| | | Market Snapshot
briefing.com
| Dow | 38996.39 | +47.37 | (0.12%) | | Nasdaq | 16091.92 | +144.18 | (0.90%) | | SP 500 | 5096.27 | +26.51 | (0.52%) | | 10-yr Note | +2/32 | 4.25 |
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| | NYSE | Adv 1893 | Dec 831 | Vol 1.7 bln | | Nasdaq | Adv 2547 | Dec 1728 | Vol 6.3 bln |
Industry Watch
| Strong: Communication Services, Real Estate, Materials, Information Technology, Consumer Discretionary, Energy |
| | Weak: Health Care, Consumer Staples |
Moving the Market
-- Digesting the Personal Income and Spending report, which went the market's way in terms of disinflation that may persuade the Fed to cut rates sooner rather than later
-- Drop in Treasury yields in response to the data
-- Late afternoon surge powered by mega cap stocks
-- Ongoing upside momentum
| Closing Summary
29-Feb-24 16:30 ET
Dow +47.37 at 38996.39, Nasdaq +144.18 at 16091.92, S&P +26.51 at 5096.27
[BRIEFING.COM] The Nasdaq Composite (+0.9%) closed at a fresh all-time high today. It was the last major index to reach a new record high in the uptrend that brought the S&P 500 and Dow Jones Industrial Average to new all-time closing highs earlier this year.
The S&P 500, which briefly traded above 5,100 before closing shy of that level, closed with a 0.5%; the Dow Jones Industrial Average eked out a 0.1% gain; and the Russell 2000 climbed 0.7%.
The indices were trading with more modest gains, though, for most of the session and the DJIA was below its prior close. An increase in buying activity in the final hour of trading, propelled by gains in the mega cap space, left stocks near their highs of the day at the close.
Shares of Amazon.com (AMZN 176.79, +3.60, +2.1%), Microsoft (MSFT 413.64, +5.92, +1.5%), and Meta Platforms (META 490.13, +6.11, +1.3%) were among the most influential gainers in the late afternoon, moving higher and boosting index level gains.
The muted action leading up to the afternoon climb reflected a muted response from stocks to this morning's release of the Personal Income and Spending Report for January. The report didn't contain any surprises and the PCE Price Indexes were in-line with expectations, showing year-over-year disinflation for the PCE Price Index to 2.4% (from 2.6%) and the core-PCE Price Index to 2.8% (from 2.9%).
The fed funds futures market also had a muted reaction to the data, showing little change in rate cut expectations. According to the CME FedWatch Tool, the fed funds futures market is pricing in a 63.6% probability of a 25 basis points rate cut to 5.00-5.25% at the June FOMC meeting versus a 63.2% probability yesterday.
The afternoon improvement left nine of the S&P 500 sectors with gains. Mega cap leadership left the heavily-weighted information technology (+1.3%), communication services (+1.3%), and consumer discretionary (+1.0%) sectors with the largest gains. Salesforce (CRM 308.82, +9.05, +3.0%), which traded higher after reporting earnings, also provided a boost to the info tech sector.
Meanwhile, the health care (-0.7%) and consumer staples (-0.3%) sectors were alone in the red at the close.
Treasuries settled with gains in response to this morning's data. The 2-yr note yield fell three basis points today to 4.64% and the 10-yr note yield fell two basis points to 4.25%.
- Nasdaq Composite: +7.2% YTD
- S&P 500: +6.8% YTD
- Dow Jones Industrial Average: +3.5% YTD
- S&P Midcap 400: +3.9% YTD
- Russell 2000: +1.4% YTD
Reviewing today's economic data:
- Weekly Initial Claims 215K (Briefing.com consensus 206K); Prior was revised to 202K from 201K; Weekly Continuing Claims 1.905 mln; Prior was revised to 1.860 mln from 1.826 mln
- The key takeaway from the report is the understanding that it has become more challenging to find a new job right away, which is symptomatic of a labor market that is not running as tight as it once was.
- January Personal Income 1.0% (Briefing.com consensus 0.5%); Prior 0.3%; January Personal Spending 0.2% (Briefing.com consensus 0.2%); Prior 0.7%; January PCE Prices 0.3% (Briefing.com consensus 0.4%); Prior was revised to 0.1% from 0.2%; January PCE Prices - Core 0.4% (Briefing.com consensus 0.4%); Prior was revised to 0.1% from 0.2%
- The key takeaway from the report will revolve around the year-over-year disinflation seen in the PCE Price Indexes and the softening in real personal spending, which should temper Q1 GDP growth forecasts. So, disinflation paired with slower growth are conditions the market will think are going to promote rate-cut thinking at the Fed in due time.
- February Chicago PMI 44.0 (Briefing.com consensus 47.6); Prior 46.0
- January Pending Home Sales -4.9% (Briefing.com consensus 1.0%); Prior was revised to 5.7% from 8.3%
Friday's economic calendar features:
- 9:45 ET: February S&P Global U.S. Manufacturing PMI (prior 49.1%)
- 10:00 ET: February ISM Manufacturing Index (Briefing.com consensus 49.5%; prior 49.1%), final February University of Michigan Consumer Sentiment (Briefing.com consensus 79.6; prior 78.8), and January Construction Spending (Briefing.com consensus 0.3%; prior 0.9%)
Stocks climb ahead of close, propelled by mega caps
29-Feb-24 15:30 ET
Dow +22.24 at 38971.26, Nasdaq +107.99 at 16055.73, S&P +20.61 at 5090.37
[BRIEFING.COM] The major indices are trading higher, propelled by mega cap gains. The S&P 500 is up 0.4% versus a 0.6% gain in the Vanguard Mega Cap Growth ETF (MGK).
The 2-yr note yield rose three basis points today to 4.64% and the 10-yr note yield rose two basis points to 4.25%.
Separately, Friday's economic calendar features:
- 9:45 ET: February S&P Global U.S. Manufacturing PMI (prior 49.1%)
- 10:00 ET: February ISM Manufacturing Index (Briefing.com consensus 49.5%; prior 49.1%), final February University of Michigan Consumer Sentiment (Briefing.com consensus 79.6; prior 78.8), and January Construction Spending (Briefing.com consensus 0.3%; prior 0.9%)
BAC, WFC trade higher following bitcoin ETF news
29-Feb-24 15:00 ET
Dow -13.23 at 38935.79, Nasdaq +92.70 at 16040.44, S&P +15.57 at 5085.33
[BRIEFING.COM] The market continues to move in a lateral flow. The Dow Jones Industrial Average is flattish, the S&P 500 is up 0.3%, and the Nasdaq Composite sports a 0.6% gain.
Shares of Bank of America (BAC 34.34, +0.27, +0.8%) and Wells Fargo (WFC 55.28, +0.56, +1.0%) moved higher following a Bloomberg report that the banks are aiming to offer bitcoin ETFs to wealthy clients. This news follows a big jump in Bitcoin, which sits at $61,617 now after briefly topping $63,000 earlier.
On a related note, the S&P 500 financials sector is down 0.2%.
Enphase higher on insider purchase, Xcel dips in S&P 500 after disclosing update to Texas fires
29-Feb-24 14:30 ET
Dow -5.45 at 38943.57, Nasdaq +86.70 at 16034.44, S&P +16.13 at 5085.89
[BRIEFING.COM] The S&P 500 (+0.32%) is in second place today, up about month-to-date about +5.0% with just a few hours left in February trading.
Elsewhere, S&P 500 constituents Enphase Energy (ENPH 127.67, +8.57, +7.20%), Newmont Goldcorp (NEM 31.40, +1.53, 5.12%), and Albemarle (ALB 138.62, 6.56, +4.97%) dot the top of today's standings. ENPH gains after CEO B. Kothandaraman disclosed purchase of nearly $482K in shares, while NEM is higher on a Jefferies initiation.
Meanwhile, Xcel Energy (XEL 53.14, -4.53, -7.86%) is lagging the market after updating investors on the recent wildland fires in Texas near the service territory of Southwestern Public Service Company.
Gold holds gains despite dollar rebound
29-Feb-24 14:00 ET
Dow -25.87 at 38923.15, Nasdaq +92.47 at 16040.21, S&P +16.83 at 5086.59
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.58%) holds gains atop the major averages, up about 92 points.
Gold futures settled $12 higher (+0.6%) to $2,054.70/oz, gains holding despite a rebound in the dollar off weakness from this morning's PCE data, this even as yields cling to modest losses.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $104.11.
HP Inc. heads modestly lower following earnings; expects a better 2H as PC market recovers (HPQ)
HP Inc. (HPQ -2%) is trading modestly lower following its Q1 (Jan) earnings report last night. The headline numbers were not great with in-line EPS and revenue coming in below analyst expectations. Revenue fell 4.4% yr/yr to $13.19 bln. HPQ tends to be hit-or-miss on the top line, so this is not entirely unusual. Of note, the rate of revenue decline slowed for the third straight quarter, which HPQ sees as an encouraging sign of market stabilization. HPQ also reaffirmed full year EPS guidance.
- In Consumer, HPQ had anticipated a post-holiday slowdown, but this was a bit more pronounced than initially expected. Commercial customers remain cautious. While HPQ saw signs of stabilization in the SMB and education markets, it saw a slowdown in US enterprise and federal sales, especially in January. HPQ also continued to see demand weakness in China due to challenging economic conditions, partially offset by strength in India.
- Breaking it down by segment, Personal Systems (PS) revenue fell 4% yr/yr to $8.81 bln, driven by soft demand and an unfavorable mix shift. HPQ continues to expect the PC market to grow low-single digits in 2024, and HPQ expects to grow at least in line with the market. HPQ again gained PC share in calendar Q4, both yr/yr and sequentially. On the Print side, revenue fell 5% yr/yr to $4.38 bln, reflecting market headwinds, China softness and the aggressive pricing environment.
- Despite pockets of softness in Q1, HPQ saw signs of improvement overall. HPQ continues to expect that performance in the second half of fiscal year 2024 will be seasonally stronger than the first half. Looking ahead to Q2 (Apr) and the rest of FY24, HPQ expects the macro and demand environments will remain challenged, and that customer end markets will continue to be very competitive.
- Looking ahead, on the PS side for Q2, HPQ expects segment revenue will decline sequentially by high single-digits, in line with typical seasonality. In Print, HPQ expects consumer demand will remain soft and pricing competitive in Q2, while market uncertainty continues to impact its commercial print business.
Overall, this was a disappointing quarter for HPQ, but not entirely unexpected. HPQ has been describing difficult market conditions for several quarters. And that explains why we are not seeing much reaction in the stock price. The good news is that it sounds like there will be some improvement in 2H.
HPQ's comments about the recovery in the PC market was nice to hear, but it still seems pretty modest. Recall that HPQ saw robust sales during the pandemic when people set up home offices. However, the PC market has since come back down to earth but it sounds like it is slowly coming back to life. We think this report makes us more nervous for Dell's (DELL) report tonight. However, Dell has a lot more exposure to areas out of PCs/Print, like servers, storage, networking etc. so they are not exactly comparable.
Snowflake melts after its CEO steps down and its FY25 guidance underscores stubborn headwinds (SNOW)
Snowflake (SNOW -19%) is melting today, returning to 2024 lows despite exceeding earnings and sales forecasts in Q4 (Jan). A surprise exit by former CEO Frank Slootman, who will remain Chairman, persistent revenue headwinds, and growing conservatism from management due to the previous year's consumption patterns are generating a storm of selling pressure. Additionally, SNOW commented that to get back on track to its longer-term financial goals, it needs consumption patterns to revert toward pre-FY24 trends, a development that has yet to unfold.
There's no doubt 2023 was a turbulent year for SNOW despite shares running roughly +60% higher -- although nearly all of these gains started in late October following speculation over multiple rate cuts this year. Revenue growth was stuck in a decelerating pattern as consumption faded in light of heightened macroeconomic uncertainty. SNOW's business model is based on user consumption instead of a recurring annual fee, making it much more susceptible to economic volatility.
- While the macroeconomic backdrop remains unsettled, SNOW still finished FY24 strong, delivering 150% earnings growth yr/yr to $0.35 and 31.5% revenue growth to $774.7 mln in Q4, above analyst expectations. SNOW registered firm bookings in the quarter, delivering a 41% jump in remaining performance obligations (RPO) yr/yr to $5.2 bln, an acceleration from the 23% increase in Q3 (Oct). While bookings are not a leading indicator of revenue, SNOW stated that the metric points to an improving macroeconomic environment.
- Revenue growth was led by younger accounts, which are adding new workloads and migrating from legacy vendors. Financial services and retail were SNOW's top contributing verticals in the quarter. Meanwhile, promising momentum from EMEA emerged during Q4; management mentioned that its international regions outperformed expectations for the first time in a year.
- Generative AI will be front and center in SNOW's long-term strategy, which is largely why Frank Slootman decided to step down as CEO. Mr. Slootman commented that due to the onslaught of Gen AI, SNOW needs a hard-driving technologist to navigate the challenges of the new technology. As a result, Mr. Slootman passed the reins off to Sridhar Ramaswamy, a former Google (GOOG) employee and the founder of AI-powered search engine Neeva, which was acquired by SNOW last year.
- Looking ahead, SNOW expects FY25 product revenue growth of 22% yr/yr, a sharp slowdown from the +38% increase in FY24, and non-GAAP operating margins of 6%, down 200 bps yr/yr. The company's guidance assumes customer behavior similar to that of FY24.
After starting to mount a comeback at the end of October, further accelerated by uplifting Q3 (Oct) results in late November, SNOW's upward momentum was snapped today after Q4 results and FY25 guidance revealed stubborn headwinds. Investors were also taken aback by the departure of Frank Slootman as CEO. Ultimately, today's reaction may be overblown, especially given the track record of newly-minted CEO Sridhar Ramaswamy. Also, a conservative outlook could lead to meaningful outperformance down the line.
Salesforce trades roughly flat on JanQ results; small EPS beat but good guidance (CRM)
Salesforce (CRM) is trading modestly higher after wrapping up FY24 on a decent note. CRM beat on EPS in Q4 (Jan), but it was its smallest upside of any quarter the past five years. CRM guided higher for Q1 (Apr) EPS and FY25, but full year revenue guidance was a bit light. In addition to earnings, CRM said it will start paying a dividend for the first time in its history. CRM initiated a quarterly dividend of $0.40/sh and increased its share repurchase program by $10 bln.
- CRM said that sales growth was primarily driven by resilient sales and service performance as well as strength in MuleSoft and Tableau. From a geographic perspective, the Americas revenue grew 9% (vs +10% in Q3), EMEA grew 11% CC and APAC grew 19% CC. CRM saw strong new business growth in LatAm, India and Canada, while parts of EMEA remain constrained. India continues to be a bright spot, growing new business at 35% yr/yr.
- From an industry perspective, public sector and travel transportation/hospitality performed well, while retail and consumer goods and high tech were generally more measured. Importantly, CRM has been focused on selling multi-cloud deals. Momentum continued on that front in Q4 with 8 of its top 10 deals including 6+ clouds, and more than half of its top 100 wins included 6+ clouds.
- In terms of why FY25 revenue guidance was a bit light, CRM explained that it expects a $100 mln FX headwind. It also expects its professional services business to remain under pressure, which should be a headwind to revenue. Also, CRM expects to continue to see a measured buying environment, which began back in FY23. CRM explained that this takes time for that to flow through its subscription revenue stream due to the rules about revenue recognition.
- While CRM expects a continued measured buying environment, there was a silver lining in its outlook. Over the past two quarters, CRM has seen improved bookings growth. Margins are another bright spot as Q4 non-GAAP operating margin rose 220 bps to 31.4%. For all of FY24, that metric jumped to 30.5% from 22.5% in FY23. And for FY25, CRM expects non-GAAP operating margin of 32.5%.
Overall, investors seem to be taking CRM's results in stride as they were pretty much as expected. The small EPS upside was offset by upside guidance for Q1 and FY25. Also, we think investors are really focusing in on CRM's comments about seeing improved bookings growth the past couple of quarters. In recent quarters, CRM has been talking about higher deal scrutiny, so that language was comforting to hear. The dividend initiation was a nice bonus, the yield is still tiny at 0.5%, but that was good to see and maybe it's a sign of CRM's confidence moving forward.
Best Buy's holiday season not quite as gloomy as feared and further stabilization expected (BBY)
As anticipated, it was a lackluster holiday shopping season for Best Buy (BBY), but sales weren't quite as bad as feared and the consumer electronics retailer is expecting business to improve from here with CEO Corie Barry predicting a "year of stabilization" for the battered industry.
- Similar sales trends played out in Q4 relative to past recent quarters as consumers were hesitant to make big-ticket purchases. Categories with higher sticker prices, such as appliances, home theater, and mobile phones, were especially weak, and were partly offset by strength in gaming. Overall, comparable sales declined by 4.8% yr/yr, which was slightly better than expectations and an improvement from Q3's decrease of 6.9%.
- Although BBY is forecasting a healthier demand environment for FY25, the improvement will likely be gradual and methodical, as illustrated by BBY's Q1 comparable sales guidance for a decline of 5%.
- During the earnings call, CEO Corie Barry noted that many of the same macroeconomic and industry-specific headwinds are still weighing on sales. While inflation has come down, she noted that prices for basics -- such as food and housing -- are still quite high, adding that consumer spending on experiences and travel has been very sticky. Furthermore, the pull-forward in demand during the pandemic has caused consumers to put consumer electronics towards the bottom of their priority lists.
- The good news, though, is that these headwinds are starting to lose their grip. In fact, laptop comps turned slightly positive late in Q4 and BBY expects the overall computing category to return to growth this year. Those computers, laptops, and devices that were purchased during the pandemic will soon need to be refreshed and upgraded, creating an upgrade cycle that BBY believes will help return the industry back to growth mode after two years of decline.
- One area that has remained relatively strong throughout this downturn has been BBY's membership program. In Q4, BBY grew its paid membership base, ending the quarter with approximately 7.0 mln members. The membership business carries high gross margins, which helped to offset the total sales decline as domestic gross margin improved by 60 bps yr/yr to 20.4%.
- BBY also kept a tight lid on expenses once again. Recall that last April, the company cut hundreds of jobs across its U.S. stores, followed up by another round of layoffs during Q4. Non-GAAP SG&A expenses for Q4 were virtually flat yr/yr on a percentage of sales basis at 15.4%.
- As a result of the modestly better sales performance, higher gross margin, and cost containment efforts, BBY's EPS grew by 4% yr/yr to $2.72, beating expectations. However, the midpoint of BBY's FY25 EPS guidance of 5.75-$6.20 represents a decline of about 6%. It's worth pointing out, though, that BBY has a long track record of exceeding EPS expectations, beating estimates in every quarter but one over the past five years.
The main takeaway is that Q4 and the holiday shopping season wasn't quite as bleak as anticipated for BBY, but more importantly, the company expects the long-awaited stabilization and recovery in consumer electronics to materialize in FY25 and thereafter.
Okta breaches $100 for the first time in two years following a solid beat-and-raise in Q4 (OKTA)
Okta (OKTA +21%) breaches the $100 mark for the first time since 2022 after delivering a superb beat-and-raise in Q4 (Jan). The impressive outperformance by the identity and access management provider in the quarter suggests minimal impact emanating from a customer support security incident disclosed in October. Given the sharp sell-off in shares of OKTA following the security breach, especially since it warned of uncertainty surrounding any financial impact, Q4 results provide a tremendous sigh of relief, igniting a powerful rally today.
- The immaterial impact of the October security incident shows up immediately in OKTA's Q4 numbers. The company expanded its bottom line by over 100% yr/yr to $0.63 per share on top-line growth of 18.6% to $605 mln, both well above initial forecasts of $0.50-0.51 and $585-587 mln, respectively.
- OKTA's explosive earnings growth reflects its ability to quickly pivot away from growth and target operational improvements. Over the past year and a half, the company implemented headcount reductions, invested in lower-cost regions like India and Poland, and trimmed excess costs.
- Meanwhile, even though revenue growth decelerated for the seventh straight quarter, OKTA continued to notice a stabilized macroeconomic environment. Nevertheless, management conceded that conditions remain challenging, evidenced by a sequential dip in new customer growth from 400 net adds in Q3 to just 150 in Q4.
- The demand backdrop is shifting trends toward upsell and cross-sell versus new business, with large enterprises outperforming small and medium-sized businesses (SMBs). As a result, OKTA shifted and split its direct sales team focused on SMBs in the Americas toward driving new customer acquisition and upsells within the company's installed base.
- As the global economy remains relatively wobbly, OKTA is staying prudent in its guidance. However, despite incorporating uncertainty, OKTA still issued upbeat FY25 targets, projecting adjusted EPS of $2.24-2.29, well above consensus, and revs of $2.495-2.505 bln, a solid bump from its previous outlook of $2.46-2.47 bln. The company also anticipates a considerable improvement in non-GAAP operating margins, estimating 18-19% in FY25 compared to 14% in FY24 and (1)% in FY23.
- A housekeeping item to note: OKTA is changing a few organizational items to reduce share dilution, resulting in a 1% benefit to its basic share count in FY25.
Investors are relieved to see such outstanding results in Q4 after an unnerving security breach in October. While volatile macroeconomic demand will be a stubborn headwind this year, OKTA is taking the proper steps to still deliver meaningful growth, leveraging the more cushioned large enterprise market while keeping an emphasis on profitability.
Bottom line, demand for cybersecurity will likely accelerate as companies continue shifting to the cloud, providing a secular tailwind for OKTA. However, given the backdrop of larger players in OKTA's field, including Microsoft (MSFT), it could eventually hit a ceiling in its large enterprise acquisition plans over the long run.
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