Thursday, January 25, 2024

Markets advance despite some disappointing earnings

Dow climbed 243 (session high), advancers over decliners about 3-1 & NAZ was up 4.  The MLP index gained 3+ to the 262s & the REIT index gained 3+ to 381.  Junk bond funds were also higher & Treasuries remained in demand, lowering yields.  Oil jumped 2+ to the 77s & gold inched up 2 to 2018 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Tesla (TSLA) revenue & profit for the 4th qtr missed estimates as automotive revenue increased just 1% from a year earlier.  Total revenue increased 3% from $24.3B a year earlier.  Operating margin for the qtr came in at 8.2%, down from the year-ago qtr's figure of 16% & slightly higher than 7.6% in the prior qtr.  Meager growth in auto revenue was partly due to a reduced average selling price following steep price cuts around the world in the 2nd ½ of the year.  EPS for the qtr more than doubled to $2.27 from $1.07 a year earlier.  The increase was mostly due to a $5.9B one-time noncash tax benefit.  Vehicle volume growth in 2024 “may be notably lower” than last year's growth rate as the company works toward launching its “next-generation vehicle” in Texas.  The company cautioned investors that it’s “currently between two major growth waves.”  For the full year, automotive revenue reached $82.4B, a 15% increase from 2022.  The energy division, which is much smaller than its core business, was a bright spot, with revenue rising 54% to $6B.  The unit sells solar energy generation & energy storage systems.  The “Services and Other” revenue rose 37% from a year earlier to $8.3B.  Operating income decreased year over year to $2.1B in the qtr, on declining profits from reduced average sales price of its vehicles & an increase in operating expenses “partly driven by AI and other R&D projects.”  Spending on research & development increased to $1.09B from $810M a year earlier, though it was down from $1.16B in the prior qtr.  The stock tumbled 25.20 (12%).

Tesla shares drop 6% on weak auto revenue, warning of slower growth in 2024

Humana (HUM) plummeted after the health insurer issued dismal full-year earnings guidance, citing soaring medical costs that are dogging the broader insurance industry.  Those expenses have spiked as an increasing number of older adults return to hospitals to undergo procedures they had delayed during the pandemic.  HUM, which primarily provides gov-backed insurance through the Medicare Advantage program, expects adjusted EPS of about $16 for 2024, a little more than ½ of the $29.10 that was expected.  The guidance adds to concerns about health insurance company profits falling as medical costs jump.  Expectations for 2024 earnings guidance were already low after the company warned last week that medical costs were running higher than expected in the 4th qtr.  It signaled that higher expenses could cut into its profits in the year ahead.  HUM confirmed that pessimism, when it reported a medical benefit ratio, the percentage of payout on claims compared with premiums, of 90.7% for the 4th qtr.  Analysts had estimated that the ratio would be 89.7% for the period.  HUM posted 4th-qtr revenue of $26.5B, which beat the estimate of $25.4B.  But the company posted a loss of $4.42 per share in the 4th qtr.  That compares with a loss of 12¢ per share, during the same period a year ago.  Excluding certain items, HUM reported a loss of 11¢ per share.  Analysts had expected the company to post EPS of 15¢.  The stock plunged 46.64 (12%)

Humana stock plunges on dismal 2024 forecast, as insurers face soaring medical costs

Microsoft (MSFT), a Dow stock, is cutting 1900 roles within its gaming division, marking the latest round of job layoffs in the tech industry.  The cuts will primarily impact roles in its Activision Blizzard team.  Some Xbox & ZeniMax employees will also be laid off.  In total, the job cuts will impact 8% of the company's gaming division, which employs 22K people.  In an email to staff, Microsoft Gaming CEO Phil Spencer told employees that "the leadership of Microsoft Gaming and Activision Blizzard is committed to aligning on a strategy and an execution plan with a sustainable cost structure that will support the whole of our growing business."  Spencer continued by saying that the company has "set priorities, identified areas of overlap, and ensured that we’re all aligned on the best opportunities for growth."  The news comes just 3 months after the company closed its $69B purchase of Activision Blizzard after months of battling regulatory hurdles.  The stock rose 2.31.

Microsoft cuts 1,900 jobs in gaming division

Gold edged higher as Treasury yields fell after US GDP data highlighted that pace of inflation slowed, while focus shifted to inflation data for further hints on the Federal Reserve's interest rate cut strategy.  Spot gold rose 0.2% to $2015 per ounce & US gold futures settled $1 higher at $2017.  Benchmark 10-year Treasury yields slipped after the GDP data.  The US economy grew faster than expected in the 4th qtr amid strong consumer spending, with growth for the full year coming in at 2.5%.  The report also showed 4th-qtr inflation pressures subsiding.

Gold gains as Treasury yields drop after US GDP data

West Texas Intermediate (WTI) crude oil rose to the highest in nearly 2 month, a day after a report showed a big drop in US oil inventories & higher than expected 4th-qtr US economic growth while Middle East tensions again heightened.  WTI crude for Mar closed up $2.27 to settle at $77.36 per barrel, the highest since Nov 29, while Mar Brent crude, the global benchmark, was last seen up $2.11 to $82.15.  The rise follows on yesterday's report from the Energy Information Administration showing US oil inventories last week fell by a more than expected 9.2M barrels, while production in the week dropped by 1M barrels per day to 12.3M bpd as a polar vortex brought bitterly cold temperatures to much of the country.  Rising tensions in the Middle East are also offering support for higher prices.  Yemen's Iran-backed Houthi militants launched fresh attacks on Red Sea shipping as 2 ships carrying US military supplies were forced to retreat from the area due to nearby explosions.

WTI Crude Oil Rises After a Big Drop in US Inventories, Mideast Tensions and Strong US Growth

Downbeat earnings from high profile companies did not keep investors away from buying stocks.  However they suggest unsatisfactory earnings reports are coming.  For the time being, enjoy a higher stock market with the Dow inches from its recent record.

Dow Jones Industrials 

No comments: