| | | Market Snapshot
| Dow | 38085.80 | -375.12 | (-0.98%) | | Nasdaq | 15611.76 | -100.99 | (-0.64%) | | SP 500 | 5048.42 | -23.21 | (-0.46%) | | 10-yr Note | -5/32 | 4.71 |
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| | NYSE | Adv 810 | Dec 1950 | Vol 985 mln | | Nasdaq | Adv 1455 | Dec 2723 | Vol 4.8 bln |
Industry Watch
| Strong: Energy, Industrials, Information Technology, Materials, Utilities |
| | Weak: Communication Services, Consumer Discretionary, Real Estate, Industrials, Financials |
Moving the Market
-- Sharp rise in market rates after the advance GDP report showed weaker growth and higher inflation
-- Big losses in large-cap tech names after Meta Platforms (META) said it would increase capex on a multi-year infrastructure investment cycle
-- Digesting slate of earnings news from other names like IBM (IBM) and Caterpillar (CAT)
-- Fears about growth and higher rates after this morning's data playing into selling activity
| Closing Summary
25-Apr-24 16:30 ET
Dow -375.12 at 38085.80, Nasdaq -100.99 at 15611.76, S&P -23.21 at 5048.42
[BRIEFING.COM] It wasn't a strong day in the stock market, but importantly, it wasn't a particularly weak day either. The major indices closed with declines, but staged a big recovery off their lows for the session. At their worst levels of the day, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average were down 1.6%, 2.3%, and 1.8%, respectively. Losses by the close ranged from 0.5% to 1.0%.
Shortly after the open, decliners led advancers by an 11-to-2 margin at the NYSE and a better than 3-to-1 margin at the Nasdaq. At the close, decliners lead advancers by a better than 2-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
The initial move lower at the open was driven by negative responses to earnings news from some widely held names like Meta Platforms (META 441.38, -52.12, -10.6%) and Dow components IBM (IBM 168.91, -15.19, -8.3%) and Caterpillar (CAT 338.00, -25.52, -7.0%).
There were also some concerns about growth and about the Fed's rate cut path driving early downside moves. This followed the Advance Q1 GDP report, which showed weaker growth and higher inflation, and the weekly jobless claims report, which showed ongoing strength in the labor market.
The economic data sent yields sharply higher, contributing to the initial move lower in stocks. Treasuries ultimately settled off their intraday high yields, though. This was partially in response to today's $44 billion 7-yr note sale, which met solid demand.
Many stocks were participating in early downside moves, but some areas of the market recovered by the close. The S&P 500 materials (+0.7%), energy (+0.5%), industrials (+0.3%), utilities (+0.3%), and information technology (+0.2%) sectors were all lower in the early going before closing with gains.
The info tech sector was boosted by gains in semiconductor-related stocks, which showed relative strength through the entire session. The PHLX Semiconductor Index (SOX) gained 2.0% due to the notion that chip makers will be beneficiaries of the heavy investment in AI by Meta.
- S&P 500:+5.8% YTD
- Nasdaq Composite: +4.0% YTD
- S&P Midcap 400: +3.8% YTD
- Dow Jones Industrial Average: +1.1% YTD
- Russell 2000: -2.3% YTD
Reviewing today's economic data:
- March Adv. Intl. Trade in Goods -$91.8 bln; Prior was revised to -$90.3 bln from -$91.8 bln
- March Adv. Retail Inventories 0.3%; Prior 0.5%
- March Adv. Wholesales Inventories -0.4%; Prior was revised to 0.4% from 0.5%
- Weekly Initial Claims 207K (Briefing.com consensus 215K); Prior 212K; Weekly Continuing Claims 1.781 mln; Prior was revised to 1.796 mln from 1.812 mln
- The key takeaway from this report is that it continues to reflect a labor market where employers, in general, are reluctant to cut jobs, which will be interpreted to mean that they remain generally optimistic about demand. That's not a bad thing, unless one is hoping for a rate cut soon.
- Q1 GDP-Adv. 1.6% (Briefing.com consensus 2.4%); Prior 3.4%; Q1 Chain Deflator-Adv. 3.1% (Briefing.com consensus 2.9%); Prior 1.6%
- The key takeaway from the report is that it conveyed a disappointing combination of weaker growth and higher inflation. Some will be quick to label that "stagflation," but the reality is that the inflation component isn't the number the Fed is looking for to gain confidence that it can cut rates.
- March Pending Home Sales 3.4% (Briefing.com consensus 1.0%); Prior 1.6%
Friday's economic data include:
- 8:30 ET: March Personal Income (Briefing.com consensus 0.5%; prior 0.3%), Personal Spending (Briefing.com consensus 0.6%; prior 0.8%), PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), and Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%)
- 10:00 ET: Final April University of Michigan Consumer Sentiment Index (Briefing.com consensus 77.9; prior 77.9)
Stocks hold steady in front of the close
25-Apr-24 15:35 ET
Dow -361.53 at 38099.39, Nasdaq -90.14 at 15622.61, S&P -20.44 at 5051.19
[BRIEFING.COM] The market is holding steady near session highs.
The 10-yr note yield settled five basis points higher at 4.71% and the 2-yr note yield rose six basis points to 5.00%. This was in response to this morning's economic data and a $44 bln 7-yr note sale, which met solid demand.
Friday's economic data include:
- 8:30 ET: March Personal Income (Briefing.com consensus 0.5%; prior 0.3%), Personal Spending (Briefing.com consensus 0.6%; prior 0.8%), PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), and Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%)
- 10:00 ET: Final April University of Michigan Consumer Sentiment Index (Briefing.com consensus 77.9; prior 77.9)
Stocks sit near best levels of the day
25-Apr-24 15:00 ET
Dow -424.07 at 38036.85, Nasdaq -127.31 at 15585.44, S&P -29.41 at 5042.22
[BRIEFING.COM] The major indices traded in relatively narrow ranges over the last half hour. The S&P 500 is down 0.7% and the Nasdaq Composite shows a 0.9% decline.
The equal-weighted S&P 500 is down only 0.4%, recovering from an early loss of 1.3% at its session low.
Alphabet (GOOG), Microsoft (MSFT), T-Mobile US (TMUS), Intel (INTC), Capital One (COF), L3Harris (LHX), Western Digital (WDC), Mohawk (MHK), KLA Corporation (KLAC), and others report earnings after today's close.
Textron, A.O. Smith lower in S&P 500 after earnings; Newmont gains on earnings
25-Apr-24 14:30 ET
Dow -379.89 at 38081.03, Nasdaq -113.67 at 15599.08, S&P -25.03 at 5046.60
[BRIEFING.COM] The S&P 500 (-0.49%) hosts the shallowest losses among the major averages to this point on Thursday.
Elsewhere, S&P 500 constituents Textron (TXT 84.99, -9.02, -9.59%), A.O. Smith (AOS 82.16, -4.84, -5.56%), and Deckers Outdoor (DECK 809.31, -42.40, -4.98%) dot the bottom of the average. TXT and AOS dip following earnings, while DECK caught a BofA downgrade to Neutral this morning.
Meanwhile, Newmont Corporation (NEM 43.69, +5.09, +13.19%) is atop the standings following earnings.
Gold narrowly higher amid mixed move in yields, dollar
25-Apr-24 14:00 ET
Dow -367.83 at 38093.09, Nasdaq -134.57 at 15578.18, S&P -29.23 at 5042.40
[BRIEFING.COM] The broader market is continuing to perk up, albeit in a losing session, the tech-heavy Nasdaq Composite (now -0.86% vs. -2.35% at today's lows) in second place with about two hours to go.
Gold futures settled $4.50 higher (+0.2%) to $2,342.90/oz, higher even as treasury yields climb; we'd also mention modest weakness in the dollar, which typically displays an inverse relationship with the price of gold.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $105.54.
Lam Research jumps after raising its 2024 WFE spending outlook; AI demand still elevated (LRCX)
Lam Research (LRCX +2%) tacks on modest gains today following its impressive outperformance in Q3 (Mar), topping earnings and revenue estimates handily. The wafer fab equipment (WFE) supplier also projected decent Q4 (Jun) numbers, with the midpoints of its EPS and revenue forecasts exceeding consensus.
Following a few red flags last week after Taiwan Semi (TSM) trimmed its 2024 outlook, ASML's (ASML) underwhelming MarQ bookings growth, and notable silence from Super Micro Computer (SMCI), LRCX's report today was enough to ease some of investors' concerns, pushing shares mildly higher and bucking the trend of the broader markets.
- One positive standout from LRCX's Q3 performance included a wider earnings beat compared to last quarter, registering adjusted EPS of $7.79, which tracked near the high end of its $6.50-8.00 guidance. Additionally, after three straight quarters of double-digit revenue declines, LRCX recorded a light 2.0% drop yr/yr in Q3 to $3.79 bln, topping the midpoint of its $3.4-4.0 bln guidance.
- LRCX commented that demand for DRAM and NAND has remained strong as demand for high-bandwidth memory grows and investment in China continues. LRCX also noted that it has witnessed an uptick in fab utilization surrounding NAND. As a result, management was confident in bumping up its 2024 WFE spending estimate to the low to mid-$90 bln range from its previous estimate of a mid-to-high $80 bln range. The increased WFE forecast for the year was a pleasant surprise, especially given LRCX's remarks regarding a muted demand environment last quarter.
- Generative AI has been a clear underlying factor. LRCX stated that AI's transformative use cases are merely in the beginning stages of realization, leading to potentially substantial semiconductor manufacturing capacity increases down the line, providing a massive benefit to LRCX. AI is currently benefiting LRCX's DRAM and Foundry/Logic businesses; management anticipates growth for its NAND business over a longer timeframe, particularly given how much faster and power-efficient NAND-based storage is compared to traditional disk storage.
- On a side note, this dynamic would provide a much greater lift for Western Digital (WDC) versus its competitor, Seagate Tech (STX), as STX focuses more on hard disk storage. Although, with an estimated 80% of enterprise data stored on hard disks, switching to NAND could take many years.
- LRCX anticipates AI to continue proliferating, partly supporting its solid Q4 outlook, including adjusted EPS of $6.75-8.25 and revs of $3.5-4.1 bln, translating to the company's first quarter of yr/yr revenue growth since 2Q23 (Dec).
The main takeaway from LRCX's Q3 report is that AI demand continues to have a noticeably positive impact on quarterly financial results and will only add more fuel to a considerable turnaround that the company and its peers continue to expect will begin next year. Its results bode well for peers' upcoming quarterly reports, including KLA Corp (KLAC), which reports MarQ results today after the close, NXP Semi (NXPI) on April 29, and Applied Materials (AMAT) on May 16
Whirlpool sinks to April 2020 lows as reaffirmed FY24 guidance signals elevated uncertainty
Shares of Whirlpool (WHR -11%) are sinking today despite the household appliance manufacturer beating Q1 earnings and revenue estimates and reiterating its FY24 financial targets. Given its ties to the housing market, WHR continues struggling to attract buying interest as the demand backdrop remains highly uncertain. This is illuminated by the company keeping its FY24 guidance unchanged despite its top and bottom-line upside in Q1. Reported job cuts are also not much of a vote of confidence.
This was WHR's first quarter with its updated reporting structure. The company now breaks down its segments by Major Domestic Appliance (MDA) sales in North America, Europe, Latin America, and Asia, as well as Small Domestic Appliances (SDA) globally. The change was due to WHR divesting the majority of its EMEA business, which closed earlier this month. WHR also executed on the previously announced sale of its 24% stake in Whirlpool of India, retaining 51% ownership. As a result of the transactions, WHR anticipates delivering $750+ mln present value future cash flows this year and $250-300 mln incremental cash flow in 2025, putting it on track to achieve its long-term free cash flow goals.
- As expected, during Q1, volumes across the North American home appliance industry remained light, prompting higher promotional activity to spur demand. Unfortunately for WHR, it did little to boost revenue, as sales in MDA North America declined by 8.1% yr/yr. Meanwhile, even though WHR was more selective in its promotions, more markdowns still meant lighter margins, causing EBIT margins in this segment to contract by 450 bps yr/yr to 5.6%.
- Europe also stayed a laggard, with net sales dropping by 5.0% and EBIT margins remaining red at (1.1)%. Europe's negative margins dragged down WHR's overall EBIT margins by 1.2 pts, delivering 4.3%. However, by offloading most of its business in the region, WHR anticipates its margins will improve by around 100 bps on a go-forward basis.
- WHR delivered a few notable highlights outside North America and Europe, including robust growth in Latin America, better-than-expected growth in Asia, and a solid lift in its SDA Global segment. In Latin America, where inflation has become more commonplace, WHR grew net sales by 12.0% yr/yr, aiding a 300 bp jump in EBIT margins. Meanwhile, net sales slipped by just 2.4% in Asia, while EBIT margins expanded by 130 bps. SDA Global exhibited sustained demand, boasting a 7.1% improvement in net sales and a 690 bp pop in EBIT margins.
- Due to the demand activity in these three segments, WHR could still outperform consensus in Q1, posting adjusted EPS of $1.78 and revs of $4.49 bln, a 3.4% contraction yr/yr. It also supported the company's reiterated FY24 guidance, projecting adjusted EPS of $13.00-15.00 and revs of $16.9 bln, translating to flat growth yr/yr on a like-for-like basis.
WHR's Q1 performance was lukewarm. Its top and bottom-line beats were compelling but likely expected given the company's recent history. Meanwhile, even though shares of WHR are sinking to multi-year lows, the company's reaffirmed FY24 targets are still not cutting it today, especially after registering decent upside in Q1. WHR's long-term view was still optimistic, citing an undersupply of homes and a robust product pipeline. However, investors remain wary of lingering near-term headwinds, primarily surrounding inflation and interest rates, which could keep WHR from cooking up a speedy turnaround. Still, we view today's sell-off, taking shares to April 2020 lows and trading at a 6.9x FY24 earnings multiple, as overblown.
Meta Platforms kisses the year of efficiency goodbye as increased capex forecast hits stock (META)
Meta Platforms' (META) CEO Mark Zuckerberg is turning the page on the "year of efficiency", shifting the company back into the aggressive spending mode that sunk the stock in 2H21 and 2022. The substantial increase in META's FY24 capex guidance to $35-$40 bln from $30-$37 bln is catching investors off-guard and is overshadowing a stellar Q1 performance as EPS and revenue jumped by 114% and 27%, respectively.
- Strong results were fully anticipated, though, as illustrated by the stock's 38% year-to-date rally prior to today's selloff. Over the past year-and-a-half, investors and analysts have become accustomed to META generating robust earnings growth, fueled by a keen focus on costs, a strengthening advertising market, and AI-driven improvements in app engagement and advertising ROI. Those factors underpinned META's upside quarterly results once again, but at least one of those items has run its course.
- Last quarter, Mr. Zuckerberg warned that META was planning to ramp up technology investments to support its AI buildout and the launch of Llama 3 -- its large language model. However, the magnitude of the increase in spending is what's surprising investors.
- More specifically, META bumped its capex guidance higher by $4.0 bln, or about 12%, based on the midpoint of its guidance. The company also raised the low end of its FY24 total expense outlook to $96 bln from $94 bln, while the high end remained the same at $99 bln.
- Adding to the angst, META stated that it expects capex to continue to increase next year as it aggressively invests in its ambitious AI research and product development plans. During the earnings call, Mr. Zuckerberg warned that it could take years before these investments pay off and generate meaningful returns.
- It's important to point out, though, that unlike the metaverse, META's investments in AI have already had a positive impact on its financials. For instance, AI is helping to drive stronger app engagement metrics, leading to stronger ad impression growth (+20% in Q1) and higher average price per ad (+6%) as advertisers see greater returns on META's platforms.
- In contrast, META's investments in the metaverse and related products like VR headsets have been hard to justify. After posting a staggering loss of $16.0 bln in FY23, the Reality Labs segment is picking up where it left off last year, posting a loss of ($3.8) bln in Q1.
- META's aggressive spending plan isn't the only issue that's weighing on shares. The midpoint of META's Q2 revenue guidance of $36.5-$39.0 bln was also slightly below expectations, creating some concern that advertising spending is starting to soften following a strong recovery over the past few quarters. META's more cautious revenue outlook is sending shares of Snap (SNAP), Pinterest (PINS), and Alphabet (GOOG) lower. GOOG and SNAP are set to report Q1 earnings tonight, while PINS is scheduled to report on April 30.
The main takeaway is that META is changing course as it transitions from a cost containment strategy to a more aggressive one that centers on ramping up investments to ensure an AI leadership position. Unlike META's plans to heavily invest in the metaverse, this strategy seems much more sound in our view, based on the clear benefits that AI is already providing, but the margins and earnings growth seen during the "year of efficiency" will likely fade.
IBM sharply lower as Q1 revs were a bit light and possible concerns about HashiCorp premium (IBM)
IBM (IBM -9%) is trading sharply lower despite reporting a nice EPS beat and reaffirming its FY24 outlook for FCF at $12 bln and constant currency (CC) revenue growth in the mid-single digits. Unfortunately, revs rose just 1.5% yr/yr to $14.46 bln, which was light. IBM also announced it will acquire HashiCorp (HCP), a multi-cloud infrastructure automation company, for $35/sh, representing an enterprise value of $6.4 bln, which is expected to close by the end of 2024.
- Starting with earnings, IBM says it had a good performance in Software, at the high end of its model, continued strength in Infrastructure above its model. Consulting was below model but outperformed the market.
- Software grew by 5.9% CC, with growth across Hybrid Platform & Solutions (+7% CC) and Transaction Processing (+4% CC) with continued strength in its recurring revenue base. As mentioned in January, IBM says its Software growth drivers for the year include Red Hat growth, acquisitions, strong recurring revenue and transaction processing. And this is just how Q1 played out. Red Hat revs grew 9% reflecting solid performance across the three key platforms: RHEL, OpenShift and Ansible.
- Consulting was up 1.7% CC, reflecting organic growth as IBM continues to see clients prioritizing large data and technology transformation projects focused on driving productivity with AI and analytics. Infrastructure (+0.2% CC) had a strong performance, delivering growth across all of hardware offerings. IBM Z is uniquely positioned for AI with the first processor design with on-chip acceleration for real-time AI inferencing.
- Quickly on the HashiCorp deal, it was not a huge surprise because the WSJ had previously reported a deal was near, but now it's official. In our preview, we mentioned the deal might be announced with earnings. IBM says HashiCorp has a proven track record of helping clients manage the complexity of today's infrastructure by automating, orchestrating and securing hybrid and multi-cloud environments. IBM feels it's a great addition and will extend Red Hat's hybrid cloud capabilities.
- IBM feels it is well positioned to drive growth for HashiCorp by leveraging IBM's enterprise incumbency and global reach. With 70% of HCP's revenue coming from the US, IBM sees a significant opportunity to scale HashiCorp across IBM's operations in 175 countries. IBM believes it can accelerate HashiCorp's adoption with IBM clients. IBM sees a great opportunity to better monetize and upsell their products.
Overall, investors seem to be focusing on IBM's Q1 revenue miss. IBM also said on the call that clients have tightened discretionary spending in Consulting as rates have remained higher than expected. Investors may also be unhappy with the hefty premium being paid for HashiCorp. HCP was trading around $25 when WSJ first reported a possible deal, which computes as a 40% premium. However, IBM has a good track record with M&A, just see what the Red Hat deal has done for them.
Hasbro's previous restructuring initiatives produce huge results in Q1; triggers today's pop (HAS)
Hasbro (HAS +11%) is monopolizing the market today, boasting the top spot within the S&P 500 after crushing earnings estimates in Q1. The company was not toying around when it announced broad restructuring plans in December, cutting around 20% of its workforce amid dismal holiday toy sales and gutting excess inventories.
Management expected the fruit of its more streamlined organization to be gross annual run-rate cost savings of $350-400 mln and resurging growth. While the move sparked a gradual increase in shares of Hasbro, climbing around 20% as of yesterday's close, the market was not anticipating tangible benefits appearing so quickly.
- Hasbro went from posting its widest earnings miss in nearly five years last quarter to its widest beat in 11 quarters in Q1, delivering adjusted EPS of $0.61. Revenue still fell, dropping by 24.3% yr/yr to $757.3 mln. However, this was much better than analysts feared, reversing the company's string of misses.
- Hasbro started the quarter with toy inventories at multi-year lows, down by over half compared to the year-ago period. This hurt Hasbro's Consumer Products segment revenue growth, which fell by 21% and dragged down overall growth. However, it resulted in a significant reduction in closeout volume, leading to a margin benefit, which Hasbro anticipates will continue as it moves through Q2.
- Meanwhile, a more asset-light model entertainment model following the divestiture of eOne Film and TV in December is already paying dividends. Hasbro's Entertainment segment posted soaring revenue growth of 65% yr/yr when removing eOne. Management is enthusiastic about what this segment has in store for the future, including film and FV projects for Clue and a live-action Monopoly movie.
- Looking to FY24, while Hasbro remains excited about its more streamlined business model, it conveyed a cautiously optimistic tone in light of a volatile economic background. Also, the first quarter of the year tends to represent a minor portion of Hasbro's full-year sell-through for toys (Q4 being its most important). Therefore, Hasbro reaffirmed its FY24 guidance, including Consumer Products revenue falling by 7-12% yr/yr and Wizards of the Coast revs down by 3-5%.
- Management also affirmed that it remains firmly on track toward its gross cost savings by FY25, following the 200-250 mln savings projected for FY24.
Hasbro's Q1 results proved that its quick pivot in December after observing its current strategy failing to produce meaningful results was the correct action. While there are still bumps in the road ahead, finding such outsized success so rapidly reassures investors that management can steer through even the most disastrous climates.
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