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Business

Despite ban, China nuclear-weapons lab has bought U.S. chips for years

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SINGAPORE — China’s top nuclear-weapons research institute has bought sophisticated U.S. computer chips at least a dozen times in the past two and half years, circumventing decades-old American export restrictions meant to curb such sales.

A Wall Street Journal review of procurement documents found that the state-run China Academy of Engineering Physics has managed to obtain the semiconductors made by U.S. companies such as Intel Corp.
INTC,
-6.41%
and Nvidia Corp.
NVDA,
+2.84%
since 2020 despite its placement on a U.S. export blacklist in 1997.

The chips, which are widely used in data centers and personal computers, were acquired from resellers in China. Some were procured as components for computing systems, with many bought by the institute’s laboratory studying computational fluid dynamics, a broad scientific field that includes the modeling of nuclear explosions.

Such purchases defy longstanding restrictions imposed by the U.S. that aim to prevent the use of any U.S. products for atomic-weapons research by foreign powers. The academy, known as CAEP, was one of the first Chinese institutions put on the U.S. blacklist, known as the entity list, because of its nuclear work.

A Journal review of research papers published by CAEP found that at least 34 over the past decade referenced using American semiconductors in the research. They were used in a range of ways, including analyzing data and generating algorithms. Nuclear experts said that in at least seven of them, the research can have applications to maintaining nuclear stockpiles. CAEP didn’t respond to requests for comment.

The findings underline the challenge facing the Biden administration as it seeks to more aggressively counter the use of American technology by China’s military. In October, the U.S. expanded the scope of export regulations to prevent China from obtaining the most advanced American chips and chip-manufacturing tools that power artificial intelligence and supercomputers, which are increasingly important to modern warfare.

An expanded version of this report appears on WSJ.com.

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Business

He nailed three big S&P 500 moves this year. Here’s where this strategist sees stocks headed next, with beaten down names to buy.

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A Wall Street hat trick may not be on the cards, with stocks in the red for Wednesday.

A two-day rally was never a guaranteed exit out of the bear woods anyway, as some say signs of a durable bottom are still missing.

Enter our call of the day, from the chief market technician at TheoTrade, Jeffrey Bierman, who has made a string of prescient calls on what has been a roller coaster year for the index thus far. He’s also a professor of finance at Loyola University Chicago and DePaul University.

Bierman, who uses quant and fundamental analysis to determine market direction, sees the S&P 500
SPX,
-1.62%
finishing the year between 4,000 and 4,200, maybe around 4,135. “Fourth-quarter seasonality favors bulls following a weak third quarter.  Not to mention most stocks are priced for no growth,” he told MarketWatch in a Monday interview.

In December 2021, he forecast the S&P 500 might see a 20% decline within six months, toward 3,900 — it hit 3,930 in early May. In June, he forecast a rally and recovery to 4,300 — the index hit 4,315 by mid-August.

Speaking to MarketWatch on Aug. 25, Bierman saw a retest of around 3,600 for the index, citing an often rough September for stocks. It closed out last month at a new 2022 low of 3,585.

“I think we’re going to end up for the quarter. [The market is] deeply oversold and some stocks are completely mispriced in terms of their valuation metrics,” said Bierman, who is looking squarely at retail and technology sectors.

“The valuations on half the chip stocks are trading below a multiple of seven. I’ve never seen that ever…but what that means is when the semiconductor sector comes back, the multiple expansion is gonna be like a volcanic eruption to the upside,” he said of the sector known for its boom/bust cycles.

For example, he owns Intel
INTC,
-2.53%,
which hit a five-year low on Friday. Eventually, the company that has invested $20 billion in a new U.S. plant will come roaring back alongside rivals like Advanced Micro
AMD,
-4.65%.
“People will look back on this and go ‘Oh, my God, I can’t believe Intel was at five times earnings,’ which is insanity for this stock.”

For the S&P 500 as a whole next twelve months price/earnings is currently 16.13 times, so Intel’s would be less than half of the broader index, according to FactSet

As for retail, he’s been looking at Urban Outfitters
URBN,
-1.06%,
Macy’s
M,
-1.94%
and Nordstrom
JWN,
-0.67%,
all places where millennials don’t shop, but the middle class does, with the all-important holiday shopping period dead ahead.

“There are 100,000 people being hired to work part time at these companies, and their margins are not coming down at all,” with no markdowns and decent sales, he said, noting those companies are being priced at a multiple of 5 times forward earnings.

“It means that you don’t think that Macy’s can put together for the Christmas quarter a comparative quarter, year over year of greater than 5%? If you don’t then don’t buy it, but I do,” said Bierman. “That’s why I’m willing to stick my neck out and buy these things. I bought Abercrombie & Fitch
ANF,
-3.78%
at 10 times earnings…I’ve never seen it that low.”

For those who aren’t comfortable picking stocks, he says they can still get exposure through exchange-traded funds, such as SPDR S&P Retail
XRT,
-2.58%
or the Technology Select Sector SPDR ETF
XLK,
-1.70%.

Bierman adds that investors need to be careful not to be overly concentrated in the top stocks, given “10 stocks accounted for 45% of the Nasdaq and the fact that 25% of the S&P almost accounted for about 50% of the S&P movement.”

“Everbody’s concentrated in 10 stocks that can still fall another 30% or 40%, like Apple and Microsoft. The idea of concentration risk is that everybody owns Apple, everybody owns Amazon,” he said.

And that could force the hand of passive and active managers heavily invested in those big names, driving a 10% drop for markets that “washes away all other stocks.”

The markets

Stocks
DJIA,
-1.21%

SPX,
-1.62%

COMP,
-2.19%
are in the red, and bond yields
TMUBMUSD10Y,
3.783%

TMUBMUSD02Y,
4.199%
are up, along with the dollar
DXYN,
.
Silver
SI00,
-5.00%
is retracing some of this week’s big gains, and bitcoin
BTCUSD,
-2.62%
is also off, trading at just over $20,000. Hong Kong stocks
HSI,
+5.90%
surged 6% in a catch-up move following a holiday. New Zealand’s central bank hiked rates a half point, the fifth increase in a row.

The buzz

Oil prices
CL.1,
-0.02%

BRN00,
+0.28%
are flat as OPEC+ reportedly agreed to cut oil production by 2 million barrels a day. Some say don’t be too impressed by any output reduction.

Amazon
AMZN,
-2.34%
will reportedly freeze corporate hires in its retail business for the remainder of 2022.

Mortgage applications fell to the lowest pace in 25 years in the latest week.

The ADP private-sector payrolls report showed 208,000 jobs added in September. The trade deficit narrowed, which should be good news for third-quarter GDP. The Institute for Supply Management’s services index is due at 10 a.m. Atlanta Fed President Raphael Bostic will also speak.

Expect the spotlight to stay on Twitter
TWTR,
-2.53%
after Tesla
TSLA,
-5.16%
CEO Elon Musk committed to the $44 billion deal. But will it feel like a win once he owns it?

Plus: Elon Musk’s legal battle with Twitter may be over, but his war with the SEC continues

EU countries agreed to impose new sanctions on Russia after the illegal annexation of four Ukraine regions. Those moves will include an expected price cap on Russian oil.

South Korea’s missile fired in response to North Korea’s weapon launch over Japan, crashed and burned.

Best of the web

Russians fleeing Putin’s mobilization are finding haven in poor, remote countries.

Consumers are throwing away perfectly good food because of ‘best before’ labels.

The CEO of an election software company has been arrested on accusations of ID theft.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker Security name
TSLA,
-5.16% 		Tesla
GME,
-7.59% 		GameStop
AMC,
-9.56% 		AMC Entertainment
TWTR,
-2.53% 		Twitter
NIO,
-5.92% 		NIO
AAPL,
-1.77% 		Apple
APE,
-8.40% 		AMC Entertainment preferred shares
BBBY,
-8.52% 		Bed Bath & Beyond
AMZN,
-2.34% 		Amazon
DWAC,
-0.64% 		Digital World Acquisition Corp.
The chart

More market-bottom talk:


Twitter

Random reads

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Business

Mark Zuckerberg issues dire economic warning to Meta employees

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Mark Zuckerberg has issued a chilling message to Meta Platforms Inc. employees: The company faces one of the “worst downturns that we’ve seen in recent history” that will necessitate a scaling back in hires and resources.

The dire economic warning was delivered during an internal videoconference meeting on Thursday for Meta’s
META,
-0.76%
77,800 workers, according to a New York Times report. To underscore the ominous message, Zuckerberg told employees to expect to do more with fewer resources and that their performance would be more intensely graded.

“I think some of you might decide that this place isn’t for you, and that self-selection is OK with me,” Zuckerberg said on a call, according to the Times. “Realistically, there are probably a bunch of people at the company who shouldn’t be here.”

Buttressing Zuckerberg’s comments, Meta Chief Product Officer Chris Cox said in a separate memo that Meta faces “serious times” and economic “headwinds are fierce.”

The most obvious manifestation will be fewer hires — Facebook’s parent company now intends to add 6,000 to 7,000 engineers this year, down from an initial goal of 10,000, the Times reported. A former Facebook employee confirmed to MarketWatch that the Silicon Valley company has significantly reduced its hiring plans in recent months.

Meta’s advertising business has been badly battered by a change in privacy settings to Apple Inc.’s
AAPL,
+1.62%
mobile operating system, limiting the amount of user data that can be collected by Facebook and Instagram. Consequently, Meta has posted two straight quarterly profit declines for the first time in a decade. Meta lost some $230 billion in market value — its worst one-day hit ever — after it posted desultory results in February.

At the same time, Meta is pursuing a risky strategic pivot to the immersive world of the metaverse, which prompted the company’s name change last year.

Meta is one of several tech companies facing choppy economic waters as it navigates through inflation, a war in Ukraine, and supply-chain issues. In recent days, Tesla Inc.
TSLA,
+1.24%,
Netflix Inc.
NFLX,
+2.91%,
Unity Software Inc.
U,
+1.96%,
Coinbase Global Inc.
COIN,
+4.30%,
Stitch Fix Inc.
SFIX,
-0.81%,
Redfin Corp.
RDFN,
+8.74%
have announced deep job cuts.

Meanwhile, Twitter Inc.
TWTR,
+2.25%,
Intel Corp.
INTC,
-2.86%,
and others have announced hiring freezes.

Read original article here

Business

Bausch + Lomb Prices IPO at $18 a Share, Below Expectations

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Bausch + Lomb Corp. priced its IPO at $18 a share Thursday, falling short of expectations as it became the first big company in months to try going public into a turbulent stock market.

Bausch Health

BHC -7.40%

Cos., the parent company, raised $630 million in the offering. It had been aiming to raise as much as $840 million and sell the stock at $21 to $24 a share, according to a regulatory filing. The Wall Street Journal had previously reported the deal was likely to price at the low end or below the range.

The debut of the eye-care company, a spinoff of Bausch Health Cos., is being watched closely as a bellwether for the IPO market, which has been virtually shut down since stocks started falling earlier this year. It is the first big initial public offering since private-equity firm

TPG Inc.

went public in mid-January. After a record year in 2021, traditional IPOs have raised less than $3.3 billion in 2022, the slowest start since 2016, according to Dealogic.

Bausch is a fitting test case for the IPO market, which provides a crucial spigot of cash and visibility to startups and Wall Street alike. The company is profitable and a well-established name in its industry.

“It’s a real critical week for the IPO market,” said

Jeff Zell,

senior research analyst at IPO Boutique. With so few IPOs so far this year, “It’s extremely important that this one not only gets out on the right foot but trades steady in the aftermarket,” he said.

Among those who will be watching closely are others on the IPO runway. Fund managers say they have met this year with executives at companies including

Intel Corp.’s

$50 billion-or-more self-driving car unit Mobileye and Steinway Musical Instruments Holdings Inc., which have said they are pursuing IPOs. Other companies considering listings later this year include ServiceTitan Inc. and Quick Quack Car Wash Holdings LLC, according to people familiar with the matter.

It doesn’t help that markets have whipsawed lately, with the technology-stock-heavy Nasdaq Composite up more than 3% Wednesday and down 5% Thursday. The index has moved at least 1% in either direction in 11 of the past 13 trading sessions.

Traditionally, volatility has been considered the most crucial indicator for the IPO market. When a company launches its IPO, the management team and its advisers spend several days on a so-called roadshow, meeting with fund managers to entice them to buy the stock. A volatile market, with little visibility into the next day let alone week, makes that tricky.

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There has been another, less well-appreciated factor gumming up the gears of the new-issue market, bankers say. Correlation between individual stocks in the S&P 500 has risen dramatically in recent months as fears that rising interest rates could spark a recession lead to across-the-board selling. That makes it harder for stock pickers, and makes IPOs less attractive, some analysts say. Fund managers expect outperformance from IPOs, and if stocks are nearly all moving in unison, the odds of achieving that become longer.

Over the three months before technology stocks started falling in December on inflation and interest rate fears, the average stock moved in the same direction as the S&P 500 39% of the time, according to Ned Davis Research. Since then, that has jumped to 61%.

Some fund managers welcome the air coming out of the IPO market.

Jonathan Coleman

at Janus Henderson Investors, who oversees more than $14 billion across two funds, said last year the IPO market got so heated, it became hard to receive meaningful allocations in offerings. In the past, Mr. Coleman said he thought the market was frothy when there were orders for 10 times the number of shares available in an average offering. In late 2020 through late 2021, order books were routinely 30- to 40-times oversubscribed, he said.

“My experience is, if we’re lamenting the lack of IPOs now, we’ll be lamenting the flood when the windows open back up,” he said.

Write to Corrie Driebusch at corrie.driebusch@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

‘So bad, it’s good.’ This beleaguered stock market has one big asset on its side, say strategists.

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A rough month for stocks is drawing to a close, and many investors likely won’t be sad to see the back of it. And the last day of April trade is looking weak as Apple and Amazon failed to raise the bar on a mixed season for tech earnings.

Our call of the day comes from Keith Lerner, chief market strategist at Truist Advisory Services, who said “depressed” investor sentiment is the reason he hasn’t shifted to a full negative stance on stocks right now.

“Indeed with markets, it’s not about good or bad — it’s all about better or worse relative to expectations. When expectations are low, a little bit of good news can go a long way. That’s why markets tend to bottom when fear and uncertainty are at an extreme,” said Lerner in a recent note to clients.

He downgraded his equity stance to neutral in April after two years of a positive stance, noting that while the range of potential outcomes is wide, risk/reward is less positive.

He pointed to the latest survey from the American Association of Individual Investors (AAII), which showed the percentage of investors with a negative/bearish outlook surging to 59.4%. That was the highest since early March 2009, just a few weeks short of a major stock bottom following the 2008-09 financial crisis decline.

“To be fair, investors were correctly negative in January 2008 in the early stages of that market downturn,” he said.

The percentage of bullish investors is currently 16%, also close to a record low, leaving the bull/bear spread at -43%, a level that has been surpassed twice in the past 35 years — in the fall of 1990 and that March 2009 period, said Lerner.


Truist Advisory Services

A similar theme was heard from Thomas Lee, founder of Fundstrat Global Advisors, who told clients that the AAII sentiment survey was a “major bottom signal,” based on history. “So bad, it’s good,” he said.

Lee provided this chart showing when such a weak reading marked a stock bottom:

One footnote from Lee is that the AAII survey tends to sample older investors, and not the Reddit crowd.

Read: Boomers are leaving the stock market. Here’s what happens next.

Lerner adds other proof of investor negativity, such as the $45 billion flowing out of equity funds over the past two weeks. “This is an extreme that we have also seen during times of heightened uncertainty and volatility,” Lerner said.

For example: the post-Lehman Brothers bankruptcy, the U.S. debt downgrade, COVID-19 pandemic lows and two months before the 2020 U.S. presidential election. While the Lehman Brothers signal was “premature,” strong price returns followed the other periods, he said.

In short, Lerner said Truist follows the “weight-of-the-evidence approach,” which is telling it that depressed investor views and a “low hurdle for positive surprises” are the stock market’s biggest assets going.

The buzz

The Federal Reserve’s favored inflation gauge — the core personal consumer expenditure price index — rose a sharp 0.9%i, and employment costs also rose. The followed by the University of Michigan consumer sentiment index is still to come, and next week we’ll get a Fed meeting.

Amazon
AMZN,
-11.95%
is down 8% after its first loss in seven years. Apple
AAPL,
+1.34%
is down over 2% after the tech giant topped earnings and set a revenue record, but warned of billions in added costs from supply-chain woes.

Tesla
TSLA,
+6.32%
stock is higher after CEO Elon Musk tweeted that there were no more sales planned for now, after he sold nearly $4 billion worth.

Earnings from Chevron
CVX,
-0.94%,
Exxon
XOM,
+0.23%
have left those shares softer, while Honeywell
HON,
+4.98%
is up on results, while AbbVie
ABBV,
-10.36%,
Bristol-Myers Squibb
BMY,
-2.30%
and Colgate-Palmolive
CL,
-5.43%
are also all down on results.

Opinion: Big Tech is no longer winning as big, but these two stocks still seem safe

Elsewhere, Intel
INTC,
-5.25%
is down after results, while investors are cheering Roku
ROKU,
+9.57%
earnings. Also sinking are shares of Robinhood
HOOD,
+4.66%,
which missed forecasts and said fewer people were trading on its app.

And Digital World Acquisition Corp.
DWAC,
+8.07%,
the special-purpose acquisition company buying the company behind former President Donald Trump’s Truth Social, is surging after Trump resurfaced with a message on the platform.

Ukraine’s leader has accused Russia of trying to humiliate the UN by firing missles on Kyiv during a visit by Secretary-General António Guterres. And efforts to get trapped civilians out of embattled Mariupol continue.

China’s government has vowed more support for its economy, as the country battles COVID-19 outbreaks.

The Labor Department is worried Fidelity’s plan to allow Bitcoin into 401(k) plans is risky for retirees.

The markets

Stocks
DJIA,
-0.05%

SPX,
-0.47%

COMP,
-0.12%
are lower, with bond yields
TMUBMUSD10Y,
2.865%

TMUBMUSD02Y,
2.702%
higher and crude-oil prices
CL00,
+0.94%
up. Gold is climbing , while the dollar
DXY,
-0.37%
has cooled after Thursday’s massive rally, notably against the yen
USDJPY,
-0.57%,
which continues to drop. The Russian central bank cut interest rates to 14% and the ruble
USDRUB,
-2.12%
is rebounding.

Bitcoin
BTCUSD,
-1.67%
and other cryptos are modestly off.

The chart

Naomi Poole and a team of strategists at Morgan Stanley have rolled out a new Market Sentiment Indicator (MSI) to offer “tactical guidance on ‘risky assets.’” It aggregates survey, positioning, volatility and momentum data to gauge market stress and sentiment.

The MSCI All-Country World Index (you can track that via the exchange-traded fund iShares MSCI ACWI
ACWI,
+0.25%
) is used as a proxy for risk asset performance.

“Our analysis suggests that improving/deteriorating sentiment is a more powerful signal for forward returns than just extreme levels,” said Poole and the team. Using the level and direction of stress, the MSI is currently neutral and not giving off buy signals yet, they said.

The tickers

These were the top-traded tickers on MarketWatch as of 6 a.m. Eastern Time:

TSLA,
+6.32% 		Tesla
AAPL,
+1.34% 		Apple
AMZN,
-11.95% 		Amazon
GME,
+0.76% 		GameStop
AMC,
+2.49% 		AMC Entertainment
NIO,
+7.12% 		NIO
FB,
+2.85% 		Meta Platforms
BABA,
+11.86% 		Alibaba
NVDA,
+1.61% 		Nvidia
TWTR,
+0.72% 		Twitter
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Business

Why is the stock market falling? Dow drops nearly 900 points as investors weigh Fed’s policy path, earnings

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U.S. stocks fell sharply Friday, as investors continued to weigh hawkish comments on interest rates by Federal Reserve Chairman Jerome Powell a day earlier, as well as a fresh batch of corporate earnings that largely disappointed.

How are stocks trading?
  • The Dow Jones Industrial Average
    DJIA,
    -2.18%
    was down 879 points, or 2.5%, at 33,914.
  • The S&P 500
    SPX,
    -2.18%
    fell 107 points, or 2.4%, to 4,286, and was on track for a third straight weekly fall.
  • The Nasdaq Composite
    COMP,
    -2.03%
    shed 298 points, or 2.3%, to trade at 12,875.

On Thursday, the Dow shed 368.03 points, or 1.1%, reversing a gain of as much as 331.43 points in intraday trading. The more-than 700-point intraday swing was its biggest since March 8, according to Dow Jones Market Data. The S&P 500 fell 1.5%, while the Nasdaq Composite slumped 2.1%.

What’s driving the market?

Stock-market weakness picked up Friday where Thursday’s selloff left off, when equities tumbled into the afternoon after Powell added his support for moving faster on raising interest rates to cool inflation, measures that would include a possible 50 basis point interest rate hike in May.

“It would seem investors have been too complacent about the upcoming [Fed] meeting, which will need to change,” said Michael Kramer, founder of Mott Capital, in a note.

The Cboe Volatility Index
VIX,
+20.55%,
an options-based measure of expected volatility over the next 30 days, had been too low heading into the May 3-4 Federal Open Market Committee, or FOMC, meeting, Kramer said. It rose Thursday and was up another 19.5% at 27.1- on Friday, moving above its long-term average just below 20.

Powell’s remarks appeared to make a half percentage point rate hike the base case, with the central bank also likely to announce the beginning of the unwinding of its balance sheet, Kramer said.

Meanwhile, traders of fed funds futures have priced in a 94% chance that the Federal Reserve will deliver a 75 basis point rate hike in June, up from 70% on Thursday and 28% a week ago, according to the CME FedWatch Tool. 

The benchmark 10-year Treasury yield 
TMUBMUSD10Y,
2.895%,
meanwhile, pulled back slightly to around 2.89% after climbing about 8.1 basis points to 2.917% on Thursday, the highest since Dec. 4, 2018.

Read: How to invest as inflation, higher interest rates and war roil markets

And some are warning that the Nasdaq is looking particularly vulnerable. The week has delivered some big earnings news for the technology sector, with investors cheering Thursday’s results from Tesla
TSLA,
-0.12%,
on the heels of deeply disappointing Netflix
NFLX,
-0.91%
results.

The Fed’s hawkish shift and the relentless rise in Treasury yields may be sapping the previous appeal of equities, which had previously been seen as the only viable avenue for many return-seeking investors.

“Investors appear to be moving away from the TINA (There is no Alternative) narrative as of late when it comes to equities,” said Brian Price, head of investment management at Commonwealth Financial Network, in a note. “This is the second straight week of significant outflows from equity mutual funds and days like today are unlikely to change the sentiment moving forward. The one positive takeaway may be that sentiment has become too bearish and we could see a countertrend rally at some point in the coming weeks.”

In One Chart: Investors just pulled a massive $17.5 billion out of global equities. They’re just getting started, says Bank of America.

All 11 major S&P 500 sectors fell Friday, with healthcare stocks dropping the most after a downbeat profit forecast from HCA Healthcare Inc.
HCA,
-20.47%
sent its shares tumbling. Other hospital operators, including Tenet Healthcare Corp.
THC,
-13.49%,
Community Health Systems Inc.
CYH,
-17.36%
and Universal Health Services
UHS,
-12.70%
also fell between 10.4% and 13.2%.

However, of the 99 companies in the S&P 500 that have reported earnings for the first quarter, 77.8% of them have beat market expectations. Typically, 66% of companies beat estimates, according to Refinitiv data.

Next week will mark another big week for earnings, with 558 companies reporting, Saxo noted. “It is the big test of companies’ ability to pass on costs to their customers,” they said.

Investors may also be skittish ahead of the final round of France’s presidential election on Sunday. An upset victory by far-right candidate Marine Le Pen over incumbent Francois Macron would likely spark market volatility, analysts said.

See: Here’s how markets are positioned for Sunday’s presidential election in France between Macron and Le Pen

What companies are in focus?
  • HCA shares were down 19.6%, on pace for their largest percentage decrease since March 16, 2020, when they fell 19.02%, according to Dow Jones Market Data.
  • Gap Inc.
    GPS,
    -18.51%
    stock tumbled nearly 19%, following a bigger-than-expected drop in sales and as the retailer announced the depature of Old Navy CEO Nancy Green.
  • Shares of Qualtrics International Inc.
    XM,
    -9.41%
    fell 9.5% after the experience-management software company reported fiscal first-quarter forecast-beating revenue.
  • Snap Inc.
    SNAP,
    -0.27%
    shares lost 0.7% after the social media group reported quarterly revenue that fell short of Wall Street’s expectations.
  • Shares of American Express Co.
    AXP,
    -1.87%
    fell 1.4% after topping earnings expectations Friday amid a continued rebound in travel and strong spending trends among younger consumers.
  • Verizon Communications Inc.
    VZ,
    -5.30%
    fell after its earnings report showed a net loss of postpaid phone subscribers in its latest quarter, calling out “competitive dynamics within the industry,” though it said it had its best quarter of broadband net additions in more than a decade.
How are other assets trading?
  • The ICE U.S. Dollar Index 
    DXY,
    +0.56%
     rose 0.7% to trade at its highest since March 2020.
  • Bitcoin 
    BTCUSD,
    -2.51%
    fell 2.4% to trade near $39,500.
  • The U.S. oil benchmark
    CL.1,
    -1.90%
     fell $1.72, or 1.7%, to settle at $102.07 a barrel on the New York Mercantile Exchange, falling 4.1% for the week.
  • Gold
    GC00,
    -0.60%
    fell $13.90, or 0.7%, to settle at $1,934.30 an ounce, leaving a 2.1% weekly fall.
  • The Stoxx Europe 600
    SXXP,
    -1.79%
    dropped 1.5% while London’s FTSE 100 
    UKX,
    -1.39%
    fell 1.4%.
  • The Shanghai Composite 
    SHCOMP,
    +0.23%
     rose 0.2%, while the Hang Seng Index 
    HSI,
    -0.21%
    slipped 0.2% in Hong Kong and Japan’s Nikkei 225 
    NIK,
    -1.63%
    fell 1%.

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Business

Intel Earnings Beat Estimates. Why Its Stock Is Falling.

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Intel stock fell after the company reported earnings.


David Paul Morris/Bloomberg


Intel

stock fell in extended trading Thursday after the company missed sales expectations and said its chief financial officer plans to retire in May. The company also chalked a decline in its PC business to broader component shortages.

For the third quarter, Intel reported adjusted earnings of $1.71 a share and adjusted revenue of $18.1 billion. The earnings figure beat analyst estimates of $1.11 a share, but analysts were looking for revenue of $18.2 billion, according to FactSet.

Intel stock (ticker: INTC) has dropped 9.8% in premarket trading Thursday following the report. Advanced Micro Devices (AMD) stock has risen 1.9%, suggesting that the issue is with Intel specifically, and not with chip stocks generally.

“We broke ground on new fabs, shared our accelerated path to regain process performance leadership, and unveiled our most dramatic architectural innovations in a decade,” CEO Pat Gelsinger said in a statement summing up the quarter.

Revenue in the PC-focused client computing group fell 2% year over year to $9.7 billion. The company said notebook volumes were hampered by industrywide component shortages, but that was partially offset by higher average selling prices and strength in the desktop computer business. Revenue in its data center group business jumped 10% to $6.5 billion.

The company said CFO George Davis plans to retire from Intel in May 2022, and that the company will conduct a search for a successor.

Intel raised its full-year adjusted earnings outlook to $5.28 a share, from $4.80. It also raised its outlook for 2022 adjusted gross margin to 57% from 56.5%. The company anticipates gross margins between 51% and 53% over the next two to three years and then moving upward from there.

The company expects revenue of about $74 billion in 2022, with a compound annual growth rate of 10% to 12% over the next four to five years. Consensus estimates for full-year 2022 revenue recently sat at $73.1 billion, according to FactSet.

Meanwhile, Intel expects capital expenditures of between $25 billion and $28 billion in 2022.

Intel also said its investor day will be pushed back to Feb.17, 2022, from Nov.18. On the earnings call, Gelsinger cited the search for a CFO and added that he hopes the event can take place in-person.

Write to Connor Smith at connor.smith@barrons.com

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Business

Apple, Tesla and Facebook ready to report record sales in busiest week of earnings

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U.S. companies have barely managed to eke out positive earnings growth so far in this quarterly results season, but the big test arrives in the week ahead.

Nearly a quarter of the S&P 500
SPX,
-0.30%
is set to report results, with those companies representing 39% of the index by market value, according to calculations based on FactSet data. Given that the S&P 500 is weighted by market capitalization, this roster of companies will have an outsize impact on the profit trajectory for the index.

Earnings are expected to decline for the fourth consecutive quarter once all results are in for the latest period, but those companies that have reported thus far have been beating expectations in aggregate.

The FactSet consensus now models a 5% earnings decline for the index, compared with the 6.3% drop projected a week ago. If profit growth for the S&P 500 ultimately ends up positive, it would mark an end to the current earnings recession, which takes place when corporate profits drop for two or more consecutive quarters.

Apple Inc.
AAPL,
+1.61%
and Facebook Inc.
FB,
+0.60%
are among the highlights of next week’s slate, along with Tesla Inc.
TSLA,
+0.20%,
which will deliver results for the first time since it became a member of the S&P 500. All three high-profile companies are scheduled to report Wednesday afternoon and expected to have produced record revenue in the holiday quarter.

The holiday quarter is always crucial for Apple, which releases new iPhones in the fall. With a slightly later launch than usual this year due to the pandemic pushing sales into the period, Apple is widely expected to post its largest quarterly revenue total ever and its first ever total above $100 billion. The technology giant likely also continued to see benefits from remote-work and remote-schooling trends, which have driven strong iPad and Mac sales throughout the COVID-19 crisis.

Full preview: Get ready for Apple’s first $100 billion quarter in history

Facebook is also expected to post what should easily be a record quarter given strong digital advertising trends during the holiday period. Still, the company will face questions about user engagement and a decision to ban Donald Trump from the platform indefinitely over his role in inciting the violent riot at the U.S. Capitol. Bernstein analyst Mark Shmulik points to “continued usage fatigue” across social media as well as a “conversation skewed towards unmonetizable political events.”

Full preview: Facebook earnings still flourishing amid pandemic, economic slowdown and antitrust scrutiny

Tesla already disclosed delivery numbers for the full year that came in ahead of analyst expectations, and all eyes will be on the company’s outlook for 2021. RBC Capital Markets analyst Joseph Spak anticipates a delivery forecast of 825,000 to 875,000 million units for the full year, even though Chief Executive Elon Musk said on Tesla’s last earnings call that an analyst was “not far off” for expecting 840,000 to a million deliveries during 2021.

Full preview: Can Tesla’s sales growth match stock’s rise?

Here’s what else to watch for in the week ahead, which brings reports from 117 members of the S&P 500 and 13 Dow Jones Industrial Average
DJIA,
-0.57%
components.

Up in the air

Boeing Co.’s
BA,
-0.76%
journey remains turbulent even as the company’s 737-MAX jets were recertified after being grounded for almost two years. Though the company began deliveries of these aircraft, “the pace of delivering all 450 parked 737-MAX will be dictated by airline customers ability to absorb aircraft as well as air traffic demand,” according to Benchmark Company analyst Josh Sullivan.

Boeing’s Wednesday morning report will offer perspective on the company’s recovery expectations amid the pandemic, though Sullivan sees volatility ahead stemming from a recent equity offering and the impact of the COVID-19 crisis on airlines.

The fourth-quarter reports from U.S. airlines have been bleak so far, and American Airlines Group Inc.
AAL,
-0.06%
and Southwest Airlines Co.
LUV,
-0.80%
offer more on Thursday morning.

Can you hear me now?

Verizon Communications Inc.
VZ,
+0.35%
leads off a busy week of telecommunications earnings Tuesday morning, followed by AT&T Inc.
T,
+0.35%
Wednesday morning and Comcast Corp.
CMCSA,
-0.92%
Thursday morning.

For the wireless carriers, a key issue will be the impact of iPhone 12 promotions on recent results. Investors will also be looking for information about a recent wireless auction offering spectrum that will be crucial for 5G network deployments. Though the bids haven’t been made public yet, the auction drove record spending and AT&T and Verizon are both expected to have paid up handsomely to assert their standing. The question for investors is what impact these bids will have on the companies’ financial positioning.

Full preview: AT&T earnings to kick off a defining year for telecom giant

AT&T and Comcast have more media exposure than Verizon, and those two companies have been trying to contend with the new realities brought on by the pandemic. Both companies have made moves to emphasize streaming more with their film slates given theater closures, and the financial implications of these moves will be worth watching.

Paying up

The evolving situation with the pandemic is reflected perhaps no more clearly than in the results of Visa Inc.
V,
-1.52%,
Mastercard Inc.
MA,
-1.63%,
and American Express Co.
AXP,
-1.01%,
which have a pulse on the global consumer spending landscape. The companies should provide insight on a travel recovery toward the end of the year, as well as the impact of recent lockdowns.

Susquehanna analyst James Friedman wrote recently that his Mastercard revenue projection of $3.97 billion is slightly below the consensus view, though he also asked: “does anyone really care about Q4 2020?” Friedman is upbeat about mobile-payments and online-shopping dynamics that suggest “positive trends ahead” for Mastercard, which reports Thursday morning. Visa follows that afternoon, while American Express kicks of the week with its Tuesday morning report.

The chip saga continues

Advanced Micro Devices Inc.
AMD,
+1.38%
is poised to keep benefiting from Intel Corp.’s
INTC,
-9.29%
stumbles, which analysts expect to last for some time even as Intel prepares for a new, technology-oriented chief executive to take the helm.

“We have low confidence that Intel will be able to close that transistor gap quickly, and therefore expect it to continue to lose share for the foreseeable future,” Jefferies analyst Mark Lipacis wrote after Intel’s latest earnings report. AMD will show how that dynamic has played out on its side of the equation when it posts numbers Tuesday afternoon.

Full preview: If Intel gets its act together, can AMD maintain swollen valuation?

Other chip makers reporting in the week ahead include Texas Instruments Inc.
TXN,
-1.31%
on Tuesday afternoon; Xilinx Inc.
XLNX,
+1.26%,
which is in line to be acquired by AMD, on Wednesday afternoon report, when it will be joined by chip-equipment maker Lam Research Corp.
LRCX,
-0.06%
; and Western Digital Corp.
WDC,
-5.23%
on Thursday afternoon.

Busy week for the Dow

Among the 13 members of the Dow Jones Industrial Average
DJIA,
-0.57%
set to report this week are 3M Co
MMM,
-0.96%.
, Johnson & Johnson
JNJ,
+1.13%,
American Express, Verizon, and Microsoft Corp.
MSFT,
+0.44%,
all of which report Tuesday.

“Near term, we see the company’s COVID-19 vaccine readout as a key upcoming catalyst and believe efficacy in the 80%+ range would suggest a clear role for the product in the market,” J.P. Morgan analyst Chris Schott wrote of Johnson & Johnson.

Cowen & Co. analyst J. Derrick Wood sees tough comparisons for Microsoft especially in its Azure and server businesses, though he expects a more favorable situation going forward.

Full preview: SolarWinds hack may actually be a good thing for Microsoft

Wednesday brings results from Boeing and Apple, while Thursday features McDonald’s Corp.
MCD,
-0.07%,
Dow Inc.
DOW,
-0.10%,
and Visa. Honeywell International Inc.
HON,
-1.45%,
Chevron Corp.
CVX,
-0.30%,
and Caterpillar Inc.
CAT,
-0.13%
round out the week Friday morning.

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