Wednesday was a busy, but successful, day for stocks, with today's upside fueled by a well-received round of earnings and the latest Fed policy update.
There was no shortage of corporate updates for investors to sift through, but last night's results from Big Tech titans Alphabet (GOOGL, +7.6%) and Microsoft (MSFT, +6.7%) drew the most attention.
While Alphabet missed on both the top and bottom lines, the company did see strong growth in Google Search revenue thanks to travel and retail searches. Microsoft's fiscal fourth-quarter results also came up short, but it expects double-digit revenue and operating income growth in fiscal 2023 (on a currency adjusted basis). Both firms reported their slowest revenue growth since 2020, and pointed to a stronger dollar as a significant headwind.
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Also in focus today was the Federal Reserve, which, as expected, raised interest rates by 75 basis points (a basis point is one-one hundredth of a percentage point).
"With some softening of recent economic data, Fed officials likely didn't feel the pressure to go beyond market consensus with regards to the level of rate change in the policy rate," says Charlie Ripley, senior investment strategist at Allianz Investment Management. He adds that there is plenty of time between now and the Fed's September meeting for the central bank to see if policy changes that have already been made are working. Overall, there were no surprises in today's meeting, and what happened this afternoon ultimately leaves the central bank's options open this fall, he says.
Stocks were solidly higher heading into the mid-afternoon central bank announcement, but skyrocketed following it. The Dow Jones Industrial Average jumped 1.4% to 32,197 and the S&P 500 Index soared 2.6% to 4,023. The Nasdaq Composite, meanwhile, spiked 4.1% to 12,032, its best day since April 2020.
Other news in the stock market today:
- The small-cap Russell 2000 rose 2.4% to 1,848.
- U.S. crude futures advanced 2.4% to settle at $97.26 per barrel.
- Gold futures eked out a marginal gain to end at $1,719.10 an ounce.
- Bitcoin enjoyed an 8.9% boost to $22,769.69. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Chipotle Mexican Grill (CMG) rallied 14.7% after the burrito chain reported second-quarter earnings of $9.30 per share, more than analysts were expecting. And while revenue was up 17% year-over-year for the three-month period, it came in just below the consensus estimate. CMG also said it will raise prices again in August ot counter inflation. "We believe that Chipotle has a healthy balance sheet along with robust mobile ordering and delivery platforms that will help it to recover as the economy reopens," says Argus Research analyst John Staszak (Buy). "While some consumers may be put off by Chipotle's relatively high prices, we expect its strong brand to continue to attract customers."
- Enphase Energy (ENPH, +17.9%) was another post-earnings winner. The maker of solar energy microinverters reported higher-than-expected Q2 revenue of $530 million, boosted by a 69% quarter-over-quarter spike in European sales. "Beyond energy security concerns in the European Union, we believe the electrification of both the heat and transportation markets are going to drive demand for distributed power assets as existing infrastructure struggles to keep pace," says Oppenheimer analyst Colin Rusch (Outperform). "We are also beginning to see the impact of inflation on delivered electricity prices, which is helping solar + storage unit economics while grid reliability has become increasingly challenged."
It's Been a Rocky Road for Airline Stocks
Red-hot inflation is not only a thorn in the Fed's side, but it – as we have witnessed time and time again – is also weighing on consumer-facing companies. Take for instance the airline industry, which is seeing higher fuel costs weigh on financial results. "Inflation is a major headache for all industries and the airline business is not immune to rising costs," says Peter McNally, global sector lead for industrials, materials and energy at research firm Third Bridge Group.
And these rising costs are creating a less profitable business environment than before the pandemic, even as "the underlying demand for air travel is strong." But, he adds, business and international travel have yet to recover at the same pace that leisure has, and these two areas could create a key source of future profits for airlines.
While there is certainly a reason to hold out hope for the industry, not all airline stocks are created equal. Here, we take a closer look at seven airline companies to see which ones are best positioned to ride out this rocky recovery.
Karee Venema was long GOOGL as of this writing.
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