Dow extends slide as lackluster earnings, rate fears prey on nerves

May 30, 2024

9 minutes read

US stocks endured more losses on Thursday as lingering concerns about higher-for-longer interest rates and a Salesforce (CRM) sell-off put a damper on investors’ spirits.

The Dow Jones Industrial Average (^DJI) sank 0.8%, or more than 300 points points, after shedding over 400 to lead Wednesday’s stock market slide. The S&P 500 (^GSPC) fell 0.3%, while the tech-heavy Nasdaq Composite (^IXIC) dropped about 0.5%.

Stocks have lost steam amid renewed gloom about the odds for rate cuts, stoked by data showing less cooling in inflation than the Federal Reserve wants. At the same time, hopes that Nvidia’s (NVDA) blockbuster earnings would spur a broader stock rally were disappointed.

That rates angst drove US bond yields this week to their highest levels since early May, lifting the 10-year Treasury (^TNX) back above 4.5%. Though the benchmark yield retreated on Thursday, it still held above the key level, trading around 4.6%.

Meanwhile, Salesforce’s (CRM) results sparked other worries about likely losers in the AI boom. The software maker’s shares slid 15% after it said sales growth would stall to the slowest in its history.

Also on Thursday, new government data showed that the US economy grew at a slower pace than initially thought during the first quarter. The Bureau of Economic Analysis’s second estimate of first quarter US gross domestic product (GDP ) showed the economy grew at an annualized pace of 1.3% during the period, down from a first reading of 1.6% growth in April.

A wave of retail earnings before the bell gave other clues to consumer resilience and economic health. Kohl’s (KSS) shares cratered after the department store chain’s surprise quarterly loss and cut to its annual sales forecast. Meanwhile, Best Buy (BBY) posted a bigger drop in comparable sales than expected as Americans get choosy about spending on nonessentials.

Live12 updates

Thu, May 30, 2024 at 6:00 PM GMT+1

More AI spending isn’t helping everyone in tech

Salesforce (CRM) stock is down more than 20% after the company’s latest earnings release, which revealed that revenue isn’t growing at the pace initially hoped.

Salesforce chief operating officer Brian Millham described the buying behavior from customers as “measured” amid “high levels of budget scrutiny.”

Wall Street analysts believe that “budget scrutiny” may be caused by companies spending first on other AI solutions.

“We are in an environment where the enterprise space needs to invest heavily in AI, and a lot more dollars are going to AI initiatives,” CFRA analyst Angelo Zino told Yahoo Finance. “The problem is that this could be coming, at least in the near term, at the expense of Salesforce’s increasing revenue trajectory.”

Zino added that companies are all fighting for the same dollars and at this point, AI might be “more of a headwind than a tailwind.”
Thu, May 30, 2024 at 5:30 PM GMT+1

New York Fed’s Williams sees inflation easing in second half of year

Yahoo Finance’s Jen Schonberger reports:

New York Fed president John Williams said Thursday that he expects inflation to start coming down again in the second half of the year and once again reiterated the central bank won’t lower rates until it sees further progress on that front.

“I see some of the recent inflation readings as representing mostly a reversal of the unusually low readings of the second half of last year, rather than a break in the overall downward direction of inflation,” Williams said in a speech at the Economic Club of New York.

“With the economy coming into better balance over time and the disinflation taking place in other economies reducing global inflationary pressures, I expect inflation to resume moderating in the second half of this year,” he added.

Read more here.
Thu, May 30, 2024 at 4:49 PM GMT+1

Dollar General stock sinks as retail theft hits profit, stores move away from self-checkout

Dollar General (DG) stock fell as much as 4% during the company’s earnings call on Thursday as gross quarterly profit was impacted by an increase in shrinkage, an industry term for theft.

“Shrink continues to be our most significant headwind and was 59 basis points worse in the first quarter compared to prior year, ” Dollar General’s chief financial officer Kelly Dilts told analysts on the call.

The company has converted a total of about 12,000 stores away from self-checkout.

Dollar General’s net sales increased 6.1% to $9.9 billion in the first quarter of 2024, compared to $9.3 during the same period last year. Same-store sales rose 2.4% year-over-year.
Thu, May 30, 2024 at 4:00 PM GMT+1

Costco touches all-time high ahead of quarterly results

Costco (COST) shares defied downward market trends on Thursday, hitting all-time highs ahead of the wholesale retailer’s quarterly results due after the closing bell.

The stock touched an intraday record of $816.95 during the session.

As Yahoo Finance’s Brooke DiPalma reports, Costco saw foot traffic up year over year, beating the likes of Sam’s Club (WMT) and BJ’s Wholesale Club (BJ), according to Placer.ai. On Thursday afternoon, the company is expected to report net sales of $57.98 billion, up 8.07% year over year, and adjusted earnings of $3.70, up 8%.

Read more on Wall Street’s expectations here.
Thu, May 30, 2024 at 3:30 PM GMT+1

White House: Extending Trump’s tax cuts would be an ‘inflation bomb’

Yahoo Finance’s Ben Werschkul reports:

The White House is releasing a new public memo to allies Thursday that seeks to link the extension of Trump-era tax cuts to inflation, a top-of-mind issue for voters.

The Republican push to extend and deepen tax cuts enacted in 2017 represents “a MAGAnomics economic agenda that would trigger an ‘inflation bomb’ and raise costs for middle class families,” White House senior deputy press secretary Andrew Bates said in the note being released to reporters and activists.

The memo was provided first to Yahoo Finance.

Read more here.
Thu, May 30, 2024 at 2:42 PM GMT+1

Nelson Peltz sells entire Disney stake after proxy battle loss

Activist investor Nelson Peltz has sold his entire Disney (DIS) stake, according to a source familiar with the matter.

Peltz sold his position at a price of around $120 a share, which yielded a return of about $1 billion, the source said.

The development, first reported by CNBC, comes after Disney successfully fended off Peltz in his quest to secure board seats at the company, officially ending a highly contested proxy battle that plagued the entertainment giant for months.

Peltz had been fighting to secure board seats for himself and former Disney CFO Jay Rasulo but was ultimately unsuccessful. At the company’s annual shareholder meeting in early April, Disney said the current board would remain intact following a stockholder vote that gave the company’s slate a win “by a substantial margin.”

Disney shares are up about 12% since the start of the year but have fallen roughly 15% since the company defeated Peltz in its proxy fight.

Read more here.

Nelson Peltz founding partner of Trian Fund Management LP. speak at the WSJD Live conference in Laguna Beach, California October 25, 2016. REUTERS/Mike Blake (REUTERS / Reuters)
Thu, May 30, 2024 at 2:32 PM GMT+1

Dow slides 300 points as Salesforce stock tanks 18%

The Dow Jones Industrial Average (^DJI) fell about 300 points at the open, weighed down by shares of Salesforce (CRM).

The blue-chip index fell Thursday after dropping 400 points in the prior session. The S&P 500 (^GSPC) decreased 0.3% while the tech-heavy Nasdaq Composite (^IXIC) also slipped 0.4%.

Salesforce stock tumbled as much as 18% at the open after the cloud-based software company missed on second quarter guidance, raising concerns over the macro environment and pushing out deal signings.

Soaring shares of AI chip darling Nvidia (NVDA) haven’t been able to lift the overall markets. Growing concerns of higher for longer interest rates amid bumpy inflation reads have put a lid on recent rallies.

The bond market has struggled as the 10-year Treasury (^TNX) moved back above 4.5%, putting pressure on stocks.
Thu, May 30, 2024 at 1:39 PM GMT+1

GDP: US economy grew slower than initially thought in Q1

The US economy grew slower than initially thought during the first quarter.

The Bureau of Economic Analysis’s second estimate of first quarter US gross domestic product (GDP ) showed the economy grew at an annualized pace of 1.3% during the period, down from a first reading in April of 1.6% growth and in line with economist estimates.

The update to the first quarter growth metric “primarily reflected a downward revision to consumer spending,” per the BEA. Personal consumption in the first quarter grew at 2%, down from a prior reading of 2.5%.

The reading came in significantly lower than fourth quarter GDP, which was revised up to 3.4%.

The soft GDP comes at a time when markets have been sensitive to any readings that the economy may be running too hot for the Federal Reserve’s liking, as inflation has proved stickier than expected.

Notably, though, many forecasters don’t see the first quarter economic growth slowdown as the start of a broader trend. Goldman Sachs entered Thursday’s reading expecting 3.2% annualized growth in the second quarter. Meanwhile, the Atlanta Fed’s GDPNow forecaster is currently projecting 3.5% annualized growth in the first quarter.

Bank of America US economist Michael Gapen wrote in a note to clients last Friday that his team expected a downward revision to first quarter GDP but that it didn’t serve as a cause for concern for economic growth moving forward.

“The bottom line is that the economy moderated somewhat in the first quarter, but it remains on a stable footing overall,” Gapen wrote on Friday.
Thu, May 30, 2024 at 1:22 PM GMT+1

Terrible quarter from Best Buy

Yahoo Finance senior reporter Brooke DiPalma has all the numbers you need on the Best Buy (BBY) quarter here.

I would just like to add this quarter from Best Buy really stunk, again.

The sales declines are piling up for the company, making me wonder if there are structural problems that the business can’t overcome. Sales pressure has now persisted for two years or so. I am also wondering if there needs to be fresh eyes in the C-suite after this coming holiday shopping season.

The tough sales quarters for Best Buy continue. (Best Buy)
Thu, May 30, 2024 at 10:21 AM GMT+1

Follow up: Chewy

Chewy (CHWY) found its way into these live blog pages on Wednesday, and deservedly so.

Shares exploded 27% on the back of a better-than-expected quarter (shares are down slightly premarket today). The response caught me a little by surprise, as the company’s closely watched active customers metric fell again year over year. In fact, the decline accelerated versus the drop seen in the preceding quarter.

Nevertheless, the Street ate up the company’s margin expansion and commentary on an improving demand environment.

We caught up with Chewy CEO Sumit Singh in an extensive interview (watch the full interview below), where he echoed that improvement in the demand backdrop.

I found interesting the company appears all-in on opening vet clinics. It now has four in operation that opened in the first quarter, with another four on the way by year end.

The company is well behind Mars, which operates thousands of vets (it has been a consolidator in the space, buying family-run practices). But there is a window of opportunity here for Chewy to offer a better care environment that links to the services and products it sells online.

Also something to watch: The company has begun testing a paid membership program.
Thu, May 30, 2024 at 10:11 AM GMT+1

Trend watch: PC demand cycle

HP Inc. stock (HPQ) is getting a 3% bump premarket after a better-than-expected quarter last night.

Out of everything I talked about with HP CEO Enrique Lores (full interview below) following the results, it was his call out of companies upgrading computers ahead of the pulling of support for Windows 10 that left an impression. It appears the race is on to replace computers ahead of that moment in October 2025.

The introduction of HP’s first crop of AI PCs this month is likely further to put gas on that upgrade cycle.

“We continue to think HPQ remains well positioned to benefit from the PC upcycle, which should only accelerate in the second half and in FY25,” Evercore ISI analyst Amit Daryanani wrote in a client note this morning.
Thu, May 30, 2024 at 10:05 AM GMT+1

Salesforce crashing

Salesforce stock (CRM) is getting hammered premarket to the tune of 16%.

The sell-off is warranted.

Salesforce missed on its key performance obligations metric, showing 10% growth versus estimates for 11%. The conference call was littered with concerns about the macro environment, which is pushing out deal signings.

Second quarter guidance short of consensus reflects these concerns (hopefully for management’s sake).

“Though Q1 has been consistently weaker for software, magnitude of the miss may suggest more idiosyncratic issues (seat-exposure, down-sells, competition) which could continue to weigh on the business in the second quarter, especially with FY25 revenue now looking aggressive (implying second half acceleration vs. 2Q),” Citi analyst Tyler Radke wrote in a client note. “Valuation is undemanding at 20x EPS, 18x enterprise value/free cash flow (on FY25 estimates), but with slowing growth, lack of de-risked estimates and more active M&A we are comfortable on the sidelines awaiting improving growth or more evidence of Data Cloud/GenAI momentum/monetization.”

All in all, a surprising quarter from Salesforce that wasn’t telegraphed. The stock is likely to stay in the penalty box until signs of a more stable macro backdrop emerge.