Investors are feeling more chipper as the week comes towards its close after latest economic data left US markets largely happy with the macro outlook.
Crashing recession avoided, interest rate cuts coming - it might not be quite the Goldilocks outcome hoped for but good enough. Thursday’s S&P 500 move higher left the crucial US index to close above the 5,200 level for the first time in a month and back within 1% of its record following a rough April.
‘The next policy move is a cut, and even if that cut is still months away, we are already past the peak tightening impulse’, said analysts at TS Lombard.
A report showing a pick-up in layoffs helped to support the market. The number of workers applying for unemployment benefits rose last week by more than economists expected, though it remains relatively low compared with history.
That could be a sign the economy can pull off a hoped-for balancing act of staying solid enough to avoid a bad recession, but not so strong that it puts upward pressure on inflation. Treasury yields erased earlier gains immediately after the report’s release, an indication of expectations for the Federal Reserve to deliver long-sought cuts to interest rates later this year.
Elsewhere on Wall Street, some stocks swung sharply following their latest earnings reports. Data centres operator Equinix (EQIX:NASDAQ) jumped after reporting stronger profit for the latest quarter than analysts expected. The news was less positive for IT services supplier EPAM Systems (EPAM:NYSE), which spiralled 27% lower after management suggested a ‘soft’ demand environment that was improving more slowly than hoped.
Well-known names like travel firm Expedia (EXPE:NASDAQ), cybersecurity play Fortinet (FTNT:NASDAQ), Airbnb (ABNB:NSASDAQ) and Disney (DIS:NYSE) were weak also.
WALT DISNEY
News that the ‘House of Mouse’ has made its streaming service profitable ahead of schedule should have sprinkled some stardust on Disney’s stock this week, but soft guidance alongside the second quarter results (7 May) sent shares in the entertainment giant 7.5% lower to $105.3.
Disney beat earnings estimates for the quarter to 30 March 2024 as Disney+ and Hulu turned a profit for the first time, but revenue was shy of forecasts for the fourth quarter on the spin. Disney also guided for a decline in third quarter subscriptions which it hopes to reverse by copying the Netflix (NFLX:NASDAQ) playbook of preventing password sharing.
Also weighing on sentiment was the performance of Disney’s money-spinning parks business, where growth is slowing as the post-pandemic travel boom fades. CEO Bob Iger said that looking at Disney as a whole, ‘it’s clear that the turnaround and growth initiatives we set in motion last year have continued to yield positive results’.
Iger added that Disney is ‘turbocharging growth in our experiences business with a number of near- and long-term strategic investments.’
ARM HOLDINGS
Lacklustre guidance in the face of an AI demand boom left the British chip tech designer hung out to dry. But the grand sell-off predicted by pre-market data didn’t materialise as investors chewed over pointers a touch on the soft side.
What looks like a relative dose of conservatism on Arm’s (ARM:NASDAQ) part may pay off over time if it helps reinforce the company’s credibility and earns it a reputation for under-promising and over-delivering, as it largely had when listed in London years ago.
Vast amounts of computing power are required to underpin the AI revolution and if Arm can continue to demonstrate it is at the forefront of this effort – such as the launch of its latest V9 chip architecture - then any disappointment over its latest cautious outlook could prove short-lived.
ROBLOX
Shares in video game platform Roblox (RBLX:NASDAQ) plunged more than 25% in early trading on Thursday (9 May) after the firm cut its annual bookings forecast amid lower engagement from its users.
The cut is the latest in a string of disappointing updates from gaming companies as demand normalises from the huge spike seen during the pandemic. Earlier in the week (7 may) video game developer Electronic Arts (EA:NASDAQ) missed sales and profit estimates.
Roblox lowered expectations for full year bookings to $4.05 billion at the midpoint of the range from a prior forecast of $4.21 billion while second quarter booking are now anticipated to be between $879 million and $900 million compared with a consensus estimate of $929 million.
The company grew average daily users by 17% year over year in the first quarter, in line with Street estimates, but the number of hours spent on the platform came in at 16.7 billion hours, falling short of the 17.1 billion forecasted.
CEO David Baszucki said: ‘Our teams have been hard at work identifying opportunities to drive daily active users, hours, and bookings growth rates back to 20% year over year.’
