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Stock futures posted modest gains Thursday ahead of a report likely to show that U.S. inflation fell in September as gasoline price growth slowed and used-car costs declined.
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U.S. stocks end higher after blockbuster September jobs report as S&P 500 snaps 4-week losing streak
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U.S. stocks closed higher Friday, with the S&P 500 eking out a modest weekly gain, as investors assessed a monthly jobs report that showed both a blockbuster surge in jobs created along with a slowdown in wage pressures.
How stock indexes traded
-
The Dow Jones Industrial Average
DJIA
rose 288.01 points, or 0.9%, to close at 33,407.58. -
The S&P 500
SPX
gained 50.31 points, or 1.2%, to finish at 4,308.50. -
The Nasdaq Composite
COMP
climbed 211.51 points, or 1.6%, to end at 13,431.34.
For the week, the Dow slipped 0.3% while the S&P 500 edged up 0.5% and the Nasdaq gained 1.6%. The Dow fell for a third straight week, while the S&P 500 snapped a four-week losing streak and the Nasdaq saw back-to-back weekly gains, according to Dow Jones Market Data.
What drove markets
U.S. stocks climbed Friday, after reversing course from their slide earlier in the session as investors parsed a U.S. employment report that was stronger than forecast.
“Wages slowed down,” said José Torres, senior economist at Interactive Brokers, in a phone interview Friday. “That was a great development” as the Federal Reserve aims to bring down inflation through monetary tightening.
Investors have worried that a hot labor market will keep wage growth elevated, adding to inflationary pressures that could see the Fed keep interest rates higher for longer or potentially hike its benchmark rate one more time this year.
A report Friday from the Bureau of Labor Statistics showed the U.S. economy created 336,000 jobs in September, far surpassing economists’ expectations for 170,000 new jobs. Also, the report said job gains in August and July were revised higher.
See: Jobs report shows big 336,000 gain in hiring in September. Labor market still hot.
But other details from the report were slightly more favorable in terms of monetary policy concerns.
For example, average hourly wages rose a mild 0.2% in September, bringing the 12-month rate of change through September to 4.2%, a slower pace than the prior month’s year-over-year rate of 4.3%.
“Even though the headline number was 2.5 times what Wall Street had anticipated, the more important detail below the surface was that wage inflation actually cooled,” said Sam Stovall, chief investment strategist at CFRA, during a phone interview with MarketWatch.
Renaissance Macro Research’s Neil Dutta said in a note that the jobs report was consistent with a soft landing for the economy and the Fed’s objective to lower the inflation rate back to 2%.
“The strong labor market gives credence to the base case still being a soft landing,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management, in a phone interview Friday. But that soft-landing narrative is “somewhat fragile and data dependent,” he said.
See: U.S. stocks stage a surprising rally on Friday. But can the party last?
Investors will be watching for data scheduled to be released next week on September inflation from the consumer-price index and producer-price index.
Meanwhile, economists from Goldman Sachs Group said in a note Friday that “the continued rebalancing of the labor market” is consistent with their expectation that the Fed is done raising rates this year, despite senior Fed officials projecting another hike in their latest batch of forecasts, released last month.
Federal-funds-futures traders are expecting the Fed will keep its benchmark rate at the current range of 5.25% to 5.5% at its policy meetings in November and December, according to the CME FedWatch Tool.
“I’m of the belief that the Fed will not hike again this year,” BMO’s Ma said. “I don’t think it needs to.”
Meanwhile, the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
climbed 6.8 basis points to 4.783%, rising for five straight weeks, according to Dow Jones Market Data.Rising Treasury yields, particularly on the long end of the yield curve, have been blamed for a selloff in stocks over the past couple months. But the S&P 500 is now up so far in October, with a small gain of 0.5%, according to FactSet data.
Companies in focus
-
Pioneer Natural Resources Co.
PXD,
+10.45%
shares jumped 10.5% following a report in The Wall Street Journal that Exxon Mobil is closing in on a deal to buy the Texan shale driller for about $60 billion. Exxon Mobil
XOM,
-1.67%
shares declined 1.7% on the news. -
Levi Strauss & Co.
LEVI,
-0.83%
shares fell 0.8% after the retailer late Thursday cut its outlook for the full year and its executives noted a “continued softness in the wholesale channel, primarily in the U.S.” -
Tesla
TSLA,
+0.18%
edged up 0.2% after the automobile maker cut the price of its Model 3 cars from $40,240 to $38,990 and dropped the cost of its model Y electric vehicles from $50,990 to $45,990 in the U.S. -
Koninklijke Philips‘
PHG,
-7.20%
shares dropped 7.2% after the U.S. Food and Drug Administration called for more testing of its recalled sleep and respiratory devices, following concerns about foam used in millions of recalled products.
Steve Goldstein contributed to this report.
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The Dow Jones Industrial Average
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Amazon, Microsoft Cloud Services Face UK Competition Probe
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By Michael Susin
The U.K.’s communications regulator has referred the cloud market to the country’s competition watchdog for an investigation, alleging that certain features by market leaders Amazon and Microsoft could limit competition.
The Office of Communications regulator said Thursday that a market study found that high fees for transferring data, committed spend discounts and technical restrictions could make it difficult for customers to switch cloud provider or to use multiple providers.
“Some U.K. businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well. So, we’re referring the market to the [Competition and Markets Authority] for further scrutiny, to make sure business customers continue to benefit from cloud services,” Ofcom’s director responsible for the market study, Fergal Farragher, said.
The regulator said Amazon Web Services (AWS) and Microsoft had a combined market share in the U.K. of 70% to 80% in 2022.
The CMA will now start an independent investigation to decide whether there is an impact on competition.
Neither Amazon nor Microsoft were immediately available for comment.
Write to Michael Susin at michael.susin@wsj.com
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These 20 stocks in the S&P 500 are expected to soar after rising interest rates have pushed down valuations
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Two things investors can be sure about: Nothing lasts forever and the stock market always overreacts. The spiking of yields on long-term U.S. Treasury securities has been breathtaking, and it has led to remarkable declines for some sectors and possible bargains for contrarian investors who can commit for the long term.
First we will show how the sectors of the S&P 500
have performed. Then we will look at price-to-earnings valuations for the sectors and compare them to long-term averages. Then we will screen the entire index for companies trading below their long-term forward P/E valuation averages and narrow the list to companies most favored by analysts.Here are total returns, with dividends reinvested, for the 11 sectors of the S&P 500, with broad indexes below. The sectors are sorted by ascending total returns this year through Monday.
Sector or index 2023 return 2022 return Return since end of 2021 1 week return 1 month return Utilities -18.4% 1.6% -17.2% -11.1% -9.6% Real Estate -7.1% -26.1% -31.4% -3.0% -8.8% Consumer Staples -5.4% -0.6% -6.0% -2.2% -4.4% Healthcare -4.2% -2.0% -6.1% -1.7% -3.3% Financials -2.5% -10.5% -12.7% -2.5% -4.7% Materials 1.3% -12.3% -11.2% -1.9% -7.0% Industrials 3.5% -5.5% -2.1% -1.8% -7.3% Energy 4.0% 65.7% 72.4% -1.9% -1.4% Consumer Discretionary 27.0% -37.0% -20.0% -0.6% -5.2% Information Technology 36.5% -28.2% -2.0% 0.8% -5.9% Communication Services 42.5% -39.9% -14.3% 1.1% -1.3% S&P 500
13.1% -18.1% -7.4% -1.1% -4.9% DJ Industrial Average
2.5% -6.9% -4.5% -1.7% -4.0% Nasdaq Composite Index
COMP28.0% -32.5% -13.7% 0.3% -5.1% Nasdaq-100 Index
36.5% -32.4% -7.7% 0.5% -4.2% Source: FactSet Returns for 2022 are also included, along with those since the end of 2021. Last year’s weakest sector, communications services, has been this year’s strongest performer. This sector includes Alphabet Inc.
GOOGL
and Meta Platforms Inc.
META,
which have returned 52% and 155% this year, respectively, but are still down since the end of 2021. To the right are returns for the past week and month through Monday.On Monday, the S&P 500 Utilities sector had its worst one-day performance since 2020, with a 4.7% decline. Investors were reacting to the jump in long-term interest rates.
Here is a link to the U.S. Treasury Department’s summary of the daily yield curve across maturities for Treasury securities.
The yield on 10-year U.S. Treasury notes
jumped 10 basis points in only one day to 4.69% on Monday. A month earlier the 10-year yield was only 4.27%. Also on Monday, the yield on 20-year Treasury bonds
rose to 5.00% from 4.92% on Friday. It was up from 4.56% a month earlier.Market Extra: Bond investors feel the heat as popular fixed-income ETF suffers lowest close since 2007
The Treasury yield curve is still inverted, with 3-month T-bills
yielding 5.62% on Monday, but that was up only slightly from a month earlier. An inverted yield curve has traditionally signaled that bond investors expect a recession within a year and a lowering of interest rates by the Federal Reserve. Demand for bonds pushes their prices down. But the reverse has happened over recent days, with the selling of longer-term Treasury securities pushing yields up rapidly.Another way to illustrate the phenomenon is to look at how the Federal Reserve has shifted the U.S. money supply. Odeon Capital analyst Dick Bove wrote in a note to clients on Friday that “the Federal Reserve has not deviated from its policy to defeat inflation by tightening monetary policy,” as it has shrunk its balance sheet (mostly Treasury securities) to $8.1 trillion from $9 trillion in March 2022. He added: “The M2 money supply was $21.8 trillion in March 2022; today it is $20.8 trillion. You cannot get tighter than these numbers indicate.”
Then on Tuesday, Bove illustrated the Fed’s tightening and the movement of the 10-year yield with two charts:
Odeon Capital Group, Bloomberg
Bove said he believes the bond market has gotten it wrong, with the inverted yield curve reflecting expectations of rate cuts next year. If he is correct, investors can expect longer-term yields to keep shooting up and a normalization of the yield curve.
This has set up a brutal environment for utility stocks, which are typically desired by investors who are seeking dividend income. In a market in which you can receive a yield of 5.5% with little risk over the short term, and in which you can lock in a long-term yield of about 5%, why take a risk in the stock market? And if you believe that the core inflation rate of 3.7% makes a 5% yield seem paltry, keep in mind that not all investors think the same way. Many worry less about the inflation rate because large components of official inflation calculations, such as home prices and car prices, don’t affect everyone every year.
We cannot know when this current selloff of longer-term bonds will end, or how much of an effect it will have on the stock market. But sharp declines in the stock market can set up attractive price points for investors looking to go in for the long haul.
Screening for lower valuations and high ratings
A combination of rising earnings estimates and price declines could shed light on potential buying opportunities, based on forward price-to-earnings ratios.
Let’s look at the sectors again, in the same order, this time to show their forward P/E ratios, based on weighted rolling 12-month consensus estimates for earnings per share among analysts polled by FactSet:
There is a limit to how many columns we can show in the table. The S&P 500’s forward P/E ratio is now 17.94, compared with 16.79 at the end of 2022 and 21.53 at the end of 2021. The benchmark index’s P/E is above its 10- and 15-year average levels but below the five-year average.
If we compare the current sector P/E numbers to 5-, 10- and 15-year averages, we can see that the current levels are below all three averages for four sectors: utilities, real estate, financials and communications services. The first three face obvious difficulties as they adjust to the rising-rate environment, while the real-estate sector reels from continuing low usage rates for office buildings, from the change in behavior brought about by the COVID-19 pandemic.
Your own opinions, along with the pricing for some sectors, might drive some investment choices.
A broader screen of the S&P 500 might point to companies for you to research further.
We narrowed the S&P 500 as follows:
- Current forward P/E below 5-, 10- and 15-year average valuations. For stocks with negative earnings-per-share estimates for the next 12 months, there is no forward P/E ratio so they were excluded. For stocks listed for less than 15 years, we required at least a 5-year average P/E for comparison. This brought the list down to 138 companies.
- “Buy” or equivalent ratings from at least two-thirds of analysts: 41 companies.
Here are the 20 companies that passed the screen, for which analysts’ price targets imply the highest upside potential over the next 12 months.
There is too much data for one table, so first we will show the P/E information:
Company Ticker Current P/E to 5-year average Current P/E to 10-year average Current P/E to 15-year average SolarEdge Technologies Inc. SEDG 89% N/A N/A AES Corp. AES 66% 75% 90% Insulet Corp. PODD 18% N/A N/A United Airlines Holdings Inc. UAL 42% 50% N/A Alaska Air Group Inc. ALK 51% 57% N/A Tapestry Inc. TPR 39% 49% 70% Albemarle Corp. ALB 39% 50% 73% Delta Air Lines Inc. DAL 60% 63% 21% Alexandria Real Estate Equities Inc. ARE 59% 68% N/A Las Vegas Sands Corp. LVS 96% 78% 53% Paycom Software Inc. PAYC 61% N/A N/A PayPal Holdings Inc. PYPL 33% N/A N/A SBA Communications Corp. Class A SBAC 27% N/A N/A Advanced Micro Devices Inc. AMD 58% 39% N/A LKQ Corp. LKQ 92% 44% 78% Charles Schwab Corp. SCHW 75% 54% 73% PulteGroup Inc. PHM 94% 47% N/A Lamb Weston Holdings Inc. LW 71% N/A N/A News Corp Class A NWSA 93% 73% N/A CVS Health Corp. CVS 75% 61% 67% Source: FactSet Click on the tickers for more about each company or index.
News Corp
NWSA
is on the list. The company owns Dow Jones, which in turn owns MarketWatch.Here’s the list again, with ratings and consensus price-target information:
Company Ticker Share “buy” ratings Oct. 2 price Consensus price target Implied 12-month upside potential SolarEdge Technologies Inc. SEDG 74% $122.56 $268.77 119% AES Corp. AES 79% $14.16 $25.60 81% Insulet Corp. PODD 68% $165.04 $279.00 69% United Airlines Holdings Inc. UAL 71% $41.62 $69.52 67% Alaska Air Group Inc. ALK 87% $36.83 $61.31 66% Tapestry Inc. TPR 75% $28.58 $46.21 62% Albemarle Corp. ALB 81% $162.41 $259.95 60% Delta Air Lines Inc. DAL 95% $36.45 $58.11 59% Alexandria Real Estate Equities Inc. ARE 100% $98.18 $149.45 52% Las Vegas Sands Corp. LVS 72% $45.70 $68.15 49% Paycom Software Inc. PAYC 77% $260.04 $384.89 48% PayPal Holdings Inc. PYPL 69% $58.56 $86.38 48% SBA Communications Corp. Class A SBAC 68% $198.24 $276.69 40% Advanced Micro Devices Inc. AMD 74% $103.27 $143.07 39% LKQ Corp. LKQ 82% $49.13 $67.13 37% Charles Schwab Corp. SCHW 77% $53.55 $72.67 36% PulteGroup Inc. PHM 81% $73.22 $98.60 35% Lamb Weston Holdings Inc. LW 100% $92.23 $123.50 34% News Corp Class A NWSA 78% $20.00 $26.42 32% CVS Health Corp. CVS 77% $69.69 $90.88 30% Source: FactSet A year may actually be a short period for a long-term investor, but 12-month price targets are the norm for analysts working for brokerage companies.
Don’t miss: This fund shows that industry expertise can help you make a lot of money in the stock market
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Tesla, Rivian, Discover, Sphere Entertainment, Nvidia, and More Stock Market Movers
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Apple says it will fix app software problems blamed for making iPhone 15 models too hot to handle
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Apple Inc. is blaming a software bug and other issues tied to popular apps such as Instagram and Uber for causing its recently released iPhone 15 models to heat up and spark complaints about becoming too hot to handle.
The Cupertino, Calif., company
AAPL,
+0.30%
said Saturday that it is working on an update to the iOS17 system that powers the iPhone 15 lineup to prevent the devices from becoming uncomfortably hot and is working with apps that are running in ways “causing them to overload the system.”Instagram, owned by Meta Platforms
META,
-1.23% ,
modified its social media app earlier this week to prevent it from heating up the device on the latest iPhone operating system.Read: The Magnificent Seven could be considered the messy seven after a ‘meh’ third quarter
Uber
UBER,
-0.33%
and other apps such as the video game Asphalt 9 are still in the process of rolling out their updates, Apple said. It didn’t specify a timeline for when its own software fix would be issued but said no safety issues should prevent iPhone 15 owners from using their devices while awaiting the update.“We have identified a few conditions which can cause iPhone to run warmer than expected,” Apple in a short statement provided to The Associated Press after media reports detailed overheating complaints that are peppering online message boards.
The Wall Street Journal amplified the worries in a story citing the overheating problem in its own testing of the new iPhones, which went on sale a week ago.
Read: Here’s what Apple’s iPhone 15 says about the world
It’s not unusual for new iPhones to get uncomfortably warm during the first few days of use or when they are being restored with backup information stored in the cloud — issues that Apple already flags for users. The devices also can get hot when using apps such as video games and augmented reality technology that require a lot of processing power, but the heating issues with the iPhone 15 models have gone beyond those typical situations.
In its acknowledgement, Apple stressed that the trouble isn’t related to the sleek titanium casing that houses the high-end iPhone 15 Pro and iPhone 15 Pro Max instead of the stainless steel used on older smartphones.
Apple also dismissed speculation that the overheating problem in the new models might be tied to a shift from its proprietary Lightning charging cable to the more widely used USB-C port that allowed it to comply with a mandate issued by European regulators.
Although Apple expressed confidence that the overheating issue can be quickly fixed with the upcoming software updates, the problem still could dampen sales of its marquee product at time when the company has faced three consecutive quarters of year-over-year declines in overall sales.
The downturn has affected iPhone sales, which fell by a combined 4% in the nine months covered by Apple’s past three fiscal quarters compared with a year earlier.
Apple is trying to pump up its sales in part by raising the starting price for its top-of-the-line iPhone 15 Pro Max to $1,200, an increase of $100, or 9%, from last year’s comparable model.
Investor worries about Apple’s uncharacteristic sales funk already have wiped out more than $300 billion in shareholder wealth since the company’s market value closed at $3 trillion for the first time in late June.
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SmileDirectClub’s stock plummets 85% after Chapter 11 bankruptcy filing
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SmileDirectClub Inc. shares plummeted in the extended session Friday after the company said it had voluntarily filed for Chapter 11 bankruptcy protection as founders seek to recapitalize the teeth-straightening business.
SmileDirectClub shares SDC, which had been halted while up 0.9% in after-hours trading pending news, promptly dropped as much as 85% when trading in the stock reopened.
The…
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Can a roof’s material cool the outside air and lower energy demand?
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Newswise — Concrete sidewalks, black asphalt streets, traffic, brick and steel buildings. These common city elements can retain heat and increase temperatures in a phenomenon called the urban heat island effect.
With increasingly warming temperatures during the summer months, urban cities like Chicago need to arm decision makers and communities with information about strategies to help keep their residents cool. One strategy involves something all buildings already have: a roof. Certain roofing materials can help cool the surrounding outside air and decrease the need for air conditioning (AC).
To help understand how climate is affecting urban communities, researchers at the U.S. Department of Energy’s (DOE) Argonne National Laboratory examined three different types of roofing strategies and their impact on near-surface temperature and cooling energy demand through regional modeling in the Chicago metropolitan area.
“We chose to run our model during a heatwave event — where temperatures cross the 95th percentile observed in a city for three consecutive days — as opposed to average summer temperatures so that we could maximize potential benefits,” said Rao Kotamarthi, science director for Argonne’s Center for Climate Resilience and Decision Science (CCRDS) and author of the study.
The team ran a regional climate model simulating the Chicago metro area and three types of roofs: cool (painted a heat-reflecting white), green (vegetation) and solar panels.
“The cost between the roofs is approximately a factor of 3. Which option is the most cost effective to get the most benefit? If a community is deciding on a strategy, we can look at the model and give them an actual answer.” — Rao Kotamarthi, science director for CCRDS
They found that the three types of roofs reduced the near-surface temperature and AC consumption demand during daytime hours when air temperature is the highest. Cool roofs reduced the near-surface temperature by 1.5 degrees Celsius, followed by 1.2 degrees for green roofs and 0.6 degrees for solar panel roofs across the Chicago area.
Because all the roofing strategies offer cooling effects, they reduce AC consumption. Cool roofs reduced AC energy consumption the most, followed by green roofs and solar panel roofs. Energy demand was shown to be reduced by 16.6%, 14.0%, and 7.6%, when cool roofs, green roofs and solar panel roofs are deployed, respectively.
Overall, the large-scale deployment of cool roofs showed the best potential for cooling effects and cooling energy saving. They cost less than the other two technologies, and they do not require additional water. However, they are not helpful in managing stormwater loads as green roofs have the potential to do. Stakeholders can use results of the study to inform sustainable development approaches, lower summertime cooling energy demand, and help minimize greenhouse gas emissions in the long term over the Chicago region.
This work was conducted as part of the Community Research on Climate & Urban Science (CROCUS) Urban Integrated Field Laboratory. CROCUS is led by Argonne in partnership with academic and community organizations and civic and industry champions. Focused on the Chicago region, CROCUS studies urban climate change and its implications for environmental justice.
The results of this baseline study will help CROCUS communities plan and test mitigation options. The researchers will work closely with CROCUS community organizations and members.
“The difference in cost between the roofs is approximately a factor of three,” said Kotamarthi, who is also the CROCUS science director. “Which option is the most cost effective to get the most benefit? If a community is deciding on a strategy, we can look at the model and give them an actual answer.”
And the results are a good starting point for what the researchers hope to achieve next, a city-scale and global-scale model for each of the roofing options. But how do you incorporate a green roof into a computer model? First, researchers will work to better understand green roofs by taking measurements at surface and building levels to improve on how a green roof is represented.
“We have very few measurements for green roofs,” said Kotamarthi. “We need to measure how much energy goes in, how much goes out, and how much water it needs and how fast it retains it. We need these measurements to give us a complete understanding of the process so we can refine calculations and models.”
Researchers will measure the roofs of CROCUS partners throughout the city. For instance, Northeastern Illinois University has both roof types, while other partner buildings have solar panels.
Finally, the researchers want to improve the resolution of the model all the way down to street scale. Kotamarthi explained that achieving this will help them see the difference between houses and streets, which is important because it will help answer questions such as, if a tree is planted, how much does it cool the nearby building and the pavement?
The team’s research used supercomputing resources at the Argonne Leadership Computing Facility (ALCF) and the National Energy Research Scientific Computing Center (NERSC). The ALCF and NERSC are DOE Office of Science user facilities located at Argonne and Lawrence Berkeley National Laboratory, respectively.
Funded by the DOE’s Office of Science, Biological and Environmental Research program, Community Research on Climate and Urban Science (CROCUS) studies urban climate change and its implications for environmental justice in the Chicago region. CROCUS is a collaborative study that involves academic, community and civic partners including Argonne, Chicago State University, City Colleges of Chicago, North Carolina A&T State University, Northeastern Illinois University, Northwestern University, University of Chicago, University of Illinois Chicago, University of Illinois Urbana-Champaign, University of Notre Dame, University of Wisconsin-Madison, University of Texas-Austin and Washington University-St. Louis. CROCUS also partners with Discovery Partners Institute in Chicago and with CIEMAT in Spain. CROCUS community organizations include Blacks in Green, Greater Chatham Initiative, Puerto Rican Agenda and the Metropolitan Mayors Caucus.
Learn more about CROCUS at crocus-urban.org.
The Argonne Leadership Computing Facility provides supercomputing capabilities to the scientific and engineering community to advance fundamental discovery and understanding in a broad range of disciplines. Supported by the U.S. Department of Energy’s (DOE’s) Office of Science, Advanced Scientific Computing Research (ASCR) program, the ALCF is one of two DOE Leadership Computing Facilities in the nation dedicated to open science.
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Nvidia identified as target of French antitrust raid: WSJ
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Nvidia Corp.’s offices in France were the subject of a dawn raid Wednesday by French antitrust regulators, according to a report by the Wall Street Journal on Thursday, which cited sources close to the raid.
Nvidia
NVDA,
+1.46%
is widely recognized by Wall Street as the biggest chipmaker that stands to gain from the current AI frenzy, as data centers that run the AI models need more and more hardware and software to sustain workloads. Shares of the $1.065 trillion company are up 195% year to date.On Wednesday, the Autorité de la Concurrence, France’s national competition regulator, said it had carried out the raid at “the premises of a company suspected of having implemented anticompetitive practices in the graphics-cards sector,” and refused to comment on “the entity or on the practices in question.”
Nvidia declined to comment to both the Wall Street Journal and MarketWatch.
Nvidia’s stock closed up 1.5% at $430.89 in Thursday trading following the report, while the S&P 500 index
SPX,
+0.59%
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Micron, Peloton, GameStop, Workday, Nike, CarMax, and More Stock Market Movers
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Hollywood writers strike declared over after boards approve new contract with studios
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LOS ANGELES — Leaders of the screenwriters union declared their nearly five-month-old strike over Tuesday after board members approved a contract agreement with studios, bringing Hollywood at least partly back from a historic halt in production.
The governing boards of the eastern and western branches of the Writers Guild of America and their joint negotiating committee all voted to accept the deal, two days after the tentative agreement was reached with a coalition of Hollywood’s biggest studios, streaming services and production companies. After the vote they declared that the strike would be over and writers would be free to start on scripts at 12:01 a.m. Wednesday.
Late-night talk shows — the first to go dark when writers walked out on May 2 — are likely the first shows that will resume. Scripted shows will take longer to return, with actors still on strike and no negotiations yet on the horizon.
The writers still have to vote to ratify the contract themselves in early October, but lifting the strike will allow them to work during that process, the guild told members in an email.
After Tuesday’s board votes, the contracts were released for the first time to the writers, who had not yet been given any details on the deal, which their leaders called “exceptional.”
The three-year agreement includes significant wins in the main areas writers had fought for — compensation, length of employment, size of staffs and control of artificial intelligence — matching or nearly equaling what they had sought at the outset of the strike.
The union had sought minimum increases in pay and future residual earnings from shows of between 5% and 6%, depending on the position of the writer. The studios had wanted between 2% and 4%. The compromise deal was a raise of between 3.5% and 5%.
The guild also negotiated new residual payments based on the popularity of streaming shows, where writers will get bonuses for being a part of the most popular shows on Netflix
NFLX,
-1.44% ,
Max and other services, a proposal studios initially rejected. Many writers on picket lines had complained that they weren’t properly paid for helping create heavily watched properties.The writers also got the requirement they sought that shows intended to run at least 13 episodes will have at least six writers on staff, with the numbers shifting based on the number of episodes. They did not get their desire for guaranteed staffs of six on shows that had not yet been ordered to series, settling instead for a guaranteed three.
Writers also got a guarantee that staffs on shows in initial development will be employed for at least 10 weeks, and that staffs on shows that go to air will be employed for three weeks per episode.
On artificial intelligence, the writers got the regulation and control of the emerging technology they had sought. Under the contract, raw, AI-generated storylines will not be regarded as “literary material” — a term in their contracts for scripts and other story forms a screenwriter produces. This means they won’t be competing with computers for screen credits. Nor will AI-generated stories be considered “source” material, their contractual language for the novels, video games or other works that writers may adapt into scripts.
Writers have the right under the deal to use AI in their process if the company they are working for agrees and other conditions are met. But companies cannot require a writer to use AI.
Still-striking members of the Screen Actors Guild-American Federation of Television and Radio Artists returned to the picket lines earlier Tuesday for the first time since the writers struck their tentative deal, and they were animated by a new spirit of optimism.
“For a hot second, I really thought that this was going to go on until next year,” said Marissa Cuevas, an actor who has appeared on the TV series “Kung Fu” and “The Big Bang Theory.” “Knowing that at least one of us has gotten a good deal gives a lot of hope that we will also get a good deal.”
Writers’ picket lines had been suspended, but they were encouraged to walk in solidarity with actors, and many were on the lines Tuesday, including “Mad Men” creator Matthew Weiner, who picketed alongside friend and “ER” actor Noah Wyle as he has throughout the strikes.
“We would never have had the leverage we had if SAG had not gone out,” Weiner said. “They were very brave to do it.”
The Alliance of Motion Picture and Television Producers, which represents the studios in negotiations, chose to deal with the longer-striking writers first, and leaders of SAG-AFTRA said they had received no overtures on resuming talks. That’s likely to change soon.
Actors also voted to authorize their leadership to potentially expand their walkout to include the lucrative videogame market, a step that could put new pressure on Hollywood studios to make a deal with the performers who provide voices and stunts for games.
The Screen Actors Guild-American Federation of Radio and Television Artists announced the move late Monday, saying that 98% of its members voted to go on strike against videogame companies if ongoing negotiations are not successful. The announcement came ahead of more talks planned for Tuesday.
Acting in videogames can include a variety of roles, from voice performances to motion capture work as well as stunts. Video game actors went on strike in 2016 in a work stoppage that lasted nearly a year.
Some of the same issues are at play in the video game negotiations as in the broader actors strike that has shut down Hollywood for months, including wages, safety measures and protections on the use of artificial intelligence. The companies involved include gaming giants Activision Blizzard
ATVI,
-0.05% ,
Electronic Arts
EA,
-1.13% ,
Epic Games, Take 2 Productions
TTWO,
-0.99%
as well as Disney
DIS,
-1.19%
and Warner Bros.′
WBD,
+0.28%
videogame divisions.“It’s time for the videogame companies to stop playing games and get serious about reaching an agreement on this contract,” SAG-AFTRA President Fran Drescher said in a statement.
Audrey Cooling, a spokesperson for videogame producers, said they are “continuing to negotiate in good faith” and have reached tentative agreements on more than half of the proposals on the table.
So far this year, U.S. consumers have spent $34.9 billion on videogames, consoles and accessories, according to market research group Circana.
The threat of a videogame strike emerged as Hollywood writers were on the verge of getting back to work after months on the picket lines.
The alliance of studios, streaming services and producers has chosen to negotiate only with the writers so far, and has made no overtures yet toward restarting talks with SAG-AFTRA. That will presumably change soon.
SAG-AFTRA leaders have said they will look closely at the writers’ agreement, which includes many of the same issues, but it will not effect their demands.
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These 20 growth stocks are worth considering on a pullback, says Citi
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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,
+0.74%
and NVIDIA Corp.
NVDA,
+1.47%
are on the list, along with Pinterest Inc.
PINS,
-2.47% ,
Lam Research Corp.
LRCX,
+0.24% ,
Teradata Corp.
TDC,
+0.36% ,
Datadog Inc.
DDOG,
+0.09% ,
MongoDB Inc.
MDB,
-0.73% ,
HubSpot Inc.
HUBS,
+0.18%
and KLA Corp.
KLAC,
+0.79% .
The other stocks cited by Citi are Lockheed Martin Corp.
LMT,
-0.18% ,
DraftKings Inc.
DKNG,
-1.44% ,
Las Vegas Sands Corp.
LVS,
-0.98% ,
Chipotle Mexican Grill Inc.
CMG,
-0.85% ,
Netflix Inc.
NFLX,
+1.31% ,
TKO Group Holdings Inc.
TKO,
-1.93% ,
Rockwell Automation Inc.
ROK,
+1.09%
and Paycom Software Inc.
PAYC,
+0.45% ,
and healthcare stocks Bruker Corp.
BRKR,
+1.04% ,
Insulet Corp.
PODD,
-0.66%
and Intuitive Surgical Inc.
ISRG,
+1.75% .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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Microsoft’s Revised Activision Deal Addresses Competition Concerns, Says UK Regulator
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By Elena Vardon
Microsoft’s proposals to modify its $75 billion Activision acquisition address the concerns with the U.K. antitrust authority, the regulator said in a provisional decision Friday.
The U.K. Competition and Markets Authority said that the new deal submitted by Microsoft should lessen any harm to competition in cloud gaming.
The CMA said that the restructured transaction–through which Activision would sell its cloud gaming rights to Ubisoft–opens the door to the deal being cleared.
The regulator is consulting on remedies put forward by Microsoft to address residual concerns it has before making a final decision, it said.
The CMA opened a consultation on these remedies which will last until Oct. 6, it added.
Write to Elena Vardon at elena.vardon@wsj.com
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By buying Splunk, Cisco is closer to becoming a software company
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With Cisco Systems Inc.’s pending acquisition of Splunk Inc., the networking giant is making another major step toward becoming a software company.
On Thursday, Cisco CSCO said it was buying Splunk SPLK in a deal valued at about $28 billion, or $157 a share in cash, for the cloud-security company. The match had been speculated about for years, and Cisco has been on a buying binge this year, as it seeks to grow with more security and software offerings.
“Together, we will become one of…
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FedEx, Klaviyo, KB Home, CrowdStrike, and More Stock Market Movers
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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.
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Block’s stock has been a laggard lately. Will management shakeup provide a needed jolt?
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Block Inc.’s stock has been a sizable laggard this year, and now it’s losing the leader of a critical business — albeit one that hasn’t necessarily lived up to investor expectations lately.
Alyssa Henry, the head of Block’s
SQ,
-2.99%
Square merchant business, is stepping down after a long tenure with the company, and Jack Dorsey will assume her role while continuing to lead Block on the whole, the company announced in a Monday filing.The announcement comes as Block shares have declined 18% so far this year, while the S&P 500
SPX
has risen 16%. Other payment-technology stocks, including Shift4 Payments Inc.,
FOUR,
-0.54%
Toast Inc.
TOST,
+1.34%
and even PayPal Holdings Inc.
PYPL,
-1.98%
have logged better year-to-date performances.Block’s stock closed at its lowest level since April 7, 2020 on Monday, according to Dow Jones Market Data. It was down about 2% in after-hours trading.
The stock is also down 82% from its all-time closing high achieved Aug. 5, 2021.
See also: PayPal’s ‘fresh start’ isn’t enough to help its stock, analyst cautions
The performance of the Square merchant business, which includes payment processing and other tools for sellers, has been a sore point for investors recently. Wolfe Research analyst Darrin Peller notes that Block’s second-quarter U.S. gross payment volume (GPV) was up 10% from a year earlier, a four-point spread above Visa Inc.’s
V,
+1.49%
domestic growth. Historically, the spread has been in double digits, he said.Additionally, while the 12% overall growth in Square’s GPV “continues to imply that Square is a market-share gainer, we note that this growth spread relative to the industry has trended lower and also suggests slightly softer growth trends versus competitors like Clover,” which is part of Fiserv Inc.
FI,
+0.12% ,
whose shares are up 20% on the year.“While some of Square’s success over the years should be attributed to Alyssa’s execution, the company’s more recent performance remains a concern for investors (and we suspect for management, internally),” Peller wrote.
He pointed to “mixed” feedback from investors thus far.
“Bulls argue that this change is positive, indicating that management is taking change seriously,” Peller said. “Further, it’s worth noting that Jack has been more receptive to cost management and other adjustments. Meanwhile, bears are citing that Alyssa was the ‘face’ of Seller and was more receptive to changes in Square’s business model compared to Jack (particularly around outsourced distribution).”
Block, for its part, said in its filing that Henry “provided significant contributions” to the company during a tenure that spanned more than nine years.
UBS downgraded Block shares earlier this month, in part due to concerns about the Square business. Analyst Rayna Kumar said she was concerned about a potential slowdown in gross-profit growth owing to a moderation in consumer spending.
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Klaviyo reportedly raises price range of its upcoming IPO
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Klaviyo Inc. is reportedly raising the target of its upcoming initial public offering to more than $550 million.
Bloomberg News reported late Sunday that Klaviyo has decided to raise the target range for its shares to $27 to $29, up from its previously stated range of $25 to $27 a share. At the top of that new range, the IPO would raise $557 million, with the company valued at about $8.7 billion, according to Bloomberg.
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Are we bored yet? Retail investors slowing their roll on AI stocks, according to this chart
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There are more signs that investors are cooling a bit on the hot artificial intelligence play, though no one appears ready to let go of their Nvidia stock just yet.
That’s according to Vanda Research analysts, who shared a chart of their latest weekly data showing how retail investor’s net purchases of AI-themed stocks is “steadily waning”:
Marco Iachini, senior vice president, Giacomo Pierantoni, head of data and Lucas Mantle, data scientist at Vanda, said they’ve also noticed fewer news stories covering the sector as well, in their Vandatrack weekly comment that published Thursday.
The fervor for AI-related stocks and technology took off earlier this year, with a pinnacle moment in May when Nvidia
NVDA,
-2.89%
made big predictions on a boom for demand for its AI-related chips. Shares of the company are still up 211% so far this year, but enthusiasm for many tech stocks faded in August as China and interest rate-hike worries cropped up and some companies stressed AI benefits might not happen right away.That said, Vanda analysts don’t expect Nvidia will feel the hurt of any such waning interest. They point out that short interest in the chip maker has seen a “considerable decline,” in line with its soaring stock price.
“This phenomenon suggests that bearish institutional investors, including long/short hedge funds, may have been compelled to cover their short positions,” said Iachini and his team. “As a result they are unlikely to want to sell the stock in the near term barring strong conviction to do so.”
“It is crucial to recognize that a slowdown in retail demand, by itself, is improbable to trigger substantial price movements, without active bearish participation from institutional investors,” they added.
However, the story is different for smaller AI-related companies such as smaller-cap C3.ai
AI,
-2.78%
as seen in their chart:For C3.ai, they see a selling trend persisting in coming weeks. The AI software group’s shares are up 154% so far this year, but down 9% this month, taking a hit recently from solid quarterly results that came with forecasts for a bigger-than-expected full year loss. Analysts aren’t quite giving up — among 10 covering the company tracked by FactSet most have hold or a similar rating.
“We believe C3.ai is taking the proper steps to capitalize on Generative AI, but it will take time to prove out,” said a team of analysts at Oppenheimer led by Timothy Horan, after those results were released on Sept. 7. They rate the company perform.
Vanda analysts said another exception to an AI buying slowdown has been IonQ
IONQ,
-6.21% ,
“a relatively small quantum computing company that has been outperforming its AI-related counterparts.” They noted “remarkably resilient” demand for the stock, as short interest also increases rapidly.“This juxtaposition raises a cautionary flag, as a potential weakening of retail interest, coupled with speculative institutional investors accumulating short positions, could create a demand-supply imbalance, potentially triggering a selloff,” they said. Shares of IONQ have soared 422% year-to-date. The company lifted its lifted full-year bookings guidance last month as it reported blowout second-quarter sales.
Young Money blogger Jack Raines highlighted the slowing interest in AI in a post on Thursday , citing data from analytics firm Similarweb that showed ChatGPT traffic down 3.2% in August, after 10% declines in June and July.
“While ChatGPT will probably experience a resurgence this fall as students return to the classroom and expedite their homework via chatbot, it seems like talks of AI disrupting/replacing anything and everything have cooled down,” he said, adding that the “initial euphoria was a bit much.”
Deutsche Bank strategists hopped on the topic in a note to clients entitled “Even hype needs a summer break,” on Thursday, noting how AI interest waned as investors went to the beach and the media turned its attention to extreme weather and “silly season” stories.
“Under the surface, though, there have been important developments indicating a slow maturing of the cycle, of the underlying technologies and of attitudes to a revolution in waiting,” said a team led by analyst Adrian Cox.
Those include Ai being the “elephant in the earnings room,” this summer that also brought a steady stream of AI-related tech announcements. Another theme “Your job is safe..for now,” came via fresh evidence that AI might boost rather than replace white-collar jobs, while yet another saw U.S. politicians also got involved.
This week saw Tesla CEO Elon Musk telling Capital Hill politicians that a new federal agency to oversee AI development is a must.
Another big theme that erupted this summer was the chatter by contrarian commentators questioning the hype around generative AI. Cox alluded to the Similarweb report that got everyone excited as it showed Chat GPT traffic falling to 1.4 billion visitors in August from 1.8 billion in May.
“The bigger picture is that open.ai had zero visitors before the launch of ChatGPT less than a year ago and is now No. 28 in the world, according to Similarweb,” said the Deutsche Bank team.
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Nvidia Stock Is Set for Longest Losing Streak This Year
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Nvidia Stock’s Losing Streak Keeps Going. What Happened to Wall Street’s Darling?
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