Market Rally Retreats On Recession Fears; Tesla Skids On Deliveries, Oil Soars On OPEC+ Cut: Weekly Review

Stock market rallies retreated during a week of holidays as economic data weakened and recession fears increased. Although the major indexes pulled back, many sectors and top stocks experienced significant losses. Regional bank stocks also suffered. Crude oil prices soared after OPEC+ announced a large production cut. Treasury yields and dollar fell to multi-month lows due to recession fears.

Tesla (TSLA), thanks to price reductions and tax credits in the United States, reported record deliveries for the first quarter. However, shipments were below expectations while production was above sales. BYD, the Chinese EV giant, reported a huge Q1 jump in deliveries compared to a year ago. However its shipments fell compared to Q4. Sales of Li Auto (LI), Nio (NIO), and XPeng reported a big drop compared to a year ago. General Motors and Ford both reported good sales in the United States. Ultimate Fighting parent Endeavor will merge with World Wrestling Entertainment in a merger. Extra Space Storage will also acquire Life Storage.

Stock Market Rally takes some hits

After a week of gains, the Dow Jones, S&P 500, and Nasdaq all retreated after a run-up in previous weeks. Although the major indexes are still healthy, there were losses in many of the leading stocks and sectors due to rising recession risk. Treasury yields fell to multi-month lows, and the dollar also did. U.S. crude futures rose on a surprise OPEC+ production cut.

Economic data is declining

Investors had plenty to think about as the U.S. market was scheduled to close for Friday's highly-anticipated jobs report. The data was a bit of a disappointment, as it showed that the economy and job market have slowed down.

After adjusting its seasonal adjustment method, the Labor Department revealed on Thursday that unemployment claims were much higher than thought. The claims for the week of March 25 were revised upwards by 48,000, to 246,000. They then dropped to 228,000 during the week ending April 1. The average number of claims for the four weeks ending April 1 is 238,750, up by about 25% from October's start.

Challenger, Gray & Christmas, an outplacement firm, reported that companies had announced 89,703 job cuts in March, an increase of 15% compared to February and a 319% jump compared to a year earlier.

The number of job openings fell by 632,000 during February. However, the 9,9 million positions still remain far above levels before the pandemic.

The manufacturing index of the Institute for Supply Management fell further into contractionary territory, dropping to 46.3 (from 47.7). New orders, which is a good indicator of future activity, dropped 2.7 points, to 44.3. The ISM Services Index, which indicated economic strength in earlier months of the year, dropped 3.9 points to 51.2. The new order gauge fell 10.4 points to 52.

Oil Prices, Stocks Soar On Surprise OPEC+ Output Cut

The Organization of Petroleum Exporting Countries (OPEC) and its key allies, such as Russia announced on Sunday that they would be cutting crude oil production by about 1.15million barrels per day, starting in May. Saudi Arabia will reduce production by 500,000 barrels a day. The oil cartel had previously said it would maintain supply throughout 2023. After hitting a 15-month-low in mid-March, U.S. crude prices soared after the news. The news boosted energy stocks.

Tesla Falls after Deliveries

Tesla (TSLA), fueled by price cuts around the world and U.S. Tax Credits, delivered a record number of vehicles in the first quarter. However, the electric vehicle giant missed its estimates yet again. Analysts believe Tesla will face continued pricing pressure in the future. Tesla deliveries increased 36% from a year ago to 422,875. This was 4% higher than the previous record of 405,278 for Q4. FactSet estimates that Wall Street expected around 431,000 Tesla deliveries. Tesla has surpassed some of the consensus estimates. Model 3 and Y cars, as well as Model S and X luxurious vehicles, were delivered in the first quarter. Production was 440,808. Deliveries were 440,180. Model S and X were produced at 19,437. The next question will be how the price reductions affected Tesla's earnings and gross margins, and whether further price cuts are needed. The EV giant will report its Q1 results by April 19. FactSet reports that the average selling price of a Tesla vehicle in the first quarter came to around $46,780. This is down from $51,400 during the fourth quarter, and $52,100 one year ago. Tesla's entry level Model 3 will lose some of the $7,500 U.S. electric vehicle tax credit on April 18 when new battery and component rules take effect.

China EV sales generally rebound

BYD, Li Auto, and XPeng all saw their China EV sales increase month-over-month in March, but Nio lagged behind. After the end of subsides and a price-war started by Tesla, Chinese EV manufacturers had a slow start in 2023. Sales were also affected by the Chinese New Year holiday, which took place in late January. BYD sold over half a milllion electric and hybrid vehicles in the first quarter. This is nearly double what they sold a year earlier, but lower than Q4. Li Auto again outsold Nio & XPeng last quarter. However, all three startups reported Q1 sales that were near the low end of their guidance.

U.S. Auto Sales Top Views

The U.S. auto market grew faster than expected in the first quarter, thanks to rising inventories and fleet sales. This was offset by high prices and auto loan rates. Cox Automotive reported that the quarterly sales pace was "unexpectedly high" at 15.3 million annualized vehicles, which is an 8.5% increase compared to the previous quarter. General Motors (GM), with an 18% increase in sales year-over-year, was the leading seller during the third quarter. Ford (F), on the other hand, saw its sales increase by 10%. GM, behind Tesla (TSLA), was the second-largest EV seller in the third quarter. However, most of its sales were older-gen Bolts, as its newer-gen Ultium-branded EVs are slowly ramping up.

WWE Finds its Fighting Partner

Endeavor, the parent company of Ultimate Fighter Championship (UFC), announced that it would buy a majority 51% stake in World Wrestling Entertainment. This will create a "live entertainment and sports powerhouse" worth $21.4 billion. The combined company will be listed on the NYSE with the ticker TKO. WWE will have five seats in the new board, while Endeavor holds six. Vince McMahon, WWE Chairman, will continue to be the chairman of the company. Endeavor CEO Ariel Emanuel is expected to remain in this position. EDR's stock fell while WWE's stock rose. Storage REIT Extra Space Storage will purchase Life Storage for $12.7 billion. Life Storage had previously rejected a bid of $11 billion from Public Storage.

Casino Stocks Fall Despite Macau Gaming Boom

Macau's gaming revenue tripled from March to April, reaching a new high post-pandemic after Beijing lifted its strict zero-Covid rule. Gaming revenue nearly doubled for the first quarter as travel restrictions were eased. The Chinese New Year holiday, which took place in late January, also helped. Macau, the largest gambling hub in the world, is a Chinese administrative region. Stocks of Macau's casino giants, such as Wynn (WYNN), initially rose on the news but then fell.

Simply Good Foods' (SMPL) adjusted earning per share declined by 11%, to 32 cents for the Q2 results released on Wednesday. This still exceeded analyst expectations of 29 cents. Analysts expected a decrease to $294m, but revenue was the same at $297m. Simply Good Foods expects that the U.S. take-out market will slow down over the course of this year, due to an economic recession. According to the company, it expects a greater decline in gross margins from year to year due to the current performance of the business and the higher costs associated with the supply chain for the remainder of the year. Conagra Brands' (CAG) earnings soared 31%, to 76 cents a share. This easily beat forecasts of 64cents. The expected 5.9% increase in revenue to $3.1 billion was achieved. On the back of sustained increases in food prices, the processed-food manufacturer raised its earnings forecast for fiscal 2023 to $2.70 - $2.75 per share. Conagra forecast earnings of $2.60 to $2.70 per share for January. Lamb Weston's (LW) earnings soared by 95% Thursday to $1.43 a share, eclipsing estimates of 99c. Lamb Weston increased its FY23 earning guidance from $3.75-$4.00 to $4.35-$4.50 per share based on the Lamb Weston Europe Middle East and Africa consolidate.

Briefly,

Smart Global Holdings, Inc. (SGH) surpassed earnings estimates but missed sales for its second fiscal quarter ending Feb. 24, 2019. The manufacturer of computing, LED lighting and memory products reported a 13% drop in EPS with sales falling 4% to $429 millions.