Stock futures edge lower as stagflation concerns clip sentiment; Johnson & Johnson shares gain on new talc settlement plans; Walmart slips lower as retailer confirms 2023 profit outlook ahead of investor day; FedEx to detail cost-cutting plans at drive program update and C3.Ai shares extend slump as short-seller alleges ‘serious’ accounting issues.
Five things you need to know before the market opens on Wednesday April 5:
1. — Stock Futures Edge Lower As Stagflation Concerns Clip Sentiment
U.S. equity futures edged modestly lower Wednesday, while the dollar remained hoovering near two-year lows, as investors looked to a series of employment data releases over the coming days that could define the market’s path for growth and inflation.
Stocks turned lower on Tuesday, with the Dow giving back the bulk of its Monday gains, following a surprise reading of the monthly Job Openings and Labor Turnover Survey — better known as JOLTs — that showed overall unfilled positions fell by more than 620,000 to 9.9 million, the lowest in nearly two years.
The decline in job openings, which came prior to the banking crisis triggered by the collapse of Silicon Valley Bank in March, were paired with a weaker-than-expected reading of the ISM Manufacturing activity index on Monday which showed the softest pace of growth in nearly three years — and the lowest since 2009 if you strip out the pandemic-era figures of early 2020 — amid a plunge in new orders and a pullback in hiring.
The data pulled U.S. Treasury bond yields sharply lower, with 2-year notes holding at 3.883% in overnight trading and 10-year notes trading at a near six month low of 3.361% amid bets that a slowing economy, as well as a weaker job market, would compel the Fed to back away from its inflation fight.
Cleveland Fed President Loretta Mester, however, told a economics conference in New York late Tuesday that rate would likely have to rise past 5%, and stay there for “some time” in order to bring inflation back to the Fed’s preferred 2% target.
“Precisely how much higher the federal funds rate will need to go from here and for how long policy will need to remain restrictive will depend on how much inflation and inflation expectations are moving down, and that will depend on how much demand is slowing, supply challenges are being resolved, and price pressures are easing,” Mester said.
Nonetheless, the CME Group’s FedWatch suggests a 57.3% chance that the Fed will hold rates steady at its next meeting in May , with the odds of a July rate cut rising to around 37%, compared to just a 16.3% chance of a 25 basis point increase.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.01% lower at $101.583, within touching distance of its early February trough.
Heading into the start of the trading day on Wall Street, futures contacts tied to the S&P 500 are priced for a modest 10 point opening bell dip and those linked to Dow Jones Industrial Average are looking at a 72 point pullback. Contacts tied to the tech-focused Nasdaq are indicating a 25 point decline.
In Europe, the region-wide Stoxx 600 managed was marked 0.17% lower in early Frankfurt trading following data from S&P Global that indicated overall economic activity hit a 10-month high last month, but the pace of growth varied, with core countries like France and Germany lagging advances in Spain and Italy.
Overnight in Asia, the MSCI ex-Japan index was marked 0.307% lower into the close of trading, which was thinned by Qingming Festival holidays in China, Hong Kong and Taiwan, while Japan’s Nikkei 225 fell 1.68% in Tokyo as the yen traded firmly higher following a bigger-than-expected 50 basis point rate hike from the Bank of New Zealand.
2. — Johnson & Johnson Shares Gain On New Talc Settlement Plans
Johnson & Johnson (JNJ) – Get Free Report shares moved firmly higher in pre-market trading after the consumer healthcare giant re-filed a bankruptcy petition on behalf of subsidiary that would payout billions in claims linked to allegations that its talc products caused users cancer.
Johnson & Johnson said the division, known as LTL Management, had re-submitted plans to the bankruptcy court in New Jersey that would see it pay $8.9 billion, spread out over 25 years, to settle the myriad claims, even though the company considers them “specious and lacking scientific merit.”
The new filing follows a decision from the 3rd U.S. Circuit Court of Appeals in Philadelphia that invalidated LTL’s first bankruptcy filing in New Jersey, which pegged talc settlements at around $2 billion, earlier this year.
“More than 40 years of studies by medical experts around the world continue to support the safety of cosmetic talc,” Johnson & Johnson said. “Nonetheless, resolving this matter as quickly and efficiently as possible is in the best interests of the company and all stakeholders.”
Johnson & Johnson shares were marked 3.2% higher in pre-market trading to indicate an opening bell price of $163.50 each
3. — Walmart Slips Lower As Retailer Confirms 2023 Profit Outlook Ahead of Investor Day
Walmart (WMT) – Get Free Report shares edged lower in pre-market trading after the world’s largest retailer confirmed its full-year profit and sales targets ahead of an investor day presentation later this morning in Tampa, Florida.
Walmart said it expects adjusted April quarter earnings, which represent its fiscal first quarter, of between $1.25 and $1.30 per share, with sales rising between 4.5% and 5%. For the 2024 fiscal full year, sales will likely rise 2.5% to 3% from 2023 levels, with Walmart forecasting earnings of between $5.90 and $6.05 per share.
The group also said it plans to have 55% of its packages processed through automated fulfillment centers by 2026 in a move that underscores its decision to cut some 2,000 e-commerce jobs earlier this week.
“We are in a unique position to serve our customers and members however they want to shop, which will fuel continued growth,” said CEO Doug McMillon. “As we grow, we will improve our operating margin through productivity advancements and our category and business mix, and drive returns through operating margin expansion and capital prioritization.”
Walmart shares were marked 0.5% lower in pre-market trading to indicate an opening bell price of $146.48 each.
4. — FedEx To Detail Cost-Cutting Plans at DRIVE Program Update
FedEx (FDX) – Get Free Report shares were little-changed in pre-market trading ahead of the package delivery group’s update on cost cutting plans that have powered recent profits under CEO Raj Subramaniam.
FedEx’s so-called DRIVE program aims to make around $4 billion in permanent cost cuts over the next three years, and delivered around $1 billion in overhead reductions over the three quarters of its current fiscal year, which ends in May.
Cost cutting helped FedEx drive adjusted earnings to $3.41 per share, well ahead of the Street consensus forecast of $2.72 per share as revenues falling 6% to $22.74 billion in what Subramaniam called a “challenged demand environment”.
Looking into the final months of the group’s fiscal year, which ends in May, FedEx said it sees adjusted earnings in the region of $14.60 to $15.20 per share, up from its prior forecast of between $13 and $14 per share.
FedEx shares were marked 0.02% lower in pre-market trading to indicate an opening bell price of $226.45 each.
5. — C3.AI Shares Extend Slump As Short-Seller Alleges ‘Serious’ Accounting Issues
C3.AI (AI) – Get Free Report shares extended declines in heavy trading volumes Wednesday after the California-based tech group fell the most in nearly three years on accounting and disclosure allegations from short-seller Kerrisdale Capital.
Kerrisdale said C3.AI, which began as a company helping others reduce their carbon footprints, before transitioning to one analyzing energy use data and then to its current AI focus in 2019, has used aggressive accounting to inflate its income statement metrics, including booking revenues from invoices that have yet to be sent to its biggest customer, energy giant Banker Hughes (BKR) – Get Free Report, which is also a shareholder.
C3.AI said Kerrisdale’s allegations “incorrectly manifests a fundamental mis-understanding of U.S. GAAP accounting practices and principles.”
Kerrisdale also asked C3.AI’s auditors, Deloitte & Touche, to “review our letter in anticipation of its upcoming work conducting the company’s year-end audit.”
C3.AI shares, which plunged 26.3% yesterday on the New York Stock Exchange, were marked 4.1% lower in pre-market trading to indicate an opening bell price of $23.92 each.