It’s a bumper week ahead for investors, and one that could provide plenty of answers to the burning questions around the second half of the year.
The Federal Reserve will make its latest interest-rate decision Wednesday, followed by the European Central Bank and the Bank of Japan. A flurry of economic data, culminating with the Fed’s preferred inflation metric Friday will also keep investors busy.
If that’s not enough, more than 150 S&P 500 companies will report this week, offering clues about the health of the U.S. consumer.
It’s hard to predict what’s going to steal the show, but it could well be Big Tech earnings. Microsoft, Alphabet, and Meta Platforms are all due to report at a crucial time for the tech-stock rally.
The technology-heavy Nasdaq Composite fell last week, underperforming the Dow, which has now climbed for 10 consecutive trading sessions. The Nasdaq 100 also dropped ahead of its rebalancing, which comes into effect Monday.
The sector may need some good news to reignite the rally, but after strong gains so far in 2023—and plenty of AI developments baked in—expectations are high.
Tech earnings will go some way to answering whether the Dow’s recent outperformance of tech stocks is the beginning of a prolonged reversal or a short-term blip.
Investors will need to keep their heads on a swivel this week—the path ahead for the rest of the year is about to become clearer.
—Callum Keown
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Try your hand at this morning’s Barron’s digital jigsaw, which is based on the week’s cover story. For all games, including the daily crossword and sudoku, click here.
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Microsoft, Alphabet, Meta Platforms Due to Report
Microsoft,
Alphabet,
and
Meta Platforms
headline this week’s earnings reports from big tech companies. The sector has been rocketing higher this year on hopes for artificial intelligence to transform the industry. Some investors are asking how much those AI advancements might cost.
- Microsoft and Alphabet, the owner of Google, both report on Tuesday. They are in a stiff competition to advance online search and digital advertising. Microsoft has been betting heavily on research lab OpenAI’s technology, and announced that new AI tools for its Office software products will cost $30 a month.
- Meta Platforms, parent of Facebook and Twitter competitor Threads, is working with Microsoft to release a new version of its AI model Llama 2. They are making it free and available to developers who are building software on Microsoft’s Azure cloud computing platform.
- Analysts will be listening for any additional details Meta CEO Mark Zuckerberg might offer about Threads, the microblogging platform that gathered 100 million sign-ups in its first five days. Meta reports on Wednesday.
- Analysts expect Microsoft to report earnings per share of $2.55 on revenue of $55.5 billion, which is 7% higher than last year’s second quarter. Alphabet is expected to report earnings per share of $1.34 on revenue of $72.8 billion, up 4% from last year, FactSet said.
What’s Next: Wall Street expects Meta to post earnings per share of $2.91 on revenue of $31.1 billion, up nearly 8% from last year. But this is the firm’s “year of efficiency,” so analysts will also be listening for updates on cost control and layoffs.
—Liz Moyer
***
Chipotle, McDonald’s Will Show Consumers’ Appetite for Spending
Restaurant giants also report earnings this week, including
Chipotle Mexican Grill
and
McDonald’s.
The reports could show whether consumers are still willing to spend more to eat out. Although the
AdvisorShares Restaurant ETF
is up 24% this year, growth may have slowed, Wells Fargo told its clients.
- Sales at food services and drinking places rose 0.1% in June, a slowdown from May’s 1.2% gain, according to retail sales data. Prices for food away from home rose 7.7% in June compared with last year, while grocery prices rose 4.7%.
- Consumers torn between the costs of dining out or buying food to cook at home are frequenting cheaper restaurants. Fast food and fast-casual restaurants were 60.4% of total restaurant visits in the second quarter, Placer.ai data said.
- Analysts expect McDonald’s to report earnings per share of $2.78 on Thursday, with revenue of $6.3 billion, according to estimates tracked by FactSet. Same-store sales are seen rising 9.2%, but that is slower growth than in the first quarter.
- Wall Street expects burrito chain Chipotle to report earnings per share of $12.31 on revenue of $2.5 billion on Wednesday. Same-store sales are seen rising 7.6%, also a slower pace than the first quarter.
What’s Next: LPL Research projects the consumer discretionary sector will record double-digit earnings growth, with companies in the entertainment, hotel, restaurant, and leisure businesses contributing to the earnings boost.
—Sabrina Escobar and Janet H. Cho
***
Musk Bids Adieu to Twitter Brand, Blue Bird Logo
Twitter is transforming to X.com, with a new X logo replacing the blue bird logo. Owner Elon Musk polled his 149.1 million followers on the social media platform whether he should change the site’s color scheme from blue to black as he bids farewell to the Twitter brand.
-
Musk, who also owns
Tesla
and xAI, said during an interview on Twitter Spaces that the rebranding should have been done earlier. He bought Twitter in October and plans to cut the logo off its headquarters building “with blowtorches.” The X logo was to go live Sunday, he said in the afternoon. - Musk has talked about an X “everything app,” which would combine messaging, social networking, person-to-person payments, and e-commerce. He switched his Twitter bio from “Chief Twit” to “@xAI” after his newly formed artificial intelligence platform. Twitter changed its company name to X Corp. earlier this year.
- Twitter’s former head of product Jason Goldman told The Wall Street Journal that replacing a globally recognized brand with a “generic placeholder symbol” doesn’t make sense. Warner Bros. Discovery also previously caught criticism for removing HBO from the brand of its Max streaming platform.
-
Musk has an attachment to the 24th letter of the alphabet. His space exploration company is called SpaceX, he called his online banking start-up X.com before it was renamed
PayPal,
and he even named one of his sons “X AE A-12,” (changed to “X AE A-Xii” because numbers aren’t allowed in names under Californian law) but calls him “X.”
What’s Next: How advertisers respond to the rebrand could be a critical issue for the platform. Musk has said its advertising revenue is down 50%, and that it hasn’t turned around as quickly as he had hoped, remaining cash-flow negative as of the second quarter.
—Janet H. Cho
***
AMC Revises APE Stock Conversion Settlement
AMC Entertainment Holdings has filed a revised stock conversion proposal after a judge blocked the plan by the movie theater group to convert its so-called APE shares into common stock, CEO Adam Aron said Sunday. The stock jumped in the early premarket Monday.
- The conversion would have allowed AMC to raise more capital by selling stock. Aron told investors that raising fresh equity in the near term “is critical” to the company and that AMC was working to address the court’s concerns.
- AMC had reached a settlement with a group of shareholders who had argued the stock conversion diluted existing common stockholders without any compensation in return. The terms of the settlement had meant common stockholders would receive shares valued at more than $100 million, lawyers for the plaintiffs said.
- But Delaware Vice Chancellor Morgan Zurn said she couldn’t approve the settlement because the deal came at the expense of APE unit holders.
What’s Next: AMC will be hoping the revisions will suffice but expect more stock volatility. While the company was set for a boost from a bumper weekend that featured debuts of the Barbie and Oppenheimer movies, it’s uncertainty over the stock-conversion proposal that will affect its shares.
—Callum Keown and Rupert Steiner
***
Barbie and Oppenheimer Combine for 2023’s Best Box Office Weekend
“Barbenheimer” (the name being given to the concurrent releases of the Barbie and Oppenheimer movies) beat expectations and helped boost the industry’s box office sales to their best weekend showing of the year, topping $300 million, according to Comscore. Hollywood studios have been struggling with weak sales, and a strike by writers and actors could disrupt production of future blockbusters.
-
Barbie, by
Warner Bros. Discovery,
sold an estimated $155 million of tickets domestically, according to Comscore, while Oppenheimer, by
Comcast
-owned Universal, notched ticket sales of $80.5 million. For the industry, it was the fourth-biggest box office sales weekend ever and the best since 2019. -
Hollywood studios have been struggling to generate interest in summer movie going.
Walt Disney’s
Indiana Jones and the Dial of Destiny, which cost about $295 million to make, has grossed $154 million in domestic box office sales since its June 30 opening, Box Office Mojo said. - Domestic box office sales have reached about $5 billion this year, according to Comscore. That’s 12% higher than last year but more than 20% below 2019. The simultaneous release of Barbie and Oppenheimer seems to have helped boost sales for both.
- The National Association of Theatre Owners projected that more than 200,000 people in North America bought same-day double-feature tickets. EntTelligence estimates that 12.8 million people went to see Barbie, and 5.8 million flocked to see Oppenheimer.
What’s Next: Moody’s Investors Service estimates that a potential new three-year contract for the writers and actors unions, together with an already-ratified agreement for the Hollywood directors union, could cost media companies an extra $450 million to $600 million a year.
—Liz Moyer
***
MarketWatch Wants to Hear From You
More than 300,000 UPS drivers and workers are poised to strike Aug. 1 in what could be the biggest single-company strike in U.S. history. The last UPS strike in 1997 “shut America down,” one former driver told MarketWatch. How would a strike in 2023 affect workers and customers?
A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].
***
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
Read the full article here
