| | | Market Snapshot
briefing.com
| Dow | 38726.33 | +48.97 | (0.13%) | | Nasdaq | 15793.71 | +37.07 | (0.24%) | | SP 500 | 4997.91 | +2.85 | (0.06%) | | 10-yr Note | -30/32 | 4.17 |
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| | NYSE | Adv 1659 | Dec 1091 | Vol 949 mln | | Nasdaq | Adv 2575 | Dec 1643 | Vol 5.7 bln |
Industry Watch
| Strong: Energy, Real Estate, Communication Services, Consumer Discretionary, Information Technology |
| | Weak: Utilities, Financials, Health Care, Materials, Consumer Staples |
Moving the Market
-- Absence of selling amid growing expectations for pullback acting as its own upside catalyst
-- S&P 500 holding close to the 5,000 level
-- Mixed responses to earnings news since yesterday's close
-- Increase in market rates
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Closing Summary
08-Feb-24 16:30 ET
Dow +48.97 at 38726.33, Nasdaq +37.07 at 15793.71, S&P +2.85 at 4997.91
[BRIEFING.COM] It was a solid day for the stock market. The Russell 2000 outperformed other indices throughout the session, gaining 1.4% by the close. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average, meanwhile, traded either slightly above or slightly below yesterday's closing levels for most of the day. The S&P 500 briefly traded above 5,000, reaching 5,000.40 at its intraday high, before settling just a whisker shy of that level again.
The absence of selling pressure amid growing expectations for a pullback among some participants acted as its own upside catalyst. Advancers led decliners by a roughly 5-to-2 margin at both the NYSE and at the Nasdaq. Still, upside moves were relatively modest for most of the market. The Invesco S&P 500 Equal Weight ETF (RSP) closed 0.2% higher.
Outsized moves were mostly limited to individual stocks that reported earnings since yesterday's close, which garnered mixed responses. Arm Holdings (ARM 113.89, +36.88, +47.9%) jumped nearly 50% after reporting earnings and Dow component Walt Disney (DIS 110.54, +11.40, +11.5%) also logged a large gain on pleasing quarterly results.
Meanwhile, shares of PayPal (PYPL 56.13, -7.11, -11.2%) faced selling pressure after disappointing below-consensus guidance.
Nine of the 11 S&P 500 sectors moved less than 0.6% in either direction. The outliers were the energy sector, which jumped 1.1% amid rising oil prices ($76.24/bbl, +2.46, +3.3%), and the utilities sector, which declined 0.8%.
Treasuries settled with losses despite a strong $25 billion 30-yr bond offering, which followed the strong responses to this week's $54 billion 3-yr note auction and $42 billion 10-yr note auction. The 10-yr note yield rose six basis points to 4.17% and the 2-yr note yield rose three basis points to 4.45%.
This price action was partially a reaction to this morning's release of the weekly jobless claims report, which showed a decrease in the number of claims, fitting with the market's emerging view that the Fed may stay restrictive for longer.
- Nasdaq Composite: +5.2% YTD
- S&P 500: +4.8% YTD
- Dow Jones Industrial Average: +2.8% YTD
- S&P Midcap 400: +0.2% YTD
- Russell 2000: -2.3% YTD
Reviewing today's economic data:
- Weekly Initial Claims 218K (Briefing.com consensus 218K); Prior was revised to 227K from 224K; Weekly Continuing Claims 1.871 mln; Prior was revised to 1.894 mln from 1.898 mln
- The key takeaway from the report is the continuing low level of initial claims, which is a reflection of an economy not showing the stress of a big drop-off in demand.
- December Wholesale Inventories 0.4% (Briefing.com consensus 0.4%); Prior was revised to -0.4% from -0.2%
S&P 500 fighting to reach 5,000; Treasuries settle with losses
08-Feb-24 15:35 ET
Dow +26.25 at 38703.61, Nasdaq +40.93 at 15797.58, S&P +2.33 at 4997.39
[BRIEFING.COM] The S&P 500 is trading right below the 5,000 level, reaching a high of 4,999.68 a short time ago.
Treasuries settled with losses following another low weekly initial jobless claims number and a stellar $25 bln 30-yr bond offering. The 10-yr note yield rose six basis points to 4.17% and the 2-yr note yield rose three basis points to 4.45%.
Looking ahead, Expedia Group (EXPE), Motorola Solutions (MSI), Mohawk (MHK), Capri Holdings (CPRI), Take-Two (TTWO), Illumina (ILMN), Dexcom (DXCM), Pinterest (PINS), Affirm (ARFM), Cloudflare (NET), Bill.com (BILL), Doximity (DOCS), and others report earnings after the close today.
S&P 500 testing 5,000 again
08-Feb-24 15:00 ET
Dow +20.41 at 38697.77, Nasdaq +39.88 at 15796.53, S&P +2.02 at 4997.08
[BRIEFING.COM] The S&P 500 turned higher recently, trending toward the 5,000 level again.
There was no specific catalyst to account for the move that has many stocks moving higher. The Invesco S&P 500 Equal Weight ETF (RSP) is up 0.2%.
Small cap stocks continue to outperform, driving a 1.4% gain in the Russell 2000.
S&P 500 narrowly green; Snap-On & Everest Group apply pressure
08-Feb-24 14:25 ET
Dow +0.17 at 38677.53, Nasdaq +37.89 at 15794.54, S&P +0.19 at 4995.25
[BRIEFING.COM] The S&P 500 alongside the Dow Jones Industrial Average are up less than a point in recent trading, the former having toyed with flat lines over the last half hour.
Elsewhere, S&P 500 constituents Snap-On (SNA 268.92, -25.58, -8.69%), Everest Group (EG 351.22, -32.72, -8.52%), and FleetCor (FLT 270.53, -21.46, -7.35%) dot the bottom of the group, all following earnings.
Meanwhile, Ralph Lauren (RL 173.73, +26.59, +18.07%) is today's best performer following earnings.
Gold adds modestly to weekly losses on Thursday
08-Feb-24 14:00 ET
Dow -10.76 at 38666.60, Nasdaq +38.16 at 15794.81, S&P -0.87 at 4994.19
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.24%) remains the sole index in positive territory with about two hours remaining on Thursday.
Gold futures settled $3.80 lower (-0.2%) to $2,047.90/oz, holding losses of about -0.3% this week, pressured only modestly thus far despite a firm rise in treasury yields.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $104.14.
Page One
Last Updated: 08-Feb-24 08:58 ET | Archive
Keeping a close eye on the price action (still)
The S&P 500 came tantalizingly close to tagging the 5,000 level yesterday. It "failed" by 0.11 points, but still achieved a new record high in yesterday's trade. This dalliance will continue today and, who knows, we may just see a 5-handle on the most closely-watched index in today's session.
Currently, the S&P 500 futures are down four points and are trading fractionally below fair value, the Nasdaq 100 futures are down 27 points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are up 24 points and are trading 0.1% above fair value.
There may not be much conviction in the equity futures trade, but that's probably because there has been more conviction in the notion that the market is due for a pullback that is led by the mega-cap stocks and, you know what, that pullback hasn't happened.
What we are implying is that market participants are waiting on the intraday price action to take their cues, cognizant that there has been a tremendous air of resilience (and outperformance) in most of the mega-cap stocks. That resilience has created its own pain trade for some participants unable to keep watching from the sidelines as these stocks and "the market" keep moving higher.
Everyone is waiting for a break in the action, but clearly there are enough participants who have kept playing the momentum trade and are intent to stay with the trend until it is no longer a friend.
That is why the intraday price action is paramount as a market driver. Admittedly, we know that sounds silly, because the market moves every day on price changes, but it matters more now given how far the market has come since its late-October lows and how much several of the mega-cap stocks have run already this year.
There are some other runners of note this morning, however. Dow component Walt Disney (DIS) is up 8% after its better-than-expected earnings report that was accompanied by news of a dividend increase, a new $3 billion share repurchase program, and a $1.5 billion investment in Epic Games.
That move pales in comparison to the one made by Arm Holdings (ARM), which is up 27% after its earnings report and Q1 guidance that was well above consensus estimates for revenue and earnings.
Wynn Resorts (WYNN), Mattel (MAT), Harley-Davidson (HOG), Tenet Healthcare (THC), and Ralph Lauren (RL) are all up nicely, too, in the wake of their earnings results, demonstrating that there is life out there beyond the mega-cap stocks.
There is certainly plenty of life still in the labor market. Initial jobless claims -- a leading indicator -- decreased by 9,000 to 218,000 (Briefing.com consensus 218,000) for the week ending February 3. Continuing jobless claims for the week ending January 27 decreased by 23,000 to 1.871 million.
The key takeaway from the report is the continuing low level of initial claims, which is a reflection of an economy not showing the stress of a big drop-off in demand.
The 2-yr note yield is up two basis points to 4.44% and the 10-yr note yield is up three basis points to 4.14%, little changed following the jobless claims data that didn't register as a true surprise relative to the consensus estimate and the payrolls strength seen in the January employment report.
That employment report hastened a backup in yields that was rooted in a backup in rate-cut expectations. The latter has been a governing factor for the Treasury market of late, evidenced by the lack of response to some strong note auctions this week and a report today that China's CPI was down 0.8% year-over-year in January, deflating at its fastest pace since late 2009.
A $25 billion 30-yr bond auction today will complete this week's auction activity. The results will be announced at 1:00 p.m. ET.
The stock market of course closes at 4:00 p.m. ET, and everyone is waiting to see what that result will be as well. Might there be a 5-handle on the S&P 500 at the close? Maybe. Today's price action will be the market's guide.
-- Patrick J. O'Hare, Briefing.com
PayPal's turnaround timeline catches investors off guard as company sees no FY24 EPS growth (PYPL)
Rising competition in the payments space has taken a toll on fintech pioneer PayPal (PYPL), which has seen its revenue growth shrink to single digit levels in recent quarters as it loses share to companies like Apple (AAPL), Google (GOOG), and Affirm (AFRM). As such, expectations were muted heading into PYPL's Q4 earnings report with market participants focusing their attention on the future, looking for evidence that the turnaround plan from recently appointed CEO Alex Chriss is starting to take hold.
- While PYPL comfortably exceeded those Q4 expectations with both EPS and revenue topping estimates, its weak guidance for FY24 indicated that a turnaround is going to take longer than anticipated. Specifically, the company said that it expects FY24 EPS to be about flat with FY23 at $5.10, falling well short of analysts' forecasts.
- This discouraging guidance caught investors off-guard, especially after PYPL announced a 9% workforce reduction in late January.
- Costs, though, do not seem to be the issue. In fact, in Q4, total operating expenses were up by just 3% yr/yr to $6.3 bln. Rather, the main problem for PYPL is that its payment platform has fallen behind the curve, losing traction with consumers and businesses. This is most clearly seen in the drop-off of branded transactions which are generated when consumers use the PayPal or Venmo app.
- These transactions are far more lucrative than unbranded transactions, or transactions that PYPL executes for businesses. A key metric that reflects this challenge is transaction margin dollars. In Q4, transaction margin dollars were flat on a yr/yr basis at $3.7 bln and PYPL doesn't see this improving much in FY24.
- During the earnings call, the company said that it expects transaction margin dollars to remain flat this year on a yr/yr basis.
- Adding salt to the wound, Mr. Chriss acknowledged that the product improvement initiatives he highlighted during his "First Look" presentation on January 25 are not likely to move the needle much in FY24.
- According to Mr. Chriss, the initial customer reaction to these product enhancements, including a faster checkout experience and an AI-powered recommendation tool called Smart Receipts, has been encouraging, but it will take time for them to contribute meaningfully to the financials.
The main takeaway is that PYPL's disappointing FY24 guidance offered a sobering reality check that there is no quick fix to the company's turnaround. Keeping a tight lid on costs and enhancing the platform's capabilities is a sound strategy, but the stock seems likely to be stuck in neutral until some tangible evidence emerges that stronger growth lies ahead.
O'Reilly Auto pulls back on light EPS guidance; long-term trends still favorable (ORLY)
O'Reilly Auto (ORLY -4%) registered decent Q4 results, driving past analysts' earnings and sales forecasts while projecting FY24 revenue mostly ahead of consensus. However, we warned ahead of ORLY's report that it was prone to nit-picking given its recent +20% run, achieving all-time highs yesterday. As a result, investors are having trouble overlooking the one major skid mark from Q4: forecasting FY24 earnings below consensus.
The lighter-than-anticipated earnings of $41.05-41.55 stemmed primarily from carrying out previous investments, pushing expenses modestly higher. ORLY has been increasing its new store count, targeting 190-200 in FY24; rolling out this store fleet can impact bottom-line performance. Additional impact comes from the timing of certain technology investments. ORLY also reiterated that it is focused on share gains (its top-line estimates depend on it), which can come at the expense of margins.
Also, along the lines of nit-picking, ORLY's FY24 comparable store sales growth outlook of +3-5% is a meaningful decline from the +7.9% posted in FY23. Much of this stems from fewer benefits related to price increases; ORLY anticipates less than 1 pt from same-SKU inflation in FY24. Meanwhile, ORLY does not foresee weather impacting same-store sales growth this year -- colder weather tends to be a plus for the after-market auto parts industry.
Still, ORLY's report contained plenty of positives, making today's pullback likely more of a healthy correction rather than the start of a longer downward trend.
- ORLY registered same-store sales growth of +3.4% in Q4, resulting in FY23 comps landing toward the higher end of its +7-8% guidance and nicely above its initial forecast of +4-6%. Meanwhile, total revs grew by 5.1% yr/yr to $3.83 bln, assisting bottom-line growth of 10.6% to $9.26.
- Professional sales continued to outpace DIY in the quarter, supported by robust growth in average ticket. DIY sales lagged primarily due to tough yr/yr comparisons, including more advantageous weather and inflationary benefits. ORLY is still confident in capturing additional share in DIY but noted that it would materialize over a more extended period as average ticket growth emanates less from inflation and more from part complexity.
- ORLY views current economic conditions as favorable, believing the health of the end consumer is supported by improving wages, stable fuel prices, and moderating inflationary pressures. Nevertheless, management remains cautious, acknowledging that the economy can turn rapidly without warning, particularly regarding fuel prices, which can drastically impact financial performance. For example, during the summer of 2022, discretionary sales for merchandise categories softened due to historically high gas prices.
ORLY delivered healthy results in Q4. However, an overextended stock price led to profit-taking on the weaker-than-expected FY24 EPS growth. Still, ORLY remains in the driver's seat over the long term, as miles driven continue to recover since the pandemic, part complexity intensifies, and the current U.S. vehicle fleet ages. Lastly, despite the pullback, ORLY's results set a positive tone ahead of its peers' quarterly reports scheduled for this month, such as Advance Auto (AAP) and AutoZone (AZO).
Walt Disney's Cinderella story enters new chapter as turnaround gains steam (DIS)
Walt Disney's (DIS) Cinderella story is entering a new chapter as the company's wide-ranging turnaround initiatives are now paying off in a major way, leading to an easy EPS beat in Q4 and strong, upside EPS guidance of at least $4.60 for FY24. Providing the magic was another huge step towards profitability for the DTC business following another round of price increases for Disney+, and solid results from the Experiences segment as revenue from international parks jumped by 35% to nearly $1.5 bln.
- To put an exclamation point on the beat-and-raise performance, DIS also announced a $3.0 bln share repurchase authorization for 2024, and a 50% increase in its quarterly dividend to $0.45/share. The shareholder-friendly actions speak to a growing confidence that the company is finally turning the corner after a rough three-year stretch that saw shares plummet by more than 50% from early 2021 through early 2024.
- That confidence is not only driven by the shrinking losses within the streaming business, but it's also anchored by DIS's strategy to more fully capitalize on sports and ESPN by launching a new streaming platform for those assets.
- On the former point, the DTC business, which is now part of DIS's Entertainment segment, saw operating loss narrow to $(138) mln from $(984) mln in the year-earlier period. Due to the price increases for Disney+, average revenue per user (ARPU) improved by $0.14 sequentially to $6.84, providing profitability with a boost. Additionally, DIS benefitted from lower programming and production costs, particularly for non-sports content.
- On the latter point, DIS made a pair of announcements yesterday, first reporting that is has forged an agreement with Fox (FOXA) and Warner Bros. Discovery (WBD) to launch a new sports streaming platform in 2H24 that will combine the companies' programming. Then, during the earnings call, DIS provided a firm timeline for the expected launch of an ESPN-only streaming platform, which is now expected in the fall of 2025.
- Investors are enthusiastic about DIS's sports streaming aspirations because it would create another recurring revenue stream and enable it to bump subscription prices higher by bundling ESPN with other products, like Disney+. One concern, though, is that consumers could balk at the idea of having to pay for another streaming service, especially in an environment in which many consumers are reining in spending.
- Sports isn't the only category that DIS is betting big on. Last night, the company announced that it plans to invest $1.5 bln in Epic Games, the maker of the ultra-popular Fortnite game. Rather than investing heavily to create its own games -- something that DIS hasn't succeeded with in the past -- the company will integrate some of its characters into Fortnite, which boasts about 100.0 mln players per month. The $1.5 bln equity stake will allow DIS to participate in Epic Games' success in a way that doesn't require a massive amount of time and resources.
- Bad news was hard to come by, but there were a couple blemishes. As a result of the price increases, Disney+ Core subscribers decreased by 1.3 mln subscribers sequentially to 111.3 mln. However, even this news had a silver lining because DIS expects Disney+ Core subscriber net additions of between 5.5 and 6 million and ongoing positive momentum in ARPU in Q2.
- The one business where there truly isn't much to feel good about is Linear Networks. Revenue decreased yet again, declining by 12% as cord-cutting continues to batter the cable TV industry. To mitigate the negative impact of this struggling business, DIS has ramped up cost-cutting, which is on track to meet or exceed the $7.5 bln target by the end of FY24.
The main takeaway is that when Bob Iger was given the keys to the Magic Kingdom again in November 2020, DIS was in need of some repair work as its profitability crumbled while transitioning to a streaming-based model. While it has taken longer than some had anticipated, the turnaround that Mr. Iger had been tasked with executing is now coming to fruition.
Monolithic Power is powering up some huge gains on earnings beat an upside guidance (MPWR)
Monolithic Power (MPWR +16%) is making a big move following its Q4 results last night. This fabless semiconductor company beat analyst estimates for both EPS and revenue but the upside for both was small. What was more impressive was its strong upside revenue guidance for Q1 at $437-457 mln. In addition, MPWR announced a hefty 25% increase to its quarterly dividend to $1.25/sh although the yield remains tiny (0.6%) given MPWR's $740 stock price.
- While Q4 revenue was relatively flat (-1.3% yr/yr), results varied greatly by end market: Enterprise Data was the star of the show, growing a robust 88.4% yr/yr to $129 mln, which made it the largest segment. Storage and Computing fell 2.9% to $117 mln, and Automotive was down 7.8% to $90 mln. Among its smaller segments, Consumer decreased 17.5% to $44 mln, Communications fell 36.3% to $41 mln and Industrial fell 40.5% $33 mln.
- This variability had an impact on margins. Non-GAAP gross margin in Q4 was 55.7%, flat with Q3, but down 280 bps yr/yr. This reduction was largely due to sales mix. For Q1, MPWR is guiding to non-GAAP gross margin of 55.4-56.0%, so it is not seeing much near term improvement. In terms of the guidance, MPWR noted that customer ordering patterns oscillated throughout 2023, reflecting general economic uncertainty. While MPWR saw nominal improvement in Q4 ordering patterns, the company remains cautious as visibility beyond the current quarter is limited.
- Enterprise Data has really performed well for MPWR in recent quarters, primarily due to accelerated demand for its power management chips for AI applications. Automotive stumbled a bit in Q4, but that may be related to the UAW strikes. For all of 2023, Automotive sales rose a robust 31.5% to $395 mln. MPWR has been creating new automotive content powering the ramp of autonomous driving, the digital cockpit, and lighting systems for both conventional and electric vehicles.
- In addition to earnings, MPWR also announced it acquired Axign B.V., a Netherlands-based fabless semiconductor startup. MPWR says this deal provides expansion for it into a new $1 bln market. Axign specializes in programmable multi-core digital signal processors. MPWR explains that Axign's competitive difference is its ability to deliver signals with near zero distortion and reduced power consumption for automotive and consumer audio systems. MPWR expects that the combination of Axign and MPWR's IP, which has been accepted by several high-end audio customers, will change people's experience in their cars, homes, concert venues, and stadiums.
Investors are quite impressed with MPWR's results with the stock up big. We think it's more the guidance. What struck us as odd was MPWR being a bit cautious and saying that visibility was limited beyond Q1. But at the same time, it provided pretty big upside guidance and it boosted the dividend by 25%. As such, we think investors may be interpreting this guidance as actually a bit conservative and maybe a really good result is in store for Q1, but we will see.
Arm Holdings plc explodes following blowout MarQ guidance as AI tailwinds intensify (ARM)
Arm Holdings plc (ARM +58%) dealt investors a fantastic hand with its upbeat headline Q3 (Dec) results and blowout Q4 (Mar) guidance. The chip architecture developer, catering largely to the smartphone industry, derives its revenue through licensing. Prominent tech firms like Samsung (SSNLF) pay ARM to design chips using its architecture, which competes directly with x86 -- the more popular architecture found across various verticals and used exclusively at Intel (INTC). Because ARM sets its royalty fees, it can hike this fee upon new product launches. This attribute fueled the company's exceptional performance in Q3.
- ARM enjoyed a significant transition from its V8 to its V9 product during the quarter, underpinning accelerating demand across the smartphone sector and all things AI. ARM's latest V9 product commands around twice the royalty rate of the equivalent V8 product, pushing its overall revenue growth well past analyst predictions and the company's $720-800 mln forecast, expanding its top line by 13.8% yr/yr to $824 mln.
- One of the key pieces missing from ARM's disappointing Q2 (Sep) report was a noticeable tailwind from AI. However, in Q3, ARM started seeing demand for incorporating CPUs with anything that assists with AI acceleration. It also noticed a compounding effect where customers would not just transition from V8 to V9 for the extra computing required for AI but that more of ARM's technology would be used in the same device.
- ARM's buoyant Q4 estimates underscore intensifying tailwinds kicked off during Q3. The company anticipates adjusted EPS of $0.28-0.32 and revs of $850-900 mln (an over $95 mln increase over previously implied guidance), both zooming past analysts' targets. Royalty revs are forecasted to grow over 30% yr/yr, helped by a favorable comparison given the inventory correction last year. It is worth noting that ARM anticipates 65% of its Q4 royalty revenue from markets beyond mobile, underpinning encouraging data center penetration alongside solid market share gains in automotive.
ARM's incredible move today is reminiscent of NVIDIA's (NVDA) first leg higher back in May 2023. Investors piled into shares of NVDA after the company showcased just how lucrative the AI market was and has the potential to be. After ARM's tepid guidance last quarter did not signal a robust AI market, investors were disappointed, especially since ARM's architecture offers a compelling alternative to the x86 architecture in the data center industry, given the less power-hungry design of ARM chips.
We mentioned last quarter that encouraging developments were in the works at ARM, but the company needed more attractive guidance to reflect these trends. While Q4 guidance was precisely what the market was hungry for, today's move puts ARM on an enormous pedestal, giving it a frothy 78x forward earnings multiple, a rich premium compared to Advanced Micro (AMD) at 44x, NVDA at 33x, and INTC at 29x. Therefore, we urge cautious buying at current levels and advise on waiting for a pullback.
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