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Market Snapshot
briefing.com
| Dow | 32423.04 | +178.55 | (0.55%) | | Nasdaq | 11800.21 | +124.68 | (1.07%) | | SP 500 | 3987.08 | +34.24 | (0.87%) | | 10-yr Note | -30/32 | 3.586 |
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| | NYSE | Adv 2299 | Dec 652 | Vol 553 mln | | Nasdaq | Adv 3301 | Dec 1139 | Vol 3.6 bln |
Industry Watch
| Strong: Energy, Financials, Consumer Discretionary, Materials, Industrials, Communication Services |
| | Weak: Utilities, Consumer Staples, Real Estate |
Moving the Market
-- Reacting to a Bloomberg report that the Treasury Department is looking at ways to guarantee all bank deposits, if necessary, without congressional approval
-- Treasury Secretary Yellen's remarks that the government is prepared to intervene again "if smaller institutions suffer deposit runs that pose the risk of contagion"
-- Bank stocks outperforming, leading the market higher
-- Rising Treasury yields as the safety premium unwinds
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S&P 500 hits 4000 before pulling back somewhat
21-Mar-23 15:30 ET
Dow +266.54 at 32511.03, Nasdaq +174.84 at 11850.37, S&P +46.88 at 3999.72
[BRIEFING.COM] The S&P 500 hit 4,000 recently, but failed to breakthrough and pulled back somewhat.
The 2-yr Treasury note yield rose 26 basis points today to 4.18% and the 10-yr note yield rose 13 basis points to 3.61%.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 6.5%)
- 10:30 ET: Weekly crude oil inventories (prior 1.55 mln)
- 14:00 ET: March FOMC Rate Decision (Briefing.com consensus 4.75-5.00%; prior 4.50-4.75%)
Indices move higher; 10-yr note yield moves higher
21-Mar-23 14:55 ET
Dow +205.65 at 32450.14, Nasdaq +153.99 at 11829.52, S&P +40.07 at 3992.91
[BRIEFING.COM] The three major indices have climbed modestly higher in the last half hour.
The 10-yr note yield has been in a steady incline recently, up 12 basis points to 3.60%. The 2-yr note yield is up 27 basis points to 4.18%.
Energy complex futures settled the session with gains. WTI crude oil futures rose 2.7% to $69.48/bbl and natural gas futures rose 3.7% to $2.45/mmbtu.
Notably, the CBOE Volatility Index has continued to decline today, down 10.7% or 2.59 to 21.56.
SolarEdge, Carnival among top gain getters in S&P 500
21-Mar-23 14:30 ET
Dow +178.55 at 32423.04, Nasdaq +124.68 at 11800.21, S&P +34.24 at 3987.08
[BRIEFING.COM] The S&P 500 (+0.87%) is firmly in second place once again among the major averages, hovering now near the middle of today's trading range.
S&P 500 constituents SolarEdge Technologies (SEDG 292.37, +20.06, +7.37%),. Tesla (TSLA 196.43, +13.18, +7.19%), and Carnival (CCL 9.15, +0.54, +6.27%) are among non-banking names that show solid gains. SEDG along with solar peers appears to be getting some relief alongside a broader easing of stress on the financial sector, Moody's upgraded TSLA's credit rating overnight while press reports suggested a strong China performance in Q1, while CCL caught favorable sell side commentary ahead of next week's earnings.
Meanwhile, Texas-based REIT Digital Realty Trust (DLR 95.97, -5.69, -5.60%) is today's worst performer, pressured in part by a rotation into more risk-on sectors as well as rising bond yields, which often serve as an opposition play to REITs for income investors.
Gold trips after back-to-back gains
21-Mar-23 14:00 ET
Dow +108.86 at 32353.35, Nasdaq +118.43 at 11793.96, S&P +26.98 at 3979.82
[BRIEFING.COM] With about two hours left to go on Tuesday the tech-heavy Nasdaq Composite (+1.01%) leads gains, up more than 118 points in recent trading.
Gold futures settled $41.70 lower (-2.1%) to $1.941.10/oz, falling after topping the $2K level owing in part to a jump in yields.
Meanwhile, the U.S. Dollar Index is flat at $103.28.
JPMorgan, AmEx outperforming on Tuesday in DJIA
21-Mar-23 13:30 ET
Dow +167.47 at 32411.96, Nasdaq +122.86 at 11798.39, S&P +30.81 at 3983.65
[BRIEFING.COM] The Dow Jones Industrial Average (+0.52%) is at the bottom of the major averages, also near the bottom of today's trading range after leveling off during the past half hour.
A look inside the DJIA shows that JPMorgan Chase (JPM 130.94, +3.80, +2.99%), American Express (AXP 163.39, +4.65, +2.93%), and Chevron (CVX 158.30, +3.72, +2.41%) are outperforming.
Meanwhile, Intel (INTC 28.19, -0.97, -3.33%) is at the bottom of the DJIA.
The DJIA is now down about -2.22% YTD.
Elsewhere, at the top of the hour, the Treasury's $12 bln 20-year note auction drew a high yield of 3.909% on a bid-to-cover of 2.53.
Market getting what it wants
Indulge us why we do a little perspective taking here to begin a day that is expected to feature a soundly higher open for the major indices.
On March 8, shares of SVB Financial (SIVB) and Signature Bank (SBNY) closed at 267.83 and 103.35, respectively. The S&P 500 closed at 3,992.01. Before the end of trading on March 10, Silicon Valley Bank was taken over by regulators. The same fate awaited Signature Bank on March 12.
These were deemed "bank failures," yet they were also identified by the Treasury Department, Federal Reserve, and FDIC as "systemic risks." Accordingly, the Fed scurried to announce a special Bank Term Funding Program; meanwhile, there were assurances given that all depositors, including uninsured depositors, at these banks would be made whole.
Almost immediately, there were demands for the Fed stop raising rates so as not to create any further dislocation for the financial system. Some critics even called for rate cuts.
Subsequent to the fallout of these bank failures, Credit Suisse's (CS) financial condition also came under the microscope. This past weekend, it was acquired by UBS (UBS) in a brokered deal by the Swiss National Bank, which UBS was clear in saying was an "emergency rescue" of Credit Suisse.
There are reports this morning that First Republic Bank (FRC), which plummeted 47% yesterday, leaving it down 89% from its closing price on March 8, is being advised about pursuing strategic options, including a possible sale.
And so, today, the S&P 500 is poised to open trading little changed from where it closed on March 8.
Currently, the S&P 500 futures are up 34 points and are trading 0.9% above fair value. If that indication holds, the S&P 500 should start the day around 3,987.
Separately, the Nasdaq 100 futures are up 76 points and are trading 0.6% above fair value. That puts them on track to begin the session around 12,638, or about 3.5% higher than where it closed on March 8. The Dow Jones Industrial Average futures are up 309 points and are trading 0.9% above fair value, leaving them on track to start the day around 32,534, which would be less than 1.0% below the closing level seen on March 8.
This morning's favorable indications are being attributed in large part to a Bloomberg report that the Treasury Department is looking at ways to guarantee all bank deposits, if necessary, without congressional approval. Some see this type of explicit guarantee as the key to choking off any subsequent deposit runs on smaller banks, and stabilizing the banking system, so this report is going a long way toward boosting investor sentiment this morning even though it isn't an official policy.
Still, the mere idea that it is being discussed seems good enough for this market, which feeds on policy puts like Audrey II in the Little Shop of Horrors feeds on humans -- eating them up with great delight, but turning cranky when the next meal isn't readily available.
We would venture to guess that the stock market's resilient stand following the banking industry upheaval is also because it smells the scent of a Fed policy pivot. Be that as it may, if the Fed wanted a reason to raise rates again tomorrow, it need only look at the standing of the stock market, which is chomping at the bit it seems to hear that the Fed is pausing to assess further the impact of the bank failures or providing a "dovish hike," where it raises only 25 basis points and declares resolutely that it is going to take some added time to asses the impact of the bank failures on the broader economy.
Either seems to be a win-win for the stock market, which is why it is trading with some renewed momentum in front of the meeting. To be sure, the stock market feels less anxious than it did only a week or so ago. We suppose the Fed and the Treasury deserve some credit for that, but it's always easy to be the good guy when you are quick to give the market what it wants.
So, the S&P 500 will be back just about to where it started trading on March 9, which, ironically, is the same calendar day in 2009 that marked the bottom of the financial crisis when policy puts were being spoonfed to the market.
-- Patrick J. O'Hare, Briefing.com
Harley-Davidson revs higher after an upgrade at Morgan Stanley, its second upgrade in a week (HOG)
Harley-Davidson (HOG +4%) is rebounding nicely off of five-month lows from last week following an upgrade at Morgan Stanley to "Overweight" from "Equal-Weight." Today's upgrade comes after Jefferies upgraded HOG to "Hold" from "Underperform" just last week.
Briefing.com notes that during the two years from late 2020 to late 2022, HOG shares struggled to break out meaningfully from the $40 area. Although the stock still trades below this level, the company's recent developments, which resulted in shares breaking above $50 in early February for the first time since June 2021, could pave the way for a smoother ride down the road.
- HOG is amid a transformation, dubbed "Hardwire," which management detailed during Investor Day nearly a year ago. A central component of HOG's transformation is profitability, which it plans to improve by focusing on its most profitable motorcycle product segments: Grand American Touring, Large Cruiser, and Trike. Results are already materializing, with HOG ending FY22 boasting operating margins of 12%, a 3 pt improvement yr/yr. HOG also anticipates further benefits in FY23, projecting 14.1-14.6% operating margins.
- Expansion is another strategic pillar for HOG as it looks to win market share in selective markets over the next few years. It already enjoyed some success in this field in FY22, boasting profitability in Latin America for the first time since it became a stand-alone region. Meanwhile, management commented that it was encouraged by early results from its focus on APAC expansion, with China seeing its highest volume ever. HOG has further expansion plans set in Europe in 2023.
- LiveWire, HOG's electric bike segment, is another component to Hardwire. Management will focus on technology development, which is likely the right move as unit sales are well below HOG's core Harley-Davidson line. For example, HOG expects LiveWire wholesale units of just 750-2,000 in FY23, a nice bump from the 597 shipped in FY22 but substantially below the 178,500 gas-powered motorcycle units sold in FY22.
HOG's Hardwire strategic plan is already bearing fruit, a promising development ahead of its Q1 report in late April. However, HOG is moving into a somewhat foggy future. For example, although its customer base is loyal, HOG's lineup may not resonate with younger demographics. Additionally, although its LiveWire segment appeals to a younger crowd, the lack of an engine takes away from a critical component of HOG's brand, its sound. Also, with LiveWire sales greatly lagging behind its ICE counterpart, pouring resources into technology development may not have much material benefit over the near term.
Therefore, we think it would be better to wait until there is more clarity surrounding the macroeconomy before entering into HOG. The company could see margin pressure over the short run, especially if inflationary pressures and rising interest rates linger.
Meta Platforms winning some friends in the analyst community as it reins in spending (META)
Meta Platforms (META) is gaining some friends in the analyst community this week. Yesterday, Edward Jones upgraded META to Buy from Hold with the firm citing the company's expense reduction efforts and a potential stabilization in advertising revenue as key factors underlying the more bullish outlook. Today, Morgan Stanley followed suit, upgrading the stock to Overweight from Equal-Weight while raising its price target to $250, representing a 23% increase versus the current price.
- Just four months ago, sentiment from investors and analysts alike was about as bearish as it has ever been for META. Following the company's disappointing 3Q22 earnings report in which it missed EPS expectations and guided for a 15% yr/yr increase in expenses for FY23, the stock caught several downgrades. One of those downgrades was at Morgan Stanley, which lowered its rating to Equal-Weight from Overweight.
- In the aftermath of that earnings report in late October and the downgrades that accompanied it, shares of META sank to their lowest level since early 2016. Not only were investors dismayed by META's rapidly declining top-line growth -- which has dipped into negative territory in each of the past three quarters -- but frustrations over the company's free-wheeling spending style had also reached a boiling point.
- Until reaching that low point in the fall, CEO Mark Zuckerberg had been unfazed by the criticism regarding his metaverse aspirations and the billions of dollars he earmarked for building out the technology.
- Then everything changed, seemingly in an instant, and META began a huge cost-cutting initiative that has resulted in more than 20,000 layoffs so far. As a result, the company's FY23 total expense guidance has been reduced from the original forecast of $96-$101 bln to $86-$92 bln with Mr. Zuckerberg now calling this a "year of efficiency" for META.
The U-turn on spending is only part of the equation.
- META's focus on creating new AI-based tools to help mitigate the impact from Apple's (AAPL) iOS privacy changes should boost demand from advertisers as ROI improves on META's platform.
- Additionally, the scrutiny that has been placed on TikTok from politicians, regulators, and the media may be taking a toll on the short-format video app. Last Friday, the U.S. Justice Department announced that it will launch an investigation into the surveillance of Americans by TikTok. A growing number of members of Congress are also backing legislation that would allow the President to ban foreign technology products like TikTok due to national security concerns.
- Whether the investigation or proposed legislation ultimately leads to a ban of TikTok remains to be seen, but with the screws being turned tighter, it stands to reason that some advertisers may look elsewhere. META would be a primary beneficiary of advertisers pulling some spending away from TikToK, while Pinterest (PINS), Snap (SNAP), and Google (GOOG) would also benefit.
The main takeaway is that sentiment continues to dramatically brighten for META, and, although business conditions are still unfavorable, the earnings outlook for FY23 is significantly better than it was a few months ago.
On exits FY22 on the right foot; expects positive momentum to carry into FY23 (ONON)
On (ONON +25%) is hitting the ground running today despite delivering its second-straight earnings miss in Q4 as investors cheer its tremendous sales upside and encouraging FY23 revenue forecast. ONON is a Switzerland-based footwear and apparel firm primarily catering to the athletic market. It markets itself as a more-premium shoe company, with prices generally in line with higher-tier products from competitors Deckers Outdoor (DECK), NIKE (NKE), and Adidas AG (ADDYY).
ONON went public 18 months ago amid plenty of turbulence in the global economy. Although its shares gapped up to around $45 shortly after being priced at $24, they quickly sold off, bouncing around the $20 area for much of the past year. However, as we have seen lately from athletic-focused retailers like Dick's Sporting Goods (DKS) and Foot Locker (FL), as well as from peers DECK and NKE, the footwear category is exhibiting resilience to macroeconomic pressures. This positive trend lifted ONON's Q4 results, helping its shares sprint toward 52-week highs.
- ONON's record sales of CHF366.8 mln, a 92% leap yr/yr, was broad-based, exceeding the company's expectations across all regions and channels. Wholesale sales more than doubled yr/yr, underpinned by robust demand at ONON's wholesale partners such as FL, where the company saw its strongest sellout quarter ever. Direct-to-consumer sales were also solid, jumping 76.4% yr/yr.
- Meanwhile, profitability improved mightily, with adjusted EBITDA reaching CHF61.8 mln, up considerably from CHF11.2 mln in the year-ago period. As a result, adjusted EBITDA margins expanded to 16.8%, an over 1000 bp jump yr/yr.
- Although ONON's remarkable growth figures underscored favorable demand dynamics, it should be noted that part of the explosive growth includes some catch-up effect from Q3 following warehouse disruptions experienced at the time. Furthermore, ONON endured supply shortages and low inventory levels from factory closures in 4Q21, making for less challenging yr/yr comparisons.
- Still, tremendous demand is playing a significant role in ONON's sales figures, evidenced by its upbeat FY23 revenue guidance of at least CHF1.7 bln, a 39% improvement yr/yr on top of a +69% jump in FY22, and well above analyst estimates. Management commented that in anticipation of strong demand in 1H23, when growth rates should hover in the high 40s percentage, it shored up its inventories to CHF396 mln, nearly three times the levels exiting FY21.
- However, on the flip side, ONON also stated that higher-than-expected inventory inflows also caused its inventories to be somewhat higher than what would be ideal.
- Additionally, based on preorders for the 2023 fall/winter season, ONON could achieve growth rates above its expected mid-30s percentage in 2H23, possibly leading to exceeding its FY23 forecast.
Overall, ONON exited FY22 on the right foot, carrying that momentum into FY23, which should bring a normalization in operations. Supply chains are already reverting to normal, and the company expects that with less airfreight use and lower freight rates, it will resume its path toward its mid-term gross margin target of 60%. Finally, ONON's Q4 report highlights that the footwear category is showing few signs of slowing, a good sign ahead of NKE's FebQ report today after the bell.
Canadian Solar shining brightly today after solar company reports large EPS beat (CSIQ)
Canadian Solar (CSIQ +12%) is shining bright today with a nice move higher following strong Q4 results this morning. This supplier of solar photovoltaic modules and battery storage systems had already provided revenue guidance last month and that came in as expected, so we figured all eyes would be on EPS and the guidance. And CSIQ did not disappoint.
- CSIQ reported a big beat on EPS, it was not quite as large as the monster beats in the prior three quarters, but it was still in the double digits. This was helped by a strong showing with margins, a metric we watch closely with CSIQ. Gross margin of 17.7% was down from 19.7% a year ago and 18.8% in Q3, but still at the high end of prior guidance of 16-18%. CSIQ has been implementing vertical integration and cost reduction programs, which have helped. Margin was further helped by lower raw material input costs. Looking ahead, CSIQ expects to achieve operating leverage this year from significant volume growth aided by a decline in shipping costs.
- In terms of Q1 guidance, CSIQ reaffirmed its outlook for revs of $1.60-1.80 bln. We think investors are viewing this as a positive because Q1 is always seasonally softer for CSIQ. Also, when CSIQ offered its original Q1 guidance last month, it was a good bit below analyst expectations. We think investors are happy to avoid another guide down. Also, investors appear pleased CSIQ guided to a sequential gross margin increase in Q1 at 18-20% despite Q1 being softer seasonally. CSIQ also reaffirmed Q1 module shipment guidance of 5.9-6.2 GW.
- The FY23 guidance was not as rosy with revenue expected at $8.5-9.5 bln, which is below analyst expectations. However, CSIQ did reaffirm 2023 module shipment guidance of 30-35 GW, up from 21.1 GW in 2022. CSIQ also said it expects an acceleration in end market demand through the year as its large global pipeline of customer projects are executed. Also, margins are taking a turn for the better thanks to cost reduction programs and lower raw material input costs.
Overall, investors are quite pleased with how CSIQ closed out 2022, especially the solid EPS upside. We also think the Q1 revenue and margin guidance was a relief after the guide down last month. The FY23 revenue guidance was not great, but we think CSIQ's comments on module shipments, margins and end market demand more than offset the top line guidance. There was a good bit here to like and certainly better than feared.
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.
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