Stock Market Rally Drifts Lower; Tesla Dives On Margins; ISRG, DHI, LVS Are Winners: Weekly Review

The major indexes saw modest declines, holding in a range. Tesla sold off as gross margins plunged. ISRG and DHI were earnings winners.

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May 9, 2023 • 7 min read

Stock market rallies continued to be sideways. Major indexes traded tightly between their 2023 highs, and their 50-day moving averges. Tesla (TSLA), which has been a victim of falling gross margins, fell on Monday. Elon Musk also warned that margin pressure would continue. China's EV manufacturers showed off an array of new models. Shares rose despite mixed bank earnings. Taiwan Semiconductor's (TSM), and Lam Research's (LRCX), both of which rose, provided mixed results and guidance. Intuitive Surgical, D.R. Horton (DHI), Las Vegas Sands, and related stocks also saw a jump in earnings.

The Dow Jones, S&P 500, and Nasdaq Composite all fell during the week but continued to trade within a narrow range. Tesla (TSLA), Intuitive Surgical, D.R. Horton (DHI), Las Vegas Sands, and D.R. Treasury yields increased, but were still well below their highs. Crude oil futures have fallen from recent highs.

The U.S. economic situation appears to be in a lull of growth that could get worse before getting better. The Federal Reserve's Beige Book, a report on economic conditions based on anecdotes, sent this message. The Beige Book report, released two weeks before each Fed meeting, revealed that economic activity had "little changed" after "increasing slightly" prior to the March meeting. The consumer spending levels are seen as "flat or slightly down." Despite tighter lending criteria, consumer and business loan volumes and demand have "generally decreased." In the week ending April 15, new claims for unemployment benefits increased by 5,000 to 245,000. The number of continuing claims increased by 61,000, to 1.865 millions. This is a 45% increase since September and the highest since November 2021. S&P Global's preliminary April survey showed that service sector activity was at its highest level in a year and factory activity reached an 11-month peak on Friday.

The EV giant posted a 21% decline in EPS, which was in line with expectations, but the revenue increase of 24% to $23.33 Billion was slightly below. The first quarter saw record sales, but margins were hurt by sharp price cuts. Tesla's gross profit margin fell to 19.3%, down from 23.8% and 29.1% in Q4 as well as a year ago. Margin excluding leases and regulatory credits fell to 18.3% in Q4 from 23.8%. Tesla previously set a "floor" of 20% gross margin for 2023. Cash flow fell 80% from a year ago to $441m, compared with expectations of $3.2bn. Elon Musk said he would be willing to see profits margins continue to fall on the conference call. Tesla cut U.S. pricing for the second consecutive time just before earnings. Tesla raised the Model X/S prices after earnings. Tesla's stock dropped on earnings and hit its lowest level since late January.

The BYD Seagull is the star of the show, but other EV manufacturers from China and the West also unveiled their latest models at the Shanghai Auto Show. BYD unveiled a small electric hatchback ($11,460), but also a PHEV and an EV crossover that are likely to start at around $30,000. The U8 off-road car from Yangwang, a super-premium vehicle, is priced at $160,000. Li Auto, a fast-growing maker of premium hybrid EVs and all-electric cars, announced that it would offer them for the first. Nio (NIO), XPeng, Polestar and Volkswagen all unveiled new models. These new EVs are likely to add fuel to a fierce price war in China. China is currently the largest and fastest-growing EV marketplace in the world, but it is expected to slow down its growth rate by 2023.

Li Auto broke out initially, but then reversed downward. Nio and XPEV both reversed sharply for losses, while EV and battery giant BYD erased substantial gains.

Robotic surgery giant da Vinci reported a huge surge in the number of procedures performed during its first quarter. In the first quarter of 2019, Intuitive Surgery (ISRG) reported a 26% increase in procedures. This is well above the 14%-20% growth that Intuitive had achieved between 2022 and 2023. Overall, sales grew 14%, to $1.7 billion, and adjusted profit increased almost 9%. Both were above average. Stocks of Intuitive Surgical gapped out from a base.

Netflix (NFLX), a streaming video service, added 1,75 million subscribers to its platform in the first quarter. This compares with forecasts of 2.2 million. The streaming giant missed sales but slightly exceeded EPS. Netflix lowered its Q2 revenue and EPS target, but increased its free cash flow goal for the full year.

Taiwan Semiconductor Manufacturing, the world's biggest contract chipmaker, announced a 3% drop in EPS, a slight beat, but a sales decline of 5% missed. TSMC lowered its revenue forecast for 2023 from "slight increase" to a decline in the low to mid single digits. It kept its capital spending plans the same. Both ASML (ASML), and Lam Research LRCX (LRCX), suppliers of semiconductor equipment, beat their March-quarter goals but were disappointed with their guidance. TSM rose slightly, LRCX shot up and ASML dropped.

The first quarter results of banks large and small were released. Goldman Sachs (GS), Morgan Stanley (MS) and others saw their investment banking revenues fall, but most banks reported higher net interest income. Bank of America (BAC), however, beat. State Street (STT), among asset custodians missed views, and Bank of New York Mellon was mixed. All of these banks were up except STT. U.S. Bancorp beat expectations, while KeyCorp and Truist fell short. Stocks were mixed. Western Alliance Bancorp, based in Phoenix (WAL), and Metropolitan Bank of New York City (MCB), a New York City bank, were among the worst hit banks during March. They jumped up on deposit trends and results.

Charles Schwab (SCHW), a financial services company, reported a slight 20% increase in earnings per share, but revenues rose 10% to $5.12 Billion, just below expectations. Schwab has paused their buybacks amid the banking uncertainty and noted a large drop in deposits. Interactive Brokers (IBKR), driven by an increase of 126% in net interest income, posted a 65% jump in EPS and a 63% rise in revenue. The third quarter in a row of increasing earnings was not enough to boost views. The number of customer accounts has increased by 21% in the past year, to 2.2 millions. SCHW, which was hard-hit in March, has risen strongly. IBKR, which held up better than SCHW, dropped slightly this week.

Dow will purchase Prometheus for $10.8 billion. Prometheus has been working on a treatment to treat inflammatory bowel diseases. RXDX's stock nearly doubled after the news of the takeover. The stock tripled in December on clinical trial results. Merck, along with its partner Moderna (MRNA), reported positive results for the personalized cancer vaccine from Moderna when used in combination with Merck’s Keytruda. The results might not be enough to warrant an approval. MRNA's stock fell. Merck (MRK), which reached a new record, has retreated slightly.

Johnson & Johnson and Abbott Laboratories both exceeded first-quarter expectations, but their shares diverged. J&J adjusted EPS rose a fraction, while sales increased 5.6% to $24,75 billion. However, JNJ shares fell due to conservative guidance. Abbott's sales and EPS both dropped 18% due to a decline in Covid tests. However, organic sales rose 10%. Shares jumped.

Union Pacific (UNP), and CSX, topped the quarterly view. UNP EPS increased 4% and CSX increased 23%. Both rail giants saw their shares rise. Knight-Swift Transport and J.B. Hunt both reported larger EPS declines that expected. J.B. Hunt also missed on sales. Both trucking companies rose a little for the week.

Leftist President said he would nationalize the industry. He will eventually transfer Chile's Lithium operations from SQM, Albemarle and other companies to a state owned mining company. SQM, Albemarle and other lithium companies, which had already been hit hard in the past few weeks, dropped sharply on Friday. Rio Tinto and BHP, both base metals miners, also fell.

SLB (SLB), previously known as Schlumberger and Baker Hughes, (BKR), beat the first-quarter expectations, boosting shares, even as crude prices fell from recent highs of five months. Baker Hughes' EPS jumped 86 percent, while revenues increased 18%. SLB's earnings increased 85%, to 63 cents. Revenue grew 30%, to $7.74 Billion. SLB's international revenue, which accounts for 77% of its total revenue, has increased by 29%, while North American revenues have increased by 32%.

Las Vegas Sands (LVS), the casino giant, jumped as revenue and earnings more than doubled after Macau gaming boomed with the end of China’s Covid restrictions.

Procter & Gamble, a consumer products giant, topped the Q1 forecasts with a modest EPS increase and revenue growth as higher prices offset weakeneder demand. The consumer goods giant increased its sales targets for the full year and its buyback plan. PG shares rose.

HCA Healthcare (HCA), with its unexpectedly high EPS and revenue, easily beat the Q1 expectations. The hospital operator's shares jumped from a buy zone up to a new record high.

Dexcom (DXCM), a continuous glucose monitor, was launched after the Centers for Medicare & Medicaid Services announced that it would reimburse people over 65 who require insulin to manage diabetes for the cost of the device. The coverage will be extended to patients with a past of glucose-related problems.

Lockheed Martin (LMT), a defense giant, reported earnings and sales that were better than expected in the first quarter. This was due to supply-chain improvements as well as space sales. The defense giant broke through on earnings, but then fell behind.

Auto retailer AutoNation beat earnings expectations, but growth slowed in the fifth quarter. Revenue was down due to a cooling in used car demand.

American Express (AXP), a credit card company, increased its loan loss provisions in Q1, resulting in a missed EPS forecast. Revenue was higher than expected. AmEx's stock fell Thursday morning but ended the day well above its lows.

AT&T reported a 5% drop in EPS, which was above expectations. However, revenue fell short of forecasts while free cash flow dropped far below expectations. Wireless subscriber growth slowed as expected.

Freeport-McMoRan reported a sharp decline in EPS and an 18% increase in revenue, but both were better than expected. The copper giant's shares fell on Friday as well as for the entire week.