US futures drift lower as faith in rate cuts fades
US stock futures pointed to more losses on Wednesday, as investors looked to a coming speech by Federal Reserve Chair Jerome Powell for clues to whether interest rates will stay higher for longer.
S&P 500 (^GSPC) futures slipped 0.2%, while Dow Jones Industrial Average (^DJI) futures held just below the flatline. Contracts on the tech-heavy Nasdaq 100 (^NDX) led declines, down almost 0.4%, after the major gauges closed in a sea of red.
Stocks have drifted away from their strong start to the year as robust economic data undermined hopes for three Fed rate cuts. Investors have scaled back their bets to the point where they expect a smaller, later easing than policymakers have projected.
The focus is now on Powell, whose speech on the economic outlook later Wednesday will be weighed for clues to whether the Fed’s June meeting will bring a policy pivot. Appearances by Michael Barr and other Fed officials will also be watched.
Eyes are also on who will win the bitter proxy battle between Disney and activist investor Nelson Peltz, with the results of a shareholder vote due later Wednesday. Signs are that Disney has secured enough backing to fend off the board shake-up put forward by Peltz’s Trian, sources told Reuters.
In single stock moves, Intel (INTC) shares fell around 5% in premarket trading after the chip company posted sharper operating losses at its foundry business.
Meanwhile, its rival TSMC (TSM) was forced to halt some chipmaking in the wake of a huge earthquake hit Taiwan, raising concerns about the supplier to Apple (AAPL) and Nvidia (NVDA). Its US-listed shares dipped slightly.
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Tesla gets put into the penalty box by JP Morgan
No burying the lede here.
JP Morgan analyst Ryan Brinkman has cut his price target on Tesla (TSLA) to $115 from $130 this morning, which assumes about 30% downside from current price levels (stock is already down 33% year to date). The revised price target stems from Brinkman “slashing” his estimates on Tesla after a lackluster deliveries report.
Some numbers of interest from Brinkman’s report:
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Sees first quarter EPS of $0.42, down from a prior estimate of $0.69. Current consensus is around $0.60.
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Sees a “large” free cash outflow of $1.3 billion in the first quarter compared to a prior estimate for an inflow of $300 million. Brinkman blames this on Tesla having too much inventory after a disappointing quarter.
Says Brinkman on Tesla’s stock:
“While Tesla shares are -59% from their all-time high of $409.97 reached on November 4, 2021 (vs. the S&P 500 +11%), the stock still strikes us as highly expensive, with extraordinary work and tremendous accomplishment unlike the trend in recent quarters required in coming years to grow into even our $115 price target (which at $401 billion market capitalization we nervously note values Tesla as the world’s most valuable automaker, edging out Toyota’s $391 billion), let alone current valuation of $167 per share ($580 billion).
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