Market Snapshot
briefing.com
| Dow | 33987.22 | -140.78 | (-0.41%) | | Nasdaq | 12007.87 | -62.75 | (-0.52%) | | SP 500 | 4129.15 | -18.45 | (-0.44%) | | 10-yr Note | -3/32 | 3.84 |
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| | NYSE | Adv 743 | Dec 2179 | Vol 866 mln | | Nasdaq | Adv 1476 | Dec 3051 | Vol 5.1 bln |
Industry Watch
| Strong: -- |
| | Weak: Real Estate, Utilities, Industrials, Consumer Staples, Information Technology, Materials |
Moving the Market
-- Digesting mixed earnings news since yesterday's close
-- Negative reaction to slate of economic data this morning
-- Rising Treasury yields in response to data releases
-- St. Louis Fed President James Bullard (not an FOMC voter) saying that he wouldn't rule out supporting a 50-basis point rate hike at the March FOMC meeting, adding that he advocated for a 50-basis point rate hike at the February 1 meeting, according to Bloomberg
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Closing Summary
16-Feb-23 16:25 ET
Dow -431.20 at 33696.80, Nasdaq -214.76 at 11855.86, S&P -57.19 at 4090.41
[BRIEFING.COM] The stock market started, and ended, today's session on a decidedly downbeat note. The negative bias was in response to a higher-than-expected Producer Price Index (PPI) number for January, paired with another remarkably low level of weekly initial jobless claims, which fueled concerns that the Fed will not pause its rate hikes in the near future.
The main indices sank shortly after the open, but there was a fairly strong recovery effort taking place throughout most of the session. The recovery coincided with buyers stepping in when the S&P 500 breached the 4,100 level, along with Treasury yields backing down from their post-data release highs.
There was a sharp reversal in the last hour of trading that had the major indices close the session at or near their worst levels of the day, which took the S&P 500 below 4,100 again. The late afternoon plunge was precipitated by St. Louis Fed President James Bullard (not an FOMC voter) saying that he wouldn't rule out supporting a 50-basis point rate hike at the March FOMC meeting, adding that he advocated for a 50-basis point rate hike at the February 1 meeting, according to Bloomberg.
To be fair, the initial recovery effort happened after Cleveland Fed President Mester (not an FOMC voter) said earlier today that she, too, was advocating for a 50-basis point rate hike at the February 1 meeting. Nonetheless, the stock market used Mr. Bullard's position as an excuse to rein in some of its recovery enthusiasm.
The subsequent retreat was broad in nature. Declining issues outpaced advancing issues by a nearly 3-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq. All 11 S&P 500 sectors registered losses that ranged from 0.8% (consumer staples) to 2.2% (consumer discretionary).
The weight of the mega cap stocks dragged on the broader market in the final hour of trading. The Vanguard Mega Cap Growth ETF (MGK) was down 2.0% versus a 1.1% loss in the Invesco S&P 500 Equal Weight ETF (RSP).
There was some underlying strength in individual companies that pleased investors with earnings and/or guidance. Twilio (TWLO 75.45, +9.40, +14.2%), Roku (ROKU 70.57, +7.08, +11.2%), and Cisco (CSCO 50.99, +2.54, +5.2%) were standouts in that regard.
The 2-yr note yield, which stood at 4.60% before today's data was released, settled the session up three basis points at 4.63% after hitting 4.68% immediately following this morning's releases. Similarly, the 10-yr note yield went from 3.79% to 3.86% following the data and settled the session up three basis points at 3.84%. Yields continued to creep higher following today's settlement and stood at 4.67% and 3.86%, respectively, as of this writing.
- Nasdaq Composite: +13.3% YTD
- Russell 2000: +10.3% YTD
- S&P Midcap 400: +9.9% YTD
- S&P 500: +6.5% YTD
- Dow Jones Industrial Average: +1.7% YTD
Reviewing today's economic data:
- January Housing Starts 1.309 mln (Briefing.com consensus 1.355 mln); Prior was revised to 1.371 mln from 1.382 mln; January Building Permits 1.339 mln (Briefing.com consensus 1.350 mln); Prior was revised to 1.337 mln from 1.330 mln
- The key takeaway from the report was the lack of growth in both single-family starts (-4.3%) and permits (-1.8%), which is a reflection of the adverse impact of rising interest rates and ongoing inflation pressures that are crimping builders' willingness to build new homes and buyers' willingness to purchase new homes due to affordability constraints.
- January PPI 0.7% (Briefing.com consensus 0.4%); Prior was revised to -0.2% from -0.5%; January Core PPI 0.5% (Briefing.com consensus 0.3%); Prior was revised to 0.3% from 0.1%
- The key takeaway from the report for the market is that headline inflation was hotter than expected on a monthly basis. That will stoke worries about inflation pressures persisting at higher levels for longer than expected -- and the Fed keeping rates higher for longer -- even though there was improvement on a year-over-year basis.
- Weekly Initial Claims 194K (Briefing.com consensus 203K); Prior was revised to 195K from 196K; Weekly Continuing Claims 1.696 mln; Prior was revised to 1.680 mln from 1.688 mln
- The key takeaway from the report is that the persistence of initial claims below 200,000 reflects a very tight labor market, and a reluctance on the part of most companies to cut their workforce, which will continue to drive worries at the Fed about tight labor market conditions feeding into stickier wage-based inflation pressures.
- February Philadelphia Fed Index -24.3 (Briefing.com consensus -8.0); Prior -8.9
AMC Networks (AMCX), AutoNation (AN), and Deere (DE) will headline the earnings reports ahead of tomorrow's open.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: January Import Prices (prior 0.4%), Import Prices ex-oil (prior 0.4%), Export Prices (prior -2.6%), and Export Prices ex-agriculture (prior -2.7%)
- 10:00 ET: January Leading Indicators (Briefing.com consensus -0.3%; prior -1.0%)
Market plunges into the close
16-Feb-23 15:35 ET
Dow -349.56 at 33778.44, Nasdaq -195.00 at 11875.62, S&P -50.64 at 4096.96
[BRIEFING.COM] The stock market plunged in the last half hour. The moves coincided with Saint Louis Fed President James Bullard (not an FOMC voter) saying he wouldn't rule out supporting 50 bps March hike, according to Bloomberg.
AMC Networks (AMCX), AutoNation (AN), and Deere (DE) will headline the earnings reports ahead of tomorrow's open.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: January Import Prices (prior 0.4%), Import Prices ex-oil (prior 0.4%), Export Prices (prior -2.6%), and Export Prices ex-agriculture (prior -2.7%)
- 10:00 ET: January Leading Indicators (Briefing.com consensus -0.3%; prior -1.0%)
Energy complex futures lose ground
16-Feb-23 15:00 ET
Dow -140.78 at 33987.22, Nasdaq -62.75 at 12007.87, S&P -18.45 at 4129.15
[BRIEFING.COM] The main indices are hanging out in a narrow range near their best levels of the day.
Energy complex futures settled the session lower. WTI crude oil futures fell 0.1% to $78.48/bbl and natural gas futures fell 2.2% to $2.40/mmbtu. The S&P 500 energy sector (-0.3%) trades in the middle of the pack currently.
Applied Materials (AMAT), DoorDash (DASH), DraftKings (DKNG), Dropbox (DBX), and Redfin (RDFN) headline the earnings reports after today's close.
SAM, SHOP, RNG lag after earnings
16-Feb-23 14:35 ET
Dow -98.15 at 34029.85, Nasdaq -52.24 at 12018.38, S&P -12.84 at 4134.76
[BRIEFING.COM] The main indices have been on a steady incline, trading at or near session highs.
Boston Beer Co (SAM 336.02, -56.89, -14.5%), Shopify (SHOP 44.95, -8.45, -15.8%), and RingCentral (RNG 37.92, -10.45, -21.6%) are among the top laggards today after disappointing with their quarterly results and/or guidance.
Notably, the CBOE Volatility Index is up 2.1%, or 0.38, to 18.91.
Metal futures settle mixed
16-Feb-23 14:05 ET
Dow -121.65 at 34006.35, Nasdaq -47.81 at 12022.81, S&P -15.21 at 4132.39
[BRIEFING.COM] The tech-heavy Nasdaq is tracking with its peers, down 0.4%.
Copper futures rose 2.9% ($0.12) today to settle the session at $21.70/lb and gold futures fell 0.4% ($6.50) to $1,852.00/oz.
The U.S. Dollar Index is down 0.1% to 103.82.
Shopify's Q1 outlook casts a shadow over otherwise solid Q4 results (SHOP)
Shopify (SHOP -15%) may have topped earnings and sales estimates in Q4, but its Q1 revenue forecast of high-teen percentage growth yr/yr is weighing on the stock today. Since October lows, the e-commerce platform has been on a tear, receiving a massive boost after registering 17% sales growth during Black Friday, resulting in an over 112% gain as of yesterday's close. However, this appreciation led to pronounced profit-taking today, especially considering SHOP's relatively frothy 10x forward sales multiple.
- SHOP's Q4 results were solid. Adjusted EPS of $0.07 smashed analyst expectations of negative earnings. Meanwhile, sales grew 25.7% yr/yr to $1.73 bln, accelerating from +21.6% in Q3.
- Gross merchandise volume (GMV) growth also accelerated from Q3, expanding by 13% to $61.0 bln. SHOP noted that the robust Black Friday and Cyber Monday sales were a key driver of its GMV outperformance in Q4.
- It was encouraging to hear that GMV grew in SHOP's online and offline businesses, given its attention to expanding beyond its traditional e-commerce channels, like providing point-of-sales hardware to small businesses.
- Another positive was operating expenses of $987 mln, representing a sequential decline, consistent with SHOP's comments last quarter. Part of the progress on keeping OpEx down was a decline in headcount from Q3 to Q4. However, SHOP has several other initiatives to help manage expenses, including a greater focus on cloud infrastructure spending and heightened scrutiny of marketing programs.
- Still, SHOP's Q1 outlook and commentary cast a shadow on the bright spots from Q4. Management acknowledged the challenging macroeconomic environment, expecting inflation to remain elevated, pushing consumers to discounted and non-discretionary purchases. As such, its Q1 revenue forecast was relatively mild, missing analyst expectations and representing a slowdown in growth from the previous two quarters.
- However, it is worth mentioning that SHOP typically experiences a sequential seasonal decline from Q4 to Q1 due to the strong holiday season.
- Also, the company expects gross margins to be slightly higher than the 46% it boasted in Q4.
There is also a lingering concern surrounding SHOP's relationship with Amazon (AMZN), which expanded its "Buy with Prime" offering to all U.S. merchants on January 31, allowing consumers to checkout on third-party sites using their Prime account. AMZN noted last month that its data showed this initiative to increase shopper conversion by 25% on average. SHOP stated that the move by AMZN will result in a net benefit for merchants and is in talks with the company on how it will work together on this front.
Overall, SHOP's Q4 results may have shined, but Q1 sales projections overshadowed them. The substantial run leading into SHOP's Q4 report also raised the possibility of a sharp pullback on any minor weak spots from the quarter. Lastly, although SHOP sounded optimistic regarding AMZN's "Buy with Prime," there are still uncertainties here, which could continue to hang over the stock.
Twilio twists narrative in favorable direction as streamlining actions underpin big EPS beat (TWLO)
In what's been a very busy news week for Twilio (TWLO), the developer of communication tools to help companies reach their customers is enjoying a much-need rally, bolstered by last night's better-than-expected 4Q22 earnings report. In addition to the upside results, the company announced a $1.0 bln share repurchase program and a commitment from CEO Jeff Lawson to personally buy $10 mln worth of shares as soon as his next trading window opens. These actions represent a show of confidence in TWLO's ability to turn its fortunes around after the stock cratered by over 80% last year.
- Beating analysts' estimates has not been the issue for TWLO. In fact, the company has surpassed top and bottom-line estimates in every quarter over the past five years. A combination of decelerating revenue growth, margin erosion, and an accompanying slide back into unprofitable territory has afflicted the stock.
- This quarter, however, TWLO generated EPS of $0.22, which is by far its most profitable quarter in its history. Ironically, last quarter's loss of ($0.27)/share was TWLO's largest EPS loss in its history.
So, the natural question is, what drove this significant swingin profitability?
- Unfortunately, the answer to that question isn't really related to strengthening demand. Although revenue of $1.02 bln slightly beat expectations, and TWLO's prior guidance of $995 mln - $1.005 bln, the downward trend in revenue growth continued. Two years ago, TWLO was reporting mid-60% growth. Since then, it's been straight downhill with 4Q22's revenue growth of 21.6% representing its weakest increase on record.
- Similar to data analytics company Snowflake (SNOW), TWLO uses a consumption-based model that's quite sensitive to fluctuations in macroeconomic conditions. In other words, when its customers are feeling more cautious about the economy, they can immediately pullback on usage and rein in spending on the platform.
- The company is indeed experiencing a slowdown in spending, which is best reflected in the dollar-based net expansion rate (DBNE). Last quarter, that metric slipped to 122% from 131% in the year-earlier period. In Q4, the decline continued with DBNE dropping to 110%.
Therefore, the improvement in profitability is due to better cost management and cost saving initiatives.
- Recall that TWLO announced an 11% workforce reduction in September. That initiative enabled a 10.6% reduction in sales and marketing expenses this quarter, helping to push non-GAAP operating margin higher to 3% from (3)% in the prior year period.
- The company is not done with its cost-cutting efforts. On Monday, TWLO announced a 17% workforce reduction and the permanent closure of some office locations.
- These streamlining actions will go hand-in-hand with a corporate reorganization into two primary operating segments: Twilio Communications and Twilio Data & Applications.
- The impetus behind this restructuring is to allow TWLO to better focus on improving Communications profitability, while investing in Data & Applications growth.
- On that note, the $250-$350 mln non-GAAP operating profit guidance for FY23 that TWLO provided is completely based on Communications' profits more than offsetting losses in the Data & Applications segment.
Overall, it's clear that TWLO still has a lot of work to do, but its Q4 results were an encouraging step in the right direction.
Boston Beer Co takes a spill as Q4 results & FY23 guidance do not point to a swift turnaround (SAM)
After a challenging FY22, badgered by nagging supply chain disruptions and the fallout from a sizeable bet on Truly Hard Seltzer, there was bubbling optimism that Boston Beer Co (SAM -12%) was embarking on a turnaround following upbeat results last quarter. Unfortunately for the alcoholic beverage giant, its Q4 results did not signal a swift reversal in FY23. Although SAM toppled sales estimates in Q4, it badly missed on earnings and forecasted another year of declining depletions and shipments yr/yr.
- Starting with some positives from Q4, shipments and sales showed good improvement from Q3, increasing 16.7% and 28.6% yr/yr, respectively, an acceleration from +1.4% and +6.2%. SAM also offset inflationary costs with its price hikes.
- Although SAM's pricing actions canceled out higher input costs, its gross margins of 37.0%, an expansion of 830 bps yr/yr, was lower than anticipated due to higher-than-expected inventory obsolescence and lower internal brewery volume. Specifically, SAM produced and sourced enough product to ensure it would not run out of stock, resulting in supply chain inefficiencies. These pressures on gross margins caused GAAP EPS to stay in negative territory compared to the year-ago period at $(0.93).
- Looking ahead to FY23, SAM forecasted total volumes to decline, predicting depletions and shipments to fall 2-8% yr/yr on top of a 5.0% and 3.8% decline, respectively, in FY22.
- However, SAM expects to continue covering its inflationary cost increases with pricing actions, which it anticipates will climb 1-3% yr/yr in FY23. This is notable since rival Constellation Brands (STZ) stated last month the unfavorable economic environment was forcing it into a more subdued pricing approach than it would have wanted.
- As a result, SAM predicted FY23 gross margins of 41-43%, an 80 bp improvement yr/yr, and GAAP EPS of $6.00-10.00, a solid expansion from the $5.44 in FY22.
- Furthermore, management is focused on reducing the complexity in its supply chain, sustaining Twisted Tea's positive growth, and capturing share in Truly in FY23. It is also focusing on more disciplined spending while still investing in advertising.
- SAM is confident that it can sustain double-digit growth in Twisted Tea as it introduces the brand to a broader audience through ad campaigns, expands on the banner through lower calorie options, and capitalizes on underdeveloped consumer demographics.
- Gaining share in Truly will stem from further brand investment, such as reformulating lightly flavored options and avoiding too many new permanent product offerings.
Although SAM outlined some positive developments for FY23, investors could be skeptical of the company's ability to deliver on these goals, especially given the frustration over the past couple of years surrounding Truly and its share losses. Meanwhile, inflationary pressures could continue to spur a shift to lower-priced premium light beers that SAM touched on last quarter. The company boasts a healthy balance sheet and could authorize another repurchase program, given its current $931 mln program has just $81.5 mln remaining. However, we think it would be better to wait on results from SAM's new initiatives, particularly regarding supply chains and brand innovations.
Cisco climbs back above $50 following robust guidance; supply chain seems to be improving (CSCO)
Cisco Systems (CSCO +5%) is trading higher following its Q2 (Jan) earnings report last night. Cisco reported its typical modest upside in Q2, but the guidance was surprisingly bullish. Not only did Cisco guide Q3 (Apr) EPS and revs well above consensus, but it also raised FY23 guidance by more than the Q2 beat and the Q3 upside, which means we can interpret that as upside guidance for Q4 (Jul) as well. Cisco is definitely painting a bright near term picture.
- It seems the tide is turning on its supply chain headwinds, which has been an issue for Cisco in recent quarters. While components for a few product areas remain highly constrained, Cisco saw an overall improvement. In addition, Cisco has been adding new suppliers and redesigning hundreds of products to use alternative components with similar capability. All of this is resulting in increased product deliveries to customers and significant reductions in customer lead times.
- As product deliveries have increased, Cisco noted that channel inventories have also declined as its partners were able to complete customer projects. But keep in mind that, as supply constraints ease and lead times shorten, Cisco expects orders will normalize from previously elevated levels as customers return to more typical buying patterns. As a result, sequential quarterly order growth, not yr/yr, is a better metric to use.
- Turning to demand, Cisco saw normal double-digit sequential growth in both its enterprise and commercial markets, while public sector performed better than its historical norms. Within its service provider business, Cisco said its order rate was below recent sequentials as some customers are absorbing the improved delivery of Cisco's products. Within web-scale, while Cisco saw overall slowing due to normalizing product lead times, two of its largest customers grew their orders over 40% in 1H.
- Margins are worth a quick mention. Non-GAAP operating margin declined yr/yr, as expected, due to higher component costs, but at 32.5%, that was at the high end of prior guidance of 31.5-32.5%. And importantly, Cisco is guiding to a sequential uptick in Q3 at 33-34%, which is encouraging to see.
Overall, this was a good solid quarter and what stands out to us is the robust guidance for Q3 and Q4. The tide seems to finally be turning on the supply issues, which is great. However, the negative about that is customers are slowing orders a bit to absorb all this new product they are finally actually able to receive from Cisco. We think that's why the stock popped 7% when earnings/guidance was announced, but some of the comments on the call cooled investor excitement a bit. Finally, Cisco's report may impact other networking equipment names: JNPR, EXTR, CIEN, LITE, ANET, NOK. Also, Broadcom (AVGO) is a key supplier to Cisco.
Page One
Last Updated: 16-Feb-23 09:07 ET | Archive
Economic data putting bullish conviction to the test
There has been a lot of corporate news since yesterday's close. Most of it relates to earnings reports.
Cisco Systems (CSCO), Roku (ROKU), Zillow Group (ZG), Crocs (CROX), and Twilio (TWLO) are among the winning standouts in terms of post-report reactions. Shopify (SHOP), Boston Beer (SAM), Paramount Global (PARA), Toast (TOST), and Datadog (DDOG) are among the losing standouts. In other words, the response to earnings news has been mixed.
There has also been another large slate of economic data.
- The January Producer Price Index (PPI) was up 0.7% month-over-month (Briefing.com consensus 0.4%) following an upwardly revised 0.2% decline (from -0.5%) in December. Core-PPI, which excludes food and energy, was up 0.5% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.3% increase (from 0.1%) in December. On a year-over-year basis, PPI was up 6.0%, versus 6.2% in December, and core-PPI was up 5.4%, versus 5.8% in December.
- The key takeaway from the report for the market is that headline inflation was hotter than expected on a monthly basis. That will stoke worries about inflation pressures persisting at higher levels for longer than expected -- and the Fed keeping rates higher for longer -- even though there was improvement on a year-over-year basis.
- January housing starts declined 4.5% month-over-month to a seasonally adjusted annual rate of 1.309 million (Briefing.com consensus 1.355 million) from a downwardly revised 1.371 million (from 1.382 million) in December. Building permits increased 0.1% month-over-month to a seasonally adjusted annual rate of 1.339 million (Briefing.com consensus 1.350 million) from an upwardly revised 1.337 million (from 1.330 million) in December.
- The key takeaway from the report was the lack of growth in both single-family starts (-4.3%) and permits (-1.8%), which is a reflection of the adverse impact of rising interest rates and ongoing inflation pressures that are crimping builders' willingness to build new homes and buyers' willingness to purchase new homes due to affordability constraints.
- Initial jobless claims for the week ending February 11 decreased by 1,000 to 194,000 (Briefing.com consensus 203,000). Continuing jobless claims for the week ending February 4 increased by 16,000 to 1.696 million.
- The key takeaway from the report is that the persistence of initial claims below 200,000 reflects a very tight labor market, and a reluctance on the part of most companies to cut their workforce, which will continue to drive worries at the Fed about tight labor market conditions feeding into stickier wage-based inflation pressures.
- The Philadelphia Fed Index for February dropped to -24.3 (Briefing.com consensus -8.0) from -8.9 in January, with the New Orders Index slipping to -13.6 from -10.9 and the Prices Paid Index increasing to 26.5 from 24.5.
- The key takeaway from the report is that the overall number is the lowest since May 2020 and that firms generally expect prices to moderate in the next six months.
The initial response to the economic news has not been mixed like the initial response to the earnings news was. On the contrary, it has been negative in both the stock market and the Treasury market, with the former feeding off the latter.
Prior to the economic data releases, the S&P 500 futures were down about 14 points. Currently, they are down 47 points and are trading 1.2% below fair value. The Nasdaq 100 futures are down 180 points and are trading 1.4% below fair value, and the Dow Jones Industrial Average futures are down 283 points and are trading 0.8% below fair value.
The 2-yr note yield popped from 4.60% ahead of the reports to 4.67%, whereas the 10-yr note yield jumped from 3.79% to 3.83%.
The concern is that the PPI and initial claims data, along with the recent January employment, ISM Services, and CPI data, will keep the Fed from believing it can pause its rate hikes soon. Furthermore, it will push out expectations for when the Fed might even entertain the idea of a rate cut.
Those same concerns have been festering since the release of the January employment report, yet the stock market has always bounced back so to speak from its worst fears this year. Today, its confidence will be put to the test as the continued rise in interest rates will continue to shed light on extended valuations and some complacent attitudes.
-- Patrick J. O'Hare, Briefing.com
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