Market Rally Rises On Inflation Data, Shrugs Off Warnings: Weekly Review

The stock market rally continued to advance despite some intraday reversals, with key indexes clearing some resistance and nearing new potential stumbling blocks. A cooler-than-expected inflation report buoyed investors, after Nvidia (NVDA) and Micron Technology (MU) warned on revenue. Disney (DIS) and Celsius (CELH) were big earnings winners. Crude oil and natural gas prices rebounded, lifting oil, gas and coal stocks. Elon Musk sold $6.9 billion worth of Tesla (TSLA) shares.




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Stock Market Rally Continues

The major indexes all rose solidly, while the Russell 2000 nearly hit its 200-day line. That’s despite stocks reversing from morning highs on Monday and Thursday. The major indexes are all now above their early June highs, but the 200-day line looms. Nvidia (NVDA) and Micron Technology (MU) warnings hit techs, but better-than-expected inflation reports eased Fed rate hike fears. Energy stocks were big winners as oil and natural gas prices rebounded. The 10-year Treasury yield rose modestly after initially falling.

Inflation Has Peaked

July’s consumer price index showed that the worst is clearly past for inflation. Prices were flat vs. June and the annual inflation rate eased to 8.5% from 9.1%, cooling more than expected. Core prices, excluding food and energy, rose a slower 0.3% on the month, while the annual rate held at 5.9%. Sliding energy prices combined with drops in prices for used cars, airfares and apparel.

The producer price index, a day later, showed that wholesale prices fell 0.5% on the month. The PPI inflation rate downshifted to 9.8% from 11.3% amid lower energy prices and easing supply bottlenecks.

While inflation is moving in the right direction, and faster than expected, the data only reduced — but did not erase — chances of a 75-basis-point rate hike by the Federal Reserve on September 21. That’s because nonenergy services inflation, covering 57% of household budgets, matched a 30-year-high 5.5% amid rapid increases in shelter costs.

Getting inflation down to the Fed’s 2% target could take an extended period of slow or possibly negative growth. Yet the pullback in gas prices and recent easing of financial conditions, including the stock market rally, could lead to stronger GDP growth in Q3. However, new jobless claims rose to 262,000 in the week through Aug. 6, the highest since mid-November.

Nvidia, Micron Issue Warnings

Graphics-chip maker Nvidia (NVDA) and memory-chip maker Micron Technology (MU) separately slashed their outlooks for the latest quarter and rest of year. Both are exposed to weakening consumer markets. Nvidia is seeing sharply lower sales of video game chips. Micron is facing sagging demand for chips for PCs and smartphones. Nvidia skidded while Micron bounced back, but chip-equipment makers fell on Micron’s lowered capital spending plans. Meanwhile, contract chipmaker GlobalFoundries (GFS) delivered a beat-and-raise report. Power-management chipmaker Alpha & Omega Semiconductor (AOSL) beat expectations for the June quarter and matched views for the current period. Semiconductor equipment vendor Onto Innovation (ONTO) topped Wall Street’s targets for the second quarter but offered mixed guidance.

Chinese Stocks Fall On Delisting Fears

Several Chinese state-owned enterprises, including PetroChina (PTR), China Petroleum & Chemical (SNP), China Life Insurance (LFC), Sinopec (SHI) and Aluminum Corp. of China (ACH), announced Friday that they will voluntarily delist from exit from the New York Stock Exchange. That comes amid an ongoing U.S.-China dispute with the SEC threatening to delist Chinese firms if they don’t comply with U.S. auditing rules. Alibaba (BABA), JD.com (JD), Pinduoduo (PDD), Nio (NIO), Xpeng (XPEV) and many other U.S.-listed Chinese firms fell significantly on Friday.

Celsius Earnings Beat

Celsius Holdings (CELH) reported surging second-quarter growth that beat expectations, helped by a 171% increase in North America sales. A week earlier the energy-drink maker, which hopes to draw health-conscious customers, landing a big investment and distribution partnership with PepsiCo (PEP). Celsius says that deal will streamline how it gets drinks to convenience-store shelves, colleges and other locations where it wants to expand.

Disney Beats, Will Hike Disney+ Price

Walt Disney (DIS) reported a 36% EPS gain for fiscal Q3 as revenue grew 26% to $21.5 billion, both solidly topping views, fueled by theme park revenue. Disney+ added 14.4 million subscribers to reach 152.1 million, far above views. Disney’s total paid subscribers, including Hulu and ESPN+, hit 221 million in Q3, surpassing the Netflix (NFLX) total of 220.7 million. The price of Disney+ will increase 38% to $10.99 a month and the company will launch cheaper, ad-supported tiers. Shares jumped, but are still well off highs.

Medical Products Firms Strong

A trio of highly rated medical stocks skyrocketed after handily beating June-quarter expectations. Both Haemonetics (HAE) and Staar Surgical (STAA) reported double-digit sales and adjusted earnings growth, while Shockwave Medical (SWAV) turned around a year-earlier loss with revenue up 116%. While Shockwave and Haemonetics raised their guidance for the year, Staar Surgical kept its previous outlook for about $295 million in sales intact. That takes into account challenges due to Covid lockdowns and a currency headwind.

Biotech Earnings Mixed

While Amphastar Pharmaceuticals (AMPH) handily beat earnings expectations, shares tumbled as the company announced the FDA rejected one of its key drugs. Syndax (SNDX), though, posted a smaller-than-expected per-share loss and shares inched higher. Meanwhile, Exelixis (EXEL) tumbled after maintaining its full-year outlook despite posting a strong beat with a 26% EPS decline.

Musk Sells More Tesla Stock

Tesla CEO Elon Musk disclosed he sold 7.3 million shares on Aug. 5, 8 and 9 worth $6.9 billion, which he said was in case he has to go through with his $44 billion, $54.20-a-share Twitter (TWTR) takeover. Twitter stock continues to climb. The sales began immediately after Tesla’s annual meeting, at which Musk said TSLA stock was a buying opportunity. Amid those sales, Tesla stock fell back below its 200-day line. Musk also said deliveries of the long-delayed Tesla Semi will begin before year-end.

Rivian Sticks To Production Target

The EV startup lost $1.89 a share in Q2, worse than expected, but revenue of $364 million topped views. Rivian (RIVN) expects a wider-than-expected full-year loss. But it still expects to produce 25,000 vehicles in 2022, which would require a continued ramp up. It made 4,401 EVs in Q2, for a first-half total of 6,954.

News In Brief

Digital advertising firm Trade Desk (TTD) reported Q2 earnings rose 11%, meeting views. Revenue rose 35% to $377 million as major brands spent more on internet TV. Trade Desk predicted September-quarter revenue above targets.

Qualys (QLYS) said Q2 adjusted earnings rose 12% while revenue climbed 20% to $119.9 million, both beating. The cybersecurity firm guided higher for Q3.

Coinbase (COIN) is still reeling from the recent crypto market crash and reported a massive second quarter earnings miss. Revenue plummeted 59% to $802.6 million and the crypto exchange recorded a loss of $4.98 per share, dramatically worse than the EPS of $6.42 last year and well below the expected loss. Coinbase also disclosed its being investigated by the SEC for allegedly selling unregistered securities. Shares fell for the week,

Golar LNG (GLNG) advanced after the liquefied natural gas transporter delivered stronger-than-expected earnings 29 cents a share vs. a 17-cent loss a year earlier. Sales fell 16% to $86.1 million.

Pfizer (PFE) agreed to buy Global Blood Therapeutics (GBT), the maker of sickle cell disease treatment Oxbryta, for $5.4 billion. Pfizer expects the deal to add a peak of $3 billion in annual sales.

Covid vaccine makers BioNTech (BNTX) and Novavax (NVAX) crumbled on broad second-quarter misses. BioNTech’s adjusted profit and sales declined about 40% apiece. Novavax posted an unexpected loss as sales came in at less than one-fifth of analysts’ estimates.

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