US stocks decline after Meta reality check, weak GDP print

Technology companies led a decline in US stocks on Thursday, as META revenue forecasts unnerved investors eyeing the upcoming huge, high-risk earnings. On the other hand, a sharply lower than expected US GDP reading for the first quarter exacerbated questions about the health of the US economy in the face of persistently high interest rates.

The Nasdaq Composite (^IXIC) fell more than 2% following a going-nowhere day for key Wall Street metrics. The S&P 500 (^GSPC) lost 1.3%, while the Dow Jones Industrial Average (^DJI) fell 1.3%, or nearly 500 points.

Meta shares fell nearly 15% as the market fell due to rising costs at the owner of Facebook and Instagram, which plans to spend up to $10 billion on artificial intelligence infrastructure investments. Concerns have been growing about how long it will take for this spending to feed into revenues, sending technology stocks more broadly lower.

This failure has dampened hopes that the results of the “Gig Seven” could lead to a return to stocks, whose rise has recently lost momentum. It's also a reality check for Microsoft ( MSFT ) and Alphabet ( GOOGL , GOOG ), which are also weighed down by high earnings growth and AI expectations, when they report after the bell on Thursday.

Meanwhile, US GDP growth came in at an annual pace of 1.6% in the first quarter, well below expectations of 2.5%. The reading comes amid ongoing debate about the path of the Federal Reserve's interest rate campaign.

Treasury yields rose after the GDP print, with the benchmark 10-year yield (^TNX) rising to 4.72%, its highest level for the year.

On the macroeconomic front, the spotlight will turn to the March reading of the Personal Consumption Expenditures Index, the Fed's preferred measure of inflation, which is scheduled for release on Friday.

He lives5 updates

Thursday, April 25, 2024 at 2:32 PM GMT+1

Stocks sink at the open

Technology companies led a decline in US stocks on Thursday, as META revenue forecasts unnerved investors eyeing the upcoming huge, high-risk earnings. On the other hand, a sharply lower than expected US GDP reading for the first quarter exacerbated questions about the health of the US economy in the face of persistently high interest rates.

US GDP growth came in at an annual pace of 1.6% in the first quarter, well below expectations of 2.5%. Meanwhile, the “core” PCE index, which excludes volatile food and energy categories, posted 3.7% growth in the first quarter, higher than estimates of 3.4%, and well above the 2% gain in the previous quarter.

The Nasdaq Composite (^IXIC) fell more than 2% following a going-nowhere day for key Wall Street metrics. The S&P 500 (^GSPC) lost 1.3%, while the Dow Jones Industrial Average (^DJI) fell 1.3%, or nearly 500 points.
Thursday, April 25, 2024 at 11:45 AM GMT+1

JP Morgan makes a key point about Meta

Meta (META) is under fire pre-market after last night's earnings.

For good reason.

After spending 2023 promoting cost discipline, CEO and founder Mark Zuckerberg and his team have returned to their free-spending ways. A material increase in this year's capital expenditure guidance and signs of more aggressive spending in 2025 to support AI initiatives have rattled renewed investor confidence.

JPMorgan analyst Doug Anmuth made an important point in a note this morning:

“We are encouraged that Meta's success with Llama 3 and Meta AI has increased management's confidence in leadership in AI, and we know that creating new products takes time, but comparisons with periods of expansion for Reels, Stories, and Feed in mobile will be instructive.” “Many investors are concerned, even when we see those long-term gains.”
Thursday 25 April 2024 at 11:30 AM GMT+1

This chart says it all about Chipotle

Chipotle (CMG) is a beast.

There's no other way to put it.

The company is raising prices 6% to 7% in California in response to the new $20-an-hour wage law, and consumers aren't opposed. The company introduces sweet and spicy chicken, and consumers are demanding it. In some locations, the company is pumping out 80 burrito bowls per hour at peak times, which is impressive.

The chart below from Bernstein nicely captures the growth story that continues for Chipotle (more on that here in my interview with Chipotle CEO Brian Nichol).

Overall, the stock deserves to trade higher today after last night's results.

To learn more about Chipotle, tune in to my conversation with Chipotle CFO Jack Hartung today on Yahoo Finance Live around 9:45 a.m. ET.

There's Chipotle…and then there's everyone else. (Bernstein)
Thursday, April 25, 2024 at 11:15 AM GMT+1

Watch the trucks and rails

It's been a tough earnings season for trucking and rail companies.

The steering was terrible. The commentary on the earnings calls has been terrible.

The question now for investors is whether this comment signals an economic slowdown in the coming months – trucking and rail companies are often viewed as economic leaders.

A good summary of what's happening from the Jones Trading team:

“The S&P 1500 Road & Rail industry group fell as much as 4% yesterday intraday before settling for a 3% decline. It's no secret that there's a glut of trucking right now in the US. Last week, the stock fell JB Hunt (JBHT) declined sharply after announcing earnings and saying “we continue to face inflationary cost pressures, although we also face deflationary pricing pressures today,” the company's CFO said The 2009 recession Some competitors are taking shipments “at or below operating cost, just to keep the trucks moving,” he added. The situation is best summed up by Knight Swift (KNX), which previously reported negative last week and then cut Today the guidance for the next two quarters has moved to the rails, with companies appearing in most cases to have missed expectations at the top and bottom Norfolk Southern (NSC) noted, “We expect the mixed effects from higher international empty shipments to continue as geopolitical tensions continue to rise.” But the weak truck market continues to drive ever-lower truck rates, which will weaken non-premium domestic intermodal pricing.” A Canadian National Railway (CNI) executive noted, “…I think everyone will understand that with the existing truck capacity issues Today, there is a lot of surplus energy. “And we expect that to decline overall within North America as more and more stores go bankrupt, I will say, and some of that capacity goes out of the market.” I'm looking for bankruptcies, oh. The executive noted that this is the one area of pricing pressure that it's seeing.
Thursday, April 25, 2024 at 11:00 AM GMT+1
IBM Stock Tank – Here's Why and What the CFO told Yahoo Finance

Big red.

Shares of IBM (IBM) — also known as Big Blue — have come under fire ahead of their market launch following last night's earnings. The Street mostly likes the $6.4 billion HashiCorp deal. But much of the focus is on unchanged first-quarter sales at IBM's profitable consulting business.

Here's what IBM CFO Jim Kavanaugh told me about the HashiCorp deal and advisory flexibility.

Kavanaugh on HashiCorp:

“This deal is a tremendous strategic fit for IBM's new hybrid cloud and AI business.”

“I believe it will be a hugely transformative shift for IBM that complements and drives the next phase of Red Hat and IBM's scale as a hybrid cloud platform.”

Kavanaugh's consulting business:

“We continue to see very good demand in the market around large transformational deals and digital transformation. We had the biggest first quarter in consulting engagements in many years. So the demand profile is there. Our AI bookings for consulting doubled in Q1 throughout 2023.” So there's very good demand in the market but what we're seeing, given the uncertain macro environment, is that we're seeing a tightening in discretionary spending, not unlike Accenture and all the other consulting firms that impacts revenue generation in the short term.