Amid Market Turmoil, Compelling Earnings Coming

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Investors looking for safe havens in a dangerous market (0:30). Weight-loss drugmaker decline (1:45). Worry of recession eroding sentiment for consumer focused stocks (3:50). Fed decision out Wednesday (8:08). China EV data points coming next week (8:55). FedEx, Micron earnings coming (10:35).

Transcript

Rena Sherbill: Brian Stewart, welcome back to Wall Street Breakfast. Great to be here on a Friday with you.

Brian Stewart: Thanks. Great to be here.

RS: Yesterday, we had some discussion talking about markets going lower. What are you seeing out of the markets? What are you most focused on at week’s end and looking ahead to next week?

BS: So as you mentioned, the markets were down pretty sharply on Monday and continued to drift lower later in the week. So it was definitely a down week for the market.

When we’re looking at it, I think it’s important to pick out outliers and and stocks that maybe buck the trend a little bit. If you go to the winners and losers leaderboards for the week, there’s just a lot of red and a lot of stocks that are down sort of similar amounts. It’s hard to pick out ones to to focus on.

So if we’re looking for some some green amid a big wash of red, you can look at some big oil players. So ConocoPhillips (COP) and ExxonMobil (XOM) were both up over the past week. ConocoPhillips is up 10%, ExxonMobil up 4%. They were both up as the markets fell on Monday.

I think this is just a seeking shelter kind of play. Overall, the stocks have been tracking oil prices over the past year and are actually down over the course of a year underperforming the major averages.

But now, both stocks are beating the S&P 500 for year to date. So they’ve jumped past the S&P 500. So I think that’s just a sign that people are looking for safe havens in an overall dangerous market.

And then we look at the other side, some of the unexpected leaders on the downside so far this week have been the weight loss drug makers. Novo Nordisk (NVO) is down 18% over the past week and Eli Lilly (LLY) is down 12%.

I think this is a commentary on the overall weight loss market. I think there’s a fear of saturation. There was a survey that came out recently that said one out of five Americans have tried GLP-one. So we’re getting to the point where people who want it are already using it. And so there’s a question of where the next growth is coming from.

Then in terms of what’s in the pipeline, there’s been some underwhelming trial results lately. So there’s not something on the horizon, the next great weight loss drug from these companies meant to take it over. So I think in the selling spirit that gripped the markets in general earlier this week, I think people in those stocks took the opportunity to take profits, dump their position, and look for other opportunities elsewhere.

RS: What were those trials in?

BS: Novo Nordisk, I don’t know the drug off top of my head, but it hit its primary endpoint, but it was less than people had expected in terms of the efficacy for the drug. This is the next generation of their weight loss drug program.

This came after another disappointing trial on the same drug earlier. So there’s just a feeling that while this drug is performing competently, it’s not a game changer on the market. So it’s just going to be another weight loss drug on a market. And so might have some benefit for some users, but isn’t going to open up the market the way people had once hoped.

RS: Along with the losses from the weight loss drug makers, we also saw some big losses from the big discount retailers. Tesla, nobody paying attention to the markets is ignoring that fact. Tesla has been down pretty consistently. Starbucks has been down pretty consistently. Is there a theme there?

BS: All those have the the similarity that they’re consumer focused stocks. So I do think that worry of a recession is just eroding general sentiment for consumer stocks.

Tesla (TSLA), obviously, has been a major story, will remain a major story as we go forward. Elon Musk in his DOGE role has really put a spotlight on the company in a way that’s become a difficult brand management situation to say the least for the rest of the people at Tesla while he does his trip to Washington, his step away from Tesla leadership to be part of the Trump administration.

So people are starting to get antsy. Bulls in Tesla, people who have been buy the dip people so far this year. So for instance, Dan Ives, who’s a big bull on Tesla, he’s from Wedbush. He called this a moment of truth and he called on Musk to step up as Tesla CEO to basically get back in the chair and start taking steps to improve the company’s brand.

It’s been facing protests, and, they’ve tried to push back. There was that sort of car show on the White House lawn that took place recently. So it’s just become a weird situation around Tesla. I don’t know if we can look at Tesla as a market proxy at all just because the headlines around it have made it just a bigger story than Wall Street.

You mentioned Starbucks (SBUX). I think that’s an interesting one because Starbucks was actually down before the major market shifts. It’s been down seven of the last eight sessions.

It had reached a fifty two week high early last week, but then the CEO came out with rather harsh sort of message to workers. There were layoffs recently and the CEO said that the company had not been effective and he called on workers to work harder after the round of layoffs.

He also called for a leadership culture change, focus on accountability. And I think it was jarring for shareholders because the stock had done well so far recently. And the comments from the CEO, I think, were interpreted and is somewhat of a panic mode, like we need to change, we’re in trouble. And I think that that spooked a lot of shareholders.

General feeling is that he’s trying to just put a stamp on the company. It’s been kind of bouncing around for a number of years now. If you look at a chart, it’s basically sideways for the last several years. Even reaching a fifty two week high is just getting back some losses that it had previously.

So I think the idea isn’t necessarily in the near term, we need to make these changes. It’s more that we need to make these changes to break out of the doldrums that we’ve been in for a while now. There’s been a lot of leadership shuffle at Starbucks over the last few years. I think it’s just planting the flag, saying I’m in charge now and pointing a direction forward.

RS: Perhaps putting himself out there in the zeitgeist and as you said, making a leadership mark, I would say maybe as much for optics as for anything else?

BS: I think that’s an interesting point because I think we’re coming off of an era of celebrity CEOs. Elon Musk is sort of a legacy one, obviously. But a lot of a lot of companies have kind of gone in a more generic way for their leadership.

I mean, Tim Cook, everybody knows his name because he’s head of Apple (AAPL). But if you compare him to Steve Jobs, just sort of the the personality profile he has in the culture. I don’t expect a Walter Isaacson biography of Tim Cook to come out anytime soon.

And so you might be right, it is just getting in the public eye and creating a brand around Starbucks that has a personality to it, that has a name to it, that has a face of the company. And moving away from the more generic leadership that some companies have had after their founders have moved away.

Amazon’s (AMZN) another good example with Bezos stepping away from the CEO role, becomes a much less high profile position. It’s more of a manager position and less of a celebrity CEO situation.

RS: Looking ahead to next week, what are you focused on there?

BS: So the Fed decision’s out Wednesday. That’s gonna be the big market mover. Currently, there’s a 99% chance the markets are pricing in a 99% chance that rates are gonna hold steady next week. So that’s basically in the can.

There’s not really much to debate there, but the most interesting thing is gonna be the commentary, especially Fed Chair Powell’s remarks afterwards, the press conference that follows, see if there’s anything off the cuff, especially related to the chances of a recession and the Fed and how it feels like it can get out of the bind it’s in.

It’s been squeezed now with a weakening economy and sticky inflation. There’s a mini stagflation situation that we’ve talked about. And so does he have a vision for how to wiggle out of that?

On the corporate side, there’s not a lot of earnings coming out, but there are some interesting ones to look at. So there’s a couple of Chinese EV makers.

The biggest one to look at is Xpeng (XPEV). It was up earlier this week, it was up 15% on Tuesday after it talked about mass producing flying cars and humanoid robots. So it’s really taking a Tesla like approach to its future where it’s sort of making big promises about technology that isn’t really related to its core electric car business.

There’s been a narrative that’s been growing in the past year, eighteen months about the smaller EV makers, especially the ones coming out of China, competing, starting to catch up to the more legacy carriers, including Tesla there too, but also the EV programs at places like Ford (F) and Toyota (TM). When we get earnings from Xpeng next week and also (NIO) is reporting, those will be interesting data points on that scale.

Especially if you’re looking at Tesla, that might be interesting to see what market share situation is with those companies. I really don’t think that in two months’ time they’re going to completely revolutionize the market.

There was the data point recently that Tesla’s EV sales had fallen, I don’t remember the exact number, but some large amount in Europe. Recently, even as overall EV sales have gone up, so that’s clearly just a market share loss in Europe as the political reaction. It might be happening faster than we’d expect where some other places can find room to get a foothold as people turn away from Tesla.

FedEx (FDX) is reporting next week. It’s a good economy proxy. So if you’re looking for some data about the economy in an otherwise relatively empty week for economic data, the FedEx earnings might be worth a glance.

Their freight business especially has shown some weakness lately. That’s a good measure of B2B activity companies – are they shipping things. So you can look at that.

And then Micron (MU) is reporting next week. It’s an interesting case in the chip tech world. It’s up 1% in the past week, so it’s held up well while the rest of tech stocks have have fallen. It’s also up 4% in the past month if you compare that to the S&P 500 (SPY), which is down 9%, and Nvidia (NVDA), which is down 12%.

However, overall, it’s kind of struggled to capture the AI imagination. So it’s down 2% in the past year. Meanwhile, Nvidia is up 26%. I’m just using Nvidia as a benchmark for interest in tech generally.

So Micron has been left out of what some people might be calling a bubble. So its earnings will be interesting. It’s already holding up well when other stocks are pulling back. Micron might be seen as a safe haven within tech for people who are running from the stocks that had already run up.

Thinking about it in terms of Intel (INTC) naming a new CEO this week, and I just think there’s a set of companies that have been on the outside looking in the recent run up in the tech space.

And like we were talking about in Tesla, the conditions can change pretty quickly and companies can stumble and other companies can pick up the mantle when that happens.

So you might be seeing a similar thing in the chip space as NVIDIA’s growth slows. You get an early mover advantage if you’re somebody like NVIDIA and you capture a lot of that early growth in the AI space, but then the competition eventually catches up. And we’ve seen this with OpenAI and ChatGPT in general.

Now there’s a lot of competing AI platforms that people are using. So I think NVIDIA is pretty well situated just in terms of having already gotten that business and already positioned itself as the go to place.

But obviously, NVIDIA is also gonna have capacity limitations. It can’t fill every order it gets, necessarily. So they’ve been talking about $2 trillion in AI infrastructure build out in the relatively near term and that’s not all going to go to Nvidia.

I do think there’s room for these companies that languish a little bit or like in Intel’s case, fell behind enough that they’re really seriously needing a turnaround to bring it back, but it’s certainly possible. There’s certainly a market out there for it.

And so if leadership can steer things enough, steer into the skid to capture the capacity, the demand that’s not being fulfilled by the the people who’ve already stepped up.

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