US FINANCIAL MARKET
Disappointing Apple, Amazon Earnings Help Drag Stocks Lower – Wall Street Journal, 10/29/2021
- A selloff in shares of Apple and Amazon.com dragged major U.S. indexes down Friday after the companies’ quarterly earnings showed that even the biggest winners of the Covid-19 pandemic haven’t been unscathed by supply-chain problems and tight labor markets.
- Investors have been monitoring earnings for signs that stickier-than-expected inflation and supply-chain snarls are weighing on profits.
- Apple said supply-chain disruptions were hindering the manufacturing of iPhones and other products and would bring increased challenges during the holiday-shopping season.
- Amazon posted lower-than-expected third-quarter sales and signaled that a tight labor market and supply-chain disruptions would weigh on fourth-quarter earnings.
- The S&P 500 declined 0.2%, pulling from back a fresh record reached Thursday. The tech-focused Nasdaq Composite fell 0.4%.
- The Dow Jones Industrial Average, in contrast, added about 30 points, or 0.1%, after wavering between gains and losses throughout the session.
- Overall, strong earnings have supported stocks’ recent rally.
- On Friday, the two largest U.S. oil companies, Exxon Mobil and Chevron, reported their most profitable quarterly earnings since before the pandemic. Shares gained 0.9% and 1.2%, respectively.
- Starbucks shares slid 6.7% after the coffee chain said its U.S. sales were strong, but the pandemic’s resurgence in China had dragged on revenue.
- Fresh data Friday showed that U.S. consumer spending grew more slowly in September, as the Covid-19 Delta variant and supply-chain disruptions weighed on households.
- In bond markets, the yield on the 10-year Treasury note ticked up to 1.575% from 1.568% Thursday. Yields rise when prices fall.
- Investors sold off eurozone government bonds after fresh data showed that inflation in the eurozone accelerated in October at the fastest pace since July 2008.
- In Asia, stock indexes closed with mixed performance. China’s Shanghai Composite added 0.8%, and Japan’s Nikkei 225 edged up almost 0.3%. South Korea’s Kospi declined 1.3%, and Hong Kong’s Hang Seng fell 0.7%.
Amazon Earnings Suffer as Growth Slows, Costs Rise – Wall Street Journal, 10/29/2021
- Amazon.com posted lower-than-expected third-quarter sales and signaled that a tight labor market and supply-chain disruptions would weigh on earnings.
- The online retailer posted sales of $110.8 billion and generated a profit of $3.2 billion, down from the $6.3 billion the company made during the same period a year earlier. Wall Street expected $111.6 billion in quarterly revenue and profit of $4.6 billion.
- Sales for the cloud unit continued to climb sharply, totaling $16.1 billion in the third quarter, up about 39% from a year earlier.
- Amazon’s unit that primarily includes ad sales grew by 50%.
- The company spent $2 billion during the third quarter on extra pay and incentives as well as other constraints related to its supply chain, he said.
- In the current quarter, “we expect to incur several billion dollars of additional costs in our consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season,” Mr. Jassy said.
- For the fourth quarter, the company projects sales between $130 billion and $140 billion, compared with a Wall Street expectation of $142.2 billion.
- Amazon said operating income in the three months ending Dec. 31 is expected to be between break-even and a $3 billion profit, down from $6.9 billion a year earlier and trailing expectations.
Apple results hit by supply chain woes, Cook says holiday quarter impact will be worse – Reuters, 10/29/2021
- Supply chain woes cost Apple $6 billion in sales during the company’s fiscal fourth quarter, which missed Wall Street expectations, and Chief Executive Tim Cook said that the impact will be even worse during the current holiday sales quarter.
- Apple said revenues and profits for the fiscal fourth quarter were $83.4 billion and $1.24 per share, compared with analyst estimates of $84.8 billion and $1.24 per share, according to IBES data from Refinitiv.
- Apple said fourth-quarter iPhone sales were $38.9 billion, short of estimates of $41.5 billion, according to Refinitiv data.
- Cook said that chips made with older technology remain the key supply constraint.
- He said that Apple remains unsure whether the shortages will ease after the holiday shopping season.
- The company’s accessories segment, which contains fast-growing categories like its AirPods wireless headphones, came in at $8.8 billion, half a billion dollars lower than analyst expectations of $9.3 billion, according to Refinitiv data.
- Other segments fared better.
- Sales for iPads and Macs were $8.3 billion and $9.2 billion, compared with analyst estimates of $7.2 billion and $9.2 billion, according to Refinitiv data.
- The company’s services segment – which contains its App Store business – had sales of $18.3 billion in revenue, up 26%, compared with analyst expectations of $17.6 billion.
- Cook told that Apple now has 745 million paid subscribers to its platform, up from the 700 million it disclosed a quarter ago.
- Another bright spot in the company’s results were its sales in China, which were up 83% to $14.6 billion.
- Cook said the company expects “solid year-over-growth revenue growth” for its quarter ending in December.
- Analysts expect growth of 7.4% to $119.7 billion.
Starbucks’s China Sales Slow With Covid-19 Bout – Wall Street Journal, 10/29/2021
- Starbucks said its U.S. sales were strong during its most recent quarter, though the pandemic’s resurgence in China dragged on the coffee chain’s revenue.
- The Seattle-based coffee company reported quarterly net income of $1.76 billion, up 349% from the same quarter a year earlier.
- Sales totaling $8.15 billion climbed 31%.
- For its fourth quarter ended Oct. 3, Starbucks said Thursday that its U.S. same-store sales were up 22% compared with the same period last year, and up 11% over pre-pandemic levels.
- But same-store sales in the company’s crucial China market fell 7% in the quarter compared with last year’s period.
- In North America, Starbucks said, higher pricing benefited the company’s sales during the quarter, while supply-chain costs were a drag.
- The coffee chain said 70% of U.S. orders are now coming from drive-throughs and mobile orders.
- Executives said they are trying to reduce the complexity of store operations to help workers keep up.
- Starbucks is boosting average U.S. employee pay to $17 an hour, up from roughly $14 an hour currently.
- It is also paying $200 referral bonuses and beefing up recruiting efforts across the country.
- That wage increase and two other recent ones constitute overall an additional $1 billion in spending on employees, Starbucks said.
U.S. Steel Stock Is Jumping — and Not Just Because It Crushed Earnings – Barron’s, 10/29/2021
- U.S. Steel stock was soaring in after-hours trading after the company not only crushed third-quarter earnings expectations but also raised its dividend.
- U.S. Steel reported $5.36 in adjusted in per-share earnings on $6 billion in sales.
- Wall Street had been looking for earnings of $4.87 a share and $5.8 billion in sales.
- The company shipped 4.1 million tons of steel in the third quarter, up from 3 million tons a year ago.
- Separately, the company announced it would buy back $300 million in stock and hiked the quarterly dividend to 5 cents a share from 1 cent.
Western Digital Earnings Beat Estimates – Barron’s, 10/29/2021
- Western Digital stock fell sharply in late trading Thursday after the disk-drive and flash memory chip company provided disappointing profit guidance for its fiscal second-quarter ending in December.
- For the September quarter, Western Digital posted revenue of $5.1 billion, up 29% from a year ago, about even with the Street at $5.06 billion.
- The company saw 72% growth in revenue related to the cloud, 6% growth in revenue for PCs and other devices, and 10% growth in storage devices sold at retail.
- Non-GAAP gross margin jumped to 33.9% from 26.3% a year ago.
- Non-GAAP profits were $2.49 a share, ahead of the Street consensus outlook at $2.45 a share.
- Under generally accepted accounting principles, the company earned $1.93 a share.
- For the December quarter, the company sees revenue of between $4.7 billion and $4.9 billion, with non-GAAP profits of between $1.95 and $2.25 a share. Street consensus had called for $5.3 billion in revenue and profits of $2.67 a share.
- The company projects non-GAAP gross margin in the quarter of between 32% and 34%.
Charter’s Subscriber Weakness Fuels Fear of Broadband Slowdown – Bloomberg, 10/29/2021
- Charter Communications shares declined after the U.S. cable company reported internet subscriber growth that fell short of Wall Street’s expectations.
- Charter, which sells TV, phone and internet service under the brand name Spectrum, added 265,000 broadband customers in the third quarter, the company said Friday in a statement.
- That was about 25% fewer than analysts expected, “raising questions about whether this is the beginning of the end of the cable broadband story,” said Geetha Ranganathan, an industry analyst at Bloomberg Intelligence.
- On Thursday, Comcast said it had also seen a slowdown in broadband subscriber growth in the third quarter, citing fewer people moving homes, which means fewer opportunities to win new subscribers.
Gilead trims 2021 sales forecast for non-COVID products – Reuters, 10/28/2021
- Gilead Sciences on Thursday posted higher-than-expected third-quarter earnings on strong demand for its COVID-19 antiviral treatment, but said 2021 sales of its other drugs will fall short of earlier estimates.
- Revenue for the quarter rose 13% from a year earlier to $7.4 billion, ahead of the average analyst estimate of $6.26 billion.
- But the outperformance was almost entirely driven by sales of Veklury, which more than doubled to $1.9 billion for the quarter.
- Third-quarter sales of Gilead’s HIV medicines dropped 8% to $4.2 billion as some drugs lost a patent protection and the pandemic continued to limit visits to doctors.
- Sales of Trodelvy came in at $101 million for the quarter, in line with analyst estimates.
- Gilead reported adjusted quarterly earnings of $2.65 per share, soundly beating Wall Street estimates of $1.75 per share, as compiled by Refinitiv.
- Gilead raised its full-year adjusted earnings forecast to $7.90 to $8.10 per share from its prior projection of $6.90 to $7.25.
- Without Veklury, also known as remdesivir, Gilead said it now expects sales for the full year of around $21.5 billion. That is down from its previous mid-point estimate of $21.8 billion, reflecting the longer than expected impact of the pandemic on its business.
- Including Veklury, the company said it now expects product sales for the year of $26 billion to $26.3 billion, up from a previous estimate of $24.4 billion to $25 billion.
Exxon, Chevron Amass Cash as Oil Tops $80 a Barrel – Wall Street Journal, 10/29/2021
- Big oil companies are generating their biggest cash flows in years and heeding investor calls to return it to shareholders instead of using it to drill.
- Exxon reported earnings of $6.8 billion, its best quarterly performance since 2017, and said it would launch a $10 billion share buyback program starting next year.
- Exxon raised its quarterly dividend on Wednesday by 1 cent, its first such increase since 2019, and said Friday it generated $12 billion in cash from operations.
- Exxon has said it would keep production roughly flat.
- Quarterly production increased 4% from the same period last year.
- Chevron reported $6 billion in net income, its best quarter since 2013, and said it generated $6.7 billion in free cash flow, its most ever.
- Chevron said Friday that its year-to-date capital spending is down 22% and it paid dividends of $2.6 billion, reduced debt by $5.6 billion, and repurchased $625 million of shares during the quarter.
- Chevron is increasing production, modestly. Pierre Breber, its chief financial officer, said in an interview that the company’s production was up 7% in the quarter compared with the same period last year and will increase 3% annually through 2025.
Skechers Posts Strong Sales as Postpandemic Recovery Continues. The Footwear Maker Still Missed Estimates. – Barron’s, 10/29/2021
- Skechers, the world’s third-largest athletic footwear company, posted strong quarterly sales and earnings as its postpandemic recovery continues. But the earnings didn’t meet Wall Street’s expectations.
- After the market close on Thursday, the Manhattan Beach, California-based company reported sales of $1.55 billion for the third quarter ended Sept. 30, 2021, an increase of 19.2% from the year-ago period.
- Retail sales saw particularly strong year-over-year growth of 44.1%, as consumers head back outdoors after a year-long lockdown. Wholesale sales increased by 10.5%.
- For the quarter, Skechers posted diluted earnings per share of $0.66, up 61% from the same quarter last year.
- Despite the strong growth, both revenue and earnings fell short of estimates. Analysts polled by FactSet had anticipated Skechers to achieve quarterly sales of $1.62 billion, and earnings of $0.69 per share.
- “Supply chain constraints challenged our normal delivery speeds, but our teams worked tirelessly to move inventory as quickly as possible, delivering to our stores and partners in an effort to keep up with the demand,” says CEO Robert Greenberg.
Meta Shares Surge. No, Not Facebook’s Meta. – Wall Street Journal, 10/29/2021
- A Canadian company’s stock is surging. Investors are apparently confusing it for the rebranded Facebook.
- Meta Materials, a material-science company with the ticker symbol MMAT, has suddenly become a hot stock.
- Shares of Meta Materials rose more than 7% Friday morning, piling onto Thursday’s 4.8% gain.
- While Meta Materials appears to have no relation to Facebook, it soon will have a similar corporate name.
- Facebook is changing its name to Meta Platforms, a ploy aimed at better positioning the company around the metaverse.
- Similar confusion has occurred in the past. Some investors put their money into Zoom Technologies last year, sending the stock higher, instead of investing into popular work-from-home videoconferencing service Zoom Video Communications.
- The same thing happened when retail investors were excited about movie theater chain AMC Entertainment Holdings.
- Shares of AMC Networks, which has a similar ticker to AMC Entertainment, also rose. AMC Networks is an entertainment company whose brands include AMC and IFC.
US ECONOMY & POLITICS
U.S. Consumer Spending Grew More Slowly in September – Wall Street Journal, 10/29/2021
- Growth in household spending slowed and income fell in September as a combination of high Covid-19 cases, product shortages, rising prices and the end of enhanced unemployment benefits held consumers back.
- Consumer spending rose 0.6% in September over the previous month, down from a 1% increase in August, the Commerce Department said Friday.
- Personal incomes fell 1% last month driven by a 72% decline in unemployment insurance benefits that offset a 0.7% increase in wages and benefits, the department said.
- The savings rate—the share of disposable personal income unspent every month—fell to 7.5% in September from 9.2% in August, returning it to a level last seen at the end of 2019 ahead of the pandemic.
- Worker compensation surged 1.3% in the third quarter from the second quarter, the fastest pace since records began in 2001, according to a separate report from the Labor Department.
- Wages and salaries were up 1.5% on the quarter and benefits rose 0.9%.
- The personal-consumption expenditures price index, the inflation measure most closely watched by the Federal Reserve, rose 0.3% in September from the previous month, the same rate as in August.
- It was up 4.4% from a year ago, the fastest pace in 30 years.
- Excluding food and energy categories, which tend to be more volatile, the index rose 0.2% over the month and 3.6% over the year.
- Personal-consumption expenditures rose at a seasonally adjusted annualized rate of 1.6% for the quarter, boosted by a 7.9% increase in spending on services such as restaurant meals or movie tickets.
U.S. Consumer Sentiment Falls in October From a Month Earlier – Bloomberg, 10/29/2021
- U.S. consumer sentiment slipped in October from a month earlier and Americans’ outlook for inflation in the year ahead continued to rise.
- The University of Michigan’s final sentiment index fell to 71.7 from 72.8 in September, data released Friday showed.
- The figure compared with a preliminary October reading of 71.4.
- Consumers expect inflation to rise 4.8% over the next year, the highest since 2008, from 4.6% a month earlier.
- They also see inflation rising 2.9% over the next five years, down from 3% in September.
- Buying conditions for household durable goods such as appliances and electronics deteriorated in October from a month earlier, according to the University of Michigan report. The index fell to 85 in October, the lowest since 1980.
- The gauge of current conditions fell to 77.7 in October from 80.1, while a measure of future expectations declined to 67.9 from 68.1, according to the survey.
Biden Framework for Social-Climate Package Fails to Ease Passage of Infrastructure Bill – Wall Street Journal, 10/29/2021
- The White House released a $1.85 trillion framework designed to show progress in months of social spending and climate talks that fell short of persuading progressives to quickly approve a parallel, roughly $1 trillion infrastructure bill.
- Party leaders initially signaled they wanted to hold a vote on the infrastructure bill later Thursday, but abandoned that plan in the evening in the face of progressive opposition, instead approving a short-term patch for transportation programs that were expiring at the end of the month.
- Progressives endorsed Mr. Biden’s framework but said they still needed to see more detail of the social policy and climate bill before they could support the infrastructure legislation.
- The developments frustrated Democrats’ hopes for a high-profile policy win as Mr. Biden headed to Europe.
- The White House is eager to notch wins on two central pillars of the president’s agenda to firm up his sagging poll numbers and bolster Democrats’ case with voters, with a test coming next week in gubernatorial elections in Virginia and New Jersey.
Democrats Consider Tax Cuts for Many High Earners in New York, New Jersey and California – Wall Street Journal, 10/29/2021
- High-income coastal professionals look likely to emerge as significant winners from the Democrats’ proposed tax agenda, escaping rate increases and regaining a deduction for state and local taxes that was capped at $10,000 in 2017.
- The potential result: Many residents of New York, New Jersey, California and other states who make more than the $400,000 threshold that President Biden set for tax increases could end up with tax cuts atop the tax cuts they got four years ago.
- Democrats haven’t settled on a plan, but one option would repeal the cap for 2022 and 2023 and reinstate it in 2026 and 2027.
- In those first two years, that repeal could outweigh all of the tax increases on high-income people, according to the Committee for a Responsible Federal Budget, which has criticized plans to remove the cap.
Infrastructure Bill’s Broadband Plan Shrouded From Scrutiny – Wall Street Journal, 10/29/2021
- Congress is poised to shield a $42 billion broadband grant program from federal transparency and privacy laws, hampering oversight of money expected to flow mostly to telecommunications companies.
- In a bid to cut through red tape and speed delivery of the broadband funds, the Senate-passed Infrastructure Investment and JOBS Act includes a provision that suspends certain rules the federal government ordinarily has to follow in administering programs.
- If passed into law as written, the bill could hide documents from public scrutiny about how the federal government plans to spend billions of dollars to expand broadband access to underserved areas.
- It could also shield the terms of any agreements between grant recipients and the government from federal disclosure laws.
- Senate aides involved in drafting the broadband provisions couldn’t say how the exemption came to be added, but it did spark a brief debate on the Senate floor on whether it should be kept.
EUROPE & WORLD
- Eurozone Economy Outpaces U.S., China, but Tougher Times Lie Ahead – Wall Street Journal, 10/29/2021
- The eurozone economy grew briskly in the summer, outpacing the larger U.S. and Chinese economies as the loosening of social restrictions and widespread vaccinations powered the region’s comeback from the Covid-19 pandemic, but supply-chain bottlenecks and rising prices are expected to hold growth back in the coming months.
- Gross domestic product in the 19-nation eurozone grew at a seasonally adjusted annualized rate of 9.1% in the three months through September, roughly in line with the previous quarter, the European Union’s statistics agency said on Friday.
- France and Italy were the top performers of the larger eurozone economies during the third quarter, while Germany and Spain lagged behind.
- French growth was supported by a sharp rebound in consumer spending, as social restrictions were eased, leaving economic output just 0.1% short of its pre-pandemic size.
- In Spain, growth was held back by a decline in household consumption and economic output remains about 6% below its pre-pandemic level.
Euro Inflation Breaches 4% Increasing Lagarde’s Market Challenge – Bloomberg, 10/29/2021
- Euro-area inflation accelerated more than expected to breach 4% for only the second time ever, adding to the European Central Bank’s challenge in battling increasingly aggressive market bets for interest-rate hikes.
- Consumer prices rose 4.1% in October, compared with the median of economist estimates at 3.7%, according to figures released by Eurostat on Friday. A measure stripping out volatile components such as food and energy climbed to 2.1%, a rate not seen in nearly two decades.
- Energy prices in the euro area, meanwhile, rose 23.5% in October, up from 17.6% a month earlier, amid a natural-gas crunch.
- Professional forecasters polled by the ECB also ramped up their inflation outlook for the period through 2023, though they continue to see a sharp slowdown in 2022 from the current level, according to report on Friday.
- The respondents expect price growth of 1.9% in 2022 and 1.7% in 2023, below the ECB’s 2% target.
Canada’s Economy Wavers Unexpectedly Amid Supply Bottlenecks – Bloomberg, 10/29/2021
- Canada’s economic growth unexpectedly faltered at the end of the third quarter, casting doubts on the strength of the nation’s recovery.
- Gross domestic product was little changed in September, according to a preliminary estimate from Statistics Canada released Friday, while the expansion was a less-than-expected 0.4% in August.
- Overall for the third quarter, the economy grew by 0.5%, or an annualized pace of around 2%.
- The data could cast doubt on the Bank of Canada’s ability to start a cycle of interest rate increases early next year, as investors are anticipating, to combat rising inflation.
- It’s a disappointing result, even from recently downgraded estimates for the three-month period, after an even weaker first half of the year.
Evergrande Averts Default Again by Making Second Late Payment – Wall Street Journal, 10/29/2021
- China Evergrande Group avoided default for a second time by making an overdue interest payment on dollar bonds shortly before the end of a 30-day grace period, people familiar with the matter said.
- Evergrande, one of China’s largest real-estate developers, made a coupon payment that was originally due on Sept. 29, the people said.
- Evergrande was on the hook to pay about $45 million of interest on $951 million of bonds, which have a 9.5% coupon and mature in 2024, according to CreditSights research.
- By making these last-minute payments, Evergrande is buying time to organize its finances and negotiate with creditors.
- If it had let either grace period run out, that would likely have spiraled into the biggest corporate default in Asia, by enabling creditors to declare defaults on some of Evergrande’s other debts.
- The Republic of Turkey was proclaimed under Mustafa Kemal Ataturk. (1923)
- The New York Stock Exchange crashed on Black Tuesday, precipitating the Great Depression. (1929)
- Israel invaded the Egyptian Sinai Peninsula during the Suez Canal crisis. (1956)
- European leaders signed the European Union’s first constitution. (2004)
- Hurricane Sandy smashed into the eastern seaboard of the U.S., killing 117 people in the U.S. and 69 in Canada and the Caribbean. The storm caused about $50 billion in damage in the U.S. (2012)