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Intel cheers foundry wins, AI traction, and its stock is roaring after earnings

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Intel Corp. shares were popping nearly 8% in Thursday’s extended session after the chip maker delivered a rosy forecast, while talking up new customers for its foundry business and traction related to artificial intelligence.

For the fourth quarter, Intel
INTC,
-0.94%
anticipates $14.6 billion to $15.6 billion in revenue, whereas analysts were looking for $14.4 billion. The company is also modeling 44 cents in adjusted earnings per share, while the FactSet consensus was for 33 cents.

“While the industry has seen some wallet share shifts between CPU and accelerators over the last several quarters, as well as some inventory burn in the server market, we see signs of normalization as we enter Q4,” Chief Executive Pat Gelsinger said on the earnings call.

Gelsinger expressed confidence about Intel’s positioning — and the future of central processing units — as AI becomes more dominant in the technology world.

“Training of these large models is interesting, but the deployment of those models, the inferencing use of those models is what we believe is truly spectacular for the future,” he said. “And…some of that will run on the accelerators, but a huge amount of that is going to run, right, on Xeons.”

He also shared that Intel now has three customers for its 18A foundry process technology that have made commitments. The company previously disclosed one customer made prepayments, but Gelsinger added Thursday that Intel has two other customers.

“The other thing that we saw this quarter, which was a little bit unexpected, was this huge surge in interest for AI customers and Intel’s advanced packaging technology,” he said.

Intel is in the midst of a big push to build a foundry business through which it would manufacture chips for other companies, though not all on Wall Street are sold yet on the move.

The company also delivered an upbeat third-quarter report, easily clearing Wall Street’s bar on profit and topping expectations on revenue as well.

The company reported net income of $297 million, or 7 cents a share, compared with $1.0 billion, or 25 cents a share, in the year-earlier period. On an adjusted basis, Intel earned 41 cents a share, down from 59 cents a share a year prior, while analysts were looking for 22 cents a share.

Revenue dropped to $14.2 billion from $15.3 billion, while the FactSet consensus called for $13.6 billion.

The company saw revenue from its personal-computer segment, known as client-computing, drop 3% to $7.9 billion, whereas analysts were looking for $7.3 billion. Data-center and AI revenue fell 10% to $3.8 billion, narrowly missing the FactSet consensus, which was $3.9 billion.

Intel recorded a 45.8% adjusted gross margin, compared with 39.8% in the second quarter. The company’s forecast had been for about 43%.

Intel shares have climbed 24% so far this year, as the Dow Jones Industrial Average
DJIA
has lost about 1%.

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October 26, 2023
Hasbro’s stock is having its worst month since the 1980s as toys sales tumble

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Shares of Hasbro Inc. got rocked Thursday, making investors suffer through the worst month in four decades, as a weakening toy market led the company to report disappointing third-quarter results.

Heading into 2023, the toy market was expected to be down in the low-single-digit percentage range for the year, but the market’s performance has been “more challenging that planned,” Chief Executive Chris Cocks said on the post-earnings conference call with analysts.

“We saw the category soften during [the third quarter] to negative 10%,” Cocks said, according to an AlphaSense transcript.

The stock
HAS,
-11.42%
fell 11.5% toward a seven-month low in afternoon trading and was headed for the biggest one-day selloff since it sank 18.7% on March 16, 2020.

It has fallen in 14 of the 19 trading days in October, to plunge 26.7% in the month to date. That puts it on track for the worst monthly performance since the record 43.1% selloff in October 1987, the month when “Black Monday” occurred.

Overall, third-quarter revenue fell 10.3% to $1.5 billion, to miss the FactSet consensus of $1.62 billion. The company’s consumer-products business, which includes toys, dropped 17.6% to $956.9 million, missing expectations of $1.1 billion.

Sales for Habro’s entertainment segment fell 41.9% to $122.9 million, below Wall Street projections of $127.8 million, but the company was able to blame that weakness on the effects of the writers and actors strikes on film and TV revenue.

It wasn’t all bad for Hasbro, however. Wizards of the Coast and digital-gaming revenue soared 39.6% to $423.6 million, well above expectations of $390.3 million, amid a more than doubling in digital- and licensed-gaming revenue behind “Baldur’s Gate III” from Larian Studios.

For 2023, the company now expects revenue to be down 13% to 15% from 2022, which is much worse than previous guidance for a decline of 3% to 6%. The current FactSet revenue consensus of $5.5 billion implies a 6.1% decline.

Hasbro also reported a net loss of $171.1 million, or $1.23 a share, after recording net income of $129.2 million, or 93 cents a share, in the same period a year ago. Excluding nonrecurring items, such as losses on assets held for sale, adjusted earnings per share rose to $1.64 from $1.42 but missed the FactSet consensus of $1.72.

CFRA analyst Zachary Warring cut his price target on Hasbro’s stock to $68 from $85 but reiterated his strong buy rating, as the new target implied 40% upside from current levels.

“Even though we were caught offside on this quarter’s results, we believe this is a multi-year opportunity to buy shares and expect digital gaming to continue momentum while consumer products has little downside,” Warring wrote in a note to clients.

Meanwhile, shares of Hasbro rival Mattel Inc.
MAT,
-7.63%
also dropped, down 7.1% toward a four-month low, even though the company’s third-quarter profit and sales beat expectations. That’s because strong sales of Barbie, Disney Princess and Disney Frozen dolls offset weakness in toys.

Mattel said it expects toy-industry sales to decline in the mid-single-digit percentage range for the year.

Mattel’s stock was down 15.2% in October, while the S&P 500
SPX
slipped 3.2%.

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October 26, 2023
U.S. pending home sales stay near record low despite modest pickup in September

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The numbers: U.S. pending home sales rebounded in September but remain near a record low as high mortgage rates and low inventory continue to hurt the real-estate sector.

Pending home sales rose 1.1% in September from the previous month, according to the monthly index released Thursday by the National Association of Realtors.

But pending home sales were still depressed on an annual basis due to the dearth of home listings. The September figure was the second-lowest reading since the NAR began tracking the data in 2001.

Transactions were down 11% from last year.

Nonetheless, the sales pace exceeded expectations on Wall Street. Economists were expecting pending home sales to fall 1.5% in September.

Pending home sales reflect transactions where the contract has been signed for the sale of an existing home, but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.

The NAR also released an updated forecast for existing-home sales on Thursday. The group expects sales to fall 17.5% in 2023 to a pace of 4.15 million, which will be the slowest pace since 2008. Yet due to low inventory, the median home price will increase by 0.1% in 2023, the NAR said, to $386,700.

The group expects home sales to rebound in 2024, rising 13.5% to a rate of 4.71 million. Home prices are expected to rise 0.7% next year, to $389,500.

The NAR also expects the 30-year mortgage rate to fall to 6.9% in 2023 and 6.3% in 2024. The 30-year was averaging 7.98% as of Wednesday, according to Mortgage News Daily.

Big picture: The U.S. housing market is dealing with problems on both the demand and supply sides, but the NAR seems confident that the sector will recover in the new year.

At present, not only are rates high enough to discourage home buyers, the lack of inventory is also making homes more expensive, which further spooks buyers. The NAR expects the pace of existing-home sales to fall to the slowest in 15 years, when the U.S. was in the midst of a recession caused by the subprime-lending crisis.

What the realtors said: “Because of home builders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates,” NAR Chief Economist Lawrence Yun said. “This underscores the importance of increased inventory in helping to get the overall housing market moving.”

Market reaction: Stocks
DJIA

SPX
were mixed in early trading on Thursday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose above 4.9%.

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October 26, 2023

Danone 3Q Sales EUR6.91B

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By Giulia Petroni

Danone raised its full-year sales growth guidance after recording a sequential improvement in volume/mix in sales in the third quarter.

The French producer of yoghurts, bottled water and infant-nutrition products said Thursday that it now expects like-for-like sales growth between 6% and 7% in 2023 from previous expectations of between 4% and 6%.

It also said it expects to return to a positive volume/mix territory before the end of the year, and confirmed it sees a moderate improvement in the recurring operating margin.

In the third quarter, Danone posted sales of 6.91 billion euros ($7.30 billion), down from EUR7.33 billion in the year earlier, partly due to the depreciation of the majority of currencies against the euro. On a like-for-like basis, sales grew 6.2%, with volume/mix at minus 0.3% from minus 2.3% in the second quarter.

Analysts had forecast sales of EUR6.90 billion and like-for-like growth of 4.7%, according to a company-compiled consensus.

“This quarter is the seventh consecutive quarter of delivery,” said Chief Executive Antoine de Saint-Affrique. “We continue to view our future with confidence, despite a challenging environment.”

Write to Giulia Petroni at giulia.petroni@wsj.com

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October 25, 2023

The Nasdaq just fell into a correction. Now what?

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The Nasdaq Composite Index fell into its 70th correction in history on Wednesday, as surging long-term Treasury yields increased borrowing costs and weighed on stocks.

The interest rate sensitive Nasdaq
COMP
barreled higher in the year’s first half, in part on optimism about a potential Federal Reserve pivot away from rate hikes to fight inflation, but stocks have been under fire in recent months as the Fed dialed up its message that interest rates could will stay higher for longer.

The tech-heavy equity index fell 2.4% on Wednesday to close below the 12,922.216 threshold, marking a drop of a least 10% from its prior peak, which was set in mid-July at 14,358.02, according to Dow Jones Market Data.

That met the common definition for a correction in an asset’s value and is the Nasdaq’s 70th close in correction territory since the index’s inception in February 1971.

Robert Pavlik, senior portfolio manager at Dakota Wealth Management, said the sharp rise in long-term Treasury yields has spooked investors, especially those in highflying, high-growth technology stocks where rising rates can be particularly corrosive.

Pavlik likened the dynamic to the spending power of a lottery winner hitting a jackpot when rates are at 2% versus someone who wins when rates are closer to 10%.

He also expects the 10-year Treasury yield
BX:TMUBMUSD10Y,
which rose to 4.952% Wednesday, to top out at 5.25% to 5.5% and likely complicate any recovery for the Nasdaq.

In the past 20 corrections for the Nasdaq, it took an average of three months for performance to improve, with index then gaining 14.4% on average a year later, according to Dow Jones Industrial Average.

Nasdaq corrections are usually followed by a bounce in a few months

Dow Jones Market Data

The damage on Wednesday was most acute in shares of highflying technology stocks, including Alphabet Inc.
GOOG,
-9.60%
as shares skid 9.5%, after it reported earnings that were overshadowed by downbeat performance for its Google Cloud business. Spillover also hit shares of rival cloud computing giant Amazon.com Inc.,
AMZN,
-5.58%
with its shares slumping 5.6%

“You’re feeling the pressure in some big-name stocks,” Pavlik said. “But this too will, at some point, end. But concerns about the Fed are still in the forefront of everybody’s minds.”

The Nasdaq was still up 22.5% on the year through Wednesday, while the Dow Jones Industrial Average
DJIA
was down 0.3% and the S&P 500 index
SPX
was up 9% in 2023, according to FactSet.

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October 25, 2023
Morgan Stanley names Ted Pick its next CEO

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Morgan Stanley said late Wednesday that Co-President Edward “Ted” Pick will become its chief executive, effective Jan. 1.

Outgoing Chief Executive James Gorman will become executive chairman, Morgan Stanley said. Pick will also join the firm’s board of directors.

“The board has unanimously determined that Ted Pick is the right person to lead Morgan Stanley and build on the success the firm has achieved under James Gorman’s exceptional leadership,” the company said in a statement.

“Ted is a strategic leader with a strong track record of building and growing our client franchise, developing and retaining talent, allocating capital with sound risk management, and carrying forward our culture and values,” it said.

Gorman had announced his intention to step down in May, setting off a “Sucession”-like run for the top job at the investment bank.

Pick’s name had been among those in the running. The executive joined Morgan Stanley in 1990, and was promoted to managing director in 2002, according to his bio on the company’s website.

Gorman became CEO in January 2010, having joined the firm in 2006.

The lack of a clear successor at Morgan Stanley has weighed on its stock lately.

The shares are down 24% in the last three months, three times the losses for the S&P 500 index
SPX
in the same period. So far this year, Morgan Stanley shares are down 16%, contrasting with an advance of about 9% for the S&P.

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October 25, 2023
Nasdaq finishes in correction territory after worst day since February

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U.S. stocks tumbled on Wednesday, with the Nasdaq Composite seeing its biggest pullback since February, as Google parent Alphabet Inc.
GOOGL,
-9.51%
shares cratered, weighing on the broader market. The Nasdaq Composite
COMP,
-2.43%
fell 318.65 points, or 2.4%, to 12,821.22, finishing in correction territory for the first time since late December 2022, according to preliminary closing data from FactSet. The S&P 500
SPX,
-1.43%
fell 60.91 points, or 1.4%, to 4,186.77. The Dow Jones Industrial Average
DJIA,
-0.32%
fell 105.45 points, or 0.3%, to 33,035.93.

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October 25, 2023
Junk food is as addictive as alcohol and cigarettes: report

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Apparently, you really can become a junk-food junkie.

That’s what a new study published by the British Medical Journal says, noting that ultra-processed foods — meaning food that contain “ingredients not available in home kitchens” and that typically have high levels of refined carbohydrates or added fats — are plenty addictive. And they’re on par with alcohol and tobacco, the study notes.

Specifically, the study says that food addiction — again, closely connected with the consumption of ultra-processed foods — is prevalent in 14% of the adult population. That matches the percentage for alcohol addiction and is just slightly below the percentage for tobacco addiction (18%).

The study warns that junk foods like sweets and snacks deliver those carbs and fats to the gut at a speedy rate, contributing to their addictive potential. It’s not unlike how cigarettes “rapidly deliver nicotine to the brain,” the study warns.

Additives also play a role in making these junk foods so appealing, the study says. That is, they increase sweet and savory tastes. Not surprisingly, the study notes that additives “that aim to improve [flavor] and mouthfeel are also common in cigarettes, including sugar, cocoa, menthol, and alkaline salt.”

If anything, the study points to issues with food addiction that don’t exist with other addictions since food is a critical part of our lives. “Addictive drugs are not necessary for survival; eating is,” the study says.

The study says understanding that ultra-processed foods are indeed addictive could “lead to novel approaches” in addressing the issue. It points to several policies that are already being taken across the world, such as levying taxes on sweetened beverages or posting nutritional information on the front of packages.

MarketWatch reached out to SNAC, a trade group representing snack-food manufacturers, about the study, but didn’t receive an immediate response.

Americans’ desire to snack doesn’t appear to be abating. In its most recent annual report, SNAC says the annual total sales for salty snacks grew by 15.6% in 2022 to $28.4 billion. Potato chips alone saw 14.5% growth to $7.8 billion in sales.

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October 25, 2023
Dow opens higher, lifted by Microsoft’s post-earnings rally

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The Dow Jones Industrial Average opened higher on Wednesday as a post-earnings rally in shares of Microsoft Corp.
MSFT,
+3.71%
helped lift the blue-chip gauge while the S&P 500 and Nasdaq Composite sunk. The Dow gained 91 points, or 0.3%, at to trade at 33,218, according to FactSet data. Meanwhile, the S&P 500
SPX,
-1.02%
shed 22 points, or 0.5%, to 4,225, and the Nasdaq
COMP,
-1.43%
fell by 135 points, or 1.1%, to 13,000. The Dow had snapped a four-day losing streak on Tuesday as U.S. stocks rebounded following the worst stretch of the year.

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October 25, 2023

Heineken 3Q Revenue Growth 2%

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By Michael Susin

Heineken backed its full-year guidance after reporting a third-quarter revenue increase that was slightly below market expectations.

The Dutch brewer said adjusted net revenue before exceptional items and amortization–one of its preferred metrics–rose to 8.015 billion euros ($8.49 billion) in the quarter from EUR7.79 billion last year.

A company-compiled consensus forecast had seen net revenue before exceptional items and amortization at EUR8.11 billion.

The company backed its expectations for the full year of stable to mid-single digit organic growth in operating profit before exceptional items and amortization.

Write to Michael Susin at michael.susin@wsj.com

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October 24, 2023

Louisiana Rep. Mike Johnson nominated for speaker by House Republicans

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House Republicans on Tuesday night voted for Rep. Mike Johnson to become their latest nominee for speaker of the U.S. House of Representatives, with the Louisiana congressman’s selection capping a tumultuous day in which Rep. Tom Emmer was briefly the nominee.

Johnson, vice chair of the House Republican Conference, picked up support in two rounds of voting and drew a majority votes in a third ballot, topping the number of votes cast for Rep. Byron Donalds of Florida. That’s according to posts on social media by Rep. Elise Stefanik of New York, who as chair of the conference is the No. 4 House Republican.

The GOP-run House wasn’t due to hold a floor vote on the speaker position on Tuesday night, but the chamber could do that Wednesday.

Analysts have been warning that the long process of picking a new speaker is preventing the Republican-run House from addressing crucial matters, such as supporting Israel and passing a budget to avoid a government shutdown next month that could rattle markets
SPX.

It has been three weeks since the historic ouster of former Speaker Kevin McCarthy, a California Republican.

The selection of Johnson marks the the fourth time that House GOP lawmakers have picked a speaker nominee this month. Emmer of Minnesota, the No. 3 House Republican, was nominated around mid-day Tuesday, beating out Johnson, but bowed out about four hours later after some colleagues and former President Donald Trump refused to support him.

Rep. Jim Jordan of Ohio secured the nomination on Oct. 13, but was dropped as the nominee last Friday as GOP opposition to him grew over three rounds of voting on the House floor. House Majority Leader Steve Scalise, a Louisiana Republican, was tapped for the post on Oct. 11 but ended his speaker bid a day later due to opposition from fellow Republicans.

McCarthy on Tuesday floated a plan that would reinstall him as speaker and set up Jordan as the assistant speaker, according to an NBC News report citing unnamed sources.

In the third ballot on Tuesday night, Johnson scored 128 votes, Donalds got 29 votes, and 44 lawmakers backed people who weren’t on the ballot, according to multiple published reports. Most of those Republicans supported McCarthy, while one supported Jordan.

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October 24, 2023
S&P revises outlook on Israel’s debt to negative, from stable, expects 5% contraction in the economy

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S&P Global Ratings late Tuesday revised its outlook on Israel’s sovereign debt to negative, from stable, and reaffirmed the country’s AA- ratings. The Israel-Hamas war “will remain centered in Gaza, but there are risks that it could spread more widely with a more pronounced impact on the economy and security situation in Israel,” S&P said. The debt ratings agency forecast the Israeli economy to contract by 5% in the fourth quarter, as compared with the third quarter, before rebounding in early 2024. “The contraction will stem from security-related disruptions and reduced business activity,” as well as the drafting of large numbers of reservists, a shutdown in the tourism sector, and “a broader confidence shock.”

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October 24, 2023
States sue Meta over alleged harm to children on Facebook, Instagram

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A group of 41 attorneys general from dozens of states are filing lawsuits claiming Meta Platforms Inc. built addictive features in its Facebook and Instagram services that harm children.

The lawsuits in federal and state courts allege Meta
META,
-0.47%
knowingly marketed its products to users under the age of 13, who are barred from the platform by both Meta’s policies and federal law. The states are seeking to force Meta to change product features that they say pose dangers to young users.

The lawsuit, filed Tuesday in federal court in Northern California, claims Meta, “has harnessed powerful and unprecedented technologies to entice, engage, and ultimately ensnare youth and teens.” Meta has “profoundly altered the psychological and social realities of a generation of young Americans,” the suit also said.

The lawsuit also accuses Meta of violating the law by collecting data on users under 13 without parental consent. California Attorney General Rob Bonta said the suit was the result of a multiyear investigation.

Meta said it was “disappointed” with the legal action.

“We share the attorneys general’s commitment to providing teens with safe, positive experiences online, and have already introduced over 30 tools to support teens and their families,” a Meta spokesman said in an email. “We’re disappointed that instead of working productively with companies across the industry, the attorneys general have chosen this path.”

Meta’s stock was flat in late-afternoon trading Tuesday.

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October 24, 2023
GDP bonanza: U.S. economy may have grown 5% in the third quarter

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The U.S. economy has not only defied widespread predictions of a sharp slowdown. It’s grown even faster.

But that doesn’t mean a recession is far away. The U.S. has often experienced fast growth shortly before the bottom fell out.

Let’s start with the good news.

Gross domestic product, the official scorecard of the economy, looks likely to top 4% or even 5% annual growth in the third quarter. The government will release its preliminary estimate on Thursday morning.

Economists polled by The Wall Street Journal predict 4.7% GDP in the third quarter.

Other top forecasters see even faster growth. S&P Global estimates 5.6% GDP and the Atlanta Federal Reserve GDPNow forecast projects 5.4%.

How fast is that? GDP only topped 5% once from 2010 to the start of the pandemic in early 2020.

This is not what was supposed to happen.

After solid 2%-plus growth in the first and second quarters, the economy was widely expected to slow down in response to rapidly rising interest rates.

The Federal Reserve has jacked up borrowing costs in the past year and a half to try to tame inflation, a strategy that typical depresses consumer spending and business investment. Those are the dual engines of the economy.

To some extent the Fed has succeeded. Home sales and construction, for instance, have tumbled due to the highest mortgage rates in decades. And manufacturers have taken a hit as customers curtailed purchases of goods and big-ticket items.

The annual rate of inflation, meanwhile, has tapered to 3.7% as of September from a 40-year high of 9.1% in 2022.

Still, spending and investment have not dropped off nearly as much as expected. And there are two reasons for that.

The first is a strong and ultra-tight labor market, with unemployment hovering just below 4%. Most Americans who want a job have one, and as a result, they have been able to keep spending. Travel, recreation, leisure and hospitality have been the big winners.

S&P Global estimates a flush of consumer spending in the third quarter will account for just over half of the growth.

The industrial side of the economy, for its part, has been the beneficiary of tens of billions of dollars in subsidies from the Biden administration to support green energy and bring home more manufacturing.

The U.S. has also ramped up military aid to Ukraine and has to replace outgoing equipment, weapons and ammunition.

All the government money has helped to keep manufacturers from falling too far down the well. Government outlays could add as much as 0.6 percentage points to third-quarter GDP.

Making the third quarter look even better, the U.S. trade deficit fell sharply and is likely to add 1.0 percentage point or more to GDP.

A small rebound in the production of inventories, or unsold goods, would be the icing on the cake.

So the economy is doing great, right? Maybe not.

Consumers probably can’t keep spending at their current pace since their incomes are barely rising faster than inflation. Businesses are proceeding cautiously because of higher borrowing costs. And banks are more reluctance to lend.

Other restraints on the economy include higher gasoline prices and a surge in long-term interest rates that make it far more expensive to buy houses, cars, appliances and the like.

That’s why many forecasters believe the economy start to soften in final months of 2023. S&P Global, for instance, initially projects 1.7% growth in the fourth quarter.

Nor does the third quarter’s heady growth rate suggest there is no reason to worry about a recession. The economy has expanded rapidly just before the onset of prior recessions.

The economy grew at solid 2.5% pace right before the 2007-2009 Great Recession, for example. And GDP grew a frothy 4.4% in the first quarter of 1990 just several months before a recession started.

Many of the same economic headwinds, it turns out, are still in place that led to widespread Wall Street predictions of recession earlier in the year.

Indeed, some forecasters such as the Conference Board still insist a short recession is likely in 2024. Other economists are also on guard.

“I still believe a recession is coming — though far less severe than the 2008-2009 event,” said chief economist Steve Blitz of TS Lombard.

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October 24, 2023

Barclays 3Q Rev GBP6.258B

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By Elena Vardon

Barclays lowered its U.K. net interest margin guidance for 2023 as it posted third-quarter results.

The British bank on Tuesday said its now expects its net interest margin for Barclays U.K. to come between 3.05% and 3.10%. It had guided for a 2023 margin of no more than 3.20% at its half-year results in July with a view of around 3.15%.

The lender said its net interest margin for the three months ended Sept. 30 was 3.04%, following a 3.22% margin for the second quarter.

Write to Elena Vardon at elena.vardon@wsj.com

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October 23, 2023

Novartis Raises 2023 View

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By Adria Calatayud

Novartis raised its full-year earnings guidance for the third time this year after it reported higher net profit and sales for the third quarter, boosted by strong sales of key drugs.

The Swiss pharmaceutical giant said Tuesday that it now expects core operating profit to grow this year by a percentage in the mid to high teens range. It had previously anticipated a growth rate from low double percentage digits to mid teens excluding Sandoz, the generics unit that was spun off earlier this month.

Novartis reiterated its expectation for net sales growth of a high single digit in 2023.

For the third quarter, the company made a net profit of $1.76 billion compared with $1.57 billion for the same period last year.

Net sales for the quarter grew to $11.78 billion from $10.49 billion.

“Our growth drivers, including Kesimpta, Entresto, Kisqali and Pluvicto, continue to perform well in the market,” Chief Executive Vas Narasimhan said.

Excluding exceptional items, core operating income from continuing operations was up 21% at $4.41 billion.

Write to Adria Calatayud at adria.calatayud@dowjones.com

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October 23, 2023

Bitcoin rallies to almost 18-month high on ETF optimism

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Bitcoin surged over 10% on Monday, briefly surpassing $34,500, on continued optimism that an exchange-traded fund investing directly in the cryptocurrency will soon be approved in the U.S.

The largest cryptocurrency
BTCUSD,
+6.59%
by market cap on Monday reached as high as $34,616, the loftiest level since May 2022, according to CoinDesk data, before falling to around $33,021 by Monday evening. Other major cryptocurrencies also rose, with ether up 5.8% over the past 24 hours to $1,763.

The U.S. Securities and Exchange Commission has repeatedly rejected bitcoin ETF applications in the past, citing risks of market manipulation. But crypto-industry participants are expecting that to change soon.

Read more: Bitcoin climbs above $30,000 for first time since August as hopes for ETF approval intensify

A U.S. Appeals court on Monday issued a mandate, putting into effect its ruling in August, which overturned the SEC’s rejection of Grayscale Investments’ application to convert its Bitcoin Trust product
GBTC
into an ETF. The final ruling on Monday confirmed Grayscale’s win in court.

Meanwhile, BlackRock’s proposed bitcoin ETF has been listed on the Depository Trust & Clearing Corporation. While it doesn’t mean that the ETF is guaranteed to be approved, it shows another step closer for BlackRock to bring the fund to the market.

If bitcoin ETFs are approved, the crypto may see “historical price increases,” with a crypto bull market coming, according to Alex Adelman, chief executive and co-founder of Lolli. “Bitcoin ETFs will give institutional and retail investors new ways to gain exposure to bitcoin within established regulations,” Adelman said.

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October 23, 2023
Equity strategist who called stock rally in first half says S&P 500 won’t resume climb until spring 2024

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A Wall Street strategist who foresaw the U.S. stock-market rally in the first half of the year now sees stocks treading water through the end of 2023, unlikely to extend the previous momentum until at least April 2024.

Barry Bannister, chief equity strategist at Stifel, extended his 4,400 target for the S&P 500
SPX
to April 2024 from the end of this year, as higher interest rates could pressure corporate earnings, weighing on stock prices, he said.

“We believe the rally off the Oct. 2022 lows is over, and our view since summer 2023 has been a sideways trading range,” Bannister said in a Monday note. “The updated view is that we now believe our year-end 2023 target of 4,400 applies through Apr. 30, 2024.”

Bannister was one of the few Wall Street strategists who correctly anticipated the U.S. stock-market rally in the first half of 2023. He also said economic risk for equities will rise in late 2023 as stock gains would stall in the second half of the year. He set his 4,400 year-end target for the S&P 500 in May, a roughly 4.3% advance from Monday’s close of 4,217.04, according to FactSet data.

“We traded the relief rally [in early 2023], turned neutral in summer 2023 and discouraged bullishness before the third quarter of 2023,” Bannister said. He said he thinks a new record-high for the S&P 500 by year-end 2023, as some of the most bullish strategists on Wall Street have projected, is “exceptionally unlikely.”

See: S&P 500 has another high 2023 price target. Here’s a look at Wall Street’s official stock-market outlook.

Meanwhile, Bannister thinks the key 10-year U.S. Treasury yield
BX:TMUBMUSD10Y
will peak around 5% in the current cycle, but he projects a “normalized” 10-year yield of 5% or 6% in the mid-2020s, which could put pressure on corporate earnings.

The 10-year Treasury yield flirted with 5% on Monday for the first time since 2007, touching an intraday high of 5.02% in the morning trading before retreating to finish the New York session at 4.836%, according to Dow Jones Market Data.

“It is not ‘Fed high for longer’ — the Fed has returned to ‘policy modulation at normalized rates,’” Bannister wrote.

Bannister also pointed to the health of the U.S. labor market as a source of economic resilience and a reason for “the Fed rate normalization,” which could tighten financial conditions and weigh on price-to-earnings ratios for stocks.

The price-to-earnings ratio, sometimes known as the price multiple, is a ratio of a stock price divided by a public company’s yearly earnings per share. It is a way to determine stock valuation.

That’s why the strategist sees the S&P 500 will remain flat or “range-bound” for the rest of the 2020s decade as price-to-earnings ratios across U.S. firms will be halved due to tightening financial conditions, but it could offset growth in earnings-per-share (EPS). Bannister forecasts the S&P 500 EPS will at least double from $156 in 2019 to a range of $300-325 in 2030.

EPS is a company’s net profit divided by the number of common shares it has outstanding, and it usually indicates how much money a company makes for each share of its stock.

U.S. stocks finished mostly lower on Monday, with the Dow Jones Industrial Average
DJIA
down 190 points, or 0.6%, to end at 32,936, but the Nasdaq Composite
COMP
edged up 0.3%, according to FactSet data.

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October 23, 2023
Why Bill Gross expects a U.S. recession to begin by year’s end

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Bill Ackman isn’t the only boldfaced Wall Street name who believes the U.S. economy is in worse shape than the official data suggest.

See: Bill Ackman cashes out bet against Treasury bonds as yields hit 16-year highs

Bill Gross, a co-founder of fixed-income investing giant Pacific Investment Management Co., said Monday in a post on social-media platform X that the U.S. economy is likely headed for a recession by year’s end.

“Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate U.S. economy slowing significantly. Recession in 4th quarter,” Gross said.

Such an outcome would represent a remarkable turnaround, considering the Atlanta Federal Reserve’s GDP Now real-time indicator shows the U.S. economy expanding at a 5.4% annualized clip during the third quarter. Official GDP data is due Thursday, with economists polled by The Wall Street Journal looking, on average, for a 4.5% annualized growth figure.

Many Wall Street economists had anticipated that the U.S. recession would slide into recession earlier this year. However, strength in construction, consumer spending and other areas has helped it defy expectations, as data show it has instead continued to expand at a solid pace.

Revised data released last month by the Commerce Department showed the U.S. economy grew by 2.1% during the second quarter. Typically, investors only become aware of recessions in hindsight after they’ve been officially declared by the National Bureau of Economic Research.

Rising auto-loan delinquencies are an alarming portent of economic pain to come, Gross said, citing data from Fitch Ratings, reported by Bloomberg News on Friday, which showed the percentage of subprime auto loans more than 60 days delinquent surpassed 6% in September. At 6.1%, it’s the highest rate ever recorded by the data series going back to 1994.

As far as how investors might play this, Gross said he’s “seriously considering” investing in shares of regional banks, which have fallen substantially this year: the SPDR S&P Regional Banking ETF
KRE,
one popular exchange-traded fund tracking regional players down more than 30% year-to-date. He also touted some merger-arbitrage plays, a strategy he endorsed in a recent investment outlook.

He also recommended betting that the Treasury curve will continue steepening as it looks to break out of negative territory for the first time in more than a year. Rising long-term rates have nearly caught up with short term rates, with the 10-year yield
BX:TMUBMUSD10Y
within 30 basis points of the 2-year yield
BX:TMUBMUSD02Y
on Monday.

10-year yields have been lower than 2-year yields for 327 days, according to Dow Jones Market Data. That’s the longest stretch since the 444-trading day streak that ended May 1, 1980.

Gross is using interest-rate futures for his steepening trade. He expects the curve will re-enter positive territory before the end of the year as a slowing economy forces investors to adjust their expectations regarding the timing of Federal Reserve interest-rate cuts.

“’Higher for longer’ is yesterday’s mantra,” Gross said.

Following a decadeslong career on Wall Street, Gross announced his retirement a few years back after a stint at Janus Capital Group. He joined Janus after a contentious exit from Pimco.

Nevertheless, Gross has continued to share his views on markets in posts on X, as well as in investing outlook letters published to his website, and during interviews with the financial press.

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October 23, 2023

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Nasdaq corrections are usually followed by a bounce in a few months