Market Snapshot
briefing.com
| Dow | 33406.61 | +394.56 | (1.20%) | | Nasdaq | 12498.28 | +155.05 | (1.26%) | | SP 500 | 4158.59 | +47.42 | (1.15%) | | 10-yr Note | -3/32 | 3.58 |
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| | NYSE | Adv 2167 | Dec 662 | Vol 912 mln | | Nasdaq | Adv 3162 | Dec 1273 | Vol 4.5 bln |
Industry Watch
| Strong: Financials, Energy, Consumer Discretionary, Industrials, Real Estate |
| | Weak: Utilities, Consumer Staples, Health Care |
Moving the Market
-- Western Alliance (WAL) providing an encouraging update helping to boost sentiment
-- Target's (TGT) earnings report receiving a positive response
-- Uncertainty about the debt ceiling continues to be in play
-- Some short-covering activity
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Closing Summary
17-May-23 16:30 ET
Dow +408.63 at 33420.68, Nasdaq +157.51 at 12500.74, S&P +48.87 at 4160.04
[BRIEFING.COM] The stock market exhibited some softness right out of the gate, but quickly found upside momentum. Gains built up throughout the session, aided by some short-covering activity. The major indices all closed near their best levels of the day, which had the S&P 500 back above the 4,150 level.
Gains were driven by some positive responses to earnings and other corporate news, along with an emerging hope that the president and congressional leaders are more aligned with debt ceiling negotiations. Still, no deal has been reached and uncertainty remains in play for market participants. That uncertainty, though, was not enough to offset today's relatively strong showing, which had a pro-cyclical bias.
An uptick in single-family starts and single-family building permits in April, along with the Atlanta Fed's GDPNow model estimate for real GDP growth in the second quarter increasing to 2.9% from 2.6%, helped drive the cyclical trade.
Advancing issues led declining issues by a greater than 3-to-1 margin at the NYSE and a 5-to-2 margin at the Nasdaq.
Many stocks came along for the rally, leading nine of the 11 S&P 500 sectors to close with a gain. The financials sector sat atop the leaderboard, up 2.1%. This came after Western Alliance (WAL 34.81, +3.22, +10.2%) said its deposits have increased by more than $2 billion since the end of the first quarter. This news put a bid in the bank stocks, which was aided by short-covering activity. The SPDR S&P Regional Bank ETF (KRE) jumped 7.4%.
The energy sector (+2.1%) was another winning standout today, rising alongside oil prices. WTI crude oil futures rose 3.0% to $72.81/bbl. The industrial sector (+1.7%) also outperformed in today's trade.
Several consumer discretionary sector (+2.0%) components with news catalysts logged nice gains and drove the sector's outperformance. Wynn Resorts (WYNN 108.92, +5.87, +5.7%) was a standout in that regard after being upgraded to Overweight from Equal Weight at Barclays; Tesla (TSLA 173.86, +7.34, +4.4%) was in rally mode after CEO Elon Musk teased "two new products" at Tuesday's shareholder meeting; and TJX (TJX 78.95, +0.73, +0.9%) lagged the S&P 500 (+1.2%), but still squeezed out a gain after its earnings report.
Meanwhile, the consumer staples sector (-0.1%) closed near the bottom of the pack despite a nice earnings-related gain in Target (TGT 160.96, +4.05, +2.6%). This comes ahead of Walmart's (WMT 149.53, -0.25, -0.2%) earnings report before the open on Thursday.
Treasuries settled with losses across the curve, but shorter tenors saw greater selling interest. The 2-yr note yield rose nine basis points to 4.16% and the 10-yr note yield rose three basis points to 3.58%.
- Nasdaq Composite: +19.4% YTD
- S&P 500: +8.3% YTD
- Dow Jones Industrial Average: +0.8% YTD
- S&P Midcap 400: +1.2% YTD
- Russell 2000: +0.8% YTD
Reviewing today's economic data:
- The MBA Mortgage Applications Index fell 5.7% with purchase applications declining 4.8% and refinancing applications dropping 8.0%.
- Total housing starts increased 2.2% month-over-month in April to a seasonally adjusted annual rate of 1.401 million (Briefing.com consensus 1.405 million) from a downwardly revised 1.371 million (from 1.420 million) in March. Single-family starts were up 1.6% month-over-month, but only because of a strong 59.5% increase in the West; single-family starts declined in all other regions.
- Building permits declined 1.5% month-over-month to 1.416 million (Briefing.com consensus 1.438 million) from an upwardly revised 1.437 million (from 1.413 million) in March. Single-unit permits rose 3.1% month-over-month, led by gains in all regions. The weakness in permits was driven by a 9.7% decline in permits for 5 units or more.
- The key takeaway from the report is that single-family starts and permits were up, which is a welcome sign given the tight supply of existing homes for sale. Even so, the constraints of high financing rates and high prices are evident in single-unit starts being down 28.1% year-over-year and single-family permits being down 21.2% year-over-year.
- The weekly EIA Crude Oil Inventories showed a build of 5.04 million barrels after last week's build of 2.95 million barrels.
Ahead of the open on Thursday, Alibaba (BABA), Walmart (WMT), KE Holdings (BEKE), Dole plc (DOLE), Bath & Body Works (BBWI) are among the more notable companies reporting earnings.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 259,000; prior 264,000), Continuing Claims (prior 1.813 mln), and May Philadelphia Fed Survey (Briefing.com consensus -16.0; prior -31.3)
- 10:00 ET: April Existing Home Sales (Briefing.com consensus 4.30 mln; prior 4.44 mln) and April Leading Indicators (Briefing.com consensus -0.5%; prior -1.2%)
- 10:30 ET: Weekly natural gas inventories (prior +78 bcf)
Treasuries settle with losses
17-May-23 15:35 ET
Dow +353.65 at 33365.70, Nasdaq +145.00 at 12488.23, S&P +42.60 at 4153.77
[BRIEFING.COM] The main indices remain just under their best levels of the session.
Treasuries settled with losses across the curve. The 2-yr note yield rose nine basis points to 4.16% and the 10-yr note yield rose three basis points to 3.58%.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 259,000; prior 264,000), Continuing Claims (prior 1.813 mln), and May Philadelphia Fed Survey (Briefing.com consensus -16.0; prior -31.3)
- 10:00 ET: April Existing Home Sales (Briefing.com consensus 4.30 mln; prior 4.44 mln) and April Leading Indicators (Briefing.com consensus -0.5%; prior -1.2%)
- 10:30 ET: Weekly natural gas inventories (prior +78 bcf)
Notable earnings after the close
17-May-23 15:05 ET
Dow +394.56 at 33406.61, Nasdaq +155.05 at 12498.28, S&P +47.42 at 4158.59
[BRIEFING.COM] The major indices have settled into narrow trading ranges near their best levels of the day.
Cisco (CSCO), ZTO Express (ZTO), Synopsys (SNPS), Take-Two (TTWO), and Copart (CPRT) are among the more influential names reporting earnings after the close today.
Separately, the U.S. Dollar Index has been pulling back from an earlier high of 103.11, but it's still up 0.3% to 102.87.
Market declines; MSFT and NVDA hit fresh 52-wk highs
17-May-23 14:40 ET
Dow +396.55 at 33408.60, Nasdaq +153.62 at 12496.85, S&P +47.85 at 4159.02
[BRIEFING.COM] The market started to pullback from session highs recently.
Today's rally saw mega caps Microsoft (MSFT 313.80, +2.73, +0.9%) and NVIDIA (NVDA 300.32, +8.19, +2.8%) both reach new 52-week highs.
Separately, energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 3.0% to $72.81/bbl and natural gas futures fell 0.4% to $2.50/mmbtu.
Market continues to climb
17-May-23 14:00 ET
Dow +426.56 at 33438.61, Nasdaq +164.59 at 12507.82, S&P +52.24 at 4163.41
[BRIEFING.COM] The major indices continue to rise, sitting at session highs now.
The recent upside moves have brought the S&P 500 health care sector (+0.1%) into positive territory, leaving the utilities (-0.1%) and consumer staples (-0.1%) sectors alone in the red.
Copper futures came along for the rally, rising 2.3% today to settle at $3.75/lb.
Meanwhile, the CBOE Volatility Index is plunging, down 6.1% or 1.10 to 16.89.
Poised to turn higher in the trading range
There was no agreement to raise the debt ceiling at yesterday's meeting between President Biden and congressional leaders. Nonetheless, the spin coming out of that meeting is that it was a positive meeting, that a bipartisan deal can still get done to prevent a default, and that the process for negotiating any agreement has improved with President Biden appointing administration officials to work directly with House Speaker McCarthy's team.
That headline overview is the ostensible basis for why there is a positive bias in the futures trade this morning. It is not the only driver. Western Alliance (WAL) provided an encouraging update, saying its deposits have grown by $2 billion since the end of the first quarter. That news has put a bid in its stock, which is up 12%, and in other regional bank stocks.
Currently, the S&P 500 futures are up 18 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 36 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 164 points and are trading 0.5% above fair value.
We are still inclined to label it a guarded trade, however.
Market participants undoubtedly recognize that congressional leaders are saying the right things in an attempt to keep things calm ahead of the X-date, but that they haven't said the one thing everyone wants to hear: we have a deal that has enough support to pass in both chambers.
Remember, getting a deal between the president and congressional leaders is one thing. Getting enough support in the Democratic and Republican caucuses to pass it is another.
We haven't crossed either of those thresholds yet, which is why the stock market can be expected still to adhere to its tight trading range with buyers and sellers lacking conviction.
We suspect the measured enthusiasm seen this morning has something to do, too, with Target's (TGT) mixed fiscal Q1 earnings report that featured a beat on EPS, a miss on revenues, an indication that sales trends softened in the quarter, and an EPS warning for fiscal Q2. To be fair, Target maintained its wide FY24 EPS guidance of $7.75-8.75.
Shares of TGT are indicated 0.8% higher in pre-market trading, yet we wouldn't characterize its report as a reason for the bulls to charge full steam ahead this morning.
The same goes for the April Housing Starts and Building Permits Report.
Total housing starts increased 2.2% month-over-month in April to a seasonally adjusted annual rate of 1.401 million (Briefing.com consensus 1.405 million) from a downwardly revised 1.371 million (from 1.420 million) in March. Single-family starts were up 1.6% month-over-month, but only because of a strong 59.5% increase in the West; single-family starts declined in all other regions.
Building permits declined 1.5% month-over-month to 1.416 million (Briefing.com consensus 1.438 million) from an upwardly revised 1.437 million (from 1.413 million) in March. Single-unit permits rose 3.1% month-over-month, led by gains in all regions. The weakness in permits was driven by a 9.7% decline in permits for 5 units or more.
The key takeaway from the report is that single-family starts and permits were up, which is a welcome sign given the tight supply of existing homes for sale. Even so, the constraints of high financing rates and high prices are evident in single-unit starts being down 28.1% year-over-year and single-family permits being down 21.2% year-over-year.
-- Patrick J. O'Hare, Briefing.com
Old Dominion looks to break above its 200-day moving average following an upgrade at Evercore (ODFL)
Old Dominion (ODFL +1.9%), one of the largest North American less-than-truckload (LTL) carriers, is looking to recoup its losses yesterday after receiving its second upgrade in less than a month today at Evercore to "Outperform" from "In-line." The upgrade shortly followed Deutsche Bank's upgrade to "Buy" from "Hold" in late April. News that a deal to raise the debt ceiling looks more likely is also igniting an enthusiastic response today.
Briefing.com notes that with the Dow Jones Transportation Index, which ODFL is a part of, recently rebounding after flirting with 2023 lows in late April, analysts may be pricing in a bottom across multiple transportation firms. Other index components, such as AAL, JBHT, NSC, and UPS, all received upgrades in the past three weeks. It also helps that crude oil prices, a primary headwind for these companies, have fallen significantly from April highs.
Although recession fears remain, and ODFL's Q1 earnings report in late April sparked a considerable sell-off, there are a few silver linings worth outlining.
- ODFL did not help alleviate recession fears when it noted last month that an acceleration in volumes it initially anticipated had yet to unfold. In fact, on a yr/yr basis, shipments in April were trending down double digits. However, ODFL commented that its market share remained relatively consistent, with yields continuing to improve, reflecting the company's competitive positioning, a major advantage to help steer through potentially lingering economic challenges.
- Drilling deeper, one of ODFL's critical advantages is its capacity, enabling the firm to accelerate growth once the economy improves.
- While economic activity remains suppressed, ODFL is controlling costs to protect its profitability. The company improved its platform productivity in Q1, generating a 5.8% increase in platform shipments per hour while reducing its reliance on purchase transportation compared to the year-ago period, contributing to an overall improvement to its variable costs as a percentage of sales.
- ODFL's commitment to financial discipline will not only allow it to survive a softer demand environment but will also position it for significant earnings growth potential once economic activity picks back up.
Still, it is important to note that ODFL is not expecting a meaningful bounce in demand for the foreseeable future, especially given that the typical volume acceleration seen during Q2 had yet to occur as of late April, projecting the weak demand landscape to persist for the remainder of the year. Nevertheless, ODFL is managing what it can in an effort to position itself to be ready to fully capitalize on an eventual rebound in economic activity, which, given its productivity initiatives, should result in a considerable jolt to its financial performance.
Keysight unlocking some nice gains today as company sees stronger earnings this year (KEYS)
Keysight (KEYS), a manufacturer of test and measurement equipment for industries such as aerospace, defense, automotive, and semiconductors, has been impacted by cautious spending patterns within certain markets, but the company experienced stronger-than-expected demand in Q2. As a result, revenue of $1.39 bln came in at the high end of KEYS' prior guidance range, while EPS of $2.12 exceeded its forecast as gross margin of 67% reached a new Q2 record.
The main catalyst powering the stock's impressive move higher, though, is KEY's brighter outlook for the full year.
- During the earnings call, CFO Neil Dougherty stated that while the macro environment remains challenging, the company is now anticipating "better earnings performance than previously communicated with strong mid-single-digit EPS growth."
- In comparison, during the Q1 call, Mr. Dougherty said that KEYS would expect to deliver low single-digit revenue and EPS growth for the year if the current demand environment persists.
So what has changed since the end of last quarter?
- One notable item is that KEYS' exposure to the automotive industry -- and in particular, the electric vehicle (EV) market -- is helping to offset weakness in other areas, such as smartphones and PCs.
- In Q2, the Electronic Industrial Solutions Group (EISG), which accounts for a third of KEYS' total revenue, generated top-line growth of 17% as revenue hit an all-time high of $453 mln.
- The strong performance was partly driven by double-digit revenue growth in automotive, supported by the company's portfolio of EV charging test equipment.
- Additionally, rising global defense spending, especially for modernization investments in space and satellites, is driving growth higher for KEYS' Aerospace & Defense and Government segment. Revenue for this segment increased by 7% with revenue and orders both setting second quarter records.
- Finally, while the Communications Solutions Group (CSG) continues to be the laggard with revenue down by 3% to $937 mln, there is a notable area of strength. Spending and long-term investments for 5G and 6G technologies remains healthy, driving solid demand for KEYS' radio frequency and microwave test solutions, among other products.
- This is helping to mitigate the impact of cautious spending within the smartphone and PC markets.
The main takeaway is that KEYS's diversification is providing it with a significant advantage, enabling it to capitalize on favorable secular trends within the EV, defense, aerospace, and communications industries. Although the company's overall growth rate still looks mediocre, the arrow is pointing higher as most of its businesses are experiencing improved results. Most importantly, KEYS' earnings outlook for the remainder of the year has been upgraded, providing the stock with a major boost.
Target trades higher on EPS beat but consumer is showing weakness; not great sign for WMT (TGT)
Target (TGT +3.5%) is trading modestly higher after reporting Q1 (Apr) results that were perhaps slightly better than feared. Target again beat handily on EPS, just as it did in Q4 (Jan), although it missed on revs. We said in our preview that our main concern was the guidance and TGT guided Q2 (Jul) EPS well below consensus. But TGT has been conservative with its EPS guidance lately and we think investors are catching on to that and not punishing them. Also, TGT reaffirmed full year EPS guidance.
- After three consecutive large EPS misses, Target has now posted back-to-back large EPS beats. Target had too much inventory just as the consumer slowed spending on discretionary items. Having to discount that hurt EPS last year, but TGT said it entered this fiscal year in a much better inventory position. Q1 ending inventory was about 16% lower yr/yr, including a 25+% decline in discretionary categories.
- The Q2 EPS guidance of just $1.30-1.70 was disappointing, although not entirely surprising. TGT saw a further softening in discretionary categories in March-April. This coincided with the deterioration in consumer confidence reflecting recent events such as the banking crisis that emerged in March. TGT also said inventory shrink (theft, organized retail crime) and violent incidents are becoming a worsening trend and increasingly urgent. TGT now believes shrink will reduce full year profitability by more than $500 mln compared with last year.
- Same store comps were flat, in-line with prior guidance (in-store comps +0.7%, offset by a -3.4% decline in digital comps). TGT is benefitting from traffic and sales growth in its frequency categories, like Food & Beverage, Household Essentials, and Beauty was notably strong with mid-teen comps. That helped offset soft comps in discretionary areas, like Home, Apparel, and Hardlines.
- Perhaps most troubling was that comps were strongest in February, then began decelerating in March (banking crisis hurt consumer confidence), and softened further near the end of April and thus far in May. As such, TGT is guiding to a wide range for Q2 comps, centered around a low single-digit decline.
- Besides comps, another key metric was operating margin. Operating margin in Q1 dipped to 5.2% from 5.3% a year ago, but that was above 3.4% in Q4 and above prior guidance of 4-5%. Margins in Q2 should benefit from lower freight and transportation costs but inventory shrink looks to be a significant headwind and softer comps will impact margins. TGT expects Q2 operating margin will be much higher yr/yr, but lower than Q1's 5.2% result.
Overall, this was a mixed report. Target's comments on comps declining as the quarter progressed plus Home Depot (HD) cutting its forecast yesterday are clear signals that consumers are tightening their wallets. A consumer shift to experiences is also likely impacting retailers. The stock is holding up pretty well because we think investors are maybe discounting that downside EPS guidance. Also, we think investors had already priced in a cautious consumer. Finally, we think this report adds caution to Walmart's (WMT) Q1 report, which is set for tomorrow morning.
Doximity experiencing slowdown in upsell activity, sending guidance and shares lower (DOCS)
In the aftermath of the pandemic, Doximity (DOCS), a cloud-based platform provider for medical professionals, emerged with a record number of active users, fueling another top and bottom-line beat in 4Q23. Similar to past quarters, existing customers drove most of DOCS' growth in Q4, but the company is still having more difficulty winning upsells due to macro-related belt tightening.
- Therefore, like last quarter, DOCS issued downside revenue guidance, forecasting revenue of $106.5-$107.5 mln for 1Q24. The company's top-line outlook of $500-$506 mln was in line with expectations, although it was essentially unchanged from last quarter when DOCS guided for "revenue greater than $500 mln."
- To put the upsell issue into perspective, CFO Anna Bryson noted during the earnings call that roughly 65% of its annual subscription revenue outlook is under contract and that another 30% is expected to come from renewals and upsells. She added that the renewal and upsell component is based on a model that projects a similar percentage of mid-year upsell to last year, which is about half of the company's historical rate.
It appears that the softness is mostly related to smaller and medium sized customers.
- This is evidenced by the fact that the net revenue retention rate for DOCS' top twenty customers came in at 124%, above the overall rate of 117%. Additionally, Ms. Bryson commented that customers with the largest budgets continue to scale up quickly on DOCS' platform, as reflected by a notable jump in the number of customers contributing more than $10.0 mln in revenue annually.
- Specifically, DOCS ended the fiscal year with 11 customers in this category, up from just two eight figure customers two years ago.
- DOCS' revenue growth is still decelerating, though, with the midpoint of its Q1 guidance representing growth of 18% compared to the mid-to-upper 20% range seen in 1H23. For a stock with a trailing P/S of about 19x, that slowdown in growth is especially problematic and explains why the stock is down by nearly 50% since March of 2022.
It's not all doom and gloom for DOCS.
The company is solidly profitable, and it anticipates FY24 adjusted EBITDA of $216-$222 mln, representing yr/yr growth of 19% at the midpoint. Margins are also quite healthy with FY23 adjusted EBITDA margin ticking higher by 20 bps yr/yr to 43.9%.
Overall, though, the downside guidance and cautious commentary regarding the macro environment is more than enough to send a pricey stock like DOCS sharply lower.
TJX's AprQ earnings beat and decent comp growth fueled by an uptick in bargain hunters (TJX)
With the inflationary environment remaining sticky, TJX (TJX +3%) is benefiting from consumers flocking to shops where they can best stretch their dollars, showcased by the off-price retailer topping earnings estimates in Q1 (Apr) while delivering same-store sales growth at the high-end of its prior projection. TJX enjoyed increased traffic levels during the quarter, with consumers gravitating toward apparel and accessories categories, lifting its Marmaxx banner (T.J. Maxx, Marshalls, and Sierra). Retail giant Target (TGT), which also released AprQ earnings today, reported a similar dynamic with traffic up in the quarter and durables, like beauty, food, and household essentials, experiencing relative strength.
However, TJX and TGT continue to see spending in more discretionary categories, such as home furnishings, remain weak, keeping comp growth within TJX's HomeGoods banner in negative territory. Additionally, consumers are conscientious about their spending, illuminated by TJX remaining conservative in its FY24 (Jan) forecast, reiterating its comp growth outlook of +2-3% while trimming the high end of its adjusted EPS estimate.
Nevertheless, the positives outweighed the negatives, fueling today's steady push higher.
- TJX expanded its adjusted EPS by 11.8% yr/yr to $0.76, easily surpassing its $0.68-0.71 prediction. Meanwhile, sales of $11.78 bln, a 3.3% jump, landed toward the high-end of TJX's $11.7-11.8 bln forecast, as did its comp growth of +3%.
- As has been the case for several quarters, Marmaxx led consolidated same-store sales growth, posting comps of +5%, while HomeGoods continued to experience negative comps, falling -7% in Q1 despite lapping a -7% comp figure in the year-ago period. However, it should be noted that coinciding with soft home furnishings demand is the continued fallout from the explosive growth during the pandemic when HomeGoods was delivering same-store sales growth in the +30-40% range.
- Pretax profit margins of 10.3% exceeded TJX's 9.2-9.5% forecast, driven by a larger-than-expected benefit from easing freight costs and timing related to some expenses. Although TJX anticipates margins to dip sequentially to 9.3-9.5% in Q2 (Jul), it still raised its FY24 pretax profit margin guidance to 10.3-10.5% from 10.1-10.3%, consistent with its plans to return to 10.6% by FY25.
- Looking ahead, TJX expects same-store sales growth to remain steady sequentially, projecting +2-3% in Q2. However, its EPS guidance of $0.72-0.75 missed analyst expectations. Meanwhile, TJX clipped $0.03 off the high end of its previous FY24 earnings outlook, now expecting $3.39-3.48.
With consumers continuing to hunt for bargains, TJX's off-price business model is reaping the benefits. We commented late last year that off-price retail was a good way to play consumers' desire to still spend but have their dollars go further than more traditional retail outlets. At the same time, TJX is capitalizing on increasing store closures and excessive inventory levels, picking up quality items at attractive prices, helping it maintain impressive margins. As a result, we continue to view TJX as a solid option during the inflationary environment.
Finally, TJX's results set a bullish tone ahead of AprQ reports from peers Ross Stores (ROST) on May 18 and Burlington Stores (BURL) on May 25.
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