Market Snapshot
| Dow | 37815.92 | -570.17 | (-1.49%) | | Nasdaq | 15657.82 | -325.26 | (-2.04%) | | SP 500 | 5035.69 | -80.48 | (-1.57%) | | 10-yr Note | -27/32 | 4.69 |
|
| | NYSE | Adv 479 | Dec 2273 | Vol 1.1 bln | | Nasdaq | Adv 1212 | Dec 3003 | Vol 5.2 bln |
Industry Watch
| Strong: -- |
| | Weak: Materials, Energy, Utilities, Real Estate, Consumer Discretionary, Consumer Staples |
Moving the Market
-- Reacting to the jump in market rates following a bigger-than-expected increase in compensation costs in Q1; 2-yr note yield settling above 5.00%
-- Worries about the Fed pushing back rate cuts
-- Mega caps give back early gains, bringing major indices to fresh session lows in afternoon trade
-- Many stocks participating in broad declines |
Closing Summary
30-Apr-24 16:25 ET
Dow -570.17 at 37815.92, Nasdaq -325.26 at 15657.82, S&P -80.48 at 5035.69
[BRIEFING.COM] It was a downbeat day for stocks. The Nasdaq Composite slid 2.0%, trailing the S&P 500 (-1.6%) and Dow Jones Industrial Average (-1.5%). The major indices had been holding up better, however, before some mega cap stocks reversed initial gains.
NVIDIA (NVDA 864.02, -13.55, -1.5%), which was up as much as 1.2% at its high, and Meta Platforms (META 430.17, -2.45, -0.6%), which was up as much as 1.6% at its best level, were among the losing standouts in that respect.
The final sharp move lower in front of the close was related to last minute selling into month-end in de-risking action that has permeated the month. The S&P 500 logged a 4.2% decline in April, the Nasdaq Composite registered a 4.4% loss for the month, and the Dow Jones Industrial Average was 5.0% lower this month.
Today's downside bias in the stock market was driven by a jump in market rates following this morning's data. The Employment Cost Index for Q1 reflected a 1.2% increase in compensation costs versus expectations for a 1.0% increase. This report piled onto recent worries about sticky inflation and about the Fed pushing back its rate cut timeline.
The 2-yr note yield, which is most sensitive to changes in the Fed funds rate, settled eight basis points at 5.05%. The 10-yr note yield settled seven basis points higher at 4.69%.
Just about everything participated in the broad retreat. The equal-weighted S&P 500 declined 1.5% and all 11 S&P 500 sectors finished lower. Eli Lilly (LLY 781.10, +43.90, +6.0%), Corning (GLW 33.38, +1.60, +5.0%), and 3M (MMM 96.51, +4.35, +4.7%) were some exceptions following pleasing earnings results.
Looking ahead, there is a FOMC policy announcement tomorrow followed by Fed Chair Powell's press conference. Market participants will be focused on the tone Mr. Powell takes and on any shifts in rhetoric following recent sticky inflation readings.
- S&P 500:+5.6% YTD
- Nasdaq Composite: +4.3% YTD
- S&P Midcap 400: +2.9% YTD
- Dow Jones Industrial Average: +0.3% YTD
- Russell 2000: -2.6% YTD
Reviewing today's economic data:
- Q1 Employment Cost Index 1.2% (Briefing.com consensus 1.0%); Prior 0.9%
- The key takeaway from the report is that compensation costs accelerated from the fourth quarter, lending to concerns about general price inflation sticking above the Fed's 2% target for longer than expected.
- February FHFA Housing Price Index 1.2%; Prior -0.1%
- February S&P Case-Shiller Home Price Index 7.3% (Briefing.com consensus 6.7%); Prior 6.6%
- April Chicago PMI 37.9 (Briefing.com consensus 44.5); Prior 41.4
- April Consumer Confidence 97.0 (Briefing.com consensus 104.0); Prior was revised to 103.1 from 104.7
- The key takeaway from the report is that consumers are generally more positive about present conditions than they are about future business conditions, job availability, and income, which is a view that could portend a slowdown in discretionary spending should their worries about income security increase.
Market participants will receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.7%)
- 8:15 ET: April ADP Employment Change (Briefing.com consensus 175,000; prior 184,000)
- 10:00 ET: March Construction Spending (Briefing.com consensus 0.4%; prior -0.3%) and April ISM Manufacturing Index (Briefing.com consensus 50.0%; prior 50.3%)
- 10:30 ET: Weekly crude oil inventories (prior -6.37 mln)
- 14:00 ET: May FOMC Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
Treasuries settle with losses; stocks remain near lows
30-Apr-24 15:35 ET
Dow -437.63 at 37948.46, Nasdaq -190.58 at 15792.50, S&P -51.44 at 5064.73
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
The 10-yr note yield settled seven basis points higher at 4.69% and the 2-yr note yield settled eight basis point higher at 5.05%.
Looking ahead, market participants will receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.7%)
- 8:15 ET: April ADP Employment Change (Briefing.com consensus 175,000; prior 184,000)
- 10:00 ET: March Construction Spending (Briefing.com consensus 0.4%; prior -0.3%) and April ISM Manufacturing Index (Briefing.com consensus 50.0%; prior 50.3%)
- 10:30 ET: Weekly crude oil inventories (prior -6.37 mln)
- 14:00 ET: May FOMC Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
AMZN trades down in front of earnings
30-Apr-24 15:00 ET
Dow -456.56 at 37929.53, Nasdaq -209.96 at 15773.12, S&P -54.81 at 5061.36
[BRIEFING.COM] The market continues to move lower. The S&P 500 is down 1.1%, the Dow Jones Industrial Average is down 1.2%, the Nasdaq Composite is down 1.3%, and the Russell 2000 is down 1.4%.
Amazon.com (AMZN 179.45, -1.51, -0.9%) is trading down ahead of its earnings report after the close. Other mega cap stocks had been trading higher earlier, limiting downside moves for the major indices, before rolling over. The Vanguard Mega Cap Growth ETF (MGK) was up 0.3% at its best level today, but shows a 1.0% decline now.
Prudential (PRU), Mondelez (MDLZ), Starbucks (SBUX), ONEOK (OKE), Advanced Micro (AMD), Stryker (SYK), Edison (EIX), Super Micro Computer (SMCI), and others also report earnings this afternoon.
Hubbell, Gartner among top S&P 500 post-earnings laggards
30-Apr-24 14:30 ET
Dow -388.91 at 37997.18, Nasdaq -180.55 at 15802.53, S&P -45.35 at 5070.82
[BRIEFING.COM] The S&P 500 (-0.89%) hosts the shallowest losses among the major average on Tuesday afternoon, down about 45 points.
Elsewhere, S&P 500 constituents Warner Bros. Discovery (WBD 7.40, -0.75, -9.20%), Hubbell (HUBB 374.26, -32.93, -8.09%), and Gartner (IT 416.20, -32.45, -7.23%) pepper the bottom of today's action. WBD slides ahead of next week's earnings following reports that Comcast (CMCSA 38.11, -0.74, -1.90%) is willing to pay $2.5 bln for NBA rights, while HUBB and IT fall following quarterly results.
Meanwhile, manufacturing firm Trane (TT 318.59, +17.73, +5.89%) is atop the standings following earnings/guidance.
Gold ends higher in April, extending YTD gains
30-Apr-24 13:55 ET
Dow -338.97 at 38047.12, Nasdaq -158.67 at 15824.41, S&P -40.60 at 5075.57
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.99%) is still the top declining major average, down just shy of -1%.
Gold futures settled $54.80 lower (-2.3%) to $2,302.90/oz, still up about +2.9% on the month to take YTD gains to about +11.2%; the yellow metal was pressured today specifically by rising bond yields and a stronger dollar ahead of the FOMC's policy decision tomorrow afternoon.
Meanwhile, the U.S. Dollar Index is up about +0.6% to $106.22.
F5 Networks soft Q3 guidance latest data point indicating a slowdown in networking spending (FFIV)
Coming off a promising Q1 earnings report in late January in which networking equipment and software company F5 Networks (FFIV) issued upside Q2 revenue guidance, hopes were building that the improving IT spending climate continued to brighten. Unfortunately, the encouraging outlook and commentary from CEO Francois Locoh-Donou was not repeated last night as FFIV issued downside Q3 EPS and revenue guidance with Mr. Locoh-Donou citing a cautious spending environment as the main headwind.
- The soft outlook, though, doesn't come as a major surprise, which may help explain why the stock has somewhat recovered and is trading well off its intraday lows. There were a couple concerning data points ahead of FFIV's earnings report that indicated a downturn in sales activity.
- Specifically, on February 14, competitor Cisco (CSCO) issued downside Q3 and FY24 revenue guidance in its Q2 earnings report, while noting that it's seeing a greater degree of deal scrutiny as customers continue to absorb large amounts of inventory.
- Another red flag occurred last week when competitor Juniper Networks (JNPR) missed Q1 EPS and revenue estimates, adding more scrutiny to the demand stabilization narrative.
- The greater deal scrutiny is most clearly seen on the hardware side for FFIV. Product revenue fell by 12% yr/yr, reflecting a lower level of backlog-related systems shipments compared to a year ago.
- Rewinding to last quarter's earnings call, the company stated that although systems revenue declined by 22% in Q1 due to that lower level of backlog related shipments, it was encouraged by improving systems demand and that it's seeing a growing pipeline.
- With systems revenue plunging by 32% in Q2 to $142 mln, that upbeat outlook quickly faded as the quarter played out.
- Turning to the software side of the business, the news is far more positive. Driven by a 28% increase in subscription software revenue growth, software revenue jumped by 20% to $159 mln. Furthermore, recurring revenue accounted for 75% of total revenue compared to 65% in the year-earlier quarter. Looking ahead, FFIV expects continued strength in software subscription renewals, providing it will good visibility into the back half of 2024.
- On that note, FFIV also believes that 2H24 will be stronger than 1H24, due to the timing and cadence of its subscription renewals. This positive outlook, though, is clouded by the sluggish demand for new subscriptions, which were flat yr/yr as customers remained cautious with spending on new projects.
The main takeaway is that while FFIV's downside Q3 guidance isn't necessarily surprising given JNPR's and CSCO's recent disappointments, it is hitting the stock nonetheless since it confirmed that the improving customer spending climate seemingly fizzled out in early 2024.
PayPal's raised FY24 EPS forecast encouraging but still plenty of work left in transformation (PYPL)
PayPal's (PYPL +1%) transition year is beginning to sprout a few leaves as the payment platform hiked its FY24 adjusted EPS growth outlook from flat to a mid to high single-digit percentage improvement yr/yr following a better start to FY24 than the company anticipated. While PYPL's adjusted EPS missed the mark in Q1, it still represented a 27% jump yr/yr when using the company's new non-GAAP methodology, which excludes stock-based compensation and related employer taxes. Meanwhile, total payment volume (TPV) growth remained healthy, payment transactions continued increasing by double-digits, and active accounts finally ticked up sequentially for the first time since 4Q22.
- In Q1, PYPL delivered adjusted EPS of $1.08 on a mild acceleration in revenue growth over last quarter to 9.4% yr/yr to $7.7 bln. TPV increased 14% yr/yr, consistent with the 15% jump last quarter. Active accounts fell by 1% yr/yr to 427 mln, although this represented a 0.4% improvement from the 426 mln in Q4, snapping a long streak of qtr/qtr declines.
- However, investors were more focused on the success PYPL observed across some of its core strategic pillars. Fastlane by PayPal, which allows shoppers to check out faster by eliminating passwords, boasted an 80% conversion rate among returning users during the quarter. While PYPL has kept Fastlane to a limited number of merchants, it was encouraged by the demand and expects to make the option generally available in the U.S. in 2H24.
- PayPal Complete Payments (PPCP), which allows multi-party payment processing, is also enjoying positive momentum, with around 7% of PYPL's volume from small and medium-sized businesses (SMBs) directly resulting from the offering. PYPL continues to expand this option globally, launching in Canada, the U.K., and 20 other European markets in Q1 while adding features to the offering in existing markets, such as Germany and the U.S.
- Venmo has also been an area PYPL is focused on improving, especially regarding Venmo debit cards, which enjoyed a 21% jump in user activity in Q1. PYPL noted that it will enable additional ways to use the debit cards in person with Apple and Google Pay over the coming months.
PYPL headed into FY24 fully aware it would be a year of ongoing changes. CEO James Chriss kicked off the company's Q1 conference call acknowledging that its turnaround plan still requires plenty of work and will take time to drive a sustainable transformation. As a result, investors are still somewhat skeptical about how quickly PYPL can return to its past leadership position in a marketplace quickly becoming dominated by big tech firms like Google (GOOG) and Apple (AAPL).
3M's new chapter as a more streamlined industrial company off to encouraging start (MMM)
CEO Mike Roman's last quarter at the helm of a more streamlined 3M (MMM) was a solid one, pointing to meaningful progress in the company's turnaround efforts as it returned to positive organic sales growth (+1%) for the first time since 4Q22. Driven by a combination of improving sales volumes, especially in the electronics and automotive end markets, price increases, and cost-cutting actions, MMM handily beat Q1 EPS expectations.
- With the healthcare business being spun-off on April 1, which is now called Solventum and trading under ticker symbol "SOLV", FY24 EPS estimates aren't yet fully reflecting the impact of the discontinued business. When MMM reported Q4 results, it guided for FY24 EPS of $9.35-$9.75, but the company is now forecasting EPS of $6.80-$7.30 as it removes the healthcare business from the equation. MMM also maintained its prior outlook for FY24 adjusted organic sales growth of flat to +2%, providing some reassurance that this brightening demand environment should stick.
- The stronger demand is most evident in the Transportation & Electronics segment. Recall that in mid-March, MMM slightly increased its Q1 EPS guidance while Mr. Roman also offered some encouraging commentary regarding the electronics and automotive end markets. His updates were spot-on as electronics saw a mid-teens increase in organic sales growth and automotive achieved mid-single-digit growth. Overall, organic sales growth in Transportation & Electronics accelerated to 6.7% from 2.7% in Q4 with momentum continuing to build due to share gains and new product introductions in automotive.
- This upswing is having a trickle-down effect on the rest of MMM's financials. More specifically, adjusted operating income margin expanded by 4.0 percentage points yr/yr to 21.9%, driven by significant operating leverage in Transportation & Electronics on strong volume growth. Restructuring actions also played a role, helping to offset ongoing weakness in the Consumer and Safety & Industrial segments.
- In Q1, organic sales growth declined by 3.9% in Consumer and by 1.4% in Safety & Industrial. More so than the other segments, Consumer is most affected by sluggish consumer spending, which led to a low-single-digit decline in home improvement and a mid-single-digit decline in home and auto care. Meanwhile, Safety & Industrial continues to be impacted by waning disposable respirator sales, generating an 80-bps headwind to organic sales growth in Q1.
- Beyond the quarterly results and outlook, the other big news is that MMM "reset" its quarterly dividend. Over the past year, the company has paid out just over $6/share in dividends, but that is set to significantly change with the healthcare business no longer in the fold. Going forward, the company will aim to use 40% of its free cash flow for dividends, implying annual dividends totaling about $2.85/share based on its FY24 cash flow guidance, excluding Solventum contributions.
Overall, this was one of MMM's better performances in recent history, positioning the company favorably as incoming CEO William Brown takes the reins tomorrow. Although growth certainly is booming, the arrow is pointing in the right direction, especially in the Transportation & Electronics segment.
McDonald's stumbles a bit with rare EPS miss; 2024 is not going to be a typical year (MCD)
McDonald's (MCD) is trading modestly lower today following its Q1 results this morning. The company missed on adjusted EPS following eight consecutive beats and the last six had been by double digits, so that was a surprise. Revenue was in-line, but comps were lower than recent quarters. There were also some cautious comments on the call. The stock is holding up fairly well despite all this, we think that is because the stock had been pulling back recently.
- Global comp sales came in at +1.9%, down from +3.4% in Q4 while US comps were +2.5%, down from +4.3% in Q4. US comps benefited from average check growth in Q1, driven by strategic menu price increases. MCD also cited effective marketing campaigns and continued digital and delivery growth. In fairness, MCD was lapping some tough comps in Q1 of 2023: global comps +12.6% and US comps of +12.6%.
- Outside of the US, International Operated Markets (IOM) comps increased +2.7%, driven by positive comps in most markets, led by the UK and Germany, partly offset by negative comps in France. However, International Developmental Licensed (IDL) comps were a weak spot yet again at -0.2%. The continued impact of the war in the Middle East more than offset positive comps in Japan, Latin America and Europe.
- MCD was candid on the call, saying that broad-based consumer pressures persist around the world. Consumers continue to be even more discriminating with every dollar they spend. This is putting pressure on QSR industry traffic. This dynamic is even more pronounced among lower income consumers.
- While MCD does not provide comp guidance, it did reaffirm what it said on the Q4 call, namely that it expects 2024 sales to moderate. Clearly 2024 is not going to be a typical year for the broader industry due to the macro headwinds. What is new information is that MCD said today that the impact has been more significant than even MCD had anticipated coming into the year. MCD continues to see these macro headwinds entering Q2.
- On more positive news, MCD says it is looking to accelerate the pace of new restaurant openings and grow its footprint to 50,000 restaurants by the end of 2027. Development for the year is off to a strong start across markets, including in China, where MCD recently opened its 6,000th restaurant. The company is also investing for long term growth in areas like digital and technology.
Overall, this was a pretty disappointing way to start 2024 for the Golden Arches. It seems like the days of the huge comp growth it saw in Q1-Q3 of last year are coming to an end. Not only are customers facing tougher macro headwinds, but MCD will be lapping some pretty frothy price-hike-driven comps from 2023, at least for the next two quarters. The silver lining is the fairly muted stock reaction today as a lot of this was anticipated by investors.
Coca-Cola still refreshing as it registers another quarter of positive volume growth in Q1 (KO)
Coca-Cola (KO) remains somewhat refreshing after exceeding analysts' earnings and sales forecasts in Q1, delivering another quarter of positive volume growth, and raising its FY24 organic revenue guidance. While most of KO's Q1 report was solid, it did not diverge much from investors' expectations, keeping today's gains relatively modest. Shares of KO have been creeping higher lately, taking out previous resistance around $61.00 in anticipation of healthy Q1 figures, particularly given how KO has reported over the past several quarters versus its primary competitor, PepsiCo (PEP).
- KO registered Q1 adjusted earnings of $0.72 per share, a 5.9% improvement yr/yr on top-line growth of 2.7% to $11.3 bln. Organic revs, which removes FX and M&A impacts, grew by 11%. Global unit case volume expanded by 1% while volume in KO's largest market, North America, was flat. We mentioned yesterday that investors were likely pricing in around +1-2% global volume growth for KO, given how it has consistently outpaced PEP -- which posted flat beverage volume growth in Q1 -- by a few points for some time.
- Comparable operating margins ticked 60 bps higher yr/yr to 32.4%, aided by KO's previously outlined bottling re-franchising, which continues to benefit margins at the expense of revs.
- KO's ability to expand volumes despite an inflationary environment speaks to its brand power. This was most apparent in Latin America, where price jumped 22% higher yr/yr, yet KO still managed to grow volume by 4%. Similarly, in EMEA, prices soared by 22%, but KO expanded volume in the region by 2%. Perhaps most notably, KO's flat volume in North America came despite a 6% price increase, far better than PEP's 5% volume drop in the region on an identical price hike.
- KO remarked that North America started the quarter slow before volume growth began to kick in during February and March, underscoring positive momentum heading into Q2.
- Alongside inflation, KO dealt with a few lingering headwinds, primarily currency fluctuations and geopolitical challenges. FX impacts were most pronounced in EMEA and Latin America, where they clipped 18 and 11 pts off reported net revenue growth, respectively. Meanwhile, KO is working with its partners to avoid geopolitical impacts as best it can.
- While inflation is normalizing across developed nations, emerging markets continue to endure varying levels of hyperinflation. Nevertheless, management expressed confidence in overcoming these obstacles for the year through pricing without disrupting its upbeat momentum. As a result, KO reaffirmed its FY24 adjusted EPS outlook of $2.80-2.82. At the same time, the company raised its organic sales growth forecast by 2 pts to +8-9%, reflecting the price hikes, which are still incorporated in organic revenue.
KO continues to shine compared to its competitors, PEP and Keurig Dr Pepper (KDP), whose beverage volume, excluding coffee, was weaker than PEP in Q1. KO's brand loyalty is exceptional, as consumers refuse to noticeably replace its products with other national brands or private-label alternatives, boding well for its continued ability to raise prices as it needs to counter inflationary pressures. As such, we continue to like KO in 2024.
|
