Market Snapshot
briefing.com
| Dow | 33725.96 | -7.95 | (-0.02%) | | Nasdaq | 11305.94 | -28.33 | (-0.25%) | | SP 500 | 4012.24 | -4.71 | (-0.12%) | | 10-yr Note | 0/32 | 3.458 |
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| | NYSE | Adv 1622 | Dec 1344 | Vol 772 mln | | Nasdaq | Adv 2344 | Dec 2165 | Vol 5.4 bln |
Industry Watch
| Strong: Financials, Consumer Discretionary, Materials, Consumer Staples |
| | Weak: Information Technology, Utilities, Energy, Industrials, Communication Services |
Moving the Market
-- Microsoft (MSFT) disappointing with fiscal Q3 guidance
-- Other earnings/guidance disappointment from the likes of Texas Instruments (TXN), Boeing (BA), Intuitive Surgical (ISRG), F5, Inc. (FFIV), Kimberly-Clark (KMB), and Amphenol (APH)
-- S&P 500 finding support at its 200-day moving average (3,961)
-- Likely some short-covering activity following early resilience to selling efforts
| Closing Summary
25-Jan-23 16:25 ET
Dow +9.88 at 33743.79, Nasdaq -20.91 at 11313.36, S&P -0.73 at 4016.22
[BRIEFING.COM] Today's trade looked a lot different at the open compared to where things ended up. Valuation concerns following Microsoft's (MSFT 240.61, -1.43, -0.6%) disappointing fiscal Q3 outlook and expected growth deceleration for its Azure business fueled a broad retreat to kick off the session.
Investors also had a negative reaction initially to results and/or guidance from the likes of Dow component Boeing (BA 212.68, +0.70, +0.3%), Texas Instruments (TXN 175.04, -2.00, -1.1%), Kimberly-Clark (KMB 132.06, -2.57, -1.9%), and Norfolk Southern (NSC 242.97, -12.91, -5.1%). This added to the early weakness and the sense that the market might have gotten ahead of itself with the January rally.
There was also an element of geopolitical angst in play after Germany and the U.S. reached an agreement to supply tanks to Ukraine for its fight against Russia.
Sentiment started to shift, however, when buyers showed up fairly quickly after the S&P 500 slipped below its 200-day moving average (3,961). Most stocks either narrowed their losses or completely recovered and closed the session with a gain. The Invesco S&P 500 Equal Weight ETF (RSP) was down 1.4% at its low for the day, but managed to close with a 0.2% gain.
Even Microsoft, which had been down as much as 4.6%, briefly tipped into positive territory before settling with a slim loss.
The resilience to early selling efforts became its own upside catalyst and the rebound effort picked up steam in the afternoon trade, likely driven by some short-covering activity and a fear of missing out on a potential breakout move. The main indices ultimately closed near their best levels of the day, which had the S&P 500 above the 4,000 level and the Dow Jones Industrial Average in positive territory.
Market internals highlight the strong reversal seen today. Early on, decliners led advancers by a 4-to-1 margin at the NYSE and a nearly 3-to-1 margin at the Nasdaq. At the close, advancing issues had the lead over decliners by a slim margin at both the NYSE and the Nasdaq.
Roughly half of the 11 S&P 500 sectors closed with a gain led by financials (+0.7%) thanks to an earnings-driven gain in Capital One (COF 116.09, +9.58, +9.0%). The defensive-oriented utilities sector (-1.3%) was the worst performer and the only sector to move more than 1.0%.
Notably, the Russell 2000 (+0.3%) and S&P Mid Cap 400 (+0.3%) outpaced the three main indices today to close with a modest gain.
- Nasdaq Composite: +8.1% YTD
- Russell 2000: +7.3% YTD
- S&P Midcap 400: +6.5% YTD
- S&P 500: +4.6% YTD
- Dow Jones Industrial Average: +1.8% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 7.0%; Prior 27.9%
- Weekly EIA Crude Oil Inventories +0.533M; prior +8.41M
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Advance Q4 GDP (Briefing.com consensus 2.6%; prior 3.2%), advance Q4 Chain Deflator (Briefing.com consensus 3.2%; prior 4.4%), December Durable Orders (Briefing.com consensus 2.9%; prior -2.1%), Durable Orders ex-transportation (Briefing.com consensus -0.2%; prior 0.2%), weekly Initial Claims (Briefing.com consensus 205,000; prior 190,000), Continuing Claims (prior 1.647 mln), December advance goods trade deficit (prior -$83.30 bln), December advance Retail Inventories (prior -0.3%), and December advance Wholesale Inventories (prior 1.0%)
- 10:00 ET: December New Home Sales (Briefing.com consensus 614,000; prior 640,000)
- 10:30 ET: Weekly natural gas inventories (prior -82 bcf)
Valero Energy (VLO), Comcast (CMCSA), Archer-Daniels (ADM), American Airlines (AAL), Dow (DOW), Northrop Grumman (NOC), Southwest Air (LUV), Mastercard (MA) and Blackstone (BX) are some of the notable names reporting earnings ahead of tomorrow's open.
Market clings to session highs ahead of the close
25-Jan-23 15:30 ET
Dow -25.83 at 33708.08, Nasdaq -29.45 at 11304.82, S&P -5.03 at 4011.92
[BRIEFING.COM] The market is holding up well heading into the close. The major average trade just below session highs.
Advancing issues have a slim lead over declining issues at the NYSE while decliners are roughly in line with advancers at the Nasdaq.
After the close, Tesla (TSLA), IBM (IBM), Flex (FLEX), Lam Research (LRCX), CSX (CSX), ServiceNow (NOW), Seagate Tech (STX), Levi Strauss (LEVI) and Teradyne (TER) are among the notable earnings reporters.
Valero Energy (VLO), Comcast (CMCSA), Archer-Daniels (ADM), American Airlines (AAL), Dow (DOW), Northrop Grumman (NOC), Southwest Air (LUV), Mastercard (MA) and Blackstone (BX) are some of the notable names reporting earnings ahead of tomorrow's open.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Advance Q4 GDP (Briefing.com consensus 2.6%; prior 3.2%), advance Q4 Chain Deflator (Briefing.com consensus 3.2%; prior 4.4%), December Durable Orders (Briefing.com consensus 2.9%; prior -2.1%), Durable Orders ex-transportation (Briefing.com consensus -0.2%; prior 0.2%), weekly Initial Claims (Briefing.com consensus 205,000; prior 190,000), Continuing Claims (prior 1.647 mln), December advance goods trade deficit (prior -$83.30 bln), December advance Retail Inventories (prior -0.3%), and December advance Wholesale Inventories (prior 1.0%)
- 10:00 ET: December New Home Sales (Briefing.com consensus 614,000; prior 640,000)
- 10:30 ET: Weekly natural gas inventories (prior -82 bcf)
More S&P 500 sectors push into positive territory
25-Jan-23 15:00 ET
Dow -7.95 at 33725.96, Nasdaq -28.33 at 11305.94, S&P -4.71 at 4012.24
[BRIEFING.COM] The main indices are still trying to climb higher after getting rejected at their best levels of the day recently. The S&P 500 has maintained its position above 4,000.
The upside moves have more S&P 500 sectors registering slim gains. The consumer staples (+0.1%), materials (+0.1%), and consumer discretionary (+0.3%) sectors joined the financial sector (+0.7%) in the green.
Energy complex futures settled the session lower. WTI crude oil futures fell 0.1% to $80.18/bbl and natural gas futures fell 4.7% to $2.91/mmbtu.
The U.S. Dollar Index made a noticeable move lower, down 0.3% to 101.65.
News Corp. higher after Murdoch axes merger plans, NASDAQ dips on earnings miss
25-Jan-23 14:30 ET
Dow -51.95 at 33681.96, Nasdaq -40.08 at 11294.19, S&P -7.82 at 4009.13
[BRIEFING.COM] The major average peaked in the last half hour, the Dow Jones Industrial Average (-0.15%) stopping just shy of breakeven, while the S&P 500 (-0.19%) is still in second place.
S&P 500 constituents Warner Bros. Discovery (WBD 14.33, +0.95, +7.10%), News Corp. (NWSA 20.57, +1.04, +5.33%), and eBay (EBAY 48.47, +1.78, +3.81%) pepper the top of today's action. WBD follows peer AT&T (T 20.28, +1.12, +5.85%) higher today, NWSA gains after news that R. Murdoch withdrew his proposal to merge Fox Corp. (FOXA 33.62, +0.95, +2.91%) and NWSA, while EBAY breaks out to five-month highs despite a dearth of corporate news.
Meanwhile, NASDAQ (NDAQ 57.95, -3.97, -6.41%) is the second-worst performer following this morning's narrow earnings miss.
Gold grabs fifth straight win on Wednesday
25-Jan-23 14:00 ET
Dow -76.33 at 33657.58, Nasdaq -73.58 at 11260.69, S&P -15.04 at 4001.91
[BRIEFING.COM] The gradual fade off morning lows has continued in the last half hour, the tech-heavy Nasdaq Composite (-0.65%) still rounding out the bottom of the standings.
Gold futures settled $7.20 higher (+0.4%) to $1,942.60/oz, notching a fifth win in a row as the dollar and yields once again felt pressure.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $101.68.
Time for confirmation
Microsoft (MSFT) reported its fiscal Q2 results after Tuesday's close. Following the report, which did not contain guidance, shares of MSFT gained more than 4.0%. The tide of sentiment turned, however, when the company provided fiscal Q3 guidance on the conference call. Shares of MSFT are currently down 3.2% in pre-market trading.
Briefly, Microsoft's total revenue guidance of ~$50.5-51.5 billion for fiscal Q3 was a little light of expectations, yet the focal point was the expected growth deceleration for its Azure cloud business, which has been a powerful growth engine.
The guidance of 30-31% growth in constant currency, versus 38% in fiscal Q2, isn't awful, yet it laid bare an understanding that growth is slowing and that business conditions have gotten more challenging -- a realization that is also registering in shares of cloud services competitor Amazon.com (AMZN), which is down 3.5%.
Consequently, there has been some deceleration in the bullish momentum that has been driving the stock market since the start of the year. The S&P 500 futures are down 44 points and are trading 1.1% below fair value, the Nasdaq 100 futures are down 199 points and are trading 1.6% below fair value, and the Dow Jones Industrial Average futures are down 287 points and are trading 0.8% below fair value.
Investors are grappling with valuation concerns and the notion that the market might have gotten ahead of itself with the January rally effort.
Earnings misses and/or guidance disappointments from the likes of Texas Instruments (TXN), Boeing (BA), Capital One Financial (COF), Intuitive Surgical (ISRG), F5, Inc. (FFIV), Kimberly-Clark (KMB), and Amphenol (APH) have contributed to this morning's negative disposition.
The slowdown factor isn't just apparent in sliding stock prices at the moment. It is also apparent in sliding Treasury yields.
The 2-yr note yield is down four basis points to 4.15% and the 10-yr note yield is down two basis points to 3.45%. The slide there took root overnight in conjunction with some better-than-feared PPI data out of the UK, yet sliding stock futures seemingly added a layer of support to the buying efforts.
There will be weakness in stocks at today's open then, but what everyone will be paying close attention to is whether the stock market can bounce back yet again from the initial weakness.
Market participants are anxious to see confirmation in the price action -- confirmation either that stocks have largely discounted the disappointing guidance that is being heard this reporting period or confirmation that it has not.
Suffice it to say, with Tesla (TSLA) reporting after today's close, and hundreds of other S&P 500 companies set to release their results in coming days and weeks, there won't be a shortage of confirmation opportunities as we roll through the end of January and into February.
-- Patrick J. O'Hare, Briefing.com
F5 Networks tries to make a full recovery on the day following its DecQ earnings beat (FFIV)
Shares of F5 Networks (FFIV), a networking hardware and multi-cloud, security, and performance software supplier, are down slightly in late action but have recovered from more significant losses earlier today. Headline numbers in Q1 (Dec) were decent, with adjusted EPS surpassing analyst estimates and sales growth meeting expectations. However, the initial poor reception stemmed from management's comments surrounding the demand environment.
Namely, deteriorating close rates and unfavorable dynamics concentrated in the EMEA and APAC regions trickled into North America during the quarter. FFIV also experienced elevated budget scrutiny. The company added that the current environment is noticeably challenging on its larger transformational-type projects, which are primarily software-focused, negatively affecting new multi-year subscriptions. As a result, this business tumbled by a double-digit percentage yr/yr.
- However, it was not all doom and gloom. For one, FFIV mostly expected the difficulties endured in Q1 last quarter. For example, FFIV pointed out during its Q4 (Sep) earnings call that it anticipated budget scrutiny and caution around new projects to remain troublesome throughout FY23.
- It was also good news to hear that improving supply chain conditions aided FFIV's hardware revenue, which comprises roughly half of its total revs, paving the way for the company to ship systems to waiting customers.
- FFIV also reiterated from last quarter that systems revenue (its hardware sales) should see accelerated growth in the back half of the year as supply chain woes regarding critical components begin to diminish. The company reaffirmed its +9-11% growth target for systems sales in FY23.
- Meanwhile, global services revenue has already demonstrated relative strength, climbing 5% yr/yr in Q1. FFIV expects this business to see more growth than it initially anticipated for FY23.
- FFIV is optimistic that the strength of global services combined with accelerating systems revenue will offset software headwinds in the year. As a result, FFIV forecasted positive yr/yr growth in Q2 and on the year, expecting Q2 sales of $690-710 mln and FY23 sales of $2.94-2.99 bln. FFIV also noted that it remains committed to maintaining double-digit adjusted EPS growth this year and on an annual basis going forward.
The main takeaway is that enterprise spending has shifted drastically over the past six months. However, there are positive developments brewing. It is also clear that FFIV's product diversification positions it nicely to traverse the choppy seas ahead. Still, Q1 results did not shine even though FFIV was up against reasonably low expectations, which is not providing the spark needed to help turn around the stock.
Boeing not seeing much turbulence despite EPS miss and guidance for a Q1 loss (BA)
Boeing (BA) is roughly flat following its Q4 report this morning. Analysts had been expecting the aerospace giant to return to profitability and notch its first $20 bln quarter since 1Q19. However, neither happened. Revenue was almost there at $19.98 bln, but not quite. Another negative was on the call when BA said it expected a loss in Q1, whereas analysts had expected a profit. We will just have to wait on the return to profitability.
- There was a lot of good news as well. Demand remains strong and there were not any major hiccups in terms of production schedules, even as supply chain issues remain a problem. Another positive was Boeing saying that both deliveries and financials will improve throughout the year. Also, the 2025-2026 long-term guidance has no change.
- The Commercial Airplanes segment did quite well with revenue jumping 94% yr/yr to $9.22 bln, mostly fueled by higher 737 and 787 deliveries. The 737 program is stabilizing production rate at 31 per month with plans to ramp to 50 per month in 2025/2026. The 787 program continues at a low production rate with plans to ramp production to five per month in late 2023 and to 10 per month by 2025/2026.
- Demand for the CA segment remains robust as airlines are seeing traffic rebound. Global passenger traffic is at 75% of pre-pandemic levels and 90% excluding China. Demand is pretty robust and that's reflective of BA's order book.
- The other thing that stood out to us was that BA did not seem as dire in its warnings as it was on the Q3 call. Back then, BA was saying its path to recovery is taking longer than expected and was very bearish on China. Supply chain issues remain a problem, but management was more upbeat on this call, in our opinion.
Overall, given the big EPS miss and the guidance for a Q1 loss, the stock is holding up reasonably well. We had concerns going into this report because the stock has surged 70+% since late September. Maybe investors were expecting too much. So to see only a fairly modest pullback on this news was pretty encouraging.
Microsoft initial excitement fades after downside guidance on the call and weak Azure outlook (MSFT)
Microsoft (MSFT -1.3%) initially traded +4% higher after reporting earnings last night, but turned lower during the call as reality set in. The initial pop in the stock was a little surprising because the headline numbers were not super great with a modest EPS beat and a slight miss on revs. But as we said last night, we think investors focused on Azure, which reported slight upside. Unfortunately, the stock headed lower during the call on cautious commentary and downside MarQ revenue guidance.
- Let's start with Azure, which grew +38% constant currency (CC) in DecQ, a bit better than the +37% CC prior guidance and we would argue better than feared after a miss in SepQ. However, that was still down a good bit from +42% CC in SepQ and +46% CC in JunQ. Probably the bigger eye-opener was the MarQ guidance. MSFT exited DecQ with Azure growth in the mid-30s CC and expects a 4-5 pt decline in MarQ. We do not have a hard number guidance, but that sounds like low 30s CC.
- MSFT expects its per user business for Azure to benefit from Microsoft 365 suite momentum, but it expects continued moderation in growth rates given the size of the installed base. The takeaway here is we did not get the stabilization in Azure we wanted to see, so that's a concern. Also, this is not great news for Amazon's (AMZN) AWS unit, which is likely facing similar headwinds. AMZN reports next week (Feb 2).
- Moving beyond Azure, MSFT was pretty cautious in general. Just as customers accelerated their digital spend during the pandemic, MSFT is now seeing them optimize that spend. Organizations are exercising caution given the macro uncertainty. From a geographic perspective, MSFT noted that the US was weaker than expected.
- In its Consumer business, the PC market was in line with expectations, but execution challenges impacted Surface results. Ad spend declined slightly more than expected, which impacted Search and news advertising and LinkedIn.
- On the Commercial side, customers are exercising caution and MSFT saw results weaken through December. We never like to see a quarter end on a down note as it usually means the next quarter will be weak. Also, MSFT saw moderated consumption growth in Azure and lower-than-expected growth in new business across the standalone Office 365, EMS and Windows Commercial products that are sold outside the Microsoft 365 suite.
The big takeaways here are the weak guidance for MarQ and that Azure's growth moderation has not bottomed out yet, or even stabilized. Given Microsoft's immense size, this is adding to jitters about the economy in 2023 generally and rightly so. It also makes us nervous for Amazon's Q4 report next week, particularly its AWS unit. Then when you add in weakness in online ads, Surface, FX and increased caution from enterprise clients, that makes for several headwinds. Like many tech names, MSFT has seen its stock price bounce a bit in 2023, but this report/outlook is putting a damper on the tech space today.
Intuitive Surgical gets cut lower after EPS miss and guiding for sharp increase in capex (ISRG)
Intuitive Surgical (ISRG), a manufacturer of robotic surgery systems, is getting cut lower after falling just short of 4Q22 EPS estimates and guiding for a slowdown in procedure growth for FY23. Since the company issued downside Q4 revenue guidance of $1.66 bln on January 11, while reporting a 4% yr/yr decrease in da Vinci system placements, it seemed that a negative surprise was mostly taken out of the equation. However, the company's ambitious plan to ramp up capital expenditures and invest in SG&A related areas as its top-line growth slows is not sitting well with investors.
- COVID-19 continues to haunt ISRG, especially in China, where procedures progressively declined from November through the end of the year. Through the first three quarters of 2022, China was a bright spot and was on the upswing for ISRG. In fact, China slightly outperformed the global average for procedure growth in Q3. The tables turned in Q4, though, as virus cases began climbing higher, causing many people to postpone their elective surgeries.
- In a role reversal from 1H22, the U.S. and Europe were sources of strength this time, helping to mitigate the weakness in China. Still, a number of headwinds continue to constrain ISRG's revenue growth in these markets, such as a declining trade-in population of older third-generation systems, ongoing supply chain issues, and negative FX impacts.
- On the positive side, ISRG's razor/razor blade business model is taking some of the sting out of the drop in system placements. In Q4, instruments and accessories revenue increased by 12% to $941 mln (57% of total revenue), driven by an 18% increase in da Vinci procedure volume. Higher usage of the systems means that hospitals and surgery centers must order more accessories and instruments, like endoscopes, stapling kits, and drapes.
- ISRG's Q4 update from earlier this month painted a pretty clear picture about the demand environment in Q4 and its expectations for procedure growth in FY23. Specifically, the company guided for FY23 procedure growth of 12-16%, which it reiterated during last night's earnings call. For some context, FY22 procedure growth came in at 18%.
- What was less clear was whether gross margin would hold up and whether ISRG effectively managed its expenses in Q4. On both accounts, the news wasn't very encouraging. Non-GAAP gross margin dipped by 190 bps yr/yr to 68.2%, primarily due to higher fixed costs relative to revenue and higher component pricing.
- Meanwhile, operating expenses grew by 19%, easily outpacing the 6.7% top-line growth, as the company boosted its headcount and incurred higher travel and R&D-related costs. Accordingly, ISRG missed Q4 EPS expectations for the second time in the past three quarters.
- Although the EPS miss was disappointing, the bigger issues is that ISRG doesn't intend to rein in costs this year, even as macroeconomic concerns mount. The company guided for FY23 CapEx of $800 mln to $1.0 bln, up sharply from $532 mln in FY22. Approximately two-thirds of the investments in FY23 will be allocated towards expanding its manufacturing capacity with facility upgrades or new facility launches planned in California, Georgia, Germany, Bulgaria, and China.
- Regarding operating expenses, ISRG is forecasting a 9-13% increase to support the growth of its Ion platform (for lung surgeries) and to advance its digital capabilities.
Overall, it was a discouraging earnings report from ISRG as COVID-19 continues to batter its business in China. Additionally, in a market that's rewarding companies for cutting back on costs, ISRG is going in the opposite direction, which is likely irritating investors.
Texas Instruments sets a bearish tone as it sees weaker-than-seasonal demand to seep into Q1 (TXN)
Although Texas Instruments (TXN -2%) posted Q4 sales and adjusted earnings in line with its prior forecast while also providing Q1 guidance that met analyst estimates, it is struggling to ignite much enthusiasm around its stock today. Management's comments are the primary focus today, echoing what we heard from multiple firms operating in the tech sector, which has registered nearly 9% growth on the year. That is, demand remains under pressure, resulting in customers working to reduce their inventory levels.
On the flip side, the one end market that invalidated this trend for TXN was the automotive industry, which grew by mid-single digits yr/yr in Q4, bolstered by strength in most sectors. We witnessed a similar theme play out for 3M (MMM), which saw its automotive and aerospace end markets remain a source of strength in Q4. Unfortunately for TXN, although automotive-related sales comprised 25% of FY22 revs, the slightly positive yr/yr growth in Q4 was not enough to offset more pronounced losses from TXN's other end markets.
- TXN's largest end market, industrial (40% of FY22 revs), endured a 10% decline in growth yr/yr. Meanwhile, personal electronics (20%) slipped by a mid-teens percentage, and communications equipment (7%) tumbled roughly 20%.
- In total, revenue contracted by 3.4% yr/yr to $4.67 bln, still slightly above the midpoint of TXN's prior forecast of $4.4-4.8 bln.
- Nevertheless, this lower revenue clipped gross margins in the quarter, which fell 320 bps yr/yr, leading to TXN slightly missing analyst EPS forecasts. However, TXN's adjusted EPS of $2.02 still surpassed the midpoint of its guidance of $1.83-2.11.
- Looking ahead to Q1, TXN expects EPS of $1.64-1.90 and revs of $4.17-4.53 bln, both of which fell in line with consensus. However, TXN's remarks spooked investors. The company expects a weaker-than-seasonal decline in Q1 across all end markets outside of automotive as customers continue to trim their inventories.
Overall, it is encouraging that the automotive sector is holding up nicely, backing up comments that this industry should see positive growth in FY23 made by Taiwan Semi (TSM) earlier this month. TXN has also continued returning capital to shareholders, paying $1.1 bln in dividends and repurchasing $848 mln of its stock in Q4, a sign of confidence by management in future cash flows. The benefits from the CHIPS Act should also begin flowing through TXN's income statement.
Nevertheless, TXN's Q4 results and Q1 guidance do not inspire much confidence in the tech sector heading into earnings season. It also sets a bearish tone ahead of JanQ earnings by peer Analog Devices (ADI), slated for February 15.
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