Stock futures lower with earnings, GDP data in focus; Meta shares tumble after Q2 earnings miss, muted ad outlook; Spirit soars after cancelling frontier deal, setting up JetBlue takeover; Ford shares leap after solid Q2 earnings, outlook hold and Apple earnings on deck amid demand, chip, China impact questions.
Here are five things you must know for Thursday, July 28:
1. — Stock Futures Lower With Earnings, GDP Data In Focus
U.S. equity edged lower Thursday, following on from the strongest single-session gain for tech stocks in more than two years, as investors sift through details of the Federal Reserve’s back-to-back jumbo rate hikes and brace for a key reading of second quarter growth prior to the start of trading.
Fed Chairman Jerome Powell repeated his commitment to fighting the fastest inflation in more than four decades when he explained the rationale for the central bank’s second consecutive 75 basis point rate hike — past of the most aggressive Fed tightening since the early 1980s — but sounded caution on the state of the broader economy and appeared to leave the door open for smaller hikes, or even a pause in rate increases, over the final months of the year.
The CME Group’s FedWatch now indicates a 71% chance of a 50 basis point rate hike in September, and near 60% chance of just a 25 basis point move at the following meeting in November.
“While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then,” Powell told reporters in Washington. “We will continue to make our decisions meeting by meeting, and communicate our thinking as clearly as possible.”
The comments, alongside a more muted assessment of the broader growth picture, triggered a late-session rally on Wall Street that lifted the Dow more than 400 points by the close of the session and was accompanied by the best single-day gain for the Nasdaq in since April of 2020.
The rally extended into Europe, as well, where stocks were also given a boost from a series of regional blue-chip earnings, including Shell, Volkswagen and Nestle, that included solid near-term profit forecasts.
Here in the U.S., investors will run through another busy slate of pre-market earnings as well, including updates from Pfizer (PFE) – Get Pfizer Inc. Report, Merck (MRK) – Get Merck & Company Inc. Report, Comcast (CMCSA) – Get Comcast Corporation Class A Common Stock Report, Mastercard (MA) – Get Mastercard Incorporated Report and Honeywell (HON) – Get Honeywell International Inc. Report, with Apple’s (AAPL) – Get Apple Inc. Report crucial June quarter report, as well as that from Amazon (AMZN) – Get Amazon.com Inc. Report, are slated for after the close of trading.
Traders will also navigate the first reading for second quarter GDP from the Commerce Department, due at 8:30 am Eastern time, as the national recession debate continues to rage.
Ahead of that, benchmark Treasury bond yields continued to ease in overnight trading, recalibrating from the dovish tone of the Fed rate decision, with 2-year notes trading at 2.982% and 10-years pegged at 2.792%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.2% lower at 106.231, well of the 20-year high of 109.15 it reached earlier this month.
On Wall Street, futures tied to the S&P 500 are indicating a 13 point opening bell decline while those liked to the Dow Jones Industrial Average are priced for a 45 point dip. Futures linked to the tech-focused Nasdaq are indicating a 98 point retreat.
2. — Meta Shares Tumble After Q2 Earnings Miss, Muted Ad Outlook
Meta Platforms (META) – Get Meta Platforms Inc. Report shares slumped lower in pre-market trading after the social media group posted its first-every quarterly revenue decline and indicated competitive pressures and slump ad sales would likely keep growth muted over the coming months.
The Facebook parent said profits for the three months ending in June fell 31% to $2.46, missing Street forecasts, as group revenues slipped 3% to $28.82 billion. Reality Labs, the division that will house the company’s metaverse plans, generated revenues of $452 million, but lost another $2.8 billion for the quarter after first quarter loss of $2.9 billion.
Looking into the currently quarter, Meta said it sees revenues in the region of $26.0 billion to $28.5 billion, again falling shy of the Street consensus of around $30.3 billion.
“We exist in a really competitive advertising market where advertisers have broad opportunities to advertise both offline and online and there are almost endless options,” outgoing COO Sheryl Sandberg told investors on a conference call late Wednesday. “So we know we have to earn our share and continue to deliver great ROI and be able to measure results.”
Meta shares were marked 5.9% lower in pre-market trading to indicate an opening bell price of $159.60 each.
3. — Spirit Soars After Cancelling Frontier Deal, Setting Up JetBlue Takeover
Spirit Airlines (SAVE) – Get Spirit Airlines Inc. Report shares moved higher in pre-market trading after shareholders voted against the discount carrier’s tie-up with Frontier Airlines (ULCC) – Get Frontier Group Holdings Inc. Report, paving the way for a potential $3.7 billion takeover by JetBlue (JBLU) – Get JetBlue Airways Corporation Report.
Spirit shareholders rejected Frontier’s $19.99 per share bid for Spirit, which was pegged far lower than JetBlue’s sweetened $33.50 per share offer but carries far more regulatory risk, in a vote that was completed late Wednesday.
To compensate for the risk, JetBlue has also pledged to boosts its ‘reverse breakup fee’ to around $350 million in the event that antitrust authorities fail to approve its proposed merger. That risk appears likely, given that the The Justice Department has already filed a lawsuit against JetBlue’s northeast alliance with American Airlines (AAL) – Get American Airlines Group Inc. Report, a tie-up the carrier says will remain in place if its allowed to complete its takeover of Spirit.
“We are pleased that the merger agreement with Frontier has been terminated and we are engaged in ongoing discussions with Spirit toward a consensual agreement as soon as possible,” JetBlue said in a statement.
Spirit Airlines shares were marked 5.25% higher in pre-market trading to indicate an opening bell price of $25.57 each while Frontier and JetBlue were essentially unchanged some last night’s close.
4. — Ford Shares Leap After Solid Q2 Earnings, Outlook Hold
Ford Motor (F) – Get Ford Motor Company Report shares moved higher in pre-market trading after the carmaker reported stronger-than-expected second quarter earnings, while confirming its full-year profit guidance, even as it cautioned on surging costs.
Ford said its adjusted earnings for the June quarter rose more than five-fold from last year to 68 cents per share, well ahead of Street forecasts, with revenues surging 66.5% to $40.22 billion.
Ford said in late April that pricing power and robust demand, particularly for its just-launched F-150 Lightning, would offset supply constraints and the impact of Russia’s war on Ukraine as it stuck to its full-year operating earnings forecast of between $11.5 billion and $12.5 billion. Ford reiterated that forecast following last night’s earnings.
We remain clear-eyed and determined to move with speed and determination on a Ford+ transformation,” CEO Jim Farley told investors on a conference call last night, referencing the group’s $50 transition into EV production that has included cost and job cuts.
“Traditionally, the auto industry has cut costs, often indiscriminately. As an effect, of course, from lower auto demands through economic softness and shift for customer preferences,” he added. “What we’re undertaking forward is totally different than that.”
Ford shares were marked 5.2% higher in pre-market trading to indicate an opening bell price of $13.88 each.
5. — Apple Earnings On Deck Amid Demand, Chip, China Impact Questions
Apple shares edged lower in pre-market trading ahead of the tech giant’s third quarter earnings after the closing bell, with investors focused on the group’s near-term revenue forecasts and the impact of chip shortages and production delays linked to China’s spring Covid lockdowns.
Apple is expected to post June quarter earnings of $1.16 per share, down 11% from the same period last year, on modestly firm topline revenues of $82.8 billion.
Apple CEO Tim Cook told investors in April that Covid and supply chain disruptions around what he called the “Shanghai corridor”, as well as Russia’s war in Ukraine, would clip between $4 billion and $8 billion from second quarter revenues, while other reports have suggested Apple is both slowing the pace of spending and hiring in some of its business divisions in its coming fiscal year.
The Wall Street Journal has also reported that Apple, which makes by some estimates around 90% of its hardware products inside China, is looking to expand manufacturing hubs in India and Vietnam in order to both diversify its supply-chain and counter the impact of China’s draconian Covid lockdowns.
Price hikes in international markets, combating a surging U.S. dollar, likely lifted average iPhone selling prices to around $813.00, according to Morgan Stanley analyst Katy Huberty, who sees around 46 million unit shipments for the quarter.
“Based on supply chain checks, iPad and Mac were the two products most impacted by the Covid-driven lockdowns in China,” Huberty said in a recent client note. “We forecast sub-seasonal performance for each segment in the June quarter, with iPad down 7% sequentially and Mac down 26%.”
Huberty has also told her clients that Apple faces “downside risk” to second quarter services revenue growth, noting that App Store sales had slowed to around 6% over the two months ending in May.
Apple shares were marked 0.95% lower in pre-market trading to indicate an opening bell price of $155.30 each.
