| | | Market Snapshot
| Dow | 38790.43 | +75.66 | (0.20%) | | Nasdaq | 16103.44 | +130.27 | (0.82%) | | SP 500 | 5149.42 | +32.33 | (0.63%) | | 10-yr Note | -2/32 | 4.34 |
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| | NYSE | Adv 1433 | Dec 1397 | Vol 1.11 bln | | Nasdaq | Adv 1969 | Dec 2285 | Vol 5.04 billion |
Industry Watch
| Strong: communication services, consumer staples |
| | Weak: health care, real estate |
Moving the Market
--Strength in mega-cap stocks
--Relative weakness in small-cap stocks
--NVIDIA struggles to hold larger gain
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Closing Stock Market Summary
18-Mar-24 16:20 ET
Dow +75.66 at 38790.43, Nasdaq +130.27 at 16103.44, S&P +32.33 at 5149.42
[BRIEFING.COM] The stock market had its best moments in the first hour of trading, and then it simply faded away from those best moments over the remainder of the session. The Dow, Nasdaq, and S&P 500 still ended the session higher, supported by mega-cap leadership, but it didn't feel so much like a winning session. To that end, today's market looked more like it was playing not to lose than it was playing to win.
Still, a gain is a gain in the return column, and gains will be taken at face value for anyone wanting to cash out. Larger gains, however, faded amid some stepped-up selling activity in the last 15 minutes of trading.
Participants today didn't have a lot of conviction, which was understandable given a looming Bank of Japan policy decision overnight and the impending release of the Fed's dot plot on Wednesday. The conviction that was shown was biased toward the mega-cap stocks. The Vanguard Mega-Cap Growth ETF (MGK) closed 0.9% higher.
The latter's performance was steered largely by three story stocks: Alphabet (GOOG 148.48, +6.31, +4.4%) gained as much as 7.6% on a Bloomberg report that Apple (AAPL 173.72, +1.10, +0.6%) is in discussions to build the Gemini AI engine into its phones, NVIDIA (NVDA 884.55, +6.18, +0.7%) gained as much as 5.2% in front of the start of its GTC Conference, and Tesla (TSLA 173.88, +10.31, +6.3%) jumped as much as 6.8% after Elon Musk noted in an X post that the Model Y price will rise $1,000 in a few weeks.
They would all finish off their best levels, which weighed on the major indices just as their fast start to higher levels paced the opening gains.
Their performance naturally attracted a lot of attention, but arguably it was the performance of the small-cap stocks that mattered more. They still could not get it in rebound gear despite the Russell 2000 (-0.7%) suffering a 2.1% decline last week.
Banks were a weak link in connection with a sobering downgrade of New York Community Bank (NYCB 3.63, -0.27, -6.9%) to Underperform from Market Perform by Raymond James Financial. The SPDR S&P Regional Banking ETF (KRE) fell 0.7%.
On the flip side, the consumer staples sector (+0.8%) outperformed with the help of PepsiCo (PEP 171.26, +6.60, +4.0%), which was upgraded to Overweight from Equal Weight at Morgan Stanley. The consumer staples sector was the best-performing sector behind the communication services sector (+3.0%).
Most sectors ended the day with modest gains. The two outliers were health care and real estate, which closed with fractional losses.
Treasuries also suffered some losses today. The 2-yr note yield settled the day up one basis point at 4.73% while the 10-yr note yield settled up four basis points at 4.34% with rising oil prices ($82.17, +1.18, +1.5%) pestering inflation expectations.
- S&P 500: +8.0% YTD
- Nasdaq Composite: +7.3%
- S&P Midcap 400: +4.9%
- Dow Jones Industrial Average: +2.9% YTD
- Russell 2000: -0.1% YTD
Reviewing today's economic data:
- The March NAHB Housing Market Index checked in at 51 (Briefing.com consensus 49) versus 48 in February
Looking ahead, Tuesday's economic data includes the February Housing Starts (Brieifng.com Consensus 1.435 million; prior 1.331 million) and Building Permits (Briefing.com Consensus 1.485 million; prior 1.489 million) Report at 8:30 a.m. ET, and the January Net Long-Term TIC Flows (Prior $160.2 billion) at 4:00 p.m. ET.
Holding steady
18-Mar-24 15:30 ET
Dow +143.36 at 38858.13, Nasdaq +179.18 at 16152.35, S&P +42.17 at 5159.26
[BRIEFING.COM] It remains more of the same for the stock market as it heads into the home stretch of today's trading. Things could have a different vibe tomorrow, though, as participants react to the Bank of Japan's policy decision, comments form NVIDIA (NVDA 886.53, +8.17, +0.9%) at its GTC Conference, and a key economic release in the form of the February Housing Starts and Building Permits Report.
The relative strength of the mega-cap issues can be seen in the 1.2% gain in the Vanguard Mega-Cap Growth ETF (ETF). That strength has been an important underpinning factor for the major indices since the opening bell.
Drifting
18-Mar-24 15:00 ET
Dow +141.38 at 38856.15, Nasdaq +166.55 at 16139.72, S&P +39.66 at 5156.75
[BRIEFING.COM] The indices continue to drift in the afternoon session, maintaining similar performance lines that have been in place throughout the day.
Understandably, there isn't a ton of conviction in front of key central bank meetings this week that will have some extra influence on interest rates and expectations about how interest rates might move in coming weeks and months.
Interest rates today are drifting higher. The 2-yr note yield is up one basis point to 4.74%, leaving it up 48 basis points for the year as the market has been forced to recalibrate its rate-cut views. The 10-yr note yield is up three basis points to 4.34%, leaving it up 46 basis points for the year. The U.S. Dollar Index is up 0.2% to 103.61.
Separately, it's still a clean sweep of gains for the 11 S&P 500 sectors, but only one -- communication services (+2.8%) -- is up more than 1.0%. Gains for the remaining sectors range from 0.1% to 0.8%.
Tesla, Match outperforming in S&P 500 standings
18-Mar-24 14:30 ET
Dow +160.50 at 38875.27, Nasdaq +198.72 at 16171.89, S&P +46.20 at 5163.29
[BRIEFING.COM] The S&P 500 (+0.90%) is in second place on Monday afternoon, mostly unchanged compared to the prior half hour.
Elsewhere, S&P 500 constituents Tesla (TSLA 173.98, +10.41, +6.36%), Match (MTCH 35.05, +1.50, +4.47%), and Adobe (ADBE 514.19, +21.73, +4.41%) pepper the top of the average. TSLA is higher today amid a price hike on Model Y trims starting April 1, while both MTCH and ADBE recover a bit from recent losses.
Meanwhile, Int'l Paper (IP 35.20, -1.15, -3.16%) is today's top laggard despite a dearth of corporate news.
Gold modestly higher to begin the week
18-Mar-24 14:00 ET
Dow +114.35 at 38829.12, Nasdaq +169.11 at 16142.28, S&P +40.39 at 5157.48
[BRIEFING.COM] With about two hours remaining on Monday the tech-heavy Nasdaq Composite (+1.06%) remains firmly in the lead.
Gold futures settled $2.80 higher (+0.1%) to $2,164.30/oz, gains kept in check amid a modestly higher dollar and equally modest gains in yields.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $103.64.
Alphabet receives a lift on reports Apple (AAPL) could embed Gemini AI into iOS 18 (GOOG)
Alphabet (GOOG +4%) heads back toward levels before a post-Q4 sell-off today following a Bloomberg report that Apple (AAPL +1%) is in talks to embed GOOG's Gemini AI -- which replaced Bard -- into its iPhones. The possible deal would be huge for the search engine giant, broadening the application of its AI chatbot, given the over 1.0 bln iPhones in use today. It would also likely be incredibly lucrative for Apple. The iPhone maker already boasts a multi-billion dollar deal with Google to keep its search engine as the default option in mobile Safari.
- With tech firms implementing AI chatbots into their search engines, including Microsoft's (MSFT) Bing, online search is being disrupted. Users can ask AI assistants questions instead of hunting through online search results, igniting concern among Google investors over whether the search giant's leadership position may eventually be displaced.
- Microsoft has not been quiet in heralding its ChatGPT-powered search assistant as Google's formidable foe, possibly stealing online search market share. At the same time, Microsoft's recently launched Copilot AI feature embedded in Windows allows users to search for answers without pulling up a web browser, eliminating the need to lean on Google (through search and its Chrome browser) for research.
- Utilizing Gemini AI would also be a win for Apple, which has been less aggressive in pursuing Generative AI relative to the field of big tech names. Apple's lack of Gen AI-related announcements has likely modestly contributed to its -10% correction from mid-December highs -- weak China sales have been the leading factor underpinning Apple's downward trend. With rivals like Google and Samsung (SSNLF) adding dozens of AI-related features to their newest smartphones, the iPhone is starting to look somewhat stale by comparison.
- Given how Google pays to maintain a somewhat search monopoly on iPhones, as it takes a few steps to change the default search option, it has faced some regulatory pushback lately. The U.S. Department of Justice probed Google over its payment to Apple for its default search position last year. The EU is looking into a similar matter. Gemini AI could temporarily counter the current regulatory pressures. However, it is unclear whether governments will knock the two companies over a potential AI monopoly down the road.
The market is viewing today's report on a possible deal between Google and Apple to embed AI into iPhones as a plus for both companies. A partnership answers the question of how Apple plans to take on rivals in the pursuit of being an AI leader and alleviates fears over how Google plans to maintain its search dominance. Still, it does not close Microsoft's opportunity to possibly overtake Google in Gen AI, nor does it tackle Apple's current issues of selling iPhones in China.
Embraer SA hitting some turbulence following Q4 results/guidance (ERJ)
Embraer (ERJ -2.4%) is flying a bit lower today after reporting Q4 results this morning. This Brazil-based supplier of commercial aircraft and executive jets reported Q4 adjusted earnings per ADS of $0.422, nearly double the year ago result of $0.235. However, revenue was basically flat (-0.9%) yr/yr at $1.975 bln. Earnings appear to be light of analyst expectations, but revs were roughly in-line.
- Embraer guided to FY24 revs of $6.0-6.4 bln, which was in-line with expectations, but up nicely from $5.27 bln in 2023. In addition to the nice revenue growth expected in 2024, Embraer announced that its firm order backlog ended Q4 at US$18.7 bln, the highest number recorded over the past six years. Executive and Commercial Aviation registered book-to-bill in excess of 1:1.
- Embraer delivered 75 jets in Q4, of which 25 were commercial aircraft, 49 were executive jets (30 light and 19 medium) and 1 was a military C-390. For all of 2023, the company delivered a total of 181 jets, of which 64 were commercial aircraft, 115 were executive jets (74 light and 41 medium) and 2 were military C-390. Embraer's 2023 deliveries increased 13% from 2022's 160 jets.
- The company said it continues to face supply chain delays which hurt 2023 results. But ERJ did see improvements in the supply chain in general in 2023 and expects further improvements in 2024. However, it still has some bottlenecks with some important components limiting its production. The good news is that Embraer has baked in conservative commitments from its suppliers into its 2024 guidance: 72-80 Commercial Aviation deliveries plus 125-135 Executive Aviation deliveries.
- By segment, Commercial Aviation, its largest segment, performed well in 2023 with segment revenue growing a healthy 20% to $1.85 bln due to higher deliveries and product mix. Its Executive Aviation segment grew revenue by 13% to $1.41 bln, mainly from increased volumes. Its best growth came from Defense & Security at 25% to $516 mln, but that is a smaller segment. Services & Support (maintenance, training, spare parts) segment revenue grew by 12% to $1.42 bln.
Overall, investors appear to be a bit underwhelmed by Embraer's Q4 results and outlook. In fairness, the stock had run 30% over the past month, so expectations were likely setting a pretty high bar. On a final note, the topic of Boeing (BA) came up on the call. The two compete in only some segments of the market. Embraer focuses on small commercial jets that seat up to 150 passengers and executive jets. ERJ said that the market for regional jets in the US is recovering even as the pilot shortage situation is not resolved. We think ERJ shares have been helped by Boeing's recent safety struggles, so perhaps investors wanted to hear more positive news from a competitive standpoint.
Science Applications erases its 2024 gains following its first EPS miss in four years in Q4 (SAIC)
Coming off an impressive beat-and-raise in Q3 (Oct), investors had high expectations ahead of Science Applications' (SAIC -10%) Q4 (Jan) report today. Unfortunately for the government and defense technology provider, it fell short of the higher bar in the quarter, registering its first bottom-line miss in four years and issuing mild FY25 adjusted EPS guidance. While Q4 revenue growth and FY25 top-line guidance were uplifting, it was insufficient in maintaining its rising stock price, which was up +15% on the year.
- What does SAIC do? The company provides IT services to the U.S. government, focusing on large, complex projects with a higher-end, differentiated technology bias. SAIC recently named a new CEO, Toni Townes-Whitley, who served as Microsoft's (MSFT) President of U.S. Regulated Industries last June.
- Since stepping into the lead role, Ms. Townes-Whitley has announced a few changes, stating last quarter that the company will outperform its previous +2-4% organic growth goal and noting last month an organizational realignment centered around achieving this updated financial target, replacing its two operating sectors with five customer-facing business groups.
- The actions Ms. Townes-Whitley has taken appear to be working. SAIC's more aggressive organic growth rate was achieved during Q4, posting 7.7% growth yr/yr to $1.74 bln. SAIC anticipates carrying this upward momentum into FY25, raising its previous revenue target to $7.35-7.50 bln from $7.25-7.40 bln and reiterating a stronger second half of the year than the first.
- Net bookings of approximately $1.4 bln in Q4 reflected SAIC's competitive edge when competing for government contracts, supporting its raised FY25 sales estimate.
- However, investors are not focused on SAIC's revenue but on its 30% decline in adjusted EPS yr/yr to $1.43, missing analyst forecasts by mid-single-digits. The narrow miss stemmed from a 150 bp contraction in SAIC's operating margins to 4.5% due primarily to the sale of its supply chain management business and the deconsolidation of FSA (a joint venture owned by SAIC).
- These impacts also modestly eroded SAIC's prior FY25 adjusted EBITDA margins guidance, targeting 9.2-9.4% from 9.4-9.6%. They also underpinned SAIC's unchanged FY25 adjusted EPS forecast of $8.00-8.20, despite the raised revenue forecast, fueling today's sell-the-news reaction.
After delivering a string of beat-and-raise performances, SAIC hit a roadblock in Q4, coming up a tad short on its bottom line and maintaining its previous earnings forecast despite a more upbeat revenue outlook. While this development triggered immediate profit-taking today, it may be a slight overreaction, particularly since it emanated primarily from business changes rather than waning demand. In fact, SAIC's net bookings in the quarter underscore its tight relationships with branches of the U.S. military, which may provide a cushion against any potential economic downturn.
Hibbett gets knocked down after Q4 revs and FY25 sales guidance come up short (HIBB)
Hibbett (HIBB -8%) strikes out today as Q4 (Jan) revs and FY25 sales guidance fall short of analyst expectations. The sporting goods retailer, whose focus is footwear, comprising roughly two-thirds of its FY24 revs, has been running into some turbulence lately. After shares reached one-year highs to start the month, they have continued to trek downhill, slipping by around 17% following today's sell-the-news reaction.
Footwear retail counterpart Foot Locker (FL) sparked initial fear last week, projecting disappointing FY25 (Jan) earnings guidance as it transitions from heightened promotional activity to a more normalized selling environment, potentially kicking off a more resistant end-consumer. A tricky retail landscape was so concerning that even after fellow sporting goods retailer Dick's Sporting Goods (DKS) hit a home run yesterday, delivering an outsized performance in Q4 (Jan) on growth across footwear, apparel, and hardlines, shares of HIBB only ticked lower.
- While HIBB reversed two consecutive quarterly revenue declines in Q4, registering 1.8% growth yr/yr to $466.6 mln, analysts anticipated more. Comps ended the quarter down -6.4% due to a -9.2% drop in physical retail sales, which overshadowed a +6.9% jump in e-commerce comps. HIBB's remarks last quarter made the lackluster growth frustrating: it anticipated customers would purchase more this holiday season compared to last year and that concerns around student loan repayments have declined.
- Each of HIBB's categories experienced falling sales growth. Footwear was down by mid-single digits and apparel by high-single digits, while team sports plummeted by over 30%. The only silver lining from HIBB's categories was women's footwear, which edged higher by low-single digits.
- Management attributed the relative weakness to two persistent headwinds: promotional activity and inflation. High inventory levels spurred the sustained markdown activity during the quarter. However, encouragingly, HIBB's inventory levels fell by a high-teens percentage yr/yr and low-teens sequentially. Still, inflation has been particularly troubling as it weighs on consumer sentiment and hikes HIBB's operating costs, with gross margins ticking 70 bps lower yr/yr to 34.5% in Q4.
- Inflation's one-two punch is a primary factor behind HIBB's tepid FY25 guidance. The company predicted EPS of $8.00-8.75 -- the midpoint falling well below consensus -- flat to +2% revenue growth, and negative low-single digit to flat same-store sales growth. Like FL, HIBB is transitioning toward a typical selling backdrop filled with fewer promotions, which is providing a modest boost to gross margins yr/yr but could generate consumer blowback, especially in a value-seeking environment.
Investors' concerns in front of HIBB's Q4 report proved accurate as the retailer continues facing a challenging economic landscape. Following DKS's impressive performance, we mentioned yesterday that if HIBB's results lagged, it would provide further credence to DKS's bold move toward increasing its store sizes. While there are promising trends on the horizon for HIBB, especially if consumers fully accept fewer markdowns, we continue to prefer DKS as the sporting goods retail market leader.
Adobe lower on tepid guidance for MayQ; stock falls below $500 for first time since late Sept (ADBE)
Adobe (ADBE -14%) is trading sharply lower despite reporting EPS upside for its Q1 (Feb) earnings last night. This digital document giant has now posted six consecutive double digit EPS beats following four small beats, so that is a good trend. However, this beat was the smallest in five quarters. Revenue rose 11.3% yr/yr to $5.18 bln, which also was better than expected. Adobe has now posted back-to-back $5+ bln quarters for the first time with a third expected in Q2.
- The guidance was more of a problem as the mid-point of Q2 (May) revenue guidance was below expectations. Also, it sounds like analysts on the call were a bit disappointed in the ARR result and guidance. In Q1, Adobe achieved net new Digital Media ARR of $432 mln, which was above the $410 mln prior guidance. Adobe guided this metric to approx. $440 mln in Q2 but it seems a bigger sequential improvement would have been better.
- A concern is that Adobe did not raise its FY24 guidance for Digital Media net new ARR, despite the upside performance in Q1. The guidance last quarter was $1.90 bln, which we assume has not changed since there was no update.
- Its Digital Media segment performed well with revenue rising 12% yr/yr (+13% CC) to $3.82 bln, which was above prior guidance of $3.77-3.80 bln. DM is by far Adobe's larger segment, so people watch it closely. Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE segment revenue grew 10% yr/yr (+10% CC) to $1.29 bln, which was at the high end of its $1.27-1.29 bln prior guidance.
- Adobe says that Acrobat Web continues to be an incredible source of customer acquisition with monthly active users up 70+% yr/yr and surpassing 100 mln users in Q1. Creative Cloud remains the solution of choice for creators, whether their medium is design, photography, video, illustration or 3D. Adobe Express is inspiring millions of users to design more quickly and easily. In the year since Adobe released Adobe Firefly, its creative generative AI model, the company has aggressively integrated this functionality into both its Creative Cloud flagship applications and, more recently, Adobe Express.
Overall, investors were not thrilled with Adobe's Q1 result, but the bigger concern seems to be the guidance. We think investors wanted to see a more bullish Digital Media net new ARR number for Q2, or at least an increase in full year guidance. Also, the revenue guidance was a bit light. Adobe typically guides in-line for revs for the next quarter, so even modest downside is spooking investors a bit. This is the second quarter in a row where Adobe did this.
Hopefully that trend changes with its next report. On a final note, Adobe did announce a new $25 bln stock repurchase authorization, so that was good to see. That is more than 10% of its current market cap, so that it pretty substantial. Management may use this pullback to buy shares.
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