Market Snapshot
briefing.com
| Dow | 32978.00 | -151.50 | (-0.46%) | | Nasdaq | 11473.15 | -19.15 | (-0.17%) | | SP 500 | 3981.55 | -15.79 | (-0.40%) | | 10-yr Note | +3/32 | 3.92 |
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| | NYSE | Adv 1568 | Dec 1324 | Vol 920 mln | | Nasdaq | Adv 2142 | Dec 2318 | Vol 4.5 bln |
Industry Watch
| Strong: Consumer Discretionary, Materials |
| | Weak: Energy, Real Estate, Utilities, Health Care, Consumer Staples |
Moving the Market
-- Pullback in Treasury yields helping to limit strong selling interest
-- St. Louis Fed President Bullard (non-FOMC voter) told CNBC earlier that his target rate for now is 5.375%, that the U.S. economy is stronger than the Fed thought, and that the market may be overpricing the risk of a recession in the second half of 2023
-- FOMC Minutes from the Jan. 31- Feb. 1 meeting indicated that a few participants wanted to raise rates by 50 basis points at the meeting and that "...substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path."
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Closing Summary
22-Feb-23 16:30 ET
Dow -84.50 at 33045.00, Nasdaq +14.77 at 11507.07, S&P -6.29 at 3991.05
[BRIEFING.COM] Today's trade started with a more positive tone that had the main indices oscillating around a narrow range right above their flat lines. Moves were modest in scope, though, as investors awaited the FOMC Minutes for the Jan. 31-Feb. 1 meeting at 2:00 p.m. ET.
The Minutes indicated that "...substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path." There were also a few participants that wanted to raise rates by 50 basis points at the meeting.
Nonetheless, there wasn't anything too surprising in the Minutes. Just this morning, St. Louis Fed President Bullard (non-FOMC voter) told CNBC that he thinks the fed funds rate should be at 5.375% before the Fed pauses. In addition, a lot of the economic data received since the last FOMC meeting fueled the narrative that the Fed is likely to take rates higher than previously expected and keep them higher for longer than previously expected.
Immediately after the Minutes were released, the stock market experienced some whipsaw price action before settling into a slow decline. Downside moves were not outsized, however, so the late afternoon selling pressure may have been a reflection of ongoing consolidation efforts rather than renewed concerns surrounding the Fed's rate hike path.
Ultimately, the main indices were able to climb off their post-FOMC Minutes lows by the closing bell. The S&P 500 and Dow Jones Industrial Average were pinned just below their flat lines while the Nasdaq squeezed out a slim gain.
In addition to a mixed finish at the index level, market internals reflected mixed action below the surface. Advancers led decliners by an 11-to-10 margin at the NYSE while decliners led advancers by roughly the same margin at the Nasdaq.
Only two of the 11 S&P 500 sectors -- materials (+0.7%) and consumer discretionary (+0.5%) -- closed with a gain. Meanwhile, the real estate (-1.0%) and energy (-0.8%) sectors were the worst performers today.
Notably, small cap stocks held up better than their larger peers. The Russell 2000 (+0.3%) exhibited some of the "biggest" gains by the close.
The Treasury market also had a more muted reaction to the FOMC Minutes. The 2-yr note yield fell three basis points today to 4.70% and the 10-yr note yield fell three basis points to 3.92%.
- Nasdaq Composite: +9.9% YTD
- Russell 2000: +7.6% YTD
- S&P Midcap 400: +7.2% YTD
- S&P 500: +4.0% YTD
- Dow Jones Industrial Average: -0.3% YTD
Today's economic data was limited to the weekly MBA Mortgage Applications Index, which fell 13.3% following a 7.7% decline in the prior week.
Ahead of tomorrow's open, Alibaba (BABA), American Electric (AEP), American Tower (AMT), Bath & Body Works (BBWI), Domino's Pizza (DPZ), Genuine Parts (GPC), Moderna (MRNA), NetEase (NTES), Newmont Goldcorp (NEM), Nikola Corp (NKLA), Papa John's (PZZA), Planet Fitness (PLNT), Wayfair (W), and YETI Holdings (YETI) will headline the earnings reports.
Market participants will receive the following economic data on Thursday:
- 8:30 ET: Weekly Initial Claims (prior 194,000), Continuing Claims (prior 1.696 mln) Q4 GDP -- second estimate (prior 2.9%), and Q4 GDP Deflator -- second estimate (prior 3.5%)
- 10:30 ET: Weekly natural gas inventories (prior -100 bcf)
- 11:00 ET: Weekly crude oil inventories (prior 16.28 mln)
Earnings ahead of tomorrow's open; econ data out tomorrow
22-Feb-23 15:35 ET
Dow -130.59 at 32998.91, Nasdaq +4.31 at 11496.61, S&P -11.75 at 3985.59
[BRIEFING.COM] The S&P 500 and Dow Jones Industrial Average remain near their worst levels of the day while the Nasdaq has been able to maintain a slim gain.
Ahead of tomorrow's open, Alibaba (BABA), American Electric (AEP), American Tower (AMT), Bath & Body Works (BBWI), Domino's Pizza (DPZ), Genuine Parts (GPC), Moderna (MRNA), NetEase (NTES), Newmont Goldcorp (NEM), Nikola Corp (NKLA), Papa John's (PZZA), Planet Fitness (PLNT), Wayfair (W), and YETI Holdings (YETI) will headline the earnings reports.
Market participants will receive the following economic data on Thursday:
- 8:30 ET: Weekly Initial Claims (prior 194,000), Continuing Claims (prior 1.696 mln) Q4 GDP -- second estimate (prior 2.9%), and Q4 GDP Deflator -- second estimate (prior 3.5%)
- 10:30 ET: Weekly natural gas inventories (prior -100 bcf)
- 11:00 ET: Weekly crude oil inventories (prior 16.28 mln)
Market trades near session lows
22-Feb-23 15:05 ET
Dow -151.50 at 32978.00, Nasdaq -19.15 at 11473.15, S&P -15.79 at 3981.55
[BRIEFING.COM] The main indices trade near their worst levels of the day following the FOMC Minutes release.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 3.2% to $73.89/bbl and natural gas futures rose 4.7% to $2.17/mmbtu.
Bumble (BMBL), Dutch Bros. (BROS), eBay (EBAY), Etsy (ETSY), Five9 (FIVN), NetApp (NTAP), NVIDIA (NVDA), Rent-A-Center (RCII), Teladoc Health (TDOC), and Unity Software (U) will headline the earnings reports after the close.
Most officials favored 25 bps hike at last meeting, minutes show
22-Feb-23 14:25 ET
Dow +32.73 at 33162.23, Nasdaq +53.33 at 11545.63, S&P +9.57 at 4006.91
[BRIEFING.COM] The major averages whipsawed following the release of the FOMC's minutes from its January meeting. Up-and-down action saw the S&P 500 (+0.24%) and the Dow Jones Industrial Average (+0.10%) dip into the red briefly.
The minutes highlighted that, almost all participants agreed that it was appropriate to raise the target range for the federal funds rate 25 basis points at this meeting. A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount.
With inflation still well above the Committee's longerrun goal of 2 percent, participants agreed that inflation was unacceptably high. A number of participants commented that the costs of elevated inflation are particularly high for lower-income households.
Further, a number of participants observed that financial conditions had eased in recent months, which some noted could necessitate a tighter stance of monetary policy. The minutes also showed that "several" participants observed that risks to the economic outlook were becoming more balanced.
In recent trading the yield on the benchmark 10-yr treasury note is down about four basis points to 3.918%.
Gold narrowly lower ahead of FOMC minutes
22-Feb-23 14:00 ET
Dow +62.03 at 33191.53, Nasdaq +55.65 at 11547.95, S&P +11.57 at 4008.91
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (+0.48%) is atop the standings. As a reminder, FOMC minutes from the January meeting are due out at the top of the hour.
Gold futures settled $1 lower (-0.1%) to $1,841.50/oz.
Meanwhile, the U.S. Dollar Index is up +0.2% to $104.33.
Page One
Last Updated: 22-Feb-23 08:56 ET | Archive
Steadier rates, steadier stock market
The stock market had a tough day on Tuesday. It hasn't had many tough days in 2023, though, and it has had even fewer, back-to-back tough days.
At the moment, the market is holding its ground. The S&P 500 futures are up eight points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 36 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 57 points and are trading 0.2% above fair value.
Those are not robust indications, yet they are tipped in favor of a modestly higher open.
Some steadying action in the Treasury market, some speculative buy-the-dip interest, and some supportive remarks about the economy from a Fed official have the stock market in a little bit better mood so far today.
Briefly, St. Louis Fed President Bullard (non-FOMC voter) told CNBC earlier that the U.S. economy has been stronger than the Fed thought it would be and that he thinks the market may be overpricing the risk of recession in the second half of 2023.
He said this after acknowledging that he thinks the fed funds rate should be at 5.375% before the Fed pauses to assess things.
There was some improvement in the futures market after his remark that the market may be overpricing the risk of recession, yet the market tempered its enthusiasm for that view knowing that he also advocated for a higher, and more restrictive, fed funds rate that will ultimately slow both economic and earnings growth.
Market participants will get some added insight on the Fed's thinking when the minutes from the Jan. 31-Feb. 1 FOMC meeting are released at 2:00 p.m. ET. It is important to note that this meeting took place before the much stronger-than-expected January employment report and the less-than-pleasing CPI and PPI reports for January.
Accordingly, the market should be more sensitive to views in the minutes that emphasize a need to take rates higher, and leave them at higher levels for longer, than it is to views with a softer-sounding approach.
The 2-yr note yield is down five basis points to 4.68% and he 10-yr note yield is down two basis points to 3.94%. The 6-month T-bill yield, however, is up eight basis points to 5.10%.
Interest rate moves will remain a key driver of stock prices. Those moves today are less challenging so far than they were yesterday, so the equity futures are in a less challenging position than they were before yesterday's open.
-- Patrick J. O'Hare, Briefing.com
Baidu can't hang on to earlier gains as glow from upside report and chat bot launch fades (BIDU)
Bolstered by its cost cutting efforts and emergence of its AI-powered businesses, Baidu (BIDU) exceeded 4Q22 EPS and revenue estimates, providing the Chinese internet giant with some momentum following a tough year. Throughout most of 2022, China's strict zero-COVID policy and its associated lockdowns hamstrung the country's economic growth, causing online advertising demand to weaken. While those policies were significantly loosened late in the year, BIDU's advertising revenue -- which accounts for about 60% of its total revenue -- still sank by 6% yr/yr.
- However, BIDU is optimistic that its bread-and-butter online advertising business will rebound just as its AI businesses (autonomous driving/robo taxies, ERNIE chat bot, Cloud) reach an inflection point. Accordingly, the company expressed its confidence by announcing a $5 bln share repurchase program.
- Investors have been feeling quite bullish about BIDU's prospects too, as reflected in the stock's 20% year-to-date gain.
- That positive sentiment is mainly a function of the buzz and excitement surrounding AI-powered chat bots, including BIDU's "ERNIE Bot, which will be launched in March.
- The capabilities and possibilities related to chat bots hit the mainstream with the rollout of OpenAI's ChatGPT. The Microsoft (MSFT) backed technology reportedly has nearly 60 mln users after launching just a couple months ago, pushing both Google (GOOG) and BIDU to unleash their versions.
- There is plenty of skepticism, though, that the actual financial rewards for chat bots will match the current hype -- at least in the near term. BIDU intends to integrate ERNIE into its search, cloud, and autonomous driving technologies.
- The thesis is that a more dynamic and interactive user interface will draw in more users, thereby, driving advertising rates higher. That scenario could indeed unfold, but as GOOG's BARD chat bot showed when it embarrassingly gave a wrong answer to a question, there is no guarantee that everything will proceed as anticipated.
- ERNIE's impact on the bottom line is another uncertainty. Over the past few years, BIDU has ramped up its investments in its autonomous driving and Apollo Go robo taxi businesses. While Apollo Go is gaining solid traction with rides surging by 162% yr/yr to 561K, it's still a drag on the company's bottom-line.
- The hope, though, is that an upswing in BIDU's profitable advertising business will allow the company's earnings to grow, even as the AI businesses expand.
After initially jumping higher following the release of its results, BIDU has since given up those gains and is now trading in the red. Perhaps there's some profit-taking occurring as the realization sets in that BIDU's chat bot likely won't provide an instant and meaningful boost to BIDU's top-line, which is in need of a spark after declining by about 2% this quarter.
Intel chips away at cash preservation needs via dividend cut, putting expected move behind it (INTC)
Something had to give as Intel's (INTC) earnings, margins, and cash flow continue to erode as the chip maker's primary PC and server markets grapple with macroeconomic headwinds and an associated inventory supply imbalance. That "something" turned out to be INTC's lofty quarterly dividend, which was sporting an annualized yield of about 5.6% before today's announcement. Specifically, the company announced a new quarterly dividend of $0.125/share, representing a 66% cut from the prior payout.
- The decision to slash the dividend doesn't come as a major surprise. In fact, INTC's executives were asked about that possibility during the 4Q22 earnings call in late January. Falling short of fully committing to the former $0.365/share quarterly dividend, INTC simply stated that it intends to maintain a "competitive dividend."
- However, with INTC issuing a very bleak outlook for 1Q23 (which was reaffirmed today), including its first quarterly loss in many years and an expected 40% yr/yr plunge in revenue, the huge dividend was really looking unsustainable.
- On that note, INTC's cash flow from operations was nearly cut in half in FY22, coming in at $15.4 bln. Of that amount, nearly $6.0 bln was paid out in the form of dividends. With FY22 net income of about $8.0 bln, the dividend payout ratio penciled out to an unfeasible 75%.
The dividend isn't the only item that INTC has targeted in its pursuit to shore up its financials.
- In Q4, the company implemented a significant workforce reduction plan and began rationalizing its investments around areas that it believes hold the highest long-term value. Today, INTC reiterated that it intends to deliver $3.0 bln in cost savings in FY23, putting it on a path to achieve $8-$10 bln in annualized savings by the end of 2025.
- Rewinding a bit further, INTC spun-off its Mobileye (MBLY) autonomous driving unit on October 26 via an IPO which valued the company at $16.7 bln. That valuation looked like a fire sale price because MBLY was expected to fetch a $50+ bln valuation only a year before the IPO launched. Indeed, the decision to unload MBLY now looks a bit hasty as shares have nearly doubled versus the $21/share IPO price.
The spin-off, layoffs, and dividend cut are all intended to improve INTC's financial flexibility as it moves ahead with its transformation of becoming a domestic chip producer.
- Last July, the company announced plans for an initial investment of more than $20 bln to construct two chip factories in Ohio. Over the next decade, INTC's investments in these plants could exceed $100 bln.
- In the meantime, the company's margins continue to take a massive hit as it ramps up its investments and as its end markets tumble. Gross margin in Q4 collapsed to 43.8% from 55.8% in the year-earlier quarter. Worse yet, INTC guided for a huge sequential decline to just 39.0%.
The main takeaway is that the dividend cut was both necessary and anticipated, explaining why the stock is holding up quite well today. The fact that INTC also reaffirmed its 1Q23 guidance doesn't hurt either, providing some relief that its business has at least stabilized over the past month.
Palo Alto Networks jumps following big EPS beat and raised guidance driven by margin expansion(PANW)
Palo Alto Networks (PANW +11%) is trading nicely higher today after reporting robust Q2 (Jan) results last night. The cybersecurity giant reported a nice EPS beat with in-line revenue. The EPS guidance for Q3 (Apr) was very impressive and much better than analyst expectations while revenue guidance was actually a bit light. This pattern of in-line-ish revenue performance coupled with big EPS upside tells us PANW's margins are coming in much better than expected.
- PANW keeps performing well with billings. Q2 billings grew 26% yr/yr to $2.0 bln, which was above the high end of the $1.94-1.99 bln prior guidance, and roughly on par with the 27% billings growth seen in Q1 (Oct). That is down from the 40% growth seen in prior quarters, but the macro environment is tougher now and PANW is lapping tough comparisons. Billings is a key operating metric in terms of evaluating the sales pipeline.
- On the call, PANW conceded that there is clearly a tougher macro environment emerging as the Fed continues to raise rates, which is making business leaders more cautious. PANW thinks this could last several more quarters. The company has seen some projects get delayed or descoped, but none canceled, while most continue on track. Cybersecurity tends to be more resilient, and PANW continues to see evidence of that.
- On the large deal front, PANW says this cautious behavior is definitely widespread, which is creating more conversations around payment terms, discounts and scope of the deal. The silver lining is that PANW did not see any major deals slip from the quarter. Also, this environment is causing clients to reduce their security vendor sprawl. Clients are leaning more toward big vendors like PANW which offers a range of products.
- Non-GAAP operating margin jumped 440 bps yr/yr to 22.8%, driven mainly by an increase in software mix, a slower level of head count additions and less pressure from supply chain costs as the supply chain situation has improved significantly versus six months ago.
Overall, this was a solid quarter for PANW and certainly better than feared. We think the nice EPS beat and impressive margin expansion are pushing the stock higher. But we also think investors are breathing a sigh of relief that PANW was able to guide AprQ EPS well above expectations even with clients tightening their belts. Also, PANW seemed a bit more optimistic on the call relative to cybersecurity peers, like Check Point Software (CHKP), which saw margins decline and talked about budgets dropping off towards year-end.
TJX's FY24 earnings outlook weighs on shares today, overshadowing otherwise solid JanQ numbers (TJX)
Although Walmart (WMT) managed to end the day in the green yesterday, its gloomy FY24 (Jan) outlook filled the retail landscape with some uneasiness, particularly on the general merchandise side, where the company experienced softness in home and apparel goods. Against this backdrop, TJX (TJX -1%), which owns off-price apparel banners T.J. Maxx and Marshalls, as well as home furnishings banner HomeGoods, posted decent Q4 (Jan) results.
The company grew earnings by over 14% yr/yr, in line with consensus, delivered +4% comp growth, topping its outlook with ease, and guided FY24 comps to +2-3%, in line with its prior forecast of low single digits. At the same time, TJX raised its quarterly dividend by 13% and authorized a new $2.0 bln share repurchase program on top of its existing $1.5 bln plan.
So why are shares off to a rough start today?
- Investors are likely locking onto TJX's similarly downbeat earnings outlook as WMT. TJX expects adjusted EPS of $3.39-3.51 in FY24, below analyst estimates. Nevertheless, this still represents nearly 11.0% growth yr/yr at the midpoint, unlike WMT's forecast, which translated to a 5.0% dip yr/yr.
- Additionally, merchandise margins edged lower yr/yr, just missing TJX's expectations, due to a 60 bp hit from an unplanned shrink charge. Similarly, pretax profit margins of 9.2% underperformed company forecasts. Still, TJX remained confident in achieving its pretax profit margin target of 10.6% by FY25.
- Meanwhile, HomeGoods continued to struggle, registering a -7% same-store sales decline in Q4, its fourth-consecutive quarter of sliding comp growth. Management noted that part of the soft growth at HomeGoods was due to challenging comparisons from the year-ago period, where comp growth zoomed +10% higher.
- Also, with department stores and retailers forced to slash prices to clear out inventory, investors may be wary of potential market share loss as competitors' prices begin creeping closer to TJX's typical bargain prices. The good news is that the heightened promotional activity may have peaked during the holiday quarter. For example, WMT expressed that FY24 will be a more-normal environment for markdowns. Still, if economic conditions worsen, it could fuel more markdowns than anticipated across the apparel and home goods landscape.
TJX posted solid numbers in Q4; its raised dividend and share repurchase program are a vote of confidence in future cash flows. However, as we witnessed with WMT, the market is grabbing onto TJX's underwhelming guidance headlines and a few other weak points from the quarter. The company's outlook sets a somber tone ahead of JanQ reports from other off-priced retailers, including Ross Stores (ROST) on February 28 and Burlington Stores (BURL) on March 2.
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