Investors Turned Cautious After Earnings Reports, Tesla Dropped 10%

Barry Adams
20 Apr, 2023
New York City

Major averages on Wall Street traded lower after poor quality of earnings added to economic slowdown worries. 

The latest earnings announcements signaled depressed gross margins and lower profitability at some of the largest companies, raising the prospects of another round of downward earnings revisions. 

Tesla dropped 11% after the electric vehicle maker reported a decline in first quarter earnings, dragging Apple, Microsoft and Amazon lower. 

Chipmakers declined between 2% and 4% and Seagate Technology estimated weak revenue in the current quarter citing lower demand for micro computing products.  

Lack of earnings guidance from several companies so far in the earnings season has also dented investor confidence. 

American Express reported a decline in earnings and the company sharply hiked its estimate of credit provision to $1.3 billion also soured mood on Wall Street. 

Regional banks were in focus after Zions Bancorp reported a 16% decline in its deposit balances, reflecting ongoing stress in smaller banks as more deposits moved out to larger banks. 

Market sentiment was weak after the Philadelphia Fed manufacturing index fell more than expected and dropped to its lowest level since May 2020. 

The index declined to -31.3 points from -23.2 in March, marking the eighth negative reading in a row, driven by weak order outlook.  

Weak earnings guidance and falling earnings compounded to general macroeconomic worries and initial jobless claims edged up slightly at the end of last week. 

 

U.S. Jobless Claims Edged Higher

Unemployment claims for the last week highlighted the tight labor markets conditions despite multiple rate hikes by the Federal Reserve. 

Weekly initial jobless claims rose 5,000 to 245,000 for the week ending April 15, the U.S. Department of Labor reported Thursday. 

The previous week's claims were upwardly revised 1,000 to 240,000.   

The  4-week moving average decreased 500 to 239,750 from the previous week's revised average. The previous week's  average was revised up by 250 to 240,250.

The advance seasonally adjusted insured unemployment rate was 1.3% for the week ending April 8, an increase  of 0.1 percentage point from the previous week's unrevised rate.

 

U.S. Indexes & Yields 

The S&P 500 index fell 0.6% to 4,129.96 and the Nasdaq Composite index declined 0.8% to 12,057.83. 

The yield on 2-year Treasury notes declined to 4.17%, 10-year Treasury notes traded at 3.54% and 30-year Treasury bonds hovered near 3.75%.   

Crude oil futures price for immediate month delivery decreased $1.93 to $77.36 barrel and natural gas hovered near $2.21 a thermal unit. 

 

U.S. Stock Movers 

Tesla Inc decreased 8.3% to $165.67 after the electric vehicle maker reported a sharp fall in earnings in the first quarter. 

Revenue in the quarter rose 24% to $23.3 billion and net income declined 24% to $3.3 billion from $3.7 billion and diluted earnings per share fell to 95 cents from $1.07 a year ago. 

Vehicle deliveries increased 36% to 422,875 from 310,048 a year ago. 

American Express Company declined 3.7% to $158.96 after the payment processor said revenue rose but net income declined. 

Revenue in the first quarter increased 22% to $14.3 billion and net income fell 13% to $1.8 billion from $2.1 billion and diluted earnings per share declined to $2.40 from $2.73 a year ago. 

D R Horton Inc rose 6.9% to $108.87 after the home builder reported flat revenue and a decline in earnings. 

Revenue in the fiscal second quarter ending in March was flat $7.9 billion and net income plunged to $949 million from $1.4 billion and diluted earnings per share fell to $2.73 from $4.03 a year ago. 

Net sales orders for the fiscal second quarter fell 5% to 23,142 homes and 11% in value  to $8.6 billion compared to 24,340 homes and $9.7 billion in the same quarter a year ago. 

 

European Markets Trade Near Record Highs, German Wholesale Inflation Eased 

 

European markets paused for the second day in a row ahead of central bank announcements in the next few weeks. 

Cautions investors pored over a fresh batch of earnings and debated the future rate paths in the U.S. and the euro area. 

Germany's producer prices sharply eased in March and extended monthly decreases to the sixth month in a row following the downward trajectory of energy prices. 

Investors also welcomed the international goods trade swinging to surplus in February after exports rose faster than imports.

 

Eurozone Posted Trade Surplus In February

The euro area international goods trade swung to a surplus of Є4.6 billion in February from a deficit of Є9.4 in January, Eurostat reported Thursday. 

The Euro Area recorded, for the first time  since September 2021, 

The goods trade surplus in February was €4.6 billion with the rest of the world compared  with a deficit of €9.4 billion in February 2022.

Exports from the region increased 7.6% to €232.7 billion and imports rose 1.1% to €228.1 billion. 

The Euro Are reported a rise in exports with all of its major trading partners. 

Exports to the UK and Switzerland rose 10.4%, to the U.S. 10.9%, to Norway 14%, to Turkey 27.6% and to China 5.8%.  

Exports of manufactured goods increased 7.2% driven by machinery and vehicles exports increase of 13.2% and chemicals 2.3%. 

Overall imports rose 1.1% driven by 1.8% increase in raw materials purchase and fuel imports declined 8.2% and food imports rose 13.2%. 

Imports from Switzerland declined 13.8%, from China fell 4.3% and from Russia plunged 77.3%. 

In January and February 2023, euro area exports of goods to the rest of the world rose 9.2% to €455.3 billion and imports advanced 5.6% to €482.4 billion. 

As a result the euro area recorded a deficit of €27.0 billion, compared with €39.7 billion a year ago. 

 

Germany's Wholesale Price Inflation Dropped In March 

Producer price inflation or wholesale inflation in Germany slowed to 7.5% in March from 15.8% in February, destatis or the Federal Statistics Office reported Thursday. 

The wholesale price decline was largely driven by a steep fall in energy price inflation to 6.8% in February from 27.6% in January, distributed natural gas prices rose 19.1% and electricity prices were flat. 

The preliminary estimate on natural gas and electricity inflation is subject to revision after adjusting for the government subsidy starting March. 

Excluding energy, producer prices rose 7.9% from a year ago. 

Wholesale price inflation on a monthly basis declined 2.6% in March from February, extending monthly decline to the sixth month in a row. 

Prices of non-durable consumer goods increased by 15.4% in March and consumer durable goods rose 10.0% from a year ago. 

 

Indexes & Yields 

The DAX index decreased 0.6% to 15,795.71, the CAC-40 index fell 0.1% to 7,538.17 and the FTSE 100 index added 0.05% to 7,902.61. 

The yield on 10-year German Bunds decreased to 2.47%5 French bonds to 2.95%, the UK Gilts to 3.76% and Italian bonds to 4.31%. 

The euro inched lower to $1.097, the British pound to $1.247 and the Swiss franc to 89.37 cents. 

Brent crude oil decreased $2.34 to $80.77 a barrel and the Dutch TTF natural gas edged up 42 cents to Є40.58 per MWh. 

 

Stock Movers 

Renault SA decreased 6.4% to €34.24 after the French automaker said revenue in the first quarter increased 29% and the company reaffirmed its annual outlook. 

The stock was under pressure after the automaker said the company is reviewing its pricing for electric vehicles worldwide. 

Volvo AB Class B increased 1% to SEK211.25 after the Swedish vehicle and industrial equipment maker posted higher adjusted earnings and lifted its outlook for its heavy duty truck unit on easing supply chain issues. 

Schindler Holding AG increased 0.9% to Sfr 190.80 after the Swiss elevator and escalator maker said first quarter profit jumped 47%. 

Nokia Oyj fell 4.3% to €4.08 after the Finnish telecom and technology company reported weaker-than-expected earnings in the first quarter. 

Centamin PLC declined 0.8% to 105.59 pence after the gold miner reported a decline in gold production from the previous quarter.