Market Snapshot
briefing.com
| Dow | 32732.37 | -156.63 | (-0.48%) | | Nasdaq | 11516.61 | +49.63 | (0.43%) | | SP 500 | 3985.34 | +3.10 | (0.08%) | | 10-yr Note | 0/32 | 3.92 |
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| | NYSE | Adv 1373 | Dec 1528 | Vol 1.4 bln | | Nasdaq | Adv 2203 | Dec 2234 | Vol 5.2 bln |
Industry Watch
| Strong: Communication Services, Materials, Financials |
| | Weak: Utilities, Consumer Staples, Health Care, Energy, Industrials |
Moving the Market
-- S&P 500 managing to close yesterday's session above its 50-day moving average stoked some technical buying interest
-- Treasury yields pulling back noticeably, and the 10-yr note yield holding below 4.00%, was supportive of the stock market
-- Mixed reactions to earnings news since yesterday's close
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Closing Summary
28-Feb-23 16:25 ET
Dow -232.39 at 32656.61, Nasdaq -11.44 at 11455.54, S&P -12.09 at 3970.15
[BRIEFING.COM] The stock market was mixed on this last trading day of the month. Both buyers and sellers were lacking conviction today, which had the main indices chopping around fairly narrow trading ranges.
The S&P 500 spent a good portion of today's session above its 50-day moving average (3,979), thanks to some technical buying interest after the S&P 500 closed above that level yesterday, before things started to deteriorate in the afternoon trade. Ultimately, the main indices closed near their lows for the day, but losses were relatively modest in scope.
Mixed reactions to the latest slate of earnings news helped contribute to the mixed price action. Target (TGT 168.50, +1.69, +1.0%), Zoom Video (ZM 74.59, +0.87, +1.2%), AutoZone (AZO 2486.54, -85.71, -3.3%), Occidental Petroleum (OXY 58.56, -0.40, -0.7%), Workday (WDAY 185.47, +0.54, +0.3%), J.M. Smucker (SJM 147.89, -0.17, -0.1%), and Universal Health (UHS 133.57, -12.27, -8.4%) were among the standouts in that regard.
Only three of the S&P 500 sectors squeezed out a gain today -- materials (+0.5%), communication services (+0.2%), and financials (+0.2%) -- while the utilities (-1.7%) and energy (-1.4%) sectors exhibited the biggest decline.
Price action in the Treasury market turned out to be somewhat supportive of the stock market today. The 10-yr note yield hit 3.97% earlier, but ran into resistance there and settled at 3.92% following some weaker-than-expected Chicago PMI and Consumer Confidence Index data for February. The 2-yr note yield was unchanged at 4.80%.
- Nasdaq Composite: +9.5% YTD
- Russell 2000: +7.7% YTD
- S&P Midcap 400: +7.0% YTD
- S&P 500: +3.4% YTD
- Dow Jones Industrial Average: -1.5% YTD
Reviewing today's economic data:
- January Adv. Intl. Trade in Goods -$91.5 bln; Prior was revised to -$89.7 bln from -$90.3 bln
- January Adv. Retail Inventories 0.3%; Prior was revised to 0.4% from 0.5%
- January Adv. Wholesale Inventories -0.4%; Prior 0.1%
- December FHFA Housing Price Index -0.1%; Prior -0.1%
- December S&P Case-Shiller Home Price Index 4.6% (Briefing.com consensus 5.8%); Prior 6.8%
- February Chicago PMI 43.6 (Briefing.com consensus 45.0); Prior 44.3
- February Consumer Confidence 102.9 (Briefing.com consensus 108.4); Prior was revised to 106.0 from 107.1
- The key takeaway from the report is that the monthly decrease was driven entirely by consumers' short-term outlook, which entailed becoming considerably less upbeat about their short-term income prospects. That view is cutting into plans to buy homes, autos, and major appliances. It was also reported that vacation intentions declined in February.
Ahead of tomorrow's open, Abercrombie & Fitch (ANF), Dine Brands (DIN), Dollar Tree (DLTR), Jack in the Box (JACK), Kohl's (KSS), Lowe's (LOW), Melco Resorts & Entertainment (MLCO), and Wendy's (WEN) will headline the earnings reports.
Market participants will receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -13.3%)
- 9:45 ET: Final February IHS Markit Manufacturing PMI (prior 47.8)
- 10:00 ET: January Construction Spending (Briefing.com consensus 0.3%; prior -0.4%) and February ISM Manufacturing Index (Briefing.com consensus 47.8%; prior 47.4%)
- 10:30 ET: Weekly crude oil inventories (prior 7.65 mln)
Market pulls back ahead of close
28-Feb-23 15:25 ET
Dow -206.53 at 32682.47, Nasdaq +21.50 at 11488.48, S&P -4.67 at 3977.57
[BRIEFING.COM] The main indices have been on a steady grind lower heading into the closing bell.
Treasury yields settled little changed from yesterday's settlement levels. The 2-yr note yield was unchanged at 4.80% and the 10-yr note yield fell one basis point to 3.92%.
Ahead of tomorrow's open, Abercrombie & Fitch (ANF), Dine Brands (DIN), Dollar Tree (DLTR), Jack in the Box (JACK), Kohl's (KSS), Lowe's (LOW), Melco Resorts & Entertainment (MLCO), and Wendy's (WEN) will headline the earnings reports.
Mega caps propel Nasdaq gains
28-Feb-23 14:55 ET
Dow -156.63 at 32732.37, Nasdaq +49.63 at 11516.61, S&P +3.10 at 3985.34
[BRIEFING.COM] Things are little changed in the last half hour. The main indices continue to chop around narrow ranges with the Nasdaq leading the pack, bolstered by gains in the mega cap space.
The Vanguard Mega Cap Growth ETF (MGK) is up 0.5% versus a 0.2% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 0.1% gain in the S&P 500.
Energy complex futures settled the session higher. WTI crude oil futures rose 1.7% to $77.02/bbl and natural gas futures rose 1.0% to $2.87/mmbtu.
After today's close, Agilent (A)?, Ambarella (AMBA), AMC Entertainment (AMC), Blink Charging (BLNK), Coupang (CPNG), First Solar (FSLR), HP, Inc. (HPQ), Monster beverage (MNST), Novavax (NVAX), Rivian Automotive (RIVN), Rocket Cos. (RKT), Urban Outfitters (URBN), and Virgin Galactic (SPCE) will headline the earnings reports.
Dentsply Sirona gains on earnings; S&P 500 up modestly
28-Feb-23 14:30 ET
Dow -133.17 at 32755.83, Nasdaq +61.46 at 11528.44, S&P +6.77 at 3989.01
[BRIEFING.COM] The S&P 500 (+0.17%) is firmly in second place to this point on Tuesday afternoon.
S&P 500 constituents Dentsply Sirona (XRAY 38.06, +3.51, +10.16%), Applied Materials (AMAT 117.72, +5.65, +5.04%), and Meta Platforms (META 176.55, +7.01, +4.13%) pepper the top of the standings. XRAY gains on earnings, AMAT moves higher on news of its new eBeam Metrology System for lithography, while META advances on renewed speculation of a more likely TikTok ban.
Meanwhile, Constellation Energy (CEG 75.55, -2.82, -3.60%) is one of today's worst performers.
Gold trims monthly losses on Tuesday
28-Feb-23 14:00 ET
Dow -99.39 at 32789.61, Nasdaq +73.40 at 11540.38, S&P +12.01 at 3994.25
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.64%) remains atop the standings, only a stone's throw away from session highs.
Gold futures settled $11.80 higher (+0.7%) to $1,836.70/oz, down -5.58% in February as the dollar staged a solid rebound.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $104.77.
Page One
Last Updated: 28-Feb-23 08:58 ET | Archive
Taking technical stock of the matter
Technically speaking, the market continues to hold up. We say that literally knowing that the S&P 500 closed Friday just above its 200-day moving average (3,940) and managed to eke out a close yesterday just above its 50-day moving average (3,979).
Yesterday's trade, however, wasn't an inspiring one. The S&P 500 and the other indices started the day much higher, but then spent most of the session retracing their opening steps and closed just above their lowest levels for the day.
The technical trade still seems to be driving things on this last day of February. The futures for the major indices are higher, yet their gains are modest in scope following a spate of earnings news since yesterday's close that has been met with mixed reactions.
Target (TGT), for instance, has been in and out of positive territory in pre-market trading after topping fiscal Q4 expectations but issuing below-consensus guidance for its fiscal first quarter and full year. Shares of TGT are currently down 0.1%. Zoom Video (ZM), meanwhile, is up 5.0% following its better-than-expected results and guidance.
Currently, the S&P 500 futures are up seven points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 13 points and are trading 0.1% above fair value; and the Dow Jones Industrial Average futures are up 70 points and are trading 0.2% above fair value.
Those indications will translate into a modestly higher start for the major indices, but as seen yesterday, it's not how the market starts that matters, but how it finishes.
There was some consolation in knowing the market finished above its 50-day moving average yesterday, but there was some consternation still knowing it could not hold on to much stronger gains -- and that was with Treasury yields falling back noticeably from overnight highs along the way.
Treasury yields are mixed this morning. The 2-yr note yield is unchanged at 4.80% and the 10-yr note yield is up two basis points to 3.94%. The approach to 4.00% is creating some headwinds for stocks, yet the prevailing headwind at the moment may just be the 6-month T-bill yield, which is up another five basis points to 5.14%.
The upward thrust in market rates, not just today but throughout the month, has dictated the stock market's struggling price action in February. The 2-yr note yield is up 58 basis points this month and the 10-yr note yield is up 40 basis points.
That movement has been an offshoot of the market recalibrating its view of the Fed's terminal rate in the wake of having received much stronger than expected economic data and a series of inflation reports that have shown inflation sticking at higher levels.
We would expect interest rate moves to continue to dictate the action as we move into March, followed closely by earnings estimate trends. Lately, that has been a toxic combination: interest rates moving up and earnings estimates coming down.
That combination so far has led to a technical knockout of the market in February. The Nasdaq Composite is down 1.0%, the S&P Midcap 400 is down 1.8%, the Russell 2000 is down 1.9%, the S&P 500 is down 2.3%, and the Dow Jones Industrial Average is down 3.5%.
-- Patrick J. O'Hare, Briefing.com
Advance Auto moves higher as Q4 results underpin healthy progress on recent initiatives (AAP)
Advance Auto (AAP +3%) ended a bumpy FY22 on an upbeat note, reversing a string of earnings misses with a massive beat in Q4 on decent sales upside. At the same time, the auto parts retailer projected FY23 revs and same-store sales growth nicely ahead of consensus. CEO Tom Greco also announced his plans to retire at the end of the year. With shares of AAP still sitting around 30% lower over the past year, the company's encouraging Q4 results may finally spark a long-awaited turnaround, possibly catching up to the excellent ~30% gains its rivals O'Reilly Automotive (ORLY) and AutoZone (AZO -2%) have enjoyed over that period.
Although AZO's stock chart over the past year looks like the inverse of AAP's, it is not relishing in the same favorable reception as its competitor despite posting similar upbeat numbers with its FebQ earnings report earlier today.
- Part of this could be profit-taking; shares climbed 11% from January lows leading into AZO's FebQ report today.
- Additionally, investors are weighing concerns surrounding margins. AZO's gross margins contracted by 69 bps yr/yr in FebQ, driven by freight and supply chain costs as well as the company's Commercial business, which carries volume discounts, continuing to outpace its DIY business. Conversely, AAP expanded its margins slightly in Q4.
- Furthermore, AZO continued to hike prices during the quarter to offset its rising cost of goods. With AAP's attention to its private label selection, which can command lower price points, investors may be wary of stagnating or continually declining margins for AZO over the near term.
Shares of AAP also recently hit 52-week lows, highlighting the greater potential for AAP to jump on upbeat results relative to AZO, where investors have become accustomed to huge earnings beats and robust quarterly numbers. Also, AAP's Q4 report underscored initial success in the areas it needed to focus on after lackluster Q3 results.
- AAP's main problem in recent quarters has been insufficient inventory. The company addressed this last quarter, noting it would pour capital into its inventory to bring more SKUs closer to the customer. AAP saw healthy progress on this initiative, boasting modest improvements in its in-stock levels in backroom hard parts categories and strong in-stock rates for front-room categories in Q4.
- AAP also continued executing its category management strategy, focusing on own-brand penetration and strategic pricing. As a result, private label penetration ended the year at 50.5% of mix, a 210 bp increase from the prior-year period.
- This focus was a critical driver of margin expansion in the quarter. AAP's adjusted operating margins advanced by 146 bps yr/yr, fueling its solid adjusted EPS of $2.88, representing 39% growth yr/yr.
Bottom line, AAP's Q4 report showcased healthy progress on its strategies to reverse previously underwhelming quarterly results. Management was still cautious on the road ahead, citing a potential adverse impact from ongoing pressure on low-to-middle-income consumers. However, its FY23 sales guidance of $11.4-11.6 bln, a 3% improvement yr/yr at the midpoint, illustrates resilient industry strength and secular trends.
Broadcom's deal to buy VMware looks less likely after EU Commission issues antitrust warning (AVGO)
When Broadcom (AVGO) acquired virtualization software provider VMware (VMW) last May, the blockbuster $61 bln deal was bound to attract the attention of regulators. In both the U.S. and Europe, M&A activity that potentially restricts competition, especially in the tech sector, has been closely scrutinized. As a prominent example, chip maker NVIDIA (NVDA) was forced to scrap its $40 bln deal to purchase Arm last February due to regulatory concerns. Now, it appears that AVGO may be heading towards a similar fate after Reuters reported that its likely to receive an EU antitrust warning over its VMW acquisition.
- This doesn't mean that the deal is necessarily dead in the water. However, it could mean that AVGO will be asked to shed some assets -- particularly on the hardware side of its business -- in order to gain regulatory approval. According to the Reuters report, AVGO has no intention of selling off any assets at this point and believes that the deal will still close this year.
- Of particular concern for regulators is that VMW's platform needs the chips and hardware that AVGO supplies to run on servers. Of course, AVGO isn't the only company that develops these kind of chips -- Advanced Micro Devices (AMD) and Intel (INTC) also make semiconductors for the data center. The potential issue, though, is that AVGO's and VMW's vendors and resellers will be consolidated under one roof. Therefore, AVGO's hardware and VMW's software could be tied and bundled together through the sales channel, which could provide the company with a significant competitive advantage.
In December, signs emerged that this deal was heading for a regulatory roadblock.
- At that time, the European Commission issued an official statement regarding the transaction, making it clear that it had serious reservations. Specifically, Margethe Vestager, VP of Competition Policy, stated, "Broadcom, a major supplier of hardware components, is acquiring VMware, a key server virtualization software provider. Our initial investigation has shown that it is essential for hardware components in servers to interoperate with VMware’s software. We are concerned that after the merger, Broadcom could prevent its hardware rivals to interoperate with VMware’s server virtualization software. This would lead to higher prices, lower quality and less innovation for customers and consumers."
It's easy to see why AVGO was interested in acquiring VMW.
- Most notably, the addition of VMW would substantially expand its software business, which accounted for about 25% of total revenue last quarter. That figure would jump to nearly 50% with the addition of VMW as total pro forma revenue launches to more than $40 bln.
- Furthermore, AVGO is anticipating the acquisition to add approximately $8.5 bln in pro forma adjusted EBITDA within three years of closing the transaction.
VMW shares are barely reacting to the news today. We believe that's because there already was plenty of doubt surrounding whether this deal will make it to the finish line. On that note, VMW is trading about 20% below the $138/share buyout price from last May.
Target is finding some love as upside for EPS, comps and margin offset downside EPS guidance (TGT)
Target (TGT +2%) is trading modestly higher after reporting Q4 (Jan) results this morning that were perhaps slightly better than feared. As we said in our preview, we had concerns about this report and it pretty much played out that way. Recall that last week Walmart (WMT) reported strong earnings and comps, but its EPS guidance for Q1 (Apr) and FY24 were both below analyst expectations. We were holding our breath a bit for Target.
- There were definitely some positives in Target's report. The most notable was the huge beat on EPS, which was a welcome change after three consecutive large EPS misses. Target had too much inventory just as the consumer slowed spending on discretionary items. Having to discount that hurt EPS earlier in the year, so it was good to see Target get back to reporting EPS upside. What made this a pleasant surprise was this being a more promotional holiday season than last year.
- While Target reported nice EPS upside in Q4, it guided to Q1 adjusted EPS of just $1.50-1.90, which was well below analyst expectations. Full year EPS guidance was also weak. Guidance was the main concern we focused on in our preview and that turned out to be the case. The good news is that Target feels like it entered the new fiscal year in a very healthy inventory position, reflecting a conservative approach in discretionary categories.
- Same store comps were another bright spot at +0.7%. TGT had guided to a "wide range of possible outcomes" in Q4, centered around a low-single digit comp decline. So any positive comp was good to see in an environment which Target characterized as "very challenging." Strength in Food & Beverage, Beauty and Household Essentials offset ongoing softness in discretionary categories.
- We also think the Q1 comp guidance of a low-single digit decline to a low-single digit increase was seen as a good sign by investors and not just for the raw number, but the fact that Target provided comp guidance at all. WMT did not provide Q1 comp guidance, so that is a good sign for Target. Full year comp guidance was provided as a low-single digit decline to a low-single digit increase.
- Operating margin in Q4 fell to 3.7% from 8.8% last year reflecting pressure from higher clearance and promotional markdown rates, higher merchandise costs, and higher inventory shrink, partially offset by favorable category mix. However, that was better than prior guidance of 3%. It was also pretty comparable to Q3 at 3.9% and nicely higher than Q2's 1.2%. Importantly, TGT guided to a sequential increase in Q1 at 4-5%.
The stock is trading higher despite the downside guidance for EPS. We think investors likely were already expecting downside guidance after WMT's weak guidance last week. Instead, investors are focusing on the upside to comps and operating margin, the latter of which helped push the big EPS upside in Q4. We also think Target deciding to provide Q1 comp guidance while WMT did not is a feather in Target's cap. However, the macro environment remains tough.
Zoom Video registers its widest EPS beat in two years, assisted by recent cost-cutting measures (ZM)
Zoom Video (ZM +1%) was dialed in during Q4 (Jan), posting its widest earnings beat in two years and topping revenue expectations after two-straight quarters of misses. The video conferencing service provider issued a mild Q1 (Apr) and FY24 (Jan) revenue forecast, partly dampening enthusiasm today. However, ZM's upbeat EPS outlook reflected healthy progress regarding the company's recent plans to cut costs.
- The attention-grabbing headline was ZM's significant bottom-line upside. Adjusted EPS fell by just 5% yr/yr to $1.22. Meanwhile, ZM expanded sales by 4.3% yr/yr to $1.12 bln.
- Solid appreciation of ZM's larger customer base contributed to the buoyant headline numbers. The company grew the number of customers contributing over $100K in TTM sales by roughly 27% yr/yr to over 3,400. Likewise, ZM added 12% more Enterprise customers from the prior year and 2% from Q3, bringing the total to around 213,000.
- Expenses continued to comprise a greater portion of total revenue in Q4, mainly on the R&D and sales and marketing front, underscoring ZM's commitment to continually innovate and remain competitive. R&D expenses as a percentage of total revs increased to 9.2% in Q4 from 6.7% in the year-ago period. Similarly, sales and marketing expenses as a percentage of Q4 revs came in at 26.9%, up from 23.4% in 4Q22.
- It is important to remember that ZM's cost-cutting measures almost entirely surrounded labor. The firm reduced its workforce by 15%, cut the CEO's salary by 98%, and reduced other executives' salaries by 20% for FY24. Therefore, it is not a red flag that R&D and marketing expenses continue to climb, especially since ZM reiterated during the call that innovation will remain a top priority.
- ZM's restructuring benefits were most evident by its FY24 adjusted EPS forecast. The company is projecting earnings of $4.11-4.18, crushing consensus and representing just a 5% dip yr/yr at the midpoint.
- On the flip side, ZM's revenue forecast was less impressive, guiding to sales of $4.435-4.455 bln in FY24, missing expectations and translating to just a 1% improvement yr/yr at the midpoint. Management cited unfavorable macroeconomic conditions as the culprit in its conservative outlook.
It is no secret that ZM's path since the height of the pandemic has been anything but smooth. Sales growth has fallen off a cliff, going from quarters where sales skyrocketed over 300% yr/yr to a FY24 outlook of just 1%. ZM does boast some positives. The company sits on over $5.0 bln in cash, allowing for future aggressive M&A activity. ZM is also enhancing its other products like Zoom Rooms and Zoom Phone to diversify its revenue stream. Still, ZM's future remains rife with challenges, especially given the heap of alternatives from massive players in this space, like Microsoft (MSFT) and Cisco (CSCO), as well as smaller names like TeamViewer and 247meeting.
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