Market Snapshot
| Dow | 38596.98 | -530.16 | (-1.35%) | | Nasdaq | 16049.08 | -228.38 | (-1.40%) | | SP 500 | 5147.21 | -64.28 | (-1.23%) | | 10-yr Note | +3/32 | 4.31 |
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| | NYSE | Adv 945 | Dec 1783 | Vol 954 mln | | Nasdaq | Adv 1609 | Dec 2624 | Vol 5.3 bln |
Industry Watch
| Strong: -- |
| | Weak: Health Care, Information Technology, Financials, Real Estate, Materials, Industrials |
Moving the Market
-- Geopolitical angst involving potential retaliation by Iran against Israel, also sent oil prices higher
-- Treasury yields moving lower after this morning's economic data; buying picked up in the afternoon as stocks turned lower, reflecting geopolitical angst
-- Reacting to comments from Minneapolis Fed President Kashkari
| Closing Summary
04-Apr-24 16:30 ET
Dow -530.16 at 38596.98, Nasdaq -228.38 at 16049.08, S&P -64.28 at 5147.21
[BRIEFING.COM] The stock market started the day in rally-mode, but finished the day with sharp losses. The Nasdaq Composite lost 1.4% and the Dow Jones Industrial Average shed more than 500 points.
Some participants pointed to comments from Minneapolis Fed President Kashkari (not an FOMC voter), who said it's possible the Fed might not cut rates this year if progress on inflation stalls, as the reason for the afternoon deterioration. Others indicated increased geopolitical tensions in the Middle East related to potential retaliation by Iran against Israel as the key factor driving the afternoon sell-off.
The latter concern also drove afternoon gains in oil prices and defense-related stocks. WTI crude oil futures climbed 1.3% to $86.57/bbl. Lockheed Martin (LMT 454.04, +6.14, +1.4%) and RTX (RTX 99.31, +1.76, +1.8%) were winning standouts from the defense space.
There is an overall lingering sense among some participants that stocks are due for a more meaningful pullback after a stellar start to the year, which also contributed to the afternoon retreat.
Just about everything came along for the late sell-off. The equal weighted S&P 500 dropped 1.0% and all 11 S&P 500 sectors closed with declines. Six of them fell more than 1.0%.
The early positive bias today was partially related to a buy-the-dip trade following a soft start to the quarter, which was helped by favorable price action in Treasuries following this morning's economic data. The weekly jobless claims report reflected some softening in the labor market. This followed yesterday's softer than expected ISM Services PMI.
Buying picked up further in the Treasury market around the same time that stocks started their descent. The 10-yr note yield fell five basis points to 4.31% and the 2-yr note yield declined four basis points to 4.64%.
- S&P 500:+7.9% YTD
- Nasdaq Composite: +6.9% YTD
- S&P Midcap 400: +6.6% YTD
- Dow Jones Industrial Average: +2.4% YTD
- Russell 2000: +1.3% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending March 30 increased by 9,000 to 221,000 (Briefing.com consensus 214,000). Continuing jobless claims decreased by 19,000 to 1.791 million.
- The key takeaway from the report is the element of softening seen in the initial claims number; however, initial claims continue to run well below levels associated with a truly weak labor market and a contracting economy.
- The trade deficit in February widened to $68.9 billion (Briefing.com consensus -$66.0 billion) from a downwardly revised -$67.6 billion (from -$67.4 billion) in January. The widening was the result of exports being $5.8 billion more than January exports and imports being $7.1 billion more than January imports.
- The key takeaway from the report, though, is that both exports and imports increased in February, reflecting a pickup in global trade.
- Weekly EIA Natural Gas Inventories showed a draw of 37 bcf versus a draw of 36 bcf last week
Friday's economic calendar features:
- 8:30 ET: March Nonfarm Payrolls (Briefing.com consensus 200,000; prior 275,000), Nonfarm Private Payrolls (Briefing.com consensus 160,000; prior 223,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.1%), Unemployment Rate (Briefing.com consensus 3.8%; prior 3.9%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 15:00 ET: February Consumer Credit (prior $19.5 bln)
Stocks continue descent ahead of close
04-Apr-24 15:40 ET
Dow -507.59 at 38619.55, Nasdaq -189.59 at 16087.87, S&P -58.08 at 5153.41
[BRIEFING.COM] Stocks continue to slide ahead of the close. The major indices all sport losses greater than 1.0%.
Treasuries settled with gains following this morning's favorable economic data. Buying picked up further in the afternoon in response to geopolitical angst. The 10-yr note yield fell five basis points to 4.31% and the 2-yr note yield declined four basis points to 4.64%.
Friday's economic calendar features:
- 8:30 ET: March Nonfarm Payrolls (Briefing.com consensus 200,000; prior 275,000), Nonfarm Private Payrolls (Briefing.com consensus 160,000; prior 223,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.1%), Unemployment Rate (Briefing.com consensus 3.8%; prior 3.9%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
- 15:00 ET: February Consumer Credit (prior $19.5 bln)
Stocks hit session lows
04-Apr-24 15:00 ET
Dow -423.03 at 38704.11, Nasdaq -125.56 at 16151.90, S&P -43.02 at 5168.47
[BRIEFING.COM] Stocks continue to hit fresh session lows. The S&P 500 is down 0.7% and the Nasdaq Composite is down 0.6%.
The downside moves coincided with comments from Minneapolis Fed President Kashkari (non-FOMC voter) who said it's possible the Fed might not cut rates this year if the inflation decline stalls.
The deterioration has also been driven by geopolitical angst involving potential retaliation by Iran against Israel. WTI crude oil futures turned sharply higher around the time that stocks turned lower. Oil prices are up 1.3% to $86.58/bbl.
All 11 S&P 500 sectors are lower with losses ranging from 0.3% to 1.1%.
Markets dip, S&P 500 held up by Enphase, Generac and others
04-Apr-24 14:30 ET
Dow -112.68 at 39014.46, Nasdaq +48.45 at 16325.91, S&P +1.95 at 5213.44
[BRIEFING.COM] The markets fell in the last half hour, but only the Dow Jones Industrial Average (-0.29%) is in the red. The S&P 500 (+0.30%) is now the top performing major average today.
Elsewhere, S&P 500 constituents Enphase Energy (ENPH 125.34, +6.74, +5.68%), Generac (GNRC 136.00, +7.74, +6.03%), and Conagra (CAG 30.63, +1.57, +5.40%) pepper the top of today's trading. Rate sensitive solar stocks including ENPH are largely higher today, while GNRC appears to be reacting to strong hurricane season predictions, with CAG benefiting from this morning's Q3 beat.
Meanwhile, Lamb Weston (LW 82.41, -18.71, -18.50%) is today's outlier on the downside, underperforming after missing Q3 EPS and revenue expectations and lowering its full year guidance.
Gold snaps winning streak
04-Apr-24 14:00 ET
Dow +94.51 at 39221.65, Nasdaq +145.78 at 16423.24, S&P +30.24 at 5241.73
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.90%) holds market-leading gains, up about 145 points.
Gold futures settled $6.50 lower (-0.3%) to $2,308.50/oz, the yellow metal took a breather from its recent rally in response to a jump in market rates as participants recalibrated rate cut expectations amid ongoing strength in economic data and sticky inflation numbers.
Meanwhile, the U.S. Dollar Index is down -0.2% to $104.07.
Exxon Mobil's Q1 earnings take a hit from lower oil and gas prices, but shares holding steady (XOM)
If Exxon Mobil's (XOM) Q1 update from last night is any indication, the upcoming earnings season may be a more muted one for the oil and gas industry. In an SEC filing, the company disclosed that weaker crude oil and natural gas prices, along with negative impacts related to unsettled derivatives, will sharply cut into its Q1 profits. More specifically, XOM is forecasting that Q1 GAAP operating earnings will fall to approximately $6.7 bln from $7.6 bln last quarter.
- Taking a look at the upstream segment specifically, softer crude oil and natural gas prices could shave as much as $1.0 bln off XOM's earnings from last quarter. Natural gas prices in particular have plunged, sinking by over 50% from the end of October through the end of March.
- The steep declines are a dramatic reversal from 2022 when natural gas prices soared to multi-year highs in the wake of Russia's invasion of Ukraine. Crude oil prices also launched higher in 2021-2022, nearly reaching $120/barrel in May 2022, as the pandemic's grip eased, and as global economies reopened.
- This surge in commodity prices generated record earnings for XOM in 2022 and 1Q23, pushing the stock to all-time highs by September 2023, providing XOM with the fire power to make its blockbuster $60 bln acquisition of Pioneer Natural Resources (PXD) last October.
- However, rising interest rates and growth concerns have undercut oil and gas prices over the past year. This hasn't prevented XOM and others in the industry from scaling back on production, though. In fact, in FY23, XOM's production increased 111,000 oil-equivalent barrels per day, excluding impacts from divestments, entitlements, and government-mandated curtailments. Permian and Guyana combined production grew 18% versus 2022.
- Higher volumes and improved mix driven by Permian and Guyana growth enabled Q4 adjusted earnings to increase by $127 mln to $6.3 bln, even as XOM experienced lower crude realizations.
- Strong production likely helped XOM mitigate the impact of lower commodity prices again in Q1. Also working in XOM's favor is healthier refining margins, which provided a $500-$700 mln boost to earnings in Q1, according to XOM's forecast.
These factors, and a recent push higher in crude oil prices, which are currently sitting at year-to-date highs, help explain why XOM shares are holding steady today despite forecasting lower earnings for Q1 relative to Q4.
Conagra cooking up some nice gains as improving volume trends highlight upside Q3 report (CAG)
Following a boom period during the pandemic that was fueled by the work and eat-at-home trends,packaged food company Conagra (CAG) has contended with much more challenging conditions recently amid high inflation and a related shift in consumer spending behaviors. However, the owner of the Slim Jim, Reddi-wip, and Duncan Hines brands believes that the tide is turning back in its favor and its solid Q3 earnings report lends credence to that assertion.
- For the eighth consecutive quarter, CAG edged past EPS expectations as the company capitalized on its cost savings initiatives, but the more encouraging news comes on the demand side. CEO Sean Connolly commented that volume trends in the domestic retail business continued to improve, which is evident in CAG's Q3 results and it's reaffirm of FY24 guidance.
- After falling by 3.4% last quarter, organic net sales were down by only 2.0% in Q3 as volume decreased by a modest 1.8%. In Q2, volume declined by 2.9%, primarily due to continued lower consumption trends as consumers focused more on multi-serve meals and scratch cooking.
- The improvement was mainly driven by the Grocery & Snacks segment which saw volume dip by only 0.8% compared to Q2's 3.7% drop. CAG credits share gains in several product categories, such as chili, pudding, seeds, and microwave popcorn, for the stronger results. Encouragingly, volumes improved even as price/mix increased by 4.2%, indicating that CAG didn't need to rely on promotions to drive demand.
- The same can't be said for the Refrigerated & Frozen (R&F) segment, which continues to struggle due to lower consumption trends. Despite ramping up its promotional activity -- price/mix decreased by 4.8% -- volumes still decreased by 3.3%, matching last quarter's drop.
- Participants are looking past the sluggish performance in R&F, though, because CAG reaffirmed its FY24 EPS guidance of $2.60-$2.65 and its organic revenue outlook of a -2% to -1% decline. Recall that last quarter, the company cut its guidance for both of those metrics. Additionally, CAG nudged its operating margin forecast higher to 15.8% from 15.6% as the company benefits from higher productivity.
Overall, CAG's Q3 results and outlook mirror General Mills' (GIS) solid earnings report from March 20, reflecting a gradual strengthening in volume trends as inflationary pressures ease somewhat.
Levi Strauss stretching to new 52-wk high following robust earnings; first call with new CEO (LEVI)
Levi Strauss (LEVI +16%) is sharply higher today at a new 52-wk high after reporting Q1 (Feb) results last night. The denim icon reported its largest EPS upside in five quarters. Revenue fell 7.8% yr/yr to $1.56 bln, but that was in-line with analyst expectations. This was an important quarter because it was the first with new CEO Michelle Gass, who took the helm in late January.
- Gass follows Chip Bergh, who served as CEO for the previous 12.5 years. The brand has been struggling in recent years, so we think new leadership is warranted. Gass is expected to focus on accelerating international growth, to position the Levi's brand as a head-to-toe denim lifestyle apparel business and to transition LEVI's operating model to a direct-to-consumer (DTC)-first organization.
- Turning to the Q1 results, revenue declined quite a bit, but LEVI was lapping last year's $100 mln shift from Q2 into Q1 related to it ERP implementation in the US. Excluding this shift, as well as the impact from exiting the Denizen business and Russia, Q1 revs were flat. LEVI continues to see strong momentum in its global DTC business. Its e-commerce channel posted 12% growth on top of mid-teens growth last year. In particular, its overall women's business was up 14% in DTC globally in Q1.
- LEVI also is encouraged by the performance of its largest market, the US. It saw sustained progress in DTC, which was up 10%, as well as continued stabilization in US wholesale, which was up low single-digits. Global wholesale revs were down, but were in-line with expectations as the actions being taken to improve this business are working.
- LEVI continues to see strong performance in its core offerings, while also introducing innovation in denim and beyond. Its 501 sales were up 23% in DTC, on top of 32% growth in the prior year. LEVI is seeing strength in Loose Fits for men's and women's, both up more than 40%. LEVI launched six new baggy styles for women, for which sales were up 50%.
- In terms of expanding the brand, LEVI sees a great opportunity to expand its addressable market for denim. Denim skirts, dresses, and jumpsuits again saw positive results, increasing triple-digits in the quarter. LEVI is also seeing strength in its denim tops assortment, with its iconic Women's Westerns up more than 40%. LEVI is introducing new denim top silhouettes across blouses, corsets, vests etc. It is also extending into non-denim, with categories like shorts, skirts, and dresses for the seasons ahead.
Overall, this was the best quarter than we have seen in recent quarters. We also think investors like the direction the new CEO is taking. Expanding the brand into other categories and focusing on DTC seem like good ideas. We also think investors were pleased to hear somewhat better commentary on its struggling wholesale business. The stock was in a steady downturn from mid-2021 to mid-2023 as LEVI reported a series of poor quarters, which actually surprised at the time. However, its fortunes appear to be turning up and the new CEO is making some good changes.
Ulta Beauty plunges following discouraging Q1 guidance; ripple effect on beauty industry (ULTA)
Ulta Beauty (ULTA -14%) wipes out its gains this year and heads toward gap fill from late November following its gloomy near-term outlook from a conference today. ULTA projected Q1 (Apr) comps to grow by low single digits yr/yr, landing at the low end of its 1H24 outlook and tracking below its FY24 target of +4-5%. By encountering its more bearish 1H24 scenario just a month after first outlining it, investors are worried that ULTA could trim its FY24 guidance, especially now that the second half of the year will need to pick up even more slack.
- What happened? ULTA already warned that the beauty category would endure moderating growth in FY24. However, thus far, through Q1, the category has slowed quicker than originally expected. This development is sending a shockwave throughout the cosmetics industry today, with peers e.l.f. Beauty (ELF), Coty (COTY), and Estee Lauder (EL) enduring pullbacks.
- A particularly discouraging trend is that both prestige and mass segments are moderating meaningfully compared to Q4 (Jan). Recall that the mass category, i.e., lower-priced labels, helped offset a more challenged prestige lineup during Q4. ULTA's mass segment was also an answer to increasing competitiveness in the prestige category. Management remarked that the current market softness is leading to a general step down across all price points.
- On a side note, given that ELF caters exclusively to the mass market, early moderation in the category is having a pronounced burden on its shares today.
- Additionally, Kohl's (KSS), which has been rolling out Sephora (LVMH) shops in its locations, is also seeing modest selling pressure today, likely due to further weakness in the prestige category, which comprises the bulk of Sephora's offerings.
- Intensifying competition was also an underlying factor in ULTA's guidance today, albeit to a minor degree, mainly since this has been in the background for several quarters. The company mentioned that it has never operated in an environment containing so many alternative routes, from physical locations like Walmart (WMT) and Macy's (M) to numerous online options. However, management was confident that its locations offer a unique consumer experience that should help guide it through increasing competition.
The beauty industry has been resilient throughout the past few years, powering ahead despite inflationary headwinds and general economic unease, making ULTA's near-term view all the more frustrating. A minor silver lining is that the slowdown is industry-wide and a result of problems associated with ULTA.
Bottom line, even though ULTA's Q4 results last month were mild, it touched on several uplifting trends, culminating in a healthy same-store sales growth forecast for the year. Unfortunately, after today's remarks, the highlight investors leaned on last month is losing its glow, sparking today's substantial drop.
Intel's transformation plan encounters more scrutiny as Foundry losses pile up (INTC)
When Pat Gelsinger returned to Intel (INTC) as CEO in 2021, he announced a major transformation initiative called "IDM 2.0" in which the chip maker would rededicate itself to technology leadership, while also transitioning to a foundry model. This massive undertaking and the tens of billions of dollars in investments that come with it was bound to create some serious financial setbacks, especially in the early stages, but Mr. Gelsinger has remained steadfast in his belief that the sacrifice will be worth it in the end.
- Last night, INTC took its next step in its transformation by outlining a new financial reporting structure that includes an Intel Foundry segment, but the main focus today rests on the recast financial results that INTC provided which depicted the struggles of that new segment.
- Specifically, in FY23, revenue for Intel Foundry dove by 31% to $18.9 bln, while its operating loss ballooned to ($6.96) bln from ($5.17) bln in FY22. The largest contributor to the operating loss was a decrease in product profit, driven by lower internal revenue -- or revenue derived from INTC. Revenue from external customers totaled $953 mln.
- Meanwhile, INTC continues to substantially ramp up its investments to build new manufacturing facilities to support the foundry business. As of December 30, 2023, capital investments classified as "construction in progress" totaled a whopping $43.4 bln, up from $36.7 bln at the end of 2022. Even with $8.5 bln in funding from the U.S. CHIPS and Science Act, INTC will ultimately sink nearly $100 bln in capital into the four U.S. facilities that it's constructing.
- Considering the huge operating losses currently afflicting the Foundry business, participants are likely questioning whether there will be a light at the end of the tunnel. On that note, it will likely get worse before it gets better as INTC stated that it expects losses to peak in 2024.
- Profitability isn't right around the corner, either, with INTC predicting breakeven operating margins midway between now and the end of 2030. In other words, it could be 2027 or later before the Foundry business turns a profit.
- By the end of 2030, the company is targeting 40% non-GAAP gross margin and 30% non-GAAP operating margin for Foundry, supported by a volume shift to leading-edge extreme ultraviolet (EUV) nodes. This shift will enable INTC to bring more of its production in-house, reducing its need to outsource silicon wafers from other manufacturers.
- A key positive is that there seems to be solid initial demand for INTC's Foundry business. The company disclosed that it has over $15 bln of lifetime deal value committed from external customers, which is up from the $10 bln figure it noted during its Q4 earnings call in January. However, INTC has a very long way to go to catch up to Taiwan Semiconductor Manufacturing (TSM), which generated revenue of $69.4 bln in 2023 alone.
The main takeaway is that the financials for Foundry were expected to be rough in these initial years, but the losses are even worse than many had anticipated. Last night's disclosures illustrated that this transformation is still only in the early-to-middle innings, providing a reality check that INTC's financial performance will likely remain volatile for quite some time.
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