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Market Snapshot
briefing.com
| Dow | 33298.08 | -233.16 | (-0.70%) | | Nasdaq | 12344.32 | +37.70 | (0.31%) | | SP 500 | 4132.50 | -6.41 | (-0.15%) | | 10-yr Note | -8/32 | 3.40 |
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| | NYSE | Adv 901 | Dec 1977 | Vol 844 mln | | Nasdaq | Adv 1563 | Dec 2839 | Vol 4.5 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Consumer Staples |
| | Weak: Energy, Real Estate, Utilities, Materials, Information Technology |
Moving the Market
-- Growth concerns continue to weigh on sentiment
-- Disney's disappointing quarterly results weighing on the Dow and S&P 500
-- Strength from a few mega caps
-- Regional bank stocks under pressure again after PacWest confirmed its deposits declined approximately 9.5% for the week ending May 5
-- Digesting the April Producer Price Index and weekly jobless claims
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Closing Summary
11-May-23 16:25 ET
Dow -221.82 at 33309.42, Nasdaq +22.06 at 12328.68, S&P -7.02 at 4131.89
[BRIEFING.COM] The major indices closed in mixed fashion near their highs of the day, yet the underlying market was quite a bit weaker than index level performance suggested. Growth concerns sparked some flight to safety buying interest in the mega cap stocks, which drove a lot of the index level action.
Alphabet (GOOG 116.90, +4.62, +4.1%) continued to rally after its Developers Conference yesterday, logging some of the biggest gains for the mega caps. Amazon.com (AMZN 112.18, +1.99, +1.8%), Meta Platforms (META 235.79, +2.71, +1.2%), and Tesla (TSLA 172.08, +3.54, +2.1%) all rose more than 1.0% today while Apple (AAPL 173.75, +0.19, +0.1%) closed with a slim gain. The Vanguard Mega Cap Growth ETF (MGK) rose 0.2%. Coincidentally, the Nasdaq Composite also gained 0.2% while the Nasdaq 100 gained 0.3%.
The Invesco S&P 500 Equal Weight ETF (RSP), though, fell 0.5% today. Decliners led advancers by a greater than 2-to-1 margin at the NYSE and a slightly less than 2-to-1 margin at the Nasdaq.
A sizable loss in Disney (DIS 92.31, -8.83, -8.7%) weighed on general sentiment today, leading the Dow Jones Industrial Average to underperform the other major indices. Disney reported fiscal Q2 results that featured a 2% year-over-year decline in Disney+ paid subscribers.
In addition to growth concerns and disappointing results from Disney, uncertainty about the debt ceiling and ongoing pressure on regional bank stocks loomed over the broader market. PacWest (PACW 4.70, -1.38, -22.7%) saw another sharp decline today after the company said its deposits declined approximately 9.5% for the week ending May 5. The SPDR S&P Regional Bank ETF (KRE) fell 2.5% and the SPDR S&P Bank ETF (KBE) fell 1.6%.
Most of the S&P 500 sectors closed with losses while the communication services (+1.7%) and consumer discretionary (+0.6%) sectors led the outperformers thanks to gains in their respective mega cap components.
Market participants were also digesting some economic data that was relatively pleasing with respect to the monetary policy outlook. The April Producer Price Index showed a moderation in inflation at the wholesale level while weekly initial jobless claims hit their highest level since October 30, 2021. Those readings effectively went the market's way, which is to say each moved in a direction that should leave the FOMC inclined to hold rates steady when it meets again in June.
The 2-yr note yield traded as low as 3.80% following the data, but settled the day unchanged at 3.90%. The 10-yr note yield, at 3.34% shortly after the data, fell four basis points to 3.40%.
Separately, the Bank of England raised its key lending rate by 25 basis points to 4.50%, as expected.
- Nasdaq Composite: +17.8% YTD
- S&P 500: +7.6% YTD
- Dow Jones Industrial Average: +0.5% YTD
- S&P Midcap 400: +0.1% YTD
- Russell 2000: -0.9% YTD
Reviewing today's economic data:
- April PPI 0.2% (Briefing.com consensus 0.3%); Prior was revised to -0.4% from -0.5%; April Core PPI 0.2% (Briefing.com consensus 0.3%); Prior was revised to 0.0% from -0.1%
- The key takeaway from the report is that producer inflation continued to moderate. On a year-over-year basis, total PPI was up 2.3% versus up 2.7% in March. Excluding food and energy, PPI was up 3.2% versus 3.4% in March.
- Weekly Initial Claims 264K (Briefing.com consensus 247K); Prior 242K; Weekly Continuing Claims 1.813 mln; Prior was revised to 1.801 mln from 1.805 mln
- The key takeaway from the report is that initial claims reached their highest level since October 30, 2021, tracking in a direction that reflects a labor market that is becoming less tight.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: April Import Prices (prior -0.6%), Import Prices ex-oil (prior -0.5%), Export Prices (prior -0.3%), and Export Prices ex-agriculture (prior -0.2%)
- 10:00 ET: Preliminary May University of Michigan Consumer Sentiment survey (Briefing.com consensus 62.9; prior 63.5)
Treasuries settle with gains; econ data releases tomorrow
11-May-23 15:35 ET
Dow -271.56 at 33259.68, Nasdaq +19.50 at 12326.12, S&P -10.86 at 4128.05
[BRIEFING.COM] Things are little changed in the last half hour. The major indices remain near their highs of the day, supported by mega caps.
Treasuries mostly settled with gains. The 2-yr note yield was unchanged at 3.90% and the 10-yr note yield fell four basis points to 3.40%.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: April Import Prices (prior -0.6%), Import Prices ex-oil (prior -0.5%), Export Prices (prior -0.3%), and Export Prices ex-agriculture (prior -0.2%)
- 10:00 ET: Preliminary May University of Michigan Consumer Sentiment survey (Briefing.com consensus 62.9; prior 63.5)
Mega caps continue to drive index performance
11-May-23 15:00 ET
Dow -233.16 at 33298.08, Nasdaq +37.70 at 12344.32, S&P -6.41 at 4132.50
[BRIEFING.COM] The major indices remain near their highs of the day.
Mega caps continue to drive upside moves for the indices while the underlying market remains weak. Decliners lead advancers by a 7-to-3 margin at the NYSE and a roughly 2-to-1 margin at the Nasdaq.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 2.5% to $70.95/bbl and natural gas futures rose 0.6% to $2.34/mmbtu.
The CBOE Volatility Index had been climbing today, but recently took a sharp turn lower, down 0.3% to 0.05 to 16.89.
Steris, Charles River among top gainers in S&P 500 post earnings
11-May-23 14:25 ET
Dow -301.62 at 33229.62, Nasdaq +9.66 at 12316.28, S&P -15.23 at 4123.68
[BRIEFING.COM] The S&P 500 (-0.37%) is firmly in second place at this point on Thursday, having moved mostly sideways over the previous half hour.
S&P 500 constituents Steris (STE 206.17, +16.78, +8.86%), Charles River (CRL 194.66, +8.36, +4.49%), and Axon (AXON 201.71, +8.98, +4.66%) pepper the top of the standings. STE and CRL move higher following earnings, while AXON caught a JP Morgan upgrade this morning to Overweight.
Meanwhile, Dallas-based regional bank Comerica (CMA 33.13, -1.91, -5.45%) is the second-worst performer today, underperforming alongside general weakness in regional banks following PacWest's (PACW 4.79, -1.29, -21.22%) deposits update.
Gold registers back-to-back losses amid rising dollar
11-May-23 14:00 ET
Dow -338.32 at 33192.92, Nasdaq -8.54 at 12298.08, S&P -20.45 at 4118.46
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-0.07%) has slipped into the red, having faded over the previous half hour.
Gold futures settled 16.60 lower (-0.8%) to $2,020.50/oz, pressured in part by a stronger greenback.
Meanwhile, the U.S. Dollar Index is up about +0.6% to $102.07.
Growth concerns mixing up the market
Yesterday's trade was a 2023 trade: concerns about growth could be seen in the tape, yet the mega-cap stocks outperformed (largely because of the growth concerns) and made the market look better than it was.
This trade has remained intact this morning. Currently, the S&P 500 futures are down four points and are trading 0.1% below fair value, the Nasdaq 100 futures are up 26 points and are trading 0.2% above fair value; and the Dow Jones Industrial Average futures are down 136 points and are trading 0.4% below fair value.
The relative strength in the mega-cap stocks is largely a safe-haven trade within the stock market, driven by nervousness over the debt ceiling, and nervousness over the growth outlook following some week new loan and inflation data for April out of China and a 19% decline in shares of PacWest (PACW) after it disclosed deposits declined approximately 9.5% for the week ending May 5.
The latter disclosure has prompted selling in other regional bank stocks and has stoked worries about lending standards tightening and crimping economic growth prospects.
To be fair, regional bank stocks, including PacWest, have moved off earlier lows with CNBC reporting that JPMorgan Chase (JPM) CEO Jamie Dimon said the regional banks are quite strong and that he hopes the SEC will look into short sellers.
His view tempered some of the building negativity in the futures trade leading up to the 8:30 a.m. ET release of the April Producer Price Index and Weekly Initial and Continuing Jobless Claims reports.
Those reports went the market's way, which is to say each moved in a direction that should leave the FOMC inclined to hold rates steady when it meets again in June.
- The Producer Price Index for final demand increased 0.2% month-over-month in April (Briefing.com consensus +0.3%) following an upwardly revised 0.4% decline (from -0.5%) in March. The index for final demand, excluding food and energy, increased 0.2% month-over-month in April (Briefing.com consensus +0.3%) following an upwardly revised unchanged reading (from -0.1%) in March.
- The key takeaway from the report is that producer inflation continued to moderate. On a year-over-year basis, total PPI was up 2.3% versus up 2.7% in March. Excluding food and energy, PPI was up 3.2% versus 3.4% in March.
- Initial jobless claims for the week ending May 6 increased by 22,000 to 264,000 (Briefing.com consensus 247,000). Continuing jobless claims for the week ending April 29 increased by 12,000 to 1.813 million.
- The key takeaway from the report is that initial claims reached their highest level since October 30, 2021, tracking in a direction that reflects a labor market that is becoming less tight.
Treasuries reacted accordingly to this rate-friendly data, padding some of the gains that had already been registered following the PacWest news.
The 2-yr note yield is down eight basis points to 3.82% and the 10-yr note yield is down eight basis points to 3.36%.
In other developments, Walt Disney (DIS) is a major drag on the Dow futures. It is down 5.8% in pre-market trading after the company posted some relatively disappointing fiscal Q2 results that featured a 2% year-over-year decline in Disney+ paid subscribers.
The Bank of England, meanwhile, followed suit with the Fed, ECB, Norges Bank, and Reserve Bank of Australia, and raised its key lending rate by 25 basis points to 4.50%. That move was expected, yet it is one more rate hike to account for in the lag effect of many global rate hikes that have been implemented and which are expected to have more of an impact on global growth in coming months.
Finally, Treasury Secretary Yellen warned that a debt default by the U.S. would undermine the global economy while former President Trump suggested in a CNN-hosted, live town hall gathering that the GOP should let a default happen if Democrats don't agree to big spending cuts.
-- Patrick J. O'Hare, Briefing.com
Beyond Meat's stock offerings cloud its otherwise solid Q1 results (BYND)
Beyond Meat (BYND -17%) is extending its downward trend, sinking to 52-week lows despite topping Q1 earnings and sales estimates and reiterating its FY23 revenue outlook. Quarterly results were solid, with not too many glaring weak points. In fact, shares initially shot up on the plant-based meat producer's Q1 numbers. However, the stock quickly fell back to Earth after BYND filed a mixed-shelf securities offering, plummeting even further on its $200 mln at the market equity offering.
- Still, there are reasons to see the glass half full. BYND showed decent progress toward profitability, improving its adjusted EPS to $(0.92) in Q1 from $(1.58) in the year-ago period. Sales did decline, falling 15.7% yr/yr to $92.24 mln. However, this was still a good improvement from the -20.6% revenue drop last quarter and -22.5% in 3Q22.
- BYND also remained focused on its three central tenets outlined last year: margin expansion/OpEx reduction, cash flow accretive inventory management, and opportunity prioritization.
- BYND started seeing tangible progress through targeting inefficiencies in its operations, illuminated by its cost-of-goods per pound declining 15% yr/yr in Q1. As a result, BYND expanded its gross margins by 650 bps yr/yr to 6.7%, an even greater improvement from the -18.0% margins posted in 3Q22.
- Given the current demand landscape, BYND's inventory levels are currently in excess of demand levels. However, the company has taken steps to work down these inventory levels, sequentially lowering its inventories by nearly 6%.
- BYND is also taking action to stimulate the near-term restoration of growth at select long-term strategic partners. For example, in U.S. Retail, BYND is rolling out marketing programs and promotional campaigns to reengage consumers' interest in plant-based protein. More importantly, BYND is evaluating pricing actions to close the gap between its products and animal-based protein alternatives.
- We view price as one of the most critical factors in spurring demand for BYND's products. Plant-based protein is considerably more expensive than animal protein, which is already enduring softening demand, as Tyson Foods (TSN) noted earlier this week. Given the inflationary environment, consumers are less likely to opt for the plant-based alternative, especially if it commands a higher price tag than beef.
- Encouragingly, BYND reiterated its FY23 revenue outlook of $375-415 mln. Also, due to its continuous cost reduction efforts, BYND projected gross margins to now be 1-2 pts above its prior guidance of low double digits for FY23.
BYND's Q1 results were solid, but its stock offerings are weighing heavily on the share price today. The near-term economic landscape is also looking to remain unfavorable. We think plant-based protein will continue to take a back seat to the more-popular animal protein substitute as long as a significant price gap remains. If BYND can make healthy progress on narrowing this disparity, perhaps consumers will be more inclined to try its products, potentially resulting in additional permanent consumers. However, given that TSN is dealing with lower beef demand, it could take time before consumers are willing to risk part of their squeezed budgets trialing plant-based protein products.
Dillard's sees a drop off in sales in back half of quarter as consumer spending softens (DDS)
Dillard's (DDS) has a track record of crushing quarterly earnings and sales estimates and that trend continued in 1Q23 as the department store operator easily beat top and bottom-line expectations. In fact, this quarter marked the ninth consecutive quarter in which DDS blew out EPS and revenue estimates. While that outperformance seems pretty impressive, the accomplishment really loses its luster when taking into account the very limited analyst coverage on the stock.
For Q1, there were only two estimates for EPS, while just three analysts had a revenue forecast. For a company of DDS's stature and size -- its market cap is near the $5 bln mark -- it's surprising that the stock doesn't have more coverage. We think this is mainly due to the fact that DDS doesn't host earnings conference calls, nor does it provide financial guidance, making it difficult for analysts to model future earnings and revenue projections. We also believe that the company would be better served if it made itself more available and transparent to investors and analysts.
Since DDS's performance relative to estimates loses most of its value due to the limited coverage, we must analyze its results on an absolute basis.
- Using that form of measurement, the company's results look rather lackluster on the surface as EPS and sales declined by 13% and 2%, respectively. Furthermore, comparable store sales decreased by 4% and retail gross margin slipped by 170 bps yr/yr to 45.6%.
- In the earnings press release, CEO William T. Dillard, II commented that the company had a good quarter in light of the tough yr/yr comparison. He has a valid point as sales and comparable sales jumped by 21.3% and 23%, respectively, in the year-earlier period.
- However, it's worth noting that the yr/yr comparisons for this quarter were significantly more favorable than the past three quarters. For instance, in Q4, DDS was lapping sales and comparable sales growth of 35% and 37% respectively. Yet, the company still generated stronger growth in Q4 compared to Q1 as comps increased by 5% yr/yr last quarter.
- The issue is that customer activity declined in the back half of Q1, which is not the most encouraging development heading into Q2. There were some notable areas of strength, such as ladies' apparel and shoes, but it appears that macroeconomic headwinds began to weigh on consumer spending as the quarter progressed.
DDS's negative comp and disclosure that business weakened later in the quarter doesn't bode too well for other department stores. In particular, Nordstrom (JWN) and Kohl's (KSS) are two names we'd be cautious on ahead of their earnings reports, which are slated for May 23 and May 24, respectively.
Overall, DDS's Q1 results reflect a retail environment that continues to be challenging, especially for retailers that don't cater to a more affluent customer base.
Walt Disney sinks as streaming growth concerns reemerge as Disney+ subscribers drop (DIS)
When Walt Disney (DIS) announced that Bob Iger would return as CEO last November, a new hope (to borrow a Star Wars title) about the company's profit generating potential emerged. Now, however, it seems that the honeymoon period is over after DIS reported disappointing 2Q23 results that included a small EPS miss and a 2% yr/yr decrease in Disney+ subscribers.
The tone following this earnings report is quite subdued compared to the buzz and excitement that accompanied Mr. Iger's first earnings report in February. Along with the upside Q1 earnings report, he announced a major reorganization initiative, a workforce reduction of approximately 7,000 positions, and the reinstatement of a dividend by the end of the fiscal year. The enthusiasm over these changes had a short shelf live, though, as the reality of DIS's challenges returned to the forefront.
Most notably, those challenges include turning the streaming services into a profitable business as subscriber growth slows and as DIS cuts back on content creation. Adding to the degree of difficulty for Iger and company is a shaky macroeconomic environment that's impacting advertising demand in the cable business, and rising costs that are pressuring operating margins in the theme park business.
In Q2, DIS experienced varying results in contending with these challenges.
- The clear highlight of the earnings report was the improved performance of the Direct-to-Consumer (DTC) segment. Last quarter, the DTC segment posted an unsightly operating loss of ($1.1) bln, mainly due to higher programming and production costs at Disney+.
- Those losses were significantly trimmed in 2Q23 to ($659) mln, easily topping analysts' expectations. A primary factor behind the improvement was the Disney+ price increase that took hold last December, which pushed domestic ARPU higher by 20% qtr/qtr.
That price increase, though, came at a cost.
- Disney+ shed about 4 mln global subscribers from last quarter for a total of 157.8 mln subscribers. That total missed estimates by a fairly large margin and put growth concerns back on the table for DIS's streaming business.
- On that note, CFO Christine McCarthy warned that domestic subscriber growth for Disney+ may show continued weakness in Q3 due to the price increase. With another price bump likely on tap for later this year, churn could worsen, especially if the economy sours.
Shifting gears to the Parks, Experiences, and Products segment, demand remained healthy in Q2 with both Mr. Iger and Ms. McCarthy noting during the earnings call that the theme park business will continue to be a key growth driver.
- Revenue for the segment grew by 17% yr/yr to $7.8 bln, reflecting increases across its domestic and international theme parks, as well as the cruise line business.
- DIS was especially pleased with the performance of its international parks as the business swung from an operating loss of ($268) mln in the year-ago quarter to a profit of $156 mln this quarter.
- Looking ahead, DIS was a bit cautious on the back half of the year, reminding investors and analysts that it will be lapping an unfavorable comparison due to last year's 50th Anniversary Celebration at Disney World.
- Furthermore, inflationary pressures, including higher wage costs, are expected to weigh on operating margins for domestic parks in Q3.
The main takeaway is that the exuberance centering on Mr. Iger's return as CEO has faded as growth concerns for the streaming business reemerge. Those concerns are amplified by DIS's strategy to cut back on content creation in order to improve profitability. The trade-off between slower subscriber growth and higher ARPU/profits is quite sensible for the long term, making today's sell-off seem overdone, in our view.
The Trade Desk heads lower despite EPS beat; has weathered a difficult online ad market (TTD)
The Trade Desk (TTD -5%) is trading lower following its Q1 report last night. This operator of a cloud-based online advertising-buying platform has been performing well despite the industry facing difficult macro headwinds. As such, we had concerns heading into this report given all the current concerns about weakness in the online ad space and considering that the stock is up +45% YTD. However, the company performed well.
- The numbers were quite good with its first double-digit EPS beat since 4Q21. TTD also posted nice revenue upside. Adjusted EBITDA fell 10% yr/yr to $109 mln, but that was much better than the $78 mln prior guidance. TTD also guided to upside Q2 revs at $452+ mln and it guided to a pretty significant sequential increase for adjusted EBITDA in Q2 at approx $160 mln.
- We see two takeaways: 1) results/guidance were not as bad as we feared and 2) TTD made a pretty good positive argument on the call on why it has continued to perform well even with the macro picture not looking great.
- On the first point, TTD rarely misses, partly because its guidance tends to be conservative. This was a larger beat than we normally we see from TTD, so that was good. Also, we think investors were particularly pleased with the Q2 upside revenue guidance given the macro headwinds in the online ad space.
- On the second point, TTD says it has been able to significantly outperform the digital advertising industry over the past few quarters. TTD is gaining market share. Even as most brands and advertisers deal with uncertainty, TTD says they are increasingly shifting more ad dollars to platforms where they can have more confidence that those dollars are working as hard as possible. As a result, TD has been we are signing multi-year joint business plans with the leading agencies and brands, some with spend projections that exceed $1 bln.
- TTD also noted that the shift to CTV is driving significant change not only in TV advertising, but also in omni-channel advertising. In other words, TTD's whole business. Many campaigns are now starting with high-value CTV impressions and then follow that up with less expensive display, audio, mobile, and native ads to move the user down the funnel. TTD also referenced Netflix saying on its recent call that the ad-tier subscriber is more valuable than the ad-free subscriber.
Overall, this was an impressive report from TTD, especially considering the difficult online ad market. Recent weak reports from SNAP and PINS are good examples. In terms of why the stock is lower, we think the +45% YTD move tells us a lot of good news was priced in already, so it was going to take a massive beat-and-raise to see a really big move to the upside.
Robinhood Markets was on target in Q1, expanding MAUs qtr/qtr for the first time since 2021 (HOOD)
Robinhood Markets (HOOD +2%) was on target in Q1, experiencing accelerating revenue growth, robust net deposits, and its highest average revenue per user since 2021. The broker-dealer, which disrupted the trading landscape a decade ago by offering zero-commission trades, has struggled since the Federal Reserve started raising interest rates over a year ago. Rising rates hurt the equity market, driving monthly active users into a sequential decline throughout each quarter of FY22, constricting HOOD's revenue growth.
However, as equities enjoyed a sustained rebounding effort throughout most of Q1, HOOD is finally experiencing positive developments across several metrics, helping the stock undergo a rebound for itself today.
- A major positive standout from Q1 was MAUs finally climbing qtr/qtr, expanding by 0.4 mln to 11.8 mln. Although MAUs are still well below their peak of 22.5 mln HOOD registered during its first quarter as a public company (2Q21), a potential stabilization of users after four straight quarters of sequential declines is a significant improvement.
- Enticing more MAUs to Robinhood was two-fold. For one, after a tumultuous 2022, the equity market has been amid a considerable rebound to start 2023, which is always a positive when operating a brokerage platform. Secondly, although the regional banking crisis sparked some shakiness within equities, it also spurred individuals to seek alternative interest-bearing vehicles to park their cash, such as money markets and CDs. As a result, HOOD is benefiting from its 4.65% annual yield on deposits for Gold subscribers, with FDIC insurance up to $2.0 mln.
- HOOD boasted a 29% annualized growth rate in its net deposits in Q1, partly underscoring the popularity of its "Gold" yield.
- HOOD is also constantly launching and improving its products and services. For example, Stock Lending and Instant Withdrawals continued to accelerate in popularity, each realizing annualized sales growth of +30-50% in Q1. Combined, these two products alone are already approaching the size of HOOD's equity trading business.
- Additionally, HOOD announced it is launching 24-hour trading next week, beginning with over 40 stocks and ETFs, with plans to expand from there. Furthermore, HOOD expects to launch futures trading around the end of FY23. Lastly, international expansion is well underway; HOOD anticipates launching brokerage services in the U.K. by the end of the year.
Even though HOOD's Q1 results largely reflected an improving stock market, they also underscored increasing demand for its numerous products and services, illuminated by the surging popularity in Stock Lending and Instant Withdrawals. Still, HOOD's financial performance remains heavily tied to the equity market, which can add to HOOD's volatility. Also, shares are stuck in a consolidation pattern, not having broken above $13 since April 2022. We like what HOOD is doing and see Q1 as a healthy step in the right direction. However, HOOD could find it challenging to maintain its upward momentum, primarily since uncertainties still exist surrounding the Fed and how the stock market will react.
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