Market Snapshot
briefing.com
| Dow | 37361.12 | -231.86 | (-0.62%) | | Nasdaq | 14944.35 | -28.41 | (-0.19%) | | SP 500 | 4765.98 | -17.85 | (-0.37%) | | 10-yr Note | -33/32 | 4.07 |
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| | NYSE | Adv 637 | Dec 2161 | Vol 984 mln | | Nasdaq | Adv 1162 | Dec 3163 | Vol 6.4 bln |
Industry Watch
| Strong: Information Technology |
| | Weak: Energy, Materials, Financials, Industrials, Real Estate |
Moving the Market
-- Hesitation from buyers with earnings season looming and the S&P 500 and Dow Jones Industrial Average sitting near all-time highs
-- Rising market rates; 10-yr yield back above 4.00%
-- Gains from some mega caps providing a measure of support the broader market
-- Digesting earnings results from Goldman Sachs (GS) and Morgan Stanley (MS)
-- Repricing rate cuts after comments from Fed Governor Waller (FOMC voter)
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Closing Summary
16-Jan-24 16:25 ET
Dow -231.86 at 37361.12, Nasdaq -28.41 at 14944.35, S&P -17.85 at 4765.98
[BRIEFING.COM] The stock market started this short week on a soft note. The Nasdaq Composite logged a 0.2% decline, the S&P 500 fell 0.4%, and the Dow Jones Industrial Average declined 0.6%. Small cap stocks were relative laggards, leading the Russell 2000 to log a 1.2% loss.
A jump in market rates contributed to the selling activity in the stock market today. The 2-yr note yield settled seven basis points higher at 4.22% and the 10-yr note yield jumped 12 basis points to 4.07% after falling to 3.99% earlier.
This price action was partially a reaction to comments from Fed Governor Waller (FOMC voter), who indicated that the Fed could begin cutting rates this year, but reiterated the Fed's estimate for three cuts rather than six cuts that the market expects.
The fed funds futures market is now pricing in a 66.9% probability of a 25 basis points rate cut at the March FOMC meeting versus an 81% probability on Friday, according to the CME FedWatch Tool.
Some hesitation in front of the bulk of Q4 earnings also contributed to the downbeat price action. Goldman Sachs (GS 380.45, +2.70, +0.7%), Morgan Stanley (MS 85.97, -3.73, -4.2%), and PNC (PNC 149.02, +0.10, +0.1%) were the latest names to report quarterly results, garnering mixed responses.
On a related note, the S&P 500 financial sector was among the worst performers, dropping 0.6%. Other laggards included follow economically-sensitive sectors like energy (-2.4%), materials (-1.2%), and industrials (-1.0%).
The lone sector to close with a gain was information technology (+0.4%), which was boosted by gains in Microsoft (MSFT 390.27, +1.80, +0.5%) and NVIDIA (NVDA 563.82, +16.72, +3.1%). The sector was also boosted by news that ANSYS (ANSS 327.42, -19.06, -5.5%) will be acquired by Synopsys (SNPS 509.68, +15.28, +3.1%) in a transaction that values ANSYS at $35 billion.
Today's economic data was limited to the NY Empire State Manufacturing Index, which doesn't normally move the market that much, but plunged to -43.7 in January from -14.5 in December.
- S&P 500: -0.1%
- Nasdaq Composite: -0.5%
- Dow Jones Industrial Average: -0.9%
- S&P Midcap 400: -2.5%
- Russell 2000: -4.9%
Looking ahead, Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 9.9%)
- 8:30 ET: December Retail Sales (Briefing.com consensus 0.4%; prior 0.3%), Retail Sales ex-auto (prior 0.2%), December Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.2%), Export Prices (prior -0.9%), and Export Prices ex-agriculture (prior -1.0%)
- 9:15 ET: December Industrial Production (Briefing.com consensus -0.1%; prior 0.2%) and Capacity Utilization (Briefing.com consensus 78.8%; prior 78.8%)
- 10:00 ET: November Business Inventories (prior -0.1%) and January NAHB Housing Market Index (Briefing.com consensus 38; prior 37)
Treasuries settle with losses
16-Jan-24 15:30 ET
Dow -312.29 at 37280.69, Nasdaq -59.22 at 14913.54, S&P -27.39 at 4756.44
[BRIEFING.COM] There hasn't been much up or down price action over the last half hour.
The 2-yr note yield settled seven basis points higher at 4.22% and the 10-yr note yield jumped 12 basis points to 4.07%.
Separately, WTI crude oil futures fell 0.3% to $72.40/bbl and natural gas futures declined 5.3% to $2.48/mmbtu. On a related note, the S&P 500 energy sector is down 2.3%.
SAVE shares plunge after JBLU merger news
16-Jan-24 15:00 ET
Dow -317.05 at 37275.93, Nasdaq -58.45 at 14914.31, S&P -24.59 at 4759.24
[BRIEFING.COM] The market is bouncing off session lows. Still, many stocks are trading down. The Invesco S&P 500 Equal Weight ETF (RSP) is down 0.8% and the market-cap weighted S&P 500 is down 0.5%.
Shares of Spirit Airlines (SAVE 7.75, -7.23, -48.3%) plunged after a court blocked its merger with JetBlue (JBLU 5.18, +0.29, +6.1%). The U.S. Global Jets ETF (JETS) is down 1.8%.
Separately, the CBOE Volatility Index is up 11.3%, or 1.43, to 14.13.
Johnson Controls dips among S&P 500 stocks after naming new CFO, AMD gains on analyst target raises
16-Jan-24 14:30 ET
Dow -340.40 at 37252.58, Nasdaq -84.64 at 14888.12, S&P -30.10 at 4753.73
[BRIEFING.COM] The S&P 500 (-0.63%) is in the middle of the pack among major averages at this point on Tuesday, hovering just off recent lows.
Elsewhere, S&P 500 constituents Johnson Controls (JCI 52.85, -3.49, -6.19%), First Solar (FSLR 151.67, -8.77, -5.47%), and Generac (GNRC 117.30, -6.20, -5.02%) dot the bottom of the standings. JCI falls despite appointing Marc Vandiepenbeeck as the company's new CFO, while solar stocks get dragged lower alongside FSLR, and GNRC reverses course after forming a golden cross a week ago.
Meanwhile, Advanced Micro (AMD 156.53, +9.97, +6.80%) is today's top gain getter after catching some target price increases at sell side shops.
Gold slips as yields, dollar jump
16-Jan-24 14:00 ET
Dow -325.45 at 37267.53, Nasdaq -79.51 at 14893.25, S&P -28.11 at 4755.72
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.53%) is the "best" performing major average, only down about 80 points.
Gold futures settled $21.40 lower (-1.0%) to $2,030.20/oz, pressured by this morning's dovish policy comments from Fed Governor Waller.
Meanwhile, the U.S. Dollar Index is up about +1.0% to $103.37.
Page One
Last Updated: 16-Jan-24 09:02 ET | Archive
Holiday-shortened week set to begin on a soft note
The S&P 500 futures are down 13 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 56 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are down 61 points and are trading 0.2% below fair value.
This holiday-shortened week is setting up to start on a lower note, due in part to pre-open losses in influential stocks like Apple (AAPL), Tesla (TSLA), and Boeing (BA). Apple is down on reports that it will remove the blood oxygen sensor from the Apple Watch; Tesla is down after CEO Elon Musk said he is uncomfortable making Tesla a leader in AI without having ~25% voting control; and Boeing was downgraded to Equal Weight from Overweight at Wells Fargo.
Rising market rates have also contributed to the negative bias this morning. The 10-yr note yield is back above 4.00%, up seven basis points from Friday at 4.02%. The 2-yr note yield is up two basis points from Friday at 4.17%.
Market participants are also digesting earnings results from Goldman Sachs (GS) and Morgan Stanley (MS), which are both trading down now.
In other corporate news, ANSYS (ANSS) will be acquired by Synopsys (SNPS). Ansys shareholders will receive $197.00 in cash and 0.3450 shares of Synopsys common stock for each Ansys share, representing an enterprise value of approximately $35 billion based on the closing price.
Geopolitical worries are still in play this week after a Houthi missile struck a US commercial ship, according to The New York Times. Also, China is expected to increase coercive measures towards Taiwan, according to Axios, after Lai Ching-te won Taiwan's presidential election.
On a China-related note, the People's Bank of China left its medium-term policy rate unchanged, but there was speculation about more stimulus in the near future.
Today's US economic data was limited to the NY Empire State Manufacturing Index, which plunged to -43.7 in January (Briefing.com consensus -4.0) from -14.5 in December.
Restaurant Brands Int'l turns up the heat on Burger King remodel initiative with acquisition (QSR)
Burger King owner and operator Restaurant Brands Int'l (QSR) is making a whopper of a deal, announcing its intention to acquire Carrols Restaurant Group (TAST), the largest Burger King franchisee in the U.S., for $9.55/share, representing a 13% premium over last Friday's closing price. The acquisition, which values TAST at approximately $1.0 bln, would put more than 1,000 Burger King locations back into the hands of QSR, accelerating its mission to modernize and improve the efficiency and performance of the quick service hamburger chain.
- Since initiating its "Reclaim the Flame" initiative in September 2022, Burger King's financial results have had some ups and downs, and the company believes there is still plenty of work to do. For instance, after a solid 2Q23 in which Burger King's U.S. comps came in at +8.3%, comp growth slowed to +6.6% in Q3 on flat traffic. To be fair, U.S. comps slowed at rival McDonald's (MCD) too, dipping to +8.1%, but it was still discouraging to see that price increases were the primary reason why Q3 comps increased for Burger King U.S.
- Remodels, relocations, marketing, and investments in the digital channel are cornerstones of the "Reclaim the Flame" strategy. When QSR first announced the plan, it committed $400 mln in spending through 2024, with approximately $200 mln of that total pegged for remodels. Now, with the acquisition of TAST, the company is looking to invest $500 mln more to remodel about 600 acquired restaurants. These remodels will be financed by TAST's operating cash flow.
- During the Q3 earnings call, QSR stated that while its early days, newly remodeled restaurants are generating returns that are ahead of its initial expectations. That bodes well for the remodels from TAST's portfolio, but it will take some time before the renovations really move the needle. More specifically, QSR stated that the remodels will take place over the next five years.
- Overall, QSR expects this transaction to be approximately neutral to adjusted EPS, which may be viewed as a disappointment given the amount of capital and commitment that QSR is pouring into the remodeling effort.
Overall, we believe that this acquisition clearly fits into QSR's strategy and focus to drive improved results from Burger King, which has been best exemplified by the strong growth of its digital channel (+40% in Q3). Beyond the success of the digital channel, though, QSR's Reclaim the Flame rollout has yet to deliver substantial and lasting improvements at Burger King and the acquisition of TAST will further put that initiative to the test.
Apple falls today following multiple news items released over the weekend (AAPL)
Apple (AAPL -1%) is under modest selling pressure today following a string of different reports over the weekend. Bloomberg broke the news that Apple would be shuttering its artificial intelligence (AI) team in San Diego, which consists of 121 employees. Meanwhile, WSJ noted that Apple would remove blood oxygen sensors in its newest watches due to an ongoing patent dispute with Masimo (MASI). Finally, NY Times reported that Apple was looking to offer up to a $70 discount on iPhones sold in China, a rarity for Apple, which tends to only discount its products upon releasing a new iteration.
While so many different reports can have varying effects on Apple shares, the overarching theme leans more bearish, especially surrounding the discount in China.
- Apple's closure of its AI-focused division in San Diego may have come as a shock to the workers, but it does not signal an abandonment of the technology by Apple. Instead, Bloomberg noted that Apple alerted the employees that they could relocate to Austin, Texas, where it would be moving the team to an already established campus in the city.
- Removing the blood oxygen sensor from the Apple Watch Series 9 and Ultra 2 is disappointing for those who took advantage of this functionality, but ultimately, it should not prove to be a significant roadblock for potential customers. It also allows Apple to resume selling the watches following an import ban from the International Trade Commission.
- Discounting iPhones in China is more alarming than the other news broke over the weekend, especially after CEO Tim Cook's remarks in early November. At the time, Mr. Cook mentioned that iPhone set a September quarter record in China, with relative weakness in Mac and iPad dragging down overall revenue growth in the region. The Apple CEO also commented that he could not be more excited about his interactions with customers in China, signaling a mostly upbeat tone that demand in the region was reasonably healthy.
The multiple news items surrounding Apple over the extended weekend is sending shares markedly lower out of the gate today. The bubbling softness in China is the primary concern, especially if geopolitical tensions accelerate, which could add another hurdle in addition to wobbly economic demand for Apple to clear. Still, the stock is holding above its 200-day moving average (180.80), an indicator that has provided strong support over the past year. While caution is warranted given that China represents roughly a fifth of Apple's annual revenue, the news may be more of a minor setback than the start of a worsening trend.
Goldman Sachs higher on robust EPS beat, potential for rate cuts in 1H24 spurs activity (GS)
Goldman Sachs (GS +1.8%) is trading modestly higher after closing out 2023 on a strong note. After an EPS miss in Q2, Goldman has bounced back with back-to-back EPS upside quarters. However, Q4's upside was much larger than Q3's modest EPS upside. It was also good to see yr/yr revenue growth return after seven consecutive quarters of declines. Revenue rose a solid 6.9% yr/yr to $11.32 bln, nicely ahead of analyst expectations.
- After previously announcing it would sell its GreenSky platform and associated loan assets to a consortium of institutional investors (deal remains on track to close in Q1). Goldman now focuses on its two core franchises: Global Banking & Markets (GBM) and Asset & Wealth Management (AWM). We view the sale as an admission by Goldman that it erred in its decision to expand in consumer lending, but it appears wise to move on.
- Turning to the Q4 report, GBM segment revenue declined 3% yr/yr and 21% sequentially to $6.35 bln. Investment banking fees fell 12% yr/yr to $1.65 bln due to significantly lower Advisory revenue, reflecting a decline in industry-wide M&A volumes, partially offset by significantly higher revenue in Debt underwriting and higher Equity underwriting revenue, primarily from secondary offerings. FICC revenue fell 24% yr/yr to $2.03 bln, reflecting significantly lower FICC intermediation revs. Equities revenue jumped 26% yr/yr to $2.61 bln, due to significantly higher revenue in Equities intermediation.
- While its GBM segment saw a revenue decline, its AWM segment grew nicely with revs up a healthy 23% yr/yr and 36% sequentially to $4.39 bln. The yr/yr increase was fueled by significantly higher revs in Equity investments and Debt investments and higher fees. AWM benefitted from net gains from investments in public equities compared with significant losses in the prior year period. The increase in Debt investments reflected net mark-ups vs net mark-downs in the prior year period.
- Looking back at 2023, GS said the US economy proved to be more resilient than expected despite a number of headwinds, including macro issues, regional bank failures and higher geopolitical tensions. Entering 2024 with the potential for rate cuts in 1H24 has renewed optimism for a soft landing. GS is already seeing signs of a potential resurgence in strategic activity which is reflected in its backlog.
- The company is encouraged by the robust level of dialogue with its corporate client base. It is still early in 2024, but there has been solid levels of capital market activity in both the US and Europe. Capital Markets and M&A activity levels have been depressed, but GS noted its M&A backlog saw really strong replenishment and improvement in Q4.
Overall, the market is not reacting too much to Goldman's report. There were a lot of cross currents with AWM growing nicely but GBM revenue declining. Management sounded pretty optimistic that the prospect of rate cuts in 2024 has spurred signs of a potential resurgence in strategic activity. Finally, the stock has rallied, like many financial stocks, quite a bit since late October when the Fed started softening its tone on rates. So we think a good quarter/outlook was priced in already.
Synopsys jumps on Ansys (ANSS) merger as transaction terms are better than initially expected (SNPS)
Reports surrounding Synopsys' (SNPS +3%) potential takeover of Ansys (ANSS -5%) in the week ahead of the new year are confirmed today. Ansys agreed to be purchased by Synopsys for $197.00 in cash and 0.345 shares of common stock, representing a total enterprise value of around $35 bln, or a ~6% premium to Friday's closing prices. The two companies anticipate closing the deal in the first half of 2025.
Shares of Ansys already surged by around +18% immediately following the initial reports, as Reuters mentioned that the company was receiving offers as high as $400/share. Conversely, Synopsys shares fell, underscoring some disappointment from investors, likely over the price tag attached to the deal.
Today, the inverse is unfolding; Ansys is dropping while Synopsys is reversing course. We outlined several reasons why an Ansys/Synopsys deal made sense, including engaging in similar engineering software simulation development and widening an already narrow economic moat. Still, the possible price floated gave investors pause. However, following the transaction details, the deal is much more palatable -- or, at the very least, better than the market expected -- for Synopsys. On the flip side, at around $368 per share, the terms for Ansys are less favorable than the possible $400 price first hinted at by Reuters.
- At around $368 per share, Synopsys is paying roughly 38x Ansys' FY24 earnings and 14x revenue. Synopsys expects the combination to be accretive to adjusted earnings within the second full year after closing and substantially accretive afterward. The cash portion of the transaction will be funded mostly via debt, through a combination of $3 bln in cash and $16 bln in debt.
- While Ansys' top-line growth has been slowing, recently falling yr/yr in Q3, it has resulted from lackluster economic demand overseas, primarily in China. International markets comprise over half of Ansys' total revenue, making the unfavorable demand backdrop weigh meaningfully on quarterly revenue growth. However, against these headwinds, Ansys still delivered double-digit growth in its average contract value in Q3. Synopsys is unperturbed by Ansys' decelerating revenue growth, expecting to maintain its double-digit revenue growth, fortified by Ansys' market position.
- Speaking of which, while both companies offer engineering simulation software, there are differences. Synopsys specializes in electronic design automation software used to design semiconductors, while Ansys supplies software to test products across numerous verticals, including aerospace and health care. By combining forces, Synopsys would possess a much more expansive portfolio and command an even greater chunk of the engineering simulation software market.
After initial reports of a Synopsys/Ansys merger in late December sparked a significant upswing for Ansys and selling pressure for Synopsys, confirmation of these reports is triggering profit-taking in Ansys as the terms are not as lucrative as expected and driving some buying activity in Synopsys on a lower-than-anticipated price tag. The transaction still has hurdles to clear; regulatory bodies could have questions about competition. However, if allowed to proceed, adding Ansys should provide attractive returns for Synopsys over the long term.
Morgan Stanley beats Q4 estimates, but tepid growth across most businesses hangs over results (MS)
Morgan Stanley (MS) edged past muted Q4 EPS and revenue estimates as business remained steady across most of its segments, but its lackluster growth, coupled with $535 mln in one-time charges, are tarnishing the upside earnings report. For departing CEO James Gorman, who announced his decision to step down last May, MS's results continue to reflect a more diversified company with more predictable revenue streams coming through its Wealth Management segment. However, as he hands the reins over to Ted Pick, who formerly served as the head of MS's Institutional Securities business, geopolitical and macroeconomic uncertainties persist, creating challenging conditions for the investment banking and trading units.
- Net revenue for Institutional Securities, which houses MS's investment banking and trading operations, grew by just 2% yr/yr to $4.494 bln. It's well known that a global slump in M&A activity has weighed on banks' advisory businesses and that held true in Q4. MS's advisory revenue dipped lower by about 1% to $702 mln, although the drop is much less severe than the 30% plunge Goldman Sach's (GS) advisory business posted.
- While the IPO market experienced some bright spots in 2023, activity was still sluggish overall as macroeconomic headwinds kept a lid on new issues. This was the case again in Q4 as equity underwriting revenue of $225 mln was essentially flat with last year.
- MS's trading business struggled to gain much traction in Q4 due to increased funding and liquidity costs on the equity side, while soft demand for credit-related products was an issue on the fixed income side. Both equity and fixed income trading revenue were about flat on a yr/yr basis at $2.2 bln and $1.4 bln, respectively.
- Similarly, the Wealth Management segment experienced little growth as revenue remained even on a yr/yr basis at $6.6 bln. One key metric that's likely pressuring the stock a bit today is net new assets, which declined to $47.5 bln compared to $51.6 bln in the year-earlier period. That followed a drop to $36 bln from $65 bln in Q3.
- One-time charges, including a $286 mln FDIC special assessment fee and a $249 mln legal charge related to a settlement surrounding allegations of improper information sharing, muddied MS's results. However, MS's more typical expenses also increased with compensation expenses up 7% and non-compensation expenses higher by 12%. Consequently, MS's expense efficiency ratio took a turn for the worse, increasing to 84% from 77% in the year-ago quarter.
The main takeaway is that while MS's business remained relatively stable amid a tough environment, there wasn't much for the company to hang its hat on in Q4 with no segment really standing out.
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