Your portfolios in brief
This week we are talking about Adobe. This large and well-known computer company filed quarterly results above analysts' expectations, even unveiling record revenues for its first quarter.
Here are some interesting details:
- Earnings: $3.80 per share adjusted, versus $3.68 per share as expected by analysts, according to Refinitiv.
- Revenue: $4.66 billion, compared with analysts' expectations of $4.62 billion, according to Refinitiv.
Revenue rose 9 percent year over year in the quarter ending March 3. Its net income fell slightly to $1.25 billion.
The company unveiled an increase in its earnings guidance for fiscal 2023 and now expects adjusted earnings per share of $15.30 to $15.60, with $1.7 billion in net new annualized recurring revenue from digital media.
Like many technology stocks, Adobe was shunned by investors in 2022 as they believed customers and businesses would cut back on spending due to the economic environment. As such, Adobe's rising quarterly guidance gave comfort to investors as they pay close attention to forecasts that offer insight into a company's future business prospects.
The stock closed Thursday's session up 5.90% ($334 per share) and was trading at $354 per share at the open Friday, compared to its target price of about $390, making it an attractive stock for the long term.
Market Brief
The financial markets continue to evolve in a volatile environment as the setbacks of the Silicon Valley Bank have spread throughout the financial sector. On Sunday, the U.S. authorities officially took possession of the bank and entrusted its management to the U.S. Federal Deposit Insurance Corporation (FDIC), which will be responsible for guaranteeing customer deposits. Several stocks from the banking sector fell on Monday; the First Republican Bank lost 61%, Western Alliance fell 47.06%, the Cleveland bank KeyCorp fell 24.36% while the Texan Comerica Bank gave up 27.67%.
Despite a directionless session on Monday, the indexes picked up steam on Tuesday, ending higher thanks in part to the latest report on inflation. Inflation slowed in the U.S. as consumer prices rose 6% year-over-year in February, down from 6.4% in January. This is the lowest level since September 2021, and the eighth consecutive month of slowing. The table below provides an excellent overview of the price increases and the sectors that experienced the largest increases.
Then it was Credit Suisse's turn to plunge earlier this week after its largest shareholder, Saudi National Bank, explained via its chairman that it would "absolutely not" support the bank by raising more capital, in an interview with Bloomberg TV. Saudi National Bank had participated in a 4 billion Swiss franc capital increase in November to finance a massive strategic overhaul. The financial institution, which has been in trouble for several years now and has been rocked by a series of high-profile and costly scandals, posted losses of 7.4 billion euros in 2022.
At the end of 2022, the bank revealed that it was seeing "significantly higher cash deposit withdrawals, non-renewal of maturing time deposits, and net asset outflows at levels that far exceeded rates incurred in the third quarter of 2022."
Its share price fell by 24% on Wednesday, dragging down both American and European indices. Since March 2021, its stock has lost more than 83 percent of its value. On Thursday, the bank unveiled a short-term loan of up to 50 billion Swiss francs ($74 billion) from the Swiss National Bank to "strengthen" the group.
The Organization for Economic Cooperation and Development (OECD) reassured the economic world on Friday by ruling out the hypothesis of a "systemic crisis" following the stock market panic observed in recent days in the banking sector.
"We are in a very different situation from 2008," said Alvaro Pereira, acting chief economist of the OECD, at a press conference in Paris. "We have created stronger regulation, central banks and regulators have learned from previous crises [...] and most banks in the world are well capitalized. While I know we may see episodes of turbulence, we do not consider 'SVB's failure' to be a systemic risk at this time," Pereira concluded.
"While there is obviously an increased risk to financial stability as long as markets are volatile, we believe that the risks of broader contagion are rather limited," added OECD Secretary-General Mathias Cormann.
Markets still managed to hold their own despite the uncertainty and volatility that plagued investors. The NASDAQ managed to close four sessions higher on Thursday, supported by stocks from large caps such as Microsoft (+4.05%), Alphabet (+4.68%) and Amazon (+3.99%). The ban by several countries on downloading the Tik-Tok app supported its competitors; Snap posted gains of 7.25% on Thursday, while Meta took 3.63% and Pinterest 5.99%.
"Fears that the debacles of Silicon Valley, First Republican Bank, Silvergate and even Credit Suisse that affect the entire banking system have put into question the upcoming interest rate hikes in both the U.S. and Canada. The impact of the Fed's aggressive decisions is beginning to be felt as we can see the U.S. government increasingly beginning to challenge Jerome Powell's approach. The fact that investors are anticipating that we will be very close to the end of rate hikes has caused the inversion of the 2-year and 10-year bond curve to drop drastically, which shows that investors are becoming less afraid of a recession. The numbers are starting to show that the probability of heading into a recession is decreasing and that we would rather be in an economic slowdown," says our President and Portfolio Manager Philippe Pratte.
Here is the average for the week of the three main indexes at 1 p.m. Friday.
And here's the average for the week for the TSX in Canada.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
This newsletter is intended to provide general market and security information and is not intended to address your specific needs. The views (including recommendations, if any) expressed in this newsletter are those of the author only and do not necessarily represent those of Pratte Asset Management and do not constitute investment advice for your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.
