What’s News in Markets: Wrong AI, Troubled Retailers, Trump Volatility
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What is the main topic discussed in this episode?
Access to affordable credit helps me pay my employees, but I don't really need it.
Inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill. See?
Banks and credit unions help small businesses make payroll. This bill would cut the vital resources they need.
While increasing megastore profits. They deserve it, don't they?
Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition. Hey, listeners, it's Saturday, June 1st. 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. Welcome to June. Of course, after the Memorial Day weekend, we had a shorter trading week, but it certainly wasn't boring. We saw a tech sell-off led by Salesforce, more on that later, some economic data on U.S. spending that was a win for interest rate cut optimists, And on Friday, we were all digesting the Trump verdict, of course. More on that later, too. In any case, the major indexes finished the week lower, but all scored monthly gains for May.
So I talk to you guys a lot about AI, and usually the narrative is that it's bringing in gangbusters demand for tech companies, right? This week, flip the script a little bit. And yes, I will be addressing Google's hilarious off-the-wall AI search results. For one, Salesforce, the cloud software company, posted disappointing quarterly sales, cut its outlook for subscription and support revenue, and gave a downbeat forecast for the current quarter. The excitement around its new artificial intelligence tools, it seems, has yet to pay off. Salesforce shares ended up plummeting 20% Thursday and dragged other tech stocks down with it. And Salesforce is a component in the Dow, so we also saw its move weighing down the major indexes.
The stock did cross some ground back Friday, ending about 7% higher. Then there was Alphabet, Google's parent company, which said it was pulling back on its new AI search overviews that were giving users objectively bonkers and wildly incorrect answers to searches like, how many rocks should a child eat? Or advising people to use glue, non-toxic glue to be sure. to help cheese stick to pizza better. Anecdotally, a lot of the answers I saw seemed to stem from Reddit comments, usually silly joke ones, and satirical content from The Onion and other publications, with Google's AI overviews citing them as fact. Alphabet shares moved lower intraday but ended up closing slightly higher on Friday, ending the week down 1.3%.
What market themes set the stage for this week’s stock moves?
So if you've been plagued with anxiety about the wild west of generative AI and or you fear the possibility of sentient robots taking over, maybe this will give you a little bit of comfort. Then we had the tale of two beleaguered retailers, Kohl's and Gap. Both have been attempting turnarounds after a run of disappointing results. And as we've seen, it's been a mixed season for retail earnings. Some, like Walmart and exporting goods, have put up strong numbers, while others, like Target, have not. Let's start with Kohl's, which reported on Thursday, and the department store posted quarterly sales and earnings that missed Wall Street's expectations. Now, over the years, Kohl's has made different moves to try and juice its sales, like adding Sephora shops and partnering with Amazon to accept Amazon returns at its stores.
But analysts say that these haven't been the proverbial silver bullet that the company needs. Kohl's shares dropped 23% Thursday and gained back about 6% on Friday. On the other hand, Gap's new style is paying off. The apparel company on Thursday posted higher quarterly sales across its four brands, which are Gap, Old Navy, Banana Republic, and Athleta. And Gap's earnings and revenue surprises are an early sign that chief executive Richard Dixon's turnaround plans are starting to yield results. He's been trying to spice up the brands, including by bringing in fashion designer Zac Posen.
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