Market Snapshot
briefing.com
| Dow | 32180.41 | +318.52 | (1.00%) | | Nasdaq | 11660.93 | +30.42 | (0.26%) | | SP 500 | 3946.40 | +28.49 | (0.73%) | | 10-yr Note | -4/32 | 3.48 |
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| | NYSE | Adv 1739 | Dec 1187 | Vol 1.2 bln | | Nasdaq | Adv 2221 | Dec 2313 | Vol 4.9 bln |
Industry Watch
| Strong: Materials, Financials, Industrials, Consumer Staples, Health Care, Energy |
| | Weak: -- |
Moving the Market
-- Mixed action in mega cap stocks after a big run recently
-- Some worries about the banking industry have abated and some bank stocks are moving higher, but FRC and CS still logging big losses
-- Treasury yields move higher as flight to safety unwinds
-- S&P 500 finding support at its 200-day moving average (3,935)
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Closing Summary
20-Mar-23 16:30 ET
Dow +382.60 at 32244.49, Nasdaq +45.02 at 11675.53, S&P +34.93 at 3952.84
[BRIEFING.COM] The stock market kicked off the new week with a reversal of the money flows that occurred last week. Banks showed nice resilience today following news over the weekend that the Swiss National Bank brokered a UBS (UBS 18.80, +0.60, +3.3%) acquisition of Credit Suisse (CS 0.94, -1.06, -53.0%) for a "takeunder" price of $3.2 billion.
Additionally, the Federal Reserve announced a coordinated central bank action with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank to enhance the provision of U.S. dollar liquidity while offering assurances that "the capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient."
Still, some angst around the banking industry persists, evidenced by the material decline seen today in shares of First Republic Bank (FRC 12.18, -10.85, -47.1%). The SPDR S&P Bank ETF (KBE), which was up 4.5% at its high this morning, closed with a slimmer 1.6% gain and the SPDR S&P Regional Bank ETF (KRE), which was up 4.9% at its best level of the day, had a 1.2% gain by the close.
Shares of First Republic Bank continued to suffer sharp losses today after FRC's debt was downgraded at S&P to B+ from BB+. There was a short-lived recovery attempt in FRC when The Wall Street Journal reported that JPMorgan Chase's (JPM 127.14, +1.33, +1.1%) Jamie Dimon is leading talks with executives at other banks about a deal that could involve converting the previously announced $30 billion in deposits into a capital infusion. Ultimately, however, FRC closed near its worst levels of the day.
Mega cap stocks, which enjoyed a leadership role last week, were relative underperformers today, which translated into some relative underperformance for the Nasdaq Composite and the information technology (+0.2%), communication services (+0.5%), and consumer discretionary (+0.4%) sectors. The Vanguard Mega Cap Growth ETF (MGK) was up a modest 0.2% versus the Invesco S&P 500 Equal Weight ETF (RSP), which rose 1.3%. The market-cap weighted S&P 500 advanced 0.9%, pushing above its 200-day moving average (3,935), which pivoted from resistance to support.
The outperformance of small and mid cap stocks today was helped by some rebound action in the bank and energy stocks. The Russell 2000 rose 1.1% and the S&P Mid Cap 400 rose 1.7%.
All 11 S&P 500 sectors closed with gains ranging from 0.2% (information technology) to 2.1% (energy).
The 2-yr note yield rose 10 basis points today to 3.92% and the 10-yr note yield rose nine basis points to 3.48%, as market participants anxiously await the FOMC decision on March 22.
- Nasdaq Composite: +11.6% YTD
- S&P 500: +2.9% YTD
- S&P Midcap 400: -0.7% YTD
- Russell 2000: -0.9% YTD
- Dow Jones Industrial Average: -2.7% YTD
There was no U.S. economic data of note today.
Looking ahead to Tuesday, market participants will receive the February Existing Home Sales (Briefing.com consensus 4.16 million; prior 4.00 million) at 10:00 a.m. ET.
Market holds up ahead of close
20-Mar-23 15:35 ET
Dow +347.56 at 32209.45, Nasdaq +27.54 at 11658.05, S&P +30.51 at 3948.42
[BRIEFING.COM] The main indices moved mostly sideways in the last half hour.
Treasuries settled with losses coming off last week's solid gains. The 2-yr note yield rose 3.92% and the 10-yr note yield rose nine basis points to 3.48%. The U.S. Dollar Index fell 0.4% to 103.29.
Looking ahead to Tuesday, market participants will receive the February Existing Home Sales (Briefing.com consensus 4.16 million; prior 4.00 million) at 10:00 a.m. ET.
Semiconductor stocks are a pocket of strength
20-Mar-23 14:55 ET
Dow +318.52 at 32180.41, Nasdaq +30.42 at 11660.93, S&P +28.49 at 3946.40
[BRIEFING.COM] The main indices pulled back somewhat recently, but the S&P 500 has maintained a posture above its 200-day moving average.
Semiconductor stocks are a pocket of strength today. The PHLX Semiconductor Index (SOX) is up 0.8%. Only three SOX components are trading down -- Intel (INTC 29.15, -0.65, -2.2%) and Advanced Micro Devices (AMD 96.43, -1.41, -1.6%) -- while NVIDIA (NVDA 259.34, +2.12, +0.8%) shows some the largest gains.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures clawed back some lost ground today, settling up 1.2% to $67.67/bbl and natural gas futures fell 4.0% to $2.36/mmbtu.
NRG Energy gains after BofA upgrade, Generac slips in S&P 500 standings
20-Mar-23 14:30 ET
Dow +326.81 at 32188.70, Nasdaq +34.25 at 11664.76, S&P +30.74 at 3948.65
[BRIEFING.COM] The S&P 500 (+0.78%) is firmly situated in second place to this point on Monday afternoon, having held the line just off session highs during the last half hour.
S&P 500 constituents NRG Energy (NRG 33.47, +1.99, +6.32%), Fleetcor (FLT 197.98, +10.78, +5.76%), and Assurant (AIZ 111.21, +6.29, +6.00%) are among today's top performers. NRG caught an upgrade to Buy at BofA Securities this morning, pushing the stock above the 50-day SMA (33.28), FLT gains in light of the earlier news that the company was undertaking a strategic portfolio review alongside a cooperation agreement with D. E. Shaw, while financials and insurance names like AIZ benefit from today's rebound.
Meanwhile, Wisconsin-based generator firm Generac (GNRC 109.53, -3.60, -3.18%) is today's second-worst performer.
Gold settles higher on Monday
20-Mar-23 14:00 ET
Dow +321.55 at 32183.44, Nasdaq +22.94 at 11653.45, S&P +28.85 at 3946.76
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.20%) still holds the shallowest advance.
Gold futures settled $9.30 higher (+0.5%) to $1,982.80/oz, finding a finish just under the $2K level it hit earlier in the session, gains aided in part by earlier news in the banking sector that UBS AG (UBS 19.00, +0.80, +4.40%) bought Credit Suisse (CS 0.94, -1.06, -52.80%), a move which stoked fears of banking contagion.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $103.36.
UBS to buy Credit Suisse in heated market
The equity futures market has been a bit jumpy this morning, vacillating between negative and positive territory as market participants face ongoing consternation about banking issues that may or may not be a systemic problem.
That uncertainty is what has the market on edge, digesting a spate of news that doesn't make it sound necessarily as if all problems have been solved:
- UBS (UBS) agreed to acquire Credit Suisse (CS) for $3.2 billion in a brokered "emergency rescue" by the Swiss National Bank, which also equates to a "takeunder." Shares of CS are indicated 56% lower while shares of UBS are up 2.5%.
- Credit Suisse has been informed by FINMA that FINMA has determined that Credit Suisse's Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero.
- The FDIC is going to extend the bid window for Silicon Valley Bridge Bank, N.A. amid "substantial interest from multiple parties"
- A New York Community Bank (NYCB) subsidiary is acquiring certain assets and assumes certain liabilities of Signature Bridge Bank from the FDIC
- Warren Buffett has engaged White House about the regional bank crisis, according to Bloomberg
- The Federal Reserve announced a coordinated central bank action with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank to enhance provision of U.S. dollar liquidity
At the same time, Treasury Secretary Yellen and Fed Chair Powell reassured everyone that "the capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient."
Their faith in matters has been slow to be rewarded.
Currently, the S&P 500 futures are up 11 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 23 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 113 points and are trading 0.3% above fair value.
The Treasury market has been another area that has seen a good bit of price vacillation. Overnight, the 2-yr note yield slumped as many as 18 basis points to 3.64% and the 10-yr note yield dropped as many as 10 basis points to 3.30%. The 2-yr yield is now at 3.87% and the 10-yr yield is now at 3.44%.
The banking issues are both background noise and foreground clatter, making it all the more difficult for market participants to discern if the Fed will raise rates again this week at its March 21-22 FOMC meeting and whether a pause or another hike will be interpreted positively or negatively by the market.
Some have argued that a pause will make it appear as if the banking issue is a bigger problem than it is, while others have said a rate hike will make a deteriorating economic environment, exacerbated by the banking crisis, even worse. This FOMC meeting will also feature the release of an updated Summary of Economic Projections that will likely include some wider-than-usual forecast ranges.
All reactions leading up to that announcement -- and immediately thereafter -- will be heat of the moment reactions because this is a heated market that looks pleased and disturbed with this banking situation and the response to it all at once.
The only conclusion to be drawn at this point from any of it is that market volatility will remain high.
-- Patrick J. O'Hare, Briefing.com
V.F. Corp receives a double upgrade today; transformational initiatives look promising (VFC)
V.F. Corp (VFC), the apparel and footwear company that owns banners such as The North Face and Vans, reversed its earlier gains that followed a double upgrade to "Buy" from "Sell" at Williams Trading today.
Briefing.com notes that macroeconomic woes, including dampening discretionary demand, have been magnified recently by VFC's internal struggles, such as underperforming assets and poor supply chain-related decisions. It was also not a good look when VFC lowered its FY23 guidance in connection with CEO Steve Rendle's announced retirement in early December.
However, last month, long-time Board member and interim CEO Benno Dorer discussed VFC's plans to return to operating more efficiently and capitalizing on what formerly kept VFC customers loyal. With the company also slashing its dividend by 40%, VFC is approaching its plans with the utmost urgency.
- Turning around the Vans banner is VFC's central focus. Vans is performing relatively well in the EMEA region, boasting 7% sales growth in DecQ yr/yr. However, the situation is reversed in the Americas, which comprises 90% of Vans revenue, with sales tumbling by 13% in DecQ. Management attributes the dichotomy to a more precise growth strategy in Europe. To boost growth in the Americas, VFC is turning to product innovation and brand awareness, funding these initiatives through reduced costs in lower-value areas.
- Supply chain improvements are the second priority for VFC. During DecQ, the company dealt with higher lead times, larger upfront buys, and unpredicted demand spikes from elevated promotional activity, which it is looking to avoid going forward. Management did not travel too far in the weeds regarding what actions it will take. However, the company expects to be able to work seasonal inventory down to more normalized levels by the end of MarQ.
- Taking advantage of current brands and not branching too far into M&A activity is another centerpiece of VFC's turnaround strategy. The company noted that smart acquisitions would remain a part of its playbook, but capitalizing on current banners and recent purchases will likely be the focus over the near term.
- On that note, VFC is pursuing strategic alternatives for its roughly $500 mln backpacks business, which it believes is not the best owner of these brands at present. Offloading this business will probably take some time, so we would not expect an update for possibly a few more quarters.
Overall, VFC has a lot on its plate this year. Instead of foreseeing the current economic disruptions and proactively making the proper adjustments earlier, VFC is undergoing a transformation amid reasonably strong headwinds. Still, we like VFC's roadmap toward returning to sustained earnings growth, which it expects to accomplish in FY24 (Mar). Its brands are known for quality, which, although come at a higher cost than some of its competitors like Columbia Sportswear (COLM), produce exceptional loyalty and should be better cushioned against a worsening economy.
Foot Locker running higher following blowout Q4 results and launch of new growth strategy (FL)
Bolstered by a strong holiday season, resilient demand for athletic footwear, and solid inventory management, Foot Locker (FL) ran past analysts' Q4 EPS and revenue estimates. It's not just the company's upside quarterly results that have the stock running higher. FL also announced a new initiative called its "Lace Up" plan and introduced some long-term financial targets associated with that plan that has investors in a bullish mood.
- In regard to FL's blowout Q4 results, the impressive performance doesn't come as a complete surprise. While consumers have pulled back on spending, especially for big ticket items, demand for sporting goods and athletic footwear has held up quite well.
- This was reflected in the impressive Q4 earnings report from Dick's Sporting Goods (DKS) a couple weeks ago, and a better-than-expected report from Under Armour (UAA) in early February that featured a 25.3% increase in its footwear business.
- Improved access to higher quality inventory allowed FL to capitalize on the healthy demand environment. Along with that favorable merchandise assortment came an increase in store traffic, resulting in comp growth of 4.2%. The company also kept a pretty tight lid on expenses as SG&A decreased by 10 bps as a percentage of sales compared to last year.
It's not all positive news, though.
- Despite the solid comp growth and the cost containment efforts, FL's EPS still fell by 42% yr/yr. A primary drag on the bottom-line was a 290 bps drop in gross margin, due to a ramp up in markdowns as FL operated in a highly promotional business climate.
- The company also issued downside FY24 EPS guidance of $3.35-$3.65, representing a 29% yr/yr decrease in earnings at the midpoint of that range. FL's revenue outlook for the year, which calls for growth of 3.5-5.5%, is above expectations at the midpoint. However, the upside sales forecast relative to the soft EPS outlook suggests that the company is expecting to sacrifice some margins for sales again this fiscal year.
Investors are looking beyond the disappointing FY24 EPS guidance, eyeing stronger earnings growth in FY24-FY26.
- In that timeframe, FL believes it can achieve adjusted EPS growth in the low-to-mid 20% range, on total sales growth of 5-6%. This forecast is a product of the company's Lace Up strategy that recently appointed CEO Mary Dillon is spearheading.
- Ms. Dillon, who came over to FL last September after serving as Ulta Beauty's (ULTA) CEO, is focusing on streamlining and simplifying the business. A major component of that imitative will be the transformation of FL's Asia business, where the company now intends to close its stores and e-commerce channel in Hong Kong and Macau. FL will also convert its current owned and operated stores and e-commerce channel in Singapore and Malaysia to a license model.
In the U.S., the company plans to open new store formats with a focus on off-mall locations, while also relaunching the Foot Locker Brand and resetting its loyalty program. The strategy is clearly resonating well with investors as the combination of resilient demand for athletic footwear and a more streamlined operation should lead to stronger profits in the coming years.
Pinduoduo under heavy pressure after reporting a surprise earnings miss (PDD)
Pinduoduo (PDD -11%) is falling sharply today after the Chinese ecommerce giant reported a fairly rare earnings miss with its Q4 report this morning. PDD had reported upside in each of the past four quarters, with three of the four showing significant upside. Its Q3 report was particularly strong, so we think investors were surprised to see a miss in Q4.
- In fairness, PDD did caution on its Q3 call that its level of profitability in Q3 was temporary and unlikely to be maintained as it plans to increase investments. And that seems to have impacted EPS to a greater degree than analysts were expecting in Q4. R&D expenses jumped 34% yr/yr to RMB1.7 bln, primarily due to hiring R&D personnel and higher server costs. R&D expenses surpassed RMB10 bln for the first time on an annual basis in 2022. What's more is that PDD expects to step up R&D investments in 2023.
- Revenue jumped 46% yr/yr to US$5.77 bln, which was narrowly below analyst expectations. The strongest growth was generated by transaction services, which rose 86% to US$1,275 bln. Online marketing services revenue rose a solid 38% yr/yr to US$4.49 bln, while merchandise sales fell 29% yr/yr to US$8.4 mln, but this is a small segment.
- PDD noted rising sentiment among its users in Q4. Categories such as mobile phone and cosmetics saw encouraging growth among users with different demographics. In general, PDD says that consumption continues to recover and consumer sentiment continues to improve.
- Of note, while PDD operates primarily in China, it has been starting to branch out into international markets. Of note, in September 2022, PDD launched Temu in the US, which it hopes can compete with Amazon across a number of categories including clothing, shoes, appliances, beauty, automotive etc. We were interested to hear of any developments.
- PDD was not specific on the call about Temu, speaking more in generalities. PDD noted that the business had just started and it needs to understand customer demand better and experiment on how to meet their demand effectively. Perhaps investors wanted to hear a more optimistic early take on Temu. Briefing.com thinks it is going to be a heavy lift to make deep inroads in the US quickly as most Americans are unfamiliar with the Temu brand and AMZN already has a dominant presence. Plus AMZN has been reducing capacity in the face of consumer weakness.
Overall, we think investors were pretty surprised to see a miss from PDD, especially following the huge upside last quarter and considering that BABA reported big upside last month. PDD does not provide guidance so investors are a bit in the dark, but this was a letdown. A possible culprit is that PDD increased its R&D spend quite a bit and that may have contributed to the EPS miss. Also, investors should understand that PDD plans to step on the gas for R&D spend in 2023, so that could continue to impact the bottom line.
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.
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