Market Snapshot
briefing.com
| Dow | 35461.33 | +50.18 | (0.14%) | | Nasdaq | 14166.11 | +106.86 | (0.76%) | | SP 500 | 4572.61 | +16.70 | (0.37%) | | 10-yr Note | -3/32 | 3.91 |
|
| | NYSE | Adv 1462 | Dec 1384 | Vol 826 mln | | Nasdaq | Adv 1933 | Dec 2459 | Vol 4.5 bln |
Industry Watch
| Strong: Materials, Information Technology, Utilities, Energy |
| | Weak: Financials, Real Estate, Industrials, Consumer Discretionary |
Moving the Market
-- Better-than-expected earnings results from several blue chip stocks
-- Strength in the mega cap space
-- Wait-and-see in front of earnings from Microsoft (MSFT) and Alphabet (GOOG) after the close, and FOMC policy decision tomorrow at 2:00 p.m. ET followed by Fed Chair Powell's press conference at 2:30 p.m. ET
|
Closing Summary
25-Jul-23 16:30 ET
Dow +26.83 at 35437.98, Nasdaq +85.69 at 14144.94, S&P +12.82 at 4568.73
[BRIEFING.COM] The major indices closed with gains after the S&P 500 and Dow Jones Industrial Average each hit new 52-week highs at their best levels of the day. The DJIA also logged its twelfth straight winning session. Strength from some mega cap stocks helped to boost index performance.
Alphabet (GOOG 122.79, +0.91, +0.8%) and Microsoft (MSFT 350.98, +5.87, +1.7%) were some of the top performers from the space ahead of their earnings report after today's close. The Vanguard Mega Cap Growth ETF (MGK) rose 0.6% versus a more modest 0.1% gain in the Invesco S&P 500 Equal Weight ETF (RSP). The market-cap weighted S&P 500 rose 0.3%.
Blue chip companies dominated the earnings calendar since yesterday's close and largely received positive reactions from market participants, acting as added support for the market. Packaging Corp. (PKG 152.65, +13.98, +10.1%), General Electric (GE 117.16, +6.91, +6.3%), 3M (MMM 109.83, +5.56, +5.3%), Dow, Inc. (DOW 53.48, +0.93, +1.8%), Nucor (NUE 172.88, +6.23, +3.7%), and Sherwin-Williams (SHW 275.96, +7.94, +3.0%) were among the standouts following their earnings reports.
Today's positive bias was also supported by the July Consumer Confidence Index, which showed the highest reading since July 2021, driven both by a pickup in views about current conditions and the outlook.
Five of the 11 S&P 500 sectors closed in positive territory. The materials (+1.8%) and information technology (+1.2%) sectors registered the biggest gains by a decent margin. Meanwhile, the real estate sector (-0.7%) fell to the bottom of the pack.
The industrials sector (-0.1%) was another notable laggard, weighed down by a big decline in RTX (RTX 87.10, -9.91, -10.2%), which lowered its free cash flow guidance for the year due to a need to inspect a significant portion of the PW1100G-JM engine fleet after finding that a powdered metal used in the production of those engines has a contaminant in it.
In other corporate news, the International Brotherhood of Teamsters and UPS (UPS 184.69, -3.65, -1.9%) announced that they have reached a five year tentative collective bargaining agreement.
Banc of California (BANC 14.61, +1.46, +11.2%) is in advanced discussions to buy PacWest (PACW 7.69, -2.85, -27.0%), according to The Wall Street Journal.
The 2-yr Treasury note yield rose one basis point to 4.90% and the 10-yr note yield rose six basis points to 3.91%. On a related note, today's $43 billion 5-yr note sale met decent demand, though foreign interest was a bit below average.
Participants are still eyeing some market-moving events later in the week. The FOMC began its two-day policy meeting today. A new policy directive will be released at 2:00 p.m. ET on Wednesday followed by Fed Chair Powell's press conference at 2:30 p.m. ET.
- Nasdaq Composite: +35.1% YTD
- S&P 500: +19.0% YTD
- Russell 2000: +11.6% YTD
- S&P Midcap 400: +11.7% YTD
- Dow Jones Industrial Average: +6.9% YTD
Reviewing today's economic data:
- The FHFA Housing Price Index rose 0.7% in May following a 0.7% in the prior month.
- The S&P Case-Shiller Home Price Index fell 1.7% in May (Briefing.com consensus -1.9%) following a 1.7% decline in the prior month.
- The Conference Board's Consumer Confidence Index jumped to 117.0 in July (Briefing.com consensus 111.5) from an upwardly revised 110.1 (from 109.7) in June. In the same period a year ago, the index stood at 95.3.
- The key takeaway from the report is that the uptick in consumer confidence was driven both by a pickup in views about current conditions and the outlook, which are an offshoot of better feelings about inflation coming down and the labor market remaining tight.
Ahead of Wednesday's open, AT&T (T), Boeing (BA), Coca-Cola (KO), Thermo Fisher (TMO), Union Pacific (UNP), Fiserv (FI), Automatic Data (ADP), Ryder System (RO), Old Dominion (ODFL), and Teledyne Tech (TDY) are some of the more notable companies reporting earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 1.1%)
- 10:00 ET: June New Home Sales (Briefing.com consensus 722,000; prior 763,000)
- 10:30 ET: Weekly crude oil inventories (prior -708,000)
- 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.00-5.25%)
Market stays near highs ahead of the close
25-Jul-23 15:40 ET
Dow +66.57 at 35477.72, Nasdaq +115.95 at 14175.20, S&P +19.07 at 4574.98
[BRIEFING.COM] The market is little changed over the last half hour.
Treasuries settled with losses. The 2-yr note yield rose one basis point to 4.90% and the 10-yr note yield rose six basis points to 3.91%.
Ahead of Wednesday's open, AT&T (T), Boeing (BA), Coca-Cola (KO), Thermo Fisher (TMO), Union Pacific (UNP), Fiserv (FI), Automatic Data (ADP), Ryder System (RO), Old Dominion (ODFL), and Teledyne Tech (TDY) are some of the more notable companies reporting earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 1.1%)
- 10:00 ET: June New Home Sales (Briefing.com consensus 722,000; prior 763,000)
- 10:30 ET: Weekly crude oil inventories (prior -708,000)
- 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.00-5.25%)
BANC to buy PACW; earnings after the close
25-Jul-23 15:00 ET
Dow +50.18 at 35461.33, Nasdaq +106.86 at 14166.11, S&P +16.70 at 4572.61
[BRIEFING.COM] The major indices remain near their best levels of the session.
Banc of California (BANC 14.43, +1.21, +9.7%) is in advanced discussions to buy PacWest (PACW 9.13, -1.41, -13.4%), according to The Wall Street Journal. Western Alliance (WAL 48.34, -1.57, -2.8%) shares took a sharp turn lower in response. The SPDR S&P Regional Banking ETF (KRE) is down 1.0%.
PACW will report earnings after the close today.
Alphabet (GOOG) and Microsoft (MSFT) will headline the earnings reports after the close. Visa (V), Waste Mgmt (MW), Texas Instruments (TXN), Snap (SNAP), and EQT Corp. (EQT) are also among notable earnings reporters.
Alaska Air slips after forecasting revenue slowdown next qtr
25-Jul-23 14:30 ET
Dow +100.02 at 35511.17, Nasdaq +126.64 at 14185.89, S&P +22.51 at 4578.42
[BRIEFING.COM] The S&P 500 (+0.49%) and the DJIA (+0.28%) are riding near highs in recent trading, the former situated comfortably in second place.
S&P 500 constituents MSCI (MSCI 545.77, +43.02, +8.56%), WestRock (WRK 32.33, +1.57, +5.12%), and Archer-Daniels (ADM 85.97, +2.86, +3.44%) pepper the top of the S&P. MSCI and ADM move higher on earnings, while WRK gains in sympathy to peer Packaging Corp's (PKG 152.90, +14.23, +10.26%) report.
Meanwhile, Alaska Air (ALK 47.92, -5.41, -10.14%) is near the bottom of the standings today after forecasting a revenue slowdown in the coming quarter.
Gold slightly higher on Tuesday
25-Jul-23 14:00 ET
Dow +74.30 at 35485.45, Nasdaq +112.85 at 14172.10, S&P +17.98 at 4573.89
[BRIEFING.COM] With about two hours left to go on Tuesday the tech-heavy Nasdaq Composite (+0.80%) clings to a commanding lead, up about 113 points.
Gold futures settled $1.50 higher (+0.1%) to $1,963.70/oz taken against modest moves in both the dollar and treasury yields ahead of tomorrow's Fed rate decision.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $101.41.
A steady and familiar-looking state for stock market
The equity futures market has a familiar look, which is to say it isn't pointing to the likelihood of big losses at today's open. On the contrary, the cash market looks poised to hold its ground or nudge higher when the opening bell rings.
Currently, the S&P 500 futures are up one point and are trading in-line with fair value, the Nasdaq 100 futures are up 42 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down nine points and are trading in-line with fair value.
Those indications might not seem like much, but they are meaningful in the sense that they reflect a willingness to keep holding/buying stocks after a huge run for the broader market. Said another way, they also reflect an ongoing lack of concerted selling interest after that big run.
Entering today, the market-cap weighted S&P 500 is up 9% since the end of May while the Invesco S&P 500 Equal-Weight ETF (RSP) is up 10.7% over the same period.
Good earnings results (and responses) from a host of blue-chip companies since yesterday's close, coupled with gains among the mega-cap stocks and big moves in Chinese markets following the Politburo's tease of increased policy support, have provided the early support.
General Motors (GM), 3M (MMM), General Electric (GE), Sherwin-Williams (SHW), Kimberly-Clark (KMB), and Verizon (VZ) all exceeded consensus earnings estimates and are all trading higher in pre-market action.
Notably, Alphabet (GOOG) and Microsoft (MSFT) are trading higher, too, in front of their earnings reports after today's close. Those reports are important for the market given the size of those companies, but even more important will be the reaction to those reports.
Will these stocks continue to move higher after their results or will they be met with some selling resistance? It is reasonable to think that the stocks will sell off if there is "bad news" in the reports and/or guidance, but will they sell off if there is good news in the reports and/or guidance? That is really what market participants are waiting to assess.
The reaction will be a driving force for the market, which will also be waiting on the Fed decision and Fed Chair Powell's press conference, on Wednesday.
For now, it is a steady state in the stock market, which is going to be inundated with earnings news in the next few weeks that will either validate or not validate the multiple expansion that has been predicated on the tenets of the economy avoiding a hard landing, the Fed being close to the end of its tightening cycle, and earnings growth accelerating in the second half of the year.
-- Patrick J. O'Hare, Briefing.com
General Electric flying to multi-year highs as Aerospace segment fuels beat-and-raise report (GE)
On the strength of its Aerospace segment, which is experiencing robust demand due to an ongoing boom in air travel, and its considerable streamlining efforts, General Electric (GE) has reported solid quarterly results lately. That trend continued this morning with GE issuing an impressive beat-and-raise Q2 earnings report that has shares flying to their highest levels since late 2017.
CEO Larry Culp's vision and strategy to transform GE into a pure play aviation company couldn't be playing out any better. There is still some work to be done -- GE Vernova, which includes the Renewable Energy and Power businesses -- is set to be spun off in late 2023 or early 2024. However, over the past few years, GE has undergone a major transformation, including the spinoff of the healthcare segment in January and the merger of its aircraft leasing unit with AerCap Holdings (AER) in March.
As GE has cut down and simplified its operations, the emphasis has shifted substantially to its Aerospace segment. This transformation has coincided with a recovery and subsequent boom in air travel demand, pushing sales and orders for GE's jet engines sharply higher. Likewise, as mileage piles up for commercial jets across the country, GE's aircraft services business is seeing a major upswing on rising demand for parts and maintenance.
- In Q2, Aerospace organic revenue climbed by 28% with strength in both equipment and services. More specifically, commercial engines and services generated revenue growth of 32%.
- On the defense side, which dealt with significant supply chain issues last year, orders more than doubled while engine output soared by 74% yr/yr.
The robust results for Aerospace don't come as a surprise given the surging momentum in the commercial airline industry, but the recovery in the Renewable Energy segment has been pretty remarkable.
- Rewinding to the year-ago period, organic revenue sank by 20% and segment margin plummeted by 1,210 bps to (13.5)% due to weak orders for wind turbines. Uncertainty surrounding future tax credits for wind generation acted as a drag on the unit, prompting GE to initiate cost-cutting measures that included a 20% reduction in headcount for the segment.
- After the Inflation Reduction Act was passed on August 16, 2022, order activity for wind turbines began to accelerate. Simultaneously, the effects from GE's cost-cutting initiatives gradually took hold, resulting in margin and profitability improvements.
- Bolstered by rising equipment growth across the onshore, offshore, and grid markets, revenue in Renewable Energy climbed by 27% to $3.8 bln in 2Q23. Meanwhile, productivity improvements and price adjustments drove segment margin higher by 680 bps to (9.3)%, leading to a 35% increase in profit to ($400) mln.
Assuming the recovery in Renewable Energy continues -- while Power remains steady (orders up 7% in Q2) -- investor enthusiasm for the GE Verona spinoff should only build. That's a positive for GE as the valuation for GE Verona will presumably rise. Overall, this was a very strong earnings report for GE and its outlook only seems to be brightening as it inches closer to becoming a standalone aviation company.
Sherwin-Williams brushes concerns to the side as Q2 results underscore favorable trends (SHW)
Sherwin-Williams (SHW +4%) brushes over analysts' forecasts in Q2, delivering sizeable beats on its top and bottom lines and raising its FY23 guidance significantly. Positive sentiment surrounded the paints and coatings supplier leading into its Q2 report today, illustrated by shares soaring over +25% from March lows. Several favorable developments, from easing inflationary pressures to homebuilders displaying resilient housing trends, ignited SHW's blazing rally. After delivering figures surpassing raised expectations in Q2, shares are popping off to 52-week highs.
- Consolidated net sales expanded 6.3% y/yr to $6.24 bln, easily toppling analyst expectations and helping fuel SHW's largest EPS beat since 4Q21. The favorable pricing environment touched on by PPG was apparent for SHW in Q2, with each of its operating segments delivering positive yr/yr growth.
- The star of Q2 was SHW's largest segment, Paint Stores Group (PSG), which advanced its top-line by 10% yr/yr to $3.5 bln, assisting in a 280 bp improvement in reported segment margins. Consumer Brands Group (CBG) was also up nicely in the quarter, climbing 5.1% to $945.8 mln, igniting a 470 bp margin increase. Lagging the broader group was Performance Coatings Group (PCG), where sales were mostly flat at 0.3% to $1.79 bln. However, recent acquisitions kept PCG from sinking, adding 4.5 pts to the top line in the quarter.
- Notable highlights include marine and commercial property maintenance, which ticked up by a double-digit percentage, residential repaint, which edged up by high single digits, and Automotive Refinish, which grew in the high single digits.
- Outside the U.S., SHW painted over brewing concerns sparked by peer PPG Industries (PPG), which remarked that industrial production levels will likely remain low over the near term and discussed cautious consumer buying behavior in Europe and a slower-than-expected recovery in China. Despite this, SHW recorded a double-digit percentage revenue increase in Europe. Also, even though China sales were down by double-digits, SHW is amid a divestiture of its China business, which should be completed in Q3.
- CEO John Morikis still cautioned that the demand environment was not entirely back to normal, noting that demand will likely vary meaningfully by region and end market. In PCG, management warned that North America demand has decelerated while Europe and Asia remain choppy, echoing sentiments expressed by PPG.
- Nevertheless, SHW lifted its FY23 outlook considerably, projecting adjusted EPS of $9.30-9.70, up from $7.95-8.65, and revs enjoying positive low single-digit percentage growth, a massive reversal from its previous estimate of down mid-single digits to flat. SHW pointed to encouraging developments within the end markets that exhibited particular strength in Q2 as factors in its raised guidance.
Overall, SHW's Q2 results underpinned strengthening and resilient trends across multiple end markets, particularly the automotive and repair and remodel housing markets. Although demand remains uneven across geographies and industries, conditions appear to be improving as SHW enters the back half of the year.
General Motors heads lower following smaller EPS beat; UAW negotiations loom on the horizon (GM)
General Motors (GM -4%) is trading lower after the automotive giant reported Q2 results this morning. GM reported upside for EPS, but it was much narrower than what we saw the last three quarters. Revenue came in better than expected. GM also raised its FY23 adjusted EPS guidance to $7.15-8.15 from $6.35-7.35.
- Adjusted EBIT is the most closely followed metric. It jumped 38% yr/yr to $3.23 bln in Q2, with a 7.2% adjusted EBIT margin which was up from 6.6% a year ago. Q2 adjusted EBIT included a $792 mln impact related to extra steps (trade-ins, loaner vehicles) the company took to resolve the issue for consumers. It also includes new agreements with LG Electronics and LG Energy Solution related to the Bolt recall. Despite the Q2 charge, GM still raised its FY23 adjusted EBIT guidance for the second quarter in a row. GM bumped its outlook to $12-14 bln from $11-13 bln.
- GM says the biggest driving force behind its results is customer demand for its vehicles. GM has increased retail market share yr/yr in each of the past four quarters with strong pricing and incentive discipline. For example, half of customers in the US for the popular new Chevrolet Trax are new to GM. GM is also excited about the upcoming launch of the 2024 Chevrolet Traverse which it revealed earlier this month.
- GM is also performing well in international markets such as Brazil and Korea. For example, two-thirds of Trax buyers in Korea are new to GM. In just four months, the Chevrolet Montana, GM's first compact pickup for the Brazil market, has earned one-third of its segment.
- GM also continues to lead the full-size pickup market in the US, with the new Chevrolet Silverado HD and GMC Sierra HD showing momentum. In the EV market, GM met its target to produce 50,000 EVs in North America in 1H23. With both cell and vehicle production increasing, GM continues to target production of roughly 100,000 EVs in 2H23.
- GM is also making a big push to become more efficient and reduce costs. It now expects FY23 capital spending to be $11-12 bln, which is about $1 bln less than the high end of prior guidance. GM also said it's focusing more on profitability and it is not sacrificing margin for volume.
Overall, this was a solid but not a great report from GM. We think the much more modest EPS beat this quarter is a bit of a letdown for investors following three huge beats in Q3-Q1. Also, GM's decision to do more for customers related to the Bolt recall may be weighing on the stock a bit. Looking ahead, a key issue to watch in Q3 will be getting a new UAW contract signed to avoid any work stoppages. The current deal expires in mid-September. This could weigh on the shares in the coming months until a deal can get struck. Finally, we think this report makes us a bit more worried about Ford's (F) Q2 report on Thursday after the close.
3M sticks to cost cutting and price increases to drive upside EPS in uneven demand climate (MMM)
Restructuring charges and a massive $10.3 bln settlement agreement for PFAS related claims made for a messy and highly unprofitable quarter on a GAAP basis for 3M (MMM), but the company's 2Q23 operating results comfortably surpassed expectations. The better-than-expected performance enabled MMM to significantly lift its FY23 EPS guidance and nudge its revenue outlook slightly higher.
- Through a combination of cost-cutting measures, including the elimination of 8,500 jobs since last January, and price increases across its vast product portfolio, MMM's adjusted operating margin improved sequentially in each of its business segments.
- On a consolidated basis, adjusted operating margin expanded by 140 bps qtr/qtr to 19.3%, underpinning the company's largest EPS beat since 1Q21.
Muted expectations also likely played a role in the upside performance. Indeed, business is far from booming for MMM. With the exception of the Health Care segment -- which is set to be spun off later this year or early next year -- every business unit experienced a yr/yr decline in organic sales growth.
Like last quarter, weakness in consumer-facing markets, such as electronics, retail, and home improvement, weighed on MMM's sales.
- The pullback in consumer spending was most acutely felt in the Transportation & Electronics segment. Weak demand for semiconductors, smartphones, TVs, and tablets drove a 22% yr/yr decline in electronics.
- Fortunately, automotive remained a source of strength, primarily due to robust demand for electric vehicles, helping to offset the soft electronics market. Overall, adjusted organic revenue for the segment dipped by 2.4% yr/yr.
- A similar story played out in the Consumer segment, which posted an organic revenue decrease of 2.2%. Product categories such as stationery and office supplies (Scotch tape, post-it notes) aren't only being impacted by a slowdown in consumer spending, but they're also still taking a hit from fewer employees working in office settings.
- MMM doesn't anticipate business conditions improving much for this segment, commenting that demand for hardline categories will likely remain subdued in 2H23.
- Slowing sales of disposable respirators are still an issue for MMM's Safety & Industrial segment. Excluding a 4.8 percentage point headwind from lower disposable respirator sales, organic sales for the segment would have been up by 0.2%.
- Safety & Industrial is also the only segment to post a yr/yr increase in adjusted operating margin as productivity actions, strong spending discipline, and price increases pushed margins higher by 70 bps to 22.2%.
The main takeaway is that MMM's restructuring and streamlining actions paid dividends in Q2 and should continue to support healthier margins and profits in 2H23. The potential removal of the PFAS overhang and the upcoming Health Care spin-off are two other positive factors that could support the stock. However, the demand picture remains mixed-at-best with ongoing weakness in the consumer electronics market weighing heavily on the top-line.
Whirlpool shares sink despite EPS beat as promotional environment weighs on sales in Q2 (WHR)
Household appliance giant Whirlpool (WHR -3%) is seeing its shares sink today despite exceeding bottom-line estimates and reaffirming FY23 guidance. Last week, European-based rival Electrolux AB (ELUXY) registered downbeat Q2 results, commenting that the macroeconomic environment proved challenging as weak demand clipped volumes, especially in Europe, and spurred heightened promotional activity, particularly in North America, compared to the year-ago period.
Even though Whirlpool derives most of its sales from North America (~58% in FY22) and mostly exited the European market after divesting its EMEA operations outside of its KitchenAid brand and a 25% stake in a newly formed entity earlier this year, the increasing promotions Electrolux warned about still weighed on Whirlpool's top line. Sales dipped 6% yr/yr to $4.79 bln, coming up a tad light compared to estimates, which was somewhat troubling given the inflationary environment. It also is leading to profit-taking today after shares ascended over +17% from May lows.
Nevertheless, mild revs should not wash over Whirlpool's several other highlights from Q2.
- To help dodge economic hurdles, Whirlpool has been cutting costs, focusing on becoming a higher growth, higher margin company. Alongside the partial divestiture of its EMEA business, Whirlpool has been reducing the complexity of its parts, lowering its headcount, and targeting other areas of inefficiency, resulting in an expected cost takeout of $500 mln in FY23. As such, Whirlpool's adjusted operating margins improved by around 200 bps sequentially to 7.3%, fueling another double-digit earnings beat in the quarter.
- Outside of Latin America, which demonstrated relative resilience with a +4.1% jump in sales yr/yr, all geographies posted declines in the quarter. Mirroring Electrolux's Q2 results, EMEA was Whirlpool's weakest region, with sales falling 15.3% yr/yr. Asia closely trailed, dropping 12.7%. In Whirlpool's dominant North American market, net sales edged 4.7% lower. However, like last quarter, Whirlpool's acquisition of InSinkErator helped partially offset weakness in the region.
- Encouragingly, management left its industry demand outlook unchanged for FY23 despite the volatile environment, projecting adjusted EPS of $16.00-18.00 and revs of $19.4 bln. Whirlpool touched on similar positive developments as last quarter, noting that although broader consumer sentiment remains cautious, it sees early but unmistakable signs of a strengthening U.S. housing market while supply chains are returning to pre-pandemic conditions.
- Whirlpool also repeated that it is on track to deliver $800-900 mln of additional cost takeout benefits this year, including $300-400 mln of reduced raw material costs.
Despite not showing up in the price action today, Whirlpool's Q2 results were mostly upbeat. Discretionary spending remains suppressed, with no indication of a reversal. However, this is not translating to significant weakness, a testament to Whirlpool's ability to cut costs and capitalize on a relatively resilient U.S. housing market. Uncertainty will likely continue to linger throughout the rest of the year. However, long-term dynamics, including a severe housing shortage domestically and increased replacement cycle as more individuals work and cook at home, remain intact, ready to fuel accelerated performance once broader economic conditions turn.
|
