Market Snapshot
| Dow | 32826.05 | +108.54 | (0.33%) | | Nasdaq | 11999.99 | +73.76 | (0.62%) | | SP 500 | 4047.98 | +18.90 | (0.47%) | | 10-yr Note | +2/32 | 3.55 |
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| | NYSE | Adv 2056 | Dec 893 | Vol 803 mln | | Nasdaq | Adv 2356 | Dec 2045 | Vol 4.6 bln |
Industry Watch
| Strong: Real Estate, Consumer Discretionary, Materials, Information Technology |
| | Weak: Financials |
Moving the Market
-- Carryover from yesterday's rally
-- Some hesitation ahead of latest inflation reading tomorrow in the form of the February PCE Price Index
-- S&P 500 extending position above 50-day moving average (4,017)
-- Relative strength from mega cap stocks and chipmakers
-- Renewed selling pressure in the banking sector
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Closing Summary
30-Mar-23 16:30 ET
Dow +141.43 at 32858.94, Nasdaq +87.24 at 12013.47, S&P +23.02 at 4052.10
[BRIEFING.COM] Today's trade started on an upbeat note following yesterday's pleasing price action. Initially, the main indices all logged decent gains paced by the Nasdaq thanks to relative strength from chipmakers and mega cap stocks.
Early momentum dissipated, though, and the main indices slowly declined, hitting their session lows around midday. The downturn was attributed to renewed selling pressure in the banking sector, indicating that concerns about additional fallout remain in play for investors. The SPDR Regional Bank ETF (KRE) fell 2.0% and the SPDR Bank ETF (KBE) lost 1.5% today.
Unsurprisingly, the S&P 500 financial sector (-0.3%) was the worst performer today. It was the only sector to close with a loss, partially weighed down by the recently embattled First Republic Bank (FRC 13.69, -0.57, -4.0%). Charles Schwab (SCHW 52.47, -2.74, -5.0%) was another top laggard for the sector after being downgraded to Equal Weight from Overweight at Morgan Stanley.
Following the midday dip, the main indices bounced and closed near their best levels of the day. The S&P 500 was able to extend its position above its 50-day moving average (4,017). Fortunately, buying interest in chipmakers and mega cap stocks remained fairly robust. The PHLX Semiconductor Index rose 1.6% and the Vanguard Mega Cap Growth ETF (MGK) rose 0.8%.
The ten remaining S&P 500 sectors, aside from financials, logged gains ranging from 0.2% (industrials) to 1.2% (real estate). The influential information technology (+1.1%) and consumer discretionary (+0.9%) sectors were among the top performers.
The 2-yr note yield rose four basis points to 4.11% and the 10-yr note yield fell two basis points to 3.55%.
The U.S. Dollar Index fell 0.5% to 102.14. On a currency related note, China and Brazil agreed to trade in their own currencies instead of the U.S. dollar.
As a reminder, investors receive the market-moving February Personal Income and Spending report tomorrow at 8:30 a.m. ET, which will include the PCE Price Index (the Fed's preferred inflation gauge).
- Nasdaq Composite: +14.8% YTD
- S&P 500: +5.5% YTD
- S&P Midcap 400: +1.6% YTD
- Russell 2000: +0.4% YTD
- Dow Jones Industrial Average: -0.9% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending March 25 increased by 7,000 to 198,000 (Briefing.com consensus 196,000) while continuing jobless claims for the week ending March 18 increased by 4,000 to 1.689 million from last week’s revised level of 1.685 million (from 1.694 million).
- The key takeaway from the report is that claims remain at a stable level near the 200,000 mark, suggesting little recent stress in the labor market.
- The third estimate for fourth quarter GDP showed a slight downward revision to 2.6% (Briefing.com consensus 2.7%) from 2.7% reported in the second estimate. The lowered estimate was owed to downward revisions to exports and consumer spending. The GDP Price Deflator was left unrevised at 3.9% (Briefing.com consensus 3.9%). The personal consumption expenditures index was left unrevised at 3.7% while the core-PCE Price Index was revised up to 4.4% from 4.3% in the second estimate.
- The key takeaway from the report is that it continues pointing to above-potential growth and inflation that remains above target, which the Fed could use as an argument for additional rate hikes.
- The weekly EIA Natural Gas Inventories showed a draw of 47 bcf versus a draw of 72 bcf last week.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: February Personal Income (Briefing.com consensus 0.3%; prior 0.6%), Personal Spending (Briefing.com consensus 0.3%; prior 1.8%), PCE Prices (Briefing.com consensus 0.4%; prior 0.6%), and Core PCE Prices (Briefing.com consensus 0.4%; prior 0.6%)
- 9:45 ET: March Chicago PMI (Briefing.com consensus 42.5; prior 43.6)
- 10:00 ET: Final March University of Michigan Consumer Sentiment (Briefing.com consensus 63.4; prior 63.4)
Market climbing ahead of close
30-Mar-23 15:40 ET
Dow +143.56 at 32861.07, Nasdaq +91.52 at 12017.75, S&P +23.37 at 4052.45
[BRIEFING.COM] The main indices are climbing higher ahead of the close.
The 2-yr note yield rose four basis points to 4.11% and the 10-yr note yield fell two basis points to 3.55%.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: February Personal Income (Briefing.com consensus 0.3%; prior 0.6%), Personal Spending (Briefing.com consensus 0.3%; prior 1.8%), PCE Prices (Briefing.com consensus 0.4%; prior 0.6%), and Core PCE Prices (Briefing.com consensus 0.4%; prior 0.6%)
- 9:45 ET: March Chicago PMI (Briefing.com consensus 42.5; prior 43.6)
- 10:00 ET: Final March University of Michigan Consumer Sentiment (Briefing.com consensus 63.4; prior 63.4)
Small caps continue to lag
30-Mar-23 15:00 ET
Dow +108.54 at 32826.05, Nasdaq +73.76 at 11999.99, S&P +18.90 at 4047.98
[BRIEFING.COM] The major indices are little changed recently.
A short time ago, President Biden asked regulators to reinstate banking regulations and make additional regulations. Each of these items can be accomplished under existing law (without congressional approval).
Small cap stocks remain under pressure with the Russell 2000 down 0.3%.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 1.8% to $74.25/bbl while natural gas futures fell 3.0% to $2.11/mmbtu.
Paycom outperforms in S&P 500 after DADA upgrade; dating apps MTCH, BMBL, GRND decline
30-Mar-23 14:30 ET
Dow +84.98 at 32802.49, Nasdaq +70.04 at 11996.27, S&P +17.16 at 4046.24
[BRIEFING.COM] The S&P 500 (+0.43%) is now in second place in recent trading, having moved in tandem with the other major averages off session lows from the prior half hour.
S&P 500 constituents Paycom Software (PAYC 297.67, +11.80, +4.13%), Caesars Entertainment (CZR 46.95, +1.77, +3.92%), and GE HealthCare (GEHC 81.66, +2.42, +3.05%) dot the top of the standings. PAYC gains after a DA Davidson upgrade, while CZR and GEHC mover higher despite a dearth of corporate news.
Meanwhile, Dallas-based dating app company Match Group (MTCH 37.59, -1.58, -4.03%) slips to the bottom of the S&P, dragging peers Bumble (BMBL 19.23, -0.87, -4.33%) and Grindr (GRND 6.26, -0.12, -1.88%) lower in tow.
Gold ends higher on Thursday, poised to cap off March with solid gains
30-Mar-23 13:55 ET
Dow +8.63 at 32726.14, Nasdaq +39.38 at 11965.61, S&P +7.44 at 4036.52
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.33%) remains atop the standings, albeit having made session lows in the last half hour.
Gold futures settled $13.20 higher (+0.7%) to $1,997.70/oz, on pace to end the week up +0.7%, pushing monthly gains to about +8.8%.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $102.21.
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Building on yesterday's gains
The S&P 500 futures are up 26 point and are trading 0.7% above fair value. The Nasdaq 100 futures are up 92 points and are trading 0.7% above fair value. The Dow Jones Industrial Average futures are up 197 points and are trading 0.6% above fair value.
Yesterday's positive disposition has carried over this morning with the equity futures market showing decent gains. Worries about the banking industry continue to ease, offering support to the broader market, as evidenced by the price action in many bank stocks ahead of the open. Gains in the mega cap space have also been supportive for the broader market so far this morning.
Notably, many overseas indices trade firmly higher again today. This is partially thanks to a cooler than expected March CPI (4.0% yr/yr; expected 5.5% yr/yr) reading from Spain. Spain's pleasing data comes ahead of the latest inflation reading for the U.S. in the form of the PCE Price Index (the Fed's preferred inflation gauge) tomorrow at 8:30 a.m. ET.
The third estimate for fourth quarter GDP showed a slight downward revision to 2.6% (Briefing.com consensus 2.7%) from 2.7% reported in the second estimate. The lowered estimate was owed to downward revisions to exports and consumer spending. The GDP Price Deflator was left unrevised at 3.9% (Briefing.com consensus 3.9%). The personal consumption expenditures index was left unrevised at 3.7% while the core-PCE Price Index was revised up to 4.4% from 4.3% in the second estimate.
The key takeaway from the report is that it continues pointing to above-potential growth and inflation that remains above target, which the Fed could use as an argument for additional rate hikes.
Initial jobless claims for the week ending March 25 increased by 7,000 to 198,000 (Briefing.com consensus 196,000) while continuing jobless claims for the week ending March 18 increased by 4,000 to 1.689 million from last week’s revised level of 1.685 million (from 1.694 million).
The key takeaway from the report is that claims remain at a stable level near the 200,000 mark, suggesting little recent stress in the labor market.
The 2-yr Treasury note yield, which is more sensitive to changes in the fed funds rate, jumped up from 4.07% shortly before the 8:30 a.m. ET data releases to 4.15% now. The 10-yr note yield, at 3.56% a short time ago, is up one basis point to 3.58%. The U.S. Dollar Index also took a sharp turn lower, down 0.5% to 102.18.
H.B. Fuller is in a sticky situation as a global slowdown leads to restructuring efforts (FUL)
H.B. Fuller (FUL -2%) is in a slightly sticky situation today after posting minor earnings and revenue misses in Q1 (Feb). Due to slowing global economic conditions, the adhesives, sealants, and other specialty chemicals manufacturer also trimmed its FY23 (Nov) top and bottom line forecasts. FUL now expects FY23 EPS of $4.10-4.50, down $0.05 from its prior estimates, and sales to fall 1-4% yr/yr, a 1 pt decline from its previous projection.
- Drilling deeper, Q1 numbers were impacted by demand weakness, primarily affecting FUL's smallest segment: Construction Adhesives, which comprised 11% of overall revenue in the quarter. This business continued to endure customer destocking, which started last quarter and carried into Q1, spurring an 18% decline in sales yr/yr. Management noted it was uncertain how long this event will take to completely unfold.
- On the plus side, FUL's much larger segments, Hygiene, Health & Consumable Adhesives and Engineering Adhesives, helped partially offset the woes in Construction Adhesives. Although sales also fell yr/yr in FUL's other segments, it was by a much slimmer margin than Construction Adhesives, resulting in overall revs slipping 5.5% yr/yr to $809 mln.
- Looking ahead, FUL projects a mild global recession in 2023, which will pressure future financial performance, explaining its trimmed FY23 outlook. The good news is that FUL still expects to grow its adjusted EBITDA despite the bearish scenario, reiterating its $580-610 mln forecast.
- FUL's newly announced restructuring plan will play a meaningful role in growing adjusted EBITDA this year. The company is focused on reducing costs across the organization, particularly in Construction Adhesives. Its actions are estimated to deliver annualized cost savings of $30-35 mln, with $10 mln realized in FY23.
- Assisting in these savings is continual easing in raw material costs. FUL noted it is on track to deliver $130-160 mln in net benefit from price and raw material cost management.
- However, lower volumes due to the current environment and still-high inflation, when measured on a yr/yr basis is, taking an $80 mln chunk out of these benefits.
The main takeaway is that the global economic slowdown is beginning to take a more severe toll on FUL's quarterly figures. A silver lining is that only a small portion of its construction business is exposed to the residential sector, mainly participating in commercial construction, which has been relatively more resilient. Still, FUL is not seeing any factors catalyzing market demand, primarily leading to its restructuring decision as the company prepares for lingering volume weakness.
With realistic expectations set, shares of FUL could see a considerable rally if market conditions improve. However, we think it would be better to wait out FUL's current struggles, as the construction markets may still experience further downside over the near term.
Sprinklr raining down gains after strong Q4 report, launch of OpenAI-enabled Sprinklr Social (CXM)
Sprinklr (CXM), a provider of a cloud-based Customer Experience Platform, is raining down some big gains today after reporting upside 4Q23 results that included quarterly records for total revenue, total billings, gross new bookings, and non-GAAP operating income. Buoyed by the strong results, CXM also guided FY24 EPS and revenue above the consensus estimates and struck a confident tone about its business prospects despite the soft IT spending environment. However, what's really putting a charge into the stock is another announcement from CXM that was made in conjunction with its earnings release.
- Specifically, the company announced the launch of Sprinklr Social, a self-service version of its social media management platform that's integrated with OpenAI's generative AI technology ChatGPT. Of course, generative AI has been a huge buzz word of late, so the mere mention of it has the potential to move a stock. In the case of CXM, though, we think there's some real substance behind this development.
- Using Sprinklr Social, an enterprise's social media team will be able to access publishing, engagement, and reporting tools that are powered by OpenAI, enabling them to create better content more efficiently. An example of its capability is that it can produce creative content ideas and instantly generate copy that's channel-specific. Additionally, Sprinklr Social can reword and simplify responses, thanks to its AI-enabled grammar check.
- With a $299 per user per month price point, Sprinklr Social will be affordable for most businesses, yet, it's also a high enough rate to eventually move the needle on the top-line.
Circling back to CXM's quarterly results, a few metrics really stand out and highlight the momentum behind its business.
- The number of $1+ mln customers jumped by 32% yr/yr to 108, which is pretty impressive in an environment where most companies are reining in spending. On that note, CXM stated that the spending environment was essentially unchanged in Q4 compared to prior quarters, but its go-to-market strategy is still performing quite well. The company's focus has been to make it easier to sell its products and it has done so by adding dedicated Sprinklr specialists, creating a team of new logo sales reps, and empowering its partners to source deals rather than just act as influencers.
- CXM is also successfully up selling more customer experience management tools to its existing customers. This is illustrated by its very healthy net dollar expansion rate of 124%, which also speaks to the significant value its customers are finding in its platform.
- Lastly, the cherry on top is that CXM is doing a good job of managing expenses as it continues to generate efficiencies in sales and marketing. For the quarter, sales and marketing expense as a percentage of revenue was 45% compared to 56% in the year-ago quarter.
The bottom line is that CXM is bucking the trend in the technology sector, gaining momentum when many companies are fighting for positive sales growth. With the OpenAI-backed Sprinklr Social platform launching today, this fiscal year is setting up to be an exciting one for CXM.
RH struggles continue as slumping luxury housing market batters results and outlook (RH)
The struggles for luxury home furnishings company RH (RH) continued in 1Q24 with the company badly missing EPS expectations as sales fell by 14.4% yr/yr amid a very challenging market for big-ticket items like pricey furniture. CEO Gary Friedman hasn't been shy about voicing his displeasure about the macroeconomic environment and the cooling housing market and how those factors are impacting RH's business. In fact, he was quite blunt about the situation, characterizing the luxury housing market as "collapsing", adding that the underperforming stock marking and banking crisis are pointing to more tough times ahead.
- That prognostication was laid out in soft outlooks for 1Q24 and FY24 that missed analysts' revenue and operating margin estimates by wide margins. Looking at RH's Q1 guidance in particular, its revenue forecast of $720-$735 mln calls for a 24% yr/yr dive, while its adjusted operating margin guidance of 13-14% missed estimates by nearly five percentage points.
- Mr. Friedman certainly has good reason to gripe about the current business conditions. He noted that luxury home sales plunged by 45% during the quarter as rising interest rates batter the housing market. Furthermore, persistent inflation and a swing in consumer spending patterns towards travel and experiences have compounded the problem.
However, we also believe that RH's reluctance to adjust to a more promotional market is amplifying its troubles.
- For instance, on March 16, competitor Williams-Sonoma (WSM) reported solid 4Q23 results, exceeding EPS expectations with comparable brand revenue dipping by only 0.6%, despite lapping a difficult year-earlier comp of +10.8%. Pottery Barn was especially impressive, posting a positive comp of 5.8%, on top of last year's +16.2% mark. Although WSM's gross margin did slip by 380 bps yr/yr to 41.2%, that seemed like a reasonable price to pay for results that were otherwise pretty strong -- especially considering the business climate.
- The discrepancy in performance indicates that RH is likely losing some sales and market share to competitors like WSM and Wayfair (W). Losing market share in order to retain its standing as the leading premium home furnishings retailer is a trade-off that RH is willing to accept.
- This strategy has prevented RH's gross margins from spiraling sharply lower. For the quarter, adjusted gross margin declined by a reasonable 250 bps yr/yr to a still rather robust 47.8%.
As the company continues to play the long game, though, its stock may be in for more turbulence in the months ahead. From a big picture perspective, RH's aspirations to expand the brand into every major market globally, while transforming from a furniture retailer into a company that sells luxury spaces (hotels, homes, restaurants, etc.), is still intriguing. However, getting to that point is proving to be very difficult and painful for RH's investors.
Concentrix amid a rally after its $4.8 bln combination with Webhelp ignited selling pressure (CNXC)
Concentrix (CNXC +1%) is mounting a considerable comeback today after selling off initially after entering into a binding put option agreement to combine with Webhelp in a transaction valued at $4.8 bln. CNXC also trimmed its FY23 (Nov) revenue forecast despite growing the figure toward the high end of its prior forecast in Q1 (Feb).
CNXC, which was spun off from TD Synnex (SNX) in late 2020, offers services similar to traditional customer relationship management (CRM) service providers such as Salesforce (CRM) but differentiates itself by taking this technology a step further. CNXC supports the entire customer lifecycle, from user experience to strategy and design to analytics and data-driven insights. CNXC boasts a healthy group of clients, including 130 Fortune Global 500 companies across several sectors.
With Webhelp focused on providing customer services through various offerings, including social media management, the combination with CNXC looks like a good fit. Furthermore, CNXC has expressed a lackluster footprint in Europe and Latin America for some time, not achieving the scale it believed was needed to take full advantage of the opportunities present in these regions despite sizeable investments. With Webhelp already having a decent presence in these regions, as well as Africa, boasting consistent profitable growth, CNXC is optimistic that it can finally capitalize on the massive marketplace these regions offer. Lastly, CNXC anticipates $75 mln in cost synergies within the first full year after closing, expected by the end of 2023, reaching a minimum of $120 mln by the third full year.
So why were CNXC shares under some selling pressure today?
- CNXC's Q1 earnings report was not overly exciting. The company cut its FY23 revenue forecast slightly, expecting $6.705-6.830 bln from $6.715-6.685 bln, despite growing revs 6.5% yr/yr to $1.64 bln in Q1, hitting the high-end of its previous guidance. However, the trimmed FY23 revenue outlook was partly due to unfavorable FX impacts. On a constant currency basis, CNXC maintained its prior projection of +4-6% growth yr/yr.
- Still, the macroeconomy remains depressed. As such, CNXC remains conservative in its guidance, especially since it expects muted seasonal volumes in Q4 (Nov) this year, consistent with what it saw in 4Q22.
- Additionally, investors do not like the price tag on CNXC's Webhelp transaction. However, with Webhelp projected to generate $3.0 bln in revenue and $500 mln in adjusted EBITDA in 2023, CNXC purchased the company at a reasonable 1.6x forward sales and 9.6x adjusted EBITDA.
Overall, CNXC's decision to expand further into markets outside the U.S. through its $4.8 bln combination with Webhelp makes sense. The company has a lengthy history of growing through acquisitions, so we would expect even more M&A activity down the road. Finally, the stock is slowly recouping today's earlier losses that nearly took out 52-week lows. With shares trading over 20% below February highs, today's pullback creates a solid buying opportunity, especially given the growing demand for CRM-related services, most recently highlighted by Salesforce's excellent JanQ earnings earlier this month.
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.
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