Month: May 2024

Piper Sandler strategists said Tuesday that higher unemployment rates (UR) could be a bullish sign for the markets as it would likely bring down inflation and interest rates, making risk assets more appealing for investors.

“Seeing a higher UR and lower rates would be bullish in our view as higher rates are everybody’s #1 fear,” strategists said in a note.

Historically, this has also been the case, strategists stressed, and has been observed in five recessions since 1960 where a peak in interest rates coincided with the bottoming out of stock prices.

While the perception of how stocks respond to declining interest rates during a recession is influenced by more recent recessions in 2001 and 2007, the dynamics were notably different during the recessions of 1969, 1973, 1980, 1981, and 1990.

In these earlier periods, stocks declined due to higher rates “and then bottomed as rates peaked,” Piper Sandler noted.

Strategists highlighted two key takeaways from historical analysis of inflation regimes. First, interest rates typically continue to rise into a recession, initially leading to a decline in stock prices. Second, once interest rates begin to fall, stocks start to recover and climb higher.

“This isn’t what we’re used to because most of us are conditioned by, and lived through, the 2001 and 2007 recessions where inflation was low and rates and stocks were positively correlated. We’re playing a totally different game today,” they continued.

“Current correlations point to stocks rallying if rates fall even if we enter a recession,” strategists added.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

(Updated – May 1, 2024 4:48 AM EDT)

Super Micro Computer (NASDAQ:SMCI) reported mixed results for the fiscal Q3 2024 and said it expects gross margins to decline quarter-over-quarter, sending its shares tumbling more than 9% in premarket trading Wednesday.

For the third quarter, the company posted quarterly earnings per share (EPS) of $6.65, beating the analyst expectations of $5.80. However, revenue came in at $3.85 billion, notably below the consensus estimate of $3.99 billion.

The company’s non-GAAP gross margin for the third quarter of fiscal year 2024 stood at 15.6%, after adjusting for $3 million in stock-based compensation expenses.

Looking ahead, Super Micro Computer projects its fourth-quarter 2024 EPS to be between $7.62 and $8.42, topping the analyst consensus of $7.14. It also anticipates fourth-quarter revenue to range from $5.1 billion to $5.5 billion, also above the projected $4.89 billion.

Gross margin, on the other hand, is anticipated to be down on a quarterly basis in Q4.

“SMCI expects gross margins to decline qoq, which likely reflects elevated COGS from securing liquid cooling components for upcoming shipments,” analysts at Goldman Sachs commented.

“While the potential margin dilutive impact from AI server sales and/or competition is a concern, SMCI reiterated its long-term 14-17% gross margin target and we believe elevated product costs from liquid cooling should normalize over time,” they added.

In addition, AI demand remained strong, with SMCI achieving a record backlog in the third quarter, analysts highlighted.

For the full fiscal year 2024, Super Micro Computer expects EPS to be between $23.29 and $24.09, above the analyst estimates of $21.99. Total revenue for the year is raised to a range of $14.3 billion to $14.7 billion, compared to the consensus estimate of $14.6 billion.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

(Updated – May 1, 2024 4:35 AM EDT)

Advanced Micro Devices (NASDAQ:AMD) saw its shares plunge 5.5% in premarket trading Wednesday after the chipmaking giant posted in-line earnings per share (EPS) for the fiscal Q1 2024.

Specifically, the company posted EPS of $0.62, meeting analyst estimates. Revenue for the quarter reached $5.5 billion, slightly surpassing the consensus estimate of $5.48 billion.

The non-GAAP gross margin for the quarter increased by 2 percentage points year-over-year to 52%.

“We delivered strong first quarter results with our Data Center and Client segments each growing more than 80% year-over-year driven by the ramp of MI300 AI accelerator shipments and the adoption of our Ryzen and EPYC processors,” said AMD Chair and CEO Dr. Lisa Su.

Looking forward, AMD anticipates second-quarter 2024 revenue to range between $5.4 billion and $6 billion, compared to a consensus projection of $5.7 billion. The company estimates the midpoint of this range to reflect a year-over-year increase of about 6% and a sequential rise of roughly 4%.

AMD also expects its non-GAAP gross margin for the quarter to be about 53%.

Further, the company adjusted the 2024 revenue outlook for its Data Center GPU segment to $4 billion, from $3.5 billion. However, the revision “may have underwhelmed the most bullish of investor expectations,” analysts at Goldman Sachs said in a note.

Despite this, the Wall Street giant remains confident that AMD “is making the appropriate investments and has the long-term product roadmap in place to benefit from growth in AI infrastructure spending we envision over the medium- to long-term,” analysts continued.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Goldman Sachs reiterated a Buy rating on the stock while trimming the 12-month target price from $180 to $175.

Meanwhile, analysts at Stifel shared similarly bullish views, highlighting that AMD has reported expanded production deployments of its MI300 platforms by several key customers, including Microsoft, Meta, and Oracle.

“We believe that this dynamic bodes well for ongoing traction for AMD as its AI compute roadmap progresses. Importantly, AMD noted that customer feedback is informing roadmap decisions for both AI hardware and software,” Stifel noted.​

Investing.com — The U.S. Federal Reserve concludes its latest policy-setting meeting later Wednesday, while Amazon’s first-quarter results largely impressed. Crude prices have been hit by a large build in U.S. inventories, while Wall Street looks set to start the new month on a negative note. 

1. Powell in focus as Fed meeting concludes

The Federal Reserve concludes its latest two-day policy meeting later in the session – the marquee event for markets this week.

The U.S. central bank is widely expected to hold its benchmark overnight interest rate steady, and thus the main focus will be on what Chair Jerome Powell has to say in his news conference, particularly given the bank won’t be updating economic projections this time around.

Progress towards the Fed’s 2.0% medium-term inflation target has somewhat stalled of late, as typified by Tuesday’s release of the Employment Cost Index, which rose at an elevated 4.2% rate on a year-over-year basis in the first quarter, matching the rise in the fourth quarter.

Investors will be awaiting indications about whether the Fed still expects to cut interest rates at some stage this year, given the sticky nature of recent inflation data releases.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence” and proceed with rate cuts, Powell said on April 16 in what were his last public comments before this week’s meeting. 

Futures markets now just barely see a single quarter-point rate cut by year-end, from as many as five of those at the start of the year.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

2. Futures slip lower ahead of Fed decision

U.S. stock futures drifted lower Wednesday, amid caution ahead of more corporate earnings and the Federal Reserve’s latest policy decision.

By 04:10 ET (08:10 GMT), the Dow futures contract was 35 points, or 0.1%, lower, S&P 500 futures dropped 12 points, or 0.2%, and Nasdaq 100 futures fell by 80 points, or 0.5%.

The major Wall Street indices struggled in April, as sticky inflation data prompted investors to rein in expectations of early interest rate cuts by the Federal Reserve.

The S&P 500 and the Nasdaq Composite posted losses of more than 4% last month, while the Dow Jones Industrial Average fell 5% for its worst monthly performance since September 2022.

The Fed concludes its latest policy-setting meeting later Wednesday [see above] and this is likely to keep volatility low.

Focus will also be on the continuing quarterly earnings season, with results due from the likes of drugmaker Pfizer (NYSE:PFE), food giant Kraft Heinz (NASDAQ:KHC) and pharmacy chain CVS Health (NYSE:CVS) before the opening bell, with chipmaker Qualcomm (NASDAQ:QCOM) and food delivery service DoorDash (NASDAQ:DASH) later in the session.

Investors are also likely to keep an eye on the job openings and labor turnover survey for March as well as ADP’s private employment data for April, especially ahead of Friday’s nonfarm payrolls report.

3. Amazon’s first-quarter boosted by cloud demand

Amazon (NASDAQ:AMZN) became the latest tech giant to release its latest quarterly results late Tuesday, and largely beat expectations as interest in artificial intelligence helped drive cloud-computing growth.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

First-quarter sales increased 13% to $143.3 billion, higher than the $142.5 billion consensus, while net income more than tripled to $10.4 billion in the quarter.

Importantly, Amazon Web Services, its cloud revenue segment, grew 17% to $25 billion, topping consensus estimates of 14.7% growth, with the division’s annual revenue run rate now at $100 billion.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate,” the company said Tuesday.

There was a blip in the strong results, however, as the company forecast revenue of $144.0 billion to $149.0 billion for the current quarter ending June, below the consensus expectations of $150.1 billion.

That said, Stifel remains a fan of the group, keeping a ‘buy’ rating, and lifting its 12-month target price to $228 from $224.

“Despite an uneventful quarter, the company made progress on the margin story (more to go), AWS is largely past digestion phase, and advertising continues to ramp,” analysts at Stifel said, in a note.

Amazon stock closed Tuesday at $175, and gained 1.3% in aftermarket trade.

4. U.S. consumer feeling the pinch

Officials at the Federal Reserve may be laser-focused on the inflation level, but they may also be minded to listen to comments from some of America’s largest consumer-focused corporations who are saying their customers are struggling.

“It is clear that broad-based consumer pressures persist around the world,” McDonald’s (NYSE:MCD) CEO Chris Kempczinski said on the fast-food chain’s earnings call early Tuesday. “Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending.”

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

The fast-food chain reported a sequential drop in sales growth for the fourth straight quarter as low-income customers reined in spending.

Elsewhere, Starbucks (NASDAQ:SBUX) cut its annual sales forecast on Tuesday after reporting a fall in same-store sales for the first time in nearly three years.

“We still see the effects of a slower-than-expected recovery, and we see fierce competition among value players in the market,” CEO Laxman Narasimhan said on a post-earnings call.

Away from the food retail sector, 3M Company (NYSE:MMM) topped expectations for its first quarter, but the maker of Scotch tape and Post-it notes still said it’s seeing “continued softness in consumer discretionary spend.” 

5. Crude falls after U.S. inventories build

Crude prices fell Wednesday, continuing the recent weak tone after a surprise build in U.S. stockpiles and strong crude production sparked doubts over tight supply conditions. 

By 04:15 ET, the U.S. crude futures traded 1.1% lower at $81.03 a barrel, while the Brent contract dropped 1.1% to $85.42 per barrel.

The American Petroleum Institute indicated late Tuesday that U.S. crude inventories grew by 4.9 million barrels in the week to April 26, a sharper jump than the 1.5 million barrels increase expected.

This suggested that oil supplies were not as tight as initially expected in the world’s biggest fuel consumer, a notion reinforced by separate data showing U.S. domestic crude output rose to 13.15 million barrels per day in February from 12.58 million barrels in January, just short of the record high and its biggest jump since October. 

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Crude prices slid to over three-week lows on Monday on growing expectations that a ceasefire agreement between Israel and Hamas could be in sight, reducing tensions in the region and cutting the likelihood of oil supplies being disrupted.

Investing.com — Amazon posted first-quarter results that topped Wall Street estimates as better-than-expected performance in its cloud business underscored renewed cloud demand from the artificial intelligence boom.     

Amazon (NASDAQ:AMZN) rose 2% in premarket trading Wednesday following the report.

Amazon reported Q2 EPS of $0.98 on revenue of $143.31 billion, beating estimates of $0.84 on revenue of $142.65B. 

Amazon Web Services, its cloud revenue segment, grew 17% to $25B, topping consensus estimates of $14.7% growth, with the division’s annual revenue run rate now at a $100B.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate,” the company said Tuesday.

North America segment sales increased 12% year-over-year to $86.3B.

Looking ahead, the company guided Q2 revenue slightly below than analyst expectations.

For the second quarter, the company expects revenue of $144B to $149B, compared with Wall Street estimates of $150.2B. Operating income for Q2 was guided in a range of $10B to $14B.

Commenting on the report, Goldman Sachs analysts said stronger-than-expected results were driven by “noticeable strength in North America Operating Margins, solidly positive International Operating Margins, mid 20%s Advertising revenue growth and a mixture of upside in both AWS (cloud computing) revenue and segment Operating Margins.”

Analysts believe that there will likely be a continued emphasis on two key areas post-earnings, including the health of the global consumer –especially considering reported weaknesses in Europe – and questions about how Amazon’s management plans to balance growth investments with margin progression in the upcoming years.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.

Stifel analysts voiced similar remarks, saying that despite “an uneventful quarter,” Amazon’s Q1 print showed that the company “made progress on the margin story, AWS is largely past digestion phase, and advertising continues to ramp.”

The investment banking firm reiterated a Buy rating and upped its price target from $224 to $228. 

Similarly, JMP Securities also reaffirmed a Buy rating on the stock, with its analysts continuing to view AMZN “as one of our top picks” after the report.

(Yasin Ebrahim contributed reporting)

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.