Market Snapshot
briefing.com
| Dow | 31810.36 | -436.10 | (-1.35%) | | Nasdaq | 11605.49 | -111.78 | (-0.95%) | | SP 500 | 3912.49 | -49.06 | (-1.24%) | | 10-yr Note | +37/32 | 3.40 |
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| | NYSE | Adv 476 | Dec 2414 | Vol 3.9 bln | | Nasdaq | Adv 1153 | Dec 3289 | Vol 7.6 bln |
Industry Watch
| Strong: -- |
| | Weak: Financials, Industrials, Consumer Discretionary, Materials, Real Estate |
Moving the Market
-- Mixed action in the mega cap stocks
-- Treasury yields decline in continued safe-haven bid
-- Regional bank stocks under pressure again after First Republic Bank (FRC ) provided a cash position update and suspended its dividend
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Closing Summary
17-Mar-23 16:30 ET
Dow -384.57 at 31861.89, Nasdaq -86.76 at 11630.51, S&P -43.64 at 3917.91
[BRIEFING.COM] On this quadruple witching options expiration day, investors had a risk-off mentality due to ongoing pressure in the banking sector. Yesterday's pleasing finish was largely a relief rally following news that First Republic Bank (FRC ) had received cash infusions from 11 big banks totaling $30 billion. The relief from that news was short lived and investors sold FRC again today after it provided a cash position update and suspended its dividend.
Market participants were also reacting to reports that banks borrowed $11.9 billion from the Bank Term Funding Program and a record $153 billion from the Fed's discount window for the week ending March 15, exceeding anything during the financial crisis.
That understanding renewed investors' worries about the health of the banking industry, leading to fairly indiscriminate selling in bank stocks. The SPDR S&P Bank ETF (KBE) fell 5.6% and the SPDR S&P Regional Bank ETF (KRE) fell 6.0%. Even banks that are viewed as potentially benefiting from the fallout at smaller banks, like JPMorgan (JPM 125.81, -4.94, -3.8%), suffered decent losses today.
There was some underlying strength today, specifically in the mega cap space, as investors flocked to names that are viewed as being distant from the banking sector fallout, having strong balance sheets and being more resilient in an economic slowdown. Microsoft (MSFT 279.43, +3.23, +1.2%), Alphabet (GOOG 102.46, +1.39, +1.4%), and NVIDIA (NVDA 257.25, +1.84, +0.7%) were notable beneficiaries in that regard. NVDA was upgraded to Overweight from Equal Weight at Morgan Stanley today.
Selling efforts were otherwise broad in nature. While the Vanguard Mega Cap Growth ETF (MGK) slipped just 0.3%, the Invesco S&P 500 Equal Weight ETF (RSP) fell 1.7% and the market-cap weighted S&P 500 fell 1.1%.
The S&P 500 sliced through its 200-day moving average (3,937) in the morning trade, sliding to 3,901 at its worst levels of the session before seeing a small bounce on a day that featured extremely heavy volume at the NYSE and Nasdaq.
All 11 S&P 500 sectors logged a loss today with information technology (-0.1%) and communication services (-0.5%) sitting atop the leaderboard. Meanwhile, the financial sector (-3.3%) suffered the steepest decline, along with real estate (-2.3%) and industrials (-1.6%).
- Nasdaq Composite: +11.1% YTD
- S&P 500: +2.0% YTD
- S&P Midcap 400: -2.3% YTD
- Russell 2000: -2.0% YTD
- Dow Jones Industrial Average: -3.9% YTD
Reviewing today's economic data:
- Total industrial production was unchanged month-over-month in February (Briefing.com consensus +0.5%) following an upwardly revised revised 0.3% increase (from 0.0%) in January. The capacity utilization rate held steady at 78.0% (Briefing.com consensus 78.5%) following a downward revision to 78.0% (from 78.3%) for January.
- The key takeaway from the report is that industrial production activity is softening, evidenced both by the year-over-year decline in total production and a capacity utilization rate that is near its lowest level since September 2021.
- Leading Indicators fell 0.3% in February (Briefing.com consensus -0.4%) following a 0.3% decline in January.
- The preliminary University of Michigan Consumer Sentiment Index for March dropped to 63.4 (Briefing.com consensus 67.2) from 67.0 in February. In the same period a year ago, the index stood at 59.4. Note: Roughly 85% of responses had been recorded prior to the failure of Silicon Valley Bank.
- The key takeaway from the report is the moderation in inflation expectations, which will please the Fed somewhat, although year-ahead inflation expectations still remain well above the 2.3-3.0% range seen in the two years prior to the pandemic.
Looking ahead to Monday, there is no U.S. economic data of note.
Market moving modestly higher ahead of close
17-Mar-23 15:30 ET
Dow -382.56 at 31863.90, Nasdaq -83.56 at 11633.71, S&P -40.63 at 3920.92
[BRIEFING.COM] The main indices and slowly moving higher ahead of the close.
The 2-yr note yield fell 32 basis points today, and 77 basis points this week, to 3.82%. The 10-yr note yield fell 19 basis points today, and 30 basis points this week, to 3.40%. The U.S. Dollar Index is down 0.6% to 103.80.
Looking ahead to Monday, there is no U.S. economic data of note.
Market revisits lows
17-Mar-23 15:05 ET
Dow -436.10 at 31810.36, Nasdaq -111.78 at 11605.49, S&P -49.06 at 3912.49
[BRIEFING.COM] The market revisited this morning's lows in the last half hour.
The Wall Street Journal's Nick Timiraos, in a CNBC interview, said the Fed's decision on a 25 basis point rate hike or no change will depend on what happens with markets and financial stability risk over the next few days.
Energy complex futures settled the session lower amid ongoing growth worries, which would translate to slower demand. WTI crude oil futures fell 1.6% to $66.87/bbl and natural gas futures fell 6.1% to $2.46/mmbtu.
Separately, the CBOE Volatility Index continues to climb, up 12.1% or 2.77 to 25.76.
FedEx, Newmont Gold outperform on down day in the markets
17-Mar-23 14:30 ET
Dow -469.96 at 31776.50, Nasdaq -109.49 at 11607.78, S&P -51.54 at 3910.01
[BRIEFING.COM] Trading has drifted lower in the last half hour, the S&P 500 (-1.30%) now down about 51 points near afternoon lows.
S&P 500 constituents FedEx (FDX 220.54, +16.49, +8.08%), Newmont Goldcorp (NEM 48.47, +2.69, +5.88%), and MarketAxess (MKTX 394.01, +5.66, +1.46%) are among today's top performers. FDX continues to rise on earnings-related strength, NEM moves higher alongside gains in gold, and MKTX bucks the broader trend in financials to top levels last seen in January 2022.
Meanwhile, California-based solar firm Enphase Energy (ENPH 182.34, -18.76, -9.33%) is near the bottom of the S&P as the group experiences general angst owing to readthroughs in the financial sector; some have speculated that the group's financial risks (industrial/residential panels being bought on loans) are ramped up given the recent decline in lenders.
Gold adds to weekly gains on Friday
17-Mar-23 14:00 ET
Dow -353.04 at 31893.42, Nasdaq -69.75 at 11647.52, S&P -38.24 at 3923.31
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.60%) hosts the shallowest losses, down about 70 points.
Gold futures settled $50.50 higher (+2.6%) to $1,973.50/oz, up about +5.69% this week, propelled higher by losses in both the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $103.85.
Last Updated: 17-Mar-23 09:01 ET | Archive
Bank stocks have market under pressure again
If there is any question why the market is up this week, it can be answered with the following data: the Vanguard Mega-Cap Growth ETF is up 6.1% while the Invesco S&P 500 Equal Weight ETF (RSP) is down 0.05%.
Taking the latter into account, we can say that the market-cap weighted S&P 500 is up 2.6% for the week entering today. It has been a good week for "the market" at first blush, but as most people may be aware, there is more to it than meets the eye.
The strength in the mega-cap stocks can be attributed in large part to their distance from the banking issues and the strength of their balance sheets. In other words, they have been deemed safety outlets for investors wanting/needing equity market exposure in the wake of losses elsewhere due to the upheaval caused by the banking issues.
Another element of support for the mega-cap stocks relates to the thinking that the banking issues are going to lead to a more challenging economic growth environment; therefore, these mega-cap companies are being favored as plays on a slower growth environment as their business is expected to hold up better than most if economic times do get quite tough.
The price action elsewhere conveys the festering worries about growth prospects. The cyclical energy (-5.6%), materials (-2.0%), and industrials (-0.8%) sectors are underperforming "the market" this week along with the financial sector (-2.9%). In turn, small-cap and mid-cap stocks, which tend to have a larger domestic sales concentration, are underperforming "the market" this week. The Russell 2000 is down 0.1% and the S&P Midcap 400 is down 0.9%. Also, the 2-yr note yield has plunged 52 basis points to 4.07%.
The weakness is expected to persist at today's open.
Currently, the S&P 500 futures are down 29 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 30 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 278 points and are trading 0.8% below fair value. The 2-yr note yield is down seven basis points to 4.07%.
Note that the Nasdaq 100 futures are exhibiting relative strength. The losses anticipated there at the open are quite small relative to the 6.4% gain registered this week by the Nasdaq 100.
In any case, the negative disposition for the broader market has a familiar driver: worries about the state of the banking industry.
Yesterday's turnaround effort hinged on a Wall Street Journal report that several big banks were discussing a capital infusion for First Republic Bank (FRC). That reporting was confirmed later in the day when 11 banks, including JPMorgan Chase (JPM) and Bank of America (BAC), announced they would be making $30 billion of uninsured deposits at First Republic Bank.
FRC, down as much as 36.5% at one point yesterday, ended the day up 10%. Well, it is indicated 18.6% lower in pre-market action, having reported after yesterday's close that its borrowing from the Federal Reserve from March 10 to March 15 varied from $20 billion to $109 billion. First Republic also said it will be suspending its common share dividend.
Not the most comforting update. In the same vein, market participants have learned that bank borrowing from the Fed's discount window hit a record high of approximately $153 billion for the week ending March 15, exceeding anything seen during the financial crisis.
Without any specific detail on the borrowers, the regional bank stocks as a group are back on the defensive. The SPDR S&P Regional Banking ETF (KRE) is down 3.8% in pre-market trading and the SPDR S&P Bank ETF (KBE) is down 3.1%.
It is evident, then, that there will be a concentration of selling interest on the bank stocks when trading begins. That will weigh on the market, but just how much it will weigh is apt to hinge again on the performance of the weighty mega-cap stocks, which have saved "the market" this week.
-- Patrick J. O'Hare, Briefing.com
(Editor's note: the comment has been updated to include the date range of FRC's borrowing from the Federal Reserve)
NVIDIA gaps up toward April 2022 levels on an upgrade at Morgan Stanley (NVDA)
NVIDIA (NVDA +1%) is powering its way toward highs not seen since April 2022 following an upgrade to "Overweight" from "Equal Weight" at Morgan Stanley today. The upgrade follows a recent upgrade from Goldman Sachs in late February to "Buy" from "Neutral." It also comes after considerable price appreciation. Shares of NVDA have surged by 80% on the year and over 130% since October lows. Still, the stock trades roughly 25% below all-time highs in late 2021.
Briefing.com notes that with NVDA leaning on AI trends heavily, which have gained considerable steam since the explosive popularity of ChatGPT, more upgrades could be coming.
- NVDA recently discussed its role in powering AI during a Morgan Stanley technology conference earlier this month. During its presentation, management outlined why AI remains a critical computing component. NVDA also repeated that AI is at an inflection point, stemming from generative AI, e.g., ChatGPT, becoming more mainstream. ChatGPT changes how consumers and enterprises think about AI and how they can benefit from it, whether monetarily or through efficiency gains.
- Customers of all sizes are emphasizing AI. For example, CEOs of large enterprises are focused on where they can utilize AI to their advantage, whether it is a more intuitive chatbot or a simulation of factories. Additionally, startups realize AI's potential through language models like GPT, buoying demand for NVDA's GPUs aimed at training AI models, which sometimes require hundreds of chips.
- This inflection point is what is spurring so much exuberance around NVDA. Many companies are purely in the discussion phase, not yet having started building out their AI infrastructure, or they have grabbed onto an existing model but need more optimization. This future demand potential could be massive, and NVDA is going all-in on capturing the opportunities.
As exciting as generative AI has proven to be, the road ahead may be bumpy. Complex, unpredictable environments, which require creativity and other human-based qualities, may not be easily tackled by AI, which is bound to its programming. Also, given that AI is only in its early stages, it is not a given that NVDA's chips will win the day; Advanced Micro (AMD) and Intel (INTC) are both competing to win the AI race.
Nevertheless, NVDA's current positioning gives it a competitive edge to be the market leader in AI. Also, even if AI never evolves to solve complex situations, its total addressable market is expansive, from driverless vehicles to factory automation and answering search queries. Still, given its recent substantial appreciation, we urge caution buying NVDA at current levels and think it would be better to wait for a pullback, possibly around its 50-day moving average (209.06).
Sarepta Therapeutics heads lower after FDA says it now wants a meeting for SRP-9001 (SRPT)
Sarepta Therapeutics (SRPT -19%) has investors not feeling too well today after the company announced last night that the FDA's Office of Therapeutic Products (OTP) has determined that an advisory committee (adcom) meeting will be held for SRP-9001. This is Sarepta's investigational gene therapy to treat Duchenne Muscular Dystrophy (DMD). Sarepta expects the meeting date will be posted by the FDA within the next week and it will occur before the May 29 action date.
- This news seems pretty innocuous at first glance, so why is the stock reacting so poorly? The main problem is that just two weeks ago Sarepta announced that OTAT, the predecessor to OTP, informed Sarepta that it did not intend to hold an advisory committee for SRP-9001.
- Sarepta was told this at the mid-cycle meeting. Then, Sarepta completed its late-cycle review this week and now the FDA's OTP wants the adcom meeting for the SRP-9001 BLA. So it is making investors a bit nervous.
- Sarepta noted on its call last night that the SRP-9001 application is one of the first gene therapy BLAs founded on a surrogate endpoint. As such, OTP believes it's appropriate to take expert advice in a public forum. Sarepta's understanding is that safety is not identified as a significant issue. The primary topics of the adcom will be the design of the SRP-9001 construct and the evidence supporting the conclusion that SRP-9001 dystrophin is reasonably likely to predict clinical benefit.
- The company said it was disappointed about the change. However, its disappointment is limited to the timing of these decisions, not with the substantive decision to hold an adcom, which had always been Sarepta's expectation that this would happen. Sarepta assured investors that it had been planning and preparing for an adcom from the moment it submitted this BLA in the fall of 2022. And as such, Sarepta says it will be well-prepared.
Overall, it's never a great look for a company to say the FDA does not need an adcom only to reverse itself two weeks later. It is not Sarepta's fault, but the optics are making investors nervous. This may all turn out to be much ado about nothing, but it does create some added risk ahead of potential approval.
Baidu rallies as its AI-powered businesses show some more promise (BIDU)
Baidu (BIDU) is traditionally known as the largest search engine in China, but its advances in AI-powered technology are garnering plenty of attention lately as the company's transformation accelerates.
- Yesterday, BIDU officially launched ERNIE bot, its version of the Microsoft (MSFT) backed ChatGPT technology, which initially disappointed investors because the company chose not to do a live presentation.
- However, sentiment swung in a much more positive light after some analysts participated in live demonstrations and offered their stamp of approval for the chatbot. Although the analysts generally agreed with BIDU's Founder Robin Li that the chatbot "isn't perfect yet", the consensus was that its generative capabilities were strong enough to allow it to answer the majority of complicated questions asked of it.
- This morning, BIDU's AI ambitions were back in the spotlight after announcing that it was granted the first ever permit to provide driverless ride-hailing services in Beijing. The permit represents a significant step forward in expanding BIDU's Appolo Go service, which will now deploy ten fully driverless vehicles in the Beijing Yizhuang Economic Development Zone. Momentum has been steadily building for Appolo Go with rides surging by 162% yr/yr in 4Q22 to 561,000 rides.
- Excitement over BIDU's AI-powered businesses has sparked a resurgence in the stock. After cratering by about 75% from early 2021 through November 2022, shares have bounced back over the past few months, rallying by more than 80% since late 2022. Hopes that the company's AI businesses will reignite BIDU's slumping revenue growth, which dipped into negative territory in two of the past three quarters, are fueling the rebound.
- Like U.S. counterpart Google (GOOG), BIDU's bread and butter advertising business -- which accounts for about 60% of its total revenue -- has been slumping as macroeconomic headwinds and COVID-related factors weigh on marketing spending budgets. In Q4, BIDU's advertising revenue sank by 6% to RMB 18.1 bln. Partially offsetting that decrease was an 11% jump in non-online marketing revenue, including from its AI-powered and cloud businesses.
It will take some time, though, before BIDU's chatbot and Apollo Go services are generating a more meaningful portion of total revenue. Additionally, both of these businesses will continue to be a drag on BIDU's bottom-line for the foreseeable future as it continues to invest heavily to expand its AI footprint. The hope, though, is that an upswing in BIDU's profitable advertising business will allow the company's earnings to grow, even as the AI businesses become a larger focal point.
Traeger ignites a fire under its shares after posting beats on its top and bottom lines in Q4 (COOK)
Traeger (COOK +27%) is lighting a fire under its shares today after topping earnings and revenue expectations in Q4. The grill maker's several highlights from the quarter overcoming its lackluster Q1 and FY23 sales guidance. With around 8% of float shares shorted, Traeger is also possibly amid a short squeeze.
Traeger had it rough since IPO-ing during the summer of 2021, experiencing only about a week of gains before a long grind down ensued, tumbling over 85% since. The company's IPO coincided with a series of headwinds, including lengthy supply chain constraints and a substantial uptick in inflation, slicing demand for discretionary items.
These challenges already ended rival Weber's short stint as a public company, whose IPO took place around the same time as Traeger's, agreeing to be purchased by a private equity firm late last year. After Weber was taken private, Briefing.com noted that it may be only a matter of time until Traeger is forced to pursue a similar route.
- Traeger is taking the necessary steps to emerge as a more efficient company after what is expected to be a continually volatile environment in 2023. These actions outlined last quarter include reducing its cost structure, rightsizing inventories, and targeting areas to improve gross margins. More specifically, Traeger closed its frozen meal kit business, reduced its headcount and capital expenditures, and lowered production in Asia.
- The benefits from these moves flowed through to Traeger's bottom line in Q4, delivering its widest earnings beat since 1Q22. The company also reiterated its $20 mln annualized savings target and identified additional savings opportunities for 2023.
- On the other hand, sales of $138.13 mln, a 21% decline yr/yr, were not as jovial, marking Traeger's fourth-straight quarter of declining sales growth.
- The year ahead will be a tale of two halves. Traeger forecasted Q1 revs of $145-155 mln and FY23 revs of $560-590 mln, both meaningfully below consensus. Management noted it is keeping a cautious view on its 2023 planning due to a lack of clarity surrounding consumer spending patterns and elevated uncertainty regarding the Fed's monetary tightening policies, inflation, and the housing market.
- However, the second half of the year is looking up. Traeger expects to return to top-line growth in 2H23 even if market conditions remain the same, as its bullish outlook is predicated on normalized channel inventories. The company also anticipates an increase in adjusted EBITDA in FY23, projecting $45-55 mln, a solid improvement from $41.5 mln posted in FY22.
Bottom line, Traeger is trying to mount a massive comeback after enduring several setbacks since going public in 2021. Today's rally is a good start, but we caution chasing at these levels as 2023 is still expected to be a volatile year for Traeger. Finally, after Weber's buyout, Traeger remains a potential takeover candidate.
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