Stocks closed lower Friday to cap a volatile week that finished with losses after Fitch downgraded its U.S. credit rating below the top AAA level, which launched U.S. Treasury yields on a wild ride. Friday marked the final day of the busiest week in the second quarter earnings season, with Amazon jumping more than 8% to its highest in nearly a year following a strong beat and raise, while Apple fell nearly 5% after reporting lower revenue than the year-earlier quarter. For the week, the Dow dropped 1.1%, the S&P 500 slipped 2.3% and the Nasdaq tumbled 2.8%.
News:
Apple: Apple experienced a significant 4.8% decline in its stock value following the release of its fiscal third-quarter earnings report, which painted a less-than-rosy picture for the company's financial outlook. The report indicated a projected decline in revenue for the upcoming September quarter, marking the fourth consecutive quarter of such decline. While the company managed to surpass modest expectations for both profit and revenue, an overall sales contraction of 1% was observed, primarily attributed to weakening sales of key hardware products such as iPhones, iPads, and Macs. Despite the gloomy hardware performance, Apple did provide a glimmer of hope by suggesting that iPhone sales might fare better in the coming quarter with a projected year-over-year decline of less than 2%. Additionally, the services division emerged as a bright spot, displaying robust growth of 8% and even stronger expectations for growth in the current quarter. However, the market's response was largely influenced by Apple's anticipated ongoing revenue decline and less favorable hardware sales outlook, leading to the most significant stock drop for the company in 2023.
Amazon: Amazon reported second-quarter earnings that exceeded analysts' expectations, leading to a stock price increase of over 8% on Friday. The company's earnings per share (EPS) were 65 cents, surpassing the estimated 35 cents, and its revenue reached $134.4 billion, surpassing the projected $131.5 billion. Key highlights from the report include Amazon Web Services (AWS) generating $22.1 billion in revenue, beating expectations, and advertising revenue totaling $10.7 billion, reflecting a 22% increase. This marked Amazon's most significant earnings beat since the fourth quarter of 2020 and suggested that CEO Andy Jassy's cost-cutting initiatives, including layoffs and expense reduction, are starting to yield positive results. Amazon's global headcount decreased by 4% year over year to 1.46 million people. The company provided guidance for the third quarter, anticipating sales between $138 billion and $143 billion, driven in part by the success of its Prime Day event. Amazon's return to double-digit growth, after several quarters of single-digit expansion, was attributed to AWS's stabilized growth and increased spending by clients. Advertising remained a strong business segment for Amazon, with quarterly revenue surging by 22%, outperforming its peers Google and Facebook.
AMD: Advanced Micro Devices (AMD) exceeded projections for second-quarter adjusted earnings while also outlining its artificial intelligence (AI) future and entering into competition with Nvidia Corp. The company's CEO, Lisa Su, revealed that multiple clients had initiated or expanded programs to support future implementations of Instinct accelerators, data center chips commonly used for AI applications. AMD anticipates the AI accelerator market in data centers to grow to $150 billion by 2027. Su highlighted a sevenfold increase in customer engagements with AMD's AI products during the quarter, and the launch of the eagerly awaited MI300 accelerators is slated for the fourth quarter. Despite a decline of 18% in second-quarter revenue compared to the previous year, amounting to $5.36 billion, AMD's results exceeded expectations. The company's revenue forecast for the current quarter is $5.7 billion at the midpoint of a projected range, slightly below the consensus of $5.8 billion. Third Point's Dan Loeb emphasized AI's far-reaching impact on the economy, stocks, and society, noting that around 45% of the hedge fund's net long holdings are poised to benefit directly or indirectly from AI, including Microsoft and chip manufacturers.
Weekly ETF:
The Energy Select Sector SPDR Fund (ETF) with the ticker symbol XLE is an exchange-traded fund that aims to track the performance of companies operating in the energy sector of the S&P 500 Index. This ETF provides investors with exposure to various energy-related industries, including oil, gas, and energy equipment and services. XLE seeks to replicate the performance of the Energy Select Sector Index, which is designed to reflect the energy sector of the U.S. equity market. Some of the largest holdings of the XLE ETF include Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), ConocoPhillips (COP) and more.
