Market Snapshot
briefing.com
| Dow | 30163.13 | -22.68 | (-0.08%) | | Nasdaq | 11077.20 | -142.96 | (-1.27%) | | SP 500 | 3768.10 | -21.90 | (-0.58%) | | 10-yr Note | -35/32 | 3.70 |
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| | NYSE | Adv 550 | Dec 2566 | Vol 918 mln | | Nasdaq | Adv 900 | Dec 3426 | Vol 4.87 bln |
Industry Watch
| Strong: Health Care, Communication Services |
| | Weak: Industrials, Consumer Discretionary, Real Estate, Financials, Information Technology, Materials |
Moving the Market
-- Rising Treasury yields keep pressure on investor sentiment
-- Global economic slowdown concerns after several central banks raise rates
-- Digesting latest moves by the Fed, which signaled that rates will not come down anytime soon
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Closing Summary
22-Sep-22 16:25 ET
Dow -107.10 at 30078.71, Nasdaq -153.39 at 11066.77, S&P -31.94 at 3758.06
[BRIEFING.COM] The stock market had its issues today and they had mostly to do with interest rates. There were policy rate considerations on one side and market rate considerations on the other, yet the two were interconnected. The connection is that policy rates and market rates were rising (again) and that made it difficult for the stock market to stage a concerted rebound effort following the sharp losses that were registered Wednesday in the wake of the FOMC decision. The jump in rates also raised concerns about the economy suffering a hard landing.
The major indices started the session on a soft note, giving in to follow-through selling interest as the yield on the 10-yr note moved precipitously to 3.70%. The 2-yr note yield, and the rest of the curve, also shot higher, responding to the Fed's policy rate guidance yesterday and a series of aggressive rate hikes from other central banks today.
Briefly, the Bank of England raised its key policy rate by 50 basis points to 2.25%, the Norges Bank raised its key policy rate by 50 basis points to 2.25%, the Bank of Indonesia raised its key policy rate by 50 basis points to 4.25%, the Hong Kong Monetary Authority raised its key policy rate by 75 basis points to 3.50%, and the Swiss National Bank raised its key policy rate by 75 basis points to 0.50%, exiting its negative rate domain for the first time since 2015.
The Bank of Japan bucked the rate-hike trend, choosing instead to leave its key policy rate unchanged at -0.10%; moreover, Governor Kuroda said the bank won't be raising rates for some time. In related news, Japan's Ministry of Finance intervened to support the yen for the first time since 1998. USD/JPY was down 1.2% to 142.35, but the yen's strength faded during the day.
Notwithstanding the stronger yen, the U.S. Dollar Index still gained 0.5% to 111.21, as the dollar continued to benefit from the interest-rate differential trade.
Stocks, meanwhile, did not benefit much from a buy-the-dip trade.
There were some individual winners, like Microsoft (MSFT 240.98, +2.03, +0.9%), which is confident regulators will approve its acquisition of Activision (ATVI 77.03, +1.71, +2.3%), and Lennar Corp. (LEN 77.43, +1.51, +2.0%), which moved higher after its earnings report, and Eli Lilly (LLY 310.92, +14.44, +4.9%), which jumped on a UBS upgrade to Buy from Hold that followed the news of the FDA approving Retevmo. Salesforce, Inc. (CRM 150.15, +2.52, +1.7%) also outperformed after providing an upbeat long-term outlook at its Investor Day.
Overall, there wasn't any concerted buying interest on a broad level. That point was evident in an advance-decline line that favored decliners by a better than 4-to-1 margin at the NYSE and a better than 3-to-1 margin at the Nasdaq. It was also evident in the 1.4% loss registered by the Invesco S&P 500 Equal Weight ETF (RSP).
When the closing bell rang, there were just two sectors showing a gain: health care (+0.5%) and communication services (+0.1%). The consumer discretionary sector (-2.2%) led the losers, underperforming as worries about rate hikes and a slowdown in discretionary spending hit home. Other notable sector laggards included the financial (-1.7%), industrials (-1.5%), and materials (-1.2%) sectors.
Semiconductors were one of the weakest industry groups, which weighed heavily on the information technology sector (-1.0%). The Philadelphia Semiconductor Index fell 2.8%, paced by losses in key constituents Adv. Micro Devices (AMD 69.50, -4.98, -6.7%) and NVIDIA (NVDA 125.61, -7.00, -5.3%).
Notably, the stock market tried to stage a late comeback effort, having traded in a narrow range for most of the session. That comeback effort, however, got stopped out shortly before the close as there was a rush of selling interest in the final ten minutes of the session that left the indices near their worst levels of the day.
Looking ahead to Friday, the market will receive the preliminary September IHS Markit Manufacturing and Services PMI readings at 9:45 a.m. ET.
Reviewing today's economic data:
- For the week ending September 17, initial claims increased by 5,000 to 213,000 (Briefing.com consensus 220,000). For the week ending September 10, continuing jobless claims decreased by 22,000 to 1.379 million.
- The key takeaway from the report is that the low level of initial claims -- a leading indicator -- will register with the Fed as a basis to maintain an aggressive line with its rate hikes since it sees a softening in the labor market as a necessary ingredient for helping to bring inflation back down to its 2.0% target.
- The Q2 Current Account Deficit improved to -$251.5 billion (Briefing.com consensus -$260.0 billion) from an upwardly revised -$282.5 billion (from -$291.4 billion) in the first quarter.
- The August Leading Economic Index decreased 0.3% month-over-month following a downwardly revised 0.5% decline (from -0.4%) in July.
Dow Jones Industrial Average: -17.3% YTD
S&P Midcap 400: -19.5% YTD
S&P 500: -21.2% YTD
Russell 2000: -23.3% YTD
Nasdaq Composite: -29.3% YTD
Semis sinking
22-Sep-22 15:30 ET
Dow -9.41 at 30176.40, Nasdaq -114.44 at 11105.72, S&P -18.24 at 3771.76
[BRIEFING.COM] The indices squeezed out of their narrow trading ranges with a little upside jaunt but have not been able to scale this morning's high prints.
Basically, just seeing a number of stock spare larger losses but not seeing any concerted strength. One area that has remained stuck in a rut is the Philadelphia Semiconductor Index. It is down 2.3% with Adv. Micro Devices (AMD 69.78, -4.71, -6.3%), NVIDIA (NVDA 126.00, -6.61, -5.0%), and KLA-Tencor (KLAC 313.23, -9.63, -3.0%) among the biggest drags.
Their underperformance has helped keep a lid on the information technology sector (-0.4%), which would be in worse shape if not for the outperformance of Microsoft (MSFT 242.41, +3.46, +1.5%).
Earlier today, Microsoft CEO Satya Nadella said he is confident that the company's acquisition of Activision (ATVI 76.96, +1.64, +2.2%) will get approved by regulators.
Higher rates present recovery headwind
22-Sep-22 15:00 ET
Dow -22.68 at 30163.13, Nasdaq -142.96 at 11077.20, S&P -21.90 at 3768.10
[BRIEFING.COM] The major indices are off their lows but have struggled to attract meaningful buying interest, having held in a narrow trading range for most of the afternoon trade. The main thrust of today's selling interest came early, but with Treasury yields holding near their highs for the day, stocks have faced a stiff recovery headwind.
Currently, the 2-yr note yield is up 15 basis points at 4.13% and the 10-yr note yield is up 19 basis points at 3.70% as the Treasury market's cash session ends.
The higher rates and yesterday's messaging from the Fed and Fed Chair Powell, which made it clear that policy rates still have "a ways to go" and that the higher rates will be left higher for longer (the median estimate in the Summary of Economic Projections doesn't point to a rate cut until 2024), have stoked concerns that the U.S. economy is destined for a recession.
Those concerns aren't acute today in copper futures ($3.47/lb, -0.002, -0.1%), yet they appear to be resonating somewhat in the underperformance of the Russell 2000 (-2.5%), S&P Midcap 400 (-2.2%), and the S&P 500 consumer discretionary sector (-2.3%).
Caesars dips, Verizon recoups Wednesday's losses in S&P 500
22-Sep-22 14:30 ET
Dow -129.62 at 30056.19, Nasdaq -192.49 at 11027.67, S&P -36.79 at 3753.21
[BRIEFING.COM] The benchmark S&P 500 (-0.97%) slips to near session lows in recent trading.
S&P 500 constituents Caesars Entertainment (CZR 37.22, -4.32, -10.40%), FactSet (FDS 396.86, -33.59, -7.80%), and Enphase Energy (ENPH 281.73, -22.83, -7.50%) pepper the bottom of the standings. CZR slips as leisure names feel the hit of recessions fears, while FDS falls on its earnings miss, and ENPH dips despite favorable commentary from Cowen.
Meanwhile, telecom giant Verizon (VZ 40.20, +0.72, +1.82%) recoups a decent portion of yesterday's declines.
Gold higher amid Russia/Ukraine tensions
22-Sep-22 14:00 ET
Dow -5.12 at 30180.69, Nasdaq -127.26 at 11092.90, S&P -19.97 at 3770.03
[BRIEFING.COM] The Dow Jones Industrial Average (-0.02%) briefly peeked above yesterday's close in the last half hour, though now shows slight losses; the tech-heavy Nasdaq Composite (-1.13%) still holds the steepest decline today.
Gold futures settled $5.40 higher (+0.3%) to $1,681.10/oz, showing strength amid ongoing tensions in Russia, even as the dollar continues to hit 20-year highs.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $111.22.
H.B. Fuller keeps things together despite Q3 sales miss as investors focus on upbeat guidance (FUL)
H.B. Fuller (FUL +3%) is keeping things together today despite missing revenue estimates in Q3 (Aug) as its earnings beat and slightly raised FY22 adjusted EBITDA forecast are helping keep its shares trading in positive territory. Additionally, the manufacturer of adhesives, sealants, and other specialty chemicals has continued to succeed in passing its higher prices onto customers without a considerable drop-off in volume growth.
That said, volumes still slid in Q3, albeit by only 0.3%, primarily from slowing economic conditions, particularly in Europe. However, FUL's market share gains continued in the quarter, illuminated by the many highlights posted.
- Top-line growth was lighter than expected at just 13.8% yr/yr to $941.2 mln. However, over 6 pts of growth was clipped by adverse FX impacts. When removing this headwind, organic revenue climbed 18.4% yr/yr, driven by broad-based strength across all segments and regions.
- FUL's Hygiene, Health, and Consumable Adhesives business led organic growth at 23% yr/yr, underscoring the resilient demand for less discretionary items like tissue and towel paper, along with relative strength from beauty products. In FUL's Engineering Adhesives segment, organic growth was also solid at 17.5%, fueled by increasing automotive production and ongoing share gains in the electric vehicle (EV) market.
- The laggard in Q3 was with Construction Adhesives, where organic sales grew just 7%. FUL noted a global slowdown in construction, particularly in the roofing and flooring end markets. We suspect this is more specific to the residential construction market given AugQ sales misses by homebuilders Lennar (LEN) and KB Homes (KBH) from weakening demand. Also, the commercial construction market remains relatively strong, given recent comments from Steel Dynamics (STLD) and Apogee (APOG).
- Meanwhile, adjusted gross margins expanded 280 bps yr/yr to 26.5%, driving a 34% improvement in adjusted EPS to $1.06. Given the continued increases in raw material costs in Q3, we view FUL's margin expansion as a solid win. FUL may have only reiterated its adjusted EPS guidance, expecting $1.15-1.30 in Q4 (Nov), translating to $4.20 for the year at the midpoint, but it did raise the low-end of its FY22 adjusted EBITDA outlook by $10 mln.
- Perhaps more notable was FUL's color on its supply chains going forward. The company has begun seeing signs that supply has stabilized and that cost inflation may be leveling off in Q4, partly explaining why it upped the low end of its EBITDA forecast.
Overall, FUL's AugQ earnings report was solid and provided further evidence that peer Eastman Chemical's (EMN) guidance cut earlier this month was likely more company-specific. Although shares of FUL still trade over 20% down on the year, its AugQ numbers may act as the turning point, especially as its supply chain issues improve.
KB Home misses revenue estimates in Q3 as supply chain issues added to existing headwinds (KBH)
KB Home (KBH -4%) is sliding on a Q3 (Aug) revenue miss as supply chain issues disrupted the homebuilder's ability to complete and deliver homes in the quarter. Meanwhile, net orders of just over 2,000 were half the number from the year-ago period, reflecting uneasiness amongst potential homebuyers in the wake of continually rising interest rates. The massive drop yr/yr is especially glaring compared to rival Lennar (LEN +2%), which saw new orders decline just 12% yr/yr in AugQ, which is partly why its shares are in positive territory today.
KBH remains positive on the long-term fundamentals supporting the housing industry, noting favorable demographics, job growth in its markets, and limited supply of new and used homes, similar to remarks made in previous quarters. However, KBH followed these comments up with a more gloomy outlook, expressing concern over buyers either pausing or moving to the sidelines amid higher rates, inflation, and broad macroeconomic uncertainty.
Against this backdrop, it may be hard to spot the positives that flowed from KBH's AugQ report, but there were still a few worth mentioning.
- Housing gross profit margins surged by 520 bps yr/yr to 26.7%, illuminating the positive impacts of KBH's internal initiatives, including driving its SG&A expense ratio down 100 bps yr/yr. The solid margin expansion fueled KBH's second-straight double-digit earnings beat in AugQ.
- KBH's backlog, which climbed 9% yr/yr to $5.26 bln, representing over 10,700 homes, is another highlight. Although cancellations increased sequentially to 9% of its backlog, they were still below historical levels. The cancellations were also primarily due to buyer's remorse instead of buyers no longer qualifying. In fact, KBH buyers' credit profile remains sound, with an average FICO score of 734 and a household income of $130K.
- Furthermore, there is not a pronounced concern of KBH's backlog being flimsy, with around two-thirds of the company's buyers already locking in their mortgage rate or paying in cash.
- It should also be noted that KBH has remained aggressive in buying back stock, repurchasing around 1.6 mln shares in AugQ, translating to about 2% of its outstanding shares. The company currently has approximately $200 mln, representing roughly 8% of its market cap.
Looking ahead, KBH was not overly cheerful in the current environment reversing homebuyer sentiment anytime soon, expecting housing revs of just $1.95-2.05 bln in Q4 (Nov). At the midpoint, KBH's Q4 housing revenue forecast translates to the company missing its FY22 outlook of $7.3-7.5 bln by over $400 mln. Housing gross profit margins are also expected to dip slightly from Q3 to 25.0-26.0%.
A challenging combination of rising rates and inflation is proving to be a fierce headwind for KBH, not to mention the ongoing supply chain hurdles. KBH is already seeing rising mortgage rates take a bite out of September orders and stated that it will adjust its pricing as necessary to preserve its backlog. Bottom line, The near-term outlook is grim, and even though KBH's valuation looks attractive at around 3x forward earnings, we think it is better to remain on the sidelines until headwinds dissipate.
Salesforce's upbeat longer-term outlook providing a ray of light in a gloomy market (CRM)
With shares trading at their lowest levels since the early days of the pandemic in April of 2020, Salesforce (CRM) has fallen on hard times as the e-Commerce boom fades and as macroeconomic challenges mount. Today, however, the stock is climbing higher and is a clear bright spot within the DJIA, thanks to CRM's bullish outlook and commentary at yesterday's Investor Day conference.
The main headline to emerge from the presentation is that CRM is targeting $50 bln in revenue in FY26, representing a CAGR of 17%, while achieving non-GAAP operating margin of 25%+ in that same timeframe. CRM also nudged its FY23 revenue guidance slightly higher to $31.00-$31.03 bln, from $30.90-$31.00 bln.
CRM acknowledged that macroeconomic and foreign exchange headwinds do pose a risk to its growth in the near-term. This doesn't come as a surprise, though, as CRM is coming off a rough 2Q23 earnings report in which it issued downside EPS and revenue guidance for Q3 and FY23. During the earnings conference call, the company disclosed that deals were taking longer to close and that companies were becoming more discerning with their spending decisions. In regard to foreign exchange, CRM estimates that the strengthening dollar has created a ~$2 bln headwind against its FY26 revenue target since last year's Investor Day. Importantly, the $50 bln revenue goal hasn't changed, despite the negative FX impacts.
Although business conditions are currently turbulent, CRM anticipates that a combination of long-term secular trends (digital transformation, cloud adoption) and company-specific strengths and initiatives will enable it to reach its FY26 targets.
- Towards the top of the list is the company's land-and-expand approach, and its large and expanding total addressable market (TAM). Currently, customers using four or more clouds (sales, marketing, commerce, service, Slack, etc.) represent 20% of CRM's total customers, and drive 85% of its total ARR.
- The company believes there is still plenty of room for multi-cloud adoption growth. As adoption and use cases increase, the TAM also expands, with CRM projecting its TAM to grow at a CAGR of 13% between 2022-2026 to a staggering $290 bln.
- One product in particular that's fueling strong growth is Salesforce Industries. This offering provides a suite of twelve industry-specific clouds that are tailored to help enterprises modernize and lower costs within those individual industries. This product alone is generating $3.8 bln in ARR as of July 31, 2022, while also achieving 30% higher ASPs than CRM's other cloud products.
- In CRM's Q2 earnings report, it guided for FY23 non-GAAP operating margin of 20.4%. In order to reach its target of 25%+ in FY26, the company intends to lean on operating leverage from a few different areas.
- A significant source of operating leverage should originate on the sales side as CRM expands its self-serve capabilities and as sales rep productivity improves.
- Additionally, the automation and optimization of workflow and processes, combined with the evaluation of CRM's real estate footprint, should fuel G&A leverage.
- Lastly, the company is aiming to drive non-GAAP Sales & Marketing as a percentage of revenue below 35% by FY26. For the six months ended July 31, that figure stood at 45%.
The main takeaway is that while the near-term outlook remains cloudy (no pun intended) due to macroeconomic factors, CRM is poised to generate solid growth over a multi-year horizon. As the company approaches $50 bln in revenue by FY26, margins are expected to push higher on improved operating leverage, and that has investors especially excited.
Darden Restaurants had a decent but not great AugQ report, makes us nervous for other chains (DRI)
Darden Restaurants (DRI -4%) stumbled a bit as it kicked off FY23 with Q1 (Aug) results that were just ok. The restaurant chain reported in-line EPS and revenue, but inflation hurt on the cost side and led to a decline in margins yr/yr. Probably the most comforting news was that DRI reaffirmed full year guidance for revenue, EPS and same restaurant comps. We had concerns that DRI may trim its outlook on macro concerns. There is a lot to unpack for this casual restaurant chain.
- Given that DRI was lapping some pretty robust comps from a year ago, we think the +4.2% consolidated comp was pretty decent, even though it was a sizeable drop from +11.7% in Q4. Olive Garden at +2.3% lagged Longhorn Steakhouse at +4.2% and Fine Dining at +7.6%. Last year's comps were robust at +47.5% (consolidated), including +37.1% at OG and +47.0% at LS. We were relieved to see DRI reaffirm FY23 comps at +4-6%.
- Higher gas prices and inflation generally remain headwinds for consumers, particularly for households making less than $50,000. DRI is seeing softness with these consumers, while conversely, also seeing strength with higher income guests.
- Another reason we thought comps were pretty good was because DRI significantly reduced its promotional activity and couponing, which tends to drive sales but at the expense of margins. Recall that a new CEO took over on June 1. This decision to curtail promotional activity seems to be a shift in strategy that should hopefully help margins in the long run. DRI says it will be very selective in terms of bringing any promotional activity back.
- Speaking of margins, they took a hit in Q1 with operating margin falling to 10.0% from 12.2% a year ago. DRI is facing significant commodity cost pressure. The silver lining is that DRI expects total inflation and its gap between pricing and inflation to have peaked in Q1. Inflation should moderate as the fiscal year goes on. DRI expects margins to decline yr/yr in Q2, but by a smaller amount than in Q1, then grow yr/yr in the back half of FY23.
Overall, this was a decent but not great report. We think investors are disappointed with the in-line results, margin compression and the sequential decline in comps. It makes us a bit nervous for other restaurant names heading into earnings season next month. However, we were pleased to see DRI reaffirm FY23 guidance, including comp guidance. We thought those metrics were at risk for a guide down. Also, it was encouraging to hear that margins comparisons should improve as the fiscal year does on.
iRhythm can't find its groove today despite reaffirming guidance during Investor Day (IRTC)
iRhythm (IRTC) is out of sync with the market today as the stock sharply sells off during its Analyst and Investor Day. Prior to the event, the developer of electrocardiogram (ECG) monitoring products made its presentation slides available on its website, which included an update on its FY22 guidance and its 2027 financial goals. Specifically, IRTC reaffirmed its FY22 revenue and gross margin guidance of $415-$420 mln and 68-69%, respectively, and guided for adjusted EBITDA of about (3.5)% of estimated FY22 revenue. This pencils out to adjusted EBITDA of roughly $(14.6) mln, in line with IRTC's prior guidance of $(17.5)-$(12.5) mln.
The company also highlighted the specific growth opportunities and cost-cutting initiatives that it anticipates will generate adjusted EBITDA margin of approximately 15% by 2027.
- For instance, IRTC believes that its Zio product, which combines a wire-free, patch-based, wearable biosensor, with a cloud-based data analytics platform, is only tapping into a small portion of its total addressable market. Zio is used to diagnose and monitor atrial fibrillation (AFib), a heart palpitation condition that afflicts about 12 mln people in the U.S. alone. However, there are substantial adjacent markets, such as hypertension and sleep apnea, that IRTC plans to expand into.
- The company noted that about 130 mln people in the U.S. have hypertension (high blood pressure), with up to 90% of AFib patients falling into that at-risk category.
- Similarly, up to 80% of AFib patients also have sleep apnea, a condition that effects about 30 mln people in the country.
- In total, the company sees a $1+ bln revenue opportunity by 2027, representing a CAGR of about 20%, based on the midpoint of its FY22 guidance.
- On the cost side, IRTC is targeting $250 mln in annual gross savings by 2027. A few key components of attaining this goal include the automation of manufacturing and packaging, the expansion of its logistics network, and the reduction of time and cost to collect revenue.
- Additionally, IRTC expects to gain significant leverage from gross margin and G&A cost savings as the business scales.
This all looks very promising for the company, so it's surprising that the stock is weak today. We would point out, though, that shares have rallied by over 30% since the end of June, compared to a 4% gain for the Nasdaq during this same period. This surge made shares quite pricey with a P/S north of 12x. Given the stock's recent strength, its rich valuation, and the general malaise hanging over growth stocks, perhaps a sell-the-news scenario is at play for the company's Investor Day.
ast Updated: 22-Sep-22 09:06 ET | Archive
Rate hikes keep coming
The FOMC voted unanimously to raise the target range for the fed funds rate by 75 basis points to 3.00-3.25%, as expected. The Summary of Economic projections showed a noticeably higher terminal rate (4.60%) than before (3.80%). That wasn't entirely unexpected. And Fed Chair Powell continued to sound resolute about raising rates to bring down inflation and not lowering rates anytime soon. That was not surprising -- not to us anyway.
The reaction in the stock and bond markets after these policy epiphanies suggested, however, that there was a surprise factor. We would suggest that it wasn't surprise so much as it was disappointment.
What hit home for market participants yesterday is that the Fed, steered by Fed Chair Powell, really means business now in restoring price stability, and if that means a hard landing for the economy, so be it.
The Fed of course would like to avoid a hard landing, but the market is increasingly skeptical that will be possible; hence, the inversion between the 2-yr note yield (4.11%) and the 10-yr note yield (3.56%) continues to widen and stocks continue to languish as investors lose faith in the achievability of current earnings growth estimates.
An added source of consternation is that the rate-hike worries and slowdown concerns are not just a U.S. thing. They have a global reach and market participants have been reminded of that today.
Hot on the heels of the Fed's decision, the Bank of England raised its key policy rate by 50 basis points to 2.25%, the Swiss National Bank raised its key policy rate by 75 basis points to 0.50%, exiting its negative rate domain for the first time since 2015, the Norges bank raised its key policy rate by 50 basis points to 2.25%, and the Bank of Indonesia raised its key policy rate by 50 basis points to 4.25%.
The main outlier is the Bank of Japan. It kept its key policy rate unchanged at -0.10%, as expected; moreover, Governor Kuroda said the bank won't be raising rates for some time. It is little wonder that the Ministry of Finance stepped in finally to support the yen. That is the first intervention since 1998. It is working for now (USD/JPY -2.4% to 140.63), but it seems hard pressed to keep working given the interest rate differential trade that has only gotten more pronounced in the last 24 hours.
In the last hour, meanwhile, the market was reminded that the tightness in the labor market is still quite pronounced. That point registered in the latest Weekly Initial Claims and Continuing Jobless Claims Report.
For the week ending September 17, initial claims increased by 5,000 to 213,000 (Briefing.com consensus 220,000). For the week ending September 10, continuing jobless claims decreased by 22,000 to 1.379 million.
The key takeaway from the report is that the low level of initial claims -- a leading indicator -- will register with the Fed as a basis to maintain an aggressive line with its rate hikes since it sees a softening in the labor market as a necessary ingredient for helping to bring inflation back down to its 2.0% target.
Apart from that understanding, the initial claims report is objectively good economic news. There was also even a little bit of good news in the Q2 Current Account Deficit, which improved to -$251.5 billion (Briefing.com consensus -$260.0 billion) from an upwardly revised -$282.5 billion (from -$291.4 billion) in the first quarter.
A recent batch of earnings reports brought more mixed news. Homebuilders Lennar (LEN) and KB Home (KBH) posted better-than-expected fiscal Q3 results but provided some tepid guidance; FactSet (FDS) missed with its fiscal Q4 earnings result but issued FY23 EPS guidance in-line with estimates; and Darden Restaurants (DRI) posted in-line fiscal Q1 results and reaffirmed its FY23 guidance.
This earnings news is more background noise today than anything else. What's in the foreground is the central bank news and the prospect of a rebound effort for a short-term oversold market.
Currently, the S&P 500 futures are up 12 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 33 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 131 points and are trading 0.5% above fair value.
How the market starts today, however, doesn't mean nearly as much as how it finishes.
-- Patrick J. O'Hare, Briefing.com
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