The stock market is starting to struggle.
All three major indexes are down from their all-time highs, with 445 stocks in the S&P 500 index falling on Wednesday. For the Dow Jones Industrial Average, the situation is a bit more serious. The index has fallen 3.9% since hitting an all-time closing high of 40,003 just under two weeks ago. The decline could get even worse after Dow component Salesforce fell sharply early Thursday.
After a strong but disappointing month for the stock market in May, investors are desperately searching for the next big thing.
With earnings season almost over, it looks like the artificial intelligence revolution is not going to save the day. There is currently a huge divide between hardware and software companies when it comes to capitalizing on the AI boom, further highlighted by disappointing earnings reports from Salesforce and UiPath on Wednesday.
Unfortunately, there are other negative factors as well. Bond yields have been a thorn in stocks’ side as interest rate cut hopes recede heading into November, and Jamie Dimon, in a speech on Wednesday, reiterated his warning that stock valuations are too high to justify share buybacks.
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But the market’s final hope for a rise is a decline in inflation. Much of the recent pressure on stocks has come amid concerns that inflation remains too high, a concern shared by several Fed officials.
But if inflation starts to trend lower again, the late May slump may end up being just a blip on the market’s radar. The key question is when the data will reflect that. It may not be at the same time as Friday’s core PCE numbers, and it could take weeks or even months.
The stock market is likely to continue to struggle until inflation starts to subside.
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—Callum Keown
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ConocoPhillips joins oil industry merger frenzy
ConocoPhillips announced a $22.5 billion deal Wednesday to buy Houston producer Marathon Oil, capping a string of big mergers in the energy sector as companies report record profits and commodity prices recover.
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That includes $5.4 billion in net debt.Some of the big deals are ignoring the Biden administration’s antitrust crackdown.
- Marathon, which has operations in North Dakota, New Mexico, Texas, Oklahoma and Equatorial New Guinea, is not growing as fast as other oil companies, but its cash flow is Help Conoco increase dividendConoco plans to repurchase more than $7 billion in stock in the first year after the transaction closes.
- The purchase price represents a 14.7 percent premium to Marathon’s closing price on Tuesday. Conoco, the third-largest U.S. energy company, has a market capitalization of Less than half Rivals Exxon Mobil and Chevron
.Exxon has signed a deal with Pioneer Natural Resources, while Chevron has signed a deal with Hess.
. - ConocoPhillips CEO Ryan Lance said the Marathon acquisition will expand the company’s portfolio. Fits into financial frameworkAdding high-quality, low-cost-to-supply inventory. Conoco expects to achieve run-rate cost and capital savings of at least $500 million in the first year following the closing of the transaction.
- Exxon shareholders re-elected 12 directors by wide margins at the company’s annual meeting on Wednesday. Despite activist campaigns Some large shareholders, including the California Public Employees’ Retirement System, voted against all 12 nominees to protest Exxon’s decision to sue two climate-focused funds.
What’s next: Oil markets on Sunday are expected to see the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, extend current production cuts of 2.2 million barrels per day through the third quarter, or the end of 2024. U.S. weekly oil production is near a record high.
—Avi Saltzman, Adam Clark, Janet H. Cho
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Salesforce cuts forecast, while AI drives results for HP and C3.ai
While artificial intelligence is experiencing explosive growth, the software sector is struggling to keep up.
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Cloud-based software maker Salesforce underscored this trend by lowering its subscription and support revenue forecast and giving a pessimistic revenue outlook for the current quarter.
- Salesforce.com said that subscription and support revenue makes up the majority of its business. Increased by just under 10% The company now expects revenue of $9.2 billion to $9.25 billion for the current fiscal year, down from its previous outlook. The company now expects revenue of $9.2 billion to $9.25 billion for the current quarter, below analysts’ expectations.
- Chief Operating Officer Brian Milham told analysts that the momentum seen in the fourth quarter was First quarter easedThe company has seen longer deal cycles, shrinking deals and tighter budget scrutiny, and its April quarter revenue fell short of expectations but profits beat expectations.
- HP received a boost from another company. Upgrade your PCThe company beat expectations in the second quarter, and CEO Enrique Lores predicts that 10% of PC shipments in the second half will be AI-enabled, with AI having an even bigger impact on revenue in 2025 and 2026.
- HP’s business PC revenue rose 6% year over year and 3% from the January quarter to $6.2 billion. Unit sales increased 12% year over year. HP said: won an important deal The adjusted profit outlook for the fiscal year ending January 2025 remains unchanged.
What’s next:
C3.ai
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April quarter revenue rose 20% year over year, well above expectations, marking the fifth consecutive quarter of accelerating revenue growth. July quarter revenue is expected to be in line with expectations, at around $84 million to $89 million.
—Liz Moyer and Bill Alpert
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American Airlines resets plans after losing customers to rivals
American Airlines CEO Robert Isom acknowledged that decisions to cut sales staff, promote travel bookings on its own website and scale back on travel agents have backfired, driving away corporate travel business. The airline plans to significantly reduce capacity growth and revise its strategy later this year.
- American Airlines was already under pressure after sharply lowering its second-quarter outlook that it set just a month ago. The airline now expects adjusted earnings to be between $1 and $1.15 per share. Revenue per seat mile will decline by 5% to 6%The stock fell about 14% on Wednesday, the worst drop in the S&P 500 index.
- The company is parting ways with Vasu Raja, its chief commercial officer, after 20 years with the company. Part of the team He stopped spending millions on travel agent commissions to lure business travelers. Mr. Isom called Mr. Raja an innovator, but said, “sometimes you need a reset.”
- American’s move has driven corporate travelers to other airlines, Isom said, telling investors at the Bernstein Strategic Decisions conference that American Trying to bring back touristsThis reduces the booking burden for travel agents and adds an incentive to encourage the use of new booking technologies.
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United Airlines
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The airline immediately forecast second-quarter earnings per share of $3.75 to $4.25. American Airlines’ struggles may not be reflected in the industry’s overall performance. Weak bookings Domestic fares fell due to discounting activities.
What’s next: American Airlines Vice Chairman and Chief Strategy Officer Steven Johnson will oversee the airline’s commercial business and lead the search for Raja’s successor.TD Cowen & Co. analyst Helene Becker expects it will take American at least a year to get back on track as the Boeing deal moves forward.
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737 MAX deliveries have been delayed.
—Janet H. Cho and Calum Keown
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Federal Reserve’s latest Beige Book reports modest growth and job gains
According to the latest Beige Book, which ended May 20, most Federal Reserve districts reported small or moderate growth, and retail spending remained flat to slightly improved with increased price sensitivity as consumers resisted higher prices and retailers offered discounts, squeezing profit margins.
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- Employment is up, with most districts reporting increased worker availability. Especially for entry level jobsand declining employee turnover. Wage growth remains modest, with some districts reporting wage growth at or near pre-COVID-19 averages.
- Travel and tourism is booming in many areas, including Atlanta and Seattle, and many more Increase in leisure and business travelBut summer prospects are mixed: Kansas City and Philadelphia are seeing increases in hotel room nights, and Massachusetts restaurants are reporting strong Mother’s Day sales.
- Housing demand improved, especially in Minneapolis, with construction of single-family homes increasing. Despite rising mortgage ratesThe commercial real estate situation weakened due to tight credit conditions and rising borrowing costs. Home sales were strong in New Hampshire and Maine in April.
- Meanwhile, Richmond reported: Increased import activity One waterway at the Port of Baltimore has reopened. Cleveland said the slowdown in business activity was due to interest rates remaining high for an extended period of time. Chicago said its outlook for farm income for 2024 had increased slightly.
What’s next: Beth Hammack, a longtime former Goldman Sachs executive, will succeed Cleveland Fed President Loretta Mester, who is retiring on June 30. Hammack will take up her post on Aug. 21, and Chicago Fed President Austan Goolsbee will have a voting role on the Federal Open Market Committee’s July 30-31 meeting.
—Janet H. Cho and Nicholas Jasinski
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—Newsletter editors: Liz Moyer, Patrick O’Donnell and Callum Keown
