Market Snapshot
briefing.com
| Dow | 32381.75 | -416.56 | (-1.27%) | | Nasdaq | 11398.13 | -177.87 | (-1.54%) | | SP 500 | 3935.03 | -56.98 | (-1.43%) | | 10-yr Note | +25/32 | 3.93 |
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| | NYSE | Adv 449 | Dec 2650 | Vol 981 mln | | Nasdaq | Adv 959 | Dec 3560 | Vol 4.9 bln |
Industry Watch
| Strong: -- |
| | Weak: Financials, Materials, Real Estate, Consumer Discretionary, Communication Services |
Moving the Market
-- Higher than expected weekly jobless claims
-- Treasury yields sink in flight-to-safety trade
-- Bank stocks suffer large declines amid heightened concerns about capital positions and earnings prospects
-- Hesitation ahead of February Jobs Report tomorrow
-- S&P 500 drops below key support at 200-day moving average (3,941)
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Closing Summary
09-Mar-23 16:10 ET
Dow -543.54 at 32254.77, Nasdaq -237.65 at 11338.35, S&P -73.69 at 3918.32
[BRIEFING.COM] The stock market made an attempt to start today's session on an upbeat note, bolstered by leadership from the mega-cap stocks and some hope that a higher-than-expected initial jobless claims reading could be followed Friday with a weaker-than-expected nonfarm payrolls number for February. That opening move was short-lived, however, as some disconcerting news and price action in the banking space undermined investor confidence.
Banks led a broad-based market downturn that saw the S&P 500 slice through its 200-day moving average (3,941) and close near its low for the session in a steady selloff that involved most stocks.
The bank stocks sold off sharply today amid concerns about rising rates, higher deposit costs, and weaker loan demand that collided with the news that Silvergate Capital (SI 2.85, -2.06, -42.0%) is voluntarily liquidating Silvergate Bank, and that SVB Financial (SIVB 106.04, -161.79, -60.4%), based in Silicon Valley, is seeking to raise capital as it has seen elevated cash burn from its clients.
The latter triggered worries about the state of deposit bases and capital positions for smaller banks that drove concerted selling interest in the space.
The added angst in today's price action was the understanding that something typically "breaks" when the Fed is in an aggressive tightening cycle, and that the banks, whether they are the specific problem in that regard, will likely get pulled into it nonetheless given their lending role.
Accordingly, there was a risk reduction effort afoot in the banking space, evidenced by a 7.3% decline in the SDPR S&P Bank ETF (KBE) and an 8.1% decline in the SPDR S&P Regional Banking ETF (KRE), that stirred concerns about bigger issues possibly coming to the fore.
It was striking, too, that Treasury yields moved noticeably lower today, yet stocks did not respond in opposite kind to that move. Instead, stocks slid alongside Treasury yields, implying that the move in Treasuries was more of a flight-to-safety than anything else. On a related note, the CBOE Volatility Index jumped 18.2% to 22.59.
The 2-yr note yield, which hit 5.06% before today's open, settled the session down 18 basis points to 4.88% and the 10-yr note yield, which hit 4.01% before today's open, settled the day down five basis points at 3.93%. The U.S. Dollar Index fell 0.4% to 105.25.
The financial sector (-4.1%), weighed down by its banking components, was the worst-performing sector but it had lots of company in the losing category. All 11 sectors finished lower with losses ranging from 0.8% to 4.1%. Not surprisingly, the defensive-oriented utilities (-0.8%), consumer staples (-0.9%), and health care (-1.0%) sectors saw the slimmest losses on a day that clearly had a risk-off disposition.
Decliners led advancers by a 6-to-1 margin at the NYSE and by a better than 3-to-1 margin at the Nasdaq.
- Nasdaq Composite: +8.3% YTD
- S&P Midcap 400: +4.1% YTD
- Russell 2000: +3.7% YTD
- S&P 500: +2.1% YTD
- Dow Jones Industrial Average: -2.7% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending March 4 increased by 21,000 to 211,000 (Briefing.com consensus 198,000) and continuing jobless claims for the week ending February 25 increased by 69,000 to 1.718 million. Those were the highest claims levels since December.
- The key takeaway from the report is that it teased the prospect of some softening in the labor market, as it marked the first initial claims reading above 200,000 in eight weeks. Still, it can be said that the current claims level remains in a zone that is indicative of a tighter labor market overall.
- EIA Natural Gas Inventories -84 bcf vs prior -81 bcf
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: February Employment Situation Report
- 14:00 ET: February Treasury Budget
S&P 500 nearly reaches 3900
09-Mar-23 15:35 ET
Dow -483.56 at 32314.75, Nasdaq -221.54 at 11354.46, S&P -64.51 at 3927.50
[BRIEFING.COM] The S&P 500 is trying to move a little bit higher after nearly falling to the 3,900 level.
The small cap stocks continue to suffer the steepest losses. The Russell 2000 is down 2.5%.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: February Nonfarm Payrolls (Briefing.com consensus 205,000; prior 517,000), Nonfarm Private Payrolls (Briefing.com consensus 203,000; prior 443,000), Unemployment Rate (Briefing.com consensus 3.4%; prior 3.4%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), and Average Workweek (Briefing.com consensus 34.6; prior 34.7)
- 14:00 ET: February Treasury Budget (prior -$38.80 bln)
S&P 500 testing 200-day moving average
09-Mar-23 15:05 ET
Dow -416.56 at 32381.75, Nasdaq -177.87 at 11398.13, S&P -56.98 at 3935.03
[BRIEFING.COM] The S&P 500 is testing support at its 200-day moving average (3,938).
Notably, market rates continue to decline, but that hasn't offered any support to equities. The 2-yr note yield is down 19 basis points to 2.88% and the 10-yr note yield is down seven basis points to 3.91%.
Energy complex futures lost ground this session. WTI crude oil futures fell 1.2% to $75.70/bbl and natural gas futures fell 1.6% to $2.68/mmbtu.
On an energy related note, the S&P 500 energy sector shows some of the slimmest losses among the 11 sectors.
Caesars, gaming/leisure peers weaker on Thursday; GE jumps after guidance reaffirming guidance
09-Mar-23 14:25 ET
Dow -268.62 at 32529.69, Nasdaq -139.99 at 11436.01, S&P -39.39 at 3952.62
[BRIEFING.COM] The S&P 500 (-0.99%) is down about 39 points in recent trading, moving largely sideways over the previous half hour.
S&P 500 constituents Caesars Entertainment (CZR 50.01, -3.34, -6.26%), Norwegian Cruise Line (NCLH 14.46, -0.82, -5.37%), and Netflix (NFLX 296.89, -14.90, -4.78%) pepper the bottom of the standings. General weakness in the gaming/leisure space drags both CZR and NCLH lower today, while NFLX sees losses ramp up despite a dearth of corporate news.
Meanwhile, General Electric (GE 92.66, +5.68, +6.53%) is atop the S&P after reaffirming its FY23 guidance.
Gold ends higher ahead of tomorrow's employment report
09-Mar-23 14:00 ET
Dow -261.16 at 32537.15, Nasdaq -132.39 at 11443.61, S&P -37.00 at 3955.01
[BRIEFING.COM] With about two hours remaining on Thursday the tech-heavy Nasdaq Composite (-1.14%) hosts the steepest losses on the session, though all three major averages continue to make new lows as the minutes go by.
Gold futures settled $16.00 higher (+0.9%) to $1,834.60/oz, partly helped by the response to this morning's higher-than expected weekly jobless claims, which succeeded in taking some of the edge off in front of tomorrow's February employment report.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $105.22.
Nervous vibe in front of moving day
One housekeeping item to get out of the way: Fed Chair Powell will not be speaking today (at least not in an official capacity in a public setting). His words from earlier in the week, though, continue to hang over the capital markets like an insecurity blanket.
Accordingly, a nervous vibe in front of tomorrow's February employment report is eroding investor conviction. The reason being is that Mr. Powell said the Fed will be data dependent and is not on a preset path with its policy decisions. Having said as much, he all but ensured that there will be outsized movement in the market following key data points, like the employment report and next week's CPI and PPI reports.
In other words, they are binary events, the outcome of which is apt to send the indices strikingly higher or strikingly lower in their wake. That doesn't mean they will necessarily finish strikingly higher or strikingly lower, but volatility after these reports is considered a given.
The default position now it seems is to hold back and not over commit to any position while at the same time recognizing that market rates, particularly shorter-dated rates, have moved higher this week following the Fed Chair's contention that "...the ultimate level of interest rates is likely to be higher than previously anticipated."
The 6-month T-bill yield has jumped 14 basis points this week to 5.27%, the 1-yr T-bill yield has surged 20 basis points to 5.29%, and the 2-yr note yield has climbed 19 basis points to 5.05%. Interestingly, the 10-yr note yield was up only four basis points at 4.01%, trailing the moves at the front of the curve as investors fret over the possibility that the Fed will overdo things with its rate hikes and force a hard landing for the economy.
The latter point notwithstanding, the 10-yr note yield dancing with 4.00% has created a headwind for stocks this morning along with the 5.00%+ yields for shorter-dated securities.
The latest weekly initial jobless and continuing claims report, however, has helped ease some of the headwinds.
Briefly, initial jobless claims for the week ending March 4 increased by 21,000 to 211,000 (Briefing.com consensus 198,000) and continuing jobless claims for the week ending February 25 increased by 69,000 to 1.718 million. Those were the highest claims levels since December.
The key takeaway from the report is that it teased the prospect of some softening in the labor market, as it marked the first initial claims reading above 200,000 in eight weeks. Still, it can be said that the current claims level remains in a zone that is indicative of a tighter labor market overall.
Nonetheless, the Treasury market got a bit of a reprieve from the claims report. Yields have come down from higher levels seen before the report. The 2-yr note yield has dipped to 5.02% and the 10-yr note yield has dipped to 3.98%. Equity futures have improved some, too.
Currently, the S&P 500 futures, which had been down 12 points, are up four points and are trading slightly above fair value, the Nasdaq 100 futures, which had been down 65 points, are up eight points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures, which had been down 30 points, are up 65 points and are trading 0.2% above fair value.
There is a smattering of corporate news, but none of it has market-moving cachet. The initial claims report clearly had some cachet to move things, but the real mover will be the employment report on Friday.
-- Patrick J. O'Hare, Briefing.com
JD.com sinks despite topping Q4 estimates as a recovery in consumer sentiment could take time (JD)
China-based e-commerce titan JD.com (JD -10%) may have topped Q4 (Dec) earnings and revenue estimates. However, management's deflating comments on the current state of the economy are driving a pronounced sell-off today.
JD noted that a shift in consumers' lifestyles and preferences during the post-pandemic environment results in numerous challenges. On the one hand, JD is recognizing a rise in middle-class households, evidenced by daily active user (DAU) growth remaining in double-digits yr/yr during Q4. However, on the other hand, consumers have pulled back from their prior spending patterns, becoming more meticulous in their budgeting.
Due to the volatile economic backdrop, JD is adjusting how it operates its business. The company is pulling back investing in new businesses that have failed to develop efficient business models or reached sufficient economies of scale. JD is also expanding its supply chain capabilities for its core retail business. Building off that, JD is also reallocating resources into retail, streamlining promotional programs, and improving its traffic allocation mechanism.
- Some of these measures are already paying off. JD noted that it had seen a significant increase in product selection on its platform offered by first and third-party merchants. JD's merchant base also grew by over 20% yr/yr for the eighth-straight quarter in Q4.
- Additionally, JD is witnessing an upward trend in users, reflecting early success with its commitment to bolstering its retail offerings. The number of repeat purchases improved in Q4, accounting for a higher proportion of JD's total users, helping advance shopping frequency and average revenue per user (ARPU).
- JD Plus, JD's membership program, reached 34 mln members in Q4, a 36% jump from the year-ago period. The robust Plus growth is vital as JD's data shows that Plus members spend eight times the average annual amount of non-Plus members.
- Revenue in Shop Now, JD's one-hour delivery service, climbed by 80% yr/yr in Q4. With JD stepping up its supply chain investments, it can continue boasting tremendous growth in this omnichannel business.
Overall, the retail landscape is depressed, but JD is leaning on internal measures to better steer through the volatile environment. Encouragingly, as we heard from Alibaba (BABA) last month, demand is recovering as COVID cases die down from highs seen during DecQ. BABA commented that positive demand trends, particularly in discretionary categories, in February indicate an upbeat outlook for the year.
Still, JD warned that the macro economy and consumer confidence remain in the recovery phase, which could linger for some time. There are also added risks given the unstable geopolitical environment, which is not shining favorably on China-based firms like JD.
General Electric's reaffirm of guidance is promising development for spin-off plans (GE)
General Electric (GE), which has been acting like a high-flying tech stock recently, surging by over 50% since mid-December, is rallying again today after reaffirming its FY23 guidance. Specifically, it maintained its EPS outlook of $1.60-$2.00 and its organic revenue forecast of high-single-digit growth. Free cash flow (FCF) is a key metric for GE so investors were pleased to see that the company also reaffirmed its FCF guidance of $3.4-$4.2 bln.
- A reaffirmation of guidance doesn't typically elicit the type of move we're seeing in GE today with shares jumping by more than 8%. The fact that GE kept its outlook unchanged eases concerns that supply chain issues and part shortages are preventing the Aerospace segment from meeting healthy demand for its jet engines.
- More importantly, though, with business remaining stable and improving on a yr/yr basis in the Power and Renewable Energy units, GE is in good position to meet its target of spinning those segments off in early 2024.
- The primary catalyst behind GE's impressive gains is the enthusiasm behind its transformation strategy and the prospects of stronger earnings growth as a standalone aviation company. Recall that on January 4, the company took its first major step in this process by completing the spin-off of its healthcare segment -- which is now trading as GE Healthcare (GEHC).
In addition to reaffirming its FY23 guidance on a consolidated basis, GE also reaffirmed its FY23 outlook for both GE Aviation and GE Vernova (Power and Renewable Energy).
- Due to the recent struggles for both the Power and Renewable businesses, there has been some concern that GE may need to delay the spin-off until the performance for both of those businesses improves.
- The Renewable Energy unit in particular has struggled due to weak orders for wind turbines. In Q4, revenue for Renewable Energy fell by 13% yr/yr to $3.67 bln while losses widened to ($435) mln from ($388) mln. A main drag on the unit has been uncertainty surrounding future tax credits for wind generation.
- However, GE has focused on turning that business around through cost-cutting, including a 20% reduction in headcount, and demand is expected to improve later this year as tax credits from the Inflation Reduction Act kick in. Accordingly, GE was comfortable with sticking with its outlook for operating profit of $5.3-$5.7 bln and higher free cash flow for Vernova in 2023, positioning it to be spun-off next year.
- Meanwhile, GE Aviation continues to benefit from healthy demand from its commercial aircraft customers as travel demand continues to rise despite the macroeconomic uncertainty. The sharp increase in flight schedules among carriers is creating solid growth for GE's aircraft services as more planes visit repair and maintenance shops.
The main takeaway is that GE's reaffirm of guidance not only eases concerns that macro-related issues have slowed its momentum, but it also provides confidence that the company is on track to complete the spin-off of its Power and Renewable Energy segments early next year.
BJ's Wholesale jumps following Q4 earnings; BJ's higher exposure to groceries helped (BJ)
BJ's Wholesale Club (BJ +5%) is trading nicely higher today after reporting Q4 (Jan) earnings results this morning. After Costco's (COST) mediocre results last week, we had some concerns about BJ, but we argued in our preview that BJ's higher exposure to groceries should help them. And that turned out to be the case as adjusted EPS grew 25% yr/yr to $1.00, reflecting the company's fourth consecutive double-digit EPS beat.
- What jumps off the page at us were the very strong Q4 comps (ex-fuel), which came in at a robust +8.7%, well above prior guidance of +4-5% and well above +5.3% comps in Q3 (Oct). We also think investors are pleased with the comp (ex-fuel) guidance for the new fiscal year at +4-5%. And that is despite lapping a pretty good +6.5% result last year and despite the macro headwinds in the economy. We got some cautious outlooks from other retailers (notably WMT and TGT), so BJ looks pretty good by comparison.
- We think what is helping is that BJ is a retailer that has positioned itself between warehouse clubs and grocery stores. It combines the bulk savings of a warehouse club but offers a broader assortment of perishable and grocery products. With groceries in high demand these days with more people eating at home, BJ's wider selection is helping to draw in customers. Even WMT and TGT talk about how grocery sales remain brisk, the problem is more on the discretionary side and BJ has less exposure there.
- Membership remains a bright spot as BJ achieved a record 90% tenured member renewal rate in Q4. Membership fee income increased 8% yr/yr to $101.8 mln. In October, BJ announced its new co-brand partnership with Capital One, which it believes will serve as another catalyst to grow its membership base. BJ has also made a push into digital in recent years. Digitally-enabled sales in Q4 grew 22% yr/yr, nearly double its overall sales growth rate of 13.1%.
Now that we are on the tail end of the retail reporting cycle, we can draw some conclusions. Most retailers are cautious on the economy and consumer spend in general as we head into 2023. However, the concern is not evenly distributed. Grocery and essential purchases remain strong while discretionary categories are the biggest concerns. We think BJ and its greater focus on value and groceries makes it better positioned relative to other retailers. This Q4 report is a good illustration of that.
BJ's financial results remained quite strong for all four quarters in 2022 and certainly better than analysts had been thinking given the four double digit EPS beats. Part of that may have been because many retailers focused on clearing through bloated inventories, which hurt their margins. BJ has been pretty consistently profitable as grocery sales remain brisk. BJ also looks well positioned heading into the new fiscal year.
MongoDB's bearish FY24 sales outlook ignites considerable selling pressure today (MDB)
Database management software provider MongoDB (MDB -7%) may have crushed its earnings and sales forecasts in Q4 (Jan). However, in a surprising turn of events from last quarter, consumption trends weakened considerably toward the back half of Q4, adversely affecting MDB's cloud-based Atlas offering, which comprises 65% of total revenue. This unfavorable development is expected to have an even worse impact on Q1 (Apr) revs and persist throughout FY24 (Jan), causing MDB's Q1 and FY24 sales forecasts to miss analyst expectations.
MDB differs from many software providers because it utilizes a consumption-based model instead of a subscription-based one, meaning that users pay based on their usage level. This model relies on consumption growth, which MDB can not meaningfully influence, and is mainly dependent on underlying business drivers, the macro environment, and seasonality.
- MDB still registered a massive beat on its bottom line in Q4, expanding its adjusted EPS to $0.57 from $(0.09) in the year-ago period, its best quarter ever in terms of profitability. Revenue growth of 35.6% yr/yr to $361.31 mln, smashing MDB's projection of $334-337 mln, helped boost its tremendous earnings growth.
- Also assisting MDB's profitability was the company's cost-cutting moves over the past few months. For instance, MDB significantly slowed down its pace of hiring, expecting to grow its workforce by a single-digit percentage yr/yr in FY24 after expanding its headcount by 30% in FY23. Management is also prioritizing investments in regions and channels to provide the best returns while reducing investments in other areas.
- These measures showed up nicely in MDB's earnings outlook for Q1 and FY24. The company targeted adjusted EPS of $0.17-0.20 in Q1 and $0.96-1.10 in FY24, both cruising past analyst estimates.
- Another highlight from Q4 was MDB's customer growth. Encouragingly, the current economic environment has yet to impact MDB's ability to win new business, adding around 1,700 customers, a 4% jump from Q3 (Oct), consistent with the mid-single-digit sequential growth seen over the past few quarters. Management also pointed out that new business strength is being seen across the board, including enterprises and small and medium-sized businesses.
- However, these positive developments were overshadowed by MDB's gloomy outlook. The company expects FY24 revs of $1.48-1.51 bln, translating to just 16% growth yr/yr at the midpoint, its lightest year of growth by far since IPO-ing in 2017. Alongside poor Atlas growth, Enterprise Advanced, MDB's database software that can run on the cloud, on-premise, or in a hybrid environment, is also facing difficult compares throughout FY24.
The quickly deteriorating economic landscape toward the end of Q4 caught MDB off guard, leading to its downbeat FY24 sales outlook. However, although the year ahead is murky, MDB is still positioned for long-term success. The company's software replaces legacy technology that limits how quickly customers can respond to a highly dynamic environment. Also, one of MDB's primary features is workload consolidation, a particularly relevant feature in today's economy where customers are looking to reduce their number of vendors.
Korn/Ferry getting the job done for investors today after delivering beat-and-raise report (KFY)
Korn/Ferry (KFY), an executive search and consulting firm, is standing out today after delivering a solid beat-and-raise 3Q23 earnings report despite operating in an uneven and dynamic business environment. While some trends are working in KFY's favor and providing a boost to demand, such as the digital transformation and the shift to a hybrid work model, other macro-related factors like rising interest rates and geopolitical tensions are mainly offsetting those favorable workplace changes.
- This is most clearly seen in KFY's Executive Search segment, which is the company's largest business at about 32% of total fee revenue on a year-to-date basis. In Q3, fee revenue for Executive Search fell by 11% to $212 mln, after dropping by 7% last quarter. Speaking to the current turbulent market conditions, new engagements declined by 15% yr/yr to 1,516.
- Although recruiting activity at the board and executive levels remains sluggish, the broader labor market is still relatively healthy and many companies are still in need of finding good talent. This puts KFY's Recruitment Process Outsourcing (RPO) segment in a favorable position to capitalize as companies increasingly look to outside firms to handle their recruiting, hiring, and HR responsibilities. RPO fee revenue increased by 5% yr/yr to $103.5 mln in Q3, helping KFY overcome the weakness in Executive Search.
- What's really moving the stock, though, is KFY's upside Q4 EPS guidance of $0.97-$1.05. Last quarter, the company also beat on the top and bottom-line, but it disappointed investors by issuing a Q4 EPS outlook that badly missed the mark. However, the company also disclosed that it's realigning its workforce and is looking at further reductions in its real estate footprint, in addition to reductions in other discretionary operating costs. Overall, KFY said that it expects this plan to generate $45-$55 mln in annual run rate savings.
- As KFY cuts costs and streamlines its operations, it also intends to focus on driving business from faster growing, larger addressable, and less cyclical markets. Additionally, KFY plans to put more emphasis on its regional accounts.
- This combination of cost-cutting and prioritizing higher growth markets should help turn KFY's margins and profits around. In Q3, adjusted EBITDA tumbled by more than six percentage points to 14.1%, mainly due to unfavorable product mix and an increase in compensation and benefits expense.
Overall, KFY clearly isn't firing on all cylinders, as indicated by the ongoing struggles for its Executive Search segment, but its results and outlook were better-than-feared and its cost-cutting approach is resonating well with investors.
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