Market Snapshot
briefing.com
| Dow | 33175.53 | +316.59 | (0.96%) | | Nasdaq | 29108.47 | +17095.00 | (142.30%) | | SP 500 | 4096.88 | +44.78 | (1.11%) | | 10-yr Note | +27/32 | 3.49 |
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| | NYSE | Adv 2369 | Dec 507 | Vol 1.1 bln | | Nasdaq | Adv 3141 | Dec 1304 | Vol 5.4 bln |
Industry Watch
| Strong: Consumer Discretionary, Real Estate, Health Care, Consumer Staples, Industrials, Communication Services |
| | Weak: -- |
Moving the Market
-- Digesting the latest inflation reading, which showed a slight deceleration in the year/year PCE and core-PCE Price indices
-- Broad advanced paced by mega cap stocks
-- Pullback in Treasury yields
-- S&P 500 breaching the 4,100 level
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Closing Summary
31-Mar-23 16:30 ET
Dow +415.12 at 33274.06, Nasdaq +208.44 at 12221.91, S&P +58.48 at 4110.58
[BRIEFING.COM] The stock market closed out this final session of Q1 with sizable gains. The main indices moved up right out of the gate and spent most of the day inching higher. A sharp upside move in the late afternoon had the S&P 500 close above the 4,100 level.
The positive disposition today followed some relatively pleasing inflation data this morning. Briefly, the PCE Price Index slowed to 5.0% yr/yr in February from 5.3% in January while the core-PCE Price Index, the Fed's preferred inflation gauge, dipped to 4.6% from 4.7%. The direction of these moves is a welcomed development, but the pace at which these indices are decelerating leaves a bit to be desired.
Investors were also reacting to the Michigan Consumer Sentiment survey for March, which showed that year-ahead inflation expectations slowed to 3.6% from 3.8% in the preliminary reading and 4.1% in the final February reading.
Strength from the mega cap space had an outsized influence on index level performance today and throughout Q1. The Vanguard Mega Cap Growth ETF (MGK) rose 1.8% versus a 1.5% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.4% gain in the market-cap weighted S&P 500. The MGK rose 18.9% this quarter versus a 2.4% gain in the RSP.
All 11 S&P 500 sectors closed with gains led by consumer discretionary (+2.6%), real estate (+2.2%), and communication services (+2.1%). Meanwhile, the energy (+0.6%) and utilities (+0.8%) sectors fell to the bottom of the pack. Notably, the energy and utilities sectors were among the worst performers this quarter with losses of 5.6% and 4.0%, respectively. The financial sector was another top laggard this quarter, falling 6.1%.
Treasuries saw an uptick in buying interest following this morning's data releases. The 2-yr note yield settled the session down five basis points to 4.06% and the 10-yr note yield fell six basis points to 3.49%.
- Nasdaq Composite: +16.8% YTD
- S&P 500: +7.0% YTD
- S&P Midcap 400: +3.4% YTD
- Russell 2000: +2.3% YTD
- Dow Jones Industrial Average: +0.4% YTD
Reviewing today's economic data:
- February Personal Income 0.3% (Briefing.com consensus 0.3%); Prior 0.6%; February Personal Spending 0.2% vs Briefing.com consensus of 0.3%; Prior was revised to 2.0% from 1.8%; February PCE Prices 0.3% (Briefing.com consensus 0.4%); Prior 0.6%; February PCE Prices - Core 0.3% (Briefing.com consensus 0.4%); Prior was revised to 0.5% from 0.6%
- The key takeaway from the report is that it only showed a slight deceleration in the yr/yr PCE and core-PCE price indices, which gives the Fed an argument to continue hiking rates.
- March Chicago PMI 43.8 (Briefing.com consensus 42.5); Prior 43.6
- March Univ. of Michigan Consumer Sentiment - Final 62.0 (Briefing.com consensus 63.4); Prior 63.4
- The key takeaway from the report is that the failure of Silicon Valley Bank had a limited impact on sentiment, which had already been pressured by growing concerns about a potential recession. On a positive side, year-ahead inflation expectations receded to 3.6% from 4.1% in February.
Looking ahead to Monday, market participants will receive the following economic data:
- 9:45 a.m. ET: March IHS Markit Manufacturing PMI - Final (prior 49.3)
- 10:00 a.m. ET: February Construction Spending (Briefing.com consensus 0.0%; prior -0.1%) and March ISM Manufacturing Index (Briefing.com consensus 47.5%; prior 47.7%)
Near session highs ahead of close
31-Mar-23 15:30 ET
Dow +386.56 at 33245.50, Nasdaq +199.87 at 12213.34, S&P +53.66 at 4105.76
[BRIEFING.COM] A turn higher recently has the S&P 500 above 4,100. The main indices are all near session highs heading into the close.
The 2-yr Treasury note yield fell five basis points to 4.06% and the 10-yr note yield fell six basis points to 3.49%.
Looking ahead to Monday, market participants will receive the following economic data:
- 9:45 a.m. ET: March IHS Markit Manufacturing PMI - Final (prior 49.3)
- 10:00 a.m. ET: February Construction Spending (Briefing.com consensus 0.0%; prior -0.1%) and March ISM Manufacturing Index (Briefing.com consensus 47.5%; prior 47.7%)
Market continues to climb; energy complex settles with gains
31-Mar-23 15:05 ET
Dow +316.59 at 33175.53, Nasdaq +17095.00 at 29108.47, S&P +44.78 at 4096.88
[BRIEFING.COM] The S&P 500 is having trouble reaching the 4,100, running out of steam around 4,090.
A short time ago, Boston Fed President Susan Collins said the latest inflation data does not change the Fed's policy path, according to a Reuters interview.
Energy complex futures settled the session with gains. WTI crude oil futures 1.5% to $75.38/bbl and natural gas futures rose 4.5% to $2.21/mmbtu.
On a related note, the S&P 500 energy sector is among the worst performers today, up 0.4%.
Align Tech outperforms after sell side upgrade, GNRC dips on downgrade
31-Mar-23 14:30 ET
Dow +224.98 at 33083.92, Nasdaq +139.88 at 12153.35, S&P +33.48 at 4085.58
[BRIEFING.COM] The S&P 500 (+0.83%) is firmly in second place to this point on Friday afternoon, now trading near the top of today's range.
S&P 500 constituents Align Tech (ALGN 330.86, +19.01, +6.10%), ServiceNow (NOW 459.32, +19.69, +4.48%), and CarMax (KMX 63.83, +2.73, +4.47%) dot the top of today's standings. ALGN caught an upgrade to Positive at OTR Global, while NOW benefits from broader strength in tech and KMX gets a boost from gains in consumer discretionary.
Meanwhile, Wisconsin-based generator firm Generac (GNRC 106.60, -5.37, -4.80%) is today's worst performer, pressured by a downgrade to Underperform at BofA Securities.
Gold trims monthly, quarterly gains on Friday
31-Mar-23 14:00 ET
Dow +216.49 at 33075.43, Nasdaq +131.10 at 12144.57, S&P +30.91 at 4083.01
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.09%) holds the lead, trading currently just off session highs.
Gold futures settled $11.50 lower (-0.6%) to $1,986.20/oz, though cozied up to gains of +8.1% this month and +8.8% over Q1.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $102.55.
Headed for a higher open after latest inflation data
There wasn't a lot of conviction in the equity futures market earlier, driving only modest gains or losses. Investors were anxiously awaiting the market-moving February Personal Income and Spending report at 8:30 a.m. ET.
Personal income increased 0.3% month-over-month in February (Briefing.com consensus 0.3%) after increasing 0.6% in January. Personal spending was up 0.2% month-over-month (Briefing.com consensus 0.3%) after increasing a revised 2.0% (from 1.8%) in January.
The PCE Price Index increased 0.3% month-over-month after increasing 0.6% in January. The core-PCE Price Index, which excludes food and energy and is the Fed’s preferred inflation gauge, also increased 0.3% month-over-month after a downwardly revised 0.5% increase (from 0.6%) in January. On a year-over-year basis, the PCE Price Index is up 5.0% versus a downwardly revised 5.3% (from 5.4%) in January while the core-PCE Price Index is up 4.6% versus 4.7% in January.
The key takeaway from the report is that it only showed a slight deceleration in the yr/yr PCE and core-PCE price indices, which gives the Fed an argument to continue hiking rates.
The reaction to the data in the equity futures market has not been outsized, but levels have improved. The S&P 500 futures are up 13 point and are trading 0.3% above fair value. The Nasdaq 100 futures are up 14 points and are 0.1% above fair value. The Dow Jones Industrial Average futures are up 151 points and are trading 0.5% above fair value.
Treasuries had a more noticeable reaction. The 2-yr note yield, at 4.18% just before the data release, pulled back to 4.11%. The 10-yr note yield, at 3.56% a short time ago, sits at 3.53% now. The U.S. Dollar Index is up 0.2% to 102.35.
Other economic data today includes:
- 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
Generac shares are struggling to kick on after receiving a downgrade from BofA Securities (GNRC)
Generac (GNRC -4%) is struggling to kickstart its shares today after receiving a downgrade to "Underperform" from BofA Securities. The stock has hovered around the $110 mark for most of the year, quickly pulling back after gapping higher on decent Q4 earnings results in mid-February.
Briefing.com notes that as the nation's largest manufacturer of generators by far, boasting a 75% market share in home standby generators, GNRC is a formidable opponent in this field. However, on the flip side, it also means that its business heavily depends on power outages. Since this leads to volatility as storms and other weather-related disruptions can ignite short-lived demand, GNRC has been diversifying into another field: clean energy. Given that it is a relatively new player in this industry (it entered around 2019), there are heightened risks worth considering.
- Much of GNRC's strategy has been to grow through acquisitions, particularly within the residential clean energy space, such as its purchase of Chilicon Power in July 2021. GNRC has not let up on its M&A activity either, purchasing ecobee Inc. in late 2021 and many others like Blue Pillar in 2022 and REFU Storage Systems GmbH last month. With so many acquisitions comes the hurdle of seamlessly merging all their offerings under one umbrella.
- It is also no guarantee that these investments will pay off. GNRC noted last month that it was making healthy progress toward its next-gen energy storage system, beginning alpha testing in Q2 for a market launch in 2024. However, with clean energy product shipments lower in Q4, market demand may be waning, especially as macroeconomic pressures, like inflation, continue to hang over the economy.
- Meanwhile, the competitive landscape in the clean energy space is much greater than in the home standby market. For example, GNRC is competing against a long-standing player in this field in Enphase Energy (ENPH).
Still, GNRC is amid long-term tailwinds. Utility rates continue to increase, spurring more consumers to ponder solar plus storage options. Also, the electrification of many household appliances, from cars to HVAC systems, places more reliance on always having electricity. It is also worth mentioning that telecoms' 5G rollouts should provide substantial benefits for GNRC as this infrastructure depends on always being on.
Bottom line, GNRC still commands a strong leadership position in the home standby generator market, which will help cushion against a severe market downturn. The company also possesses plenty of opportunities over the long term. However, shifting away from its dependence on gasoline-powered generators toward more clean energy alternatives may not be a smooth transition, especially given the competitive landscape.
Braze is blazing hot after issuing upside Q4 results as spending on CXM tools remains healthy (BRZE)
Following in the footsteps of fellow customer experience platform provider Sprinklr (CXM), Braze (BRZE) issued its own strong 4Q23 earnings report, topping EPS and revenue expectations on solid top-line growth of 40.2%. Similar to CXM, which reported upside results yesterday, BRZE's business is displaying impressive resilience in the face of a slowing spending environment across the tech sector.
- During the earnings call, CEO William Magnuson noted that sales cycles remained elongated during the quarter, especially on the commercial side, but the high ROI offered by BRZE's platform is a key difference maker in this tough climate. He added that customer engagement tools will likely remain a priority for many companies, even as macroeconomic headwinds intensify, because companies are looking for opportunities to improve productivity, reduce complexity, and add revenue generating capabilities.
- BRZE's platform enables companies to consolidate their customer engagement solutions -- ranging from marketing software and email to SMS and push notifications -- into one platform, unifying the efforts of various teams and simplifying the technical architecture.
- This quality is clearly resonating with companies with BRZE experiencing particular momentum in the retail, e-commerce, media, and telecommunications industries. Furthermore, as outdated customer relationship tools come up for renewal, the company is seeing more success winning deals in the travel and hospitality spaces.
- Overall, BRZE added 55 customers since last quarter, for a total of 1,770. Also similar to peer CXM, the number of large accounts is growing at a good pace. As of January 31, 2023, BRZE had 156 customers with ARR of $500K or more, up from 107 customers as of January 31, 2022.
The company is making strides on profitability and cash flow generation as well.
- Along with the healthy revenue growth, BRZE is taking a more disciplined approach to spending, illustrated by non-GAAP sales and marketing expense as a percentage of revenue decreasing to 47% from 50% in the prior year quarter.
- Consequently, the company's non-GAAP EPS improved to $(0.14) from $(0.18) in 4Q22, and free cash flow was nearly breakeven at $(1.9) mln versus $(26.0) mln a year earlier.
On the downside, BRZE's FY24 revenue guidance and its 1Q24 EPS and revenue outlook did fall a bit short of expectations. However, investors are giving BRZE the benefit of the doubt, looking at the overall report as better-than-expected.
It's also worth pointing out that shares were down by more than 30% since last August and have been trading sideways since early February. This weak performance helped set the stage for a snap back higher on a solid report.
The bottom line is that BRZE's solid earnings report solidifies the notion that customer engagement tools are towards the top of IT departments priority lists when it comes to spending.
BlackBerry ends FY23 on a high note; sales growth to turn positive in FY24 (BB)
After initially selling off despite posting decent top and bottom line upside in Q4 (Feb), BlackBerry (BB +14%) is mounting a huge comeback, trading confidently in positive territory. After abandoning phone production in 2016, BB has become a completely different firm than just a decade ago, focused on internet-of-things (IoT) and cybersecurity.
The transformation had ups and downs, with shares still not back to levels before the company halted smartphone production. However, the stock has gained traction over the past three months, edging over 30% higher on the year after today's massive jump.
- Why are shares bouncing on upbeat Q4 results when they sold off despite similar upside in Q3 (Nov)? Unlike last quarter, when management shared a few cautious remarks surrounding the global economy, the tone during BB's Q4 call was a little more optimistic.
- BB still saw longer sales cycles within its core cybersecurity segment, particularly with government agencies, causing several key deals to slip into later quarters. However, strong billings growth from other nongovernment verticals, like financial services, made up for the unfavorable dynamic in the government space.
- As a result, even though the macroeconomic backdrop remains challenging, BB predicts FY24 revs of $425-450 mln in its Cybersecurity segment, a decent 5% jump yr/yr at the midpoint.
- Meanwhile, in the automotive sector (BB's IoT segment), the company expects production headwinds to persist throughout FY24. However, BB noted that the challenges plaguing automotive production are easing. Global light-vehicle production, a key driver of BB's royalty revenue, is expected to jump by around 4% yr/yr in 2023 to 85 mln vehicles, moving closer to pre-pandemic levels of 95 mln.
- Even though IoT revs are less volatile than Cybersecurity as it depends on a steady stream of royalties, BB is predicting a significant 19% improvement in IoT revs yr/yr in FY24 at the midpoint of its $240-250 mln guidance, a reflection of healthy progress in the automotive sector.
- BB's Licensing segment may be the least exciting, but the company announced a major patent sale agreement with Key Patent Innovations last week for up to $900 mln; BB will receive cash and potential future royalties from the deal. Also, under the transaction terms, BB will retain around 2,000 patents that would have been sold under a previous transaction with Catapult, allowing BB to keep all existing revenue-generating contracts. As a result, BB expects around $5 mln per quarter from the patent sale proceeds.
The main takeaway is that BB ended FY23 on a high note and expects to carry this momentum into FY24. Although the year ahead will still see macroeconomic and supply chain-related headwinds, BB is projecting positive overall revenue growth yr/yr, a return to positive growth for the first time since 2020.
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.
63.4)
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