Consumer Prices Rise, JPMorgan Posts Mixed Earnings, Meta Debuts AI Chip, and Vertex Pharmaceuticals Makes Acquisition

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By: Alex Nahigian , Ryen Fitzwater , & Cameron Morgan

In this week's rundown, we analyze major events from this past week, including taking a deeper look into further upticks in inflation, JPMorgan’s earnings lowdown, Meta’s deployment of a new AI chip, and Vertex Pharmaceuticals’ $4.9 billion acquisition of Alpine Immune.

What You Should Know Going Into Your Week

• Consumer prices rose 3.5% from a year ago in March, more than expected*
• Meta debuted a new generation of AI chip*
• JPMorgan’s profits rose 6%, but gave disappointing guidance on 2024 interest income*
• Vertex Pharmaceuticals bets on kidney disease treatment with $4.9 billion Alpine Immune deal*
• Dow tumbled 475 points, S&P 500 suffered worst day since January as inflation woes erupt
• Google announced custom Arm-based chips, following similar efforts at rivals Amazon and Microsoft
• Pfizer’s RSV vaccine showed potential to protect high-risk adults ages 18-59, widening its possible use
• Wells Fargo earnings topped estimates even as lower interest income cuts into profits
• Boeing’s quarterly airplane deliveries dropped to 83 amid safety crisis
• U.S. crude oil broke above $87 as Israel reportedly preparing for Iran attack this weekend
• StubHub eyes summer IPO, seeks $16.5 billion valuation
• Ford recalled nearly 43,000 SUVs due to gas leaks that can cause fires, but remedy won’t fix leaks
• Americans converged on the path of totality to experience the solar eclipse

*indicates topic will be discussed further

Core Consumer Prices Increased 0.4% From February

The core consumer price index reading came in higher than expected for March, as the Labor Department’s Bureau of Labor Statistics reported a 0.4% increase in consumer prices.?

Per CNBC, excluding volatile food and energy components, the CPI acceleration of 0.4% was 0.1% above economists’ expectations of a 0.3% gain and a 3.4% year-over-year level.?

Food prices increased just 0.1% on the month and were up 2.2% on a year-over-year basis. The measure for meat, fish, poultry, and eggs climbed 0.9%, pushed by a 4.6% jump in egg prices. Butter fell by 5%, and cereal and bakery products declined by 0.9%. Food away from home increased by 0.3%.

Energy rose 1.1% after climbing 2.3% in February, while shelter costs, which make up about one-third of the weighting in the CPI, were higher by 0.4% on the month and up 5.7% from a year ago. Expectations for shelter-related costs to decelerate through the year have been central to the Fed’s thesis that inflation will cool enough to allow for interest rate cuts.

The hike in inflation has crushed optimism about near-term rate cuts, and the markets reacted accordingly. The Dow Jones Industrial Average slid 475.84 points, or 1.24%, closing at 37,983.24. The S&P 500 tumbled 1.46% to 5,123.41. The Nasdaq Composite pulled back by 1.62% to 16,175.09.?

The CME’s FedWatch Tool, which predicts the probability of the Fed’s policy activity, shows the probability of a June rate cut at a new low. The probability of the first rate cut in 2024 coming in June was listed at approximately 70% just over a month ago. That probability has since plummeted and now lists just a 26.9% chance of rates being trimmed to 500-525 bps in June.

JPM Profits Rise 6% Despite Disappointing Interest Income Guidance

In the first quarter of 2024, JPMorgan Chase surpassed Wall Street's expectations in both profit and revenue. They reported earnings of $4.44 per share, exceeding the expected $4.11, while revenue amounted to $42.55 billion, surpassing the anticipated $41.85 billion. Additionally, the bank's profit increased by 6% to reach $13.42 billion, with part of this growth attributed to the acquisition of First Republic. Furthermore, revenue experienced an 8% boost, driven by higher interest income resulting from increased rates and loan balances.

Nevertheless, JPM’s guidance for 2024 disappointed investors. The main factor was net interest income, forecasted at $90 billion and remaining unchanged from previous estimates. In response, shares fell over 6% on Friday to log the worst day of performance since June 11, 2020. On the positive side of things, analysts indicate a conservative forecast could allow space for upward revisions down the road.

The bank's provision for credit losses comes in at $1.88 billion, notably lower than the expected $2.7 billion, and trading revenue surpassed expectations in fixed income and equities.

JPMorgan's performance contrasts with that of smaller banks, which face profit pressure due to increased deposit costs and concerns over commercial loan losses, particularly those stemming from office and multifamily real estate. CFO Jeremy Barnum indicated no improvement in commercial real estate, especially in the office sector, with no visible signs of improvement. Indubitably, large banks are expected to outperform their smaller counterparts, which typically have greater exposure to the commercial real estate sector.

Wells Fargo and Citigroup also reported quarterly results on Friday, while Goldman Sachs, Bank of America, and Morgan Stanley are scheduled to report next week.

Meta Deploys “Artemis” AI Chip

Meta Platforms revealed details on Wednesday discussing their latest in-house artificial intelligence accelerator chip as Meta looks to continue to push themselves further in the AI chip race.?

The unveiling of the next generation chip, referred to internally as “Artemis,” comes after reports made earlier this year about the deployment of a new custom data chip, made to attend to the overwhelming amounts of computing power needed to run AI platforms such as Facebook, Instagram, and WhatsApp. Artemis is expected to help reduce its reliance on external AI chips, allowing Meta to fully customize their chips and save on energy costs.?

Artemis will be produced through Meta’s primary manufacturer, Taiwan Semiconductor Manufacturing Co., using its “5 nm” process. Per CNBC, Meta stated that the new innovation process is capable of three times the performance of its first-generation processor. The chip has already been installed in the data center and has begun serving AI applications.

Along with the Artemis chip, CEO Mark Zuckerberg is making further efforts to stay ahead of the challenging competition. Billions are being spent to acquire nearly 350,000 flagship H100 chips from Nvidia alone, with an additional 250,000 other H100 chips from other suppliers. Meta’s chip expansion will attempt to reduce Nvidia’s supremacy in the market and allow Meta to advance further as a top competitor.??

Vertex Pharmaceuticals Acquires Alpine Immune Sciences For $4.9 Billion

Vertex Pharmaceuticals (VRTX) announced Wednesday that they will be acquiring Alpine Immune Sciences for around $4.9 billion, as VRTX looks to benefit from Alpine’s treatment for autoimmune disease in the kidney.

CNBC reported that the gene therapy developer will now have access to Alpine’s povetacicept, which is in mid-stage development for the treatment of IgA nephropathy (IgAN) and will be evaluated in a late-stage trial in the second half of 2024.?

Povetacicept works by targeting types of proteins called BAFF and APRIL, which together contribute to the development of multiple autoimmune and antibody diseases. IgAN, which occurs when clumps of antibodies are deposited in the kidneys, affects about 130,000 people in the United States, which presents VRTX with a massive opportunity to expand its customer base.

VRTX has caught the eye since the approval of its gene-editing therapy and cystic fibrosis treatment despite currently trading at a discount to competitors like Eli Lilly and Novo Nordisk. Consensus has VRTX listed as a strong buy around a $465 price on a 12-month basis, indicating close to a 20% upside.?

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Weathering Wall Street references CNBC and Bloomberg for research.