Major US indices trended lower over the past week despite latest US inflation figures (10 Aug) lifting sentiment late on, adding to optimism that the Federal Reserve’s rate hike cycle is at an end. As for investors, they were taken with pharma stocks and a US luxury sector mega-merger.
Tapestry (TPR:NYSE) tumbled after agreeing to buy Michael Kors, Versace and Jimmy Choo parent Capri (CPRI:NYSE) in an $8.5 billion deal designed to take on Europe’s luxury giants like LVMH (MC:EPA) and Gucci owner Kering (KER:EPA). But investors seem to have misgivings, either over the price or the success of the merger.
While Capri stock jumped 51% to no-one’s surprise, Tapestry tumbled 18%, a clear sign that its existing shareholders have stark concerns.
On the economic front, data from the US’s Bureau of Labor Statistics, inflation touched 3.2% in July, a little softer than the 3.3% expected. Core inflation, which strips out volatile prices of things like food and energy, eased from 4.8% in June to 4.7% in July.
Undercutting expectations on both measures will bolster belief that the Fed will resist any temptation to raise interest rates at its next meeting in September in favour of a wait and see approach. It also offers further hints that the wider US economy is proving more robust than earlier predictions, with analysts increasingly seeing an outcome of no recession in the US at all, a far cry from earlier in the year when an economic slump looked all but certain.
Jobs data emphasises the point, with jobless claims jumping this week to 248,000 versus the 230,000 expected, following a slightly softer non-farm payrolls figure last week. This suggests that a hitherto tight jobs market is cooling easing pressure on the Fed to hike again all the more.
AMGEN/ELI LILLY
Shares in major US pharmaceutical makers Amgen (AMGN:NASDAQ) and Eli Lilly (LLY:NYSE) have raced ahead in recent days following positive trading updates and potentially good news from various drug trials.
Amgen shares have gained over 12% to $262 since it came out a week ago with second-quarter revenue of $7 billion and earnings per share of $5, comfortably ahead of market forecasts for the fourth consecutive time, and said it had high hopes for its cancer drugs which are in mid- and late-stage clinical studies.
Eli Lilly, whose shares have gained nearly 16% this week to $528, raised its full-year guidance after second-quarter revenue climbed 28% to $8.3 billion and adjusted earnings per share jumped 85%, beating expectations thanks to strong sales of its breast cancer pill and its diabetes treatments.
Lilly shares also received a boost from positive late-stage trial data from Danish rival Novo Nordisk (NOVO-B:CPH), which revealed its obesity treatment Wegovy cut the risk of heart attacks and strokes by 20%.
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Lilly and other US drugmakers are developing similar treatments to Wegovy in the hope of capturing a slice of a market which Bloomberg estimates could reach over $40 billion per year by the end of the decade.
BEYOND MEAT/TYSON FOODS
Two food producers left investors with a sour taste over the past week. First, embattled plant-based burgers business Beyond Meat (BYND:NASDAQ) plunged 17% after second quarter sales slumped 30% amid dwindling demand from US consumers for fashionable but pricier plant-based meat substitutes.
There’s also growing competition in this space and growing question marks over the health credentials of loss-making Beyond Meat’s produce. Whatever the outcome, investors were left facing a lower revenue range for 2023.
Investors might think that this should play well for traditional meat suppliers, but if so, nobody has told Tyson Foods (TSN:NYSE). It also missed Wall Street expectations due to slowing demand for its beef products and falling pork and chicken prices. Tyson plans to shut four chicken plants in a bid to slash costs, but will that be enough?
LUCID
Are investors having second thoughts about the long-run viability of Lucid (LCID:NASDAQ)? It’s becoming an increasingly prescient poser for the electric sports car start-up after another quarter of undercooked growth, losses and cash burn.
It’s second quarter (to 30 Jun) was its fifth straight to miss analyst estimates, a worrying trend, and quarterly sequential growth was all but non-existent, reporting revenues of $150.9 million versus Q1’s $149.4 million. Analysts had forecast $191.4 million.
The startup, founded by former Tesla chief engineer Peter Rawlinson, sold 1,404 upmarket sports and Grand Tourer EVs in the quarter, so net losses of roughly $764 million means Lucid is running up losses of more than $500,000 per vehicle.
