Market Snapshot
briefing.com
| Dow | 38467.31 | +133.86 | (0.35%) | | Nasdaq | 15509.90 | -118.15 | (-0.76%) | | SP 500 | 4924.97 | -2.96 | (-0.06%) | | 10-yr Note | +1/32 | 4.06 |
|
| | NYSE | Adv 1339 | Dec 1441 | Vol 852 mln | | Nasdaq | Adv 1539 | Dec 2718 | Vol 4.7 bln |
Industry Watch
| Strong: Financials, Energy, Consumer Staples, Materials |
| | Weak: Real Estate, Information Technology, Communication Services, Consumer Discretionary |
Moving the Market
-- Profit-taking mindset after big run; S&P 500 sitting near all-time high
-- Hesitation in front of earnings from influential stocks like MSFT, GOOG, and AMD after today's close
-- Reacting to latest batch of earnings, which garnered mixed responses
-- Reacting to the strong January Consumer Confidence Index
| Closing Summary
30-Jan-24 16:25 ET
Dow +133.86 at 38467.31, Nasdaq -118.15 at 15509.90, S&P -2.96 at 4924.97
[BRIEFING.COM] There was not a lot of conviction on either side of the tape today. Market breadth was negative, but modestly so, and volume was below-average at the NYSE. The Dow Jones Industrial Average closed with a 0.4% gain while the S&P 500 (-0.1%) and Nasdaq Composite (-0.8%) closed with losses.
Relative weakness in mega cap and semiconductor-related stocks weighed on the S&P 500 and Nasdaq Composite as participants waited on earnings results from influential names in both spaces this afternoon. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.6% decline and the PHLX Semiconductor Index (SOX) fell 1.6%.
The Invesco S&P 500 Equal Weight ETF (RSP), though, settled just above yesterday's closing level.
Outsized moves in either direction were limited to stocks that reported quarterly results since yesterday's close, which contributed to the mixed feeling at the index level. General Motors (GM 38.15, +2.76, +7.8%) and HCA Healthcare (HCA 301.59, +14.86, +5.2%) logged big gains following pleasing earnings and/or guidance while shares of UPS (UPS 145.06, -12.96, -8.2%) and Whirlpool (WHR 110.01, -7.78, -6.6%) sank following their results.
The mixed action was also the result of a wait-and-see mentality in front of the FOMC decision tomorrow, which is followed by Fed Chair Powell's press conference. The market expects that the committee will leave rates unchanged, but participants are anxious to hear any tonal shifts in rhetoric.
Also, this morning's economic data bodes well for the market's soft landing narrative. The January Consumer Confidence Index climbed to 114.8 in January (Briefing.com consensus 113.0) from a downwardly revised 108.0 (from 110.7) in December. Meanwhile, the JOLTS Report showed 9.026 million job openings in December, up from 8.925 million in November.
The Treasury market also saw mixed action today. The 2-yr note yield, which was at 4.30% before the 10:00 ET data, peaked at 4.37% today before settling at 4.36%. The 10-yr note yield, at 4.04% before the reports, peaked at 4.10% before settling at 4.06%.
- Nasdaq Composite: +3.3%
- S&P 500: +3.3%
- Dow Jones Industrial Average: +2.1%
- S&P Midcap 400: +0.1%
- Russell 2000: -1.5%
Reviewing today's economic data:
- November FHFA Housing Price Index 0.3%; Prior 0.3%
- November S&P Case-Shiller Home Price Index 5.4% (Briefing.com consensus 5.6%); Prior 4.9%
- January Consumer Confidence 114.8 (Briefing.com consensus 113.0); Prior was revised to 108.0 from 110.7
- The key takeaway from the report is that the uptick in confidence was seen across all age groups and fueled by factors that should support continued strength in consumer spending: slower inflation, expectations interest rates will continue to come down, and favorable employment conditions.
- December JOLTS - Job Openings 9.026 mln; Prior was revised to 8.925 mln from 8.790 mln
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 3.7%)
- 8:15 ET: January ADP Employment Change (Briefing.com consensus 140,000; prior 164,000)
- 8:30 ET: Q4 Employment Cost Index (Briefing.com consensus 1.0%; prior 1.1%)
- 9:45 ET: January Chicago PMI (Briefing.com consensus 48.4; prior 46.9)
- 10:30 ET: Weekly crude oil inventories (prior -9.23 mln)
- 14:00 ET: January FOMC Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
Treasuries settle mixed
30-Jan-24 15:35 ET
Dow +128.40 at 38461.85, Nasdaq -116.15 at 15511.90, S&P -2.71 at 4925.22
[BRIEFING.COM] The Dow Jones Industrial Average (+0.4%) and S&P 500 (-0.03%) are little changed over the last half hour.
The 2-yr note yield settled three basis points higher at 4.36% and the 10-yr note yield fell three basis points to 4.06%.
Looking ahead, Boeing (BA), Thermo Fisher (TMO), Mastercard (MA), Aptiv (APTV), and other report earnings ahead of the open tomorrow.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 3.7%)
- 8:15 ET: January ADP Employment Change (Briefing.com consensus 140,000; prior 164,000)
- 8:30 ET: Q4 Employment Cost Index (Briefing.com consensus 1.0%; prior 1.1%)
- 9:45 ET: January Chicago PMI (Briefing.com consensus 48.4; prior 46.9)
- 10:30 ET: Weekly crude oil inventories (prior -9.23 mln)
- 14:00 ET: January FOMC Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
S&P 500 near highs, Nasdaq lags
30-Jan-24 15:05 ET
Dow +136.60 at 38470.05, Nasdaq -104.15 at 15523.90, S&P +0.88 at 4928.81
[BRIEFING.COM] The S&P 500 is trading near its best level of the day while the Nasdaq Composite continues to lag, trading down 0.7%.
The Invesco S&P 500 Equal Weight ETF (RSP) is up 0.2%.
As a reminder, Alphabet (GOOG), Microsoft (MSFT), Starbucks (SBUX), AMD (AMD), Mondelez (MDLZ), Stryker (SYK), and others report earnings after today's close.
Separately, WTI crude oil futures settled 1.3% higher at $77.84/bbl.
A.O. Smith lower on earnings, ex-div; Sysco among S&P 500 gainers after earnings
30-Jan-24 14:30 ET
Dow +118.09 at 38451.54, Nasdaq -112.90 at 15515.15, S&P -1.08 at 4926.85
[BRIEFING.COM] The S&P 500 (-0.02%) has been choppy today, now holding losses just this side of a single point.
Elsewhere, S&P 500 constituents SLB (SLB 49.12, -4.08, -7.67%), A.O. Smith (AOS 78.62, -2.71, -3.33%), and Micron (MU 85.92, -3.15, -3.54%) pepper the bottom of the standings. SLB saw an executive insider sale hit the wires overnight, AOS reported earnings and trades ex-dividend today, while MU mirrors broader weakness in semi stocks (SOXX 593.54, -10.45, -1.73%).
Meanwhile, Sysco (SYY 80.16, +4.99, +6.64%) is near the top of the S&P following earnings.
Gold higher on Tuesday
30-Jan-24 14:00 ET
Dow +91.01 at 38424.46, Nasdaq -124.12 at 15503.93, S&P -5.34 at 4922.59
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.79%) is near session lows in recent trading, down about 124 points.
Gold futures settled $6.30 higher (+0.3%) to $2,050.90/oz, aided in part by a modest move lower in the dollar and a rollover on the front month contract to April as the market awaits tomorrow's Fed policy decision.
Meanwhile, the U.S. Dollar Index down -0.1% to $103.51.
UPS was not able to deliver as stock heads lower following earnings (UPS)
UPS (UPS -7%) did not deliver as investors hoped it would. The delivery giant beat on EPS, albeit just barely, and missed on revs. It also said it plans to cut 12,000 jobs and will explore strategic alternatives for its truckload brokerage business known as Coyote, which is a highly cyclical business with considerable earnings volatility.
- UPS said the macro environment in Q4 showed improvement. However, the transportation and logistics sector conditions remained under pressure both in the US and internationally due to soft demand and overcapacity in the market.
- In US Domestic, average daily volume came in at the low end of its expected range and was down 7.4% yr/yr. B2B average daily volume was down 6.8%, driven by declines in retail, manufacturing and high-tech sectors. Also, macro pressures drove customers to seek economy products as customers shifted volume from air to ground.
- For its International segment, soft demand continued to pressure volumes out of Asia. In Europe, several key economies remained in recession which pressured demand and drove a shift away from express services.
- Taking a step back, UPS says 2023 was a unique and quite candidly a difficult and disappointing year. UPS experienced declines in volume, revenue and operating profit in all three business segments. Some of this was due to the macro environment and some of it was due to labor disruptions related to a new labor deal.
- In 2024, the small package market in the US, excluding Amazon, is expected to grow by less than 1%. Given the nuances of its new labor contract, UPS says there will be stark contrast between its 1H24 and 2H24 performances. Earnings in 1H24 will be compressed while 2H24 earnings will expand. However, UPS expects to exit the year with a US operating margin of 10%.
Overall, it seems the lackluster results and cautious 1H24 outlook is weighing on the stock today. As we said in our preview, we had an inkling this may be a rough quarter after FedEx (FDX) recently reported its first EPS miss in several quarters and said market conditions in the US remained soft. It seems the delivery business is going through a rough patch right now.
Corning expects 1Q24 to mark a bottom; shares extend their ongoing rally today as a result (GLW)
Corning (GLW +6%) may not have shattered expectations in Q4, matching analyst earnings forecasts, registering lighter-than-expected revenue, and projecting Q1 numbers below consensus. However, investors are brushing these blemishes aside, setting their sights on what looks to be a bottom developing over the immediate term. The glass and advanced optics manufacturer stated that while calling the specific timing of a recovery is challenging, it continues to see signs it will occur in 2024, with Q1 likely being the year's low point.
- With 1Q24 possibly marking a bottom, Q4 results reflected the challenging economic backdrop. Adjusted EPS of $0.39 represented a 17% drop yr/yr, and revenue of $2.99 bln translated to a 12% decline. Demand across most of GLW's markets was temporarily depressed in the quarter due to supply chain constraints and macroeconomic factors, hindering sales growth, which remains well below long-term expectations.
- However, GLW has been taking appropriate actions to counter fierce headwinds throughout 2023, emphasizing profitability and cash flow generation improvements. These moves resulted in gross margins remaining consistent with last quarter at 37%, a 330 bp expansion yr/yr, despite deteriorating revenue growth. It also resulted in productivity ratios reaching historical levels.
- With the savings initiatives tailwind at GLW's back, management was confident it was entering 2024 operationally strong and well-positioned to capitalize on markets normalizing toward the back half of the year. GLW commented that as markets normalize, it creates an opportunity for the company to increase sales by over $3.0 bln, an over +20% jump from FY23 revenue.
- Still, GLW will have to hurdle a bump quarter ahead. The company projects adjusted EPS of $0.32-0.38 and revs of $3.1 bln, another quarter of sequential declines. After that, it is unclear whether GLW's prediction will come true. However, it is worth noting that other companies exposed to similar industries also anticipate a recovery as they get closer to 2H24, such as Verizon (VZ), which is optimistic about 2024 after a speed bump in Q1.
- Longer term, GLW expressed a bullish tone, anticipating a rebound in its Optical Communications segment (its largest at 32% of FY23 revs). Meanwhile, AI technology is rising in popularity; GLW is seeing the earliest edge of AI-related network builds in its order books.
Shares of GLW have been amid an impressive comeback since hitting lows in late October, running over +20% following today's move. A constantly depressed economic landscape across its several segments, including Optical Communications, Display Technologies, and Specialty Materials, kept sellers in control. However, as we have seen across many different verticals this year, the tide may be turning, allowing plenty of room for GLW to continue its rally throughout the year.
F5 Networks' encouraging view on demand trends highlights solid Q1 earnings report (FFIV)
For the third consecutive quarter, F5 Networks (FFIV) handily exceeded EPS expectations as cost control efforts and operating discipline drove a substantial expansion in margins, but we believe the company's brighter demand outlook is what really fueled the stock's surge to multi-year highs earlier this morning.
- Following a year that FFIV characterized as one with "extreme customer spending caution", FFIV offered a much more positive take on current demand trends during last night's earnings call. More specifically, CEO Francois Locoh-Donou commented that FFIV is seeing improving systems demand and better predictability from customers, adding that some customers are realizing that investment decisions can no longer by delayed.
- Due to this strengthening demand, FFIV issued upside Q2 revenue guidance of $675-$695 mln. While the midpoint of this guidance range still equates to a projected yr/yr decline of 2.5%, the cause for the drop is related to the backlog headwind FFIV faced last year. As that headwind fades, FFIV should return to growth later this year, assuming these current demand trends remain in place or further improve.
- After plunging by 25% last quarter, systems revenue was down by 22% in Q1, reflecting the lower level of backlog-related shipments. FFIV stated, though, that it's encouraged by improving systems demand and that it's seeing a growing pipeline that's indicative of a strong competitive position.
- On the software side, revenue edged higher by 2% to $170 mln, driven by a 19% jump in perpetual software licenses. Since perpetual licenses are based on upfront, one-time fees, rather than monthly or annual subscriptions, they impact a customer's capital expenditures instead of their operating expenses. FFIV explained that its service provider customers in particular opted to go with perpetual licenses but added that it doesn't believe this change in software revenue mix is indicative of a more permeant change in customer spending behavior.
- The drastic improvement in margins is another key aspect of FFIV's strong performance. Non-GAAP operating margin expanded by a whopping 900 bps yr/yr to 35.5% as operating expenses decreased by about 14% to $391.7 mln. If demand continues to strengthen, then FFIV should attain better sales leverage, providing margins with yet another boost.
Overall, this was another solid earnings report from FFIV and its encouraging commentary regarding improving demand trends is a positive data point for competitors such as Juniper Networks (JNPR), Akamai Technologies (AKAM), and A10 Networks (ATEN).
General Motors is in high gear today as strong upside/guidance fuels its rise today (GM)
General Motors (GM +7%) is nicely higher after it reported Q4 results this morning. GM reported big upside for EPS and revenue. Perhaps even more important, GM guided to FY24 adjusted EPS of $8.50-9.50, which was well ahead of analyst expectations. GM also guided to FY24 adjusted EBIT of $12-14 bln, nicely ahead of the $12.4 bln in FY23. Given the macro headwinds and slowing EV demand, we think investors were happy to see this guidance.
- Adjusted EBIT is the most closely followed metric. It fell 54% yr/yr to $1.76 bln in Q4, with a 4.1% adjusted EBIT margin vs 8.8% in the year ago period. But keep in mind, its Q4 results were impacted by the UAW strikes, which had a $900 mln EBIT-adjusted impact in Q4 and a $1.1 bln impact for the full year, primarily from losing 95,000 units of production.
- GM says that consensus is growing that the US economy, the job market and auto sales will continue to be resilient, and at GM, management expects healthy industry sales of about 16 mln units with the mix of EVs continuing to grow. In 2023, GM sold more vehicles in the US than anyone else with all brands growing sales yr/yr. GM also gained market share with strong margins thanks to stable pricing and incentives that were more than 20% below the industry average.
- Notably, GM passed Honda and Toyota in the most affordable quadrant thanks to attractive and profitable vehicles like the Chevrolet Trax and the Buick Envista, which is winning with younger buyers. On the ICE side, GM is excited about new models like the 2024 Chevrolet Traverse and 2025 Chevrolet Equinox.
- Turning to its EV segment, GM concedes that the pace of EV growth has slowed, which has created some uncertainty. But many third-party forecasts have US EV deliveries rising from about 7% in 2023 and at least 10% in 2024, which would mean another year of record EV sales. GM expects higher production of the Cadillac LYRIQ, GMC HUMMER EV, Chevrolet Blazer EV and Silverado EV Work Truck. GM is also excited to have the Chevrolet Equinox EV and Silverado EV RST, the GMC Sierra EV Denali and the Cadillac Escalade IQ arriving in showrooms over the course of the year. GM expects its US EV portfolio will become variable profit positive in the second half of the year.
- A notable weak spot was China. GM expects ongoing pressure in China, which has resulted in a plan to reduce production in Q1 to balance dealer inventory levels. As such, GM expects Q1 China equity income being a slight loss with a return to profitability starting in Q2.
Overall, we think investors are quite pleased with GM's Q4 results, which could have been worse given the impact of the UAW strikes. The other highlight is the robust guidance for 2024, especially for EPS. There are a lot of macro headwinds, EV demand is slowing and consumers are watching spend. As such, we had fears that GM might offer timid 2024 guidance, but this was a pleasant surprise. We think the guidance is a big reason the stock is strong today. We think this report bodes well for Ford (F), which is set to report next week (Feb 6).
Whirlpool's bearish FY24 guidance sinks its shares today; demand may improve toward 2H24 (WHR)
Disappointing FY24 guidance is sinking Whirlpool (WHR -5%) today. The home appliance giant was already facing reasonably low expectations ahead of its Q4 results. Therefore, even though WHR easily exceeded top and bottom line numbers in Q4, it is struggling to shake its bearish outlook for this year, keeping shares swirling around May 2020 levels.
- WHR projected FY24 adjusted EPS of $13.00-15.00, another lukewarm year for the company following earnings of $16.16 in FY23 and $19.64 in FY22. Adjusted operating margins will likely remain flat yr/yr on a like-for-like basis at 6.8% in FY24.
- Regarding the flat margins, management noted that further reductions to the company's cost structure ($300-400 mln in cost takeout actions) will be offset by an increasing promotional environment (returning to normalization).
- WHR's underwhelming earnings outlook emanates largely from soft sales. The company expects net sales of $16.9 bln, a steep 13.2% drop-off from the $19.46 bln posted in FY23. However, much of the decline can be attributed to WHR's exit from a majority of its EMEA business last year. On a like-for-like basis, FY24 sales growth would be roughly flat compared to FY23. Still, stacked against analyst targets, which, on a like-for-like basis, translated to a meaningful yr/yr increase, WHR's revenue guidance was inadequate.
- Industry demand trends are driving WHR's weaker-than-expected top-line performance this year. The company anticipates a dynamic global industry to register flat to +2% growth, aided by North America, Latin America, and Asia. Conversely, European economic conditions remain bearish due to ongoing negative consumer sentiment.
- A few housekeeping items to note: With the anticipated close of its EMEA transaction, WHR updated its segment reporting structure. WHR also announced its intention to sell up to 24% of its India business, retaining a majority interest. Management expressed its enthusiasm for the long-term potential of the market in India. However, because of such firm growth prospects, WHR decided to sell a piece of this business at attractive valuations.
There were a few silver linings from the quarter worth highlighting. The company registered a decent-sized adjusted EPS beat in Q4 on accelerating yr/yr revenue growth of 3.4% to $5.09 bln. Management also remained optimistic about ongoing trends, including robust replacement demand following four years of elevated usage, shrinking the average life of appliances. Meanwhile, housing starts trended higher in 2H23. Just as WHR is disproportionately hurt by slowing new housing demand, it is also disproportionately helped by accelerating new construction demand. Also, discretionary demand should improve toward 2H24 as interest rates moderate.
Bottom line, while WHR's FY24 guidance is frustrating, the winds may finally be shifting as housing starts pick up, interest rates come down, and inflation eases. WHR remains an enticing turnaround story, with shares down around 25% over the past year and 50% from May 2021 highs. The company also appears committed to sustaining its attractive dividend of 5.9%, calling attention to its healthy balance sheet, boasting approximately $1.6 bln cash on hand to fund dividends and reduce debt.
|
