Market Snapshot
briefing.com
| Dow | 33978.66 | -233.37 | (-0.68%) | | Nasdaq | 13595.68 | +21.98 | (0.16%) | | SP 500 | 4370.49 | +0.21 | (0.00%) | | 10-yr Note | +2/32 | 3.80 |
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| | NYSE | Adv 1118 | Dec 1748 | Vol 1.0 bln | | Nasdaq | Adv 1675 | Dec 2752 | Vol 5.8 bln |
Industry Watch
| Strong: Information Technology, Real Estate, Consumer Staples |
| | Weak: Health Care, Energy, Materials, Consumer Discretionary, Financials |
Moving the Market
-- Digesting the Fed decision and Fed Chair Powell's commentary
-- DJIA underperforming due to losses in UnitedHealth (UNH), which warned about rising costs
-- Digesting the pleasing May Producer Price Index report
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Closing Summary
14-Jun-23 16:30 ET
Dow -232.79 at 33979.24, Nasdaq +53.16 at 13626.86, S&P +3.58 at 4373.86
[BRIEFING.COM] The major indices hung around in fairly narrow ranges until the much anticipated FOMC decision at 2:00 p.m. ET and Fed Chair Powell's press conference at 2:30 p.m. ET induced some whipsaw action.
The FOMC voted unanimously to hold the target range for the fed funds rate steady at 5.00-5.25%, yet stocks declined with the release of the Summary of Economic Projections, which showed an upward adjustment in the 2023 median estimate for the fed funds rate to 5.60% from 5.10%.
The market started to climb again as Fed Chair Powell's press conference got underway. Stocks recovered after Fed Chair Powell said that the July meeting is a "live" meeting (for looking at a possible policy change), but one that isn't being pre-determined.
In other words, a rate hike in July isn't a sure thing. Note that there are four more FOMC meetings this year (July, September, November, December), so the Fed doesn't have to frontload an additional 50 basis points of rate hikes. Arguably, the stock market is making some allowance for the possibility that the Fed might not push the policy rate as far as the dot-plot suggests it might go this year.
The mega cap stocks helped the S&P 500 and Nasdaq close with gains, yet there wasn't much concerted selling under the index surface. The Vanguard Mega Cap Growth ETF (MGK) rose 0.6% while the Invesco S&P 500 Equal Weight ETF (RSP) fell by a modest 0.2% after being up as much as 0.6% earlier in the day. The S&P 500 for its part settled the session roughly unchanged from where it was trading just before the 2:00 p.m. ET policy directive was released.
The Dow Jones Industrial Average (-0.7%), held down by a sizable loss in UnitedHealth (UNH 459.86, -31.45, -6.4%) after the company warned of rising costs, and the Russell 2000 (-1.2%) lagged the other major indices today.
Market breadth reflected an underlying negative bias, but only modestly so. Decliners led advancers by a roughly 5-to-3 margin at the NYSE and at the Nasdaq.
Most of the S&P 500 sectors closed with losses. The energy (-1.1%) and health care (-1.1%) sectors were the only laggards to decline more than 1.0%, the latter of which was weighed down by UnitedHealth and other managed care stocks. The information technology sector (+1.1%), meanwhile, was the best performer by a wide margin thanks to its mega cap and semiconductor components. The PHLX Semiconductor Index rose 1.5%.
The 2-yr note yield settled unchanged at 4.70% and the 10-yr note yield fell four basis points to 3.80% in a rollercoaster trade.
- Nasdaq Composite: +30.2% YTD
- S&P 500: +13.9% YTD
- Russell 2000: +6.4% YTD
- S&P Midcap 400: +5.6% YTD
- Dow Jones Industrial Average: +2.5% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 7.2% with purchase applications jumping 8.0% and refinancing applications rising 6.0%.
- The Producer Price Index for final demand declined 0.3% month-over-month in May (Briefing.com consensus -0.1%) while the index for final demand, less foods and energy ("core PPI) increased 0.2% month-over-month, as expected.
- On a year-over-year basis, the index for final demand was up 1.1% year-over-year, versus 2.3% in April, and the index for final demand less foods and energy was up 2.8% year-over-year, versus 3.2% in April.
- The key takeaway from the report is the recognition that wholesale inflation is moving in the right direction, which should be pleasing to the Fed and a reprieve for corporate profit margins.
- Weekly EIA crude oil inventories showed a build of 7.92 million barrels following last week's draw of 451,000 barrels.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 a.m. ET: May Retail Sales (Briefing.com consensus 0.0%; prior 0.4%), Retail Sales ex-auto (Briefing.com consensus 0.1%; prior 0.4%); Weekly Initial (Briefing.com consensus 251,000; prior 261,000) and Continuing claims (prior 1.757 million); June Philadelphia Fed Index (Briefing.com consensus -13.0; prior -10.4); June Empire State Manufacturing (Briefing.com consensus -16.0; prior -31.8); May Export Price Index (prior 0.2%), Export Prices ex-ag. (prior 0.4%), Import Price Index (prior 0.4%), Import Prices ex-oil (prior 0.0%)
- 9:15 a.m. ET: May Industrial Production (Briefing.com consensus 0.1%; prior 0.5%), Capacity Utilization (Briefing.com consensus 79.7%; prior 79.7%)
- 10:00 a.m. ET: April Business Inventories (Briefing.com consensus 0.2%; prior -0.1%)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior +104 bcf)
- 4:00 p.m. ET: April Net Long-Term TIC Flows (prior $133.3 billion)
Most S&P 500 sectors slip into the red
14-Jun-23 15:35 ET
Dow -229.64 at 33982.39, Nasdaq +24.45 at 13598.15, S&P +0.25 at 4370.53
[BRIEFING.COM] The major indices are trending lower again, but remain off their lows of the session.
Most of the S&P 500 sectors have fallen into negative territory. The economically-sensitive energy (-1.2%), materials (-0.4%), and industrials (-0.2%) sectors are among the worst performers. On the flip side, the countercyclical consumer staples (+0.7%) and utilities (+0.3%) sectors have maintained some gains.
WTI crude oil futures fell 1.8% to $68.23/bbl. Natural gas futures settled flat at $2.34/mmbtu.
Digesting Fed Chair Powell comments
14-Jun-23 15:05 ET
Dow -233.37 at 33978.66, Nasdaq +21.98 at 13595.68, S&P +0.21 at 4370.49
[BRIEFING.COM] As Fed Chair Powell's press conference continues, the major indices are climbing off their post-FOMC decision lows. The Nasdaq and S&P 500 tipped back into positive territory recently.
Some key comments that market participants are reacting to include, "I would almost say that the conditions that we need to see in place to get inflation down are coming into place." Mr. Powell added that "if you look at core PCE inflation overall, over the last six months, you're not seeing a lot of progress...We want to see it moving down decisively, that's all."
Mega cap stocks have mostly maintained their gains, offering some support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) is up 0.4%.
FOMC unanimously votes to keep rates unchanged
14-Jun-23 14:25 ET
Dow -391.16 at 33820.87, Nasdaq -80.87 at 13492.83, S&P -24.48 at 4345.80
[BRIEFING.COM] The market got tipped off multi-month highs after the Federal Open Market Committee (FOMC) decided to hold the target range for the federal funds rate at 5 to 5-1/4 percent. In addition, the Committee said that holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy. Currently, the S&P 500 (-0.56%) is now down about 25 points.
Further, in determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
The Committee reiterated their stance that the U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
In addition, the Committee said it would continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
Gold settles higher ahead of FOMC decision
14-Jun-23 13:55 ET
Dow -159.52 at 34052.51, Nasdaq +16.81 at 13590.51, S&P +4.94 at 4375.22
[BRIEFING.COM] With about two hours to go on Wednesday afternoon the tech-heavy Nasdaq Composite (+0.12%) holds a narrow lead atop the standings, well off this morning's highs of +0.65%.
Gold futures settled $10.30 higher (+0.5%) to $1,968.90/oz ahead of the FOMC's rate decision, which is due at the top of the hour.
Meanwhile, the U.S. Dollar Index is down about -0.6% to $102.74.
Waiting to not be surprised by the Fed
Today is the FOMC decision day. That decision will be out at 2:00 p.m. ET. It is also the day when market participants will see an updated Summary of Economic Projections and hear from Fed Chair Powell, who will hold a press conference at 2:30 p.m. ET to discuss the FOMC's thinking.
What we can say confidently at this time is that the stock market has no fear of what it will see and hear today. To wit:
- The Russell 2000 is up 8.4% this month and the S&P Midcap 400 Index is up 7.3%.
- The Equal-Weighted S&P 500 is up 5.7% this month.
- The Nasdaq Composite is up another 4.9% this month, leaving it up 29.7% for the year. The Nasdaq 100 is up another 4.5% this month, leaving it up 36.2% for the year.
- The Dow Jones Industrial Average is up 4.0% this month.
- The CBOE Volatility Index is down 18.6% this month to 14.60, trading at its lowest level in more than three years.
- The CME FedWatch Tool shows a mere 5.8% probability of the Fed raising rates by 25 basis points today.
Thanks to copious previews of this Fed decision, the stock market has a pretty good line on what it expects to see and hear today:
- A policy vote that has a dissent or two.
- A dot-plot that projects at least one more rate hike before the end of the year.
- A Fed Chair who will say inflation has shown signs of progress but remains too high, warning that a "skip" today does not necessarily mean the Fed is done raising rates, particularly if inflation remains sticky well above the Fed's 2.0% inflation target.
If the FOMC and Fed Chair Powell live up to the stock market's expectations, then there should be little reaction to the news itself since none of it will truly be a surprise. Then again, the stock market has run big ahead today's happenings, so a sell-the-news reaction is not out of the question.
The depth and tone of the selling, though, should be proportional to the news itself. If everything lines up as expected, then it is apt to be relatively modest and orderly. If there is, in fact, a hawkish surprise, then the selling should look more frenetic.
All that said, this stock market could still keep keeping on, too, if there are no surprises. It certainly has shown a lot of verve of late, energized by the notion that the economy can avoid a hard landing, that the Fed is close to being done with its rate-hike campaign, and that an AI boom is beginning to unfold.
Today, then, will be a price action day so to speak, as participants watch closely how the market responds to the information that it thinks it knows is coming.
There wasn't much reaction to a May Producer Price Index that produced some relatively good wholesale inflation news. The index for final demand declined 0.3% month-over-month (Briefing.com consensus -0.1%) while the index for final demand, less foods and energy ("core PPI) increased 0.2% month-over-month, as expected.
On a year-over-year basis, the index for final demand was up 1.1% year-over-year, versus 2.3% in April, and the index for final demand less foods and energy was up 2.8% year-over-year, versus 3.2% in April.
The key takeaway from the report is the recognition that wholesale inflation is moving in the right direction, which should be pleasing to the Fed and a reprieve for corporate profit margins.
The lack of reaction to this good news is likely due to the positive reaction to yesterday's Consumer Price Index, which is to say the good news in the PPI report today was captured in the response to the CPI report yesterday. Also, market participants are more pre-occupied today with the Fed decision.
Separately, UnitedHealth (UNH) investors are looking pre-occupied and a bit perturbed by the company's acknowledgment that its Q2 medical care ratio is expected to be moderately above the upper bound of its full-year outlook. Shares of UNH are down 5.8%, which is a primary reason for the underperformance of the Dow Jones Industrial Average futures. Its warning is also dragging down other managed care stocks.
Currently, the S&P 500 futures are up three points and are trading fractionally above fair value, the Nasdaq 100 futures are up seven points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are down 89 points and are trading 0.2% below fair value.
-- Patrick J. O'Hare, Briefing.com
Shift4 Payments looking to shift back into rally mode after an upgrade at MoffettNathanson (FOUR)
Shift4 Payments (FOUR), a payment processor utilized across over 200,000 businesses, primarily SMBs in the hospitality and restaurant industries, is gearing up to break above its 50-day moving average (65.83) today following an upgrade to "Outperform" from "Market Perform" at MoffettNathanson.
Briefing.com notes that FOUR shares are still consolidating, however, struggling to remain above their 50-day moving average since tumbling in late April on a short seller report. Still, today's upgrade could provide the kindling needed to ignite a return to recent rally efforts.
- Around 90% of FOUR's revenue stems from transaction fees, similar to privately-held Stripe, meaning the company heavily relies on robust consumer spending at the many businesses utilizing its software. This presents a challenge, as spending trends remain depressed due to widespread inflation. Still, despite the tricky demand environment, FOUR delivered Q1 results on pace to meet or exceed its FY23 guidance, helped by a lack of any concerning spending trends during the quarter.
- However, the real test is ongoing, with May and June typically enjoying seasonal strength. FOUR was cautiously optimistic that spending would not endure a significant drop off from previous years during Q2, illuminated by the firm slightly increasing its FY23 revenue forecast to $2.55-2.70 bln from $2.50-2.70 bln.
- How restaurants perform will be critical, as this sector comprises approximately 40% of FOUR's annual revenue. Somewhat alarming was food-away-from-home prices continuing to edge higher yr/yr in May and at a quicker pace than food-at-home prices. Nevertheless, even after yesterday's CPI report, shares of publicly-traded restaurants mostly brushed off this economic data, ticking higher on the day. Although that does not guarantee relative strength within the food service industry, it shows that the market is not overly concerned.
- Also, FOUR has continuously broadened its sector diversification, showcased by restaurants falling from comprising 55% of total volumes in early 2019. FOUR is also amid aggressive international expansion plans, partnering with international gateways and alternative payment models like PayPal (PYPL). With nearly all of FOUR's volume growth emanating from customer additions instead of industry growth, it is encouraging to see the company add partners overseas to help boost its long-term financial performance.
Overall, FOUR could be looking at shifting into rally mode again after pulling back on a short seller report in April and somewhat underwhelming earnings in May. As we have seen from others in this space, including Toast (TOST) and Shopify (SHOP), volumes are exhibiting relative resilience despite macroeconomic uncertainty. Still, we advise waiting until after FOUR registers Q2 earnings results sometime around early August to see if May and June displayed seasonal strength.
Logitech's CEO abruptly departs, adding more uncertainty to company's turnaround effort (LOGI)
Logitech (LOGI), a maker of keyboards, mice, and webcams, has fallen on tough times as sales have eroded under difficult market conditions and now the company is contending with additional uncertainty after its CEO unexpectedly resigned. Last night, LOGI announced that CEO Bracken Darrell has departed, effective immediately, to pursue another opportunity, catching investors off guard as reflected in the stock's nosedive lower today.
- Stepping in his place will be Guy Gecht, a non-executive member of LOGI's board of directors since September 2019 who will serve as interim CEO until a full-time replacement has been hired.
- As chair of LOGI's Technology and Innovation Committee, and as a member of the company's Audit Committee, Mr. Gecht should be able to hit the ground running.
- Importantly, Mr. Gecht also has considerable experience running a publicly traded company as the former CEO of Electronics for Imaging from 2000-2018.
The concern, though, is that the departure of LOGI's longtime CEO significantly adds to the degree of difficulty in executing a turnaround. Even under optimal circumstances, a leadership transition and CEO search is a major undertaking that can be disruptive, time-consuming, and an obstacle to executing a business plan. In the case of LOGI, the CEO resignation comes as the company is struggling to find its footing following a boom period during the pandemic which saw its stock soar by over 300% from mid-March of 2020 through mid-June of 2021.With today's losses, shares are now lower by 9% year-to-date and miles away from those all-time highs seen in 2021.
- The collapse of the stock correlates to LOGI's dismal financial performance, which includes six consecutive quarters of yr/yr revenue declines. Worse yet, revenue plunged by 22% in each of the past two quarters -- LOGI's largest yr/yr drops in at least five years -- even though it benefited from favorable yr/yr comparisons with revenue down by 20% and 2%, respectively, in the corresponding year-earlier periods.
- There are a few factors that are plaguing LOGI, but one of the most significant issues is that the company has yet to see the refresh cycle kick in for products that experienced strong demand during the work-from-home transition. This is compounded by an uncertain macroeconomic environment that has made companies become more judicious with their IT spending.
- On the positive side, the supply chain disruptions and sky-high shipping rates now appear to be in the rearview mirror. Furthermore, exiting CEO Bracken Darrell commented during the Q4 earnings call in May that promotional activity in the market has begun to normalize.
The main takeaway, however, is that the abrupt departure of LOGI's CEO creates another layer of uncertainty as the company tries to execute a turnaround plan based on diversifying away from the PC market by launching new products for gaming, tablets, video collaboration, and wearables.
Advanced Micro advances higher on report that Amazon Web Services considering its new AI chip (AMD)
As Advanced Micro Devices (AMD) CEO Lisa Su presented the company's new AI chip, the MI300X, at its Data Center and AI Tech Premier event yesterday, shares sold off as investors were left unconvinced that AMD could gain ground on NVIDIA (NVDA) in the race to develop the most powerful AI chips. However, those doubts are subsiding today after Reuters reported that Amazon Web Services (AMZN) is considering using AMD's new AI chip for its data centers.
- According to Reuters, a final decision hasn't been made yet, but AMD appears to have a leg up on the field, including on NVDA, partly due to its piecemeal approach in which customers can select all the individual components needed to build systems that power generative AI technologies.
- While NVDA also offers its chips on an individual basis, the company is steering more customers towards its one-stop-shop DGX Cloud platform that builds out entire systems. AMZN's Dave Brown, who serves as Vice President of Elastic Compute Cloud, stated that DGX Cloud wasn't a good fit for the company due to AMZN's considerable experience in constructing its own data centers.
- If AMZN does indeed move forward with AMD, its orders for the MI300X chip could begin accelerating in Q4 when AMD starts to ramp up production.
The possibility of landing a huge deal with AMZN is exciting, but it's not the only bullish revelation to emerge from yesterday's event.
- Also catching investors' attention is Ms. Su's commentary on AI chips' growth prospects in the data center space.
- Specifically, she estimated that the data center market opportunity will be about $30 bln this year and will grow by over 50% every year during the next three to four years. That places the market at a value of approximately $150 bln.
Rewinding to AMD's Q1 earnings report in early May, data center was a weak spot with revenue declining by 22% sequentially as macroeconomic headwinds and high inventory levels continued to constrict demand. At the time, there was even some concern that AMD was giving back some market share to Intel (INTC), which reported a 14% decline in its data center business. Generally speaking, there was disappointment that AMD wasn't capitalizing on the accelerating AI boom, especially given that the midpoint of its Q2 revenue guidance missed analysts' estimates.
That disappointment was short-lived, though, as reflected in the stock's 45% surge higher since that earnings report. Investors are now homing in on 2H23 as a potential launching point for an AI-powered semiconductor resurgence and AMD's new MI300X chip has it positioned to become a major winner.
UnitedHealth sells off as deferred care begins to climb; shocks health insurance industry (UNH)
Dow component UnitedHealth (UNH -7%) is not looking too healthy today as shares gap down to 52-week lows following bearish comments during a Goldman Sachs conference yesterday after the close. The largest health insurance firm in the U.S. stated that its medical care ratio, the percentage of premiums used to cover claims, is trending toward and even possibly moderately above the upper bound of its FY23 outlook of 82.1-83.1%. Management's remarks are causing a shockwave across the health insurance landscape, with peers ELV -7%, CNC -8%, MOH -6%, HUM -13%, and CI -5% all sliding today.
UNH touched on deferred care trends during almost every quarterly earnings call of the past three years, noting that it continues to monitor signs of a potential increase. Until yesterday, UNH stated that it had not seen any indications of a meaningful uptick in deferred care. Unfortunately, the longer UNH went without seeing its medical care ratio edge significantly higher, the more confident investors felt that UNH dodged this bullet, triggering a pronounced sell-off today.
- Pent-up demand, notably regarding outpatient care, particularly amongst seniors, is finally being satisfied. April and May contained robust outpatient care activity, with leading indicators through the first couple weeks of June showing continued strength. With elements of the pandemic beginning to abate in more widespread numbers nationwide, such as mask mandates in physician offices, seniors feel more comfortable accessing healthcare services they pushed off over the past several years, including knee and hip surgeries.
- Meanwhile, behavioral health is receiving more attention lately, driving more vigorous care activity within UNH's Optum Health. CEO of Care Solutions at Optum, Patrick Conway, explained that individuals are seeking care for behavioral health, such as depression and anxiety, at higher levels coming out of the pandemic.
- Even though these trends are primarily outpatient, which is on the lower cost side of care compared to inpatient, they are enough to meaningfully weigh on UNH's medical care ratio. In fact, UNH commented that the unit cost picture has not changed materially, staying in line with expectations, illuminating the magnitude of the increase in claims.
Last quarter, investors were already growing worried that UNH may miss its EPS targets after 2024 Medicare Advantage (MA) rates saw a 1.12% cut, as this would force UNH to balance maintaining benefits to expand its membership while holding margins stable. Partially alleviating these fears was UNH's medical care ratio staying somewhat consistent yr/yr, ticking up by just 20 bps to 82.2%. However, after management's updated forecast, UNH could fall short of its long-term EPS growth target of +13-16%, especially if current procedure volumes take multiple quarters to shake out. It is important to keep in mind that care could continue to be delayed as we head into the summer months when doctors take vacation days and patients look to enjoy outdoor activities.
Intel reportedly considers large investment in Arm's IPO, giving its AI ambitions a boost (INTC)
While Intel (INTC) struggles through a painful transformation centered on building out its manufacturing base in the U.S., the company has watched rivals like NVIDIA (NVDA) and Advanced Micro Devices (AMD) soar as an emerging AI boom is fueling robust demand for more powerful chips. However, INTC may have identified a way to quickly make up some ground in the AI race by leaning on the old adage, "if you can't beat them, join them."
According to Bloomberg, INTC is in talks with semiconductor giant Arm Ltd. to become an anchor investor in Arm's upcoming IPO, which will undoubtedly be the event of the year for an IPO market that's still trying to break out of a deep slump. There are still many uncertainties at this point, including the amount of capital that INTC is considering investing. Also, the IPO specifics, including an expected date and the projected price range, are currently unknown.
- What is certain, though, is that Softbank (SFTBY) owned Arm is a dominant force in the semiconductor industry with its chip designs powering the technology behind devices and products from Apple (AAPL), Samsung, Qualcomm (QCOM), and INTC.
- In fact, NVDA thought so highly of Arm that it tried to acquire the company for $40 bln in 2020, only to see the deal fall apart a couple years later due to regulatory pressures.
- Arm's portfolio of AI-ready chips is a major reason why NVDA was willing to shell out tens of billions of dollars to acquire the company. Arm's AI-optimized platform architecture is at the center of its GPU, CPU, and NPU product families. By investing in Arm's IPO, INTC would participate in the anticipated upswing in demand for these chips as AI becomes increasingly prevalent in virtually every industry.
While it's clear that INTC has fallen behind the competition, the company does appear to be moving in the right direction.
- Revenue in Q1 did collapse by 36% yr/yr and gross margin did tumble lower by 15 percentage points yr/yr, but INTC issued inline Q2 revenue guidance after guiding revenue below expectations in every quarter last year.
- Additionally, during the earnings call, CEO Pat Gelsinger stated that he's seeing signs of stability in the PC market with inventory corrections proceeding as anticipated.
Lastly, Arm's impending IPO will have massive implications for the IPO market overall.
- Some green shoots have already emerged this year as Kenvue (KVUE), the Johnson & Johnson (JNJ) consumer health spin-off, generated solid demand for its deal in early May.
- However, a strong pricing and debut from Arm could qualify as the catalyst that breaks the door open for other companies waiting on the sidelines to go public.
- With a substantial backing from INTC, and with investors' insatiable appetite for AI-based investments in its corner, a successful IPO for Arm seems highly likely.
The main takeaway is that a sizable investment in Arm's IPO looks like a win-win-win scenario in our view for INTC, Arm, and for the IPO market. Many details are still missing, and an Arm IPO may still be a few months away, but this development inspires some much-needed confidence in INTC's AI-based aspirations.
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