- US consumer strength data takes investors by surprise
- Walgreens Boots Alliance S&P 500's biggest loser over the week
- Delicate balance between recession miss versus higher for longer rates
Surprisingly bullish economic data across the pond this week handed investors the doubled-edged sword of lower recession risk while stoking the threat of higher interest rates for longer.
In a week largely devoid of corporate results, investors focused on the US consumer, with confidence increasing in June to the highest level in nearly 18-months amid renewed labour market optimism. That said, Nike’s (NKE:NYSE) 4.4% fall after-hours on 29 June on rising input and logistics costs coupled with more discounting to clear stock demonstrates that the devil is always in the detail.
Still, overall business spending also appeared to hold up in May, indicating that the US economy remains on a solid footing despite still widely held bleak assumptions.
GDP grew 2% in the first quarter, versus the expected 1.4%, jobless claims came down, sparking two-year treasury yields to touch 4.9% and the 10-year at 3.865%, chunky moves reflecting that the market is maybe buying the Fed’s higher for longer message. Reports earlier in the week also signalled a housing market revival underway, with new home sales racing to a 15-month high in May and monthly house prices rising again in April.
This puts the S&P 500 on track for a 15% first half gain as June draws to a close, while the return of risk appetite this year is evident with the Nasdaq Composite’s more than 30% rally at half-time 2023.
Bank shares rallied after the US’s 23 major lenders cleared the Fed’s annual stress test, while share price runs for cruise operators Norwegian Cruise Line (NCLH:NYSE), up 9.5% on the week, and Carnival (CCL) – 8.6% ahead – following similarly robust figures from Royal Caribbean (RCL:NYSE) the previous week, add to the consumer strength demonstration.
PFIZER / ELI LILLY
It was a week of contrasting fortunes for pharmaceutical giants Pfizer (PFE:NYSE) and Eli Lilly (LLY:NYSE) with the shares prices moving in opposite directions.
Pfizer shares fell more than 5% on Monday (26 June) after the company scrapped development of its once-a-day obesity drug lotiglipron on concerns about liver safety.
However, the company said it would continue the development of its twice daily obesity pill danuglipron which is due to enter late-stage trials by the end of the year. CEO Albert Bourla reckons a successful obesity pill could generate over $10 billion on annual sales.
Meanwhile, shares in Eli Lilly moved higher this week after the company revealed a mid-stage trial of its experimental obesity drug showed it led to a 24.2% weight loss after 48 weeks.
The weight loss is the higher than market leader Wegovy, made by Danish pharmaceutical company Novo Nordisk (NVO:NYSE) which induced a 15% weight loss in drug trials.
Eli Lilly’s injected diabetes drug mounjaro is expected to get regulatory approval later in 2023.
LORDSTOWN MOTORS
Proving that making money from EVs (electric vehicles) is a lot harder than it seems, challenger Lordstown Motors (RIDE:NASDAQ) filed for bankruptcy protection this week after its manufacturing agreement with Taiwanese tech firm Foxconn (2354:TPE) collapsed.
The US company, which partnered with Foxconn – a long-standing manufacturer of Apple (AAPL:NASDAQ) products – in 2021 to help make its flagship Endurance pick-up, accused the Taiwanese firm of failing ‘to execute the agreed-upon strategy’ and even of ‘fraudulent conduct’.
In a demonstration of the dog-eat-dog nature of the EV sector, shares in Tesla (TSLA:NASDAQ), Lucid (LCID:NASDAQ) and Rivian (RIVN:NASDAQ) rallied on the news of Lordstown’s demise.
While the last two aren’t profitable yet, they are well-capitalised and analysts are confident both have a bright long-term future.
WALGREENS BOOTS ALLIANCE
You’d think people need to prioritise spending on prescriptions and over-the-counter medicines to salve minor ailments, but even pharmacy chains are feeling the inflationary rates squeeze.
Shares in Walgreens Boots Alliance (WBA:NASDAQ) took a tumble over the past week after the company behind Britain’s high street pharmacy Boots and US chain missed earnings expectations in the third quarter to May.
The company also slashed its full year earnings guidance, pinning the downgrade on lower consumer spending and a drop in demand for Covid vaccines and testing kits. This means that instead of the $4.45 to $4.65 earnings per share range, investors will have make do with more modest $4 to $4.05.
While quarterly revenues of $35.4 billion topped forecasts and represented decent 8.6% year-on-year growth, earnings per share of $1 was shy of the $1.07 Wall Street expected, although Boots delivered a decent 13.4% hike in retail like-for-like revenues with sales at Boots.com up over 25% year-on-year.
