Market Snapshot
briefing.com
| Dow | 34135.78 | +266.56 | (0.79%) | | Nasdaq | 11846.13 | +127.99 | (1.09%) | | SP 500 | 4123.09 | +32.63 | (0.80%) | | 10-yr Note | +2/32 | 3.72 |
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| | NYSE | Adv 2249 | Dec 708 | Vol 779 mln | | Nasdaq | Adv 2763 | Dec 1750 | Vol 4.6 bln |
Industry Watch
| Strong: Information Technology, Real Estate, Consumer Staples, Financials, Communication Services |
| | Weak: Energy |
Moving the Market
-- Strength in the mega cap space boosting index performance
-- Anticipation of the January Consumer Price Index tomorrow
-- Moderation in Treasury yields from earlier highs
-- Buyers stepping in after S&P 500 breached 4,100
-- Continued willingness to buy into weakness
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Closing Summary
13-Feb-23 16:30 ET
Dow +376.66 at 34245.88, Nasdaq +173.67 at 11891.81, S&P +46.83 at 4137.29
[BRIEFING.COM] Market participants were still willing to buy into weakness today coming off last week's losses, which has been the case since the start of 2023. A quick dip right out of the gate had the S&P 500 slip below the 4,100 level before buyers stepped in and a rally effort took root, helped along by some short-covering activity and a fear of missing out on further gains.
Upside leadership from the mega cap space was an important driver of index level gains. Meta Platforms (META 179.43, +5.28, +3.0%) and Microsoft (MSFT 271.32, +8.22, +3.1%) each rose more than 3.0% with no specific news catalysts and helped drive a 1.5% gain in the Vanguard Mega Cap Growth ETF (MGK). The Invesco S&P 500 Equal Weight ETF (RSP) and S&P 500, meanwhile, both gained 1.1% today.
Today's advance was broad in nature. Advancers led decliners by a greater than 3-to-1 margin at the NYSE and a 3-to-2 margin at the Nasdaq.
Ten of the 11 S&P 500 sectors logged gains today led by the heavily weighted information technology (+1.8%) and consumer discretionary (+1.5%) sectors. The energy sector (-0.6%) was the lone laggard in negative territory.
Today's gains were registered in front of the market-moving January Consumer Price Index (CPI) at 8:30 a.m. ET tomorrow. Market participants also received the NY Fed's Survey of Consumer Expectations today, which showed that inflation expectations are mostly stable, but household income growth expectations have dropped. Some of the key findings from the survey included:
"Median inflation expectations remained unchanged at the one-year-ahead horizon, decreased by 0.2 percentage point at the three-year-ahead horizon, and increased by 0.1 percentage point at the five-year-ahead horizon, to 5.0%, 2.7% and 2.5%, respectively. The survey's measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased slightly at the one-year horizon, remained unchanged at the three-year horizon, and increased at the five-year horizon.
After increasing each month since September of last year, the median expected growth in household income dropped by 1.3 percentage point to 3.3%. This is the largest one-month drop in the nearly ten-year history of the series. The January reading, however, is only slightly below its 12-month trailing average of 3.5%, and the series remains well above its pre-pandemic levels. January's decrease was more pronounced among respondents with no more than a high school education, respondents older than 60, and those with annual household incomes below $50k."
The 2-yr Treasury note yield, which is most sensitive to changes in the fed funds rate, rose three basis points 4.54%. The 10-yr note yield fell three basis points to 3.72%.
- Nasdaq Composite: +13.6% YTD
- Russell 2000: +10.2% YTD
- S&P Midcap 400: +9.9% YTD
- S&P 500: +7.8% YTD
- Dow Jones Industrial Average: +3.3% YTD
There was no U.S. economic data of note today.
Coca-Cola (KO), Marriott (MAR), Cleveland-Cliffs (CLF), Restaurant Brands Int'l (QSR), IPG Photonics (IPGP), Exelon (EXC), GlobalFoundries (GFS), and Entegris (ENTG) are some of the companies reporting earnings ahead of Tuesday's open.
Economic data on Tuesday is limited to the much anticipated January Consumer Price Index (Briefing.com consensus 0.5%; prior -0.1%) and core-Consumer Price Index (Briefing.com consensus 0.4%; prior 0.3%) at 8:30 a.m. ET.
Main indices inching higher ahead of close
13-Feb-23 15:30 ET
Dow +331.59 at 34200.81, Nasdaq +163.54 at 11881.68, S&P +41.05 at 4131.51
[BRIEFING.COM] The major indices are slowing inching towards their session highs ahead of the closing bell.
After the close, Avis Budget (CAR), Amkor (AMKR), Arista Networks (ANET), Palantir Technologies (PLTR), and Cadence Design (CDNS) are among the companies reporting quarterly results.
Coca-Cola (KO), Marriott (MAR), Cleveland-Cliffs (CLF), Restaurant Brands Int'l (QSR), IPG Photonics (IPGP), Exelon (EXC), GlobalFoundries (GFS), and Entegris (ENTG) are some of the companies reporting earnings ahead of Tuesday's open.
Economic data on Tuesday is limited to the much anticipated January Consumer Price Index (Briefing.com consensus 0.5%; prior -0.1%) and core-Consumer Price Index (Briefing.com consensus 0.4%; prior 0.3%) at 8:30 a.m. ET.
Market pulls back from highs
13-Feb-23 15:05 ET
Dow +266.56 at 34135.78, Nasdaq +127.99 at 11846.13, S&P +32.63 at 4123.09
[BRIEFING.COM] The main indices have pulled back somewhat from session highs recently, but maintain sizable gains.
Market breadth reflects a continued positive bias in the market despite the recent downturn. Advancers lead decliners by a nearly 3-to-1 margin at the NYSE and a 3-to-2 margin at the Nasdaq.
Energy complex futures settled the session in mixed fashion. Natural gas futures fell 4.7% to $2.41/mmbtu and WTI crude oil futures rose 0.6% to $80.10/bbl. On a related note, the S&P 500 energy sector (-0.4%) remains pinned in last place among the 11 sectors.
Illumina rebounds in S&P 500 after tough week, CF Industries falls on Scotia downgrade
13-Feb-23 14:30 ET
Dow +314.64 at 34183.86, Nasdaq +165.77 at 11883.91, S&P +40.74 at 4131.20
[BRIEFING.COM] The benchmark S&P 500 is up a clean +1% this afternoon, briefly tapping session highs in the last half hour.
S&P 500 constituents Illumina (ILMN 212.97, +16.39, +8.34%), Warner Bros. Discovery (WBD 15.03, +0.81, +5.70%), and Carnival (CCL 11.64, +0.48, +4.30%) are among today's top performers. ILMN enjoys a solid advance to start the week after having faded more than -8% over the prior week's campaign, while WBD won a weekend victory at the box office with Magic Mike 3.
Meanwhile, CF Industries (CF 87.50, -2.99, -3.30%) is in the top 3 laggards in the S&P 500 after Scotiabank downgraded shares this morning to a Sector Perform recommendation.
Gold lower ahead of tomorrow's inflation report
13-Feb-23 14:00 ET
Dow +347.82 at 34217.04, Nasdaq +184.36 at 11902.50, S&P +45.86 at 4136.32
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+1.57%) is atop the standings on gains of more than 180 points.
Gold futures settled $11 lower (-0.6%) to $1,863.50/oz with Wall Street eyeing tomorrow's January Consumer Price Index.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $103.30.
Casting a skittish eye toward Tuesday's CPI release
If you are superstitious, the Kansas City Chiefs winning the Super Bowl last night likely has you on edge this morning about the stock market's 2023 prospects. That's because the Chiefs won the AFC championship and, purportedly, that is not a good omen for the stock market, according to the so-called Super Bowl Indicator.
If you believe in UFOs, you are likely abuzz this morning given reports that the U.S. has shot down three unidentified flying objects over the last three days following the Chinese spy balloon incident last week.
If you are the equity futures market, you are aware of the Super Bowl Indicator and the "UFOs," but you are also not overwhelmed by either. Nope.
Currently, the S&P 500 futures are up four points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 43 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down 24 points and are trading 0.1% below fair value.
That's the look of a mixed market.
There is some pre-market strength in the mega-cap stocks that is helping some, but otherwise the price action is pretty subdued amid a lack of market-moving earnings or economic news.
In fact, there is no U.S. economic data of note today. That changes tomorrow with the release of the January Consumer Price Index (CPI). We suspect market participants are taking a somewhat guarded stance before that release, which is why there isn't more gusto in buying efforts following last week's losses that accumulated partly on concerns about the Fed raising rates more than expected and keeping them higher for longer.
On a related note, Fed Governor Bowman (FOMC voter) walked the party line, saying in a speech today that she thinks "...ongoing increases will be appropriate to bring the federal funds rate to a sufficiently restrictive level and that it will need to remain there for some time to restore price stability."
The 2-yr note yield, which is sensitive to changes in the fed funds rate, is up another three basis points this morning to 4.54%. It had been at 4.10% the day before the release of the January employment report. This instrument will be a guidepost on Tuesday for what the market thinks about the CPI report and its influence over the Fed's policy thinking.
For now, it's a guide that suggests the market is a little skittish about things that have nothing to do with the Super Bowl or UFOs.
-- Patrick J. O'Hare, Briefing.com
Ralph Lauren receives a boost following an upgrade at BofA Securities today (RL)
After a 7% drop to start the month and a muted reaction to a solid Q3 (Dec) earnings report last week, Ralph Lauren (RL +3%) is beginning to gain ground following an upgrade at BofA Securities today to "Buy" from "Neutral." Incorporating today's jump, shares have added over 40% from September lows.
Briefing.com notes that although the current economic environment is not conducive to firms operating in the apparel, home furnishings, and other discretionary categories industry, RL boasts a few positives that could help sustain its strong momentum.
- Despite the apparel industry's elevated inventory levels, RL delivered another quarter of average unit retail (AUR) growth in DecQ, its 23rd-straight quarter. This resilience reflects brand loyalty and RL's more-luxury focus, which commands a customer base that can better weather intense inflationary conditions.
- RL's premium brands carry premium pricing, cushioning margins from the weight of heightened inflationary costs. In DecQ, RL's adjusted operating margins of 16% met the high end of its prior target.
- Meanwhile, RL has also focused on cost discipline, keeping marketing expenses down. As a result, adjusted operating expenses fell 1% yr/yr in DecQ. The company is not diverting its focus on costs, predicting that Q4 (Mar) margins will expand around 190 bps yr/yr in constant currency, driven by lower marketing expenses.
- Also helping boost margins are better-than-expected revenues. Although DecQ sales growth of 0.9% yr/yr to $1.83 bln looked light on paper, it was far better than the decline analysts predicted. Additionally, RL expects revenue growth to remain in positive territory in MarQ, forecasting a mid-to-high-single digit expansion yr/yr, excluding FX fluctuations, which are estimated to clip around 500 bps off total growth.
Speaking of FX fluctuations, RL is still contending with a few headwinds. A strong U.S. dollar has suppressed sales growth throughout the past year and is not expected to let up significantly anytime soon. Meanwhile, although European sales have remained robust, jumping by 13% in DecQ, excluding FX impacts, this region is enduring considerable economic hardship. With 28% of FY22 (Mar) sales stemming from Europe, potentially worsening conditions could adversely affect financial performance in the quarters ahead. RL noted that it is remaining cautious regarding Europe. Similar concerns can be had regarding China, where easing COVID restrictions have been quite disruptive to commerce. RL's Asia segment, which includes Australia and New Zealand, comprised a meaningful 21% chunk of FY22 sales.
Nevertheless, RL's brands and premium pricing power can triumph over these sticky issues. Still, it may be better to wait for a pullback before entering into RL stock. Its 50-day moving average (114.80) has acted as solid support over the past three months.
Monday.com showing resilience in tough climate, posting another beat-and-raise report (MNDY)
There are no cases of "the Monday's" for Monday.com's (MNDY) investors today after the work management platform provider delivered yet another strong beat-and-raise quarterly report. Impressively, MNDY has exceeded top and bottom-line expectations, while issuing upside revenue guidance, in every quarter since going public in June 2021.
Despite the stellar performance, MDNY hasn't been rewarded by the market, as its stock is still underwater versus its IPO opening price by about 25%. A broader avoidance of growth stocks in a rising interest rate environment, and the expectation that slowing IT spending would seriously dent MNDY's results, have overshadowed its remarkable earnings report winning streak.
Those concerns about softening demand in a tough macroeconomic climate aren't totally off base, though, as MNDY's revenue growth rate continues to decelerate.
- In Q4, revenue increased by 57% to $141.6 mln, down from 65% last quarter, and 75% in 2Q22. During last quarter's earnings call, co-CEO Roy Mann acknowledged that the company was seeing some pockets of weakness, particularly in in Europe, and that there were indications that the weakness was spreading to other areas.
- Additionally, he called out MNDY's significant international exposure as a major headwind from a foreign exchange standpoint. For the year ended December 31, 2021, MNDY's international operations accounted for approximately 52% of its total revenue.
- The negative foreign exchange impacts, combined with MNDY's success in landing larger initial customer builds, is also causing its net dollar retention rate (NDR) to slide off record high levels. In Q2 and Q1, NDR for customers with over $50K in annualized recurring revenue (ARR) was pacing above 150%. After dipping to 145% that quarter, NDR for this large customer group slipped further to 135%.
The moderating revenue and NDR growth rates are fairly minor blemishes in the big picture.
- Demand has held up better than anticipated, especially on the enterprise side where MNDY is making significant inroads. The number of customers with more than $50K in ARR jumped by 86% yr/yr to $1,474.
- A main concern hanging over MNDY, and competitors like Smartsheet (SMAR), Asana (ASAN), and Salesforce's (CRM) Slack, is that work management platforms won't be prioritized within enterprises' IT spending budgets. However, the desire to do more with less and to drive better efficiencies through existing systems, especially as macroeconomic pressures increase, has provided a solid foundation for work management platforms.
- More specific to MNDY, the company's recently launched Work OS products, including Monday Sales CRM, Monday Marketer, Monday Dev, and Monday projects, have resonated well with enterprises. These products have added more enterprise features with enhanced functionality.
- Furthermore, MNDY's investments in its sales force are paying off as it homes in on the larger customer opportunity. For some context, MNDY added over 3,000 new Work OS customers over the first five months since its launch last August
- MNDY is also already generating healthy operating profits and positive adjusted free cash flow. For the quarter, those numbers came in at $14.3 mln and $29.7 mln, respectively, even as MNDY's operating expenses climbed by 24% yr/yr. The company is expecting to fall back into the red next quarter, forecasting a non-GAAP operating loss of ($19)-($17) mln, but the general trend for profitability is moving in the right direction.
Overall, the story remains upbeat for MNDY and its solid results are a bullish sign for ASAN and SMAR, which are slated to report earnings on March 8 and March 14, respectively.
TreeHouse Foods gets clipped as elevated inflation and supply chain issues dent Q4 results (THS)
Investors are trimming their exposure to private-label food and beverage supplier TreeHouse Foods (THS -3%) after the company missed estimates on its top and bottom lines in Q4 and projected mild sales growth in FY23. During an environment where consumers are feeling the pinch of decades-high inflation, especially in food at home, which outpaced total yr/yr inflation numbers in December by over 5 pts, the market expects THS to be hitting its stride. As a reminder, THS derives around 80% of its annual revs from the retail grocery industry, with less than 20% branching from away-from-home volume after it divested its meal prep business last year.
The underwhelming results from THS are made all the more frustrating after grocery giants like Walmart (WMT), Kroger (KR), and Costco (COST) registered positive gains within their private label categories in recent quarters. For example, WMT's private brand penetration in food categories jumped roughly 130 bps yr/yr in OctQ. KR's "Our Brands" same-store sales growth of +10.4% in OctQ crushed total comps of +6.9%. Meanwhile, COST management commented that its private label brand penetration is up, with the figure likely approaching around 100 bps in NovQ.
- So what happened in Q4? High costs are occurring on THS's side, forcing the company to hike prices considerably. In the quarter, pricing was up 24.6% yr/yr. These soaring prices clipped volumes, which contracted 2.2% yr/yr in the quarter. At the same time, lingering supply chain issues and service constraints in approximately half of THS's categories dampened volume gains.
- THS mentioned that although several traded commodities began to decline, most remained at historically high levels. Secondly, only around half of the company's inputs are tradeable. The other half still sees inflation, from labels and specialty packaging to food chemicals and lids.
- Looking ahead, THS guided to FY23 revs of +6-8% yr/yr, with EBITDA margins improving yr/yr every quarter fueled by pricing actions last year, as well as ongoing supply chain improvements. THS expects most of its categories to be close to its target service level of 98% by year's end. THS's guidance assumes that volumes will be flat for the year.
Making matters worse, national brand titans, like Conagra (CAG), General Mills (GIS), and Kellogg (K), have not seen meaningful private label trade down in their core categories in recent quarters. For example, CAG noted last month that it divested businesses more susceptible to private label threats like cooking oil, peanut butter, etc. Kellogg mentioned earlier this month that its snacks and cereal brands are strong, demonstrating undeniable momentum.
Bottom line, it was another disappointing quarter from THS, delivering just OK numbers, which will not cut it given the current environment where consumers are shopping for the best value products in the wake of sky-high inflation. Although THS should be experiencing a brisk tailwind, its supply chain issues and substantial price hikes are creating headwinds that will likely persist over the near term.
Check Point Software trades modestly lower following earnings as guidance was a bit cautious (CHKP)
Check Point Software (CHKP) wrapped up 2022 on a positive note with a solid EPS beat and modest revenue upside. The cybersecurity giant also announced a $2 bln increase to its share repurchase authorization, which is pretty substantial. Despite this, the stock is trading roughly flat today. Here is why we think we are not seeing a more positive reaction to the report:
- CHKP's guidance on the call was decent but not great. CHKP guided to in-line revenue in Q1 and in-line EPS/revs for FY23. However, the mid-points for the guidance were all below analyst expectations.
- The commentary on the call was a bit worrisome. CHKP explained that for the first three quarters it had a very good business environment. It grew its internal metrics at a very high rate. However, Q4 was a little bit different as the company faced some challenges towards year-end with some projects being postponed. Customers did not have the budgets that were as flush as expected. As a result, CHKP says it feels the need to be a little bit more cautious than usual with its outlook.
- A metric that jumps out is CHKP's very robust margins although they have been declining from a year ago and did again in Q4. Non-GAAP operating margin decreased in Q4 to 45.2% from 47.5% last year. For all of 2022, it fell to 44.6% vs 48.4% in 2021. CHKP cited a continued investment in its workforce, including compensation and increased travel. Its margins remain strong, but they have been softening.
We like to keep an eye on Check Point to gauge the health of the cybersecurity space. CHKP was criticized for being late to the cloud but it has made inroads. It has grown from being focused only on network security to becoming a full-service provider across many areas including cloud security and its Harmony product line focuses on remote access, connectivity, email etc.
The drop off in budgets toward the end of the year is concerning for other cybersecurity names yet to report. In particular, this puts us on alert for Palo Alto Networks (PANW), which is another big name set to report next week (Feb 21), so we'll be listening closely for similar language. Fortinet (FTNT) had a good quarter last week, so the space has been a bit hit-or-miss thus far. Cybersecurity spend tends to be pretty durable even during economic uncertainty as companies understand the critical nature of this service. But PANW's result should add some good insight on how the early part of 2023 is shaping up.
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