Amazon, Novo Nordisk Crush Earnings, Fed Holds Rates, Jobs Stay Resilient, and Apple Repurchases $110 Billion in Shares
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By: Alex Nahigian , Ryen Fitzwater , and Cameron Morgan
In this week's market rundown, we analyze major events from this past week, including taking a deeper look into recent earnings reports, last week’s FOMC meeting, April’s jobs report, and Apple’s $110 billion in share repurchases.
What You Should Know Going Into Your Week
*indicates topic will be discussed further
Amazon, Novo Nordisk Report Huge Earnings Wins
Amazon and Novo Nordisk both reported impressive earnings last week, with better-than-expected top-line performance across their respective products and services.?
AMZN ($)
Amazon’s solid first quarter was driven by growth in advertising and cloud computing. Let’s take a look at the rundown by the numbers.
Earnings per share came in at 98 cents, versus 83 cents expected. Sales increased 13% from $127.4 billion a year earlier as the company posted revenue of $143.3 billion versus $142.5 billion expected, with key underlying operations fueling the gain. Amazon’s Web Services brought in $25 billion in revenue versus $24.5 billion in estimates. Advertising also aided the uptick by bringing in $11.8 billion in revenue versus $11.7 billion expected.
Amazon’s earnings growth has been driven in part by widespread cost-cutting, tweaks to its fulfillment operations, and the stabilization of cloud spending. CEO Andy Jassy has reportedly become “more disciplined in the company’s spending,” while growing profitable services like advertising, cloud computing, Prime memberships, and its third-party marketplace.
Investors should keep an eye on Amazon in terms of being the only standout among mega-cap internet companies that is yet to implement a quarterly dividend, even as cash and equivalents jumped to $73.9 billion in the quarter from $54.3 billion a year earlier.
NVO ($)
Novo Nordisk, which became the most valuable company in Europe last year due to the blockbuster success of its weight loss drugs, reported net profit rose 28% year on year to $25.4 billion Danish kroner, or $3.65 billion, ahead of a consensus forecast of $23.7 billion kroner per CNBC.
The headline news was that sales of Novo’s popular weight-loss drug Wegovy more than doubled to $9.38 billion.
Sales in North America rose 35% after Wegovy was approved in the U.S. in the first quarter for cardiovascular risk reduction in people with obesity. Wegovy now has 130,000 weekly prescriptions in the U.S., with more than 25,000 people starting on the brand per week during the quarter, the results showed.
From an investor standpoint, Novo Nordisk raised its outlook for 2024, increasing its sales growth outlook one percentage point higher, in a new range of 19% to 27% at constant exchange rates. It also upped its operating growth forecast to 22% to 30% from a previous forecast of 21% to 29%. Healthcare continues to be an eye-catching space with a high upside on numerous innovative opportunities across the industry.
Federal Reserve Holds Interest Rates, as Expected
The Federal Reserve opted to keep interest rates unchanged at 5.25% to 5.50%, being the sixth consecutive meeting where they have maintained this level. Despite an ongoing battle with inflation, the Fed refrained from cutting rates, emphasizing the need for inflation to trend sustainably towards the 2% target before making any notable decisions. Jerome Powell, the Fed Chair, highlighted concerns over persistent inflationary pressures, indicating a cautious stance on rate cuts amidst an economic outlook enveloped in uncertainty.
Powell's remarks post-decision underscored the Fed's commitment to monitor inflation closely, with readings consistently exceeding expectations. The central bank's preference for waiting until inflation shows tangible signs of moderation before considering rate cuts suggests a period of high borrowing costs will ensue. Investors responded positively to Powell's indication that the next policy move is more likely to be a rate cut, although the timing and extent remain uncertain. Despite market expectations shifting towards fewer rate cuts in 2024, Powell reiterated the Fed's data-dependent approach, emphasizing the central bank's independence from political considerations in its decision-making process.?
Alongside its decision on interest rates, the Fed announced a slowdown in the pace of quantitative tightening, starting in June. The reduction in the monthly cap on Treasury securities, from $60 billion to $25 billion, reflects a cautious approach towards monetary policy normalization. This adjustment, along with the maintenance of the mortgage-backed securities runoff, aims to balance the need for inflation control while also supporting economic growth. The Fed's actions emphasize its commitment to carefully managing its balance sheet while navigating the current inflationary pressures and growth dynamics in the broader economy.
175,000 Jobs Added in April to Resilient Labor Force
Despite U.S. job growth significantly below estimates and unemployment rates on the rise, an increase in private and nonfarm payrolls has reinforced prevailing expectation that the Federal Reserve will lower interest rates in the near term.
Per CNBC and according to the Labor Department's Bureau of Labor Statistics, nonfarm payrolls added 175,000 jobs in April, falling far short of the anticipated 240,000 projected by the Dow Jones consensus. The unemployment rate ticked up to 3.9%, contrary to the expected 3.8%. This slight increase in the unemployment rate jeopardizes the 27-month streak of rates below 4%.
As noted by Dan North, a senior economist at Allianz Trade, with interest rates jacked up pretty high, “you would expect to see the labor market slow down a little.” Following this statement, average hourly earnings increased by only 0.2%, falling below consensus estimates. Additionally, the jobless rate rose to 7.9%, a metric preferred for its inclusion of discouraged workers and individuals holding part-time positions.
Challenges aside, 56,000 jobs were added in the healthcare sector, leading in job creation among other sectors. Furthermore, the social assistance sector saw an increase of 31,000 jobs, transportation and warehousing experienced a rise of 22,000, and retail saw an uptick of 20,000 jobs.
Following the release of the report, traders have displayed optimism, anticipating two interest rate cuts by the end of 2024. The Chief Global Strategist at Principal Asset Management claimed that "this is the jobs report the Fed would have scripted and would bring the rate-cutting dialogue back into the market.” Inflation rates have surpassed the central bank's comfort zone at 3%, with the Fed's core personal consumption price index reaching 2.8%.
However, despite public discourse on the likelihood of rate reductions by Federal Reserve officials, Chairman Jerome Powell did not comment on the matter during his post-meeting news conference on Wednesday.
Apple Announces $110 Billion in Share Repurchases?
Apple announced on Thursday that its board had authorized $110 billion in share repurchases, a 22% increase over last year’s $90 billion authorization. The buyback is now Apple’s largest in its history.
Apple shares climbed 7% the same day after the iPhone maker released better-than-expected earnings, including beats on multiple fronts, including earnings per share and revenue. However, the main concern is Apple’s overall sales fell 4%, and iPhone sales specifically, fell 10% year over year during the quarter. Apple’s net income of $23.64 billion, or $1.53 per share, was down 2% from $24.16 billion, or $1.52 per share, in the year-earlier period.
Apple said iPhone sales fell nearly 10% to $45.96 billion, suggesting weak demand for the current generation of smartphones, which were released in September. Other Products, which is how Apple reports sales of its Apple Watch and AirPods headphones, were down 10% year over year to $7.9 billion. Furthermore, Apple has not released a new iPad since 2022, which has contributed to a drag on sales, resulting in decreased revenue in the division by 17% to $5.6 billion.
Despite another disappointing year for Apple, Apple CEO Tim Cook has remarked on the “opportunity and excitement” that lie ahead for the company. Cook exclaimed that Apple has “big plans to announce” at its iPad product event next week at the Worldwide Developers Conference in June. Cook also reiterated his confidence in the Chinese market following a heavy downturn in sales, reassuring investors that he is thinking “about the long term rather than the next week or so.”
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Weathering Wall Street references CNBC and Bloomberg for research.