| | | Market Snapshot
| Dow | 39110.76 | +320.33 | (0.83%) | | Nasdaq | 16166.78 | +63.34 | (0.39%) | | SP 500 | 5178.51 | +29.09 | (0.56%) | | 10-yr Note | +3/32 | 4.30 |
|
| | NYSE | Adv 1948 | Dec 867 | Vol 1.09 bln | | Nasdaq | Adv 2466 | Dec 1764 | Vol 4.77 bln |
Industry Watch
| Strong: utilities, energy, consumer discretionary, industrials, health care |
| | Weak: communication services, real estate, materials |
Moving the Market
--NVIDIA retreats after introducing new Blackwell AI platform, but then rebounds
--Hesitation in front of Fed releasing new dot plot on Wednesday
--Short-covering activity
|
Closing Stock Market Summary
19-Mar-24 16:25 ET
Dow +320.33 at 39110.76, Nasdaq +63.34 at 16166.78, S&P +29.09 at 5178.51
[BRIEFING.COM] What started out as a down day for the stock market turned into an up day. Notably, the catalyst for the swing in both directions was one in the same. That would be NVIDIA (NVDA 893.98, +9.43, +1.1%), which declined as much as 3.9% in a sell-the-news response following the company's introduction of the Blackwell AI platform at its GTC Conference before rebounding and closing the day higher.
The turn in NVIDIA helped the broader market get back on a winning course that was aided by short-covering activity and the lingering fear of missing out on further gains. As it turned out, the S&P 500 set a new record closing high.
That move featured broad-based gains. Nine of the 11 S&P 500 sectors ended higher. The real estate sector was unchanged and the communication services sector (-0.2%) was the lone sector in negative territory.
The energy sector (+1.1%), which garnered support from another increase in WTI crude futures ($82.69, +0.52, +0.6%), was today's best-performing sector followed by the rate-sensitive utilities sector (+0.9%).
The 2-yr note yield dropped four basis points to 4.69% and the 10-yr note yield fell four basis points to 4.30%. The gains there occurred despite a stronger-than-expected housing starts and building permits report for February and the Bank of Japan (BOJ) exiting its negative interest rate policy, officially ending its yield curve control policy, and halting its ETF and REIT purchases. A well-received $20-yr bond reopening provided some added juice for the Treasury market's positive showing.
Notwithstanding the actions by the BOJ, the yen weakened sharply against the dollar as it wasn't lost on traders that the BOJ's new policy rate (0.0% to 0.1%) remains extremely low and that the BOJ is remaining committed to maintaining an accommodative stance.
The USD/JPY pair was up 1.2% to 150.91, which was a driver of the 0.4% gain in the U.S. Dollar Index to 103.82.
The BOJ decision preceded the FOMC decision Wednesday. The Fed is widely expected to leave the target rate unchanged at 5.25-5.50%. Market participants, therefore, will be locked in on the dot plot and what it shows for rate-cut projections this year, as well as the tone Fed Chair Powell adopts at his press conference. The December dot plot showed a median estimate of three rate cuts before the end of 2024, so any change there would provide the element of trading surprise.
- S&P 500:+8.6% YTD
- Nasdaq Composite: +7.7% YTD
- S&P Midcap 400: +5.7% YTD
- Dow Jones Industrial Average: +3.7% YTD
- Russell 2000: +0.4% YTD
Reviewing today's economic data:
- Housing starts increased 10.7% month-over-month to a seasonally adjusted annual rate of 1.521 million (Briefing.com consensus 1.435 million) following an upwardly revised 1.374 million (from 1.331 million) for January. Building permits increased 1.9% month-over-month to a seasonally adjusted annual rate of 1.518 million (Briefing.com consensus 1.485 million) from an unrevised 1.489 million in January.
- The key takeaway from the report is the recognition that some aberrantly cold weather in January repressed housing activity, leading to a nice rebound in February that will keep the market's soft landing/no landing outlook for the economy intact.
Looking ahead, Wednesday's economic data includes the weekly Mortgage Bankers Association's Mortgage Applications Index (prior 7.1%) at 7:00 a.m. ET and the weekly EIA crude oil inventories date (prior -1.54 million) at 10:30 a.m. ET. The main attraction of the day, however, is the FOMC decision and Summary of Economic Projections at 2:00 p.m. ET and Fed Chair Powell's press conference at 2:30 p.m. ET.
Holding steady
19-Mar-24 15:30 ET
Dow +246.51 at 39036.94, Nasdaq +19.06 at 16122.50, S&P +15.57 at 5164.99
[BRIEFING.COM] Having made a successful turn higher earlier in the day, the major indices are holding steady near their best levels going into the final 30 minutes of trading.
Eight of 11 S&P 500 sectors are higher. The rate-sensitive utilities sector (+1.0%) is the only sector up, or down, at least 1.0%.
Tomorrow will feature the FOMC decision and Summary of Economic Projections at 2:00 p.m. ET and Fed Chair Powell's press conference at 2:30 p.m. ET.
NVIDIA price action feeds turnaround effort
19-Mar-24 15:00 ET
Dow +237.26 at 39027.69, Nasdaq +53.28 at 16156.72, S&P +20.70 at 5170.12
[BRIEFING.COM] The major indices are meandering near their highs for the day while Treasury yields are meandering near their lows for the day, drawing some extra juice from the well-received 20-yr bond reopening at 1:00 p.m. ET.
The 2-yr note yield is down four basis points to 4.69% and the 10-yr note yield is down four basis points to 4.30%.
The calm demeanor in the Treasury market has contributed to the intraday rebound effort today, but that effort has been driven primarily by the price action in NVIDIA (NVDA 897.15, +12.60, +1.4%), which has overcome an early 3.9% decline.
The turnaround in NVIDIA set the tone for the broader market, just as its early sell-off did, encouraging broader buy-the-dip efforts. The market-cap weighted S&P 500 and equal-weighted S&P 500 are running in tandem with 0.4% gains.
S&P 500 in second place, gains aided by Int'l Paper & Synopsys
19-Mar-24 14:30 ET
Dow +218.26 at 39008.69, Nasdaq +50.43 at 16153.87, S&P +19.83 at 5169.25
[BRIEFING.COM] The S&P 500 (+0.39%) is in second place on Tuesday afternoon, up about 20 points.
Elsewhere, S&P 500 constituents Int'l Paper (IP 38.73, +3.79, +10.85%), Synopsys (SNPS 583.33, +22.70, +4.05%), and AES (AES 15.54, +0.66, +4.44%) pepper the top of today's standings. IP gains after news of former KKR (KKR 96.05, +0.90, +0.95%) exec. Andrew Silvernail being appointed as CEO, while SNPS moves higher after being named as a partner of NVIDIA's (NVDA 899.19, +14.64, +1.66%) in its recent AI chip endeavors, and AES rebounds off recent weakness.
Meanwhile, Advanced Micro (AMD 182.88, -7.77, -4.08%) falls on news of peer NVIDIA's new AI chipsets.
Gold slips as dollar firms ahead of policy decision
19-Mar-24 14:00 ET
Dow +249.41 at 39039.84, Nasdaq +53.05 at 16156.49, S&P +21.58 at 5171.00
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.33%) is at the bottom of the standings, albeit just a hair off HoDs.
Gold futures settled $4.60 lower (-0.2%) to $2,159.70/oz, pressured slightly as the dollar firmed up ahead of tomorrow's Fed policy decision.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $103.85
Unilever PLC shares scooped up following a new productivity plan, Ice Cream unit separation (UL)
Investors are scooping up shares of Unilever PLC (UL +2%) today after the global conglomerate, boasting familiar products in beauty, personal care, home care, nutrition, and ice cream, announced an accelerated growth action plan. Unilever outlined several initiatives aimed at delivering productivity gains, including separating its Ice Cream unit and reducing its headcount.
The company anticipates its actions will result in around €800 mln of total cost savings over the next three years, more than overcoming estimated operational dis-synergies from offloading its Ice Cream division. Also, following the separation, which is expected by the end of 2025, Unilever expects to deliver mid-single-digit underlying sales growth (at the high-end of its previous +3-5% forecast) and moderate margin improvement (unchanged) in FY24.
Management stated that Ice Cream would be better off on its own due to its differentiated business model compared to the rest of its portfolio. Given the scope of Unilever's Ice Cream business, boasting nearly €8.0 bln in sales, it would be one of the single-largest standalone ice cream companies globally, boasting several top brands, such as Ben & Jerry's and Magnum.
- Unilever's Ice Cream business has been a laggard recently, delivering underlying sales growth of just 2.3% yr/yr in FY23, well below the next-worse category, Home Care, at 5.9%. Even though management mentioned that it conducted significant changes to its Ice Cream business to address the underperformance, spinning it off is likely the best course of action.
- Beauty & Wellbeing, part of Unilever's top four other businesses, which will each comprise around a quarter of total sales following the planned ice cream separation, has been benefiting from healthy beauty demand. Underlying sales growth in FY23 outpaced total growth of 7.0%, expanding by 8.3% yr/yr. Similarly, Unilever's other businesses are enjoying favorable demand dynamics, which have unfortunately been clouded by weak Ice Cream sales.
- Operating margins were a weak point in FY23, contracting by 150 bps yr/yr to 16.4%. Even though Unilever is not anticipating exceptional margin growth this year, its productivity program should begin to boost its margin profile over a longer timeframe. At the same time, by cutting expenses elsewhere, Unilever can pour more resources into R&D, a vital component of a name-brand household product manufacturer, as innovation is key to differentiating its products from private labels.
Unilever has been delivering underwhelming growth lately as the inflationary environment squeezes margins and shifts consumer tastes toward lower-priced alternatives. As a result, its shares have been stuck in a rut, sliding by over 10% within the past five years and flat since February 2022. However, Unilever's updated growth plan may offer the cure to its ailing stock price. The company also plans to commence a €1.5 bln share buyback program in Q2, and its most recent quarterly dividend amounted to an attractive 3.7% annual yield. As such, we believe UL is worth a look, as the worst might be in the rear-view mirror.
KLA Corp's decision to exit flat panel display business triggers EPS guidance cut (KLAC)
Shares of semiconductor equipment maker KLA Corp (KLAC) had recovered nicely after the company issued downside Q3 EPS and revenue guidance in its Q2 earnings report on January 26, but that rebound is now fading. Earlier this morning, KLAC lowered an already soft earnings outlook for Q3, forecasting EPS of $4.23-$5.53 compared to its prior guidance of $4.66-$5.86, while also announcing its decision to exit the flat panel display business.
- The downwardly revised EPS guidance comes about one month after competitor Applied Materials (AMAT) posted a solid Q1 report that featured beats on EPS and revenue, and also included solid Q2 EPS and revenue guidance that exceeded expectations at the midpoints of their respective ranges. Therefore, KLAC's downwardly revised forecast comes as both a surprise and a disappointment, indicating that the company isn't capitalizing on the explosive growth of AI to the extent that AI is.
- On that note, during AMAT's Q1 earnings call, the company discussed how rising production of high-bandwidth memory (HBM), which helps power AI data centers, is driving strength in DRAM. While AMAT acknowledged that macroeconomic conditions remain difficult, echoing KLAC's sentiments from its Q2 earnings call, the company's exposure to HBM is helping it to overcome the headwinds. In contrast, sluggish wafer fab equipment spending for more traditional NAND and DRAM markets is having a greater negative effect on KLAC.
- However, KLAC's guidance cut isn't as bad as it seems since it's entirely driven by the decision to exit the flat panel display business. Specifically, that action will trigger a $0.48/share negative impact to non-GAAP EPS due to write-offs of excess and obsolete inventory. Importantly, KLAC also reaffirmed its Q3 revenue guidance of $2.175-$2.425 bln, reassuring investors that the lower EPS outlook isn't demand related.
- In regard to the flat panel display business exit, the move won't have a significant financial impact on KLAC. In fact, the company stated that the business only accounted for 1.4% of total FY23 revenue, and that the exit will have an immaterial effect on profitability margins moving forward. Therefore, the decision is more based on simplifying the business and focusing its resources on its core markets.
The main takeaway is that while KLAC's EPS guidance cut is solely related to the flat panel display business exit, it put the company's difficulties back under the spotlight as it contends with constrained WFE spending.
NVIDIA succumbs to profit-taking in wake of GPU conference, but outlook as bright as ever (NVDA)
In front of a packed house at its GPU Technology Conference in San Jose, NVIDIA (NVDA) unveiled its next-generation AI supercomputer, the DGX SuperPod, which will be powered by a new processor called Blackwell. To say that this event was highly anticipated would be a major understatement and the stock's meteoric 75% year-to-date rise mirrors that enthusiasm. The initial weakness in the stock, then, is more the function of some consolidation and profit taking, rather than genuine disappointment regarding NVDA's flurry of announcements coming out of this event.
- Indeed, the two main takeaways this morning are that Blackwell is a significantly more powerful platform than its predecessor, Hopper, and that NVDA is only in the early innings of this AI-powered growth boom. On the former point, NVDA stated that GB200 Superchips -- which power the DGX AI supercomputer and include 72 Blackwell GPUs -- deliver up to 30x performance increase compared to the NVIDIA H100 Tensor Core GPU for large language model inference workloads.
- On the latter point, NVDA unleashed a barrage of press releases, announcing that many leading tech companies are expanding their partnerships and collaborations with NVDA to scale their generative AI capabilities. A few standouts include Google (GOOG) Cloud, Amazon (AMZN), NetApp (NTAP), and CrowdStrike (CRWD). When NVDA CEO Jensen Huang commented last quarter that accelerated computing and generative AI have hit the tipping point, this string of announcements really encapsulates that statement.
- NVDA does not actually manufacture its chips. That task is outsourced to Taiwan Semiconductor Manufacturing (TSM), which is also experiencing a sell-the-news reaction after shares hit record highs last week.
- Looking beyond today's pullback in both stocks, it's hard to imagine that the weakness will be lasting, given that the launch of Blackwell appears destined to become the next powerful growth catalyst for both companies. Blackwell will be on the market later this year and should have an immediate and substantial impact on NVDA's Data Center segment. Perhaps the only factor holding NVDA back will be the supply chain, which may not be sturdy enough to handle the skyrocketing demand.
- Thanks to the rampant success of NVDA's Hopper GPU, the Data Center segment has been the star of the show over the past year. In Q4, Data Center revenue soared by 409% yr/yr to $18.4 bln, even as sales to China declined significantly due to trade restrictions. With the launch of Blackwell, the market opportunities expand even further since the processor is capable of performing much more complex actions, such as generating 3D videos on command.
The bottom line is that NVDA is continuing to progress through a much-needed consolidation pattern following the stock's massive rally, but the growth outlook remains as bright as ever coming out of its conference.
dLocal Limited's Q4 earnings miss not accepted by investors today; shares erase 2024 gains (DLO)
dLocal (DLO -14%), an online payment processor for emerging markets in Asia, Africa, and Latin America, is seeing its Q4 results denied today, erasing its 2024 gains. DLO managed to topple revenue estimates, delivering accelerated growth in the quarter. However, its deteriorating bottom line essentially deemed the uplifting top-line performance inconsequential.
- DLO may have grown its earnings by 67% yr/yr to $0.10 per share, but it underperformed analyst expectations by a wider margin than its Q3 miss despite coming on accelerating revenue growth. DLO expanded its top line by 59% to $188.01 mln, crushing consensus, which called for stable growth compared to Q3.
- The impressive revenue growth stemmed from a healthy 55% jump in total payment volume (TPV) to $5.1 bln, another quarterly record for DLO. Brazil was a notable highlight, boasting a doubling of revs yr/yr. Mexico also stood out, registering a 59% improvement in revenue.
- What triggered DLO's earnings miss? The Argentinian market presented some intense headwinds in Q4. Revenue in Argentina contracted by 26% yr/yr and 56% sequentially due to tighter capital controls leading up to the year-end transition in government (Argentina recently held a presidential election) and a significant currency devaluation stemming from new emergency economic measures. These developments clipped DLO's profitability in the quarter, resulting in a 6% sequential drop in gross profits, which ultimately weighed on its bottom line.
- Meanwhile, DLO's net take rate slipped sequentially in Q4 after remaining stable last quarter, edging 25 bps lower to 1.4%. Management commented that its take rate resulted from a lower share of pay-ins and cross-border volumes. However, it mentioned that this was unfolding at a gradual pace. Also, DLO observed limited pricing pressure from competitive dynamics.
- Another factor underpinning disappointing earnings was DLO's investments. The company continues expanding its workforce, establishing better processes, and improving its systems to support long-term growth initiatives. As a result, OpEx is increasing, representing 41% of DLO's gross profits in the quarter compared to 31% in Q3. These business enhancements may continue pressuring profitability in subsequent quarters.
On the plus side, DLO views these challenges as temporary. While Argentina grapples with hyperinflation as it embarks on a path toward dollarization, DLO is confident that, over the long run, Argentina will be a relevant market. Furthermore, DLO stressed that its technological investments will become less burdensome as it gains scale. Lastly, demand remains robust. DLO projected FY24 TPV growth of +40-50% yr/yr, aided by increased wallet share from existing merchants, a structural tailwind connected to the digital economy, and a growing middle class in emerging markets.
Even though DLO is steering through some near-term turbulence, it commands a fortified presence in critical emerging markets. While these countries can carry meaningful economic risks, they present compelling growth opportunities, which DLO is well-positioned to pounce on.
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.
|
|
