Markets rise, led by Meta's strong earnings report

Dow advanced 244, advancers over decliners about 2-1 & NAZ jumped 201.  'The MLP index stayed in the 222s & the REIT index went up 3+ to the 365s.  Junk bond funds were being purchased & Treasuries saw heavy selling, driving yields higher.  Oil slid back pennies in the 74s after yesterday's sharp drop & gold was off 3 to 1992.

AMJ (Alerian MLP Index tracking fund)

 

 

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The US economy rose 1.1% in Q1, falling short of estimates, in a sign that a slowdown is underway.  It is also a big pullback from the Q4's 2.6% rise & Q3's 3.2% increase, according to the final estimate from the Bureau of Economic Analysis.  The read may present a conundrum for the Federal Reserve & Chair Jerome Powell, who frequently touts being data dependent, heading into next week's May meeting.  Economic activity has been choppy, at best, in recent weeks.  Durable goods orders for Mar rose 3.2%, the first increase in 3 months, blowing past expectations of just 0.7% growth.  However, spending at retail stores indicated the consumer has dialed back on spending.  Retail sales fell 1% in Mar from the prior month, more than expected.  Excluding autos, sales slipped 0.8%.  Consumer confidence, tracked by the Conference Board, slipped to a 9-month low in Apr.

US economy grew 1.1% in first quarter signaling slowdown

Patients who took Eli Lilly's (LLY) weight loss drug tirzepatide lost up to 34 pounds on average, or 16% of their body weight, the company said in clinical trial results.  LLY plans to complete its application for Food & Drug Administration approval of the drug in the coming weeks & expects regulatory action as early as later this year.  The FDA approved tirzepatide for Type 2 diabetes last year, but the drug is not cleared for weight loss.  The approval would open “up the opportunity for many more people to benefit from tirzepatide,” CEO David Ricks said.  He added that the drug sets a “new bar for weight loss and people with diabetes.”  The phase 3 trial followed 938 adults who were overweight & had type 2 diabetes.  Patients who took a 10 milligram version of the injection after 72 weeks lost nearly 30 pounds on average, while those who took 15 milligrams lost 34 pounds on average.  Patients in the placebo group who did not take the pill lost an average of 7 pounds.  About 86% of patients in the trial who took tirzepatide lost at least 5% of their body weight, compared to about 30% in the placebo group.  The level of average weight loss seen in the trial “has not been previously achieved in phase 3 trials for obesity or overweight and type 2 diabetes,” Jeff Emmick, senior VP of product development, said.  Tirzepatide also reduced levels of A1C, which measures the body's average blood sugar level over the past 3 months.  Higher levels of A1C are associated with a higher risk of diabetes complications.  The stock was up 7.56.
If you would like to learn more about LLY, click on this link:
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Lilly says obesity drug tirzepatide resulted in weight loss of up to 34 pounds

Meta (META) reported strong results, posting a beat on the top & bottom lines.  First-qtr EPS was $2.20, beating the estimate of $2.03 & revenue of $28.6B versus the $27.6B expected.  Growth in China advertising spend helped lift the company's Q1, with CFO Susan Li saying the bump “was due in part to dropping shipping costs and easing Covid lockdown for those advertisers.”  The rally was also driven by optimistic guidance for the current qtr.  The company expects Q2 revenue to be $29.5-32B.  As with other large-cap tech companies, analysts expect that artificial intelligence will be a positive point for META.  The stock jumped 30 (14%).
If you would like to learn more about META, click on this link:
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Meta shares pop 15% to 52-week high on guidance, sales increase

META is having a great day, but the GDP & other macro economic data is more important & that is sluggish which will give the FED plenty to talk about at their meeting next week.

Dow Jones Industrials

 

Markets slip lower on recession fears

Dow sank 228 (near session lows), decliners over advancers 2-1 & NAZ gained 55.  The MLP index was off about 1 to 221 & the REIT index fell 3+ to the 361s.  Junk bond funds inched higher & Treasuries were sold.  Oil gave back 2.94 & gold retreated 8 to 1885 (more on both below).

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General Motors (GM) is ready to move on from its top-selling electric vehicle to make room for larger models that run on new battery technology.  "We have progressed so far that it's now time to plan to end the Chevrolet Bolt EV and EU production, which will happen at the very end of the year,"  CEO Mary Barra said.  The Bolt, which starts at $26,500, accounts for more than 90% of all GM's domestic EV sales.  The factory north of Detroit where Bolt hatchbacks & small SUVs are made will be converted to make Chevrolet Silverado EV & electric GMC Sierra trucks that will run on the company's next-generation Ultium EV platform.  GM sold more than 38K Bolts last year, up from some 25K in 2011.  In the first qtr of 2023 alone, the company sold 19K of the models.  The Biden administration has touted the Bolt, which qualifies for a $7500 federal tax credit, as an example of an affordable EV.  Later this year, GM plans to roll out a Chevrolet Equinox EV small SUV with a starting price of around $30K.  The nation's largest automaker is also working with Honda to produce a lower-cost EV model.  The stock was off 70¢.
If you would like to learn more about GM, click on this link:
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GM to ditch its top-selling EV and shift to trucks

On the back of Q1 results that showed strong aircraft demand, Boeing (BA), a Dow stock, plans to increase output of 737 Max planes to 38 a month from 31 later this year, despite a manufacturing issue affecting some aircraft.  That production rate would be the highest in years for the bestselling aircraft & comes as BA seeks to get planes to airlines faster as those customers capitalize on a rebound in air travel.  The company expects to deliver 400-450 of its 737 planes this year.  “This is an important year for us,” CEO Dave Calhoun said.  “As demand surges across our markets, we must focus together on execution and meeting our customer commitments.”  BA is also planning to raise output of the 787 Dreamliner to 5 planes a month late this year from a current rate of 3.  The plans come as the company said aircraft demand& stronger deliveries boosted BA's revenue in Q1 with sales up 28% year over year.  The company narrowed its net loss to $425M (69¢ per share) from a year-earlier net loss of $1.24B ($2.06 per share).  Adjusting for special items, BA lost $1.27 per share, which was a wider loss than had been expected.  The company reported a $245M pretax charge on the company's KC-46A Tanker program tied to supplier issues.  Revenue in its commercial airplane unit rose 60% in Q1 to $6.7B as deliveries of new aircraft picked up, but the company said it was partially offset by 787 Dreamliner customer compensation for delivery delays.  The stock went up 81¢.
If you would like to learn more about GM, click on this link:
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Boeing plans to boost 737 Max production to 38 planes per month

Norfolk Southern (NSC) reported an initial $387M charge associated with the company's East Palestine, Ohio, derailment in Feb, which spilled toxic chemicals into the environment.  The charge resulted in a year-over-year decline in first-quarter profits.  Income from railway operations for the qtr was $711M, down 34% from the same period in 2022.  Excluding the East Palestine derailment, income from railway operations was $1.1B, up 1% compared to the same period the year prior.  Net income for the period fell to $466M ($2.04 a share) down from $703M ($2.93 a share) a year earlier. That comes despite a year-over-year jump in revenue of roughly 7% to $3.1B.  The earnings release reaffirmed CEO Alan Shaw's commitment to supporting cleanup efforts in Ohio, pledging roughly $24M in reimbursements and investments.  The National Transportation Safety Board is examining the company's organization & safety culture through a special probe into the company.  Those environmental cleanup efforts & remediation activities contributed to the reported $387M charge.  The charge also included anticipated EPA-issued oversight costs to reimburse the gov but does not include some anticipated legal costs related to cases such as a lawsuit brought by the state of Ohio, insurance recovery & recovery activities from other parties.  The stock dropped 6.01 (3%).
If you would like to learn more about NSC, click on this link:
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Norfolk Southern reports $387 million charge after East Palestine derailment

Gold futures declined to settle back below $2000 an ounce.  Worries about the US debt ceiling debate & weak regional bank earnings failed to provide enough support to keep prices for the precious metal above that key level.  Gold is destined for record price highs.  It is just a question of the path it will take.  But the short term is a difficult call.  Gold for Jun fell $8 to settle at $1996 an ounce, after touching an intraday high of $2020.

Gold Futures Settle Back Below $2,000 an ounce

US crude prices finish sharply lower after a volatile trading day, settling down 3.6% at $74.30 a barrel, the lowest closing price since Mar 29.  Crude prices began the NY session lower amid rising risk aversion & worries about a recession, only to rebound into positive territory mid-morning after a mostly bullish weekly EIA report.  But prices then turned lower again & sold off heavily just before the closing bell.  The recession clouds are mostly behind the drop in prices. 

Oil Prices End at 4-Week-Low on Recession Fears

Banking worries & increasing the debt ceiling are being watched closely.  And earnings are generally underwhelming which keeps recession thoughts active.

Dow Jones Industrials 

Markets edge lower as traders watch First Republic and debt talks

Dow lost 31, advancers barely ahead of decliners & NAZ rose 133.  The MLP index was even at 223 & the REIT index was up fractionally higher in the 363s.  Junk bond funds had some buying & Treasuries saw a little selling.  Oil slid back to the 76s & gold went up 4 to 2009.

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House Rep leaders were still aiming to pass legislation this week that raises the debt ceiling & cuts federal spending, after spending hours behind closed doors & agreeing to some changes in order to secure passage of the most important piece of legislation so far under House Speaker Kevin McCarthy's tenure.  The touch-&-go nature of the vote could be seen throughout yesterday, as McCarthy & others said late in the day that a vote would be held "this week" after several GOP lawmakers said earlier a vote was expected today.  When asked about timing, McCarthy said, "We always said we're going to vote this week, so we're just working through, and we'll take it up."  While GOP leaders resisted changes to the bill, they relented in the early hours today & agreed to tweak the bill in ways they hope will secure the votes needed for passage.  It still was not clear which day this week the vote would take place.  The Limit, Save, Grow Act was unveiled last week amid a tense standoff over the debt limit between House Reps & the Dems in the White House & Senate.  It would cap federal spending at fiscal year 2022 levels & increase work requirements to receive federal benefits, among other measures.  It would also raise the gov's borrowing limit thru the end of Mar 2024 or by $1.5T – whichever benchmark is hit first.  On the left, Dems have insisted on nothing but a "clean" debt ceiling increase without attaching spending cuts.  However, it became clear last week that not every Rep was on board, & with just a thin majority in the House, the Speaker can only afford to lose 4 votes to still pass the bill.

GOP pushes ahead with debt ceiling vote after late-night negotiating

First Republic (FRC) stock sank again today as investors kept an eye on a potential rescue deal for the troubled regional bank.  Shares extended losses of nearly 50% yesterday.  The stock is down more than 90% YTC & hit an all-time low today, being halted multiple times for volatility.  This week's drop for FRC comes after the lender Mon said it lost roughly 40% of its deposits in Q1.  FRC was seen by customers & investors alike as a risky bank after the collapse last month of Silicon Valley Bank, which had a similar financial profile.  FRC also said in its quarterly report Mon that it was reviewing strategic options to help reshape its balance sheet.  The steep decline in deposits came despite a group of 11 larger banks infusing $30B of deposits into FRC in an attempt to instill confidence & prevent bank runs from spreading.  Advisors to FRC are trying to convince at least some of those banks to provide further support by buying some of its assets at above-market rates.  Those purchases would result in losses for the other banks, but FRC's advisors are trying to sell the banks on the idea that letting FRC would be even more expensive if it led still higher regulatory costs & fees.  Sources said today that gov officials are currently unwilling to intervene in the FRC rescue process.  The stock sank 1.63 (20%).
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First Republic’s dramatic slide continues, stock falls 35% as bank looks for rescue deal

The recent softening in house prices may be helping homebuyers swallow higher mortgage rates.  Despite a rise in rates last week, demand for mortgages rebounded.  Total mortgage application volume rose 3.7% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) increased to 6.55% from 6.43%, with points remaining at 0.63 (including the origination fee) for loans with a 20% down payment.  “Although incoming data points to a slowdown in the U.S. economy, markets continue to expect that the Fed will raise short-term rates at its next meeting, which have pushed Treasury yields somewhat higher,” wrote Joel Kan, MBA's deputy chief economist.  “As a result of the higher yields, mortgage rates increased for the second straight week to their highest level in over a month.”  Despite higher rates, mortgage applications to buy a home, which had plummeted the week before, rose 5% last week.  They were, however, 28% lower than the same week one year ago.  Homebuyers today are seeing house prices ease & that may be boosting demand.  While prices are still higher than they were a year ago on a national basis, some of the most expensive metropolitan markets are now seeing prices lower than a year ago.  7 states — California, Washington, Montana, Idaho, Nevada, Utah & Oregon — as well as the DC, all reported lower prices in Feb compared with Feb 2022, according to CoreLogic.  Applications last week to refinance a home loan increased 2% from the previous week & were 51% lower than the same week a year ago.  One year ago, the average rate on the 30-year fixed was 5.37%, but in 2021 rates were in the low 3% range, so the vast majority of borrowers already have much lower rates than those offered today.  Mortgage rates fell slightly to start this week, as investors digested news of regional bank earnings as well as concern over the debt ceiling.

Mortgage demand rebounds, even as interest rates hit the highest level in over a month

These are trying times for nervous investors.  Besides concerns about what new earnings reports will say, FRC & debt negotiations are getting a great deal of attention.

Dow Jones Industrials