Markets News, Aug. 31, 2023: Nasdaq Ekes Out Gains; S&P 500, Dow Break 4-Day Winning Streak

Dow Drops 170 Points to Finish August Lower

Falling for the first time in five sessions, the Dow Jones Industrial Average gave up about 0.5%, or about 170 points, as investors weighed inflation data that showed consumer spending remained robust in July. The index closed August down 2.5%, breaking its two-month winning streak. 

Salesforce (CRM) shares jumped 3% after it beat earnings forecasts and raised its full-year outlook, pointing to results from its cost-cutting measures and demand for its artificial intelligence (AI) tools. 

3M (MMM) shares moved up 2.1% after it was upgraded to “Equalweight” from “Underweight” by Morgan Stanley, one of three analysts to upgrade the stock in recent weeks after the conglomerate reached settlements in lawsuits over defective earplugs and contamination from “forever chemicals.”

Intel (INTC) gained 1.8% after CEO Pat Gelsinger said at a conference the chipmaker is on course to meet its third-quarter forecasts.

Apple (AAPL) rose 0.1% in August’s final trading session, but it wasn’t enough to bring it into the green for the month. That concludes the tech giant’s seven-month winning streak, its longest in nine years. 

Shares of UnitedHealth Group (UNH), the Dow’s largest component, dropped 3%, dragging down the price-weighted index.

Boeing (BA) declined 2.1% despite Air China saying it would take deliveries of the company’s 737 Max for the first time in 4 years.

-Terry Lane

Are Beyoncé and Taylor Swift Single-Handedly Propping Up the U.S. Economy?

Maybe not single-handedly, but they’re definitely helping. 

That’s according to researchers at Morgan Stanley, who calculated that “Barbenheimer,” Taylor Swift’s “The Eras” tour, and Beyoncé’s “Renaissance” tour account for more than one-third of consumer spending growth this quarter. 

Consumer spending is on track to increase at an annualized rate of 1.9% this quarter, and by Morgan Stanley’s calculations, this summer’s three biggest cultural events have contributed 0.7 percentage points to that figure.

That means personal spending data could fall off a cliff in the fourth quarter after the “Barbenheimer” effect wears off, Taylor Swift takes her tour overseas, and Beyoncé wraps up her tour in late September. In addition, the moratorium on student loan payments ends this Fall, which will also drag on spending in the last three months of the year. 

Morgan Stanley estimates these events together will reduce personal consumption expenditures growth by 1.4 percentage points and erase 1 percentage point from real GDP growth.

Microsoft to Unbundle Teams Software From Office Suites to Appease EU Regulators

In response to an ongoing European Commission anti-competition investigation, Microsoft (MSFT) plans to unbundle its Teams app from Office suite offerings in EU markets starting Oct. 1.

Microsoft 365 and Office 365 subscriptions are the company's workplace software bundles that include programs like Word, Excel, and PowerPoint. The bundles will be offered at a lower monthly rate and will not include video call software Teams, the company said Thursday.

Last month, EU regulators opened an antitrust investigation into how Microsoft was packaging its Teams after Salesforce's Slack filed an anti-competition complaint. Slack accused Microsoft of abusing its market dominance and illegally tying Teams to its other Office products.

According to Nanna-Louise Linde, Vice President of Microsoft's European Government Affairs, the unbundling is a first step to address these allegations, but not necessarily the entire solution.

Shares of Microsoft were little changed mid-afternoon Thursday.

-Fatima Attarwala

Midday Market Movers

CrowdStrike Holdings Inc. (CRWD): Shares of the cybersecurity firm gained 9% after beating Wall Street’s estimates for second-quarter earnings and revenue, and upping its full-year guidance. 

Amazon.com Inc. (AMZN): Shares gained more than 2% after e-commerce platform provider Shopify (SHOP) said it would add “Buy With Prime” to its platform, giving merchants access to Amazon’s logistics and delivery services. Shopify shares gained 9%. 

Tilray Brands Inc. (TLRY): Shares of the cannabis company rose 12% a day after the Department of Health and Human Services recommended reclassifying marijuana as a lower-risk drug. Competitors Canopy Growth Corp. (CGC) and Curaleaf Holdings (CURLF) jumped 26% and 20%, respectively.

Dollar General Corp. (DG): Shares of the discount retailer fell more than 12% after it missed analysts’ estimates on the top and bottom lines. It also cut its full-year outlook on lower customer traffic and increased shrink. 

Palantir Technologies Inc. (PLTR): Shares of the data analytics firm fell more than 8% after it was downgraded by analysts at Morgan Stanley, who questioned the company’s valuation. Palantir stock has gained more than 100% this year amid buzz about its AI offerings.

Dollar General Misses Estimates on Softer Sales, Higher Expenses, and Theft

Dollar General (DG) was the worst-performing stock in the S&P 500 on Thursday morning as shares plunged as much as 14.5% after the discount retailer posted worse-than-expected results and cut its outlook on softer sales, higher capital expenses, and losses from theft.

Dollar General reported fiscal 2023 second-quarter earnings per share (EPS) of $2.13, with revenue up 3.9% to $9.8 billion. Both were short of forecasts. Same-store sales fell 0.1%.

The retailer indicated that sales were hurt by reduced customer traffic and a shift in consumer spending to consumables rather than higher-priced items such as home products and apparel. An increase in shrink, the industry term for inventory theft, pulled down gross profit.

Shares of Dollar General tumbled to their lowest level in more than four years following the news.

-Bill McColl

AMC Shares Gain After Taylor Swift Announces Release of “The Eras” Tour Film

Taylor Swift is taking her box-office-breaking tour to a new venue: movie theaters. 

“Taylor Swift: The Eras Tour” concert film will hit U.S. theaters Oct. 13, the singer announced Thursday. 

AMC Theaters has promised every U.S. location will have at least four showtimes per day on the movie’s opening weekend to celebrate what it dubbed “the theatrical event of the millennium.” 

The company also said that, in anticipation of high demand for advanced tickets, which went on sale Thursday, it had “bolstered its ticket server capacity to handle traffic at more than 5 times the current record for the most ever tickets sold in an hour.”

AMC stock rose 5% Thursday.

UBS Blows Past Profit Expectations After Buying Credit Suisse

UBS (UBS) shares jumped more than 5% in early trading Thursday after the Swiss banking giant posted second-quarter earnings that blew past analysts' expectations after its acquisition of ailing rival Credit Suisse. The company also announced massive cost-cutting plans, that may include laying off thousands of workers in Switzerland alone.

Profit of $28.88 billion came in more than double analysts' expectations of $12.8 billion, mostly reflecting negative goodwill from UBS's purchase of Credit Suisse at a discount. UBS's Common Equity Tier 1 (CET1) capital ratio, a key metric that assesses whether a bank has enough capital to weather a downturn, improved to 14.4% from 14.2% in the year-ago quarter.

The Swiss bank shed 3,000 jobs, or roughly 8% of its workforce, as part of a broader cost-cutting effort designed to reduce costs by $10 billion in the aftermath of its purchase of Credit Suisse earlier this year.

-Mack Wilowski

Today's Top Analyst Calls

3M Co. (MMM): Analysts at Morgan Stanley upgraded the industrial conglomerate to Equalweight from Underweight and raised its price target to $113 from $102. 3M’s board of directors recently approved a $6 billion settlement to resolve claims it supplied the U.S. military with defective earplugs.

Arista Networks Inc. (ANET): Citi upgraded the cloud networking company to Buy from Neutral and raised its price target to $220 from $177. Citi cited an expected rebound in spending on data center infrastructure and Arista Network’s long-term exposure to AI investment.

Salesforce Inc. (CRM): Morningstar upgraded the software provider to Buy from Hold after it reported better-than-expected quarterly results and forecast strong full-year earnings growth. BMO Capital Markets and Goldman Sachs also raised their price targets. 

Palantir Technologies Inc. (PLTR): Morgan Stanley downgraded the data analytics firm, saying its more than 100% rally this year is premised on overblown enthusiasm around its AI offerings. 

Chewy Inc. (CHWY): Analysts at Evercore ISI downgraded the online pet products retailer to In Line from Outperform and lowered their price target to $35 from $53. Chewy reported mixed quarterly results after the bell yesterday, beating on revenue but falling short of earnings expectations.

Salesforce Shares Jump as Profit Rises on Cost Cuts, AI Moves

Salesforce (CRM) shares surged over 5% in early trading on Wednesday after it reported better-than-expected results for the second quarter and raised its full-year outlook, citing cost-cutting measures and rising demand for AI tools.

Salesforce's net income for the quarter came in at $1.27 billion, up from $68 million in the same period last year. Revenue rose to $8.6 billion, an increase of 11% from a year ago. The software company pointed to cost-cutting measures and rising demand for artificial intelligence (AI) tools for the gains, despite sluggish growth.

Salesforce lifted its full-year forecast, now anticipating revenue of $34.7 billion to $34.8 billion and adjusted earnings per share of $8.04-$8.06, up from its previous guidance of $34.5 billion to $34.7 billion and EPS of $7.41 to $7.43.

With Thursday's gains, Salesforce shares were up close to 70% year-to-date.

-Fatima Attarwala

Price Increases Hold Steady While Personal Spending Jumped in July

The Personal Consumption Expenditures (PCE) price index—the Federal Reserve’s preferred inflation measure—showed prices rose at the same pace in July as the month before, highlighting the Fed’s progress in taming inflation.  

Prices rose 0.2% month-over-month, with the price of goods falling 0.3% and the price of services rising 0.4%. Core inflation, excluding volatile food and energy prices, was 0.2%, unchanged from June. 

Consumer spending climbed 0.8% in July, the largest increase all year, after rising 0.6% in June, also a strong reading. Increased spending, a sign of persistently high demand, could be a concern for the Federal Reserve as it seeks to control inflation by tempering demand. 

Stocks Making the Biggest Moves Premarket

Gainers:

• Okta Inc. (OKTA): Shares of the identity-management software provider gained more than 10% after it raised its full-year earnings forecast after noting business spending was holding up better than expected.
• Shopify Inc. (SHOP): Shares of the e-commerce platform gained 8% after it reached a deal with Amazon (AMZN) to add ‘Buy With Amazon Prime’ to Shopify’s app. 
• Salesforce Inc. (CRM): Shares rose 6% after the software provider beat second-quarter earnings estimates and offered upbeat guidance for the rest of the year. Salesforce earned $2.12 per share on $8.6 billion in revenue, topping Wall Street’s forecast of $1.90 a share on sales of $8.53 billion.
• UBS Group AG (UBS): Shares of the Swiss bank climbed more than 5% after it reported a record quarterly profit following its takeover of rival Credit Suisse.

Losers:

• Dollar General Corp. (DG): Shares of the dollar store sank 16% after reporting worse-than-expected earnings and cutting its annual forecast, citing lower foot traffic and consumers purchasing more low-margin essentials.
• Chewy Inc. (CHWY): The online pet store’s shares lost more than 6% after it warned weakening demand could bring lower prices and hit the company’s margins. 
• Five Below Inc. (FIVE): Shares of the discount retailer fell 5% after beating earnings expectations but offering a disappointing outlook on account of excessive shrink.

5 Things to Know Before Markets Open

Here's what investors need to know to start their day:

1. The latest Personal Consumption Expenditure (PCE) Price Index, a key measure of inflation, rose to an annual rate of 3.3% in July, up from 3% in June. Core PCE rose to 4.2%. Both were in line with economists' expectations.
2. Salesforce (CRM) shares jumped 5.5% in pre-market trading after it reported a full-year earnings guidance of $8.04 to $8.06 a share on revenue between $34.7 billion to $34.8 billion, better than analyst forecasts of $7.42 a share on revenue of $34.66 billion.
3. UBS Group (UBS) posted a record profit following its takeover of Credit Suisse in March, as the Swiss-based bank credited a stabilization of deposits at Credit Suisse and cost reductions made from cutting its workforce.
4. CrowdStrike Holdings (CRWD) shares rose 1.2% in pre-market trading after it reported adjusted quarterly earnings of $0.74 a share, better than the $0.36 from the same quarter last year, and the $0.56 a share that analysts expected.
5. Okta Inc (OKTA) shares surged 10% in pre-market trading after it raised its annual earnings forecast after the weak business spending it projected last quarter did not materialize.

-Terry Lane

Stock Futures Ahead of Key Inflation Data

Futures contracts connected to the Dow Jones Industrial Average gained 0.5% in premarket trading.

S&P 500 futures were up 0.2%.

Nasdaq 100 contracts rose 0.1%.