US stocks surged on Friday, as upbeat earnings from Apple (AAPL) lifted spirits and a weaker-than-expected jobs report revived bets that the Federal Reserve could cut interest rates sooner than thought.
The Dow Jones Industrial Average (^DJI) jumped 1.2%, or about 450 points, while the S&P 500 (^GSPC) rose 1.3%. The tech-heavy Nasdaq Composite (^IXIC) increased 2%.
The April jobs report painted a picture of a cooling US labor market, as employers added 175,000 jobs and the unemployment rate unexpectedly jumped to 3.9%. Economists had expected an addition of 240,000 jobs.
The report pushed up bets on a sooner-than-expected rate cut from the Fed. According to the CME FedWatch tool, traders see a roughly two-thirds chance of a rate cut in September.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Meanwhile, Apple was the star of the corporates Friday, as its quarterly profit beat expectations and it surprised investors with better revenue out of China than estimated in the face of reports of flagging iPhone sales.
While CEO Tim Cook talked up Apple’s plans for AI development — a key focus this earnings season — it was the company’s plans for a $110 billion stock buyback, the biggest in US history, that captured the market’s attention. Apple shares rose 6% in afternoon trading, buoying the Dow.
The blue-chip index is also seeing a boost from heavyweight Amgen (AMGN), whose shares soared almost 12% after comments by its CEO suggested its obesity drug could take on market leaders from Novo Nordisk (NVO).
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Stocks finish higher as rate cut hopes rekindle
Stocks closed the session and the week on a high note after investors took a weaker than expected jobs report as a glimmer of hope that the Fed will start cutting interest rates in the months ahead.
The Dow Jones Industrial Average (^DJI) jumped 1.2%, or about 450 points, while the S&P 500 (^GSPC) rose 1.3%. The tech-heavy the tech-heavy Nasdaq Composite (^IXIC) increased 2%.
A look at the week ahead
While many of the biggest names on Wall Street have impressed investors for the first quarter of the year, a host of corporate giants are on deck to report earnings, continuing a storyline that has placed corporate performance at the forefront, even as the Federal Reserve’s interest rate policy has largely dictated the market mood.
Palantir (PLTR), Uber (UBER), and Robinhood (HOOD) are among the tech-centric companies to report next week. They follow the giants of Seattle and Silicon Valley that mostly impressed investors over the past two weeks.
Entertainment giants Disney (DIS), and Warner Bros Discovery (WBD) are also scheduled to report in the coming days. Their earnings will arrive as the fate of a Paramount Global (PARA) deal remains uncertain.
On the economic data front, the fight against inflation rages on. Investors will get the latest consumer confidence levels, as consumers continue to be challenged by higher interest rates and a pricing environment that has cooled from its peaks but remains sticky in some areas.
A fresh look at consumer credit will also give investors insight into the state of debt burdens while another week of jobless claims offers an update to the health of the labor market, a key indicator for the Federal Reserve.
Yahoo Finance’s Brent Sanchez has a graphical breakdown of what to watch next week:
Peloton shows everything doesn’t need to be a subscription
Not everything has to be a subscription company.
Peloton, the former star of the stay-at-home economy turned archetype of the COVID comedown, still can’t turn itself around. In a fit of sweaty déjà vu, the maker of connected exercise equipment is slashing headcount and saying goodbye to its CEO.
Two years ago Peloton did the same thing but ended up in the same place, which is, I suppose, what stationary bikes do. To reduce costs the company will lay off about 400 people and continue to ditch physical showrooms. But Wall Street didn’t appreciate Peloton’s latest culling. The stock tumbled more than 12% Thursday, dragging shares below $3. Next to razors, boxes of wine, and streaming services, subscription fatigue is settling in. But Peloton’s problem isn’t its digital product.
“The subscription economy isn’t going anywhere,” said Adam Levinter, CEO and founder of the consultancy Scriberbase and author of “The Subscription Boom.” “The question is: Where is it changing and what areas are getting squeezed?”
For many subscription-based companies, having to manufacture and deliver a physical product can be a drag. Peloton offers a hybrid model, but the company still largely centers its machines, said Amy Konary, senior vice president and founder of Zuora’s Subscribed Institute, a think tank for recurring revenue businesses. Instead, a greater focus on the no-equipment-needed app, decoupling its digital services from its physical products, would steer the company closer to other subscription winners, Konary said.
Will a Paramount-Skydance merger even happen? Here’s the latest
The clock is ticking on a potential merger deal between Paramount Global (PARA) and Skydance Media with exclusive negotiation talks between the two companies set to expire today.
But according to Reuters, that exclusivity period is unlikely to be extended — a move that will open the door for other bidders.
Sony Pictures Entertainment and private equity firm Apollo Global Management have formally expressed interest in purchasing the media giant for $26 billion, according to a source familiar with the situation. (Disclosure: Yahoo Finance is owned by Apollo.)
Reuters said Sony and Apollo have yet to hear a response on their respective bid.
“We expect Skydance’s exclusive negotiating window with Paramount to expire tonight without an agreement,” LightShed Partners’ Rich Greenfield wrote in a note to clients on Friday. “While Skydance could come back later in 2024 or next year, we sense National Amusements sees too many legal headaches with proceeding, given the special committee’s view of the proposed transaction.”
National Amusements (NAI), the holding company run by Shari Redstone, has been in exclusive talks with David Ellison’s Skydance Media to sell its controlling stake in the media giant. But Paramount’s nonvoting shareholders have publicly expressed concerns over the terms of a Skydance deal, which they say unfairly benefits Redstone at the expense of other investors.
Despite preference for the Sony/Apollo bid from shareholders, Greenfield said he does not expect that offer to be approved by Paramount’s board either. He cited two main reasons why:
1.) National Amusements does not want to see a break-up of the company and can stop any transaction they do not desire.
2.) Given the regulatory hurdles posed by studio and TV station consolidation and foreign ownership, the regulatory approval process would take at least 12 months and potentially far longer if the administration turns over in November. The deal can be structured to be approved, but there can be no certainty and it will be a lengthy and painful process (Skydance had no tangible regulatory issues).
Overall, Greenfield said he expects Paramount to “strategically reorient” the business and revisit M&A later this year or in 2025. He said it’s still possible NAI sells a minority stake by the end of 2024.
Big Tech pours on the shareholder returns
Amazon (AMZN) is the sole holdout among the tech giants when it comes to paying out a dividend to shareholders. But there’s increasing pressure for the retail and cloud company to join the dividend club soon.
First, in February, Meta (META) declared a quarterly dividend to bolster its standout earnings. Google Parent Alphabet (GOOG, GOOGL) was next, announcing last week that it would initiate a dividend, pushing the company’s market cap above $2 trillion. In both cases the shareholder return initiatives, which included beefing up stock buyback programs, were celebrated by Wall Street as investors lifted their share prices by double-digit percentages.
And on Thursday Apple said it would increase its dividend to $0.25 per share alongside the largest share repurchase program in history, totaling $110 billion.
As if their gargantuan profits weren’t enough, the initiatives help sweeten the deal for investors, especially as capital-intensive AI efforts require billions of dollars in capital expenditures and as some of their business segments show signs of slowing growth.
Once viewed as the business world’s fledgling upstarts, US tech giants are now the undisputed juggernauts of the corporate world and the recent bout of shareholder return programs are the latest sign of their maturity and market dominance.
Stocks trending in afternoon trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page during afternoon trading on Friday:
Apple (AAPL): The tech giant is basking in the sun Friday morning as shares rose as much as 6% after the iPhone maker reported earnings that beat forecasts, sales that fell less than feared, and a new $110 billion share repurchase plan.
Paramount (PARA): Shares rose 3% after reports confirmed that Sony (SONY) and Apollo Global Management (APO) are pursuing an acquisition of the media giant. The proposed deal, valued at $26 billion in an all-cash bid, would have Sony assuming the role of majority shareholder and Apollo taking a minority stake. (Disclosure: Yahoo Finance is owned by Apollo.)
Block (SQ): The financial technology company slipped about 0.9% Friday afternoon after posting its first quarter earnings results that showed a 22% gain in gross profit compared to the same period last year. But investors also took notice of a bitcoin (BTC-USD) announcement. The company said it plans to use 10% of those profits from bitcoin products to reinvest in more bitcoin. And while shares of the top digital currency rose Friday, the price of the asset has fallen more than 15% from the recent highs of March.
Amgen (AMGN): Shares of the pharmaceutical company surged about 13% Friday morning after its CEO said he was “very encouraged” by interim results of a phase II study of injectable obesity drug MariTide.
Stocks rise in afternoon trading
US stocks gained ground on Friday as investors took a weaker-than-expected jobs as a sign of hope that the Federal Reserve will cut interest rates in the months ahead.
The Dow Jones Industrial Average (^DJI) jumped 1%, or about 400 points, while the S&P 500 (^GSPC) rose 1.1%. The tech-heavy Nasdaq Composite (^IXIC) increased 1.8%.
Apple investors delight in largest ever stock buyback
Lagging most of its Big Tech peers this year, Apple (AAPL) came into earnings down 10%. But its fortunes quickly turned after announcing the largest-ever stock repurchase program.
Shares of the iPhone maker climbed more than 6% Friday morning after revealing the board approved a new $110 billion share repurchase plan.
Of the 10 largest share buyback announcements made in the US, Apple is responsible for the top six of them, according to Bloomberg, which also include share repurchases from Chevron (CVX) and Alphabet (GOOG, GOOGL).
The latest buyback came in well above the $90 billion amount that some analysts had expected, following the prior repurchase programs of the last two years. Apple also boosted its shareholder dividend to 4% in another sweetener.
Angelo Zino, senior equity analyst at CFRA Research, kept a Buy rating on Apple shares with a 12-month price target of $210, which represents a 14% premium above its current $184 share price.
Zino said that the buyback program and increased dividend “demonstrates AAPL’s high conviction level for business prospects ahead” in a note to clients. “We believe these results appear to change the narrative on the AAPL story, as China is holding up better than expected and there are a host of upcoming events/catalysts on the horizon that could improve investor sentiment and drive consensus estimates higher.”
Amazon’s AWS on course to bring in $100 billion in revenue this year
The division that represents more than 60% of Amazon’s quarterly operating profits has achieved a significant milestone: It’s on course to haul in $100 billion in revenue this year.
Powered by heightened demand for generative AI services and the ongoing trend of companies moving their workloads to the cloud, Amazon’s enterprise cloud operation gained for the second straight quarter, rising 17% year over year to $25 billion, Yahoo Finance’s Brian Sozzi reports.
AWS CEO Adam Selipsky, who was hired to run the division in 2021, said on the Opening Bid podcast that even with that growth, the business still has room to grow. Selipsky contends that with 85% of companies still storing their data on-premise, AWS still has massive opportunity to increase its business.
“We’re optimistic about the business outlook for AWS and I think it can continue to grow really rapidly. I don’t really see an upper limit on it,” Selipsky said. “Of course it’s not our birthright, it’s not guaranteed. We’ll only be as successful as what we do tomorrow for customers.”
Stocks trending in morning trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page during morning trading on Friday:
Apple (AAPL): The tech giant is basking in the sun Friday morning as shares rose as much as 6% after the iPhone maker reported earnings that beat forecasts, sales that fell less than feared, and a new $110 billion share repurchase plan.
Amgen (AMGN): Shares of the pharmaceutical company surged 13% Friday morning after its CEO said he was “very encouraged” by interim results of a Phase II study of injectable obesity drug MariTide.
Coinbase (COIN): The crypto exchange reported better-than-expected revenue in its first quarter earnings report, but analysts were mixed on the company’s outlook. Some noted that Coinbase’s share price isis still heavily influenced by the fluctuations in digital currencies.
Cloudflare (NET): Shares of the cloud cybersecurity company plummeted over 16% Friday morning following the release of second quarter revenue projections, which fell short of expectations, fueling concerns about sustaining its growth rate.
The Dow jumps 500 points in morning trading
A weaker than expected jobs report rekindled hopes on Wall Street that the Fed will eventually cut rates this year, as the unemployment rate ticked up to 3.9%, offering central bank officials a signal that their current restrictive policy is still impacting the economy.
The Dow Jones Industrial Average (^DJI) jumped 1.5%, or more than 500 points, while the S&P 500 (^GSPC) rose 1.2%. The tech-heavy Nasdaq Composite (^IXIC) increased roughly 1.9%. All three gauges are poised to build on sharp closing gains from Thursday.
The valuation debate on Apple
Let the valuation debate on Apple’s (AAPL) stock begin after a soft quarter and ahead of some artificial intelligence catalysts soon. I am calling the quarter soft even as the sell-side is overlooking all sales declines and focusing only on amazing Apple things.
Loop Capital’s Ananda Baruah had a good point on this one:
“The stock isn’t ‘expensive’ per se … but not screaming cheap either. It’s tough to discern if valuation is friend or foe currently, given Apple is trading more in the middle of its recent trading range but with fundamentals softer. Our hunch is that near-term stock dynamics could be variable, with the second half of the year stock dynamics being more ‘contextual’ given that there doesn’t currently seem to be as much estimate variability vs. Wall Street, and that [Apple has the potential to generate news on Gen AI and on AR/VR (i.e. VisionPro), two areas that could prove to be catalysts.”
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