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https://www.barrons.com/articles/stock-market-movers-e5dab615
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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,
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,
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,
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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Citi has released a list of 20 large-cap growth stocks that it says present opportunities in the event of a pullback.
“Our call since early summer has been to hold Growth and look to buy on pullbacks,” Citi analyst Scott Chronert said in a note released Monday, adding that Citi has had a tactical preference for cyclicals. “However, on the heels of the strong Cyclicals surge during June and July, and our upwardly revised S&P 500 target of 4600, the messaging has been to buy on pullbacks more broadly,” he wrote.
Citi also notes that the Russell 1000 Growth Index
RLG
has sold off more than 6% from its mid-July high, although two-thirds of the stocks in the index are down 10% or more, with one-third down more than 20%. “This sets up for interesting intermediate to long-term stock selection opportunities,” Chronert said.
Related: Preorders for the iPhone 15 have begun, and here’s a sign they’ve been ‘solid’
The analyst acknowledged that there is still a risk of economic softening ahead, if not a recession. “Yet, the argument that Growth stocks can show fundamental resilience during periods of broader economic weakening is a theme that we have considered for several years now,” he said.
Set against this backdrop, the analyst firm has compiled a tech-heavy list of 20 stocks that have a buy rating from Citi, have at least 75% of market cap assigned to growth, according to Russell, and have experienced a decline of 10% or more from year-to-date highs since March 31. Other common characteristics of the stocks include consensus estimates of free cash flow per share above March 31 levels and free cash flow per share within or above market-implied five-year-forward estimates.
Tech heavyweights Apple Inc.
AAPL,
and NVIDIA Corp.
NVDA,
are on the list, along with Pinterest Inc.
PINS,
Lam Research Corp.
LRCX,
Teradata Corp.
TDC,
Datadog Inc.
DDOG,
MongoDB Inc.
MDB,
HubSpot Inc.
HUBS,
and KLA Corp.
KLAC,
The other stocks cited by Citi are Lockheed Martin Corp.
LMT,
DraftKings Inc.
DKNG,
Las Vegas Sands Corp.
LVS,
Chipotle Mexican Grill Inc.
CMG,
Netflix Inc.
NFLX,
TKO Group Holdings Inc.
TKO,
Rockwell Automation Inc.
ROK,
and Paycom Software Inc.
PAYC,
and healthcare stocks Bruker Corp.
BRKR,
Insulet Corp.
PODD,
and Intuitive Surgical Inc.
ISRG,
Related: Will Nvidia stock be like Apple or Cisco in the AI era?
Shares of Apple, which recently launched its iPhone 15, are down 5.5% in the last three months. Shares of chip maker NVIDIA are up 2.8% over the same period, while Lockheed Martin is down 8.9% and DraftKings is up 8.6%. Las Vegas Sands is down 21.8% and Chipotle is down 8.8%, while Netflix is down 7.8%.
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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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Nvidia Corp. shares rallied in the extended session Wednesday after the maker of graphics processing units that is leading the AI-hardware charge reported a 141% surge in data-center sales and record results.
Nvidia
NVDA,
shares rallied 9% after hours, following a 3.2% rise in the regular session to close at $471.16, less than 1% below the stock’s record closing high of $474.94, set on July 18, according to FactSet data. A close at such levels on Thursday would mean a new record high for the stock.
The Santa Clara, Calif.-based company reported second-quarter net income of $6.19 billion, or $2.48 a share, compared with $656 million, or 26 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $2.70 a share, compared with 51 cents a share in the year-ago period.
Revenue surged to a record $13.51 billion from $6.7 billion in the year-ago quarter, driven by a 141% leap in data-center revenue to $10.32 billion.
Analysts surveyed by FactSet had forecast earnings of $2.08 a share on revenue of $11.19 billion, and data-center sales of $8.03 billion.
Nvidia forecast third-quarter revenue of $15.68 billion to $16.32 billion.
Analysts had estimated third-quarter earnings of $2.40 a share on revenue of $12.59 billion, with $9.15 billion of that from data-center sales. For the year, Wall Street, on average, expects earnings of $8.29 a share on $44.54 billion in revenue, a 71% increase from fiscal 2023’s $26.97 billion, with $32.41 billion of that in data-center sales.
“Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” said Jensen Huang, founder and chief executive of Nvidia, in a statement. “Leading enterprise IT system and software providers announced partnerships to bring Nvidia AI to every industry. The race is on to adopt generative AI.”
Right after the report, Lopez Research analyst Maribel Lopez told MarketWatch that Nvidia’s “numbers prove just how much money there is in the AI hardware opportunity.”
“While cloud companies are selling AI services, Nvidia is walking away with a bulk of the revenue and profits,” Lopez said. “Nvidia’s minting cash with no apparent slowdown in sight.”
Nvidia shares are up more than 222% on a year-to-date basis, compared with a 42% surge in the PHLX Semiconductor Index
SOX,
a 15.5% rise by the S&P 500
SPX
and a 31% gain by the tech-heavy Nasdaq Composite
COMP
over the same span.
Nvidia, which has stood as the largest publicly traded chip maker by market cap since February, having traded that title back and forth with Taiwan Semiconductor Manufacturing Co.
TSM,
since late 2020, closed above the $1 trillion mark officially for the first time on June 14. Nvidia ended Wednesday with a valuation of $1.164 trillion, and one analyst thinks it could be the most valuable U.S. company in a few years.
Nvidia currently stands as the fifth-largest U.S. company by market cap behind Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Alphabet Inc.
GOOG,
GOOGL,
and Amazon.com Inc.
AMZN,
While all have a big stake in the future of AI, the latter three companies are scrambling to outfit their cloud-service provider data centers with new AI gear amid tight supply.
While Nvidia is considered the overwhelming leader in the AI chip market, Advanced Micro Devices Inc.
AMD,
is considered a distant second. AMD’s data-center numbers declined in the company’s recent earnings report, although the company didn’t have comparable AI chip sales in its results.
Shares of AMD and TSMC were both up more than 3% after hours Wednesday.
See also: Nvidia ‘should have at least 90%’ of AI chip market with AMD on its heels
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Nvidia Corp.’s earnings are drawing nearer, and yet another analyst is feeling upbeat heading into the upcoming report.
KeyBanc analyst John Vinh hiked his price target on Nvidia’s stock
NVDA,
to $620 from $550 Sunday, writing that despite tight supply, Nvidia could see strong AI demand and incremental capacity drive upside. Nvidia is scheduled to report fiscal second-quarter earnings after the close of markets on Wednesday.
“Given the pushout of [Advanced Micro Devices Inc’s]
AMD,
MI300X, we believe Nvidia has been able to source increased [chip on wafer on substrate] capacity at Taiwan Semiconductor Manufacturing Co.
TSM,
” Vinh said.
Read: Nvidia earnings to offer first true glimpse of the AI windfall
Shares of Nvidia rallied more than 5% to an intraday high of $456.56 in Monday trading, after having logged declines in each of the prior three sessions for a total loss of 1.5%. The shares are up more than 210% on a year-to-date basis, compared with a 39% gain in the PHLX Semiconductor Index
SOX,
a 14% rise in the S&P 500
SPX
and a 28% surge in the tech-heavy Nasdaq Composite
COMP
over the same span.
In addition, Nvidia plans a fall launch of its L40S GPU for small to medium-sized model training and inferencing with competitive performance versus its A100. That debut will be significant given tech restrictions related to China.
“Given L40S meets the performance threshold of export restriction and doesn’t require CoWoS packaging, combined with favorable pricing (est. $7K-$8K/GPU), we expect this lineup can incrementally fulfill some of the pent-up GPU demand in the near term, particularly in China,” said Vinh, who has an overweight rating on the stock.
Read: ‘Magnificent Seven’ stocks are losing some of their shine, but their bonds are doing fine
Vinh raised his fiscal second-quarter revenue forecast to $12.7 billion and upped his earnings outlook to $2.49 a share. His prior expectations were for $11.1 billion and $2.05, respectively.
He also now forecasts fiscal third-quarter revenue of $14.8 billion and earnings per share of $3, up from prior projections of $12.4 billion and $2.34, respectively.
Read: Nvidia gets more good news from Big Tech, even as AI spending ‘may not lift all boats’
Of the 50 analysts who cover Nvidia, 43 had buy-grade ratings, six had hold ratings and one had a sell rating, along with an average price target of $432.99.
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Online retail giant Amazon.com Inc.’s
AMZN,
second-quarter results and third-quarter forecast sales last week were a bet that more consumers would start buying more things, but Wall Street’s expectations for the third quarter overall have only grown dimmer.
With most of the 500 companies that make up the S&P 500 Index
SPX
already through the second-quarter earnings reporting season, slightly more than normal have reported per-share profit that beat Wall Street’s estimates, according to FactSet.
For the third quarter though, analysts now expect a mere 0.2% increase in per-share profit growth overall, according to a FactSet report on Friday, or slightly lower than the 0.4% growth that was expected for the third quarter on June 30,
And with some two months still left in the third quarter, and with that forecast likely to come down as the period progresses, Wall Street’s profit expectations are getting ever closer to turning negative.
Wall Street analysts overall still expect a bigger rebound for the fourth quarter, the FactSet report said. And they expect 2023 overall to eke out a per-share profit gain of 0.8%.
Worries of a U.S. recession emerging at some point during the back half of this year have started to fade at least a little after many economists fixated on the possibility earlier this year when the Federal Reserve was raising interest rates to combat a jump in inflation in 2022 . Some analysts now say savings fatigue could prompt more shoppers to splurge this year, after relentlessly tightening their budgets due to rising prices.
Federal Reserve Chair Jerome Powell last month said policymakers at the central bank had also shucked off their worries of a downturn.
See: Fed no longer foresees a U.S. recession — and other things we learned from Powell’s press conference
“The staff now has a noticeable slowdown in growth starting later this year in the forecast. But given the resilience of the economy recently, they are no longer forecasting a recession,” he said last month.
Not everyone is convinced that a downturn has vanished from the horizon though. Sheraz Mian, director of research at Zacks, told MarketWatch last month that more bearish analysts had kept pushing out their recession forecasts, after being defied by the actual, and more positive, economic data. Some economists continue to push out those forecasts.
“We still expect a recession, but now we are looking for it to begin in Q1 2024 rather than Q3 2023,” Thomas Simons, U.S. economist at Jefferies, said in a research note on Friday.
He said that interest rate hikes from the Federal Reserve were only just starting to affect customer behavior. Households were trying to rebuild their savings, after spending through whatever they had built up during the pandemic. Student-loan payments were returning, he said, and corporate margins were thinning.
“Corporate profit margins are narrowing, and businesses will look to cut costs through layoffs,” he said.
Among S&P 500 index companies, 34 report results during the week ahead, including one from the Dow Jones Industrial Average, according to FactSet.
Results from Walt Disney Co.
DIS,
will likely gobble up more media attention, but earnings from Paramount Global Inc
PARA,
— which oversees CBS, Showtime, Comedy Central and other channels — will offer more detail about how studios are positioning themselves with Hollywood actors on strike. Lions Gate Entertainment Corp.
LGF.A,
also reports.
Results from Tyson Foods Inc.
TSN,
will give investors and customers a brief look at the state of the grocery aisle where higher food prices over the past year have strained spending on other things. Beyond Meat Inc.
BYND,
which also reports during the week, will be hoping new product launches of plant-based meat-like alternatives can overtake analyst skepticism, amid competition with fake meat and real meat alike.
Elsewhere, ride-hailing platform Lyft Inc.
LYFT,
online dating service Bumble Inc.
BMBL,
and video-game maker Take-Two Interactive Software Inc.
TTWO,
also report during the week. And Canadian pot producer Canopy Growth Corp.
CGC,
will get another chance to pick up the pieces, after over-expanding and now trying to hold onto its cash.
Disney drama: One way or another, people on both coasts are mad at Disney
DIS,
Chief Executive Bob Iger right now, as his company prepares to report quarterly results on Wednesday. Shares of Disney are down slightly this year. The company is currently fighting with Florida Gov. Ron DeSantis, who is trying to stamp out Disney World’s self-governing privileges after the company criticized the state’s restrictions on classroom discussion of gender identity. When Iger accused striking actors and writers in Hollywood of not being “realistic,” the actors and writers shot back, noting his hefty executive compensation plan.
While the friction in Florida hasn’t hurt Disney’s parks attendance, the Hollywood shutdown has threatened Disney’s massive film and TV show operations, as Disney+ subscribers fall and investors more aggressively seek profits from studios’ streaming operations. Elsewhere, Rich Greenfield, an analyst at LightShed Partners, said “Pixar and Disney Animation have not had a breakout hit that impacted children’s play patterns and both Marvel and Lucasfilm feel increasingly tired from overuse.”
The sense is growing that more time is needed for Iger to fix Disney’s problems. On Wednesday, analysts may get a deeper sense of how much more, with the chance of more drama between Disney and its home state and the writers and actors the company depends on.
UPS and the Teamsters deal: United Parcel Service Inc. reports quarterly results on Tuesday, as rank-and-file Teamsters vote on a tentative labor agreement struck with the package deliverer in an effort to avert a strike. The deal, if approved, would raise worker pay and give the economy and businesses a breather, after threats of strikes or work stoppages at the nation’s ports and railways were averted over the past year.
Local Teamsters unions have voted overwhelmingly to at least endorse the agreement, between UPS
UPS,
and the Teamsters union, which represents 340,000 UPS workers, but not everyone was happy with the deal. Some part-timers felt the Teamsters could have used their leverage to wrest more from UPS, following a profit windfall at the company. And investors have held out for more detail from UPS executives themselves on what the deal might mean for the bottom line and for shipping prices.
Analysts will be dissecting the impact of the agreement as shipping demand lags, trucking company Yellow Corp.
YELL,
reportedly shuts down and FedEx Corp.
FDX,
tries to slash costs.
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All eyes have been on shares of Tupperware Brands Corp. and Yellow Corp. in recent days as the stocks have soared despite a dearth of fresh news in the case of the former, and negative news in the case of the latter.
Shares of the beleaguered maker of iconic food-storage containers enjoyed a record 434% gain in July on no apparent news. Yellow’s stock
YELL,
has also skyrocketed, despite reports that the trucking company is facing bankruptcy.
Over the weekend the Wall Street Journal reported that the less-than-truckload company has shut down operations as it prepares for bankruptcy. On Monday the International Brotherhood of Teamsters said it was served legal notice that Yellow was “ceasing operations and filing for bankruptcy.” MarketWatch has reached out to Yellow with a request for comment.
Related: How ‘left-for-dead’ Tupperware became a buzzy trading play
Set against this backdrop, the surging share prices for Tupperware
TUP,
and Yellow have sparked comparisons with the meme stock phenomenon, where discussions on social media can send share prices surging. This trend turned companies such as AMC Entertainment Holdings Inc.
AMC,
and GameStop Corp.
GME,
into meme stock “darlings” in recent years. But Samantha LaDuc, founder of LaDucTrading.com, says there’s a different explanation for what’s been happening to shares of Tupperware and Yellow.
“Literally, it’s short covering, as the paired trade of long quality, short junk unwinds,” she told MarketWatch, via email. “And it typically always precedes volatility.”
Short selling of a stock occurs when an investor borrows shares and sells them immediately expecting the price to drop. The shares can then be repurchased and returned to the lender, with the investor pocketing the difference. Although sometimes vilified, short sellers are actually misunderstood, Robert Sloan, managing partner at financial analytics firm S3 Partners and author of “Don’t Blame the Shorts,” recently told MarketWatch.
Related: Short selling stocks — and trying to play short squeezes — can be very dangerous
In a letter to investors this week, Dan Loeb, the chief executive of the hedge-fund firm Third Point, explained that short selling is much more challenging today than it has been historically.
“Fundamental analysis is increasingly taking a back seat to monitoring daily option expiries and Reddit message boards, as evidenced by the numerous short squeezes and manipulations of heavily shorted stocks such as AMC and GameStop in 2021 and others this year,” he wrote. “While we have not abandoned short selling, we continue to reduce our single-name short exposure in favor of market hedges and short baskets.”
LaDuc explained that in June and July hedge funds aggressively covered shorts in global equities, and also noted the trend of FOMO, or fear of missing out.
“We have had the largest six-month increase in leverage on record (according to Goldman), with a clear case of FOMO-the-MOMO [momentum] chase in full view as concentration risk in megacap tech forced a NASDAQ “SPECIAL REBALANCE” to ‘down-weight’ AAPL, MSFT, GOOGL etc.”
Related: Short sellers are not evil, but they are misunderstood
Short covering occurs when a person with a short position buys back the shares, ending the short trade, and returns the shares to the seller. With this strategy, the short seller aims to cover after the share price falls and make a profit. They may also cover if the price goes up to limit their losses.
Last week LaDuc told MarketWatch how she was able to anticipate a Tupperware stock spike despite a dearth of traditional market-moving news around the name.
Tupperware’s stock has continued its upward trajectory, rocketing again on Tuesday. The stock eventually ended Tuesday’s session up 26% at $5.38, with LaDuc warning her clients of the risks involved in a parabolic rally. “I suggested to clients it was likely done and to be very cautious if still long because ‘Parabolas are trapped longs that can trigger volatility which can trigger a liquidation event’.”
Related: Yellow’s stock quadruples in 2 days even after reports that bankruptcy is coming
Shares of Tupperware are down 23.2% Wednesday. Yellow Corp.’s stock, which ended Tuesday’s session up 121.6%, is down 17.3% Wednesday.
With regard to Yellow Corp. LaDuc attributes its recent stock movements to insider and Wall Street manipulation. “Low priced, low-float stocks are VERY easy to push around,” she told MarketWatch.
Bankrupt companies such as Bed Bath & Beyond Inc.
BBBYQ,
have even proven attractive to some investors recently, sparking comparisons with the meme stock phenomenon.
“They are clearly retail investors, largely on the Robinhood
HOOD,
platform, that are readers of Reddit,” Howard Ehrenberg, a bankruptcy and reorganization practice partner at law firm Greenspoon Marder, told MarketWatch last month. “They are people buying on rumor and hoping that by participating in a mass purchase binge, they will make money.”
Related: Tupperware stock skyrockets to a record 434% gain in July
Hertz Global Holdings Inc.
HTZ,
which filed for bankruptcy protection in 2020 and exited bankruptcy the following year, also fueled meme-stock comparisons, when mostly retail investors piled into the stock during the bankruptcy process.
Typically in a bankruptcy, shareholders are wiped out as creditors take control of the remaining assets. But those investors were rewarded when the company got a big capital injection and was able to resume trading on an exchange.
The investor behavior around these types of stocks has caught the attention of academics. Victor Ricciardi, visiting finance faculty at Tennessee Tech University and co-author of the new book “Advanced Introduction to Behavioral Finance,” recently described some of the behaviors that can prompt investors to purchase bankrupt stocks.
“Representativeness bias refers to when past performance influences how an individual perceives an investment,” Ricciardi told MarketWatch via email last month. “In particular, a person makes a general assumption about a small sample of information or experience.”
Related: Why investors gamble on shares of bankrupt companies — Bed Bath & Beyond, for example
So, for example, if a person made a substantial gain from a previous bankrupt stock they might conclude that all bankrupt stocks result in investment gains, according to Ricciardi. There are also parallels with gambling.
“The notion of the long shot bias is based on the tendency for people to overweight the probability of a long shot bet paying off, especially in horse racing and lotteries,” Ricciardi added. “This is driven by overconfident behavior and dreams of becoming a millionaire overnight.”
Tupperware’s stock has risen 250.6% in the last three months, while Yellow shares have climbed 84.3%.
Tomi Kilgore and Phil van Doorn contributed to this report.
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JPMorgan Chase & Co., the largest U.S. bank, has been wading into artificial intelligence to a greater extent than its rivals and is now producing a series of research notes that are AI-generated.
The move represents something of a step forward in an area that’s been seen as ripe for disruption — investment research — at a time when the AI revolution is taking hold on Wall Street. At JPMorgan, AI is being used to create short summaries of human-produced reports and to link those reports inside the firm’s Cross Asset Spotlight.
Questions remain over how far machine-generated research can go in replacing humans, and regulations on it are still in the early stages — putting pressure on Wall Street banks to be completely transparent about how their research is being put together. Research reports are generally subject to rules from Finra, or the Financial Industry Regulatory Authority, which require that a qualified registered principal approves a report prior to distribution to the public. Banks may also include legal or compliance approvals as part of their process. Through a spokeswoman, JPMorgan
JPM,
declined to comment for this article.
In a disclaimer attached to JPMorgan’s Cross Asset Spotlight note, primary authors Thomas Salopek and Federico Manicardi cited the large amount of content that investors need to sift through in constantly-moving markets as part of the reason that AI is being used. Salopek and Manicardi said they can produce an AI-generated summary of the most relevant and recent analyst reports on a particular topic or event — as they did on Tuesday with a focus on earnings, China, the soft-landing scenario, and AI’s impact on U.S. interest rates.
“What seems to be going on here is that they’re using an AI-based system to build a summary publication of existing human-generated reports that are already out there,” said Michael Wagner, co-founder and chief operating officer of Omnia Family Wealth, a multifamily office based in Miami, which oversees more than $2.5 billion and is already using AI to assist with its client conversations.
“It certainly is still relatively unusual, but I think analyst jobs are safe for now,” Wagner said in an email to MarketWatch. “It’s an interesting development that shows how AI-driven automation could impact labor markets. If relatively repetitive ‘knowledge work’ can be automated in this fashion, banks and law firms may not need as many lower-level employees as they do today.”
New York-based JPMorgan has been leading Wall Street’s shift toward AI in a number of different ways. From February through April, the bank advertised more than 3,600 jobs globally that are all related to AI, according to Bloomberg. In May, it filed a patent application for its own software, known as IndexGPT, which can be used for analyzing and selecting securities for its clients. And JPMorgan has also created a tool that scans speeches by Federal Reserve officials to detect policy shifts and potential trading signals.
WSJ: Pro Take: JPMorgan’s Fedspeak Evaluator Is Unsure About This Week’s Rate Decision
Rivals of JPMorgan haven’t gone quite as far. Representatives of BofA Securities
BAC,
Citi
C,
and Deutsche Bank
DB,
said their organizations haven’t produced any AI-generated research notes.
Goldman Sachs
GS,
has written about the economic and market impacts of AI, but hasn’t used the technology to write text for its research yet, according to economist Joseph Briggs and chief global strategist Praveen Korapaty. Morgan Stanley
MS,
declined to comment through a spokeswoman.
As of Friday afternoon, U.S. stocks
DJIA,
COMP,
were heading higher as investors prepared for a major rebalancing of the Nasdaq-100 index and the expiration of trillions of dollars of stock option contracts. Meanwhile, Treasury yields were mixed ahead of next week’s policy announcement by the Federal Reserve.
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U.S. stocks finished mostly lower Thursday, with the Nasdaq and S&P 500 dragged down by disappointing earnings, while the Dow Jones Industrial Average rose for a ninth straight day for its longest winning streak in nearly six years.
After lagging behind the S&P 500 and Nasdaq for most of the year, the Dow Jones Industrial Average has climbed over the past two weeks. The blue-chip gauge is now heading for its longest streak of daily gains since Sept. 20, 2017, according to Dow Jones Market Data.
It’s the latest milestone as value stocks and other lagging sectors of the market appear to be playing “catch up,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest Wealth Management, during a phone interview with MarketWatch. Although the Dow’s year-to-date gains are still well behind those of the S&P 500, with the blue-chip gauge up 6.6% since Jan. 1, FactSet data show.
On Wednesday, the S&P 500 and Nasdaq closed at their highest levels in nearly 16 months.
“We’re finally seeing the rotation to value,” he said. “The Dow is playing catch up with the S&P 500 and the Nasdaq.”
See: Stock-market bubble trouble? Check out the 3-year view on Nasdaq, S&P 500 returns.
Technology stocks were lagging following earnings from Netflix Inc.
NFLX,
released late Wednesday, which showed that revenue fell short. Shares fell 8.4%.
Tesla Inc.
TSLA,
shares fell 9.7% after the electric vehicle maker beat Wall Street expectations for its second quarter but not in the blowout fashion that some market observers were expecting.
“Netflix missed sales estimates and issued lower-than-expected Q3 guidance, while Tesla’s results showed shrinking profitability with squeeze on margins,” said Henry Allen, strategist at Deutsche Bank.
Semiconductor shares also took it on the chin, with the PHLX Semiconductor Index
SOX,
falling 3.6%. The drop came after Taiwan Semiconductor Manufacturing Co.
TSM,
topped second-quarter earnings expectations but reported margins that contracted, while providing a somewhat downbeat outlook.
Meanwhile, shares of IBM Corp.
IBM,
and Johnson & Johnson
JNJ,
drove the Dow higher after both companies beat earnings expectations.
Bad news for Netflix seemed to infect other megacap technology names, as Alphabet Inc. Class A
GOOGL,
and Alphabet Inc.
GOOG,
retreated, as did shares of Apple Inc.
AAPL,
and Microsoft Corp.
MSFT,
after the latter hit a record this week.
Investors also digested earnings from American Airlines Group Inc.
AAL,
and Blackstone Inc.
BX,
which reported before the opening bell. After the close, investors will hear from Capital One Financial Corp.
COF,
CSX Corp.
CSX,
and First Financial Bancorp
FFBC,
along with a few others.
In U.S. economic data, weekly jobless benefit claims data showed the number of Americans applying for first-time unemployment benefits fell to a two-month low. Meanwhile, the Philadelphia Fed’s gauge of manufacturing activity came in at negative 13.5 in July, up from 13.7 during the prior month.
Existing home sales fell in June, while leading index of economic indicators dropped 0.7% in June, falling for the 15th month in a row.
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JPMorgan Chase & Co. Chief Executive Jamie Dimon on Friday said the U.S. economy was basically doing OK, even if customers were spending “a little more slowly.”
But with rivals like Bank of America Corp., Goldman Sachs Group Inc. and American Express Co. set to report quarterly results this week, recession agita still prevails.
For evidence, look no further than JPMorgan’s
JPM,
own quarterly results. The bank’s second-quarter profit blew past expectations, but it set aside $2.9 billion during the second quarter to cover potentially bad loans, amid concerns that more consumers could run into more difficulty paying their bills on time as higher prices manage to stick at stores.
That figure was well up from $1.1 billion in the same quarter last year, although still far below the billions it stowed away when the pandemic first hit. Similarly, Wells Fargo & Co.
WFC,
on Friday set aside $1.7 billion for loan losses in this year’s second quarter, nearly triple what it was a year ago.
The figures underscore the anxiety over the second half of this year, when many economists expect the economy to tilt into a recession. However, for the 500 companies in the S&P 500 index, Wall Street analysts still expect profit growth.
Any downturn could be exacerbated by the pressure investors have put on companies, potentially via more layoffs and money-saving technology, to keep prices high and cut costs to replicate the abnormally large profit-margin gains they put up in 2021 and 2022. Businesses have indeed kept prices high, at least for many basic necessities, in an effort to cover their own higher costs and to pad profits.
When Bank of America
BAC,
reports this week, the results will narrow the lens on lending and spending in the U.S. Results from Morgan Stanley
MS,
and Goldman Sachs
GS,
will fill in the gaps on trading and deal-making. American Express
AXP,
will give a more detailed breakdown of what consumers are still spending their money on, after Delta Air Lines Inc.
DAL,
— which has a partnership with AmEx — said that travel demand remained “robust.”
Banks shoveled more money into their reserve stockpiles in 2020 to bulk up against the pandemic’s shutdown of the economy. A year later, they started releasing those funds as the economy reopened and recovered. FactSet expects the broader banking sector to plump up its cash cushion during this year’s second quarter to account for more late loan payments or potential defaults.
In a report on Friday, FactSet said the 15 banking-industry companies in the S&P 500 Index tracked by the firm were on pace to set aside $9.9 billion to cover losses from souring loans in the second quarter. That’s more than double the amount set aside a year ago. And if that $9.9 billion figure, based on actual and projected financial figures, ends up as the actual figure at the end of the quarter, it would mark the highest since the beginning of the pandemic and the third highest in five years, according to FactSet data.
“The U.S. economy continues to be resilient,” Dimon said in a statement on Friday. “Consumer balance sheets remain healthy, and consumers are spending, albeit a little more slowly. Labor markets have softened somewhat, but job growth remains strong.”
However, he noted difficulties in JPMorgan’s investment banking segment. And he said consumer savings were slowly eroding as inflation endures.
As the nation’s biggest bank, JPMorgan has flexed its financial muscle this year, swallowing up First Republic after that bank got into trouble. But as it consolidates power and influence, building thicker armor against shocks to the economy, its financial results might not always reflect the struggles of its smaller rivals, where difficulties are likely felt more acutely. Analysts at Raymond James said that while JPMorgan remained a “best in breed” bank, its outlook pointed to “heightened challenges for smaller banks.”
See also: Jamie Dimon says U.S. consumers are in ‘good shape.’ This evidence may prove otherwise.
For the week ahead, 60 S&P 500 companies, including five from the Dow, will report quarterly results, according to FactSet. Two big oil companies, Halliburton Co.
HAL,
and Baker Hughes Co.,
BKR,
will report, as oil prices fall from levels seen last year. Results from two transportation giants — trucking company J.B. Hunt Transport Services
JBHT,
and railroad operator CSX Corp.
CSX,
— will also be a proxy for how much people are buying things and having them shipped. United Airlines Holdings Inc.
UAL,
and American Airlines Group
AAL,
will also report.
Netflix results: Hollywood shutdown, ‘slow-growth’ expectations. Hollywood’s writers — and now its actors — have gone on strike, and Netflix Inc.
NFLX,
reports second-quarter results on Wednesday. The streaming platform will likely face questions over how much content it has left in the tank, as the strike upends studio-production schedules and leaves viewers with vast expanses of reruns. Still, Macquarie analyst Tim Nollen said that the production standstill “may ironically drive even more viewers to streaming services.”
The writers and actors argue that the studio industry — increasingly consolidated, increasingly publicly traded, increasingly oriented around a handful of film franchises — has profited immensely while skimping on things benefits and streaming residuals. But after a decade-long rise, and a recent shift in investor focus from subscriber growth to profit growth, Netflix has emerged as one of the biggest production powerhouses in the business. And after years of flooding customers with new films and shows, it’s trying to squeeze out sales via more boring ways: things like a password-sharing crackdown and ads.
Daniel Morgan, senior portfolio at Synovus Trust Co., said Netflix still faced a plenty of streaming competition amid “muted” subscriber growth. But Wedbush analyst Michael Pachter said investors should look at Netflix as a profitable, albeit more mature company.
“We think Netflix is well-positioned in this murky environment as streamers are shifting strategy, and should be valued as an immensely profitable, slow-growth company,” Pachter said in a research note on Friday.
“Even while the ad-supported tier is not yet directly accretive (we think it will be accretive over time), the ad-tier should continue to reduce churn and draw new subscribers to the service,” he continued.
Tesla sales. Electric-vehicle maker Tesla Inc. also reports second-quarter results on Wednesday. And like streaming, some analysts say the fervor for EVs has faded.
However, they also said that Tesla
TSLA,
had so far been immune from the malaise. And even though Elon Musk remains preoccupied with Twitter — which now faces competition from Meta Platforms Inc.’s
META,
Threads — Tesla’s second-quarter deliveries were far above expectations. Sales are expected to be big. And one analyst said that price cuts, which Tesla has used to capture more of the auto market in China, were likely “fairly minimal” during the second quarter. But some analysts wondered what the blowout delivery figures would mean for margins. And the industry, broadly, has increasingly tested the patience of profit-minded investors.
“We’ve now seen a market where demand is constrained, capital has been tighter, and there is less tolerance for EV related losses,” Barclays analysts said in a note last week, adding that there was a “step back from EV euphoria.”
Claudia Assis contributed reporting.
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Shares of Delta Air Lines Inc. surged toward a more-than two-year high Thursday, after the air carrier reported second-quarter profit and revenue that rose above forecast, and boosted its full-year outlook citing continued “robust” travel demand.
Delta
DAL,
said net income more than doubled to $1.83 billion, or $2.84 a share, from $735 million, or $1.15 a share, in the year-ago period.
Excluding nonrecurring items, adjusted earnings per share of $2.68 beat the FactSet consensus of $2.40.
Revenue grew 12.7% to $15.78 billion, well above the FactSet consensus of $14.44 billion,
For 2023, the company raised its EPS guidance range to $6 to $7 from $5 to $6, and increased its outlook for free cash flow to $3 billion from $2 billion.
The stock jumped 3.5% in premarket trading, putting it on track to open at the highest price seen during regular-sessions hours since April 2021.
“Consumer demand for air travel remains robust,” said Chief Executive Ed Bastian.
Traffic increased 18.0% to 60.80 billion revenue passenger miles while capacity grew 17.1% to 68.99 billion available seat miles. Load factor improved one percentage point to 88%, to beat the FactSet consensus of 87.2%.
The stock has run up 42.1% over the past three months through Wednesday, while the U.S. Global Jets exchange-traded fund
JETS,
has climbed 22.1% and the S&P 500 index
SPX,
has gained 9.3%.
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