Palacios’ Perspectives Week ending December 13th, 2024
From Wall Street to Main Street Highlights from the past week
Market / Macro Economic Summary Markets were mixed on the week as economic data reflected a further slow decrease to the inflation rate and continued to expect a Fed rate cut in the upcoming meeting to be held next week. The Dow Jones Industrial average closed down 1.8% on the week while the S&P 500 lost 0.6% and the tech-heavy Nasdaq beat the trend with a rise of 0.3%. Core consumer inflation, which excludes the volatile food and energy costs, rose by 0.3%, leaving the annual rate unchanged at 3.3% for the third straight month. The headline CPI ticked up to 2.7% from a year ago, the first back-to-back annual acceleration in eight months, partly driven by food and gasoline. Outside of those categories, prices of cars, furniture, hotels and airfare increased at a faster pace, likely reflecting the strength in consumer spending that continues unabated (the recent hurricanes also played a role in boosting demand and prices for cars).The idea here is that the Fed's updated December interest-rate projections (the dot plot) may shift slightly higher, projecting a shallower easing cycle ahead, as both growth and inflation have been stronger than expected since September. I am looking for two or three rate cuts in 2025, with the fed funds rate settling in the 3.5% - 4% range by the end of the year. Company Specific / Micro Economic Summary Adobe (ADBE) Shares were lower by 12% as the software company reported a top and bottom line beat but guidance was left unchanged. Earnings per share of $4.81 came in stronger than the calls for $4.67. Revenue of $5.61 billion was just ahead of the estimates of $5.54 billion. Adobe said it expects revenue for the fiscal first quarter of $5.63 billion to $5.68 billion but analysts had expected $5.73 billion. Broadcom (AVGO) Shares had one of their best days ever as they rocketed 22% after it reported a strong quarter. Earnings per share of $1.42 came in stronger than the analysts calls for $1.39. Revenue of $14.1 billion matched the Wall Street estimates. CEO Hock Tan said revenue for semiconductors alone came in at $30.1 billion driven by strong AI demand. This represented a 220% growth year-over-year which allowed management to increase the dividend by 11% and also increased the guidance for earnings per share and revenue outlook. Oracle (ORCL) Shares dropped 7% as the veteran technology company reported a quarter that fell short of expectations. Earnings per share of $1.47 fell short of the $1.48 estimates. Revenue of $14.1 billion met the Wall Street expectations of $14.1 billion. CEO Safra Catz tried to highlight the 52% cloud revenue growth and its brand new AI super computer that uses 65,000 Nvidia H200 GPUs. This again is a reason why listening to earnings calls is of particular benefit as this gives me some peace of mind that the demand for Nvidia chips remains strong. Macy’s (M) Shares of the retailer fell 3.65% on the back of a tough quarter that came in short on revenue and showed the firm had an accounting problem that led to a write down on its books. Revenue of $4.74 billion was short of the expectations of $4.78 billion Wall Street was looking for. Earnings per share of $0.4 cents was not quite comparable to estimates due to an accounting fraud that led to a write down of nearly $151 million dollars. Management also lowered its full-year earnings outlook. The company cut its guidance, saying it expects adjusted earnings per share of $2.25 to $2.50, lower than its previous outlook of $2.34 to $2.69.
Parting Thoughts We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week! Regards, Erick J. Palacios, MBA Wealth/Fiduciary Advisor
