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Market Snapshot
briefing.com
| Dow | 33847.58 | +182.65 | (0.54%) | | Nasdaq | 13226.03 | +120.76 | (0.92%) | | SP 500 | 4293.30 | +24.51 | (0.57%) | | 10-yr Note | +29/32 | 3.71 |
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| | NYSE | Adv 1407 | Dec 1464 | Vol 837 mln | | Nasdaq | Adv 2249 | Dec 2142 | Vol 4.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Consumer Staples, Information Technology |
| | Weak: Real Estate, Materials, Energy, Financials |
Moving the Market
-- Strength in mega cap stocks
-- Some hesitation ahead of the May Consumer Price Index and Fed decision next week
-- Digesting weekly jobless claims that reflected some softened in the labor market
-- Falling market rates acting as added support for mega caps and growth stocks
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Closing Summary
08-Jun-23 16:15 ET
Dow +168.59 at 33833.52, Nasdaq +133.63 at 13238.90, S&P +26.41 at 4295.20
[BRIEFING.COM] It shaped up to be a decent day for the stock market. True to 2023 form, mega cap stocks were driving a lot of the action in the early going while the broader market showed some weakness. By the close, however, more stocks were participating in the upside moves.
Still, gains in the mega cap space were integral to index performance today. Apple (AAPL 180.57, +2.75, +1.6%), Amazon.com (AMZN 124.25, +3.02, +2.5%), which was initiated by Wells Fargo with an Overweight rating, NVIDIA (NVDA 385.10, +10.35, +2.8%), and Tesla (TSLA 234.86, +10.29, +4.6%), which recorded its tenth straight gain, were among the biggest support factors. The Vanguard Mega Cap Growth ETF (MGK) rose 1.0%.
The Invesco S&P 500 Equal Weight ETF (RSP), which had been down 0.6%, closed flat while the market-cap weighted S&P 500, which was flirting with the 4,300 level again today, rose 0.6% and finished near its highs of the day.
Market breadth had been somewhat negative for most of the session, but advancers and decliners at the NYSE and Nasdaq settled on a nearly even basis.
Most of the S&P 500 sectors closed with a gain while real estate (-0.7%) and energy (-0.5%) fell to the bottom of the pack. The energy sector was reacting in part to falling oil prices ($71.24/bbl, -1.24, -1.7%) amid reports that the U.S. and Iran are closing in on a new oil enrichment and exports deal. The White House, however, refuted those reports.
The consumer discretionary sector (+1.6%) closed atop the leaderboard for the 11 sectors, boosted by Amazon.com and Tesla. Meanwhile, Wynn Resorts (WYNN 103.06, -0.20, -0.2%) and Las Vegas Sands (LVS 57.82, -0.67, -1.2%) were among the worst performing components after being downgraded to Hold from Buy at Jefferies.
Other top performing sectors included the information technology (+1.1%) and consumer staples (+0.8%) sectors. The info tech sector was supported by Apple and Microsoft (MSFT 325.26, +1.88, +0.6%) and a relatively strong showing from its semiconductor components. The PHLX Semiconductor Index rose 1.1%.
Notably, the Russell 2000 (-0.4%) lagged today after outperforming so far this week, but it climbed back from an earlier 1.1% decline. Including today's loss, it's still the best performing index this week with a 2.7% gain.
Market participants were also reacting to the weekly initial jobless claims report, which came in at the highest level (261,000) since November 2021, fueling buying interest in the Treasury market.
The 2-yr note yield fell three basis points to 4.52% and the 10-yr note yield fell seven basis points to 3.71%. Falling market rates acted as added support for mega caps and other growth stocks.
- Nasdaq Composite: +26.5% YTD
- S&P 500: +11.8% YTD
- Russell 2000: +6.8% YTD
- S&P Midcap 400: +5.2% YTD
- Dow Jones Industrial Average: +2.1% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending June 3 increased 28,000 to 261,000 (Briefing.com consensus 237,000) while continuing jobless claims for the week ending May 27 decreased 37,000 to 1.757 million. Initial claims, which are a leading indicator, hit their highest level since November 2021.
- The key takeaway from the report is the bump seen in initial claims as it connotes some softening in the labor market that the Fed will like to see, although claims levels continue to run well below levels seen in past recessions (i.e., north of 375,000), which is a point that market participants should be relatively pleased to know.
- Wholesale inventories fell 0.1% in April (Briefing.com consensus -0.2%) from a revised 0.2% decline in the prior reading (from 0.0%).
- The weekly EIA Natural Gas Inventories showed a build of 104 bcf versus a build of 96 bcf last week.
There is no U.S. economic data of note tomorrow.
Market breadth reflects mixed action; Treasuries settle with gains
08-Jun-23 15:30 ET
Dow +173.92 at 33838.85, Nasdaq +125.38 at 13230.65, S&P +24.10 at 4292.89
[BRIEFING.COM] Things are little changed over the last half hour. The major indices have mostly moved sideways.
Market breadth had been negative for most of the session, but now reflects more mixed action. Decliners are roughly in line with advancers at the NYSE while advancers have an 11-to-10 lead over decliners at the Nasdaq.
Treasuries settled with gains. The 2-yr note yield fell three basis points to 4.52% and the 10-yr note yield fell seven basis points to 3.71%.
There is no U.S. economic data of note tomorrow.
Energy complex settles mixed
08-Jun-23 15:05 ET
Dow +182.65 at 33847.58, Nasdaq +120.76 at 13226.03, S&P +24.51 at 4293.30
[BRIEFING.COM] The major indices are trading near their highs of the day.
Energy complex futures settled the session mixed. WTI crude oil futures fell 1.7% to $71.24/bbl and natural gas futures rose 0.3% to $2.35/mmbtu.
On a related note, the S&P 500 energy sector (-0.3%) is among the worst performers. The only other sectors trading down now are real estate (-0.6%) and materials (-0.3%).
Adobe catches a Piper tgt bump ahead of next week's earnings, Sealed Air falls after going ex-div
08-Jun-23 14:30 ET
Dow +155.49 at 33820.42, Nasdaq +101.60 at 13206.87, S&P +20.54 at 4289.33
[BRIEFING.COM] The S&P 500 (+0.48%) is in second place at this point on Thursday, having moved slightly higher over the prior half hour.
S&P 500 constituents Warner Bros. Discovery (WBD 14.04, +0.92, +7.01%), Adobe (ADBE 437.00, +18.68, +4.47%), and Arista Networks (ANET 161.62, +6.03, +3.88%) dot the top of the S&P. ADBE moves higher ahead of next week's earnings with shares also earning a target raise to $500 out of Piper Sandler, while WBD and ANET are part of a broad-based tech rebound.
Meanwhile, with the stock trading ex-dividend today, Charlotte-based packaging solutions firm Sealed Air (SEE 38.79, -1.33, -3.32%) is one of today's top laggards.
Gold flips to weekly gains on Thursday as jobless claims pressure dollar, yields
08-Jun-23 14:00 ET
Dow +129.44 at 33794.37, Nasdaq +81.94 at 13187.21, S&P +15.06 at 4283.85
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.63%) is top dog among the major averages, albeit having faded a bit in the last half hour.
Gold futures settled $20.20 higher (+1.0%) to $1,978.60/oz, allowed higher by losses in treasury yields and the dollar, week-to-date gains now standing at +0.46%; the yellow metal's gains are juxtaposed against this morning's weekly initial jobless claims report, which came in at the highest level (261,000) since November 2021.
Meanwhile, the U.S. Dollar Index is down about -0.7% to $103.33.
Broader market doing just fine so far this week
It will appear to most that the market isn't doing much this week; however, that is a misperception. While the market-cap weighted S&P 500 is down 0.3% for the week, the Russell 2000 is up 3.1%, the S&P Midcap 400 is up 2.5%, and the Invesco S&P 500 Equal-Weight ETF (RSP) is up 1.1%.
The market is doing fine this week -- even better than fine as money has rotated away from mega-cap stocks, and off the sidelines, into non-tech cyclical and value plays.
The main beneficiaries have been the small-cap stocks, yet it is unclear if the rotation seen this week is simply a tactical trade (shifting out of short-term overbought positions and into short-term oversold stocks) or a structural transition to reflect growing confidence in the economic outlook.
At this juncture, it is fair to posit that it is a combination of both with some added emphasis on the latter. We say that knowing that Treasury yields, copper futures, and oil futures have moved up at the same time the broader market has moved up this week.
Something is going on alright, yet the broader market has also been prone to easy come-easy go action this year. This week's gains could be unwound easily if economic data in coming weeks have a hard-landing edge and/or if inflation data create a belief that the Fed will have to take its policy rate higher than expected.
It just so happens that we will have some fresh insight on the policy front next week with the release of the May Consumer Price Index on Tuesday and the Federal Open Market Committee (FOMC) decision on Wednesday. The FOMC meeting next week will also include a new round of economic and policy rate projections from Fed members.
Today, we received the latest weekly initial jobless and continuing jobless claims numbers.
Initial jobless claims for the week ending June 3 increased 28,000 to 261,000 (Briefing.com consensus 237,000) while continuing jobless claims for the week ending May 27 decreased 37,000 to 1.757 million. Initial claims, which are a leading indicator, hit their highest level since November 2021.
The key takeaway from the report is the bump seen in initial claims as it connotes some softening in the labor market that the Fed will like to see, although claims levels continue to run well below levels seen in past recessions (i.e., north of 375,000), which is a point that market participants should be relatively pleased to know.
The 2-yr note yield went from 4.57% to 4.48% soon after the release and currently sits at 4.50%. The 10-yr note yield went from 3.82% to 3.78% and currently sits at 3.79%. The dip in yields triggered a little bounce in the mega-cap stocks that has given the Nasdaq 100 futures a slight edge in pre-open trading.
Currently, the S&P 500 futures are up one point and are trading in-line with fair value, the Nasdaq 100 futures are up 27 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down 36 points and are trading 0.1% below fair value.
The attention won't be so much on the mega-cap stocks, though, as it will be on the behavior of the broader market. Ideally, the two will rise in tandem, but if the mega-caps run and the broader market gets tripped up, assumptions will surface that the move by the broader market this week has been more tactical than structural.
-- Patrick J. O'Hare, Briefing.com
GameStop heads lower following top line miss and CEO termination; mgmt instability continues (GME)
GameStop (GME -17%) is heading sharply lower following Q1 (Apr) earnings last night. This video game retailer missed on revenue. This was a letdown after GME reported a surprise profit in Q4 (Jan), which was GME's first quarterly profit in two years.
- However, the surprising news did not stop with earnings. GME also announced it had fired CEO Matt Furlong and Ryan Cohen was named Executive Chairman, effective immediately. Ryan Cohen owns investment firm RC Ventures, which is a major shareholder in GME. Mr. Cohen was also a co-founder of Chewy.com (CHWY), the online pet retailer.
- Mr. Furlong had been cutting costs, optimizing inventory, and focusing on enhancing the customer experience, such as integrating the online and in-store shopping experiences. GME also implemented headcount reductions and streamlined operations.
- On its Q4 call, GameStop said it was a much healthier business today than it was at the start of 2021. It has considerable cash on hand, negligible debt, streamlined inventory, and a path to full-year profitability. However, it is clear that the board and Mr. Cohen want to shake things up further.
- While the revenue miss was a disappointment, the stock reaction tells us investors are perhaps not happy about the CEO change, especially since there have been improvements on the cost side and with the balance sheet. Also, GME has been a carousel with several new CEOs in the past few years. It just creates a lot of instability.
- We also think GME's decision not to hold an earnings call is adding to the jitters today. Investors would have liked an explanation of the board's rationale and plans going forward. To not hold a call adds to the uncertainty.
- Finally, we think investors are also a little confused. The press release says Mr. Cohen's responsibilities will "include capital allocation and overseeing management." There was no mention of searching for a CEO replacement. Does this mean Mr. Cohen is taking over CEO duties? This is all a lot to digest for investors and a call would have helped. Looking ahead, and as we have said before, we still question GME's long term viability in an era when people download their games directly to their consoles.
Semtech rallies on hopes of improving results as new CEO comes on board (SMTC)
Semiconductor and connectivity component provider Semtech (SMTC) is still contending with high inventory levels and soft demand across most of its end markets, but it delivered better-than-feared quarterly results, beating Q1 top and bottom-line estimates as revenue increased by 17% yr/yr. In the prior two quarters, SMTC's revenue fell by 12% and 9%, respectively.
- The company is coming off a rough Q4 report in which it guided Q1 EPS well below expectations, putting the stock on a path to descend to multi-year lows by early May.
- Sentiment didn't brighten much ahead of SMTC's earnings report, although the combination of its inline Q2 EPS guidance, some positive commentary regarding its recent acquisition of Sierra Wireless, and an upcoming CEO transition, has investors feeling hopeful.
- On that last point, SMTC announced the appointment of Paul Pickle as its new President and CEO on May 30, who comes over from IoT company Lantronix (LTRX) where he served as CEO. He will take the reins from Mohan Maheswaran, who will be retiring after seventeen years as SMTC's CEO.
- LTRX's recent financial performance hasn't necessarily been fantastic with 3Q23 EPS declining to $0.06 from $0.08 in the year-earlier period on a 2% yr/yr increase in revenue. The lackluster results are also reflected in the 28% yr/yr drop in the stock price.
- However, given SMTC's own struggles, investors seem ready for a fresh perspective from someone outside the organization who can possibly reinvigorate the company.
- Furthermore, Mr. Pickle's experience in the industrial IoT field is a good match for SMTC's growth strategy.
- On that note, SMTC's acquisition of Sierra Wireless, which it expects will add approximately $100 mln of high-margin IoT Cloud services recurring revenue, is progressing ahead of plan.
- After completing the acquisition on January 12, 2023, SMTC is seeing a substantial contribution from Sierra Wireless.
- In Q1, total IoT revenue soared by 170% sequentially to $159 mln, mainly due to the inclusion of the Sierra Wireless business, which includes routers, modules, and Sierra's managed connectivity business.
- During the earnings call, outgoing CEO Mohan Maheswaran commented that the synergies from the acquisition are ahead of plan and that the acquisition is still expected to be accretive to earnings in FY24.
- For the organic Semtech business, conditions are still weak as revenue for its high-end consumer and infrastructure segments declined by 15% and 30% qtr/qtr, respectively.
- The silver lining is that the company is anticipating a strong second half in its data center business (part of the infrastructure segment) due to improving design wins in the North America market.
- What really caught investors' attention, though, is that Mr. Maheswaran commented that AI is driving significant demand at hyperscalers, creating more opportunities for SMTC's SIP (signal integrity) portfolio as data center buildouts accelerate.
Overall, SMTC's results and outlook were less than extraordinary, but they do represent a step in the right direction. The hope is that incoming CEO Paul Pickle can build on the improved performance by driving stronger growth from the IoT business, while potentially reducing SMTC's cost structure.
Toro shares get clipped following a sales miss in AprQ and reduced FY23 guidance (TTC)
Following underwhelming Q2 (Apr) results, Toro (TTC -8%) is taking out previous lows set earlier this month as shares drop to October levels today. TTC may have exceeded bottom-line estimates in Q2 (Apr), but its several rough patches, including a sales miss and lowered FY23 guidance, are keeping buyers away today.
TTC is a lawn and garden equipment giant that sells to consumers and professionals. The company manufactures products centered around landscaping, snow and ice, agriculture irrigation, golf and turf maintenance, and specialty construction. Most of TTC's revs stem from Professional sales, which comprised 76% of FY22 (Oct) revenue, with Residential making up most of the remainder.
Currently, TTC is operating in a challenging environment. Interest rates remain relatively high, hurting demand for more expensive equipment. Meanwhile, weather patterns were unfavorable in Q2, pressuring sales volumes, which experienced additional pressure from suppressed discretionary spending levels as consumers stayed stringent with their budgets due to elevated inflation. Topping it off, TTC continues to face supply chain woes, keeping its backlog at abnormal levels and leaving sales on the table.
- These dynamics played significant roles in TTC's disappointing Q2 report. Outside of adjusted EPS expanding by 26% yr/yr to $1.58, other figures were not as upbeat. Sales grew just 7% yr/yr to $1.34 bln, tracking toward the lower end of TTC's FY23 sales forecast of +7-8%.
- Professional sales did leap by 15% yr/yr in the quarter, assisted by net price realization and higher shipments of products, with notable strength in construction and golf. However, TTC's Residential segment lagged considerably, seeing a 17% drop in sales yr/yr. The decline was attributed to a broad-based contraction in overall shipment volumes, underscoring lackluster weather patterns and ongoing weaknesses in the general economy.
- Big-box retailers Lowe's (LOW), Home Depot (HD), and Tractor Supply Company (TSCO) raised some warning flags recently surrounding a possibly difficult quarter for TTC. Each retailer alluded to a severe softening of demand for big-ticket items like lawnmowers and snow blowers and touched on erratic weather-dampening demand within lawn and garden categories. Unfortunately for TTC, it was not immune to these pressures.
- Following its underwhelming Q2 report, TTC trimmed the high-end of its FY23 (Oct) outlook, predicting adjusted EPS of $4.70-4.80, narrowed from $4.70-4.90 and revs of +7-8%, narrowed from +7-10%.
- However, on the plus side, TTC expects better performance in the year's second half as its backlog remains robust and supply chains are showing steady improvements. Also, management commented that despite the elevated backlog and uneasy economic conditions, it has not noticed any increase in cancellation rates from the previous quarter.
Bottom line, as encouraging as it was to see relative strength within TTC's Professional division, persistent weaknesses on the Residential side are dragging down overall results. However, with supply chains improving and TTC boasting a backlog over five times what it was before the pandemic, the company is primed for sizeable growth once macroeconomic headwinds plaguing its Residential segment begin to reverse course.
Signet Jewelers not looking too golden after cutting guidance due to weakening demand trends (SIG)
Signet Jewelers (SIG) is losing some of its shine after issuing a downbeat outlook for the remainder of its fiscal year, taking the luster off of another upside quarterly performance in Q1. In recent quarters, the owner of Zales, Jared, and Kay Jewelers, has experienced softening demand in the lower price point consumer group as inflationary pressures weighed on discretionary spending. That trend not only persisted in Q1, but it also spread to more price points as macroeconomic headwinds intensified, resulting in deeper discounting across the jewelry market.
- Due to the increasingly challenging business climate, which also includes a shift in consumer spending patterns towards travel and experiences, SIG now expects annual U.S jewelry industry revenues to be down more than its original forecast of a mid-single digit decline.
- Making matters worse, the bridal business, which accounts for nearly half of SIG's revenue, is mired in a downturn as the number of engagements has sharply declined relative to the robust 2020-2021 period.
- CEO Virginia Drosos noted that COVID-19 disrupted dating activity three years ago, which is now resulting in fewer engagements. A meaningful rebound isn't expected until late 2024 and into 2025.
- The combination of these items is having a significant impact on SIG's business, causing the company to sharply cut its guidance. For FY24, SIG now expects to generate EPS of $9.49-$10.09 compared to its prior forecast of $11.07-$11.59, on revenue of $7.10-$7.30 bln compared to its previous guidance of $7.67-$7.84 bln.
On the positive side, SIG is performing well relative to factors that it can control.
- The company hasn't missed quarterly EPS expectations in over five years and its last top-line miss occurred three years ago in 1Q21.
- Furthermore, although SIG's same store sales were down by 13.9% this quarter -- including a 14.2% drop in North America -- the company believes it is gaining market share. The company's "Inspiring Brilliance" growth strategy, which includes strengthening its digital business and updating its merchandise assortment to stay on trend, is helping it to outperform its market.
- Meanwhile, the company is also reining in expenses, announcing in the earnings press release that it raised its full year cost savings target to $225-$250 mln. In Q1, SG&A expense was virtually flat yr/yr at $530.4 mln.
The main takeaway is that consumers are increasingly pulling back on big-ticket purchases and jewelry is one category that's really taking the brunt of the slowdown. SIG remains a best-in-class name, however, and it should bounce back in a meaningful way once the tide turns in its favor.
Oxford Industries is under some heat today after trimming its FY24 guidance (OXM)
Apparel firm Oxford Industries (OXM -9%) is feeling the heat today after issuing bearish Q2 (Jul) guidance and trimming its FY24 forecasts, both of which eclipsed its Q1 (Apr) earnings beat. OXM, which owns brands Tommy Bahama, Lily Pulitzer, Johnny Was, and others, caters to the laid-back vacation apparel category. Given the uptick in travel demand, evidenced by solid recent quarterly results from travel firms like Airbnb (ABNB) and Expedia (EXPE), OXM should be enjoying a breezy tailwind.
However, the resilient travel demand coincides with weak discretionary spending, highlighting the consciousness of consumers regarding where to allocate their dollars. OXM is not immune to these macroeconomic pressures, which largely carried over from Q4 (Jan). Management anticipates weaknesses to persist throughout the year, resulting in its reduced FY24 guidance. The company expects FY24 EPS of $10.80-11.20 and revs of $1.59-1.63 bln, down from $11.50-11.90 and $1.62-1.66 bln, respectively.
- CEO Thomas Chubb did not sugarcoat the situation, noting that although Q1 numbers were good, the quarter was helped by a strong February, which only softened as the quarter progressed. Beginning in March, consumers became noticeably more cautious, resulting in conversion rates below levels from the year-ago period. The retail environment is simultaneously becoming more promotional relative to recent years.
- These unfavorable trends are hindering future sales growth and taking a bite out of margin expansion, which is under added pressure due to OXM's marketing, IT, and store investments.
- Still, OXM remains "extremely bullish" on its six brands and was encouraged by traffic trends staying positive throughout Q1 and Q2-to-date. In fact, sales across OXM's brands experienced positive growth in Q1, with Tommy Bahama, which is the company's core focus, delivering 5% yr/yr growth, Lily Pulitzer climbing 6%, and its three smaller brands (Emerging Brands group) increasing 7%. Meanwhile, Johnny Was, which OXM acquired in September 2022, did not have a yr/yr figure, but contributed $49 mln in sales.
- The solid growth culminated in 19% consolidated growth in Q1 to $420.1 mln.
- Nevertheless, besides OXM's lowered FY24 outlook, investors remain concerned about the company's sizeable investments, which coincide with challenging economic conditions. OXM reiterated its CapEx plan for FY24, expecting approximately $90 mln, a fairly significant increase from the $47 mln in FY23. The higher expenditures are associated with building and remodeling stores, technology upgrades, including improvements to e-commerce and omnichannel offerings, and enhancing the brands. Although these initiatives may lay the foundation for future growth, it might be poor timing on OXM's part.
OXM's Q1 headline figures were solid. However, like last quarter, its guidance disappointed. At the same time, OXM keeping its foot on the investment pedal, even though macroeconomic conditions remain challenging, is keeping investors nervous about near-term financial performance.
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