HEALTHCARE

American Pharmacies Can Treat Just About Anything — Except Their Life-Threatening Losses

CVS Health ($CVS) and Walgreens ($WBA) have all the remedies for your ailments but are struggling to cure their own fiscal fevers. Since the pandemic hit, America’s two largest pharmacy chains have been squeezed — and unfortunately for the rest of America, their sickness is contagious.

Wal-reds and CVStress: Brick-and-mortar drug stores are facing competitive and operational pressures weighing on profits and hampering their growth. Between labor and store upkeep costs, multi-billion dollar opioid lawsuit settlements, and online competition, the two firms have had significant financial losses in recent quarters. And analysts are worried it could get worse.

• In May, CVS — America’s largest pharmacy chain — had its worst day in 15 years, slashing its earnings guidance for the second time in 2024 after paltry earnings.

• Walgreens, despite generating $180B in revenue over the past five quarters, reported staggering net losses of $5.6B and neglected to issue new guidance.

Pharmacy Prognosis

Walgreens’ stock has plummeted 57% year-to-date, ranking as the worst-performing stock in the S&P 500 — while competitor CVS Health has dropped 28%. In response, both companies are embracing dramatic cost-cutting measures.

• Earlier this year, CVS announced plans to close 10% of its stores (~900 locations) as part of a $1B restructuring effort to expand its health hubs business.

• Similarly, Walgreens intends to shutter 25% of its stores (~2.15K locations) that are unprofitable, too near in proximity, or are struggling with theft.

Forward-looking: After years of consolidation, supply chain woes, and shrinking margins, pharmacies may be facing a catastrophe that they played a pivotal role in creating. WBUR warns that a pharmacy crisis could jeopardize drug access for millions of Americans — but if not CVS or Walgreens, who will fill America’s prescriptions? We’ll have to see.

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LARGECAP RECAP

🚕 Baidu’s Stock Is Getting Love From Investors, Fueled By China’s Push For Robotaxis

China’s automakers are in a heated race towards achieving fully self-driving vehicles — and tech giant Baidu ($BIDU) is gearing up to take the lead with its cutting-edge robotaxi technology. Following the release of draft rules and Shanghai’s inclusion as a city allowing driverless taxis without supervision, Baidu’s stock has surged 14% since Tuesday.

• Often dubbed the “Google of China,” Baidu has invested heavily in AI and autonomous driving in response to China’s economic slowdown, affecting ad revenues.

• Guotai Junan International’s Li Muhua believes, “Baidu’s Apollo Go is expected to break even in Wuhan in 2024 and be profitable in 2025 with an increase in its fleet in the city” (BBG).

Driven to win: Baidu isn’t alone in this pursuit. The Chinese government has greenlit eight other automakers to test Level 3 autonomous vehicles, allowing operation without human oversight under certain conditions — a milestone beyond what Western companies have achieved. This includes Tesla ($TSLA), whose Model Y has been approved for government use — a first for the automaker. Competition is only heating up, with Musk planning to unveil the company’s own robotaxi in October.

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Markets & Economy

Inflation dips to lowest in three years: The US Consumer Price Index (CPI) fell 0.1% from last month, putting the 12-month inflation rate at 3%. This decline strengthens the case for potential Federal Reserve interest rate cuts later this year. [Read]

Bond market outlook shifts: After years of poor performance, bonds are becoming more attractive investments due to taming inflation and higher yields. However, political uncertainty surrounding the presidential race may introduce volatility. [Read]

AMD acquires AI startup: Advanced Micro Devices ($AMD) is purchasing Finnish AI company Silo AI for $665M to enhance its AI chip capabilities and compete with industry leader NVIDIA. Silo will assist AMD’s clients in building complex AI models. [Read]

Business & Wealth

Housing market cools: With the median home price at just under $455K, the available inventory of unsold homes in the US is up 40% from last year. Now, 38% of listings are seeing price cuts as high mortgage rates dampen buyer demand. [Read]

PC sales show modest gains: The PC market grew 3.4% year-over-year in Q2, marking the third straight quarter of increases after several sluggish years. Laptops led with 4% annual growth. Analysts expect the upcoming Windows 11 refresh and AI-powered PCs to further drive market recovery. [Read]

Pfizer advances weight loss pill: Pfizer ($PFE) is moving forward with a once-daily version of its weight loss pill, danuglipron, after discontinuing the twice-daily version. The company aims to compete in the growing GLP-1 agonist market, projected to reach $100B by 2030. [Read]

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DIGIT OF THE DAY

Only 1 in 5 S&P 500 Stocks Beating the Index, Lowest Since the ‘80s

We’re not keeping score, but it’s clear that some S&P 500 companies are batting under .500 — and others are in a league of their own. As of Jul. 11, just 100 out of the S&P 500’s 503 component companies have surpassed the index’s year-to-date return of ~19%. Pernas Research’s Deiya Pernas told CNBC, “The S&P 500 has been driven by a narrow range of tech leaders leveraged to AI tailwinds, while the rest of the market has significantly lagged.”

• The disparity is stark: the 50 largest S&P 500 stocks have seen gains of 13% this year, whereas the smallest 50 have experienced a decline of 12% as of Jul. 10. Six key tech giants like Micron ($MU) and NVIDIA ($NVDA) have driven substantial earnings growth.

• Morningstar reports that only 18.2% of active funds and 13.4% of passive funds have outperformed the S&P 500 this half-year, while just 23% of equity ETFs have managed to beat the index over the past year.

Can non-tech keep pace? Although tech stocks are poised to maintain strong growth, other sectors within the S&P 500 are trading at lower price-to-earnings ratios than in March of this year. Additionally, more than half of the companies are likely to report narrower Q2 profit margins than the prior year — even though investor expectations are higher than ever for the upcoming quarter.

Read: The Year Is Halfway Over, But the S&P 500 Has Already Delivered More Than Investors Expected