US stocks were higher on Wednesday morning as investors looked to a coming speech by Federal Reserve Chair Jerome Powell for clues to whether interest rates will stay higher for longer.
The S&P 500 (^GSPC) rose about 0.4%, while the Dow Jones Industrial Average (^DJI) popped about 0.2%. The tech-heavy Nasdaq Composite (^IXIC) led the gains, rising 0.6% after the major gauges closed Tuesday in a sea of red.
Stocks had 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.
Stocks reversed losses on Wednesday morning after a reading on prices paid in the services sector hit its lowest level since March 2020, indicating potential future declines in inflation. This data stood in contrast to a similar reading from the manufacturing sector on Monday, which showed inflation pressures were on the rise last month.
The focus is now on Powell, whose speech on the economic outlook later in the day will be weighed for hints to whether the Fed’s June meeting will bring a policy pivot. Earlier in the day, Atlanta Fed President Raphael Bostic told CNBC he expects the Fed to make its first interest rate cut in the fourth quarter.
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 7% 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 that 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 JPMorgan
No burying the lede here.
JPMorgan 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 (the 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. The 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.
What Brinkman says 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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Jessica Roberts is a seasoned business writer who deciphers the intricacies of the corporate world. With a focus on finance and entrepreneurship, she provides readers with valuable insights into market trends, startup innovations, and economic developments.
