bargain hunting is on

(Boursier.com) — The week ended with a third session of sharp rebound on Wall Street, where technology stocks are particularly sought after after their brutal correction in recent weeks. Despite the negative effects of inflation, now visible on the accounts of many companies, investors hope that the peak of inflation has been reached, and that the American economy will be resilient in the face of the monetary tightening announced by the Fed.

Two hours before the closing, the Dow Jones gained 1.05% to 32,979 points, while the broad index S&P 500 increased by 1.73% to 4,127 pts, and that the Nasdaq Compositerich in technology and biotech stocks, jumped 2.57% to 12,041 pts.

The three indices are heading for a weekly rebound of 5.4%, 5.8% and 6% respectively, after falling for 8 weeks in a row for the Dow Jones, its longest downward series since… 1932! The S&P 500 and the Nasdaq have fallen for 7 weeks in a row. Despite its rebound, the Nasdaq still drops 25% from its November 2021 highs, at 16,057 pts.

Entry points for the long term

Analysts remain divided on the technical or fundamental nature of the rebound, which comes after the brief fall of the S&P 500 index in “bear market” last Friday in session. Still, some valuations now offer attractive long-term entry points, despite earnings prospects clouded by rising rates, inflation and supply chain disruptions.

All of the 11 sector indices of the S&P 500 point to the green on Friday evening, starting with real estate (+2.6%), technology (+2.5%), discretionary consumer goods (+2.2 %) and communication services (+2.1%), the latter continuing to recover from the shock of the profit warning of Snap Inc (+3.5%), which rolled the social network sector at the start of the week.

Other factors supporting the markets today, despite the Fed tightening monetary policy amid record inflation, include the gradual reopening of economic activities in Shanghai, mergers and acquisitions, share buybacks and purchases. significant insiders on Wall Street.

US inflation may have peaked, consumption remains solid

In addition, economic indicators released on Friday gave hope on the inflation front and showed that US household consumption has so far resisted rising prices, even if sentiment remains stuck around its lows. for more than 10 years.

Inflation may have plateaued, according to the so-called “core PCE” inflation indicator, the Federal Reserve’s preferred benchmark. The index thus rose by 0.3% in April over one month, at the same pace as in March, and in line with economists’ expectations. Over one year, the rise in prices slowed down a little, to 4.9% against 5.2% in March, even if it remains well above the Federal Reserve’s medium-term objective (2%).

Otherwise, personal consumption expenditure rose a little more than expected in April, by 0.9% against +0.8% consensus space, even if they have slowed down compared to March (+1.4%). As for personal household income, they increased less than expected, by 0.4% over one month against +0.6% consensus. Household consumption continues to grow despite inflation, supported by a dynamic job market, rising wages and higher available savings than before the coronavirus crisis.

However, the morale of American households, measured by the University of Michigan, fell in May to the lowest in more than 10 years, in August 2011. The consumer sentiment index thus fell in its final reading to 58.4, against a consensus of 59.1 and a preliminary reading of 59.1 as well. In April, this indicator had reached 65.2 and therefore experienced a sharp deterioration in May, against a backdrop of a sharp rise in prices, particularly of fuel.

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In addition, the balance of international trade in goods for the month of April, which has also just been published, showed a deficit of $105.9 billion, against -$118 billion expected and after -$125.9 billion in March. Finally, US wholesale inventories rose 2.1% in April from March, growth well above consensus.

In business news, Pinduoduo, Canopy Growth et Big Lots, are among the few financial publications of the day. Canopy and Big Lots clinch, as Pinduoduo flies away. Thursday evening, Costco, Dell Technologies et Marvell revealed accounts that exceeded expectations, but Gap disappointed by sharply reducing its forecasts.

VALUES TO FOLLOW

Costco Wholesale (+0.8%) published quarterly sales and profits on Thursday evening that exceeded analysts’ expectations, as consumers in particular bought a lot of fresh produce, furniture and fuel despite the current inflationary environment. The group, which operates self-service warehouses, requiring a subscription to its club, published after the close of Wall Street a turnover of 52.60 billion dollars for its third fiscal quarter ended on May 8, in increase of 16% over one year. Analysts had expected sales of $51.7 billion, according to IBES data from Refinitiv. The group’s net profit reached $1.35 billion, and adjusted earnings per share amounted to $3.04 per share, in line with analysts’ expectations ($3.03).

Costco also confirmed its annual revenue target of more than $200 billion, knowing that analysts are forecasting $223.4 billion. However, the title reacted by retreating Thursday in the post-session quotations on Wall Street, analysts regretting the drop of nearly one point in the gross margin in the 3rd quarter. In addition, same-store sales increased by 10.8%, less than expected by the consensus (+11.8%). Finally, the management indicated during a conference call that it did not intend to increase the subscription price for its members in the near future.

Marvell Technologies (+6%), the American designer of ‘chips’, announced for its first fiscal quarter 2023 revenues of 1.447 billion dollars, a sharp increase of 74% year-on-year, for a gross margin of 51.9% and an adjusted margin of 65.5%. GAAP loss per share was 20 cents, while adjusted EPS was positive at 52 cents. For its second quarter, the group anticipates revenues of 1.515 billion dollars, plus or minus 3%, as well as an adjusted EPS of 56 cents, plus or minus 3 cents. The title, already in sharp rebound last night, appreciated a little more after the stock market. Profits and revenues have indeed exceeded expectations in the first quarter.

Dell Technologies (+12%) takes off on Wall Street, after its publication. The American computer group has indeed unveiled a record quarter, greatly exceeding expectations with strong demand from businesses. For the first fiscal quarter, which ended at the end of April, sales increased by 16% to 26.1 billion dollars, against 25 billion consensus. Round Rock’s band posted 22% growth in the PC business segment. Adjusted earnings per share were $1.84, also above consensus. Over the quarter started, ending in July, revenues are expected to be between 26.1 and 27.1 billion, against 25.5 billion consensus. Adjusted EPS is expected between $1.55 and $1.7.

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Finally, note that Michael Dell, CEO of Dell and also Chairman of the Board of Directors of VMware (+4.7%), supports the sale of the latter to Broadcom (+5.1%) as part of a $61 billion deal announced yesterday.

Gap yo-yoed, first plunging more than 14% before rising again by 3% in the evening… The American clothing retailer reduced its annual profit estimates Thursday evening, victim in turn of the record inflation and rising costs. For the 2022 financial year, the group now envisages an adjusted EPS ranging from 30 to 60 cents, against… $1.95 for the previous mid-range and $1.34 consensus. In the quarter ended at the end of April 2022, the group’s revenues also declined to 3.48 billion dollars, against 3.99 billion a year before and 3.46 billion consensus. The adjusted loss per share was 44 cents over the period, against -11 cents consensus and +48 cents a year earlier.

Canopy Growth, the Canadian cannabis giant, plunged 13%. For the 2022 fiscal year, the group generated revenues of $520 million, down 5%, and deplored a net loss of $320.5 million and an adjusted EBITDA loss of $415 million. Free cash flow was negative at $582 million. In the fourth quarter alone, revenue fell 25% to $112 million, while net loss hit $579 million. The adjusted EBITDA loss was $122 million and free cash flow was in the red at $127 million.

Zscaler (+13.6%), the Californian cloud security group, published last night for its third fiscal quarter adjusted earnings per share of 17 cents, against 11 cents consensus and 15 cents a year earlier. Quarterly revenue meanwhile totaled $287 million in the period ending April, beating consensus by almost 6%. A year earlier, over the same period, revenues amounted to 176 million.

Big Lots (-10.3%), the American discount retailer from Columbus, Ohio, unscrewed before the stock market on Wall Street. It must be said that the group has just published an unexpected loss for its first fiscal quarter and declining sales. The gross margin is also under pressure, with the evolution of consumer demand. Net loss for the quarter ended April was $11.1 million, 39 cents per share, compared to net profit of $94.6 million for the corresponding period last year. The FactSet consensus was 95 cents profit per share. Quarterly sales fell 15.4% to $1.37 billion from a consensus of $1.46 billion.

Pinduoduo (+10%), the Chinese e-commerce group listed on Wall Street, specialist in the sale of food products at low prices, ignites before the stock market. For the first fiscal quarter, the group’s profits and revenues clearly exceeded market expectations, the gross margin having appreciated considerably and costs having been reduced. Pinduoduo thus achieved a net profit of 2.6 billion yuan, about 410 million dollars, against a net loss of 2.91 billion yuan a year earlier. Total revenue rose 7% to 23.8 billion yuan, or $3.75 billion. The average number of monthly active users in the quarter was 751.3 million, up 4% year-on-year.

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