The S&P 500 has been running at stall speed for most of the week, reportedly waiting to see the earnings reports for the mega-cap companies, most of which report next week. Tesla (TSLA), however, reported last night and it appears investors didn’t love what they heard.
Shares of TSLA are down 8.9% in pre-market action. That moves follows an in-line report for Q1 that featured a 21.0% automotive gross margin, a view that pushing for higher volumes (via price cuts) and a larger fleet is the right choice here versus a lower volume and higher margins, and Elon Musk saying he expects 12 months of “stormy weather” in the economy.
For a stock that has risen 47% this year, versus an 8.2% gain for the S&P 500, that report and outlook didn’t exactly come across as perfection and Tesla seems to be paying the price for it — for now anyway.
In any case, the reaction to Tesla’s report has cast a pall on the broader market along with some other disappointments that include an earnings miss from Dow component American Express (AXP), an earnings miss and deposit decline reported by Zions Bancorporation (ZION), weaker-than-expected fiscal Q4 guidance from Lam Research (LRCX), some underwhelming FY23 guidance from AT&T (T), and Taiwan Semiconductor Manufacturing Co. (TSM) saying its Q1 business was impacted by weakening macroeconomic conditions and softening end market demand and that it expects to continue to be impacted in Q2 by customers’ further inventory adjustment.
Some companies, though, shared better news. Dow component IBM (IBM) topped Q1 earnings estimates, homebuilder D.R. Horton (DHI) easily surpassed Q1 earnings estimates and raised its FY23 revenue outlook above consensus, tool company Snap-On (SNAP) breezed by analysts’ Q1 consensus EPS estimate, and used-car dealership AutoNation (AN) also blew past earnings expectations.
The sum of the earnings parts, though, isn’t adding up today to a positive bias.
Currently, the S&P 500 futures are down 28 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 112 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 170 points and are trading 0.5% below fair value.
The current that seems to be flowing beneath it all is economic slowdown concerns, which itself feeds into earnings concerns. This morning’s economic data has generated some “stormy weather.”
Initial jobless claims for the week ending April 15 increased by 5,000 to 245,000 (Briefing.com consensus 242,000) while continuing jobless claims for the week ending April 8 increased by 61,000 to 1.865 million.
The key takeaway from the report is that continuing jobless claims are at their highest level since November 27, 2021, suggesting it is becoming more challenging to find new employment after a layoff.
Separately, the April Philadelphia Fed Index slumped to -31.3 (Briefing.com consensus -20.0) from -23.2 in March. That is the eighth straight reading in negative territory for this manufacturing survey and the lowest reading since May 2020. The dividing line between expansion and contraction for this report is 0.0.
With the diffusion index for general activity running at -1.5 (versus -8.0 in March), the key takeaway from the report is that respondents’ expectations for growth over the next six months remain subdued.
The Treasury market seems to be looking at the growth outlook as being subdued as well in the wake of the latest earnings and economic news. The 2-yr note yield is down nine basis points to 4.17% even though New York Fed President Williams (FOMC voter) signaled his support for another rate hike at the May FOMC meeting, according to The Wall Street Journal, and the 10-yr note yield is down six basis points to 3.54%.
The notion that the economy is slowing but that Fed officials are still suggesting more rate hikes are needed to cool inflation is what has the broader market on edge about a sharper economic slowdown coming to fruition because of a Fed policy mistake. The knock-on effect is that market participants are questioning how much they want to pay for earnings going into stormy weather, so the run to 4,200 for the S&P 500 has been stalled.
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Originally Posted April 20, 2023 – S&P 500 rebound effort stalls on slowdown concerns
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