Market Snapshot
briefing.com
| Dow | 32179.27 | +74.11 | (0.23%) | | Nasdaq | 11787.50 | +0.11 | (0.00%) | | SP 500 | 3962.06 | +12.07 | (0.31%) | | 10-yr Note | +3/32 | 3.38 |
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| | NYSE | Adv 1775 | Dec 1061 | Vol 979 mln | | Nasdaq | Adv 2509 | Dec 1894 | Vol 4.2 bln |
Industry Watch
| Strong: Utilities, Consumer Staples, Health Care, Real Estate |
| | Weak: Financials, Consumer Discretionary |
Moving the Market
-- Deutsche Bank's credit default swaps shot to a four-year high
-- Flight to safety bid in Treasury market unwinding somewhat
-- Mostly broad buying interest
-- Weakness from a few mega cap stocks
-- S&P 500 trading above its 200-day moving average (3,932) for most of the session
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Closing Summary
24-Mar-23 16:30 ET
Dow +132.28 at 32237.44, Nasdaq +36.56 at 11823.95, S&P +22.27 at 3972.26
[BRIEFING.COM] The stock market closed out the week on an upbeat note, but things didn't start out that way today. Initially, investors were weighing concerns about the banking industry, again, after reports indicated that Deutsche Bank's (DB 9.35, -0.30, -3.1%) cost of default insurance jumped to a four-year high.
German Chancellor Scholz and European Central Bank President Lagarde both attempted to calm markets after the DB news, but stocks were still under pressure this morning despite their efforts. The S&P 500, which fell below its 200-day moving average (3,932) right after the open, was down 1.0% and hit 3,909 at its low for the day. The Nasdaq and Dow were down 1.0% and 0.9%, respectively, at their lows for the day.
The tone in the market shifted markedly, however, around the time that European markets closed despite Germany's DAX (-1.7%), the U.K.'s FTSE 100 (-1.3%), and France's CAC 40 (-1.7%) all registering sharp declines. The tonal shift also coincided with panicky buying interest in the Treasury market subsiding.
The 2-yr note yield, which fell to 3.56% this morning, settled at 3.77%. The 10-yr note yield, which declined to 3.29% at its low, settled the session at 3.38%.
Many stocks moved higher with today's rally, which saw the S&P 500 close above its 200-day moving average (3,932). The Invesco S&P 500 Equal Weight ETF (RSP) was up 0.9% while the market-cap weighted S&P 500 had a gain of 0.6%. Even Deutsche Bank, which was down as much as 8.3%, pared its losses to close down 3.1%.
Nine of the 11 S&P 500 sectors closed with a gain. Utilities (+3.1%), real estate (+2.6%), and consumer staples (+1.6%) led the pack while the consumer discretionary (-0.4%) and financial (-0.1%) sectors were alone in negative territory.
- Nasdaq Composite: +13.0% YTD
- S&P 500: +3.4% YTD
- S&P Midcap 400: -1.1% YTD
- Russell 2000: -1.5% YTD
- Dow Jones Industrial Average: -2.7% YTD
Reviewing today's economic data:
- Durable goods orders fell 1.0% month-over-month in February (Briefing.com consensus 1.6%) following a downwardly revised 5.0% decrease (from 4.5%) in January. Excluding transportation, durable goods orders were unchanged month-over-month (Briefing.com consensus 0.3%) following a downwardly revised 0.4% increase (from 0.7%) in January.
- The key takeaway from the report is that it could invite questions about the strength of the manufacturing sector since it showed an unexpected decrease in headline orders while the January decrease was revised even lower.
- The IHS Markit Services PMI rose to 53.8 in the preliminary March reading versus the prior reading of 50.6. The IHS Markit Manufacturing PMI rose to 49.3 in the preliminary reading versus the prior reading of 47.3.
There is no notable U.S. economic data on Monday.
Rally builds up steam ahead of close
24-Mar-23 15:35 ET
Dow +132.56 at 32237.72, Nasdaq +30.86 at 11818.25, S&P +21.32 at 3971.31
[BRIEFING.COM] The rally is building up steam ahead of the close. The main indices all took another turn higher, trading at their highs for the day.
The 2-yr Treasury note yield fell three basis points to 3.77% and the 10-yr note yield fell three basis points to 3.38%.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 0.7% to $69.23/bbl and natural gas futures rose 3.7% to $2.35/mmbtu.
There is no notable U.S. economic data on Monday.
Nasdaq joins S&P 500 and Dow in positive territory
24-Mar-23 15:00 ET
Dow +74.11 at 32179.27, Nasdaq +0.11 at 11787.50, S&P +12.07 at 3962.06
[BRIEFING.COM] The Nasdaq joined the S&P 500 and Dow Jones Industrial Average in positive territory.
Only three S&P 500 sectors remain in negative territory -- consumer discretionary (-0.4%), financials (-0.2%), and information technology (-0.2%) -- while the utilities (+2.5%), real estate (+1.9%), and consumer staples (+1.5%) sectors lead the pack.
Small and mid cap stocks had been lagging their larger peers earlier the session, but they outperform the broader market currently. The Russell 2000 is up 0.5% and the S&P Mid Cap 400 is up 0.5%.
Solar, hotel/lodging names underperforming in S&P 500 on Friday
24-Mar-23 14:30 ET
Dow +31.84 at 32137.00, Nasdaq -23.05 at 11764.34, S&P +6.26 at 3956.25
[BRIEFING.COM] The S&P 500 (+0.16%) is the best-performing major average to this point on Friday afternoon, up about six points.
S&P 500 constituents Enphase Energy (ENPH 194.09, -10.57, -5.16%), Warner Bros. Discovery (WBD 13.96, -0.57, -3.92%), and Hilton (HLT 131.46, -4.21, -3.10%) are among today's worst performers. Solar stocks, alongside ENPH, show weakness across the S&P today, while WBD continues recent losses on Friday dipping below the 50-day SMA (14.60), with general weakness in hotels/lodging drags HLT.
Meanwhile, Ohio-based regional bank KeyCorp (KEY 11.84, +0.57, +5.06%) is near the top of the standings as general strength in the regional banking sector provides a lift.
Gold slips as dollar gains into the weekend
24-Mar-23 14:00 ET
Dow +2.11 at 32107.27, Nasdaq -38.10 at 11749.29, S&P +1.49 at 3951.48
[BRIEFING.COM] In the last half hour the Dow Jones Industrial Average (+0.01%) and the S&P 500 (+0.04%) have narrowly peeked into positive territory, while the tech-heavy Nasdaq Composite (-0.32%) still sports modest losses.
Gold futures settled $12.10 lower (-0.6%) to $1,983.80/oz, up about +0.5% this week, but pinned down by a jump in the dollar during the session.
Meanwhile, the U.S. Dollar Index is up approx. +0.6% to $103.10.
Last Updated: 24-Mar-23 09:06 ET | Archive
Bank industry worries back at the forefront
Equity futures have seen only modest improvement at the morning progressed. The S&P 500 futures are down 22 point and are trading 0.6% below fair value. The Nasdaq 100 futures are down 42 points and are trading 0.3% below fair value. The Dow Jones Industrial Average futures are down 224 points and are trading 0.8% below fair value.
The stock market is poised for a lower open as investors weigh concerns over the bank industry, again. Deutsche Bank's (DB) credit default swaps shot to a four-year high, according to Reuters, driving strong selling interest. DB is down more than 10%, hitting its lowest level since early October.
Also, loans to the Fed's discount window fell to $110.2 billion while borrowing from the Fed's Bank Term Lending Program rose to $53.7 billion, according to Bloomberg, adding to the financial industry angst.
Treasury yields are down sharply in a flight to safety trade. The 2-yr note yield is down 22 basis points to 3.62% and the 10-yr note yield is down 13 basis points to 3.30%.
Durable goods orders fell 1.0% month-over-month in February (Briefing.com consensus 1.6%) following a downwardly revised 5.0% decrease (from 4.5%) in January. Excluding transportation, durable goods orders were unchanged month-over-month (Briefing.com consensus 0.3%) following a downwardly revised 0.4% increase (from 0.7%) in January.
The key takeaway from the report is that it could invite questions about the strength of the manufacturing sector since it showed an unexpected decrease in headline orders while the January decrease was revised even lower.
- New orders for nondefense aircraft and parts declined 6.6% month-over-month after falling 56.3% in January
- New orders for primary metals increased 0.3% month-over-month after increasing 1.0% in January.
- New orders for machinery fell 0.5% month-over-month after increasing 0.7% in January.
- New orders for fabricated metal products increased 0.4% month-over-month after decreasing 0.3% in January.
- New orders for computers and electronic products decreased 0.1% month-over-month after increasing 0.2% in January.
Other economic data today is limited to: Preliminary March IHS Markit Manufacturing PMI (prior 47.3) and preliminary March IHS Markit Services PMI (prior 50.6) at 9:45 a.m. ET
Crane in need of a pick-me-up after a downgrade at UBS; shares down roughly 15% in March (CR)
Crane (CR -3%) could use a pick-me-up today after being downgraded by UBS to "Neutral" from "Buy," citing a bumpy path over the near term. Crane manufactures various mission-critical components and technologies, primarily supplying to the aerospace, process industries, nonresidential construction, and payment automation end markets.
Briefing.com notes that shares of CR have struggled in recent trading, pulling back by around 15% in March. As a result, the stock sits roughly flat on the year and slightly lower since the company announced plans to separate into two independent, publicly traded firms in March 2022. CR is on track to spin off its Payment & Merchandising Technologies (P&MT) segment, which will be renamed Crane NXT and trade under the " NXT " ticker by April 3.
- It makes sense that CR is spinning off its P&MT segment as it is considerably different from its other businesses, which include Aerospace & Electronics (A&E), Process Flow Technologies (PFT), and Engineered Materials (EM). P&MT mainly revolves around electronic equipment and associated payment verification and authentication software. CR also boasts healthy relationships with many mints and Treasuries, supplying fiat currency to the U.S. Treasury for over 100 years.
- Despite its much-different end market compared to CR's other segments, it is the company's largest, with net sales totaling nearly 40% of FY22 revenue. P&MT also boasts the best operating margins by far, at 24.9% as of FY22, representing a 200 bp improvement from FY21 and a massive 15 pt expansion from FY20. Although sales fell by 7.3% yr/yr in FY22, vastly underperforming all other segments, this was primarily due to unfavorable comps from the year-ago period and FX-related headwinds.
- CR issued guidance for Crane NXT last month, expecting its sales to return to growth in FY23, forecasting +2-4% yr/yr. However, currency fluctuations will remain an issue, causing operating profits to experience a slight yr/yr decline.
- Market dynamics are advantageous, with CR anticipating its product authentication business to double in FY23. Meanwhile, its international banknote business should continue to perform well, supported by a robust backlog. Even though the Federal Reserve guided to a wide range of potential U.S. currency printing volumes for FY23, CR is also bullish on its U.S. business, pointing to high U.S. banknote demand.
Overall, without reporting a formal quarter as a standalone company, there is plenty of uncertainty surrounding Crane NXT. However, last month, CR's central theme for Crane NXT ahead of its public debut was that 2023 will be a resilient year with continuing profitable core growth. CR also reaffirmed its post-separation FY23 earnings guidance earlier this month, continuing to see EPS of $3.40-3.70.
Scholastic Corp's investors turn the page on its stock after company cuts FY23 guidance (SCHL)
Investors are turning the page on Scholastic Corp (SCHL) today after the children's and education book publisher reported Q3 results and cut its FY23 revenue growth and adjusted EBITDA guidance.
- While the company's book fair business remained very healthy with revenue increasing by 36% yr/yr, its trade-related business experienced a decline in ordering from its wholesale and retail partners as those customers adjusted their inventory levels as the supply chain situation improved.
- During the earnings call, CEO Peter Warwick explained that while children's books have historically been less cyclical than other discretionary categories, retailers and wholesalers stocked up on inventory during the pandemic due to strong demand and due to supply chain uncertainties. Now, those customers are returning to pre-pandemic ordering patterns, causing SCHL's trade revenues to dip by 14.5% yr/yr to $72.8 mln.
- Simultaneously, schools and district administrators continue to contend with staffing challenges and inflationary pressures, leading to longer selling cycles for instructional materials across the industry. In Q3, SCHL's Education Solutions segment saw a 9.3% drop in revenue to $70.0 mln.
- As SCHL's total revenue fell by 6% in Q3, the company also ramped up its investments in certain areas, including for the launch of its new K-3 phonics system "Ready4Reading", and to support the integration of its Learning Ovations acquisition from last September. Accordingly, SCHL's operating loss worsened to ($27.7) mln from ($19.5) mln in the year-ago period. Likewise, adjusted EBITDA went in the wrong direction, coming in at ($5.4) mln compared to $5.9 mln a year earlier.
- Mr. Warwick tried to soothe investors' concerns, commenting that the company is taking decisive steps to align short-term spending with its new top-line outlook, which now calls for growth of 4% vs. its prior forecast of 8-10% growth. He also stated that the company is dedicated to improving margins, but the $20 mln cut to SCHL's FY23 adjusted EBITDA guidance to $175-$185 mln is clouding over these proclamations.
- One positive is that SCHL remains committed to returning capital to its shareholders, authorizing an additional $50 mln for share repurchases. This follows a $75 mln increase to the share repurchase authorization last quarter.
From a longer-term perspective, the company remains upbeat about its prospects, thanks to its strong market position and the need to raise literacy rates through children's books. However, this year is shaping up to be a tough one for SCHL as consumer demand for children's books softens amid rising economic uncertainty and ongoing inflation.
Oxford Industries sharply lower despite EPS beat; investors nervous about higher spend in 2023(OXM)
Oxford Industries (OXM -13%) is heading sharply lower despite reporting Q4 (Jan) earnings upside last night and boosting its quarterly dividend by 18% to $0.65/sh (new yield is 2.6%). This apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, Beaufort Bonnet and Duck Head focuses on the laid-back vacation vibe. As such, they should be benefitting as consumers get out and travel more. However, after digging into the quarter, we can see why investors are a bit nervous.
- OXM reported a sizeable beat in Q4 (Jan), especially on EPS where OXM posted its eighth consecutive double digit EPS beat. If we want to nitpick, we could say the beat was on the smaller end of the typical range in recent quarters, but still a solid beat. The issue was more on the guidance for Q1 (Apr) and full year, but we will get into that more in a minute.
- Tommy Bahama, which is by far OXM's largest brand (60% of JanQ sales), posted decent 9% yr/yr growth to $229.6 mln. Its next largest brand, Lily Pulitzer, also performed well with sales up 13% yr/yr to $74.5 mln. Beyond that, OXM lumps its other segments into Emerging Brands, which saw revenue rise 23% yr/yr to $27.9 mln.
- Of note, its Johnny Was brand is a new addition, having been acquired in September 2022. Its price points are a bit higher than OXM's other brands as it competes in the affordable luxury portion of the market. That helps margins as does its distribution model with 40% of sales being made online and it has a small store base with just 60+ locations. It should be a nice tailwind to earnings as the brand generates annualized sales of $200+ mln with operating margins in the mid-to-high teens. Q4 marked its first full quarter in the OXM family with sales of $49.9 mln.
- Turning to the guidance, the top line outlook was better than expected, but EPS was light for both Q1 and the full year. OXM said on the call it expects to invest aggressively during 2023 in people, systems, stores, Marlin Bars and fulfillment infrastructure to support its growing business. As such, cap-ex in FY23 is expected to nearly double to approximately $90 mln from $47 mln in FY22.
Overall, the Q4 strong result is getting overshadowed by the guidance. To step on the investment gas at a time when the economy looks shaky with macro headwinds is a testament to the confidence management has in its future prospects, but that decision seems to be making investors nervous plus it will impact margins in 2023. But OXM makes a good point in that its FY23 guidance means its top line will be almost 50% larger than it was in 2019 with operating margin almost double what it was in 2019. It seems management feels this larger size warrants some investment dollars.
Trupanion rolling over today following executive shake-up, soft outlook from partner Chewy (TRUP)
Trupanion (TRUP), a provider of pet insurance for cats and dogs, is rolling over today and with today's substantial losses, shares are now trading at its lowest levels since early November of last year.
- This morning, the company announced a few changes to its executive team, including the departure of CFO Drew Wolff, who is leaving to pursue other interests. Wei Li, Corporate Controller, will temporarily take his spot as interim CFO until the company finds a permanent replacement. TRUP also announced its EVP of Pricing and EVP of Legal & Regulatory will be leaving the company.
The shake-up comes at a sensitive time for TRUP, which has struggled to deliver consistent financial results in this challenging economy.
- While the company managed to edge past EPS and revenue estimates last quarter, it missed bottom-line expectations in each of the previous nine quarters. Furthermore, TRUP's net losses have been worsening as its top-line growth tapers off from the upper-30% range seen in late 2020 and early 2021 to the upper-20% range seen in the past two quarters.
- This subpar performance has made the stock a favorite among the short selling crowd with about 25.5% of the float residing on the short side. It's highly likely that today's steep sell-off is partly attributable to short sellers piling on.
Some potential instability at the executive level -- at least in the near-term -- isn't the only issue that's hammering the stock.
- Yesterday, online pet food and supply company Chewy (CHWY) reported upside Q4 results, but its active customers slipped to 20.4 mln from 20.5 mln in the preceding quarter.
- More problematic, though, is that the company doesn't expect to return to net add growth until 2H23 and its inline FY23 revenue of $11.1-$11.3 bln (growth of 10-12%) suggests that net adds will be pretty soft for the year. This prompted a downgrade to Hold from But at Deutsche Bank following the report.
Why does this matter for TRUP?
- In late 2021, CHWY and TRUP announced a partnership to offer an exclusive suite of pet health insurance and wellness plans to CHWY's customers. CHWY offers customers both preventative care wellness plans and comprehensive insurance plans for accidents, illnesses, and chronic conditions. Therefore, if CHWY's active customer growth is sliding, then that indirectly effects TRUP's potential growth.
The main takeaway is that TRUP is taking hits from multiple sides today. However, the sell-off looks overdone in our view since a shake-up at the executive level may be what the company needs to ultimately turn things around.
Worthington rises sharply following surprisingly strong FebQ earnings (WOR)
Worthington (WOR +14%) is up sharply today after reporting Q3 (Feb) results last night. We like to keep an eye on Worthington as it gives us a window into the health of the manufacturing environment. As a steel processor, WOR is sort of a middle man between the steel producers and manufacturers, with exposure to automotive, construction, industrial, agriculture, retail, and energy. So it gets a good view of the production side and the OEM side, which we find to be helpful.
- Revenue fell 19.9% yr/yr to $1.10 bln, but that was much better than the single analyst estimate. The sales decline was mostly caused by its largest segment, Steel Processing, where sales fell 28% yr/yr to $757 mln, primarily due to lower average selling prices. WOR noted that the market price for hot rolled steel averaged $1,400 per ton in Q3 last year, but that fell to just over $700 per ton this year. So a lot of that is out of WOR's control.
- From a demand perspective for its SP segment, WOR said it is seeing modest increases in automotive production, but WOR experienced softness in construction, which has been impacted by rising rates and the related slowdown in both residential and non-residential construction. Turning to WOR's other segments, Consumer Products sales were up slightly yr/yr at $163 mln while Building Products sales jumped 14% yr/yr to $152 mln.
- Investors are pleased with WOR's Q3 results, especially considering it incurred significant inventory holding losses from falling steel prices in late 2022. WOR says this trend has since reversed itself with steel prices rising swiftly by $550 per ton during the current quarter. The bottoming of steel prices, along with depleted inventories at many of its customers, led to steady demand across its end-markets. However, WOR did caution that the Fed raising rates is starting to impact banks' lending practices.
- Of note, WOR is in the process of spinning off its SP business, which it expects to complete by early 2024, resulting in two independent, publicly traded companies. The post-separation Worthington (New Worthington) will focus more on fast-growing, attractive end markets in Consumer Products, Building Products and Sustainable Energy. The post-separation Steel Processing business (Worthington Steel) will continue as a steel processor.
We think it is a good thing to allow the more growth-oriented New Worthington to trade freely and perhaps garner a richer multiple. Steel processing is less growth-oriented and is more cyclical. It buys steel coils from the steel mills, then adds value via cutting, blanking, cutting-to-length etc. and sells to smaller end users in various industries like automotive, appliances, HVAC. The divergent Q3 results are a good illustration why WOR wants to split up its segments. Based on the stock reaction, investors appear to be quite enamored with Worthington's Q3 report.
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