Market Snapshot
briefing.com
| Dow | 33781.11 | +151.60 | (0.45%) | | Nasdaq | 11352.89 | -11.52 | (-0.10%) | | SP 500 | 4022.86 | +3.05 | (0.08%) | | 10-yr Note | +26/32 | 3.47 |
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| | NYSE | Adv 1438 | Dec 1542 | Vol 606 mln | | Nasdaq | Adv 2049 | Dec 2479 | Vol 5.6 bln |
Industry Watch
| Strong: Industrials, Utilities, Real Estate, Consumer Staples, Financials |
| | Weak: Communication Services, Health Care, Energy, Consumer Discretionary |
Moving the Market
-- Some increased selling interest after a big run recently
-- Digesting a slew of earnings news, which is receiving mixed reactions
-- Some weakness in the mega cap space
-- S&P 500 reclaiming a position above 4,000
-- Turn lower in Treasury yields
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Closing Summary
24-Jan-23 16:25 ET
Dow +104.40 at 33733.91, Nasdaq -30.14 at 11334.27, S&P -2.86 at 4016.95
[BRIEFING.COM] The major indices started today's session on a lower note, as expected, but what wasn't expected were a lot of aberrant stock prices for a number of NYSE-listed stocks. The aberrations led almost instantly to volatility halts with market participants/observers wondering what was happening. The official explanation turned out to be an "exchange-related issue." That issue, fortunately, got resolved quickly and stocks soon returned to trading in a normal manner.
The NYSE will declare a number of trades as erroneous from this morning and some trades will be busted that traded outside of trading bands, according to CNBC.
After the early volatility, today's trade was largely mixed as investors digested a slew of mixed earnings news. Also, buyers were likely somewhat reluctant to show strong conviction after a big run recently. Entering today, the Nasdaq Composite was up 8.6% for the year and the S&P 500 was up 4.7%.
Considering the big gains recently, along with some disappointing earnings/guidance from the likes of 3M (MMM 115.00, -7.62, -6.2%), Verizon (VZ 40.42, +0.79, +2.0%), Union Pacific (UNP 203.18, -6.95, -3.3%), and General Electric (GE 80.70, +0.93, +1.2%), the stock market held up fairly well today and showed nice resilience to selling efforts.
The S&P 500 was able to maintain its posture above the 4,000 level for most of the session, albeit on very light volume at the NYSE, and the Dow Jones Industrial Average was able to close with a gain of 0.3%.
The Vanguard Mega Cap Growth ETF (MGK) fell 0.3% today versus a 0.1% loss in the S&P 500. Alphabet (GOOG 99.21, -2.00, -2.0%) was among the weakest performers for the mega caps after the U.S. filed an antitrust lawsuit against Google over alleged dominance in digital advertising, according to Bloomberg.
Roughly half of the S&P 500 sectors logged a gain today, but moves were modest in scope in either direction. Industrials (+0.7%) led the outperformers after Lockheed Martin (LMT 449.23, +7.95, +1.8%) and Raytheon Technologies (RTX 99.47, +3.22, +3.4%), which hit a new 52-week high today, reported pleasing quarterly results. To be fair, losses in 3M and Union Pacific weighed on sector gains.
The heavily-weighted communication services (-0.7%) and health care (-0.7%) sectors fell to the bottom of the pack, weighing on index level performance. The energy sector (-0.3%) was also among the worst performers amid falling oil prices ($80.23/bbl, -$1.34, -1.6%).
Separately, Treasury yields pulled back today. The 2-yr note yield fell four basis points to 4.19% and the 10-yr note yield fell six basis points to 3.47%.
- Nasdaq Composite: +8.3% YTD
- Russell 2000: +7.1% YTD
- S&P Midcap 400: +6.2% YTD
- S&P 500: +4.6% YTD
- Dow Jones Industrial Average: +1.8% YTD
Reviewing today's economic data:
- January IHS Markit Manufacturing PMI - Prelim 46.8; Prior 46.2
- January IHS Markit Services PMI - Prelim 46.6; Prior 44.7
Ahead of tomorrow's open, Elevance Health (ELV), AT&T (T), Boeing (BA), Progressive (PGR), Abbott Labs (ABT), and Freeport-McMoRan (FCX) are some of the more influential earnings reporters.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 27.9%)
- 10:30 ET: Weekly crude oil inventories (prior 8.41 mln)
Clinging to narrow ranges ahead of the close
24-Jan-23 15:30 ET
Dow +117.77 at 33747.28, Nasdaq -22.38 at 11342.03, S&P -0.32 at 4019.49
[BRIEFING.COM] Things are little changed in the last half hour at the index level. The S&P 500 and Nasdaq remain pinned slightly below their flat lines while the Dow sports a 0.3% gain.
A short time ago, CNBC reported that the NYSE will declare a number of trades as erroneous from this morning; some trades will be busted that traded outside of trading bands.
Microsoft (MSFT), Capital One (COF), and Texas Instruments (TXN) are among the most notable names reporting earnings after the close today.
Ahead of tomorrow's open, Elevance Health (ELV), AT&T (T), Boeing (BA), Progressive (PGR), Abbott Labs (ABT), and Freeport-McMoRan (FCX) are some of the more influential earnings reporters.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 27.9%)
- 10:30 ET: Weekly crude oil inventories (prior 8.41 mln)
Energy complex settled lower
24-Jan-23 15:05 ET
Dow +151.60 at 33781.11, Nasdaq -11.52 at 11352.89, S&P +3.05 at 4022.86
[BRIEFING.COM] The S&P 500 and Dow are hanging out near session highs while the Nasdaq lags.
Energy complex futures settled the session lower. WTI crude oil futures fell 1.6% to $80.23/bbl and natural gas futures fell 5.2% to $3.05/mmbtu.
On a related note, the S&P 500 energy sector (-0.3%) among the worst performers currently.
The CBOE Volatility Index is down 4.2%, or 0.83, to 18.98.
Thermo Fisher down on broader sector weakness, Synchrony continues post-earnings gains
24-Jan-23 14:25 ET
Dow +70.69 at 33700.20, Nasdaq -25.68 at 11338.73, S&P -4.24 at 4015.57
[BRIEFING.COM] The S&P 500 (-0.11%) is narrowly lower to this point on Tuesday, currently second place among the major averages.
S&P 500 constituents Brown & Brown (BRO 58.92, -3.04, -4.91%), Thermo Fisher (TMO 579.03, -25.79, -4.26%), and PerkinElmer (PKI 135.09, -5.66, -4.02%) dot the bottom of today's standings. BRO is weaker after last night's Q4 results, TMO announced a partnership with AstraZeneca (AZN 65.99, -1.62, -2.40%) to develop solid tissue and blood-based companion diagnostic test for Tagrisso, though the stock is likely following broader weakness in the healthcare space, while PKI caught a Barclays tgt cut.
Meanwhile, Synchrony Financial (SYF 35.52, +0.96, +2.78%) is outperforming, continuing gains following yesterday's earnings.
Gold higher once more; averages briefly all higher, now mixed
24-Jan-23 14:00 ET
Dow +112.49 at 33742.00, Nasdaq -7.90 at 11356.51, S&P +1.01 at 4020.82
[BRIEFING.COM] Briefly in the last half hour all three major averages were in positive territory; now, the tech-heavy Nasdaq Composite (-0.07%) is narrowly lower.
Gold futures settled $6.80 higher (+0.4%) to $1,935.40/oz, allowed higher as the dollar and yields show weakness.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $101.93.
Market catching its breath after flying high
You might have heard that the stock market has had a strong start to the year. You might have also heard that corporate earnings for the fourth quarter and calendar year 2023 are not expected to be strong.
Entering today, the Nasdaq Composite is up 8.6% for the year and the S&P 500 is up 4.7%. The blended Q4 earnings growth rate is -4.9%, according to FactSet, while the calendar 2023 earnings growth rate has faded to 4.0%.
The equity futures market is on the softer side of things this morning primarily because there is a twinge of nervousness setting in that the stock market has gotten ahead of itself and is due for a pullback. Coincidentally, Microsoft (MSFT), which is up 4.6% in the last two sessions, reports its earnings results after today's close.
There will be a lot of attention on those results, the growth rates for Microsoft's business lines, and any guidance the company provides. For the time being, though, some added attention is being paid to fellow Dow components 3M (MMM), Johnson & Johnson (JNJ), Travelers (TRV), and Verizon (VZ).
3M sorely disappointed with its Q4 results and guidance. It is down 4.4%. Johnson & Johnson topped Q4 EPS estimates and issued FY23 EPS guidance that is above the current consensus estimate, yet it is still down 1.3% after its report. Travelers posted in-line results (after warning last week) and is down 0.2%. Verizon also posted in-line Q4 results but issued below-consensus FY23 EPS guidance. VZ is down 2.4%.
Separately, Union Pacific (UNP) is down 2.0% after coming up shy of Q4 estimates; Lockheed Martin (LMT) is up 1.1% after topping Q4 estimates, whereas industry peer Raytheon Technologies (RTX) is down 0.8% after beating Q4 estimates and issuing in-line guidance for FY23; Danaher (DHR) is down 3.1% after beating Q4 estimates; PACCAR (PCAR) is up 3.9% after topping Q4 expectations; and General Electric (GE) is down 0.5% after beating Q4 estimates and issuing soft FY23 EPS guidance.
The industrials are out in force on the reporting front then, although the same can't be said for their stocks, which are mixed at best in the wake of their results.
Currently, the S&P 500 futures are down 21 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 89 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 160 points and are trading 0.4% below fair value.
Those indications are a sign of this morning's times. We can't put an eventual rebound try past this market, which has defied bearish expectations all year, bouncing back from bouts of weakness, catalyzed by the hope that the economy will achieve a soft landing, that the Fed will pause its rate hikes soon, and that 2023 earnings won't fall into a state of decline.
Those considerations are all very much up in the air, which is why it feels a little this morning as if stocks have been flying in thin air and need to come down to catch their breath and assess where things are headed next.
Microsoft's report will do some piloting in that respect along with the reports from several hundred S&P 500 companies that have yet to report their results.
-- Patrick J. O'Hare, Briefing.com
General Electric continues to fly higher in 2023 as Aerospace business shines once again (GE)
General Electric (GE) is off to a red-hot start in 2023 with shares surging by 22% year-to-date, but that strength was put to the test today after the company reported mixed 4Q22 results and issued FY23 EPS guidance that missed expectations by a wide margin. Impressively, the stock has shrugged off that weak earnings guidance as the positive news surrounding GE's Aerospace segment takes center stage.
- The recent strength in GE shares is largely related to the company's execution of its plan to create three separately traded public companies. That plan took a major step forward on January 4 when GE spun-off its healthcare unit, which is now trading on the Nasdaq as GE Healthcare (GEHC).
- In 2024, GE will complete the transformation when it spins off its Power and Renewable Energy segments into a new company called GE Vernova.
At that point, GE will solely become an aerospace company, manufacturing jet engines and providing maintenance and services for both commercial and defense customers. Accordingly, the results and outlook for GE's Aerospace segment carries the most weight for investors, explaining why the stock is holding up so well despite the company's downside guidance.
- Staying true to recent form, Aerospace was once again the standout in Q4 with orders and revenue both increasing by 26% yr/yr. That healthy growth was mainly driven by a jump in services revenue on higher repair shop visits from commercial aircraft.
- Delta Air Lines (DAL) and United Airlines (UAL) already reported strong Q4 earnings that were bolstered by robust travel demand, making the sharp increase in GE's service revenue rather unsurprising.
- What's really supporting the stock, in our view, is GE's bullish FY23 outlook for the Aerospace segment. Specifically, the company is forecasting mid-to-high teens organic revenue growth, operating profit of $5.3-$5.7 bln, and free cash flow that exceeds FY22's total of $4.9 bln.
For some context, GE's guidance on a consolidated basis calls for high-single-digit revenue growth and free cash flow of $3.4-$4.2 bln.
- GE Vernova is the main drag on the company's outlook. The Renewable Energy unit in particular has struggled due to weak orders for wind turbines. Uncertainty regarding future tax credits for wind generation has acted as an overhang on this business.
- On the positive side, orders rebounded in Q4, increasing by 7% to $5.0 bln, compared to the 41% plunge in Q3. Furthermore, GE is expecting business to improve in FY23, guiding for mid-single-digit revenue growth and flat-to-improving free cash flow off a ($800) mln base in FY22.
The main takeaway is that GE's overall results and outlook were far from pristine as the company continues to grapple with supply chain issues and inflationary pressures. However, the company performed well where it matters most -- Aerospace -- and its bullish outlook for that segment is offsetting less rosy news in the Power and Renewable Energy units.
3M in another sticky situation as consumer-facing businesses see softening demand in Q4 (MMM)
Already contending with inflationary pressures, supply chain disruptions, waning respirator sales, and foreign exchange headwinds, 3M (MMM) added another setback to its list of challenges in 4Q22. As the quarter progressed, the company experienced weakening demand in its consumer-facing markets, especially in the electronics category. The softening demand, which worsened in December, was a tipping point for MMM as it posted its first EPS miss and worst yr/yr revenue decline (-5.9%) since 2Q20.
- On November 30, MMM presented at a Credit Suisse conference and warned that its consumer-facing businesses, including its electronics and home improvement-related products, were seeing some weakness.
- Interestingly, the stock closed with a modest gain that day and was trading slightly higher by mid-January. Sentiment eventually soured, though, with shares sinking by nearly 7% last week, indicating that MMM's warning was starting to hit home.
- Naturally, MMM's Consumer segment, which sells everything from Scotch Tape to knee pads for sports, suffered the most from the slowing demand. Organic sales fell by 5.7% with sales declining across all business categories due to lower consumer discretionary spending and aggressive inventory reduction efforts at major retailers. In turn, the lower sales volume caused segment adjusted operating margin to contract by 3.3 percentage points yr/yr to 17.9%.
Fortunately for MMM, the automotive and aerospace end markets continue to be a source of strength, helping to mitigate the impact of weak consumer electronics demand.
- In Q4, the Transportation and Electronics segment still generated positive organic sales growth of 1.4%, despite an industry-wide pullback in phone, TV, and tablet sales. For some quick background, MMM's Consumer Electronics products include cushioning and protective products, specialty fluids, and films and tapes.
- While it's already widely-understood that phone/tablet demand has weakened under the weight of inflation and rising interest rates, MMM's results offer yet another negative data point for companies like Apple (AAPL), NVIDIA (NVDA), Google (GOOG), Samsung (SSNLF), and Best Buy (BBY).
Meanwhile, disposable respirator sales plunged again, this time by 47% yr/yr to $165 mln, reducing organic growth by 6.2 percentage points in the Safety & Industrial segment.
- Similar to the Transportation and Electronics segment, the automotive end market saved the day here as strong sales for vehicle aftermarket products pushed overall organic sales growth higher by 1.3%.
The most discouraging aspect of the earnings report is that the company doesn't see a light at the end of the tunnel. This is reflected in MMM's FY23 EPS guidance, which fell well short of expectations, and its forecast for a 2-6% yr/yr decline in revenue. Since CEO Michael Roman is anticipating macroeconomic challenges to persist in 2023, he announced that the company is cutting about 2,500 manufacturing jobs. Additionally, the company is reducing manufacturing output in order to align production with end market demand.
Overall, there weren't many bright spots in this earnings report and any hopes of a meaningful turnaround in 2023 were dashed by MMM's disappointing guidance. In many ways, the story remains the same for MMM and investors are likely losing their patience as they await stronger financial results.
Johnson & Johnson down slightly as Q4 results were generally in-line; big changes ahead in 2023
Johnson & Johnson (JNJ -1%) is trading slightly lower following its Q4 results this morning. While it reported a solid beat on adjusted EPS, revenue fell 4.4% yr/yr to $23.71 bln, which was a bit light of analyst expectations. The FY23 guidance was good overall with upside EPS. The revenue guidance range was in-line although the mid-point was slightly below consensus. But maybe we are nitpicking there.
- The sales decline in Q4 was primarily driven by unfavorable FX and reduced COVID-19 vaccine sales, which fell 57.4% yr/yr to $689 mln. The only segment with reported revenue growth was Consumer Health and that was just barely, up 1% yr/yr to $3.77 bln. Unfortunately, that is also JNJ's smallest segment. Pharmaceutical, its largest segment, saw revenue decline 7.4% yr/yr to $13.16 bln while the MedTech segment was down 1.2% yr/yr to $6.78 bln. Of note, JNJ closed on its acquisition of Abiomed on December 22. It's now part of JNJ's MedTech segment. Since the deal closed so late in the quarter, it had little impact on results.
- It is worth noting that CEO Joaquin Duato has now been in charge for a full year. He is a long time insider who took the helm in January 2022. His goal has been to reshape JNJ pretty dramatically. In addition to the Abiomed deal, recall that JNJ is in the process of spinning off its consumer health business, renamed Kenvue, which has been burdened by numerous lawsuits alleging its baby powder contained asbestos. The spin-off will allow JNJ to focus on pharmaceuticals and medical devices. JNJ recently filed an S-1, so the separation is moving along and JNJ reaffirmed today that it expects to finalize the transaction in 2023.
- By focusing on Pharmaceuticals and MedTech, JNJ believes the change will allow it to become simpler, faster and more focused. In Pharmaceutical, the goal is to hit $60 bln in revenue by 2025 despite the Stelara loss of exclusivity in September 2023. Just for context, Stelara is JNJ's largest drug with 2022 sales of $9.72 bln, which comprises 18.5% of JNJ's Pharma segment sales of $52.56 bln. So the Stelara change is a big deal and a potential headwind. JNJ expects growth to be driven by its existing portfolio including Darzalex, Tremfya, Invega Sustenna and the upcoming launch of cancer drug Carvykti.
Overall, the stock is roughly flat today as the numbers came in generally as expected. However, there will be a lot of changes with JNJ in 2023, so it's worth keeping an eye on. Between the Abiomed deal, the Stelara loss of exclusivity, and the consumer health spin off, JNJ should look pretty different later this year. The new CEO is certainly making some big changes.
Salesforce rallies as Elliott Management's investment sparks hopes of a turnaround (CRM)
Cloud software giant and Dow component Salesforce (CRM) is trading higher and is providing the stock market with a lift after the Wall Street Journal reported that Elliott Management, one of the nation's largest activist investors, has made a multibillion-dollar investment in the company. For Elliott, CRM really fits the mold for the type of opportunity that it's looking for: namely, a prominent tech company that's fallen on hard times, has seen its stock plummet, and could use a shake-up in the boardroom.
Few would argue that the past few months haven't been a tumultuous time for CRM.
- When the company reported Q3 earnings on November 30, it also announced the abrupt departure of co-CEO Bret Taylor, who is leaving to "return to his entrepreneurial roots." The resignation caught investors off guard, while amplifying concerns that the recent upheaval in leadership positions would become disruptive and create execution issues.
- In addition to Taylor, CRM has announced the departures of Stewart Butterfield (CEO of Slack unit), Jonathan Price (SVP, Marketing/Communications for Slack), and Gavin Patterson (Chief Strategy Office, Salesforce), among others.
As these top-level changes play out, the company is also implementing a major restructuring initiative that includes a 10% workforce reduction.
- Like many tech companies, including Microsoft (MSFT), Google (GOOG), and Meta Platforms (META), CRM became overzealous with its hiring plans when the pandemic faded into the background. An aggressive M&A approach that included the recent acquisitions of Slack, Tableau Software, and MuleSoft also greatly expanded CRM's workforce.
- Now, with rising interest rates and inflation threatening to throw the economy into a recession, CRM is scrambling to right size the company in order to drive costs lower and improve margins.
- On that note, CRM's Q3 non-GAAP operating margin did expand by 290 bps yr/yr to 22.7%.
With Elliott establishing a substantial stake in the company, investors are betting that the activist investor will influence additional changes within the company.
- Although Elliott hasn't divulged a detailed plan of action yet, its history suggests that it will attempt to gain a seat on CRM's board, perhaps paving the way for an even wider leadership shakeup.
- A fresh perspective could help reinvigorate CRM's go-to-market strategy and its topline growth, which tapered off to 14% in Q3 from the low-to-mid 20% range it achieved in 2021 and 1H22.
- Additional margin-enhancing actions, such as the streamlining of operations, or the divestiture of underperforming assets, are a couple other options that may be pursued.
The main takeaway is that CRM is still a premier cloud software company, but it has lost its way recently, as illustrated by the exodus of several high-profile executives. Elliott's track record of instigating change within tech companies is providing some hope that CRM can return to the form that made it a darling among growth investors for most of its existence.
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