Market Snapshot
| Dow | 37753.31 | -45.66 | (-0.12%) | | Nasdaq | 15683.37 | -181.88 | (-1.15%) | | SP 500 | 5022.21 | -29.20 | (-0.58%) | | 10-yr Note | +28/32 | 4.59 |
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| | NYSE | Adv 1316 | Dec 1392 | Vol 878 mln | | Nasdaq | Adv 1602 | Dec 2597 | Vol 5.0 bln |
Industry Watch
| Strong: Utilities, Materials,, Financials, Consumer Staples |
| | Weak: Real Estate, Information Technology, Industrials, Consumer Discretionary, Health Care |
Moving the Market
-- Losses in some mega cap names weighing on broader market
-- Weakness in semiconductor-related names after ASML (ASML) reported disappointing quarterly results
-- Early buy-the-dip interest fading
-- Calm behavior in Treasuries
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Closing Summary
17-Apr-24 16:30 ET
Dow -45.66 at 37753.31, Nasdaq -181.88 at 15683.37, S&P -29.20 at 5022.21
[BRIEFING.COM] Today's trade featured mostly negative action on below-average volume at the NYSE. Some early buying efforts, which were driven by a buy-the-dip mentality, faded quickly with no specific news catalyst to account for the activity. There was another attempt to move higher in the afternoon trade, which ran into some resistance, but still led the major indices to close off their lows.
The overall downside vibe felt through the session was due to weakness in mega cap stocks and semiconductor names. The Vanguard Mega Cap Growth ETF (MGK) settled 1.0% lower and the PHLX Semiconductor Index dropped 3.3%.
ASML (ASML 907.91, -69.31, -7.1%) was the worst performer in the SOX after reporting weaker-than-expected Q1 bookings. NVIDIA (NVDA 840.35, -33.80, -3.9%) was another influential laggard from the space, clipped by ongoing consolidation efforts in stocks that have logged huge gains since the start of the year. NVDA shares are still nearly 70% higher on the year.
The soft showing from some mega cap and semiconductor-related shares weighed on the S&P 500 information technology sector (-1.7%). It was the worst performing sector today followed by the real estate sector (-0.8%).
Meanwhile, the utilities sector (+2.1%) saw the largest gain by a wide margin, followed by the consumer staples (+0.5%) and materials (+0.2%) sectors.
Some negative responses to earnings news since yesterday's close has also contributed to the negative bias. Dow component Travelers (TRV 206.58, -16.54, -7.4%) was a standout loser in that respect. J.B. Hunt Transport (JBHT 168.13, -14.86, -8.1%) also logged a big loss after disappointing quarterly results.
United Airlines (UAL 48.74, +7.24, +17.5%), meanwhile, was up big after pleasing quarterly results.
The attempted afternoon rebound in stocks was related in part to pleasing price action in Treasuries. The 10-yr note yield settled seven basis points lower than yesterday at 4.59%. The 2-yr note yield fell three basis points to 4.93%. Yields were already moving lower before today's $13 billion 20-yr bond auction was met with excellent demand.
- S&P 500:+5.3% YTD
- Nasdaq Composite: +4.5% YTD
- S&P Midcap 400: +1.8% YTD
- Dow Jones Industrial Average: +0.2% YTD
- Russell 2000: -2.9% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 3.3%; Prior 0.1%
- Weekly crude oil inventories increased by 2.74 mln barrels after increasing by 5.84 mln barrels a week ago
Thursday's economic calendar futures:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 215,000; prior 211,000), Continuing Claims (prior 1.817 mln), and April Philadelphia Fed survey (Briefing.com consensus 0.0; prior 3.2)
- 10:00 ET: March Existing Home Sales (Briefing.com consensus 4.20 mln; prior 4.38 mln) and March Leading Indicators (Briefing.com consensus -0.1%; prior 0.1%)
- 10:30 ET: Weekly natural gas inventories (prior +24 bcf)
Stocks move sideways ahead of the close
17-Apr-24 15:25 ET
Dow -41.81 at 37757.16, Nasdaq -160.49 at 15704.76, S&P -25.11 at 5026.30
[BRIEFING.COM] Stocks trade in sideways flow in front of the close.
Elevance Health (ELV), D.R. Horton (DHI), Alaska air (ALK), KeyCorp (KEY), Comcerica (CMA), and other report earnings.
Treasury yields settled lower, The 2-yr note yield declined three basis points to 4.93% and the 10-yr note yield fell seven basis points to 4.59%.
Thursday's economic calendar futures:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 215,000; prior 211,000), Continuing Claims (prior 1.817 mln), and April Philadelphia Fed survey (Briefing.com consensus 0.0; prior 3.2)
- 10:00 ET: March Existing Home Sales (Briefing.com consensus 4.20 mln; prior 4.38 mln) and March Leading Indicators (Briefing.com consensus -0.1%; prior 0.1%)
- 10:30 ET: Weekly natural gas inventories (prior +24 bcf)
Many stocks turn lower, DJIA slides below prior close
17-Apr-24 15:05 ET
Dow -43.29 at 37755.68, Nasdaq -154.88 at 15710.37, S&P -26.52 at 5024.89
[BRIEFING.COM] The Dow Jones Industrial Average was trading higher a short time ago, but the market declined in recent action. Market breadth is still positive at the NYSE despite the recent deterioration. Advancers lead decliners by a 4-to-3 margin at the NYSE while decliners lead advancers by the same margin at the Nasdaq.
S&P 500 sector performance also reflects somewhat mixed action. Four of the sectors trade higher and seven trade lower. The utilities sector leads the lineup by a wide margin while the information technology sector continues to underperform, trading down 1.5%.
Looking ahead, Kinder Morgan (KMI), Discover Financial Services (DFS), CSX (CSX), Las Vegas Sands (LVS), Alcoa (AA), and others report earnings after today's close.
Beige Book shows economic activity expanded slightly, consumer price sensitivity remains elevated
17-Apr-24 14:30 ET
Dow -2.05 at 37796.92, Nasdaq -123.31 at 15741.94, S&P -18.79 at 5032.62
[BRIEFING.COM] The broader market moved mostly sideways after the release of the Fed's latest Beige Book which said overall economic activity expanded slightly, on balance, since late February. Currently, the S&P 500 (-0.37%) is in second place, consolidating its earlier bounce off session lows.
Other points of interest from the report included: Employment rose at a slight pace overall, with nine Districts reporting very slow to modest increases, and the remaining three Districts reporting no changes in employment. On balance, contacts expected that labor demand and supply would remain relatively stable, with modest further job gains and continued moderation of wage growth back to pre-pandemic levels.
Price increases were modest, on average, running at about the same pace as in the last report. Disruptions in the Red Sea and the collapse of Baltimore's Key Bridge caused some shipping delays but so far did not lead to widespread price increases. Another frequent comment was that firms' ability to pass cost increases on to consumers had weakened considerably in recent months, resulting in smaller profit margins. Inflation also caused strain at nonprofit entities, resulting in service reductions in some cases.
Consumer spending barely increased overall, but reports were quite mixed across Districts and spending categories. Several reports mentioned weakness in discretionary spending, as consumers' price sensitivity remained elevated. The economic outlook among contacts was cautiously optimistic, on balance.
Gold slips as rally stumbles
17-Apr-24 14:00 ET
Dow +42.29 at 37841.26, Nasdaq -93.10 at 15772.15, S&P -11.29 at 5040.12
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-0.59%) is today's worst-performing major average.
Gold futures settled $19.40 lower (-0.8%) to $2,388.40/oz, even as bond yields and the dollar show modest weakness; a shift in rate-cut expectations and the recent rally to all-time highs has traders thinking the yellow metal is due for a bit of a breather.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $106.03.
ASML sinks to February levels as bookings fall short in Q1; puts pressure on the rest of FY24 (ASML)
ASML (ASML -8%), a Dutch-based photolithography machine manufacturer used to produce semiconductors, has its recent gains chipped away today despite exceeding Q1 earnings estimates. While several figures mirrored those from Q4, which kicked off a rapid rise, culminating in all-time highs in early March, there were some stark differences.
ASML missed revenue estimates in Q1, returning to its somber days from 2022 and early 2023. Meanwhile, even though Q2 revenue guidance fell short of analyst estimates -- the same occurrence as last quarter -- investors are more troubled by the downbeat forecast this time around, given that management discussed early signs of a recovery brewing during its Q4 call in January. Furthermore, and perhaps most glaring, was ASML's net bookings of €3.6 bln, a 5.3% drop yr/yr.
- Starting with the €3.6 bln bookings figure, management mentioned that its order flow can be lumpy. The company noted that an order rate slightly over €4.0 bln over the next three quarters would still provide full order coverage at the end of 2024 for a 2025 sales number reaching the midpoint of its 2022 Investor Day scenarios. Still, this did not mean ASML was guiding to the midpoint. Instead, management continues to anticipate a considerable recovery in 2025, which has kept the midpoint of its previous outlook intact.
- However, for orders to begin clearing €4.0 bln, ASML requires an uptick from some of its larger customers. Considering the lack of clarity regarding if and when this will occur, investors are taking risk off the table today.
- With orders down yr/yr, ASML's revenue of €5.29 bln, a 21.6% decline, fell short of analyst estimates. However, it did reach the midpoint of the company's €5.0-5.5 bln forecast. Still, this was not good enough, especially considering secular growth drivers within the semiconductor industry, such as energy transition, electrification, and AI.
- On the plus side, gross margins remained healthy at 51.0%, a 40 bp improvement yr/yr. At the same time, ASML's operating expenses were slightly lower than projected in the quarter, assisting ASML's third straight earnings beat.
- ASML also reaffirmed its FY24 revenue forecast, anticipating revs similar to the €27.6 bln delivered in FY23. The second half of this year should still outpace the first half, meaning one more quarter of lukewarm results, evidenced by downbeat Q2 revenue guidance of €5.7-6.2 bln. Meanwhile, an industry recovery remains poised for 2025.
After one more potentially tumultuous quarter, ASML is confident in a firm ramp to close out FY24, providing upward momentum heading into a widely anticipated industry rebound in FY25. Nevertheless, ASML is navigating a fluid demand backdrop, especially in its Logic business, where customers continue digesting substantial capacity additions made over the past year. This backdrop is an alarming sign ahead of Q1 reports scheduled for the next few weeks from peers Lam Research (LRCX), KLA Corp (KLAC), and Applied Materials (AMAT).
Still, while economic volatility could keep selling pressure elevated over the near term, ASML remains amid several longer-term growth drivers, mainly as many new fabs are under construction globally, all of which will likely require ASML's technology.
United Airlines taking off as resilient travel demand fuels easy Q1 EPS beat (UAL)
If there was any lingering doubt that travel demand remains robust following Delta Air Lines (DAL) strong Q1 earnings report from last week, United Airlines' (UAL) better-than-expected Q1 results and upside Q2 guidance last night should put those worries to rest. Fueled by this healthy demand, which spanned across the domestic, corporate, and international businesses, the Chicago-based airliner flew past Q1 earnings expectations, and it would have generated a profit had it not been for the grounding of Boeing's (BA) 737 MAX-9.
- When UAL reported Q4 results on January 22, it warned that the MAX-9 grounding would create a three-point headwind to seat miles in Q1. Since then, UAL's exposure to BA and its troubles have weighed on the stock to the tune of a 12% drop since April 1 as expectations for the company's Q1 results and outlook descended. As anticipated, the MAX-9 grounding did have a material impact, costing UAL about $200 mln in earnings, but the strength of UAL's business outside of these issues is what really stands out.
- Total passenger revenue jumped by 10.1% yr/yr to $11.3 bln with domestic up 6.6% and international higher by 16.0%. International travel has been a source of strength and a competitive advantage for UAL, DAL, and American Airlines (AAL) for several quarters. DAL reported that Q1 international passenger revenue grew by 12% yr/yr, following an increase of 25% in Q4.
- A common concern surrounding the airline space is that unit revenue, also known as TRASM or PRASM, will be soften as airlines add capacity, putting downward pressure on ticket prices. However, that issue hasn't really come to fruition as passengers continue to be willing to absorb higher fares. In Q1, TRASM edged higher by 0.6% for UAL, even as capacity increased by 9.1% yr/yr. UAL disclosed that both the domestic and Atlantic markets saw significant passenger revenue per available seat mile increases, up 11% and 6%, respectively.
- On the cost side of the equation, CASM-ex was up 4.7%, falling in line with UAL's guidance for a mid-single-digit increase. Looking ahead, UAL's costs could ease somewhat due to some pilots taking unpaid time off as plane deliveries get pushed out.
- On that note, UAL provided a delivery update in the earnings press release, stating that it now expects to only receive 61 narrowbody aircraft and five widebody aircraft deliveries in 2024. At the start of the year, the company anticipated 101 narrowbody deliveries, but manufacturing delays at BA following the MAX-9 grounding have delayed deliveries. In turn, this has impeded UAL's, and its competitors', ambitions to significantly expand capacity to more fully capitalize on the robust demand environment. However, the capacity constraints have also enabled airlines to continue charging high prices for fares.
The main takeaway is that BA's troubles didn't sink UAL in Q1, as many had feared. To the contrary, the company delivered an impressive performance, relying on sturdy travel demand, capacity increases, and opportunistic pricing to drive those results.
Abbott Labs heads lower following earnings/guidance; FreeStyle Libre was a bright spot (ABT)
Abbott Labs (ABT -3%) is trading lower following Q1 results this morning. Similar to peer Johnson & Johnson's (JNJ) Q1 report yesterday, the stock is trading lower. Abbott reported decent EPS upside, following an in-line result in Q4. Revenue grew 2.2% yr/yr to $9.96 bln, which was a bit better than analyst expectations. The mid-point of the Q2 EPS guidance was below consensus, but ABT tends to be conservative with guidance.
- Abbott's largest segment is Medical Devices and sales there rose a healthy 14.2% yr/yr to $4.45 bln. Sales growth was led by double-digit growth in Diabetes Care, Electrophysiology, Neuromodulation, and Structural Heart. Several recently launched products and new indications contributed to the strong performance, including Amplatzer Amulet, Navitor, TriClip, and AVEIR. In Diabetes Care, FreeStyle Libre sales were $1.5 bln, up 22.4% yr/yr.
- Its Nutrition segment performed well, with sales growing 5.1% to $2.07 bln, fueled by Pediatric Nutrition sales growing 9.2%, including +12% in the US, primarily driven by market share gains in infant formula. Adult Nutrition sales growth was more muted at +1.5% yr/yr, led by growth of Ensure, Abbott's complete and balanced nutrition brand.
- The big laggard for Abbott, which dragged down overall sales was its Diagnostics segment. Sales slumped by -17.6% to $2.21 bln. However, that is not a total surprise as this segment was severely impacted by a big decline in COVID-19 testing-related sales in 2024. Excluding COVID-19 testing-related sales, global Diagnostics sales increased 2.7%. ABT continues to see strong adoption for its Alinity family of diagnostics systems and testing portfolios.
- Abbott's smallest segment is Established Pharmaceuticals, which saw sales increase 3.1% yr/yr to $1.23 bln. Of note, these are all international sales as Abbott does not sell in the US. Rather, Abbott focuses on emerging countries for its branded generics product portfolio. This segment is most vulnerable to FX swings. Organic growth, which excludes FX, for this segment rose 13.7%.
Overall, investors appear to be somewhat disappointed with Abbott Labs' results and guidance. It is a similar reaction to what we saw with peer JNJ yesterday. We suspect the combination of modest Q1 upside and lackluster Q2 EPS guidance is weighing on shares today. Of note, the stock has been trending lower over the last month or so. We think there was some investor caution heading into this report and apparently investors did not like what they saw this morning.
J.B. Hunt Transport continues downhill after a sharp deceleration in Q1 volumes, EPS miss (JBHT)
After intermodal volume picked up for J.B. Hunt Transport (JBHT -9%) in Q4, investors hoped for a more meaningful turnaround for the transportation company in subsequent quarters. However, JBHT registered flat intermodal volume yr/yr in Q1, a discouraging slowdown from +6% last quarter. At the same time, the company missed earnings and sales expectations in Q1, continuing its string of lackluster quarterly results. As such, even though the stock had transported roughly 16% lower since posting 52-week highs in February as of yesterday's close, JBHT's Q1 performance was too weak to jumpstart any rebound action today, keeping shares trending downhill.
- Outgoing CEO John Roberts III started the Q1 conference call conceding that the current environment has been challenging for much longer than initially expected. This tone underpins JBHT's Q1 results, which decelerated noticeably over the past three months, delivering EPS of $1.22, a 35% decrease yr/yr and a 30% drop sequentially, translating to a sixth straight miss, and revs of $2.94 bln, a 9% drop yr/yr and 11% decline from Q4.
- Intermodal, JBHT's largest segment, posted a 9% sales decline in Q1 on flat volume. Transcontinental network loads saw a 5% volume bump, while eastern network loads fell 7%, due primarily to softer-than-expected demand and a surprising jump in competition from over-the-road truck options. Management noted that carriers are at overcapacity and believe that a significant amount of freight should be converted from over-the-road to intermodal.
- Still, during an inflationary environment, businesses seek ways to cut costs, which could keep this unfavorable trend active over the near term. This development is also bad news for many of JBHT's peers, such as Knight Swift Transport (KNX), XPO Inc (XPO), Old Dominion (ODFL), and Marten Transport (MRTN), which all report quarterly earnings over the next several weeks.
- JBHT's next largest business, Dedicated Contract Services (DCS), performed modestly better, reporting a 2% dip in revs yr/yr, fueled by a 1% decline in average trucks and productivity. While JBHT noticed fleet losses or downsizes thus far in 2024, it saw signs of stabilization during the quarter.
- The remaining segments, Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload (JBT), which combined for 24% of Q1 revs, saw mixed results. ICS revs were down 26% on a 22% plunge in volume, while JBT revs sunk by 13% on a 5% drop in load volume. FMS was the only segment to enjoy positive growth, albeit modest, at just 2%, supported by multiple new contracts implemented over the past year.
JBHT was encouraged by its Q4 results in January but remained somewhat cautious given the elevated uncertainty embedded in the economy. We noted then that this sentiment was not reassuring, and the headwinds resting on the horizon could keep volatility high. JBHT's Q1 report underscored how quickly economic conditions can change. Still, while conditions remain cloudy, an out-of-balance intermodal pricing environment should revert back, helping JBHT's future intermodal volume. Meanwhile, stabilization in DCS is an uplifting development. The company also has a new CEO, Shelley Simpson, who will take over in July. Therefore, JBHT is worth keeping on the radar, especially at current prices.
Morgan Stanley jumps on upbeat Q1 results; says underlying trend suggests growing confidence (MS)
Morgan Stanley (MS +3%) receives a smattering of applause today as investors approve of the investment and financial services titan's upbeat Q1 performance, including wider top and bottom-line upside compared to Q4. MS also predicted Q2 net interest income (NII) to land around the same as in Q1, underscoring signs of stabilization.
While CEO Edward Pick still cautioned about a backdrop of economic and geopolitical uncertainty, echoing remarks from other prominent bank CEOs, including JPMorgan's (JPM) Jamie Dimon and Goldman Sachs' (GS) David Solomon, several encouraging trends from the quarter were enough for investors to be rather accepting of these macroeconomic challenges.
- MS splits its business into three primary segments: Institutional Securities (46% of Q1 revs), Wealth Management (45%), and Investment Management (9%). Each of the company's segments registered yr/yr revenue growth, resulting in a 4.3% improvement in overall sales to $15.14 bln, a decent acceleration from the +1.2% growth recorded last quarter.
- Institutional Securities was the laggard in Q1, delivering a 3.2% improvement in net revs yr/yr, a mild growth rate that reflected a sharp slowdown in M&A transactions. MS's 27.7% decline in Advisory revs due to the drop in M&A activity contrasted GS's 23.5% jump in Q1, a 180 from last quarter when MS's Advisory business crushed GS's. Still, MS was encouraged by the health of its Advisory pipeline, which could swell if interest rates begin dropping.
- Wealth Management net revs grew by a decent rate at 4.9%, supported by a healthy jump in Asset Management revs as asset prices continued to expand over the past year. However, like last quarter, net new assets continued to decline, slipping by 13.4% yr/yr, worse than the 7.9% dip in Q4.
- Investment Management enjoyed the most robust growth at 6.8%, directly underscoring a buoyant equity market as a higher average AUM resulted in a swift uptick in Asset Management fees.
- Against the backdrop of broad-based growth, MS was well-portioned to deliver a much wider EPS beat in Q1 than it did in Q4, topping estimates by double digits for the first time since 1Q22. Expenses also played a significant role, with MS's expense ratio increasing by just 1 pt yr/yr to 71%, far better than the 7 pt jump to 84% registered in Q4. Management noted that it made good progress on the expense front during the quarter, reducing its headcount and trimming excess costs.
MS's Q1 report contained several positive standouts, but most notable was the company's healthy pipelines. While management conceded that near-term uncertainty could impact the timing surrounding realizing benefits connected to its pipelines, the underlying trend suggests that confidence is increasing, a meaningful difference from where MS stood following its Q4 results in mid-January.
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