Intel Guidance Disappoints, But Earnings Season Overall Has Surprised To Upside

A much-stronger-than-expected U.S. gross domestic product print gave investors something else to cheer about amid an earnings season where many companies have been faring better than had been forecast. 

In its first estimate of Q1 GDP, the Commerce Department said the benchmark measure of economic activity rose at a 3.2% annual rate. A Briefing.com consensus had expected a growth rate of 1.9%.

While the unexpected strength is a good sign and indicates that the domestic economy may not be as bad off as some have feared amid worries about a global growth slowdown, there is still room for caution as the government will have two more chances to revise the figure. 

The last time the U.S. government reported its GDP number, it said the economy expanded less than previously thought in the final quarter of last year, with its third estimate of Q4 GDP showing an annualized rate of increase of 2.2% compared with a previous reading of 2.6%.

The GDP data come amid signs of slowing growth in Europe and Asia as the continuing trade war between the United States and China drags on. However, overall, optimism about a U.S.-China trade deal has increased, helping boost stocks this year along with a positive market reaction to a more dovish Federal Reserve. 

Although earnings from big-name companies have been mixed, this earnings season overall is turning out better than many analysts had feared, and the stronger-than-expected results have also been helping boost shares. 

After the bell Thursday, Starbucks Corporation SBUX reported quarterly adjusted earnings per share and same-store sales that beat expectations. It also raised its full-year earnings outlook. Also after the close, Amazon.com, Inc. AMZN, reported a blowout quarter, with earnings per share handily beating expectations. However, its Q2 operating profit guidance fell short of analyst expectations. 

On the other side of the spectrum, Exxon Mobil Corporation XOM reported weaker-than-expected earnings and revenue, and its shares were down more than 2% in pre-market trading. Intel Corporation INTC shares were also on the back foot, falling more than 7% after the company gave softer-than-expected revenue guidance for 2019. That looks disappointing for the semiconductor space, but remember more earnings from the sector are on the way, including Advanced Micro Devices, Inc. AMD next week and Nvidia Corporation NVDA in mid-May, so we’ll have to see how all that plays out.

It’s been a solid week for earnings, but with expectations being so low, companies that beat earnings aren’t being rewarded as much as companies that miss forecasts are getting smacked.

MMMoving Lower

Investors and traders slapped a sticky note saying “sell” on the back of 3M (MMM) Thursday after the multinational industrial conglomerate reported earnings and revenue that missed expectations, announced 2,000 layoffs, and cut its 2019 earnings forecast. 

Its shares dived nearly 13% in their worst day since Black Monday in October 1987, making them the biggest loser in the Dow Jones Industrial Average ($DJI). MMM also dragged down the S&P 500’s (SPX) Industrials sector, which fell nearly 2% and was the worst performing of the index’s 11 sectors. Weak demand in China contributed to the company’s disappointing quarterly performance. 

Yesterday’s $DJI move was another example of why we often say it’s probably best not to follow that index too closely. Remember, it’s just 30 stocks, so a move like MMM’s can really make losses look dramatic for the entire index. There was kind of a dichotomy yesterday between the $DJI and SPX that might have looked confusing at first glance.

Microsoft, Facebook Shine

Meanwhile, the tech-heavy Nasdaq (COMP) was able to finish in the green on help from Facebook and Microsoft Corporation MSFT, which both reported solid quarterly numbers.

FB shares rallied more than 5.8% after the social media giant reported better-than forecast revenue. FB said it had 1.56 billion daily active users and 2.38 billion monthly active users. Average revenue per user of $6.42 beat expectations. Facebook, Messenger, and WhatsApp Stories features now have 500 million daily active users. 

This doesn’t necessarily mean FB is out of the woods on some other issues, like privacy and possible increased government regulation. However, it’s interesting to see that at least for now, that doesn’t appear to be affecting revenue much.

MSFT reported earnings and revenue that beat analyst expectations, helped by sales in the company’s cloud business. The company’s market capitalization surpassed $1 trillion after the report, although it settled below that figure. (See more below.) 

Figure 1: The PHLX Semiconductor Index fell Thursday, snapping a string of record closes. Xilinx (XLNX) shares fell the most of any in the index, dropping more than 17%. The index is expected to fall further this morning as shares of Intel fell over 7% in pre-market trading after the company offered weak guidance. Data Source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Cutting the Cord: The streaming services sector is heating up as more and more people cut the cord and leave cable in favor of streaming services from the likes of AMZN, which on Thursday said it has more than 30 million active users for its Fire TV streaming devices. Apple Inc AAPL has plans to launch its own streaming service. Also, Walt Disney Co DIS has announced its own offering, and according to CNBC Thursday is in talks to buy Comcast’s 30% stake in streaming platform Hulu, which would boost what DIS already owns of the platform. All this means more competition for Netflix, shares of which fell almost 1.6% percent Thursday. 

Three’s a Cloud: After reporting strong quarterly results helped by its cloud-computing business after the close Wednesday, MSFT became the third U.S. company to hit $1 trillion in market capitalization. The other two to hit that figure earlier were AAPL and AMZN, which hit that mark last year before sinking back below that level later in 2018. To put $1 trillion in perspective, when these companies were above the mark, their market valuations were larger than the gross domestic product of all but 16 nations on earth, based on 2018 International Monetary Fund GDP figures. 

Durable Goods Orders Pop: At a time when economic data has been mixed, durable goods orders numbers on Thursday scored one for the bullish side. The headline figure reported by the Census Bureau showed a 2.7% gain for new orders for manufactured durable goods in March, beating a Breifing.com consensus expectation of just a 0.9%. Perhaps more importantly for the economy, orders for nondefense capital goods excluding aircraft rose a robust 1.3%. As this later figure is considered a proxy for business investment, it’s possible that the data are reflecting increased confidence in the business climate in general and in hopes of a resolution to the U.S.-China trade dispute in particular. The trade war has weighed on sentiment for some time now, so increased orders could indicate purchasing managers are becoming more confident that a deal will get done soon.

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