Market Snapshot
| Dow | 39282.33 | -31.31 | (-0.08%) | | Nasdaq | 16315.70 | -68.77 | (-0.42%) | | SP 500 | 5203.58 | -14.61 | (-0.28%) | | 10-yr Note | +1/32 | 4.23 |
|
| | NYSE | Adv 1229 | Dec 1523 | Vol 880 mln | | Nasdaq | Adv 1796 | Dec 2545 | Vol 5.1 bln |
Industry Watch
| Strong: Financials, Health Care, Consumer Staples |
| | Weak: Energy, Utilities, Materials, Information Technology, Real Estate, Industrials, Communication Services |
Moving the Market
-- Ongoing consolidation efforts after recent record high closes
-- Some mega cap names and chipmakers extended early losses or slipped into negative territory in late afternoon trade
-- Downside moves remain modest, reflecting some resilience |
Closing Summary
26-Mar-24 16:25 ET
Dow -31.31 at 39282.33, Nasdaq -68.77 at 16315.70, S&P -14.61 at 5203.58
[BRIEFING.COM] The major indices closed at or near session lows, moving further from recent record highs. The market was trading higher for the majority of today's session before selling picked up in the late afternoon. The S&P 500 closed just above the 5,200 level, down 0.3% from yesterday.
The afternoon downturn coincided with some mega cap names and chipmakers either extending early losses or slipping into negative territory. Meta Platforms (META 495.89, -7.13, -1.4%), NVIDIA (NVDA 925.61, -24.41, -2.6%), and Broadcom (AVGO 1331.49, -20.09, -1.5%) were standouts in that respect. The Vanguard Mega Cap Growth ETF (MGK) fell 0.4% and the PHLX Semiconductor Index (SOX) slid 0.8%.
Still, downside moves were relatively modest, reflecting normal consolidation activity after a big run recently. The Invesco S&P 500 Equal Weight ETF (RSP) declined just 0.1%.
Only one of the S&P 500 sectors fell more than 1.0% -- utilities (-1.1%) -- while the health care (+0.3%), financial (+0.2%), and consumer staples (+0.1%) sectors logged gains. Aside from utilities, the energy (-0.8%) and information technology (-0.8%) sectors saw the largest declines.
Treasury yields initially moved higher in response to this morning's economic data, but ultimately settled lower. The 10-yr note yield was at 4.23% just before 8:30 ET, but moved as high as 4.27% today. It settled at 4.23%.
Market participants were reacting to an above-consensus Durable Orders report for February and a weaker than expected Consumer Confidence Index for March that was little changed from February's revised reading.
- S&P 500:+9.1% YTD
- Nasdaq Composite: +8.7% YTD
- S&P Midcap 400: +7.3% YTD
- Dow Jones Industrial Average: +4.2% YTD
- Russell 2000: +2.1% YTD
Review today's economic data:
- February Durable Orders 1.4% (Briefing.com consensus 1.3%); Prior was revised to -6.9% from -6.1%; February Durable Goods -ex transportation 0.5% (Briefing.com consensus 0.4%); Prior -0.3%
- The key takeaway from the report is that business spending rebounded after a poor January as nondefense capital goods orders increased 4.4%.
- January FHFA Housing Price Index -0.1%; Prior 0.1%
- January S&P Case-Shiller Home Price Index 6.6% (Briefing.com consensus 6.7%); Prior was revised to 6.2% from 6.1%
- March Consumer Confidence 104.7 (Briefing.com consensus 106.7); Prior was revised to 104.8 from 106.7
- The key takeaway from the report is that it showed little overall change in sentiment, which has been consistent with the University of Michigan's Consumer Sentiment survey.
Wednesday's economic calendar includes:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.6%)
- 10:30 ET: Weekly crude oil inventories (prior -1.95 mln)
Mega caps slide, weighing on broader market
26-Mar-24 15:35 ET
Dow +16.39 at 39330.03, Nasdaq -12.81 at 16371.66, S&P -1.14 at 5217.05
[BRIEFING.COM] The major indices took a sharp turn lower recently, which coincided with mega caps either extending losses or falling under new selling pressure.
Meta Platforms (META 499.65, -3.28, -0.6%), Apple (AAPL 170.28, -0.57, -0.2%), NVIDIA (NVDA 939.40, -10.51, -1.1%), and Amazon.com (AMZN 178.91, -0.78, -0.4%) are standouts in that respect.
The 10-yr note yield declined two basis points to 4.23% and the 2-yr note yield fell three basis points to 4.60%.
Treasury yields turn lower
26-Mar-24 15:05 ET
Dow +82.06 at 39395.70, Nasdaq +38.56 at 16423.03, S&P +8.70 at 5226.89
[BRIEFING.COM] The major indices are chopping around in a sideways flow.
Treasury yields have turned lower. The 10-yr note yield is down two basis points to 4.23% and the 2-yr note yield is down three basis points to 4.60%.
Elsewhere, WTI crude oil futures are sliding, down 0.6% to $81.46/bbl, after trading above $82.00/bbl earlier. On a related note, the S&P 500 energy sector is underperforming today, trading down 0.5%.
McCormick higher on Q1 beat, Int'l Paper dips in S&P 500 after disclosing planned DS Smith talks
26-Mar-24 14:30 ET
Dow +79.38 at 39393.02, Nasdaq +51.84 at 16436.31, S&P +11.36 at 5229.55
[BRIEFING.COM] The S&P 500 (+0.22%) is in familiar second-place territory, up about 11 points.
Elsewhere, S&P 500 constituents McCormick (MKC 76.72, +6.78, +9.69%), MGM Resorts (MGM 46.39, +1.84, +4.14%), and Domino's Pizza (DPZ 480.85, +15.74, +3.38%) are outperforming. MKC gains after this morning's Q1 beat and guidance, Mizuho initiated coverage on MGM with a Buy, $61 tgt (~36% upside from last night's close), while DPZ makes two-year highs despite a dearth of corporate news.
Meanwhile, Int'l Paper (IP 37.86, -2.99, -7.32%) slides to the bottom portion of the S&P after confirming reports that it is in discussions with DS Smith (DITHF 4.72, +0.38, +8.76%) regarding a potential proposal to acquire DITHF.
Gold little changed on Tuesday
26-Mar-24 14:00 ET
Dow +72.23 at 39385.87, Nasdaq +41.29 at 16425.76, S&P +9.47 at 5227.66
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.25%) remains atop the standings, albeit near lows of the session.
Gold futures settled less than $1 higher (flat) to $2,177.20/oz, gains kept at bay by opposing moves in the dollar and yields.
Meanwhile, the U.S. Dollar Index is down -0.2% to $104.27.
Krispy Kreme, Inc. looking much sweeter after teaming up with McDonald's (MCD) today (DNUT)
A Krispy Kreme (DNUT +25%) and McDonald's (MCD) partnership is setting shares of the donut maker ablaze today, pushing the stock firmly in the green on the year after a steady downtrend dragged it down by around -17%. The partnership brings Krispy Kreme donuts into McDonald's U.S. restaurants later in the year as part of a phased nationwide rollout. All participating restaurants will host the donuts nationwide by the end of 2026.
Since DNUT's IPO in the summer of 2021, its shares have languished. Even when incorporating today's record gain, DNUT still trades below its $17.00 IPO price. Many of the hurdles DNUT has had to clear emerged from an inflationary environment as consumers started slashing nonessential luxuries, such as grabbing a coffee and donut. As a double-edged sword, inflation also kept pushing DNUT's labor and commodity costs higher, taking a bite out of its margins, which it tried to counter through pricing actions.
While DNUT's situation over the near term looked grim, its recent disinflationary trends, offered a glimmer of hope. At the same time, DNUT discussed expanding its existing MCD partnership last month. However, even though DNUT remarked that the discussions with MCD were productive, investors brushed this off, not making too much of it. As a result, today's announcement comes as a welcoming surprise.
- During DNUT's Q4 earnings call last month, COO Joshua Charlesworth noted that access is the number one reason someone may not buy the company's donuts. This is what makes today's partnership with MCD so enticing to investors. By moving into MCD locations, of which there are over 13,000, DNUT immediately expands its footprint by 36-fold from around 350 locations, solving the company's number one problem.
- A partnership with MCD in the U.S. may be the beginning if MCD finds selling Krispy Kreme donuts lucrative enough to keep it going. With thousands more locations outside the U.S., DNUT could expedite its overseas expansion plans. The company already expects to launch Krispy Kreme in three to five new countries this year, with priority markets identified in Europe and Brazil.
- While DNUT only commands a few hundred locations, its existing partnerships have expanded its reach considerably. Since its locations act as distribution hubs, delivering fresh donuts to nearby stores and restaurants, DNUT has been well-positioned to partner with grocery stores, convenience stores, restaurants, and many other outlets. As such, it is no stranger to partnerships, a likely welcoming attribute for MCD.
- Given the competitive fast food landscape, DNUT may be approached by others to keep up with a potential uptick in donut demand. Many fast food brands offer an assortment of desserts, and donuts from a familiar brand like Krispy Kreme could be a welcoming addition.
Teaming up with MCD was just what DNUT needed to kick off a potentially long-awaited turnaround. Inflationary pressures will remain a headwind. However, by moving into MCD's locations, DNUT solves its biggest dilemma surrounding a lack of access, which could provide a long-lasting tailwind.
UPS amid a sell-the-news reaction to its three-year guidance; growth estimates somewhat light (UPS)
After initially in transit toward greener pastures, shares of UPS (UPS -3%) face a sell-the-news reaction to its new three-year financial plan outlined today. Since bottoming shortly after disappointing Q4 results in late January, UPS has climbed toward 2024 highs, supported by decent FebQ numbers from rival FedEx (FDX) and improving sentiment surrounding the broader economy. However, today, investors are not expressing much excitement over UPS's medium-term financial goals, projecting consolidated revs of around $108-114 bln, adjusted operating margins above 13%, and CapEx of approximately 5.5% of total revs.
- A weak point from UPS's Q4 report earlier this year was its FY24 revenue outlook of $92.0-94.5 bln, which fell short of analyst targets. However, a silver lining in UPS's guidance was a brighter second half of the year; management mentioned that total average daily volume will reverse from negative growth in 1H24 to positive growth during 2H24. While this forecast was primarily due to lapping softer volumes due to its labor negotiations, it was still an encouraging development, especially given its bleak commentary and formal guidance.
- UPS's FY26 guidance outlined today continued with this uplifting theme. After an estimated 2.5% revenue improvement yr/yr in FY24, UPS anticipates rapid acceleration over the next two years. Its $108-114 bln forecast translates to roughly 9.1% annualized growth in FY25 and FY26 at the midpoint. Similarly, following a projected 60 bp drop in adjusted operating margins in FY24, UPS predicts around a 200 bp lift over the next two years, returning toward FY22 margins.
- Achieving these goals will require two primary trends: industry growth and success in UPS's productivity initiatives. CEO Carol Tomé stated today that the small package industry is positioned for growth over the next three years, mainly starting in 2025, since UPS modeled roughly 1% industry growth in 2024 (FDX's outlook for the year was no better). This means volumes must begin picking up entering FY25, which will depend on volatile factors, including the global demand environment, inventory restocking, inflation, and e-commerce trends.
- Margin improvement will rely on promising volume trends and UPS's Network of the Future initiative, a cost-savings plan first teased last quarter and expanded on today. Simply, UPS will be optimizing and automating its core integrated network, resulting in an estimated $3.0 bln in total savings by the end of FY28, with half of the savings achieved by FY26.
UPS's three-year plan is ambitious and assumes an uptick in economic activity following a tepid year ahead. However, given the multiple periods of negative revenue growth throughout FY23 as well as UPS's FY24 revenue prediction, its FY25 and FY26 growth targets are not that thrilling, estimating a meager 10% bump over FY22 revenue by FY26. Likewise, adjusted operating margins above 13% would bring UPS back to around FY22 margins of 13.8%. As such, after digesting UPS's updated financial timeline, investors are underwhelmed, igniting today's chilly reception.
McCormick spices it up following strong earnings; upside revenue after 3 misses was good to see
McCormick (MKC +10%) is spicing it up today as investors approve of its Q1 (Feb) earnings results this morning. This supplier of spices, seasoning mixes, and condiments reported a solid EPS beat, and importantly, some revenue upside. This followed three consecutive quarters of top line misses, so investors were happy to see that. MKC also reaffirmed FY24 EPS and revenue guidance.
- Recall that new CEO Brendan Foley took the helm on Sep 1, 2023. He enters the picture at a time when consumers are exhibiting more value-seeking behavior. Q1 marked just his second full quarter as CEO.
- Breaking down the numbers a bit, Q1 revenue rose 2.4% yr/yr to $1.60 bln, or +2% constant currency (CC). To understand how MKC is doing, we need to analyze its segments independently because each segment is affected by the market in different ways. Its two segments are Consumer (57% of FY23 revs) and Flavor Solutions (43%), which caters to food manufacturers and foodservice customers.
- On the Consumer side, sales increased 1% yr/yr to $921.5 mln with minimal FX impact. Results reflected a 3% increase from pricing offset by lower volume of 2%. About half the lower volume stemmed from MKC's decision to discontinue some low margin sales. Volume was also impacted by a slower economic recovery in China and volume declines in prepared food categories, including Frozen and Asian, in the Americas.
- FS segment sales rose 3.8% to $681.2 mln, or +2% CC, reflecting a 2% increase from pricing actions and 1% volume growth. Volume growth was driven by the flavors and branded foodservice product categories. FS segment sales growth was decent across all regions (Americas +5%, EMEA -1% CC, APAC +5% CC). EMEA was impacted by a canning divestiture.
- In terms of the consumer, MKC says they remain challenged. Two years of steep inflation has had an impact and many are exhibiting value-seeking behavior. While food inflation is slowing, MKC explains that it is a compounded impact still being felt by consumers as budgets remain stretched. In Q1, with higher inflation in the food service channel and slowing retail food prices, MKC broadly saw a shift toward food at home consumption. MKC is also seeing improvement in center store categories and some softness in restaurant traffic across all regions.
Overall, after some lackluster results in recent quarters, MKC started out the new fiscal year on a strong note. We think the revenue upside after three misses stood out for investors as they have started to expect top line misses. Inflation has slowed, but the company is still navigating with consumers still feeling the pinch of inflation in recent years. Finally, the stock had already been trending higher since October, but this report gave it a nice jolt today as it trades to a new multi-month high.
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.
|
