Market Snapshot
briefing.com
| Dow | 32550.41 | +312.97 | (0.97%) | | Nasdaq | 11831.74 | +7.79 | (0.07%) | | SP 500 | 3996.63 | +24.37 | (0.61%) | | 10-yr Note | -56/32 | 3.53 |
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| | NYSE | Adv 2131 | Dec 755 | Vol 912 mln | | Nasdaq | Adv 2596 | Dec 1895 | Vol 4.2 bln |
Industry Watch
| Strong: Financials, Consumer Staples, Energy, Industrials, Materials |
| | Weak: Communication Services, Information Technology, Real Estate |
Moving the Market
-- Bank stocks leading upside charge after news of First Citizens BancShares (FCNCA) buyout of Silicon Valley Bank (SIVB)
-- Treasury yields move higher, reflecting the change in sentiment in the market
-- Lagging mega cap stocks weighing on index performance
-- Small and mid caps outperforming
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Closing Summary
27-Mar-23 16:25 ET
Dow +194.55 at 32431.99, Nasdaq -55.12 at 11768.83, S&P +6.54 at 3978.80
[BRIEFING.COM] The new week got started on a mixed note after the weekend went by without additional worrisome news from the banking sector. Instead, sentiment around the bank industry shifted today after investors learned that First Citizens Bancshares (FCNCA 895.61, +313.06, +53.7%) will acquire $72 bln of Silicon Valley Bank's assets at a discount of $16.50 bln.
Market participants were also reacting to a Bloomberg report indicating that U.S. authorities are considering expanding an emergency lending facility for banks in ways that would give First Republic Bank (FRC 13.82, +1.46, +11.8%) more time to shore up its balance sheet.
Recently embattled regional bank stocks like Western Alliance (WAL 34.05, +1.00, +3.0%) and PacWest Bancorp (PACW 9.88, +0.33, +3.5%) closed with decent gains, albeit off their highs for the day. The SPDR S&P Bank ETF (KBE) was up 2.2% and the SPDR S&P Regional Bank ETF (KRE) closed with a 0.9% gain.
Despite relative strength from the banking sector, the S&P 500 and Dow Jones Industrial Average closed with only slim gains while the Nasdaq was pinned in negative territory at the close. The main indices were feeling the weight of lagging mega cap stocks, which helped drive a 0.7% loss in the Vanguard Mega Cap Growth ETF (MGK) versus a 0.7% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
Most of the S&P 500 sectors closed with a gain led by energy (+2.1%), which was boosted by rising oil prices. WTI crude oil futures rose 5.5% to $73.05/bbl.
The financial sector (+1.4%) was another top performer along with industrials (+0.8%) and materials (+0.7%). On the flip side, the heavily weighted communication services (-1.1%) and information technology (-0.9%) sectors were the worst performers along with real estate (-0.4%).
Notably, small and mid cap stocks outperformed their larger peers today. The Russell 2000 rose 1.1% and the S&P Mid Cap 400 was up 0.9% at the close.
Treasuries settled the session with losses across the curve. This followed today's $42 bln 2-yr note auction, which met weak demand. The 2-yr note yield rose 23 basis points to 3.79% and the 10-yr note yield rose 15 basis points to 3.53%. The U.S. Dollar Index fell 0.2% to 102.88.
- Nasdaq Composite: +12.4% YTD
- S&P 500: +3.6% YTD
- S&P Midcap 400: -0.2% YTD
- Russell 2000: -0.4% YTD
- Dow Jones Industrial Average: -2.2% YTD
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 ET: February advance goods trade deficit (prior -$91.50 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.4%)
- 9:00 ET: January FHFA Housing Price Index (prior -0.1%) and January S&P Case-Shiller Home Price Index (Briefing.com consensus 2.5%; prior 4.6%)
- 10:00 ET: March Consumer Confidence (Briefing.com consensus 101.5; prior 102.9)
There was no U.S. economic data of note today.
Treasuries settle with sharp losses
27-Mar-23 15:30 ET
Dow +296.65 at 32534.09, Nasdaq -7.62 at 11816.33, S&P +21.13 at 3993.39
[BRIEFING.COM] The market has pulled back somewhat ahead of the close.
Treasuries settled the session with losses across the curve. The 2-yr note yield rose 23 basis points to 3.79% and the 10-yr note yield rose 15 basis points to 3.53%.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 ET: February advance goods trade deficit (prior -$91.50 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.4%)
- 9:00 ET: January FHFA Housing Price Index (prior -0.1%) and January S&P Case-Shiller Home Price Index (Briefing.com consensus 2.5%; prior 4.6%)
- 10:00 ET: March Consumer Confidence (Briefing.com consensus 101.5; prior 102.9)
S&P 500 approaching the 4000 level
27-Mar-23 15:05 ET
Dow +312.97 at 32550.41, Nasdaq +7.79 at 11831.74, S&P +24.37 at 3996.63
[BRIEFING.COM] The main indices are on a steady grind higher. The S&P 500 is quickly approaching the 4,000 level.
At the same time, the U.S. Dollar Index is trending lower, down 0.3% to 102.84.
Mega cap stocks remain weak, weighing on the broader market. The Vanguard Mega Cap Growth ETF (MGK) is down 0.2% versus a 1.1% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 5.5% to $73.05/bbl and natural gas futures fell 5.2% to $2.23/mmbtu.
Carnival slips in S&P 500 standings as guidance disappoints
27-Mar-23 14:30 ET
Dow +259.90 at 32497.34, Nasdaq -18.25 at 11805.70, S&P +18.94 at 3991.20
[BRIEFING.COM] The S&P 500 (+0.48%) is firmly in second place to this point on Monday, trading at about the middle of today's range.
S&P 500 constituents Intl Flavors (IFF 89.29, +5.02, +5.96%), Hewlett Packard Enterprise (HPE 14.99, +0.76, +5.34%), and Catalent (CTLT 67.43, +3.16, +4.92%) pepper the top of today's trading. Shares of IFF move nicely higher after reaffirming Q1 sales guidance, while CTLT gains on unconfirmed chatter that the company canceled out of a conference appearance.
Meanwhile, cruise liner Carnival (CCL 8.74, -0.49, -5.31%) is today's worst laggard after downside earnings guidance overshadowed a Q1 beat.
Gold posts back-to-back losses
27-Mar-23 14:00 ET
Dow +237.25 at 32474.69, Nasdaq -38.31 at 11785.64, S&P +14.28 at 3986.54
[BRIEFING.COM] With about two hours remaining on Monday the tech-heavy Nasdaq Composite (-0.32%) is still posting modest losses.
Gold futures settled $30 lower (-1.5%) to $1,953.80/oz, pressured by strength in treasury yields.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $102.92.
Bank stocks lead rally after First Citizens BancShares buyout of Silicon Valley Bank
The S&P 500 futures are up 24 point and are trading 0.7% above fair value. The Nasdaq 100 futures are up 32 points and are trading 0.4% above fair value. The Dow Jones Industrial Average futures are up 208 points and are trading 0.6% above fair value.
The stock market is poised for a higher open with bank stocks leading the charge follow reports that First Citizens BancShares (FCNCA) will acquire all deposits and loans of Silicon Valley Bank (SIVB). Also, President Biden said that FDIC insurance could be tapped for deposits above $250,000 if additional banks fail, according to Reuters.
Investors are also reacting to news that the U.S. is considering expanding an emergency lending facility for banks in a way to give First Republic (FRC) additional time, according to Bloomberg.
Aside from First Republic Bank (FRC) and First Citizens BancShares (FCNCA), other bank stocks are trading up this morning in solidarity. PacWest Bancorp (PACW), KeyCorp (KEY), and Western Alliance Bancorp (WAL) are standouts in that regard.
Treasury yields are moving higher this morning. The 2-yr note yield is up 18 basis points to 3.95% and the 10-yr note yield is up 11 basis points to 3.49%. The U.S. Dollar Index is down 0.1% to 103.07.
Energy complex futures trade mixed. WTI crude oil futures are up 1.4% to $70.26/bbl and natural gas futures are down 3.2% to $2.29/mmbtu.
Novartis' ailing growth prospects receive needed remedy with promising Kisqali trial results (NVS)
With shares down by about 8% so far this year, Swiss pharmaceutical company Novartis (NVS) was in need of a remedy. This morning, that antidote came when the company announced that its Kisqali Phase 3 trial met its primary endpoint, sending the stock sharply higher. Kisqari, which has already been approved to treat hormone-driven breast cancer that has spread to other parts of the body, is being evaluated as a treatment with endocrine therapy in earlier stages of the disease.
- Encouragingly, the trial results showed that Kisqali plus endocrine treatment significantly reduced the risk of cancer recurrence compared to endocrine on its own with consistent benefits in patients with stage II and stage III early breast cancer.
- NVS also started with a lower dose of 400 mg compared to the dose approved for metastatic breast cancer with the hope of minimizing side effects and improving quality of life. Even at this lower dosage, the Independent Data Monitoring Committee recommended stopping the trial early because the primary endpoint had been met.
- The next step for NVS is to meet with regulators, including the FDA, to solidify approvals. At this point, it's unclear exactly when these meetings will take place, but the next few months should be quite active for NVS.
This promising development comes at an ideal time for NVS.
- Over the past three quarters, the company's top-line has decreased on a yr/yr basis, including the 4.1% drop in Q4. Weighing on the company's growth has been its generic drug segment Sandoz, which saw sales fall by 8% in Q4 on a reported basis.
- In 2H23, NVS is expected to spin-off Sandoz as the company homes in on stronger growth opportunities in its Innovative Medicines (IM) segment.
- Included in the IM business is Kisqali. Last year, sales of the breast cancer drug jumped by 38% in constant currency to $1.2 bln with solid growth experienced across all geographies. Kisqali's growth essentially matched that of Entresto, the company's highly-successful heart failure treatment, which generated sales of $4.6 bln in 2022.
The main takeaway is that the positive read-out from the Kisqali Phase 3 trial provides a much-needed boost for NVS's growth prospects. When the company reported Q4 results in early February, it guided for modest FY23 revenue growth in the low-to-mid single digits. If everything goes to plan and Kisqari achieves FDA approval later this year, that anticipated growth rate may need to be upwardly revised.
Carnival is sailing a bit flat today following mixed earnings report (CCL)
Carnival (CCL -2%) is sailing a bit lower today following a mixed Q1 (Feb) earnings report/guidance. The cruise line reported a sizeable adjusted loss of $(0.55) per share, but that better than expected. Revenue was also a bit better than expected. Adjusted EBITDA may be a better metric to use given the huge depreciation generated by capital-intensive cruise ships. That came in at $382 mln, which was above prior guidance of $250-350 mln.
- The main problem was CCL guiding to larger than expected losses for both Q2 (May) and FY23. Also, adjusted EBITDA guidance estimates of $600-700 mln in Q2 and $3.90-4.10 bln in FY23 were below street estimates.
- CCL reported record Q1 net per diems, exceeding the high end of guidance, driven by improving ticket prices and sustained growth in onboard revenue. CCL also benefitted from an additional seven points of occupancy on higher capacity compared to the prior quarter. CCL says it is enjoying a phenomenal wave season, achieving its highest ever quarterly booking volumes and breaking records in both North America and Europe. CCL says its strong performance has extended into March.
- CCL's finances and cash balance are also a closely watched metric. Based on its expectations for positive adjusted free cash flow in FY23, a reduced capex profile and $8+ bln of liquidity as well as some other factors, CCL believes it's well positioned to pay down near term debt maturities from excess liquidity and therefore the company has no intention to sell equity (except in connection with its advantageous and non-dilutive stock swap program).
- Bookings are a closely watched metric. CCL says it is well booked for the remainder of the year at higher prices (normalized for FCCs), which coupled with continued strength in onboard revenue, supports its improving outlook for the remainder of the year. CCL is very encouraged with the improving demand environment. The company had its highest booking volumes for all future sailings for any quarter in its history in Q1. Higher advertising spend has helped.
Overall, CCL provided enough encouraging data points to keep the stock flattish despite the downside guidance. Also, CCL is known for being conservative on guidance so maybe investors are discounting that outlook a bit. Furthermore, we think investors are very happy to hear CCL say it has no intention to sell equity. The confluence of all these factors seems to be resulting in a flattish reaction in the stock.
Finally, we think CCL is benefitting from some pent up demand for travel from consumers. Air travel has mostly recovered, but we always felt cruise demand would take longer for people to feel safe following the pandemic. It's one thing to take a 2 hour flight then go wherever, but on a cruise, you're in the same enclosed space with the same people for a week. Recall there was Omicron in January 2022, so this was really the first winter season without a significant COVID element and the results were pretty good. Consumers seem to be finally turning the corner and getting back on cruise ships.
Pinterest's AI focus and international presence offers opportunities over the long run (PINS)
Pinterest (PINS +3%) is gapping up toward 52-week highs reached in early February following an upgrade to "Buy" from "Neutral" today at UBS. Shares of the social shopping platform have been making some nice moves lately, bouncing off their 200-day moving average (23.46) earlier this month.
Briefing.com mentioned after PINS's Q4 earnings report last month that FY23 would be a challenging year for the company as lowered ad pricing would weigh on top-line growth. PINS's Q1 revenue forecast of low-single-digit percentage growth yr/yr reflected the depressed ad market. However, PINS's platform, where users visit with more of an intention to purchase specific items, can help increase its user base.
PINS could also realize a few other benefits this year to help it navigate a turbulent environment.
- PINS continues to develop AI capabilities, particularly surrounding computer vision. For example, its platform provides users lateral exploration, offering numerous products related to a user's search. Management noted earlier this month that its AI tools have been driving much of its uptick in user engagement in recent quarters, measured by the number of sessions outpacing user growth.
- By improving engagement, more advertisers will want to market on Pinterest. However, that is not the only attribute necessary to allure advertisers. PINS has been implementing various features to increase the number of advertisers on its platform, primarily privacy-safe measurement tools, which help solve the issue of user privacy. We have seen similar moves by peer Meta Platforms (META), which is investing heavily in AI to develop privacy-enhancing tech and make it easier for advertisers to deliver more relevant ads.
- Management noted earlier this month that these actions have driven a meaningful lift in attributed conversions (a critical metric to measure the effectiveness of ad campaigns).
- With most of its users outside the U.S. but less than 20% of its revenue from overseas, PINS's international market offers a significant opportunity. However, it has struggled to monetize these users over the past few years, pointing to problems in capturing leaked monetization, i.e., users who click off of Pinterest to purchase an item initially found on Pinterest. To solve this problem, PINS is focused on upping the number of its agency partnerships, mainly in Europe. It is also looking to enhance its platform's personalization.
- Management conceded that it will not see half of its sales branch from overseas within the next two years but is optimistic that these initiatives will move the needle toward 50% of total sales over the long run.
The year ahead will be challenging; the ad market has softened, and PINS's dependence on user intent could weigh on future engagement if macroeconomic conditions dampen discretionary spending further. However, PINS's differentiation and focus on building tools to attract users and advertisers may be what keeps shareholder interest high.
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.
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