Market Snapshot
briefing.com
| Dow | 37905.45 | -96.36 | (-0.25%) | | Nasdaq | 15425.95 | +65.66 | (0.43%) | | SP 500 | 4864.60 | +14.17 | (0.29%) | | 10-yr Note | -25/32 | 4.14 |
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| | NYSE | Adv 1296 | Dec 1446 | Vol 860 mln | | Nasdaq | Adv 2043 | Dec 2176 | Vol 5.2 bln |
Industry Watch
| Strong: Communication Services, Energy, Consumer Staples, Materials, Information Technology |
| | Weak: Real Estate, Industrials, Consumer Discretionary |
Moving the Market
-- Digesting slate of earnings from blue chip names, which received mixed reactions
-- Surge higher in the late afternoon by some mega caps, leaving S&P 500 and Nasdaq at session highs
-- Waiting on more earnings this week, and some potentially market-moving economic data
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Closing Summary
23-Jan-24 16:25 ET
Dow -96.36 at 37905.45, Nasdaq +65.66 at 15425.95, S&P +14.17 at 4864.60
[BRIEFING.COM] Stocks had a mixed showing today. The S&P 500 set another fresh record high thanks to a late afternoon recovery by some mega cap stocks, but the major indices traded fairly close to yesterday's closing levels for most of the session.
NVIDIA (NVDA 598.73, +2.19, +0.4%) was an influential winner after being down as much as 1.8% on profit-taking activity after climbing more than 20% to start the year. Microsoft (MSFT 398.90, +2.39, +0.6%) and Tesla (TSLA 209.14, +0.34, +0.2%) were down as much as 0.7% and 0.5%, respectively, at session lows, but settled higher. Microsoft is up 6.2% for the year with today's gain, while Tesla shows a 15.9% decline.
Overall, buyers and sellers were lacking conviction due in part to the fact that the S&P 500 and Dow Jones Industrial Average are sitting at or near all-time highs and the bulk of Q4 earnings are still looming. The blue chip companies that reported earnings since yesterday's close received mixed reactions from investors, which added to the muted index level action.
3M (MMM 96.10, -11.92, -11.0%) weighed on the DJIA, along with a post-earnings decline in Johnson & Johnson (JNJ 159.81, -2.66, -1.6%).
At the same time, United Airlines (UAL 40.49, +2.04, +5.3%), Verizon (VZ 42.23, +2.65, +6.7%), and Procter & Gamble (PG 153.98, +6.12, +4.1%) logged sizable gains following their quarterly results.
The gain in Procter & Gamble helped propel the S&P 500 consumer staples sector to a 1.1% gain. Meanwhile, the real estate sector was the worst performer with a 0.5% loss.
There was no U.S. economic data of note today, but this week's calendar features some potentially market-moving releases like the first reading of Q4 GDP on Thursday, and the December Personal Income and Spending report will be released on Friday, which features the Fed's preferred inflation gauge in the form of the PCE Price Indexes.
Separately, the 10-yr note yield climbed five basis points to 4.14% and the 2-yr note yield fell two basis points to 4.36% after today's $60 bln 2-yr note sale met strong demand.
- S&P 500: +2.0%
- Nasdaq Composite: +2.8%
- Dow Jones Industrial Average: +0.6%
- S&P Midcap 400: -0.7%
- Russell 2000: -2.5%
Separately, Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 10.4%)
- 9:45 ET: Flash January S&P Global US Manufacturing PMI (prior 47.9) and flash January S&P Global US Services PMI (prior 51.4)
- 10:30 ET: Weekly crude oil inventories (prior -2.49 mln)
Mega caps power upside moves ahead of the close
23-Jan-24 15:30 ET
Dow -88.83 at 37912.98, Nasdaq +51.20 at 15411.49, S&P +11.39 at 4861.82
[BRIEFING.COM] The S&P 500 (+0.3%) and Nasdaq Composite (+0.4%) are trading at session highs and the Dow Jones Industrial Average (-0.2%) is trending toward its own session high.
Some mega cap stocks recovered from losses, providing a nice boost the market. NVIDIA (NVDA 596.65, +0.15, +0.02%) is a standout in that respect after being down as much as 1.8% due to early profit-taking activity after climbing more than 20% to start the year. Microsoft (MSFT 398.46, +1.94, +0.5%) was down 0.7% at its low today, but trades up 0.5% now. Tesla (TSLA 209.24, +0.45, +0.2%) was down 0.5% at its low, but sports a slim gain now.
Separately, Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 10.4%)
- 9:45 ET: Flash January S&P Global US Manufacturing PMI (prior 47.9) and flash January S&P Global US Services PMI (prior 51.4)
- 10:30 ET: Weekly crude oil inventories (prior -2.49 mln)
Stocks climb; 2-yr note yield sinks
23-Jan-24 15:00 ET
Dow -99.88 at 37901.93, Nasdaq +37.56 at 15397.85, S&P +8.52 at 4858.95
[BRIEFING.COM] The S&P 500 and Nasdaq Composite turned higher over the last half hour.
The improvement coincided with Treasury yields moving lower. The 2-yr note yield moved from 4.48% to 4.36% quickly and the 10-yr note yield moved from 4.15% to 4.14%.
Separately, Netflix (NFLX 489.36, +3.65, +0.8%) is trading up ahead of its earnings report this afternoon. Baker Hughes (BKR 31.30, +0.32, +1.0%), Steel Dynamics (STLD 115.77, +0.34, +0.3%), and Texas Instruments (TXN 174.45, +0.62, +0.4%) are also trading up ahead of their earnings reports after the close.
Brown & Brown, PACCAR among top S&P 500 gainers after earnings
23-Jan-24 14:30 ET
Dow -122.35 at 37879.46, Nasdaq +16.54 at 15376.83, S&P +3.28 at 4853.71
[BRIEFING.COM] The S&P 500 (+0.07%) is in second place on Tuesday afternoon, having moved mostly sideways over the prior half hour.
Elsewhere, S&P 500 constituents Brown & Brown (BRO 78.73, +3.44, +4.57%), Delta Air Lines (DAL 38.13, +1.15, +3.11%), and PACCAR (PCAR 99.87, +2.78, +2.86%) are outperforming. BRO gains after earnings, DAL mirrors airline strength following United's (UAL 40.79, +2.34, +6.09%) earnings, while PCAR, too, moves higher after this morning's Q4 beat.
Meanwhile, Invesco (IVZ 16.04, -1.35, -7.76%) is one of today's top laggards following this morning's mixed Q4 report.
Gold settles higher ahead of econ data later in the week
23-Jan-24 14:00 ET
Dow -111.64 at 37890.17, Nasdaq +19.47 at 15379.76, S&P +3.66 at 4854.09
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.13%) remains atop the standings.
Gold futures settled $3.60 higher (+0.2%) to $2,025.80/oz, showing modest gains despite green days from both yields and the greenback as the market tries to suss out a trajectory ahead of economic data later in the week.
Meanwhile, the U.S. Dollar Index is up +0.4% to $103.69.
Page One
Last Updated: 23-Jan-24 08:54 ET | Archive
Cooling off, but not cold, after blue chip earnings
The start of 2024 was a little chilly for most of the mega-cap stocks, but things have warmed up nicely for them the past few weeks. The end result has been a record high for the S&P 500, which was extended in yesterday's trading.
NVIDIA hasn't been warm, however. It has been red hot. Entering today, NVIDIA is up 20.5% this month alone. That includes a stumble out of the gate in which it lost as much as 4.5% in the first two trading sessions of 2024.
Things are cooling off just a little bit this morning, but we wouldn't call it a cold front after the warm streak.
Currently, the S&P 500 futures are up 10 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 58 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are down 29 points and are trading fractionally below fair value.
There has been a large slate of earnings results from blue chip companies that have generally been met with mixed reactions.
3M (MMM), Lockheed Martin (LMT), General Electric (GE), and D.R. Horton (DHI) are among the post-earnings losers; meanwhile, Verizon (VZ), United Airlines (UAL), Procter & Gamble (PG), and Johnson & Johnson (JNJ) are among the post-earnings winners.
On a related note, Netflix (NFLX) and Texas Instruments (TXN) headline the earnings-reporting bill after today's close.
The earnings news will be the focal point today. There is no U.S. economic data of note, although the economic calendar will steal some of the spotlight as the week progresses. The Advance Q4 GDP report is out on Thursday, and will be followed by the December Personal Income and Spending Report, which features the Fed's preferred inflation gauge in the form of the PCE Price Index, on Friday.
Other items of interest this morning include a Wall Street Journal report that China is considering a nearly $280 billion stock market stabilization package, a decision by the Bank of Japan to leave its key policy rate unchanged at -0.10% and to lower its core CPI forecast for FY24 to 2.4% from 2.8%, and polls showing Donald Trump with a large lead over Nikki Haley ahead of today's New Hampshire Republican Primary.
Treasuries are a bit softer, but not giving in to any concerted selling pressure. The 2-yr note yield is up one basis point to 4.39% and the 10-yr note yield is up three basis points to 4.12%. There is a $60 billion 2-yr note auction today. Results will be announced at 1:00 p.m. ET.
-- Patrick J. O'Hare, Briefing.com
3M sticking it to the DJIA as weak FY24 EPS guidance hammers stock, but report showed progress (MMM)
3M (MMM) is sticking it to the DJIA today, trading with hefty losses despite delivering a top and bottom-line beat for Q4 on stronger margins and continued modest improvement in organic sales growth. Those positives, though, are being overshadowed by MMM's downside FY24 EPS guidance, further frustrating a shareholder base which has been patiently waiting for a turnaround to unfold since the pandemic lost most of its grip a couple years ago.
- The primary issue plaguing MMM hasn't changed. Specifically, demand within some of its key end markets and geographies remains sluggish, particularly in consumer electronics and in China, where consumer retail is soft due to macroeconomic headwinds.
- Accordingly, organic sales declined yet again, slipping by 1.4% yr/yr, while total revenue growth declined for the eight consecutive quarter at -1.1%.
- However, MMM does expect to return to growth in FY24 -- albeit very slow growth -- guiding for adjusted total sales to increase by 0.25%-2.25% with adjusted organic sales flat to up 2%. Indeed, with the exception of the Health Care segment, which is expected to be spun off in 2H24, each of MMM's business units showed improved organic growth in Q4.
- Most notably, Transportation & Electronics swung to positive growth of +2.7%, following declines of 1.8% and 2.4% in the preceding two quarters. The jump to positive growth was fueled by a stabilization in the consumer electronics end market, which was roughly flat in Q4. Comparatively, in Q2, electronics were down by 22% as demand for semiconductors, smartphones, and tablets plunged.
- After a rough Q3 that saw organic sales drop by 7.2%, the Consumer segment rebounded a bit in Q4 with organic sales down by just 2.2% on improving demand for home improvement related products. Office supplies remain a weak spot, though, due to fewer employees working in office settings.
- Falling disposable respirator demand is still creating a headwind for the Safety & Industrial segment. In Q4, disposable respirator sales were down by $50 mln, reducing segment organic growth by 1.6 points. Overall, organic sales were down 3.9% compared to a drop of 5.8% last quarter.
- Another bright spot is that margins continue to expand, thanks to MMM's cost-cutting and restructuring initiatives and more favorable pricing. Over the course of the past year, MMM has eliminated over 8,500 positions, while limiting other spending across the company. As a result, adjusted operating margin expanded by 180 bps yr/yr to 20.9%.
- Considering the positive sales trends and MMM's expanding margins, the company's downside FY24 EPS guidance comes as a surprise. Perhaps the company is trying to manage expectations and is guiding conservatively. On that note, MMM originally guided for FY23 EPS of $8.50-$9.00, badly missing expectations, when it reported 4Q22 results last January. Ultimately, MMM easily beat that forecast, generating FY23 EPS of $9.24.
In our view, MMM actually delivered a fairly solid quarter, characterized by stronger margins and healthier demand within most of its end markets. Investors are punishing MMM for its soft EPS guidance and aren't willing to give the company the benefit of the doubt as it navigates through a painful and prolonged turnaround. However, we do believe that MMM is simply being cautious with its outlook and that if current trends continue, it has a good chance of exceeding its guidance.
D.R. Horton's Q1 earnings miss spurs profit-taking across the home-building industry today (DHI)
D.R. Horton's (DHI -9%) adjusted earnings miss in Q1 (Dec) is reverberating throughout the homebuilding market, sending its shares, as well as its peers, including Lennar (LEN), KB Home (KBH), PulteGroup (PHM), Toll Brothers (TOL), markedly lower. Many of DHI's woes resembled those endured by LEN during its most recent NovQ, mainly that margins were suppressed due to increased incentives to move more homes. As a result, just like LEN, DHI missed its quarterly gross profit margins on home sales, registering a 220 bp decline yr/yr to 22.9%, below its 23.7-24.2% target. However, unlike LEN, this led to DHI's first earnings miss in over a year, registering adjusted EPS of $2.82.
- With elevated incentives, DHI exceeded its homes closed projection of 18,500-19,000 handily, closing 19,340 homes in the quarter, a 12% improvement yr/yr. As a result, revs surpassed DHI's estimate of $7.4-7.6 bln, expanding by 6.5% yr/yr to $7.73 bln. More incentives also helped net sales orders surge by 35% yr/yr to over 18,000 homes, as it provided an uptick in the supply of new and existing homes at affordable price points.
- However, investors are struggling to shrug off such disappointing margins. DHI commented that market conditions have forced it to increase its use of incentives as lower home prices and the sizes of its home offerings are necessary to close deals. While the market may have been more forgiving if this discouraging trend was quickly disappearing, management remarked that its incentive levels will likely remain elevated over the near term.
- DHI forecasted Q2 (Mar) gross margins to remain around similar levels from Q1, while FY24 (Sep) margins will depend on the strength of demand and other market conditions, such as mortgage rates. In contrast, LEN noted that reduced margins would clear over the next quarter, i.e., by FebQ, and it anticipated rapid margin recovery as interest rates begin to fall, triggering a reduction in incentives. This slight dichotomy is spurring part of today's selling pressure across the board as the two companies' conflicting views add uncertainty to the market.
- Other forecasts from DHI were more spritely. Management added that thus far, early signs for the spring selling season have been encouraging, reflected by its upbeat Q2 (Mar) revenue guidance of $8.1-8.3 bln. Furthermore, DHI expects FY24 homes closed of 87,000-90,000, up 1,000 from its previous projection. DHI also modestly increased the high end of its FY24 revenue outlook to $36.0-37.3 bln from $36.0-37.0 bln.
DHI's Q1 report leaned positively as homes closed, revenue, and guidance were all encouraging points. However, coming up short on margins and earnings caused investors to take profits today. While DHI's slight earnings miss may not have generated such outsized selling pressure in the past, with shares exploding by over +50% since November 1 ahead of Q1 results, these blemishes were sufficient in causing DHI to alleviate potentially overbought conditions.
Johnson & Johnson heads lower after disappointing end to 2023 (JNJ)
Johnson & Johnson (JNJ -2%) is trading lower after reporting Q4 earnings results this morning. JNJ reported slight upside in Q4 for both EPS and revs. The EPS upside was its smallest upside in eight quarters. JNJ's revenue upside tends to be pretty modest every quarter and that was the case again in Q4, albeit a bit more modest than usual. The company reaffirmed prior guidance for 2024.
- As a housekeeping matter, recall in August 2023, Johnson & Johnson completed its separation of its consumer health unit, Kenvue (KVUE), which now trades as a separate company. JNJ's Pharmaceutical segment is now referred to as its Innovative Medicine segment. Its other major segment is MedTech, but that is much smaller than its IM segment.
- Innovative Medicine operational sales in Q4 grew 4.2% yr/yr to $13.72 bln. This segment saw growth of 9.5% in the US and a decline of 3.1% outside of the US. Sales outside the US were impacted by the loss of exclusivity of ZYTIGA in Europe. Segment growth was driven by key brands and continued uptake from recently launched products with nine assets delivering double-digit growth.
- JNJ saw better growth out of its MedTech segment, with sales up 13.3% yr/yr to $7.67 bln. However, part of the stronger growth in this segment was driven by JNJ's recent acquisition of Abiomed. Growth was strong both in the US (+14.1%) and outside the US (+12.8%). Electrophysiology grew a robust 25.2% with strong growth in all regions including Europe. JNJ says this growth was driven by its global market leading portfolio including the most recently launched catheters.
- For 2024, JNJ continues to expect operational sales growth of +5-6%, or $88.2-$89.0 bln. This guidance continues to exclude any impact from COVID-19 vaccine sales. In its IM segment, JNJ expects to deliver a 13th consecutive year of above market growth, driven by market share gains from key brands such as DARZALEX and continued adoption of recently launched newer products. In MedTech, JNJ expects further shifting its portfolio into high-growth markets while expanding its reach and scale around the world.
MedTech was a bright spot again. Importantly, JNJ expects procedures in 2024 to remain above pre-COVID levels. That tells us that its MedTech segment is benefiting from people finally getting around to surgical procedures that had been postponed during the pandemic. However, the overall Q4 report was a lackluster way to close out 2023. The very small EPS upside was unusual for JNJ and appears to have disappointed investors. Also, perhaps investors wanted to see maybe even a modest guidance range increase for 2024, but that was not to be. Another factor here is that the stock has been trending higher since its Q3 report in late October. So maybe expectations were running higher heading into this report.
United Airlines flying higher on stronger than expected FY24 EPS guidance (UAL)
It's been a very bumpy ride for United Airlines' (UAL) shareholders following the Alaska Air (ALK) incident on January 8 in which a door plug blew out at 16,000 feet, prompting the FAA to ground all Boeing (BA) 737-9 MAX jets, sending UAL shares lower by about 10% since the event.
Heading into last night's Q4 earnings release, market participants were bracing for a rough report, contemplating the impact of having 79 MAX-9s indefinitely grounded while domestic travel demand also cools off amid macroeconomic uncertainties. However, UAL flew past Q4 EPS and revenue expectations and its FY24 EPS guidance of $9.00-$11.00 is above estimates at the midpoint of the range, providing for a much better-than-expected report and an accompanying spike higher for the stock.
- When UAL reported Q3 results in mid-October, it issued bleak Q4 EPS guidance of $1.50-$1.80 that badly missed expectations due to a combination of higher fuel and labor costs, as well as flight suspensions into Israel as the conflict with Hamas intensified. Fuel costs, though, came in a bit lower than UAL anticipated at $3.13 per gallon compared to its guidance of $3.28 per gallon, and demand remained strong, especially for international travel with passenger revenue up 18% versus growth of 7% for domestic.
- Like DAL, the strength in international, combined with healthy demand for premium seats and a resurgence in business travel, drove UAL's upside revenue performance. For the quarter, premium cabin saw revenue increase by 16%, while CEO Scott Kirby commented that business travel is now back at 2019 levels.
- Unlike DAL, which disappointed investors by issuing inline FY24 EPS guidance, UAL surprised to the upside, easing concerns that BA's ongoing manufacturing issues and the FAA's grounding of the MAX-9 will bleed into its results throughout the year.
- With that said, UAL is anticipating some stiff headwinds in Q1, forecasting a three-point headwind to seat miles resulting from MAX-9 issues. Furthermore, rising maintenance and labor costs continue to cut into the bottom-line. For Q1, UAL is estimating CASM-ex to be up mid-single-digits, following an increase of 4.9% in Q4. Taken together, these items caused UAL to guide Q1 EPS well below expectations at ($0.85)-($0.35).
The main takeaway is that UAL will encounter some turbulence in Q1 as the MAX-9 remains grounded, but that was already anticipated, making the company's FY24 guidance the focal point. In that regard, UAL handily exceeded the muted expectations, sparking a sharp rebound higher for the stock.
Procter & Gamble continues to traverse inflationary tides, topping EPS estimates in Q2 (PG)
By registering decent upside on its bottom line in Q2 (Dec) and raising the low end of its FY24 (Jun) adjusted EPS guidance, Procter & Gamble (PG +4%) is demonstrating its ability to navigate stubborn inflationary tides. The consumer durables titan, offering numerous familiar household brands like Tide and Mr. Clean, has been raising prices, slashing costs, and focusing on its premium brands over the past two years to maintain its margins as labor, fuel, and commodities remain material headwinds. While this strategy has come at the expense of volumes as consumers trade or hunker down, reducing the size of their overall basket, the metric continued to improve in Q2, an encouraging sign that perhaps headwinds are finally shifting.
- PG topped adjusted earnings by double digits for the second straight quarter in Q2, expanding its bottom line by 15.7% yr/yr to $1.84. Adjusted operating margins soared by 400 bps yr/yr, showcasing PG's productivity savings, which added 340 bps to that growth, as well as its brand loyalty. Also, if not for ongoing foreign exchange headwinds, core operating margins would have risen by an additional 70 bps.
- PG's GAAP EPS is worth noting, given how it is connected to some internal turbulence. The figure was nearly the inverse of its adjusted earnings due to a previously mentioned write-down of PG's Gillette brand, which fueled a 230 bps decline in reported operating margins. Furthermore, restructuring across certain Enterprise Markets (developing nations across Latin America, EMEA, and Asia-Pacific) also weighed on GAAP earnings.
- Sales growth was slim in Q2, edging just 3.2% higher yr/yr to $21.44 bln, relatively in-line with consensus. Growth was broad-based but uneven, with PG's Grooming division leading all other categories at 6% while Beauty was at the bottom at just 1%. Fabric & Home Care, Health Care, and Family Care comprised the middle of the pack, expanding net sales by 5%, 4%, and 2%, respectively.
- Inflationary-related pricing entirely drove top-line growth as volumes were flat yr/yr. Still, even though PG has not seen volume growth in almost two years, it has continued to improve, climbing out of negative territory for the first time since 3Q22 (Mar), another testament to the sturdiness of its brands, which can remain sticky on consumers shopping lists given the relatively minor price difference between the name brand and off-brand.
- PG maintained its FY24 reported net sales and organic sales growth targets of +2-4% and +4-5% yr/yr, respectively. However, it improved its worst-case EPS growth scenario by 2 pts, projecting growth of +8-9% in FY24. A reiterated $800 mln tailwind from easing commodity costs continued to play a role in PG's bright earnings outlook, as did better-than-expected productivity enhancements and favorable elasticities.
While revenue continues to expand primarily from prices as opposed to volumes, PG's Q2 results demonstrated its brand prowess, leveraging the loyalty of its consumers to maintain impressive margins and keep revenue growth positive. Inflation may continue to prove challenging for PG. Still, given how well it has traversed the landscape so far, its appeal as a defensive stock continues to grow.
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