Market Snapshot
briefing.com
| Dow | 33155.59 | -258.56 | (-0.77%) | | Nasdaq | 11993.88 | -31.63 | (-0.26%) | | SP 500 | 4071.09 | -20.93 | (-0.51%) | | 10-yr Note | -1/32 | 3.35 |
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| | NYSE | Adv 825 | Dec 2029 | Vol 1.1 bln | | Nasdaq | Adv 1767 | Dec 2599 | Vol 4.7 bln |
Industry Watch
| Strong: Real Estate, Utilities |
| | Weak: Financials, Communication Services, Industrials, Utilities |
Moving the Market
-- Issues in the regional bank industry back in play after PacWest Bancorp (PACW) announced it was pursuing a sale
-- Ongoing worries about global growth
-- Worries about central banks overtightening and forcing a sharper economic slowdown after other central banks followed the FOMC hike with rate increase of their own
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Closing Summary
04-May-23 16:10 ET
Dow -286.50 at 33127.65, Nasdaq -58.93 at 11966.58, S&P -29.53 at 4062.49
[BRIEFING.COM] It was another downbeat day in the stock market on the heels of the FOMC rate hike yesterday. The major indices were able to close the session off their lows. For the S&P 500, the 4,050 area stood out as a support zone during today's selling action.
Concerns about central banks overtightening and forcing a sharper economic slowdown drove some of the weakness today after several central banks followed the FOMC rate hike yesterday. Namely, the Hong Kong Monetary Authority, the Norges Bank, and the ECB all raised their key lending rates by 25 basis points today.
Ongoing issues in the regional bank industry, though, took center stage again after PacWest (PACW 3.17, -3.25, -50.6%) confirmed it's considering strategic options. Worries intensified when the FT reported that Western Alliance (WAL 18.17, -11.39, -28.5%) is also considering strategic alternatives, including a possible sale, yet Western Alliance disputed the report, calling it "categorically false in all respects."
The SPDR S&P Regional Bank ETF (KRE) fell 5.5% and the SPDR S&P Bank ETF (KBE) fell 4.6%.
Index level losses would have been steeper if not for the outperformance of some mega cap names. Amazon.com (AMZN 104.00, +0.35, +0.3%) and Microsoft (MSFT 305.41, +1.01, +0.3%) were top standouts in that regard. The latter moved higher in the late afternoon after Bloomberg reported that Microsoft is helping finance Advanced Micro's (AMD 86.61, +4.99, +6.1%) AI processor expansion.
Apple (AAPL 165.79, -1.66, -1.0%) was a notable underperformer ahead of its earnings report tonight. The weakness in AAPL followed disappointing earnings and fiscal Q3 guidance from supplier Qualcomm (QCOM 106.58, -6.25, -5.5%) last night.
Nine of the 11 S&P 500 sectors closed in the red with the financials sector (-1.3%) showing the steepest decline. The communication services sector (-1.3%) was the next worst performer due to a sharp loss in Paramount Global (PARA 16.40, -6.49, -28.4%) following its disappointing Q1 results and dividend cut to $0.05 a share from $0.24.
Treasuries settled with gains in most tenors, fueled by flight to safety buying interest despite a discouraging Q1 unit labor cost report and weekly initial jobless claims that continue to run well below recession levels. The 2-yr note yield fell 22 basis points to 3.73% and the 10-yr note yield fell five basis points to 3.35%.
Despite an otherwise rough showing for the broader market today, there was a successful IPO with Johnson & Johnson's (JNJ 162.13, -0.74, -0.5%) consumer health spinoff Kenvue (KVUE 26.90, +4.90, +22.3%) going public.
- Nasdaq Composite: +14.3% YTD
- S&P 500: +5.8% YTD
- Dow Jones Industrial Average: -0.1% YTD
- S&P Midcap 400: -0.9% YTD
- Russell 2000: -2.5% YTD
Reviewing today's economic data:
- Q1 Productivity-Prel -2.7% (Briefing.com consensus -0.1%); Prior was revised to 1.6% from 1.7%; Q1 Unit Labor Cost-Prel 6.3% (Briefing.com consensus 3.9%); Prior was revised to 3.3% from 3.2%
- The key takeaway is that weak productivity is feeding into elevated labor costs, which are contributing to elevated inflation and the Fed's thinking that it will have to keep rates higher for longer.
- March Trade Balance -$64.2 bln (Briefing.com consensus -$68.7 bln); Prior was revised to -$70.6 bln from -$70.5 bln
- The key takeaway from the report is that the relatively weak import activity in March is in keeping with a cooling down of the U.S. economy.
- Weekly Initial Claims 242K (Briefing.com consensus 245K); Prior was revised to 229K from 230K; Weekly Continuing Claims 1.805 mln; Prior was revised to 1.843 mln from 1.858 mln
- The key takeaway from the report remains the same: initial jobless claims continue to run well below levels seen during prior recessions (i.e. north of 375,000) since 1980.
- The weekly EIA Natural Gas Inventories showed a build of 54 bcf versus a build of 79 bc last week.
Ahead of tomorrow's open, The Cigna Group (CI), Warner Bros. Discovery (WBD), Dominion Energy (D), AMC Entertainment (AMC), and Fluor (FLR) are some of the more notable companies reporting earnings.
Market participants will receive the following economic data Friday:
- 8:30 ET: April Nonfarm Payrolls (Briefing.com consensus 180,000; prior 236,000), Nonfarm Private Payrolls (Briefing.com consensus 160,000; prior 189,000), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.5%), Average Workweek (Briefing.com consensus 34.5; prior 34.4), and Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%)
- 15:00 ET: March Consumer Credit (Briefing.com consensus $17.5 bln; prior $15.3 bln)
Market dips somewhat ahead of close
04-May-23 15:25 ET
Dow -300.85 at 33113.30, Nasdaq -52.65 at 11972.86, S&P -28.13 at 4063.89
[BRIEFING.COM] The S&P 500 dipped a bit lower recently, but remains above the 4,050 level.
Treasuries settled with gains in most tenors, fueled by flight to safety buying interest. The 2-yr note yield fell 22 basis points to 3.73% and the 10-yr note yield fell five basis points to 3.35%.
Ahead of tomorrow's open, The Cigna Group (CI), Warner Bros. Discovery (WBD), Dominion Energy (D), AMC Entertainment (AMC), and Fluor (FLR) are some of the more notable companies reporting earnings.
Reviewing today's economic data:
- Q1 Productivity-Prel -2.7% (Briefing.com consensus -0.1%); Prior was revised to 1.6% from 1.7%; Q1 Unit Labor Cost-Prel 6.3% (Briefing.com consensus 3.9%); Prior was revised to 3.3% from 3.2%
- The key takeaway is that weak productivity is feeding into elevated labor costs, which are contributing to elevated inflation and the Fed's thinking that it will have to keep rates higher for longer.
- March Trade Balance -$64.2 bln (Briefing.com consensus -$68.7 bln); Prior was revised to -$70.6 bln from -$70.5 bln
- The key takeaway from the report is that the relatively weak import activity in March is in keeping with a cooling down of the U.S. economy.
- Weekly Initial Claims 242K (Briefing.com consensus 245K); Prior was revised to 229K from 230K; Weekly Continuing Claims 1.805 mln; Prior was revised to 1.843 mln from 1.858 mln
- The key takeaway from the report remains the same: initial jobless claims continue to run well below levels seen during prior recessions (i.e. north of 375,000) since 1980.
- The weekly EIA Natural Gas Inventories showed a build of 54 bcf versus a build of 79 bc last week.
Earnings after the close; energy complex futures fall
04-May-23 15:10 ET
Dow -258.56 at 33155.59, Nasdaq -31.63 at 11993.88, S&P -20.93 at 4071.09
[BRIEFING.COM] The main indices are trying to climb somewhat higher.
Apple (AAPL) will headline earnings reports after today's close. EOG Resources (EOG), Goodyear Tire (GT), Block (SQ), Booking Holdings (BKNG), Opendoor Technologies (OPEN), Expedia Group (EXPE), Carvana (CNVA), Microchip (MCHP), Motorola Solutions (MSI), DoorDash (DASH), Lyft (LYFT), Floor & Decor (FND), and Coinbase Global (COIN) are also notable companies reporting earnings.
Energy complex futures settled the session lower. WTI crude oil futures fell 0.1% to $68.45/bbl and natural gas futures fell 2.5% to $2.29/mmbtu.
Ball, FleetCor among top earnings-related gainers in S&P 500
04-May-23 14:25 ET
Dow -314.03 at 33100.12, Nasdaq -36.79 at 11988.72, S&P -24.25 at 4067.77
[BRIEFING.COM] The S&P 500 (-0.59%) is firmly in second place at this point on the penultimate session of the week.
S&P 500 constituents Ball Corp (BALL 59.51, +7.25, 13.87%), FleetCor (FLT 228.23, +20.89, +10.08%), and Royal Caribbean (RCL 73.00, +5.92, +8.83%) pepper the top of the S&P, all benefiting from earnings reports.
Meanwhile, materials firm Mosaic (MOS 38.65, -4.22, -9.84%) is one of today's worst performers, slipping lower following earnings.
Gold flirts with all-time highs
04-May-23 14:00 ET
Dow -310.03 at 33104.12, Nasdaq -20.01 at 12005.50, S&P -20.60 at 4071.42
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-0.17%) hosts the shallowest losses, at one point cracking into positive territory in the previous half hour.
Gold futures settled $18.70 higher (+0.9%) to $2,055.70/oz, flirting with all-time highs when at one point the front month contract touched $2,085.40/oz, higher alongside muted sessions in both the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $101.29.
A pause likely, but a pivot is wanted
The stock market didn't necessarily love what it heard yesterday from the FOMC and Fed Chair Powell, largely because there wasn't any sense that the Fed is thinking about cutting rates anytime soon. In fact, Fed Chair Powell said if the Committee's inflation forecast is right it wouldn't be appropriate to cut rates.
The stickiness at higher levels for longer was in direct opposition to the fed funds futures market, which saw the probability of three rate cuts before year end going into yesterday's FOMC decision.
Accordingly, the market has a lot to think about (and so does the Fed), but the likelihood that the Fed is apt to pause its rate hikes now fell short as a bullish catalyst because the stock market doesn't want just a pause. It wants a pivot to cutting rates.
It wants such a pivot because it is worried that the Fed, and other central banks, are going to overtighten (or have overtightened already) and invite a dire economic outcome, particularly now that the banking crisis in the U.S. is expected to lead to much tighter financial conditions through the restriction of credit.
On a related note, the Hong Kong Monetary Authority, the Norges Bank, and the ECB followed suit with the Fed and raised their key lending rates by another 25 basis points today.
Those decisions came in the wake of a Bloomberg report that PacWest (PACW) is considering strategic options, including a possible sale. PacWest clarified that it considers strategic options in accordance with normal practices, yet there is nothing normal about the stock's reaction to this news. Shares of PACW are down 37.4%, which is better than they were, and that price action has spilled over to other issues.
The SPDR S&P Regional Banking ETF (KRE) is down 3.6%. Also, it was announced that Toronto-Dominion Bank and First Horizon (FHN) agreed to terminate their previously announced merger due to uncertainty as to whether regulatory approvals can be obtained.
The PacWest news got slotted between a ton of earnings reports after yesterday's close, which featured disappointing results and guidance from Qualcomm (QCOM) ahead of tonight's earnings report from Apple (AAPL). The rush of earnings reporting continued this morning, too, in what was the busiest morning of reporting during the Q1 reporting period.
The stock market hasn't been pre-occupied with earnings results today, though, so much as it has been pre-occupied with interest matters and the regional bank stock situation.
Factoring into interest rate matters has been a slate of economic data that has included weekly initial jobless claims, Q1 Productivity, and the March Trade Balance reports.
- Initial jobless claims for the week ending April 29 increased by 13,000 to 242,000 (Briefing.com consensus 245,000) and continuing jobless claims for the week ending April 22 decreased by 38,000 to 1.805 million.
- The key takeaway from the report remains the same: initial jobless claims continue to run well below levels seen during prior recessions (i.e. north of 375,000) since 1980.
- First quarter productivity declined 2.7% (Briefing.com consensus -0.1%), with output up 0.2% and hours worked up 3.0%, following a downwardly revised 1.6% increase (from 1.7%) in the fourth quarter. Unit labor costs increased 6.3% (Briefing.com consensus 3.9%) following an upwardly revised 3.3% increase (from 3.2%) in the fourth quarter.
- The key takeaway is that weak productivity is feeding into elevated labor costs, which are contributing to elevated inflation and the Fed's thinking that it will have to keep rates higher for longer.
- The March trade deficit narrowed to $64.2 billion (Briefing.com consensus -$68.7 billion) from a downwardly revised $70.6 billion (from -$70.5 billion) in February as exports were $5.3 billion more than February exports and imports were $1.1 billion less than February imports.
- The key takeaway from the report is that the relatively weak import activity in March is in keeping with a cooling down of the U.S. economy.
Currently, the S&P 500 futures are down 11 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 17 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 76 points and are trading 0.2% below fair value. The 2-yr note yield is down eight basis points to 3.87% and the 10-yr note yield is unchanged at 3.39%.
-- Patrick J. O'Hare, Briefing.com
Shopify soars on trio of positive announcements, including divestiture of logistics business (SHOP)
E-commerce company Shopify (SHOP) came crashing down last year as the pandemic-fueled boom fizzled out, causing a pronounced slowdown in its growth, but last night's upside Q1 earnings report is providing a major boost to its comeback effort in 2023. For the year, the stock is now higher by more than 70% and it's not just the three consecutive top and bottom-line quarterly beats that are fueling this rebound.
Today's impressive rally is also a function of two other significant announcements.
- First, SHOP announced a cost restructuring program that includes a 20% reduction in its workforce across all its divisions. In this slowing growth and rising interest rate environment, cost restructuring and layoffs have been magic words for the market.
- SHOP had already made good progress in its mission to cut costs with operating expenses declining sequentially last quarter to $987 mln.
- That trend continued in Q1 as operating expenses fell by about 8% qtr/qtr to $910 mln, helping SHOP to post a surprise profit of $0.01/share when analysts were expecting a loss.
- Second, the company's strategy to streamline its operations hit a new gear after disclosing the divestiture of its logistics business to Flexport. The exact value of the deal wasn't revealed since it's an all-stock transaction with a privately held company. However, SHOP, which already held about a 5-6% ownership position in Flexport, will gain a 13% stake in the company.
- Similar to how investors have cheered on cost-cutting maneuvers in this macroeconomic environment, the streamlining of operations through divestitures and spin-offs has also been very pleasing.
- The idea of SHOP returning towards an asset-light model, while refocusing on its core growth opportunities, such as expanding its point-of-sale hardware offerings, is appealing because it should lead to stronger margins and profitability.
On the topic of growth, SHOP outperformed expectations once again in Q1 as Gross Merchandise Volume (GMV) climbed by 18% on a constant currency basis to $49.6 bln, comfortably beating estimates.
- Better yet, the company's outlook for next quarter calls for stronger growth than analysts anticipated. Specifically, SHOP expects revenue to grow at a similar rate to Q1's 25% growth on a yr/yr basis, several percentage points higher than current projections.
- Furthermore, Q2 operating expense dollars -- excluding one-time items related to the logistics business divestiture -- are expected to decrease by a mid-single digit percentage compared to Q1.
SHOP hit on a trifecta today with its upside earnings report, cost restructuring announcement, and divestiture of its logistics business. The bottom line is that investors are anticipating an upswing in SHOP's earnings growth, which is driving the stock's surge higher today.
Qualcomm's discouraging outlook for handset recovery pulls stock sharply lower (QCOM)
Since it's widely understood that the smartphone market is undergoing a painful downturn amid a difficult macroeconomic backdrop, expectations were low heading into Qualcomm's (QCOM) Q2 earnings report.
- As anticipated, the leading chip company posted weak results, missing EPS expectations as revenue fell by nearly 17% yr/yr to $9.3 bln.
- The hope, though, was that QCOM's guidance and associated commentary would at least point to a bottoming in the handset market. Rather than indicating that a stabilization is in sight, QCOM's downside Q3 EPS and revenue guidance show that a recovery is not on the near-term horizon.
CEO Cristiano Amon didn't sugar coat the situation during the earnings call.
- Specifically, he stated that demand has deteriorated more than anticipated, especially in handsets, due to the macroeconomic environment.
- Worse yet, Mr. Amon said that QCOM is operating under the assumption that the inventory drawdown situation will likely persist for at least the next couple of quarters.
- A general assumption among market participants was that the inventory issue would begin to clear up during this current quarter. On that note, when memory chip maker Micron (MU) reported earnings in late March, the company stated that the high customer inventory problem was showing signs of improvement.
According to QCOM, there hasn't been any evidence of a recovery in demand in China, even though expectations are for a rebound there in 2H23. Therefore, the company's Q3 guidance doesn't consider any improvement in China.
- QCOM's gloomy outlook is also a bad omen for Apple (AAPL), which is set to report Q2 earnings after the closing bell tonight. QCOM, which supplies AAPL with modems for the iPhone, estimated that global handset shipments will drop by 5-10% this fiscal year, worse than its original expectation.
In Q2, QCOM's handset revenue declined by 17% to $6.1 bln, but that actually wasn't the worst performer.
- Revenue in IoT cratered by 24% to $1.4 bln with the company noting that this market is facing a similar set of headwinds as handsets -- i.e., a larger-than-expected impact of macroeconomic dynamics on demand and channel inventory drawdown.
Like the last few quarters, Automotive was the clear standout.
- Unfortunately for QCOM, Automotive is also its smallest business by far as revenue jumped by 20% to $447 mln, representing less than 5% of total revenue.
- However, this market is poised to become a much larger contributor to revenue in the near future. The company's next-generation Snapdragon Digital Cockpit platform will be featured in Mercedes-Benz vehicles later this year. Overall, QCOM won twelve new design wins for its Snapdragon Cockpit and Snapdragon Connectivity 5G platform during the quarter.
The main takeaway is that QCOM's discouraging outlook regarding a recovery in the smartphone market is not only weighing on its stock today, but it's also pulling AAPL lower ahead of its earnings report after today's close.
Zillow has investors SOLD! on strong Q1 report; real-time touring has been a hit with customers (ZG)
Zillow (ZG +8%) is sharply higher after reporting Q1 results. Zillow reported strong upside for Q1 in terms of EPS and revenue. Adjusted EBITDA fell 37% yr/yr to $104 mln, but that was much better than prior guidance of $48-63 mln.
- The company said its EBITDA outperformance shows how nicely revenue outperformance can flow to the bottom line when it prudently manages costs. Zillow's guidance was solid with the mid-point of revs above analyst expectations. However, it did guide to a sequential decline in adjusted EBITDA. But Zillow did that last quarter and reported well above, so it may just be conservative guidance.
- The company noted that, since the beginning of 2022, it has made significant investments in improving its customer funnel, capturing more demand and connecting more of that demand to its partner network, leading to increased conversion rates in Premier Agent. The most tangible example is providing easier ways for buyers to request home tours on Zillow apps and sites. This has resulted in less drop-off in the funnel, which is a key driver behind improved lead volumes of higher intent customers.
- Specifically, Zillow is pretty excited about its recent ShowingTime acquisition, which is now being integrated with Zillow. Real-time touring allows eligible buyers to get a tour confirmed in less than an hour with much less friction in the process. Zillow started roiling this out in February in Atlanta. Connection rates are higher and customers are more likely to work with Zillow's Premier Agent partners. Zillow has now rolled out real-time touring in three new markets: Raleigh, Denver and Phoenix.
- Zillow is always a great call to listen to because the company provides good commentary on the housing market and they do not sugar coat it. Zillow concedes it's still seeing a very challenging housing macro environment with no clear indications of a turn. Transactions continue to be low. High demand to move supports a stable pricing environment, but high rates have somewhat locked sellers into their existing low rate mortgages.
- As such, Zillow sees record combined new home and new apartment inventory on the way. However, it will take quite some time to balance demand with supply and to normalize the market. And while rates may come down at any time, Zillow is not counting on it. Meanwhile, the company noted that it remains well-capitalized, generating positive operating cash flow and it's converting traffic into transactions.
Overall, this was a very nice upside quarter for Zillow, especially for EPS and adjusted EBITDA. Also, we think investors were surprised at how successful the real time touring add-on has become, which should create a nice tailwind as the rollout continues. We are a bit surprised to see the stock up this much, but we think investors were fearful in terms of what to expect for guidance given the macro headwinds. The guidance was pretty positive overall and certainly better than feared.
Wayfair's sooner-than-expected return to positive adjusted EBITDA ignites a powerful rally today (W)
Wayfair (W +13%) is sitting pretty today after crushing analysts' earnings estimates in Q1 and projecting a return to positive adjusted EBITDA in Q2 for the first time since 2021. The return to profitability since pandemic-related tailwinds dwindled and inflationary costs skyrocketed was particularly notable since Wayfair stated last quarter that it was unsure when it would achieve adjusted EBITDA breakeven, only that it would occur before Q4.
Wayfair's cost actions implemented over the past nine months were significant factors fueling its expected return to positive adjusted EBITDA. Recall in January, the e-commerce home furnishing retailer outlined its $1.4 bln annualized cost actions through workforce layoffs and operational improvements, including reducing incidence rates and improving shipping methods. This news sent its shares soaring, only to be brought back to Earth on lackluster Q4 earnings figures. Nevertheless, the benefits of Wayfair's initiatives are finally beginning to crystalize.
- Wayfair's adjusted EPS of $(1.13) represented a notable improvement over the $(1.96) posted last quarter. Likewise, revs of $2.77 bln, a 7.3% decline yr/yr, markedly improved from the 13.9% dip in 1Q22. Also, even though Wayfair's sales growth worsened from the 4.6% dip in Q4, it is important to note that typical seasonality causes Q1 to be a lull period for the company, with revs usually not picking up until Q2.
- Similar to Q4 was the disparity between Wayfair's geographic segments. U.S. revs fell 5.0% yr/yr while International sales remained more depressed, sinking 20.4%. However, on the bright side, Wayfair's U.S. business enjoyed its second-straight quarter of positive adjusted EBITDA, with International adjusted EBITDA advancing toward Q4's decent levels despite a similar sales decline.
- Looking ahead, Wayfair is seeing a return to more traditional seasonality, remarking that it was encouraged by the improving trends it noticed in order growth, with orders delivered falling just 6.7% yr/yr compared to a 9.1% dip last quarter. Meanwhile, Wayfair's declining active customer count is slowing down, contracting 14.6% yr/yr in Q1 versus the 19% decline last quarter, as inflationary pressures ease.
- As a result, alongside positive adjusted EBITDA, Wayfair anticipates Q2 net revs to finally return to positive yr/yr growth after eight consecutive downbeat quarters, projecting just under 2% growth yr/yr and 10% sequentially. The company is also forecasting adjusted EBITDA margins of 0.5-1.5%.
Now that Wayfair is back on its path to profitability, it is planning its next stage: reaching mid-single-digit adjusted EBITDA margins and positive free cash flow. Although management did not provide a specific timeline on when this milestone may be achieved, it did state that once surpassed, these metrics would be the floor on profitability going forward.
Bottom line, Wayfair's Q1 report signaled improving demand dynamics and showcased the fruits of its recent cost-cutting initiatives. Still, plenty of work will need to be done to reach its subsequent profitability goals, which are made all the more challenging through stubborn macroeconomic issues. Although shares gapped significantly higher today, they are currently stalling around previous resistance, underpinning investors' lingering concerns.
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