Stocks were volatile Friday as market participants weighed mixed reactions to a pair of Big Tech earnings reports and surging Treasury yields. The main equity indexes finished the session higher, though, and snapped their weekly losing streaks.
At the close, the Dow Jones Industrial Average was up 0.5% at 52,485, the broader S&P 500 was 0.7% higher at 7,489, and the tech-heavy Nasdaq Composite had gained 1.0% to 25,373.
But stocks’ gains were contained as borrowing costs continued to climb. The 2-year Treasury yield jumped 4.1 basis points to 4.27%, while yields on the 10-year Treasury (+4.9 basis points to 4.712%) and 30-year bond (+4.6 basis points to 5.253%) hit their highest levels since 2007.
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Today’s rise in Treasury yields came after Cleveland Federal Reserve President Beth Hammack, who voted for a quarter-point rate hike at the July Fed meeting, said in a statement that “now is the time” for the central bank to act to bring inflation down. “The longer that high inflation persists, the more challenging and costly it can be to bring it back down.”
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Minneapolis Fed President Neel Kashkari, who also dissented in this week’s Fed decision to hold interest rates steady in favor of a quarter-percentage-point hike, issued his own statement, saying that he’d prefer to raise rates now than to allow high inflation to become entrenched.
“The fixed-income complex is moving further away from the central bank’s current midpoint of 3.63% as bond vigilantes protest [Fed] Chair Kevin Warsh’s overly patient posture and dial up inflation expectations, amid a monetary policy institution that isn’t following through on its hawkish rhetoric at this juncture,” explains José Torres, senior economist at Interactive Brokers.
Amazon, Apple chart different paths after earnings
In single-stock news, Wall Street was once again tuned into earnings from a pair of Magnificent 7 stocks. Amazon (AMZN) emerged as a clear winner on Friday, surging 15.3% after the e-commerce and cloud giant reported a second-quarter beat on strong revenue growth in its cloud segment.
Amazon also gave soft third-quarter revenue guidance due to Prime Day occurring in June this year, and lifted its full-year capital expenditures budget to $220 billion from $200 billion on higher costs for memory chips.
Bill Birmingham, managing director at REX Financial, REX Shares’ parent company, says Amazon’s quarter was “exceptional,” with evidence that the company’s custom silicon and artificial intelligence (AI) commercialization are gaining traction noteworthy.
And while it’s worth keeping an eye on the lighter revenue guidance and higher spending levels, Birmingham said the print “provides real evidence that AI capex is being monetized.”
Apple (AAPL), on the other hand, slumped 7.4%, as weak current-quarter revenue guidance overshadowed higher-than-expected fiscal third-quarter earnings and revenue.
“We paid more per memory in the March quarter than the December quarter,” said Tim Cook on the earnings call, his last as CEO of Apple. “And then as I alluded to last quarter, we expected to pay significantly more in the June quarter than the March quarter, and that is what happened. It was partially offset by the benefit of carry-in inventory.”
Cook added that the company expects to pay even more for memory costs in its September quarter.
Argus Research analyst Jim Kelleher reiterated his Buy rating and $375 price target on Apple after earnings, representing implied upside of more than 20% to current levels.
“As we see it, Apple’s perpetually refreshed roster of highly desirable products provides a unique advantage over industry rivals,” says Kelleher. And dips should be bought on this high-quality stock to “establish or dollar-average into positions in AAPL,” he adds.
Roblox has its worst day ever after earnings
Roblox also said it expects Q3 revenue to come in well below what Wall Street is expecting and did not offer a full-year forecast.
This doesn’t seem to worry Oppenheimer analyst Martin Yang, who maintained an Outperform (Buy) rating on the communication services stock. “Retention remains stable and content is diversifying,” he says, though cautioning that it’s still uncertain as to when monetization will catch up to retention.
Yang isn’t the only one holding out hope for RBLX. Of the 34 analysts covering Roblox who are tracked by S&P Global Market Intelligence, 19 say it’s a Buy, 13 have it at Hold and two rate it a Sell. This works out to a consensus Buy recommendation.
