Stock Market Rally Extends Pause Amid Hot Inflation; Tesla, Shopify, Airbnb In Focus: Weekly Review

The stock market rally continued to consolidate, with the major indexes falling to the bottom or below their recent ranges on Friday as Fed fears mounted. Consumer and wholesale inflation came in hotter than expected, along with retail sales. Earnings remained heavy. Arista Networks (ANET), Monday.com (MNDY), GlobalFoundries (GFS), Airbnb (ABNB), Crocs (CROX) and Allison Transmission (ALSN) jumped on earnings, but Shopify (SHOP) and Toast (TOST) tumbled on results. Tesla (TSLA) recalled over 262,000 EVs for Full Self-Driving flaws that could cause crashes.

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Stock Market Rally Faces Fed

The stock market rally started the week strong, but the major indexes turned mixed as hot inflation readings raised Fed rate hike forecasts. The S&P 500 and Dow Jones are dipping below their recent ranges, but the Nasdaq is still holding. Many leading stocks flashed buy signals, often tied to earnings, but several faltered late in the week. The 10-year Treasury yield is marching toward as investors price in more Fed rate hikes. That’s also pushing up the dollar. Oil and commodity prices skidding on demand concerns and the higher greenback.

Inflation Running Hot

The latest barrage of economic data may be a game-changer. Following hot jobs data in the prior week, retail sales, two inflation reports, manufacturing output and jobless claims all came in stronger than expected. Wall Street took notice. Markets are now pricing in strong odds of three more quarter-point rate hikes, not just two. Odds are even creeping higher that the next hike in March may be a half-point. The consumer price index rose 0.5% from the prior month, after two muted increases of 0.1% and 0.2%. The core CPI rose 0.4%. The nonhousing services categories that the Fed cares most about also showed strength. The producer price index showed wholesale prices up 0.7%, a one-month increase about as big as the cumulative rise over the prior four months. Strong retail sales, up 3% overall and 2.3% excluding autos, added to concern that inflation may remain firm. The Fed’s industrial production report showed manufacturing output bouncing 1% in January after two even-bigger monthly declines. Jobless claims unexpectedly dipped to 194,000, holding under 200,000 for a fifth-straight week. That hadn’t happened since last spring.

Arista, Cisco Jump On Earnings, Guidance

Boosted by cloud computing customers, Arista Networks (ANET) said Q4 earnings surged 72%, easily topping views, with growth accelerating for a fifth straight quarter. Revenue jumped 55% to $1.275 billion, also topping. Arista guided slightly higher for Q1. Larger rival Cisco Systems (CSCO) reported fiscal Q2 EPS up 5% while revenue rose 7% to $13.6 billion, both modestly topping. Cisco guided Q3 EPS higher. January quarter order growth slid 22% while backlog fell 6% sequentially.

Economy Turns Right Side Up; What That Means For The Fed And S&P 500

Software

Monday.com (MNDY) reported Q4 earnings leapt 269% while revenue was up 57% to $149.9 million, topping estimates. The maker of project management software forecast Q1 revenue above consensus.

Datadog (DDOG) reported Q4 EPS up 30% with revenue jumping 44% to $469 million, both beating. But the app monitoring software maker guided low for Q1.

Toast (TOST) reported a larger-than-expected Q4 loss. Revenue jumped 50% to $769 million, topping. The restaurant sales and management software maker forecast Q1 revenue of $760 million vs. estimates of $751 million. But TOST plunged.

Fastly (FSLY) reported a narrower-than-expected loss as Q4 revenue rose 22% to $119.3 million, slightly beating. For Q1, Fastly forecast revenue higher. Fastly’s network increases the speed of e-commerce transactions, business software downloads and video streaming to mobile devices.

Check Point Software (CHKP) reported Q4 profit up 9% and revenue 7%, topping views. But billings rose 2%, missing expectations. The cybersecurity firm fell slightly.

Twilio (TWLO) reported Q4 profit of 22 cents vs. a 20-cent loss a year earlier. Revenue rose 22% to $1.02 billion, just topping estimates. The communications software firm guided slightly lower on Q1 revenue. Twilio announced a $1 billion share buyback and announcing a new round of job cuts earlier in the week. Twilio seen as a possible buyout target, spiked higher.

Digital Ocean (DOCN) said Q4 EPS jumped 155%. while revenue climbed 36% to $163 million. The company cut its 2023 revenue outlook and announced a $500 million buyback. Digital Ocean also said it would reduce its workforce by 11%.

HubSpot (HUBS) reported Q4 earnings jumped 91% from a year earlier as revenue climbed 27% to $469.7 million. For 2023, the maker of web marketing software forecast EPS well above estimates.

Shopify (SHOP) reported Q4 EPS fell 50% while revenue grew 26% to $1.7 billion, both beating. But the e-commerce software giant predicted revenue growth in the “high teens” vs. consensus for more than 20% growth.

Design Software Firms Diverge

Electronic design automation software firms Cadence Design Systems (CDNS) and Synopsys (SNPS) offered vastly different quarterly earnings reports. Cadence delivered a beat-and-raise report while Synopsys posted mixed results and lowered its outlook. In the just-finished quarter, Cadence earnings rose 17% year over year while sales increased 16%. Meanwhile, Synopsys earnings rose 9% and its sales climbed 7%.

Lithium Earnings Strong

Albemarle and Livent posted results and guidance that lacked some of the fireworks seen last year as they revised contracts to reflect massive price increases for the battery metal. Now lithium spot prices have come down about 20% from their November peak. Both ALB and LTHM stocks flirted with buy signals, before tumbling Friday. Livent EPS surged 400% to 40 cents, slightly beating, while revenue of 79% fell well short of estimates. The top end of Livent’s guidance for 2023 sales was slightly below analyst forecasts. Albemarle Q4 EPS rocketed 754% to $8.62, 36 cents ahead of recently revised estimates. Revenue growth of 193% was a hair below forecasts. Albemarle’s guidance reflects 30%-40% growth in lithium volumes and flat prices vs. Q4.

Chip Stocks Beat Views, Up Guidance

Analog Devices (ADI), GlobalFoundries (GFS), Lattice Semiconductor (LSCC) and SkyWater Technology (SKYT) topped consensus and raised targets, thanks to their exposure to auto and industrial markets. All saw their shares jump on the positive news, especially SKWT. Meanwhile, chip gear vendor Applied Materials (AMAT) also surprised to the upside with its fiscal first-quarter results and guidance.

Tesla Recalls For FSD Flaws

The National Highway Traffic Safety Administration on Thursday announced Tesla was recalling over 362,000 vehicles due to Full Self-Driving software flaws potentially causing crashes. Tesla will offer an over-the-air fix, assuming it can resolve the problems. The NHTSA is investigating Tesla FSD and Autopilot on a range of issues, with other agencies conducting various probes.

Meanwhile, Tesla reportedly will shut down Shanghai plant production for the third time in two months. The stated reason is to retool for an upgraded Model 3 coming later this year. Tesla has not confirmed the output halt or plans for a refreshed Model 3. But the sales of the Model 3 have been waning, especially in China, despite big price cuts in January. The Model Y in the U.S. is showing strong demand. Tesla will open up 7,500 Superchargers to non-Tesla EVs by the end of 2024, a move that will make the company eligible for new government subsidies.

Auto Parts Earnings

Allison Transmission (ALSN) and Visteon (VC) both soared to longtime highs on earnings. Allison Transmission topped views with a 32% EPS gain while sales grew 11% to $718 million. The auto parts maker with big EV and commercial truck exposure, also gave a bullish outlook. Early Thursday, Visteon missed EPS estimates with a 22% decline while revenue grew 35% topping. Visteon, which is pushing hard in autonomous driving technology, counts Ford Motor (F) and General Motors (GM) as clients.

Travel Stocks Are First Class

Travel companies largely topped fourth-quarter earnings this week as the travel recovery continued and should roll into the 2023 fiscal year. Domestic travel volume recovered 96% of its pre-pandemic levels last year and the nonprofit U.S. Travel Association forecasts an improvement to 99% in 2023. Marriott International (MAR), Avis Budget Group (CAR), Airbnb (ABNB), Trip Advisor (TRIP), Choice Hotels (CHH) and Wyndham Hotels & Resorts (WH) all beat Q4 expectations and guided strong results for the new year. Marriott earnings leapt 51% to $1.96 per share when analysts expected 40.8% growth, while Wyndham earnings rose 4.3% as Wall Street predicted a 10% decrease. ABNB stock gapped out of a base, while Marriott, Wyndham and Avis are trading around buy points. Choice Hotels and TripAdvisor broke out, but reversed sharply lower.

Medical Stocks Top Views

Medical stocks InMode (INMD), Medpace (MEDP) and Shockwave Medical (SWAV) beat fourth-quarter expectations. InMode EPS rose 22% while sales climbed 21% to $133.6 million. Despite mixed full-year guidance, shares surged initially, but then fell back. Medpace earnings leapt 61% while sales grew 27.5%. But MEDP tumbled on uncertainty for the year as the small-cap pharma and biotech segments continue struggling. Shockwave reported Q4 sales leapt 71% with earnings spiking 991%, far above views. SWAV stock rose Friday.

Restaurant Earnings Mixed

Restaurant and fast food chains reported mixed results this past week as same-store sales largely declined despite revenue growth across the board. Burger King parent Restaurant Brands (QSR) reported its first EPS decline in two years, missing views for flat profit. BJ’s Restaurants (BJRI) swung to a profit, just topping views. Shake Shack (SHAK) narrowed its loss while Denny’s (DENN) earnings unexpectedly rose modestly. Texas Roadhouse (TXRH) missed on EPS and revenue. QSR, BJ’s and TXRH sank on results, while Shake Shack and Denny’s rose, with all trading near buy points.

News In Brief

Biogen (BIIB) sank Wednesday on a mixed 2023 outlook, though the biotech beat Q4 views with a 19% EPS gain and a 7% revenue fall to $2.54 billion in sales.

Crocs (CROX) soared this week as the specialty footwear maker reported a 23% EPS gain with revenue up 61% to $945 million, while also giving bullish 2023 guidance.

SolarEdge Technologies (SEDG) and SunPower (SPWR) both reported healthy Q4 results. SolarEdge EPS soared 160%, crushing views, while revenue jumped 66% to $837 million. SunPower EPS spiked 650%, easily beating, while revenue leapt 43% to $497.3 million, modestly above consensus.

Roku (ROKU) surged after the streaming video platform smashed estimates for new users in the fourth quarter, even as Roku reported a sharp loss amid a difficult advertising climate.

Ford confirmed plans to build a $3.5 billion battery plant in Michigan, with Chinese battery giant CATL. The deal faces scrutiny in Beijing and Washington. Ford halted F-150 Lightning production due to a battery issue, starting on Feb. 5 and running through Feb. 24. Ford will cut 3,800 jobs in Europe.

AutoNation (AN) topped fourth-quarter views. Shares rose, extending big weekly gains to record highs. Smaller used-car dealer rival Lithia Motors (LAD) fell on weaker-than-expected Q4 EPS and revenue.

Deere (DE) earnings and revenue easily beat views, with the farm-equipment giant guiding higher on 2023.

Etsy (ETSY) tumbled late in the week on a negative report from Citron Research, claiming the e-commerce site isn’t doing enough to combat counterfeit goods.

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