Wall Street Breakfast: What Moved Markets

Top News Shutterstock Stocks fell broadly Friday, as investors took profits following a flurry of earnings reports, including a blowout quarter from Amazon, and another batch of strong economic data. Stocks finished near session lows after the U.S. government said it would bar most travel between the U.S. and India beginning next Tuesday. Dallas Fed President Robert Kaplan said signs of excess risk-taking in financial markets show it is time for the Federal Reserve to consider reducing its massive bond purchases, echoing earlier comments by Fed Chair Jerome Powell. For the week, the S&P eked out a slim gain while the Dow and Nasdaq fell slightly, but all three benchmarks posted sharp gains for April, with the S&P and Nasdaq both up more than 5% and the Dow lagging with a 2.7% gain.       Read in Browser LISTEN TO TODAY'S PODCAST AVAILABLE AT 8AM ON:                Top News Shutterstock Stocks fell broadly Friday, as investors took profits following a flurry of earnings reports, including a blowout quarter from Amazon, and another batch of strong economic data. Stocks finished near session lows after the U.S. government said it would bar most travel between the U.S. and India beginning next Tuesday. Dallas Fed President Robert Kaplan said signs of excess risk-taking in financial markets show it is time for the Federal Reserve to consider reducing its massive bond purchases, echoing earlier comments by Fed Chair Jerome Powell. For the week, the S&P eked out a slim gain while the Dow and Nasdaq fell slightly, but all three benchmarks posted sharp gains for April, with the S&P and Nasdaq both up more than 5% and the Dow lagging with a 2.7% gain.       Earnings Big Tech About a third of S&P 500 companies updated investors with their Q1 results this week, led by mega-cap tech names, or the FAAAM (or FAAMG) stocks: Alphabet - Net profits at Google's parent company surged by a whopping 162% last quarter, while revenue soared 34% to a record $55.3B. Pandemic factors helped drive up earnings like coronavirus lockdowns, online shopping and YouTube watching. That led to lots of clicking on ads purchased by retailers, which have increasingly turned to digital commerce as people stopped coming through the door during COVID-19. Alphabet's (GOOG, GOOGL) stock rose 4.2% to $2,400 after the results, while the tech giant's board authorized the repurchase of up to $50B of stock. (85 comments) Microsoft - The company reported fiscal Q3 revenue of $41.71B, up 19% on the year, as well as the company's largest quarterly revenue growth since 2018. "Over a year into the pandemic, digital adoption curves aren't slowing down. They're accelerating, and it's just the beginning," said CEO Satya Nadella. Microsoft (MSFT) also posted strong growth in gaming and the cloud, and guided to the upside for FQ4 revenues, but the stock didn't put up the big gains seen at Alphabet. MSFT shares slipped 2.6% AH to $255, as Azure growth came in line with analyst estimates on a constant currency basis. (31 comments) Apple - The stock climbed 2.5% to $137 after fiscal second-quarter earnings easily topped expectations on top and bottom lines as well as across business units. EPS of $1.40 beats estimates by $0.42, while revenues jumped nearly 54% to $89.6B, well ahead of consensus for $77.3B. The company declared a dividend hike of 7% (to $0.22/share) and an increase of $90B to an existing share repurchase program (two sources of return closely watched by shareholders). Apple (AAPL) also reported double-digit growth in every single one of its product categories, while its most important product line, the iPhone, was up 65.5% from last year. (348 comments) Facebook - The social network joined the rally, soaring 6% following a Q1 report where it blew ahead of financial metrics and delivered user growth in line with expectations. Total revenue rose 48% to $26.2B, while net income skyrocketed 94% to $9.5B. "We had a strong quarter as we helped people stay connected and businesses grow," announced CEO Mark Zuckerberg. "We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas like augmented and virtual reality, commerce, and the creator economy." Of particular note was Facebook's (FB) ad business, where sales were driven by a 30% increase in average price per ad along with a 12% gain in the number of ads delivered. (65 comments) Amazon - Bolstered by sustained demand, the company's first quarter earnings blew through expectations, but a rumored stock split was not announced. Shares gained 2.4% to reach the $3,550 level as Q1 profits more than tripled to $8.1B, while revenues topped $100B for the second straight quarter. A bullish forecast was also issued for Q2, with Amazon (AMZN) predicting sales of between $110B and $116B (24%-30% growth), exceeding analysts' expectations. Almost half of Amazon's operating income came from AWS - the company's cloud services division - which got a boost from recent work-from-home trends, while Prime Video's streaming hours were up over 70% on the year. (160 comments)       Earnings Tesla recap There was also a lot to unpack following Tesla's (TSLA) Q1 results, though it was an all-around record quarter for the EV maker. The company reported record net income of $438M, as well as earnings of $0.93 per share (vs. $0.77 consensus) on $10.39B in revenue (vs. $10.29B consensus). The numbers were buoyed by sales of Bitcoin (BTC-USD) and regulatory credits, as well as rising margins and decreasing costs, but the stock fell as much as 3% AH as investors digested some forecasts. What happened? Besides the usual earnings day volatility, Elon Musk and CFO Zachary Kirkhorn both said supply chain issues will likely to remain a challenge for Tesla this year, though it had weathered past industry chip shortages in part by "pivoting extremely quickly to new microcontrollers, while simultaneously developing firmware for new chips made by new suppliers." The company also said it produced none of its higher-end Model X SUVs and Model S sedans for the period ending March, and deliveries of the vehicles will only start in Q3 of 2020 and May 2021, respectively. Scaling up production at its Shanghai factory was also a problem because it couldn't get "critical engineers" due to pandemic restrictions, but progress is being made there, as well as Gigafactories in Berlin and Austin. Cameras, not radar... "Our AI-based software architecture has been increasingly reliant on cameras, to the point where radar is becoming unnecessary earlier than expected," added Musk. "As a result, our FSD [Full Self-Driving] team is fully focused on evolving to a vision-based autonomous system and we are nearly ready to switch the US market to Tesla Vision."

Crypto biz: Tesla execs noted that the company trimmed 10% of its Bitcoin position by the end of the quarter after investing $1.5B in the crypto (profit was about $101M). It is still optimistic about the space and plans to be a long-term investor in Bitcoin, but an ensuing battle took place on Twitter. Dave Portnoy lambasted Musk for what he saw as a pump and dump scheme, saying he "didn't want to be the last one #HODLing the bag." Musk then fired back, telling Portnoy he didn't sell any of his own Bitcoin, and that Tesla only unloaded a small portion "to prove liquidity of Bitcoin as an alternative to holding cash on the balance sheet." (532 comments)

     

Economy Fed, inflation and GDP Fed Chair Jay Powell painted a rosy picture of the U.S. economy on Wednesday, but showed no sign that the central bank would change monetary policy anytime soon due to the "uneven and far from complete" recovery. That's good news for investors, who had been watching if the Fed would budge after a series of positive economic reports. "It will take some time before we see substantial further progress," Powell added, choosing not to focus on steps that would be needed to eventually withdraw monetary support. Bigger picture: Despite the dovish tone, stocks dipped during the post-FOMC meeting news conference as Powell addressed the topic of financial stability. "You are seeing things in the capital markets that are a bit frothy. That's a fact. I won't say it has nothing to do with monetary policy, but it also has a tremendous amount to do with vaccination and reopening of the economy." He also reiterated that any increases in inflation are likely to be transitory - and would ease after supply chain issues subside - but others see possible consequences. Analyst commentary: "All arrows are pointing to another increase in inflationary pressures. Keep in mind, the Fed knows this; they are prepared for it," cautioned Patrick Leary, chief market strategist at Incapital. "While I won't say whether or not the inflation we are seeing right now will indeed be transitory or more sustained, I am willing to bet that it will go higher and persist longer than the market will tolerate." Meanwhile, the S&P 500 closed at another record high on Thursday after robust U.S. growth figures. The first snapshot of first-quarter GDP detailed an expansion of 6.4%, beating estimates of a 6.1% annualized rate, as households and the government shelled out big bucks on retail items, vaccines and aid to businesses. That left the world's largest economy within 1% of its peak reached in late 2019, just before the coronavirus pandemic came to the U.S. The Labor Department also revealed that 553,000 new weekly jobless claims were filed in its latest report, marking another pandemic low.

Trending American Families Plan President Biden's "Build Back Better" agenda was on display Wednesday evening as he addressed the nation following his first 100 days in office. At the heart of the speech was the "American Families Plan," the second stage of a multi-trillion-dollar investment proposal. The first part, called the "American Jobs Plan," was released at the end of March and would be funded by a corporate tax hike. That bill is currently working its way through Congress, though the administration is prepared to push it through without GOP support. Meet the "American Families Plan": The proposal is being referred to as an investment in so-called human infrastructure like child care, health care and education. It would be paid for by hiking taxes on the wealthiest 1% of Americans, most notably a near doubling of the capital gains tax rate on incomes above $1M to 39.6%. The top income tax bracket for households earning more than $400,000 is also expected to return to 39.6% (where it had been before the 2017 tax cuts). As for the details of the bill, it would include free preschool for all three- and four-year-olds, and require that all pre-kindergarten teachers earn at least $15 per hour. It would also expand the Child Tax Credit through 2025, in addition to extensions for the Earned Income Tax Credit and subsidies in the Affordable Care Act. Paid family and medical leave are among other benefits, as well as education programs that include free community college. Outlook: The White House has portrayed the plans as a Robin Hood-style endeavor to tax the rich in order to spend on the middle class and poor. A lot would need to be collected in order to pay for the two infrastructure proposals, which add up to a massive $4T. They also come on top of the $1.9T "American Rescue Plan" passed in early March to combat COVID-19. Legislative aides say Democrats plan to use reconciliation to move Biden's plans through Congress, but it remains unclear what pieces will make it through to the final package. (84 comments)

Events 'Capitalist Woodstock' The "Woodstock of Capitalism" is going virtual for a second year, as the company run by 90-year-old billionaire Warren Buffett continues to take precautions to prevent the spread of COVID-19. Berkshire Hathaway's (BRK.A, BRK.B) annual meeting will take place today, and move to Los Angeles, enabling Warren Buffett's 97-year-old business partner Charlie Munger to attend without traveling. Also sharing the virtual stage with the two nonagenarians will be vice chairmen Gregory Abel and Ajit Jain. Snapshot: Last year, Buffett and Abel gave shareholders some sense of how the company's businesses were handling the downturn caused by the pandemic. A year on, shareholders will likely get more details on which businesses are hurting and which are profiting. Berkshire Hathaway's businesses span the economy, owning businesses in transportation, utilities and energy, retail, and insurance and reinsurance. A perennial topic of interest is where Buffett plans to spend the cash sitting on the company's balance sheet. As of Dec. 31, 2020, Berkshire had cash, cash equivalents, and short-term investments of $138.3B. "We expect capital management will again be a key topic at this year's annual meeting," UBS analysts led by Brian Meredith wrote in an April 26 note, estimating that the company bought back ~$5B of shares in Q1. Questions about potential acquisitions are also sure to come up, but amid increased competition from SPACs, Buffett already eased up on talk about an "elephant-sized" acquisition in his annual letter to shareholders. Instead, he's content to take stakes in large well-run companies like Apple (AAPL), the biggest holding in its stock portfolio. Go deeper: Not known for friction with its shareholders, Berkshire also faces two shareholder proposals this year - one on diversity and inclusion and the other on climate change. Glass Lewis, a proxy advisory firm, is recommending that shareholders approve both. Another shareholder advisory firm, ISS, is recommending that shareholders withhold votes for four board members due to concern over executive pay policies. (11 comments)

U.S. Indices Dow -0.5% to 33,875. S&P 500 +0.1% to 4,181. Nasdaq -0.4% to 13,963. Russell 2000 -0.3% to 2,265. CBOE Volatility Index +7.4% to 18.61. S&P 500 Sectors Consumer Staples -0.1%. Utilities -0.6%. Financials +3.4%. Telecom +3.8%. Healthcare -1.6%. Industrials +1.%. Information Technology -0.7%. Materials +1.1%. Energy +6.5%. Consumer Discretionary +0.6%. World Indices London +0.5% to 6,970. France +0.2% to 6,269. Germany -0.9% to 15,136. Japan -0.7% to 28,813. China -0.8% to 3,447. Hong Kong -1.4% to 28,675. India +1.9% to 48,782. Commodities and Bonds Crude Oil WTI +2.2% to $63.48/bbl. Gold -0.5% to $1,768.6/oz. Natural Gas +7.6% to 2.938. Ten-Year Treasury Yield -0.3% to 132.1. Forex and Cryptos EUR/USD -0.65%. USD/JPY +1.27%. GBP/USD -0.41%. Bitcoin +15.8%. Litecoin +21.5%. Ethereum +27.8%. Ripple +51.4%. Top Stock Gainers Brooklyn ImmunoTherapeutics (NYSEMKT:BTX) +208%. Vaxart (NASDAQ:VXRT) +94%. Regional Health Properties (NYSEMKT:RHE) +79%. Image Sensing Systems (NASDAQ:ISNS) +52%. Ashford Hospitality Trust (NYSE:AHT) +46%. Top Stock Losers Adverum Biotechnologies (NASDAQ:ADVM) -59%. Protagenic Therapeutics (NASDAQ:PTIX) -54%. Cara Therapeutics (NASDAQ:CARA) -51%. Protalix BioTherapeutics (NYSEMKT:PLX) -46%. Tiptree (NASDAQ:TIPT) -33%. Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

Download Seeking Alpha for your Phone or Tablet



Like Wall Street Breakfast? Try our other newsletters as well.

This email was sent to you because you signed up to receive Wall Street Breakfast.
If you do not want to receive Wall Street Breakfast emails, click here to unsubscribe.

Sent by Seeking Alpha, 52 Vanderbilt Avenue, 13th floor, New York, NY 10017

Share this

Share on FacebookPlus on Google+