Market Snapshot
briefing.com
| Dow | 38585.19 | -404.64 | (-1.04%) | | Nasdaq | 15939.59 | -267.92 | (-1.65%) | | SP 500 | 5078.65 | -52.30 | (-1.02%) | | 10-yr Note | +6/32 | 4.14 |
|
| | NYSE | Adv 1179 | Dec 1577 | Vol 1.0 bln | | Nasdaq | Adv 1561 | Dec 2750 | Vol 6.3 bln |
Industry Watch
| Strong: Energy, Consumer Staples, Financials |
| | Weak: Information Technology, Consumer Discretionary, Communication Services, Real Estate, Health Care |
Moving the Market
-- Expectations for some consolidation, especially mega cap stocks that have led market gains recently
-- Weakness in mega cap stocks weighing down S&P 500, Nasdaq
-- Market showing some resilience to selling; equal-weighted S&P 500 showing a less robust decline
-- Dropping Treasury yields
|
Closing Summary
05-Mar-24 16:30 ET
Dow -404.64 at 38585.19, Nasdaq -267.92 at 15939.59, S&P -52.30 at 5078.65
[BRIEFING.COM] It was a downbeat day for the stock market. The major indices all lost more than 1.0% in a tech stock led retreat. The index level declines were less robust in the first half of the session, but selling accelerated in the afternoon trade.
The negative price action was driven by normal consolidation activity after a big run that had the major indices, and many individual stocks, trading near all-time highs. The stocks that led that upside charge experienced increased selling today compared to the rest of the market.
The Vanguard Mega Cap Growth ETF (MGK) registered a 1.7% decline today, which leaves its yearly gain at 8.3%. The PHLX Semiconductor Index (SOX) fell 2.1% today, but is still up 16.9% for the year. The S&P 500 information technology sector declined 2.2% today, leaving it up 10.1% in 2024.
On an individual basis, Microsoft (MSFT 402.65, -12.27, -3.0%), Meta Platforms (META 490.22, -7.97, -1.6%), and Amazon.com (AMZN 174.12, -3.46, -2.0%) all registered sizable declines today after big gains to start 2024. Notably, shares of NVIDIA (NVDA 859.64, +7.31, +0.9%) keep climbing, bringing its yearly gain to a whopping 73.6%.
Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) fell 0.5% today. The RSP is up 3.6% for year compared to a 6.5% gain in the market-cap weighted S&P 500.
Aside from the information technology sector, the consumer discretionary (-1.3%) and real estate (-1.2%) sectors saw the largest declines. On the flip side, the consumer staples sector outperformed thanks in part to a big earnings-related gain in Target (TGT 168.58, +18.09, +12.0%). TGT was the best performing stock in the S&P 500 today. The energy (+0.7%) and financials (+0.1%) sectors were the only other sectors to close with gains.
Treasuries settled with gains. The 2-yr note yield fell six basis points to 4.55% and the 10-yr note yield declined eight basis points to 4.14%.
- S&P 500: +6.5% YTD
- Nasdaq Composite: +6.2% YTD
- S&P Midcap 400: +5.0% YTD
- Dow Jones Industrial Average: +2.4% YTD
- Russell 2000: +1.3% YTD
Reviewing today's economic data:
- February S&P Global US Services PMI - Final 52.3; Prior 52.5
- January Factory Orders -3.6% (Briefing.com consensus -2.5%); Prior was revised to -0.3% from 0.2%
- The key takeaway from the report is that business spending held steady in January, which takes some of the sting off the otherwise-weak report.
- February ISM Non-Manufacturing PMI 52.6% (Briefing.com consensus 52.7%); Prior 53.4%
- The key takeaway from the report is that business activity and order growth improved in February, but the Employment Index fell below 50.0%, indicating a contraction for the second time in the past three months.
Looking ahead, market participants will receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -5.6%)
- 8:15 ET: February ADP Employment Change (Briefing.com consensus 150,000; prior 107,000)
- 10:00 ET: January job openings (prior 9.026 mln) and January Wholesale Inventories (Briefing.com consensus -0.1%; prior 0.4%)
- 10:30 ET: Weekly crude oil inventories (prior +4.20 mln)
- 14:00 ET: March Fed Beige Book
Losses build into the close; Treasuries settle higher
05-Mar-24 15:35 ET
Dow -496.56 at 38493.27, Nasdaq -326.26 at 15881.25, S&P -68.99 at 5061.96
[BRIEFING.COM] Losses are accelerating heading into the close. The S&P 500 is down 1.4% and the Nasdaq Composite is down 2.1%.
Only two S&P 500 sectors remain in positive territory -- energy (+0.5%) and consumer staples (+0.2%) -- while six sectors trade down more than 1.0%.
Separately, Treasuries settled with gains. The 2-yr note yield fell six basis points to 4.55% and the 10-yr note yield declined eight basis points to 4.14%.
Looking ahead, market participants will receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -5.6%)
- 8:15 ET: February ADP Employment Change (Briefing.com consensus 150,000; prior 107,000)
- 10:00 ET: January job openings (prior 9.026 mln) and January Wholesale Inventories (Briefing.com consensus -0.1%; prior 0.4%)
- 10:30 ET: Weekly crude oil inventories (prior +4.20 mln)
- 14:00 ET: March Fed Beige Book
Mega caps, semiconductor shares steepen losses
05-Mar-24 15:05 ET
Dow -483.56 at 38506.27, Nasdaq -320.26 at 15887.25, S&P -66.62 at 5064.33
[BRIEFING.COM] The market moved lower over the last half hour. Mega caps are still leading the downside charge, but many other stocks are participating, too. Market breadth was positive earlier at the NYSE, but now decliners lead advancers by a 4-to-3 margin at the NYSE and by a better than 3-to-2 margin at the Nasdaq.
The equal-weighted S&P 500 was trading just below its prior close for most of the session, but sports a 0.6% decline now.
Semiconductor stocks also steepened their losses recently, having an outsized impact on index performance. The PHLX Semiconductor Index (SOX) is down 2.9% with every component in the red. Broadcom (AVGO 1336.89, -65.97, -4.6%) is among the most influential laggards from the space, trading down in front of its earnings report on Thursday.
Qorvo, Intuit and fellow tech stocks drag S&P 500 lower on Tuesday
05-Mar-24 14:30 ET
Dow -361.25 at 38628.58, Nasdaq -287.38 at 15920.13, S&P -52.69 at 5078.26
[BRIEFING.COM] The S&P 500 (-1.03%) is in second place, down just over 50 points.
Elsewhere, S&P 500 constituents Qorvo (QRVO 113.48, -6.74, -5.61%), Intuit (INTU 634.63, -33.78, -5.05%), and United Rentals (URI 679.75, -32.56, -4.57%) dot the bottom of the average. QRVO and INTU follow general weakness in technology stocks, while URI gives back all of yesterday's pop to all-time highs after peer Ashtead Group (ASHTY 266.90, -28.93, -9.78%) reported results overnight.
Meanwhile, DaVita (DVA 134.97, +9.24, +7.35%) is near the top of today's standings, helped alongside other dialysis stocks after studies showed that Ozempic didn't cut kidney disease risk as much as hoped; the company is also benefiting from news that it expanded operations into Brazil and Colombia, while also entering the Chilean and Ecuadorian markets.
Gold tips the scales once more
05-Mar-24 14:00 ET
Dow -361.24 at 38628.59, Nasdaq -298.58 at 15908.93, S&P -54.10 at 5076.85
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-1.84%) holds near lows, down just shy of 300 points.
Gold futures settled to a new record, $15.60 higher (+0.7%) to $2,141.90/oz, as geopolitical tensions in the Middle East continue and investors parse domestic sentiment regarding Fed rate cuts in June.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $103.80.
Apple heads toward October 2023 levels on reportedly weak iPhone sales in China (AAPL)
Apple (AAPL -2%) gaps lower again today, struggling to find support for the second consecutive trading day after Bloomberg reported that iPhone sales in China slipped by 24% during the first six weeks of the year. The news follows multiple discouraging developments surrounding Apple's sales in China. For example, in mid-January, the NY Times reported that Apple was discounting iPhones in the region by a meaningful sum. Furthermore, Apple registered weak DecQ sales in China, slipping by over 13% yr/yr or mid-single digits on a constant currency basis.
While Apple still exceeded iPhone sales estimates in DecQ despite softness in China, the recent trends in the region paint a moderately gloomy picture.
- Competition is heating up in China. While Apple still commands the lead among smartphone makers in China, current economic woes could nudge consumers toward cheaper alternatives. Bloomberg pointed out that budget phone maker Vivo was a top seller thus far this year.
- Also worth mentioning is that Apple's iMessage is often pointed out as a key feature of why consumers opt for iPhone over Android (GOOG) alternatives, among a seamless ecosystem. However, other messaging apps in China, such as WeChat, remain immensely popular, potentially making iMessage less of a strong switching defense than in the U.S.
- Regulations could shrink future revenue. Apple has been dealing with heightened regulatory scrutiny from the European Union lately, forcing third-party app store options and handing down a nearly $2.0 bln fine this week. The same scrutiny could intensify in China, where Apple has already faced a fair share of regulations, such as enforcing a new check on apps listed in its App Store.
- Geopolitical risks could severely disrupt Apple's supply chain, which is predominately located in China. Meanwhile, tensions have already spurred the Chinese government to tell its officials to no longer use iPhones for business purposes.
Still, buying opportunities are opening up as shares of Apple head toward October lows. Apple still boasts a portfolio of products to help cushion the softening of iPhone sales in China. It also recently launched the Vision Pro, a VR headset carrying incredible potential.
Additional reports of deteriorating demand in China may crop up throughout the year. Still, as we saw with DecQ performance, Apple's geographical and technological diversification more than offset shaky economic conditions in China. It would not be surprising for this to remain the case going forward.
Paymentus posts momentous Q4 earnings report as its bill payment platform gains traction (PAY)
Paymentus (PAY), a provider of a cloud-based bill payment platform for businesses and consumers, is surging to its highest levels since April 2022 following a top and bottom-line beat for Q4 that featured impressive revenue and adjusted EBITDA growth of 25% and 95%, respectively. Further highlighting the robust demand environment for PAY's platform, the company exited FY23 with strong bookings and backlog, positioning it for additional upside performances.
- In fact, during the earnings call, PAYS commented that it's positioned to achieve the high end of its guidance without signing any new clients. For FY24, the company guided for revenue of $720-$744 and adjusted EBITDA of $65-$75, equating to estimated yr/yr growth of 19% and 20%, respectively, at the midpoints.
- The company believes that it's becoming a central hub to the entire bill payment ecosystem, serving millions of consumers and business customers, while many banks and credit unions send payments from their customers to billers using PAY's platform. There is certainly some evidence within the Q4 earnings report indicating that PAY's reach, traction, and momentum within the bill payment system is expanding.
- For instance, during Q4, the company processed nearly 125 mln transactions, up 28.4% yr/yr, exceeding its expectations. This growth was mainly driven by increased transactions from newer billers, including from some notable large clients. PAY signed multiple large insurance, utilities, and government customers, as well as a significant property management company, during the quarter.
- The better-than-expected transaction growth, combined with improved pricing from some customers upon renewal of their contracts, fueled a 22.7% increase in contribution profit to $66.3 mln -- the company's best quarter in FY23 in terms of yr/yr growth. Simultaneously, PAY kept a tight lid on costs as operating expenses increased by just 1.1%, which helped adjusted EBITDA as a percentage of contribution margin to reach a record level of 30%.
- That said, the company does plan to ramp up its hiring activity and its sales and marketing investments in order to better execute its go-to-market strategy and to convert its pipeline of business into bookings. In fact, PAY already began this hiring ramp up process in Q4, which included some hirings that were initially expected to happen in Q3.
Despite the expected upswing in expenses this year, PAY commented that its FY24 adjusted EBITDA guidance reflects the long-term growth target of 20% that it disclosed during the Q3 earnings call. Overall, this was a strong earnings report from PAY, showing that momentum for its platform is building and that the company isn't sacrificing profits for growth.
AeroVironment soars to record highs as geopolitical volatility fuels robust demand for drones (AVAV)
AeroVironment (AVAV), a leading manufacturer and supplier of drones and missile systems, is soaring to all-time highs after delivering another impressive beat-and-raise earnings report, fueled by robust demand across its product portfolio, but especially for its portable Switchblade drones. Through the U.S. military, AVAV has supplied Ukraine with these small drones that act like guided missiles, underpinning record Q3 revenue for the company's Loitering Munition Systems segment.
- While Congress has yet to come to a bipartisan agreement on additional assistance to Ukraine, AVAV stated that its backlog remains strong, increasing by 12% yr/yr to $462.8 mln, and that its visibility is nearly 100%. As a result, the company had the confidence to bump its FY24 guidance higher, forecasting EPS of $2.69-$2.83 versus its prior outlook of $2.46-$2.70, and revenue of $700-$710 mln compared to its former guidance of $685-$705 mln.
- The company's bullish outlook isn't driven by a single product or customer, but the clear standout is its Loitering Munition Systems segment, in which revenue more than doubled yr/yr to $58 mln. AVAV believes that it's only in the early innings of this growth curve, too, stating during the earnings call that it's in active discussions with the U.S. government on a significant multi-year contract for Switchblade to meet rising demand. Furthermore, twenty other countries have expressed interest in Switchblade.
- To meet this sky-high level of demand, AVAV plans to eventually ramp up its manufacturing capacity, although, the company believes that it has sufficient capacity for the next couple of years.
- With Q3 revenue of $113.3 mln, Unmanned Systems (UMS) is still the largest segment by a wide margin. Growth wasn't nearly as spectacular as Loitering Munition Systems, but it was still quite respectable at +23%. The growth was spread across product lines with Puma, AVAV's small drone, accounting for about half of UMS's total revenue. Over the past 12 months, AVAV has shipped over $400 mln of Puma drones to customers and health demand is expected to continue.
- This strong demand and top-line growth is also driving margins higher. With product revenue representing a higher proportion of total revenue, gross margin expanded by 200 bps yr/yr to 36%. Looking ahead, AVAV expects product revenues as a percentage of revenue to remain above 80% for the foreseeable future.
The main takeaway is that the volatile geopolitical climate around the globe is facilitating robust demand for AVAV's drones and missile systems and that seems unlikely to change any time soon.
Target posts strong EPS upside for holiday quarter; expects a return to positive comps (TGT)
Target (TGT +12%) is trading sharply higher after reporting Q4 (Jan) results. Target again beat handily on EPS, it has now reported five huge EPS beats in a row. At the same time, TGT has also missed on revs in four consecutive quarters, although the miss was quite small. That is a strange combination, but it shows margins are better than expected. The holiday quarter is always TGT's largest revenue quarter of the year, so it was good to see a strong result.
- The guidance was decent as Target guided Q1 (Apr) EPS in-line at $1.70-2.10, although the mid-point was below consensus. After guiding lower in three consecutive quarters, TGT has now posted back-to-back in-line-ish guidance. FY25 EPS guidance of $8.60-9.60 was a true bright spot as the mid-point was above consensus. That was encouraging to see.
- Same store comps for Q4 came in at -4.4% (in-store -5.4%; digital -0.7%), which we would characterize as at the high end of prior guidance of a mid-single digit decline. It was also better than Q3's -4.9% comp. Target says that guests responded to newness and value as comps and traffic trends improved sequentially for the second quarter in a row.
- Target guided to Q1 comps of -5% to -3% and, importantly, Target expects a modest increase in comps for FY25 comps at +0-2%. That would be a return to growth following a negative -3.7% comp in FY24. Target reported a +2.2% comp in FY23. While the Q1 comp guidance is a bit disappointing, the full year guidance tells us comps are expected to improve later in the year. Of note, TGT expects to roll out a new Target Circle membership program.
- Besides comps, another key metric we watch is operating margin. Operating margin in Q4 improved quite a bit to 5.8% from 3.7% a year ago and 5.2% in Q3. This was driven by lower markdowns and other inventory-related costs, lower freight costs, lower supply chain and digital fulfillment costs, and favorable category mix. Shrink costs were lower than a year ago, as continued increases in store loss rates were more than offset by the timing of inventory accruals compared with 2022.
- On the call, TGT announced it plans to launch an unlimited same day delivery service through a new membership feature called Target Circle 360, which is launching next month. It is an extension of the same day capabilities TGT built with its Shipt service. Members can order everything from groceries to household essentials with no fees, no markups. The service will carry a promotional price of $49.
So, why is the stock so much higher today? Even though revenue was a bit light, Target continues to make big strides on profitability, which was evident in strong margin expansion. Lower markdowns and lower shrink helped in Q4. With the strong EPS guidance for FY25, that tells us TGT is expecting costs to continue to improve. We also think investors are reacting to Q4 comps being on the high side of guidance and investors are happy to see Target expect a return to positive comps this year.
We were a little nervous coming into this report given TGT's higher exposure to discretionary items, relative to Walmart (WMT). However, results were quite good. After a period in the retail dog house, Target has seen its shares embark on a remarkable turnaround in recent months.
GitLab tumbles on weak earnings forecasts; management no longer guiding conservatively (GTLB)
Software development tools provider GitLab (GTLB -17%) gives up most of its 2024 gains today despite exceeding top and bottom-line estimates in Q4 (Jan) while issuing relatively decent revenue guidance. Today's nosedive emanates from weak Q1 (Apr) and FY25 adjusted earnings forecasts, which were made worse by management's remarks that it is no longer guiding conservatively going into its third year as a public company.
The underwhelming earnings projections resulted primarily from two major upcoming expenses, including an in-person retreat for employees and GTLB's China joint venture, JiHu, which the company continues planning to deconsolidate but is unsure of when. With shares up over +70% since November, investors were pricing in far better guidance than GTLB provided, driving swift profit-taking today.
- GTLB's Q4 performance was still solid, expanding its adjusted earnings to $0.15 per share from $(0.03) in the year-ago period on sales of $163.8 mln, a 33.3% jump yr/yr.
- Large customer growth persisted in the quarter, with GTLB's cohort of over $100K of annualized recurring revenue (ARR) expanding by 37% yr/yr, identical to the growth registered in Q3 (Oct) and Q2 (Jul). Meanwhile, customers with over $1.0 mln of ARR jumped 52% to 96.
- CFO Brian Robins remarked that compared to the previous quarter, buying behavior improved across all customer sizes, including small and medium-sized businesses (SMBs), a notable weak point in Q3. Additionally, while Mr. Robins admitted that the spending environment remains cautious, demand is normalizing. Furthermore, churn and contraction during Q4 improved for the fourth straight quarter. Also, demand for GTLB's top-tier software, Ultimate, which represented over 50% of bookings in the quarter, remains robust.
- However, GTLB's guidance did not reflect the upbeat tone expressed throughout the call. The company projected Q1 adjusted EPS of $(0.05)-$(0.04), well below analysts' positive figure. The hurdle in Q1 impacted FY25; GTLB expects EPS of $0.19-0.23, also below estimates. Also, while Q1 revenue forecasts of $165-166 mln surpassed estimates, the midpoint of GTLB's FY25 revenue outlook of $725-731 mln fell short of consensus.
Today's significant downward move highlights the volatility surrounding AI, which can ignite tremendous rallies just as fast as it can douse a hot stock. GTLB has been prone to wild swings in previous quarters, falling by over 20% the day following 4Q23 results last March, only to bounce by over 30% just three months later. While AI remains a core part of GTLB's platform vision, it is not keeping guidance from missing the mark today, triggering a rush of selling.
Still, there are plenty of reasons to remain optimistic about GTLB's near future, including normalized buying behavior, improved churn rates, and sustained growth in Ultimate. Furthermore, the interest in deploying AI across numerous facets of an organization, including workflows, has yet to slow down. Therefore, it is worth keeping GTLB on the radar despite a less-than-stellar earnings forecast.
|
