Market Snapshot
briefing.com
| Dow | 34241.97 | +52.07 | (0.15%) | | Nasdaq | 11042.04 | +41.02 | (0.37%) | | SP 500 | 3992.18 | +9.01 | (0.23%) | | 10-yr Note | -5/32 | 3.51 |
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| | NYSE | Adv 1867 | Dec 1127 | Vol 784 mln | | Nasdaq | Adv 2845 | Dec 1682 | Vol 4.9 bln |
Industry Watch
| Strong: Health Care, Consumer Discretionary, Financials, Materials, Communication Services, Consumer Staples |
| | Weak: Utilities, Real Estate, Industrials |
Moving the Market
-- S&P 500 lifting above its 200-day moving average at 3,981
-- Resilience to early selling efforts
-- Reacting to first slate of Q4 earnings results
-- A big turnaround in many mega cap stocks from earlier levels is leading the market higher
-- Rising Treasury yields
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Closing Summary
13-Jan-23 16:25 ET
Dow +112.64 at 34302.54, Nasdaq +78.05 at 11079.07, S&P +15.92 at 3999.09
[BRIEFING.COM] The stock market opened to weakness today due to some profit taking activity following a big run recently. Some of the early weakness could be pinned on mixed earnings results from several influential banks that all featured increased provisions for credit losses.
Bank of America (BAC 35.23, +0.76, +2.2%), JPMorgan Chase (JPM 143.01, +3.52, +2.5%), Wells Fargo (WFC 44.22, +1.39, +3.3%), and Citigroup (C 49.92, +0.83, +1.7%) opened to mixed price action following their earnings reports, but like the broader market, recovered noticeably from levels seen at the start of the session.
Buyers were quick to jump on the opening weakness and controlled the price action for nearly the entirety of today's session. Just about everything reversed from the opening weakness and finished on an upbeat note. The S&P 500, which broke through technical resistance at its 200-day moving average (3,981), closed just shy of the 4,000 level, which is an area it hasn't seen since mid-December.
Resilience to early selling efforts, along with strength in the mega cap space, fueled today's turnaround. The Vanguard Mega Cap Growth ETF (MGK) had been down 0.9% at this morning's low before settling the session with a 0.7% gain. The Invesco S&P 500 Equal Weight ETF (RSP) logged a more modest 0.2% gain while the S&P 500 rose 0.4%.
Tesla (TSLA 122.40, -1.13, -0.9%) went against the grain today after The Wall Street Journal reported the EV maker cut prices in the U.S. for some of its cars by close to 20%, although it stormed back from an opening 6.4% loss.
Despite Tesla's underperformance, the S&P 500 consumer discretionary sector (+1.0%) closed at the top of the leaderboard among the 11 sectors. The financials sector, led higher by the banks that reported earnings, closed just behind the consumer discretionary sector with a 0.7% gain.
Only three sectors -- real estate (-0.6%), utilities (-0.4%), and industrials (-0.1%) -- remained in negative territory by the close.
The 2-yr Treasury note yield rose nine basis points to 4.22% and the 10-yr note yield rose six basis points to 3.51%, giving way to selling interest after a strong start to the year.
- Russell 2000: +7.1% YTD
- S&P Midcap 400: +6.2% YTD
- Nasdaq Composite: +5.9% YTD
- S&P 500: +4.2% YTD
- Dow Jones Industrial Average: +3.5% YTD
Reviewing today's economic data:
- December Import Prices 0.4%; Prior was revised to -0.7% from -0.6%
- December Import Prices ex-oil 0.4%; Prior was revised to -0.3% from -0.4%
- December Export Prices -2.6%; Prior was revised to -0.4% from -0.3%
- December Export Prices ex-ag. -2.7%; Prior was revised to -0.7% from -0.6%
- January Univ. of Michigan Consumer Sentiment - Prelim 64.6 (Briefing.com consensus 60.5); Prior 59.7
- The key takeaway from the report is that consumer sentiment picked up in January on better feelings about personal finances that stemmed from higher incomes and easing inflation.
As a reminder, bond and equity markets are closed Monday for Martin Luther King Jr Day.
Looking ahead to Tuesday, economic data is limited to January Empire State Manufacturing survey (Briefing.com consensus -8.5; prior -11.2) at 8:30 ET.
S&P 500 testing 4,000
13-Jan-23 15:35 ET
Dow +84.49 at 34274.39, Nasdaq +60.95 at 11061.97, S&P +12.99 at 3996.16
[BRIEFING.COM] The S&P 500 is getting close to the 4,000 level ahead of the closing bell.
The 2-yr note yield rose nine basis points to 4.22% today and the 10-yr note yield rose six basis points to 3.51%.
As a reminder, bond and equity markets are closed Monday for Martin Luther King Jr Day.
Looking ahead to Tuesday, economic data is limited to January Empire State Manufacturing survey (Briefing.com consensus -8.5; prior -11.2) at 8:30 ET.
Market maintaining sizable gains
13-Jan-23 15:05 ET
Dow +52.07 at 34241.97, Nasdaq +41.02 at 11042.04, S&P +9.01 at 3992.18
[BRIEFING.COM] With about one hour to go for the week, the market is maintaining sizable gains.
Nine of the 11 S&P 500 sectors trade up with utilities (-0.3%), real estate (-0.4%), and industrials (-0.5%) sitting alone in the red. Heavily weighted consumer discretionary (+0.6%) leads the pack while financials (+0.6%) trades right behind consumer discretionary after the bank earnings reports this morning.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 1.8% to $79.79/bbl and natural gas futures fell 4.9% to $3.21/mmbtu.
Market rally strengthens
13-Jan-23 14:35 ET
Dow +51.21 at 34241.11, Nasdaq +44.06 at 11045.08, S&P +6.84 at 3990.01
[BRIEFING.COM] The main indices are little changed in the last half hour, trading at or near session highs.
Gold futures rose $23.30 (+1.2%) to $1.922.50/oz and copper futures rose $0.02 (+0.4%) to $4.21/lb.
Treasury yields continue to inch higher. The 2-yr note yield is up eight basis points to 4.21% and the 10-yr note yield is up five basis points to 3.49%.
At the same time, the U.S. Dollar Index gave back earlier gains, down 0.1% to 102.15.
S&P 500 pushes past 200-day moving average; DJIA best/worst performers
13-Jan-23 13:55 ET
Dow +54.66 at 34244.56, Nasdaq +39.44 at 11040.46, S&P +5.12 at 3988.29
[BRIEFING.COM] The market took a turn higher recently, leading the S&P 500 back above its 200-day moving average (3,981).
The move higher coincided with many mega cap stocks hitting new session highs. The Vanguard Mega Cap Growth ETF (MGK) is up 0.3% versus a 0.1% gain in the S&P 500 while the Invesco S&P 500 Equal Weight ETF (RSP) trades flat.
The Dow Jones Industrial Average has outpaced the S&P 500 and Nasdaq for most of the session, but now its more in-line with its peers. A look inside the DJIA shows JPMorgan (JPM 142.86, +3.37, +2.4%) leading the pack after reporting earnings. Goldman Sachs (GS 374.14, +4.20, +1.1%) and Caterpillar (CAT 257.45, +2.38, +0.9%) are also among the top performers.
Walt Disney (DIS 99.11, -0.70, -0.7%) and Verizon (VZ 41.55, -0.26, -0.6%) are the worst performers, although losses are relatively narrow in scope.
Page One
Last Updated: 13-Jan-23 09:02 ET | Archive
Market hits pause on rebound effort as earnings season gets underway
It is plain for all to see that the stock market -- and most stocks -- have had a good start to 2023. Some might argue that it has been better than deserved (yes, we're looking at you Bed Bath & Beyond, which filed a going concern statement and is up 109% in 2023), but, regardless, there has been a clear positive bias over the last week.
The positive bias has faded away this morning, however.
Currently, the S&P 500 futures are down 40 points and are trading 1.0% below fair value, the Nasdaq 100 futures are down 137 points and are trading 1.2% below fair value, and the Dow Jones Industrial Average futures are down 290 points and are trading 0.8% below fair value.
The basis for the mood shift is open for debate, yet it comes in the wake of a number of major banks reporting their Q4 earnings results.
Bank of America (BAC) and JPMorgan Chase (JPM) exceeded consensus earnings estimates, yet BAC is down 1.4% and JPM is down 2.3%. Citigroup (C) and Wells Fargo (WFC) fell short of consensus earnings estimates. Citigroup is up 0.4% while WFC is down 3.7%.
The weakness here is generally being pinned on two factors: 1) these stocks had made big moves leading up to their reports and 2) these banks all increased their provision for credit losses with an eye toward some economic weakening.
Neither development is all that surprising, yet that doesn't mean it isn't disappointing to see the market recoil in the wake of their reports, especially with S&P 500 sitting on the doorstep of its 200-day moving average, which has served as a key area of technical resistance during prior rebound efforts over the last year.
For good measure, Dow component UnitedHealth (UNH) is down 0.8% after topping the Q4 consensus EPS estimate and reaffirming its FY23 guidance, albeit with the midpoint of that guidance falling below the current consensus estimate. Delta Air Lines (DAL), meanwhile, is down 5.3% after topping Q4 expectations but issuing Q1 EPS guidance below consensus.
Another notable laggard this morning is Tesla (TSLA). It is down 6.1%. Tesla did not report earnings, but there is a report from The Wall Street Journal indicating the EV maker has cut prices in the U.S. for some of its cars by close to 20%. The price cuts will enable some buyers to qualify for the $7,500 tax credit, yet the read through for most is that the price cuts have been driven by weakening demand.
There is a lot of weight, therefore, hanging over the broader market. We would add that Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), and Amazon.com (AMZN) are all trading lower, too.
Accordingly, the market this morning looks to be succumbing to general profit-taking interest, which has been hastened by some less-than-stellar earnings reports from the banks that have raised some doubts about the market's fundamental positioning and its ability to break through technical resistance at its 200-day moving average in a trend-changing way.
This is a pause in the rebound effort for now, but additional earnings reports and guidance over the next several weeks will determine if this market is inclined to hit fast forward or rewind.
-- Patrick J. O'Hare, Briefing.com
JPMorgan Chase banks on rising interest rates to deliver EPS beat, but outlook remains cloudy (JPM)
JPMorgan Chase (JPM) headlined a set of mixed earnings reports from the banking industry this morning and despite easily surpassing EPS expectations, the stock was initially met with some profit-taking.
The company's FY23 net interest income (NII) guidance of $74 bln (excluding markets) was deemed to be a disappointment, while CEO Jamie Dimon's cautious commentary regarding the macroeconomic outlook added to the strife. Specifically, Mr. Dimon said that he's anticipating a mild recession in 2023. Relatedly, a net reserve build of $1.4 bln in Q4 highlighted the bank's uneasiness about the economy as it sets aside a pile of cash to protect itself from a possible upswing in loan defaults.
Since that rough start, though, shares have battled back and are now trading with healthy gains. Indeed, there are a few key positives that investors can hang their hats on.
- Thanks to the Federal Reserve's aggressive rate hike undertaking, NII surged by 48% yr/yr to $20.3 bln, which handily topped expectations. In fact, the figure marked a new quarterly record for JPM as it boosted interest rates higher on credit cards, mortgages, auto loans, and commercial loans.
- The bank's balance sheet also remains very strong with cash and marketable securities totaling $1.4 trillion. Even if the economy sours, causing loan delinquencies and defaults to tick higher, JPM is well-positioned to handle a downturn.
- In Q4, net charge-offs did increase by $337 mln yr/yr to $887 mln, but the net charge-off rate of just 1.62% is hardly concerning for the bank.
- Reflecting JPM's strong balance sheet and its 6% net income growth in Q4, the company expects to resume share repurchases this quarter. The saying that "actions speak louder than words" is fitting here since JPM wouldn't be back in the market buying back its stock if it foresaw a major storm on the horizon.
There were obvious pockets of weakness in JPM's report, but those were widely expected.
- When Jefferies (JEF) reported Q4 earnings on Monday, the barrenness of the investment banking space was shoved back under the spotlight. The company reported a 70% plunge in equity underwriting fees due to the frozen IPO market. Therefore, it didn't come as a shock this morning when JPM's earnings report showed a 57% decline in investment banking fees to $1.40 bln.
- Another unsurprising item was the 46% drop in home lending net revenue. With mortgage rates spiking higher, both new mortgage originations and refinancing activity pulled back substantially. Similarly, the jump in interest rates caused demand for auto loans and leases to weaken in Q4.
The bottom line is that JPM's performance looks pretty solid as it capitalizes on the rising interest rate environment. The macroeconomic outlook remains cloudy and Dimon is maintaining his cautious view for 2023, but the company's intention to start buying back shares again represents a significant vote of confidence regarding its ability to weather more turbulent conditions.
General Mills as 2023 Investment Idea; boasts advantages outside of solid eat-at-home trends (GIS)
Keeping with the theme of sustained eat-at-home trends persisting in 2023, we wanted to profile General Mills (GIS) as an Investment Idea for 2023. Past ideas include Corning (GLW), SpartanNash (SPTN), Ulta Beauty (ULTA), and AutoZone (AZO).
Resilient at-home consumption demand has been well-established by this point, evidenced by upbeat grocery sales from prominent companies in this space, including Walmart (WMT), Costco (COST), and Kroger (KR). GIS has touched on this trend repeatedly over the past year, commenting that elasticities have been more favorable than expected as consumers continue to trade away from dining out and toward at-home cooking.
Although positive at-home cooking trends are beneficial to GIS. The company boasts other advantages worth spotlighting.
- GIS's Pet segment, which comprised 12% of FY22 (May) sales, has shown remarkable buoyancy over the past few years. For example, GIS has grown its Pet segment to $1 bln in sales over the past four years, doubling its household penetration in the process. Management noted in September that it sees a tremendous runway in wet cat and dog food, where its brands in this department have seen nearly 100% growth in recent quarters. With dog and cat ownership climbing 10% since 2019, translating to five million additional households for each, the pet food industry is building off a firmer foundation since the pandemic.
- Additionally, it is worth noting that during previous recessions, premium pet food brands did not suffer, highlighting that consumers are unlikely to trade down in pet food even during challenging economic conditions.
- Speaking of trading down, private labels do pose a threat to GIS. This has already shown up with volumes declining yr/yr for three straight quarters. However, inflationary pressures have already begun easing, potentially placing the threat of private labels capturing additional market share mostly in the rear-view mirror. Also, GIS has continued to gain market share across its operating segments in most of its categories, holding or gaining share in 37% of its priority businesses through 1H23. Management has also remarked that over time, its categories tend to hold up well versus private labels, largely due to the company's constant innovation.
- Perhaps more threatening to GIS's business is a broader shift amongst consumers to choose healthier organic options at the grocery store. GIS has responded to this threat, launching its Good Measure brand. The launch of this brand is part of GIS's broader Accelerate Strategy, which aims to boost profitability through innovations, scale, and maintaining business strength. GIS noted that it is making healthy progress on these priorities thus far in FY23 (May).
Overall, GIS is well-positioned for growth in 2023. Even though consumer defensive names like GIS do not offer the same growth opportunities as some big tech firms, they serve as a good hedge against a potential market downturn. This hedge does come at a cost, with GIS trading at a somewhat pricey 20x forward earnings, a premium relative to some of its peers, like Kraft Heinz (KHC) at 15x, Conagra (CAG) at 15x, and Kellogg (K) at 17x. As always, we recommend using a 20-25% stop-loss limit with these longer-term ideas.
UnitedHealth's healthy Q4 results spur a favorable reaction today (UNH)
Dow component UnitedHealth (UNH +2%), the largest U.S. health insurer, is making a nice recovery today after posting solid earnings and revenue upside in Q4. UNH also reiterated its prior FY23 guidance. Although, this was mostly expected, given it first provided details on its FY23 outlook just under two months ago.
Why did the stock initially slip? Not many glaring issues presented themselves in Q4. If one were to nitpick, UNH's medical care ratio, the percentage of premiums used to cover claims, ticked 130 bps higher sequentially to 82.8%. However, this was still consistent with the company's outlook in late November. Also, UNH noted that its medical care ratio should gradually rise over time as it expands in government programs.
As such, today's initial weakness may have just been fueled by uncertainty surrounding the new year, especially after shares held up decently last year, gaining around 7%, outperforming the Dow Jones Industrial Average over that period. Many analysts expect the Federal Reserve to tip the U.S. into a recession. If an economic downturn were to occur, UNH's long-term earnings growth outlook of +13-16% could get clipped, especially if employer-sponsored health insurance enrollees diminish.
Nevertheless, the health of UNH's Q4 numbers are winning the day.
- Adjusted EPS expanded 19% yr/yr to $5.34 on top-line growth of 12.3% to $82.79 bln. UNH has consistently posted bottom-line upside, not missing in over a decade. As a result, the market does not tend to overreact to its earnings beats, even if it was by double digits for the 11th straight quarter.
- Looking ahead to FY23, UNH reiterated its FY23 guidance, expecting adjusted EPS of $24.40-24.90 and revs of $357-360 bln, both representing over 10% growth yr/yr at their midpoints. Management also commented that OptumHealth, which makes up over half of total revenue, is off to a strong start in 2023.
- Furthermore, regarding the current flu season, UNH commented that there was a bit more flu during Q4. However, it noted that overall it was immaterial in the grand scheme of healthcare costs. UNH also did not touch on deferred care for the second-straight quarter, signaling that it may be out of the woods regarding delayed care during the height of the pandemic.
Overall, UNH's Q4 results underscore the company's ability to deliver consistency even during an economically volatile period. The stock's initial pullback may have been in connection with the broader market pullback instead of anything specific with UNH's Q4 report. Bottom line, people need healthcare, and although economic and political uncertainty can create selling pressure, UNH is demonstrating its appeal as a defensive healthcare company during challenging economic conditions.
On a final note, UNH's results are a good sign for other healthcare insurers, including Elevance Health (ELV), Centene (CNC), Molina Healthcare (MOH), Humana (HUM), and Cigna (CI), which each report Q4 earnings over the next few weeks.
Delta Air Lines soft Q1 EPS guidance keeps shares grounded, but overall outlook remains bright (DAL)
Heading into its 4Q22 earnings report, Delta Air Lines (DAL) was flying high with shares climbing by 20% on a year-to-date basis. This bullishness was underpinned by the notion that demand for air travel will remain robust in 2023, even as the broader economy flies through some turbulence. Additionally, in this strong business climate in which business and international travel demand is also accelerating, DAL's capacity is expected to steadily increase, lowering unit costs in the process.
- While both of those expectations still hold true for FY23 in the wake of DAL's upside Q4 earnings report, the company's downside 1Q23 EPS guidance of $0.15-$0.40 indicates that a layover will be needed first before the company reaches its final destination.
- The soft outlook isn't a function of DAL anticipating a drop-off in revenue in Q1. In fact, its forecast of a 14-17% increase in revenue easily topped analysts' estimates.
- The issue, rather, is that DAL is expecting non-fuel unit costs to increase by 3-4% yr/yr, driven by higher labor costs and the completion of the rebuilding of its network. Although the downside EPS guidance is disappointing, ramping up labor is a necessary endeavor as DAL prepares for a busy spring and summer travel season. In effect, the company is trading a short-term hit to earnings for the ability to fully capitalize on the strong demand down the road.
- Importantly, the company reaffirmed its FY23 EPS guidance of $5.00-$6.00, while also reiterating that it remains on track to generate EPS of $7.00 or more in 2024. Without boosting its workforce in Q1, DAL would be left in a similar position as last year when reduced capacity caused its unit costs to rise.
Aside from the EPS set-back in Q1, the overall story for DAL remains upbeat.
- In Q4, revenue cleared 2019 levels by over 17%, despite the fact that capacity was lower by 9%. Passengers have been quite willing to absorb steep fares as consumers shift their spending habits towards experiences.
- Similarly, many customers are upgrading to premium seats, providing the top-line with another boost. Premium revenue was up by 13% this quarter versus 2019, outpacing main cabin revenue growth by 8 points.
The main takeaway is that expectations were sky-high ahead of DAL's earnings report, especially after American Airlines (AAL) sharply raised its Q4 guidance on Wednesday. By comfortably beating EPS and revenue estimates, even after raising its guidance last month, DAL's Q4 results didn't disappoint. However, investors are using the company's downside Q1 guidance as a reason to lock in some gains following the stock's impressive run. Looking beyond Q1, though, the outlook remains very bright with DAL in a much better position to meet the rising demand for travel.
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