US futures fell as confidence in interest rate cuts faded

US stock futures pointed to further losses on Wednesday, as investors looked to Federal Reserve Chair Jerome Powell's upcoming speech for clues on whether interest rates will stay high for longer.

S&P 500 futures (^GSPC) fell 0.2%, while Dow Jones Industrial Average (^DJI) futures settled just below the flat line. Contracts on the tech-heavy Nasdaq 100 (^NDX) led the declines, down nearly 0.4%, after key gauges closed in a sea of red.

Stocks pulled away from a strong start to the year as strong economic data dampened hopes for a three-fold Fed rate cut. Investors have trimmed their bets to the point where they expect a smaller and later easing than policymakers expected.

The focus now turns to Powell, whose speech on the economic outlook later Wednesday will be evaluated for clues about whether the Fed's June meeting will bring a pivot to policy. Appearances by Michael Barr and other Fed officials will also be monitored.

All eyes are also on who will win the bitter proxy battle between Disney and activist investor Nelson Peltz, with the results of a shareholder vote due later Wednesday. Sources told Reuters that indications were that Disney had enough support to stave off the board change proposed by Trian from Peltz.

In single stock moves, Intel ( INTC ) shares fell about 5% in premarket trading after the chip company posted steep operating losses at its foundry business.

Meanwhile, rival TSMC (TSM) was forced to halt some chip manufacturing operations in the wake of the massive earthquake in Taiwan, raising concerns about the supplier to Apple (AAPL) and Nvidia (NVDA). Its US-listed shares fell slightly.

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Wednesday 3 April 2024 at 11:40 AM GMT+1
Tesla is put in the penalty box by JP Morgan

No burying your hand here.

JPMorgan analyst Ryan Brinkman cut his price target for Tesla ( TSLA ) to $115 from $130 this morning, which assumes a roughly 30% downside from current price levels (the stock is already down 33% year to date ). The revised price target stems from Brinkmann “downgrading” his estimates on Tesla after a lackluster deliveries report.

Some interesting numbers from the Brinkman report:

EPS for the first quarter is expected to be $0.42, down from the previous estimate of $0.69. The current consensus is around $0.60.

It sees “significant” free cash flow of $1.3 billion in the first quarter compared to a previous estimate of $300 million in flow. Brinkman blames that on Tesla having too much inventory after a disappointing quarter.

Brinkman says of Tesla shares:

“Although Tesla shares are down -59% from the all-time high of $409.97 reached on November 4, 2021 (vs. S&P 500 +11%), the stock still looks expensive to us, with exceptional business “And tremendous achievements, unlike Tesla shares.” The trend in recent quarters requires it to grow in the coming years until it reaches our price target of $115 (which, at a market capitalization of $401 billion, we nervously note Tesla values as the world's most valuable automaker, ahead of Toyota's $391 billion), Not to mention the current valuation of $167 per share ($580 billion).
Wednesday, April 3, 2024 at 11:06 AM GMT+1

Intel is opening its books further, and the stock is taking a hit

Intel (INTC) stock is reprogrammed before it hits the market.

Shares fell 4% as Intel fine-tuned how it reported financials to investors. This was an expected event, but the numbers related to the foundry business (which is mainly focused on CEO Pat Gelsinger, as he explained to me on Yahoo Finance Live a couple of weeks ago) may have surprised many on the Street.

Intel said its chip manufacturing business posted a loss of $7 billion in 2023, larger than the $5.2 billion loss in 2022. Sales fell 31% year-on-year to $18.9 billion. The business is expected to break even somewhere around 2030.

These disclosures are likely to revive the conversation about why Intel is building factories to make chips for others, which comes at a significant cost.

Stifel analyst Ruben Roy provided the simplest analysis to understand the stock after the disclosures:

“We believe Intel has a tough road ahead as the company begins a multi-year transition phase that includes a high capital intensity and ambitious design roadmap with expectations to move through five process node transitions in four years. While Intel is executing on its plan, competitors like AMD (AMD) and Nvidia continue (NVDA) innovating on their technology roadmaps. Intel also faces increasing competition from in-house sourced CPU technologies in both the consumer PC market and the data center market. Given this, we see limited upside catalysts for the stock in the medium term.