Market Snapshot
briefing.com
| Dow | 33021.68 | -71.57 | (-0.22%) | | Nasdaq | 13048.58 | +72.72 | (0.56%) | | SP 500 | 4212.10 | +5.38 | (0.13%) | | 10-yr Note | +30/32 | 3.70 |
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| | NYSE | Adv 1344 | Dec 1516 | Vol 923 mln | | Nasdaq | Adv 1996 | Dec 2480 | Vol 4.8 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Real Estate |
| | Weak: Energy, Consumer Staples, Materials, Industrials |
Moving the Market
-- S&P 500 closing above 4,200 last Friday, finding support after breaking below that level today
-- Continued strength in the mega caps, along with growth stocks, which are getting an added boost from falling market rates
-- Reacting to news that President Biden and House Speaker McCarthy reached a debt ceiling agreement, yet still waiting to see if the deal will pass both chambers of Congress
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Closing Summary
30-May-23 16:30 ET
Dow -50.56 at 33042.69, Nasdaq +41.74 at 13017.60, S&P +0.07 at 4206.79
[BRIEFING.COM] The stock market started this holiday-shortened week on a mostly softer note. Initially, the market seemed poised for a stronger showing after participants learned over the weekend that President Biden and House Speaker McCarthy reached a debt ceiling agreement. Enthusiasm quickly dissipated, though, with uncertainty about the deal passing in both chambers of Congress still weighing on sentiment.
The House is expected to vote on the debt ceiling deal Wednesday night and the Senate is expected to hold a vote this weekend.
The lingering uncertainty about the passage of the debt ceiling deal, along with ongoing concerns about the economic outlook, kept the broader market in check. Market participants received the Consumer Confidence Index for May today, which fell from last month's reading and showed that expectations remain "gloomy."
Also, worries about Fed policy came into focus after Richmond Fed President Thomas Barkin (not an FOMC voter) said he has one of the higher rate forecasts on the committee and he hasn't backed off of that, according to CNBC.
Mega cap stocks, along with other growth stocks, were a big source of support and helped to drive the relative outperformance of the S&P 500 and Nasdaq. The S&P 500 was able to maintain a position above 4,200 on a closing basis after slipping below that level a few times today.
Market breadth reflected underlying weakness in the market. Decliners led advancers by an 11-to-10 margin at the NYSE and a 4-to-3 margin at the Nasdaq.
Most of the S&P 500 sectors closed with losses while the consumer discretionary (+0.8%) and information technology (+0.6%) sectors led the outperformers. The former was supported by gains in Amazon.com (AMZN 121.66, +1.55, +1.3%) and Tesla (TSLA 201.16, +7.99, +4.1%), the latter of which was reiterated Overweight at Barclays.
The info tech sector got a big boost from NVIDIA (NVDA 401.11, +11.65, +3.0%), which reached a $1 trillion market cap at its high today after announcing a new DGX GH200 AI Supercomputer.
The consumer staples (-1.1%) and energy (-0.9%) sectors were the top laggards today.
Treasuries settled with gains across the curve, adding some support for the mega caps and other growth stocks. The 2-yr note yield fell seven basis points to 4.49% and the 10-yr note yield fell 11 basis points to 3.70%.
- Nasdaq Composite: +24.4% YTD
- S&P 500: +9.5% YTD
- Russell 2000: +0.3% YTD
- S&P Midcap 400: +0.4% YTD
- Dow Jones Industrial Average: -0.3% YTD
Reviewing today's economic data:
- The FHFA Housing Price Index rose by 0.6% in March from a revised 0.7% increase in February (from 0.5%)
- The S&P Case-Shiller Home Price Index declined 1.1% in March (Briefing.com consensus -2.3%) following a 0.4% increase in February
- The Conference Board's Consumer Confidence Index dipped to 102.3 in May (Briefing.com consensus 99.5) from an upwardly revised 103.7 (from 101.3) in April. In the same period a year ago, the index stood at 103.2.
- The key takeaway from the report is that expectations remain "gloomy," which incorporates a notable worsening in the outlook in May among consumers over 55 years of age.
Advance Auto (AAP) headlines the companies reporting earnings ahead of tomorrow's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -4.6%)
- 9:45 ET: May Chicago PMI (Briefing.com consensus 46.1; prior 48.6)
- 10:00 ET: April job openings (prior 9.590 mln)
- 14:00 ET: May Fed Beige Book
Treasuries settle with gains; econ data releases tomorrow
30-May-23 15:35 ET
Dow -59.16 at 33034.09, Nasdaq +65.45 at 13041.31, S&P +3.89 at 4210.61
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Treasuries settled with gains across the curve. The 2-yr note yield fell seven basis points to 4.49% and the 10-yr note yield fell 11 basis points to 3.70%.
After the close today, HP Inc. (HPQ) and Hewlett Packard Enterprise (HPE) will headline the earnings reports.
Advance Auto (AAP) and Capri Holdings (CPRI) are among the more notable companies reporting earnings ahead of tomorrow's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -4.6%)
- 9:45 ET: May Chicago PMI (Briefing.com consensus 46.1; prior 48.6)
- 10:00 ET: April job openings (prior 9.590 mln)
- 14:00 ET: May Fed Beige Book
Market bounces off lows; buying increased in Treasury market
30-May-23 15:00 ET
Dow -71.57 at 33021.68, Nasdaq +72.72 at 13048.58, S&P +5.38 at 4212.10
[BRIEFING.COM] The major indices have bounced off session lows, bringing the S&P 500 back above 4,200.
Market breadth is more mixed now compared to earlier in the session. Advancers and decliners trade roughly in line at the NYSE while decliners have a slim lead over advancers at the Nasdaq.
Still, most of the S&P 500 sectors trade down. Only the information technology (+1.0%), consumer discretionary (+0.9%), real estate (+0.4%), and communication services (+0.2%) sectors trade up.
Elsewhere, Treasuries have seen an increase in buying activity recently. The 2-yr note yield is down nine basis points to 4.48% and the 10-yr note yield is down ten basis points to 3.70%.
Richmond Fed President Thomas Barkin (not an FOMC voter) said he has one of the higher rate forecasts on the committee and he hasn't backed off of that, according to CNBC.
Comerica falls after reports of violations in Direct Express program, Paramount gains on upgrade
30-May-23 14:30 ET
Dow -100.97 at 32992.28, Nasdaq +39.81 at 13015.67, S&P -1.42 at 4205.30
[BRIEFING.COM] The S&P 500 (-0.03%) is now near unchanged levels, having moved modestly higher over the prior half hour.
S&P 500 constituents Comerica (CMA 36.54, -2.45, -6.28%), APA Corp (APA 31.89, -1.52, -4.55%), and Ball Corp (BALL 51.81, -2.00, -3.72%) pepper the bottom of today's standings. CMA slips after American Banker report that suggested significant compliance failures related to Treasury's Direct Express program, APA slips alongside losses in crude oil futures, while BALL goes ex-div tomorrow.
Meanwhile, Paramount Global (PARA 15.70, +0.79, +5.30%) is atop the S&P after being upgraded to Peer Perform at Wolfe Research over the weekend.
Gold recoups overnight slump as dollar, yields fall
30-May-23 14:00 ET
Dow -152.24 at 32941.01, Nasdaq +5.79 at 12981.65, S&P -9.69 at 4197.03
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.04%) is now in danger of falling into the red, sliding lower in recent trading.
Gold futures settled $14.00 higher (+0.7%) to $1,977.10/oz, recouping nicely after a brief dip to multi-month lows overnight, helped on by a modestly weaker dollar and bond yields.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $104.17.
There is a debt ceiling deal, now it needs to pass
The elusive debt ceiling deal is no longer elusive. It was found by President Biden and House Speaker McCarthy over the holiday weekend, yet the most important element is still missing: passage by the House and Senate.
Briefly, part of the framework of the deal that has been announced includes a suspension of the debt ceiling until January 1, 2025, a cap on non-defense spending for two years, a clawback in unspent COVID relief funds, ending the ongoing freeze in student loan payments, and work requirements for SNAP recipients up to 55 years of age, excluding veterans and homeless people.
It is expected that the House will vote on this bill Wednesday night and that the Senate will vote on it over the weekend. That will happen before the X-date, which Treasury Secretary Yellen said is now likely to be June 5.
Not surprisingly, some hemming and hawing over this compromise deal has been heard from the wings of both parties, yet the leaders remain confident that they will have the votes to pass this debt ceiling agreement. The overarching risk, therefore, is that dissension in the ranks prevents passage of the deal before the X-date.
The market, though, is taking the over on the deal being passed in both houses of Congress. It also continues to take the over on the AI boom and the mega-cap stocks, which is plain to see in pre-market action.
Currently, the S&P 500 futures are up 23 points and are trading 0.6% below fair value, the Nasdaq 100 futures are up 190 points and are trading 1.4% above fair value, and the Dow Jones Industrial Average futures are up five points and are trading fractionally above fair value.
NVIDIA (NVDA) is leading the mega-cap run this morning, up 4.3% after the company introduced its DGX GH200 AI Supercomputer. Tesla (TSLA), meanwhile, is up 3.7%, aided by Barclays reiterating an Overweight rating, Meta Platforms (META) is up 2.1%, and Apple (AAPL), Alphabet (GOOG), Amazon.com (AMZN), and Microsoft (MSFT) are all up more than 1.0%.
What jumps out is that the Dow futures are pointing to a flat start and the S&P 500 futures are pointing to an open that suggests another lopsided performance with mega-cap stocks powering ahead and the rest of the market remaining stuck near the starting line.
That has been the modus operandi this year. Entering today, the Vanguard Mega-Cap Growth ETF (MGK) is up 28.6% year-to-date and the market-cap weighted S&P 500 is up 9.5%.
Conversely, the price-weighted Dow Jones Industrial Average is down 0.2% and the Invesco S&P 500 Equal-Weight ETF (RSP) is down 0.1%. That languid performance is an offshoot presumably of festering concerns about the economic and earnings outlook, which are an offshoot of concerns about the tightening of monetary policy.
The April PCE Price Index reported last Friday did not help those concerns. The fed funds futures market shows a 64.2% probability of another 25-basis points rate hike at the June FOMC meeting versus 28.1% only a week ago, according to the CME FedWatch Tool.
Those expectations will be closely watched this week with the release of some key economic data that will include today's Consumer Confidence Index Report for May, JOLTS-Job Openings data on Wednesday, the ADP Employment Change Report, weekly initial jobless claims, and the ISM Manufacturing Index on Thursday, and of course the May Employment Situation Report on Friday.
This will be a shortened week of trading, but it promises to be long on important, market-moving happenings.
-- Patrick J. O'Hare, Briefing.com
Kenvue sinks below IPO opening price following mixed set of initiations (KVUE)
Today, the 25-day IPO quiet period expired for Kenvue (KVUE), enabling analysts to publish research and estimates on the stock for the first time. Overall, sentiment was mixed with about an equal number of analysts taking a bullish position on the stock as a more cautious one. With shares higher by nearly 20% versus its $22 IPO price, this mixed set of initiations offered a good enough excuse for some investors to sell the stock and lock in some profits. In fact, the sell-off has sent shares below their opening price of $25.53 on the day they debuted on the NYSE.
- Naturally, tier one firms such as Goldman Sachs (GS) tend to have more sway when it comes to moving a stock through an analyst action. On that note, GS is one of the firms that took a cautious stance on KVUE, initiating the stock with a Neutral rating and $29 price target.
- Although the firm likes KVUE's long-term growth potential, it's not yet convinced that KVUE has improved its ailing market share position.
- Deutsche Bank took an even more bearish position on the stock, initiating it with a Hold and a $27 price target -- just 6% above current price levels. Similarly, Citigroup (C) initiated KVUE with a Neutral and $28 price target.
- We surmise that the risk/reward profile just doesn't look overly compelling to some analysts given the stock's fast start and higher multiple. At the current price, KVUE is trading with a P/E of roughly 18.5x, which is somewhat elevated for a slower growth consumer staples company.
- In FY23 (ending January), KVUE's revenue actually decreased by about 1% yr/yr to $14.95 bln.
- While competitor Proctor & Gamble (PG) is trading with an even higher P/E of 27x, its revenue grew by 5.4% in its most recent fiscal year (ending June), justifying its premium valuation over KVUE.
- Another issue is that Johnson & Johnson (JNJ) still holds an 89.6% stake in KVUE and the pharmaceutical giant could look to sell more shares down the road. That possibility creates an overhang on the stock, putting a lid on its upside potential.
On the positive side, JP Morgan (JPM) initiated KVUE with an Overweight and price target of $29, while BofA Securities (BAC) assigned a Buy rating and $30 price target.
- Indeed, there are good reasons to feel positive about KVUE, including its portfolio of household brand names such as Tylenol, Band-Aid, Listerine, Aveeno, and Neutrogena.
- The defensive nature of KVUE's business is also appealing given the uncertain macroeconomic environment. The company is comfortably profitable, forecasting adjusted net income of $610-$650 mln for the three months ended April 2, 2023 in its IPO prospectus.
- Looking ahead, a few key trends should also support the company's business in the coming years, including an aging population, increasing awareness and prioritization of personal health, and growing shelf space for health and wellness products at traditional retailers.
The main takeaway is that KVUE's strong start prompted a more cautious stance from analysts who are now less enthusiastic about the stock's upside potential given its loftier valuation.
NVIDIA shares stay red-hot following series of AI-centric announcements (NVDA)
NVIDIA's (NVDA) meteoric run is showing no signs of slowing with shares pushing to all-time highs yet again following a series of announcements over the weekend that included the launch of several new AI-based products. The company's rising momentum in AI through its expanding lineup of GPUs fueled last week's incredible earnings report that featured a Q2 outlook that crushed expectations, sending shares skyrocketing higher.
Including today's gains, NVDA has soared by 178% on a year-to-year basis, blowing away rival chip makers like Advanced Micro Devices (AMD) and Intel (INTC), which are up by 95% and 10%, respectively.
- What NVDA's earnings report showed was that the company is separating itself from the pack in the race to develop chips that not only power generative AI applications such as OpenAI's ChatGPT, but also underpin many other AI-related technologies.
- CEO Jensen Huang stated in the Q1 earnings press release that companies are "racing to apply generative AI into every product, service, and business process."
- More specifically, Mr. Huang highlighted robotics, gaming, advertising, and networking as a few areas where NVDA's AI-based chips will be in high demand.
To capitalize on the AI boom, NVDA is launching a set of new products that could significantly extend its lead over the competition.
- The headliner is a new system called "DGX GH200", an AI supercomputer that's powered by 256 of NVDA's GH200 Grace Hopper Superchips. For some context, this new supercomputer has almost 500x the memory of NVDA's previous DGX A100 system.
- According to the company, this new large-memory AI supercomputer will "enable the development of giant, next-generation models for generative AI language applications, recommender systems and data analytics workloads."
- Google (GOOG), Microsoft (MSFT), and Meta Platforms (META) will be the first companies to use the DGX GH200 platform as they build out their generative AI capabilities.
In addition to the new product launches, NVDA also announced two key collaborations that should move the needle on the top-line.
- Softbank (SFTBY), the Japan-based telecom giant, is planning to develop a platform for generative AI and 5G/6G applications that are powered by NVDA's GH200 Grace Hopper superchip. More specifically, SFTBY intends to deploy distributed AI data centers across Japan that can host generative AI and wireless applications, helping to reduce costs and improve energy efficiency.
- NVDA also announced an agreement with WPP (WPP), one of the world's largest advertising and marketing agencies. WPP is creating a content engine based on NVIDIA Omniverse -- a platform for connecting 3D tools and developing digitalization applications -- that will enable its clients to create ads more quickly and in a very personalized way.
- The NVIDA Omniverse will link with other content creation tools, such as Getty Images and Adobe (ADBE), facilitating a user friendly and efficient platform for ad creation.
The main takeaway is that this weekend's series of announcements from NVDA further solidifies the notion that the company is at the forefront of this AI evolution and that it's only in the early innings of this powerful trend.
Skyline Champion down sharply following revenue miss and weak guidance (SKY)
Skyline Champion (SKY -8%) is trading sharply lower after wrapping up FY23 on a mixed note. This supplier of manufactured and modular homes beat on EPS but missed on revs with it Q4 (Mar) report this morning. Whenever that happens, that means margins were likely better than expected. However, investors seem focused on the disappointing top line result and the weak JunQ guidance.
- Analysts had been expecting a yr/yr revenue decline, but a 23% yr/yr drop to just $491.5 mln was a good bit below what analysts were expecting. The number of US homes sold in MarQ fell 25.5% to 4,900. Volumes were adversely impacted by retailer inventory destocking which drove lower order rates and reduced production.
- Basically, its customers preferred to work down their current inventory before purchasing new homes. That's usually a sign that retailers are a bit nervous about the market and destocking allows them to lower their holding risk. While that impacts near term sales, this development is not all bad. It does help to clear out excess inventory in the channel, which should provide a benefit down the road.
- The good news is that ASP per US home sold increased 5.6% to $92,700 due to the mix of units sold and price increases to offset cost inflation. On the call, SKY said that end consumer demand in the industry remains healthy as supply side housing shortages, a growing base of homebuyers, and higher rates increase the need for affordable housing, which is the segment of the market where SKY operates.
- Gross margin dropped to 28.7% from 29.9% in the prior year period. SKY cited lower volumes and lower demand in certain markets. Also, adjusted EBITDA margin contracted by 350 basis points to 15.5%. Based on the upside EPS, it seems analysts were likely expecting a sharper decline in margins.
- SKY says that most industry retailers are through the destocking process and are beginning to order more retail sold units while many of the community REITs are pausing orders for a short term as they catch up on setting existing inventory. Additionally, one of SKY's builder developer partners has shifted expected orders to Q2 and Q3 due to permitting timing. As a result, SKY has moderated production rates and reduced staffing. SKY expects a Q1 (Jun) sequential revenue decline in mid-single-digits.
Overall, investors are disappointed with SKY's MarQ results, especially the sizeable miss with revenue. Also, the JunQ revenue guidance was well below analyst expectations. It looks like it is going to take longer than expected for SKY's business to turn around. The silver lining here is that the inventory destocking by customers should reduce excess product in the channel, which should provide a benefit later. But for now, SKY is looking at another rough quarter in JunQ.
RH reclining as luxury furniture retailer changes course and ramps up markdown activity (RH)
One key takeaway from this most recent earnings season is that retailers are seeing a significant decrease in demand for higher priced discretionary items, and that apparently extends to the luxury furniture category. Last night, RH (RH) reported Q1 results that surpassed downbeat expectations, but it also issued downside revenue guidance for Q2 and cut its FY24 adjusted operating margin forecast.
- Never one to hold back, CEO Gary Friedman once again lamented the poor luxury housing market, stating during the earnings call that he's never seen the high-end housing market down at these levels as interest rates climb to 20-year highs.
- However, he also took ownership for an aggressive pricing strategy that took prices too high when conditions were strong two years ago, that's now working against the company.
- In a surprising reversal, Mr. Friedman now says that RH is going to become more promotional and increase markdowns as it looks to clear out discontinued inventory. In prior quarters, the messaging has mainly been that RH isn't going to participate in price wars, choosing to protect its brand and sacrifice "lower quality" market share for margins.
- This change of heart speaks to a further deterioration in demand, which is reflected in the 23% yr/yr revenue decline for Q1 -- RH's worst decrease in recent history. Based on RH's Q2 outlook for a revenue decline of about 22%, it's clear that the company isn't anticipating a turnaround anytime soon.
- Now, the margins that RH sought to protect are set to contract as it lowers prices. On that note, RH is forecasting Q2 adjusted operating margin of 14.0-14.5% compared to 14.9% in Q1, and it also cut its FY24 adjusted operating margin guidance to 14.5-15.5% from 15.0-17.0%.
RH's stated motivation behind increasing its markdown activity is to clear out old inventory, but we also wonder if it's becoming more competitive on price in order to avoid further market share losses.
- Earlier this week, competitor Williams-Sonoma (WSM) issued a Q1 earnings report that stacks up quite favorably to RH's. For instance, total revenue only dropped by about 7% yr/yr, while Pottery Barn's comps were almost flat at (0.4%) -- pretty impressive given the tough climate.
- WSM also reaffirmed its FY24 revenue guidance of (3%) - 3% to $8.413-8.93 bln, while RH's FY24 revenue outlook calls for a decrease of 14%.
Ultimately, we believe that RH's decision to relent on prices is probably the right call. In fact, the company was probably a couple quarters late in changing its direction. While margins will take a hit, at least RH's products will become more accessible, enabling the company to showcase the high quality of its furniture to a wider base of customers.
Autodesk trades sideways as FY24 guidance signals a continuation of current economic patterns (ADSK)
Autodesk (ADSK) has had its ups and downs today after missing Q1 (Apr) earnings expectations but still raising its FY24 (Jan) EPS outlook and reiterating its revenue and billings forecasts. The CAD software developer used across the industrial sector delivered a decent Q1 report. Still, given that it was primarily a continuation of last quarter's trends, investors are not expressing much enthusiasm, keeping shares within their lengthy sideways pattern.
- ADSK posted adjusted EPS of $1.55, hitting the higher end of its $1.50-1.56 forecast but falling just short of analyst expectations. Similarly, revenue growth of 8.5% yr/yr to $1.27 bln landed at the high end of ADSK's $1.260-1.275 projection and met analysts' target.
- As ADSK flagged last quarter, its transition from upfront to annual billings for multi-year contracts, which began March 28, adversely impacted its billings growth in Q1. Total billings still increased 4% to $1.2 bln, reflecting solid renewal rates and early renewals, but were partly offset by the roughly one month of the ongoing transition.
- The macroeconomic environment remains challenging primarily because of FX headwinds and exiting Russia, which will go away toward the year's second half. Consistent with many other SaaS firms lately, deals are under higher scrutiny, which caused quarterly timing differences for contract renewals in Q1. As a result, revenue that would have been realized in Q1 is being pushed further out.
- However, on the bright side, product usage continued to climb modestly in the quarter, with bid activity on BuildingConnected (ADSK's SaaS construction network) sustaining at record levels. ADSK also mentioned that it continued to witness cautious optimism from channel partners. Additionally, consistent with yr/yr momentum, subscription growth decelerated in North America while accelerating in EMEA.
- Management was also encouraged by customers not swaying from their digital transformation paths, utilizing automation as supply chains and the general economy remain challenging, presenting solid tailwinds for ADSK. This favorable trend was reflected in improving renewal rates, consistent net revenue retention, and expanding adoption, pushing remaining performance obligations (RPO), which provides insight into future revenue, 15% higher yr/yr to $5.39 bln.
- Looking ahead, ADSK's downbeat Q2 (Jul) guidance underscores a continuation of current patterns, while its mostly reiterated FY24 outlook calls for a minor recovery in the second half of the year, bolstered by a strong cohort of enterprise business agreements. ADSK raised its adjusted earnings forecast to $7.07-7.41 from $6.98-7.32 while reaffirming its sales target of $5.355-5.455 bln and billings of $5.025-5.175 bln.
The main takeaway from ADSK's Q1 report is that market dynamics remain unchanged from last quarter. Margin headwinds from FX impacts will persist throughout the year, and switching to annual billings puts a drag on free cash flow in FY24 and, to a lesser degree, in FY25. Also worth noting is that the switch could reduce the unbilled portion of ADSK's RPO if customers choose annual contracts, negatively affecting growth rates.
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