Market Snapshot
briefing.com
| Dow | 34075.28 | -22.79 | (-0.07%) | | Nasdaq | 12216.85 | -9.92 | (-0.08%) | | SP 500 | 4172.00 | +1.25 | (0.03%) | | 10-yr Note | -34/32 | 3.57 |
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| | NYSE | Adv 1173 | Dec 1739 | Vol 800 mln | | Nasdaq | Adv 2055 | Dec 2384 | Vol 5.1 bln |
Industry Watch
| Strong: Industrials, Health Care, Utilities, Information Technology |
| | Weak: Energy, Consumer Discretionary, Real Estate |
Moving the Market
-- Hesitation ahead of the FOMC meeting (Wednesday), the ECB meeting (Thursday), Apple's (AAPL) earnings report (Thursday), and the April Employment Situation Report (Friday)
-- Reacting to news that First Republic Bank (FRC) was seized by regulators, then JPMorgan Chase (JPM) acquired a substantial majority of assets and assumed certain liabilities of FRC
-- Sharp move higher in Treasury yields
-- Weak showing from some mega cap stocks limiting index performance
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Closing Summary
01-May-23 16:25 ET
Dow -46.46 at 34051.61, Nasdaq -13.99 at 12212.78, S&P -1.61 at 4169.14
[BRIEFING.COM] The stock market entered the new month on a mostly positive note ahead of another busy week of potentially market-moving events. Investors are eyeing the FOMC decision on Wednesday, the ECB meeting and Apple's (AAPL 169.59, -0.09, -0.1%) earnings report on Thursday, and the April Employment Report on Friday.
Today's action saw the S&P 500 breach its February high closing level (4,179), hitting 4,186 at its high of the day, but it was unable to maintain a posture above that level by the close. Ultimately, the major indices all closed just below their flat lines. Index level performance was muted by lagging mega cap stocks.
Apple, Amazon.com (AMZN 102.05, -3.40, -3.2%), Alphabet (GOOG 107.71, -0.51, -0.5%), Tesla (TSLA 161.83, -2.48, -1.5%), and Microsoft (MSFT 305.56, -1.70, -0.6%) all registered losses today. The Vanguard Mega Cap Growth ETF (MGK) fell 0.2% while the S&P 500 closed flat.
Weak bank stocks were another limiting factor for index performance today. The SPDR S&P Regional Banking ETF (KRE) fell 2.8% and the SPDR S&P Bank ETF (KBE) fell 2.2%. This followed news over the weekend that First Republic Bank (FRC) was seized by regulators. Subsequently, the FDIC facilitated a deal whereby JPMorgan Chase (JPM 141.20, +2.96, +2.1%) acquired a substantial majority of assets and assumed the deposits and certain liabilities of FRC.
Lingering growth concerns were a factor behind the selling interest in the bank stocks today.
Separately, Treasuries were weak today following an ISM Manufacturing Index that was improved from last month, but still below 50% -- the dividing line between expansion and contraction -- for the sixth consecutive month. The 2-yr note yield rose six basis points to 4.12% and the 10-yr note yield rose 12 basis points to 3.57%.
Most of the S&P 500 sectors logged a loss while health care (+0.6%) and industrials (+0.6%) led the outperforms.
The energy sector (-1.3%) was the worst performer by a decent margin due to falling oil prices, another manifestation of growth concerns, and losses in Exxon (XOM 114.67, -3.67, -3.1%), which was downgraded to Neutral from Buy at Goldman Sachs. Notably, it was the only sector to move more than 1.0% in either direction today.
- Nasdaq Composite: +16.7% YTD
- S&P 500: +8.6% YTD
- Dow Jones Industrial Average: +2.8% YTD
- S&P Midcap 400: +2.5% YTD
- Russell 2000: +0.5% YTD
Looking ahead to Tuesday, market participants will receive the following economic data:
- 10:00 ET: March Factory Orders (Briefing.com consensus 1.4%; prior -0.7%) and March job openings (prior 9.931 mln)
Reviewing today's economic data:
- April IHS Markit Manufacturing PMI - Final 50.2; Prior 50.4
- March Construction Spending 0.3% (Briefing.com consensus 0.1%); Prior was revised to -0.3% from -0.1%
- The key takeaway from the report is that new single family construction continued to languish; however, there was some notable strength in nonresidential spending to offset that weakness.
- April ISM Manufacturing Index 47.1% (Briefing.com consensus 46.8%); Prior 46.3%
- The key takeaway from the report is that manufacturing activity remains in a state of contraction, accented by ongoing weakness in new order growth and a quickening contraction in the backlog of orders; nonetheless, the employment index moving back into a state of expansion reflects some equanimity on the manufacturing outlook.
Market remains near lows heading into the close
01-May-23 15:30 ET
Dow -28.63 at 34069.44, Nasdaq -13.25 at 12213.52, S&P -0.32 at 4170.43
[BRIEFING.COM] The major indices took another dip lower after NBC News reported that the US is tracking a "mysterious balloon" over US soil.
Treasuries settled the session with losses across the curve. The 2-yr note yield rose six basis points to 4.12% and the 10-yr note yield rose 12 basis points to 3.57%.
After the close today, Stryker (SYK), MGM Resorts (MGM), NXP Semi (NXPI), Avis Budget (CAR), Diamondback Energy (FANG), Amkor (AMKR), Logitech Int'l SA (LOGI), and
Lattice Semi (LSCC) are among the more notable companies reporting earnings.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 10:00 ET: March Factory Orders (Briefing.com consensus 1.4%; prior -0.7%) and March job openings (prior 9.931 mln)
Market dips on FDIC release
01-May-23 15:05 ET
Dow -22.79 at 34075.28, Nasdaq -9.92 at 12216.85, S&P +1.25 at 4172.00
[BRIEFING.COM] The main indices took a sharp turn lower coinciding with the FDIC releasing a comprehensive overview of deposit insurance system, including options for deposit insurance reform.
Energy complex futures settled the session with losses. WTI crude oil futures fell 1.3% to $75.77/bbl and natural gas futures fell 3.5% to $2.50/mmbtu.
The U.S. Dollar Index continues to climb, up 0.5% to 102.13.
Norwegian Cruise Line & Loews gain in S&P 500 after earnings
01-May-23 14:30 ET
Dow +35.65 at 34133.72, Nasdaq +6.94 at 12233.71, S&P +7.67 at 4178.42
[BRIEFING.COM] The S&P 500 (+0.18%) is now in the lead, trading at about the middle of today's range as action continues to drift off highs.
S&P 500 constituents Norwegian Cruise Line (NCLH 14.50, +1.15, +8.61%), Loews Corp (L 60.08, +2.51, +4.36%), and Microchip (MCHP 75.49, +2.50, +3.43%) dot the top of today's trading. NCLH and L move higher on earnings, while MCHP is up in sympathy to broader gains in chips following ON Semi's (ON 78.05, +6.09, +8.46%) earnings.
Meanwhile, Georgia-based consumer products firm Newell Brands (NWL 11.15, -1.00, -8.23%) is falling off, giving back Friday's post-earnings advance and then some.
Gold lower to start the week
01-May-23 14:00 ET
Dow +61.31 at 34159.38, Nasdaq +23.74 at 12250.51, S&P +11.61 at 4182.36
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.19%) is narrowly in second place, up about 24 points.
Gold futures settled $6.90 lower (-0.4%) to $1,992.20/oz, owing in part to a surge in bond yields and a stronger dollar.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $102.15.
Primed to trade around another big week of news
It was a slow start last week, but by the end of the week the stock market had regrouped and finished on a winning note that left the S&P 500 sitting near its best levels of the year. This week also looks set to start on a slow note, but whether it ends on a winning note will have a lot to do with how the market responds to some key happenings this week.
Major items on the market-moving docket this week include the April ISM Manufacturing (today) and Non-Manufacturing (Wednesday) PMI data, the FOMC meeting (Wednesday), the ECB meeting (Thursday), Apple's (AAPL) earnings report (Thursday), and the April Employment Situation Report (Friday).
While Apple is the earnings headliner this week, it is another huge week of earnings reporting for the March quarter.
In brief, the news flow will be flowing at full stream, providing plenty of trading opportunities for individual stocks, industry groups, sectors, and the market as a whole.
Currently, the market as a whole is looking mixed and flattish. The S&P 500 futures are down three points and are trading fractionally below fair value, the Nasdaq 100 futures are down 19 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are up six points and are trading fractionally above fair value.
The big news this morning is that First Republic Bank (FRC) was seized by regulators over the weekend. In the wake of that move, JPMorgan Chase (JPM) answered an FDIC call and acquired the substantial majority of the bank's assets and assumed its deposits and certain liabilities as part of a competitive bidding process that was approved by the FDIC.
This deal is expected to be modestly EPS accretive for JPM, which is up 4.2% in pre-market trading. According to CNBC, JPMorgan Chase CEO Jamie Dimon said First Republic's failure doesn't change the economic outlook. The U.S. will see a reduction in bank lending, but this situation is nothing like 2008 and this deal will stabilize the system.
Shares of FRC haven't stabilized. They are down 34.2%; however, the SPDR S&P Regional Banking ETF (KRE) is flat in pre-market action. Market participants will be keeping a close watch on the behavior of the regional bank stocks, hoping to see price action that supports Jamie Dimon's stabilization theory.
Separately, Exxon Mobil (XOM) is looking a little less stable this morning. It is down 1.7% after Goldman Sachs downgraded the energy giant to Neutral from Buy, noting among other things that its valuation looks less compelling than before.
Later this week we'll hear if the Fed thinks the case for more rate hikes is also less compelling than before. Nick Timiraos of The Wall Street Journal penned an article today that suggests the Fed is poised to raise rates again on Wednesday by another 25 basis points but is also primed to debate the idea of pausing its rate hikes after that.
The market appears primed for this outcome -- a rate hike and a pause signal -- so it would be construed as a disappointment if the directive and/or Fed Chair Powell had a different tone.
For now, the tone is muted in front of a lot of noise coming the market's way.
-- Patrick J. O'Hare, Briefing.com
Global Payments' upbeat Q1 report overshadowed by CEO departure (GPN)
Global Payments (GPN -8%) is being denied today despite ringing up beats on its top and bottom lines in Q1 and raising its FY23 forecast. Weighing on shares today was GPN's announcement that CEO Jeffrey Sloan, who has been at the helm since 2013, will step down as CEO and a member of the Board next month, with current COO Cameron Bready stepping in to fill his shoes. Mr. Bready has been with the company since 2014, overseeing its Merchant Solutions segment, global operations, and other businesses since 2019.
GPN's Merchant Solutions division is its bread and butter, comprising around 70% of FY22 revs. Most revenue generated from Merchant Solutions is through GPN taking a percentage of a transaction value or a specific fee per transaction across its approximately 4.0 mln merchant locations globally. Also, this business earns software subscription and licensing fees through its customers. With Mr. Bready already running GPN's core business for years, his transition to CEO would not be much of a leap from his current occupation.
Still, the uncertainty surrounding a long-time CEO departing the company and no longer serving as a board member, leaving little influence over the direction of GPN, is obscuring an otherwise decent Q1 report that resembled recent upbeat earnings from rivals Fidelity National Information Services (FIS) and Fiserv (FISV).
- GPN's Q1 adjusted EPS of $2.40 represented a solid 18% increase yr/yr, assisted by a 200 bp improvement in adjusted operating margins in the quarter. Meanwhile, revs of $2.29 bln, a 6.3% jump, underscored resilient demand in GPN's core U.S. market as well as a recovery in Asia Pacific, specifically China, as COVID restrictions eased. GPN also commented that Europe boasted decent numbers overall, mainly Central Europe and Spain, partially offset by ongoing softness in the U.K.
- Merchant Solutions saw revs expand by 10% in constant currency to $1.46 bln. Issuer Solutions grew a decent 7.2% in constant currency to $490 mln, with traditional accounts on file (the primary source of revenue in this segment) surging by around 20 mln from Q4.
- Looking ahead, GPN raised its FY23 projections, targeting EPS of $10.32-10.44, up from $10.25-10.37, and revenue growth of +7-8%, up from +6-7%. Also, GPN reiterated its FY23 adjusted operating margin outlook of 120 bp improvement yr/yr, ahead of its typical 50-75 bp annual target.
- GPN also provided some color on how the markets are currently looking. After a robust January and February, GPN noticed this strength moderate across several of its businesses in March. The good news is that its Issuer Solutions division did not see any discernible moderation due to large banks benefiting from the regional banking crisis in March.
While GPN's Q1 report underscored a relatively healthy global economy with a few pockets of weakness, its CEO departure is taking center stage, igniting today's sell-off. Still, even though it is not showing up in its stock price, GPN's Q1 results, combined with uplifting remarks from FIS and FISV last week, set a positive tone ahead of some of its peers' upcoming MarQ reports, including Block (SQ) on May 4 and Toast (TOST) on May 9.
SoFi Technologies banks a beat-and-raise report on surge in personal loans and NII (SOFI)
Online banking and lending company SoFi Technologies (SOFI) cruised past 1Q23 EPS and revenue estimates and saw a flood of new deposits flow in following the collapse of SVB Financial (SIVB) and Signature Bank (SBNY) in early March. The launch of SOFI's offering to provide FDIC insurance on up to $2.0 mln in deposits certainly helped to attract new money. Higher interest rates and higher loan balances also facilitated a surge in net interest income in SOFI's lending segment, while its Technology Platform segment experienced a 15% increase in accounts.
In addition to the upside Q1 results, SOFI issued upside revenue guidance of $470-$480 mln for Q1, raised its FY23 adjusted EBITDA outlook to $268-$288 mln from $260-$280 mln, and reiterated that it expects to reach quarterly GAAP profitability by 4Q23. Furthermore, during the earnings call, the company stated that trends for both deposits and spending remained positive into April and that it anticipates those trends staying strong throughout May and June.
The strong results and upbeat outlook sent the stock sharply higher in pre-market action, but shares have since given up those gains and are now trading in the red. There doesn't seem to be any company specific metric or disclosure from the conference call to ascribe to the steep reversal.
Indeed, SOFI's results were impressive across the board.
- In the Financial Services segment, which offers checking and savings accounts, total products jumped by 51% yr/yr to 7.1 mln and SoFi Money (checking, savings, cash management) grew by 48% to 2.4 mln products. The growth here may be partially due to a flight to safety in the wake of SIVB's and SBNY's collapses.
- Within the Lending unit, the company saw record personal loan originations of nearly $3.0 bln (+46% yr/yr) with SOFI crediting its substantial investments in technology to automate and accelerate the application-to-approval as a key driver for the growth.
- Given the cooling housing market, home loans were unsurprisingly up at a much lower rate, increasing by 8%.
While it's unclear what exactly precipitated the steep reversal in the stock this morning -- especially given management's bullish commentary during the earnings call -- SOFI did issue a solid beat-and-raise report, suggesting that it has been a beneficiary of the SIVB and SBNY failures.
ON Semiconductor's Q1 earnings beat and Q2 outlook powers its impressive gains today (ON)
ON Semiconductor's (ON +7%) Q1 earnings beat and bullish Q2 guidance are powering a sizeable rally in its shares today. ON Semi is a global chip maker specializing in power and signal management, similar to Infineon (IFNNY), STMicroelectronics (STM), Texas Instruments (TXN), and Wolfspeed (WOLF). A key component of ON Semi's solid gains today was recent underwhelming quarterly results from some of these competitors.
For example, last week, STM remarked that it did not raise its FY23 sales guidance range further due to capacity limitations within its Power Energy and Automotive businesses. Meanwhile, TXN did not offer many details surrounding its sequentially flat Q2 projections, sparking demand concerns. Furthermore, WOLF issued gloomy JunQ guidance due to higher-than-expected costs at one of its fabs.
- Turning to ON Semi's Q1 figures, its adjusted EPS contracted by 2.5% yr/yr to $1.19, far better than analysts expected. At the same time, revs remained relatively flat yr/yr, expanding by 0.7% to $1.96 bln, also topping estimates.
- Industrial revenue climbing 1% higher sequentially in Q1, better than the decline ON Semi initially anticipated, was a significant factor in its sales outperformance. Like its peers, the industrial and automotive sectors of the global economy comprise the bulk of its revenue (79% in Q1, up 14 pts yr/yr).
- Still, the economic landscape proved challenging in the quarter. Unlike TXN, automotive revs were flat sequentially. ON Semi noted that it remains supply constrained across several automotive technologies while it monitored inventory headwinds across some products. Furthermore, non-GAAP operating margins fell 190 bps sequentially to 32.2%, largely due to the company's East Fishkill (EFK) fab operating at a much higher cost than expected.
- However, input costs across ON Semi's operations have stabilized. The company does not foresee changes over the near term either, primarily due to a meaningful section of its business being secured by long-term supply agreements where pricing is fixed for multiple years.
- Additionally, ON Semi was upbeat discussing its near and long-term plans. Its Q2 adjusted earnings and revenue forecasts of $1.14-1.28 and $1.98-2.08 bln were well ahead of consensus. The company expects automotive revs to return to sequential growth in Q2 while the industrial market continues its positive momentum. Also, ON Semi is confident in realigning its EFK fab cost structure to recover its high costs by early 2024.
Bottom line, ON Semi's Q1 report illustrated successful internal efforts to capitalize on a still-relatively healthy demand backdrop. At the same time, shares were assisted by market expectations edging lower last week as competitors' MarQ results disappointed investors. Lastly, On Semi's quarterly numbers offer a bullish tone ahead of some of its peers' MarQ reports, including NXP Semi (NXPI), which reports today after the close, and Infineon, which reports on May 4.
Check Point Software heads lower following rare top line miss and cautious commentary (CHKP)
Check Point Software (CHKP -4%) is heading lower following its Q1 report this morning. It was a solid EPS beat with in-line Q2 guidance and a reaffirm for FY23. However, Q1 revenue was a bit light. The cybersecurity giant usually reports a modest beat on revs, but this was its first miss in the past five years. We also think some commentary on the call is also weighing on the shares today.
- While overall revenue grew a pretty modest 4% yr/yr to $566 mln, it's important to note that CHKP posted 13% growth in security subscription revenue, which is important. This was driven by its CloudGuard and Harmony E-mail product families. CHKP has been making it a priority to focus on subscriptions, which provide a more stable and recurring revenue stream.
- Speaking of which, the company was pleased that 81% of its revenue is now recurring in nature, which includes the subscriptions plus the support and maintenance revenue. Of that 81% recurring revenue, 50% of it is subscription based. CHKP has been seeing consistent growth with its subscriptions and with recurring revenue over the last few years.
- More generally, CHKP noted that the need for cybersecurity remains high as the number of attacks and the sophistication of attacks keep growing. Also, CHKP is enjoying very healthy renewal rates. However, at the same time, CHKP concedes that the economic slowdown has resulted in extended product sales cycles and some projects being postponed.
- We think this language about sales cycles is spooking investors a bit. For the first three quarters of 2022, CHKP had a very good business environment with internal metrics growing at a very high rate. However, on its Q4 call in February, CHKP said it faced some challenges towards year-end with some projects being postponed. This morning's call sounds like a continuation of those conditions unfortunately.
Overall, we think the revenue miss, coupled with management's comments about extended product sales cycles and some projects being postponed are weighing on the stock today. We had hoped that conditions would improve following the bearish Q4 comments, but that does not seem to be the case. This puts us on alert for other cybersecurity names set to report soon, especially Fortinet (FTNT May 4) and Palo Alto Networks (PANW mid-May). Cybersecurity spend tends to be pretty durable even during economic uncertainty as companies understand the critical nature of this service. But CHKP's rare top line miss and cautious comments make us nervous.
Exxon Mobil still gushing with earnings and cash flow as it ramps up production (XOM)
Oil and gas giant Exxon Mobil (XOM) is still gushing with profits and cash flow, despite a sharp pullback in commodity prices, as reflected in the company's 1Q23 earnings report. To meet rising global demand, XOM boosted its production by nearly 300,000 barrels per day, pushing its earnings to a Q1 record of $11.4 bln. Most of that increase came from XOM's Permian Basin and Guyana assets, which saw a combined 40% jump in production.
- The other main factors behind XOM's better-than-expected earnings include strong refining margins and the Beaumont refinery expansion start-up on March 16, adding 250,000 barrels per day of capacity. Combined, these items drove profit higher by 2.8% sequentially to $4.2 bln for XOM's Energy Products segment.
- For some context, this segment posted a loss of nearly ($200) mln in the year-earlier period.
- In the Upstream segment, moderating crude oil and natural gas prices had a significant impact. With crude and natural gas realizations lower by 10% and 23%, respectively, from Q4, Upstream earnings fell by 26% qtr/qtr to $6.5 bln.
- Still, XOM was able to mitigate the steep price declines by ramping up production to 3.8 mln oil equivalent barrels per day.
- In total, XOM's cash flow from operations reached a staggering $16.3 bln, up about 10% yr/yr. It's hard to imagine now, given how robust XOM's business is, but in 4Q20 the company generated cash flow of just $4.8 bln.
- In 2020, the company also posted its first net loss in over 40 years, amplifying concerns that it will need to significantly cut its dividend. Today, that dividend, which currently yields about 3.1% annually, looks very safe.
- On the topic of capital allocation, XOM CEO Darren Woods has taken a conservative approach, choosing to hold on to a war chest of cash in the event that the economy sours and commodity prices plunge. However, a major acquisition can't be ruled out, either.
- The Wall Street Journal has reported that XOM is taking a look at Pioneer Natural Resources (PXD), an oil and gas exploration and production company headquartered in Texas. An proposed acquisition of PXD, which has a market value north of $53 bln, would face plenty of scrutiny from regulators.
Looking ahead, XOM should benefit from strong travel demand during the busy summer months, pushing volume higher for both gasoline and jet fuel. Mr. Woods commented during the earnings call that refining margins should rise going forward into the summer.
The main takeaway is that while XOM's results aren't quite at the blockbuster levels seen in Q4, they are still very strong. Barring a meaningful downturn in the global economy, XOM may be in line to generate another record quarter of earnings in Q2 as it continues to ramp up production.
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