| | | Market Snapshot
briefing.com
| Dow | 38333.45 | +224.02 | (0.59%) | | Nasdaq | 15628.05 | +172.68 | (1.12%) | | SP 500 | 4927.93 | +36.96 | (0.76%) | | 10-yr Note | +26/32 | 4.09 |
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| | NYSE | Adv 2035 | Dec 768 | Vol 860 mln | | Nasdaq | Adv 2970 | Dec 1332 | Vol 5.0 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Consumer Discretionary, Real Estate, Health Care, Utilities |
| | Weak: Energy |
Moving the Market
-- Reacting favorably to the Treasury Department's first quarter borrowing estimate
-- Wait-and-see mentality in front of busy week of earnings, economic news
-- Geopolitical angst after tensions escalate in Middle East
-- Relative strength in mega cap stocks supporting index moves
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Closing Summary
29-Jan-24 16:25 ET
Dow +224.02 at 38333.45, Nasdaq +172.68 at 15628.05, S&P +36.96 at 4927.93
[BRIEFING.COM] The S&P 500 (+0.8%) closed at a fresh all-time high (4,297.95) thanks to an afternoon pickup in buying activity on below-average volume at the NYSE. The Dow Jones Industrial Average rose 0.6%, the Nasdaq Composite climbed 1.1%, and the Russell 2000 jumped 1.7%. Advancers had a 5-to-2 lead over decliners at the NYSE and a better than 2-to-1 lead at the Nasdaq.
The afternoon buying was a positive reaction to the Treasury Department's first quarter borrowing estimate. The Treasury Department plans to borrow $760 billion in Q1, which is $55 billion below the forecast from October due to higher net fiscal flows and a higher cash balance at the beginning of the quarter. Borrowing in Q2 is expected to reach $202 billion.
The 10-yr note yield was at 4.10% shortly before the announcement, and dropped to 4.06% in the immediate aftermath. The 2-yr note yield was at 4.33% just before the announcement, and dropped to 4.30% in the immediate aftermath. They settled the day at 4.09% and 4.33%, respectively.
Today's trade had a modestly positive bias before the refunding estimate was announced, however, thanks in part to outperforming mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) closed with a 1.2% gain.
The early positive bias was also a function of the market's wait-and-see mentality in front of a busy week. Specifically, the FOMC meeting followed by Fed Chair Powell's press conference is on Wednesday, and the January Employment Situation Report will be released on Friday.
Also, earnings season picks up this week with results from approximately 20% of the S&P 500, including Microsoft (MSFT 409.72, +5.79, +1.4%), Alphabet (GOOG 154.84, +1.05, +0.7%), Meta Platforms (META 401.02, +6.88, +1.8%), Amazon.com (AMZN 161.26, +2.14, +1.3%), Adv. Micro Devices (AMD 177.83, +0.58, +0.3%), and Apple (AAPL 191.73, -0.69, -0.4%).
Geopolitical angst was also part of the market narrative today after a drone attack by an Iranian-backed militant group on a U.S. outpost in Jordan that killed three U.S. soldiers and injured many others. Still, oil prices declined, suggesting the market is not overly concerned about disruptions to supplies despite President Biden saying that there will be a response to that attack. WTI crude oil futures dropped 1.5% today to $76.87/bbl.
This price action led to the underperformance of the S&P 500 energy sector, which fell 0.2%. The remaining ten sectors saw gains ranging from 0.3% to 1.4%.
There is no U.S. economic data of note today.
- Nasdaq Composite: +4.1%
- S&P 500: +3.3%
- Dow Jones Industrial Average: +1.7%
- S&P Midcap 400: +0.3%
- Russell 2000: -0.8%
Looking ahead, Tuesday's economic calendar features:
- 9:00 ET: November FHFA Housing Market Index (prior 0.3%) and November S&P Case-Shiller Home Price Index (Briefing.com consensus 5.6%; prior 4.9%)
- 10:00 ET: January Consumer Confidence (Briefing.com consensus 113.0; prior 110.7) and December job openings (prior 8.790 mln)
Treasury yields decline, stocks climb after Treasury Department estimate
29-Jan-24 15:35 ET
Dow +209.63 at 38319.06, Nasdaq +172.56 at 15627.93, S&P +36.45 at 4927.42
[BRIEFING.COM] The major indices are trading at or near session highs. The afternoon increase in buying activity coincided with a drop in Treasury yields in response to the Treasury Department's first quarter borrowing estimate.
The 2-yr note yield settled three basis points lower at 4.33% and the 10-yr note yield declined seven basis points to 4.09%.
Nucor (NUE), Cleveland-Cliffs (CLF), Whirlpool (WHR), Super Micro Computer (SMCI), and others report earnings after today's close. General Motors (GM), UPS (UPS), Sysco (SYY), HCA (HCA), Pfizer (PFE), Johnson Controls (JCI), Danaher (DHR), Manpower (MAN), PulteGroup (PHM), Corning (GLW), Teck Resources (TECK), and JetBlue Airways (JBLU), and others report earnings ahead of Tuesday's open.
Separately, WTI crude oil futures declined 1.5% today to $76.87/bbl.
Mega-cap stocks set S&P 500 pace
29-Jan-24 15:00 ET
Dow +44.82 at 38154.25, Nasdaq +91.99 at 15547.36, S&P +13.77 at 4904.74
[BRIEFING.COM] Entering the final hour of trading, the S&P 500 sits near its best levels of the session, as does the Nasdaq 100, which is no small coincidence considering the Vanguard Mega-Cap Growth ETF (MGK) is also sitting near its highs, up 0.7%.
Meta Platforms (META 401.36, +7.22, +1.8%), NVIDIA (NVDA 619.75, +9.44, +1.5%), Microsoft (MSFT 407.88, +3.95, +1.0%), Amazon.com (AMZN 160.39, +1.27, +0.8%), and Alphabet (GOOG 154.38, +0.59, +0.4%) are leading the charge on that front.
Buying efforts elsewhere remain subdued, but ultimately predisposed to a positive leaning. Advancers lead decliners by a roughly 4-to-3 margin at the NYSE and by a roughly 5-to-3 margin at the Nasdaq.
Separately, small-cap stocks have their own outperformance edge today. The Russell 2000 is up 0.7%.
Nasdaq, S&P 500 at HoDs; Carnival, Domino's performing well on Monday
29-Jan-24 14:30 ET
Dow +26.23 at 38135.66, Nasdaq +84.42 at 15539.79, S&P +11.70 at 4902.67
[BRIEFING.COM] The S&P 500 (+0.24%) is in second place, having topped HoDs in the last half hour alongside the Nasdaq Composite (+0.55%).
Elsewhere, S&P 500 constituents Carnival (CCL 16.48, +0.65, +4.11%), Builders FirstSource (BLDR 175.59, +6.07, +3.58%), and Domino's Pizza (DPZ 432.38, +13.26, +3.16%) pepper the top of the standings. CCL filed for a mixed shelf securities offering on Friday afternoon, BofA Securities upgraded BLDR top Buy, and DPZ caught a tgt bump at BofA.
Meanwhile, Int'l Paper (IP 36.61, -0.96, -2.56%) holds some decent losses, mirroring losses in peers WRK and PKG following downgrades (both to Neutral) at Seaport Global Securities.
Geopolitical angst props up gold to start the week
29-Jan-24 14:00 ET
Dow +1.54 at 38110.97, Nasdaq +63.24 at 15518.61, S&P +7.43 at 4898.40
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.41%) holds near HoDs, leading the major averages.
Gold futures settled $less than $8.10 higher (+0.4%) to $2,025.40/oz, moving higher to start the week after news out over the weekend of a drone attack on a U.S. outpost in Jordan.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $103.68.
WillScot Mobile Mini faces modest selling after agreeing to purchase McGrath RentCorp today (WSC)
WillScot Mobile Mini Holdings (WSC), a flexible workspace and portable storage provider, is not seeing much movement today after announcing plans to acquire McGrath RentCorp (MGRC), a business-to-business rental company, for $3.8 bln. MGRC shareholders would receive either $123.00 per share in cash or 2.8211 shares of WSC. The offer represented an approximately 10% premium to the previous trading day's closing price. With MGRC trading roughly on par with WSC's price offer, the market is confident that the deal will close, which is expected in 2Q24.
Even though WSC lacks much conviction today, there is plenty to like from its purchase of MGRC.
- WSC gobbles up a key competitor within the modular space and portable storage, especially around major markets in the U.S., including California, Texas, and Florida, where MGRC commands an imposing presence.
- Management estimates that the merger will result in approximately $700 mln of combined free cash flow in 2025, nicely ahead of WSC's trailing twelve-month free cash flow of just over $500 mln as of Q3. WSC also noted that it had already identified $50 mln in pre-tax operating synergies.
- The price tag was not too troubling, valuing MGRC at approximately 4.6x estimated FY23 revenue. MGRC has also been expanding revs by at least a double-digit percentage yr/yr for eight consecutive quarters, underscoring healthy demand for temporary space. WSC added that the combination would be accretive to its EPS within the first year post-closing, with significant upside after that.
We think a WSC/MGRC merger makes sense. WSC is picking up a competitor for a reasonable price given the market fortification and potential upside from capitalizing on underpenetrated verticals like education, government, and healthcare. There are still challenges on the horizon; WSC's business heavily depends on non-residential construction activity, given how that industry relies on temporary storage. Early outlooks for this market paint a cloudy picture, with forecasts modeling a roughly flattish demand environment yr/yr. However, WSC noted in October that if non-res construction activity can stay stable at 2023 levels, it would classify it as a very healthy environment. With interest rates set to decline this year, WSC could be staring at the beginning of a long-lasting tailwind if it spurs outsized activity within the construction markets.
SoFi Technologies soars as stellar Q4 report shows that company is firing on all cylinders (SOFI)
For fintech company SoFi Technologies (SOFI), 4Q23 was a quarter full or records and firsts, including the company's first positive non-GAAP EPS, fueled by broad-based strength across all of its businesses.
Although SOFI's Q1 revenue guidance of $550-$560 mln appears to have fallen short of estimates, the momentum underlying the business suggests that the company is taking a conservative approach to its outlook and is trying to manage expectations. Judging by SOFI's longer-term forecast, including its projection of strong 20-25% compound revenue growth for 2023-2026, it's evident that the company is feeling quite bullish about its prospects this year and beyond.
- In Q4, SOFI generated record revenue of $615.4 mln, up nearly 35% and well above analysts' estimates. Each of the company's three main business segments -- Lending, Financial Services, and Technology Platform -- also registered record revenue.
- Despite high interest rates and inflation, demand for SOFI's loan products, which include mortgages, student loans, and personal loans, remained robust. Impressively, total loan origination volume jumped by 45% yr/yr, driven by a 193% surge in home loan origination volume. Personal and student loan growth was also strong at +31% and +95%, respectively.
- Similar to credit card company American Express (AXP), SOFI benefits from a more affluent customer base that's better able to withstand the macroeconomic headwinds. In the earnings press release, SOFI disclosed that the median FICO score for new direct deposit accounts opened in Q4 was 744.
- Another advantage of these higher quality deposits -- which grew by 19% to $2.9 bln in Q4 -- is that SOFI benefits from lower funding costs for its loans. Furthermore, these customers tend to utilize more products, creating strong cross-buying trends across the platform.
- This is illustrated by a 45% increase in total products for the Financial Services segment with SoFi Relay posting growth of 74% yr/yr.
- SoFi Relay allows customers to connect all of their checking, savings, investment, and retirement accounts into a single mobile dashboard.
- Rounding off SOFI's businesses, Technology Platform revenue growth accelerated to 13% to nearly $97 mln, up from last quarter's 6% increase. In April 2020, SOFI acquired digital payment company Galileo, bolstering the Technology Platform segment. Through Galileo, SOFI's mobile offerings include direct deposit, ACH transfer, early paycheck direct deposit, bill pay, and other services.
Overall, SOFI turned in a stellar Q4 performance, capitalizing on its digital capabilities and its more resilient customer base. Based on the stock's spike higher, it's apparent that investors believe that SOFI is "sandbagging" its Q1 guidance as it looks to temper expectations. The broad-based strength across SOFI's business, combined with its bullish longer-term outlook, tells a brighter story for a company that is firing on all cylinders.
REV Group is revving up some nice gains for investors as focuses on stronger areas (REVG)
REV Group (REVG +6%) is revving up some nice gains today for shareholders of this supplier of specialty vehicles. The company makes several type of vehicles, ranging from public services (ambulances, fire trucks, school buses, transit buses), commercial infrastructure (terminal trucks and industrial sweepers) and consumer leisure (RVs).
- However, today the company announced it would pare down its offerings. REV Group has sold its school bus business, Collins Bus Corp. for $303 mln in cash. In addition to the sale of Collins, REVG announced it will be exiting transit bus manufacturing by winding down operations at its ElDorado business, once existing customer orders are completed and delivered.
- REVG cited several issues, including supply delays, slow build out of infrastructure to support EV adoption, financial health of key suppliers etc. This has created a competitive bidding environment for diesel and CNG buses that has made it difficult for ElDorado to compete vs peers of greater scale.
- The company expects to generate at least $250 mln in net cash proceeds from these actions. A pleasant surprise is that $180 mln of that will be paid to investors in the form of a $3.00/sh special dividend with the remainder being used to pay down debt under its credit facility.
- Going forward, REVG will be reorganized into two reporting segments beginning with its Q1 (Jan) results. The remaining Commercial segment will be combined with the Fire & Emergency businesses in a new segment named Specialty Vehicles. The Recreation segment will be renamed Recreational Vehicles. The company expects to provide updated FY24 (Oct) guidance when it reports Q1 results.
Overall, investors seem quite pleased with REVG exiting its school bus / transit bus segment. This will allow REVG to focus more on its municipal end markets, which remain robust, driven by strength in fire trucks and ambulances. Investors also like the $3 special dividend. We view REVG's decision to pay out such a large portion of the funds as a sign of strength. A struggling company would have paid down debt, but this tells us the balance sheet is in good shape and was not the motivating factor for this decision. We also generally think it's good for companies to constantly review its operations and makes changes as needed based on demand. That seems to be the case here.
Philips endures a sell-the-news reaction to Q4 results; FDA settlement weighs (PHG)
Philips (PHG -5%) records comparable sales growth at the high end of its previous guidance and conveys a positive outlook on order intake growth during FY24, yet its shares are sinking today. The sell-the-news reaction stems from the medical and personal care device manufacturer reaching an agreement with the FDA related to its Philips Respironics in the U.S. Per the consent decree, PHG will halt the selling of new sleep and respiratory products until it meets yet-to-be-determined FDA requirements, which could take several years. This news is casting a cloud over otherwise decent Q4 performance.
- Comparable sales grew +3% in Q4, resulting in +7% for the year, landing at the high end of its +6-7% outlook. Order intake was higher qtr/qtr in Q4, consistent with management's remarks from last quarter.
- However, PHG recognized significant charges connected to the consent decree in Q4, negatively impacting comps by around 350 bps in Q4. Therefore, when including the FDA-related charges, comps in the quarter actually fell yr/yr.
- Growth was relatively decent across the board in the quarter. In Connected Care, comps were flat as PHG lapped challenging comparisons from the year-ago period. Sleep & Respiratory Care -- where the FDA agreement will have the most impact -- grew by low-single digits. Meanwhile, Personal Health delivered +7% comparable sales growth in Q4. Geographically, growth was led by China and Western Europe.
- PHG was cautiously optimistic about the demand backdrop, noting that consumer sentiment remains subdued but is expected to improve throughout FY24. To better deal with a challenging economic situation, PHG continues to emphasis cost management; its savings initiatives resulted in nearly €1.0 bln in FY23. Additionally, PHG's order book, comprising around 40% of total revenue, is significantly higher than before global supply chain constraints unfolded. It anticipates this to continue supporting sales growth in subsequent quarters.
- This cautious optimism is embedded in PHG's near and longer-term guidance, projecting +3-5% comparable sales growth in FY24, slightly less robust than in FY23 but still positive. The growth will be backend-loaded due to tougher yr/yr comparisons in the first half. Furthermore, PHG reiterated its 2023-2025 plan, including mid-single-digit comparable sales growth and low-teens adjusted EBITDA margins.
PHG's Q4 results were primarily consistent with the company's prior remarks. Order intake continued to improve sequentially, and product demand remained healthy. However, the settlement with the FDA regarding sleep and respiratory products is a meaningful setback. PHG can continue selling these devices outside the U.S. However, it is worth noting that the U.S. is PHG's biggest region, totaling over 40% of annual sales (the next largest single region is China at 12%). While PHG's longer-term guidance underscores its ability to offset the FDA decision, shares may endure moderate volatility over the near term, especially given the unfavorable yr/yr comps likely dampening financial performance in Q1 and Q2.
American Express charges to record highs as resiliency of business shines through in Q4 report (AXP)
American Express' (AXP) resilience is on display today after the credit card company reported Q4 results that featured healthy spending metrics among its customer base and strong guidance for FY24, including an EPS outlook that handily exceeded expectations. The solid earnings report, which stands in contrast to Discover Financial Services' (DFS) disappointing results and guidance from last week, along with a 17% increase in the quarterly dividend, is pushing AXP shares to all-time highs.
- A key differentiating factor between AXP and DFS resides in the company's customer base. AXP tends to cater to a more affluent customer, as well as to corporate customers, helping to mitigate the impact of macroeconomic headwinds such as high interest rates and inflation.
- This is illustrated in AXP's healthy spending patterns, particularly within the travel and entertainment category. In Q4, spending on travel and entertainment increased by 9% yr/yr, outpacing a 6% increase in overall spending.
- Additionally, net write-offs and delinquency rates remain low for AXP, remaining below pre-pandemic levels. For DFS, the 30+ day delinquency rate across its portfolio increased again in Q4, rising by 115 bps yr/yr and 39 bps sequentially to 3.45%.
- AXP did fall a bit short of EPS and revenue estimates for Q4, making the stock's spike higher look a bit surprising at first glance. However, the cause for the shortfall was completely attributable to Argentina's currency devaluation, rather than from slower demand or poor execution.
- In fact, without the currency devaluation, CEO Stephen Squeri stated that AXP would have exceeded the quarterly expectations.
- One complaint that market participants have expressed about AXP in the past is that the company has ramped up marketing expenses in order to keep its cardholder growth rate steady. In turn, this has led to some recent earnings disappointments, including EPS misses in 1Q23 and 4Q22. This time around, though, AXP cut back on marketing expenses and consolidated expenses only increased by 5%, down a bit from 7% in both Q3 and Q2.
The main takeaway is that AXP's more affluent customer base continues to provide the company with a formidable competitive advantage, largely insulating it from the macroeconomic headwinds that are impacting its credit card competitors.
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