margin at about 37.8% this fiscal year — short of the average analyst estimate of 38.4%.
  • Net sales of $1.8 billion were slightly below the average analyst projection as lower volume in cleaning products offset higher prices. Gross margin of 37.1% beat the 36.3% estimate.

Paramount Revenue Rose 19% on ‘Top Gun,’ Streaming Service – Wall Street Journal, 8/4/2022

  • Paramount posted a 19% increase in second-quarter revenue, led by the release of “Top Gun: Maverick” and nearly 5 million new subscribers to its Paramount+ streaming service.
  • The media giant on Thursday said that direct-to-consumer revenue rose 56% from a year ago with more than 64 million subscribers globally, which includes a loss of nearly 4 million subscribers in Russia.
  • Paramount+ more than doubled its revenue with the additional subscribers, which was driven by international launches in the U.K., Ireland and South Korea.
  • “Top Gun: Maverick,” which was released in May, continued to do big business. The movie’s more than $1.3 billion worldwide gross makes it the current highest-grossing film of 2022.
  • For the quarter ended June 30, the New York-based company said net income attributable to the company fell to $419 million, or 62 cents a share, from $1.03 billion, or $1.56 a share, in the previous year.
  • Revenue rose to $7.8 billion, ahead of analyst expectations for nearly $7.6 billion, according to FactSet.

ConocoPhillips Earnings Got a Boost From Oil Prices – Barron’s, 8/4/2022

  • ConocoPhillips reported adjusted earnings of $5.1 billion, or $3.91 a share, above the FactSet consensus estimate of $3.86 a share.
  • Sales were $21.2 billion in the quarter, topping analysts’ forecast of $19.6 billion.
  • ConocoPhillips predicts costs will tick up more than previously expected in the third quarter and updated its operating cost guidance to $7.5 billion from $7.3 billion.
  • Oil production for the second quarter was 1.69 million barrels of oil equivalent per day. For the third quarter, production is expected to be 1.7 million to 1.76 million.

Nikola Stands by 2022 Electric Big Rig Goal as Sales Climb – Bloomberg, 8/4/2022

  • Nikola reported its first meaningful revenue and said it’s on track to deliver as many as 500 electric big rigs to customers this year, even as the company continues to grapple with sluggish production.
  • Sales in the second quarter were $18.1 million, the Phoenix-based company said Thursday in a statement, beating analysts’ expectations. Nikola also reported a narrower-than-expected loss of 25 cents a share.
  • The company built 50 battery-electric semis in the quarter, the low end of its prior guidance of as many as 60. It also delivered 48 to dealers, missing its own forecast.
  • Nikola ended the quarter with $529.2 million of cash and restricted cash on its balance sheet.

Shake Shack Plunges After Saying Return to Office Is Stalling – Bloomberg, 8/4/2022

  • Shake Shack said that the pace of workers returning to offices in cities, including New York, stalled last quarter and hampered the restaurant chain’s growth. The shares fell the most in more than a year.
  • Revenue rose 23% to $230.8 million, the company said Thursday. That trailed analysts’ expectations of $238.4 million.
  • Shake Shack, which generates a majority of its sales in urban markets, said the slowdown in return to office continued in July.
  • The chain forecast revenue of as much as $226.5 million in the current quarter, trailing analysts’ average estimate of $245.2 million.

EV Maker Lucid Cuts Production Outlook in Half – Wall Street Journal, 8/4/2022

  • EV Maker Lucid said it expected to make half as many cars as previously forecast this year, citing supply-chain and logistical challenges that have troubled the wider auto industry as well as the company’s own problems.
  • The California-based company on Wednesday slashed its 2022 production target for the second time this year. Lucid now projects making between 6,000 and 7,000 vehicles. It first lowered a previous estimate of 20,000 vehicles to between 12,000 and 14,000 in February.
  • Lucid said in May that it would raise the price of its sole vehicle, the Air sedan, to $87,000, citing rising raw material costs.
  • Lucid said it had $4.6 billion in cash on hand, compared with $5.4 billion as of March 31, which the company said would allow the company to continue operations into 2023. Revenue for the quarter grew to $97 million, from $174,000 a year earlier.
  • Another rival, Fisker, said Wednesday that its second-quarter net loss rose to $106 million, compared with $46 million last year. Fisker said it has more than $850 million in cash and equivalents on hand, down from $1.2 billion at the start of the year.
  • Fisker plans to begin producing its first product, the Ocean SUV, in November. The company said it had 5,000 preorders of the Ocean initial offering, which costs $69,000. More than 56,000 people total have reserved the SUV, Fisker said, up from 45,000 at the end of the first quarter.
  • Fisker said it also had 4,000 reservations for a crossover SUV with a base price below $30,000. It expects to begin producing the cheaper vehicle by 2024 as part of a partnership with Taiwanese contract manufacturer Foxconn Technology Group.

Wayfair’s Sales Drop as It Loses Customers – Wall Street Journal, 8/4/2022

  • Wayfair posted broad declines in its business Thursday, the latest sign of the online furniture seller’s struggle to reignite consumer interest coming out of the pandemic.
  • The Boston company said revenue in the second quarter declined about 15% from a year ago to $3.3 billion. That resulted in a net loss of $378 million in the quarter ended June 30, compared with a profit of $131 million in the same period last year.
  • Active customers, meaning those who have placed an order within the past 12 months, were down 24% to 23.6 million in the quarter. But the consumers still purchasing are spending more: Wayfair’s average order value in the second quarter increased about 19% year over year to $330.
  • U.S. revenue, which makes up a large part of overall revenue, fell 9.7% to $2.8 billion. International revenue dropped 35.7% year over year to $500 million.

Datadog tops earnings expectations, but stock falls with guidance seen as conservative – MarketWatch, 8/4/2022

  • Shares of Datadog fell after the cloud-monitoring company beat expectations with its second-quarter results but delivered a third-quarter revenue outlook that fell just shy of the FactSet consensus at the midpoint.
  • The company also said it was acquiring an API (Application Programming Interface) observability company.
  • Datadog’s revenue increased to $406.1 million from $233.5 million, whereas analysts were projecting $382 million.
  • For the third quarter, Datadog executives model revenue of $410 million to $414 million along with adjusted earnings per share of 15 cents to 17 cents.
  • Analysts tracked by FactSet were looking for $413 million in September-quarter revenue and 16 cents in adjusted EPS.
  • For the full year, the management team anticipates $1.61 billion to $1.63 billion in revenue and 74 cents to 81 cents in adjusted EPS.

Tesla Shareholders Expected to Clear Path to 3-for-1 Stock Split – Wall Street Journal, 8/4/2022

  • Tesla investors on Thursday are expected to clear the way for the company to complete its second stock split in about two years.
  • Elon Musk’s electric-vehicle maker, whose stock price has roughly tripled in the past two years, is planning a 3-for-1 stock split that the company has said is designed to make ownership more accessible to employees and individual investors.
  • That proposal is among more than a dozen facing investor consideration at Tesla’s annual shareholder meeting, scheduled to be held at the company’s Austin, Texas-area factory at 4:30 p.m. local time.

BlackRock Teams Up With Coinbase in Crypto Market Expansion – Bloomberg, 8/4/2022

  • BlackRock is partnering with Coinbase Global to make it easier for institutional investors to manage and trade Bitcoin, taking the world’s largest asset manager into a cryptocurrency market hammered by plunging prices and government investigations.
  • Top BlackRock clients will be able to use its Aladdin investment-management system to oversee their exposure to Bitcoin along with other portfolio assets such as stocks and bonds, and to facilitate financing and trading on Coinbase’s exchange, according to a statement Thursday. The focus of the partnership with Coinbase, the biggest US crypto-trading platform, “will initially be on Bitcoin,” BlackRock said.
  • Institutional investors accounted for about three-quarters of the $309 billion in trading volume on Coinbase in the first quarter, the company disclosed in May. Coinbase clients include hedge funds, corporate treasuries and asset managers.

US ECONOMY & POLITICS

U.S. Jobless Claims Rose Last Week to Near High for Year – Wall Street Journal, 8/4/2022

  • Worker filings for unemployment benefits rose last week, holding close to the highest level of the year as the U.S. labor market showed several signs of cooling.
  • Initial jobless claims, a proxy for layoffs, increased slightly to a seasonally adjusted 260,000 last week from a downwardly revised 254,000 the prior week, the Labor Department said Thursday.
  • The total is close to the 2022 peak set earlier in July of 261,000 and above the 2019 prepandemic weekly average of 218,000, when the labor market also was strong.
  • Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, rose by 48,000 to 1.4 million in the week ended July 23. That was the highest level since the spring. Continuing claims are reported with a one-week lag.

Mortgage Rates Hit 4.99%, Dropping Below 5% for First Time Since April – Wall Street Journal, 8/4/2022

  • The average rate on a 30-year fixed-rate mortgage is 4.99% this week, down from 5.30% a week earlier, according to a survey by mortgage giant Freddie Mac published Thursday.
  • Though rates remain well above their levels from a year ago, they have fallen swiftly in recent weeks from their 13-year high of 5.81% in June.
  • Mortgage rates are tied closely to the 10-year U.S. Treasury yield, which tends to move in tandem with expectations for the Fed’s benchmark rate. On Monday, the 10-year yield slipped to its lowest level since April.

EUROPE & WORLD

Bank of England Makes Biggest Rate Rise Since 1995 as Inflation Soars – Wall Street Journal, 8/4/2022

  • The Bank of England raised its key interest rate by a half percentage point Thursday, the largest single step in more than a quarter-century, as the central bank follows the Federal Reserve in giving priority to the fight against inflation over the risk of hurting growth.
  • In a statement, the bank raised its key rate to 1.75% from 1.25%. That means the bank has increased borrowing costs at six straight meetings of its monetary policy committee, its longest such streak since the late 1990s.

Alibaba Posts First Revenue Decline Since Going Public – Wall Street Journal, 8/4/2022

  • Alibaba posted its first quarterly revenue decline since its 2014 listing in a sign of how its era of explosive growth may be coming to an end.
  • The drop was slim, at 0.09%, from a year earlier, though still notable for the Hangzhou-based company, which for years has been among China’s fastest-growing technology companies.
  • China’s economy slowed down considerably in the April-June period, recording its weakest growth rate in more than two years, as the country stuck to its zero-tolerance policy to combat Covid-19. Gross domestic product expanded at a 0.4% annual rate during the period.
  • Alibaba said Thursday its April-June revenue was the equivalent of $30.7 billion, based on an end-June exchange rate of about 6.7 yuan to a dollar that Alibaba used.
  • Net income attributable to ordinary shareholders fell 49.6% to the equivalent of $3.4 billion.
  • Alibaba’s quarterly revenue in its reporting currency was at 205.56 billion yuan, beating analyst estimates, compared with the year-earlier figure of 205.74 billion yuan. It posted 22.7 billion yuan in net income, compared with 45.1 billion yuan a year earlier.

Credit Suisse Weighs Cutting Thousands of Jobs in Turnaround Bid – Bloomberg, 8/4/2022

  • Credit Suisse executives are discussing reducing thousands of roles globally as the struggling European lender seeks to slash its overall cost base by an additional $1 billion.
  • The bank, which began trimming front line roles in Asia last month, is mulling an aggressive plan to reduce its headcount, which stood at 51,410 at the end of June.
  • The lender last month said it aims to trim its overall cost base to below 15.5 billion francs ($16.1 billion) in the medium term, going well beyond a target of 16.5 billion to 17 billion francs set out in late 2021.

Factmonster – TODAY in HISTORY

  • Printer John Peter Zenger, defended by Andrew Hamilton, was acquitted of libel in a case that helped foster freedom of the press. (1735)
  • Thomas Stevens became the first person to bicycle across the United States. He later bicycled around the world. (1884)
  • Germany invaded Belgium and, in response, Britain declared war on Germany. (1914)
  • Denmark ceded the Danish West Indies, including the Danish Virgin Islands, to the United States for $25 million. (1916)
  • President Carter signed a congressional act that established the Department of Energy. (1977)

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