Despite an optimistic macroeconomic configuration, the Wall Street stock market is giving in to profit-taking after having set several records in recent days. The first corporate results – Delta and Pepsico in particular – also encourage caution before the opening of the ball of bank stock publications tomorrow.
At the close of trading, the S&P 500 fell by -0.88%, returning to 5,584 pts. The Dow Jones was relatively stable, and still gained +0.08% to 39,753 pts. The Nasdaq gave back -1.95% to 18,283 pts with Nvidia (-5.57%) and Tesla (-8.44%), after having chained 7 consecutive sessions of increases, flying from record to record.
June inflation data reinforced expectations for the Fed’s first rate cut in September. Core CPI, which excludes food and energy prices, rose 0.1% sequentially, its smallest gain since August 2021, according to Labor Department figures. Headline annual inflation rose 3.3%, the slowest pace in more than three years, while sequential consumer prices fell -0.1% in June, the first decline since the pandemic.
“July is still a long way off, but today’s Fed-friendly CPI data puts markets closer to a September rate cut,” Chris Larkin at E*Trade told Bloomberg. “A lot can happen between now and September, but unless most of the numbers move back into ‘warm’ territory, the Fed’s rationale for not cutting rates may no longer be justified.” “The specific components of inflation that are showing signs of receding are precisely the ones the Fed and markets have been focusing on,” added Florian Ielpo, head of macro research at Lombard Odier AM, citing services prices, including housing. “With this report, the odds of a September rate cut should continue to rise, let alone December.”
Jerome Powell told the House Financial Affairs Committee on Thursday that while he wasn’t ready to declare the fight against inflation over, he believed the U.S. economy was headed for a soft landing, reiterating that “more good data” would allow the Bank to narrow its federal funds rate range. In his semiannual testimony to Congress, Powell also warned that keeping rates high for too long could weaken the economy, giving investors hope for rate cuts, a trend they believe in. More than 85% of investors now expect a quarter-point cut in interest rates in September, according to the Fedwatch rate gauge.
On the labor market, unemployment claims fell significantly more than expected last week in the United States. Thus, even if the labor market has been showing signs of running out of steam for several months, it is still far from ‘cracking’. The American Department of Labor announced, for the week ending July 6, that unemployment claims rose to 222,000, down 17,000 compared to the revised level of the previous week. The consensus was positioned at 235,000.
On the oil side, the barrel of WTI crude oil appreciated by +0.62%, to $82.95. North Sea Brent gained +0.19% to $85.61.
The greenback fell by -0.36% against the euro, trading at 0.92 euros.
Gold jumped +2.12% to $2,414 (€2,221) per ounce. Bitcoin was stable at $57,556.
Values
* Tesla (-8.44% to $241.03). After 10 consecutive sessions of increases, the car manufacturer’s stock is slowing down sharply. According to Bloomberg, the electric vehicle manufacturer is pushing back the launch of its robotaxi by two months (to October).
The rally by the electric vehicle manufacturer has nevertheless boosted the market capitalization of Elon Musk’s group by nearly 45%. The stock has not experienced such euphoria since June 2023. However, it is becoming increasingly difficult to defend the bulls’ arguments on the matter. Taking a moment to reflect seems legitimate because the stock is now trading at 90 times forward earnings, a level last seen in early 2022, according to data compiled by Bloomberg.
While Tesla was boosted by the announcement of a less severe than expected drop in its deliveries in the second quarter, the environment around electric vehicles is much less buoyant than it was a few months ago and Tesla is no exception. Its profits are expected to decline by 21% in 2024 and its growth is expected to be barely positive. But according to ‘Bloomberg’, investors are looking beyond current benchmarks and betting that Elon Musk can transform the group into an ‘artificial intelligence powerhouse’.
* Costco Wholesale (-4.27% to $846.59). The discount warehouse retailer will raise its annual membership fees for the first time in seven years for its U.S. and Canadian customers, effective Sept. 1. Memberships at the retailer offer a range of incentives to customers, including free sample testing, discounts on food, gas, home insurance, travel and groceries, and an annual 2% reward on qualifying purchases made at its warehouses. The price of a basic membership will increase to $65 from $60 per year. The move will affect about 52 million members. The company also said Wednesday that its U.S. comparable sales, excluding gasoline, rose 6.3% in June from a year earlier, compared with a consensus of 5.8%.
* Delta Air Lines (-3.99% to $44.99). The airline is weighing on its sector after reporting a lower-than-expected outlook for its third quarter. The Atlanta-based company expects adjusted EPS of $1.70 to $2 for the period, compared with a consensus of $2.04. Revenue is expected to increase 2% to 4%, below the 5.3% increase anticipated by the market, while operating margin is expected to be between 11% and 13%. The group also expects its seat capacity to increase between 5% and 6%, compared with 8% in the previous quarter. However, this moderate increase should cause its non-fuel operating costs to increase by 1% to 2% compared with the previous year.
Air France partner KLM is suffering from intense competition in the U.S. domestic market and has reported a negative impact on transatlantic bookings as travelers tend to avoid Paris ahead of the Olympics this summer. “The oversupply has led to significant discounting,” Delta CEO Ed Bastian said in an interview with Bloomberg. “Like everyone else, you’re impacted.” The price cuts were “particularly severe” from June to August, the executive said, estimating that industry capacity is outpacing demand by 3% to 4%. Carriers have already taken steps to address the problem by reducing capacity starting in September. Delta, however, maintained its full-year profit forecast of $6 to $7 per share with free cash flow of up to $4 billion. For the quarter ended, the group recorded EPS of $2.36 versus $2.38 consensus for adjusted revenues of $15.41 billion (+5.4%), in line with expectations.
* Apple (-2.32% to $227.57). EU antitrust authorities accepted the group’s offer to open its tap-and-go mobile payment system to rivals in order to close a four-year-old investigation that could have resulted in a hefty fine. The EU competition authority had challenged Apple’s decision to block mobile wallet app developers from accessing the necessary hardware and software (“NFC input”) on its devices, in favor of its Apple Pay solution. Apple’s decision to end the EU proceedings is a rare move by the American company, which is currently the subject of three investigations related to the application of the Digital Markets Act (DMA) into its business practices. Apple’s offer will be valid for ten years, the European Commission said.
* Citigroup (-1.9% to $65.71). Two U.S. banking regulators fined the group $136 million for failing to make sufficient progress in resolving data management issues identified in 2020, the Federal Reserve announced Wednesday.
* Alcoa (+1.87% to $39.18). The steel producer revealed preliminary quarterly results that were higher than expected. For the second quarter, the Pittsburgh group anticipates an adjusted EBITDA of $310 to $330 million on sales between $2.85 and $2.925 billion. Adjusted EPS is expected between 8 and 19 cents, against a consensus of 1c.
* Pfizer (+1.09% to $28.66). The pharmaceutical giant will conduct studies in the second half of 2024 on an updated version of its experimental anti-obesity pill, danuglipron. The American group announced that it had obtained good results in the development of its drug, which is taken once a day, as the group seeks to establish itself in this very lucrative market.
* PepsiCo (+0.22% to $163.95). The group is not meeting market expectations. The maker of Doritos chips and Mountain Dew sodas posted weaker-than-expected growth in the second quarter, as a series of price increases and competition from private labels weighed on sales of its snacks and sodas, mainly in the United States, its largest market.
For the quarter ended June 15, the American giant reported revenue of $22.5 billion, up 0.8%. Organic growth was +1.9% (2.9% consensus). PepsiCo increased average product prices by 5% in the period. On an adjusted basis, PepsiCo generated EPS of $2.28 (expected $2.16). Persistent inflation has forced many shoppers to cut back on spending and turn to less expensive supermarket brands. PepsiCo plans to rely on its ability to improve productivity and focus “surgically” on promotions, while increasing some advertising and marketing initiatives, CEO Ramon Laguarta said in a statement. The company expects consumers to remain budget-conscious and overall growth across its various segments to be moderate. PepsiCo reiterated most of its annual guidance, except for its organic growth target, now set at 4%, compared to “at least 4%” previously.
