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Chris Ratcliffe/Bloomberg
Arm Holdings
priced its initial public offering at $51 a share. That’s at the top of the expected range of $47 to $51, giving the chip design company a valuation of $54.5 billion on a f…
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United Auto Workers President Shawn Fain said Wednesday that autoworkers and the Big Three automakers are still far apart, although negotiations continue, and that the union may strike all of the Big Three at once.
“We’re keeping all of our options open. An all-out strike is still a possibility,” Fain said during a webcast with members.
The UAW and Ford Motor Co.
F,
General Motors Co.
GM,
and Stellantis NV
STLA,
have made progress during their talks but were still far apart on the union’s key priorities, though negotiations will continue until the deadline of 11:59 p.m. Eastern on Thursday, Fain said.
“For the first time in our history, we may strike all of the Big Three at once,” Fain said, adding that he looked at this time as “our defining moment.”
He said if no deal is reached, there’s also the possibility of doing “standup strikes” at certain plants, designed to keep the companies guessing. These could escalate and spread elsewhere in order to give the union leverage in bargaining. He told UAW members that they should not strike unless their local is called to do so.
A targeted strike helps the UAW avoid distributing strike pay, set recently at $500 a week per member, to all 150,000 of its members. But it could have a broader effect.
“It is possible for strikes at critical parts plants to have much wider implications,” Marick Masters, a business professor at Wayne State University in Detroit, said in an interview with MarketWatch on Wednesday.
He noted that the 1998 strike against GM, a work stoppage by 9,200 workers at two of that company’s plants in Flint, Mich., resulted in shutdowns that affected more than 150,000 workers.
See: These Ford, GM plants are the most likely strike targets
Jody Calemine, a senior fellow and director of labor and employment policy at the Century Foundation, a progressive think tank, said Wednesday that the union is employing an interesting strategy.
“It will turn the screws slowly and probe for weaknesses, and try to get as much movement out of companies as possible while keeping the options to escalate,” he said.
Calemine said Fain has done a “masterful job” of painting the fight as a “real showdown” between working families and the companies. But he added that “the principal danger for the union would be losing the narrative. Other places would continue to work, or get laid off or locked out.”
That’s reflected in some of the online comments by UAW members who watched Fain’s update. One worker said on Facebook: “Strike us all or none at all.”
The UAW president quoted scripture, repeated his calls for unity and said the “strike plan is driven by faith that together we can and will move mountains.”
Fain said the companies have revised some of their offers: On wages, Ford has put forward a 20% increase over the life of the four-year contract, up from its previous offer of 9%, while GM’s latest offer is 18% and Stellantis’s offer is 17.5%. That’s compared to a wage increase of 40% — or 46% when compounded annually — that the union sought originally and later revised to 36%.
“Their proposals don’t reflect the massive profits that we’ve generated for these companies,” Fain said.
The union has pointed out that while the Big Three’s profit has risen 65% over the past four years, and the pay of each of the companies’ chief executives have risen 40%, the UAW top wage rate has risen 6% over that time.
See: Why United Auto Workers are fighting to end a two-tier system for wages and benefits
A GM spokesperson said Wednesday that the company continues to bargain in good faith and sent a statement that reads in part: “We are making progress in key areas that we believe are most important to our represented team members. This includes historic guaranteed annual wage increases, investments in our U.S. manufacturing plants to provide opportunities for all, and shortening the time for in-progression employees to reach maximum wages.”
Ford and Stellantis did not immediately return a request for comment.
The most recent U.S. autoworkers’ strike was at GM in 2019, which lasted for nearly six weeks and involved about 50,000 workers.
See: Would a United Auto Workers strike provide an opportunity for Tesla — and push up used-car prices?
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Arm Holding Ltd. priced its initial public offering at the high end of its expected range late Wednesday following intense interest.
The British chip-design company priced shares at $51, raising $4.87 billion, following earlier reports that Arm would be pricing its IPO at $52 a share. A source close to the deal confirmed to MarketWatch that $52 had been the expected price, but that it was reduced to $51. That puts the chip designer at just over a $52 billion valuation. Recently, Arm had stated a targeted range of $47 to $51.
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Starbucks Corp. on Wednesday said former Chief Executive Howard Schultz is stepping down from its board of directors, capping a nearly 40-year career during which the company grew from a handful of stores in Seattle into a global coffee chain.
Schultz’s retirement from the board, which ends his involvement in the company’s leadership, took effect Wednesday and was part of a planned transition, the coffee chain said. Schultz stepped down as Starbucks
SBUX,
chief executive in March.
The company on Wednesday also said that it had elected Wei Zhang to its board of directors, effective Oct. 1. Zhang was most recently a senior adviser to Chinese e-commerce giant Alibaba Group
BABA,
and also held leadership positions at News Corp China and CNBC China.
Shares of Starbucks were down 0.7% after hours on Wednesday.
Starbucks said Schultz “will now turn his attention with his wife, Sheri, to focus on a range of philanthropic and entrepreneurial investments to create greater opportunity, accessible to all.” The company noted that the two were co-founders of the Schultz Family Foundation in 1996, and of the emes project.
Although he was not technically the founder of the coffee chain, Schultz became the modern face of it. Schultz joined Starbucks in 1982 as its director of operations and marketing. After a brief hiatus from the company, he returned in 1987 as chief executive and bought the business with backing from local investors, according to a biography on the Starbucks website. The chain went public in 1992.
As the chain’s footprint expanded beyond the U.S., Schultz stepped down from the CEO role in 2000 but returned in 2008. He retired from Starbucks in 2018, then came back as interim chief executive and board member last year.
Over those years, Starbucks has banked on China for international growth — even as that country’s economy remains turbulent following the postpandemic reopening. It also added food and cold and customizable drinks to its menus and built out its mobile-ordering infrastructure.
The company has branded itself as a progressive employer and a supporter of social justice. But over the past two years, the company, and Schultz in particular, have faced criticism over the handling of employees who were trying to unionize. Union members have accused the chain of unfair labor practices, retaliation for organizing and delaying contract negotiations, leading to deeper scrutiny from lawmakers.
“We hope this is an opportunity for Starbucks to change course and leave their union-busting behind them,” Starbucks Workers United, the union representing those workers, said Wednesday in a tweet.
Still, even as inflation has eaten into consumer savings, Schultz said coffee has remained an “affordable luxury” for many customers. And Starbucks management said that younger, loyal consumers and customizable drinks would help sustain demand.
According to a filing on Wednesday, Schultz will still be connected to the company in other ways. Starbucks said it would amend Schultz’s retirement agreement from 2018 and continue to provide him and his spouse with security services.
“The security services will be provided for a period of 10 years and will be evaluated on an annual basis,” the filing said. “In recognition of Mr. Schultz’s leadership as the company’s founder and chairman emeritus, the company will also provide Mr. Schultz with the reimbursement of his monthly healthcare insurance premiums.”
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By Maitane Sardon
Zara Owner Inditex on Wednesday reported first-half sales which beat market forecasts, thanks to a strong performance both online and in stores.
The Spanish fashion giant, which also owns Bershka, Massimo Dutti and Pull&Bear, said that net profit for the six months ended July 31 surged to 2.51 billion euros($2.70 billion), from EUR1.79 billion last year.
Sales came to EUR16.85 billion, topping the EUR14.85 billion it reported for the same period a year earlier. Analysts had forecast first-half sales of EUR16.68 billion, according to a poll of estimates compiled by FactSet.
Earnings before interest and taxes climbed to EUR3.16 billion in the first half from EUR2.43 billion, while earnings before interest, taxes, depreciation, and amortization increased to EUR4.66 billion from EUR4.03 billion.
The operating margin increased to 18.8% from 16.4%, while the gross margin was up at 58.2% Inditex said.
For the year, Inditex continues to expect a stable gross margin plus or minus 50 basis points.
Inditex’s results come as the company seeks to maintain its edge over rivals in a challenging business environment. On Tuesday, Primark owner AB Foods upped its forecast for 2023 and said its sugar and clothing-retail divisions should be even more profitable next year despite an arduous macroeconomic backdrop. Stockholm-based H&M Hennes & Mauritz is set to report sales on Friday.
Write to Maitane Sardon at maitane.sardon@wsj.com
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Apple refreshed its iPhone and Apple Watch lineups at a Tuesday event that focused on camera and processing improvements for the phones as well as new gesture controls for the watch.
Apple
AAPL,
kept prices the same on three of its iPhone models, while boosting the starting price of the iPhone 15 Pro Max for the first time when it eliminated what previously was the smallest and cheapest configuration. The least expensive iPhone 15 Pro Max will cost $1,199 for 256GB of storage, which is what that configuration cost a year ago, though at that time there was also a cheaper 128GB option. Apple previously had stuck with a $1,099 base price on the iPhone Pro Max since it rolled out that model in 2019.
Both the iPhone 15 Pro and the iPhone 15 Pro Max will feature Apple’s custom designed A17 Pro processor, a faster chip that the company says will boost the mobile gaming experience.
The Pro models are getting slight design enhancements, including new titanium casing and slimmer edges. Apple says that the use of titanium, rather than stainless steel, makes the models lighter than their predecessor.
Perhaps the best camera upgrade is exclusive to the Pro Max. That phone will have a better telephoto camera supporting up to five-times zoom, compared with three times before, and will be able to capture three-dimensional video that can be viewed with Apple’s soon-to-launch Vision Pro headset.
See also: Vision Pro could be Apple’s biggest hit since iPhone
The iPhone 15 and iPhone 15 Plus will receive enhancements, too, including speed boosts via Apple’s A16 processor and camera upgrades that will support better use of portrait mode. The satellite connectivity feature that launched on last year’s iPhones will expand to include roadside assistance as well.
After facing criticism for the iPhone’s “notch,” Apple turned that space into a Dynamic Island on Pro models last year. Now that technology is coming to the base-level models as well, so users will be able to use that space for more functional means like changing songs.
iPhone users may be able to throw away their Lightning cables if they get the new models, as all four will charge with the more universal USB-C connectivity, as will other Apple devices such as AirPods Pro. Apple did not spend a lot of time addressing the change from its proprietary “Lightning” connecter, which was forced by new European rules requiring universal connections.
More on iPhone 15: Apple increases base price on highest-end iPhone for first time
Apple also detailed the new Apple Watch Series 9 lineup, which includes the second version of the Apple Watch Ultra. The new base Apple Watches will have a new S9 chip that could lead to speed and efficiency improvements and faster load times, the same 18-hour battery life, a new FineWoven fabric band and up to 2000 nit brightness display. The Apple Watch Ultra 2 has features including 36 hours of battery life, an S9 SiP chip, and a 3000-nit brightness display
The new Apple Watch Series 9 also features a new “double-tap” gesture, which allows people to answer calls and interact with their watch by tapping their index finger and thumb together when their non-watch hand is being previously occupied.
For more: New Apple Watch Series 9 — cost, new features, and when it comes out
The new Apple Watch models are set to become available for preorder immediately following the Sept. 12 launch event, and will be available for regular purchase on Friday Sept. 22.
Apple said the new Apple Watch would be its first fully carbon-neutral device, and dedicated a solid chunk of its hour-and-a-half presentation to discussing environmental sustainability efforts. The company is aiming to be completely carbon-neutral across its operations and supplier operations by 2030.
Apple also noted that it will no longer use leather in Watch bands, nor any other product. The company also moved up its goal for ditching all plastic packaging — it now expects to accomplish that by the end of 2024.
See: Apple to drop plastic packaging by end of next year, no leather cases for iPhone15
Apple added new pink colors to its iPhone and Watch lineup as well. The company also added two new tiers to its iCloud product, which will offer options for 6 and 12 terabytes of remote storage after previously topping out at 2 terabytes.
Apple stock declined during and after the event, ending the day’s session with a 1.7% drop at $176.30 that helped push the Dow Jones Industrial Average
DJIA
to a slight daily decline. That’s a larger decline than Apple’s average daily performance on iPhone event days historically, but the past has also shown that shares typically rise between the September announcement and the actual launch of the phones.
Market snapshot: Stocks fall after Apple unveils iPhone 15, with U.S. inflation data looming
Apple’s stock has increased 35.7% so far this year, easily outpacing the 16.9% increase of the S&P 500 index.
SPX
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Federal prosecutors opened a landmark antitrust trial against Alphabet Inc.’s Google on Tuesday with charges the search-engine giant for years intentionally snuffed competition through exclusive contracts with wireless carriers and phone makers.
Google
GOOGL,
GOOG,
spent billions of dollars on such contracts to cement its dominant position, a clear violation of U.S. antitrust law, prosecutors said.
“This case is about the future of the internet, and whether Google’s search engine will ever face meaningful competition,” Justice Department lawyer Kenneth Dintzer told the court. He said Google pays more than $10 billion a year to Apple Inc.
AAPL,
and other companies to ensure Google is the default or only search engine available on browsers and mobile devices used by millions of consumers.
Google’s search business accounted for more than half of the $283 billion in revenue Alphabet recorded in 2022. Search in large part has fueled the company’s $1.7 trillion market valuation.
Google attorney John Schmidtlein countered that companies and consumers use Google’s popular search engine “because it delivers value to them, not because they have to.”
The legal jousting in a Washington, D.C., federal court kicked off what is expected to be a contentious multiweek trial that could be one of the biggest domestic antitrust trials since the federal government tussled with Microsoft Corp.
MSFT,
in the 1990s. Like that case, this one involves arguments over tying together multiple proprietary products.
To that end, Justice Department officials allege Google’s contracts ensure that Android devices come with Google apps and services, including Google search, preinstalled.
Google Chief Executive Sundar Pichai heads a witness list of senior executives and former employees from Google, Apple, Microsoft and Samsung Electronics Co.
005930,
“This feedback loop, this wheel has been turning for 12 years, and it always turns to Google’s advantage,” Dintzer said.
Conversely, Schmidtlein said Apple’s decision to make Google the default search engine in its Safari browser underscores that Google’s search engine is the product consumers prefer. “Apple repeatedly chose Google as the default because Apple believed it was the best experience for its users,” he said.
The Google case “could not be more different” from Microsoft litigation in the late 1990s and early 2000s, Schmidtlein asserted. “The evidence will show that Microsoft’s Bing search engine failed to win customers because Microsoft did not invest [and] did not innovate,” he said. “At every critical juncture, the evidence will show that they were beaten in the market.”
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The Centers for Disease Control and Prevention on Tuesday recommended updated COVID-19 vaccines for people 6 months of age and older.
Director Mandy Cohen late Tuesday backed the findings of CDC advisers, who voted 13-to-1 for approval earlier in the day. The updated vaccines from Moderna Inc.
MRNA,
and Pfizer Inc.
PFE,
-BioNTech
BNTX,
should become available later this week.
“We have more tools than ever to prevent the worst outcomes from COVID-19,” Cohen said in a statement. “CDC is now recommending updated COVID-19 vaccination for everyone 6 months and older to better protect you and your loved ones.”
The move comes just one day after the U.S. Food and Drug Administration approved the updated shots from Moderna and Pfizer. The FDA approved single-dose vaccines for people 12 and older and authorized emergency use of new shots for children as young as 6 months.
The CDC recommendations Tuesday include some key changes from the recommendations that previously applied to the bivalent COVID vaccines. People age 65 and older were recommended to get a second bivalent dose, for example, but the CDC is not currently recommending two doses of the new shot for older adults. The CDC said it will monitor epidemiology and vaccine effectiveness to determine if additional doses are needed.
The recommendations come as the vaccines are transitioning from federal procurement and distribution to the commercial market. The new shots are expected to have list prices of $110 to $130 per dose. But the Affordable Care Act requires insurers to cover most vaccines recommended by the CDC advisory committee at no cost to plan enrollees, and people with Medicare and Medicaid also have no-cost access to the vaccines.
The CDC meeting Tuesday addressed some concerns about the accessibility and cost of the vaccines for people without health-insurance coverage. The CDC’s new Bridge Access program will provide free shots to uninsured people within days at retail pharmacies as well as local health centers, the CDC said. The agency had previously said that the free shots might not arrive in retail pharmacies until mid-October. The federal government’s vaccines.gov website will be updated later this week to list Bridge Access program sites, the CDC said.
Roughly 25 million to 30 million U.S. adults do not have health insurance. About 85% of people without coverage live within 5 miles of a Bridge Access program site, according to CDC data.
Under the Bridge Access program, CVS Health Corp.
CVS,
will administer doses in stores and Minute Clinics, the CDC said, and Walgreens Boots Alliance Inc.
WBA,
will offer doses in stores and at off-site events that target areas of low access and uptake. Healthcare-services company eTrueNorth is also working with the program to reach lower-access areas without other coverage under the program, the CDC said.
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U.S. stocks closed lower on Tuesday, with the Nasdaq Composite leading the way down, as Apple’s unveiling of its new iPhone and watch failed to boost appetite for equities. The Dow Jones Industrial Average
DJIA,
shed about 16 points, or about 0.1%, to end near 34,647, while the S&P 500 index
SPX,
closed 0.6% lower and the Nasdaq Composite Index
COMP,
slumped 1%, according to preliminary FactSet data. That was the biggest daily percentage drop in about a week for the Nasdaq. Shares of Apple Inc.
AAPL,
were a focus Tuesday as it rolled out a lineup of new consumer products, including its iPhone Pro Max, which will now start at $1,199 instead of $1,099, while its Pro model’s price stays the same. Investors also remain focused on the inflation data, including the release on Wednesday of the consumer-price index for August, before the U.S. stock market’s open. Apple shares fell 1.9% on Tuesday. Climbing bond yields can pressure high-growth stocks as borrowing costs rise. The benchmark 10-year Treasury yield
TMUBMUSD10Y,
edged down 2.4 basis points to 4.263% Tuesday, but was still near its highest level of the year.
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Apple’s AAPL keynote event on Tuesday debuted several new products including the iPhone 15, and the much-anticipated Apple Watch Series 9.
Prices for Apple’s refreshed new watch start at $399 — the same price as the previous watch models when they first debuted.
Among the new features in the Apple Watch Series 9 is a new S9 chip that could…
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Stock investors are showing some hesitancy for Tuesday, with big signals on the economy coming this week via consumer prices and retail sales. Ahead of that, Apple is expected to tempt consumers with yet another new iPhone on Tuesday.
How much should investors be worrying right now? Our call of the day from Pershing Square Capital Management manager Bill Ackman says that in the near term, we can relax a little, but it isn’t all roses.
Read: Hedge funds have bailed on the U.S. consumer in a big way, Goldman Sachs data finds
He told the Julia La Roche Show in an interview where he felt like he had a “crystal ball of what was going to happen,” starting in January 2020 with the COVID-19 outbreak, and that carried on through interest rates and the economy. Indeed, the manager reportedly made nearly $4 billion on a couple of pandemic-related bets.
“I would say the crystal ball has clouded a bit in the last period. I think these are unusual economic times and perhaps we always say that, but I don’t think this is a pattern that has been repeated…or it hasn’t been for more than 100 years,” he said.
But he remains near-term upbeat. “For two years, people have been saying that recession’s around the corner and you know we’ve had a very different view, and continue to have this view that I think people are coming around to, that the economy is actually still quite strong,” he said.
And while those on lower-income rungs have burned through a lot of COVID savings, he thinks the economy has yet to really see impact from the big fiscal stimulus seen in recent years.
Looking down the road though, Ackman has got a stack of concerns over the economy. He sees about a third of federal debt due to get repriced meaning that over a relatively short period of time, “interest expense will become a much bigger part of the deficit that is not going to be a contributor to the economy.”
And while higher interest rates do help savers, ultimately that will be a big drag on the economy, he said, adding that rising inflation, mortgage rates, car payments and credit card rates, are all set to slow the economy.
“We’re still in the midst of a war and there’s political uncertainty you know with an upcoming election,” he said. That partly explains Pershing Square’s hedge via a short position on the 30-year Treasury bond
BX:TMUBMUSD30Y
that he laid out in a tweet in early August.
For roughly a year, long-term Treasury yields have been trading below short-dated ones, which is known as an inverted yield curve, a phenomenon that’s often seen as a precursor to recession.
“I don’t see inflation getting back to 2% so quickly, if at all, and if in fact we’re in a world of persistent 3% inflation, you know it doesn’t make sense to have a 4.3%, 4.25% Treasury yield,” he said.
Other risks? Ackman remains worried about regional banks following the spring crisis, as many have big fixed-rate portfolios of assets that have gotten less and less valuable as rates rise. “I would say the commercial real estate picture has not gotten better, if anything, you know, you’re going to start seeing real defaults, particularly with office assets,” he said.
“Regional banks have the most exposure to construction loans so they are going to be a lot of construction loans that won’t be able to repaid. There will be a lot of restructurings, so either the investors groups are gonna have to put in a lot more equity or the banks are going to start taking some losses,” he said.
Ackman says investors also face a presidential campaign that could add some stress. The hedge-fund manager said he’s surprised there have not been “more and better alternative candidates” for the 2024 campaign over President Joe Biden and former President Donald Trump.
He’d like to see JPMorgan Chase & Co. CEO Jamie Dimon toss his hat in the ring and believes Biden is “beatable,” by a strong candidate.
Ackman himself said it’s “possible,” he himself could run someday, but he’s more focused on having a better investment track record over Berkshire Hathaway Chairman and CEO Warren Buffett — and needs some 30 years to match the Oracle of Omaha.
Read: Here’s an easy way to make a more concentrated play on the ‘Magnificent Seven’ stocks
Stock futures
ES00,
NQ00,
are tilting south, led by tech, with Treasury yields
BX:TMUBMUSD02Y
BX:TMUBMUSD10Y
steady to a touch lower and the dollar
DXY
recovering some ground.
Read: Watch this ‘canary in the coal mine’ for signs of trouble in markets, Neuberger Berman CIO says
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
Oracle shares
ORCL,
are down 10% in premarket trading after disappointing guidance from the cloud database group.
Apple’s
AAPL,
big event kicks off at 1 p.m. Eastern, with the launch of the pricier iPhone 15 expected to be on the agenda.
Hot ticket. Arm Holdings’ IPO is already 10 times oversubscribed and bankers will stop taking orders by Tuesday afternoon, Bloomberg reports, citing sources.
Tech’s wild week: How Apple, Google, AI, Arm’s mega IPO could set the agenda for years
Upbeat results are boosting shares of convenience-store operator Casey’s General Stores
CASY,
Packaging giant WestRock
WRK,
and rival Smurfit Kappa
SK3,
have announced a stock and cash tie up. WestRock shares are up 8% in premarket.
Read: U.S. budget deficit will double this year to $2 trillion, excluding student loans
No better than gambling? Amateur investors are piling into 24-hour options.
Demand for oil, coal, gas to peak this decade, IEA chief says
U.S. takes on tech giant Google in landmark case.
Bank of America’s global fund manager survey for September sees investors still bearish, but no longer on the extreme side. Here’s the chart:
Read: Fund managers just made their biggest shift ever into U.S. stocks — and out of emerging markets
These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern:
| Ticker | Security name |
|
TSLA, |
Tesla |
|
AMC, |
AMC Entertainment |
|
CGC, |
Canopy Growth |
|
NVDA, |
Nvidia |
|
GME, |
GameStop |
|
AAPL, |
Apple |
|
ACB, |
Aurora Cannabis |
|
NIO, |
Nio |
|
MULN, |
Mullen Automotive |
|
AMZN, |
Amazon |
“Worst investment ever.” Brady Bunch fan buys original house for cut-price $3.2 million.
And the house from the “Halloween” slasher films just sold for $1.8 million.
China may ban clothes that hurt people’s feelings.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch financial columnist James Rogers and economist Stephanie Kelton.
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By Ian Walker
Smurfit Kappa Group and WestRock Co. have formally signed a merger agreement as first outlined last week, creating a global paper and packaging powerhouse worth some $20 billion.
As announced on Sept. 7 a new company–Smurfit WestRock–will be created with a main listing on the New York Stock Exchange and a standard listing in London.
Smurfit WestRock will be led by Tony Smurfit as chief executive and Irial Finan as chair, the companies said.
Under the deal accepting WestRock shareholders will get one new Smurfit WestRock share and $5.00 in cash, equivalent to $43.51 a share.
Upon completion Smurfit Kappa shareholders will own 50.4% of the combined business with WestRock owning the rest.
“Smurfit WestRock will be the ‘Go-To’ packaging partner of choice for customers, employees and shareholders. We will have the leading assets, a unique global footprint in both paper and corrugated, a superb consumer and specialty packaging business, significant synergies, and enhanced scale to deliver value in the short, medium and long term,” Smurfit Kappa Chief Executive Tony Smurfit said.
Write to Ian Walker at ian.walker@wsj.com
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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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Oracle Corp. shares fell in the extended session Monday after the software company reported in-line revenue for the quarter, and earnings were slightly higher than expected.
Oracle
ORCL,
shares fell as much as 5% after hours, following a 0.3% rise in the regular session up to close at $126.71.
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 $12.45 billion.
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The second week of September, as in the NFL, marks a kickoff of sorts for the tech year.
Headlined by Apple Inc.’s
AAPL,
seminal iPhone event on the second Tuesday of the month at Apple Park, and anchored by Salesforce Inc.’s
CRM,
wildly popular Dreamforce conference up the road in San Francisco, these several days set a tempo as well as establish a road map for the industry over the next 12 months. They also open the floodgates on tech conference season, with shows stacked up over the next several weeks for Facebook parent Meta Platforms Inc.
META,
Microsoft Corp.
MSFT,
and Oracle Corp.
ORCL,
Oh, and there’s that initial public offering from Arm Holdings Plc, the chip designer owned by SoftBank Group Corp.
9984,
that is expected to value Arm at $50 billion to $54.5 billion on a fully diluted basis. Another IPO candidate, delivery startup Instacart, also plans a public offering that would value it at $7.5 billion. Both deals could jump-start what has been a somnolent tech IPO market the past few years.
For that reason alone, this jam-packed tech week might hold even more import, and consequences, than previous years. A confluence of legal tussles, macroeconomic conditions, a trade war with China, and regulatory bluster have raised the stakes.
“It’s a tale of two cities with this week’s events highlighting both the issues and opportunities in tech,” Silicon Valley analyst Maribel Lopez said in an interview, assessing the week. “Arm’s IPO showcases the strength of tech and AI at a time when the AI forum and Google-DoJ shine a light on the concern that a few companies are wielding tremendous power for the future of the world.”
Consider: Hours before Apple is expected to unveil a new crop of iPhones more noteworthy for pricing than features, Alphabet Inc.’s
GOOGL,
GOOG,
Google faces off with the Justice Department in a federal court in Washington, D.C.
Justice Department officials argue that Google illegally leveraged agreements with phone makers such as Apple and Samsung Electronics Co.
005930,
and with internet browsers like Mozilla to be the default search engine for their customers, thus preventing smaller rivals from gaining access to that business.
“This is a backwards-looking case at a time of unprecedented innovation, including breakthroughs in AI, new apps and new services, all of which are creating more competition and more options for people than ever before,” Google General Counsel Kent Walker said in a statement.
The following day, Wednesday, Senate Majority Leader Chuck Schumer, D-N.Y., convenes an all-star panel of CEOs from Meta, Microsoft, Google, OpenAI and Palantir Technologies Inc.
PLTR,
As lawmakers ruminate on how to harness AI responsibly, bipartisan legislation is in the works. Sens. Richard Blumenthal, D-Conn., and Josh Hawley, R-Mo., are among those crafting a bill.
Even Apple and Salesforce aren’t immune from recent events: Apple has endured a relatively rough patch of disappointing (for them) revenue and iPhone sales while balancing risk/reward with its huge investment in China, and Salesforce CEO Marc Benioff has threatened to relocate Dreamforce to Las Vegas after more than two decades in his hometown of San Francisco if drug use and homelessness disrupt this year’s event.
The most pressing concern, when all is said and done, is AI — which hovers like the Death Star over the tech landscape.
“The biggest concern is the forum is behind closed doors, which could lead to regulatory capture, where dominant players in the industry help influence the regulations being imposed,” Kimberlee Josephson, associate professor of business administration at Lebanon Valley College (Pa.), said in an interview. “It’s almost as if it puts them in the hot while giving them a seat at the table at the same time.”
“At the very least, it sends the signal that something is being done,” she said. “Antitrust cases are so subjective. What constitutes barriers to entry? DoJ adds a level of seriousness.”
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Investors in index funds have been well rewarded by a high concentration in the largest technology companies over the past decade. But there are also continuing warnings about the risk of such heavy concentrations, even in index funds that track the S&P 500. Solutions are offered to limit this risk, but if you expect Big Tech to continue to drive the broad market returns over the coming years, why not make an even more focused bet?
Comparisons of three index-fund approaches highlight how successful concentration in the “Magnificent Seven” has been.
The Magnificent Seven are Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Nvidia Corp.
NVDA,
Amazon.com Inc.
AMZN,
Alphabet Inc.
GOOGL,
GOOG,
Tesla Inc.
TSLA,
and Meta Platforms Inc.
META,
We have listed them in the order of their concentration within the Invesco S&P 500 ETF Trust
SPY,
which tracks the S&P 500
SPX.
The U.S. benchmark index is weighted by market capitalization, as is the Nasdaq Composite Index
COMP
and the Russell indexes.
SPY is 27.6% concentrated in the Magnificent Seven. One way to play the same group of 500 stocks but eliminate concentration risk is to take an equal-weighted approach to the index, which has worked well for certain long periods. But here, we’re focusing on how well the concentrated strategy has worked.
Let’s take a look at the group’s concentration in three popular index approaches, then look at long-term performance and consider what happened in 2022 as rising interest rates helped crush the tech sector.
Here are the portfolio weightings for the Magnificent Seven in SPY, along with those of the Invesco QQQ Trust
QQQ,
which tracks the Nasdaq-100 Index
NDX
and the Invesco S&P 500 Top 50 ETF
XLG
:
| Company | Ticker | % of SPY | % of QQQ | % of XLG |
| Apple Inc. |
AAPL, |
7.05% | 10.85% | 12.46% |
| Microsoft Cor. |
MSFT, |
6.65% | 9.53% | 11.76% |
| Amazon.com Inc. |
AMZN, |
3.30% | 5.50% | 5.84% |
| Nvidia Corp. |
NVDA, |
3.02% | 4.44% | 5.33% |
| Alphabet Inc. Class A |
GOOGL, |
2.17% | 3.12% | 3.83% |
| Alphabet Inc. Class C |
GOOG, |
1.88% | 3.11% | 3.32% |
| Tesla Inc. |
TSLA, |
1.79% | 3.10% | 3.17% |
| Meta Platforms Inc. Class A |
META, |
1.77% | 3.60% | 3.12% |
| Totals | 27.63% | 43.25% | 48.83% | |
| Sources: Invesco Ltd., State Street Corp. | ||||
The same group of seven companies (eight stocks with two common share classes for Alphabet) is at the top of each exchange-traded fund’s portfolio, although the top seven for QQQ aren’t in the same order as those for SPY and XLG. QQQ’s weighting was changed recently as the underlying Nasdaq-100 underwent a “special rebalancing” last month.
Here’s a five-year chart comparing the performance of the three approaches. All returns in this article include reinvested dividends.
QQQ has been the clear winner for five years, but it is also worth noting how well XLG has performed when compared with SPY. This “top 50” approach to the S&P 500 incorporates many stocks that aren’t listed on the Nasdaq and therefore cannot be included in QQQ, which itself is made up of the largest 100 nonfinancial companies in the full Nasdaq Composite Index
COMP,
Examples of stocks held by XLG that aren’t held by QQQ include such non-tech stalwarts as Berkshire Hathaway Inc.
BRK.B,
Johnson & Johnson
JNJ,
Procter & Gamble Co.
PG,
Home Depot Inc.
HD,
and Nike Inc.
NKE,
Now let’s go deeper into long-term performance. First, here are the total returns for various time periods:
| ETF | 3 Years | 5 Years | 10 Years | 15 Years | 20 Years |
|
SPDR S&P 500 ETF Trust SPY |
40% | 69% | 223% | 370% | 531% |
|
Invesco QQQ Trust QQQ |
41% | 113% | 430% | 882% | 1,158% |
|
Invesco S&P 500 Top 50 ETF XLG |
41% | 85% | 262% | 404% | N/A |
| Source: FactSet | |||||
Click on the tickers for more about each ETF, company or index.
There is no 20-year return for XLG because this ETF was established in 2005.
For five years and longer, QQQ has been the runaway leader, but for 5, 10 and 15 years, XLG has also beaten SPY handily, with broader industry exposure.
Something else to consider is that during 2022, when SPY was down 18.2%, XLG fell 24.3% and QQQ dropped 32.6%.
For disciplined long-term investors, the tech pain of 2022 may not seem to have been a small price to pay for outperformance. And it may have been easier to take the pounding when holding SPY or even XLG that year.
Here’s a look at the average annual returns for the three ETFs:
| ETF | 3 years | 5 years | 10 years | 15 years | 20 years |
|
SPDR S&P 500 ETF Trust SPY |
11.8% | 11.0% | 12.4% | 10.9% | 9.6% |
|
Invesco QQQ Trust QQQ |
12.0% | 16.3% | 18.2% | 16.4% | 13.5% |
|
Invesco S&P 500 Top 50 ETF XLG |
12.2% | 13.1% | 13.7% | 11.4% | N/A |
| Source: FactSet | |||||
So the question remains — do you believe that the largest technology companies will continue to lead the stock market for the next decade at least? If so, a more concentrated index approach may be for you, provided you can withstand the urge to sell into a declining market, such as the one we experienced last year.
Here is something else to keep in mind. In a note to clients on Monday, Doug Peta, the chief U.S. investment strategist at BCA, made a fascinating point: “The only novel development is that all the heaviest hitters now hail from Tech and Tech-adjacent sectors and are therefore more prone to move together than they were at the end of 2004, when the seven largest stocks came from six different sectors. “
Nothing lasts forever. Peta continued by suggesting that investors who are tired of big tech taking all the glory “need only wait.”
“[I]f history is any guide, their time at the top of the capitalization scale will be short,” he wrote.
Don’t miss: These four Dow stocks take top prizes for dividend growth
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The fortunes of
Apple
the world’s largest public company, have a tendency to lead around much of the rest of the stock market. After the tech giant’s woes contributed to widespread declines last week, investors can now breath…
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For Apple fans, it’s almost that time of year again.
The company is expected to launch the iPhone 15 at an event Tuesday, but don’t get too excited about the new phone. This year, the biggest change from Apple
AAPL,
could be the iPhone’s price.
Apple tends to introduce new iPhones every year in the fall, and lately, the company has been keeping prices the same even as it upgrades the technology. That may not be the case this year, though, with some thinking that Apple could boost the price of its Pro-level models by $100 or $200 compared with what an iPhone 14 Pro currently sells for.
That’s notable because iPhones are already pretty expensive, with the cheapest iPhone 14 Pro option selling for $999 and the priciest iPhone 14 Pro Max configuration going for $1,599.
“Given the popularity of the iPhone 14 Pro models compared to the iPhone 14 models, Apple may believe consumers will be willing to pay more without much fuss,” Monness, Crespi, Hardt & Co. analyst Brian White wrote in a recent report. “Moreover, Apple may feel a price hike is warranted given the inflationary forces that have disrupted the economy over the past couple of years.”
Morgan Stanley’s Erik Woodring is less certain that Apple will hike prices broadly. The company could boost the price of its Pro Max phone by $150 to account for an expected new rear-facing periscope lens, but it’s “very un-Apple-like to raise prices across the board in the midst of a smartphone market down 11%,” he wrote. He said he expects the company to keep prices the same on the regular Pro model and its two base-level options.
One key issue for iPhone enthusiasts — and Apple investors — is when the new phones will be ready for sale. Most of the iPhone models Apple introduced last year hit stores in mid-September, but there are some concerns about potential production delays this year.
Read: Waiting for the iPhone 15? You might have to hold out longer than you think.
“The broad availability of the iPhone 15 Pro Max could be October given some manufacturing challenges,” BofA Securities analyst Wamsi Mohan wrote recently.
iPhone feature updates have become more incremental in recent years, and Apple watchers aren’t expecting anything groundbreaking this time around either. New iPhones always tend to be a little faster than their predecessors, and this year’s models might charge more quickly too. There’s a catch, though, as Apple is expected to switch out its proprietary Lightning cable for the more universal USB-C cord.
While the Pro models get a lot of attention, White said that those looking to buy base-level models could see some enhancements. Reports “have highlighted the potential for the iPhone 15 and iPhone 15 Plus to be graced with certain features found on last year’s more expensive Pro models, including the A16 chip, Dynamic Island, and a 48-megapixel camera,” he wrote.
Why go Pro? Apple could move to a titanium frame from its prior stainless-steel casing and make camera enhancements. Mohan highlighted the potential for a periscope-type telephoto lens on Max versions.
Apple fans “should also see more casing quality color differentiation between the Pro and regular series to help drive vanity switchers to the higher-priced models,” Jefferies analyst Andrew Uerkwitz wrote recently.
There could be a dark blue color option for the iPhone Pro line this year, for example, according to 9to5Mac. That said, those content with the base-level model might be enticed by a pink version of that phone, with 9to5Mac noting that that’s one of several rumored pastel color options.
Read: Here’s why Wall Street may be overreacting about Apple’s China’s challenges
Apple is also expected to refresh its Apple Watch lineup at Tuesday’s event. Bloomberg News has reported that the Apple Watch Series 9 could feature a faster processor, though it will have the same general design as past models. Apple is also expected to keep the look the same on an upgraded version of its Ultra Watch, and that might come in a black color option.
The event kicks off at 1 p.m. Eastern time Tuesday and will be available for live viewing on Apple’s site.
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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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