Inflation Insights, Mortgage Market Shifts, Carl Icahn Stirs CZR: Portafolio Capital Markets Recap for Week Ending 05/31/2024
In April, the Federal Reserve's preferred gauge for inflation (PCE Index) indicated a 0.2% increase. This metric, which helps shape monetary policy decisions, provides a critical insight into the ongoing balance between economic growth and price stability. The Commerce Department's report revealed a 0.2% rise in an index excluding volatile food and energy costs from March to April, a slight dip from the previous month's 0.3% increase, marking the smallest rise this year. Core prices, measured from 12 months earlier, climbed 2.8% in April, consistent with March. Overall inflation increased by 0.3% from March to April and by 2.7% from a year earlier, unchanged from March. This stability suggests that consumer spending and prices are maintaining a steady pace, reflecting an equilibrium that might influence future monetary policy decisions. Economists are closely monitoring this trend to forecast potential shifts in economic strategies. The full report can be found here: https://www.bea.gov/sites/default/files/2024-05/pi0424.pdf
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Signed contracts for existing homes dropped by 7.7% compared to March, marking the slowest pace since April 2020, as reported by the National Association of Realtors. These pending sales, which forecast closed sales one to two months ahead, were also 7.4% lower than in April of the previous year. Contrary to expectations of flat sales compared to March, this decline reflects real-time buyer responses to rising mortgage rates. The average rate on a 30-year fixed mortgage climbed from around 6.9% at the end of March to 7.5% by the end of April, according to Mortgage News Daily.
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The US economy's growth rate for the last quarter has been revised downward to 1.3% from the initially reported 1.6%. US GDP rose at an annualized rate of 1.3% in the January-March quarter, according to the latest data from the Bureau of Economic Analysis, down from the previous estimate of 1.6%. This indicates the economy had less momentum than initially expected at the start of the year. The report highlighted decelerations in consumer spending, exports, and state and local government spending, alongside a downturn in federal government spending, all of which contributed to the slower growth. However, these declines were partially offset by an acceleration in residential fixed investment.
For more detailed information, you can visit the Bureau of Economic Analysis.
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After a brief pause in May, mortgage rates resumed their upward trajectory last week, immediately impacting the recent surge in mortgage demand. The average interest rate for 30-year fixed-rate mortgages rose to 7.05% from 7.01%, with accompanying points increasing to 0.63 from 0.60 for loans with a 20% down payment. While this may not appear substantial, rates had dipped back into the high 6% range before spiking later in the week. Consequently, total mortgage application volume dropped by 5.7% compared to the previous week, as reported by the Mortgage Bankers Association. Refinance demand, despite experiencing a minor rebound earlier, plummeted by 14% for the week, although it remained 12% higher than a year ago. Meanwhile, applications for home purchase mortgages decreased by 1% for the week and were 10% lower than the same period last year.
Gap Inc. reported an impressive earnings beat that was driven by sales growth across all four of its major brands. Gap exceeded quarterly expectations both in revenue and profit, prompting the retailer to revise its full-year forecast upwards. Notably, all four of Gap's brands—Gap, Old Navy, Athleta, and Banana Republic—recorded positive comparable sales, marking the first time in years. According to analysts surveyed by LSEG, the company reported earnings per share of $0.41, significantly higher than the expected $0.14. Additionally, Gap's revenue reached $3.39 billion, exceeding the anticipated $3.29 billion. These results highlight Gap's strong performance compared to market forecasts. For further details, you can visit Gap Inc. Investor Relations.
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Nordstrom missed Wall Street's quarterly earnings expectations for its fiscal first quarter, despite experiencing sales growth and maintaining its full-year forecast. The company's off-price chain, Rack, outperformed the rest of its stores. Here are the reported results compared to analysts' expectations from a survey by LSEG:
Loss per share: $0.24 vs. $0.08 expected
Revenue: $3.34 billion vs. $3.20 billion expected
Despite the earnings miss, the Seattle-based department store operator posted higher-than-expected revenue
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Best Buy's total U.S. sales dropped 6.3%, with significant declines in appliances (down 18.5%), entertainment (down 11.3%), and consumer electronics (down 8.3%). Computing and mobile phones decreased by just 2.2%, better than the expected 4.17% drop, while international sales fell 3.3%.
Online sales decreased by 6.1%, making up 30.8% of total U.S. revenue, slightly higher than 30.5% from the previous year. The company's service category, including membership offerings, boosted U.S. profit, resulting in better-than-expected Q1 profitability. Domestic gross profit rate increased to 23.4% from 22.6% last year. The company incurred $15 million in restructuring charges due to severance, as it re-engineered its workforce to increase frontline associates and streamline leadership layers in response to consumer preferences for in-store pickup.
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Dollar General recently reported a strong first quarter, thanks in large part to robust demand for budget-friendly groceries. The company reported a gross profit margin of 30.2% in the first quarter, down from 31.6% a year earlier. This decline was attributed to higher markdowns and an increase in retail shrink, which includes inventory losses due to theft or breakage. Same-store sales rose by 2.4% in the first quarter, exceeding analysts' estimates of a 1.61% increase. Additionally, the company posted a per-share profit of $1.65, surpassing the analysts' expectation of $1.57.
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Foot Locker's comparable sales declined by 1.8% during its fiscal first quarter, a better outcome than the 3.1% drop analysts expected, according to StreetAccount. Here’s how the company performed compared to Wall Street expectations based on a survey of analysts by LSEG:
Earnings per share: $0.22 adjusted vs. $0.12 expected.
Revenue: $1.88 billion, matching expectations.
For the three-month period ending May 4, Foot Locker reported a net income of $8 million, or $0.09 per share, down from $36 million, or $0.38 per share, a year earlier. Adjusted for one-time items such as impairments from store closures and restructuring costs, the adjusted earnings were $0.22 per share.
For more detailed information, you can visit Foot Locker’s Investor Relations.
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Dell Technologies experienced a decline in its share prices last week even as the company reported growth in its AI server business. This dip comes amid a wider context of financial fluctuations in the tech sector. Dell Technologies exceeded LSEG consensus estimates for the first quarter. The company reported:
Earnings per share (EPS): $1.27 adjusted vs. $1.26 estimated.
Revenue: $22.24 billion vs. $21.64 billion estimated.
For the current quarter, Dell expects EPS of $1.65 and revenue between $23.5 billion and $24.5 billion, compared to analysts' expectations of $23.35 billion. For the full fiscal year, Dell guided revenue between $93.5 billion and $97.5 billion.
Dell's net income for the quarter was $955 million, or $1.32 per diluted share, up from $578 million, or $0.79 per share, a year ago. Overall sales increased by 6% year-over-year.
For more details, you can visit Dell Technologies Investor Relations.
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Salesforce shares took a significant hit, plunging 16% following their first revenue miss since 2006. Key figures compared to LSEG consensus:
Earnings per share: $2.44 adjusted vs. $2.38 expected.
Revenue: $9.13 billion vs. $9.17 billion expected.
Net income for Salesforce jumped to $1.53 billion, or $1.56 per share, from $199 million, or $0.20 per share, a year ago.
For more detailed information, you can visit Salesforce Investor Relations.
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Caesars Entertainment Corporation saw a significant boost in its stock value following reports that billionaire investor Carl Icahn has acquired a substantial stake in the company. This development has sparked speculation and interest among investors, as Icahn's involvement usually suggests potential restructuring or strategic changes aimed at increasing shareholder value. The specifics of Icahn's investment, including the exact size of the stake, were not disclosed, but his history of activism in the gambling and hospitality sectors indicates possible future maneuvers to enhance Caesars' market position.
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ConocoPhillips has announced the acquisition of Marathon Oil in a significant all-stock transaction valued at $17.1 billion. This strategic move comes at a time when energy prices are escalating, reflecting a growing trend in the consolidation of the energy sector. The deal is poised to enhance ConocoPhillips' standing in the market by expanding its asset portfolio and operational scale.
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Merck is reportedly close to finalizing a $1.3 billion cash acquisition of the eye-drug company EyeBio, according to The Wall Street Journal. This move marks a significant expansion for Merck in the ophthalmology sector, broadening its portfolio in health treatments. The deal highlights the pharmaceutical giant's strategy to diversify its offerings and enhance its presence in specialized medical fields.
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T-Mobile has announced plans to acquire the assets of U.S. Cellular for approximately $2.4 billion. The deal includes the customer contracts and spectrum licenses of U.S. Cellular, aiming to enhance T-Mobile's network capacity and coverage across several key markets in the United States. This strategic acquisition underscores T-Mobile's continued efforts to expand its service reach and infrastructure, thereby bolstering its position in the competitive telecom industry.
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