Dow extends slide as lackluster earnings, rate fears prey on nerves

By Stock News On May 30, 2024 9 0

US stocks headed for more losses on Thursday as lingering concerns about higher-for-longer interest rates and a Salesforce (CRM) sell-off put a damper on investors’ spirits.

The Dow Jones Industrial Average (^DJI) sank 0.7%, or nearly 300 points, after shedding over 400 to lead Wednesday’s stock market slide. The S&P 500 (^GSPC) fell 0.2%, while the tech-heavy Nasdaq Composite (^IXIC) dropped about 0.3%.

Stocks have lost steam amid renewed gloom about the odds for rate cuts, stoked by data showing less cooling in inflation than the Federal Reserve wants. At the same time, hopes that Nvidia’s (NVDA) blockbuster earnings would spur a broader stock rally were disappointed.

That rates angst drove US bond yields this week to their highest levels since early May, lifting the 10-year Treasury (^TNX) back above 4.5%. Though the benchmark yield retreated on Thursday, it still held above the key level trading around 4.6%.

Salesforce’s results sparked other worries about likely losers in the AI boom. The software maker’s shares slid 15% after it said sales growth will stall to the slowest in its history.

Meanwhile, the US economy grew at a slower pace than initially thought during the first quarter. The Bureau of Economic Analysis’s second estimate of first quarter US gross domestic product (GDP ) showed the economy grew at an annualized pace of 1.3% during the period, down from a first reading of 1.6% growth in April.

A wave of retail earnings before the bell gave other clues to consumer resilience and economic health. Kohl’s (KSS) shares cratered after the department store chain’s surprise quarterly loss and cut to its annual sales forecast. Meanwhile, Best Buy (BBY) posted a bigger drop in comparable sales than expected as Americans get choosy about spending on non-essentials.

Live7 updates

Thu, May 30, 2024 at 9:42 AM EDT

Nelson Peltz sells entire Disney stake after proxy battle loss

Activist investor Nelson Peltz has sold his entire Disney (DIS) stake, according to a source familiar with the matter.

Peltz sold his position at a price of around $120 a share, which yielded a return of about $1 billion, the source said.

The development, first reported by CNBC, comes after Disney successfully fended off Peltz in his quest to secure board seats at the company, officially ending a highly contested proxy battle that plagued the entertainment giant for months.

Peltz had been fighting to secure board seats for himself and former Disney CFO Jay Rasulo but was ultimately unsuccessful. At the company’s annual shareholder meeting in early April, Disney said the current board would remain intact following a stockholder vote that gave the company’s slate a win “by a substantial margin.”

Disney shares are up about 12% since the start of the year but have fallen roughly 15% since the company defeated Peltz in its proxy fight.

Read more here.

Nelson Peltz founding partner of Trian Fund Management LP. speak at the WSJD Live conference in Laguna Beach, California October 25, 2016. REUTERS/Mike Blake (REUTERS / Reuters)
Thu, May 30, 2024 at 9:32 AM EDT

Dow slides 300 points as Salesforce stock tanks 18%

The Dow Jones Industrial Average (^DJI) fell about 300 points at the open, weighed by shares of Salesforce (CRM).

The blue-chip index fell Thursday after dropping 400 points in the prior session. The S&P 500 (^GSPC) decreased 0.3%, while the tech-heavy Nasdaq Composite (^IXIC) also slipped 0.4%.

Salesforce stock tumbled as much as 18% at the open after the cloud-based software company missed on second quarter guidance, raising concerns over the macro environment and pushing out deal signings.

Soaring shares of AI chip darling Nvidia’s (NVDA) haven’t been able to lift the overall markets. Growing concerns of higher for longer interest rates amid bumpy inflation reads have put a lid on recent rallies.

The bond market has struggled as the 10-year Treasury (^TNX) moved back above 4.5%, putting pressure on stocks.
Thu, May 30, 2024 at 8:39 AM EDT

GDP: US economy grew slower than initially thought in Q1

The US economy grew at a slower pace than initially thought during the first quarter.

The Bureau of Economic Analysis’s second estimate of first quarter US gross domestic product (GDP ) showed the economy grew at an annualized pace of 1.3% during the period, down from a first reading of 1.6% growth in April. But it was in line with the decline from the first reading that economists had expected. First quarter GDP in 2024 came in significantly lower than fourth quarter GDP, which was revised up to 3.4%.

The update to the first quarter growth metric “primarily reflected a downward revision to consumer spending,” per the BEA. Personal consumption in the first quarter grew at 2%, down from a prior reading of 2.5%.

The soft GDP comes at a time when markets have been sensitive to any readings that the economy may be running too hot for the Federal Reserve’s liking, as inflation has proved stickier than expected.

Notably, though, many forecasters don’t see the first quarter economic growth slowdown as the start of a broader trend. Goldman Sachs entered Thursday’s reading expecting 3.2% annualized growth in the second quarter. Meanwhile, the Atlanta Fed’s GDPNow forecaster is currently projecting 3.5% annualized growth in the first quarter.

Bank of America US economist Michael Gapen, wrote in a note to clients last Friday that his team expected a downward revision to first quarter GDP but that didn’t serve as a cause for concern for economic growth moving forward.

“The bottom line is that the economy moderated somewhat in the first quarter, but it remains on a stable footing overall,” Gapen wrote on Friday.
Thu, May 30, 2024 at 8:22 AM EDT

Terrible quarter from Best Buy

Yahoo Finance senior reporter Brooke DiPalma has all the numbers you need on the Best Buy (BBY) quarter here.

I would just like to add this quarter from Best Buy really stunk, again.

The sales declines are piling up for the company, making me wonder if there are structural problems that the business can’t overcome. Sales pressure has now persisted for two years or so. I am also wondering if there needs to be fresh eyes in th C-suite after this coming holiday shopping season.

The tough sales quarters for Best Buy continue. (Best Buy)
Thu, May 30, 2024 at 5:21 AM EDT

Folo up: Chewy

Chewy (CHWY) found its way into these live blog pages on Wednesday, and deservedly so.

Shares exploded 27% on the back of a better than expected quarter (shares are down slightly in the pre-market today). The response caught me a little by surprise, as the company’s closely watched active customers metric fell again year over year. In fact, the decline accelerated versus the drop seen in the preceding quarter.

Nevertheless, the Street ate up the company’s margin expansion and commentary on an improving demand environment.

We caught up with Chewy CEO Sumit Singh in an extensive interview on Yahoo Finance Live (full watch below), where he echoed that improvement in the demand backdrop.

I found interesting the company appears all-in on opening vet clinics. It now has four in operation that opened in the first quarter, with another four on the way by year end.

The company is well behind Mars, which operates thousands of vets (it has been a consolidator in the space, buying family-run practices). But there is a window of opportunity here for Chewy to offer a better care environment that links to the services and products it sells online.

Also something to watch: the company has begun tests on a paid membership program.
Thu, May 30, 2024 at 5:11 AM EDT

Trend watch: PC demand cycle

HP Inc. (HPQ) shares are getting a 3% bump pre-market after a better than expected quarter last night.

Out of everything I talked about with HP CEO Enrique Lores (full interview below) following the results, it was his call out of companies upgrading computers ahead of the pulling of support for Windows 10 that left an impression. It appears the race is on to replace computers ahead of that moment in October 2025.

The introduction of HP’s first crop of AI PCs this month to the market is likely further put gas on that upgrade cycle.

“We continue to think HPQ remains well positioned to benefit from the PC upcycle, which should only accelerate in the second half and in FY25,” EvercoreISI analyst Amit Daryanani wrote in a client note this morning.
Thu, May 30, 2024 at 5:05 AM EDT

Salesforce crashing

Salesforce (CRM) shares are getting hammered pre-market to the tune of 16%.

The sell-off is warranted.

Salesforce missed on its key performance obligations metric, showing 10% growth versus estimates for 11%. The conference call was littered with concern on the macro environment, which is pushing out deal signings.

Second quarter guidance short of consensus reflects these concerns (hopefully for management’s sake).

“Though Q1 has been consistently weaker for software, magnitude of the miss may suggest more idiosyncratic issues (seat-exposure, down-sells, competition) which could continue to weigh on the business in the second quarter, especially with FY25 revenue now looking aggressive (implying second half acceleration vs. 2Q),” said Citi analyst Tyler Radke in a client note. “Valuation is undemanding at 20x EPS, 18x enterprise value/free cash flow (on FY25 estimates), but with slowing growth, lack of de-risked estimates and more active M&A we are comfortable on the sidelines awaiting improving growth or more evidence of Data Cloud/GenAI momentum/monetization.”

All in all, a surprising quarter from Salesforce that wasn’t telegraphed. The stock is likely to stay in the penalty box until signs of a more stable macro backdrop emerges.