Market Snapshot
briefing.com
| Dow | 33902.59 | +198.56 | (0.59%) | | Nasdaq | 10877.81 | +135.26 | (1.26%) | | SP 500 | 3956.58 | +37.33 | (0.95%) | | 10-yr Note | +6/32 | 3.55 |
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| | NYSE | Adv 2330 | Dec 679 | Vol 866 mln | | Nasdaq | Adv 3128 | Dec 3127 | Vol 5.2 bln |
Industry Watch
| Strong: Real Estate, Consumer Discretionary, Materials, Information Technology |
| | Weak: Consumer Staples, Energy, Health Care |
Moving the Market
-- Carryover momentum from yesterday's pleasing finish
-- Hope that the economy will avoid a "hard landing" scenario
-- Speculative buying ahead of the December Consumer Price Index (CPI) tomorrow and Q4 earnings reporting season starting Friday
-- Strength from some mega cap stocks bolstering index performance
-- S&P 500 pushing above the 3,950 level
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Closing Summary
11-Jan-23 16:30 ET
Dow +268.91 at 33972.94, Nasdaq +189.04 at 10931.59, S&P +50.36 at 3969.61
[BRIEFING.COM] Today's trade shaped up to be decidedly positive, building on yesterday's late afternoon rally. The main indices experienced modest turbulence, though, at the start of the session, but they maintained a positive posture even at session lows.
Broad buying interest, along with leadership from the mega cap space, kept the S&P 500 above its 50-day moving average (3,908). The major indices settled into a fairly narrow trading range for most of the session until buying interest picked up steam in the afternoon trade, leaving the indices at their best levels of the day by the closing bell. This upside move led the S&P 500 to push past the 3,950 level.
All 11 S&P 500 sectors closed with a gain, led by real estate (+3.6%), which outpaced its peers by a decent margin amid falling long-term rates. Other notable outperformers included the information technology (+1.8%) and consumer discretionary (+2.7%) sectors. The latter was driven higher by sizable gains in Amazon.com (AMZN 95.09, +5.22, +5.8%) and Tesla (TSLA 123.22, +4.37, +3.7%), the latter of which was named a Top Pick by Goldman Sachs, according to CNBC, and which also benefitted from a Bloomberg report that the company was close to a deal for an Indonesia EV plant.
Meanwhile, the consumer staples (+0.1%), energy (+0.4%), and health care (+0.6%) sectors fell to the bottom of the pack, logging the slimmest gains.
The Vanguard Mega Cap Growth ETF (MGK) closed up 2.1% versus a 1.2% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.3% gain in the S&P 500.
Today's positive bias was likely driven by some speculative buying interest ahead of the December Consumer Price Index (CPI) on Thursday and earnings reports from several major banks before Friday's open. Many market participants think the CPI report will show continued signs of disinflation and investors will be keenly focused on Friday's bank earnings to set the tone for the next several weeks.
Some uncertainty about which way the market might trade after the CPI report and earnings results led to increased hedging activity today, evidenced by the CBOE Volatility Index rising 2.7% (or 0.57) to 21.15.
The 2-yr Treasury note yield fell two basis points to 4.24% and the 10-yr note yield fell seven basis points to 3.55% following a strong $32 bln 10-yr Treasury note reopening.
- S&P Midcap 400: +4.7% YTD
- Russell 2000: +4.7% YTD
- Nasdaq Composite: +4.4% YTD
- S&P 500: +3.4% YTD
- Dow Jones Industrial Average: +2.5% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index +1.2%; Prior -13.2%
- Weekly EIA Crude Oil Inventories showed a build of 18.96 million barrels after last week's build of 1.69 million barrels.
Looking ahead to Thursday, market participants will receive the December Consumer Price Index (Briefing.com consensus 0.0%; prior 0.1%) and core-Consumer Price Index (Briefing.com consensus 0.3%; prior 0.2%) at 8:30 a.m. ET. Other data releases include:
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 210,000; prior 204,000) and continuing claims (prior 1.694 million)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -221 bcf)
- 2:00 p.m. ET: December Treasury Budget (prior -$248.5 billion)
Market rally picks up steam
11-Jan-23 15:25 ET
Dow +214.35 at 33918.38, Nasdaq +155.64 at 10898.19, S&P +40.95 at 3960.20
[BRIEFING.COM] The rally effort is picking up steam ahead of the close. The main indices are all at their best levels of the day and climbing.
Looking ahead to Thursday, market participants will receive the December Consumer Price Index (Briefing.com consensus 0.0%; prior 0.1%) and core-Consumer Price Index (Briefing.com consensus 0.3%; prior 0.2%) at 8:30 a.m. ET. Other data releases include:
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 210,000; prior 204,000) and continuing claims (prior 1.694 million)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -221 bcf)
- 2:00 p.m. ET: December Treasury Budget (prior -$248.5 billion)
S&P 500 pushed above 3950
11-Jan-23 15:00 ET
Dow +198.56 at 33902.59, Nasdaq +135.26 at 10877.81, S&P +37.33 at 3956.58
[BRIEFING.COM] The S&P 500 pushed above the 3,950 level, where it remain currently.
Meanwhile, the S&P 500 consumer staples sector is stuck in negative territory, down 0.1%.
Treasury yields are ticking lower. The 2-yr note yield is down two basis points to 4.24% and the 10-yr note yield is down six basis points to 3.56%.
Meanwhile, the U.S. Dollar Index is on the decline, down 0.1% to 103.19.
small and mid caps come along for rally
11-Jan-23 14:35 ET
Dow +180.52 at 33884.55, Nasdaq +129.58 at 10872.13, S&P +34.88 at 3954.13
[BRIEFING.COM] Things are little changed in the last half hour. The main indices remain near their best levels of the day.
Energy complex futures are making sizable upside moves today. WTI crude oil futures are up 3.2% to $77.52/bbl and natural gas futures are up 1.3% to $3.36/mmbtu.
Small and mid cap stocks are coming along for the rally with the Russell 2000 up 0.8% and the S&P Mid Cap 400 up 0.9%.
S&P 500 again gets rejected at 3950
11-Jan-23 14:00 ET
Dow +148.53 at 33852.56, Nasdaq +123.45 at 10866.00, S&P +30.07 at 3949.32
[BRIEFING.COM] The market took another modest dip lower recently. The S&P 500 was rejected at the 3,950 level, again.
The S&P 500 health care sector (+0.1%) recently joined its peers in positive territory, leaving the consumer staples sector (-0.4%) alone in the red.
Gold futures settled $2.00 lower (-0.1%) to $1,879.10/oz while copper futures rose $0.11 (+2.6%) to $4.18/lb.
Elsewhere, the U.S. Dollar Index is flat at 103.27.
Page One
Last Updated: 11-Jan-23 09:01 ET | Archive
Entering a pivotal period
Performance-wise, things are looking pretty good for most indices and most sectors so far in 2023. Gains north of 2.0% are generally the norm, which is encouraging to see. The path to these nice-looking gains, though, hasn't necessarily been smooth.
It took a big rally last Friday to secure a winning week for the stock market. This week, Monday started strong and finished weak, whereas, yesterday started weak and finished strong. The S&P 500, which closed below its 50-day moving average on Monday, closed above its 50-day moving average (3,908) on Tuesday.
At the moment, the major indices look poised to start today higher.
The S&P 500 futures are up 16 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 38 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 103 points and are trading 0.3% above fair value.
The impetus for the positive bias is debatable.
Some might argue that the market feels emboldened to trade higher because Fed Chair Powell did not purposely kill the market's rebound activity in his speech yesterday. Others might argue that he tacitly warned the market not to get ahead of itself in its optimism about a Fed pivot when he acknowledged that, "...restoring price stability when inflation is high can require measures that are not popular in the short term as we raise rates to slow the economy."
In any case, an upside bias is winning out thus far based on a prevailing view that weakening economic activity and fading inflation will help the Fed realize that it does not need to raise rates much further. Some "soft landing" hopes are also part of the rebound mix.
We are about to enter a pivotal period for the stock market, beginning with the release of the December Consumer Price Index on Thursday and continuing for the next several weeks with the release of fourth quarter earnings results.
The former will have star power that sets the tone for tomorrow's session, yet the latter will have star power that sets the tone for some time.
Will the earnings results and, more importantly, the guidance indicate current consensus earnings estimates for 2023 are far too high, in need of some modest downward revision, or just right? That is the question on which valuation concerns will live or die.
Accordingly, the answer is going to dictate how the stock market behaves.
What we have seen thus far in the performance of the stock market is more speculative than fundamental. Granted market rates have come down, yet that has been driven by hope that the Fed will back off its rate hikes soon. That same hope has cleared the way for many stocks to rebound from lousy performances in 2022.
In brief, it has been more play time than anything else. Things, however, are about to get real performance-wise knowing that the fundamental driver of earnings estimate trends will be on full display.
Corning as 2023 Investment Idea; its technologies stretch across numerous sectors (GLW)
Tech firms may struggle in 2023 as interest rates keep climbing and inflationary pressures remain elevated. However, some exposure to this sector may still be beneficial. Therefore, we wanted to profile Corning (GLW) as an Investment Idea for 2023. Past ideas include SpartanNash (SPTN), Ulta Beauty (ULTA), and AutoZone (AZO).
GLW's multiple lines of business reach into numerous sectors, including technology, communications, industrials, and healthcare. This broad diversification, combined with market leadership in numerous fields, a decent 3.0% dividend yield, and a reasonable valuation of ~16x forward earnings, provide the foundation from which shares of GLW can achieve significant upside while defending against worsening economic conditions.
- On the consumer side, GLW is most known for its display technology, used across the TV, PC, and handheld device market. This business represented 26% of GLW's total sales in FY21, making it the company's second-largest line of business. Even though consumer electronics demand has cooled considerably over the past year due to intense inflationary pressures, GLW believes panel prices have already reached a bottom. The company noted in early December that after exiting Q3 at the lowest run rate for panel makers in over a decade and entering Q4 the same way, it is no longer a question of when prices bottom but when they start to tick back up.
- On that note, GLW has started to see panel prices begin climbing, a possible confirmation that a bottom has already been reached.
- GLW's largest segment, Optical Communications (31% of FY21 sales), boasts market leadership in low-loss optical fiber, used extensively in cloud and telecommunications infrastructure. This segment has been a solid growth area for GLW, significantly outperforming its other businesses for the past three quarters. GLW has also inked lucrative deals with telecom giants AT&T (T) and Verizon (VZ) to help build their 5G infrastructure.
- GLW has a few other segments, but we like to focus on its Environmental Technologies and Life Sciences businesses, which comprised 11% and 9% of FY21 sales, respectively.
- Within Environmental Technologies, GLW manufactures products for emissions control in vehicles globally, including boasting a ceramic substrate that is the standard for catalytic converters. Although the automotive industry could run into strong headwinds from the rising interest rate environment, it could also see a robust rebound as supply catches up to demand. GLW can take advantage of this turnaround while remaining defensive if the industry weakens further.
- Within Life Sciences, GLW is a manufacturer of laboratory products, including its flagship innovation dubbed Valor Glass, which lowers particle contamination in pharmaceutical packaging. The healthcare sector proved its resilience to macroeconomic pressures in 2022 and does not show signs of giving in anytime soon. GLW's possibly disruptive Valor Glass positions it to take advantage of healthcare's defensive characteristics.
Bottom line, although risks, such as the costs to constantly innovate to maintain market leadership and deteriorating consumer sentiment, loom, GLW is well-positioned to navigate these challenges. The company has also carved out a sizeable economic moat in the sectors in which it operates, allowing it to ward off start-ups and other competitors. If uncertainty is still too high at the moment, it could be beneficial to wait until after GLW reports Q4 earnings on January 31 to see if any of its forward-looking comments have changed meaningfully since the last quarter. As always, we recommend using a 20-25% stop-loss limit with these longer-term ideas.
Intuitive Surgical back in the operating room after issuing soft guidance (ISRG)
Intuitive Surgical (ISRG), a maker of robotic surgical systems, just can't seem to escape from the clutches of COVID-19. Earlier this morning, the company issued downside Q4 revenue guidance of $1.66 bln as da Vinci Surgical System placements fell by 4% yr/yr to 369. Additionally, ISRG said that it expects worldwide da Vinci procedure growth to slow in 2023 to 12-16% from the 18% growth it achieved in 2022.
There are a few primary issues that continue to provide obstacles for the company.
- First, a resurgence in COVID-19 cases in China in the second half of 2022 dampened procedure volume growth as patients postponed elective procedures. When ISRG reported upside Q3 results in mid-October and bumped its FY22 procedure growth guidance higher, there was hope that the company was finally moving past the COVID-related headwinds there. In fact, procedure growth in China -- ISRG's second largest market after the U.S. -- slightly outperformed the global average last quarter. However, it's now evident that the virus is still hurting demand in that country.
- The other COVID-related factor is tied to the supply chain disruptions. For the past two years, ISRG and other medical device companies have struggled to acquire enough materials and parts to meet demand levels.
- In the wake of the pandemic in the U.S., many people who put off surgeries in 2020 and early 2021 rescheduled those postponed procedures in late 2021 and 2022, creating a pull-forward in demand for medical supplies and equipment.
- In turn, this put additional strain on a supply chain that was already reeling from the pandemic, leaving medical equipment makers scrambling to find the needed components to manufacture their products.
- Rising interest rates also aren't helping the cause. Since ISRG's surgical robots are so expensive, many hospitals will use financing to purchase the equipment. In order to offset the impact of higher interest rates, it appears that ISRG has lowered the price tag a bit. Specifically, the average sales price in Q4 was about $1.43 mln, down from the more typical cost of roughly $1.50 mln.
On the positive side, ISRG is known to offer conservative guidance, so it's quite possible that it will surpass its FY23 da Vinci procedure growth outlook. Overall, though, the story remains discouraging for ISRG investors as the company struggles to move past these COVID-related issues.
ICHOR's bleak guidance adds to dreary outlook for semiconductor space (ICHR)
ICHOR (ICHR), a provider of fluid delivery systems for chip manufacturers, had more gloomy news to share for the semiconductor industry after lowering its Q4 revenue guidance and issuing downside revenue guidance for 1Q23. While it's not surprising to see another semiconductor-related company offer a bleak outlook, the magnitude of the downward revision for Q4 is unsettling. Additionally, the severe revenue drop-off that ICHR is expecting in Q1 is catching investors off-guard.
- Specifically, ICHR is now projecting Q4 revenue of $300-$302 mln, representing a substantial drawdown from the $315-$355 mln figure it provided in its Q3 earnings report from November 8.
- More discouraging, though, is that the mid-point of ICHR's Q1 revenue guidance of $210-$240 mln represents an estimated sequential decline of about 25%.
- For some context, ICHR's Q1 revenue has increased sequentially by an average of about 9% over the past three years. Against that data point, it becomes clear that ICHR, nor the semiconductor industry as a whole, is unlikely to achieve a meaningful recovery in early 2023.
According to ICHR CEO Jeffrey Anderson, the main area of weakness pertains to wafer fab equipment spending in the memory market.
- That assertion aligns with recent developments in the semiconductor industry. Recall that when Micron (MU) reported downside 1Q23 results on December 21, the leading memory chip maker also announced that it plans to cut spending on wafer fab equipment by more than 50% in 2023.
- ICHR's dreary outlook is also a bad omen for competitor Ultra Clean Technology (UCTT), as well as ICHR's largest customers, Lam Research (LRCX) and Applied Materials (AMAT). In 2021, LRCX and AMAT accounted for 53% and 32% of ICHR's total sales, respectively.
On the positive side, a growing portion of ICHR's revenue is coming from the EUV (extreme ultraviolet) market, which is holding up better than memory. When the company reported Q3 results, it stated that it expects EUV revenue to continue to grow in 2023. Furthermore, Anderson stated in today's press release that he does not expect similar levels of sequential declines beyond Q1. The bottom line, though, is the current demand environment remains very weak and it could be a couple more quarters before conditions materially improve.
Dentsply Sirona shows some teeth today with pretty good guidance after miss in Q3 (XRAY)
Dentsply Sirona (XRAY +3%) is nicely higher today after the world's largest manufacturer of dental products provided guidance this morning. XRAY said it expects FY22 sales to be above the high end of prior guidance of $3.85-3.88 bln while FY22 adjusted EPS is expected to be within prior guidance of $1.90-2.00. This was full year guidance, but with just one quarter left, it was basically Q4 guidance.
- Our initial thought here was some difficulty understanding why the stock is higher on this guidance. The numbers are decent with upside revs, but EPS was basically just a reaffirm. However, it makes sense when some context is provided. Specifically, XRAY's recent results have not been great. The company missed on EPS and revenue in its Q3 report and that was XRAY's third EPS miss in a row. While the prior two misses were small, XRAY missed by a wide margin in Q3.
- One would think that dental sales should be pretty steady and predictable but XRAY has been facing some headwinds, including foreign currency impacts, global supply chain challenges, and regional softness in the US and China. XRAY said previously that it expects FX will shave $300 mln in revenue and $0.30 in EPS for the full year 2022.
- The company also has been dealing with recessionary headwinds, particularly in the US and certain European markets. Due to higher inflation, XRAY said previously that it expects there will be a slowdown in elective procedures such as clear aligners and implants. Demand is likely to skew more towards more traditional procedures.
Given all that context, we think investors are quite happy with basically a reaffirm for Q4 and not a guide-down, which we think was a real possibility. More broadly, XRAY strikes us as a company in transition. Revenue declined in 2022 and analysts expect a further decline in 2023. Until we looked into XRAY closely, we pegged it as a recession-resistant company given the steady demand for dental procedures, but we may have underestimated its exposure to elective procedures. And with consumers dealing with inflation, some procedures are likely to be put on the back burner for many people.
To its credit, XRAY has huge scale, great products and an innovative pipeline of new products on the way. We also commend the company for recently initiating a review of its entire business with the goal of returning the company to growth. However, it is going to take some time. We do like how the stock has been consolidating since mid-September.
Axcelis Tech sets fresh 52-week highs following upbeat Q4 guidance and bullish FY23 comments (ACLS)
Axcelis Tech (ACLS +3%) is receiving a decent push today following its upbeat Q4 guidance. The semiconductor equipment manufacturer guided Q4 earnings and revs well above consensus, citing higher-than-expected system shipments and aftermarket revenue during the quarter. Furthermore, ACLS stated it anticipates another year of growth in FY23 based on robust demand for its Purion product family, particularly within its power device segment.
- ACLS's encouraging guidance is certainly sending shares in the right direction. The company expects EPS to exceed $1.45 and revs to exceed $250 mln in Q4, considerably ahead of its prior target of $1.00-1.10 and $232-240 mln for earnings and sales, respectively.
- However, we view ACLS's brief comment surrounding its optimism on 2023, affirming what it noted in early November, as the primary driver behind today's favorable reaction.
- It was no secret that the semiconductor industry forecasted a severe decline in wafer fab equipment demand in 2023. A major ACLS competitor, Applied Materials (AMAT), commented in mid-November that the economic backdrop resulted in a reduction in overall wafer fab equipment spending in 2023. Additionally, late last month, Micron (MU) reinforced its plan to slash spending on wafer fab equipment, announcing an over 50% reduction in spending in 2023 as it curtails chip supply growth.
- A big slice of ACLS's ability to navigate the current economic conditions has been its Purion flagship systems, which specialize in ion implantation. This method holds a key advantage over other methods that enable conductivity for semiconductors as it allows precision and control, helping to avoid damage. Secular trends, including vehicle electrification, has fueled ACLS's Purion Power series products to continue gaining strength, positioning it nicely to grow despite an anticipated 2023 industry slowdown.
Overall, ACLS's Q4 guidance and affirmation of a growth year in FY23 are promising that it can succeed despite its primary business encountering softening demand trends. In early November, even after negative sentiment plagued the wafer fab equipment industry, ACLS remained confident, noting that demand is strong in mature end markets, which made up roughly 80% of the company's total shipments in 2022. Also, even though weakness is being felt within the memory industry, these products only comprise around 15-20% of ACLS's total shipments. As such, ACLS is well-positioned to maintain its strong upward momentum, where shares are already up over 20% in 2023.
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