Market Snapshot
briefing.com
| Dow | 33599.48 | -19.12 | (-0.06%) | | Nasdaq | 12195.30 | -61.79 | (-0.50%) | | SP 500 | 4126.85 | -12.54 | (-0.30%) | | 10-yr Note | 0/32 | 3.52 |
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| | NYSE | Adv 1167 | Dec 1737 | Vol 882 mln | | Nasdaq | Adv 1856 | Dec 2531 | Vol 4.1 bln |
Industry Watch
| Strong: Energy, Industrials, Consumer Discretionary |
| | Weak: Real Estate, Materials, Financials, Information Technology |
Moving the Market
-- Rebound in regional bank stocks
-- Ongoing worries about the debt ceiling ahead of President Biden's meeting with Congressional leaders today after the close (4:00 p.m. ET)
-- Hesitation ahead of the April Consumer Price Index tomorrow at 8:30 a.m. ET
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Closing Summary
09-May-23 16:20 ET
Dow -56.88 at 33561.72, Nasdaq -77.36 at 12179.73, S&P -18.95 at 4120.44
[BRIEFING.COM] The stock market traded on the weaker side today in front of the April Consumer Price Index tomorrow at 8:30 a.m. ET, yet losses were modest in scope. The Dow Jones Industrial Average (DJIA) and Russell 2000 at one point stretched into positive territory, showing small gains, but slipped back into red figures, joining the S&P 500 and Nasdaq there by the closing bell.
Ongoing concerns about the debt ceiling were a limiting factor today due to the specter of the 4:00 p.m. ET meeting between President Biden and congressional leaders to discuss the debt ceiling.
The relative outperformance of the DJIA was fueled in part by a gain in Boeing (BA 201.88, +4.62, +2.3%) on the news that its has received 150 firm orders for its 737 Max-10 aircraft, and options for 150 more, from Ryanair. Meanwhile, relative strength in energy shares along with some rebound action in regional bank stocks led to the relative outperformance of the Russell 2000.
Regional bank stocks had been a weak spot in the early going before a rebound effort took root around 1:00 p.m. ET shortly after the 3-yr note auction was met with strong demand. PacWest (PAWC 6.11, +0.14, +2.4%), Zions Bancorp (ZION 24.42, +0.16, +0.7%), and US Bancorp (USB 29.91, +0.17, +0.6%), along with other regional banks, recouped all of their early losses to settle the session with at least modest gains. The SPDR S&P Regional Banking ETF (KRE), though, still closed down 0.4%.
Most of the outsized moves in either direction today were limited to stocks with specific catalysts. Palantir (PLTR 9.55, +1.81, +23.4%) and DaVita (DVA 100.72, +11.51, +12.9%) were winning standouts after reporting earnings while PayPal (PYPL 65.90, -9.61, -12.7%) logged a steep earnings-related loss.
Nine of the 11 S&P 500 sectors registered losses with materials (-0.9%) and information technology (-0.9%) falling to the bottom of the pack. The industrials (+0.2%) led the outperformers thanks to earnings-driven gains in Transdigm Group (TDG 808.41, +36.11, +4.7%) and Jacobs Engineering (J 118.76, +1.47, +1.3%).
Treasuries settled little changed from yesterday's settlement levels. The 2-yr note yield rose one basis point to 4.00% and the 10-yr note yield was unchanged at 3.52%.
U.S. economic data today was limited to the April NFIB Small Business Optimism Index, which fell to 89.0 -- a 10-year low -- from 90.1. There was also some tepid trade data out of China for April, which featured an 8.5% yr/yr increase in exports and a 7.9% yr/yr decline in imports. In March, exports were up 14.8% yr/yr while imports were down just 1.4% yr/yr.
- Nasdaq Composite: +16.4% YTD
- S&P 500: +7.3% YTD
- Dow Jones Industrial Average: +1.3% YTD
- S&P Midcap 400: +0.6% YTD
- Russell 2000: -0.7% YTD
CORRECTION: the original summary showed incorrect year-to-date changes for the indices. It has been corrected to reflect the true values.
Market participants will receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.2%)
- 8:30 ET: April CPI (Briefing.com consensus 0.4%; prior 0.1%) and Core CPI (Briefing.com consensus 0.3%; prior 0.4%)
- 10:30 ET: Weekly crude oil inventories (prior -1.28 mln)
- 14:00 ET: April Treasury Budget (prior -$378.10 bln)
Li Auto (LI), Teva Pharma (TEVA), Coherent (COHR), Melco Resorts & Entertainment (MLCO), Nomad Foods (NOMD), Roblox (RBLX), and Wendy's (WEN) are some of the more notable names reporting earnings ahead of the open on Wednesday.
Earnings after the close/ ahead of the open tomorrow
09-May-23 15:35 ET
Dow +2.42 at 33621.02, Nasdaq -72.54 at 12184.55, S&P -12.89 at 4126.50
[BRIEFING.COM] Index performance is little changed heading into the close.
Ahead of President Biden's meeting with Congressional leaders at 4:00 p.m. ET today to the discuss debt ceiling, Bloomberg reported that the White House and House Speaker Kevin McCarthy both said they are against short term debt ceiling extension.
After the close today, Occidental Petro (OXY), GXO Logistics (GXO), Airbnb (ABNB), Wynn Resorts (WYNN), Twilio (TWLO), Rivian Automotive (RIVN), Affirm (AFRM), and Dutch Bros (BROS) are among the more notable companies reporting earnings.
Li Auto (LI), Teva Pharma (TEVA), Coherent (COHR), Melco Resorts & Entertainment (MLCO), Nomad Foods (NOMD), Roblox (RBLX), and Wendy's (WEN) are some of the more notable names reporting earnings ahead of the open tomorrow.
Regional bank stocks rebound
09-May-23 15:00 ET
Dow -19.12 at 33599.48, Nasdaq -61.79 at 12195.30, S&P -12.54 at 4126.85
[BRIEFING.COM] The Dow, S&P 500, and Nasdaq remain under pressure while the Russell 2000 outperforms, up 0.1%.
The price action in the Russell 2000 has been partially driven by a rebound effort in the regional bank stocks. PacWest (PACW 6.36, +0.38, +6.5%), Western Alliance (WAL 27.94, +0.57, +2.1%), Zions Bancorp (ZION 24.72, +0.46, +1.9%), and Comerica (CMA 36.70, +0.55, +1.5%) have all recouped early losses and sport at least modest gains now.
The SPDR S&P Regional Banking ETF (KRE), meanwhile, trades flat.
Albemarle gains on upgrade, Waters falls after earnings & guidance disappoint
09-May-23 14:25 ET
Dow +8.30 at 33626.90, Nasdaq -50.26 at 12206.83, S&P -8.74 at 4130.65
[BRIEFING.COM] The S&P 500 (-0.21%) is firmly in second place at this point on Tuesday afternoon, down just 9 points and near afternoon highs.
S&P 500 constituents Albemarle (ALB 196.99, +11.11, +5.98%), Hologic (HOLX 85.78, +2.68, +3.23%), and Marathon Petroleum (MPC 111.47, +2.76, +2.54%) dot the top of the index. ALB caught an upgrade to Outperform at Scotiabank this morning, HOLX moves higher after health experts recommended that women get regular mammograms at age 40 instead of 50, while MPC is allowed higher in part due to afternoon gains in oil futures in addition to amassing losses of about -11.2% over the prior five sessions.
Meanwhile, Massachusetts-based medical tech firm Waters (WAT 273.37, -23.13, -7.80%) is one of today's worst-performing stocks following this morning's miss and guide down.
Gold higher ahead of tomorrow's CPI inflation data
09-May-23 14:00 ET
Dow -13.90 at 33604.70, Nasdaq -57.83 at 12199.26, S&P -10.56 at 4128.83
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.47%) remains the worst-performing major average with about two hours to go on Tuesday, having moved mostly sideways over the previous half hour.
Gold futures settled $9.70 higher (+0.5%) to $2,042.90/oz, bucking a stronger dollar and moderately higher yields ahead of tomorrow's CPI inflation readings.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $101.65.
Poised to tilt modestly lower at the open
The stock market conducted six-and-a-half hours of trading on Monday per usual and ended the session just about where it began. That languid showing was attributed largely to some nervousness over the debt ceiling discussions, some anxiousness in front of Wednesday's Consumer Price Index, and some disappointment that the regional bank stocks succumbed to renewed selling pressure after seeing some opening strength.
Well, nothing has really changed in any of those respects this morning, except perhaps that regional bank stocks are not showing early strength.
The SPDR S&P Regional Banking ETF (KRE) is down 1.1% in pre-market trading; meanwhile, the April Consumer Price Index is still a day away and the meeting President Biden is having with House Speaker McCarthy and other Congressional leaders to talk about the debt ceiling isn't happening until 4:00 p.m. ET today (i.e., after the close).
The stock market, however, looks a little less languid this morning. Currently, the S&P 500 futures are down 16 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 72 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 87 points and are trading 0.3% below fair value.
That is a modestly negative bias that is also being affected by a mixed batch of earnings news that included results from PayPal (PYPL), Western Digital (WDC), Skyworks Solutions (SWKS), Palantir (PLTR), McKesson (MCK), Under Armour (UAA), Fox Corporation (FOXA), Duke Energy (DUK), and Lucid Group (LCID), and some tepid April trade data out of China.
Briefly, China reported an 8.5% yr/yr increase in exports and a 7.9% yr/yr decline in imports. In March, exports were up 14.8% yr/yr while imports were down just 1.4% yr/yr. The weakening in April has raised some questions about the strength of China's reopening activity following the relaxation of its COVID restrictions.
This news seems to be factoring into some of the early weakness seen in oil futures ($72.38, -0.78, -1.1%) and copper futures ($3.91, -0.018, -0.5%), along with the understanding that the NFIB Small Business Optimism Index for April hit a 10-yr low of 89.0.
The 2-yr note yield is up one basis point to 4.00% and the 10-yr note yield is down two basis points to 3.50%.
To be fair, growth concerns are not unduly influencing the equity futures market with a downside bias. Opening losses are still projected only to be modest in scope.
Dow component Boeing (BA) has helped temper things following the news that Ryanair confirmed ordering 300 new Boeing 737 Max-10 aircraft (150 firm orders and options for an additional 150) for delivery between 2027 to 2033. Shares of BA are up 2.1%.
-- Patrick J. O'Hare, Briefing.com
Palantir Technologies surges after projecting its first full year of profitability in FY23 (PLTR)
Palantir Technologies (PLTR +23%) is surging today following its Q1 earnings report yesterday after the close. The cloud-based data analytics company, founded around the turn of the century to support the U.S. Government, delivered consistently solid headline results, beating estimates on its top and bottom lines and delivering its second-straight quarter of GAAP profitability. Although these accomplishments were impressive, primarily powering PLTR's rocketing share price was CEO Alex Karp expecting the company to remain profitable each quarter this year, resulting in its first full year of profitability. Doing so would open PLTR to the possibility of being added to the S&P 500.
- PLTR more than doubled its GAAP EPS yr/yr to $0.05 on top-line growth of 17.7% to $525.19 mln, cruising past its prior $503-507 mln forecast. Notably, PLTR achieved its second-consecutive quarter of profitability despite Q1 typically being its seasonally softest quarter. Meanwhile, PLTR also grew its adjusted operating margins to 24%, 600 bps ahead of its prior guidance.
- A point of skepticism amongst investors before PLTR's direct public offering in late 2020 was its ability to translate its success in the public sector to the private sector. Therefore, it was encouraging to see PLTR register accelerated commercial sales growth in Q1, expanding the figure by 15% yr/yr and 10% sequentially to $236 mln. Also, the company reached $100 mln in U.S. commercial revs for the first time, assisted by its 50% customer increase. Management added that it started to see meaningful growth and upsell opportunities within its newer commercial customer base.
- On the government side, revenue remained steady, climbing 20% yr/yr to $289 mln, similar to the +23% posted last quarter. Government contracts have uncertainties associated with the timing of expansions and renewals, explaining part of the deceleration in sales growth from Q4. Nonetheless, PLTR is confident is continually growing this business.
- Looking ahead, PLTR did miss on its Q2 revenue guide, expecting $528-532 mln. However, this was shrugged off since PLTR bumped its FY23 revenue guidance slightly higher to $2.185-2.235 bln from $2.18-2.23 bln, incorporating some of the upside delivered in Q1.
By registering its second-straight quarter of profitability and projecting to achieve its first full year of profitability in FY23, PLTR is demonstrating its ability to quickly pivot from growth at all costs to emphasizing profitability. In fact, just two quarters ago, Mr. Karp did not expect to be a profitable company until 2025.
Nevertheless, despite all the promising developments from Q1, shares are still trading around 7% below February highs, signaling some lingering uneasiness amongst investors, who could be wary of the possibility that PLTR is merely capitalizing on a brisk AI-induced tailwind that could die down as quickly as it gained steam. Tie that in with PLTR's pricey 45x forward earnings multiple, and the result could be a recipe for PLTR to struggle to sustain its current upward momentum.
DaVita launches higher as lower labor costs, increased treatment volumes drive improved profit (DVA)
DaVita (DVA), a provider of kidney dialysis services, is soaring higher and is approaching new 52-week highs after issuing a beat-and-raise 1Q23 earnings report that reflected meaningful improvements across previous problem areas.
Most notably, DVA achieved significant progress in reducing labor costs, which had increased substantially due to COVID-related disruptions.
- During the earnings call, CEO Javier Rodriguez noted that the company is ahead of plan in its effort to cut full year contract labor expenses by 50% compared to last year.
- Some of the labor cost reductions are the result of improvements in the overall labor market, but the company also credits its more effective management of the interplay between wage growth, contract labor, and training costs as a key factor.
- Importantly, permanent staffing levels at DVA's clinics are increasing, enabling it to lower contract labor costs. While turnover is still elevated, resulting in training costs above historical norms, the situation has improved compared to the peak turnover levels experienced last summer.
In addition to the reduction in contract labor costs, DVA also generated cost savings from its anemia management transition to MIRCERA -- a drug used to treat anemia caused by chronic kidney disease -- and from favorable variability in health benefits and insurance costs. The end result is that patient care cost per treatment decreased by $1.18 sequentially on a non-GAAP basis to $257.34.
DVA also saw some improvements on the demand side.
- Dialysis treatment volume edged higher by 1% in Q1, and the company now believes that it may finish the year in the top half of its volume forecast range of down 3% to flat on a yr/yr basis. The main driver behind the modest increase was a larger pool of patients, offsetting a missed treatment rate that remains elevated compared to pre-COVID rates.
- From a broader perspective, DVA believes that raising awareness about kidney care is critical since one in seven Americans have chronic kidney disease (CKD) with a majority of those people not even aware of it. To help raise awareness, DVA initiated its "Kidney Smart" program, which drew 33,000 CKD patients in 2022 -- the best ever in the 12-year history of the program.
Due to the items above, DVA didn't just modestly increase its FY23 guidance -- it lifted its outlook by a meaningful amount. For EPS, the company now expects $6.20-$7.30 vs. its prior guidance of $5.45-$6.95, and for free cash flow, it's now forecasting $750 mln to $1.0 bln compared to its prior estimate of $650-$900 mln. In a market environment in which improving profitability is both cherished and hard to find, it's fitting that DVA's upwardly revised EPS guidance is fueling this impressive rally in the stock.
Under Armour's soft guidance dashes hopes of quick turnaround as bloated inventory weighs (UAA)
Amid a highly promotional retail environment that's laden with bloated inventory levels and budget conscious consumers, sports apparel and footwear company Under Armour (UAA) exceeded 4Q23 EPS and revenue expectations.
For newly appointed CEO Stephanie Linnartz, who took the helm on February 27 after serving as Marriott's (MAR) President, the upside results may represent a starting point in her mission to turn this beleaguered brand around. However, for those looking for more meaningful and lasting progress out of the gate, UAA's downside EPS and revenue guidance for FY24 threw some cold water on those hopes.
The company certainly isn't alone in its struggles.
- Even rival NIKE (NKE), a best-in-class name that's known for its exceptional execution, hasn't been immune to the unfavorable conditions. Like UAA, the company beat quarterly expectations when it issued 3Q23 results on March 21, but it also provided a disappointing outlook.
- Specifically, NKE warned that FY23 gross margin may come in at the lower end of its guidance of a 200-250 bps decline as the company contends with lingering inventory issues.
The main difference between the two companies is that demand is much healthier for NKE as compared to UAA, as illustrated by the difference in growth rates.- In Q4, UAA's revenue increased by 7.7% to $1.40 bln, which is actually the company's strongest growth rate since 4Q21 when sales climbed by 8.9%. Still, that growth significantly lags the 13.8% jump in revenue that NKE posted in its most recent quarter.
The divergence in performance is most glaring in UAA's core North America market where revenue edged higher by only 3% compared to a 27% surge for NKE. Brand strength is a key differentiating factor as NKE continues to enjoy strong demand at its largest partners, including Dick's Sporting Goods (DKS) and Foot Locker (FL), with wholesale revenue up 18% in Q3. UAA's wholesale revenue grew by 10% to $909 mln in Q4.Of particular concern for UAA is that it will have more trouble clearing out its elevated inventory levels relative to NKE due to the demand differences.
- With inventory up by 44% in Q4, UAA will have plenty of product to work through, too, causing it to become even more promotional.
- On that note, the company is expecting higher off-price revenue and more promotional activity in its direct-to-consumer business to nearly fully offset the anticipated lower freight costs in FY24.
- Overall, UAA is forecasting a 25-75 bps improvement in FY24 gross margin to 45.2-45.7%.
The main takeaway is that UAA seems to be losing even more ground to stronger competitors like NKE in this challenging environment. Newly minted CEO Stephanie Linnartz will be tasked with reinvigorating the UAA brand while simultaneously clearing out stale inventory. It's a tall order, but her strategy of focusing on Sportstyle, footwear, the women's category, and the U.S. market looks on point in our view.
Western Digital heads lower despite MarQ upside; JunQ guidance was weak (WDC)
Western Digital (WDC -3%) is heading lower following its Q3 (Mar) results last night. Investors got what they wanted with a narrower than expected loss and upside revenue. However, the industry downturn remains in force and that was evident in the sizeable downside guidance for Q4 (Jun). Its peer Seagate (STX) reported very weak results on April 20 which prepared investors for a weak WDC result, but WDC's guidance is spooking investors.
- In terms of why WDC was able to report upside results in MarQ, that was mostly because non-GAAP gross margin came in at the higher end of prior guidance. On the HDD side, WDC had taken early actions to streamline its manufacturing footprint and focused on delivering value for data center customers. WDC also made profitable market share gains in HDD. On the Flash side, WDC was able to optimize bit placement and bolster gross margin.
- There were also some positive developments in terms of demand. WDC saw signs of demand stabilizing across various end markets in MarQ. In consumer, Flash and HDD results were consistent with the expectations shared in January. However, in client, demand for each major product area came in better than WDC expected across PC OEM, channel, mobile, and gaming. In cloud, demand for capacity enterprise hard drives improved whereas the demand for flash drives was as expected.
- HDD revenue improved sequentially in MarQ with growth in capacity enterprise offsetting seasonal declines in retail and client. On the Flash side, total exabyte shipments came in higher than expected in consumer, mobile, PC OEM and channel products. Despite the industry experiencing the worst downturn in over a decade, WDC noted it was able to deliver positive product gross margin excluding underutilization charges.
- Looking ahead to JunQ, the guidance was pretty rough as WDC expects an adjusted loss of $(2.20)-(1.90) per share and revs of just $2.40-2.60 bln. Both metrics were well below analyst expectations. WDC sees overall demand being impacted by ongoing inventory digestion at cloud customers and a sustained decline in client.
- However, there were some nuggets of positivity. Specifically, WDC is beginning to experience improved demand at certain customers in China. Also, WDC is seeing signs of stabilization in content increase per unit on the Flash side and PC OEMs have emerged from inventory digestion and are now shipping closer to end demand. Gaming is expected to remain strong while enterprise SSD for cloud applications will remain soft.
Overall, this report was a bit of a letdown. While it was good to see upside to MarQ results, the focus was really on the guidance. The weak JunQ guidance sort of took the air out of the report. It's a reminder the industry turnaround will take some time. There were some positives on the call, but the big picture is that there is still a lot of inventory in the channel that needs to be worked down and a near term turnaround appears unlikely.
PayPal sells off after reducing its FY23 adjusted operating margin forecast (PYPL)
PayPal (PYPL -11%) may have accelerated its sales and earnings growth yr/yr and sequentially in Q1 -- fueling its top and bottom line beats -- while simultaneously raising its FY23 adjusted EPS outlook, but investors remain unimpressed. Spurring today's selling activity was the payment processing giant clipping its FY23 adjusted operating margin growth forecast, expecting 100 bps of expansion yr/yr, down 25 bps from its prior projection.
Fueling its reduced margin outlook is PYPL's unbranded processing volume growth outstripping its higher-margin branded volume growth, resulting in slower transaction margin expansion. For example, during Q1, transaction margins contracted 380 bps yr/yr to 47.1%, a much more significant drop than the 130 bp decline to 49.7% last quarter.
PYPL's branded checkout still grew by 6.5% yr/yr in constant currency, a 200 bp acceleration from Q4, and the company believes it improved its global share. Outgoing CEO Dan Schulman also anticipates transaction margin performance to improve as the company executes its strategies to increase profitability. Nevertheless, PYPL's reduced margin forecast is spooking investors today, especially given that it was driven by its branded checkout not keeping pace with its unbranded processing, potentially underscoring a shift by consumers toward competing firms' checkout offerings, like those from Apple (AAPL) and Affirm (AFRM).
- PYPL still delivered plenty of highlights from Q1. It grew its bottom line by 33% yr/yr to $1.17 on a solid 8.6% jump in revs to $7.04 bln. Total payment volume (TPV) also grew nicely at 10% on a spot basis to $354.4 bln. Meanwhile, total active accounts of 433 mln represented a 1% bump yr/yr.
- PYPL's buy-now-pay-later (BNPL) offering continued to enjoy robust demand, boasting 70% TPV growth yr/yr excluding currency fluctuations. PYPL also emphasized that consumers spend 30% more on its branded checkout when choosing its BNPL feature. BNPL remains a popular choice during the inflationary environment as it allows consumers to pay for its purchases over a few weeks (or longer at higher interest rates), a promising sign ahead of pure-play BNPL company AFRM's MarQ report today after the close.
- Looking ahead, PYPL guided Q2 earnings and revs mostly in line with consensus, projecting $1.15-1.17 EPS and +6.5-7.0% sales growth on a spot basis. At the same time, PYPL upped its FY23 adjusted earnings forecast to approximately $4.95 from $4.89, nearly 2 pts ahead of its +18% yr/yr growth target.
Still, investors are unwilling to shrug off PYPL's reduced FY23 adjusted operating margin outlook, which is not helped by lingering macroeconomic headwinds, including stubborn inflation and fears of a recession. Although PYPL's BNPL feature is helping grow its branded checkout volumes, it is unclear how much AAPL could encroach on this development, given it just launched its BNPL offering in March. Meanwhile, PYPL has not yet decided who will replace CEO Dan Schulman, who announced last quarter that he is retiring on December 31. With so many unknowns on the horizon, PYPL shares are suffering and could struggle to rebound until there is more clarity on these developments.
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