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Market Snapshot
briefing.com
| Dow | 32666.69 | +272.53 | (0.84%) | | Nasdaq | 11905.61 | +189.54 | (1.62%) | | SP 500 | 4021.31 | +48.77 | (1.23%) | | 10-yr Note | 0/32 | 3.57 |
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| | NYSE | Adv 2313 | Dec 599 | Vol 899 mln | | Nasdaq | Adv 2696 | Dec 1469 | Vol 4.4 bln |
Industry Watch
| Strong: Real Estate, Consumer Discretionary, Information Technology, Materials, Utilities |
| | Weak: Health Care, Consumer Staples |
Moving the Market
-- Banking worries continue to ease following Congressional hearing on the SIVB bank failure
-- S&P 500 found support near the 4,000 level and lifted above its 50-day moving average (4,014)
-- Strength from chipmakers
-- Modest buying interest in Treasuries
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Closing Summar
29-Mar-23 16:30 ET
Dow +323.35 at 32717.51, Nasdaq +210.16 at 11926.23, S&P +56.54 at 4029.08
[BRIEFING.COM] Today's trade had a decidedly positive tone following the two-day Congressional hearing on the SIVB bank failure. For most of the session, the main indices chopped around a fairly narrow range, albeit sporting nice gains. Ultimately, though, a late afternoon push higher had the main indices close near their highs of the day, leaving the S&P 500 above its 50-day moving average (4,014).
The tech-heavy Nasdaq paced its peers thanks to strong leadership from mega caps and chipmakers. Investors reacted favorably to Micron's (MU 63.54, +4.26, +7.2%) quarterly results and many semiconductor stocks traded up in sympathy. The PHLX Semiconductor Index rose 3.3% today.
Strength from semiconductor components helped drive a 2.1% gain in the S&P 500 information technology sector, which closed near the top of the leaderboard along with real estate (+2.3%) and consumer discretionary (+1.9%).
All 11 sectors closed with gains, but the defensive-oriented consumer staples (+0.5%) and health care (+0.2%) sectors lagged the broader market with the slimmest gains of the day.
Market breadth reflects a strong positive bias behind today's gains. Advancers led decliners by a nearly 4-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Notably, the positive price action today followed relatively strong gains in many overseas indices. Germany's DAX rose 1.2%, the U.K.'s FTSE rose 1.1%, and France's CAC 40 rose 1.4%. Market participants were reacting to the news that UBS AG (UBS 20.10, +0.83, +4.3%) named Sergio P. Ermotti as CEO, effective April 5.
Treasuries settled little changed from yesterday's closing levels. The 2-yr note yield rose one basis point to 4.07% and the 10-yr note yield was unchanged at 3.57%.
- Nasdaq Composite: +14.0% YTD
- S&P 500: +4.9% YTD
- S&P Midcap 400: +1.3% YTD
- Russell 2000: +0.6% YTD
- Dow Jones Industrial Average: -1.3% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 2.9% with purchase application jumping 2.0% (-35% yr/yr) while refinancing applications rose 5.0% (-61% yr/yr).
- Pending home sales rose 0.8% in February (Briefing.com consensus -2.3%) following a 8.1% increase in January.
- The weekly EIA Crude Oil Inventories showed a draw of 7.49 million barrels following last week's draw of 1.06 million barrels.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 196,000; prior 191,000), Continuing Claims (prior 1.694 mln), Q4 GDP -- third estimate (Briefing.com consensus 2.7%; prior 2.7%), and GDP Deflator -- third estimate (Briefing.com consensus 3.9%; prior 3.9%)
- 10:30 ET: Weekly natural gas inventories (prior -72 bcf)
Market continues to rise
29-Mar-23 15:30 ET
Dow +301.54 at 32695.70, Nasdaq +211.54 at 11927.61, S&P +54.87 at 4027.41
[BRIEFING.COM] The market is near session highs heading into the close.
Treasuries settled little changed from yesterday's closing levels. The 2-yr note yield rose one basis point to 4.07% and the 10-yr note yield was unchanged at 3.57%.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 196,000; prior 191,000), Continuing Claims (prior 1.694 mln), Q4 GDP -- third estimate (Briefing.com consensus 2.7%; prior 2.7%), and GDP Deflator -- third estimate (Briefing.com consensus 3.9%; prior 3.9%)
- 10:30 ET: Weekly natural gas inventories (prior -72 bcf)
S&P 500 passes 50-day moving average
29-Mar-23 15:05 ET
Dow +272.53 at 32666.69, Nasdaq +189.54 at 11905.61, S&P +48.77 at 4021.31
[BRIEFING.COM] The market took a turn higher and the S&P 500 lifted convincingly above its 50-day moving average (4,014) before the main indices pulled back somewhat.
With the recent improvement, the S&P 500 information technology sector (+1.9%) pushed past the real estate sector (+1.8%) to claim the top spot on the leaderboard. Meanwhile, health care (+0.1%) is holding onto only a slim gain.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 0.2% to $72.97/bbl and natural gas futures rose 1.1% to $2.17/mmbtu.
Paychex outperforms in S&P 500 after earnings
29-Mar-23 14:30 ET
Dow +207.66 at 32601.82, Nasdaq +161.86 at 11877.93, S&P +41.37 at 4013.91
[BRIEFING.COM] The S&P 500 (+1.04%) is currently in second place among the major averages, up about 41 points.
S&P 500 constituents Paychex (PAYX 115.72, +6.74, +6.18%), Western Digital (WDC 36.30, +1.69, +4.88%), and Boston Properties (BXP 52.86, +1.96, +3.85%) pepper the top of the S&P. PAYX moves higher on earnings, WDC gains in sympathy to Seagate (STX 63.02, +2.59, +4.29%) which announced cost reduction measures this morning, and BXP benefits from broader strength in the REIT space.
Meanwhile, Zoetis (ZTS 161.89, -3.15, -1.91%) is today's worst performer despite an earlier positive mention out of Barron's.
Gold lower at midweek
29-Mar-23 14:00 ET
Dow +190.33 at 32584.49, Nasdaq +147.53 at 11863.60, S&P +37.82 at 4010.36
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+1.26%) remains atop the standings, having moderated its levels from the prior half hour.
Gold futures settled $5.90 lower (-0.3%) to $1,984.50/oz, pressured in part by modest gains in the dollar and bond yields.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $102.66.
Yesterday's late rally carrying over this morning
The S&P 500 futures are up 36 point and are trading 0.8% above fair value. The Nasdaq 100 futures are up 127 points and are trading 1.0% above fair value. The Dow Jones Industrial Average futures are up 243 points and are trading 0.8% above fair value.
The equity futures market points to a higher open after yesterday's late afternoon bounce off the session lows. Notably, many major overseas indices trade on a firmly higher note currently.
In corporate news, UBS AG (UBS) named Sergio P. Ermotti as CEO, effective April 5.
There has been an uptick in selling interest in the Treasuries this morning. The 2-yr note yield is up seven basis point to 4.13% and the 10-yr note yield is up five basis points to 3.61%. The U.S. Dollar Index is up 0.1% to 102.51.
Energy complex futures trade up ahead of the open. WTI crude oil futures are up 1.1% to $74.00/bbl and natural gas futures are up 0.1% to $2.15/mmbtu.
The weekly MBA Mortgage Applications Index rose 2.9% with purchase application jumping 2.0% (-35% yr/yr) while refinancing applications rose 5.0% (-61% yr/yr).
Other data out today includes:
- 10:00 ET: February Pending Home Sales (Briefing.com consensus -2.3%; prior 8.1%)
- 10:30 ET: Weekly crude oil inventories (prior +1.12 mln)
Jefferies' better-than-feared results provide a sigh of relief for embattled financial sector (JEF)
Amid a tumultuous climate for the financial sector following the implosion of Silicon Valley Bank (SIVB) and Signature Bank (SBNY), investment banking and asset management firm Jefferies (JEF) reported better-than-feared 1Q24 results. JEF's upside report carries significance because the company's results are viewed as a precursor to the upcoming Q2 earnings season with many prominent banking companies, such as Goldman Sachs (GS) and Morgan Stanley (MS), kicking things off in a few weeks.
- Business conditions are still very tough as rising interest rates, inflation, and geopolitical tensions continue to rattle the financial sector. In particular, the market volatility and uncertainty has punished the IPO market, bruising JEF's and its competitors' investment banking divisions. Last quarter, JEF's equity underwriting fees plummeted by 70% yr/yr as companies looking to go public continued to sit it out on the sidelines.
- In Q1, though, equity underwriting fees were lower by a far less drastic margin, declining by about 20% yr/yr to $125.4 mln. On a sequential basis, equity underwriting fees actually grew by 15%. Similarly, while debt underwriting fees fell by 67% yr/yr to $80.2 mln, they were higher by 30% on a qtr/qtr basis.
- The improvement indicates that deal making has picked up a bit since the end of 2022, but it also may suggest that JEF is gaining market share against its larger competitors. JEF's primary strategy over the past couple of years has been to elevate and expand its investment banking business, becoming a more formidable competitor to established leaders GS and MS.
The story in JEF's Capital Markets unit is an even brighter one.
- Revenue jumped by 33% yr/yr to $639 mln, led by a 63% surge on the fixed income side. It's worth noting, though, that fixed income trading revenue fell by 44% in the year-earlier period, so JEF did lap an easy yr/yr comp.
- Still, the performance was pretty solid over, especially considering the market conditions, as total revenue for the Capital Markets segment came in at the fourth highest total in JEF's history. The company credits a strong contribution from its international business and a more stable trading environment compared to the prior year for the strong growth.
The clear laggard was the Asset Management business, which saw revenue collapse by 65% yr/yr to $78.3 mln.
- However, the results are not as bad as they first seem. JEF continues to unwind its merchant banking business -- which is part of the Asset Management segment -- as it increases its focus on the investment banking side.
- More specifically, the company sold its interest in Idaho Timber last year, and completed its spin-off in Vitesse in January. According to JEF, actual management fees were only modestly lower on a yr/yr basis.
The main takeaway is that JEF's results provided a sigh of relief, helping to calm investors' nerves that conditions in the financial sector have substantially deteriorated since the end of last quarter. Business certainly isn't booming in the investment banking industry, but the improvement seen in JEF's results is an encouraging sign for the upcoming earnings season.
Cintas's consistency results in another solid beat-and-raise in FebQ (CTAS)
Shares of Cintas (CTAS +3%) gapped significantly higher today, nearly taking out 52-week highs set in early December, following another beat-and-raise in Q3 (Feb). The stock has pulled back slightly from intraday highs that saw gains of +5.6%, possibly running into resistance at 52-week highs of $470.23. However, the slight pullback may be a solid buying opportunity given that the U.S.'s largest supplier of work uniforms boasted several highlights from the quarter, a good sign that businesses around the country remain relatively sound despite the macroeconomic uneasiness, particularly surrounding the banking sector.
- CTAS's solid revenue upside and double-digit earnings beat speak to its consistency; CTAS has only missed earnings and sales estimates once over the past five years. The company's 11.7% sales growth yr/yr to $2.19 bln was partly fueled by recent price increases. However, increased volumes provided most of the work, primarily within CTAS's core Uniform Rental and Facility Services segment. The volume gains branched from new business, attractive retention levels, and continuously improving cross-selling.
- Similar to last quarter, CTAS's other businesses, First Aid and Safety Services and All Other, also assisted in its overall top-line growth in Q3, climbing 7.8% and 20.7% yr/yr on an organic basis, respectively.
- Gross margins saw a nice lift from the year-ago period, expanding by 140 bps to 47.2%. The gains mainly stemmed from the strong volume growth from new customers and cross-selling existing customers, with some extra help from easing energy expenses.
- As has become the norm for CTAS, it raised its annual guidance, forecasting FY23 (May) EPS of $12.70-12.90, up from $12.50-12.80, and revs of $8.74-8.80 bln, up from $8.67-8.75 bln. The company's raised guidance underpins a resilient business model, as its customers depend heavily on its many services despite so much uncertainty in the economy. However, it is worth noting that, as has always been the case, CTAS's guidance excludes significant economic disruptions.
Although CTAS registered another solid quarter, it is important to understand a considerable risk to CTAS's future financial performance. The company's operations are highly tied to the labor market. Although recent reports show a continuously tight labor market -- a favorable dynamic for CTAS -- this could change rapidly if a severe downturn materializes.
Still, CTAS is navigating the current tricky economic climate rather well, illustrated by consistent double-digit revenue growth and earnings upside. Also, CTAS bounced back quickly from the 2008-2009 financial crisis, returning to growth after just two years of declines, highlighting the company's sturdy positioning to weather potential economic storms.
Micron posts dismal Q2 results, but possible bottoming out for chip market sparks rally (MU)
Despite missing 2Q23 bottom-line expectations by a wide margin, chip maker Micron (MU) is climbing sharply higher and is providing a nice boost for the semiconductor space today. The company's ($1.91)/share loss, its largest loss in recent history, was partly attributable to a $1.4 bln inventory write down, shaving $1.34/share off its earnings. Plunging memory prices and an accompanying dive in margins are also to blame.
- DRAM prices plunged by about 40% in 2022 as the memory market suffered its worse supply and demand imbalance in over a decade, MU's non-GAAP gross margin also dove to (31.4)% from 22.9% last quarter and 47.8% in the year-ago quarter.
Although conditions aren't expected to improve much in MU's fiscal Q3, as illustrated by its downside EPS guidance, the company offered an encouraging outlook for the back half of the year, providing the stock with a spark.
- More specifically, CEO Sanjay Mehrotra commented that the high customer inventory situation that has plagued MU and its peers is improving, and that data center revenue bottomed out in this latest quarter. Accordingly, the company believes that it's close to returning to sequential revenue growth -- a feat it hasn't accomplished since 2Q22.
- Adding some fuel to the fire is that MU also bumped its headcount reduction number higher to 15% of its workforce from 10%. Investors have been cheering cost-reduction efforts from companies across the tech landscape and MU is no different. In Q2, total operating expenses declined by about 6% on a yr/yr basis to $916 mln with more cost reductions on the way.
- Those cost containment efforts will help MU navigate a business environment that's expected to remain very difficult, despite the company's more upbeat outlook for 2H23. For instance, MU acknowledged that it anticipates PC unit volumes to be down by a mid-single-digit percentage in 2023, down from its prior forecast of a low-to-mid single-digit decline. Likewise, the company sees smartphone volumes to decline this year, also below its previous outlook of flat to slightly up.
The main takeaway is that MU and other chip stocks are reacting favorably to the possibility that market conditions are finally bottoming, setting the stage for a recovery in 2H23. MU's commentary was indeed promising, especially regarding the improving inventory situation, but how the global economy shakes out over the next few months will have a major barring on whether this brighter view ultimately plays out.
lululemon athletica's low markdowns in Q4 underscore solid demand; momentum seeping into FY24 (LULU)
Shares of lululemon athletica (LULU +13%) are stretching toward December highs today, filling the gap from a considerable sell-off sparked by lackluster Q3 (Oct) earnings. The athletic apparel retailer hit on almost every mark in Q4 (Jan), topping earnings by double-digits, exceeding its revenue forecast, and, perhaps best of all, carrying this momentum in FY24 (Jan), illuminated by its upbeat top and bottom line forecasts. Additionally, today's exuberance stems partly from relatively low expectations after LULU provided mixed Q4 guidance in early January, igniting fears that a heightened promotional period would eat into financial performance.
- LULU quashed those fears, delivering 30.2% sales growth yr/yr to $2.77 bln, +30% comp growth on a constant dollar basis (+17% in stores and +39% in digital), and 30.6% adjusted EPS growth to $4.40 during Q4. Meanwhile, markdowns increased by only 40 bps compared to 2019, a testament to the power of LULU's brands.
- Growth was well-balanced across regions, with North American sales jumping 29% yr/yr while international sales climbed slightly higher at 35%. In China, LULU experienced similarly unfavorable conditions as most of its peers: a surge in COVID cases following an easing of restrictions. However, as we have heard from its peer group, the situation has already started to normalize, with LULU boasting a solid finish to the quarter with momentum accelerating in Q1 (Apr).
- Also well-balanced was LULU's transaction growth, with a nearly 30% improvement in transactions by new guests and over 35% in those by existing guests. LULU's robust numbers in Q4 translated to continued market share gains.
- Management noted that while the active apparel industry in the U.S. saw a 5% decline in sales in Q4, LULU gained 2.3 pts of market share, a nice advance from the 1.5 pts captured in Q3 and its highest quarterly market share gain since tracking the figure in 2020.
- Still, the brightest highlight of LULU's Q4 report was its guidance. The company's inventory growth will moderate throughout FY24, translating to regular prices. This dynamic is giving LULU's FY24 sales outlook a nice lift, projecting $9.30-9.41 bln, a 15% jump yr/yr at the midpoint, in line with the company's "Power of Three x2" five-year growth plan it outlined last year. Also, gross margins are expected to expand by 140-160 bps yr/yr as freight costs continue to ease, fueling LULU's solid EPS projection of $11.50-11.72, a 15% improvement at the midpoint.
Although Dick's Sporting Goods (DKS) and Foot Locker (FL) registered impressive quarterly results recently, LULU competitor NIKE (NKE) put white-out on the positive developments in the athletic apparel industry with its sizeable margin contraction during FebQ and weak FY23 (May) guidance. Therefore, by delivering only a minor 70 bp decline in gross margins in Q4 and issuing cheerful FY24 guidance, LULU is proving its business model and brand loyalty can succeed despite the ongoing macro uncertainty.
PVH's long-term plan outlined last April fuels excellent Q4 results and buoyant FY24 guidance (PVH)
PVH (PVH +19%), the company behind the Tommy Hilfiger and Calvin Klein brands, is gapping up toward 52-week highs set in early February on a massive Q4 (Jan) earnings beat and upbeat FY24 (Jan) earnings and revenue guidance. The clothing company's excellent quarter reflected healthy progress regarding its long-term growth plan dubbed PVH+, outlined during Investor Day last April. The central focus of PVH+ was on two key brands: Tommy Hilfiger and Calvin Klein. Additionally, PVH+ was built around expanding DTC and digital offerings.
- PVH delivered exceptionally well on its plan in Q4, returning to positive yr/yr sales growth after two-straight quarters of declines, improving the figure by 2.4% to $2.49 bln. PVH also posted its most prominent earnings beat since 2Q22 (Jul), fueled by SG&A expenses falling by nearly 400 bps yr/yr and operating margins advancing by 140 bps to 8.6%.
- Unlike many of its peers, PVH delivered these solid headline results despite a heightened promotional period. Inventory was still up 34% at the end of Q4 compared to the prior-year period, partly due to earlier receipts than expected due to easing supply chain constraints. However, absent the elevation due to the timing of receipts, PVH noted its inventory normalized toward levels that support its planned growth.
- A highlight from Q4 stemmed from PVH's international business, which registered 11% sales growth yr/yr, exceeding pre-pandemic levels significantly. The robust growth emanated from Europe, which boasted another record quarter following its first €1.0 bln quarter in Q3 (Oct).
- On the flip side, PVH's Asia Pacific business lagged, tumbling 8% yr/yr, which included an unfavorable 9 pt impact from currency fluctuations. Also, a surge in COVID cases following China's easing restrictions severely hurt sales growth in the quarter.
- On the bright side, PVH started seeing improvements in China's economy toward the end of Q4.
- PVH is exiting FY23 with significant momentum from its PVH+ plan, illuminated by buoyant FY24 earnings guidance of $10.00, well above analyst expectations, and sales growth projections of +3-4% yr/yr. Echoing sentiments felt by numerous organizations across the retail sector, PVH is staring at a more favorable second half of the year than the first, underpinned by improving costs in 2H24. For example, ocean freight rates are coming down rapidly, PVH is utilizing less airfreight, and abnormally high raw material costs should ease toward the back half of FY24.
Bottom line, PVH is proving its capacity to succeed despite a challenging economic backdrop. Although the company expects the landscape to remain unfavorable for the rest of the year, its PVH+ plan gives it the confidence to exit FY24 with positive top-line growth, improved profitability, and double-digit earnings growth yr/yr.
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