Nasdaq’s Spectacular Half Had Few Positive Trading Days. Why That’s a Good Sign.

Historically, the index performs better in the first half than the second half on average—it averages a 7% first-half gain and a 4.6% second-half increase, according to Dow Jones market data. However, when the first half has delivered gains of 29% or more, the second half has, on average, delivered an 11% drop. Not a great sign.

A puzzling aspect of 2023 so far is that it has been driven by only a handful of big-name stocks. The “Big Seven”:
Tesla,

Meta,

Nvidia,

Apple,

Microsoft,

Alphabet
and
Amazon.
If the index stars are able to lift others, think of it as though the rest of the index were attached to these big names by a rubber band—it’s fair to think the gains could fan out to others.

Another curious detail about the Nasdaq’s first half is that the number of days on which it rose was historically small. But don’t worry, that’s actually a good sign, according to Bespoke Investment Group. The fewer positive trading days in which the index gained at least 10% during a first half has typically meant a rally continued into the second half.

That aside, it’s worth asking why the Big Seven have gained. It’s not really earnings. It’s not a great macro environment—interest rates are still rising and growth is tepid. And it’s probably not just a technical bounce back after 2022.

The biggest single driver is surely the hype around artificial intelligence—something that can help lots of companies. It suggests AI may be the rubber band that pulls the rest of the index up for the next few months.

—Brian Swint

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Nike Falls Short on Profit, But Inventory Is Improving

Nike
said its inventory levels are returning to a healthy level, coming in flat compared with the fiscal fourth quarter last year and better than the third quarter as it uses discounts to work through excess merchandise.

• The athletic apparel maker beat revenue expectations with $12.8 billion in sales, but fell slightly below profit forecasts. Gross margins, a measure of profitability, fell 1.4 percentage points to 43.6% because of higher input costs and that discounting activity.

• A bright spot in the quarter was a 16% jump in sales in Greater China, which also beat expectations. Analysts had worried before the report about slowing North American sales, but they came in at $5.35 billion, higher than Wall Street estimates.

• CEO John Donahoe cited strong online sales growth of 24% for the year, and he expects that side of the business to continue to lead growth. He cited the membership program that was expanded in fiscal year 2023, with members being engaged more frequently and buying more.

• Nike projects first-quarter revenue will either be flat or up by low-single-digit percentage points, below estimates for 6% growth. But it added it is watching the macro environment and any changes in consumer behavior and retail trends.

What’s Next: For fiscal 2024, Nike projects revenue will rise by mid-single-digit percentages, in line with current analyst estimates. Gross margins will expand between 1.4 to 1.6 percentage points over the course of the year, as the company has fewer markdowns.

—Sabrina Escobar and Liz Moyer

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Fidelity Investments Tries Again With Spot Bitcoin ETF

Fidelity Investments applied to create a spot Bitcoin exchange-traded fund, joining
BlackRock
and
Invesco
and other asset managers in another attempt to get approval for the product after the Securities and Exchange Commission rejected earlier efforts.

• The SEC insists there isn’t enough surveillance for fraud and manipulation on the sites that trade Bitcoin, and that is why it has rejected past applications for a spot Bitcoin ETF.

• BlackRock’s newest application says Nasdaq and a crypto trading platform will have a surveillance agreement to spot problems. Cathie Wood’s ARK Investment Management amended its own ETF application to include a surveillance proposal.

• Fidelity’s application adds to the fund giant’s embrace of digital assets. In the past two years, Fidelity has begun offering an option to 401(k) plan sponsors to include a Bitcoin investment in retirement plans. Fidelity also offers its own crypto brokerage.

• The SEC allowed ETFs that track bitcoin futures contracts, such as the
  ProShares Bitcoin Strategy
  fund. Renewed attempts at a spot Bitcoin ETF lifted the price of Bitcoin. It is up more than 13% in the past month, according to FactSet.

What’s Next: Later this year, a court is also expected to decide in a case between the SEC and Grayscale Investments, which is suing the agency over its decision to block the conversion of the
Grayscale Bitcoin Trust
into an ETF.

—Liz Moyer and Joe Light

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Air Travel in Shambles Ahead of July Fourth Weekend

Smoke from Canadian wildfires is once again blanketing much of the Eastern U.S., forcing the airline industry to navigate another challenge as the July Fourth weekend starts. Thousands of flights were delayed again on Thursday, stalled by cascading issues including bad weather and personnel shortages.

• Friday could be the busiest U.S. travel day since before the Covid-19 pandemic. Close to three million people are expected to pass through U.S. airports as they head to their Independence Day destinations, according to Transportation Security Administration estimates.

• More than 120 million people from the Midwest to the East Coast are under air quality alerts, which could affect flights depending on conditions. This weekend’s travel rush will test an industry that has struggled with its postpandemic performance.

• Labor shortages and technical failures have stymied carriers as they try to keep up with demand. Air traffic control staffing issues have also slammed flight patterns. The Transportation Department says critical air traffic control facilities in the U.S. were understaffed by 15%.

• Bad weather and other issues have messed up air travel this week.
  United Airlines
  has canceled 2,566 flights in the U.S. from Monday through Thursday evening and delayed 4,811 others, according to data from FlightAware. CEO Scott Kirby has complained about FAA issues affecting flights.

What’s Next: United’s flight cancellation and delay numbers showed improvement on Thursday. The carrier said it had seen a “meaningful improvement” after an overnight push to fix its schedules and match crews with planes, adding it expects disruptions to continue dropping, The Wall Street Journal reported.

—Hannah Ziegler

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Virgin Galactic Takes First Customers to Edge of Space

Virgin Galactic’s first commercial spaceflight launched successfully on Thursday, taking a crew from the Italian Air Force and the National Research Council of Italy on a 75-minute trip to the edge of space.

• The flight, named Galactic 01, marks the start of commercial service for the space tourism pioneer after a series of delays. A double-hulled mother ship took the Galactic spacecraft to 44,500 feet before dropping it, according to a company press release.

• The craft, called Unity, then ignited its engine and accelerated to about Mach 2.88, or almost three times the speed of sound, traveling about 52.9 miles above the surface of the Earth. After passengers experienced weightlessness, the ship glided back to Spaceport America in New Mexico.

• Prior to the flight, shares had gained $1.28, or 37%, over the past month, as of the market close on Wednesday. A similar pattern emerged when Virgin Galactic founder Richard Branson went to the edge of space almost two years ago in July 2021.

What’s Next: The shares fell sharply on the news, declining almost 11% to close $4.23, after trading higher earlier in the day. The stock market often “buys the rumor and sells the news.” In the long run, earnings and cash flow will determine how Virgin Galactic stock trades. In the short run, investors should watch out for a stock dip, even with a successful first flight.

—Emily Dattilo and Al Root

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Dylan Mulvaney Speaks Out Amid Continued Bud Light Backlash

The social media influencer Dylan Mulvaney has spoken out about the Bud Light controversy for the first time since starring in an Instagram video promoting the beer in April. In a TikTok video Mulvaney posted Thursday, she addressed the firestorm that erupted since that day.

• Mulvaney said she has experienced “more bullying and transphobia” than she could have ever imagined as a result of her collaboration with Bud Light. She added that the brand hasn’t reached out to her, and said criticism has led her to experience loneliness and ridicule in the past few months.

• Boycotts have hit sales of Bud Light for
  Anheuser-Busch InBev.
  The brewer sent Mulvaney a personalized can of Bud Light to commemorate an online series she made documenting her gender transition. Mulvaney showed the can during the April Instagram promotion.

• In an interview with CBS this week, AB InBev’s U.S. CEO Brendan Whitworth said it has been a challenging few weeks, and that the conversation has become divisive. But he wouldn’t call sending the can to Mulvaney a mistake and instead emphasized Bud Light’s support for the LGBTQ+ community.

What’s Next: Bud Light had to dramatically slash prices and offer promotions and financial support to front line workers and distributors in a bid to revive sales. In its latest attempt, it is offering $15 rebates on purchases of some beer packs, making them effectively free in some markets.

—Angela Palumbo and Hannah Ziegler

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Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to [email protected].

1. The U.S. economy grew at a faster-than-expected annualized pace in the first quarter, according to the third and final estimate of gross domestic product for the period from the Bureau of Economic Analysis. By how much did the economy grow?

a. 1.6%

b. 1.8%

c. 2.0%

d. 2.2%

2. All 23 banks that participated this year passed the Federal Reserve’s annual stress tests, demonstrating they have enough of a capital cushion to withstand a severe downturn. What scenarios did the Fed test?

a. Unemployment peaking at 10%

b. Commercial real estate values plunging 40%

c. Housing prices falling 38%

d. All of the above

3. The AAA forecast a strong July Fourth holiday weekend of travel, predicting new highs for airline and car travel and a surge in travel by train, boat, and other modes that combined would beat the previous record in 2019. How many people will travel more than 50 miles from home?

a. 45 million

b. 50 million

c. 55 million

d. 60 million

4. Electric vehicle maker
Lucid
took a stake in this luxury auto maker in a deal to provide technology including battery components to help it build its first EV by 2025.

a.
Aston Martin

b. Lamborghini

c. Bentley Motors

d. Ferrari

5.
Warren Buffett’s Berkshire Hathaway
conglomerate has been amassing a stake in oil producer
Occidental Petroleum,
adding another 2.1 million shares this week to bring its stake to what level?

a. 23.1%

b. 24.1%

c. 25.1%

d. 26.1%

Answers: 1(c); 2(d); 3(b); 4(a); 5(c)

—Barron’s Staff

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner