| | | Market Snapshot
| Dow | 37986.40 | +211.02 | (0.56%) | | Nasdaq | 15282.01 | -319.49 | (-2.05%) | | SP 500 | 4967.23 | -43.89 | (-0.88%) | | 10-yr Note | +1/32 | 4.62 |
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| | NYSE | Adv 1844 | Dec 864 | Vol 1.0 bln | | Nasdaq | Adv 2155 | Dec 2016 | Vol 5.3 bln |
Industry Watch
| Strong: Energy, Utilities, Financials, Real Estate, Health Care |
| | Weak: Communication Services, Information Technology, Consumer Discretionary |
Moving the Market
-- Reacting to news that Israel launched an attack on Iran that was ultimately seen as a "limited" strike versus concerns of a larger and more damaging response
-- Big pullback in some mega cap stocks and chipmakers; NVDA dropping 10% on no news
-- Losses in some names that reported earnings weighing on market
-- Calm behavior in Treasuries
| Closing Summary
19-Apr-24 16:30 ET
Dow +211.02 at 37986.40, Nasdaq -319.49 at 15282.01, S&P -43.89 at 4967.23
[BRIEFING.COM] The S&P 500 (-0.9%), which closed below the 5,000 level for the first time since February, and the Nasdaq Composite (-2.1%) logged decent losses due to ongoing weakness in mega cap stocks. Meanwhile, the Dow Jones Industrial Average (+0.6%) and Russell 2000 (+0.2%) settled the final session of the week with gains.
Market breadth also reflected buying activity under the index surface despite new developments in the Middle East. Reports indicated that Israel launched an attack on Iran, but the market wasn't too fazed due to the perception that the strikes were "limited" and didn't result in more damage. Advancers led decliners by a better than 2-to-1 margin at the NYSE and by an 11-to-10 margin at the Nasdaq.
The negative price action in the S&P 500 and Nasdaq Composite was largely driven by ongoing weakness in mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) declined 2.4%. Shares of NVIDIA (NVDA 762.00, -84.71, -10.0%) tumbled 10% on no news, bringing the stock below its 50-day moving average (841.99). NVDA is still up 53.9% since the start of the year.
Meanwhile, the equal-weighted S&P 500 rose 0.4% and four of the S&P 500 sectors gained at least 1.0%. Strength in bank stocks amid ongoing earnings news from the sector helped drive a 1.4% gain in the financials sector. The SPDR S&P Regional Banking ETF (KRE) jumped 2.6% and the SPDR S&P Bank ETF (KBE) gained 2.3% today.
Dow component American Express (AXP 231.04, +13.54, +6.2%) also contributed to the outperformance of the S&P 500 financial sector. Fellow Dow component Procter & Gamble (PG 158.12, +0.85, +0.5%) also closed higher after reporting earnings.
The information technology sector (-3.1%), communication services (-2.0%), and consumer discretionary (-1.2%) sectors saw the largest declines by a decent margin. These sectors combined represent nearly 50% of the index.
There was no U.S. economic data of note today.
Looking ahead, there is no US economic data of note on Monday.
- S&P 500:+4.1% YTD
- Nasdaq Composite: +1.8% YTD
- S&P Midcap 400: +2.0% YTD
- Dow Jones Industrial Average: +0.8% YTD
- Russell 2000: -3.9% YTD
Mega caps extend losses in front of close
19-Apr-24 15:35 ET
Dow +179.56 at 37954.94, Nasdaq -356.89 at 15244.61, S&P -47.32 at 4963.80
[BRIEFING.COM] The S&P 500 (-0.9%) and Nasdaq Composite (-2.1%) are trailing mostly sideways near session lows.
Mega cap shares continue to move lower. NVIDIA (NVDA 765.74, -80.70, -9.5%) is leading the downside moves in the mega cap space, dropping below its 50-day moving average (841.99). Meta Platforms (META 477.70, -24.24, -4.8%) and Broadcom (AVGO 1203.71, -55.70, -4.4%) are both down more than 4.0% on no news.
Looking ahead, there is no US economic data of note on Monday.
Stocks hit fresh session lows
19-Apr-24 15:00 ET
Dow +134.97 at 37910.35, Nasdaq -349.56 at 15251.94, S&P -50.60 at 4960.52
[BRIEFING.COM] The S&P 500 (-1.0%) and Nasdaq Composite (-2.2%) hit fresh session lows in recent action.
The equal-weighted S&P 500 is still sitting on a 0.2% gain, indicating some buying activity under the index surface.
Advancers lead decliners by a 3-to-2 margin at the NYSE, but decliners have a fractional lead over advancers at the Nasdaq.
Jabil slips in S&P after CEO placed on leave pending investigation; Fifth Third gains after earnings
19-Apr-24 14:30 ET
Dow +170.14 at 37945.52, Nasdaq -282.87 at 15318.63, S&P -38.19 at 4972.93
[BRIEFING.COM] The S&P 500 (-0.76%) once again sits in second place, now near lows of the session in recent trading.
Elsewhere, S&P 500 constituents Jabil (JBL 119.54, -10.05, -7.76%), Advanced Micro (AMD 147.43, -7.65, -4.93%), and Zoetis (ZTS 146.85, -6.26, -4.09%) pepper the bottom of the average. JBL slips after the company's CEO was placed on leave pending an investigation, AMD slides alongside general weakness in semiconductors.
Meanwhile, Fifth Third (FITB 36.08, +1.86, +5.44%) is near the top of the standings following this morning's Q1 earnings beat.
Situation in the Middle East serves to bolster gold as haven asset
19-Apr-24 14:00 ET
Dow +255.31 at 38030.69, Nasdaq -219.65 at 15381.85, S&P -25.10 at 4986.02
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-1.41%) paces the declines, stretching weekly losses to more than -4.9%.
Gold futures settled $15.80 higher (+0.7%) to $2,413.8.00/oz, up +1.7% this week, fueled in part by the military conflict between Israel and Iran.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $106.12.
Intuitive Surgical posts solid Q1 results, but system placement concerns weigh on shares (ISRG)
Intuitive Surgical (ISRG), the leading manufacturer of robotic surgical equipment, delivered a solid beat-and-raise Q1 earnings report as worldwide da Vinci procedures increased by a better-than-expected 16% yr/yr, but concerns surrounding system placements this year are clouding over the results and outlook.
- The main issue is related to the recent FDA approval and subsequent measured launch of ISRG's da Vinci 5 system. While interest for da Vinci 5 has been strong, as evidenced by the eight placements registered at the end of Q1, supply is constrained, preventing ISRG from meeting demand. Initially, ISRG is only offering da Vinci 5 to select U.S customers who worked with the company during the development phase and have established robotic surgical programs.
- Consequently, other prospective customers who are interested in purchasing da Vinci 5 are holding off on making a system purchase until there's broad availability of da Vinci 5. This scenario is reflected in Q1 da Vinci system placements, which increased by just one on a yr/yr basis to 313. Furthermore, during the earnings call, ISRG acknowledged that system placements may be choppy this year due to the slow start for da Vinci 5.
- The explosive growth of weight-loss drugs such as Eli Lilly's (LLY) Zepbound and Novo Nordisk's (NVO) Wegovy is creating another headwind for ISRG. The company stated that bariatric procedures were flat in Q1 and continue to decelerate from 2H23 levels.
- The good news is that once the supply constraints for da Vinci 5 ease, ISRG should see a meaningful upswing in system placement growth due to da Vinci 5's technology improvements, such as Force Feedback technology that enables surgeons to feel subtle forces exerted on tissue during surgery. That upswing, though, may not fully materialize until FY25, which is creating some disappointment among investors today.
- Another positive is that ISRG's lung biopsy robot, Ion, is generating strong growth with procedures jumping by 90% in Q1. Along with solid growth for general procedures in both the U.S. and China, the strength in Ion allowed ISRG to lift its FY24 procedure growth guidance to +14-17% from +13-16%.
- Although the company is lapping more challenging yr/yr comparisons due to last year's unwinding of patient treatment backlogs that developed during COVID-19, ISRG isn't contending with any COVID-related disruptions in China, either.
Overall, ISRG posted solid Q1 results as da Vinci procedure growth modestly strengthened, but the measured launch of its new da Vinci 5 system may put a lid on system growth this year. Looking further out on the horizon, though, we believe da Vinci 5 has the potential to be a significant growth catalyst as healthcare provides upgrade to the new-and-improved model.
PPG Industries paints a concerning near-term picture; makes its FY24 guidance look flimsy (PPG)
PPG Industries (PPG -3%) missed Q1 revenue estimates and painted a concerning near-term picture, projecting Q2 adjusted EPS below consensus, leading to sustained selling pressure today. While PPG did announce a $2.5 bln repurchase program, it was ultimately overshadowed by weak points in the quarter.
PPG reiterated its FY24 adjusted earnings target of $8.34-8.59 and its FY24 organic sales growth estimate of low-single digits. However, the underwhelming Q2 earnings outlook combined with in-line results in Q1 places considerable pressure on a much more robust second half of the year. CEO Timothy Knavish noted several reasons the company remains confident in reaching its FY24 earnings goal despite a challenging demand backdrop. Nevertheless, investors are not sharing that confidence today, fearing that the soft Q2 guide has made PPG's FY24 guidance flimsy.
- PPG's confidence in its FY24 outlook stems from several factors. For starters, PPG delivered its sixth straight quarter of yr/yr segment margin expansion, culminating in Q1 adjusted EPS of $1.86, a couple pennies above the midpoint of its $1.80-1.87 forecast. PPG's earnings performance was its second-best-ever, supported by moderating input costs and improving manufacturing activity, partly offset by lower sales volumes and higher wage costs.
- PPG believes volumes will turn positive in Q2, given the trend in Q1. While Q1 volumes did slide by 3% yr/yr, it was due to one-time impacts, such as lapping a significant customer win and enduring fewer selling days in March. When adjusting for these items, PPG's volumes were flat yr/yr, sustaining accelerating momentum from the previous five quarters. PPG is also entering the peak buying period due to the seasonality of the paint industry.
- Meanwhile, many of PPG's important markets are either performing well or improving. For example, in Q1, China (PPG's third largest country by sales) delivered double-digit organic sales growth yr/yr. Similarly, India also grew by double-digits. At the same time, in the U.S., PPG noticed ongoing demand improvements while the European market experienced stabilization.
- Additionally, divesting its architectural coatings business in the U.S. and Canada would likely lift margins. For instance, when excluding architectural coatings, PPG's Performance Coatings segment would have enhanced margins by an average of 200-300 bps over the past several years. PPG announced a strategic review of this business in February and noted during its Q1 conference call that it would communicate a path forward regarding this business no later than Q3.
Overall, PPG did not deliver very reassuring Q1 results or Q2 guidance despite management's confidence that the front half of the year will merely be a speed bump on its way to achieving its previously outlined FY24 guidance. However, investors are wary that the year's second half will not be strong enough to push PPG through its FY24 goalposts, especially given relatively tepid global industrial production. Lastly, PPG's results are a somewhat alarming sign ahead of peers' quarterly reports, such as Sherwin-Williams (SHW), Axalta Coating Systems (AXTA), and RPM Inc (RPM).
American Express taps into more affluent customer base to drive strong results (AXP)
Credit card company American Express (AXP) showed once again why it's considered to be a best-in-class name, blowing out Q1 EPS estimates as member spending remained healthy, increasing by 7% yr/yr despite the high interest rate environment. AXP's main competitive advantage rests in its younger, more affluent customer base, which is better able to absorb rising interest rates and maintain a high-level of spending.
- While the big money center banks such as JPMorgan Chase (JPM) and Bank of America (BAC) saw their net interest income (NII) shrink in Q1 as loan growth slowed and as deposit costs increased, AXP's NII jumped by 26% yr/yr to $3.77 bln. That growth also easily outpaced Discover Financial Services' (DSF) NII growth of 11% in Q1.
- Based on the impressive NII growth, it's evident that rising interest rates are more of a benefit than a hindrance for AXP at this point. Thanks to its high credit quality customer base, the higher rates and monthly payments aren't having a significant impact on net charge-offs or delinquencies. Loans 30+ days past due remained steady in Q1 at 1.3%, even with Q4 and up a tick from 1.2% in Q3. In contrast, DFS's 30+ day delinquency rate for credit card loans climbed by 107 bps yr/yr to 3.83% in Q1.
- It wouldn't be accurate to say that AXP has been completely immune to the macro headwinds, though. Spending on its network has slowed, including for the Travel & Entertainment (T&E) category, which has been a long-standing source of strength. In Q1, T&E spend was up by 8% on an FX-adjusted basis, down from 9% in Q4, 13% in Q3, and 14% in Q2.
- The company also only reaffirmed its FY24 EPS guidance of $12.65-$13.15, even though it cruised past Q1 EPS estimates. This indicates that AXP has some reservations about its prospects for the remainder of the year due to macro/geological risks. In fact, we find it a bit surprising that AXP is still rallying after issuing this conservative guidance, but that's probably because investors are aware that the company is setting a low bar for itself.
- As macro-related uncertainties persist, AXP has tightened the screws on expenses. One common complaint among investors was that AXP was buying its growth, ramping up marketing activity to grow its membership base. However, in recent quarters, that hasn't been the case, including in Q1 as consolidated expenses were up by just 3% to $11.4 bln. New card acquisitions still accelerated sequentially to 3.4 mln during the quarter as AXP slowed its marketing spend.
Overall, it was another very solid performance for AXP, which continues to set itself apart from the credit card pack as it capitalizes on its more affluent customer base.
Netflix streams lower despite EPS beat; decision to stop reporting net adds hurting (NFLX)
Netflix (NFLX -8%) is streaming lower following its Q1 earnings report last night despite a huge EPS beat and good size revenue upside. The streaming giant did offer mixed guidance for Q2, with upside EPS but its revenue outlook was a bit light. There is a lot to unpack here, from impressive net adds to success with paid sharing to margin performance to advertising.
- Let's dig into it. Global streaming paid net adds in Q1 were an impressive +9.33 mln, which was nicely above street estimates and well above prior guidance of "up yr/yr from 1Q23's +1.75 mln." Q1 is a seasonally slower period, but the drop off from Q4's +13.12 mln was surprisingly small. Just look at last year's Q4-Q1 drop off: +7.66 mln to +1.75 mln.
- Netflix no longer officially guides for net adds but did say on the call that it expected Q2 net adds will see fairly typical seasonality. NFLX expects paid net adds in Q2 will be lower than Q1. Netflix has posted huge net add quarters in Q3-Q1 following its crackdown on password sharing (which Netflix calls "paid sharing"), which seems to be working well. Advertising was a bright spot in Q1, up 65% sequentially after two quarters of about 70% sequential growth.
- Another metric that jumps off the page at us is operating margin. In Q1, it came in at 28.1% vs 26.2% prior guidance and vs 16.9% in Q4. It also raised its FY24 forecast to 25% from 24% and guided for Q2 at 26.6%. However, NFLX cautioned that margins could bounce around in any given year with FX and content spend, and other investment opportunities.
- So, why is the stock lower? We think a few variables are at play here. First off, NFLX is guiding to FY24 revenue growth of +13-15%. It posted +15% growth in Q1 and guided to +16% growth in Q2. Doing the math, the means some deceleration in 2H24. NFLX explained on the call that rolling out paid sharing and launching the ads business led to an acceleration in 2H23, so growth in 2H24 will be lapping tough comps. Also, FX has been a bit of a headwind with a strengthening dollar.
- Second, NFLX said it will no longer provide its paid net add metric or ARPU. Last year, it stopped guiding for net adds, and in 1Q25 it will stop reporting the metric altogether. NFLX explains that it has evolved its pricing and plans with multiple tiers with different price points across different countries. That historical simple math (members x $ monthly price) is increasingly less accurate. It will continue to guide on revs, op margin, net income, EPS, free cash flow. It has also added annual revenue guidance.
Overall, we think the combination of decelerating growth in 2H24, coupled with its decision to stop providing subscriber data is weighing on the stock today. Add to that some bullish sentiment coming in, given the recent run in the stock. These factors are causing investors to book some profits. Investors never want less information and net adds has been a critical catalyst for the stock, so that data loss will hurt.
Procter & Gamble's flat volume growth in MarQ disappoints; consumption trends remain stable (PG)
Without an uptick in volume growth in Q3 (Mar), shares of household durables giant Proctor & Gamble (PG -1%) look sluggish today. PG's flat volume growth yr/yr in Q3, the second consecutive quarter of stagnation, led to a minor top-line miss. However, earnings still exceeded estimates by double digits for the third time in a row, underscoring PG's productivity enhancements and favorable deflationary trends. Additionally, PG raised its FY24 (Jun) EPS growth forecast and reaffirmed its FY24 revenue growth outlook of +2-4%.
These highlights were encouraging and may have been enough to give investors the green light to buy in today. However, PG shares climbed 10% on the year to record one-year highs last month before retreating a few percentage points ahead of Q3 results. As such, many of the uplifting figures from Q3 were priced in, and the market needed a little more from the quarter, likely in the form of volumes finally turning green after two years of yr/yr declines.
- PG did experience volume growth across some categories, including Beauty, Grooming, and Fabric & Home Care, which offset the 4% and 3% drops in Health Care and Baby, Feminine & Family Care, respectively. However, the result was still underwhelming, especially given that prices decelerated to up 3% in the quarter compared to the 4% jump in Q2 (Dec). PG also lapped the same (1)% volume decline in Q3.
- Given the flat volumes, PG's 0.6% revenue growth to $20.2 bln was driven by rising prices. On an organic basis, which backs out FX impacts, total sales growth was moderately improved, moving 3% higher yr/yr, albeit below the +4% organic growth delivered last quarter.
- Geographically, growth remained broad-based, with notable upswings in Latin American markets, such as Mexico and Brazil, which posted organic sales growth in the +20s and +30s. In North America, organic sales growth ticked 3% higher on a 3% bump in volumes, snapping a streak of accelerating volume growth but remaining in positive territory.
- The lingering problem areas in Q3 were China and the Middle East. Organic sales in China fell by 10% yr/yr, hurt by weak underlying market conditions. Management saw month-to-month sales improvements in the region but anticipates another quarter or two until growth returns. Meanwhile, in the Middle East, demand has remained soft since the start of heightened tensions late last year.
- On a lighter note, PG's bottom line expanded by 10.9% yr/yr to $1.52, supported by productivity enhancements, which drove most of the 310 bp pop in core gross margins. Also, commodities prices continue to fall, now providing a tailwind of $900 mln in FY24 (up $100 mln from last quarter). As a result, PG was confident in raising its FY24 EPS growth prediction to +10-11% from +8-9%.
The main takeaway from Q3 was that PG did not maintain its positive momentum from Q2. Nevertheless, management remarked that consumption trends in the market are stable despite numerous headwinds, helping the company grow value share globally. At the same time, China is nearing a long-awaited recovery, and the Middle East problems should eventually ease over time. As such, PG is worth keeping on the radar.
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