PRISM Market Pulse: Equities Rally Amid Mixed Big Tech Earnings; Economic Shifts and Sector-Specific Highlights
New York, N.Y., April 26, 2024 – PRISM MarketView – Equities were higher through the morning into midday trading as the S&P 500 and Nasdaq are set to snap their three- and four-week losing streaks. Big tech was the topic of Street-talk this week as some of the Magnificent Seven reported earnings. The reports produced mixed and opposite reactions by the Street as Tesla (TSLA) missed on earnings but traded higher due to positive takes on affordable models, gross margins, and Musk’s reiteration of the company’s commitment to AI.
Meanwhile, Meta Platforms (META) came under pressure despite beating earnings expectations. The stock plummeted as Zuckerberg raised concern for investors as he detailed the company’s planned ramp in its investment cycle to support AI and the Metaverse which is likely to bleed the company’s cash. Over 40% of the S&P 500 has now reported and key Q1 earnings beat metrics are trending above average. However, this week Q1 GDP illustrated slower than expected economic growth citing a 1.6% increase which disappointed as economists’ Q1 GDP estimates were cited at a 2.4% increase. This GDP miss and slowdown raised eyebrows as Q4 GDP had increased 3.4%. Further economic insight will be provided next week as earnings shift focus to largely consumer related names.
This Week’s Earnings
Ford Motor Co. (F) beat on Q1 EPS of $0.49 vs FactSet $0.43 but came in slightly short on quarterly revenues at $42.8Bn vs FactSet $42.9Bn. The company reaffirmed increased demand for hybrids and cited a surge in EV adoption that’s being hindered by pricing. The Street remained mostly upbeat on the announcement however, concerns remain about the critical need for profitability on the Model-E as pricing pressures could further losses.
This morning the low-cost carrier, Southwest Airlines, Co (LUV) released disappointing earnings that missed on Q1 EPS ($0.36) vs FactSet ($0.34) and revenue $6.33B vs FactSet $6.42B. Due to Boeings aircraft delivery delays, the company anticipates major challenges for 2024 and 2025 which will impact financial performance. To mitigate this headwind and cut costs, the company intends to cease operations at four of its airports and expects to end the year with 2,000 fewer employees.
In the small cap space, National Bank Holdings Corp (NBHC) beat on Q1 EPS $0.82 vs Factset $0.76, but NII missed at $85.7M vs FactSet $86.8M. The bank expects continued growth in average balances across the platform. However, the overall earnings picture for regional banks has been more dismal. Regional banks have experienced earnings misses this season as higher interest rates, higher deposit costs and muted loan growth have been common pain points cited.
Other notable reports included Verizon Communications, Inc. (VZ), GE Aerospace (GE), The Sherwin-Williams Co. (SHW), Boston Scientific Corp. (BSX), Hasbro Inc. (HAS), Caterpillar Inc. (CAT), JetBlue Airways (JBLU), Wabash National Corp (WNC), , and Central Pacific Financial Corp (CPF).
Next week’s earnings include The Coca-Cola Co. (KO), McDonald’s Corp (MCD), Starbucks Corp (SBUX), Mastercard, Inc. (MA), The Kraft Heinz Co. (KHC), Apple, Inc. (APPL), Oatly Group (OTLY), Olaplex Holdings, Inc. (OLPX), BRC Inc. (BRCC), Peloton Interactive, Inc. (PTON).
More Than Hype
If you’re trying to decide if it’s a phase or a trend, AI has maintained its permanency backed by Big Tech. While Magnificent Seven earnings swirl, AI’s expansive material growth theme continues. Another member of the Seven echoed this as Microsoft (MSFT) results topped Street estimates driven by AI investment. The stocks market value rose by $128Bn upon the report. Alphabet (GOOG) also supported the narrative as it cited accelerated growth across Search, YouTube and Cloud which saw increased contribution from AI.
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Betting on Biotech Bargains
In a recent Barron’s article, it was suggested that investors looking for start-ups might be overlooking microcaps. As biotechs make up a large piece of the microcap pie, the sector provides opportunity as higher rates have impacted available funding for biotechs and cash balances of Big Pharma are at record levels. However, this week the XBI has underperformed in spite of good news stories and analysts taking bets on biotech. Gilead (GILD) was upgraded to hold from reduce at HSBC, and HC Wainwright initiated coverage of Processa Pharmaceuticals (PCSA) with a buy rating and a target of $8, representing a 394% upside.
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Mental Health Matters
Mental health has been in focus this week as Talkspace (TALK) announced it had entered a partnership to significantly expand its mental health offering. The PRISM Emerging Mental Health Index saw strong performances in morning trading on Friday from Vistagen (VTGN) which has risen 3.36%, Anavex Life Sciences (AVXL) which has gained 2.06%, and Alzamend Neuro (ALZN), which is up 1.93%.
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