Market Snapshot
briefing.com
| Dow | 33657.96 | -393.65 | (-1.16%) | | Nasdaq | 12093.24 | -119.54 | (-0.98%) | | SP 500 | 4122.09 | -47.05 | (-1.13%) | | 10-yr Note | +33/32 | 3.44 |
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| | NYSE | Adv 589 | Dec 2260 | Vol 977 mln | | Nasdaq | Adv 1256 | Dec 3179 | Vol 5.5 bln |
Industry Watch
| Strong: Consumer Discretionary |
| | Weak: Energy, Materials, Communication Services, Financials, Real Estate |
Moving the Market
-- Big losses in regional bank stocks with no specific catalyst
-- Digesting a heavy batch of news, including Secretary Yellen warning that the debt ceiling could be hit as early as June 1
-- Sharp decline in Treasury yields, reflecting growth concerns
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Closing Summary
02-May-23 16:30 ET
Dow -367.17 at 33684.44, Nasdaq -132.09 at 12080.69, S&P -48.29 at 4120.85
[BRIEFING.COM] Concerns over an economic slowdown were driving today's sell-off, along with the surprisingly large fallout in bank stocks on no news. In addition, worries about the debt ceiling weighed on investors' sentiment after Treasury Secretary Yellen warned that the Treasury is unlikely to be able to continue to satisfy all of the government's obligations by June, and potentially as early as June 1.
The S&P 500, which hit 4,186 at its high yesterday, briefly slipped below the 4,100 level today. Ultimately, the major indices were able to close off their worst levels of the day, albeit still sporting losses of at least 1.1%.
Today's downbeat price action comes ahead of an FOMC policy decision tomorrow, where a 25 basis point rate hike is expected but the tone of the directive and Fed Chair Powell's remarks is still indeterminate.
The bank stock sell-off was presumably tied to concerns about an economic slowdown weighing on earnings estimates. PacWest (PACW 6.55, -2.52, -27.8%) and Western Alliance (WAL 30.93, -5.51, -15.1%) were some of the biggest losers in the regional bank space; however, even larger banks that had been viewed as potentially benefitting from the fallout in the regional bank industry, like JPMorgan Chase (JPM 138.92, -2.28, -1.6%) and Bank of America (BAC 28.16, -0.88, -3.0%), underperformed the broader market.
Slowdown concerns were fueled by some manufacturing PMI readings for April out of the eurozone that were weaker than March, a JOLTs - Job Openings Report for March that showed openings shrinking to 9.590 million from 9.974 million in February, and a 0.6% decline in nondefense capital goods orders, excluding aircraft, for March.
Global growth concerns also manifested themselves in falling commodity prices. WTI crude oil futures sank 5.4% to $71.72/bbl and copper futures declined 1.6% to $3.87/lb.
The sharp decline in oil prices contributed to the underperformance of the S&P 500 energy sector (-4.3%), which logged the biggest decline by a sizable margin. Unsurprisingly, the financials sector (-2.3%) was another top laggard today.
The consumer discretionary sector (+0.2%) was the lone standout in positive territory thanks to gain in Amazon.com (AMZN 103.63, +1.58, +1.6%).
In the Treasury market, the nervousness about the debt ceiling issue, an economic slowdown, and the behavior of the bank stocks fueled buying interest in most tenors. The 2-yr Treasury note yield sank 15 basis points to 3.97% and the 10-yr note yield fell 14 basis points to 3.44%.
- Nasdaq Composite: +15.4% YTD
- S&P 500: +7.3% YTD
- Dow Jones Industrial Average: +1.6% YTD
- S&P Midcap 400: +1.0% YTD
- Russell 2000: -1.7% YTD
Reviewing today's economic data:
- March Factory Orders 0.9% (Briefing.com consensus 1.4%); Prior was revised to -1.1% from -0.7%
- The key takeaway from the report is that factory orders weren't as robust as they appear at first blush. Nondefense aircraft and parts orders, up 78.3%, drove the increase. Excluding transportation, new orders were down 0.7% month-over-month for the second straight month.
- March JOLTS - Job Openings 9.590 mln; Prior was revised to 9.974 mln from 9.931 mln
Ahead of Wednesday's open, CVS Health (CVS), Phillips 66 (PSX), Kraft Heinz (KHC), Exelon (EXC), CDW (CDW), Adient (ADNT), Estee Lauder (EL), Emerson (EMR), Builders FirstSource (BLDR), Yum! Brands (YUM), Scotts Miracle-Gro (SMG), Hanesbrands (HBI), Garmin (GRMN), and Generac (GNRC) are among the more notable companies reporting earnings.
Market participants will receive the following economic data tomorrow:
- 7:00 ET: Weekly MBA Mortgage Index (prior 3.7%)
- 8:15 ET: April ADP Employment Change (Briefing.com consensus 142,000; prior 145,000)
- 9:45 ET: Final April IHS Markit Services PMI (prior 53.7)
- 10:00 ET: April ISM Non-Manufacturing Index (Briefing.com consensus 51.9%; prior 51.2%)
- 10:30 ET: Weekly crude oil inventories (prior -5.05 mln)
- 14:00 ET: May FOMC Decision (Briefing.com consensus 5.00-5.25%; prior 4.75-5.00%)
Treasury yields settle sharply lower
02-May-23 15:35 ET
Dow -391.88 at 33659.73, Nasdaq -130.21 at 12082.57, S&P -48.65 at 4120.49
[BRIEFING.COM] Things are little changed in the last half hour.
The 2-yr Treasury note yield sank 15 basis points to 3.97% and the 10-yr note yield fell 14 basis points to 3.44%.
Ahead of Wednesday's open, CVS Health (CVS), Phillips 66 (PSX), Kraft Heinz (KHC), Exelon (EXC), CDW (CDW), Adient (ADNT), Estee Lauder (EL), Emerson (EMR), Builders FirstSource (BLDR), Yum! Brands (YUM), Scotts Miracle-Gro (SMG), Hanesbrands (HBI), Garmin (GRMN), and Generac (GNRC) are among the more notable companies reporting earnings.
Market participants will receive the following economic data tomorrow:
- 7:00 ET: Weekly MBA Mortgage Index (prior 3.7%)
- 8:15 ET: April ADP Employment Change (Briefing.com consensus 142,000; prior 145,000)
- 9:45 ET: Final April IHS Markit Services PMI (prior 53.7)
- 10:00 ET: April ISM Non-Manufacturing Index (Briefing.com consensus 51.9%; prior 51.2%)
- 10:30 ET: Weekly crude oil inventories (prior -5.05 mln)
- 14:00 ET: May FOMC Decision (Briefing.com consensus 5.00-5.25%; prior 4.75-5.00%)
Energy complex futures sink; Notable earnings after the close
02-May-23 15:10 ET
Dow -393.65 at 33657.96, Nasdaq -119.54 at 12093.24, S&P -47.05 at 4122.09
[BRIEFING.COM] The market has been improving recently, but the main indices still show losses of at least 1.0%.
Notably, the S&P 500 consumer discretionary sector (+0.1%) tipped into positive territory while the remaining ten sectors sport losses ranging from 0.5% (health care) to 4.2% (energy).
Energy complex futures settled the session lower, pressured by global growth concerns. WTI crude oil futures fell 5.4% to $71.72/bbl and natural gas futures fell 3.5% to $2.41/mmbtu.
After the close, Ford Motor (F), Prudential (PRU), Starbucks (SBUX), ONEOK (OKE), Advanced Micro (AMD), Lumen Technologies (LUMN), Yum China (YUMC), Caesars Entertainment (CZR), Clorox (CLX), Match Group (MTCH), Western Union (WU), Paycom Software (PAYC), Life Storage (LSI), and Sarepta Therapeutics (SRPT) are among the more notable earnings reporters.
Earnings movers dot opposite ends of S&P 500 on Tuesday
02-May-23 14:30 ET
Dow -455.11 at 33596.50, Nasdaq -146.12 at 12066.66, S&P -56.83 at 4112.31
[BRIEFING.COM] The S&P 500 (-1.36%) is the worst-performing major average to this point on Tuesday, slipping slightly off afternoon highs from the previous half hour.
S&P 500 constituents Molson Coors Brewing (TAP 65.12, +4.67, +7.73%), Ametek (AME 145.60, +6.26, +4.49%), and AmerisourceBergen (ABC 170.81, +4.02, +2.41%) pepper the top of today's standings, all following earnings.
Meanwhile, Arista Networks (ANET 137.79, -22.37, -13.97%) is one of today's worst performers, sliding after some cautious commentary on cloud customers.
Gold higher a day ahead of FOMC decision
02-May-23 14:00 ET
Dow -406.28 at 33645.33, Nasdaq -116.03 at 12096.75, S&P -48.97 at 4120.17
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.95%) is now at afternoon highs, hosting the shallowest losses among the major averages.
Gold futures settled $31.10 higher (+1.6%) to $2,023.30/oz ahead of the FOMC's policy decision tomorrow.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $101.92.
Barrage of news keeps market stuck
The S&P 500 was flirting with new highs for the year yesterday on an intraday and closing basis but an afternoon retreat derailed that effort. Ultimately, the S&P 500 ended Monday's session down a smidgen from where it closed on Friday.
Today's trade isn't setting up to produce much movement at the open. Currently, the S&P 500 futures are down eight points and are trading 0.2% below fair value, the Nasdaq 100 futures are down three points and are trading in-line with fair value, and the Dow Jones Industrial Average futures are down 87 points and are trading 0.2% below fair value.
The lack of conviction has to do in part with some "analysis paralysis" as there has been a barrage of news since yesterday's close covering an assortment of topics that are unrelated in a direct way but which are all related in an indirect way for driving the market's price action.
- A litany of earnings reports have been released, featuring better-than-expected results from Uber (UBER), Pfizer (PFE), and Lattice Semiconductor (LSCC), disappointing revenue guidance from Chegg (CHGG) that was blamed on the adverse impact of ChatGPT, and better-than-expected results from BP (BP) that were overshadowed by an acknowledgment that the company expects share buyback activity at the lower end of its $14-18 billion capital expenditure range.
- Treasury Secretary Yellen warned that the Treasury is unlikely to be able to continue to satisfy all of the government's obligations by June, and potentially as early as June 1.
- President Biden is due to meet House Speaker McCarthy and other Congressional leaders on May 9 to discuss the debt ceiling.
- The 3-month T-bill yield is up 18 basis points to 5.19% while the 10-yr note yield is down two basis points to 3.54%.
- The Reserve Bank of Australia unexpectedly raised its cash rate by another 25 basis points to 3.85%.
- The Writers Guild of America, following six weeks of negotiations with Netflix, Amazon, Apple, Disney, Discovery-Warner, NBC Universal, Paramount and Sony, called a strike, effective Tuesday, May 2.
- April manufacturing PMI readings for the eurozone, Germany, France, Italy, Spain, and the UK were all below March levels; meanwhile, April core CPI for the eurozone improved to 5.6% yr/yr from 5.7% in March
In other developments, Bloomberg reports that Morgan Stanley (MS) is going to cut 3,000 jobs in the second quarter, mainly from its investment banking and trading units, and that IBM (IBM) is going to pause hiring for jobs that it thinks can be done with artificial intelligence.
There is more news coming, too.
The March Factory Orders (Briefing.com consensus 1.4%; prior -0.7%) and March JOLTS - Job Openings (prior 9.931 million) reports will be released at 10:00 a.m. ET.
This is one of those days where, figuratively, there is a lot for market participants to chew on, knowing at the same time there is an FOMC policy decision in the offing, that the debt ceiling angst has been ratcheted up with the latest guidance from Treasury Secretary Yellen, that U.S. economic activity is expected to cool, and that 4,200 continues to stand as a key technical barrier for the S&P 500.
-- Patrick J. O'Hare, Briefing.com
DuPont's exposure to consumer electronics weighs on outlook, sending shares sharply lower (DD)
Materials and chemicals company DuPont (DD) beat 1Q23 top and bottom-line estimates mainly due to strength in its water and safety solutions businesses, but a soft outlook for Q2 and FY23 is overshadowing those results, sending shares sharply lower. The company's exposure to the sluggish consumer electronics market, which is undergoing a painful inventory correction, weighed on its outlook.
- For FY23, DD cut its EPS forecast to $3.55-$3.70 from its prior guidance of $3.50-$4.00, while lowering the high end of its revenue outlook to $12.5 bln from $12.9 bln. The low end remained the same at $12.3 bln.
- DD may not be the first name that comes to mind when thinking about the consumer electronics market, but the company is a major supplier of components and materials to OEMs.
- For example, the Semiconductor Technologies business, which operates within the Electronics and Industrial segment, provides circuit fabrication for memory and logic semiconductors.
- Also, the Interconnect Solutions business manufacturers circuit packaging film and laminate materials used in printed circuit boards and electronic finishing applications.
- Altogether, the Electronics and Industrial segment accounted for about 45% of DD's total revenue in FY22.
- In Q1, organic sales declined by 13% for Electronics and Industrial while operating EBITDA margin slipped by 310 bps to 27.9%. Both the Semiconductor Technologies and Interconnect Solutions' businesses experienced lower volumes resulting from weaker end market demand and channel inventory destocking.
- CFO Lori Koch commented that DD continues to see weakness and channel inventory destocking in the near term, which pushed out the electronics recovery by about one quarter.
On the positive side, Koch expects strength to continue throughout the year for categories such as water, automotive, aerospace, and healthcare.
- On the topic of healthcare, DD also announced a definitive agreement to acquire Spectrum Plastics Group, a manufacturer of critical components and devices primarily into medical end-markets, for $1.75 bln. Following this acquisition, which was financed with existing cash balances, approximately 10% of DD's total revenue will be derived from healthcare.
- Meanwhile, Water & Protection should remain solid as DD continues to benefit from pricing actions taken last year to offset inflation. Organic sales growth was 4% for Water & Protection in Q1 driven by higher prices for water filtration and purification products.
The main takeaway is that DD is facing mixed end markets with its exposure to consumer electronics manufacturers creating a stiff headwind. Based on DD's soft guidance, it seems that conditions in the Electronics and Industrial segment aren't likely to improve much in Q2, while macroeconomic/growth concerns are also ratcheting up as the regional banking industry comes under fire again.
Uber rides robust demand in mobility and improving take rates to deliver impressive results (UBER)
Expectations were elevated heading into Uber's (UBER) earnings report, but the rideshare and food delivery company didn't disappoint, exceeding estimates across the board while posting record profitability and free cash flow for 1Q23. Once again, the Mobility segment led the way with gross bookings jumping by 40% yr/yr to $15.0 bln, fueled by strong demand for travel, entertainment, and dining out, as well as market share gains against struggling rival Lyft (LYFT).
Trips increased by 24% yr/yr in another reflection of the robust demand environment. However, the favorable market conditions are only part of the story.
- Rider and driver incentives continue to decline due to a healthy balance between driver supply and rideshare demand. This balancing of the marketplace is pushing UBER's take rate higher, which improved by 540 bps yr/yr to 28.9% for the Mobility segment.
- Additionally, the company has kept a tight lid on expenses and hiring as the net number of employees decreased modestly in Q1.
- The combination of strong bookings growth, a rapidly rising take rate, and solid cost controls is behind UBER's record Q1 profitability. Specifically, adjusted EBITDA surged by 353% yr/yr to $761 mln, easily beating its guidance of $660-$700 mln.
While the performance wasn't quite as spectacular in UBER's Delivery segment, the business continues to exhibit resiliency and deliver solid results.
- Gross Bookings for Delivery were up 8% yr/yr to $15.0 bln, representing a slight acceleration in growth from last quarter's 6% growth.
- What really stands out, though, is the vast improvement in profitability. It wasn't too long ago that many questioned whether a food delivery business with relatively small margins could ever generate significant earnings. Thanks to UBER's scale, technology improvements, and efficiencies, it has proven its skeptics wrong. In Q1, Delivery's adjusted EBITDA reached $288 mln compared to just $30 mln in the year-earlier period.
The only blemish we can see in this report is that the Freight segment posted a loss of ($564) mln as freight bookings fell by 23% to $1.4 bln. This smaller business doesn't tend to capture nearly as much attention as UBER's rideshare and delivery businesses, especially since Bloomberg recently reported that UBER is looking to spin-off or sell the Freight division.
Overall, this was a strong report from UBER, highlighting its ability to profitably capitalize on the healthy rideshare market and the resilient delivery business. Looking ahead, UBER is poised to build on its momentum in Q2 with the company forecasting gross bookings of $33-$34 bln and adjusted EBITDA of $800-$850 mln.
Woodward flying to a new 52-week high today following robust earnings upside (WWD)
Woodward (WWD +12%) is flying high today following a robust beat-and-raise last night with its Q2 (Mar) earnings report. WWD is a supplier of control systems (fuel pumps, metering units, actuators, air valves etc.) for the aerospace and industrial markets. Given the recent troubles at Boeing and macro issues generally, we think investors were surprised to see such a huge beat and upbeat guidance from Woodward.
- Adjusted EPS jumped 40% yr/yr to $1.01 and revenue rose 22% yr/yr to $718 mln, both well above analyst expectations. WWD also guided FY23 nicely higher and the EPS upside guidance was by more than the MarQ beat, which implies upside guidance for the second half of the fiscal year. Woodward can be pretty hit or miss around earnings but this was its largest EPS beat in three years.
- The star of the show was its Industrial segment, where sales jumped 31% to $281 mln, primarily due to higher volumes across all markets. Demand for power generation remains strong, driven by LNG growth and continued demand for backup power at data centers. WWD also said, within transportation, global marine remains healthy with increased ship utilization and normalizing freight rates. Cruise and ferry operations have recovered back to pre-COVID utilization rates, which should result in increased spare parts demand.
- On the Aerospace side, revenue rose a still impressive 17% yr/yr to $437 mln as utilization rates for commercial airlines continue to rise, driven by increasing global passenger traffic. WWD says US and European domestic passenger traffic has returned to near 2019 levels. Domestic travel in China is also increasing as restrictions ease. WWD also anticipates near-term US procurement to increase slightly on the defense side.
- Strong end markets were not the only drivers this quarter. WWD has been transforming its Industrial segment, including a recent alignment of its cost structure to match current market conditions. The Industrial segment is also on track to achieve a 5% price increase for FY23. WWD also pared down its Industrial SKUs by 5% of the approximately 60,000 SKUs in this segment.
It can be difficult to know what to expect with Woodward, partly because its end markets can be volatile and partly because it does not provide guidance on a quarterly basis. Of note, WWD has missed on EPS in six of the past eight quarters. However, this was a very good quarter for Woodward. We think the large EPS beat, and especially the upbeat guidance despite the darkening macro clouds, surprised investors. This is propelling the stock to a new 52-week high today and bodes well for other industrial/aerospace suppliers as we move through earnings season.
NXP Semi receives a nice push higher on solid Q1 results and encouraging Q2 guidance (NXPI)
NXP Semi (NXPI +2%) is following in the footsteps of On Semiconductor (ON) by jumping today on a surprise profit and revenue beat in Q1 as well as an encouraging Q2 outlook. We noted that On Semi's impressive Q1 results yesterday were a good sign ahead of NXPI's Q1 report, especially given the similarities between the two companies. Furthermore, underwhelming MarQ reports from On Semi's and NXPI's peers last week, including TXN, WOLF, and STM, which weighed on the two firms' shares, were primarily the result of internal challenges instead of a severe drop-off in end market demand.
- In fact, demand remained relatively sturdy for NXPI in Q1, illuminated by its revs falling just 0.5% yr/yr to $3.12 bln, much less than analysts feared, paving the way for its solid GAAP EPS of $2.35.
- NXPI's primary market, Automotive (~60% of Q1 revs), remained robust in Q1, with revs climbing 17% yr/yr and 1% sequentially to $1.83 bln, slightly ahead of NXPI's mid-teens growth forecast. The resilience in automotive demand resembles what we have seen from most of NXPI's competitors recently. For example, On Semi's automotive revs soared 38% yr/yr in Q1, while TXN enjoyed a mid-single-digit gain qtr/qtr.
- Automotive is expected to maintain its positive momentum heading into Q2. NXPI anticipates revenue growth in the high single-digit percentage range yr/yr in Q2. The company is seeing plenty of tailwinds continuing throughout FY23, including the ongoing adoption of electrified drivetrains and advanced driver assistance systems (ADAS). Still, NXPI cautioned that pockets of elevated inventory held at some Tier 1 auto suppliers remain, which could dampen future demand.
- Another positive stand out was Communication Infrastructure (~17%), which climbed 7% yr/yr and sequentially to $529 mln as supply chains improved.
- NXPI predicts this business to enjoy another quarter of double-digit yr/yr and mid-single-digit sequential growth in Q2.
- Industrial & IoT (~15%) and Mobile (~8%) were less upbeat, experiencing double-digit yr/yr and sequential declines. However, NXPI predicted revenue contraction in these markets, with the reductions still hitting the high end of its forecasts.
- Furthermore, NXPI noted that after these markets endured a slow start to the quarter, it started seeing modest improvements in its China-exposed businesses. As a result, its Q2 projections indicate improving or stabilizing revenue from Q1, predicting a mid-single-digit increase in Industrial and flat revs in Mobile.
NXPI's businesses are either beginning to bottom or are maintaining their upward momentum, resulting in its upbeat Q2 adjusted EPS and revenue guidance of $3.07-3.49 and $3.1-3.3 bln, respectively. The company stated that its outlook depends on maintaining 1.6 months of channel inventory, which could increase if the back half of 2023 sees an even better recovery than NXPI and its peers anticipate.
Bottom line, NXPI's Q1 figures highlight stabilizing or improving demand dynamics across the automotive, industrial, mobile, and communication end markets, an encouraging sign for the semiconductor industry. Although not apples-to-apples comparisons, we could see further evidence of these positive developments this week, with big names like AMD, QCOM, QRVO, CRUS, and AAPL reporting earnings.
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.
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