Market Snapshot
briefing.com
| Dow | 37695.73 | +170.57 | (0.45%) | | Nasdaq | 14969.65 | +111.94 | (0.75%) | | SP 500 | 4783.45 | +26.95 | (0.57%) | | 10-yr Note | -2/32 | 4.03 |
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| | NYSE | Adv 1572 | Dec 1202 | Vol 841 mln | | Nasdaq | Adv 2078 | Dec 2136 | Vol 4.4 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Real Estate, Industrials, Consumer Staples |
| | Weak: Energy, Materials, Financials, Utilities |
Moving the Market
-- Wait-and-see ahead of the December Consumer Price Index on Thursday and earnings results from big banks on Friday
-- Ongoing strength in mega cap stocks
-- Reacting to remarks from New York Fed President Williams indicating he believes the Fed will need to maintain a restrictive policy stance for some time
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Closing Summary
10-Jan-24 16:30 ET
Dow +170.57 at 37695.73, Nasdaq +111.94 at 14969.65, S&P +26.95 at 4783.45
[BRIEFING.COM] The three major indices closed near their highs of the day. The S&P 500 logged a 0.6% gain and turned positive for the year; the Dow Jones Industrial Average saw a 0.5% gain; and Nasdaq Composite registered a 0.8% gain.
Mega cap stocks boosted index level gains. The Vanguard Mega Cap Growth ETF (MGK) gained 1.2%. Apple (AAPL 186.19, +1.05, +0.6%) had been down as much as 0.7%, but managed to close with a gain despite another analyst downgrade from Redburn Atlantic, which cut its view to Neutral from Buy.
Meta Platforms (META 370.47, +13.04, +3.7%) and NVIDIA (NVDA 543.50, +12.10, +2.3%) were among the top standouts in the mega cap space, helping to offset modest weakness in Tesla (TSLA 233.94, -1.02, -0.4%).
The aforementioned stocks boosted their respective S&P 500 sectors, which closed with the largest gains among the 11 sectors. The health care sector (+0.4%) was another winner, along with the industrial sector (+0.5%). Meanwhile, the energy sector (-1.0%) saw the largest decline by a decent margin, sliding alongside oil prices. WTI crude oil futures fell 1.0% to $71.41/bbl.
There was a general lack of conviction from either buyers or sellers today. Declining issues had a slim lead over advancing issues at the Nasdaq while advancers led decliners by a 5-to-4 margin. The equal-weighted S&P 500 logged only a 0.2% gain today.
The muted price action under the surface was due to a wait-and-see mindset ahead of the results from today's $37 billion 10-yr note auction, an afternoon speech from New York Fed President Williams (FOMC voter) on the economic outlook, Thursday's release of the December Consumer Price Index, and earnings reports out of the banking industry before Friday's open.
The 10-yr note reopening was met with decent demand, but the market was more responsive to the remarks from Mr. Williams, who said in a speech that he thinks the Fed will need to maintain a restrictive policy stance for some time.
The major indices all pulled back from session highs, which had the S&P 500 within six points of its all-time closing high (4,796.56), in response to Mr. Williams' comments.
Treasuries settled little changed from yesterday. The 2-yr note yield fell two basis points to 4.36% and the 10-yr note yield rose one basis point to 4.03%.
- S&P 500: +0.3%
- Dow Jones Industrial Average: UNCH
- Nasdaq Composite: -0.3%
- S&P Midcap 400: -1.6%
- Russell 2000: -2.8%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 9.9%; Prior -9.4%
- November Wholesale Inventories -0.2% (Briefing.com consensus -0.2%); Prior was revised to -0.3% from -0.4%
Thursday's economic calendar features:
- 8:30 ET: December Consumer Price Index (Briefing.com consensus 0.2%; prior 0.1%) and Core Consumer Price Index (Briefing.com consensus 0.2%; prior 0.3%); Weekly initial jobless claims (Briefing.com consensus 209,000; prior 202,000) and continuing claims (prior 1.855 million)
- 10:30 ET: Weekly EIA Natural Gas Inventories (prior -14 bcf)
- 14:00 ET: Treasury Budget (prior -$314.0 billion)
Market pullback coincides with NY Fed President comments
10-Jan-24 15:30 ET
Dow +149.63 at 37674.79, Nasdaq +101.32 at 14959.03, S&P +23.99 at 4780.49
[BRIEFING.COM] The major indices pulled back from session highs. The pullback coincided with New York Fed President Williams (FOMC voter) saying in a speech that he thinks the Fed will need to maintain a restrictive policy stance for some time.
The S&P 500 was approaching its all-time high close (4,796.56) earlier, reaching 4,790.80 at its best level of the day.
Separately, the 2-yr note yield fell two basis points to 4.36% and the 10-yr note yield rose one basis point to 4.03% after today's mediocre $37 bln 10-yr note reopening.
Small cap stocks join rally; Energy complex futures slide
10-Jan-24 15:00 ET
Dow +194.61 at 37719.77, Nasdaq +139.60 at 14997.31, S&P +32.71 at 4789.21
[BRIEFING.COM] Small and mid cap stocks have joined the rally. The Russell 2000 is up 0.1% and the S&P Mid Cap 400 is up 0.2%.
Energy complex futures settled the session lower. WTI crude oil futures fell 1.0% to $71.41/bbl and natural gas futures fell 5.6% to $2.55/mmbtu. The S&P 500 energy sector is still underperforming the broader market, trading down 0.9%.
Most of the sectors are trading up, though, and three of them sport gains greater than 1.0%.
PANW gains on sell side action, Howmet catches upgrade on way to solid gains in S&P 500
10-Jan-24 14:30 ET
Dow +165.34 at 37690.50, Nasdaq +126.68 at 14984.39, S&P +28.02 at 4784.52
[BRIEFING.COM] The major averages pushed higher in the last half hour, the S&P 500 (+0.59%) in second place, finding gains north of 28 points on their way to a six-session high.
Elsewhere, S&P 500 constituents Palo Alto Networks (PANW 315.63, +15.21, +5.06%), Uber (UBER 62.39, +2.09, +3.47%), and Howmet Aerospace (HWM 55.54, +1.83, +3.41%) dot the top of today's standings. PANW gains owing in part to a Morgan Stanley target raise to $375, UBER is reportedly moving on notable options activity, while HWM gains after an upgrade to Buy at Truist this morning.
Meanwhile, New Jersey-based diagnostics firm Quest Diagnostics (DGX 136.39, -5.72, -4.03%) is at the bottom of the S&P despite a dearth of corporate news.
Gold lower amid rising equities, yields
10-Jan-24 14:00 ET
Dow +80.88 at 37606.04, Nasdaq +91.00 at 14948.71, S&P +18.46 at 4774.96
[BRIEFING.COM] The Nasdaq Composite (+0.61%) still holds the lead, hovering near HoDs, with about two hours to go on Wednesday afternoon.
Gold futures settled $5.20 lower (-0.3%) to $2,027.80/oz, held in check by a rallying equity market and modest gains in yields.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $102.38.
Page One
Last Updated: 10-Jan-24 08:59 ET | Archive
Market sees points of hesitation
The start of 2024 has been a bit skittish for the major indices and the Treasury market. There has been some understandable selling activity, some understandable rebound activity, and some altogether indeterminate price action.
Some added attention has been paid to the "failure" of the Santa Claus Rally, which, frankly, we don't see as a true failure given the massive percentage gains that preceded it, and to the first five trading days of 2024 culminating in a cumulative 0.1% decline for the S&P 500.
Those shortcomings, if you will, are apt to cause some undue concern for anyone who treats such seasonal patterns as gospel. The saving grace for them, we suppose, would be if the S&P 500 can regroup and close out January with a plus sign next to it.
There is plenty of January left for that to happen. Heck, the S&P 500 is only down 0.3% for the year coming into today -- and it is coming into today without a lot of conviction.
Currently, the S&P 500 futures are down two points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 11 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down five points and are trading fractionally below fair value.
Some points of hesitation include the $37 billion 10-yr note auction today at 1:00 p.m. ET, the specter of the December Consumer Price Index, which will be released on Thursday, the official start of the Q4 earnings reporting season on Friday, and a 0.4% decline in Apple (AAPL) following yet another downgrade.
Redburn Atlantic cut its view on Apple to Neutral from Buy due in part to rising regulatory risk and what it thinks could be an underwhelming March quarter. That is the third downgrade of Apple since the start of the year.
Most of the mega-cap stocks were able to overcome early weakness yesterday, which enabled the broader market to bounce back from early losses. Today's open is likely to be a flattish one, so traders will be looking for trading cues in the price action of both the mega-cap stocks and the small-cap stocks. Both were instrumental in powering the market's year-end rally and both have been instrumental in the downshift to begin 2024.
Separately, mortgage demand powered up in the latest week. According to the Mortgage Bankers Association, mortgage applications increased 9.9% last week with refinance applications up 19% and purchase applications up 6%.
There is also a lot of energy in the trading of Bitcoin and Bitcoin-related stocks, as market participants await word on whether the SEC is going to approve a spot Bitcoin ETF. It appeared after yesterday's close that the approval was granted, but just as soon as that headline hit, SEC Chair Gary Gensler said in an X update that the @SECGov account was compromised and that the SEC has not approved the listing and trading of spot Bitcoin ETFs.
That doesn't necessarily mean the SEC isn't approving them, only that there was no official announcement on the decision yesterday.
There was an official announcement today, however, that Hewlett-Packard Enterprise (HPE) will acquire Juniper Networks (JNPR) in an all-cash transaction for approximately $14 billion or $40.00 per share.
-- Patrick J. O'Hare, Briefing.com
PriceSmart shares being bought in bulk today following upside Q1 results (PSMT)
Based on PriceSmart's (PSMT) upside 1Q24 results, it's evident that purchasing food and other essential items in bulk in order to find better value isn't just a U.S. phenomenon. Last night, the membership warehouse club operator with a presence in Central America, Colombia, and the Caribbean reported strong comparable net merchandise sales growth of 8.0%, fueling an 11% increase in adjusted EPS to $1.24.
- Similar to its U.S.-based counterpart Costco (COST), PSMT is experiencing steady membership growth and very healthy renewal rates. This is reflected in PSMT's 11% increase in membership income to $17.7 mln. Although the company didn't disclose its renewal rate in the Q1 earnings press release, the metric has been hovering around the upper-80% range in recent quarters.
- Unlike COST, PSMT has implemented a membership price hike recently, announcing a $5 increase in most of its markets last quarter. These fee increases will take hold on a staggered basis in most of its markets throughout FY24. This will help to support healthy membership income growth in the coming quarters.
- The foods category has been a consistent standout, and that likely remained the case in Q1, but PSMT's health services have generated very strong growth. Last quarter, health services -- including optical, audiology, and pharmacy -- achieved growth of 91%. PSMT will likely hash out the specific category growth rates when the earnings call begins at noon E.T.
- Store expansion is a key pillar of PSMT's growth strategy. The company ended the quarter with 53 clubs, up from 50 as of November 30, 2022, and it has plans to open another club in El Salvador in February. For a point of comparison, COST currently operates over 870 warehouses on a global basis.
The main takeaway is that, like COST, PSMT continues to benefit from a budget-conscious consumer, positioning the company to achieve strong comp growth and membership growth. In terms of its total addressable market, PSMT is only scratching the surface and has a long runway ahead in terms of club expansion.
WD-40 surges following top and bottom-line beats in Q1, aided by sustained positive trends (WDFC)
WD-40's (WDFC +13%) top and bottom-line beats in Q1 (Nov), accompanied by reiterated FY24 guidance, are stirring up considerable enthusiasm today, pushing its shares to levels not seen since April 2021. Carrying the household and multi-use product maker, most known for its WD-40 brand, to such solid quarterly results was sustained improvements in trends seen last quarter.
- Volume-related sales growth occurred across each of WDFC's geographies. The company estimates that approximately 65% of its constant currency revenue increase stemmed from volume gains, underpinning healthy demand and not just inflation-driven growth.
- In total, revenue climbed by 12.4% yr/yr to $140.4 mln, led by WDFC's EIMEA segment (Europe, India, Middle East, Africa), which headed 20% higher. Meanwhile, the Americas (United States, Latin America, and Canada) and Asia-Pacific (including Australia and China) recorded sales growth of +10% and +6%, respectively.
- Within WDFC's markets, there were a few items worth mentioning. WDFC's core maintenance products sustained robust demand from the last quarter across the Americas. In Europe, volumes did slip as customers continued adjusting to price hikes. Meanwhile, in Australia, sales turned positive after a double-digit decline in Q4 (Aug), while demand in China remained buoyant.
- WDFC's top-line gains are flowing to its bottom line, which, combined with a 240 bp improvement in gross margins yr/yr, led to a 25.4% expansion in the company's EPS to $1.28.
- Management briefly updated its homecare and cleaning business, which comprised just 6% of total sales in Q1. WDFC is undergoing a strategic review regarding the future of this business. Given how its maintenance products represent much more favorable margins, it would not be shocking to see WDFC offload this division in the near term.
- Looking ahead, WDFC reiterated its FY24 (Aug) outlook, continuing to project EPS of $4.78-5.15 and +6-12% net sales growth yr/yr. Management again discussed its strategic longer-term framework this quarter, reiterating its commitment to building brand awareness, penetrating additional markets, and accelerating premiumization. WDFC has made excellent progress on these fronts, boasting strong growth of 49% in the DACH region (Germany, Austria, and Switzerland), 23% in Mexico, 42% in France, and 59% across Spain and Portugal. Meanwhile, WDFC's decent margin expansion in Q1 showcases its premiumization focus.
WDFC faced several setbacks over the past two years, exacerbated by relentless supply chain hiccups and uneven post-pandemic recoveries across its global markets. However, underneath the problems was sound end-market demand. With many headwinds that plagued WDFC since late 2021 now beginning to ease, a new wind is propelling the company forward, built on top of resilient demand dynamics, boding well for WDFC to make further in-roads on its strategic pillars in 2024.
SMART Global extends its stock rally on better-than-expected Q1 results (SGH)
SMART Global (SGH +12%) extends its stock rally today following better-than-expected adjusted earnings growth in Q1 (Nov), solid margin expansion, and a new $75 mln share repurchase authorization. Revenue was still on the lighter side, albeit in-line with consensus, as was SGH's Q2 (Feb) revenue guidance.
SGH has three distinct businesses: Intelligent Platform Solutions (IPS), Memory Solutions, and LED Solutions. IPS is the company's largest segment, comprising over 43% of Q1 sales, and consists of high-performance computing (HPC), AI, and IoT platform technologies. Memory Solutions -- SGH's only segment five years ago -- houses SGH's DRAM and Flash-based memory products, totaling 31% of Q1 revs. LED Solutions comprises application-optimized LEDs and the rest of SGH's revenue.
- Outside of LED Solutions, which grew sales by a modest 5.6% yr/yr, SGH continued to endure declining revenue across its business lines, registering an 18.3% decrease in IPS and an 18.6% drop in Memory Solutions. As a result, total revenue fell by 30.0% to $274.25 mln, a deterioration from the -27.7% decline in 4Q23 and -17.1% in 3Q23 (May).
- Supply chain constraints remained a headwind in SGH's IPS business, which kept lead times extended for certain components, impacting how quickly the company could ramp up existing and new customer projects. Meanwhile, elevated inventory levels at several of SGH's large customers hindered Memory Solutions demand.
- On the bright side, Management mentioned that it is noticing increasing interest in AI technology, citing growing traction across defense, finance, cloud service providers, and many other verticals. SGH anticipates that 2024 will be underpinned by increasing market adoption of AI. At the same time, SGH stated that the cyclical downturn in memory is abating and believes it already reached the bottom of the cycle.
- Margins were a high point for SGH, increasing its non-GAAP gross margins by 200 bps yr/yr to 33.3%, clearing the high end of its 32.5% forecast. As a result, SGH returned to topping adjusted earnings estimates in the quarter, delivering $0.24 per share.
- Looking to Q2, while trends are improving, the overall macroeconomic environment remains challenging. It also does not help that LED Solutions is heading into typical seasonality, suppressing top-line growth in this segment over the next quarter. Therefore, SGH anticipates declining yr/yr revenue growth in Q2, projecting $260-310 mln. Conversely, margins remain buoyant, assisting SGH's bottom line, which it expects will be $0.15-0.35 in Q2, most of which was ahead of consensus.
While not exactly stunning, SGH's Q1 report was strikingly improved from its dismal Q4 (Aug) report in mid-October, when the company posted sizeable misses on its top and bottom lines while also projecting Q1 numbers well below consensus. The contrast was more than sufficient for investors to keep pushing SGH's shares higher, now up over +50% since hitting one-year lows on its previous quarterly report.
Intuitive Surgical up sharply as improved procedure growth fuels upside Q4 guidance (ISRG)
Robotic surgery company Intuitive Surgical (ISRG) has been on the mend over the past couple of months and that strength is continuing today after the company issued upside Q4 revenue guidance on better-than-expected da Vinci system procedure growth.
Bolstered by a recovery of procedure volumes in China as the impact of COVID-19 has lessened, coupled with healthy growth in the U.S. market, Q4 da Vinci procedures grew by 21%, enabling FY23 procedure volume growth to come in at approximately 22%, the high end of ISRG's 21-22% guidance range.
- The improved Q4 outlook should help ease concerns that new weight-loss drugs are going to materially impact procedure volume growth. During the Q3 earnings call, ISRG acknowledged that bariatrics procedures in the U.S. have slowed a little due to the launch of new weight-loss treatments, but these procedures only account for approximately 4-5% of ISRG's total global procedures.
- In the wake of the pandemic, people who put off procedures are now returning to the hospital to take care of those delayed treatments. This is a scenario that major health insurance companies, such as Humana (HUM) and UnitedHealth Group (UNH), have discussed in recent quarters, warning that their medical benefit ratios are rising due to elevated utilization trends.
- Another concern that weighed on ISRG during most of 2023 was that high interest rates would cut into demand for its pricey surgical systems. However, the company has expanded its equipment leasing program, easing affordability issues. In Q4, ISRG placed 415 da Vinci surgical systems, good for a 12% yr/yr increase, with about half of those systems placed under operating leases.
- The types of procedures that ISRG's da Vinci system can perform is also expanding. General surgery, colon resection, hernia repair, and gynecology are a few common procedures performed by the da Vinci system, but lung biopsies represent a significant area of growth with the recent launch of the Ion endoluminal system.
The main takeaway is that although business isn't necessarily booming for ISRG, it is healthy, and the company appears poised for a solid 2024 as the company expands into newer procedure types and as pent-up demand for elective procedures continues to unwind. Although ISRG is forecasting procedure volume growth to slow to 13-16% for 2024, the company could be taking a conservative approach again with its outlook.
Jefferies Q4 results indicate mixed conditions remain in place for financial sector (JEF)
Investment banking and asset management firm Jefferies (JEF) has the distinction of kicking off earnings season for the financial sector and that remained the case last night as it reported Q4 results that beat expectations. However, JEF's earnings report also shows that conditions remain mixed across business lines with advisory in particular still struggling due to low M&A volume amid a high interest rate environment.
- In total, Investment Banking & Capital Markets revenue inched higher by 1% to $1.06 bln, led by a 110% surge in debt underwriting to $129.4 mln and a 21% increase in equity underwriting to $132.2 mln. While those growth rates look impressive, it's important to put them into context. In the year-earlier period, equity underwriting fees plummeted by 70%, while debt underwriting fees collapsed by 72%.
- Still, as interest rates stabilized, the equity markets strengthened, paving the way for a more active IPO market in Q4. This bodes well for other financial companies that are set to report earnings in the coming weeks, including Goldman Sachs (GS) and Morgan Stanley (MS), each of which are scheduled to release Q4 results on January 16.
- A rebound in the debt and equity underwriting markets helped to offset the persistent weakness in JEF's Advisory business, which saw revenue slide lower by 18% to $312.3 mln. The good news, though, is that JEF believes that the investment banking industry has reached the bottom of this current cycle, adding that "there's a lot of reason to believe that M&A activity will pick up this year from low levels in 2023..."
- Should that recovery transpire, JEF would be in a solid position to capitalize. Unlike most of its competitors, JEF has been investing in its talent with its recruiting efforts largely centering on investment banking. Over the past three years, the company has added 182 Investment Banking Managing Directors, either from other firms or through internal promotion.
- Meanwhile, JEF's trading business in Q4 was relatively stable with Capital Markets revenue lower by just 2% to $481.3 mln. Thanks to the upswing in the stock market, equity trading fees increased by 9% to $271.5 mln, largely offsetting a decline of 13% in fixed income.
Overall, JEF delivered a solid performance given the challenging conditions and its results indicate that Q4 earnings results for the financial sector probably won't be spectacular, but they may be better than anticipated.
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