Stocks Nosedived On Banking Worries and Rate Path Anxieties

Barry Adams
02 May, 2023
New York City

Stocks declined and investors turned cautious after a weeklong teach rally ahead of the Fed's rate decision tomorrow. 

Investors reacted to a fresh batch of earnings but generally ignored improving results and focused on negatives. 

Regional banking crisis remained front and center despite some investors estimating the end of the crisis after JP Morgan Chase acquired First Republic Bank. 

Rising rates are going to add more stress on balance sheets of several large and small banks, and investors are not sure how many banks have balance sheets and depositor profiles similar to failed Silicon Valley Bank and First Republic Bank. 

The U.S. Federal Reserve is scheduled to announce its rate decision at the end of a 2-day policy meeting on Wednesday. 

Financial markets are anticipating another 25 basis-point rate hike despite cooling of the headline inflation but core inflation has remained well anchored near 5%. 

Moreover, multiple rate hikes have failed to cool tight labor market conditions, lower inflation rate to 2% and slowdown economic growth, reflecting higher rates are likely to last longer.   

The European Central Bank is set to increase its key lending rate for the seventh time in a row on Thursday and investors are divided between 25 basis points and 50 basis points increase.

The Reserve Bank of Australia unexpectedly hiked its cash rate by 25 basis points to 3.85%, lifting the reference rate to the highest level since April 20212. 

Rates are still negative with inflation at 7.0%, and the central bank signaled for more rate increases ahead. 

 

U.S. Indexes & Yields 

The S&P 500 index added 1.61 points to 4,167.87 and the Nasdaq Composite decreased 13.99 points to 12,212.60. 

The yield on 2-year Treasury notes inched slightly higher to 4.15%, 10-year Treasury notes edged down to 3.54% and 30-year Treasury bonds held at 3.80%. 

Crude oil fell $1.48 to $74.14 a barrel and natural gas prices fell 8 cents to $2.231 a thermal unit. 

 

U.S. Stock Movers 

Uber Technologies Inc increased 5.6% to $34.70 after the ride-hailing company reported better-than-expected quarterly results.  

Revenue in the quarter increased 29% to $8.82 billion and net loss in the quarter shrank to $157 million from $5.9 billion and diluted loss per share fell to 8 cents from $3.03 a year ago.  

Monthly active users in the quarter increased 13% from a year ago to 130 million and completed transactions soared 24% to 2.12 billion. 

The company guided gross booking between $33 billion and $34 billion and adjusted operating earnings between $800 million and $850 million. 

Pfizer Inc increased 1.1% to $39.61 after the company reported a sharp decline in revenue following the end of Covid-19 revenue. 

Revenue in the first quarter decreased 29% to $18.2 billion from $25.6 billion and net income plunged 30% to $5.5 billion from $7.86 billion and diluted earnings per share fell to 97 cents from $1.37 a year ago. 

The company reiterated its full-year 2023 outlook and forecasted revenue to fall between 29% and 33% or between $67.0 billion and $71.0 billion. 

Excluding Covid-19 products, the company forecasted operating revenue to increase between 7% and 9%. 

DuPont de Nemours Inc dropped 8% to $63.55 after the company forecasted weaker-than-expected revenue and earnings outlook in the current quarter on the slower than expected recovery in the electronics market. 

BP Plc declined 4.8% to 508.70 pence after the energy company reported a decline in profit driven by lower crude oil and natural gas prices.

The company declared an ordinary share dividend of 61.6 cents per share and announced to purchase $1.75 billion of its shares prior to the release of its second quarter results around the first week in July.

The company also slowed its pace of stock repurchase to $4.0 billion, at the lower end of its $14 billion to $18 billion in capital expenditure in 2023, based on the $60 a barrel Brent crude price forecast.

Net profit attributable to shareholders declined to $8.2 billion from $10.2 billion in the fourth quarter of 2022 but ahead of $20.4 billion in losses a year ago.  

Chegg Inc plunged 46% to $9.47 after the company reported a decline in revenue and the company said AI tools are negatively impacting new subscribers growth. 

Revenue in the first quarter declined 7% to $187.6 million and net income plunged to $2.2 million from $5.7 million and diluted earnings per share fell to 2 cents from 4 cents a year ago. 

"In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups. However, since March we saw a significant spike in student interest in ChatGPT. 

We now believe it’s having an impact on our new customer growth rate," said Dan Rosensweig, chief executive officer and president.