NOC

Northrop Grumman Corporation

463.70
USD
1.64%
463.70
USD
1.64%
344.89 492.30
52 weeks
52 weeks

Mkt Cap 74.24B

Shares Out 160.11M

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Wall Street Breakfast: What Moved Markets

Stocks dipped into bear market territory on Friday, with the S&P 500's decline from its January all-time high hitting 20% at one point, before a late-session reversal lifted the benchmark index to a flat finish. Much of the decline in investor confidence recently stems from lackluster retail earnings, which has raised fears that a consumer-led downturn is approaching, on top of the inflation and supply chain challenges that have weighed on sentiment for weeks. But some potential silver linings can be found, if one squints hard enough, including a decline in U.S. bond yields, a leveling off for the U.S. dollar and commodity prices, and partial reopening from COVID lockdowns in China. For the week, the Dow Jones average lost 2.9% for its first eight-week losing streak since 1923, while the S&P lost 3% for the week and the Nasdaq slumped 3.8%, with both posting seven-week losing streaks. Joining Finland in its recent quest to join NATO, Sweden broke a nearly 200-year policy of military neutrality formed in the aftermath of the Napoleonic Wars. The governing Social Democratic Party approve its application to join the alliance this week, but expressed reservations against the deployment of nuclear weapons and foreign bases on their soil. In response, Russia warned that Finland and Sweden would face consequences for their decisions, "both of a military-technical and other nature," and even cut off all electricity exports to Finland in response (those accounted for about 10% of the country's consumption in April). Quote: "The issue at hand is whether military nonalignment will keep serving us well?" Swedish Prime Minister Magdalena Andersson declared. "Europe, Sweden and the Swedish public are living a new and dangerous reality. We're now facing a fundamentally changed security environment in Europe." Public opinion was strongly against joining NATO until the Russian invasion on Ukraine on Feb. 24, when support for membership flipped almost overnight. As mentioned last week, the military buildup is likely to be another boon for stocks like Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC), which have had a phenomenal year on the back of the increases in defense spending. All current 30 NATO nations have agreed to spend at least 2% of their GDPs on defense by 2025, and while only a third of those members have met the threshold, the latest developments should accelerate a drive for achieving their targets. Wild card: Turkey, which has been a NATO member since 1952, raised concerns about the two countries joining the alliance, alleging they support the Kurdistan Workers' Party, or PKK, which Ankara considers terrorists. Turkey particularly accuses Sweden of not doing enough to crack down on PKK financing and recruitment in the country, and condemns the meetings of politicians with representatives of PKK-linked Syrian Kurdish militants that are fighting in Syria. While the grievances could complicate and delay the accession process, Finland and Sweden's applications are still expected to get over the finish line, albeit with possible concessions that may be wrung out of NATO allies. (69 comments) Twitter (NYSE:TWTR) shares were on the move again early Tuesday as Elon Musk confirmed that his $44B deal for the platform cannot move forward until he has more clarity on how many accounts are fake. The stock fell 3% to $36 in premarket trading on the news - down a total of 25% from week prior - with the completion of the transaction looking increasingly uncertain. In fact, the stock has lost all its gains since closing at $39.31 on April 1, which was the last session before the billionaire disclosed his minority stake in Twitter. Latest tweet: "20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher," wrote Musk. "My offer was based on Twitter’s SEC filings being accurate. Yesterday, Twitter's CEO publicly refused to show proof of <5%. This deal cannot move forward until he does." The reference was to a thread from Twitter chief Parag Agrawal, who also took to the "digital town square" on Monday, saying "the most advanced spam campaigns are sophisticated and hard to catch." Estimates are based on "multiple human reviews (in replicate) of thousands of accounts" that could not be "performed externally, given the critical need to use both public and private information (which we can't share)." Musk tweeted a poop emoji in response, adding, "so how do advertisers know what they're getting for their money? This is fundamental to the financial health of Twitter." Fine print: Musk cannot legally walk away from the $44B acquisition unless he proves breach of contract, which in this case would be centered around misleading information (like disclosures about fake accounts or bots). If Musk simply abandons the deal, Twitter could sue him for billions in damages along with collecting the $1B breakup fee stipulated in the agreement. Instead, it looks like he is trying to renegotiate his takeover of Twitter, even commenting on Monday that a lower price wouldn't be "out of the question" after putting the deal "temporarily on hold." Later in the week, #Elongate was trending on Twitter as the high-profile CEO was accused of sexual misconduct. (153 comments) Investors were already nervous after Walmart (WMT) raised the earnings alarm, but those fears were compounded on Wednesday as Target (TGT) upped the threat level by a few notches. Shares of the discount chain slumped 25% as Q1 results came in far from the bullseye, hammering the entire retail sector from Costco (COST) and Dollar Tree (DLTR) to merchandise haulers like Saia (SAIA) and Old Dominion Freight Line (ODFL). Things then spiraled into a broad market selloff, with the Dow Jones plunging almost 1,200 points, and the S&P 500 and tech-heavy Nasdaq tumbling 4% and 4.7%, respectively. What happened? The big earnings miss (and halving of profits) at Target was driven by a shift away from higher-margin goods such as kitchen appliances and TVs to basics like food and toiletries. Margins felt pressure from the consumer pullback as shoppers got selective about spending on goods. In fact, operating margins were reported to be 5.3% during the quarter, falling heavily from the 9.8% seen in same period last year and below the company's long-term goal of 8%. Elevated fuel and freight costs also dented profits, with expenditures on those items now forecast to be "$1B higher this year" than Target management had previously estimated. Not expecting the swift change in consumer sentiment, the company further stocked up on too many discretionary categories, leading to a higher level of markdowns as quarterly inventory grew 43% Y/Y. "We did not anticipate the rapid shifts we've seen over the last 60 days," CEO Brian Cornell declared, adding that Target would "have some of the same challenges in the second quarter" as it continues to set prices based on "value and affordability." Inflation nation: "Retailers are starting to reveal the impact of eroding consumer purchasing power," explained Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, which has predicted a recession around year-end into early 2023. "The consumer's ability to spend is eroding at a faster pace than it was a month or two ago. We think that pace is going to accelerate further." (184 comments) "If we have to go past neutral, we won't hesitate," Federal Reserve Chair Jerome Powell reiterated during the Wall Street Journal's Future of Everything Festival, without saying what he thinks the neutral interest rate is. Recall that the neutral rate is the point at which interest rates neither boost nor hinder economic growth. "We need clear and convincing evidence that inflation is coming down" before the Fed slows its pace of rate increases, he added, after consumer prices soared another 8.3% in the 12 months through April. Quote: "The underlying strength of the U.S. economy is really good right now. The U.S. economy is strong, the labor market is extremely strong. It is still at very healthy levels. Retail sales numbers, the economy is strong. Consumer balance sheets are healthy. Businesses are healthy. The banks are well-capitalized. This is a strong economy. We think it is well-positioned to withstand less accommodative monetary policy and tighter monetary policy. Of course, we do monitor global events, and global events have been important to our economy. The war in Ukraine is something that has upset the global commodity picture, while also threatening the global world more broadly." "As a policymaker, the way I'm thinking about it right now, we are raising rates expeditiously to what we have been seeing is a more normal level, which is something that we will reach maybe in the fourth quarter. But it is not a stopping point. It is not a looking around point. We don’t know with any confidence where neutral is. We don’t know where tightening is. We just know in this market, higher inflation and very strong growth. What we are going to be looking at, meeting by meeting, data reading by data reading, is what is happening in the financial conditions, what is happening with the economy." Rip off the Band-Aid? When asked if the Fed isn't moving fast enough in raising rates, Powell defended the central bank's decision to tighten policy starting in March. "By the standards of central bank practices in recent years, we've moved about as fast as we have in several decades," he said. As to why the Fed isn't raising rates by more than 50 basis points per meeting, Powell referred to the importance of communicating to the public and the markets. "Monetary policy works through expectations," he added, outlining that "financial conditions, overall, have tightened significantly." (100 comments) Executive pay has come under the microscope in recent years, with top brass increasingly making hundreds of times the pay of the average worker. Awareness of the pay scale is now prompting some shareholders to take action, though others caution that inflated compensation is what is needed to secure talent in the current environment. According to the AFL-CIO annual Executive Paywatch report, the average S&P 500 CEO made 299 times the average worker's pay in 2020, when factoring in salary, stock and bonuses. Stinging rebuke: Only 31% of investors at JPMorgan's (NYSE:JPM) annual shareholder meeting voted in favor of a $52.6M stock option award that was part of CEO Jamie Dimon's 2021 compensation package. It was the first time the bank's board lost such a vote since it was introduced in 2009, and was significantly lower than the previous weakest level of investor support, which came in at 61.4% in 2015. While the shareholder vote is non-binding, the bank's board said it would take the feedback "seriously" and intended for the bonus to be a one-time event. "The special award was extremely rare - the first in more than a decade for Mr. Dimon - and it reflected exemplary leadership and additional incentive for a successful leadership transition," said JPMorgan spokesman Joe Evangelisti. He also noted that the package was designed to keep Dimon at the helm for another five years by pegging the award to the bank's share price appreciation. Dimon would only be awarded if JPMorgan's stock rose above $148.73 in the coming years (it's currently trading at $122.18, but hit a high of $172.96 back in November). Disapproval is spreading: Shares of Intel (INTC) climbed 3% on Tuesday after investors voted against the compensation of some of its top executives, including part of a $178.6M payout for CEO Pat Gelsinger. While the motion was also advisory and won't take immediate effect, it does send a signal to those that are closely watching the semiconductor giant's performance. Shareholders at AT&T (T) and General Electric (GE) also voted against hiking executive compensation packages this year following lackluster first-quarter results. (215 comments) U.S. Indices Dow -2.9% to 31,262. S&P 500 -3.1% to 3,901. Nasdaq -3.8% to 11,355. Russell 2000 -1.4% to 1,768. CBOE Volatility Index +1.9% to 29.43. S&P 500 Sectors Consumer Staples -7.0%. Utilities +0.3%. Financials -1.%. Telecom -2.2%. Healthcare -0.6%. Industrials -1.7%. Information Technology -2.9%. Materials -0.6%. Energy +0.9%. Consumer Discretionary -6.1%. World Indices London -0.4% to 7,390. France -1.2% to 6,285. Germany -0.3% to 13,982. Japan +1.2% to 26,739. China +2.% to 3,147. Hong Kong +4.1% to 20,717. India +2.9% to 54,326. Commodities and Bonds Crude Oil WTI -0.1% to $110.35/BBL. Gold +2.% to $1,845.1/oz. Natural Gas +5.2% to 8.058. Ten-Year Treasury Yield -4.8% to 2.79. Forex and Cryptos EUR/USD +1.45%. USD/JPY -1.03%. GBP/USD +1.86%. Bitcoin +0.%. Litecoin +2.2%. Ethereum -1.9%. XRP -1.9%. Top S&P 500 Gainers Premara Financial (PARA) +15%. Synopsys (SNPS) +11%. SolarEdge Technologies (SEDG) +11%. NRG Energy (NRG) +8%. Organon (OGN) +7%. Top S&P 500 Losers Target (TGT) -29%. Bath & Body Works (BBWI) -24%. Ross Stores (ROST) -22%. Dollar Tree (DLTR) -20%. Walmart (WMT) -19%. Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section. Comment

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