Wall Street made strong progress over the past week as robust US GDP figures helped revive the idea of a soft landing for the American economy.
The latest releases in the current earnings season were mixed but Tesla's (TSLA:NASDAQ) record numbers also helped give a fillip to investor sentiment.
The first estimate of US growth for the fourth quarter of 2022 came in at 2.9% versus the 2.6% which had been pencilled in ahead of time.
Credit and debit card giants Visa (V:NYSE) and Mastercard (MA:NYSE) both reported earnings ahead of expectations as consumer spending held up, although growth is slowing.
Tesla was the top riser over the past week but Warner Bros Discovery continued a stunning recovery from its late December lows extending its gains since then to nearly 70%.
Paint and coatings manufacturer Sherwin-Williams (SHW:NYSE) saw its shares come under pressure as it posted a mixed earnings update and warned of ‘relentless’ cost inflation, continuing issues with raw material availability and pointed to weakening demand thanks to an under-pressure housing market.
TESLA
Electric vehicle maker Tesla (TSLA:NASDAQ) saw its shares gain 25% this week as the company reassured investors after reported better than expected sales and profit.
Revenue for the fourth quarter hit a record $24.32 billion compared with analyst estimates of $24.07 billion while earnings per share came in 6.25% ahead of estimates at $1.19.
Despite the beat profitability suffered from increased raw material and freight costs which dampened gross margin to 25.9%, the lowest in two years.
Investors fear margins will remain under pressure following January's cut to car prices by up to 20% for some models as the company looks counter a fall in demand.
At the end of 2022 Tesla ended up with far more inventory than it had planned for.
The price cuts seem to be working in the short term at least with Elon Musk telling analysts that January has seen ‘the strongest orders year-to-date than ever in our history. We're currently seeing orders of almost twice the rate of production.’
Despite the share price gains Tesla shares remain 50% down on where they were before Musk's initial bid for Twitter.
MICROSOFT
That Microsoft's (MSFT:NASDAQ) second quarter growth slowed to a six-year low seems shocking for what has become one of tech's more durable names. Earnings modestly beat estimates ($2.32 versus $2.30) but revenue growth slowed to a 2% crawl.
The slowdown, and conservative tone of commentary, points towards a deceleration that could drag on longer than optimists had hoped, but nor is it surprising given the constant state of flux that the global economy has been mired in for months.
PC and advertising markets are still weak and even Microsoft's powerhouse Cloud business is showing scars, weakening sentiment further. Which partly explains the company's $10 billion recent investment in ChatGPT, the artificial intelligence-powered search engine and chatbot developed by OpenAI.
Microsoft has been through the economic wringer several times in the past and has come through stronger. ‘Things are tough, but energy costs are improving, the dollar has weakened, which will help overseas earnings, and the headcount reduction will begin to take effect and help bottom lines,’ said Ben Barringer, equity research analyst at Quilter Cheviot. The analysts believes that the first half of the year may be tricky but sees an improving picture for Microsoft beyond.
JOHNSON & JOHNSON
Pharmaceutical and medical devices firm Johnson & Johnson (JNJ:NYSE) failed to inspire investors with either its full-year 2022 results or its 2023 outlook when it reported pre-market on Tuesday.
The stock price closed flat at $168.31 despite more than 10.5 million shares (worth over $1.75 billion) being traded during the session.
Sales for the year to December were up just 1.3% to $94.9 billion while earnings per share were 13.8% lower at $6.73 on a reported basis as higher input costs ate into margins.
For 2023, the firm forecast revenues of between $97 billion and $98 billion, below Wall Street estimates, due to lower US sales of its Stelara drug used to treat Crohn's disease, as generic competition increases, and Covid disruption in China impacting demand for medical devices.
On a positive note, 2023 earnings guidance of $10.45 to $10.65 per share was above the analyst consensus of $10.35 per share, and chief executive Joaquin Duato reiterated his target of drug sales hitting $60 billion by the end of 2025 despite widespread scepticism.
