Market Snapshot
briefing.com
| Dow | 33540.53 | +55.33 | (0.17%) | | Nasdaq | 12071.44 | -16.51 | (-0.14%) | | SP 500 | 4104.58 | -1.71 | (-0.04%) | | 10-yr Note | -2/32 | 3.42 |
|
| | NYSE | Adv 1877 | Dec 1055 | Vol 824 mln | | Nasdaq | Adv 2549 | Dec 1910 | Vol 4.2 bln |
Industry Watch
| Strong: Energy, Industrials, Materials, Real Estate |
| | Weak: Information Technology, Communication Services, Utilities |
Moving the Market
-- Reacting to Friday's March Employment Report, which showed a slight decrease in the unemployment rate
-- Below-average volume as major European markets (and Hong Kong's Hang Seng) remained closed for the Easter holiday
-- Treasury yields moving modestly higher
-- Mega cap stocks recovering from steeper losses
|
Closing Summary
10-Apr-23 16:25 ET
Dow +101.23 at 33586.43, Nasdaq -3.60 at 12084.35, S&P +4.09 at 4110.38
[BRIEFING.COM] The stock market looked a lot weaker at the open as the main indices fell under the weight of mega cap losses. Even at session lows, though, the broader market showed nice resilience in front of several market-moving events later in the week. Namely, the March Consumer Price Index will be released Wednesday followed by the Producer Price Index Thursday, capped off Friday with Q1 earnings results from several large banks.
The Dow Jones Industrial Average had a stronger showing than its peers, declining just 0.4% at its low for the day, while the tech-heavy Nasdaq saw a loss of 1.3% at its session low before settling the day close to flat. Notably, the intraday low for the S&P 500 coincided with last Wednesday's worst level (4,072). Today's best performer, however, was the small cap Russell 2000 (+1.0%).
The main indices all improved noticeably when the mega cap stocks started to pare earlier losses. The Vanguard Mega Cap Growth ETF (MGK) was down as much as 1.6% this morning before closing with a 0.3% loss. This recovery effort helped the market close near its highs for the day, which had the S&P 500 above 4,100.
Market internals reflected a relatively strong, positive bias driving the action by the close. Advancers led decliners by a nearly 2-to-1 margin at the NYSE and a 5-to-3 margin at the Nasdaq.
Roughly half of the S&P 500 sectors closed with a gain. The economically-sensitive industrial (+0.9%), energy (+0.7%), and materials (+0.5%) sectors led the outperformers while the communication services (-0.7%), utilities (-0.2%), and information technology (-0.2%) sectors fell to the bottom of the pack.
Semiconductor stocks were a pocket of strength this session following news over the weekend that chip giant Samsung (SSNLF) is cutting production to reduce inventory. Micron (MU 63.27, +4.71, +8.0%) was a standout from the space with investors reacting positively to the news after CEO Sanjay Mehrotra said a few weeks ago that high inventory weighed on financial results. The PHLX Semiconductor Index rose 1.8%.
- Nasdaq Composite: +15.5% YTD
- S&P 500: +7.0% YTD
- S&P Midcap 400: +1.9% YTD
- Dow Jones Industrial Average: +1.3% YTD
- Russell 2000: +0.6% YTD
Reviewing today's economic data:
- Wholesale inventories rose 0.1% in February (Briefing.com consensus +0.2%) following a revised 0.6% decline in January (from -0.4%).
Looking ahead to Tuesday, economic data is limited to the March NFIB Small Business Optimism Index (prior 90.9) at 6:00 ET.
Treasury yields move modestly higher
10-Apr-23 15:40 ET
Dow +23.02 at 33508.22, Nasdaq -23.55 at 12064.40, S&P -4.40 at 4101.89
[BRIEFING.COM] The S&P 500 has failed to meaningfully break above the 4,100 level.
Treasury yields settled modestly higher today. The 2-yr note yield rose four basis points to 4.00% and the 10-yr note yield rose two basis points to 3.42%.
Looking ahead to Tuesday, economic data is limited to the March NFIB Small Business Optimism Index (prior 90.9) at 6:00 ET.
Mega cap recovery boosts indices
10-Apr-23 15:05 ET
Dow +55.33 at 33540.53, Nasdaq -16.51 at 12071.44, S&P -1.71 at 4104.58
[BRIEFING.COM] Things are little changed in the last half hour.
Many mega cap stocks have recovered from steeper losses, boosting the broader market. The Vanguard Mega Cap Growth ETF (MGK) is down only 0.4% versus a loss of 1.6% at its low of the day.
In addition, the broader market has been strengthening along with mega cap stocks as evidenced by the 0.5% gain in the Invesco S&P 500 Equal Weight ETF (RSP), which was down 0.5% at this morning's low.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 1.0% to $79.86/bbl and natural gas futures surged 8.2% to $2.17/mmbtu.
AMZN and TSLA recover from steeper losses
10-Apr-23 14:30 ET
Dow +42.56 at 33527.76, Nasdaq -25.33 at 12062.62, S&P -3.76 at 4102.53
[BRIEFING.COM] The S&P 500 is still fighting to stay above the 4,100 level, trading near its best level of the day.
More S&P 500 sectors trade in positive territory now. Energy (+0.8%) and industrials (+0.7%) have maintained their spots atop the leaderboard followed by consumer discretionary (+0.3%), materials (+0.1%), and financials (+0.1%).
The consumer discretionary sector has benefitted from Tesla (TSLA 184.58, -0.49, -0.3%) and Amazon.com (AMZN 101.86, -0.22, -0.1%) recovering from steeper losses.
Small and mid caps lead; S&P 500 testing 4100
10-Apr-23 14:05 ET
Dow +45.78 at 33530.98, Nasdaq -32.10 at 12055.85, S&P -5.09 at 4101.20
[BRIEFING.COM] The S&P 500 briefly tipped above the 4,100 level before pulling back slightly.
Small and mid cap stocks have maintained a leadership position. The Russell 2000 is up 0.8% and the S&P Mid Cap 400 is up 1.0%.
Market breadth has turned positive again as the main indices hit their best levels of the session. Advancers lead decliners by a 4-to-3 margin at the NYSE and an 11-to-10 margin at the Nasdaq.
Copper futures took a turn lower this session, falling 1.0% to $3.98/lb.
Mega-cap stocks driving timid price action following holiday
Coming off the holiday weekend, the stock market looks poised for a lower open. Currently, the S&P 500 futures are down 23 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 101 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 124 points and are trading 0.4% below fair value.
Major European markets remained closed for the Easter holiday, as did Hong Kong's Hang Seng Index, so it is fair to say that trading volumes are thinner than usual.
The timid disposition of the futures market relates in large part to some weakness among the mega-cap stocks this morning. Tesla (TSLA) is a standout in that regard, trading down 2.6% following a Reuters report that the company has cut prices again in the U.S. The latest price cut is the fifth cut since January.
Apple (AAPL), NVIDIA (NVDA), and Alphabet (GOOG) are all down more than 1.0% in pre-market trading. A Q1 revenue warning out of Taiwan Semiconductor Manufacturing (TSM) and IDC highlighting "excess inventory and poor demand" persisting for the PC industry in Q1 have helped rein in some of these stocks along with some general trepidation ahead of the Q1 earnings reporting period that gets going this Friday with several major banks reporting their results.
For added thoughts on the coming reporting period, be sure to read The Big Picture column, which discusses the importance of the guidance coming out of the reports for a market trading at a premium valuation.
There isn't a lot of corporate news to digest this morning, but one item causing a stir is a Wall Street Journal report that Exxon (XOM) is in discussions to acquire Pioneer Natural Resources (PXD).
Otherwise, there is some retroactive attention on the March employment report that was released on Friday when the stock market was closed.
The key takeaway from that report is that the employment situation in March remained solid with the unemployment rate flirting with a record-low level; however, the deceleration seen in the pace of job growth and average hourly earnings will be viewed as a signal that the labor market is losing some steam in a manner to the Fed's liking.
The latter point notwithstanding, the fed funds futures market is still biased toward another rate hike at the May FOMC meeting. According to the CME FedWatch Tool, there is a 66.0% probability of the Fed agreeing to another 25 basis points increase in the target range for the fed funds rate to 5.00-5.25%. That compares to 71.2% on Friday and 57.2% a week ago.
Notable headlines from the March Employment Situation Report released last Friday:
- March nonfarm payrolls increased by 236,000 (Briefing.com consensus 239,000). The 3-month average for total nonfarm payrolls dipped to 345,000 from 346,000. February nonfarm payrolls revised to 326,000 from 311,000. January nonfarm payrolls revised to 472,000 from 504,000.
- March private sector payrolls increased by 189,000 (Briefing.com consensus 213,000). February private sector payrolls revised to 266,000 from 265,000. January private sector payrolls revised to 353,000 from 386,000.
- March unemployment rate was 3.5% (Briefing.com consensus 3.6%), versus 3.6% in February. Persons unemployed for 27 weeks or more accounted for 18.9% of the unemployed versus 17.6% in February. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 6.7% versus 6.8% in February.
- March average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus 0.2% in February. Over the last 12 months, average hourly earnings have risen 4.2%, versus 4.6% for the 12 months ending in February.
- The average workweek in March was 34.4 hours (Briefing.com consensus 34.5), versus 34.5 hours in February. Manufacturing workweek was unchanged at 40.3 hours. Factory overtime was unchanged at 3.0 hours.
- The labor force participation rate increased to 62.6% from 62.5% in February.
- The employment-population ratio increased to 60.4% from 60.2%.
Micron receives a solid boost after Samsung (SSNLF) announced production cuts over the weekend (MU)
Micron (MU +8%) shares are piling on the gains today, although the stock is struggling to break above the $64 mark, which has acted as strong resistance over the past five months. Today's positive reaction comes from the news over the weekend that chip giant Samsung (SSNLF) is cutting production to reduce inventory after another expected quarter of mild earnings. Samsung warned in late January that customers would likely maintain their stance on inventory adjustment over the near term as demand continues to remain suppressed. The company anticipated buying to recover after adjustments were finished within a few months. However, this development is taking longer than expected, driving Samsung's decision to reduce its production.
- What does Samsung's production cut have to do with MU? Samsung's global presence is significant, boasting nearly $230 bln in revenue in FY22. If the company makes a meaningful cut to chip production, it should lead to a material reduction in global inventories as customers pull from existing stock. This should help speed up the ongoing recovery, restoring prices in the process.
- A few weeks ago, MU CEO Sanjay Mehrotra stated that the high customer inventory problem that weighed on financial results over the past several months was already beginning to improve, with data center revs bottoming out in FebQ. Samsung's decision should assist in confirming that the worst of the excessive inventory issue is now behind MU.
- MU also noted during its Q2 earnings call that if inventory or price projections worsen, it could miss its already-weak Q3 (May) EPS and sales targets of $(1.65)-$(1.51) and $3.5-3.9 bln, respectively. Therefore, with Samsung pulling back on the production of certain chips, MU's pessimistic scenario is less likely to materialize, with the added possibility of exceeding its Q3 forecasts.
Samsung's announcement is not just benefiting MU, either. Peers Western Digital (WDC +9%) and Seagate Tech (STX +2%), both of which have struggled with excessive customer inventories and unfavorable demand conditions over the past year, are receiving a nice boost today. Shares of WDC are soaring much higher than STX, however, given its latest earnings miss and bearish quarterly forecasts were in direct contrast to STX's improving financials.
The main takeaway is that after Samsung decided to trim production, MU investors are becoming even more optimistic that market conditions have bottomed out, paving the way for a solid recovery during the back half of 2023. Last month, management was already upbeat about a recovery over the next two quarters, but Samsung's recent developments reinforce this scenario.
Taiwan Semi gets chipped lower on weak Q1 guidance; makes us a bit nervous for tech (TSM)
Taiwan Semi (TSM -3%) is getting chipped lower today after guiding Q1 revenue below analyst expectations. With earnings season right around the corner for a lot of tech names, TSM's guidance is an important data point in terms of what to expect from other companies and this guidance was a bit concerning. Samsung's weak guidance today adds to our concerns.
- As the world's largest contract chipmaker, TSM serves a broad range of end-market applications with the vast majority of revenue from high performance computing (41% of 2022 revs), smartphones (39%), IoT (9%), automotive (5%), and consumer electronics (3%). Major customers include Apple, AMD, Broadcom, Intel, NVIDIA, and Qualcomm.
- Revenue for March fell 15.4% yr/yr to NT$145.41 bln and was down 10.9% from February. For all of Q1, revenue rose 3.6% yr/yr to NT$508.63 bln. The monthly sequential decline tells us that the quarter ended on a weak note, which is a bit troubling and not a great sign for TSM's customers as we head into earnings season.
- In fairness, TSM did warn on its Q4 call in January that it was observing softness entering 2023 in consumer end market demand. Data center-related verticals were softening as well. TSM explained that customers were likely focusing on working down existing inventory before buying new product. As such, TSM predicted that semiconductor supply chain inventory would be reduced sharply through 1H23 to rebalance to a healthier level.
- TSM also said that it expected revenue to decline mid to high-single-digits yr/yr in 1H23 in US dollars. But there were some glimmers of hope as well as TSM said it was starting to see initial signs of demand stabilization. It also forecasted the semiconductor cycle to bottom sometime in 1H23 and to see a healthy recovery in 2H23. We just wonder if this Q1 guidance may cause investors to fear that TSM will turn more cautious on that outlook during its Q1 call on April 20.
Overall, the guidance was a bit of a letdown, although not entirely surprising given TSM's prior cautious comments. Investors need to remember that TSM is coming off a big year in 2022 with revenue jumping 33.5% in US dollars, fueled by a surge in HPC revenue (+59%) as well as strong growth in smartphones (+28%) and IoT (+47%). As such, some pullback should be expected. But this does make us incrementally more nervous ahead of earnings for some big tech names in the coming weeks.
WD-40 slips up on reduced FY23 (Aug) guidance as price hikes weigh on sales volumes (WDFC)
WD-40's (WDFC -5%) lowered FY23 (Aug) guidance is spurring pronounced selling activity today, causing shares to slip toward YTD lows of around $167. The sell-the-news reaction also keeps WDFC's 200-day moving average (176.28) as a level of resistance, as shares have been unable to bust meaningfully above this indicator over the past year.
What happened? WDFC warned in October that sales during the first six months of FY23 would likely be disrupted by the unprecedented price hikes throughout 2022. After the company reaffirmed its FY23 outlook in early January, investors were relieved that revenue was tracking in line with WDFC's initially downbeat forecast. However, WDFC was not yet out of the woods. The price increases continued to weigh on sales volumes during Q2 (Feb), forcing management to conclude that a recovery would take much longer than initially expected.
- Sales still squeaked out positive growth of 0.2% yr/yr in Q2, assisted by WDFC's Americas segment, which includes the U.S., Canada, and Latin America. This region experienced a solid 15% bump in sales growth during Q2. However, the bulk of this was driven by the previously mentioned price hikes, as demand was lower compared to the year-ago period, resulting in decreased sales volumes.
- Meanwhile, WDFC's EMEA and Asia-Pacific regions were hurt by an unfavorable combination of higher prices and a relatively strong U.S. dollar, causing sales to fall by 13% and 4%, respectively. In fact, currency fluctuations took the largest bite out of sales growth in Q2, impacting EMEA sales by 9 pts and Asia Pacific sales by 11 pts.
- Although WDFC reduced its FY23 outlook, projecting EPS of $4.80-5.00, down from $5.09-5.24, and sales of $535-560 mln, down from $545-570 mln, management remained upbeat in achieving its 2025 revenue growth target of a mid-to-high single digits percentage. The bulk of the long-term growth will stem from sales of WD-40 multi-use products through geographic expansion, with EMEA and Asia Pacific revenue climbing by +8-11% and +10-13% annually, respectively. In comparison, Americas revenue is forecasted to improve by just +5-8%.
- Premiumized products, which represented 46% of global sales of WD-40 multi-use products thus far in 2023, and e-commerce penetration will also play vital roles in achieving WDFC's 2025 target.
Bottom line, significant price hikes implemented throughout 2022 had a lasting effect on WDFC's sales volumes, which it now anticipates will lead to a slower recovery than initially expected. Although WDFC is no longer building in a full recovery of its sales volume losses during the back half of the year, it is still optimistic that its 2025 revenue goal remains on track. Management also remains confident in restoring its gross margins to 55% or higher over that period, a solid improvement over the 51-52% expected in FY23.
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.
|
