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Stocks can become buys for Wall Street analysts any number of ways. New management, new products, or a renewed focus on costs can all be catalysts analysts that analysts examine. Sometimes investors turn stocks into buys all by themselves.
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has had a big high and a big surprise in the past week—and Wall Street isn’t happy about it.
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stock plummeted earlier this week after announcing plans to raise more capital and one analyst understands why. It was one of the reasons he downgraded the stock.
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Citi has released a list of 20 large-cap growth stocks that it says present opportunities in the event of a pullback.
“Our call since early summer has been to hold Growth and look to buy on pullbacks,” Citi analyst Scott Chronert said in a note released Monday, adding that Citi has had a tactical preference for cyclicals. “However, on the heels of the strong Cyclicals surge during June and July, and our upwardly revised S&P 500 target of 4600, the messaging has been to buy on pullbacks more broadly,” he wrote.
Citi also notes that the Russell 1000 Growth Index
RLG
has sold off more than 6% from its mid-July high, although two-thirds of the stocks in the index are down 10% or more, with one-third down more than 20%. “This sets up for interesting intermediate to long-term stock selection opportunities,” Chronert said.
Related: Preorders for the iPhone 15 have begun, and here’s a sign they’ve been ‘solid’
The analyst acknowledged that there is still a risk of economic softening ahead, if not a recession. “Yet, the argument that Growth stocks can show fundamental resilience during periods of broader economic weakening is a theme that we have considered for several years now,” he said.
Set against this backdrop, the analyst firm has compiled a tech-heavy list of 20 stocks that have a buy rating from Citi, have at least 75% of market cap assigned to growth, according to Russell, and have experienced a decline of 10% or more from year-to-date highs since March 31. Other common characteristics of the stocks include consensus estimates of free cash flow per share above March 31 levels and free cash flow per share within or above market-implied five-year-forward estimates.
Tech heavyweights Apple Inc.
AAPL,
and NVIDIA Corp.
NVDA,
are on the list, along with Pinterest Inc.
PINS,
Lam Research Corp.
LRCX,
Teradata Corp.
TDC,
Datadog Inc.
DDOG,
MongoDB Inc.
MDB,
HubSpot Inc.
HUBS,
and KLA Corp.
KLAC,
The other stocks cited by Citi are Lockheed Martin Corp.
LMT,
DraftKings Inc.
DKNG,
Las Vegas Sands Corp.
LVS,
Chipotle Mexican Grill Inc.
CMG,
Netflix Inc.
NFLX,
TKO Group Holdings Inc.
TKO,
Rockwell Automation Inc.
ROK,
and Paycom Software Inc.
PAYC,
and healthcare stocks Bruker Corp.
BRKR,
Insulet Corp.
PODD,
and Intuitive Surgical Inc.
ISRG,
Related: Will Nvidia stock be like Apple or Cisco in the AI era?
Shares of Apple, which recently launched its iPhone 15, are down 5.5% in the last three months. Shares of chip maker NVIDIA are up 2.8% over the same period, while Lockheed Martin is down 8.9% and DraftKings is up 8.6%. Las Vegas Sands is down 21.8% and Chipotle is down 8.8%, while Netflix is down 7.8%.
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This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.
https://www.barrons.com/articles/stock-market-movers-457cee3b
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H&M shares slumped Friday as the Swedish retail chain missed expectations for sales growth in a quarter in which it said it focused on profitability.
H&M stock
HM.B,
dropped 4% in early action, though it has rallied 47% this year.
In a brief statement, H&M said fiscal third-quarter sales in local currencies was “flattish,” missing analyst estimates for 5% sales growth. It said its goal of reaching a 10% operating margin next year “is going in the right direction” and that profitability and inventory levels have been priortized in the quarter.
Analysts at RBC said weather may have dampened sales, but that it also has become more expensive this season — for instance, pricing 10% below average in the U.K., versus 20% traditionally. Its publicly traded rivals — Inditex
ITX,
the Primark unit of Associated British Foods
ABF,
and Next
NXT,
— have each reported stronger sales growth.
The broader tone in European markets was positive, except for tech stocks, with ASM International
ASM,
shares losing 5% and ASML Holding
ASML,
down 2%.
The French CAC 40
FR:PX1
led the major regional indexes with a 1.3% rise, as the U.K. FTSE 100
UK:UKX
and German DAX
DX:DAX
also rose. Better-than-expected Chinese retail sales figures helped Paris-listed luxury plays.
Stellantis shares
STLAM,
fell 1% as the United Auto Workers began a strike at an Ohio plant, along with one plant each at fellow Big Three automakers Ford and General Motors.
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Oracle Corp. shares dropped in extended trading Monday after the software company’s revenue forecast for the current quarter fell short of Wall Street expectations.
Oracle
ORCL,
shares, which had been down about 5% after hours when its earnings call started, dropped more than 9% after Oracle Chief Executive Safra Catz forecast its outlook for the quarter.
On the conference call with analysts, Catz forecast second-quarter earnings of $1.30 to $1.34 a share on revenue growth of 5% to 7%, or $12.89 billion to $13.13 billion.
Analysts surveyed by FactSet had estimated earnings of $1.34 a share on revenue of $13.28 billion.
Catz added that if “currency exchange rates remain the same as they are now,” currency should have a 2% positive effect on total revenue and a 3 cent-a-share positive effect on earnings.
Oracle reported fiscal first-quarter net income of $2.42 billion, or 86 cents a share, compared with $1.55 billion, or 56 cents a share, a year ago.
Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.19 a share, compared with $1.03 a share in the year-ago period.
Revenue rose to $12.45 billion from $11.45 billion in the year-ago quarter.
Analysts surveyed by FactSet had forecast earnings of $1.15 a share on revenue of $12.57 billion.
Oracle reported cloud services and license support revenue of $9.55 billion, while analysts, on average, had forecast $9.43 billion; and cloud license and on-premise license revenue of $809 million, while the Street expected $967 million.
Hardware revenue came in at $714 million, while analysts expected $748 million; and services revenue was $1.38 billion, while the Street expected $1.43 billion.
Oracle shares finished up 0.3% during Monday’s regular session to close at $126.71.
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Recent weakness in the U.S. stock market is likely to persist over the near-term, according to Wall Street’s most bullish strategist, who still thinks the S&P 500 is on a path to a record high this year.
John Stoltzfus, chief investment strategist at Oppenheimer Asset Management Inc., in late July projected the S&P 500 would rise above 4,900 by the end of 2023. That is the highest price target for the large-cap index among 20 Wall Street firms surveyed by MarketWatch in August.
It implies the S&P 500 would rise above its earlier closing record high of 4,796 reached on Jan. 3, 2022 by the end of the year. The path up, however, could get bumpy.
“Bullishness [in the stock market] is relatively high while the Fed remains shy of its inflation target,” said a team of Oppenheimer strategists led by Stoltzfus in a Sunday note. They also said, “we persist in suggesting that investors curb their enthusiasm [in the stock market] for a long rate pause or even a rate cut and instead right-size expectations.”
Expectations that the Federal Reserve is nearing an end to its current interest-rate hiking cycle, as well as optimism around artificial intelligence boosted the U.S. stock market in the first seven months of 2023. However, the rally came to a brief halt in August as investors worried the Fed could be forced to keep rates elevated as a batch of stronger-than-expected economic data and rising oil prices fueled concerns that still-sticky inflation would mean that borrowing costs will stay higher for longer.
Investors should not brush off those pressures, even through the Fed appears to be nearing the end to its current rate-hike cycle, Stoltzfus and his team said. “The stickiness evidenced in food, services, energy and other prices warrants the Fed remaining vigilant along with a potential for one more hike this year and perhaps another next year,” they said.
See: When will consumers stop buying more stuff? It’s a key question for the stock market.
However, Stoltzfus doesn’t see current headwinds for stocks as something that would prevent the S&P 500 from achieving his team’s new peak target.
Stock-market investors expect this week’s August inflation report to offer more clarity on whether the central bank will continue to ratchet up its fight against inflation. The headline component of the consumer-price index is forecast to accelerate to 0.6% in August from July’s 0.2% gain, while the core measure that strips out volatile food and fuel costs is expected to rise a mild 0.2% from a month earlier, according to a survey of economists by The Wall Street Journal.
Meanwhile, a key Wall Street volatility index also pointed to “some choppiness” in the stock market in the near term to keep investors on their toes, said Stoltzfus. The CBOE Volatility Index
VIX,
at a level of 13.82 on Monday, hovered around its 12-month low and traded about 30% below its one-year average level of 19.9, and 37% below its two-year average of 21.88 (see chart below).
Stoltzfus and his team suggest that investors use market weakness to seek out “babies that get thrown out with the bath water” in periods of volatility. They said the S&P 500 Energy Sector
XX:SP500.10
looks increasingly attractive as policy makers in the U.S. and abroad strive to contain inflation and manage economic growth.
“We believe that prospects are looking better that the Fed’s success thus far in bringing down the rate of inflation could lead to a [rate] pause next year, thus lessening pressures on economic growth,” the strategists said. An improved economic growth, along with fiscal stimulus from investment in stateside infrastructure projects and stateside chip manufacturing efforts, could contribute to profitability in the energy sector into 2024, the team added.
The Energy Select Sector SPDR Fund
XLE,
which is seen as a proxy of the energy sector of the S&P 500, has advanced 3.9% year to date versus a 8.5% increase in the price of the U.S. benchmark West Texas Intermediate crude oil
CL00,
CL.1,
according to FactSet data.
Oil futures
CLV23,
BRNX23,
traded at their highest levels of the year on Monday morning, a week after Russia and Saudi Arabia caught markets off guard with their output cut extension announcements, but they settled modestly lower on Monday afternoon.
See: Energy ETFs are outshining the S&P 500, but it’s not just because of the oil rally
Stoltzfus in late July projected the S&P 500
SPX
would rise above its record high by the end of 2023, lifting his year-end price target for the large-cap index to 4,900 from an earlier 4,400 projection from December. It implies a 9.2% advance from where the S&P 500 settled on Monday, at around 4,487.
U.S. stocks finished higher on Monday, boosted by technology shares as Nasdaq Composite
COMP
advanced 1.1%. The S&P 500 was up 0.7% and the Dow Jones Industrial Average
DJIA
ended 0.3% higher, according to FactSet data.
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Talking about AI alone has been pixie dust for big technology stocks this year. And as executives look for any way to shoehorn AI into their business plans, more S&P 500 index companies during their second quarter earnings calls mentioned “AI” than at any point since at least 2010, according to a report published on Friday.
What’s more, according to the report from FactSet, the companies talking about AI — even the ones that aren’t the big, obvious tech names — have seen their stocks fare better than shares of companies that haven’t.
For S&P 500 companies that mentioned “AI” on their second-quarter earnings calls, shares on average since June 30 dipped 0.8%, while rising 13.3% since Dec. 31, FactSet said. For companies that didn’t talk about AI on those calls, shares on average fell a bit more since the end of June — 2.3% — while inching only 1.5% higher since the end of last year.
“Even excluding the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla), the S&P 500 companies that cited ‘AI’ still outperformed the S&P 500 companies that did not cite ‘AI’ on average during these periods,” FactSet Senior Earnings Analyst John Butters said in the report.
Meanwhile, Wall Street has long believed corporate America’s profits would rebound for the second half of 2023, after a year ruled by anxieties over inflation’s impact on the economy. Still, that collective bounce-back, as it has through this year, will hinge on strong results from the world’s biggest tech players.
Wall Street analysts expect S&P 500 companies to eke out a 0.5% gain in per-share profit growth during the third quarter, according to the FactSet report. If that number holds, it would be the first quarter of earnings growth since the third quarter of last year.
Those potential gains, however, will largely depend on results from Amazon.com Inc.
AMZN,
Meta Platforms Inc.
META,
and Alphabet Inc.
GOOG,
GOOGL,
— outsized companies with outsized influence on markets and S&P 500 company financials overall. Financials for those companies have rebounded this year, after big tech retrenched amid a drop-off in pandemic-related digital demand from people spending more time at home and online.
Three years of supply disruptions have upended the economy and driven prices higher, forcing the Federal Reserve to embark on a delicate effort to bring them lower by discouraging borrowing and spending through a series of interest-rate hikes. But what about the impact on bowling? For answers, we turn to results this week from bowling-alley chain Bowlero Corp.
BOWL,
which saw a jump in demand following the economy’s reopening but now faces questions about that demand as it shows signs of returning to Earth. Convenience-store chain Casey’s General Stores Inc.
CASY,
and homebuilder Lennar Corp.
LEN,
also report.
Adobe results: Digital-media, analytics and design firm Adobe Inc. reports quarterly results on Thursday. But Mizuho analyst Gregg Moskowitz said his focus was on the company’s broader digital transformation.
He cited stronger Web traffic, the potential for more deals with bigger customers, signs of improving trends in Adobe’s
ADBE,
analytics segment, as well as the segment that includes design tools like Photoshop. But he said the company’s moves in generative AI could be “a significant growth driver.” Adobe this year unveiled Firefly, an AI image and text-enhancement model that can be incorporated into Adobe’s software. Moskowitz said that “while very early, our checks indicate an already high level of large customer interest in GenAI projects, including Firefly for Enterprise.” However, he said the company’s $20 billion acquisition of online design platform Figma was still “a big question mark,” as costs and regulatory scrutiny accumulate.
Oracle results, supply situation: Cloud and IT-network developer Oracle Corp.
ORCL,
reports results on Monday. Like much of the tech world, Wall Street sees the company as an AI play. But UBS analysts said that as businesses race to secure the components that power AI, Oracle could have an “underappreciated edge” over rivals.
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Salesforce Inc. shares rallied in the extended session Wednesday after the customer-relations management software giant’s earnings outlook topped Wall Street expectations two weeks ahead of its annual confab.
Salesforce CRM shares rallied more than 6% after hours, and held steadily in that range during the conference call with analysts, following a 1.5% rise to close the regular session at $215.04.
The…
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U.S. banks and regional banks fell across the board on Tuesday, after S&P Global Ratings downgraded five smaller players after a review of risk related to funding, liquidity and asset quality with a focus on office commercial real estate.
Adding to the gloom, Republic First Bancorp. Inc.’s stock
FRBK,
tanked by 39%, after Nasdaq told the company that its stock would be delisted on Wednesday, after it failed to file its annual report in time.
S&P’s move comes just days after Fitch Ratings analyst Christopher Wolfe reduced his operating environment score for U.S. banks to aa- from aa due to the unknown path of interest rate hikes and regulatory changes facing the sector.
And Moody’s Investors Service just two weeks ago upset investors when it downgraded some lenders and said it was reviewing ratings on bigger banks, including Bank of New York Mellon
BK,
State Street
STT,
and Northern Trust
NTRS,
For more, see: Bank asset quality, weaker profits spark Moody’s reviews and downgrades as it weighs potential 2024 recession
The S&P 500 Financials Sector has fallen for seven consecutive days, and is on pace for its longest losing streak since April 7, 2022, when it also fell for seven straight trading days.
Individual bank names are also performing poorly, with Goldman Sachs Group Inc.
GS,
and Citigroup Inc.
C,
down for 10 of the past 11 days and Charles Schwab Corp.
SCHW,
down 11 straight days.
Goldman alone has fallen for seven straight days for a total loss of 6.3%. It’s the longest losing streak since Feb. 28, 2020, when it also fell for seven straight days as the pandemic was taking hold.
The KBW Nasdaq Regional Banking Index
KBWR
is down for 11 straight days. and the KBW Nasdaq Bank Index
BKX
is down for seven straight days.
S&P downgraded Associated Banc. Corp.
ASB,
Comerica Inc.
CMA,
KeyCorp
KEY,
UMB Financial Corp.
UMBF,
% and Valley National Bancorp.
VLY,
by one notch and said the outlook on all five is stable.
Read also: More challenges await U.S. banks but analysts think the worst may be over for the year
The rating agency affirmed ratings on Zions Bancorp
ZION,
and maintained a negative outlook, meaning it could downgrade them again in the near-term. And it affirmed ratings and a stable outlook on Synovus Financial Corp.
SNV,
and Truist Financial Corp.
TFC,
“We reviewed these 10 banks because we identified them as having potential risks in multiple areas that could make them less resilient than similarly rated peers ,” S&P said in a statement.
“For instance, some that have seen greater deterioration in funding—-as indicated by sharply higher costs or substantial dependence on wholesale funding and brokered deposits—-may also have below-peer profitability, high unrealized losses on their assets, or meaningful exposure to CRE.”
The steep rise in interest rates orchestrated by the Federal Reserve over the past year has raised deposit costs as banks are now competing for savers seeking higher returns and that’s forced some to pay up on deposits and discourage their clients from heading to other institutions and instruments.
The sector has been skittish this year following the collapse of Silicon Valley Bank and other lenders that led to a run on deposits at a number of regional lenders.
However, S&P said about 90% of the banks it rates have stable outlooks and just 10% have negative ones. None have positive outlooks.
The widespread stable outlooks shows that stability in the U.S. banking sector has improved significantly in recent months.
S&P is expecting FDIC-backed banks in aggregate to earn a relatively healthy ROE of about 11% in 2023.
KeyCorp. and Comerica both fell more than 3% on the news. Of the two, KeyCorp. has more outstanding debt and its 10-year bonds widened by about 5 to 10 basis points, according to data solutions provider BondCliq Media Services.
As the following chart shows, the bonds have seen better selling on Wednesday with buyers emerging around midmorning.
The next chart shows customer flow over the last 10 days.
The next chart shows the outstanding debt of the downgraded banks, with KeyCorp. clearly the leader with almost $16 billion of bonds.
Don’t miss: Capital One confirms roughly $900 million sale of office loans as property sector wobbles
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Nvidia Corp.’s earnings are drawing nearer, and yet another analyst is feeling upbeat heading into the upcoming report.
KeyBanc analyst John Vinh hiked his price target on Nvidia’s stock
NVDA,
to $620 from $550 Sunday, writing that despite tight supply, Nvidia could see strong AI demand and incremental capacity drive upside. Nvidia is scheduled to report fiscal second-quarter earnings after the close of markets on Wednesday.
“Given the pushout of [Advanced Micro Devices Inc’s]
AMD,
MI300X, we believe Nvidia has been able to source increased [chip on wafer on substrate] capacity at Taiwan Semiconductor Manufacturing Co.
TSM,
” Vinh said.
Read: Nvidia earnings to offer first true glimpse of the AI windfall
Shares of Nvidia rallied more than 5% to an intraday high of $456.56 in Monday trading, after having logged declines in each of the prior three sessions for a total loss of 1.5%. The shares are up more than 210% on a year-to-date basis, compared with a 39% gain in the PHLX Semiconductor Index
SOX,
a 14% rise in the S&P 500
SPX
and a 28% surge in the tech-heavy Nasdaq Composite
COMP
over the same span.
In addition, Nvidia plans a fall launch of its L40S GPU for small to medium-sized model training and inferencing with competitive performance versus its A100. That debut will be significant given tech restrictions related to China.
“Given L40S meets the performance threshold of export restriction and doesn’t require CoWoS packaging, combined with favorable pricing (est. $7K-$8K/GPU), we expect this lineup can incrementally fulfill some of the pent-up GPU demand in the near term, particularly in China,” said Vinh, who has an overweight rating on the stock.
Read: ‘Magnificent Seven’ stocks are losing some of their shine, but their bonds are doing fine
Vinh raised his fiscal second-quarter revenue forecast to $12.7 billion and upped his earnings outlook to $2.49 a share. His prior expectations were for $11.1 billion and $2.05, respectively.
He also now forecasts fiscal third-quarter revenue of $14.8 billion and earnings per share of $3, up from prior projections of $12.4 billion and $2.34, respectively.
Read: Nvidia gets more good news from Big Tech, even as AI spending ‘may not lift all boats’
Of the 50 analysts who cover Nvidia, 43 had buy-grade ratings, six had hold ratings and one had a sell rating, along with an average price target of $432.99.
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When Nvidia Corp. last reported quarterly results, the chip maker forecast record revenue that was far above anything it had put up before. In response, investors sent the stock into orbit. On Wednesday, the latest round of earnings for the company will be a test of Nvidia’s status as the darling of the AI investment boom, and a test of whether it can deliver on its own lofty expectations.
The results will also be an update of tech demand overall, after businesses tightened their IT budgets following worries about an economic slowdown. But even with Nvidia’s
NVDA,
stock up more than 200% so far this year and expectations rising just as much, some analysts still say there’s room for shares to go higher, despite supply-side logjams.
Barclays said that Nvidia, whose chips analysts say will help power AI technology in the days to come, has “monopolized the economics of the AI boom, with no clear competitor close behind.” They added that “cloud capex budgets are being funneled towards AI.”
Signs that Nvidia might be falling behind on meeting chip demand have started to emerge. But as businesses rush to mark their territory, or potential territory, in the world of AI, Wedbush analysts have asked whether Nvidia’s results and forecast would even matter, as today’s production constraints turn into tomorrow’s sales.
“We don’t think NVDA results/guidance need to hit the high end of expectations,” Wedbush analyst Matt Bryson said in a research note on Friday.
“With demand for AI training having lifted substantially in the past quarter and with no other silicon supplier now capable of providing part volumes within an order of magnitude of NVDA’s output, we believe any unfilled demand will just be pushed into forward quarters fueling future sales and (earnings per share),” he continued.
Synovus analyst Daniel Morgan was also bullish on Nvidia’s business targeted toward data centers, as those facilities try to integrate generative AI and large language models. And within Nvidia’s gaming segment, he said the company’s new Ada Lovelace graphics-processing unit ecosystem “appears to be seeing a high level of success in retail.”
Still, the longer a stock runs higher, the harder it can fall. And Nvidia’s $1 trillion valuation, Morgan said, “is not for the faint-hearted.”
Along with Nvidia, China search giant Baidu Inc.
BIDU,
reports, as the nation’s economic rebound sputters. And if more businesses are still cautious about cloud spending, or shifting spending to AI, the mood could filter through to results from Splunk Inc.
SPLK,
and Snowflake Inc.
SNOW,
Peloton Interactive Inc.
PTON,
Workday Inc.
WDAY,
and Marvell Technology Inc.
MRVL,
also report.
Zoom and offices: If even Zoom is calling some of its workers back to the office, what could that possibly mean for its results on Monday and the business of videoconferencing? Zoom Video Communications Inc.
ZM,
hasn’t been spared from the wave of tech-industry layoffs, and the company is trying to branch out from its pandemic-mainstay video-call platform, and harnessing its technology to handle phone calls and customer contact centers. Benchmark Research analyst Matthew Harrigan, in a note last week, said he still liked Zoom’s prospects, even though he wasn’t expecting “much instant gratification.” “We do expect AI to crystallize as a significant positive for Zoom even as it navigates through customer pushback on using customer data to train AI models off privacy concerns,” he said.
Sales, forecasts and inventories from retailers: Last week, Target Corp.
TGT,
reported what one analyst called “the definition of mixed results,” while another said the results amounted to “Recessionary trends without the recession.” Sales of essentials like groceries, as they have over the past year, helped Walmart Inc.’s
WMT,
results, but management said that consumers were still feeling the pain from inflation, which for some shoppers over the past year has left little room for much beyond the basics.
In the week ahead, we’ll get results whole bunch of retailers that don’t sell basics — like department stores Macy’s Inc.
M,
and Kohl’s Corp.
KSS,
; clothing chains Nordstrom Inc.
JWN,
Gap Inc.
GPS,
Urban Outfitters Inc.
URBN,
; shoe retailer Foot Locker Inc.
FL,
and beauty-products chain Ulta Beauty Inc.
ULTA,
Those retailers will report as prices for some things start to come down, or at least not rise as fast, and as some economists overcome their recession fears. But remarks from executives could offer some sense of the impact from higher borrowing costs and the return of student loan payments, and how much they’ll be able to bank on the back-to-school season and wealthier — and more carefree — consumers.
Dollar-store Dollar Tree Inc.
DLTR,
will also report results, as low-income consumers suffer more under inflation and deal with the end of pandemic-era supplemental food assistance. Off-price retailer Burlington Stores Inc.
BURL,
reports as well, after Ross Stores Inc.
ROST,
Chief Executive Barbara Rentler said that while its low- and moderate-income shoppers were still hurting, shoppers overall “responded well to our improved value offerings throughout our stores.”
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Deere
crushed Wall Street’s earnings estimates and increased fiscal-year financial guidance. The stock, however, was down. Current results were great, but investors are worried about whether the current phase of rising demand for agricultural equipment is over.
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Hawaiian Electric Industries Inc.’s stock added to losses Tuesday, tumbling 26% after S&P Global Ratings downgraded its rating on the utility company to junk.
S&P Global Ratings cut its rating on the company HE to BB- and placed it on CreditWatch negative, meaning the rating agency could downgrade it again in the near term.
The devastating…
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As you’ve probably heard by now, Fitch Ratings late Tuesday cut the U.S. federal government’s credit rating to AA+ from AAA.
Here’s a look at what it means for investors and markets:
A credit rating is an independent assessment of the ability of an organization, including corporations and governments, ranging from school boards to cities, counties, states and countries, that have issued debt to meet their obligations. Fitch — alongside S&P Global and Moody’s Investors Service — is one of the world’s big three ratings firms.
Need to Know: The U.S. is downgraded. How much does it matter to markets? And the surprise asset that may benefit.
The ratings firms use scales that employ letters, and in Moody’s case also include numbers, to provide a guide to creditworthiness. At the top of the list is the AAA rating from S&P and Fitch, or Aaa, in the case of Moody’s. AA+ is the second-highest rating.
Ratings that employ Cs are at the bottom of the scales, with Fitch and S&P using D ratings in cases of default or bankruptcy.
Any rating below BBB- from Fitch and S&P, or Baa from Moody’s, is considered below “investment grade.” Such debt is often termed “junk.”
Fitch had warned in May that a cut was possible, with the ratings firm expressing dismay over what it termed another round of “brinkmanship” around the U.S. government’s debt ceiling. The warning came amid a battle between congressional Republicans and the Biden administration over lifting or suspending the federal government’s debt ceiling.
The limit has been a frequent source of political squabbling. While the showdown was resolved with a two-year suspension of the limit, the battle underlined the high stakes. Failure to reach a deal could have led to a default. In Tuesday’s decision, Fitch said that the past two decades have seen “a steady deterioration in standards of governance” in the U.S., the debt-ceiling agreement notwithstanding.
Fitch isn’t the first of the big three ratings firms to strip the U.S. of its AAA rating. S&P did so in 2011, amid an earlier debt-limit battle. That leaves Moody’s as the only firm to still assign the U.S. its top rating.
The pool of triple-A sovereign ratings, meanwhile, continues to dwindle. Only a handful of countries carry triple-A ratings across the board from all three ratings firms.
See: Here are the countries that still have Triple-A credit ratings across the board
The cut isn’t seen having much lasting effect on investor demand for U.S. Treasurys. The market for Treasurys is the largest and most liquid debt market in the world. Despite the lack of triple-A ratings, Treasurys are viewed and treated by investors as being virtually “risk-free,” or equivalent to cash. Other types of debt are often quoted in terms of the yield premium, or spread, demanded by investors to hold them over Treasurys.
That isn’t going to change overnight. Analysts have emphasized that investors don’t buy Treasurys based on the credit rating. And any outflows from funds that are required to hold only triple-A rated bonds are expected to be limited.
See: $25 trillion Treasury market is in the spotlight as U.S. loses its AAA rating for a second time
“Many major Treasury holders, such as funds and index trackers, have already prepared for the move by changing mandates to specifically refer to Treasurys rather than AAA credit, and are unlikely to be forced into selling given the importance of the asset class,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a Wednesday note.
The downgrade was blamed for a weak tone across global equity markets, with U.S. stocks following suit. The Dow Jones Industrial Average
DJIA
dropped around 315 points, or 0.9%, while the S&P 500
SPX
shed 1.3%. The moves come after a strong run of gains, however.
Treasury yields, which move opposite to price, were higher. The selling, however, took hold only after data from ADP that showed a stronger-than-expected rise in private-sector payrolls. Treasurys took the downgrade in stride in earlier trading, with yields moving lower.
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was up around 2 basis points near 4.02%.
Marcelli recalled that in 2011 the yield on the 10-year U.S. Treasury fell around 50 basis points, or half a percentage point, in the three days after the S&P downgrade to 2.6% on Aug. 5. Even 15 trading days later, yields were still down 40 basis points from the day of the downgrade, and around 80 basis points lower compared with where they were 15 trading days before the move.
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https://www.barrons.com/articles/solaredge-stock-guidanceprice-solar-e54cc9fb
SolarEdge Technologies
was falling sharply Wednesday after issuing disappointing third-quarter guidance, the latest solar company to do so.
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When Amazon.com Inc. and Apple Inc. report quarterly results on Thursday, we’ll get a look at two big companies, with big expectations, trying to do smaller things — or at least less exciting things, or things that might be more inconveniencing to customers — to stay bigger.
For Apple
AAPL,
D.A. Davidson analyst Tom Forte said, the focus will be on the iPhone, as always, as well as demand abroad and a new VR headset, as its stock hovers near record highs and its market value holds above $3 trillion. And he said that Amazon
AMZN,
meanwhile, could face questions about the impact of cost cuts on e-commerce growth, and what AI could do to boost slower growth in its cloud business.
The results from those companies, which are big enough to make or break a single quarter’s worth for the S&P 500 Index
SPX,
will follow those from the other tech giants like Microsoft Corp.
MSFT,
and Facebook parent Meta Platforms Inc.
META,
And they’ll arrive as Wall Street starts to get a tad more realistic about AI: Microsoft shares fell after management said the expansion of its AI capabilities would be “gradual” — and gradually more expensive.
D.A. Davidson analyst Tom Forte, in a research note this month, said Amazon, like other big tech companies, was taking more steps to control its costs. That might help margins, he said. But he said he’d be watching for any impact to e-commerce sales growth, following thousands of layoffs and pulling back on its expansion of Amazon Fresh.
Amazon began tacking on servicing fees onto some Amazon Fresh delivery orders this year. And Forte noted what he said were other tweaks to service: Charging for a home pickup of a defective smoke alarm that used to be free, and incentives to wait longer during Prime Day.
“In our view, Amazon is playing a ‘game of chicken’ and banking on other e-commerce companies not to offer a superior service, instead of its historical approach of working backwards with a customer-obsessed approach,” D.A. Davidson analyst Tom Forte said in a research note.
He added later: “We believe there is something to be said about the experience of having an Amazon-branded delivery vehicle show up at your house EVERY day. Having one show up once a week or twice is not the same.”
At Apple, Forte said in a separate note, the iPhone, whose sales were still solid, had turned into more of a consumer staple than a discretionary buy. He also said he’d be looking for more detail about the upcoming iPhone 15 — likely to be modestly fancier than previous iPhones — the recovery in China and growth in India. Apple last month also unveiled its Vision Pro VR headset — for $3,499. Forte said he had his doubts.
“We believe Apple will have to overcome a number of structural challenges to achieve mass adoption for its AR/VR headset,” he said.
Apple and Amazon will report as more companies than normal report quarterly profit ahead of estimates, according to a FactSet report on Friday. For the week ahead, 170 S&P 500 companies report results, with four from the Dow, the repot said.
Results from Uber Technologies Inc.
UBER,
and DoorDash Inc.
DASH,
will offer an update on the gig economy and how far app-based deliveries can go, while results from Kraft Heinz Inc.
KHC,
will offer an update on food prices and how much they might ease from the highs seen in recent months.
With the “Barbie” movie lifting rival Mattel Inc.
MAT,
results from Hasbro Inc
HAS,
during the week will offer a glance at the rest of the toy industry, where demand hasn’t exactly been great, and what entertainment options Hasbro has up its sleeve to keep apace with its archrival. Drug maker Pfizer Inc.
PFE,
reports, as does video-game maker Electronic Arts Inc.
EA,
Starbucks Corp.
SBUX,
reports as well.
“Barbie,” the Hollywood strike and Warner Bros. Discovery: Mattel has said it wants to turn “Barbie” into a content franchise. Now we’ll hear what Warner Bros. Discovery Inc.
WBD,
the media conglomerate that produced the film, thinks about the film’s results and its prospects, as studios increasingly pump out sequels or offshoots of well-known, established character universes like “Star Wars,” Marvel and DC. The company — which reports oversees Warner Bros. CNN, TNT and the streaming service Max — reports quarterly results on Thursday. But even as “Barbie” and “Oppenheimer” carry the parts of the entertainment industry that are still functioning through the Hollywood strike, Wall Street will likely be focused on contingency plans, and any sense of whether more viewers are turning to streaming with productions on pause.
Payments and crypto volumes: Results this week from trading app Robinhood Markets Inc.
HOOD,
and crypto exchange Coinbase Global Inc.
COIN,
along with PayPal Holdings Inc.
PYPL,
and Block
SQ,
will land at the intersection of rebounding markets and job-market concerns.
UBS analysts predicted solid growth and cost control for Block, and “steady” e-commerce trends for PayPal. But BofA analysts said PayPal’s search for a new chief executive, following the announcement of Dan Schulman’s retirement at the end of the year, would become more important, adding that “we think investors should rightfully expect the CEO search to conclude in the near-term.” While Bitcoin’s rebound helped Coinbase, the company and others in the industry face the prospect of tougher regulations. Robinhood and PayPal report on Wednesday. Coinbase and Block report on Thursday.
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