| | | Market Snapshot
| Dow | 39313.64 | -162.26 | (-0.41%) | | Nasdaq | 16384.47 | -44.35 | (-0.27%) | | SP 500 | 5218.19 | -15.99 | (-0.31%) | | 10-yr Note | -26/32 | 4.252 |
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| | NYSE | Adv 1140 | Dec 1631 | Vol 812 mln | | Nasdaq | Adv 1787 | Dec 2453 | Vol 4.6 bln |
Industry Watch
| Strong: Energy, Materials, Utilities |
| | Weak: Information Technology, Industrials, Real Estate, Communication Services, Financials |
Moving the Market
-- Normal consolidation after another week of gains for the major indices
-- Weakness in mega cap stocks after the EU commission opened non-compliance investigations against Alphabet (GOOG), Apple (AAPL), and Meta Platforms (META) under the Digital Markets Act
-- Rising Treasury yields
| Closing Summary
25-Mar-24 16:30 ET
Dow -162.26 at 39313.64, Nasdaq -44.35 at 16384.47, S&P -15.99 at 5218.19
[BRIEFING.COM] The stock market started the week on a soft note after last week's move higher. A sharp move lower in the late afternoon with no specific catalyst left the S&P 500 near its worst level of the session, down 0.3%. The Nasdaq Composite logged a 0.3% decline and the Dow Jones Industrial Average fell 0.4% while the Russell 2000 eked out a 0.1% gain.
The negative bias was driven by some normal consolidation activity, but downside moves were relatively modest. Weakness in some mega cap and semiconductor stocks also contributed to the negative bias today.
Alphabet (GOOG 151.15, -0.62, -0.4%), Meta Platforms (META 503.02, -6.56, -1.3%), and Apple (AAPL 170.85, -1.43, -0.8%) were among the influential laggards after news that the EU commission opened non-compliance investigations against them.
Weakness in the semiconductor space was related to news that China will not allow chips from AMD (AMD 178.63, -1.02, -0.6%) and Intel (INTC 41.83, -0.74, -1.7%) to be used in government computers.
In other corporate news, Dow component Boeing (BA 191.41, +2.56, +1.4%) announced that CEO Dave Calhoun plans to step down as CEO at the end of 2024.
Eight of the 11 S&P 500 sectors registered losses ranging from 0.2% (health care) to 0.7% (industrials). The energy sector logged the biggest gain by a wide margin amid rising oil prices ($81.95/bbl, +1.33, +1.7%).
Rising Treasury yields acted as another headwind for stocks today. The 10-yr note yield rose four basis points to 4.25% and the 2-yr note yield rose three basis points to 4.63%. On a related note, today's $66 billion 2-yr note auction was met with soft demand.
- S&P 500:+9.4% YTD
- Nasdaq Composite: +9.2% YTD
- S&P Midcap 400: +7.5% YTD
- Dow Jones Industrial Average: +4.3% YTD
- Russell 2000: +2.3% YTD
Reviewing today's economic data:
- February New Home Sales 662K (Briefing.com consensus 680K); Prior was revised to 664K from 661K
- The key takeaway from the report is that the overall level of sales was largely unchanged from January while the median selling price decreased for the sixth consecutive month, which is a welcome development for potential buyers.
Looking ahead, Tuesday's economic calendar features:
- 8:30 ET: February Durable Orders (Briefing.com consensus 1.3%; prior -6.1%), Durable Orders ex-transportation (Briefing.com consensus 0.4%; prior -0.3%)
- 9:00 ET: January FHFA Housing Price Index (prior 0.1%) and January S&P Case-Shiller Home Price Index (Briefing.com consensus 6.7%; prior 6.1%)
- 10:00 ET: March Consumer Credit (Briefing.com consensus 106.7; prior 106.7)
Treasuries settle with losses
25-Mar-24 15:35 ET
Dow -160.73 at 39315.17, Nasdaq -11.87 at 16416.95, S&P -10.19 at 5223.99
[BRIEFING.COM] The stock market turned slightly lower and the Nasdaq Composite (-0.07%) slid below Friday's closing level.
The 10-yr note yield rose four basis points to 4.25% and the 2-yr note yield rose three basis points to 4.63%.
Looking ahead, Tuesday's economic calendar features:
- 8:30 ET: February Durable Orders (Briefing.com consensus 1.3%; prior -6.1%), Durable Orders ex-transportation (Briefing.com consensus 0.4%; prior -0.3%)
- 9:00 ET: January FHFA Housing Price Index (prior 0.1%) and January S&P Case-Shiller Home Price Index (Briefing.com consensus 6.7%; prior 6.1%)
- 10:00 ET: March Consumer Credit (Briefing.com consensus 106.7; prior 106.7)
Some heavily-weight stocks boost Nasdaq Composite
25-Mar-24 15:05 ET
Dow -146.77 at 39329.13, Nasdaq +0.51 at 16429.33, S&P -8.24 at 5225.94
[BRIEFING.COM] The Nasdaq Composite (+0.03%) is trading fractionally higher now.
Some heavily-weighted stocks are trading up, contributing to index performance. Amazon.com (AMZN 180.03, +1.16, +0.7%), NVIDIA (NVDA 960.15, +17.27, +1.8%), Tesla (TSLA 172.59, +1.76, +1.0%), Eli Lilly (LLY 774.64, +4.03, +0.5%), and Broadcom (AVGO 1355.17, +1.70, +0.1%) are among the influential winners today.
Elsewhere, the 10-yr note yield is up three basis points to 4.25%
SMCI rides bullish analyst initiation to top of S&P 500; Take-Two hurt after GTA 6 delay reports
25-Mar-24 14:30 ET
Dow -124.82 at 39351.08, Nasdaq +4.86 at 16433.68, S&P -5.40 at 5228.78
[BRIEFING.COM] The S&P 500 (-0.10%) is firmly in second place as we move toward the end of the session on Monday, albeit the S&P holding near HoDs.
Elsewhere, S&P 500 constituents Super Micro Computer (SMCI 1060.00, +87.26, +8.97%), Constellation Energy (CEG 188.54, +10.30, +5.78%), and Generac (GNRC 119.35, +3.44, +2.97%) pepper the top of today's trading. SMCI moves higher today after JPMorgan initiated coverage in a bullish note, while Guggenheim was out with a new higher target on CEG this morning.
Meanwhile, Take-Two (TTWO 145.34, -7.12, -4.67%) is the worst-performing constituent, slipping after reports the company's GTA 6 title could move past the previously issued release date.
Gold higher even as dollar, yields also firm up
25-Mar-24 14:00 ET
Dow -159.96 at 39315.94, Nasdaq -6.80 at 16422.02, S&P -9.09 at 5225.09
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-0.04%) continues to narrow the range to flat lines.
Gold futures settled $16.40 higher (+0.8%) to $2,176.40/oz, holding up well to start the week even as bond yields and the dollar also show modest gains.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $104.22.
McDonald's breaks below recent lows following a downgrade at Argus today (MCD)
McDonald's (MCD -1%) is not looking too golden today as shares take out previous lows following a downgrade at Argus to "Hold" from "Buy," citing a consumer shift toward at-home food consumption as away-from-home prices begin to climb. The prominent fast-food chain has struggled to sustain meaningful positive momentum following its rare revenue miss in Q4 last month. Its shares recently found support around their 200-day moving average (283.36), only for today's downgrade to take the stock to mid-November levels.
Despite today's lowered rating from Argus, Briefing.com notes that there is still plenty to find appetizing from MCD, especially as the restaurant industry increasingly turns more digital, labor inflation remains a headwind, and younger generations become more nostalgic.
- One of the key pillars MCD outlined as critical to its long-term vision is bolstering its digital footprint, which underpins its delivery and drive-thru channels. Management noted late last year that off-premise is increasingly becoming its customers' preferred order experience, revamping its physical locations around this belief. With MCD's loyalty program, i.e., online membership use, expanding to 50 global markets and reaching $20 bln in annual loyalty sales last year, the company's investments in digital should provide a long-lasting tailwind and be a key differentiator from its peers.
- Inflation, specifically surrounding wages, may present some obstacles for MCD. However, the company has invested in automation, Generative AI, and predictive analytics to help counter rising wages and input prices. For example, MCD has already implemented a system across thousands of restaurants, providing cooks with continuous forecasts about what is needed based on expected demand, increasing productivity without hiring additional workers. Constant investments into these technologies should keep MCD a leader in the low-cost fast-food market.
- MCD's recently launched CosMc's stores play into a younger crowd that displayed its appetite for nostalgia with the recent success of the reintroduction of Grimace. It is also a competitor to Starbucks (SBUX), which has benefited immensely from consumers shifting their tastes toward premium drinks. For instance, SBUX's U.S. business delivered decent comp growth last year due to its customers favoring more premium beverages, creating a new normal related to customization. CosMc's leans toward premiumization and customization but at a relatively affordable price, which could begin to lure loyal SBUX customers.
After enjoying a monumental comeback in mid-October, as shares climbed over +20% to reach all-time highs, MCD has been trending lower over the past three months. The company's tepid Q4 results dampened customer sentiment. Meanwhile, as disinflation begins to stall, with food away-from-home prices starting to edge higher, investors are growing worried about MCD's ability to deliver decent future comp growth.
However, although the near term may bring some volatility, MCD remains a force to be reckoned with in the fast food industry and is only fortifying its commanding position through digital enhancements, automation investments, and an interesting new beverage focus with CosMc's.
Boeing ticks higher following shake-up; new CEO will need to rehabilitate image (BA)
Boeing (BA +1.3%) is ticking slightly higher after its CEO Dave Calhoun announced he will step down at the end of 2024. Also, Board Chair Larry Kellner announced he does not intend to stand for re-election at the upcoming Annual Shareholder meeting. The board has elected Steve Mollenkopf to succeed Kellner as independent board chair. Mollenkopf will lead the board's process of selecting Boeing's next CEO. In addition to these changes, Stan Deal, Boeing Commercial Airplanes CEO will retire from the company and Stephanie Pope has been appointed to lead its BCA segment, effective today.
- It has been a rough few years for Boeing in terms of various safety issues. It started with the 737 MAX crashes from 2018-19 related to its MCAS system update. In fact, Mr. Calhoun was brought abroad as CEO in January 2020 to calm investors' nerves about safety issues. However, there have been a series of mishaps subsequent to this, the most recent of which was the door blowout on an Alaskan Airlines flight, which has even drawn criminal scrutiny.
- The timing for this management shakeup is a bit curious. We wonder if it may be related to an upcoming meeting with airline CEOs. They have reportedly been upset with Boeing's recent safety record and the impact this is having on the airlines. They have had to change schedules and deal with airplane delivery delays. The management shakeup may be an effort by Boeing to convince airlines that it hears them and it agrees that change is needed.
- The safety issues have taken a toll on Boeing's share price, which has fallen from $267.50 in December to around $190 currently, down nearly 30%. And it is down from the $330 area when Calhoun took over. The stock fell sharply in early 2020 as the pandemic hurt air travel demand. However, even as demand is back to normal, the stock has never recovered to pre-pandemic levels as safety concerns have replaced pandemic-related concerns.
We are a little surprised to see such a muted response in the stock price to what is pretty big news for Boeing. It was not just the CEO stepping down, but the Chairman and the head of its Commercial Airplane unit. Perhaps investors wanted to see Calhoun's exit sooner than the end of 2024. However, the new head of the CA segment takes over right now.
When all of these issues started to appear with the 737 MAX a few years ago, we kind of viewed it a one-of situation. Boeing is a great company, it will makes the necessary changes and we had few concerns. However, a steady drumbeat of subsequent safety issues has tarnished the Boeing brand. We think today's news is an admission of such by the company, and they know they need to do better. Part of the solution may be bringing more of the production steps in-house and away from third parties. Regardless, the next CEO is going to really have to prioritize safety over speed/cost in order for Boeing to rehabilitate its image.
Masimo makes a strong move as investors cheer possible spin-off of consumer segment (MASI)
Masimo (MASI +4%) is making a strong move following news late Friday its board authorized management to evaluate a proposed separation of its consumer business. MASI also reaffirmed its Q1 and FY24 guidance. In addition, Politan Capital, an 8.9% shareholder, announced it is nominating two candidates for election to Masimo's Board of Directors. Joe Kiani is expected to remain Chairman and CEO of Masimo and Chairman of the newly created company.
- A little context here is helpful. Masimo basically has two business units: health care and non-health care. The health care side focuses on hospital monitoring products and medical technology products used in alternate care settings. The non-health care side is focused on consumer audio products mostly related to listening to music. This strikes us as an odd pairing, so maybe separating the two units does make sense.
- The health care side employs an attractive razor/razor blade business model that has very high renewal rates and very low churn. Masimo has a large install base at hospitals of monitoring technology that uses disposable sensors. As such, Masimo's main business is selling sensors to hospitals that feed into Masimo's monitoring equipment. Its largest product segment is pulse oximetry, devices that measure blood oxygen levels. MASI also sells monitoring equipment/sensors to measure oxygen in the brain, exhaled carbon dioxide, brain wave activity etc. This year, Masimo intends to launch a new hemodynamic monitoring system that will measure cardiac output.
- On the non-health care side, products include amplifiers, speakers, and hearables, which are headphones and earbuds. Masimo notes that its hearables category is the fastest-growing area, and it's a key focus. Its four major brands are Bowers & Wilkins, Denon, Marantz, and Polk Audio. Popular products are its Stork baby monitor and the Freedom smart watch.
- We do not think it is a coincidence that this separation is being proposed following a difficult year in 2023. On the Consumer side, Masimo has been hurt by a reduction in consumer discretionary spend, which has lowered demand for integrated home entertainment systems. Also, Consumer was lapping a robust 2022 when stay-at-home work was still driving a lot of upgrades for home entertainment.
- The health care side had its troubles as well in 2023. Masimo explained that hospitals are no longer monitoring all patients for potentially developing COVID. Hospitals are reverting back to normal practices of monitoring only the most relevant patients for blood oxygen levels. That transition depressed sales for its pulse oximetry sensors. In addition, Masimo cited elevated inventory at some customers, partly from overly enthusiastic buying during 2021-22. Most of these issues are now behind Masimo. As such, the company expects to get back on its normal growth trajectory in 2024 after it laps robust comps in Q1-Q2.
Overall, investors are clearly happy to see Masimo possibly on a path to separating its business units, which do not make a lot of sense being lumped together. We do not see a lot of synergies by coupling these two businesses together. The near term fundamentals look better on the health care side while its consumer side is being hurt by lower consumer discretionary spend. Investors are also happy to see an activist investor getting involved to spur changes.
Intel and AMD become the latest victims of tense U.S. and China relations (INTC)
Prominent chip maker Intel (INTC) and its rival chip designer Advanced Micro (AMD) are feeling the sting of new guidelines introduced in China over the weekend. FT.com reported the latest move from China, which blocks government computers from using Intel and AMD processors. By phasing out these chips, which utilize x86 architecture, Arm (ARM), which boasts the alternative ARM architecture, is receiving a jolt today. Also, since China's controls target CPUs, GPU powerhouse NVIDIA (NVDA) is similarly swimming against the tide.
It is not just chip makers enduring setbacks today. China's new guidelines also target Microsoft's (MSFT) Windows operating system. FT.com noted that China will encourage using domestically produced operating systems, most of which leverage the open-source Linux platform. However, there were reports of potentially relaxing some of the restrictions on MSFT.
The relationship between the U.S. and China remains tense. The U.S. has increasingly blocked certain Chinese companies and their technologies in recent years, citing national security threats, resulting in retaliation from China. For instance, the U.S. banned new China-owned Huawei and ZTE equipment sales in late 2022. The U.S. also imposed export curbs on high-performance chips to China around the same time. Furthermore, the U.S. recently curbed AI chip exports to China. As an example of one of China's counter, the government restricted numerous agencies and state-backed firms from using Apple's (AAPL) iPhones.
- The ban is particularly troubling for INTC, which has thus far been skirting export curbs. This year, Intel retained its license to sell chips to Huawei, unlike AMD, which was forced to halt sales to the China-backed firm. Late last year, INTC remarked that the updated U.S. export controls were primarily aimed at high-end training and accelerators, i.e., mainly targeting AMD and NVDA.
- Still, INTC has some high-end training and accelerators going to China and has remarked that it would be working with the U.S. to comply with its updated restrictions. However, the company felt good about its upward momentum for AI, potentially building it into its FY24 forecast. China is also INTC's most critical region, comprising 27% of its FY23 revenue, slightly higher than the U.S. at 26%, and hindered sales there could lead to missed financial projections.
- While AMD derives significantly less of its total revs from China at 15% in FY23, well below the U.S. at 35%, the country's new regulation just adds another obstacle in AMD's way toward displacing NVDA. It is also a frustrating development, given management's comments late last year regarding a considerable amount of unmet demand for accelerated compute in China. Although this comment was directed at the U.S.'s new export curbs, it underscored how crucial the Chinese market remains for AMD.
China's tightened restrictions on U.S. tech firms certainly create an additional headwind for the targeted companies. However, it should not be overly shocking given the tensions between the U.S and China and the series of new regulatory guidelines introduced in both countries. We warned earlier this month that INTC could be the next company to endure China-related setbacks. Big tech could continue to be collateral damage in the wake of tense geopolitical relations.
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