It’s another strong end to a firm week for US markets with the S&P 500 hitting a new record following the release of upbeat US economic data.
The Cassandra’s have been talking down the US economy for a while, but a slate of fresh data supported a solid economy, easing fears that perhaps the Federal Reserve is cutting rates aggressively because of a potential slowdown.
The S&P 500 closed at a record high (26 Sep), while the Nasdaq finished higher for the fourth straight session. The Dow Jones Industrial Average also ended up, inching closer to another record high of its own.
Weekly jobless claims fell more than expected, pointing to a steady labour market. Durable goods orders for August were unchanged versus economists’ expectations for a decline, while the final reading of second-quarter GDP was unrevised at a strong 3%.
Investors will likely be keeping close tabs on fresh personal spending and inflation data (due 27 Sep), which could provide another glimpse into the health of the US economy as the Fed approaches more expected rate reductions later this year. Personal spending, which accounts for more than two-thirds of economic activity, is tipped to have grown by 0.3% in August, slowing from 0.5% in the prior month.
Memory chip firm Micron Technology (MU:NASDAQ) was the week’s big mover up (more on that later), leading other chip stocks higher, while Intel (INTC:NASDAQ) is again in the news after recent takeover talk, apparently knocking back Arm Holdings’ (ARM:NASDAQ) soft approach for its product division as the US government looks to nail down its expected $8.5 billion of financial aid.
Elsewhere, it’s getting uglier by the day for popular Super Micro Computer (SMCI:NASDAQ), which is now seeming facing a Department of Justice investigation, or so reports say. US listed Chinese internet plays were strong - Alibaba (BABA:NYSE), JD.com (JD:NASDAQ), Baidu (BIDU:NASDAQ) - supported by a pledge from China to deliver fiscal stimulus to boost the economy and meet the country’s roughly 5% growth target.
MICRON TECHNOLOGY
Talk of peak cyclical demand for memory chips has weighed heavily on Micron Technology stock since June peaks so its higher than predicted first quarter growth is a timely reminder of its crucial role in the emerging AI (artificial intelligence) ecosystem.
The stock jumped close on 17% after telling the markets that it anticipates record revenue of about $8.7 billion in Q1 (to 30 Nov), well ahead of Wall Street’s $8.3 billion forecasts. Gross margins should also be lot better - 39.5% versus The Street’s 37.7%, according to LSEG data.
Micron is one of the only three providers of high-bandwidth memory (HBM) chips along with South Korea’s SK Hynix (000660:KRX) and Samsung (005930:KRX), which has allowed the US firm to cash in on demand for semiconductors that help power generative AI technology.
HBM is a space-saving, power-efficient type of dynamic random access memory chip, or DRAM, crucial for AI-focused graphics processing units, that aid in processing vast amounts of data.
The company said in June its HBM chips, used by Nvidia (NVDA:NASDAQ), were sold out for the 2024 and 2025 calendar years with pricing already determined. A downswing will come at some point, but not anytime soon, it seems.
COSTCO WHOLESALE
Discount retailer Costco Wholesale (COST:NASDAQ) has beaten or met adjusted EPS (earnings per share) estimates in seven out of the last eight quarters and it notched up another beat over the past week (26 Sep) after reporting fourth quarter EPS of $5.29. That compared with Street estimates of $5.08.
With the shares up 38% year-to-date, there was little room for disappointment going into the report and investors used the slight revenue shortfall ($79.7 billion versus $79.9 billion) as a reason to sell and lock in those gains.
Revenue was hurt by budget conscious customers pulling back on bigger ticket items at the retailer’s membership-only stores. Chief financial officer Gary Millerchip said: ‘There's definitely some signs that the consumer is being very choiceful in how they're spending their dollars’.
Same store sales growth slowed to 5.4% from 6.6% in the prior quarter while e-commerce sales growth slowed to 18.9% from 20.7%.
AUTOZONE
AutoZone’s (AZO:NYSE) shares stayed on the front foot over the past week despite fourth quarter earnings (24 Sep) coming in shy of estimates. At $3,189.09, some might see the equity as a prime stock split fodder as they closed just off all-time highs, a testament to investors’ focus on the auto parts retailer’s resilience.
Analysts raised price targets for the stock.
Sales rose 9% year-on-year to $6.2 billion in the fourth quarter (to 31 Aug), slightly below the $6.23 billion Wall Street was expecting, while EPS of $48.1 came in light of the $53.6 analysts were looking for with motorists deferring spending on discretionary categories.
Yet the Phil Daniele-steered company remains bullish about its long-run growth prospects and store expansion strategy which is expected to fuel future growth, notably in the overseas markets of Mexico and Brazil.
