Market Snapshot
briefing.com
| Dow | 38380.12 | -274.30 | (-0.71%) | | Nasdaq | 15597.68 | -31.28 | (-0.20%) | | SP 500 | 4942.81 | -15.80 | (-0.32%) | | 10-yr Note | -33/32 | 4.16 |
|
| | NYSE | Adv 485 | Dec 2271 | Vol 953 mln | | Nasdaq | Adv 1184 | Dec 3168 | Vol 4.8 bln |
Industry Watch
| Strong: Health Care, Information Technology |
| | Weak: Materials, Utilities, Real Estate, Consumer Discretionary, Energy |
Moving the Market
-- Broad based losses fueled by profit-taking
-- Gains in some mega cap stocks offering a measure of support to broader market
-- Mixed reactions to earnings news from Dow components Caterpillar (CAT), which is trading up, and McDonald's (MCD), which is trading down, following earnings news
-- Jump in Treasury yields following more strong economic data that does not bode well for the market's hopeful rate cut expectations
| Closing Summary
05-Feb-24 16:30 ET
Dow -274.30 at 38380.12, Nasdaq -31.28 at 15597.68, S&P -15.80 at 4942.81
[BRIEFING.COM] The stock market registered broad based losses today. The major indices slid to session lows early in the day in response to a jump in Treasury yields after the 10:00 ET economic data was released. The market regained some upside traction, though, thanks to relative strength in some mega caps and semiconductor stocks.
Still, just about everything declined, leaving the S&P 500 with a 0.3% loss, the Nasdaq Composite down 0.2%, the Dow Jones Industrial Average 0.7% lower, and the Russell 2000 with a 1.3% loss.
Gains in NVIDIA (NVDA 693.32, +31.72, +4.8%), which was reiterated as a Buy and had its price target raised to $800 from $625 at Goldman Sachs, Apple (AAPL 187.68, +1.83, +1.0%), and Alphabet (GOOG 144.93, +1.39, +1.0%), along with outperforming semiconductor shares, helped to limit some index level losses.
The PHLX Semiconductor Index (SOX) jumped 1.2% today, due in part to strength in ON Semiconductor (ON 77.59, +6.76, +9.5%) following pleasing earnings and/or guidance.
Strength in some of the aforementioned names boosted the heavily-weighted S&P 500 information technology sector to a 0.6% gain while nine of the sectors registered a decline. The materials sector was the worst performer, sinking 2.5% on weakness in shares of Air Products (APD 218.02, -40.15, -15.6%) following disappointing earnings.
The overall negative price action in the stock market was largely in response to the price action in Treasuries, which have logged steep declines over the last few sessions in response to ongoing strength in economic data of late that has the market repricing rate cut expectations. This also follows comments from Fed Chair Jerome Powell over the weekend, who said on 60 Minutes that the Fed needs to see more evidence that inflation is moving sustainably down to its 2% target before lowering rates.
This morning's release of the January ISM Services PMI featured an acceleration in services sector activity in January, replete with a pickup in new orders, employment, and prices. The 10-yr note yield, at 4.11% shortly before 10:00 ET, hit 4.18% at its highest level today before settling at 4.16%, which is 13 basis points higher than Friday. The 2-yr note yield, at 4.43% just before 10:00 ET, hit 4.47% at its high before settling at 4.46%.
The implied likelihood of a 25 basis points rate cut at the March FOMC meeting sits at just 16.5% now, down from 20% on Friday and 47.1% one week ago, according to the CME FedWatch Tool.
- S&P 500: +3.9%
- Nasdaq Composite: +3.6%
- Dow Jones Industrial Average: +1.8%
- S&P Midcap 400: -1.6%
- Russell 2000: -4.4%
Reviewing today's economic data:
- The S&P Global U.S. Services PMI rose to 52.5 in the final January reading from 51.4.
- The ISM Services PMI increased to 53.4% in January (Briefing.com consensus 52.0%) from 50.5% in December. The dividing line between expansion and contraction is 50.0%, so the January reading connotes services sector activity expanding at a faster pace than in December. January marked the 13th consecutive month of growth for the services sector.
- The key takeaway from the report is that the largest sector of the U.S. economy saw an acceleration in activity in January that was accompanied by a pickup in new orders, employment, and prices, which isn't the stuff of rate cuts.
Separately, there is no US economic data of note tomorrow.
Treasury yields settle sharply higher
05-Feb-24 15:25 ET
Dow -202.29 at 38452.13, Nasdaq -28.81 at 15600.14, S&P -8.84 at 4949.77
[BRIEFING.COM] The price action at the index level continues to follow closely with price action in the mega caps and Treasury market.
The 10-yr note yield settled 13 basis points higher at 4.16% and the 2-yr note yield rose eight basis points to 4.46%.
Centene (CNC), UBS (UBS), Eli Lilly (LLY), GE HealthCare (GEHC), Fiserv (FI), Aramark (ARMK), Jacobs Engineering (J), Spotify (SPOT), DuPont (DD), Hertz Global (HTZ), Xylem (XYL), KKR (KKR), Spirit Aerosystems (SPR), and others report earnings in front of Tuesday's open.
Separately, there is no US economic data of note tomorrow.
S&P and Nasdaq hang out near highs
05-Feb-24 15:05 ET
Dow -228.56 at 38425.86, Nasdaq -29.31 at 15599.64, S&P -10.73 at 4947.88
[BRIEFING.COM] The S&P 500 and Nasdaq Composite are trading near their best levels of the day thanks to mega cap gains. The Vanguard Mega Cap Growth ETF (MGK) is up 0.04%.
NXP Semi (NXPI), Amkor (AMKR), Coherent (COHR), Palantir Technologies (PLTR), and others report earnings after the close.
In other news, WTI crude oil futures climbed 1.0% to $72.82/bbl. The S&P 500 energy sector is outperforming, trading up 0.2%.
Catalent best S&P 500 performer after NVO offers $63.50/share
05-Feb-24 14:30 ET
Dow -218.05 at 38436.37, Nasdaq -19.05 at 15609.90, S&P -8.97 at 4949.64
[BRIEFING.COM] The S&P 500 (-0.18%) is now just a hair off session highs, albeit in a losing trade down about 9 points.
Elsewhere, S&P 500 constituents Match Group (MTCH 35.73, -1.69, -4.52%), Enphase Energy (ENPH 97.59, -4.17, -4.10%), and Albemarle (ALB 109.28, -4.97, -4.35%) pepper the bottom of the standings. MTCH and ALB slide despite a dearth of corporate news, while ENPH is lower alongside fellow solar peers amid a rise in treasury yields.
Meanwhile, Catalent (CTLT 59.62, +5.11, +9.37%) is strong today after Novo Nordisk A/S (NVO 118.18, +4.48, +3.94%) announced plans to acquire the company at $63.50/share.
Gold ends lower, trimming morning declines
05-Feb-24 14:00 ET
Dow -245.34 at 38409.08, Nasdaq -39.08 at 15589.87, S&P -15.38 at 4943.23
[BRIEFING.COM] With about two hours remaining on Monday the tech-heavy Nasdaq Composite (-0.25%) hosts the shallowest declines, trimming month-to-date gains to +2.8%.
Gold futures settled $10.80 lower (-0.5%) to $2,042.90/oz, off morning lows which saw the yellow metal down as much as -1.1%, pressured as yields rise in the wake of last week's FOMC decision which showed rate cuts may be pushed back further.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $104.40.
Page One
Last Updated: 05-Feb-24 09:04 ET | Archive
Looking at a price action temperature reading
Last week was a good week for the large-cap stocks, a "meh" week for the mid-cap stocks, and a losing week for the small-cap stocks. In other words, it was a mixed market that looked a lot like the 2023 market -- at least until the fourth quarter.
The mega-cap stocks carried the day on Friday following the earnings reports from Meta Platforms (META) and Amazon.com (AMZN). They also carried the market throughout the week, fortified by falling interest rates and their appeal as defensive investment outlets in a market climbing a wall of uncertainty built on geopolitical and economic risk.
There has been a little giveback for the broader market this morning, as market participants deliberate over stretched valuations, rising rates, and budding skepticism about the market rally continuing largely unabated.
Currently, the S&P 500 futures are down 14 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 28 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 112 points and are trading 0.3% below fair value.
The leaning of the equity futures market hardly suggests there is a rush to sell stocks, but it does suggest the indices will see some modest declines at the start of trading. They could have been larger, but a 3.0% gain in NVIDIA (NVDA) after Goldman Sachs raised its price target to $800 from $625, a 0.5% gain in Apple (AAPL), and a 0.2% gain in Alphabet (GOOG) have provided some offsetting support along with a 4.7% gain in Dow component Caterpillar (CAT) after it reported earnings.
Separately, Dow component McDonald's (MCD) also reported its quarterly results this morning. It is down 1.7%, however, as its revenues came in a bit light of estimates. Fellow Dow component Boeing (BA) is down 2.3% in the wake of a Wall Street Journal report that it found a new problem in 50 737 MAX fuselages that it has not yet delivered.
The point being here that there are some individual movers of note this morning, but the broader market isn't moving to any large degree. That makes sense from the standpoint that the overall price action has yet to spook it into a more concerted selling effort.
Hence, there is some "wait-and-see" support in the tape.
There is also an ample wait-and-see mentality at the Fed. In a 60 Minutes interview on Sunday, Fed Chair Powell largely reiterated what he said following last week's FOMC meeting. The Fed doesn't see a rate cut in March as likely and would like to have more confidence that inflation is on a sustainable path to the 2% target before cutting rates.
Fed Governor Bowman said in a Friday speech that the Fed is not yet at a point of lowering rates and that she still sees a number of important upside risks to inflation.
The Treasury market for its part is continuing its post-employment report pullback. The 2-yr note yield is up five basis points to 4.43% and the 10-yr note yield is up nine basis points to 4.13% in front of the January ISM Non-Manufacturing Index release (Briefing.com consensus 52.0%; prior 50.5%) at 10:00 a.m. ET, and the 3-yr note, 10-yr note, and 30-yr bond auctions that will take place Tuesday, Wednesday, and Thursday, respectively.
The bump in rates has helped cool off the market a bit, but it feels as if participants are waiting on a more precise temperature reading in today's price action.
-- Patrick J. O'Hare, Briefing.com
ON Semiconductor powers higher following sufficient Q4 numbers (ON)
On Semiconductor (ON +9%) may not have exactly turned on the afterburners during Q4, delivering modest top and bottom line upside while guiding Q1 figures somewhat below analyst forecasts. However, with shares stuck in a rut, down over 30% from August 2023 highs leading up to Q4 results, it was sufficient to renew buying interest in the stock. It also helped that On Semi followed lukewarm results from several of its peers, including STMicroelectronics (STM), Texas Instruments (TXN), and Wolfspeed (WOLF).
- On Semi's counterparts were negatively affected by a material slowdown in industrial and automotive end-market activity. This trend did not bode well for On Semi, given these two markets comprise 80% of the company's total annual revenue. However, while industrial activity was soft in the quarter, driving a 10% decline in industrial revenue yr/yr, it was not as bad as the market feared, particularly given that demand across other product categories held up relatively well.
- In On Semi's Power Solutions Group (PSG) segment, its largest, revenue climbed by 4% yr/yr, supported by an increase in silicon carbide (SiC) revs from the automotive and energy end markets. SiC is a vital component in developing electric vehicles (EVs), making On Semi a compelling long-term play on the continued rise in EVs.
- PSG's growth was still insufficient to offset the laggards in the quarter, including Advanced Solutions Group (ASG) and Intelligent Sensing Group (ISG), which recorded double-digit revenue declines of 11% and 13%, respectively. The tepid industrial activity was evidenced across these segments, as compute edged lower in ASG and total utilization fell 6 pts sequentially in ISG.
- However, guidance was a primary differentiator between On Semi and its competitors. The midpoint of On Semi's Q1 adjusted EPS projection of $0.98-1.10 still missed analyst targets, while revenue guidance of $1.80-1.90 fell short completely. Nevertheless, it was markedly better than TXN's, STM's, and WOLF's MarQ outlooks, which were largely well below consensus. Another highlight embedded in On Semi's Q1 outlook was margins. The company anticipates holding its gross margins above the mid-40% floor, similar to its Q4 margins of 46.7%.
Overall, it was a decent quarter for On Semi. Demand remains lackluster, particularly in industrial, while SiC revs continued to climb, underscoring some lumpiness surrounding a global economic rebound. Still, On Semi remains confident in its market position, engaging in long-term supply agreements and staying on track to achieve long-term gross margins of 53%. However, in the interim, 2024 may continue to throw unexpected obstacles in On Semi's path, making it challenging for shares to sustain their current upward momentum.
Caterpillar crawls to new record highs as price increases fuel big earnings beat (CAT)
Caterpillar (CAT) is crawling to new all-time highs after the heavy machinery maker easily beat Q4 EPS expectations even as sales volumes decreased compared to a year ago. Although higher interest rates kept a lid on equipment sales volume, especially in CAT's Construction Industries segment, the company effectively mitigated the decline through price increases across its product lineup. Furthermore, higher interest provided a boost to its Financial Products business, which generated a company-best revenue growth rate of 15% in Q4 to $981 mln.
- Notably, CAT disclosed that dealer inventories decreased by approximately $900 mln yr/yr, a positive sign for the supply and demand dynamics moving forward. Given the macroeconomic uncertainties, a buildup of dealer inventories likely would have created some uneasiness among investors. For 2024, CAT doesn't anticipate a significant change in dealer inventories.
- The company does, however, expect to push through more price increases this year. In Q4, favorable price realization drove adjusted operating profit margin higher by 190 bps yr/yr to 18.9% and CAT is forecasting additional margin expansion this year. More specifically, the company now expects FY24 adjusted operating margin to be in the top half of its guidance range, implying a margin of 19% or better.
- It's a mixed picture in terms of demand. China was a soft spot as lower volume in the APAC region was a headwind for Construction Industries, which saw a 5% drop in revenue to $6.5 bln. A brewing downturn in China's real estate market is applying some pressure to sales volumes.
- Resource Industries, CAT's segment that mainly caters to mining companies, was also impacted by lower volumes with revenue decreasing by 6% yr/yr to $3.4 bln.
- The standout performer was Energy & Transportation. Fueled by robust oil and gas drilling activity in the U.S., revenue increased by 12% to $7.7 bln due to strong demand for gas compressors and other equipment used for drilling rigs.
The main takeaway is that CAT's upside earnings performance and better-than-feared outlook for FY24, including its forecast for revenue broadly similar to FY23, is easing fears that higher interest rates and macroeconomic headwinds -- especially in China -- are putting a major dent in demand for heavy construction and industrial equipment.
McDonald's heads lower following rare top line miss, Middle East conflict weighed on IOL comps (MCD)
McDonald's (MCD -4%) is trading lower today despite reporting another nice EPS beat. However, revenue was a bit light, which means this was MCD's first top line miss since 2Q22. Also, comps were a bit disappointing and some commentary on the call may be weighing on the shares as well.
- Global comp sales came in at +3.4% while US comps were +4.3%. US comps benefited from strong average check growth driven by strategic menu price increases. In fairness, MCD was lapping some tough comps in Q4 of 2022: global comps +12.6% and US comps of +10.3%. However, these results are notably smaller than recent quarters and they were lapping pretty robust comps as well. So there was a drop off in Q4.
- Outside of the US, International Operated Markets (IOM) comps increased +4.4%, driven by strong comps in most markets, led by the UK, Germany and Canada, partly offset by negative comps in France. However, International Developmental Licensed (IDL) comps were a weak spot at just +0.7%. IDL saw positive comps in all geographic regions, with the exception of the Middle East, which was impacted by the war in the region.
- MCD concedes that it is operating in a challenging environment and it expects these headwinds will continue in 2024. Elevated prices and muted consumer confidence is causing consumers to continue to be more discriminating with their dollars. MCD sees lower income consumers as being impacted the most. They are choosing to eat at home, which is more affordable. MCD is not seeing much change among its middle and high income customers. MCD continues to gain share with those groups.
- As such, MCD expects 2024 comp growth will continue to moderate as it returns to a more normalized level of growth with expectations closer to historical averages of between +3-4% in its US and IOM segments. And for IDL, MCD does not expect to see meaningful improvement until there is a resolution in the Middle East. In turn, moderating sales growth and inflation are expected to pressure company-operated margin, which MCD expects will be relatively in line with 2023.
Overall, this was a pretty disappointing way to wrap up 2023 for the Golden Arches. It seems like the days of the huge comp growth we saw in Q1-Q3 is coming to an end. However, that was not entirely surprising. Keep in mind that a good chunk of those comp increases were driven by menu pricing. As inflation has come down, MCD's pricing is coming down broadly in line with inflation. That is partly why MCD is guiding to more normalized +3-4% comps in 2024. We think investors understand that, which helps explain why the stock is not down more. MCD is still the powerhouse in fast food and we think it will remain resilient in 2024. However, this report may lower sentiment on other fast food stocks set to report in the coming weeks.
Tyson Foods' Q1 report underscores further recovery efforts as demand continues to stabilize (TSN)
Tyson Foods' (TSN +2%) Q1 (Dec) earnings report contained few cracks, signaling that ongoing recovery efforts from the food processing behemoth remain alive and well. A combination of inflationary pressures and potentially shifting consumer tastes clipped past quarterly performances, with TSN's operating segments facing adversity unevenly, delaying its recovery efforts.
However, following Q4 (Sep) results in November, although guidance was poor, we mentioned how promising developments were pointing to solid upside potential. These trends from last quarter only improved in Q1. At the same time, headwinds have begun easing, reigniting consumer demand.
- TSN surpassed analysts' adjusted EPS forecasts handily in Q1, registering a double-digit beat, its first since 2022. While adjusted operating margins still ticked lower yr/yr, contracting by 30 bps to 3.1%, this was far superior to the 420 bp drop last quarter. It also marked a meaningful improvement over the past three quarters when margins were stuck below 2.0%, underscoring early success in TSN's expense management, such as closing multiple facilities and laying off a decent chunk of its workforce last year.
- Other tailwinds, including sustained upward momentum in Chicken, better Pork supply, and capacity additions in Prepared Foods, helped offset dismal (2.3)% adjusted operating margins in Beef, triggered mostly by an inventory valuation adjustment.
- After two consecutive quarters of negative yr/yr sales growth, TSN's top line turned positive in Q1, albeit modestly, expanding by 0.4% to $13.32 bln, driven solely by average price. Consistent with management's remarks last quarter, consumer protein demand continued to stabilize, evidenced by consolidated volumes remaining flat yr/yr, similar to the 0.6% dip in Q4 and 0.3% improvement in Q3 (Jun).
- Beef, TSN's largest segment, outperformed all other categories in sales, expanding by 6.4% to $5.02 bln, driven entirely by a 10.5% increase in average price. On the flip side, because of the growing prices, Beef volumes slipped for the fourth straight quarter, dropping by 4.1%.
- All other segments, including Chicken, Pork, Prepared Foods, and international, experienced falling prices yr/yr, helping push volumes mildly higher with the exception of Chicken, which endured a light 1.5% volume decline in the quarter.
- Looking ahead, management is cautiously optimistic about the global economy, which is embedded in its FY24 (Sep) revenue projection of relatively flat growth yr/yr, implying around $52.81 bln.
Following two quarters of brewing upward momentum, TSN's story in 2024 is shaping up to be centered around recovery. The company has encountered numerous headwinds over the past year as inflation forced shoppers to hunt for lower-priced proteins, including Hormel Foods' (HRL) SPAM. While inflation is cumulative, keeping grocery prices relatively elevated, it has eased considerably. In fact, across much of TSN's businesses, disinflationary forces have cropped up, spurring decent volume growth. While obstacles remain, we continue to like TSN as an attractive turnaround play in 2024.
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.
|
