| | |
Market Snapshot
briefing.com
| Dow | 33183.44 | -643.25 | (-1.90%) | | Nasdaq | 11526.76 | -260.51 | (-2.21%) | | SP 500 | 4003.99 | -75.10 | (-1.84%) | | 10-yr Note | -33/32 | 3.96 |
|
| | NYSE | Adv 356 | Dec 2643 | Vol 975 mln | | Nasdaq | Adv 894 | Dec 3723 | Vol 4.9 bln |
Industry Watch
| Strong: Energy, Consumer Staples |
| | Weak: Consumer Discretionary, Real Estate, Communication Services, Financials |
Moving the Market
-- Treasury yields continuing to rise
-- Increased geopolitical tension between U.S. and China, and between the U.S. and Russia regarding the Ukraine war
-- Disappointing guidance from Walmart (WMT) and Home Depot (HD)
-- Downside pressure from the mega cap space
|
Closing Summary
21-Feb-23 16:25 ET
Dow -697.10 at 33129.50, Nasdaq -294.97 at 11492.30, S&P -81.75 at 3997.34
[BRIEFING.COM] The stock market kicked off this holiday-shortened week with a broad retreat. Market participants took some money off the table following a strong start to 2023 amid rising market rates and increasing geopolitical tension. Including today's losses, the Dow Jones Industrial Average has given back all of its 2023 gains, down 0.1% on the year. The S&P 500 for its part closed the session just a whisker shy of the 4,000 level.
The 2-yr note yield rose 12 basis points today to 4.73% and the 10-yr note yield rose 13 basis points to 3.96%. Also, today's $42 bln 2-yr note auction was met with mediocre demand despite the run-up in yields. Selling efforts in the Treasury market accelerated after this morning's release of the preliminary IHS Markit Manufacturing and Services PMI readings for February, along with the softer-than-expected Existing Home Sales Report for January.
Geopolitical angst was helping to drive price action in both the bond and stock markets today. The Wall Street Journal reported earlier that China's President Xi will likely head to Moscow in April or May to meet with President Putin and encourage peace talks. That view runs counter to Secretary of State Blinken's accusation over the extended weekend, reported in The New York Times, that China is considering providing lethal assistance to Russia. Also, President Putin announced Russia will suspend its participation in the New START nuclear treaty.
Recession concerns were also in play today following disappointing full-year guidance from Dow components Home Depot (HD 295.50, -22.45, -7.1%) and Walmart (WMT 147.33, +0.89, +0.6%). A big loss in Home Depot helped to drive the S&P 500 consumer discretionary sector to last place today with a 3.3% loss.
Downside pressure from the mega cap space helped to drag the information technology (-2.4%) and communication services (-2.3%) sectors towards the bottom of the pack. The Vanguard Mega Cap Growth ETF (MGK) was down 2.4% versus a 2.0% loss in the S&P 500 and a 2.2% loss in the Invesco S&P 500 Equal Weight ETF (RSP).
All 11 sectors closed with a loss, but energy (-0.3%) and consumer staples (-0.3%) were the only sectors to decline less than 1.0%.
Notably, the CBOE Volatility Index rose 14.1% or 2.82 to 22.84 today.
- Nasdaq Composite: +9.8% YTD
- Russell 2000: +7.2% YTD
- S&P Midcap 400: +7.0% YTD
- S&P 500: +4.1% YTD
- Dow Jones Industrial Average: -0.1% YTD
Reviewing today's economic data:
- February IHS Markit Manufacturing PMI - Prelim 47.8; Prior 46.9
- February IHS Markit Services PMI - Prelim 50.5; Prior 46.8
- January Existing Home Sales 4.00 mln (Briefing.com consensus 4.12 mln); Prior was revised to 4.03 mln from 4.02 mln
- The key takeaway from the report is that sales remain pressured by high mortgage rates and economic uncertainty, which in turn have led to an extended time of existing homes for sale remaining on the market and a decided moderation in median selling prices.
Baidu (BIDU), Stellantis (STLA), TJX (TJX), Wingstop (WING), and Wolverine (WWW) are among the notable companies reporting earnings ahead of tomorrow's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -7.7%)
- 10:30 ET: Weekly crude oil inventories (prior 16.28 mln)
- 14:00 ET: FOMC Minutes from the January 31-February 01 meeting
S&P 500 fights to stay above 4000
21-Feb-23 15:25 ET
Dow -662.59 at 33164.10, Nasdaq -282.54 at 11504.73, S&P -78.95 at 4000.14
[BRIEFING.COM] The S&P 500 is fighting to stay above the 4,000 level. The main indices all remain near their worst levels of the day heading into the close.
After today's close, Caesars Entertainment (CZR), Coinbase Global [COIN], Palo Alto Networks (PANW), SBA Communications (SBAC), Tanger Factory (SKT), Toll Brothers (TOL), and Workiva (WK) headline the earnings reports.
Baidu (BIDU), Stellantis (STLA), TJX (TJX), Wingstop (WING), and Wolverine (WWW) are among the notable companies reporting earnings ahead of tomorrow's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -7.7%)
- 10:30 ET: Weekly crude oil inventories (prior 16.28 mln)
- 14:00 ET: FOMC Minutes from the January 31-February 01 meeting
Energy complex futures losing ground
21-Feb-23 14:55 ET
Dow -643.25 at 33183.44, Nasdaq -260.51 at 11526.76, S&P -75.10 at 4003.99
[BRIEFING.COM] The main indices have been able to climb somewhat off session lows after the S&P 500 found support at the 4,000 level.
Energy complex futures settled the session lower. WTI crude oil futures fell 0.4% to $76.29/bbl and natural gas futures fell 9.5% to $2.07/mmbtu. On a related note, the S&P 500 energy sector (-0.2%) is among the best performers today, exhibiting a modest decline.
Separately, Treasury yields have been inching higher. The 2-yr note yield is up ten basis points to 4.73% and the 10-yr note yield is up 13 basis points to 3.95%.
Nordson, Generac fall in S&P 500
21-Feb-23 14:25 ET
Dow -694.48 at 33132.21, Nasdaq -281.33 at 11505.94, S&P -82.92 at 3996.17
[BRIEFING.COM] The broader market is once again at lows of the day, the S&P 500 (-2.03%) peeking below 4K for the first time in almost four weeks.
S&P 500 constituents Nordson (NDSN 212.79, -33.43, -13.58%), Generac (GNRC 116.75, -10.02, -7.90%), and CarMax (KMX 68.23, -4.72, -6.47%) dot the bottom of the standings. NDSN underperforms following this morning's earnings and guidance miss, GNRC caught a downgrade to Hold at Truist, while KMX moves lower possibly on sympathy to today's downgrade of AutoNation (AN 146.44, -10.86, -6.90%) at JP Morgan.
Meanwhile, consumer packaged goods giant General Mills (GIS 80.53, +3.76, +4.90%) is atop the S&P after the company raised FY23 adjusted EPS growth and organic revenue forecasts.
Gold trims YTD gains on Tuesday
21-Feb-23 14:00 ET
Dow -637.07 at 33189.62, Nasdaq -259.28 at 11527.99, S&P -76.45 at 4002.64
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-2.20%) is still the worst-performing major average, now at session lows.
Gold futures settled $7.70 lower (-0.4%) to $1,842.50/oz, its lowest levels in more than two months, bringing YTD gains down to just +0.89%.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $104.22.
Page One
Last Updated: 21-Feb-23 08:49 ET | Archive
Losing ground as easy as 1-2-3
The start of this abbreviated trading week is not looking good. Currently, the S&P 500 futures are down 38 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 145 points and are trading 1.2% below fair value, and the Dow Jones Industrial Average futures are down 345 points and are trading 1.0% below fair value.
The primary catalysts for the negative disposition are debatable, yet they generally fall along the following fault lines:
- A continued increase in Treasury yields as market participants fret the possibility of the Fed taking rates higher than previously expected and keeping them higher for longer than previously expected
- Disappointing full-year guidance from Dow components Home Depot (HD) and Walmart (WMT), which has prompted added concerns about the pace of future consumer spending
- Increased geopolitical tension between the U.S. and China, and between the U.S. and Russia, regarding the Ukraine war, which is nearing its one-year anniversary
The more concise summation is that the confluence of these factors is contributing to the consolidation trade that has taken root over the last few weeks.
Market participants are lowering their risk exposure. It is premature to say that it is an entirely risk-off market, especially with Treasury yields rising and not falling, yet there is nothing that is premature about taking some money off the table following a period in which the Nasdaq Composite, Russell 2000, S&P Midcap 400, and S&P 500 gained as much as 17.2%, 14.0%, 12.7%, and 9.3%, respectively, since the start of the year.
Those highs were all established either the day before, or the day of, the much stronger-than-expected January employment report. Since then, there has been a significant repricing in the Treasury market.
The 2-yr note yield stood at 4.08% the day before that employment report. Earlier this morning, it hit 4.68%. The 10-yr note yield stood at 3.40% the day before that employment report. Earlier this morning, it hit 3.90%.
The 1-yr T-bill yield, meanwhile, moved from 4.68% to 5.08%. For some worthwhile context, the S&P 500 dividend yield is currently 1.70%, so the competition factor for stocks provided by bonds is in plain sight.
The rally in January was exacerbated by short-covering activity and a fear of missing out on rebound gains, which was the byproduct of an emerging belief that the Fed would be pausing its rate hikes soon and even cutting rates before the end of the year.
Those assumptions have been re-thought following the arrival of some stronger-than-expected economic activity (e.g., employment, weekly initial jobless claims, ISM Services, and retail sales), some less-than-pleasing inflation data for January, and some more hawkish-sounding chatter from several Fed officials.
Another important inflation report awaits the market this week. The January core-PCE Price Index, which is part of the January Personal Income and Spending Report, will be released on Friday. That is the Fed's preferred inflation gauge, which guarantees that it will have market-moving impact.
For now, the standing of the equity futures market has created a de-facto guarantee that the major indices will be losing ground at the open after having made up a big chunk of lost ground before the arrival of the January employment report, which forced a re-think of the leading, and friendly Fed, narrative to start 2023.
-- Patrick J. O'Hare, Briefing.com
Dillard's shares hitting the sales rack as Q4 sales and comps disappoint (DDS)
Department store owner and operator Dillard's (DDS) is hitting the sales rack today after posting a mixed Q4 report that included flat comparable sales growth. The company did beat on EPS, but since there's only one analyst providing an EPS number, the upside result isn't overly meaningful. DDS also doesn't provide specific financial guidance, nor does it host earnings conference calls, which explains why there is such limited analyst coverage on the name.
- DDS has been quite strong with shares rallying by over 25% on a year-to-date basis, prior to today's sell off. Therefore, we believe that today's weakness is at least partially due to some profit-taking on a sell-the-news reaction. Weak quarterly results and cautious outlooks from retail giants Walmart (WMT) and Home Depot (HD) aren't helping matters, either.
- The overall picture that's being painted is that macroeconomic headwinds have caught up to consumers, causing a broad-based pullback in spending. This slowdown in spending is especially problematic for retailers with less-affluent customers.
- Although DDS isn't on the low end of that spectrum, it is more of a "middle of the road" department store. In contrast, competitor Macy's (M) typically attracts a higher-end customer, enabling it to sell more merchandise at full price.
- DDS, on the other hand, stated that weaker sales during the holiday season led to increased markdowns and higher January sales on a yr/yr basis. As a result, retail gross margin declined by 170 bps yr/yr to 38.7%. While cosmetics and ladies' apparel held up pretty well, the home and furniture category lagged, putting pressure on margins.
- The good news is that inventory was only up by 4% on a yr/yr basis. This should be supportive of margins since DDS doesn't have a mountain of out-of-season merchandise to sell at discounted prices.
Without guidance or an earnings call, it's difficult to get a solid reading on current trends and the trajectory for DDS's business. However, it's evident that a disappointing holiday season translated into a subpar Q4 performance for DDS, and that consumer spending remains quite sluggish overall. That doesn't bode well for other department store companies like Nordstrom (JWN) and Kohl's (KSS), which are slated to report earnings on March and March , respectively.
Louisiana-Pacific gaps below its 200-day moving average on a gloomy 1Q23 outlook (LPX)
Oriented strand board (OSB) panels and other engineered wood building products manufacturer Louisiana-Pacific (LPX -10%) is gapping below its 200-day moving average (60.17) despite registering beats on its top and bottom lines in Q4. LPX also saw its Siding Solutions segment deliver $385 mln in sales in the quarter, a 38% jump and a Q4 record.
However, LPX's gloomy Q1 outlook casts a dark cloud over these bright spots. Siding Solutions' positive momentum is grinding to a halt, with LPX projecting a yr/yr decline of up to 5%. The company also expects OSB revs to be sequentially lower than in Q4 by approximately 20%. These projections are resulting in an expected adjusted EBITDA of $35 mln, a 65% drop sequentially and well below analyst estimates.
- LPX's Q4 results capped off a solid year for the company, particularly within its Siding business, which boasted a record year. Q4 earnings of $0.61 per share marked LPX's second-straight beat. Meanwhile, although sales fell 15.6% yr/yr to $705 mln, it represented an improvement over the 30.1% decline in Q3.
- Unfortunately for LPX, headwinds are growing more powerful. Inflationary pressures are softening housing starts; January housing starts were 1.309 mln, below the 1.355 mln expected. At the same time, OSB prices, which are highly correlated with housing starts, remain low after sinking to near cash cost during Q4.
- On a side note, although Siding is not immune to a housing slowdown, it does not have as high a correlation with housing starts, explaining why this business remained resilient during the quarter and is not estimated to tumble as much as OSB in Q1.
- Looking ahead, LPX is bullish on long-term housing dynamics. However, in the near term, it is contending with substantial challenges. For instance, estimated U.S. housing starts for 2023 are around 20% lower than in 2022. On the bright side, LPX noted that many in the industry expect the housing market to strengthen in the back half of the year.
The main takeaway is that 2023 poses a considerable challenge for LPX, which relies heavily on a robust housing market. Although LPX expressed some bullishness regarding the back half of the year, the reality is that dynamics are still highly uncertain, especially surrounding interest rates and affordability. The good news is that LPX commented it has more than enough flexibility in its production plans and capital projects to traverse short-term weaknesses. Warren Buffet also just increased his company's stake in LPX by over 20%, a vote of confidence in long-term fundamentals. Nevertheless, the near term will likely remain choppy.
Home Depot sliding lower as cooling home improvement category dents Q4 results and outlook (HD)
The home improvement category has been one of the most resilient spaces within the retail sector, but Home Depot's (HD) mixed 4Q23 report and its soft FY23 guidance indicates that even this pillar of strength is wobbling a bit.
- For the first time in several years, HD's comparable sales declined on a yr/yr basis, coming in at -0.3% for the quarter. While the company did lap a challenging yr/yr comp of +8.1%, the 6.0% drop in customer transactions this quarter, on top of a 3.4% decline in the year-ago quarter, points to weakening demand, particularly in the do-it-yourself (DIY) business.
- The company did manage to edge past EPS expectations, extending its winning streak against the consensus earnings estimate to eleven consecutive quarters. Total operating expenses increased modestly by 1.9%, while gross margin remained steady on a yr/yr basis at 33.3%.
However, HD's margins and profits are poised to take a dip in FY24.
- In addition to its earnings and outlook, the company announced plans to invest approximately $1.0 bln in annualized compensation for its hourly employees. According to CEO Ted Decker, these investments will position the company favorably within its market, enabling it to attract and retain a high level of talent. While Decker's willingness to invest in his employees is commendable, the company's investors may be seeing this action in a less favorable light, especially given the increasingly difficult business environment.
- The company's FY24 revenue and comp guidance, which calls for flat growth for both metrics, underscores this tough climate and HD's associated cautious outlook. Without some top-line growth to help mitigate the impact of its employee investments, operating margin is expected to decline by 650 bps yr/yr to 14.5%, sending EPS lower by an anticipated mid-single digit level.
On the positive side, customers are still spending more when they do shop at HD.
- In Q4, average ticket size increased by 5.8%, despite lapping a very challenging +12.4% figure in the year-ago quarter. This suggests that the Pro side of the business is still pretty healthy, even as rising interest rates and inflation cut into consumer spending.
- In fact, rising interest rates may be helping the Pro business as home affordability issues prevent more people from moving, prompting them to update, repair, and renovate their existing homes instead. A substantial amount of home equity is also enabling homeowners to finance large scale projects with lines of credit.
HD also bumped its quarterly dividend higher by 10% to $2.09/share, equating to an annualized yield of about 2.8%. Overall, though, HD's results and outlook suggest that the once red-hot home improvement category is cooling off, providing a bearish data paint for Lowe's (LOW), which is set to report its earnings on March 1.
Walmart kicks off retail reporting cycle with tepid guidance, declines to provide Q1 comp guide(WMT)
Walmart (WMT) is trading roughly flat despite wrapping up its fiscal year on a strong note with impressive upside results for Q4 (Jan). EPS, revenue and comps were all better than expected. However, the EPS guidance for Q1 (Apr) and FY24 were both below analyst expectations. We also found it notable that WMT did not provide Q1 comp guidance. The retail giant typically provides comp guidance for the next quarter, so we think this decision is spooking investors today.
- In terms of Q4, Walmart beat pretty handily on EPS and revs. Also, Walmart US comps (excl fuel) in Q4 grew +8.3%, pretty similar to Q3's +8.2% and nicely higher than +6.5% in Q2. Comps were also well ahead of the +3% prior guidance. What's more is that WMT was lapping decent +5.6% comps in the year ago period. Sam's Club comps (excl fuel) were strong as well at +12.2%, up from +10.0% in Q3 and a very good number considering it was lapping robust +10.4% comps last year.
- WMT deserves credit for quickly and aggressively reducing inventory the past two quarters. It ended Q4 with inventory about flat yr/yr, which is better than the company had anticipated and even better when you consider how inflation lifts that number. WMT feels it's in a really good position going into the new year. Walmart US comps were led by strength in food sales which increased by high teens, thanks in part to inflation, partially offset by a mid-single-digit decline in general merchandise sales with softness in toys, electronics, home, and apparel. Groceries have lower margins than general merchandise, so this shift hurts margins but WMT still reported nice upside EPS.
- But let's turn to the elephant in the room: the weak EPS guidance. WMT concedes it is facing a great deal of uncertainty. While supply chain issues have largely abated, prices are still high and there is considerable pressure on the consumer. As such, its guidance reflects a cautious outlook on the macro environment. WMT guided to FY24 Walmart US comps (ex-fuel) at just +2.0-2.5% and Sam's Club comps (ex-fuel) at +5%.
Overall, this was a very good quarter for the company with Walmart US comps being the standout metric. The EPS upside was also impressive. Given the pretty significant downside EPS guidance and tepid FY24 comp guidance, we thought the stock would be weaker. However, after listening to the call, management is clearly taking a conservative view on the macro picture, maybe too conservative. We think investors are concluding that WMT is perhaps being overly cautious on the guidance, so they are not punishing the stock too much, especially after WMT reported big upside in Q4.
In terms of what this means for the retail reporting cycle over the next couple of weeks, we expect other retailers will also offer tepid guidance. We think this report, coupled with a weak report from Home Depot (HD) this morning, will lower expectations for other retailers. Also, Walmart deciding not to provide Q1 comp guidance is likely adding to the unease. Target (TGT) reports next week (Feb 28), we will be watching that report closely.
General Mills ups its FY23 projections on sturdy elasticities and improving supply chains (GIS)
General Mills's (GIS +4%) shares are rising today after the consumer packaged goods firm upped its FY23 (May) adjusted EPS growth and organic revenue forecasts. GIS expects earnings growth of +7-8% in constant currency, up from +4-6%, and organic net sales growth of approximately +10%, up from +8-9%. Additionally, GIS stated that it expects to grow its dividend in line with earnings while prioritizing share repurchases, anticipating a 1-2% average annual reduction in its share count over time.
GIS shares have hit some turbulence in recent weeks. The stock currently sits roughly 4% lower on the year. Part of the weakness stems from a rotation into tech stocks, evidenced by the sector gaining over 13% on the year, while consumer staples, such as GIS, have dipped nearly 1% over that same period. Investors may also be growing wary of inflationary trends in food-at-home categories, which have outpaced overall unadjusted inflation on a yr/yr basis for 12 consecutive months. The high prices have clipped GIS's volumes in recent quarters, registering two-straight quarters of 12-pt declines yr/yr.
Therefore, by raising its financial projections today, GIS is receiving a round of applause.
- A few factors contributed to management's upbeat forecasts. GIS expects its elasticities to remain sturdy throughout the year's first half, reflecting its previous price hikes playing out favorably over the near term.
- Although Kraft Heinz (KHC), which reaffirmed its FY23 earnings and organic net sales outlook today, noted it would pause additional price actions in North America last week, GIS chose not to comment on future pricing. Instead, the company will continue to monitor the environment and see what holds, which may mean increased prices, potentially weighing on future volume growth and market share.
- Improving supply chains are also central to GIS's updated outlook. Service levels are now up to around 90%, 10 pts ahead of where the company stood six months ago. Although management acknowledges it still has plenty of work to hit its historical level of 98-99%, this is still a massive improvement in a short timeframe.
- Others in the consumer packaged goods space, like KHC, Post Holdings (POST), and Kellogg (K), have recently discussed the improving supply chain environment. For example, KHC's service levels were the highest it had seen all year in December. Also, POST mentioned that supply chains were demonstrably better earlier this month, although fill rates remain below pre-pandemic levels. Meanwhile, Kellogg forecasted net sales growth and operating profit above its long-term targets two weeks ago due to the continued recovery in supply in specific businesses.
Overall, investors are cheering GIS's confidence in achieving higher earnings and organic sales growth than it forecasted in December, especially given the ongoing inflationary and supply chain-related headwinds. However, by possibly raising prices further, GIS risks market share loss, particularly if more of its peers begin pausing their pricing actions.
|
|
