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Market Snapshot
briefing.com
| Dow | 33425.80 | -485.00 | (-1.43%) | | Nasdaq | 10996.65 | -98.45 | (-0.89%) | | SP 500 | 3941.55 | -49.42 | (-1.24%) | | 10-yr Note |
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| | NYSE | Adv 1020 | Dec 2008 | Vol 898 mln | | Nasdaq | Adv 1425 | Dec 3151 | Vol 5.2 bln |
Industry Watch
| Strong: -- |
| | Weak: Consumer Staples, Utilities, Financials, Health Care, Communication Services |
Moving the Market
-- Many mega cap stocks reversing early gains
-- S&P 500 falling below its 200-day moving average at 3,975
-- Bigger-than-expected decline in month/month PPI, but weak retail sales and manufacturing data for December
-- Sharp turn lower in Treasury yields following this morning's data releases reflecting the market's growth concerns
-- SF Fed President Daly (non-FOMC voter) said that the February rate hike could be either 25 or 50 basis points and St. Louis Fed President Bullard (non-FOMC voter) said he would prefer that policymakers stay on a more aggressive path
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Closing Summary
18-Jan-23 16:30 ET
Dow -613.89 at 33296.91, Nasdaq -138.10 at 10957.00, S&P -62.11 at 3928.86
[BRIEFING.COM] The day started on an upbeat note for the stock market, but sentiment quickly shifted and the resulting retreat effort had the main indices close with a loss of at least 1.2%. General growth concerns, which had been put on the backburner to start 2023, seemed to be back in play today.
The initial positive bias, which had the S&P 500 trading above the 4,000 level, was presumably fueled by optimism about a slowdown in inflation reflected in the December Producer Price Index (PPI) (actual -0.5%; Briefing.com consensus -0.1%).
Any optimism that may have come from the pleasing PPI report quickly dissipated, though, as investors digested the weak retail sales and manufacturing data from December, cognizant that the Fed is likely to remain on its rate hike path.
Briefly, retail sales fell 1.1% month-over-month in December (Briefing.com consensus -0.8%) after falling a revised 1.0% in November (from -0.6%) and industrial production decreased 0.7% month-over-month in December (Briefing.com consensus -0.1%) after decreasing a revised 0.6% in November (from -0.2%).
St. Louis Fed President Bullard (non-FOMC voter) also fueled the market's concern about the Fed remaining on its rate hike path in spite of a weakening economic backdrop. Mr. Bullard said that he would prefer that the Fed stay on a more aggressive path, according to CNBC, but he added that the prospects for a soft landing have improved.
Market participants received more official commentary on the economy this afternoon when the FOMC released its latest Beige Book at 14:00 ET. On balance, contacts generally expected little growth in the months ahead.
Today's selling efforts had the S&P 500 take out support at its 200-day moving average (3,975) close near its worst level of the day. All 11 S&P 500 sectors registered losses ranging from 0.9% (communication services) to 2.7% (consumer staples).
Just about everything came along for the retreat. The Invesco S&P 500 Equal Weight ETF (RSP) logged a 1.5% loss versus a 1.6% loss for the S&P 500 and a 1.2% loss in the Vanguard Mega Cap Growth ETF (MGK).
Treasury yields took a noticeable turn lower today, but the drop in market rates was not supportive for stocks because it was a manifestation of concerns about weaker growth which, in turn, should lead to lower earnings estimates. The 2-yr note yield fell 11 basis points to 4.09% and the 10-yr note yield fell 16 basis points to 3.38%.
- Russell 2000: +5.3% YTD
- S&P Midcap 400: +4.7% YTD
- Nasdaq Composite: +4.7% YTD
- S&P 500: +2.3% YTD
- Dow Jones Industrial Average: +0.5% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 27.9%; Prior 1.2%
- December PPI -0.5% (Briefing.com consensus -0.1%); Prior was revised to 0.2% from 0.3%; December Core PPI 0.1% (Briefing.com consensus 0.1%); Prior was revised to 0.2% from 0.4%
- The key takeaway from the report is that while it showed the desired slowdown in year-over-year headline and core PPI, the absolute levels remain high, so the market will want to see a continuation of this trend in the coming months.
- December Retail Sales -1.1% (Briefing.com consensus -0.8%); Prior was revised to -1.0% from -0.6%; December Retail Sales ex-auto -1.1% (Briefing.com consensus -0.5%); Prior was revised to -0.6% from -0.2%
- The key takeaway from the report is that sales in most discretionary categories fell for the second month in a row with department store sales diving 6.6% after falling 3.2% in November.
- December Industrial Production -0.7% (Briefing.com consensus -0.1%); Prior was revised to -0.6% from -0.2%; December Capacity Utilization 78.8% (Briefing.com consensus 79.6%); Prior was revised to 79.4% from 79.7%
- The key takeaway from the report is that industrial production was pressured by decreases in all manufacturing categories and the November decrease was revised lower, which will invite renewed concerns about the overall strength of the manufacturing sector.
- November Business Inventories 0.4% (Briefing.com consensus 0.4%); Prior was revised to 0.3% from 0.3%
- January NAHB Housing Market 35 (Briefing.com consensus 31); Prior 31
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 212K; prior 205K) and continuing claims (prior 1634K)
- 8:30 a.m. ET: December Housing Starts (Briefing.com consensus 1355K; prior 1427K) and Building Permits (Briefing.com consensus 1370K; prior 1342K)
- 8:30 a.m. ET: January Philadelphia Fed Index (Briefing.com consensus -11.0; prior -13.8)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior +11 bcf)
- 11:00 a.m. ET: Weekly EIA Crude Oil Inventories (prior +18.96M)
Sell off continues ahead of closing bell
18-Jan-23 15:30 ET
Dow -501.26 at 33409.54, Nasdaq -100.84 at 10994.26, S&P -50.28 at 3940.69
[BRIEFING.COM] The stock market remains on a steady decline heading into the closing bell.
Alcoa (AA) and Discover Financial Services (DFS) are among the earnings reporters after today's close.
Ahead of the open tomorrow, Fastenal (FAST), Fifth Third (FITB), Procter & Gamble (PG), and Truist (TFC) are some of the earnings reporters.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 212K; prior 205K) and continuing claims (prior 1634K)
- 8:30 a.m. ET: December Housing Starts (Briefing.com consensus 1355K; prior 1427K) and Building Permits (Briefing.com consensus 1370K; prior 1342K)
- 8:30 a.m. ET: January Philadelphia Fed Index (Briefing.com consensus -11.0; prior -13.8)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior +11 bcf)
- 11:00 a.m. ET: Weekly EIA Crude Oil Inventories (prior +18.96M)
Market clings to narrow range following Fed Beige Book
18-Jan-23 15:05 ET
Dow -485.00 at 33425.80, Nasdaq -98.45 at 10996.65, S&P -49.42 at 3941.55
[BRIEFING.COM] Things are little changed in the last half hour. The main indices are clinging to narrow trading ranges.
Growth stocks have a performance edge over value stocks today. The Russell 3000 Growth Index is down 0.8% versus a 1.3% loss in the Russell 3000 Value Index.
Treasury yields took a turn lower. The 10-yr note yield is down 16 basis points to 3.38% and the 2-yr note yield is down 12 basis points to 4.08%.
Energy complex futures settled the session lower. WTI crude oil futures gave back all their early gains, falling 0.9% to $79.56/bbl. Natural gas futures fell 3.8% to $3.13/mmbtu.
Beige Book shows economic activity relatively unchanged since the previous report
18-Jan-23 14:25 ET
Dow -437.49 at 33473.31, Nasdaq -88.44 at 11006.66, S&P -43.06 at 3947.91
[BRIEFING.COM] The major averages were mostly unphased after the release of the Fed's latest Beige Book which showed that overall economic activity was relatively unchanged since the previous report. The S&P 500 (-1.08%) is firmly in second place to this point.
Other points of interest from the report included: Employment continued to grow at a modest to moderate pace for most Districts. Further, only one District reported a slight decline in employment, and one other reported no change in employment levels. With persistently tight labor markets, wage pressures remained elevated across Districts, though five Reserve Banks reported that these pressures had eased somewhat.
Additionally, selling prices increased at a modest or moderate pace in most Districts, though many said that the pace of increases had slowed from that of recent reporting periods.
On balance, contacts generally expected little growth in the months ahead.
Gold narrowly lower ahead of Beige Book
18-Jan-23 14:00 ET
Dow -428.34 at 33482.46, Nasdaq -84.54 at 11010.56, S&P -41.79 at 3949.18
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.76%) is the "best" performing index to this point on Wednesday with the Fed's Beige Book on tap for the top of the hour.
Gold futures settled $2.90 lower (-0.2%) to $1,907.00/oz, giving up overnight gains.
Meanwhile, the U.S. Dollar Index is little changed at $102.38.
Page One
Last Updated: 18-Jan-23 09:08 ET | Archive
Equity futures extend gains after PPI release
The S&P 500 futures are up 12 points and are trading 0.3% above fair value. The Nasdaq 100 futures are up 60 points and are trading 0.5% above fair value. The Dow Jones Industrial Average futures are up 58 points and are trading 0.2% above fair value.
The stock market looks poised for a higher open, but the positive bias is fairly modest in scope as earnings season progresses. Things have improved somewhat, though, after the December Producer Price Index was released at 8:30 a.m. ET.
The Producer Price Index for final demand decreased 0.5% month-over-month in December (Briefing.com consensus -0.1%) following a revised 0.2% increase in November (from 0.3%). The index for final demand, less foods and energy, increased 0.1% month-over-month (Briefing.com consensus 0.1%) following a revised 0.2% increase in November (from 0.4%).
On a year-over-year basis, the index for final demand was up 6.2% versus a revised 7.3% in November (from 7.4%), and the index for final demand, less foods and energy, was up 5.5% versus 6.2% in November.
The key takeaway from the report is that while it showed the desired slowdown in year-over-year headline and core PPI, the absolute levels remain high, so the market will want to see a continuation of this trend in the coming months.
Total retail sales, which are not adjusted for price changes, fell 1.1% month-over-month in December (Briefing.com consensus -0.8%) after falling a revised 1.0% in November (from -0.6%) and retail sales, excluding autos, also fell 1.1% month-over-month (Briefing.com consensus -0.5%) after falling a revised 0.6% in November (from -0.2%).
The key takeaway from the report is that sales in most discretionary categories fell for the second month in a row with department store sales diving 6.6% after falling 3.2% in November.
Treasury yields are took a sharp turn lower after the 8:30 a.m. ET data releases. The 2-yr note yield is down seven basis points to 4.12% and the 10-yr note yield is down 11 basis points to 3.42%.
The weekly MBA Mortgage Applications Index jumped 27.9% with purchase applications rising 25% and refinancing applications increasing 34%. Other data releases today include:
- 9:15 ET: December Industrial Production (Briefing.com consensus -0.1%; prior -0.2%) and Capacity Utilization (Briefing.com consensus 79.6%; prior 79.7%)
- 10:00 ET: November Business Inventories (Briefing.com consensus 0.4%; prior 0.3%) and January NAHB Housing Market Index (Briefing.com consensus 31; prior 31)
- 14:00 ET: January Fed Beige Book
- 16:00 ET: November net Long-Term TIC Flows (prior $67.80 bln)
In other news, the Japanese yen fell sharply against the dollar after the Bank of Japan maintained its ultra-loose policy against some expectations that the yield targets could be changed. The U.S. Dollar Index is down 0.3% to 102.08 with USD/JPY +0.7% to 129.08.
European Central Bank policymaker Villeroy de Galhau pushed back against earlier reports that the ECB is apt to reduce the size of its rate hikes at the policy meeting in March. He added that inflation is expected to return to target by 2025.
Progress Software is progressing lower as soft FY23 EPS guidance weighs on shares (PRGS)
Progress Software (PRGS), a DevOps and data analytics company, capped off a strong 2022 with a mixed Q4 earnings report that missed the mark on the top-line. The revenue miss comes as a surprise since it was only two weeks ago that PRGS provided updated guidance for Q4. When the company announced its $355 mln acquisition of MarkLogic on January 3, it also stated that it expects Q4 EPS and revenue to be within or above the high-end of the prior guidance ranges of $1.06-$1.10 and $158-$166 mln, respectively.
- While the actual revenue of $159.2 mln did fall within PRGS's guidance range, it did so at the low-end, rather than at the high-end. Overall, this is a fairly minor issue, especially since the company's other demand metrics indicate that demand held up quite well in Q4, despite the macroeconomic headwinds.
- For instance, annualized recurring revenue (ARR) grew by 3.5% yr/yr to $497 mln, driven by strength in PRGS's core OpenEdge and DataDirect products.
- Additionally, the net retention rate remained strong at 101% as customers not only recommitted to PRGS's products, but also expanded their usage.
The bigger problem for the stock is the company's guidance.
- PRGS's outlook for 1Q23 was solid with both EPS and revenue coming in ahead of expectations. However, the company's FY23 EPS forecast of $4.09-$4.17 fell short of analysts' estimates, primarily due to its MarkLogic acquisition.
- During the earnings conference call, CFO Anthony Folger explained that seasonality and the timing of MarkLogic's fiscal year end will impact its financial contributions in FY23. More specifically, he noted that MarkLogic's fiscal year ends on January 31 and that about one-third of its revenue is recorded in December and January. Importantly, PRGS's fiscal year ends in November and the acquisition is expected to close this February.
- What this means is that PRGS will miss out on MarkLogic's two largest revenue-generating months in its FY23, thereby preventing it from fully realizing the cost synergies associated with the acquisition.
- Furthermore, since PRGS is partly financing the deal by drawing on its revolving line of credit, rising interest rates have pushed its borrowing costs higher, applying pressure on its earnings. The company now estimates that higher interest rates associated with the revolver draw down have resulted in an interest expense of roughly $0.20/share.
On the positive side, PRGS still expects MarkLogic to boost its total annualized sales above $700 mln in FY24, while creating synergies that provide strong recurring revenue, margins, cash flows, and earnings. Overall, PRGS is performing well, and the company is seeing healthy demand as the digital transformation and the need to quickly develop revenue-generating and/or cost saving apps remains a priority.
United Airlines looks cleared for take-off as demand tailwind strengthens (UAL)
Less than one week after Delta Air Lines (DAL) reported better-than-expected 4Q22 results, rival United Airlines (UAL) followed suit and delivered its own upside report, easily beating analysts' top and bottom-line estimates.
However, unlike DAL, which issued downside EPS guidance for 1Q23, UAL provided an earnings outlook for Q1 and FY23 that flew past expectations.
- While both airlines remain very bullish on the demand outlook for 2023, UAL's view regarding capacity increases across the industry in 2023 is seemingly more restrained. In fact, UAL stated that the current industry capacity forecast for the year is unattainable, likely explaining why the company isn't feeling the same level of urgency as DAL is when it comes to ramping up hiring.
- Accordingly, UAL guided for a 3-4% yr/yr decrease in CASM-ex for Q1, while DAL is expecting a 3-4% increase.
UAL is less optimistic about capacity returning to 2019 levels for a few reasons.
- First, the pilot shortage hasn't been resolved and it will take some time before that issue is corrected due to the intensive nature of pilot training. UAL estimates that the current demand environment calls for about 10,000 pilots, which is about 3,400 more than the current supply. For its part, UAL is looking to hire 2,500 more pilots in 2023.
- Another obstacle is that plane manufacturers such as Boeing (BA) and Airbus (EADSY) are still behind on production due to supply chain disruptions. Therefore, plane deliveries will continue to be late this year, limiting airlines' ability to add to their fleets and expand their flight schedules.
- Lastly, the technology infrastructure within air traffic control and many airports across the country is struggling to keep up with the needs of airlines as travel demand takes off. To fix this problem, funds from the U.S. government will be needed, which means there's no immediate solution on the horizon.
From UAL's perspective, a more modest increase in capacity isn't necessarily a negative situation, especially given the robust demand climate.
- With fewer available seats, the company is able to hike fares higher, as reflected in the 26% jump in TRASM this quarter. Looking ahead to Q1, UAL is expecting TRASM to be up by approximately 25% on a yr/yr basis.
- In addition to the favorable supply and demand dynamic, UAL is anticipating that global long-haul margins will grow in 2023, further padding its bottom-line.
- On that note, the longer-term perspective that UAL employed during the pandemic appears poised to pay off. At a time when most airlines retired widebody planes that are used for international flights, UAL kept its long-haul fleet intact. With UAL forecasting 2023 trans-Atlantic capacity to be at 36% of 2019 levels, the company is well positioned to to capitalize on the upswing.
Overall, this was an impressive quarterly report that met investors' heightened expectations.
J.B. Hunt Transport fuels up as encouraging comments push weak Q4 results to the side (JBHT)
J.B. Hunt Transport's (JBHT +5%) shares are fueling up despite the intermodal and trucking transportation company delivering Q4 numbers below expectations. JBHT posted its first earnings miss since 3Q20 and first sales miss since 4Q19 on seasonally weak demand for intermodal capacity and lower contractual and transactional truckload rates.
- Earnings contracted 15.8% yr/yr to $1.92, while sales ticked up 4.4% to $3.65 bln. JBHT's two largest segments, Intermodal and Dedicated Contract Services (DCS), registered double-digit growth yr/yr in Q4. In Intermodal, revs climbed 11% to $1.75 bln, while in DCS, revs jumped 24%, easily outperforming JBHT's other segments.
- Management noted that demand in DCS remained resilient during the quarter. The company also added over 1,200 revenue-producing trucks into its fleet by the end of Q4.
- However, Intermodal volumes fell 1% yr/yr despite lapping a 3% decline in the year-ago period. Management attributed the total volume decline to seasonally weak intermodal capacity demand. It was also the first volume decline since 4Q21, raising concerns over whether JBHT will see its recent positive trend reverse course.
- On the plus side, rail velocity, which weighed on volume growth throughout most of the year, continued its healthy progress that began toward the end of Q3.
- The laggard in Q4 was JBHT's Integrated Capacity Solutions (ICS) segment, which posted a 33% revenue decline and an operating loss of $(2.9) mln, JBHT's first operating loss in this segment since 3Q20. A 27% tumble in volumes was a significant factor for the poor results, as was a 9% dip in revenue per load, brought on by changes in customer freight mix and lower contractual and transactional rates. Meanwhile, operating income turned negative from increased insurance and claims expenses compared to the year-ago period.
- JBHT's other two segments, Truckload and Final Mile Services (FMS), each registered positive sales growth in Q4. A couple highlights included a 6% bump in load volume in Truckload and multiple new customer contracts implemented over the past trailing twelve months in FMS.
Looking ahead, management was mostly upbeat about what it sees on the horizon. CEO John Roberts noted that although JBHT has experienced a cyclical shift in market dynamics that will present challenges, it will also offer opportunities. The company is also encouraged by trends from its rail providers. At the same time, JBHT is noticing a loosening in the labor market and modest improvements in equipment availability. Still, the company remained cautiously optimistic as recent demand trends underpinned customers managing through levels of elevated inventories.
Bottom line, although JBHT's Q4 report contained mixed results, the pockets of good news, such as progressing rail velocity, resilient DCS demand, and encouraging trends from rail providers, are shining through today. With shares bouncing between $155 and $190 since the March 2022 jobs report, which spotlighted a falloff in transportation jobs, JBHT's Q4 report and commentary may be the spark needed to exit the rocky terrain it has traversed over the past few months and begin a broader rally effort.
Finally, it is worth keeping an eye on peer Marten Transport (MRTN), which reports Q4 earnings on January 24.
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