US FINANCIAL MARKET

Stocks Fall as Nvidia Set to Test AI-Driven Rally: Markets Wrap – Bloomberg, 2/21/2024

• Stocks fell as traders awaited Nvidia’s earnings due after the market close for clues on the durability of the rally fueled by the artificial-intelligence frenzy.
• The company described by Goldman Sachs Group’s trading desk as “the most important stock on planet earth” could shake up markets given its high weighting in equity indexes.
• The key is whether the giant chipmaker at epicenter of the AI boom can meet revenue estimates and assure investors that it sees further growth in that area.
• The S&P 500 dropped to around 4,960, while the tech-heavy Nasdaq 100 underperformed — with Nvidia down about 2%.
• The chipmaker is the best performer in the US equity benchmark this year, up almost 40%.
• Treasury 10-year yields were little changed at 4.27%.
• Traders will also sift through the minutes of the Federal Reserve’s January meeting for clues on the outlook for the central bank’s next steps.
• Fed Bank of Richmond President Thomas Barkin said recent economic data highlighted how price pressures in some sectors are still too high, despite improvement in the overall inflation picture.
• HSBC Holdings reported fourth-quarter profit fell 80% after taking unexpected charges on holdings in a Chinese bank and from selling its French retail operations.
• Palo Alto Networks, a cybersecurity company, cut its annual revenue forecast, stoking concerns that customers are reining in spending despite an uptick in attacks.
• Cisco Systems plans to borrow from the US high-grade bond market to partly finance its proposed $28 billion acquisition of Splunk, as issuers rush to capitalize on strong investor demand.
• Toll Brothers, a large US luxury homebuilder, raised its guidance for full-year deliveries after reporting a strong start to the spring selling season.
• The Stoxx Europe 600 fell 0.2%.
• West Texas Intermediate crude rose 0.2% to $77.17 a barrel.

Amazon Is Joining the Dow Jones Industrial Average – Wall Street Journal, 2/21/2024

• Amazon.com is officially joining the blue chips.
• The online retail powerhouse will be added to the venerable Dow Jones Industrial Average at the start of trading Monday, succeeding Walgreens Boots Alliance.
• S&P Dow Jones Indices, which manages the 30-stock benchmark, said the changes were prompted by Walmart’s 3-for-1 stock split, which is also effective next week, and reflect the evolving nature of the U.S. economy.
• Walmart’s split will reduce its weighting, and that of the consumer-staples sector, in the index.

Palo Alto Networks Plunges After Cutting Revenue Forecast – Bloomberg, 2/21/2024

• Cybersecurity company Palo Alto Networks tumbled in late trading after cutting its revenue forecast for the year, sparking concerns that customers are reining in tech spending.
• The Santa Clara, California-based company posted sales of $1.98 billion in the second quarter, which ended Jan. 31, up 19% from a year earlier.
• Analysts had estimated $1.97 billion.
• Excluding some items, earnings amounted to $1.46 a share.
• Palo Alto Networks’ billings — a closely watched measure — will range as high as $10.2 billion this year, the company said.
• Sales will be $7.95 billion to $8 billion this fiscal year, the company said in a statement Tuesday.
• It previously projected revenue of as much as $8.2 billion, and analysts were estimating $8.18 billion.
• The outlook suggests that customers may be dialing back their spending ambitions, even as online attacks proliferate.
• The company did maintain its outlook for earnings and free cash flow for fiscal 2024, which Chief Financial Officer Dipak Golechha said reflected “disciplined execution on profitable growth.”

Toll Brothers 1Q Revenue Rises on Deliveries Beat – Market Watch, 2/21/2024

• Toll Brothers’ first-quarter revenue rose after the company’s home deliveries increased ahead of expectations.
• Revenue rose 9% to $1.95 billion, beating the $1.88 billion expected by analysts polled by FactSet.
• Toll Brothers’ home deliveries were up 6% to 1,927 in the period, ahead of the 1,864 expected by analysts and beating the company’s guidance.
• The Fort Washington, Pa.-based luxury homebuilder reported a profit of $239.6 million, or $2.25 a share, in the quarter ended Jan. 31, compared with $191.5 million, or $1.70 a share, a year earlier.
• Analysts polled by FactSet expected per-share earnings of $1.78.
• The company’s backlog value was down 18% from a year earlier, while contracted homes were up 40%.
• Toll Brothers expects to deliver 2,400 to 2,500 units in the fiscal second quarter, compared with the 2,492 delivered a year earlier.
• Analysts polled by FactSet expect 2,450 deliveries.

Caesars Entertainment’s 4Q Loss Narrows on Digital Business – Market Watch, 2/21/2024

• Caesars Entertainment’s loss narrowed in the fourth quarter as the company’s digital business offset weakness at its Las Vegas casinos.
• Revenue was roughly flat from a year earlier at $2.825 billion, missing the $2.85 billion expected by analysts polled by FactSet.
• Revenue in the Caesars’ Las Vegas business was down slightly from a year earlier, while revenue from Caesars Digital was up.
• The casino operator posted a loss of $72 million, or 34 cents a share, compared with a loss of $148 million, or 70 cents a share, a year earlier.
• Analysts polled by FactSet expected per-share earnings of 2 cents.

SolarEdge tumbles on weak first-quarter guidance – CNBC, 2/21/2024

• SolarEdge’s stock tumbled Tuesday after the company gave weak guidance for the first quarter, as the residential solar market continues to face headwinds from high interest rates and depressed demand.
• Revenues: $316 million, vs. $354 million expected.
• Loss per share: 92 cents adjusted, vs. $1.17 expected.
• SolarEdge expects revenues of $175 million to $215 million for the first three months of 2024, well below Wall Street’s expectations of $406 million.

PNC Slumps Most Since August After CFO Trims Forecast for Interest Income – Bloomberg, 2/21/2024

• PNC Financial Services Group dropped the most since August after the company said this quarter’s net interest income will be lower than previously expected.
• “We’ll probably have a little bit less NII because of lower loan volume,” Chief Financial Officer Rob Reilly said at a Bank of America conference Wednesday.
• The metric, a key source of revenue for the bank, will probably be down 3% to 5%, compared with the company’s previous forecast for a drop of 2% to 3%.
• Full-year guidance for NII still holds, Reilly said.
• In the wide-ranging discussion, Reilly also said PNC doesn’t have any merger deals in the works, “but we do see through time the need for more scale.”

RingCentral calls for lower 2024 sales than Wall Street expects, and the stock falls – Market Watch, 2/21/2024

• RingCentral shares fell more than 6% in the extended session Tuesday after the cloud-based communications company reported fourth-quarter earnings largely in line with Wall Street expectations, but its sales guidance for the year and for the current quarter fell short.
• Revenue rose to $571 million, from $525 million in the fourth quarter of 2022.
• Adjusted for one-item items, the cloud-based communications company earned 86 cents a share.
• Analysts polled by FactSet expected RingCentral to report adjusted earnings of 82 cents on sales of $570.4 million.
• For the first quarter, RingCentral guided for revenue between $575 million and $580 million, which would represent annual growth of 8% to 9%.
• EPS was seen between 79 cents and 80 cents.
• The analysts surveyed by FactSet are looking for first-quarter revenue of $581 million, and adjusted EPS of 82 cents.
• The company guided for 2024 revenue between $2.370 billion and $2.395 billion, which would be growth of 8% to 9%.
• It called for adjusted EPS between $3.50 and $3.58.

Vertiv’s stock drops on missed revenue, and weaker-than-expected Q1 view – Morningstar, 2/21/2024

• Digital infrastructure company falls more than 10% after it says its coming quarter may fall short.
• Vertiv Holdings stock fell in premarket trading on Wednesday after the digital-infrastructure company missed its fourth-quarter revenue target and warned its next quarter could fall short of estimates.
• Vertiv said its revenue increased by 13% to $1.87 billion, short of the analyst estimate of $1.89 billion.
• The company’s adjusted profit of 56 cents a share beat the FactSet consensus estimate of 53 cents a share.
• Looking ahead, Vertiv said it expects first-quarter adjusted profit of 32 cents to 36 cents a share, below the analyst estimate of 37 cents a share.
• For 2024, the company expects adjusted earnings of $2.20 to $2.26 a share, compared to the Wall Street estimate of $2.24 a share.

Analog Devices’ Earnings Beat Expectations. It Wasn’t All Good News. – Barron’s, 2/21/2024

• Analog Devices turned in higher earnings than expected for its fiscal first quarter but offered a disappointing outlook for the current three months.
• For its first quarter, ended Feb. 3, the semiconductor company reported earnings of $1.73 a share on revenue of $2.51 billion.
• Analysts surveyed by FactSet were expecting Analog Devices to report earnings of $1.71 a share on revenue of $2.50 billion.
• Analog Devices said it expects earnings of $1.26 a share, plus or minus 10 cents, for the quarter through the end of April, the second quarter of its fiscal year. Analysts surveyed by FactSet were expecting earnings of $1.56.
• The revenue forecast of $2.1 billion, plus or minus $100 million, also missed the consensus call of $2.36 billion.

Reddit Plans to Sell Stock to Loyal Users in Unusual IPO Wager – Wall Street Journal, 2/21/2024

• Reddit plans to place a big chunk of its IPO shares in the hands of its users, an unusual move that could build loyalty but also comes with risk.
• The company plans to reserve an as-yet-undetermined number of shares for 75,000 of its most prolific so-called redditors when it goes public next month, according to people familiar with the matter.
• The users will have the opportunity to buy Reddit shares at its initial public offering price before the stock starts trading, a privilege normally reserved only for big investors.
• Reddit, which first filed confidentially for an IPO in late 2021, is expected to make its paperwork public this month and list its shares on the New York Stock Exchange in March.

US ECONOMY & POLITICS

Fed’s Barkin Says Inflation Data Show Persistent Price Pressures – Bloomberg, 2/21/2024

• Federal Reserve Bank of Richmond President Thomas Barkin said recent economic data highlighted how price pressures in some sectors are still too high, despite improvement in the overall inflation picture.
• “You do worry that when the goods price deflation cycle ends, you’re going to be left with shelter and services higher than you like it” Barkin said in the interview, which was recorded Tuesday.
• He added that he’s looking more closely at short-term inflation figures now than year-over-year data.
• Barkin, who votes on monetary policy decisions this year, said earlier this month that the Fed should wait to cut interest rates until it has more evidence that inflation is firmly on a path to the central bank’s 2% target, echoing several of his colleagues.

Biden Cancels $1.2 Billion of Federal Student Loans – Bloomberg, 2/21/2024

• President Joe Biden’s administration announced that more than 150,000 borrowers will receive $1.2 billion in student loan forgiveness under a program unveiled in January seeking to provide relief for Americans who had been making payments for at least a decade.
• The move – which benefits those enrolled in the government’s Saving on a Valuable Education (SAVE) plan – wipes out loans for those who borrowed less than $12,000 for their higher education.
• Other income-driven repayment plans also forgive balances, but only after 20 or 25 years of repayment.
• “With today’s announcement, we are once again sending a clear message to borrowers who had low balances: If you’ve been paying for a decade, you’ve done your part, and you deserve relief,” said Education Secretary Miguel Cardona in a statement.
• The latest round pushes the total relief approved by the Biden administration to nearly $138 billion, benefiting 3.9 million borrowers.

U.S. to Invest Billions to Replace China-Made Cranes at Nation’s Ports – Wall Street Journal, 2/21/2024

• The Biden administration plans to invest billions in the domestic manufacturing of cargo cranes, seeking to counter fears that the use of China-built cranes with advanced software at many U.S. ports poses a potential national security risk.
• The move is part of a set of actions being taken by the administration on Wednesday that is intended to improve maritime cybersecurity.
• They include a U.S. Coast Guard directive to mandate certain digital security requirements for deployed foreign-built cranes at strategic seaports, as well as an executive order by President Biden setting baseline cybersecurity standards for computer networks that operate U.S. ports.
• Administration officials said more than $20 billion would be invested in port security, including domestic cargo crane production, over the next five years.
• The money, tapped from the $1 trillion bipartisan infrastructure bill passed in 2021, would support a U.S. subsidiary of Mitsui, a Japanese company, to produce the cranes, which officials said would be the first time in 30 years they would be built domestically.

Mortgage demand takes a massive hit as interest rates cross back over 7% – CNBC, 2/21/2024

• Mortgage interest rates surged last week to the highest level since early December, and that hit mortgage demand hard.
• Total application volume plunged 10.6% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.06% from 6.87%, with points rising to 0.66 from 0.65 (including the origination fee) for loans with a 20% down payment.
• Applications to refinance a home loan dropped 11% last week, compared with the previous week, and were just 0.1% higher than the same week a year ago.
• One year ago, the 30-year fixed rate was 6.62%.
• Applications for a mortgage to purchase a home fell 10% for the week and were 13% lower than the same week one year ago.
• With rates higher, the adjustable-rate mortgage share of activity increased to 7.4% of total applications.

EUROPE & WORLD

HSBC posts record annual profit but misses estimates on China write-down, shares tumble 7% – CNBC, 2/21/2024

• HSBC’s full-year 2023 pretax profit missed analysts’ estimates on Wednesday, hit by impairment costs linked to the lender’s stake in a Chinese bank, sinking its London-listed shares as much as 7%.
• Revenue for 2023 increased by 30% to $66.1 billion, compared with the median LSEG forecast for about $66 billion.
• Net interest margin, a measure of lending profitability, was 1.66% — compared with 1.48% in 2022.
• Europe’s largest bank by assets saw its pre-tax profit climb about 78% to a record $30.3 billion in 2023 from a year ago, according to its statement released Wednesday during the mid-day trading break in Hong Kong.
• That missed median estimates of $34.06 billion from analysts tracked by LSEG.
• Common equity tier 1 ratio — which measures the bank’s capital in relation to its assets — was 14.8%, compared with 14.2% in 2022.
• Basic earnings per share was $1.15, compared with the median LSEG forecast for $1.28 in 2023 and 75 cents for 2022.
• Dividend per ordinary share was 61 cents — the highest since 2008 — compared with 32 cents in 2022.
• Chief Executive Noel Quinn also announced an additional share buyback of up to $2 billion to be completed ahead of the bank’s next quarterly earnings report.
• HSBC also said it would consider offering a special dividend of 21 cents per share in the first half of 2024 after it completes the sale of its Canada business.
• HSBC said it will be focusing on an expansion of non-interest income revenue sources via its wealth and transaction banking business.
• It is expecting banking non interest income of at least $41 billion in financial year 2024.
• HSBC suffered a “valuation adjustment” of $3 billion on its 19% stake in China’s Bank of Communications, Quinn said.
• In an interview with CNBC following the earnings release, he said this is “a technical accounting adjustment” and “not a reflection” on BoComm.

Glencore’s 2023 earnings halve on lower commodity prices – CNBC, 2/21/2024

• Glencore said on Wednesday lower commodity prices had halved its earnings last year, and slashed its payout to investors, as the company saves to fund the acquisition of a 77% stake in Teck Resources’ metallurgical coal business.
• After two consecutive record years, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) halved to $17.1 billion from $34.1 billion a year earlier, in line with analysts’ consensus estimates of $17.15 billion.
• In preliminary 2023 results, the miner and trader said net debt stood at $4.92 billion at the end of the year, from just $75 million at the end of 2022.

Nokia Partners With Nvidia on AI in Mobile Networks – Wall Street Journal, 2/21/2024

• Nokia and Nvidia will work together to develop artificial intelligence solutions within mobile networks.
• The Finnish network gear maker said Wednesday that under the agreement, it will use Nvidia processors with its software to develop cloud network technology and explore how artificial intelligence can help transform the industry.
• “As AI is poised to change the landscape of telecommunications infrastructure and services within the mobile operator sector, this collaboration aims to deliver incremental value to end users through the introduction of innovative telco AI services,” it said in a statement.

China Tightens Grip on Stocks With Net Sale Ban at Open, Close – Bloomberg, 2/21/2024

• China has banned major institutional investors from reducing equity holdings at the open and close of each trading day, part of the government’s most forceful attempt yet to prop up the nation’s $8.6 trillion stock market.
• The order from China’s securities watchdog was recently delivered to major asset managers and the proprietary trading desks of brokerages, according to people familiar with the matter, who asked not to be named because they weren’t authorized to speak publicly.
• The China Securities Regulatory Commission, led by newly appointed Chairman Wu Qing, has also created a task force with the nation’s stock exchanges to monitor short selling and issue warnings to firms that profit from the wagers, the people said.
• While authorities have been ratcheting up curbs on bearish bets for months, the ban on net selling at the open and close represents a notable tightening of the government’s grip on market activity that risks upending popular strategies used by hedge funds and other institutional investors.
• Firms affected by the ban are unable to sell more shares than they buy during the first and last 30 minutes of trading, the people said.
• In addition to the trading curbs, some brokerages have been asked to recall stock loans to clients for shorting purposes, people familiar with the matter said.

Ukraine’s Military Spy Chief Says Russia Will Struggle to Keep Up the Fight – Wall Street Journal, 2/21/2024

• Russia’s capture of the east Ukrainian city of Avdiivka is the clearest sign yet of a shift in the war’s momentum as it approaches its third year.
• In an interview Thursday, with Ukraine’s withdrawal already under way, Lt. Gen. Kyrylo Budanov, Ukraine’s military-intelligence chief, acknowledged the tough situation for Ukraine’s outnumbered and outgunned forces. But Russia also has problems, he said.
• Russia’s professional army was largely destroyed in the first year of the invasion, he said, meaning it now throws untrained conscripts into suicidal assaults.
• It uses more artillery shells than it can produce, and although it fielded hundreds of tanks last year most of them were old models taken from storage and refurbished, while only 178 were new.
• Missile attacks on Ukrainian cities have subsided in recent weeks as Russian supplies have run down.
• As a result, Budanov said, Russia will struggle to achieve its main strategic goal of seizing all the eastern Donetsk and Luhansk regions this year.
• “They don’t have the strength,” Budanov said.

Israel Is Building a Road Bisecting Gaza to Prepare for Next Phase of War – Wall Street Journal, 2/21/2024

• The Israeli army is expanding a road across central Gaza to facilitate its military operations, part of its plans to maintain security control over the enclave for some time, according to defense officials.
• The gravel-paved road is one of a number of Israeli efforts to reshape the topography of the Gaza Strip—and give its military freedom of movement and a tighter grasp on the territory that was the launchpad for the Oct. 7 attack that killed about 1,200 people in southern Israel and sparked the current conflict.
• The corridor south of Gaza City, stretching roughly 5 miles from the Israeli border to the coast, divides Gaza in two, along an east-west strip of land occupied by Israeli troops since early in the four-month-old war.
• This will allow Israel’s military to continue to move quickly across the enclave along a secure route, even after most troops pull out. The Israeli military already controls major north-south roads in Gaza.
• The building and expansion of the road comes as the Israeli military is also building a roughly 1-kilometer buffer zone just inside Gaza’s border with Israel, where Palestinians would be barred from entry.

Factmonster – TODAY in HISTORY

• Michael Romanov was elected czar of Russia, beginning the Romanov imperial line. – 1613
• The first telephone book was issued (New Haven, Conn.). – 1878
• Battle of Verdun, the longest and one of the bloodiest engagements of World War I, began. – 1916
• Black nationalist leader Malcolm X was assassinated. – 1965
• President Nixon became the first U.S. president to visit China. – 1972
• Steve Fossett became the first person to cross the Pacific Ocean solo in a balloon. – 1995
• It was confirmed that Wall Street Journal reporter Daniel Pearl was dead, allegedly murdered by Islamic militants. – 2002
• Eurozone finance ministers reached an agreement on a second, 130-billion bailout for Greece to help with the country’s debt crisis. – 2012

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