The stock market rally suffered significant losses, especially later in the week, with giants Apple (AAPL), Facebook (FB), AMD (AMD) and Tesla (TSLA) among those falling on earnings. Microsoft (MSFT) rallied on accelerating growth. Novavax (NVAX) reported strong efficacy for its coronavirus vaccine, sending its stock soaring. Johnson & Johnson (JNJ) reported a good-but-not-stellar data for its one-shot vaccine. But investors’ attention was on the massive, volatile short-squeeze rallies for GameStop (GME), AMC Entertainment (AMC) and others, fueled by Reddit users.
Stock Market Rally Retreats
The stock market rally fell sharply on Wednesday and Friday, with the major indexes testing key moving averages. Apple stock reversed lower after earnings, leading the decline along with AMD, Facebook and, to a lesser extent, Tesla. Coronavirus vaccine maker Novavax (NVAX) soared. GME stock, AMC and short-squeeze names continued to explode higher but with enormous volatility.
GME Stock Squeeze Rally Continues
GME Stock, AMC Entertainment, Koss (KOSS), Express (EXPR), Bed Bath & Beyond (BBBY) and more continued to skyrocketed as a Reddit-led investor group spurred a massive attack on heavily shorted stocks. Intraday trading ranges were enormous. Brokerages restricted or halted, at least temporarily, trading in GME stock, AMC and several other securities, with Robinhood’s halt triggering huge losses on Thursday. But with Robinhood allowing some trading Friday, AMC stock and others vaulted again.
Apple Falls On Outlook Hints
Apple (AAPL) reported a 34% EPS gain to $1.68 a share with revenue up 21% to $111.44 in its fiscal Q1. Strong sales of iPhones, Mac computers, iPad tablets and wearables led the way. Apple didn’t offer EPS and sales guidance. But, it expects growth to slow in its Wearables, Home and Accessories unit and said services will face tough year-over-year comparisons. Apple stock dropped on the news.
Microsoft Growth Accelerates
Microsoft (MSFT) earnings rose 35% as sales grew 17% to $43.08 billion, the second straight quarter of accelerating growth for both and easily beating views. Revenue from its commercial cloud offerings, including Azure and Office 365, rose 34% year over year to $16.7 billion. Azure revenue leapt 50%. For the current quarter, Microsoft expects sales of $40.8 billion, up 16.5%, based on the midpoint of its outlook. Its guidance implied earnings per share of $1.75, up 25%. Both are above forecasts. Microsoft stock surged to a new high.
Tesla Misses Earnings, Sees Delivery Surge
Tesla (TSLA) stock sank 5% after missing Q4 earnings. It had EPS of 80 cents on sales of $10.74 billion. Revenue from regulatory credits shot up 202% to $401 million. Tesla delivered 499,647 in 2020, an all-time high. It expects 50% annual average growth in deliveries, with 2021 even faster. But it warned that a chip shortage affecting the auto industry could hurt Q1 production. Average selling price fell 11% as the sale mix shifted to cheaper Models 3/Y vs. the Models S/X, along with several price cuts. CEO Elon Musk confirmed the Model S Plaid and a new Model X version are coming in the next few weeks. Musk also said the Cybertruck likely won’t hit the market until 2022.
AMD Profit Margin Disappoints
Advanced Micro Devices (AMD) reported a 63% EPS gain with sales up 53% to $3.24 billion, beating views on strong sales of processors for PCs and servers. But its gross profit margin of 44.8% was slightly below consensus of 45%. Elsewhere in the semiconductor sector, Macom Technology Solutions (MTSI), Skyworks (SWKS) and STMicroelectronics (STM) delivered better-than-expected December-quarter results, which boosted their stocks.
Novavax, J&J Vaccine Data Released
Novavax (NVAX) said that its coronavirus vaccine is 89.3% effective in a late-stage trial in the U.K. But it was 95.6% effective vs. the original coronavirus strain and 85.6% effective vs. the U.K. strain that’s seen as highly contagious. A separate phase 2b trial found that it’s 60% effective vs. a South African variant seen as harder for current vaccines to treat. NVAX stock soared Friday. Meanwhile, Johnson & Johnson (JNJ) said its one-shot vaccine is 72% effective in the U.S., but less effective in trials in Latin America and South Africa. Already authorized vaccines from Pfizer (PFE) and Moderna (MRNA) need two shots spread out over a few weeks. The EU approved the AstraZeneca (AZN) vaccine, following the U.K.
Novavax skyrocketed Friday on its vaccine news. Moderna jumped to a new high but pared gains. J&J fell sharply.
ServiceNow, Atlassian Beat Views
ServiceNow (NOW) reported 22% EPS growth while revenue rose 31% to $1.25 billion, both beating views. Sales growth slowly accelerated for a second straight quarter. Atlassian (TEAM) reported fiscal Q2 EPS but topping estimates. Revenue climbed 23% to $501 million, also comfortably topping. The collaboration software maker added 11,617 net-new customers in the quarter, bringing its total to 194,334, up 17.9% from a year ago. Atlassian gave mixed guidance for the current quarter. NOW stock jumped on earnings but fell modestly for the week. TEAM stock held up on earnings but retreated for the week.
Facebook Warns Of Ad Changes
Facebook earnings jumped 52% while revenue climbed 33% to $28.1 billion, with growth accelerating for both. Daily active users climbed 11% vs. a year earlier to 1.84 billion. Facebook said it continues to face “significant uncertainty as we manage through a number of cross currents in 2021.” Apple and others are instituting changes that make ad targeting more difficult. But, Facebook expects revenue growth to remain stable or modestly accelerate in Q1 and Q2.
Industrial Giants Fall After Earnings
Caterpillar (CAT), Freeport-McMoRan (FCX) and Eastman Chemical (EMN) all pulled back to their 50-day averages — or worse — amid the market sell-off and doubts about whether Congress will quickly pass a massive infrastructure bill.
Construction and mining equipment giant Caterpillar blew past earnings estimates, thanks in part to a big tax benefit, but EPS still fell 22%. Revenue still fell nearly 15% to $11.235 billion. The good news is that dealer inventories fell a bigger-than-expected $1.1 billion in Q4 and should begin to recover in Q1, providing a slight tailwind.
Copper miner Freeport saw EPS surge to 39 cents vs. 2 cents a year ago, thanks to a full recovery in copper prices amid restrained supply and China’s early rebound. Revenue grew 14.9% to $4.495 billion. However, Freeport trimmed copper output expectations for 2021 and bumped up its outlook for incurred cost per pound.
Eastman Chemical earnings grew 19%. Revenue continue to recover sequentially but dipped 12% vs. a year earlier. Eastman noted improving demand in its transportation end market, despite weakness in aviation, and continued solid demand in building and construction.
Two Key IPOs Jump In Debuts
Shoals Technologies (SHLS) and Qualtrics International (MX) were the IPOs of the week, both topping expectations. Solar equipment company Shoals raised $1.9 billion as the stock jumped 24% in its debut to 30.98. Solar stocks have rallied since the election of President Biden, who made green energy initiatives a big part of his campaign. Qualtrics raised $1.55 billion as shares vaulted 52% to 45.50 in its first day of trading. The enterprise software platform was spun out of SAP (SAP).
GE Cash Flow Rebounding
General Electric (GE) offered a stronger-than-expected cash target for 2021, after cash flow surged 12% in the fourth quarter. GE turned cash-positive in 2020, a year ahead of schedule, reinforcing the views that it’s making progress in a long turnaround. For Q4, GE earnings fell 62% to 8 cents a share, with revenue down 16.5% to $21.9 billion. GE’s jet-engine business cratered, but the industrial giant’s power, health care and renewables businesses showed improvement or continued strength amid the pandemic.
Boeing Reports Huge Loss
Boeing (BA) reported a net loss of $11.9 billion and a core loss of $15.25 per share, far worse than consensus views for a loss of $1.78, as it booked $8.3 billion in pretax charges. Revenue fell 15% to $15.3 billion, topping views for $15.2 billion. The biggest Q4 charge was a $6.5 billion reach-forward loss on its 777X program. Boeing doesn’t expect the first delivery of the new widebody until late 2023. The aerospace giant saw a cash outflow of $4.27 billion, with 2020 overall seeing a nearly $12 billion cash drain. The disastrous Q4 results came as European air safety regulators approved the Boeing 737 Max’s return to service in the European Union. Shares fell.
Lockheed Martin (LMT) reported mixed Q4 results and guided 2021 earnings below consensus but was upbeat on hypersonic sales growth. Raytheon Technologies (RTX) beat Q4 estimates and predicted increases in shareholder returns Tuesday but gave mixed 2021 guidance as the aviation industry is expected to have a choppy recovery. Northrop Grumman (NOC) beat Q4 expectations Thursday.
Payment Companies’ Earnings Improve
American Express (AXP), Mastercard (MA) and Visa (V) beat forecasts, as consumer spending inches up. AXP had EPS of $1.75 on sales of $9.35 billion and said it expects to hit its pre-Covid profit goal in 2022. Mastercard posted EPS of $1.64 on revenue of $4.1 billion as gross dollar volume grew 1% but cross-border volume fell 29%. And Visa earned $1.42 per share on sales of $5.69 billion, fueled by a 5% rise in services revenue and a 6% increase in processing revenue. But international transaction revenue fell 28%. All 3 stocks fell for the week.
Verizon Communications (VZ) forecast 2021 revenue growth that met expectations while AT&T (T) sales guidance fell a bit short. Verizon added fewer wireless postpaid phone subscribers than expected in the December quarter while AT&T’s topped views. However, the results of a government auction of 5G radio spectrum remain the biggest issue for the telecom stocks. The winning bidders most likely will be disclosed in early March.
Abbott Laboratories (ABT) reported Q4 EPS rose 53% while sales grew 29% to $10.7 billion, including $2.4 billion from Covid-19 tests.
Polaris (PII) posted an 83% EPS surge, handily beating views. The ATV and motorcycle maker saw revenue rise 24% to $2.16 billion.
Boot Barn (BOOT) earnings rose 22% matching views. Sales climbed 7% to $302.3 million, up 7%, missing estimates. Overall same-store sales climbed 5%, with e-commerce comps up 16%.
Plug Power (PLUG) said it had exceeded its 2020 gross billings targets and is raising its outlook for 2021 to $475 million from a prior outlook of $450 million. Looking further ahead, management raised its 2024 gross billings target to $1.7 billion, up 40% from its prior outlook. The fuel cell company announced a $1.5 billion secondary stock offering after the market closed Tuesday.
American Airlines (AAL) and Southwest (LUV) reported smaller-than-expected fourth-quarter losses but continued struggles ahead, as airline stocks face a turbulent rebound from the coronavirus pandemic.
McDonald’s (MCD) reported weaker-than-expected fourth-quarter earnings, though U.S. demand was strong.
Starbucks (SBUX) reported mixed fiscal Q1 results and gave weak a Q2 outlook, despite a forecast for China same-store sales to nearly double.
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