Commentary

Stock indexes snap their losing streak as Q1 2024 earnings kick into high gear. Over 150 S&P 500 companies are scheduled to report this week, including some of the world’s largest tech companies. The earnings season has so far delivered mixed results, though only about 15% of S&P 500 companies had reported by the start of this week.

Some of the not-so-positive results have been delivered by chip companies which has in turn created some new concerns about a slowdown in AI momentum and how that might impact upcoming big tech results.

Tesla today is the first of the “Magnificent Seven” group of companies to report, which also includes Google-parent Alphabet, Amazon, Apple, Facebook-parent Meta Platforms, Microsoft, and Nvidia. Tesla’s stock is already sitting at a 15-month low as recent price cuts and layoffs have added to ongoing concerns about the company’s direction.

Earnings are expected to be down some -40% year-over-year while revenue is expected to slide more than -5%. The company missed on both profit and revenue the previous two quarters. Tesla’s troubles are mostly specific to the electric vehicle industry, so any negative news the company delivers shouldn’t impact expectations for big tech companies.

Tesla reports after the market close so any market reaction will be delayed until Wednesday’s open. Tesla results will be followed by Meta (Facebook) on Wednesday and Alphabet and Microsoft on Thursday, all three of which are expected to deliver double-digit growth.

Bears however, warn that the more critical problem for most big tech companies is that not only are Wall Street expectations high, investors also expect these companies will beat those expectations. Meaning unrealistic outlooks could be setting tech stocks up for a tumble, even if they deliver solid results.

Some Wall Street insiders point out that investors have been branching out beyond big tech as expectations for double-digit growth later this year have expanded to other S&P 500 companies that have not benefitted as much from the latest rally. In other words, Wall Street may be ready to put a bigger premium on “quality” and “value”, rather than growth, especially with interest rates set to remain higher than most had been anticipating.

Other earnings due today include Baker Hughes, Canadian National Railway, Chubb, CoStar, Danaher, GE Aerospace, General Motors, Halliburton, KimberlyClark, Lockheed Martin, NextEra Energy, Novartis, PepsiCo, RTX Corp, Sherwin Williams, Spotify Texas Instruments, UPS, and Visa. Economic data today includes New Home Sales, the Richmond Fed Manufacturing Index, and PMI Composite Flash.

As Electric Vehicles Get Cheaper and Cheaper... This Might Just Be the Turning Point:  How do most things happen... gradually, then all at once? With this in mind, we might soon be turning the corner in regard to electric vehicle sales. A new report from used-car retailer CarMax shows that monthly searches for electric vehicles have been rising steadily since 2021. Despite the consumer not yet buying in massive waves the interest is clearly building. The biggest spike happened in March 2022, when gas prices went up to $4.20 per gallon following the Russian invasion of Ukraine. Interest has remained high over the last two years as prices for used EVs have fallen faster than prices for used gas-powered cars, according to data from Cox Automotive, the automobile-industry researcher that owns Kelley Blue Book. The average price for a used electric vehicle has fallen by nearly half from its 2022 peak to $33,645, and is now just slightly more than the average price for a used car with an internal-combustion engine, which now stands at $32,030. For car shoppers thinking about buying a used EV, there are some factors to consider, according to experts. Here’s how shopping for a used EV differs from shopping for a used gas-powered car. New EVs have traditionally been more expensive to buy on average than new gas cars, but in the long run, electric cars save their owners money on fuel and maintenance. The average EV owner spends -60% less than owners of gas cars to power their vehicle and half as much to repair and maintain their vehicle, “with much of that savings benefiting used-car buyers,” according to Consumer Reports. Over the life of the vehicle (defined as 200,000 miles), this adds up to +$6,000 to +$12,000 in savings.  Source Market Watch

Move Aside Big Banks, Giant Funds Now Rule Wall Street: Giant investment companies are taking over the financial system. Top firms now control sums rivaling the economies of many large countries. They are pushing into new business areas, blurring the lines that define who does what on Wall Street and nudging once-dominant banks toward the sidelines. The firms - such as Blackstone, Franklin Templeton, BlackRock, and KKR - are becoming more complex and more similar to one another all at once. Investors say this creates risks that markets have never encountered before. Fund-manager executives insist the expansion, as striking as it is, remains in its early innings. Good news for them because fast growth is bringing them vast wealth, especially in private, or “alternative,” investing. Private equity has minted more billionaires than any other industry in recent years, according to data from Forbes. In 2008, U.S. banks and fund managers were roughly neck and neck at about $12 trillion of assets. Today, traditional asset managers, private-fund managers and hedge funds control about $43.5 trillion, nearly twice the banks’ $23 trillion. Public-fund managers became so huge mostly by offering low-fee mutual and exchange-traded funds that track indexes. Four of the biggest—BlackRock, Fidelity, State Street and Vanguard—control about $26 trillion, equivalent to the entire annual U.S. economic output. Meanwhile, private-equity fund managers took 41 spots on Forbes magazine’s list of U.S. billionaires published this month, more than any other profession. The investors make up 5.5% of all the country’s billionaires, almost twice the 3% they comprised just 10 years ago.  Source WSJ

Luxury Home Prices Hit All-Time Record:  Real estate is increasingly a tale of two markets — a luxury sector that is booming, and the rest of the market that continues to struggle with higher rates and low inventory. Overall real estate sales fell 4% nationwide in the first quarter, according to Redfin. Yet, luxury real estate sales increased more than 2%. Nearly half of all luxury homes, defined by Redfin as homes in the top 5% of their metro area by value, were bought with all cash in the quarter. That is the highest share in at least a decade. In Manhattan, all-cash deals hit a record 68% of all sales. The flood of cash is also driving up prices at the top. Median luxury-home prices soared nearly 9% in the quarter, roughly twice the increase seen in the broader market, according to Redfin. The median price of luxury homes hit an all-time record of $1,225,000 during the period.  Source Redfin & CNBC

Discounts Grow as Cars Pile Up at Dealerships: Car dealerships started March with 2.74 million new cars in stock. They ended it with 2.77 million, despite brisk sales. Car sales always pick up in spring as tax return season begins. But this year, it wasn’t enough to offset high production at some factories. That means many dealers have more cars on the lot than they’d like. Car dealers measure their stock in days of inventory – how long it would take them to empty the lot at today’s sales pace if they didn’t acquire more. Traditional industry practice tells them to aim for 60. The average dealership today has 72. That means discounts on many new cars. The price of the average new car fell to nearly a 2-year low in March, at $47,218. Incentives made up 6.6% of that price – more than double the discounts common a year ago. With inventory still high, the figure is likely to grow this month. The situation changes, however, from brand to brand as well as between price points.  Source MarketWatch

Cutting the Data Spigot Overseas Goes Beyond TikTok: TikTok isn’t the only way China could track Americans’ online lives. All of your newsfeed scrolling, online shopping and QR-code scanning generates reams of data that can be packaged and analyzed by data brokers, and then sold to just about anyone — including foreign governments. TikTok has been the big worry in Washington, resulting in legislation headed for final passage by the Senate this week meant to force the video platform’s Beijing-based owner, ByteDance, to sell it or face a US ban. But Congress is also trying to address other data flows. Tucked inside the package that includes the TikTok divest-or-ban bill is a provision which would make it illegal for data brokers to sell or send personally identifiable or sensitive data of US users to entities controlled by a foreign adversary, like China  Source Bloomberg

Offshore Drilling Grows as US Shale Gets Left Behind: One of the primary oil themes in recent years is the US ascendancy to become the world’s largest producer. But the industry’s biggest contractors are looking elsewhere for growth. Persistently low natural-gas prices, corporate consolidation and conservative spending plans are conspiring to shrink the once-booming market for drilling and fracking in the US shale patch, SLB Chief Executive Officer Olivier Le Peuch said. Demand for oilfield services is growing elsewhere, particularly offshore and in the Middle East. After the collapse in spending following the pandemic, international markets are in the midst of a multiyear expansion in capital expenditures. For SLB — and peers Halliburton Co. and Baker Hughes Co., which both report earnings this week — the weakness in shale was foreseen. Post-coronavirus, companies started heeding investor calls to prioritize the return of cash instead of expanding production. The big oil-services providers pivoted overseas in search of growth. The trend seems to be intensifying. This year has seen more US shale producers announce plans to merge, which typically means less spending with contractors. The services sector is also taking a hit from the slump in natural gas prices that prompted some drillers to cut production. And to top it all off, the closely watched stock of predrilled wells, known as the fracklog, reversed course last month, indicating a further slowdown to come in the shale patch. Source Bloomberg

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