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Market Snapshot
briefing.com
| Dow | 33778.78 | -199.25 | (-0.59%) | | Nasdaq | 11429.78 | -191.94 | (-1.65%) | | SP 500 | 4026.83 | -43.73 | (-1.07%) | | 10-yr Note | -25/32 | 3.546 |
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| | NYSE | Adv 938 | Dec 2052 | Vol 794 mln | | Nasdaq | Adv 1385 | Dec 3230 | Vol 5.0 bln |
Industry Watch
| Strong: Consumer Staples |
| | Weak: Communication Services, Energy, Information Technology, Consumer Discretionary, Financials |
Moving the Market
-- Profit taking after big run recently
-- Cautious trade ahead of busy week
-- Weak showing from mega cap stocks
-- Wall Street Journal articles indicating that the Fed officials are concerned that inflation could reaccelerate due to tight labor markets and that the Fed's interest rate strategy could depend on how much members believe the economy will slow
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Closing Summary
30-Jan-23 16:30 ET
Dow -260.99 at 33717.04, Nasdaq -227.90 at 11393.82, S&P -52.79 at 4017.77
[BRIEFING.COM] This busy week for the stock market got started on a downbeat note as investors took some money off the table following a strong showing this month. Entering today, the Nasdaq and S&P 500 were up 11.0% and 6.0%, respectively, so far in January. The main indices spent most of the session on a steady decline, ultimately settling near their worst levels of the day.
Investors took a more cautious approach today in front of policy decisions from the Fed, the ECB, and the Bank of England later this week. The skittishness around the FOMC decision largely relates to Fed Chair Powell's press conference and the possibility that Mr. Powell will make a concerted effort on Wednesday to rein in the market's enthusiasm by tamping down its optimism over any potential rate cuts this year.
On a related note, Nick Timiraos of The Wall Street Journal wrote over the weekend that Fed officials are concerned that inflation could reaccelerate due to tight labor markets. Mr. Timiraos added in a Monday article that the Fed's interest rate strategy could depend on how much members believe the economy will slow.
Some hesitation today on the part of buyers stemmed from a wait-and-see mindset ahead of several market-moving data releases, including the Q4 Employment Cost Index, the January ISM releases, and the January Employment Situation Report.
In addition, more than 100 S&P 500 companies will be reporting earnings this week, headlined by Meta Platforms (META 147.06, -4.68, -3.1%), Apple (AAPL 143.00, -2.93, -2.0%), Alphabet (GOOG 97.95, -2.76, -2.7%), and Amazon.com (AMZN 100.55, -1.69, -1.7%). Mega cap stocks had been leading the January charge, but trailed the broader market today as they succumbed to profit-taking interest. The Vanguard Mega Cap Growth ETF (MGK) closed down 1.9% versus a 1.1% loss in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.3% loss in the S&P 500.
Downside leadership from the mega cap space was evident in S&P 500 sector performance. The information technology (-1.9%), communication services (-1.8%), and consumer discretionary (-1.7%) sectors were among the worst performers today.
Energy (-2.3%) was the top laggard for the 11 sectors as oil prices faded ahead of the OPEC+ meeting later this week. WTI crude oil futures fell 1.9% to $77.94/bbl.
Only one sector -- consumer staples (+0.1%) -- was able to maintain a slim gain by the close.
- Nasdaq Composite: +8.9% YTD
- Russell 2000: +7.3% YTD
- S&P Midcap 400: +6.8% YTD
- S&P 500: +4.6% YTD
- Dow Jones Industrial Average: +1.7% YTD
There was no U.S. data of note today.
Caterpilllar (CAT), Exxon Mobil (XOM), General Motors (GM), Marathon Petroleum (MPC), McDonald's (MCD), Pfizer (PFE), Phillips 66 (PSX), PulteGroup (PHM), Spotify (SPOT), Sysco (SYY), and UPS (UPS) are among the notable companies reporting earnings ahead of tomorrow's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 a.m. ET: January Chicago PMI (Briefing.com consensus 45.4; prior 44.9), Q4 Employment Cost Index (Briefing.com consensus 1.1%; prior 1.2%)
- 9:00 a.m. ET: November FHFA Housing Price Index (prior 0.0%), November S&P Case-Shiller Home Price Index (Briefing.com consensus 6.8%; prior 8.6%)
- 10:00 a.m. ET: December Consumer Confidence (Briefing.com consensus 108.1; prior 108.3)
Market continues to decline ahead of the close
30-Jan-23 15:30 ET
Dow -263.56 at 33714.47, Nasdaq -219.54 at 11402.18, S&P -54.55 at 4016.01
[BRIEFING.COM] The main indices are all trading at or near session lows.
After the close, NXP Semi (NXPI), Sanmina (SANM), and Whirlpool (WHR) will headline the earnings reports.
Caterpilllar (CAT), Exxon Mobil (XOM), General Motors (GM), Marathon Petroleum (MPC), McDonald's (MCD), Pfizer (PFE), Phillips 66 (PSX), PulteGroup (PHM), Spotify (SPOT), Sysco (SYY), and UPS (UPS) are among the notable companies reporting earnings ahead of tomorrow's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 a.m. ET: January Chicago PMI (Briefing.com consensus 45.4; prior 44.9), Q4 Employment Cost Index (Briefing.com consensus 1.1%; prior 1.2%)
- 9:00 a.m. ET: November FHFA Housing Price Index (prior 0.0%), November S&P Case-Shiller Home Price Index (Briefing.com consensus 6.8%; prior 8.6%)
- 10:00 a.m. ET: December Consumer Confidence (Briefing.com consensus 108.1; prior 108.3)
Energy complex futures settle lower
30-Jan-23 15:00 ET
Dow -199.25 at 33778.78, Nasdaq -191.94 at 11429.78, S&P -43.73 at 4026.83
[BRIEFING.COM] Recent trading had the main indices on a steady decline.
All 11 S&P 500 sectors moved into negative territory. The energy sector is buried in last place with a 2.2% loss. It's the only sector moving more than 2.0%.
On a related note,, energy complex futures settled the session with losses. WTI crude oil futures fell 1.9% to $77.94/bbl and natural gas futures fell 5.8% to $2.68/mmbtu.
Separately, the CBOE Volatility Index continues to climb, up 9.0%, or 1.66, to 20.17.
Tesla, General Motors both fall despite opposite ratings actions at Berenberg
30-Jan-23 14:30 ET
Dow -180.19 at 33797.84, Nasdaq -187.40 at 11434.32, S&P -41.83 at 4028.73
[BRIEFING.COM] The S&P 500 (-1.03%) is at session lows in recent trading, alongside the Dow Jones Industrial Average (-0.53%), having faded in the last half hour.
S&P 500 constituents Tesla (TSLA 169.35, -8.55, -4.81%), Moderna (MRNA 181.37, -7.98, -4.21%), and General Motors (GM 36.76, -1.19, -3.14%) pepper the bottom of today's trading. TSLA fades off morning gains despite an upgrade from Berenberg to Buy citing price cuts as an "investment in growth", MRNA falls despite the FDA granting mRNA-1345 Breakthrough Therapy Designation, while GM caught a Berenberg downgrade to Hold ahead of tomorrow morning's earnings.
Meanwhile, Cincinnati Fincl (CINF 111.51, +6.07, +5.76%) is atop the index after Friday evening's news of Q4 prelim results, dividend increase.
Gold cools off after extending lengthy weekly winning streak
30-Jan-23 14:00 ET
Dow -124.90 at 33853.13, Nasdaq -182.84 at 11438.88, S&P -37.04 at 4033.52
[BRIEFING.COM] With about two hours to go on Monday afternoon the tech-heavy Nasdaq Composite (-1.57%) is solidly lower, at the bottom of the major averages.
Gold futures settled $6.40 lower (-0.3%) to $1,939.20/oz, cooling off from an impressive winning streak which saw the yellow metal notch a sixth-straight weekly gain.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $102.19.
A sense of caution heading into a big week of market-moving news
There are two trading sessions left in the month of January, which is shaping up to be a fantastic month for stocks (and bonds). Entering today, the Nasdaq Composite is up 11.0% and the S&P 500 is up 6.0%. Naturally, we are hearing the maxim more and more that "As goes January, so goes the year."
It is a nice thought to be sure, even if it isn't always true. In 2001, for instance, the Nasdaq surged 12.2% and the S&P 500 gained 3.5% in January, yet they ended 2001 down 21.1% and 13.0%, respectively.
That was a different time coming off the dotcom bubble, but a case can be made that there was a bit of an "everything" bubble in 2021 that certainly saw its share of deflation across asset prices in 2022, if not an outright popping.
In any case, there is no disputing that the stock market is off to a good start in 2023. There appears to be a little nervousness this morning, however, that the good times will keep rolling in the same unabashedly bullish manner.
The S&P 500 futures are down 32 points and are trading 0.8% below fair value, the Nasdaq 100 futures are down 136 points and are trading 1.1% below fair value, and the Dow Jones Industrial Average futures are down 154 points and are trading 0.5% below fair value.
The cautious-minded tone can be chalked up to several factors:
- Concern the market has gotten ahead of itself and is due for a pullback trading at 18.0x forward twelve month earnings versus the 10-year historical average of 17.2x, according to FactSet data
- Pre-market weakness in the mega-cap stocks
- Worries that Fed Chair Powell will make an extra effort during his post-FOMC decision press conference on Wednesday to rein in the stock market's bullish behavior
- Hesitation in front of a multitude of market-moving events this week that include central bank policy decisions by the Fed, ECB, and Bank of England, the Q4 Employment Cost Index, ISM, and January Employment Situation reports, the OPEC+ meeting, and earnings reports from more than 100 S&P 500 companies, including Apple (AAPL), Alphabet (GOOG), Amazon.com (AMZN), and Meta Platforms (META).
From a news standpoint, there isn't a lot on the market's plate this morning, but it has been served something to think about by Nick Timiraos of the The Wall Street Journal, who wrote over the weekend that Fed officials are concerned that inflation could reaccelerate due to tight labor markets.
That missive fits in the environs of the camp that worries about the Fed continuing to raise rates and keeping rates higher for longer.
The 2-yr note yield is up three basis points to 4.24% and the 10-yr note yield is also up three basis points to 3.55%. Both got a jolt overnight after Spain reported a higher-than-expected 5.8% year-over-year increase in January CPI.
That should give the ECB something extra to think about ahead of its meeting. Frankly, there is a lot for capital markets to think about at this time, not the least of which is the understanding that central banks will have starring roles in driving this week's market action and the turn to February.
-- Patrick J. O'Hare, Briefing.com
Axalta Coating Systems sees a minor boost after receiving two separate upgrades today (AXTA)
Axalta Coating Systems (AXTA), which supplies coatings for various industrial applications, is experiencing moderate gains today after receiving two upgrades to "Buy" at Deutsche Bank and Citigroup. The analyst upgrades followed solid Q4 earnings results last week that helped keep shares of AXTA in a positive direction, even overcoming peer Sherwin-Williams' (SHW) disappointing Q4 results later that week.
Briefing.com expects more upgrades to follow, especially given AXTA's ability to find success despite an intense inflationary environment coupled with weakening industrial production in Europe and turbulence in China.
- AXTA's Q4 numbers added to this confidence. The company grew total volumes by 2.4% yr/yr primarily due to an ongoing market recovery in AXTA's Mobility Coatings segment, which comprised 34% of Q4 revs. Mobility Coatings' volumes soared by 18.7% yr/yr despite prices climbing by 11.5%, underpinning a robust recovery in global auto production compared to the year-ago period.
- Margin recovery remains a top priority for AXTA. The company already made healthy progress in this area, expanding adjusted operating margins by 130 bps yr/yr to 11.9% in Q4. A large chunk of this growth stemmed from pricing, which jumped 11.7%. Nevertheless, margins are still trailing pre-pandemic levels meaningfully, with Q4 margins down 390 bps from 4Q19.
- Still, investors have reason to celebrate AXTA's margin expansion in Q4 as it was the first time the company saw margin growth since early 2021, possibly spurring a positive trend in the coming quarters.
- Looking ahead, AXTA was cautiously optimistic, noting that further macroeconomic headwinds should be mostly contained within pockets of its industrial end markets. Additionally, the company anticipates positive momentum to continue in the refinish division of its Performance Coatings segment, which comprised 66% of Q4 sales. AXTA also commented that substantial Mobility Coatings upside should be realized during the year. Management also discussed the possibility of modest deflation within its raw materials costs, which would help offset labor and energy costs.
Despite the challenging global economy, AXTA is confident that its momentum will carry on through the year. However, there are still a few lingering concerns, namely Europe, which totaled 37% of net sales last year, second to North America at 39%. AXTA's excellent Mobility Coatings segment already saw a low single-digit decline in volumes yr/yr in Europe in Q4. Management was cautiously optimistic it would start to see recovery here, echoing comments from peer PPG Industries (PPG), which expected coatings demand to stabilize in the region beginning in 2Q23. Still, it is a concern worth keeping an eye on.
Bottom line, if economic conditions do not worsen, AXTA should keep its shares, which are climbing toward 52-week highs set in February 2022, in a higher gear.
GE HealthCare's first earnings report after spin-off is solid as supply chain issues ease (GEHC)
GE Healthcare (GEHC) is off to a strong start after being spun off by General Electric (GE) on January 4 with shares up by about 25%. Earlier this morning, the company reported its first earnings report as a standalone company, which validated the stock's strength heading into the report.
- Surprisingly, there's only one analyst covering GEHC, so there's no consensus expectation to compare its results against -- although, we expect a copious number of estimates to come soon.
- On an absolute basis, though, GEHC's Q4 results and FY23 outlook paint a promising picture of a company that's now capitalizing on a healthy demand environment in a more complete way.
- For instance, revenue increased by 13% on an organic basis, up from 10% last quarter, and 4% in 2Q22.
Despite the stronger top-line growth, the initial knee-jerk reaction to GEHC's earnings report was negative. The weakness was primarily due to some profit taking as the company's quarterly results were mostly known already.
- When GE issued its Q4 earnings on January 24, it also included financial metrics for the Healthcare segment for the last time.
- Additionally, on January 10, GEHC provided Q4 revenue guidance of $4.9 bln and offered its FY23 outlook, including its expectation for organic revenue growth of 5-7%.
While there weren't many surprises within GEHC's earnings report, it did shed some light on the key catalysts that are driving the company's improved performance.
- Most notably, the company highlighted the easing of supply chain pressures as an important factor. While operating as a business segment of GE, the unit struggled to attain enough components and materials to fully meet demand.
- In 1Q22, total orders increased by 8% to $4.8 bln, but revenue only grew by 2% as GE Healthcare dealt with ongoing supply chain challenges.
- In Q4, GEHC's book-to-bill ratio (defined as Total orders divided by Total revenues) was nearly at 1.0, reflecting an improved ability to fulfill its backlog of orders.
GEHC's pricing actions are also having a positive impact and should have an even greater effect in 2023 as inflation cools.
- The company reaffirmed its FY23 outlook for adjusted EBIT margin of 15.0-15.5%, representing a yr/yr expansion of 50-100 bps on a standalone basis.
- Bolstered by this margin expansion, and the anticipated 5-7% organic revenue growth, GEHC is forecasting FY23 EPS to increase to $3.60-$3.75 compared to $3.38 on a standalone basis in FY22.
The main takeaway is that demand remains robust for GEHC as the digitization of healthcare, the expanding access to healthcare, and an aging population continue so support its growth. Unlike most of 2022, GEHC is now capable of fulfilling that demand, thanks to a supply chain situation that's finally improving.
Okta losing steam after initially seeing its shares climb following an upgrade at Stifel (OKTA)
Okta (OKTA -1%) struggles to maintain its initial gains today following an upgrade to "Buy" from "Hold" at Stifel, which found in its recent survey plenty of satisfied customers using the identity management cybersecurity provider's services. Although the firm cautioned that there is still a bumpy road ahead for OKTA.
Briefing.com notes that shares have traded mostly flat since zooming over 25% higher following significantly better-than-feared Q3 (Oct) numbers in late November. A similar pattern occurred before OKTA took off as investors awaited additional developments. Therefore, we could be witnessing a similar scenario play out following Q4 (Jan) earnings on March 1 (unconfirmed). OKTA is expected to update its FY24 (Jan) guidance at that time, which would provide much clearer insight into how it views the macroeconomy unfolding this year.
- Speaking of the macroeconomy, OKTA did not hold a bullish view during its Q3 earnings call and a conference call earlier this month. CFO Brett Tighe commented in late November that while the company did not experience a meaningful shift in sales cycles, it did see signs that the environment further weakened since the preceding quarter. Mr. Tighe added that the situation will likely worsen before it improves; he reiterated these comments earlier this month.
- Most weaknesses seem to branch from small and medium-sized businesses (SMBs). Furthermore, OKTA is feeling most of its pain in North America. Meanwhile, in EMEA, the company boasted a handful of big deals in Q3.
- Still, OKTA guided to FY24 revs of $2.130-2.145 bln, slightly over 16% growth yr/yr at the midpoint. Although this translates to OKTA's lightest year of growth since going public in 2017, it nonetheless represents positive growth during what is shaping up to be a very turbulent year.
- To better steer through the challenges ahead, OKTA is trimming expenses. Last quarter, lower-than-anticipated costs allowed the firm to return to non-GAAP profitability with slightly positive operating income. Part of this was due to OKTA's decision to slow hiring. It conceded that it was a tad overzealous in hiring during the pandemic. Another part stemmed from overall spending efficiency measures.
- OKTA will keep its attention on cost discipline moving forward, helping to improve operating margins and profitability in Q4 and beyond. As a result, OKTA targeted non-GAAP profitability for FY24 and operating margins in the low single digits. Further details are expected during the company's Q4 call.
OKTA has repeatedly noted that FY24 would be challenging, as customers, particularly SMBs whose budgets are less flexible than enterprises, cut back spending to prepare for extended unfavorable economic conditions. Around 80% of OKTA's customer base are those with annual contracts below $100,000, so broad-based weakness amongst SMBs could bottleneck sales growth in FY24. Lastly, OKTA remains a solid long-term play as it is well-positioned to compete alongside much bigger players like Microsoft (MSFT). However, the near-term will likely remain highly volatile.
American Express misses Q4 estimates, but dividend hike and upside outlook provide comfort (AXP)
Despite missing 4Q22 EPS and revenue estimates, credit card company American Express (AXP) is charging higher and is providing the DJIA with a meaningful boost. Participants are looking past the downside results, instead focusing on AXP's bullish FY23 outlook and its sizable 15% quarterly dividend increase to $0.60/share, which pencils out to an annualized yield of about 1.4%. Perhaps most importantly, the enhanced dividend represents a vote of confidence regarding the economy, indicating that AXP isn't anticipating a severe recession this year.
- However, the increased dividend and AXP's upside FY23 EPS and revenue guidance, which calls for top-line growth of 15-17%, doesn't mean that the company only sees clear skies ahead. Like many other financial companies, AXP built up its reserves for credit losses in Q4, partly explaining why it missed EPE estimates. Specifically, reserves for credit losses totaled $492 mln compared to a reserve release of $168 mln in the year-earlier quarter.
- The protective measure to increase reserves comes as AXP's delinquency rate edges higher. In Q4, loans that are 30+ days past due as a percentage of total hit 1.0%, compared to 0.9% last quarter, and 0.7% in the year-earlier quarter. It's important to note that the delinquency rate is still below the 1.5% rate that was seen in the pre-pandemic quarter of 4Q19.
- The other factor that pressured AXP's earnings in Q4 was the 15% yr/yr increase in expenses. While robust travel demand has been a major catalyst for network volume growth (+12% in Q4), it has also driven travel-related benefits higher as customer redeem their rewards.
- Additionally, AXP has ramped up its marketing efforts in support of its strategy to grow its younger customer base. Those investments are paying off, though, with CEO Stephen Squeri noting during the earnings call that Millennial and Gen Z customers continue to be the largest drivers of growth. For some context, Millennials and Gen Z customers accounted for 30% of AXP's total billed business in 4Q22, compared to 20% in 4Q19.
- It's not only younger customers that are boosting their spending on Travel & Entertainment (T&E). The T&E category was up 28% in Q4 and AXP is clearly expecting the spending momentum to continue in FY23. The company's upbeat outlook and upside guidance dovetails with the bullish FY23 forecasts provided by the major airlines.
As layoffs continue to pile up and as corporations pull back on travel spending, there's some concern that travel demand will eventually soften. For the time being, though, AXP and its more affluent customer base are exhibiting resilience in the face of stiff macroeconomic headwinds.
Colgate-Palmolive investors not smiling at its decelerating FY23 organic sales growth outlook (CL)
Investors are not brushing Colgate-Palmolive's (CL -3%) somewhat concerning FY23 organic growth guidance aside today, sending shares to intra-day lows of roughly $71.00, levels not seen since October. CL, a consumer-defensive organization that owns familiar brands like Colgate and Speed Stick, does expect positive earnings and sales growth yr/yr this year. However, the company predicted organic sales to climb toward the higher end of its long-term targeted range of +3-5%, a slight decline from the +7% delivered in FY22.
On the plus side, CL shares have begun recovering from earlier losses, a sign that perhaps the initial sell-off was a bit of an overreaction. However, there were a few areas of minor concern worth noting in Q4.
- Organic volume contracted yr/yr for the second-straight quarter, slipping 4.0% with declines in each division outside of pet nutrition (CL's Hill's banner). A malefactor was pricing, which jumped 12.5% yr/yr in the quarter.
- However, private labels are also taking a bite out of volumes, although CL did not express much concern surrounding private label penetration. CL stated that it has seen a bit of growth in certain regions. For example, in Europe, the biggest jump was just 1 pt in home care products (cleaners, fabric softeners, etc.). This was also consistent with what CL expected.
- Gross margins were also knocked down by 250 bps to 55.6%, including an unfavorable 90 bp hit from private label sales resulting from some of CL's pet food acquisitions.
These blemishes certainly feel like nit-picking, however. CL remains a giant in its respective markets. For example, it commands a 39.8% global market share in toothpaste and a 31.7% share in toothbrushes. Additionally, its pet food banner, Hill's, continues to exhibit strength, being the only division to post positive organic volume in Q4, growing 0.5% yr/yr. Furthermore, CL sustains partnerships with industry professionals, such as dentists and veterinarians, who use and recommend CL's products. These relationships help maintain market share across numerous banners as customers stay loyal to CL's products. Meanwhile, CL can hike prices without a massive hit to volumes since items like toothpaste, pet food, and deodorant do not fall into easily substituted categories.
Bottom line, it may not be showing up in the stock price today, but we do not view CL's Q4 report as overly concerning. Its FY23 organic sales guidance falling back toward long-term ranges is unfortunate, but it still indicates consistent and steady growth. CL has many advantages on its side, including a massive market share in certain product categories and strong customer loyalty that should help the company wade through 2023 without seeing a significant hit to its long-term financial goals.
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