Market Snapshot
briefing.com
| Dow | 33487.33 | +4.70 | (0.01%) | | Nasdaq | 12096.23 | +99.37 | (0.83%) | | SP 500 | 4106.77 | +15.12 | (0.37%) | | 10-yr Note | +2/32 | 3.29 |
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| | NYSE | Adv 1619 | Dec 1307 | Vol 760 mln | | Nasdaq | Adv 2506 | Dec 2021 | Vol 3.8 bln |
Industry Watch
| Strong: Communication Services, Information Technology, Real Estate, Utilities |
| | Weak: Energy, Materials, Industrials |
Moving the Market
-- Wait-and-see mode ahead of tomorrow's March Employment Report at 8:30 a.m. ET
-- Recovery of some mega caps boosting index performance
-- Treasury yields settling modestly higher
-- Lingering growth concerns fueling selling interest in cyclical sectors
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Closing Summary
06-Apr-23 16:25 ET
Dow +2.57 at 33485.20, Nasdaq +91.09 at 12087.95, S&P +14.64 at 4106.29
[BRIEFING.COM] The stock market started this last session of the holiday-shortened week on a softer note as investors digested another weak economic release. Things improved considerably, though, around mid-morning thanks to some mega cap stocks staging a strong recovery from their lows of the day.
The main indices all closed near their best levels today, albeit on below-average volume. Alphabet (GOOG 108.90, +3.95, +3.8%), Microsoft (MSFT 291.60, +7.26, +2.6%), Apple (AAPL 164.66, +0.90, +0.6%), and Amazon.com (AMZN 102.60, +0.96, +1.0%) all had an outsized influence on index level performance.
The Vanguard Mega Cap Growth ETF (MGK) logged a 0.8% gain while the Invesco S&P 500 Equal Weight ETF (RSP) closed with a 0.1% gain.
Despite today's gains, the growth concerns that drove price action in recent sessions did not completely dissipate as evidenced by the underperformance of economically-sensitive sectors.
The S&P 500 energy (-1.5%), materials (-0.2%), and industrials (-0.03%) sectors were the lone laggards to close in the red. On the flip side, the communication services (+1.7%) and information technology (+0.7%) sectors were among the best performers, thanks to gains in their respective mega cap constituents. Other notable outperformers were the utilities (+0.7%) and real estate (+0.7%) sectors.
The 2-yr Treasury note yield rose five basis points today to 3.81% and the 10-yr note yield settled unchanged at 3.29%.
- Nasdaq Composite: +15.5% YTD
- S&P 500: +6.9% YTD
- S&P Midcap 400: +0.7% YTD
- Dow Jones Industrial Average: +1.0% YTD
- Russell 2000: -0.4% YTD
Reviewing today's economic data:
- Weekly Initial Claims 228K (Briefing.com consensus 203K); Prior was revised to 246K from 198K; Weekly Continuing Claims 1.823 mln; Prior was revised to 1.817 mln from 1.689 mln
- The key takeaway from the report is that it featured a revision to the seasonal adjustment factor, which resulted in big upward revisions to figures from recent weeks a sizable miss in this week's report. That said, the higher level of claims will invite some questions about the strength of the labor market after last week's release of the Job Openings and Labor Turnover survey for February showed a big drop in openings.
- Weekly EIA Natural Gas Inventories showed a draw of 23 bcf versus a draw of 47 bcf last week.
As a reminder, the stock market will be closed tomorrow for Good Friday. The U.S. Treasury market will be open until 12:00 ET.
Looking ahead to Friday, the Employment Situation report for March will be released at 8:30 a.m. ET.
Market remains near highs ahead of the close
06-Apr-23 15:30 ET
Dow -31.42 at 33451.21, Nasdaq +87.15 at 12084.01, S&P +10.53 at 4102.18
[BRIEFING.COM] The major indices remain near their best levels of the day.
Energy complex futures settled the session mixed. WTI crude oil futures rose 0.1% to $80.70/bbl and natural gas futures fell 5.9% to $2.01/mmbtu.
The 2-yr Treasury note yield rose five basis points today to 3.81% and the 10-yr note yield settled unchanged at 3.29%.
As a reminder, the stock market will be closed tomorrow for Good Friday. The U.S. Treasury market will be open until 12:00 ET.
Mosaic underperforms after JPMorgan cuts to "Neutral"
06-Apr-23 14:25 ET
Dow +4.70 at 33487.33, Nasdaq +99.37 at 12096.23, S&P +15.12 at 4106.77
[BRIEFING.COM] The S&P 500 (+0.37%) is firmly in second place in recent trading, hovering now near HoDs.
S&P 500 constituents Catalent (CTLT 65.07, +3.45, +5.60%), DISH Network (DISH 8.89, +0.36, +4.22%), and Micron (MU 58.82, +1.91, +3.37%) dot the top of the standings. Among stocks that have underperformed this week both CTLT and DISH get a nice boost on Thursday despite a dearth of corporate news, while MU is the best performer in the split semiconductor space with roughly half of the PHLX Semiconductor Index (SOX 3,084.91, -1.05, -0.03%) in positive territory; we'd also mention that MU is trading ex-dividend today.
Meanwhile, Tampa-based agricultural materials firm Mosaic (MOS 43.61, -2.68, -5.79%) is underperforming after JPMorgan downgraded the stock to a Neutral recommendation.
Gold scrapes off some weekly gains on Thursday
06-Apr-23 14:00 ET
Dow -9.98 at 33472.65, Nasdaq +79.75 at 12076.61, S&P +10.46 at 4102.11
[BRIEFING.COM] With about two hours to go on the holiday-shortened week the tech-heavy Nasdaq Composite (+0.66%) is still leading the major averages, butting up against highs in recent trading.
Gold futures settled $9.20 lower (-0.5%) to $2,026.40/oz, up about +2% on the week, helped by weekly losses in yields and the greenback.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $101.80.
Microsoft, Honeywell outperforming in DJIA on Thursday
06-Apr-23 13:30 ET
Dow +39.33 at 33521.96, Nasdaq +72.80 at 12069.66, S&P +12.97 at 4104.62
[BRIEFING.COM] The Dow Jones Industrial Average (+0.12%) is at the bottom of the major averages, but holding firm near session highs in recent trading.
A look inside the DJIA shows that Microsoft (MSFT 289.04, +4.70, +1.65%), Honeywell (HON 191.05, +1.62, +0.86%), and Walmart (WMT 150.57, +0.90, +0.60%) are among today's best performers.
Meanwhile, Texas-based machinery firm Caterpillar (CAT 210.06, -3.47, -1.63%) is at the bottom of the average.
The DJIA now holds gains of about +0.74% week-to-date.
Equity futures pullback after more weak data
The S&P 500 futures are down 6 points and are trading slightly below fair value. The Nasdaq 100 futures are down 60 points and are trading 0.4% below fair value. The Dow Jones Industrial Average futures are down 39 points and are trading 0.1% below fair value.
Equity futures have deteriorated noticeably following the release of the weekly jobless claims report.
Initial jobless claims for the week ending April 1 decreased by 18,000 to 228,000 (Briefing.com consensus 203,000) from last week’s upwardly revised level of 246,000 (from 198,000) while continuing jobless claims for the week ending March 25 increased by 6,000 to 1.823 million from last week’s revised level of 1.817 million (from 1.689 million).
The key takeaway from the report is that it featured a revision to the seasonal adjustment factor, which resulted in big upward revisions to figures from recent weeks a sizable miss in this week’s report. That said, the higher level of claims will invite some questions about the strength of the labor market after last week’s release of the Job Openings and Labor Turnover survey for February showed a big drop in openings.
Treasury yields moved higher in response to the data release. The 2-yr note yield, at 3.69% just before 8:30 a.m. ET, is down two basis points to 3.75% and the 10-yr note yield, at 3.26% just before the release, is unchanged at 3.29%.
Market participants are also eyeing the market-moving March Employment Report tomorrow at 8:30 a.m. ET.
Energy complex futures are mixed. WTI crude oil futures are up 0.4% to $80.94/bbl and natural gas futures are down 0.5% to $2.15/mmbtu.
In other news, House Speaker Kevin McCarthy (R-CA) said in an interview with Bloomberg TV that Wall Street should be concerned about the debt ceiling.
As a reminder, the stock market will be closed tomorrow for Good Friday. The bond market will close early at 12:00 ET.
Constellation Brands hops above its 50-day moving average (222.75) on bullish FY24 forecasts (STZ)
Alcoholic beverage giant Constellation Brands (STZ) is hopping slightly higher today after registering decent earnings upside and growing revs in line with consensus in Q4 (Feb). Also, the midpoint of STZ's FY24 adjusted EPS forecast was slightly higher than analysts' forecasts. Meanwhile, STZ increased its quarterly dividend by 11%, giving it a solid 1.6% yield.
- Adjusted earnings of $1.98 represented a 16% decline yr/yr, less than analysts expected. Meanwhile, sales of $2.0 bln, a 12% dip, were consistent with consensus.
- STZ's primary beer segment posted depletions growth of 6.3% in the quarter, driven by the relentless strength of its Mexican beer portfolio, which includes Modelo, Corona, and Pacifico.
- Conversely, wine and spirits saw depletions sink by 4.9% in Q4. However, STZ's premium brands all delivered depletions growth, supported by substantial increases in many of its higher-end brands like Kim Crawford and Casa Noble. This positive development underscores STZ's shift in transforming its wine and spirits business into a premium/craft portfolio.
- STZ's Q4 results were solid, but likely having a more significant effect on price today was STZ's FY24 guidance. Despite STZ anticipating macroeconomic challenges to persist for the foreseeable future, it still issued a decent earnings forecast of $11.70-12.00. The company also expects net sales growth of +7-9% in its beer business and organic net sales of negative 0.5% to positive 0.5% in its wine and spirits business.
- Within its beer division, operating margins will remain adversely impacted by high inflationary costs, most of which relate to yr/yr adjustments in packaging and raw material costs. STZ is planning a price hike of around 1-2% to help offset these costs. Also, the prices of some inputs are off their peaks. Still, most are subject to contractual terms that will remain considerably elevated relative to pre-pandemic levels. Nevertheless, STZ projected operating income growth of +5-7% yr/yr.
- Within its wine and spirits business, most STZ's volumes will ship in the second half of the year, consistent with seasonal trends. Operating income growth is not expected to be as bubbly as beer, expanding just +2-4% yr/yr.
Overall, STZ packaged together a solid quarter. Management was also upbeat in discussing the year ahead, stating that its beer business has seen double-digit increases in major U.S. markets like Texas and Florida in the first month of the year. Furthermore, on-premise consumption trends remain healthy, with STZ noticing an acceleration in the channel during Q4 as it continues rebounding toward pre-pandemic levels. Although competition within the craft alcoholic beverage market will remain strong for the foreseeable future, STZ's portfolio is demonstrating its brand power, which should help put shares back on an upward trajectory.
Lumentum sinks to multi-year lows as demand from major networking customer darkens (LITE)
Optical component maker Lumentum (LITE) is going dark today after sharply cutting its 3Q23 revenue guidance to $380-$384 mln from its original forecast of $430-$460 mln. The midpoint of LITE's new outlook represents a yr/yr revenue decline of 3.3%, instead of the 12.6% increase it previously planned on.
- In LITE's press release, the company disclosed that a network equipment manufacturer who represented more than 10% of its Q2 revenue will not be taking the shipments it had originally projected for Q3. Making matters worse, LITE also stated that it anticipates a similar level of shipments to that customer in Q4 as in Q3 due to inventory management efforts.
- Although LITE didn't disclose the specific customer that's not taking the shipments, it's believed to be communications networking company Ciena (CIEN), which is also selling off today. As of July 2, 2022, CIEN accounted for nearly 13% of LITE's total revenue.
- With the Q2 earnings season rapidly approaching, we wonder whether more warnings from the optical equipment and/or networking system industries will be forthcoming. On that note, CIEN competitors Cisco (CSCO) and Juniper Networks (JNPR) are trading lower in sympathy with CIEN, while LITE competitor Coherent (IIVI) is also getting hit pretty hard.
- CIEN, and its peers, serve large, global telecommunications companies like AT&T (T), Verizon (VZ), and T-Mobile (TMUS). The optical components that CIEN purchases from LITE are integrated into its networking systems, enabling the fast delivery of video, data, and voice traffic over communications networks. Therefore, the cut back in shipments from LITE to CIEN could also be construed as a negative data point for T, VZ, and TMUS, which could be pulling back a bit on capital expenditures due to macroeconomic factors.
On a positive note, LITE did bump its share repurchase authorization higher to an aggregate amount of $1.2 bln from its previously announced authorization of $1.0 bln. The increase reflects the company's confidence in its longer-term prospects and its belief that its shares are undervalued. However, investors aren't sharing in the company's optimism today, sending the stock to its lowest levels since mid-2019.
Costco's sluggish March comp growth shows warehouse retailer not immune to macro headwinds (COST)
Costco (COST), the stalwart membership warehouse retailer that has largely bucked the inflationary headwinds, is now succumbing to the macroeconomic pressures that have plagued so many of its retail counterparts. The company is still faring better than most in this environment, but the mediocre +2.6% comp growth (excluding gas and FX impacts) it reported for March shows that a pull-back in consumer spending is taking a toll on its sales as well.
- On Tuesday night, Walmart (WMT) reaffirmed its 1Q24 and FY24 guidance, including its outlook for FY24 overall comp growth of 2.0-2.5% and Sam's Club U.S. comp growth of 5.0% (ex. fuel).
- While the reiteration of guidance did alleviate some concern that consumer spending hasn't weakened since WMT's Q4 report on February 21, it's also notable that the company didn't nudge its outlook higher.
- Recall that WMT guided Q1 and FY24 EPS below expectations in last quarter's earnings report, prompting some to believe that it was taking an overly cautious approach with its forecast. Therefore, the fact that WMT didn't raise its guidance on Tuesday indicates that its downside guidance was indeed an accurate reflection of a sluggish business climate.
In particular, demand for big ticket discretionary items has really cooled off.
- When COST reported disappointing Q2 results in early February, missing top-line expectations, the main culprit was that sales for big ticket items like electronics, jewelry, and home furnishings significantly softened. Altogether, big-ticket item categories, which account for 58% of COST's total e-commerce sales, were down by 15% yr/yr in that channel.
Since that earnings report, demand hasn't improved for these categories.
- The average transaction size in March slipped by 5.8% from February with COST noting that home furnishings, toys, seasonal products, and jewelry were among the worst performing categories. Further illustrating the weakness in big ticket categories, COST's e-commerce channel experienced an 11.6% yr/yr comp decrease in March.
- With U.S. comp growth coming in at a pedestrian 0.9% compared to 3.5% in February and 6.9% in January, it's clear that the momentum that COST had garnered over the past few years is losing steam.
- It's worth pointing out, though, that COST lapped a very difficult yr/yr U.S. comp growth figure of +12.7% in the year-earlier period.
- We also believe that the company is still well positioned to take additional market share in the grocery and non-discretionary categories. On that note, Q2 membership renewal rates reached all-time highs of 92.6% in the U.S. and Canada and 90.5% on a worldwide basis. Additionally, memberships growth remained strong with 123.0 mln cardholders at quarter end, good for a 7% yr/yr increase.
The main takeaway is that COST's sluggish comp growth for March is both a reflection of slowing momentum at the membership warehouse and a struggling consumer as macroeconomic headwinds continue to weigh on spending budgets.
Levi Strauss sells off as macroeconomic woes linger for longer than initially expected (LEVI)
Shares of Levi Strauss (LEVI -16%) are sliding well below their 200-day moving average (16.87) despite the largest global jeans brand delivering modest upside for Q1 (Feb) today. LEVI also reiterated its FY23 (Nov) earnings and revenue outlook. However, leaving its FY23 forecasts unchanged is not sitting well with investors, particularly since management noted that its projections reflected a cautious stance on the macro-environment. This remark illustrates that if not for the uncertainty throughout the numerous markets LEVI is in, it would have potentially raised its FY23 guidance.
Meanwhile, unexpectedly, LEVI revised its Q2 (May) projections downward. The company expects gross margins to now be down slightly yr/yr, instead of its previous forecast of minor growth. Likewise, LEVI predicts revs to be down high single digits to low double digits percentage, building in a lower floor than its previous forecast of just down high single digits. The market was also not anticipating LEVI to forecast FY23 margins to contract by 50 bps yr/yr after projecting 20-30 bps of growth last quarter. The culprit was higher levels of promotion than previously anticipated.
- Although the stock price is not reflecting it, LEVI's Q1 report was not all bad. LEVI topped analysts' earnings estimates in Q1, its 11th consecutive beat. Also, sales growth of 6.1% yr/yr to $1.69 bln crushed consensus and signaled a return to positive growth after last quarter's 5.7% decline. LEVI's continual focus on direct-to-consumer (DTC) was vital to its solid revenue growth in the quarter. For instance, DTC sales jumped 12% yr/yr, comprising 33% of LEVI's overall revenue, a slight bump from 31% last quarter and 30% in the year-ago period.
- LEVI's Asia and Canada markets also assisted LEVI's sales beat, with wholesale revs climbing 2% yr/yr, illuminating better-than-feared results out of China.
- As expected, adjusted gross margins contracted meaningfully in Q1, falling 360 bps yr/yr to 55.8%. However, although LEVI warned last quarter that margins would be down by at least 200 bps, falling an extra 160 bps may be more than the market anticipated.
- FY23 will still be a tale of two halves, with 2H23 outperforming 1H23 as LEVI begins benefiting from certain tailwinds by lapping higher product costs and a stronger U.S. dollar, which has continually clipped overseas revenue. As such, it reiterated its FY23 targets of adjusted EPS of $1.30-1.40 and revs of $6.3-6.4 bln.
Leading into LEVI's Q1 report, investors were hopeful that conditions would begin improving heading into Q2 and the second half of the year. Unfortunately, LEVI's macroeconomic woes are lingering for longer than initially anticipated. The good news is that most markets in Asia are off to a good start, which LEVI did not bake into its FY23 targets last quarter. Also, its DTC business continues to fire on all cylinders, delivering record sales growth in Q1. Furthermore, inventory levels improved mightily, up just 35% yr/yr in Q1 from a 90% jump in Q4.
Nevertheless, the persistent uncertainty within the global economy is spooking investors, which may not return until LEVI shows meaningful improvements in subsequent quarters.
Johnson & Johnson rallying on hopes that it can put talc-based litigation behind it (JNJ)
Dow component Johnson & Johnson (JNJ) is rallying higher on hopes that the pharmaceutical giant is moving closer to putting its long-standing talc litigation behind it. Last night, JNJ announced that the subsidiary it created to handle cancer victims' claims, LTL Management, re-filed for bankruptcy protection and has agreed to contribute up to $8.9 bln to resolve all current and future claims. That amount is much higher than the $2.0 bln figure that JNJ previously committed to, which many viewed as insufficient.
There is no guarantee that this latest attempt by JNJ to use bankruptcy as a means to end its litigation troubles will succeed.
- Recall that last year, a court threw out JNJ's original bankruptcy case and sided with the cancer victims, many of whom believed that JNJ was trying to prevent their stories from being told in court.
- After a bankruptcy judge allowed JNJ to proceed with its plan, a federal appeals court overturned that decision in January, paving the way for victims to continue filing personal litigation against JNJ.
- The company took its case to the U.S. Court of Appeals, but it received more bad news last month when the court denied its request for a rehearing of the LTL bankruptcy petition.
However, there is reason to be optimistic that this latest bankruptcy attempt will go through.
- According to the company, LTL has secured commitments from over 60,000 current claimants to support a resolution on the new terms. If 75% of plaintiffs are on board with JNJ's plan, then the company will be free to pay claims through the LTL trust.
- Importantly, that doesn't necessarily mean that all of the other terms of the resolution -- including the $8.9 bln pay out -- are also finalized. It's quite possible that JNJ's contribution amount could increase as negotiations move forward.
- JNJ also continues to contend that there's no consensus among medical experts or scientists regarding talc-based powders and its link to ovarian cancer and mesothelioma. Of course, many vehemently disagree with that position, and it's also worth noting that JNJ stopped selling talc-based powders in 2020 as concerns about its health risks grew.
- Consequently, JNJ's Consumer Health segment has struggled to recover from the negative publicity and lost sales from its baby powder products.
- In the near future, though, JNJ will cut itself loose from its Consumer Health business as it continues its transition to a pharmaceutical and medical device company. By focusing on pharmaceuticals and medical devices, JNJ believes the change will allow it to become simpler, faster and more focused. In Pharmaceutical, JNJ's goal is to hit $60 bln in revenue by 2025 despite the Stelara loss of exclusivity in September 2023.
The bottom line is that by using bankruptcy and coming to a settlement agreement with a majority of the plaintiffs, JNJ could avoid a litigation process that could take more than a decade to fully play out. Therefore, a major overhang may be removed from the stock if JNJ's second crack at using bankruptcy works out.
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