Market Snapshot
briefing.com
| Dow | 34094.53 | +203.56 | (0.60%) | | Nasdaq | 12062.06 | +174.59 | (1.47%) | | SP 500 | 4155.00 | +43.92 | (1.07%) | | 10-yr Note | -2/32 | 3.67 |
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| | NYSE | Adv 1843 | Dec 1093 | Vol 911 mln | | Nasdaq | Adv 2606 | Dec 1867 | Vol 5.6 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Energy, Financials, Materials |
| | Weak: Consumer Staples, Utilities, Real Estate |
Moving the Market
-- Digesting Fed Chair Powell's comments, where he didn't sound daunted by the strong jobs data
-- Supportive price action in the mega cap space
-- S&P 500 defending the 4,100 level, triggering short-covering activity
-- Microsoft's (MSFT) announcement of its new AI-powered Microsoft Bing search engine and Edge browser fueling strong gains in several AI related peers
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Closing Summary
07-Feb-23 16:30 ET
Dow +265.67 at 34156.64, Nasdaq +226.34 at 12113.81, S&P +52.92 at 4164.00
[BRIEFING.COM] The stock market kicked off today's session on a mixed note. The main indices oscillated around their flat lines in the first half of the day as investors awaited Fed Chair Powell's "Conversation with David Rubenstein" at the Economic Club of Washington, D.C. at 12:40 p.m. ET.
Mr. Powell didn't say anything too surprising, but the market responded with some volatile price action nonetheless. The main indices initially shot higher, a move that was attributed to Mr. Powell's relatively calm demeanor when asked about Friday's stronger than expected January jobs report.
That initial upside momentum quickly gave way to selling pressure, though, after Mr. Powell said that the Fed will react to the incoming data and will do more rate hikes if the data suggest that is necessary. That disclaimer has been provided by him in the past, however, so it was not surprising either. He also said that the Fed has a significant road ahead to get inflation down to 2.0% and that he doesn't think it will be a quick move to 2.0%.
The aforementioned reversal in the major indices saw the S&P 500 breach support at the 4,100 level, where buyers stepped in (again) and a technical rebound effort took root, supported by short-covering activity. Ultimately, the main indices closed near their best levels of the day.
The late afternoon push higher also coincided with Microsoft's (MSFT 267.56, +10.79, +4.2%) announcement of its new AI-powered Microsoft Bing search engine and Edge browser. Other AI peers traded up in solidarity, bolstering the broader market. Alphabet (GOOG 108.04, +4.57, +4.4%), Baidu (BIDU 160.22, +17.40, +12.2%), and NVIDIA (NVDA 221.73, +10.84, +5.1%) were standouts in that regard.
Most of the S&P 500 sectors closed with a gain led by energy (+3.1%), communication services (+2.5%), and information technology (+2.5%). The consumer staples (-0.4%), real estate (-0.3%), and utilities (-0.1%) sectors were alone in the red by the closing bell.
The Treasury market also experienced some whipsaw price action as Fed Chair Powell spoke, but yields ultimately settled at levels seen before the commentary started. The 2-yr note yield was unchanged at 4.46% and the 10-yr note yield rose four basis points to 3.67%.
- Nasdaq Composite: +15.7% YTD
- Russell 2000: +12.0% YTD
- S&P Midcap 400: +11.0% YTD
- S&P 500: +8.5% YTD
- Dow Jones Industrial Average: +3.1% YTD
Reviewing today's economic data:
- December Trade Balance -$67.4 bln (Briefing.com consensus -$68.5 bln); Prior was revised to -$61.0 bln from -$61.5 bln
- The key takeaway from the report is that it reflected a slowdown in global trade, evidenced by a $2.1 billion decline in the three-month moving average for the goods and services deficit to $68.6 billion that resulted from a $2.6 billion decrease in average exports and a $4.7 billion decrease in average imports.
- Consumer credit increased by $11.6 bln in November (Briefing.com consensus $24.5 bln) following an upwardly revised $33.1 bln (from $27.9 bln) in November.
- The key takeaway from the report is that total consumer credit expansion slowed in December, with higher interest rates crimping loan demand. Nonrevolving credit saw its smallest expansion ($4.3 billion) since August 2020.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -9.0%)
- 10:00 ET: December Wholesale Inventories (Briefing.com consensus 0.5%; prior 1.0%)
- 10:30 ET: Weekly crude oil inventories (prior 4.14 mln)
Market continues to push higher ahead of the close
07-Feb-23 15:35 ET
Dow +195.63 at 34086.60, Nasdaq +194.56 at 12082.03, S&P +45.45 at 4156.53
[BRIEFING.COM] The main indices trade at or near session highs.
Consumer credit increased by $11.6 bln in November (Briefing.com consensus $24.5 bln) following an upwardly revised $33.1 bln (from $27.9 bln) in November.
The key takeaway from the report is that total consumer credit expansion slowed in December, with higher interest rates crimping loan demand. Nonrevolving credit saw its smallest expansion ($4.3 billion) since August 2020.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -9.0%)
- 10:00 ET: December Wholesale Inventories (Briefing.com consensus 0.5%; prior 1.0%)
- 10:30 ET: Weekly crude oil inventories (prior 4.14 mln)
Market trends towards highs
07-Feb-23 15:00 ET
Dow +203.56 at 34094.53, Nasdaq +174.59 at 12062.06, S&P +43.92 at 4155.00
[BRIEFING.COM] The main indices have been climbing back towards session highs recently. Small and mid cap stocks are trailing their larger peers, though.
Energy complex futures settled the session higher. WTI crude oil futures rose 4.0% to $77.21/bbl and natural gas futures rose 4.8% to $2.56/mmbtu.
On a related note, the S&P 500 energy sector (+2.7%) sits in first place by a wide margin.
Markets back in the black; Fiserv, Take-Two among top post-earnings performers in S&P 500
07-Feb-23 14:30 ET
Dow +65.40 at 33956.37, Nasdaq +104.19 at 11991.66, S&P +23.52 at 4134.60
[BRIEFING.COM] Up-and-down action in the major averages has all three back in positive territory in the last half hour, the benchmark S&P 500 (+0.57%) still firmly ensconced in second place.
S&P 500 constituents Cincinnati Fincl (CINF 125.31, +10.03, +8.70%), Fiserv (FISV 113.97, +7.57, +7.11%), and Take-Two (TTWO 112.50, +6.94, +6.57%) dot the top of today's trading following earnings.
Meanwhile, Delaware-based biotech firm Incyte (INCY 79.49, -4.87, -5.77%) is today's top laggard despite this morning's earnings beat as analysts pointed to light/in-line guidance.
Gold ends higher on Tuesday
07-Feb-23 14:00 ET
Dow -192.58 at 33698.39, Nasdaq -16.01 at 11871.46, S&P -11.68 at 4099.40
[BRIEFING.COM] The initial Powell pop has faded, the major averages now all in the red with the tech-heavy Nasdaq Composite (-0.13%) hosting the shallowest declines.
Gold futures settled $5.30 higher (+0.3%) to $1,884.80/oz, helped by a weaker dollar following Fed Chair Powell's comments.
Meanwhile, the U.S. Dollar Index is down just a hair at $103.61.
Page One
Last Updated: 07-Feb-23 09:00 ET | Archive
All eyes and ears on D.C.
New York City and Wall Street may be the financial capital of the world, but it is Washington D.C. that is the de facto financial capital of the world today. That's because Fed Chair Powell is having a "Conversation with David Rubinstein" at the Economic Club of Washington, D.C., at 12:40 p.m. ET, and President Biden is delivering his State of the Union Address before Congress and the American people at 9:00 p.m. ET.
Both will be talking points for the capital markets, yet whatever Mr. Powell says will likely be the only component with any true market-moving impact. We say that respectfully knowing that a divided Congress is going to make it nearly impossible to pass any major piece of legislation that might incorporate something like a quadrupling of the tax rate on corporate buybacks, which is a proposal the president will be advancing tonight.
The capital markets are laser-focused on Fed policy and they have grown a little anxious the past few sessions about the Fed possibly raising rates more than expected and keeping them higher for longer.
That concern has been an offshoot of the much stronger than expected January employment report, which has sent Treasury yields higher, the dollar higher, and has seen the prospect of a third, 25-basis point rate hike at the May FOMC meeting priced into the fed funds futures market.
Accordingly, market participants are anxious to hear if Fed Chair Powell will sound more hawkish than he did at his press conference on February 1 following the FOMC meeting.
We heard earlier from Minneapolis Fed President Kashkari (FOMC voter) on CNBC, who said he doesn't think the Fed has made enough progress bringing down inflation and reaffirmed his fed funds rate target of 5.40%. That perspective followed on the heels of Atlanta Fed President Bostic (not an FOMC voter) who, according to Bloomberg, said late in yesterday's session that the January employment data could bring a higher interest rate peak back on the table.
So, the reticence in the futures market this morning has a good bit to do with an anxious wait-and-see mentality in front of Fed Chair Powell's comments. We would add, in related central bank news, that the Reserve Bank of Australia raised its cash rate by 25 basis points to 3.35%, as expected, and noted that additional increases will be needed in coming months.
Currently, the S&P 500 futures are down eight points and are trading 0.2% below fair value, the Nasdaq 100 futures are down eight points and are trading roughly in-line with fair value, and the Dow Jones Industrial Average futures are down 111 points and are trading 0.3% below fair value.
The 2-yr note yield, meanwhile, is down one basis point at 4.45% (having stood at 4.10% last Thursday) and the 10-yr note yield is up three basis points to 3.66% (having stood at 3.40% last Thursday). The U.S. Dollar Index is up 0.2% to 103.85 (having stood at 101.75 last Thursday).
There has been another rush of earnings reporting and, once again, the aggregate news and guidance can be deemed mixed at best. Then again, that is a Wall Street matter and that is not where the market's mind is at this particular moment.
Separately, the December trade deficit widened to $67.4 billion (Briefing.com consensus -$68.5 billion) from an upwardly revised $61.0 billion (from -$61.5 billion) in November with exports $2.2 billion less than November exports and imports $4.2 billion more than November imports.
The key takeaway from the report is that it reflected a slowdown in global trade, evidenced by a $2.1 billion decline in the three-month moving average for the goods and services deficit to $68.6 billion that resulted from a $2.6 billion decrease in average exports and a $4.7 billion decrease in average imports.
This report was released by the Census Bureau, which is located in Washington, D.C. -- the financial capital of the world (today anyway).
-- Patrick J. O'Hare, Briefing.com
Leggett & Platt's Q4 results and FY23 outlook not sitting comfortably with investors (LEG)
Shares of Leggett & Platt (LEG -3%) are getting tripped up on an earnings and sales miss in Q4 generated by lingering weaknesses in the macroeconomic environment. The manufacturer of bedsprings, seat suspension systems, and other furniture hardware saw its volumes shrink yr/yr for the sixth consecutive quarter, illuminating the challenging demand landscape as residential end markets remain a sore spot.
Over the past few months, we have heard from many home furnishing retailers about the obstacles the current housing market is presenting. For example, in December, RH (RH) commented that the housing market remains in "freefall" and projects that current conditions worsen before they improve. Furthermore, MillerKnoll (MLKN) expressed in late December that with home sales slowing, it expected continual softening of demand. Meanwhile, La-Z-Boy (LZB) paused its share buybacks due to current demand dynamics in OctQ.
Many of these organizations, including others in the industry, like Wayfair (W) and Williams-Sonoma (WSM), are reporting DecQ and JanQ earnings over the next month. LEG's Q4 report does not set a bullish tone ahead of these companies' earnings reports.
- Turning to LEG's Q4 results, the company's EPS of $0.39 missed its projected range of $0.42-0.57. However, LEG's sales decline of 10% yr/yr to $1.20 bln did meet the midpoint of its $1.15-1.25 bln outlook. The declining sales growth was due to continually falling volumes, which took a 12% tumble yr/yr in the quarter.
- More specifically, LEG's Bedding Products and Furniture, Flooring & Textile Products segments were the laggards in the quarter, with revenue sinking 19% and 12% yr/yr, respectively.
- Within Bedding Products, U.S. and European markets experienced ongoing demand weakness. LEG expects demand in 2023 to remain consistent with 2022 levels, albeit with modest increases in volumes in 2H23.
- In Furniture, Flooring & Textile Products, demand at lower price points remained soft, and LEG's customers are working through current inventory levels. LEG expects lower volumes through at least 1H23.
- On a more bouncy note, LEG's Specialized Products segment, comprised of automotive, aerospace, and other industrial end markets, registered 15% sales growth in Q4 on a 10% bump in volumes. LEG was relatively upbeat when discussing its outlook regarding this segment, expecting solid demand across most of its business lines to continue in 2023.
- Still, LEG's FY23 guidance was not very confidence-inspiring, guiding to EPS of $1.50-1.90, missing analyst expectations, and revs of $4.8-5.2 bln, translating to a 3% decline yr/yr at the midpoint.
Bottom line, demand for bedding and other home furniture products will remain constrained as long as the housing market continues to experience disruptions. LEG's Specialized Products segment does help defend against this unfavorable dynamic, and management noted it would focus on mitigating the impacts of market challenges going forward. However, the current level of uncertainty gives us pause.
DuPont's encouraging outlook for 2H23 provides impetus to look past soft Q1 guidance (DD)
Chemical company DuPont (DD) parlayed another round of price increases and continued strength in its Water & Protection segment into a solid 4Q22 earnings beat, exhibiting resiliency in a difficult macroeconomic environment. Those price increases also drove organic sales higher by 5%, which is a more meaningful top-line gauge than total revenue. Recall that DD closed on the sale of its Mobility & Materials unit to Celanese (CE) last November, skewing the yr/yr comparisons and explaining why DD's Q4 total revenue plunged by 28% to $3.1 bln.
The company's twelfth consecutive quarterly EPS beat wasn't the only piece of good news.
- After hiking its quarterly divided by 10% last year, DD is again increasing its payout -- this time by 9% to $0.36/share.
- With growth hard to come by due to rising interest rates and other lingering issues, more emphasis has been placed on dividends as a means of generating stronger returns.
- Furthermore, DD's willingness to bump its dividend higher despite the uncertain global economic outlook is a confidence booster, indicating that the company doesn't foresee a prolonged and painful downturn on the horizon.
While shares are trading sharply higher at the moment, the initial reaction to the earnings report was not positive.
- Offsetting the EPS beat and dividend hike was DD's downside 1Q23 EPS and revenue guidance. The soft outlook was mainly driven by ongoing weakness in certain consumer-based end markets, such as smartphones and electronics.
- Some may not realize it, but DD has significant exposure to the semiconductor industry, providing specialty materials that are used in the fabrication and packaging of chips.
- A deceleration in demand and COVID-related impacts in China have created a glut of inventory for consumer electronics OEMs. As a result, DD's Interconnect Solutions experienced an organic sales decline of 10% in Q4 on volume declines due to channel inventory destocking, more than offsetting strength in DD's broad-based industrial markets. For the quarter, the Electronics & Industrial segment posted an organic sales decline of 2%.
Looking ahead, the company expects this weakness to continue, as illustrated by its forecast for a mid-single-digit decline in 1Q23 for these consumer-driven end markets.
- However, DD issued inline EPS and revenue guidance for FY23, suggesting that it anticipates a rebound in 2H23.
- Indeed, CFO Lori Koch stated that as the year progresses, she anticipates a stabilization of consumer electronics demand and a normalization of customer inventory levels to drive sequential quarterly improvements in DD's results.
- More specifically, she believes that channel destocking and customer production rates will begin to improve in 2Q23.
Meanwhile, demand within the auto adhesives and water protection categories should remain healthy moving forward, positioning DD for a potentially strong 2H23.
Skyworks is dialing up some nice gains despite cautious guidance (SWKS)
Skyworks Solutions (SWKS +9%) is trading higher despite lackluster Q1 (Dec) results. The numbers were not bad as SWKS reported generally in-line. However, the Q2 (Mar) guidance was worrisome with EPS and revs both coming in a good bit below expectations. Besides earnings, SWKS also announced a new $2 bln stock repurchase authorization which helped to offset the weak guidance.
- While the headline numbers/guidance were not great, SWKS did make some positive comments on the call. Specifically, it expanded its design win pipeline in several emerging high-growth segments, including in IoT where it partnered with AT&T to launch their first Wi-Fi 6 gateways. In automotive, it achieved its sixth consecutive quarter of record revenue, strengthening its EV design win pipeline with on-board charger content at a Japanese automotive supplier.
- During the Q&A on the call, it was clear that analysts were concerned about high inventories. Recall that Qorvo (QRVO) said on its call last week that customers are focusing on working down current inventory before buying new chips. Skyworks echoed those sentiments, saying that its own inventory is definitely somewhat elevated. It also has seen some softness due to some macro challenges. However, it also expects, based on known design wins, its business will bounce back, especially in the second half of calendar year 2023.
- As such, Skyworks is prepping for some big ramps based on known design wins with many of its customers. It also expects some of its Android-based business in Korea and China to bounce back in the second half of the year. Overall, the company expects that its days-of-inventory metric will come down back to a more normalized level in the second half of the calendar year.
- Skyworks was also quite positive on its longer term demand drivers. SWKS says wireless connections continue to proliferate with mobile network traffic doubling over the past two years. Over 25 bln IoT devices are expected to be installed by 2027. The automotive industry is undergoing a revolutionary shift towards electrification with EVs projected to make up over 30% of the US market by 2030.
Overall, we were a bit surprised to see the stock up so much despite the downside guidance. However, SWKS tends to be conservative on guidance, the $2 bln buyback news is significant (over 10% of shares outstanding), and its positive comments about design wins and inventory on the call seem to be calming investor nerves. Also, the stock had been weak the past couple of days, so maybe some cautious guidance was priced in already.
Pinterest's several positives struggle to outshine the cloudier figures from Q4 (PINS)
Even after social media organizations like Snap (SNAP) and Meta Platforms (META), along with tech giant Alphabet (GOOG), discussed a meaningful slowdown in advertising spending over the past week, shares of Pinterest (PINS -6%) were undeterred, climbing over 20% on the year. Although PINS could not avoid weak ad demand during Q4, which caused the social media platform to miss revenue expectations and guide Q1 revs below consensus, investors initially shrugged these blemishes off, buying the approximately 14% dip that ensued during after-hours trading yesterday.
However, the stock trades reasonably lower on the day, as its run leading into yesterday's report is likely spurring profit-taking. Nevertheless, the buy-the-dip mentality underpins numerous positives delivered by PINS in Q4.
- Management continued to convey an uplifting tone, highlighting the key differentiating factors allowing PINS to grow its monthly active users (MAUs) and entice advertisers to host ads on its platform. The primary difference that separates PINS from other social media sites is intent. Users congregate on Pinterest with the purpose of buying something, which deepens user engagement.
- It is also worth pointing out that PINS strives to be a purely positive social media site, avoiding toxicity that plagues many of its peers. For example, PINS bans political ads; the company noted its research confirms the benefits of its actions to keep the platform positive and inspirational.
- MAUs also grew yr/yr for the first time since 3Q21, expanding by 4%, or 19 mln, to 450 mln. MAUs also climbed 1% sequentially, PINS' second-straight quarter of sequential MAU growth. Perhaps more importantly, PINS' global mobile app users, which account for over 80% of revenue, jumped 14% yr/yr. Meanwhile, mobile app users in the U.S. and Canada saw accelerated growth from the last quarter, increasing 5% yr/yr.
- Sessions also grew significantly faster than users, underscoring strengthening engagement per user.
- PINS is focused on operational discipline, controlling costs during the quarter. The company already announced in December it was slowing the pace of hiring, which resulted in flat headcount growth from Q3. PINS also trimmed its infrastructure spending, which fell sequentially, and closed a few of its smaller offices. Management mentioned that these moves put the firm on a path to meaningful EBITDA margin expansion in 2023, keeping pace with its prior commitment.
- Furthermore, PINS announced a $500 mln stock buyback program, illuminating the company's solid ongoing operating cash flow generation.
- On a side note, PINS also announced that CFO Todd Morgenfeld plans to step down on July 1.
The unfavorable macroeconomic environment lowering ad pricing across the industry is definitely a headwind PINS will likely contend with throughout FY23. Its Q1 revenue growth forecast of low single digits yr/yr on a percentage basis, similar to the 3.6% growth in Q4 and below analyst estimates, reflects this challenge. However, PINS boasts unique attributes, separating it from its social media peers, which may prove the difference-maker in outperforming these competitors during a likely turbulent year.
RH gets a price cut as high-end retailer issues downbeat sales update, announces restatements (RH)
Luxury furniture and home decor company RH (RH) is reclining lower after issuing a downbeat sales update for FY23 (Jan) and announcing the restatement of a few quarterly reports due to errors in the calculation of GAAP net income per share.
- Regarding the former issue, the company is now expecting revenue to come in at the low end of its prior guidance range of (4.5)-(3.5)%, reflecting soft demand for expensive discretionary items and RH's reluctance to discount its furniture in a highly promotional environment.
- RH's decision to avoid entering price wars with other home furnishing companies, like Williams-Sonoma (WSM) or Wayfair (W), is meant to protect its brand name and its margins.
- To that end, RH has had some success as the company also stated that it expects FY23 adjusted operating margin to be towards the high end of its prior guidance range of 21.5-22.0%. However, that would still be well below the 25.6% figure that RH posted in a FY22 that featured record-setting sales driven by COVID-related spending trends, a hot housing market, and a less volatile stock market.
- In 3Q23, adjusted operating margin took a pretty big hit, sliding by 390 bps sequentially to 20.8%, while adjusted gross margin dipped by 310 bps to 49.7%. Based on those data points, it appears that RH did become a little more promotional towards the end of the calendar year, but likely not to the extent of competitors operating in the mid-to-lower tiers of the market.
- This resistance to materially lower its prices is coming at a cost. Specifically, RH is ceding some sales and market share to its competitors, which is apparent in its eroding top-line growth rate. Last quarter, RH's sales fell by nearly 14%, while WSM posted an increase of about 7%.
- RH's CEO Gary Friedman has repeatedly stated that these lower-value market share losses are worth sacrificing in order to avoid longer-term brand erosion. After a dreadful 2022 that saw shares plummet by about 50%, investors may finally be seeing eye-to-eye with Friedman on this perspective as the stock has jumped by nearly 20% in 2023.
- In regard to the restatements, RH noted that its financials for 1Q23, 2Q23, and 3Q23 should no longer be relied upon due to "material unintentional errors." The errors are related to how RH treated pre-tax losses on the extinguishment of debt, which therefore inflated its basic net income per share for these periods. For some perspective on the impact of this error, RH's GAAP net income per share for 1Q23 should have been $7.22, instead of the $12.16 it reported.
- Although this specific restatement doesn't affect RH's non-GAAP EPS, there appears to be more restatements on the way. In the SEC filing, RH also disclosed that it mistakenly used a 0% tax rate to compute non-GAAP EPS, reflecting its expectation for substantial tax benefits arising from stock option exercises by Mr. Friedman.
- However, the company now says that the modified tax rate will be higher than 0%, which will decrease its previously reported non-GAAP EPS. At this point, it's unclear how significant the changes to EPS will be.
Overall, the restatements aren't a major issue from a fundamental perspective, although they don't exactly induce confidence in the company's executive team. Questioning the accuracy of a company's financials is never a comfortable situation for an investor, especially when that company is already contending with some fierce headwinds, as RH's revised sales outlook attests.
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