Tesla and Apple Thrive Through Resilience. Yellen’s China Trip Could Deliver More Optimism.

A tough 2022 accounted for the slight delay in reaching the latest milestone but the company has returned to form with strong iPhone sales and a range of new products, including its mixed-reality headset.

Tesla is also fighting back from a tricky 2022. The electric-vehicle maker delivered a record 466,140 vehicles in the second quarter, sending the stock higher early Monday. The shares more than doubled in the first half of the year.

Tesla’s price cuts, a bid to stimulate demand in difficult macroeconomic conditions, have certainly worked, though profit margins could yet disappoint at its next earnings on July 19.

Both companies are also exposed to China, where the recovery from Covid-19 is proving somewhat sluggish. But, once again, that’s no problem for the stocks. Tesla is growing at pace in the Chinese market, although it is facing fierce competition from BYD. Apple’s China sales fell 2.9% in the March quarter, a metric overshadowed by global revenue beating expectations.

Treasury Secretary Janet Yellen’s visit to the world’s second-largest economy this week is a sign the U.S. and China are keen to improve relations. That’s good news for China-exposed companies such as Apple and Tesla.

But even if it’s a false dawn, it’s not the end of the world. Apple and Tesla are showing their resilience, regardless of what’s thrown their way.

—Callum Keown

*** Try your hand at this morning’s Barron’s digital jigsaw, which is based on the week’s cover story. For all games, including the daily crossword and sudoku, click here.

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Tesla’s Record Deliveries Beat Wall Street Expectations

Tesla
delivered a record 466,140 vehicles in the second quarter, up 83% from last year and beating Wall Street’s expectations as it continued to cut prices and added factory production. Wedbush analyst Dan Ives said Tesla is on track to hit a delivery goal of 1.8 million-units for 2023.

• This year’s second quarter beat the 423,000 deliveries in the first quarter, and about 255,000 in the second quarter of 2022, which was slammed by factory shutdowns in Shanghai. Ives said Sunday strong demand and production efficiency helped Tesla’s numbers.

• There is a 13,560-unit gap between delivered and produced vehicles. Tesla’s current 19 days of inventory is lower than the traditional auto industry’s 30 to 60 days of inventory on dealer lots.

• Tesla stock is up 113% so far this year, its third-best start to a year in its history. Tesla was one of 13 stocks in the Russell 1000 to double, or better, in the first half of 2023. Barron’s named it a stock pick in January.

• The stock is still below its peak of more than $400 in November 2021. CEO Elon Musk is under pressure to prove Tesla can keep sales up as competitors roll out their own EVs. Other auto makers are expected to release their second-quarter numbers on Wednesday.

What’s Next: Tesla reports earnings on July 19, when analysts will be looking at operating profit margins. Tesla cut prices to boost demand amid rising interest rates and a slowing economy. Analysts project second-quarter operating profit margins of about 11%, down from 15% in the second quarter 2022.

—Al Root and Janet H. Cho

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Yellen’s China Visit Aimed at Easing Trade, Technology Strains

Treasury Secretary Janet Yellen travels to China on Thursday to try to ease recent strains over trade, technology, and Taiwan.

• Yellen’s trip follows Secretary of State Antony Blinken’s meeting with China’s leader Xi Jinping in Beijing last month. It comes as concerns grow that the world economy is fragmenting after decades of globalization.

• U.S. companies such as Apple that have long relied on China as a manufacturing base are moving production elsewhere, and tit-for-tat restrictions on exports of semiconductors shows how uneasy relations have become.

• Both countries have plenty to gain from continued cooperation, a point Yellen has made several times in recent months. China’s economy has struggled to recover from only lifting Covid-19-era restrictions at the end of last year. Manufacturing in the country contracted for a third month in June, official statistics showed Friday.

What’s Next: Signs that tensions are easing could bolster stocks of companies such as Nvidia, Taiwan Semiconductor, and Apple that rely on China in their supply chains.

—Brian Swint

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United Airlines Outlines Changes to Avoid Disruptions

United Airlines
CEO Scott Kirby outlined plans to avoid another chaotic stretch of flight disruptions, including possible cuts to its flights at Newark Liberty International Airport, its largest hub, while they work to get more gates. It is also offering some affected passengers 30,000 miles for future travel.

• United is working with New York area transportation officials to get more gates at Newark and with the Federal Aviation Administration to better balance departures and arrivals. But Kirby said in a note to employees that it was hard to operate if 75% of capacity is cut for multiple days.

• United canceled more than 3,000 flights last week after weather and air-traffic control staffing issues disrupted the industry. The situation stabilized, but United faced more delays Sunday amid stormy weather. Newark’s airport canceled 15% of flights as of late afternoon, FlightAware said.

• JetBlue Airways
  President Joanna Geraghty also said air-traffic control restrictions were lengthier and deeper than anticipated last week. United’s disruption was smaller and more limited than when 16,700
  Southwest Airlines
  flights were canceled and two million passengers were stranded in December.

• The Transportation Security Administration said nearly 2.9 million people passed through U.S. airport checkpoints on Friday, a record as the long holiday weekend kicked off. Kirby said United is focused on crew scheduling with an app rather than using schedulers.

What’s Next: The FAA plans to hire 1,500 air-traffic controllers this year and 1,800 next year, Bloomberg reported. The current staffing shortage poses a risk to the continuity of air traffic operations, the inspector general of the Transportation Department said.

—Janet H. Cho

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Jobs Data, Federal Reserve Minutes in Focus This Week

The economic focus this week will be on the latest government jobs data, including the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey on Thursday, and its June jobs report on Friday.

• Economists’ consensus call for JOLTS’ job openings of 9.9 million as of the last business day of May, down slightly from April. Job openings have dropped nearly two million from their 12 million peak in March 2022, but remain historically elevated.

• Also Thursday, ADP will release its National Employment Report on private-sector jobs for June. Economists expect an increase of 250,000 private-sector jobs, following a 278,000 gain in May. The leisure and hospitality sector continues to lead gains, while manufacturing and finance shed workers in May.

• On Wednesday, the Federal Open Market Committee will release the minutes from its June 13-14 monetary-policy meeting, at which policy makers decided to hold interest rates steady after 10 straight increases.

• Federal Reserve officials and economists are closely watching employment data after the Fed’s June rate pause and ahead of its July 25-26 meeting. Chair Jerome Powell has said he wants to see the ratio of 1.65 job openings for every unemployed person closer to 1:1.

What’s Next: On Friday, the BLS is expected to report a gain of 212,500 jobs in June, after 339,000 added in May. The unemployment rate is expected to stay at 3.7%. Average hourly earnings are expected to rise 0.3% from the month before, matching May’s pace.

—Janet H. Cho and Nicholas Jasinski

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Street Looks for Green Shoots from Mergers and Acquisitions

Wall Street’s deal makers are hoping the second half of 2023 is a turnaround for mergers and other transactions after a tough first half of the year. The appetite for deals could grow with greater clarity on how close the Federal Reserve is to ending its interest rate increases.

• U.S. merger volume totaled $219 billion in the second quarter, according to KPMG. That’s down 8% from the prior quarter and 50% from the year-ago quarter and less than a third of the $736 billion in volume in the first quarter 2021.

• That has been bad news for bankers who count on advisory fees. Already
  Citigroup,

  Goldman Sachs Group,
  and
  Morgan Stanley
  have culled their workforces. Johnson Associates forecasts at least a 15% to 20% drop from last year in year-end bonuses for investment banking advisory.

• Three initial public offerings last week show that the new-issue market is also trying to rebound. Thrift-store operator
  Savers Value Village
  rose 27% on its first day, but reinsurer
  Fidelis Insurance Holdings
  and
  Kodiak Gas Services
  both fell.

• The performance disappointed after June’s blockbuster IPO of Mediterranean-style restaurant chain
  Cava Group.
  But the tech-heavy
  Nasdaq,
  considered a proxy for IPOs, is up 31% this year with lower volatility. That could encourage more companies to bring deals to market.

What’s Next: Companies are less likely to pursue deals amid uncertainty, and the Fed nearing the end of its rate increases eliminates some of that uncertainty, KPMG’s financial due diligence leader Cathy Bedrick said. “They’re not going to do deals when they don’t know where it’s going to go.”

—Liz Moyer and Carleton English

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MarketWatch Wants to Hear From You

The Education Department has started a regulatory process that would flesh out an alternative pathway to federal student debt relief after the Supreme Court struck down the Biden administration’s plan. What are the risks any new debt forgiveness plan will also be blocked?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].

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