What’s News in Markets: Weak Coffee, Advantage Lost, AI Push
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Hey, listeners, it's Saturday, May 4th, and May the 4th be with you. I'm Francesca Fontana for The Wall Street Journal, and this is What's News in Markets, our look at the biggest stock moves of the week and the news that drove them. Let's get to it. May is here, everybody, and good riddance to April, right? I mean, after a stellar first quarter for the stock market, April was the worst month of the year so far for the major indexes, with all three posting monthly losses. But we've got a new month full of possibility and plenty of room for optimism. Like, say, for interest rate cuts. Investors were holding their breath for the Fed's policy announcement Wednesday, aka Fed Day, when Jerome Powell indicated that the bar to cut interest rates has gone up and rates remained unchanged.
It was a relief for those dreading a possible hike, but still no sign of when cuts might start. Still, the three major indexes managed to end the week higher. To you coffee drinkers listening, please grab a cup. We're talking about Starbucks. I'm hugely dependent on caffeine myself, but I will admit I am drinking some mellow herbal tea here in the studio. Coffee, unfortunately, bad for the voice. So Starbucks posted its latest earnings this week, and its performance could really use a jolt. The company reported a slowdown in visits to its stores, lackluster sales and profit, and it cut its sales outlook. We know how ubiquitous Starbucks is around the world, and we know that most of us are running on a steady stream of caffeine, so what's the issue?
Well, the CEO said this. Morning service isn't fast enough to keep up, and too many customers are abandoning orders on the Starbucks app because of the long wait times and unavailable menu items. He also promised a turnaround, so we'll see how that plays out. But investors found the results a bit too bitter to stomach, and the stock dropped 16% Wednesday and ended the week lower.
So we've talked about one key American industry, coffee, and I've got another one for us, health insurance. International listeners who hear American health insurance and want to tune out, please stick around and, hey, you know what?
What market context set the stage for this week's stock moves?
Pat yourselves on the back if you never have to deal with co-pays or deductibles or, God forbid, open enrollment season. So we're talking about US health care giant CVS, which has its hand in many areas, like retail pharmacies and its Aetna health insurance plans. CVS's quarterly earnings disappointed this time around, and it cut its guidance for 2024, as its big bet on Medicare just keeps dragging it down. Let's zoom out for a minute. In the US, Medicare is a federal health insurance program for the elderly and disabled. Now, Medicare Advantage is the private version of Medicare, offered by insurers like CVS's Aetna. But I'm just going to be calling it Medicare. Still with me? Awesome. So, private Medicare plans have been a huge area of growth and profits for insurers, and companies like CVS have rushed in to take advantage.
But just as CVS started expanding big into Medicare, the winds changed. Costs started rising as seniors started spending more on health care, and it's facing new regulatory changes. And CVS isn't the only insurer dealing with them. Earlier this year, one of its rivals, Humana, which focuses on Medicare plans, called these cost increases unprecedented. CVS shares lost 17% Wednesday, its worst one-day decline since 2009. That move wiped out about $14 billion in market cap, and the stock didn't claw back much ground the rest of the week.
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Chapters
2 chaptersSpeakers
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