Market Snapshot
briefing.com
| Dow | 33973.00 | -329.59 | (-0.96%) | | Nasdaq | 11107.60 | +28.48 | (0.26%) | | SP 500 | 3997.25 | -1.84 | (-0.05%) | | 10-yr Note | -25/32 | 3.54 |
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| | NYSE | Adv 1636 | Dec 1398 | Vol 902 mln | | Nasdaq | Adv 2336 | Dec 2286 | Vol 5.0 bln |
Industry Watch
| Strong: Real Estate, Energy, Information Technology, Consumer Discretionary |
| | Weak: Communication Services, Materials, Financials, Industrials |
Moving the Market
-- Some strength from the mega cap space boosting index performance
-- Mixed reaction to latest earnings reports
-- Taking some money off the table after a strong start to 2023
-- S&P 500 running into resistance at the 4,000 level
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Closing Summary
17-Jan-23 16:30 ET
Dow -391.76 at 33910.80, Nasdaq +15.96 at 11095.10, S&P -8.12 at 3990.97
[BRIEFING.COM] Today's trade had a more cautious tone after a strong start to 2023 for the stock market. Investors digested earnings results from a few notable banks before the open, which received mixed reactions and may have reined in some expectations for Q4 earnings season.
Dow component Goldman Sachs (GS 349.92, -24.08, -6.4%) sold off today after reporting below-consensus earnings and revenue, along with increased provisions for credit losses. Morgan Stanley (MS 97.01, +5.35, +5.8%), meanwhile, received a favorable reaction to its quarterly results despite a Q4 earnings miss.
The poor performance from Goldman Sachs kept the Dow Jones Industrial Average in negative territory for the entire session. The Nasdaq and S&P 500, however, logged modest gains of 0.6% and 0.4%, respectively, at early session highs.
Shortly after the open, the S&P 500 was trading above the 4,000 level and there was some noticeable conviction on the buy side. Advancers led decliners by a greater than 2-to-1 margin at the NYSE and a 3-to-2 margin at the Nasdaq.
The modest upside enthusiasm dissipated, though, and the main indices all settled into narrow trading ranges for the remainder of the session. By the afternoon, the 4,000 level became a point of resistance for the S&P 500.
Some of the mega cap stocks maintained sizable gains today, offering a measure of support to the broader market. Apple (AAPL 135.94, +1.18, +0.9%) and Tesla (TSLA 131.49, +9.09, +7.4%) were standouts in that regard, boosting their respective S&P 500 sectors -- information technology (+0.4%) and consumer discretionary (+0.1%) -- towards the top of the leaderboard.
The materials (-1.1%) and communication services (-0.9%) sectors were today's worst performers.
- Russell 2000: +7.0% YTD
- S&P Midcap 400: +6.0% YTD
- Nasdaq Composite: +6.0% YTD
- S&P 500: +4.0% YTD
- Dow Jones Industrial Average: +2.3% YTD
Today's economic data was limited to the Empire State Manufacturing Index, which fell to -32.9 in January (Briefing.com consensus -8.5) from -11.2 in December.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior +1.2%)
- 8:30 a.m. ET: December Producer Price Index (Briefing.com consensus -0.1%; prior +0.3%) and Core Producer Price Index (Briefing.com consensus +0.1%; prior +0.4%)
- 8:30 a.m. ET: December Retail Sales (Briefing.com consensus -0.8%; prior -0.6%) and Retail Sales excluding autos (Briefring.com consensus -0.5%; prior -0.6%)
- 9:15 a.m. ET: Industrial Production (Briefing.com consensus -0.1%; prior -0.2%) and Capacity Utilization (Briefing.com consensus 79.6%; prior 79.7%)
- 10:00 a.m. ET: November Business Inventories (Briefing.com consensus +0.4%; prior +0.3%)
- 10:00 a.m. ET: January NAHB Housing Market Index (Briefing.com consensus 31; prior 31)
- 10:30 a.m. ET: Weekly EIA Crude Oil Inventories (prior +18.96M)
- 2:00 p.m. ET: January Fed's Beige Book
- 4:00 p.m. ET: November Net Long-Term TIC Flows (prior $67.8B)
Notable earnings reports after the close and ahead of tomorrow's open
17-Jan-23 15:30 ET
Dow -358.12 at 33944.49, Nasdaq +20.88 at 11100.04, S&P -5.54 at 3993.55
[BRIEFING.COM] The S&P 500 moved somewhat lower after failing to break through the 4,000 level, again.
After the close, United Airlines (UAL) and Interactive Brokers (IBKR) are a few of the names reporting earnings.
Charles Schwab (SCHW), PNC (PNC), and Prologis (PLD) are among the earnings reporters ahead of tomorrow's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior +1.2%)
- 8:30 a.m. ET: December Producer Price Index (Briefing.com consensus -0.1%; prior +0.3%) and Core Producer Price Index (Briefing.com consensus +0.1%; prior +0.4%)
- 8:30 a.m. ET: December Retail Sales (Briefing.com consensus -0.8%; prior -0.6%) and Retail Sales excluding autos (Briefring.com consensus -0.5%; prior -0.6%)
- 9:15 a.m. ET: Industrial Production (Briefing.com consensus -0.1%; prior -0.2%) and Capacity Utilization (Briefing.com consensus 79.6%; prior 79.7%)
- 10:00 a.m. ET: November Business Inventories (Briefing.com consensus +0.4%; prior +0.3%)
- 10:00 a.m. ET: January NAHB Housing Market Index (Briefing.com consensus 31; prior 31)
- 10:30 a.m. ET: Weekly EIA Crude Oil Inventories (prior +18.96M)
- 2:00 p.m. ET: January Fed's Beige Book
- 4:00 p.m. ET: November Net Long-Term TIC Flows (prior $67.8B)
S&P 500 finding resistance at 4000 level
17-Jan-23 15:10 ET
Dow -329.59 at 33973.00, Nasdaq +28.48 at 11107.60, S&P -1.84 at 3997.25
[BRIEFING.COM] The Nasdaq and S&P 500 tried to move somewhat higher recently, but the S&P 500 is running into resistance at the 4,000 level.
Energy complex futures moved higher this session. WTI crude oil futures rose 0.6% to $80.30/bbl and natural gas futures rose 1.3% to $3.25/mmbtu.
The CBOE Volatility Index is up 5.2%, or 0.95, to 19.30.
Mohawk falls following downbeat guidance, Global Payments gains on Morgan Stanley upgrade
17-Jan-23 14:30 ET
Dow -358.44 at 33944.17, Nasdaq +12.61 at 11091.77, S&P -6.70 at 3992.39
[BRIEFING.COM] A market dip in the last half hour has the S&P 500 (-0.17%) narrowly lower.
S&P 500 constituents Mohawk (MHK 110.17, -8.48, -7.15%), Lumen Technologies (LUMN 5.63, -0.27, -4.58%), and Automatic Data (ADP 238.16, -7.20, -2.93%) dot the bottom of the standings. MHK slips after discouraging Q4 earnings guidance.
Meanwhile, Global Payments (GPN 111.49, +3.83, +3.56%) is one of today's better performers. Morgan Stanley upgraded GPN to Overweight citing an improving VC backdrop as well as valuation, among other points.
Gold ends lower, finishes above $1900 level
17-Jan-23 14:00 ET
Dow -327.52 at 33975.09, Nasdaq +30.34 at 11109.50, S&P +0.36 at 3999.45
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.27%) is atop the standings.
Gold futures settled $11.80 lower (-0.6%) to $1,909.90/oz, the recent rally put on hold as modest gains in the dollar and yields apply pressure.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $102.43.
Page One
Last Updated: 17-Jan-23 09:03 ET | Archive
Poised for a lower start following mixed earnings reports
The S&P 500 futures are down 9 points and are trading 0.2% below fair value. The Nasdaq 100 futures are down 34 points and are trading 0.4% below fair value. The Dow Jones Industrial Average futures are down 127 points and are trading 0.4% below fair value.
There's a negative bias in the equity futures market after a big run so far in 2023. Entering today, the S&P 500, Nasdaq, and Dow are up 4.2%, 5.9%, and 3.5%, respectively, this year. So, this morning's weakness is likely due to some profit-taking activity.
In addition, earnings reports from Morgan Stanley (MS), Goldman Sachs (GS), Silvergate Capital (SI), and Citizens Financial Group (CFG) are receiving mixed reactions from market participants.
Tesla (TSLA) is offering a measure of support to the equity futures market with a 2.4% gain while a sizable loss in Microsoft (MSFT) weighs on the broader market after Reuters reported Microsoft will likely receive a warning from the EU about its Activision (ATVI) purchase.
The IMF's Managing Director Kristalina Georgieva told CNBC in an interview "...we expect growth to bottom out this year and 2024 to be a year in which we finally see the world economy on an upside."
Germany's ZEW Economic Sentiment survey (16.9 vs. expected -15.0; last -23.3) turned positive for the first time in nearly a year, reflecting a significant improvement in growth expectations.
China's Q4 GDP came in better than feared at 0.0% quarter/quarter versus an expected 0.8% decline. China's National Bureau of Statistics said that the Chinese economy has been stabilized in 2022 and an improvement is expected to take place in 2023.
Treasury yields are inching higher. The 2-yr note yield is up two basis points to 4.23%. The 10-yr note yield is up six basis points to 3.56%. The U.S. Dollar Index is flat at 102.17.
WTI crude oil futures are up 0.6% to $80.33/bbl and natural gas futures are up 5.9% to $3.83/mmbtu.
The Empire State Manufacturing Index fell to -32.9 in January (Briefing.com consensus -8.5) from -11.2 in December.
Mohawk sells off on discouraging Q4 earnings guidance (MHK)
Mohawk Industries (MHK -7%) is gapping below its 200-day moving average (currently at 115.53) following downbeat Q4 earnings guidance. Shares of the flooring supplier for residential and commercial spaces traded above their 200-day moving average last week for the first time in a year. However, the brief stint above that level lasted two trading days before today's guidance sparked a sell-the-news reaction. MHK also announced that it agreed with plaintiffs to resolve a previously disclosed securities class action lawsuit.
What happened? A combination of numerous challenges dinged financial performance in Q4. Specifically, macroeconomic headwinds, including interest rate hikes, high inflation, and lagging consumer confidence domestically and in Europe, caused the global residential flooring industry to soften more than MHK anticipated. In response, the company increased temporary plant shutdowns, weighing on margins. Meanwhile, volumes and the consumption of higher-cost carpet inventory fell.
As a result, MHK lowered its prior Q4 adjusted earnings forecast to $1.27-1.31 from $1.40-1.50, which was already significantly below consensus. The updated forecast represents a 56% decline yr/yr at the midpoint compared to the previous 51% drop.
- It is worth pointing out that MHK projected weakness in flooring to persist into Q4 during its Q3 earnings call in late October. Management commented that it would reduce production, substitute alternative materials, implement process improvements, and postpone noncritical projects due to lingering demand softness. Furthermore, MHK noted that new building projects in Western Europe were slowing. MHK provided similar bearish comments regarding its carpet business.
- As a result, MHK issued underwhelming Q4 earnings guidance, which sent the stock tumbling immediately following the report. Unfortunately for MHK, the situation only grew worse as the quarter progressed.
- Since MHK did not include any silver linings about what it may be seeing early on into FY23 in today's press release, the company's pessimistic FY23 commentary in late October is likely the current scenario. That is, Europe struggles with energy throughout the year while U.S. inflation remains elevated, causing industry volumes to remain low.
- The optimistic outlook assumed that Europe has limited problems with gas as it navigates this winter and interest rates begin declining in the U.S.
MHK is staring at several obstacles over the next few months, possibly longer. However, management provided realistic expectations on how FY23 may play out in late October, with its Q4 guidance affirming the unfavorable macroeconomic situation. This is helping the market price in the company's worst-case scenario. Therefore, if economic conditions improve, shares could begin a significant turnaround.
Goldman Sachs not looking very golden today as expenses rise and profits plunge (GS)
Following a batch of mixed and uninspiring earnings reports from several leading banks last week, Goldman Sachs (GS) added to the dreariness this morning by posting its largest EPS miss in over five years as profits tumbled by 66% yr/yr.
- Although expectations were subdued heading into the Q4 report, especially for GS's investment banking unit, a surprising 11% yr/yr increase in operating expenses compounded the problem this quarter.
- The line item that's particularly catching investors off guard is the 16% yr/yr jump in compensation and benefits. Considering how weak the conditions have been for GS's equity underwriting and advisory businesses, with Q4 revenue sinking by 82% and 14%, respectively, it's a bit jarring to see compensation increase by double-digits.
- However, the company did implement a 6% reduction in headcount earlier this month, so we expect operating expenses to moderate in 1Q23.
Like GS's banking peers, the company also set aside a considerable amount of cash to weather the fallout from a potential economic downturn.
- Specifically, provisions for credit losses spiked by over 180% yr/yr to $972 mln. With revenue falling by about 16% yr/yr -- representing GS's fourth consecutive quarter of topline declines -- GS was not in position to mitigate the impact of rising costs.
There were few bright spots within the earnings report, but one area that stood out was FICC trading.
- For the quarter, FICC trading fees shot higher by 44% to $2.68 bln, easily outpacing the 15% increase that rival Morgan Stanley (MS) generated in Q4. Strong demand for interest rate and commodity-related products helped to offset sluggish activity for mortgage-linked assets. Predictably, poor market conditions created a headwind for equity trading as fees fell by 5% to $2.07 bln.
- From a growth perspective, GS's newly created Platform Solutions segment, which incorporates its consumer-based credit card business, led the way with revenue surging by 171% to $513 mln. The problem, though, is that GS is pouring a substantial amount of capital into the business in an effort to diversify its customer base. Accordingly, the segment posted a pre-tax loss of ($778) mln in Q4. Moving forward, we expect GS to rein in its investments here due to its cautious outlook regarding the economy this year.
Overall, it was a pretty dismal performance for GS in Q4 and the near-term outlook remains cloudy at best.
Whirlpool shines after divesting most of its EMEA business; updates FY22 forecast (WHR)
Whirlpool (WHR +2%) is shining today after completing its nine-month-long strategic review of its EMEA (Europe, Middle East, and Africa) business. The strategic review resulted in the household appliance manufacturer entering into a definitive contribution agreement with Turkish-based firm Arcelik. Under the terms, WHR will contribute its European appliance business (except for EMEA KitchenAid), and Arcelik will contribute its domestic appliance businesses into a newly formed entity. WHR will own 25% of this new entity, while Arcelik, which also purchased WHR's Russia business last year, will hold the other 75%.
WHR estimates the new entity to boast combined sales of over €6 bln and generate cost synergies of over €200 mln. Its move will also dent GAAP EPS by approximately $26.00-28.00; adjusted EPS is unaffected. Likewise, WHR recorded a non-cash loss on disposal of roughly $1.5 bln in Q4, including a $1.1 bln write-down of the EMEA assets. The transaction should close in 2H23.
Alongside this announcement, WHR also updated its FY22 forecast. The company raised its adjusted EPS outlook by $0.25 to $19.25. However, at the same time, WHR lowered its FY22 sales outlook by $400 mln to $19.7 bln, causing the figure to miss analyst estimates. WHR attributed the lowered revenue forecast to one-off supply chain difficulties in its North American region during Q4, which have since been resolved. Nevertheless, the damage had been done, denting sales, as well as production volumes and operating margins.
Still, there were uplifting details within WHR's string of announcements.
- WHR's EMEA business has struggled considerably over the past few years. For example, with operating margins of 2.0% and 0.0% in FY21 and FY20, respectively, EMEA vastly underperformed all other regions' operating profitability during that time frame, with one exception. Looking back even further, EMEA's operating margins were negative for three-straight years from FY17-FY19. Meanwhile, EMEA is WHR's second-largest segment by revenue, causing its disappointing margins to weigh on overall margins over the years.
- Therefore, by taking this business mostly off of its books, WHR is going through with what its strategic review of EMEA sought to do. That is, turn WHR into a high-growth, high-margin business.
- Furthermore, with WHR already solving the supply chain issues that hurt its Q4 sales figures, FY23 is shaping up to contain fewer supply-related headaches. The company commented that supply constraints significantly improved during 1Q23.
- Meanwhile, WHR expects FY23 operating performance to be similar to FY22 -- including its previously mentioned $500 mln net cost takeout program to reduce costs -- a positive given unfavorable housing market dynamics.
The main takeaway is that by contributing its underwhelming EMEA business into a newly formed entity with Arcelik, WHR can focus on the more profitable sides of its business while simultaneously giving a boost to its overall operating margins. Obstacles are still present for WHR in the short run, especially as discretionary spending levels remain suppressed. However, we like the move and see it as a healthy step toward returning to positive, profitable growth.
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.
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