| | | Market Snapshot
briefing.com
| Dow | 38519.84 | +369.54 | (0.97%) | | Nasdaq | 15361.64 | +197.63 | (1.30%) | | SP 500 | 4906.19 | +60.54 | (1.25%) | | 10-yr Note | +27/32 | 3.86 |
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| | NYSE | Adv 2175 | Dec 620 | Vol 997 mln | | Nasdaq | Adv 2805 | Dec 1488 | Vol 5.0 bln |
Industry Watch
| Strong: Consumer Discretionary, Communication Services, Information Technology, Materials, Consumer Staples, Industrials |
| | Weak: Energy |
Moving the Market
-- Mega caps rallying after underperforming yesterday ahead of earnings from influential names in the space
-- Broad buying activity after yesterday's slide
-- Drop in Treasury yields supporting equities; 10-yr yield staying below 4.00%
-- Ongoing weakness in bank stocks following huge loss yesterday for New York Community Bank (NYCB)
| Closing Summary
01-Feb-24 16:25 ET
Dow +369.54 at 38519.84, Nasdaq +197.63 at 15361.64, S&P +60.54 at 4906.19
[BRIEFING.COM] Stocks had a strong showing today. The Dow Jones Industrial Average (+1.0%) won back everything it lost in yesterday's broad FOMC-triggered retreat, closing near its high of the day. The S&P 500 (+1.3%), Nasdaq Composite (+1.3%), and Russell 2000 (+1.4%) also closed near their best levels of the session with solid gains.
Mega cap gains were impactful for index performance in front of influential earnings reports from the space this afternoon, but just about everything came along for the upside moves today. 23 of the 30 Dow components closed with gains, led by Merck (MRK 126.38, +5.60, +4.6%) after reporting better than expected earnings and above-consensus FY24 EPS guidance.
Eight of the 11 S&P 500 sectors gained more than 1.0%, led by the consumer discretionary (+2.0%), consumer staples (+2.0%), and utilities (+1.9%) sectors. The lone laggard to close with a loss was the energy sector (-0.1%), dropping alongside oil prices ($73.78/bbl, -2.02, -2.7%).
Today's everything rally was briefly interrupted around mid-morning due to renewed weakness in regional bank stocks. This followed a huge loss yesterday in shares of New York Community Bank (NYCB 5.75, -0.72, -11.1%) after the bank slashed its dividend due in part to weakness in its commercial real estate portfolio.
The index level deterioration was short-lived and stocks quickly found upside momentum again. Even NYCB recovered somewhat after being down as much as 14.8% at its low.
Other bank stocks also underperformed the broader market, but like NYCB, recovered slightly from earlier losses. The SPDR S&P Regional Banking ETF (KRE) was down 6.3% at its low, but closed with a 3.1% decline. The SPDR S&P Bank ETF (KBE) was down 4.9% earlier, but settled with a 2.1% loss.
Elsewhere, Treasuries settled with gains again today. The 10-yr note yield fell ten basis points to 3.86% and the 2-yr note yield fell four basis points to 4.19%.
As a reminder, the January Employment Situation report will be released tomorrow at 8:30 ET.
- S&P 500: +2.9%
- Nasdaq Composite: +2.3%
- Dow Jones Industrial Average: +2.2%
- S&P Midcap 400: -0.5%
- Russell 2000: -2.6%
Reviewing today's economic data:
- Weekly Initial Claims 224K; Prior was revised to 215K from 214K; Weekly Continuing Claims 1.898 mln; Prior was revised to 1.828 mln from 1.833 mln
- The key takeaway from the report is that it shows some softening in labor market conditions that remain consistent with the soft landing outlook.
- Q4 Productivity-Prel 3.2% (Briefing.com consensus 2.1%); Prior was revised to 4.9% from 5.2%; Q4 Unit Labor Costs-Prel 0.5% (Briefing.com consensus 1.9%); Prior was revised to -1.1% from -1.2%
- The key takeaway from the report is the tame increase in unit labor costs. That is being seen by the market as another inflation-friendly signal for the Fed to take into account as it considers when it might cut rates.
- January S&P Global US Manufacturing PMI - Final 50.7; Prior 50.3
- December Construction Spending 0.9% (Briefing.com consensus 0.4%); Prior was revised to 0.9% from 0.4%
- The key takeaway from the report is that there was solid construction spending activity in both the private and public sector, with private construction up 11.8% year-over-year and public construction up 21.3% year-over-year.
- January ISM Manufacturing Index 49.1% (Briefing.com consensus 47.3%); Prior was revised to 47.1% from 47.4%
- The key takeaway from the report is that the contraction in manufacturing isn't gaining steam. The index hovers near the breakeven mark of 50.0%, which will continue to play into the market's soft landing outlook.
Friday's economic calendar features:
- 8:30 ET: January Nonfarm Payrolls (Briefing.com consensus 175,000; prior 216,000), Nonfarm Private Payrolls (Briefing.com consensus 150,000; prior 164,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), Unemployment Rate (Briefing.com consensus 3.8%; prior 3.7%), and Average Workweek (Briefing.com consensus 34.4; prior 34.3)
- 10:00 ET: December Factory Orders (Briefing.com consensus 0.3%; prior 2.6%) and final January University of Michigan Consumer Sentiment survey (Briefing.com consensus 78.8; prior 78.8)
Treasuries settle with gains; Employment Situation Report for Jan. tomorrow at 8:30 ET
01-Feb-24 15:35 ET
Dow +334.59 at 38484.89, Nasdaq +198.55 at 15362.56, S&P +56.30 at 4901.95
[BRIEFING.COM] The market is slowing moving higher ahead of the close. The market-cap weighted S&P 500 is up 1.2% and the equal-weighted S&P 500 is up 1.0%.
The Russell 2000 was underperforming earlier, due to weak regional bank components, but it sports a 1.2% gain heading into the close.
Treasuries settled with gains again. The 10-yr note yield fell ten basis points to 3.86% and the 2-yr note yield fell four basis points to 4.19%.
Tomorrow's economic calendar features the January Employment Situation report at 8:30 ET.
S&P 500 testing 4,900 at high of the day
01-Feb-24 15:00 ET
Dow +316.56 at 38466.86, Nasdaq +191.44 at 15355.45, S&P +53.90 at 4899.55
[BRIEFING.COM] The S&P 500 is testing the 4,900 level at its high of the day.
Apple (AAPL), Amazon.com (AMZN), and Meta Platforms (META) headline the earnings reports after the close. U.S. Steel (X), DXC Technology (DXC), Eastman Chemical (EMN), Skechers USA (SKX), Post (POST), Clorox (CLX), Microchip (MCHP), and others also report earnings this afternoon.
Separately, WTI crude oil futures settled 2.7% lower at $73.78/bbl.
Corteva, FMC among top gainers in S&P 500 on Thursday
01-Feb-24 14:30 ET
Dow +257.52 at 38407.82, Nasdaq +164.04 at 15328.05, S&P +45.50 at 4891.15
[BRIEFING.COM] The S&P 500 (+0.94%) is in second place once more on Thursday afternoon.
Elsewhere, S&P 500 constituents Corteva (CTVA 53.65, +8.17, +17.96%), FMC Corp (FMC 60.83, +4.63, +8.24%), and Etsy (ETSY 71.89, +5.33, +8.01%) pepper the top of the standings. CTVA reported earnings, FMC is schedule to report next week, while ETSY pops after news it added Elliott Investment Management's Marc Steinberg to the Board.
Meanwhile, Aflac (AFL 76.07, -8.27, -9.81%) is underperforming following last night's Q4 miss.
Gold recoups overnight losses on Thursday
01-Feb-24 14:00 ET
Dow +253.70 at 38404.00, Nasdaq +144.47 at 15308.48, S&P +42.82 at 4888.47
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.95%) holds onto the lead.
Gold futures settled $3.70 higher (+0.2%) to $2,071.10/oz, helped higher by modest losses in yields and the greenback.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $103.07.
Qualcomm's upside Q1 report clouded over by underwhelming outlook for 2024 handset growth (QCOM)
Qualcomm (QCOM), a leading chip developer for the smartphone market, delivered solid Q1 results that easily beat top and bottom-line expectations, but a tempered outlook for the global handset market in 2024 is creating some disappointment and weighing on shares. QCOM's Q2 EPS and revenue guidance was in line with analysts' estimates, but with the stock up by nearly 40% since early last November, investors were hoping for more.
- With the smartphone market emerging from a deep and prolonged inventory correction, optimism was building that growth would return in a meaningful way this year. QCOM threw some cold water on those hopes last night, forecasting global handset units to be flat to slightly up on a yr/yr basis in 2024. This outlook indicates that the recovery will be slower than some had anticipated.
- QCOM also reiterated its FY24 estimate for growth in the high-single-digit to low-double-digit range for the 5G handset market, which is the company's primary target market. Again, there may be some disappointment that the company didn't nudge that forecast higher from last quarter, but we believe it's sensible to take a more cautious approach given the macroeconomic headwinds.
- That said, handset demand for Android phones in China was stronger than QCOM anticipated with revenue from Chinese OEMs exceeding its forecast of greater than 35% sequential growth. This strength fueled a 16% yr/yr increase in total handset revenue to $6.69 bln, also exceeding QCOM's expectations. However, this suggests that demand for iPhones may have been a bit soft, which is a possible negative data point ahead of Apple's (AAPL) Q1 earnings report tonight.
- Another issue that's likely hitting the stock today is that QCOM isn't anticipating momentum to build for Android in Q2, estimating revenue to by approximately flat qtr/qtr.
- Perhaps the biggest surprise from the report was the sharp acceleration in growth for the automotive business. Following an increase of 15% last quarter, revenue growth for automotive more than doubled to 31%. This stands in stark contrast to Mobileye Global (MBLY), another chip maker focused on ADAS and self-driving technology, which saw revenue growth slow to just 13% in Q4, while it also slashed its FY24 revenue guidance earlier in January due to an inventory correction.
- QCOM's growth is driven by increased content in new vehicle launches with its Snapdragon digital chassis platform. In 2023, 75 new models were launched with QCOM technologies.
- While QCOM didn't appear to be impacted by the inventory drawdown in the automotive market in Q1, it wasn't so fortunate in the IoT business where revenue plunged by 32% to $1.14 bln. The good news is that it appears that IoT has bottomed out. For Q2, QCOM is forecasting IoT revenue to grow by mid-to-high single digits on a sequential basis.
The main takeaway is that QCOM delivered a pretty strong earnings report as healthy demand for Android handsets and accelerating growth in the automotive segment fueled better-than-expected results. However, QCOM's outlook for handset growth in 2024 indicates that the recovery will be more gradual than some had anticipated.
Qorvo makes a strong move following earnings beat, Android channel inventories improving (QRVO)
Qorvo (QRVO +4%) is trading higher after reporting Q3 (Dec) earnings last night. The chipmaker beat handily on EPS and reported solid revenue upside. It also guided to upside EPS for Q4 (Mar), while the mid-point of revenue guidance was also above analyst expectations. In addition to earnings, Qorvo said it will acquire Anokiwave, a chipmaker that focuses on D&A, SATCOM and 5G applications.
- Qorvo said that demand for its products has improved, primarily due to its proactive efforts to align channel inventories with end market demand and content gains on key customer programs. Beginning with HPA (High Performance Analog), customer demand in end markets, excluding base station, is improving and supports Qorvo's view for a return to yr/yr HPA growth in MarQ.
- In power management, Qorvo says it is extending its reach in wearables and other consumer products. Qorvo has begun to see a rebound in SSDs for PC and enterprise markets. In automotive, design activity remains strong not only for onboard chargers, but also for other emerging applications and EVs. In infrastructure, Qorvo says it is leading the DOCSIS 4.0 upgrade cycle. However, Qorvo expects demand conditions to remain soft through calendar 2024 for the cellular base station market. In Wi-Fi, design activity and collaboration remained strong across reference designs, customers, and operators.
- Smartphones are a big part of Qorvo's business. Its two largest customers are Apple (AAPL) at 37% of FY23 sales and then Samsung at 12%. Within the Android ecosystem, channel inventories have been a problem. However, Qorvo now says the demand environment for mobile Wi-Fis is improving with the normalization of Android channel inventories. Qorvo has been working with customers to bring channel inventories down, and now shipments are more closely aligned with end market demand.
- Qorvo is also seeing incremental improvement in end market demand in the Android ecosystem. For calendar 2024, Qorvo expects total smartphone units to grow in low single-digits, with 5G units growing over 10%. Long term, Qorvo noted that Android mass-market smartphones are set to transition to 5G throughout the decade. With its collaboration with Android customers on their long-term product road maps, Qorvo expects to be a primary beneficiary as these new 5G units come to market.
Overall, investors seem relieved by Qorvo's results and guidance. The stock had pulled back in recent weeks, heading into this report. There have been concerns about channel inventories being too high for smartphones. However, Qorvo eased investor concerns as the situation seems to be improving. We think this report bodes well for Cirrus Logic (CRUS), which reports next week (Feb 6). We also like the Anokiwave deal, which provides further diversification for Qorvo with more exposure to defense markets..
Honeywell's Q4 sales miss and mild FY24 revenue guidance spurs a chilly reception today (HON)
Honeywell's (HON -3%) Q4 results are experiencing a chilly reception today. While the global aerospace, industrials, and technology giants eked out a beat on its bottom line in the quarter, revenue fell short of expectations. Making the matter more troubling was weak FY24 revenue guidance, with the Dow component's range of $38.1-38.9 bln missing estimates. At the same time, the midpoint of HON's FY24 adjusted EPS outlook was slightly below consensus. HON also announced a new Chairman, naming current CEO Vimal Kapur as outgoing Chairman Darius Adamczyk's successor, effective in June.
- Revenue expanded by 2.8% yr/yr in Q4 to $9.44 bln, led by an 11th consecutive quarter of double-digit commercial aerospace growth. HON's impressive streak in the aerospace industry is similar to peer General Electric (GE), whose aerospace segment helped lift FY23 revenues by 17% yr/yr. However, while Aerospace is HON's largest segment, comprising 37% of FY23 sales, relative weakness across the company's other business weighed on overall growth in the quarter.
- Honeywell Building Technologies (HBT) and Safety & Productivity Solutions (SPS), which combined for 31% of FY23 sales, both saw declining yr/yr revenue growth in Q4, falling by 1% and 24%, respectively. HBT endured a modest decline in short-cycle building products, overshadowing relative strength in building technology sales. Meanwhile, SPS saw lower volume, elevated cost inflation, and ongoing distributor destocking.
- HON did warn of lingering headwinds persisting into Q4 during its Q3 conference call in October, mainly due to SPS bouncing along the bottom of the cycle. However, it was mildly overambitious when it narrowed its FY23 revenue outlook last quarter, removing the worst-case scenario of $36.7 bln which ultimately unfolded.
- Still, despite lighter-than-anticipated revenue, HON improved its adjusted earnings by 3.2% yr/yr to $2.60, assisted by a 60 bp improvement in segment margins yr/yr to 23.5%. Following the modest earnings beat in Q4, HON exceeded the midpoint of its FY23 forecast.
- Looking ahead, a short-cycle recovery may begin materializing toward the second half of FY24, creating a back-half weighted outlook. HON expects adjusted EPS of $9.80-10.10 and revs of $38.1-38.9 bln, both translating to decent yr/yr growth. HON's segment margins are expected to tick 30-60 bps higher in FY24, supported by an improved business mix, ongoing cost discipline, and productivity actions. Aerospace will remain a key driver of overall growth supported by record-level backlog.
Overall, HON is cautious about the macroeconomic environment. Aerospace may continue to shine, expectations held by GE, but pockets of softness across HON's other businesses create overarching uncertainty. As a result, waiting until closer to the back half of the year may be beneficial as it would provide further clarity on whether a recovery is actually materializing.
The Cigna Group aims for healthier profits with divestiture of Medicare Advantage business (CI)
Plagued by sharply rising medical expenses as members increasingly utilize their plans, the Medicare Advantage business has battered the health insurance industry and now The Cigna Group (CI) has decided to head for the exits. Before this morning's opening bell, the Wall Street Journal reported that CI was looking to sell its Medicare unit to Health Care Service Corporation (HCSC), following a Reuters report from early last November that stated a deal for the unit could be in the works.
That possibility turned into reality with CI confirming that it entered into an agreement to sell its Medicare business and CareAllies to non-profit health insurer HCSC for approximately $3.7 bln.
- Looking back, perhaps the writing was on the wall that CI was aiming to move away from the Medicare business. Recall that on December 11, CI and competitor Humana (HUM) decided to scrap their merger plans, providing a sigh of relief for CI shareholders.
- Not only would that deal have been dilutive to CI's earnings since it would have largely been financed with stock, but it also would have substantially increased its exposure to the profit-squeezing Medicare business.
- With over 5.4 mln members, HUM is the country's second largest Medicare insurer. In contrast, CI only has about 600,000 members and it generates the majority of its revenue from corporate health insurance and its pharmacy benefits business.
- Simply put, the relatively small size of the Medicare Advantage business is no longer worth the hassle for CI -- especially as medical costs are going through the roof. CEO David Cordani touched on this premise, stating, "... While we continue to believe the overall Medicare space is an attractive segment of the healthcare market, our Medicare businesses require sustained investment, focus, and dedicated resources disproportionate to their size within The Cigna Group's portfolio..."
- The Medicare space is indeed growing due to demographic trends, but there seems to be no relief in sight on the cost side. When HUM issued its dismal Q4 earnings report last week, it also slashed its FY24 EPS guidance and pulled the plug on its FY25 outlook due to rising Medicare Advantage utilization rates and changes in federal payments for some Medicare plans.
- Considering the stiff headwinds facing the Medicare Advantage business, it's sensible for CI to sell it off and use the proceeds on earnings enhancing initiatives. That is precisely what the company intends to do, stating that it will use the majority of proceeds for share repurchases, which is music to investors' ears.
- This comes on the heels of CI increasing its share repurchase program to $10 bln on the day that it walked away from the HUM deal.
The main takeaway is that while the divestiture of the Medicare Advantage business will create a void in its portfolio, CI's earnings should benefit in the long run as it steers clear of rising medical costs in that business and as it buys back stock from the sale proceeds. On that note, CI reaffirmed its FY24 EPS guidance less than one week after HUM drastically reduced its EPS forecast.
Starbucks runs low on caffeine, wipes out earlier gains after DecQ results (SBUX)
Starbucks (SBUX) is running low on caffeine as it returns its initial gains today, following relatively underwhelming Q1 (Dec) results. The coffee retail behemoth originally gapped higher despite missing earnings and sales estimates in the quarter. Even during the company's conference call, when it merely reiterated its FY24 EPS growth forecast while reducing its revenue and comp estimates, the market continued to like what it saw. However, upon further digestion, investors are beginning to take greater notice of the mild headline results in Q1, as well as some concerning remarks over the underlying factors in SBUX's unappetizing growth.
- Adjusted EPS did climb 20% yr/yr to $0.90 on a 130 bp improvement in global operating margins to 15.8%, a testament to the ongoing success of SBUX's "Reinvention" savings plan. The company is amid a three-year $3.0 bln cost-savings plan, helping offset some of the adverse effects of a relatively challenging global economy.
- However, speaking of economic challenges, revenue growth dipped back to single-digit territory in Q1 after three straight quarters of double-digit growth. SBUX registered total sales growth of 8.2% yr/yr to $9.43 bln, below its previous FY24 (Sep) outlook. Meanwhile, comps edged +5% higher globally, comprised of a +5% jump in North America and +7% in International. Global comp growth landed toward the lower end of SBUX's prior full-year forecast.
- Headwinds began to crop up in November, halting the positive momentum SBUX experienced throughout August, September, and October. Management pointed to three primary issues, starting with the Middle East conflict. The events that unfolded in the Middle East not only hindered demand for SBUX locations around the area but also led to a material drop in demand in the U.S. due to misperceptions about the company's position. Finally, China's economic recovery is materializing slower than SBUX anticipated.
- Further on China, SBUX still recorded +10% same-store sales in the region, consistent with its previous remarks, aided by a 21% jump in comparable transactions, partially offset by a 9% decrease in average ticket. However, the company did lower its FY24 comp target to low-single-digits, down from +4-6%.
- SBUX immediately took the appropriate actions to remedy these headwinds, implementing offers to nudge occasional customers into its loyalty program and activating new advancements in its data analytics tools to identify and incentivize Rewards members. Nonetheless, it will take time before these actions result in tangible benefits.
- As a result, SBUX lowered its FY24 revenue and comp projections, targeting +7-10% and +4-6%, respectively, down from +10-12% and +5-7%. On the flip side, SBUX reiterated its EPS and global store growth estimates of +15-20% and +7%, respectively.
SBUX's Q1 results were lacking, especially compared to Q4 (Sep) numbers which were underpinned by robust upward momentum heading into Q1. While this momentum was halted toward the end of the quarter, we view the headwinds that plagued Q1 performance and, subsequently, FY24 estimates as surface issues that can be resolved relatively quickly as opposed to deeper structural problems.
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