*The three major indexes closed lower, with the Dow Jones down over 370 points
*In the first quarter, the US GDP grew at an annualized rate of 1.6% on a month on month basis, significantly lower than market expectations
*Google's US stock market rose over 15% after market hours, with a market value increase of $300 billion
On Thursday, April 25th local time, the US stock market opened low and rebounded, with the three major indexes closing with a significant narrowing in their decline. The US Department of Commerce recently released data showing that the US economy grew lower than expected and inflationary pressures intensified in the previous quarter, raising concerns about the economy falling into a stagflation phase. In addition, the weak revenue guidance released by Meta in the post market period of the previous trading day has dampened market sentiment. As of the close, the Dow Jones Industrial Average fell 375.26 points, a decrease of 0.98%; The Nasdaq fell 0.64%, while the S&P 500 index fell 0.46%.
In terms of industry sectors, the eleven major sectors of the S&P 500 index fell six times and rose five times. The communication service sector and medical sector led the decline with declines of 4.03% and 0.62% respectively, while the materials sector and energy sector led the rise with gains of 0.69% and 0.50%, respectively.
International Business Machines Corporation (IBM) and construction machinery giant Caterpillar led the decline in Dow components. The former fell by 8.25%, with a year-on-year increase of 1% in revenue in the first quarter to $14.462 billion, which did not meet the expectations of some investors; The latter fell 7.02% due to a slight decline in quarterly sales.
Chinese concept stocks rose against the trend, with the Nasdaq China Golden Dragon Index closing up 0.75%, marking the fourth consecutive day of gains. Among popular stocks, New Oriental rose 3.5%.
After market hours, Google's parent company Alphabet and Microsoft released their Q1 2024 financial reports, with key indicators such as quarterly revenue and net profit exceeding expectations. As of the time of publication, Alphabet's stock price rose 15% in after hours trading, while Microsoft's rose 5% after hours trading.
The financial report shows that Alphabet's first quarter revenue was $80.54 billion, with analysts expecting $79.04 billion; Google Cloud's revenue for the first quarter was $9.57 billion, with analysts expecting $9.37 billion; The operating profit for the first quarter was 25.47 billion US dollars, with analysts expecting 22.4 billion US dollars; Google's advertising revenue for the first quarter was $61.66 billion, with analysts expecting $60.18 billion. The board of directors also approved a stock buyback plan of up to $70 billion.
"Our first quarter performance reflects strong performance in search, YouTube, and cloud services," said Sandal Pichai, CEO of the company, in a statement. "Our leadership in artificial intelligence research and infrastructure, as well as our global product footprint, enable us to prepare for the next wave of artificial intelligence innovation."
During the same period, Microsoft's total revenue was $61.86 billion, a 17% increase from the same period last year, higher than the market's expected $60.87 billion. The adjusted earnings per share (EPS) was $2.94, higher than the market expectation of $2.82. From a business perspective, the intelligent cloud department generated $26.71 billion in revenue in the first quarter, an increase of approximately 21%, exceeding the analyst's forecast of $26.26 billion. The revenue from cloud services dominated by Azure has accelerated by 31%, while the contribution of AI has increased by 7 percentage points, higher than the 6 percentage points in the previous quarter.
In terms of economic data, the first estimated data released by the US Department of Commerce on the 25th showed that the US real gross domestic product (GDP) grew at an annual rate of 1.6% in the first quarter, which was lower than market expectations and significantly slowed down from the growth rates of 4.9% and 3.4% in the third and fourth quarters of last year, the lowest level since the second quarter of 2022.
Specifically, in the first quarter, personal consumption expenditure, which accounted for about 70% of the US economy, increased by 2.5%, narrowing the growth rate by 0.8 percentage points compared to the fourth quarter of last year. Among them, commodity expenditure decreased by 0.4%. At the same time, the growth rate of non residential fixed assets investment, which reflects the investment status of enterprises, was 2.9%, significantly slower than the growth rate of 3.7% in the fourth quarter of last year. In the current quarter, private inventory investment dragged down economic growth by 0.35 percentage points, and net exports of goods and services also dragged down economic growth by 0.86 percentage points.
The personal consumption expenditure (PCE) price index, which was released together, increased by 3.4% in the first quarter, far exceeding the 1.8% in the fourth quarter of 2023. The core PCE price index, which excludes food and energy prices and is the most important inflation indicator valued by the Federal Reserve, grew by 3.7%, higher than expected by 3.40% and nearly twice the previous 2%.
In addition, the number of people who applied for unemployment benefits for the first time in the United States last week was 207000, further approaching the low end of the range of 194000 to 225000 people this year, highlighting the resilience of the labor market.
The yield of US treasury bond bonds rose on the whole line. The yield of two-year treasury bond once exceeded the 5% threshold and rose to 5.027% at the highest.
Analysts say that on the one hand, weak economic data may prompt the Federal Reserve to release some dovish signals, but on the other hand, considering that economic growth is still at a stable level and inflation is showing a further accelerating trend, the possibility of the Federal Reserve starting to cut interest rates before September is becoming increasingly slim. The Chicago Mercantile Exchange (CME) FedWatch tool shows that traders have pushed back their expectations of the Federal Reserve's first rate cut until December this year, with only one rate cut expected throughout the year.
In terms of individual stocks, Meta's stock price closed down 10.56%, the largest daily decline since October 2022. The company's second quarter revenue outlook fell short of market expectations and raised its capital expenditure forecast for this year. CEO Zuckerberg stated during the earnings conference call that "investing in AI will take a longer time to achieve returns," which has raised concerns in the market about the commercial prospects of AI technology.
JPMorgan Chase reiterated its overweight rating on Meta and lowered its target stock price from $535 to $480. Analyst Amos from the bank stated that although Meta expects to face challenges in the coming months, including monetization from Reels, the company is optimistic about its artificial intelligence plans and believes that these plans will bring significant long-term benefits. "Our success in Llama 3 and Meta AI has increased management's confidence in leading artificial intelligence," Amos wrote in a report.
Amos believes that Meta's competitive position, focus on user experience, and strategic alignment with artificial intelligence and the metaverse indicate a promising future for Meta.
Merck Pharmaceuticals rose 2.93% as the company raised its annual profit and revenue expectations, thanks to strong sales of the cancer treatment drug Keytruda and the human papillomavirus vaccine Gardasil.
American Airlines rose 1.51%, and the company expects profits to exceed expectations for the quarter, with strong demand for business travel and summer travel.
According to data from the London Stock Exchange Group (LSEG) as of Thursday morning, it is expected that the overall profits of S&P 500 index constituent companies will increase by 4.3% year-on-year in the first quarter of 2024. This number has increased from 3.3% the previous day.
The latest estimate is based on the performance forecast of 190 companies in the S&P 500 index that have already released financial reports, of which approximately 78% of companies have exceeded analyst expectations in terms of profits.
In terms of commodities, oil prices staged a "V-shaped" trend on the 25th, with West Texas Intermediate Crude Oil (WTI) futures for June delivery on the New York Mercantile Exchange rising 76 cents, or 0.92%, to close at $83.57 per barrel. After the release of US GDP data, the futures price fell by 36 cents, a decrease of 0.43%, to $82.45 per barrel.