Market Snapshot
| Dow | 38677.36 | +156.00 | (0.40%) | | Nasdaq | 15756.65 | +147.65 | (0.95%) | | SP 500 | 4995.06 | +40.83 | (0.82%) | | 10-yr Note |
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| | NYSE | Adv 1437 | Dec 1394 | Vol 991 mln | | Nasdaq | Adv 1837 | Dec 2429 | Vol 4.57 bln |
Industry Watch
| Strong: Communication Services, Materials, Consumer Discretionary, Information Technology, Industrials |
| | Weak: Energy |
Moving the Market
-- S&P 500 nearing the 5,000 level
-- Relative strength from mega caps
-- Digesting mixed earnings results
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Closing Stock Market Summary
07-Feb-24 16:20 ET
Dow +156.00 at 38677.36, Nasdaq +147.65 at 15756.65, S&P +40.83 at 4995.06
[BRIEFING.COM] The stock market is reportedly overbought, overvalued, and due for a pullback. Granted not everyone sees it that way, which is why the expected pullback still didn't happen today. On the contrary, the major indices found higher ground today, supported by mega-cap leadership and their own resilience to selling interest.
Meta Platforms (META 469.59, +14.87, +3.3%), NVIDIA (NVDA 700.99, +18.76, +2.8%), Microsoft (MSFT 414.05, +8.56, +2.1%), Alphabet (GOOG 146.68, +1.27, +0.9%), Amazon.com (AMZN 170.53, +1.38, +0.8%) and Eli Lilly (LLY 724.84, +19.81, +2.8%) provided a load of market-cap weighted influence on the major indices.
The only failure today --if one wants to call it that -- was the inability of the S&P 500 to hit the 5,000 level. It came oh, so close, topping out at 4,999.89 in the final hour of trading. Nonetheless, it still managed to log all-time intraday and closing highs in today's trade, garnering added support from outsized moves in the likes of Enphase Energy (ENPH 117.51, +17.00, +16.9%), Emerson Electric (EMR 104.04, +9.78, +10.4%), Chipotle Mexican Grill (CMG 2664.90, +177.16, +7.1%), Ford (F 12.80, +0.73, +6.0%), and CVS Health (CVS 76.04, +2.28, +3.1%) following their earnings reports.
On the flip side, Snap (SNAP 11.41, -6.05, -34.6%), which is not an S&P 500 component, plummeted 35% after coming up shy of Q4 revenue estimates and issuing disappointing Q1 adjusted EBITDA guidance. Dow component Amgen (AMGN 295.87, -20.20, -6.4%) was another notable laggard following its earnings results.
Contending for the most notable mover of note today was New York Community Bancorp (NYCB 4.50, +0.30, +7.1%). Following a Moody's downgrade of its long-term issuer rating to junk status (Ba2), shares of NYCB fell as much as 14.3% before staging a massive comeback effort that was presumably exacerbated by short-covering activity.
The turnaround there carried over to other regional bank stocks and was evident in the SPDR S&P Regional Banking ETF (KRE), which ended the session down just 0.3% after being down as much as 2.8% earlier in the day.
The S&P 500 financial sector managed to close 0.7% higher, but it was the information technology (+1.4%), consumer discretionary (+1.1%), communication services (+0.9%), and materials (+0.8%) sectors that stood atop the leaderboard when the closing bell rang.
The Vanguard Mega-Cap Growth ETF (MGK) jumped 1.3% today while the Invesco S&P 500 Equal-Weight ETF (RSP) rose a more modest 0.4%.
The Treasury market bobbed and weaved today, having digested a remark from Minneapolis Fed President Kashkari (non-FOMC voter) that two to three rate cuts this year are appropriate based on what he knows now, a contention from Fed Governor Kugler (FOMC voter) that the current target range for the fed funds rate may need to be held there for longer if progress on disinflation stalls, and a $42 billion 10-yr note auction that was met with strong demand. The 2-yr note yield settled up two basis points at 4.42% while the 10-yr note yield also settled up two basis points to 4.11%. Thursday will feature a $25 billion 30-yr bond auction.
- Nasdaq Composite: +5.0% YTD
- S&P 500: +4.7% YTD
- Dow Jones Industrial Average: +2.6% YTD
- S&P Midcap 400: -0.7% YTD
- Russell 2000: -3.8% YTD
Reviewing today's economic data:
- MBA Mortgage Applications Index +3.7% wk/wk with refinance applications +12% and purchase applications -1%.
- The trade deficit widened to $62.2 billion in December (Briefing.com consensus -$62.0 billion) from an upwardly revised $61.9 billion (from -$63.2 billion) in November. Exports were $3.9 billion more than November exports and imports were $4.2 billion more than November imports.
- The key takeaway from the report is that exports and imports both increased in a welcome sign for global trade.
- Consumer Credit increased by $1.6 bln in December (Briefing.com consensus $16.3 bln) following a downwardly revised $23.5 bln (from $23.8 bln) in November. Revolving credit increased by $1.1 bln in December to $1.314 trln. Nonrevolving credit increased by $0.5 bln to $3.696 trln.
- The key takeaway from the report is that the slowdown in credit expansion, both for revolving and nonrevolving debt, fits with banks tightening their lending standards and demand for credit lessening in the face of higher interest rates.
Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 218,000; prior 224,000) and Continuing Claims (prior 1.898 mln)
- 10:00 ET: December Wholesale Inventories (Briefing.com consensus 0.4%; prior -0.2%)
- 10:30 ET: Weekly natural gas inventories (prior -197 bcf)
Indices all in positive territory
07-Feb-24 15:30 ET
Dow +166.58 at 38687.94, Nasdaq +156.25 at 15765.25, S&P +42.72 at 4996.95
[BRIEFING.COM] The indices are all on the same page heading into the closing stretch, which is to say they are all trading in positive territory. For the record, the S&P 500 hit an all-time intraday high at 4,999.89 in the last 30 minutes, but note that it still hasn't tried on a 5-handle.
Every S&P 500 sector is in positive territory, except energy (-0.1%), which is sporting a negligible decline. WTI crude futures settled 0.5% higher today at $73.78 per barrel, but natural gas futures settled 1.5% lower at $1.97/mmbtu. That is the first settlement below $2.00/mmbtu since 2020.
At the top of the hour, it was reported that Consumer Credit increased by $1.6 bln in December (Briefing.com consensus $16.3 bln) following a downwardly revised $23.5 bln (from $23.8 bln) in November. Revolving credit increased by $1.1 bln in December to $1.314 trln. Nonrevolving credit increased by $0.5 bln to $3.696 trln.
The key takeaway from the report is that the slowdown in credit expansion, both for revolving and nonrevolving debt, fits with banks tightening their lending standards and demand for credit lessening in the face of higher interest rates.
S&P 500 is oh, so close
07-Feb-24 14:55 ET
Dow +191.17 at 38712.53, Nasdaq +153.11 at 15762.11, S&P +43.33 at 4997.56
[BRIEFING.COM] The S&P 500 is on the doorstep of the 5,000 level, making it hard to believe that it wouldn't tag it at some point before the close. Time will tell, but we're talking roughly three points to go to get there.
As has been the case throughout the session, the mega-cap stocks are pulling their weight in the record-setting effort. The Vanguard Mega-Cap Growth ETF (MGK) is up 1.3%.
Notably, the Russell 2000 (+0.1%) has finally made its way back into positive territory after being down as much as 0.7% earlier.
Another move of note is the one that has been made by the SPDR S&P Regional Banking ETF (KRE). It was down 2.7% earlier, but it is now flat for the session. The recovery in the smaller regional bank stocks has helped drive the recovery in the Russell 2000.
Emerson outperforming in S&P 500 after earnings; Paramount slips as sports streaming comps heat up
07-Feb-24 14:30 ET
Dow +180.59 at 38701.95, Nasdaq +143.16 at 15752.16, S&P +40.81 at 4995.04
[BRIEFING.COM] The S&P 500 (+0.82%) is in second place once more on Wednesday, up about 41 points.
Elsewhere, S&P 500 constituents Emerson (EMR 105.31, +11.05, +11.72%), Generac (GNRC 126.93, +9.58, +8.16%), and Prudential (PRU 109.20, +5.81, +5.62%) pepper the top of the standings. EMR gains on earnings, GNRC moves higher as storms in California have finally subdued after a few days, while PRU announced a new CEO, reported earnings, and announced a new share repurchase and dividend increase.
Meanwhile, media giant Paramount Global (PARA 12.88, -1.11, -7.93%) is sliding as competitors to Disney's (DIS 99.08, -0.21, -0.21%) ESPN, FOX (FOXA 29.56, -2.06, -6.51%) and Warner Bros. Discovery (WBD 9.76, -0.31, -3.08%) proposed sports streaming JV are scrutinized.
Gold edges out narrow gains into Wednesday settle
07-Feb-24 14:00 ET
Dow +180.88 at 38702.24, Nasdaq +151.52 at 15760.52, S&P +41.75 at 4995.98
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+0.97%) is both atop the daily standings among the major averages, and atop its daily levels.
Gold futures settled less than $1 higher (flat) to $2,051.70/oz, fading off overnight highs (+0.5%) as opposing moves in the greenback and yields as provided a mixed bias in the yellow metal.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.12.
V.F. Corp sells off on dismal Q3 results; CEO remains confident in a turnaround (VFC)
V.F. Corp (VFC -11%) cannot catch a break, losing its shirt again following lackluster quarterly earnings results. The outdoor apparel maker, which owns North Face, Eastpak, and Timberland, missed bottom-line estimates for the third straight quarter in Q3 (Dec) on a sharp deterioration in revenue. VFC was coming off a dismal quarter, withdrawing its FY24 (Mar) financial targets and announcing a 70% cut to its dividend. CEO Bracken Darrel did not sugarcoat the situation, stating in October that its biggest business was in decline and the U.S. was not working well. Mr. Darrel added that employee morale was crushed by the perpetually poor performance.
Consistent with previously mentioned turnaround plans, VFC is not done shaking things up. After a tepid Q3 performance, VFC announced its CFO Matthew Puckett is leaving. The company also announced a strategic portfolio review, ensuring the brands under VFC's control can create long-term value.
- True to his character, Bracken Darrel remained blunt in describing how Q3 went, noting that it was a particularly disappointing quarter, headlined by a 16.2% decline in sales yr/yr to $2.96 bln and a nearly 50% drop in adjusted EPS to $0.57. VFC's top and bottom-line contractions were considerably worse than Q2's (Sep) -2.6% and 13.7% drops, respectively.
- Headwinds from Q3 resembled previous quarters, such as unseasonably warm weather and challenging yr/yr comparisons. Additionally, markets across VFC's Americas region continued to underperform. Also, results were mildly impacted by VFC cleaning up its Vans brand as it reset its channels.
- What is next? VFC has not issued formal guidance yet. However, the company provided plenty of commentary surrounding encouraging developments. For example, VFC established a roadmap back to growth for Vans. However, management was not confident in calling an exact date on when growth would finally be realized. Also, VFC is on track to deliver its previously mentioned $300 mln in cost savings; reducing debt and strengthening its balance sheet remains a top priority. Lastly, for the rest of FY24, VFC will continue conducting instrumental changes across its business, focusing on achieving its cash flow target of $600 mln.
VFC has no easy road ahead, especially given the current economic climate. Turning around an outdoor apparel business while inflationary pressures and interest rates remain elevated poses plenty of challenges. However, it is hard to discount CEO Bracken Darrel's past turnaround success stories, including Old Spice and Logitech. While no two turnarounds are ever the same, Mr. Darrel should feel right at home orchestrating what will likely be a volatile recovery at VFC.
Uber skids lower on some profit-taking, but company delivered another strong earnings report (UBER)
Heading into its Q4 earnings report, Uber (UBER) was facing a high bar to hurdle, thanks to the rideshare and delivery company's strong financial results in recent quarters as it capitalizes on healthy travel demand, a return to office trend, and share gains against smaller rival Lyft (LYFT). These lofty expectations were reflected by the stock's 40%+ rally since UBER's Q3 report in late October, which took shares to record highs during yesterday's session.
Although the stock initially succumbed to a sell-the-news reaction, UBER did deliver outstanding results yet again, crushing EPS estimates while gross bookings jumped by 22% yr/yr to $37.6 bln. CEO Dara Khosrowshahi summed it up succinctly, stating, “Uber’s core business is stronger than ever as we enter the busiest period of the year.”
- Gross bookings and adjusted EBITDA -- the two key metrics that market participants really home in on for UBER -- both came in above the company's guidance ranges. Specifically, UBER guided for gross bookings of $36.5-$37.5 bln and adjusted EBITDA of $1.18-$1.24 bln.
- Fueled by solid bookings growth in both Mobility (+29%) and Delivery (+19%), as well as accelerating growth in its high margin advertising business, adjusted EBITDA surged by 91% yr/yr to $1.30 bln.
- The nascent advertising business is on track to surpass a $1.0 bln run rate this year, further supporting adjusted EBITDA margins, which hit a record high of 3.4% in Q4.
- In addition to UBER's rapidly improving profitability, another main storyline revolves around its consistent market share gains against LYFT. An ability to attain and retain drivers has provided UBER with a key competitive advantage.
- On that note, Reuters reported yesterday that LYFT is now guaranteeing weekly earnings for its drivers in an attempt to steer more drivers to its app. Of course, that will come at a cost in the form of lower contribution margin, or revenue per active rider. LYFT is scheduled to report earnings after the market close on February 13.
- Turning to Delivery, Mr. Khosrowshahi noted during the earnings call that Uber Eats grew category position in ten out of its top ten markets. Additionally, Uber Eats is seeing increases in order frequency, basket size, and visitors to the app. Its foray into the grocery vertical is also paying dividends with grocery now approaching a $7.0 bln run rate.
- UBER's guidance indicates that business across both segments is expected to remain healthy in Q1. The midpoint of its gross bookings guidance range of $37.0-$38.5 bln represents estimated yr/yr growth of 20%, while its adjusted EBITDA guidance of $1.26-$1.34 bln reflects growth of 71% at the midpoint.
- Along with the favorable rideshare trends and market share gains in both Mobility and Delivery, UBER stands to benefit from a growing membership base that now totals about 19.0 mln members. These users tend to spend more on the app and account for a higher percentage of gross bookings than non-member users.
Overall, there was plenty to like about UBER's results and outlook as the company is executing exceptionally well. We chalk up today's relatively modest sell-off to some profit-taking after the stock's huge rally.
CVS Health's trimmed FY24 EPS guidance not as bad as feared given ~9% correction since January (CVS)
CVS Health (CVS +3%) extends its string of top and bottom-line upside in Q4. However, amid ongoing Medicare Advantage (MA) market challenges, CVS trimmed its FY24 adjusted EPS outlook by $0.20 to at least $8.30. CVS commented that its updated forecast incorporates a cautious stance for MA utilization until it has further clarity on industrywide trends. Still, CVS remains committed to reaching its targeted 4-5% margin in MA over time, beginning this journey next year.
Following an approximately 9% correction in shares of CVS from last month's highs, the market was likely preparing for a less-than-stellar Q4 report. The recent downward action was largely set in motion after health insurance giant UnitedHealth (UNH) missed earnings expectations for the first time in over five years due to rising MA medical expenses. Weeks later, Humana (HUM) reported similar results. As such, CVS shareholders had ample time to respond, making the reduced guidance more palatable.
Also helping overcome the weak FY24 guidance were several highlights from the quarter.
- In Health Care Benefits, CVS grew revs by 16% yr/yr to $26.73 bln, supported by growth across all product lines. Since MA is a part of this segment, it is no surprise that adjusted operating income tumbled by 26% yr/yr. Still, management reiterated its forecast of adding at least 800,000 new members to MA in 2024.
- CVS's largest segment, Health Services, expanded revs by 12% to $49.15 bln, reflecting robust growth in pharmacy services and brand inflation, as well as support from the recent acquisitions of Oak Street and Signify Health. Street ended FY23 with a 27% increase in at-risk lives and, through January, doubled the number of Aetna members enrolled in Oak Street clinics. Meanwhile, Signify Health completed 20% more in-home evaluations yr/yr in Q4.
- Pharmacy & Consumer Wellness sales edged 9% higher to $31.19 bln, on +11% same-store sales growth. This segment houses CVS's physical retail business, where much of its cost-cutting has occurred. The company remains on track to shutter 900 stores by the end of 2024. Because of the attention to removing excess costs, CVS boasted a healthy 10% increase in adjusted operating income in this segment in Q4.
- The broad-based growth fueled CVS's consolidated 11.9% sales growth yr/yr in the quarter to $93.81 bln. Meanwhile, solid productivity enhancements and cost-cutting offset the headwinds from MA, leading to a 6.5% expansion in CVS's adjusted EPS to $2.12.
Rising costs continue to be a thorn in CVS's side, hindering front-store demand throughout last year and increasing healthcare costs this year. For perspective, CVS's medical benefit ratio (MBR), the percentage of premiums used to cover claims, jumped by 2.7 pts yr/yr to 88.5% in Q4, the highest it has been in over five years. Still, while inflationary headwinds will likely dampen near-term earnings, CVS remains well-positioned -- particularly compared to Walgreens Boots Alliance (WBA) -- to offset this over time through MA membership growth and continuous efforts in lowering its total cost of care.
Chipotle Mexican Grill is rolling nicely higher following impressive results/comps in Q4 (CMG)
Chipotle (CMG +7.5%) is nicely higher today following a healthy EPS beat with its Q4 report last night. CMG also beat on revs and posted nice comp growth. It wraps up a successful 2023, wherein CMG delivered strong transaction growth, surpassed $3 mln in AUVs (average revenue per restaurant), digital sales represented 37% of total sales and CMG formed its first international partnership to open locations in the Middle East.
- Comps are a very important metric and that came in at +8.4%, a nice improvement from +5.0% in Q3 and +7.4% in Q2. Comps were toward the high end of its mid-to-high single digit prior guidance. CMG believes the comp acceleration in Q4 was caused by a combination of demand being created by Carne Asada, which has become a customer favorite, and faster throughput by employees. On this last point, CMG has been adjusting the cadence of orders on the digital make line to achieve a better balance of labor between the two lines (in-store and online orders).
- For FY24, CMG guided to comps of mid-single digits. It is a little disappointing that CMG did not provide Q1 guidance. However, CMG says it's now returning to its pre-pandemic practice of only providing annual comp guidance. Of note, Chicken al Pastor and Carne Asada both surpassed expectations in 2023. CMG expects 2024 will be another exciting year for menu innovation including 1-2 limited time offers.
- CMG has also been working to improve the digital experience by making several enhancements to its app functionality, including order readiness messaging, wrong location detection, reminders to scan for points at checkout, and prior order history. In addition, CMG launched Freepotle for its rewards members which offers free rewards such as guac, a beverage, or double meat. This has allowed CMG to learn what its members like.
- The company opened a record number of new restaurants in 2023 (271, 88% with Chipotlanes), including a record 121 new restaurants in Q4, of which 110 had a Chipotlane. CMG expects to open 285-350 new restaurants in 2024 with 80+% having a Chipotlane. However, CMG concedes that it continues to see developers delaying projects due to macro pressures and high interest rates along with permitting, inspection, and utility installation delays.
Overall, investors are quite impressed with how CMG closed out 2023. We were a bit cautious going in following mediocre results from McDonald's (MCD) on Monday. Granted the two are different, but they are both gold standard fast food operations. The difference seems to be that CMG's higher price point exposes them more to the mid-to-high income consumer, which are feeling the inflation pinch less. Also, CMG talked a lot about throughput on the call as a driver for results. It can be frustrating for in-store customers to have to wait as workers prepare online orders. However, CMG has been improving this cadence.
DuPont rebounds on hopes that destocking will abate in Q1 and on new share buyback program (DD)
After chemicals company DuPont (DD) warned on January 24 that ongoing inventory destocking among its industrial customers, particularly in China, was impacting its business worse than it anticipated, expectations were reset significantly lower ahead of its Q4 earnings report.
- Due to this channel inventory destocking, DD issued Q4 EPS and revenue guidance that was slightly below expectations on January 24, while guiding Q1 EPS and revenue far below estimates. Following that discouraging update, DD sank by 18%, not including today's rebound higher.
- With the bad news already baked into the stock, DD was poised for a snap-back higher, and the company's new $1.0 bln share repurchase program and 6% increase in its quarterly dividend is adding fuel to the fire.
Business conditions are still quite challenging, though, as reflected in the 10% organic sales decrease for Q4.
- When DD issued that dismal guidance, it singled out the Water Solutions segment as a source of weakness. That was indeed the case as organic sales declined by 15% for Water & Protection, driving a mid-single-digit decline for the Industrial Solutions segment overall. Lower volume for medical packaging, especially in China, contributed to the decline.
- The downturn in China is problematic for DD because approximately 20% of the company's revenue is generated there. Unfortunately for DD, the company is seeing similar destocking trends play out in China in 2024.
- The Interconnect Solutions segment didn't fare any better with organic sales also down mid-single-digits. This segment, which manufacturers circuit packaging film and laminate materials used in printed circuit boards and electronic finishing applications, is also contending with channel inventory destocking.
These issues were well-known heading into the earnings report, so market participants were looking for signs of a bottoming out and a potential recovery. There were a few positive items to latch on to.
- Most notably, revenue increased by 2% sequentially for Semiconductor Technologies, boosted by improving semiconductor fab utilization rates as demand for consumer electronics improves. On a yr/yr basis, sales were down by high-single-digits, but that marks a nice improvement from the high-teens decrease experienced in Q3.
- Although DD still expects destocking to impact volume for Industrial Solutions, it believes that orders will improve after troughing in Q1 as customer inventory levels normalize. As such, DD is forecasting sequential sales improvement and an approximate 10% increase in operating EBITDA in Q2 from Q1
The main takeaway is that a rough earnings report was already anticipated after DD issued bleak guidance in late January, setting the stage for a rebound higher. That rebound is fueled by the expectation that business will improve after bottoming out in Q1, along with DD's new share buyback program.
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