Wall Street is struggling to stay in the green at the start of the session. After two rather turbulent days, the American market is moving in a dispersed order: the S&P 500 drops 0.45% to 5,212 pts, the Dow Jones nibbles 0.10% to 38,149 pts and the Nasdaq gives up 1.09% to 16,555 pts despite the easing of rates on the bond market. The PCE inflation index, the Federal Reserve’s favorite indicator of price dynamics, was somewhat reassuring by coming out exactly in line with market expectations. Not enough to revive bets on a first rate cut by the Fed this summer… Currently, the market estimates the chances of a 25 basis point rate cut in September at around 48% ( according to the Fedwatch tool), compared to 45% before the publication of this indicator.
The personal income of American households for the month of April also increased by 0.3% compared to the previous month, as expected by the consensus, after an increase of 0.5% in March. Personal consumption expenditure increased by 0.2%, against 0.3% consensus and +0.8% a month earlier. Adjusted for inflation, they fell by 0.1% against a gain of 0.1% anticipated by economists. Highly anticipated, the PCE inflation index therefore shows an increase of 0.3% over one month against +0.3% consensus. Year-on-year, it increased by 2.7%, as expected. The ‘core PCE’ price index, closely followed by the Fed, increased by 0.2% from one month to the next, against +0.2% consensus, and by 2.8% over one year, in line with market expectations.
“The decline of the Fed’s preferred inflation indicator, the “core PCE”, is now very slow, in particular because of non-housing services (“supercore”) for which disinflation has stopped in recent months The fact that the core PCE continues to fall, even slowly, and that it is no longer so far from 2% eliminates the possibility of a return to rate increases by the Fed. the Fed is rushing towards rate cuts: on the timing of these, it is perhaps the deterioration of the labor market which will ultimately decide the members of the FOMC”, affirms Bastien Drut, head of strategy and studies economical at CPR AM.
“While we don’t necessarily want consumers to weaken, slowing retail spending should help fan the flames for a rate cut in the second half of 2024. Ultimately, the Fed will cut rates based on two “Either the economy weakens to the point of requiring an easing of financial conditions, or inflation slows. The preference obviously goes to the second hypothesis,” says Bret Kenwell, US markets analyst for eToro.
The Chicago PMI manufacturing index for the month of May also stood at 35.4, well below the market consensus which stood at 41.5. The indicator was 37.9 a month earlier. Today’s reading thus shows a clear acceleration in the contraction of manufacturing activity in the region.
On the political front, Donald Trump on Thursday became the first former president of the United States to be convicted of a criminal crime, with a New York jury finding him guilty of falsifying documents to hide bribes. bribes paid to a former porn star in order to buy his silence before the 2016 US presidential election. Judge Juan Merchan set the hearing for July 11 at which the former porn magnate’s conviction real estate will be known, four days before the start of the national convention of the Republican Party during which Donald Trump must formally be inaugurated as the party’s candidate for the presidential election next November. Donald Trump, 77, denies any wrongdoing. One of his lawyers has indicated his intention to file an appeal quickly.
On the bond market, the US 10-year rate eased by 5.7 basis points to 4.489%. The dollar index lost 0.2% against a basket of currencies and Bitcoin fell by 1.6% to $67,600 on Coindesk. An ounce of gold fell 0.1% to $2.3407. Finally, on the oil market, a barrel of WTI crude lost 0.5% to $77.6 on the Nymex before the OPEC+ meeting this weekend.
Values
* Dell Technologies collapses 21.5%, with the first revenue increase since 2022 not enough to impress investors whose expectations around the AI server business are very high. The IT giant reported sales up 6.3% for the quarter ended May 3 to $22.2 billion, compared to a consensus of $21.6 billion. Adjusted earnings per share came to $1.27, compared to an average projection of $1.23. Revenue from Dell’s powerful servers equipped to handle artificial intelligence tasks more than doubled from the previous quarter to $1.7 billion, and the order backlog for these machines increased by more than 30%. % quarter over quarter to reach $3.8 billion. But adjusted operating profit fell 8% to $1.5 billion, leading to a decline in the margin.
The company raised its revenue forecast for the fiscal year ending February 2025 to a range of $93.5 billion to $97.5 billion, an 8% increase at the mid-range, from a 7% gain. anticipated by the market. Adjusted earnings will be about $7.65 per share, compared with the average estimate of $7.70. But Dell also said its profit for the current quarter will be lower than market estimates and signaled that higher costs to build servers capable of handling heavy AI workloads will reduce annual margin. The Round Rock-based firm therefore expects the adjusted gross margin rate to decrease by approximately 150 basis points during fiscal 2025. It also expects adjusted EPS of $1.65, plus or minus 10 cents, for the current quarter, against a consensus of $1.84.
“Given inflationary input costs, the competitive environment and a greater mix of AI-optimized servers, we expect our gross margin rate to decline,” said CFO Yvonne McGill, during the presentation conference. However, she expects the dynamic demand for AI to continue throughout the year. Dell shares have more than tripled in the past 12 months as investors view the computer hardware maker as a beneficiary of demand for artificial intelligence. Large companies increasingly need high-powered servers to train and run demanding generative AI tasks, which are sold by Dell and a few other companies. “The results were not bad, but expectations were very high and the numbers were not strong enough to stimulate further growth in the short term,” says Vital Knowledge as quoted by ‘Bloomberg’. “The decline in their margin reflects the competitive pricing environment, as the market has not yet fully recovered and Dell’s competitors have attempted to grab share in this tight market,” adds Mikako Kitagawa, senior analyst at Gartner.
* Marvell Technology plunges 11.4%. The chipmaker reported first-quarter revenue below consensus, penalized by weak customer spending.
* Costco fell 2.1% despite better than expected results. The American distribution giant based on the warehouse club model accessible by membership to individuals and professionals reported an EPS of $3.78, compared to $2.93 a year ago and $2.70 of consensus, for a net turnover of $58.52 billion (+9.1%), against an estimate of $57.98 billion. Same-store sales, excluding fuel, jumped 6.5% (+5.9% consensus), driven by growth in its international activities (up 8.5%), in Canada (up 8.5%), 7.4%) and in the United States (up 6%). “We are definitely winning in the consumables sector, because we see that the food and out-of-home sector has calmed down a little bit,” CEO Ron Vachris, who took office in January, said during a conference with investors. Costco, which is trading at its highest on the stock market, had 74.5 million total paying members at the end of its third fiscal quarter, including 34.5 million executive members.
* GAP soars by 22%, sought after better than expected quarterly results and the increase in its annual figures. In the midst of a turnaround, the owner of the Old Navy and Gap brands recorded revenue of $3.4 billion during the fiscal quarter ended May 4, up 3% on a comparable basis. The gross margin reached 41.2% versus 38.5% expected and the operating margin stood at 6.1% versus a consensus of 2%. The San Francisco-based company ended the quarter with smaller inventory, down 15% from last year, and said new products and advertising efforts were paying off.
Richard Dickson, CEO of Gap, who took office in August 2023, said the first quarter results “provide the confidence to raise both sales and operating profit guidance for the full year “. The company now sees net sales “up slightly” this year, compared to an earlier forecast of “roughly flat”, while gross margin is expected to grow by at least 150 bps compared to at least 50 bps previously. The outlook “takes into account continued uncertainty in consumption and the macroeconomic environment.”
* Nordstrom advances 5% despite a disappointing publication and cautious forecasts for the current financial year. The retailer notably warned of an uncertain economy and said consumers were more selective. It nevertheless maintained its annual turnover and profit forecasts. The department store chain reported adjusted EBITDA of $117 million in the first quarter, down 34%, compared to a consensus of $150 million. The adjusted loss per share stood at 24 cents versus 7 cents expected, for revenues of $3.34 billion (+4.8%). Nordstrom forecasts 2024 revenues ranging from a decrease of 2% to an increase of 1%, and earnings per share between $1.65 and $2.05.
* Biogen (+2.4%) said the European Commission had granted marketing authorization to its drug Qalsody against amyotrophic lateral sclerosis (ALS).
* NETAPP (+0.3%) reported revenue above consensus in the fourth quarter, thanks to strong demand for its data management services, while the company also approved a new share buyback plan worth a billion dollars.
