| | | Market Snapshot
briefing.com
| Dow | 38654.42 | +134.58 | (0.35%) | | Nasdaq | 15628.95 | +267.31 | (1.74%) | | SP 500 | 4958.61 | +52.42 | (1.07%) | | 10-yr Note | -56/32 | 4.03 |
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| | NYSE | Adv 891 | Dec 1878 | Vol 922 mln | | Nasdaq | Adv 1562 | Dec 2660 | Vol 4.8 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Information Technology, Industrials, Financials, Energy, Consumer Staples |
| | Weak: Real Estate, Utilities, Materials |
Moving the Market
-- Shares of Meta Platforms (META) surging more than 20%, Amazon.com (AMZN) up more than 7% on earnings news
-- Apple (AAPL) down more than 2% after earnings
-- Reacting to a much stronger than expected January jobs report
-- Jump in yields in response to the jobs report
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Closing Summary
02-Feb-24 16:25 ET
Dow +134.58 at 38654.42, Nasdaq +267.31 at 15628.95, S&P +52.42 at 4958.61
[BRIEFING.COM] The S&P 500 (+1.1%) and Dow Jones Industrial Average (+0.4%) set fresh record closing highs today. The Nasdaq Composite logged a 1.7% gain, settling near its high of the day. The A-D line was negative, though, at both the NYSE and at the Nasdaq, and the equal-weighted S&P 500 logged a 0.1% decline.
Big gains in shares of Meta Platforms (META 474.99, +80.21, +20.3%) and Amazon.com (AMZN 171.81, +12.53, +7.9%) following pleasing earnings news drove index level upside moves, along with strength in other mega caps like NVIDIA (NVDA 661.57, +31.30, +5.0%). The Vanguard Mega Cap Growth ETF (MGK) jumped 2.2%.
Even Apple (AAPL 185.85, -1.01, -0.5%) briefly turned positive when the market was at session highs after being down as much as 4% earlier today following relatively disappointing outlook for fiscal Q2 iPhone sales.
The negative bias under the index surface was related to this morning's release of the much stronger than expected Employment Situation Report for January. The report featured a big upside surprise in payroll growth that was accompanied by a larger than expected increase in average hourly earnings.
This report is not likely to persuade the FOMC to cut rates as soon, or as much, as the market had hoped. As a result, the fed funds futures market repriced the probability of a 25-basis points rate cut at the March FOMC meeting to 20.5% (from 38.0% yesterday and 47.6% one week ago) while the probability of a 25-basis points rate cut at the May FOMC meeting has been reduced to 74% (from 93.8% yesterday), according to the CME FedWatch Tool.
The jobs report sent Treasury yields higher, which contributed to the underlying negative bias in the stock market. The 10-yr note yield rose 17 basis points today, and fell 13 basis points this week, to 4.03%. The 2-yr note yield rose 19 basis points today, and declined two basis points this week to 4.38%.
The jump in rates weighed on the rate-sensitive S&P 500 real estate (-1.3%) and utilities (-1.8%) sectors, which saw the steepest declines among the five sectors to finish lower.
Meanwhile, the communication services sector jumped 4.7% thanks to the huge gain in META. The consumer discretionary (+2.5%) and information technology (+1.3%) sectors were right behind the communication services sector on the leaderboard today. The industrial (+0.7%), financial (+0.5%), and energy (+0.2%) sectors also registered gains.
- S&P 500: +4.0%
- Nasdaq Composite: +4.1%
- Dow Jones Industrial Average: +2.6%
- S&P Midcap 400: -0.5%
- Russell 2000: -3.3%
Reviewing today's economic data:
- The January employment report showed headlines for the key metrics -- nonfarm payrolls, private sector payrolls, the unemployment rate, and average hourly earnings -- that were stronger than expected (much stronger for the payrolls data). The report had a few quirks, too, namely a notable drop in the average workweek to 34.1 hours from 34.3 hours, benchmark revisions that showed nonfarm payroll employment in November and December combined 126,000 higher than previously reported, and updated population estimates that decreased the estimated size of the civilian noninstitutional population by 625,000 and the civilian labor force by 299,000 in December.
- The key takeaway, though, is that it is apt to be construed by the Fed as a report that, on balance, fits its current base case for seeing a March rate cut as unlikely.
- The final reading for the University of Michigan Consumer Sentiment Index for January came in at 79.0 (Briefing.com consensus 78.8), up from the preliminary reading of 78.8 and the final reading of 69.7 for December. In the same period a year ago, the index stood at 64.9. The January reading represents the highest level for the index since July 2021.
- The key takeaway from the report is that the increase in sentiment reflects an improved view of inflation and personal incomes that should bode well for consumer spending activity.
- Factory orders increased 0.2% month-over-month in December (Briefing.com consensus 0.3%) after increasing 2.6% in November. Excluding transportation, factory orders increased 0.4% on the heels of a 0.2% increase in November. Shipments of manufactured goods were flat following a 0.5% increase in November.
- The key takeaway from the report is the recognition that business spending continued to increase in December, which is a helpful consideration for the soft landing view.
Monday's economic calendar features:
- 9:45 ET: Final January S&P Global U.S. Services PMI (prior 51.4)
- 10:00 ET: January ISM Non-Manufacturing PMI (prior 50.5)
Treasuries settle with losses today, but gains on the week
02-Feb-24 15:35 ET
Dow +206.79 at 38726.63, Nasdaq +272.01 at 15633.65, S&P +66.05 at 4972.24
[BRIEFING.COM] The major indices remain near their best levels of the session ahead of the close.
Treasuries settled with solid losses today, but still registered gains this week. The 10-yr note yield rose 17 basis points today, and fell 13 basis points this week, to 4.03%. The 2-yr note yield rose 19 basis points today, and declined two basis points this week to 4.38%.
Separately, WTI crude oil futures fell 2.2% to $72.13/bbl.
AAPL gains propel upside moves
02-Feb-24 15:00 ET
Dow +237.56 at 38757.40, Nasdaq +284.01 at 15645.65, S&P +63.15 at 4969.34
[BRIEFING.COM] The market continues to climb. Recent upside moves coincided with Apple (AAPL 187.03, +0.19, +0.1%) recovering from its earlier loss. Shares had been down as much as 4% at its low of the day.
Chicago Fed President Austan Goolsbee (not an FOMC voter) said that the January jobs report is not likely to impact near term monetary policy, according to The Wall Street Journal.
Looking ahead to next week, the January ISM Non-Manufacturing PMI will be released at 10:00 ET on Monday.
Edwards Lifesciences gains after Evoque tricuspid valve gets FDA approval, CHTR slips on EPS miss
02-Feb-24 14:30 ET
Dow +176.60 at 38696.44, Nasdaq +279.98 at 15641.62, S&P +59.03 at 4965.22
[BRIEFING.COM] The S&P 500 (+1.20%) is firmly in second place on Friday afternoon, up now about 59 points.
Elsewhere, S&P 500 constituents Edwards Lifesciences (EW 85.30, +6.59, +8.37%), Etsy (ETSY 76.40, +3.78, +5.21%), and Grainger (GWW 970.97, +48.33, +5.24%) dot the top of the standings. EW gains after getting FDA approval for its Evoque tricuspid valve, while GWW advances in light of this morning's Q4 earnings beat.
Meanwhile, Charter Comm (CHTR 320.12, -62.22, -16.27%) is today's top laggard following this morning's Q4 miss.
Gold trims weekly gains on Friday as yields, dollar rally
02-Feb-24 14:00 ET
Dow +127.83 at 38647.67, Nasdaq +246.81 at 15608.45, S&P +51.56 at 4957.75
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.61%) holds a decent lead among the major averages.
Gold futures settled $17.40 lower (-0.8%) to $2,073.40/oz, up +1.8% this week, pressured today following stronger than expected jobs data.
Meanwhile, the U.S. Dollar Index is up about +0.9% to $103.97.
Intel's plan to delay plant construction chips away at confidence after rough Q1 guidance (INTC)
It's been a rough week for chip maker Intel (INTC), which is down by nearly 15% since releasing a Q4 earnings report on January 25 that included weak Q1 EPS and revenue guidance that badly missed expectations. The news isn't much better today after the Wall Street Journal reported that the company is pushing out the timeline on the construction of its $20 bln Ohio manufacturing facility project.
Now, construction isn't expected to be completed until 2026, which means that revenue generation from the facility may not occur until 2H26 or later. Initially, INTC targeted production at the Ohio plant to begin next year.
- According to the Wall Street Journal, the decision is partly due to delays in receiving grant money from the federal government. About two years ago, The Chips Act was passed, allocating approximately $53 bln in incentives for semiconductor companies to expand the country's semiconductor manufacturing base. So far, no money has been granted, but it's expected that the government will begin doling out cash in the coming weeks.
- If INTC is anticipating receiving capital in the near future, then it stands to reason that there's another cause behind the postponement. There within lies the issue because if INTC was expecting a rush of demand to materialize this year and into 2025, then it would be stepping on the accelerator, rather than the brakes.
- INTC's core PC market is experiencing a recovery, as illustrated by the 33% yr/yr jump in Q4 revenue to $8.8 bln. Additionally, the company has repeatedly expressed confidence in its ability to capture a lucrative opportunity in this AI technology wave, particularly in creating chips that run AI programs existing in new data centers, as well as those that help power new PC and smartphone models featuring AI applications.
- However, INTC is dialing back its expectations -- at least in the short-term -- as reflected in its dismal Q1 guidance. Although the company blamed an inventory correction within Mobileye Global's (MBLY) customer base for the soft outlook, its Data Center and AI (DCAI) segment is also still struggling to gain traction after falling far behind NVIDIA (NVDA) in the AI race. INTC's decision to delay construction on the new facility doesn't inspire confidence that it expects to gain significant ground on NVDA any time soon.
The main takeaway is that INTC's plan to push back construction on the Ohio facility chips away at investors' confidence. On the positive side, the company has disclosed that it has secured $10 bln in commitments for its foundry business, providing it with a solid initial pipeline. That's a good start, but for this manufacturing expansion plan to really pay off, INTC will need to increase that number exponentially.
Clorox cleans up after crushing DecQ estimates, aided by rapid inventory rebuilding (CLX)
Clorox (CLX +5%) is cleaning up today after releasing its Q2 (Dec) report, crushing earnings estimates and issuing bullish FY24 (Jun) guidance. Underpinning such outsized performance from the cleaning product supplier, which owns familiar household brands like Glad and Burt's Bees, was a rapid rebuild of retailer inventories following a cyberattack this past September. In response to the attack, CLX took certain systems offline, sparking severe consumer product availability problems.
Shares were stuck in freefall after the attack, hitting five-year lows in late October as investors feared the worst. However, as a testament to CLX's operational excellence, the company built back its shelf position with a vengeance, coming in ahead of schedule (management said last quarter that recovery would "take some time").
The market may have been fearing brand erosion after the cyber breach. CLX competes heavily with private labels, given how simple it is to replicate a cleaning product or a trash bag. The cyber attack coinciding with cumulative inflationary pressures made trade-down more likely. However, management noted today that throughout its out-of-stock period and recovery, it maintained its robust brand superiority results as measured by its internal metrics, reflecting powerful brand loyalty.
- With its shelf position back on track, CLX toppled analyst expectations in the quarter, posting adjusted EPS of $2.16, more than double the year-ago figure, and revs of $1.99 bln, a 16% jump yr/yr and a complete 180 from the -20% drop posted last quarter.
- Growth stemmed from all segments. In Health and Wellness, CLX delivered a 25% net sales increase, driven primarily by volume, which added 22 pts. Lifestyle sales fared similarly, expanding its top line by 21%, again fueled by volumes. Household and International growth lagged but were still positive, both climbing by 9% on meaningful volume gains.
- CLX anticipates its upward momentum to carry through for the rest of FY24, raising its adjusted EPS outlook to $5.30-5.50 from $4.30-4.80 and net sales growth to be down by just low single digits, an improvement from its previous forecast of a mid to high single-digit decline.
CLX still sees a challenging operating environment due to the sticky behaviors of a more value-seeking end consumer. However, the company remains committed to delivering ongoing revenue and margin expansion following the cyberattack late last year. After such an impressive recovery after such a significant setback, we like CLX's ability to maintain its positive momentum this year, leaving plenty of upside. If out-of-stock conditions cannot displace CLX's leadership position, it is hard to speculate what can.
Amazon in Prime position following solid Q4 beat last night; op inc upside and AWS stood out (AMZN)
Amazon (AMZN +7%) is in Prime position today as the stock trades sharply higher following Q4 results last night. Amazon reported strong upside for both EPS and revenue. Maybe the best metric was operating income jumping 383% yr/yr to $13.21 bln, well ahead of prior guidance of $7-11 bln. AMZN guided to Q1 operating income of $8-12 bln, which was strong as well. AMZN also guided to Q1 in-line revs of $138.0-143.5 bln, after guiding lower last quarter.
- Let's start with the Stores segment. Shopping events throughout the quarter included Prime Big Deal Days in October and its extended Black Friday and Cyber Monday shopping event, which helped to attract new Prime members. Co also made meaningful progress on delivery speeds which helped sales throughout the quarter including notable strength in last minute gifting. Speed improvements have led to increased purchase frequency by Prime members.
- We really saw the benefit in this holiday quarter of Amazon's decision in 2023 to move from a single national fulfillment network in the US to eight distinct regions. Regional fulfillment clusters with higher local in-stock levels means shorter distances and fewer touches to get items to customers. This lowers costs and results in quicker deliveries. AMZN has also expanded its same day facilities, which increased items delivered the same day or overnight in the US by more than 65% yr/yr.
- Turning to AWS, this segment posted +13% growth in constant currency (CC), which was the first sequential increase in a long time. It was slightly better than the +12% CC we saw in both Q2 and Q3. AWS had been in a downward trend from +16% CC in Q1, +20% CC in Q4, +28% CC in Q3 etc. The uptick was also good to see in light of Azure's strong result this week. It looks like there is enough to eat for everyone.
- AWS is now approaching an annualized revenue run rate of $100 bln. While cost optimization continued to attenuate, AMZN noted that larger new deals also accelerated. For example, AMZN recently signed deals with Salesforce, BMW, NVIDIA, LG etc. AMZN says its customer pipeline remains strong as existing customers are renewing at larger commitments over longer periods and migrations are growing.
- Turning to Advertising Services, segment revenue grew +26% CC to $14.65 bln. Growth has been ticking higher in recent quarters: +25% CC in Q3, +22% CC in Q2, +23% CC in Q1 and +23% CC in Q4. Segment growth is primarily driven by sponsored ads. Amazon recently added sponsored TV in the US, a self-service platform for brands to create streaming TV campaigns with no minimum spend. This puts video advertising within reach of any business. That seems to have helped in Q4.
Overall, this Q4 report was quite impressive all around. While the top line growth was good to see, what strikes us are the big improvements in operating income. AMZN's results took a hit in recent years when AMZN decided to spend to increase efficiencies and lower costs. Its regionalization project was a big part of that. But now we are seeing the benefits to the bottom line as higher speeds lead to increased purchase frequency. We also think investors had concerns about AWS following Microsoft Azure's strong performance this week. Azure said it was taking share, but AWS performed quite well and its comment about signing larger deals was encouraging. AMZN shares ticked lower on the Azure results, but are recovering nicely today.
Apple inches lower on disappointing China sales and Q2 (Mar) revenue guidance (AAPL)
There was plenty to like from Apple's (AAPL) Q1 (Dec) report yesterday after the close. The iPhone maker cleared top and bottom-line expectations, exceeding iPhone and Services sales estimates. However, Q2 (Mar) revenue guidance signaled a steep sequential decline, predicting a similar performance as the year-ago quarter. Apple's guidance also backed out a $5.0 bln adverse impact the company estimated was pulled forward in the year-ago period after supply chain constraints hindered sales in late 2022. Meanwhile, China revs lagged meaningfully. As a result, investors are left feeling slightly let down, sparking a modest pullback today.
- For the second straight quarter, Apple delivered iPhone sales above street estimates, registering 6.0% growth yr/yr to $69.7 bln. Services recorded even more robust growth, jumping by 11.3% to $23.1 bln. These two categories performing well across most geographies, particularly in Europe and the Asia Pacific, excluding China, where revenue set records, propelled Apple's total revenue firmly above its flat forecast, expanding by 2.1% to $119.6 bln.
- Regarding China, sales reached $20.8 bln, down 13.2% yr/yr. On a constant currency basis, iPhone sales slipped by mid-single digits, driving much of the contraction.
- Conversely, Mac, iPad, and Wearables, Home & Accessories each lagged in the quarter due to a combination of challenging yr/yr comparisons and pockets of end-consumer weakness. Mac sales were flat yr/yr, which was a positive development given that the product line has not seen positive yr/yr growth since 4Q22 (Sep). In iPad, sales tumbled by 25% as Apple continues to lap unfavorable comparisons, including the launch of the M2 iPad Pro. Wearables dropped by 11%, again due to a difficult comparison.
- With Apple's newest product, the Vision Pro, releasing today, it did not affect Q1 numbers. CEO Tim Cook expressed outsized enthusiasm over the device; we tend to agree. CFO Luca Maestri remarked that the company already sees strong enterprise excitement. We view other areas, including government, defense, and education, as lucrative opportunities for Vision Pro to thrive.
- Looking ahead, Apple predicts iPhone and overall revenue in Q2 to perform similarly to 2Q23, after adjustments, translating to a roughly 25% drop sequentially. Management also added color on its Services segment, expecting a similar growth rate for Q2 as Q1. Given the headwind from the extra week comp in Q1, this could also be seen as a minor disappointment. Apple noted that it expects a couple of points of incremental FX impact in Q2.
Apple's Q1 report contained encouraging trends offset by a few underwhelming metrics. At around 17% of total revenue, China is an important region for Apple, making the sharp pullback in Q1 somewhat alarming, especially given the growing threat of Huawei. Meanwhile, Q2 guidance left something to be desired. It has been discussed by many of Apple's peers and suppliers recently that 2024 will be a mild year. Therefore, relatively stagnant yr/yr growth may be the norm for Apple this year. However, with the Vision Pro launching today and brewing excitement about a swift recovery in 2025, there is plenty to remain elated about regarding Apple's long-term future.
Meta Platforms receives a thumbs up across the board after delivering trifecta of good news (META)
It's still early in the December quarter earnings season, but so far, Meta Platforms (META) is standing atop the leaderboard in the "Most Impressive" report category after crushing Q4 EPS estimates and posting revenue growth of nearly 25% -- the company's strongest growth in over two years. That's only half the story, though.
META also announced a pair of shareholder-friendly initiatives, including its first ever quarterly dividend of $0.50/share and a $50 bln increase to its share repurchase program. After generating $43.0 bln in free cash flow in FY23, and with FY24 shaping up to be another strong year as its AI investments pay off, META is in excellent shape to return more capital to shareholders. Following this trifecta of good news, it comes as no surprise that the stock is launching to new record highs.
- Alphabet's (GOOG) upside Q4 report on Tuesday night featured an acceleration in advertising revenue growth to 11% from about 9% in Q3. That indicated that advertising spending was healthy in Q4 and META capitalized on the favorable environment as Family of Apps ad revenue jumped by 24% to $38.7 bln. Ad revenue growth benefitted from online commerce, gaming, entertainment and media strength.
- It's not just a healthy advertising market that's driving META's stronger growth. Engagement trends across META's applications are improving, while monetization efficiency is also increasing.
- Family monthly active people (MAP) grew by 6% yr/yr to nearly 4.0 bln, with Facebook DAUs also up by 6%. These solid user metrics, combined with improving marketing performance, is fueling advertiser demand. In turn, ad impressions across META's platforms increased by 2%, while the average price per ad edged higher by 2%.
- Additionally, META is leveraging AI to enhance ROI for advertisers, including through the buildout of its Advantage+ suite of products which automates advertising campaigns.
- A main topic during the earnings call revolved around META's growing investments in AI. On that note, the company raised the upper end of its FY24 CapEx guidance by $2.0 bln, projecting CapEx of $30-$37 bln. In the past, this increased spending may have torpedoed the stock, but given META's accelerating growth and robust earnings and cash flow generation, investors are now seeing the investments pay off.
- Mark Zuckerberg commented last night that the company actually under-invested in GPUs as it launched Reels, its short-format video platform, holding that app back. He committed to not making that mistake again as META expands its AI capabilities.
- Therefore, the company will ramp up its investments in data centers and servers this year in support of the launch of Llama 3 -- its large language model -- and its effort to improve the usefulness of its AI assistant.
- Even the beleaguered Reality Labs division had some good news to share. Bolstered by strong demand for the Quest 3 VR device, revenue surged by 47% yr/yr and crossed the $1.0 bln threshold for the first time. However, the division is still bleeding red ink, posting an operating loss of ($4.6) bln compared to ($4.3) bln in the year-earlier period.
Simply put, META hit it out of the park last night, illustrating that its investments in AI are paying dividends, while displaying total confidence in its future prospects by initiating its first ever dividend and substantially increasing its share buyback authorization.
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