Market Snapshot
briefing.com
| Dow | 34036.53 | +390.12 | (1.16%) | | Nasdaq | 12212.89 | +283.56 | (2.38%) | | SP 500 | 4149.00 | +55.78 | (1.36%) | | 10-yr Note | -4/32 | 3.45 |
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| | NYSE | Adv 2064 | Dec 854 | Vol 820 mln | | Nasdaq | Adv 3222 | Dec 1267 | Vol 4.8 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Information Technology, Health Care |
| | Weak: Real Estate |
Moving the Market
-- Digesting the March Producer Price Index, which showed welcome disinflation, and pleasing jobless claims data showing a softening labor market
-- Strong mega cap stocks having a big influence on index level performance
-- Bonds giving back post-PPI gains, settling with losses across the curve
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Closing Summary
13-Apr-23 16:30 ET
Dow +383.19 at 34029.60, Nasdaq +236.93 at 12166.26, S&P +54.27 at 4147.49
[BRIEFING.COM] It was a decidedly strong showing for the stock market. Gains from the mega cap space gave the main indices a big boost, but many stocks also moved higher this session. The positive bias was partially a reaction to the pleasing economic data this morning. In addition, there was likely some short-covering activity contributing to today's gains.
The March Producer Price Index (PPI) reflected welcome disinflation while the weekly jobless claims data showed some softening in the labor market. Total PPI rose 2.7% year-over-year versus 4.9% in February while core-PPI, which excludes food and energy, rose 3.4% year-over-year versus 4.8% in February.
After some lateral movement in the early going, the major indices spent most of the session in a steady climb, closing near their best levels of the day. The S&P 500 hit 4,150 at its high of the day, marking its best level since February 15.
The mega caps were responsible for a lot of the index level gains as evidenced by the 2.2% gain in the Vanguard Mega Cap Growth ETF (MGK). The broader market still had a solid showing. The Invesco S&P 500 Equal Weight ETF (RSP) increased 0.8%. The market-cap weighted S&P 500 rose 1.3%.
Strong leadership from the mega cap space was also evident in S&P 500 sector performance. The communication services (+2.3%), consumer discretionary (+2.3%), and information technology (+2.0%) sectors were the best performers by a wide margin. The next best performer was health care with a 1.2% gain.
Only one of the 11 sectors logged a loss, real estate (-0.4%), but utilities (flat) and industrials (+0.4%) were also notable laggards today. Fastenal (FAST 52.34, -0.22, -0.4%) and Delta Air Lines (DAL 33.37, -0.37, -1.1%) weighed on the industrials sector following their earnings reports. The financials sector (+0.9%) moved higher today but also trailed the broader market in front of earnings reports from several major banks before tomorrow's open.
By the close, bonds have given back all of their post-PPI, knee-jerk gains to settle the session with losses across the curve. The 2-yr note yield, which hit 3.90% this morning, settled the session up two basis points to 3.99%. The 10-yr note yield, at 3.37% after the release, rose three basis points to 3.45%.
Notably, stocks advanced as bond yields rose from their post-PPI lows, which were established around the time the stock market opened for trading, suggesting perhaps that there was some asset reallocation in today's trade.
- Nasdaq Composite: +16.2% YTD
- S&P 500: +8.0% YTD
- S&P Midcap 400: +3.0% YTD
- Dow Jones Industrial Average: +2.7% YTD
- Russell 2000: +2.0% YTD
Reviewing today's economic data:
- The Producer Price Index for final demand declined 0.5% month-over-month in March (Briefing.com consensus +0.1%) following an upwardly revised 0.0% reading (from -0.1%) in February. Excluding food and energy, the index for final demand declined 0.1% month-over-month (Briefing.com consensus +0.2%) following an upwardly revised 0.2% increase (from 0.0%) in February. On a year-over-year basis, the index for final demand was up 2.7% versus 4.9% in February. Excluding food and energy, the index for final demand was up 3.4% versus 4.8% in February.
- The key takeaway from the report is that producers are seeing some welcome disinflation, aided by declines in energy prices; however, the stickiness of core CPI in March has offset some of the excitement about the improvement in the PPI data in March.
- Initial claims for the week ending April 8 increased by 11,000 to 239,000 (Briefing.com consensus 236,000) and continuing claims for the week ending April 1 decreased by 13,000 to 1.810 million.
- The key takeaway from this report is that it reflects some softening in the labor market but not any clear-cut weakness.
- Weekly EIA Natural Gas Inventories showed a build of 25 bcf versus a draw of 23 bcf last week.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: March Retail Sales (Briefing.com consensus -0.4%; prior -0.4%), Retail Sales ex-auto (Briefing.com consensus -0.4%; prior -0.1%), March Import Prices (prior -0.1%), Import Prices ex-oil (prior 0.4%), Export Prices (prior 0.2%), and Export Prices ex-agriculture (prior 0.1%)
- 9:15 ET: March Industrial Production (Briefing.com consensus 0.2%; prior 0.0%) and Capacity Utilization (Briefing.com consensus 79.0%; prior 78.0%)
- 10:00 ET: February Business Inventories (Briefing.com consensus 0.3%; prior -0.1%) and preliminary April University of Michigan Consumer Sentiment survey (Briefing.com consensus 62.7; prior 62.0)
Investors will also be focused on earnings reports from UnitedHealth (UNH), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), PNC (PNC), and BlackRock (BLK).
Building gains into the close
13-Apr-23 15:35 ET
Dow +368.97 at 34015.38, Nasdaq +233.54 at 12162.87, S&P +52.41 at 4145.63
[BRIEFING.COM] The market remains in a steady incline heading into the close.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: March Retail Sales (Briefing.com consensus -0.4%; prior -0.4%), Retail Sales ex-auto (Briefing.com consensus -0.4%; prior -0.1%), March Import Prices (prior -0.1%), Import Prices ex-oil (prior 0.4%), Export Prices (prior 0.2%), and Export Prices ex-agriculture (prior 0.1%)
- 9:15 ET: March Industrial Production (Briefing.com consensus 0.2%; prior 0.0%) and Capacity Utilization (Briefing.com consensus 79.0%; prior 78.0%)
- 10:00 ET: February Business Inventories (Briefing.com consensus 0.3%; prior -0.1%) and preliminary April University of Michigan Consumer Sentiment survey (Briefing.com consensus 62.7; prior 62.0)
Market continues to climb
13-Apr-23 15:10 ET
Dow +390.12 at 34036.53, Nasdaq +283.56 at 12212.89, S&P +55.78 at 4149.00
[BRIEFING.COM] The rally continued in recent action. The major indices all trade near their highs of the day.
Small and mid cap stocks are coming along for the upside moves. The Russell 2000 is up 1.4% and the S&P Mid Cap 400 is up 0.8%.
Energy complex futures settled the session lower. WTI crude oil futures fell 1.3% to $82.14/bbl and natural gas futures fell 3.3% to $2.02/mmbtu.
Notably, the CBOE Volatility Index is down 5.9% or 1.12 to 17.97.
SolarEdge, Wynn Resorts benefit from sell side actions; Progressive slips after earnings
13-Apr-23 14:30 ET
Dow +340.79 at 33987.20, Nasdaq +237.19 at 12166.52, S&P +51.82 at 4145.04
[BRIEFING.COM] The S&P 500 (+1.27%) is in second place among the major averages, the trio still carving out fresh highs as the day ticks by.
S&P 500 constituents SolarEdge Technologies (SEDG 308.59, +23.63, +8.29%), Wynn Resorts (WYNN 110.76, +4.70, +4.43%), and Freeport-McMoRan (FCX 42.94, +1.97, +4.81%) pepper the top of the standings. SEDG caught a Buy initiation at HSBC this morning, Wells Fargo bumped up their tgt on WYNN, while FCX benefits in part from gains in copper prices despite also trading ex-dividend today.
Meanwhile, Ohio-based insurance provider Progressive (PGR 138.43, -9.72, -6.56%) is at the bottom of the index following this morning's Q1 results.
Gold hits record highs as economic fears increase, weaker dollar helps
13-Apr-23 14:00 ET
Dow +308.22 at 33954.63, Nasdaq +220.07 at 12149.40, S&P +46.96 at 4140.18
[BRIEFING.COM] With about two hours remaining on Thursday the tech-heavy Nasdaq Composite (+1.84%) continues to stretch out its lead, up now more than 220 points.
Gold futures settled $30.40 higher (+1.5%) to $2,055.30/oz, taking out its previous record high today from back in 2020, aided in part by a weaker dollar and economic fears.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $100.95.
March PPI brings another seemingly comforting inflation data point
At first blush, the market seemed to get what it wanted in the March Consumer Price Index (CPI) -- a report that was not worse than feared. In fact, total CPI was weaker than expected (a good thing) while core CPI, which excludes food and energy, came in as expected.
Immediately, equity futures rallied and Treasury yields sunk sharply. Stocks piggybacked off those moves and opened higher, but they soon rolled over. The S&P 500 touched 4,134 at its high off the open, yet it closed at 4,091, down 0.4% for the day.
One might be inclined to attribute the disappointing finish to the FOMC Minutes for the March 21-22 meeting, which revealed a bias among participants to keep raising rates even though the staff economic outlook called for a mild recession starting later this year because of the effects of recent banking-sector developments.
Truth be told, the market didn't see its second roll of the day until close to 25 minutes after the release of those minutes, which is to say it is unlikely that they were the basis for the disappointing finish. There wasn't a specific news catalyst for the afternoon roll, but there was a downward turn in the mega-cap stocks and all 11 S&P 500 sectors at the same time that pointed to the likelihood of a sell program causing the afternoon flush that saw the indices close near their lows for the day.
Getting back to the CPI report, it lost some of its initial luster the more it was recognized that core CPI increased on a year-over-year basis. Granted that understanding was embedded in the consensus estimate, meaning it should not have been a "surprise," but with a few Fed officials speaking yesterday after the release of the CPI data, and insinuating that the Fed likely has more work to do to bring down inflation, the initial enthusiasm for the CPI data faded.
Alas, the market has received another seemingly comforting inflation report this morning in the form of the Producer Price Index (PPI).
The index for final demand declined 0.5% month-over-month in March (Briefing.com consensus +0.1%) following an upwardly revised 0.0% reading (from -0.1%) in February. Excluding food and energy, the index for final demand declined 0.1% month-over-month (Briefing.com consensus +0.2%) following an upwardly revised 0.2% increase (from 0.0%) in February.
On a year-over-year basis, the index for final demand was up 2.7% versus 4.9% in February. Excluding food and energy, the index for final demand was up 3.4% versus 4.8% in February.
The key takeaway from the report is that producers are seeing some welcome disinflation, aided by declines in energy prices; however, the stickiness of core CPI in March has offset some of the excitement about the improvement in the PPI data in March.
Notably, the knee-jerk response in the equity futures market and the Treasury market has not been nearly as robust as it was yesterday following the CPI report, but it has still been a favorable response.
The S&P 500 futures are up 14 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 75 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 72 points and are trading 0.2% above fair value. The 2-yr note yield is down seven basis points to 3.90% and the 10-yr note yield is down four basis points to 3.38%.
The weekly initial jobless and continuing claims report was released at the same time as the PPI data. It showed initial claims for the week ending April 8 increasing by 11,000 to 239,000 (Briefing.com consensus 236,000) and continuing claims for the week ending April 1 decreasing by 13,000 to 1.810 million.
The key takeaway from this report is that it reflects some softening in the labor market but not any clear-cut weakness.
In any case, we suspect the equity futures market has contained its enthusiasm because it knows energy prices had a large role in the welcome improvement in the March PPI data and energy prices have been moving higher again; also, softening in the labor market portends a weakening in consumer spending that will adversely impact earnings prospects, particularly if that softening turns into clear-cut weakness.
-- Patrick J. O'Hare, Briefing.com
Harley-Davidson in need of a kick-start after CFO leaves the company for Hasbro (HOG)
- Harley-Davidson (HOG) is in need of a kick-start today after announcing that CFO Gina Goetter will step down at the end of April 2023. After the close last night, toy maker Hasbro (HAS) announced that Ms. Goetter will assume the role of CFO, effective May 18, as the company looks to execute a turnaround. HAS shares are trading higher on the news reflecting investors' optimism that she can repeat the success she had at HOG, which has enjoyed improved financial performance recently.
- Goetter, who was appointed as HOG's CFO in September 2020, was integral to the implementation of the company's "Rewire" restructuring initiative. In addition to cost cutting efforts, a key component of that plan included a renewed focus on HOG's most profitable bikes -- namely, larger bikes, such as American Touring, Large Cruiser, and Trike. Additionally, the initiative included phasing out less popular bikes, while developing and expanding its electric bike segment.
- Although the results for HOG's LiveWire segment (electric) have been somewhat lackluster with total wholesale units expected to come in at just 750-2,000 for FY23, the company's overall financial results have improved following a difficult stretch in 2019 and 2020. For instance, HOG has exceeded EPS expectations in each of the past three quarters with revenue growth reaching solid double-digit levels in the past two quarters.
- In late March, Morgan Stanley upgraded HOG to Overweight, following an upgrade to Hold at Jefferies a week earlier, indicating that the analyst community was warming back up to HOG.
- However, the loss of Ms. Goetter creates some uncertainty whether HOG's turnaround will continue or fizzle out. Vice President and Treasurer David Viney will serve as interim CFO until HOG finds a permanent replacement. HOG, which is contending with some significant headwinds, such as an aging customer base and inflationary pressures, has little margin for error, making its turnaround a fragile situation.
Playtika was dealt a bad hand today as BofA Securities downgrades the stock (PLTK)
Playtika (PLTK -4%) is refunding the gains it made over the past six trading sessions following a downgrade to "Underperform" from "Neutral" at BofA Securities today. The Israel-based mobile games provider, which went public just over two years ago, has seen its fair share of downgrades over the past few months as the industry has succumbed to intense macroeconomic pressures, particularly surrounding free-to-play games.
Briefing.com has recently witnessed softening economic conditions become a recurring theme amongst various video game publishers. For example, Take-Two (TTWO) touched on lingering pressures related to the global economy in February. Likewise, Electronic Arts (EA) stated that the mobile market remained challenging in late January.
- However, the unfavorable conditions plaguing the mobile market appear to have improved since the holiday season. TTWO followed up its remarks in February with positivity about improving mobile trends since the end of December. Management was also upbeat on where the mobile game industry is headed, noting untapped potential within the advertising space, monetizing user engagement outside of in-app purchases.
- Also, as a prior subsidiary of Caesars Entertainment (CZR), PLTK mainly hosts casino-related games, which allow users to win virtual prizes. The gambling aspect of these games can become highly addictive, especially since they are all free to play. Although PLTK's social casino business has seen declining revenue for a few quarters in a row, management believes sales stabilized in Q4, evidenced by its Slotomania game seeing sales decline just 0.6% sequentially.
- PLTK is also a potential takeover candidate. Earlier this week, shares received a boost from rumors that the company was garnering interest from buyout firms. Last year, PLTK announced it was conducting a strategic review, which may ultimately result in a buyout.
Nevertheless, there have been a few discouraging developments recently. PLTK's decision to temporarily suspend new game development until the return on investment is economically viable in February is concerning. The company also slowed its hiring pace earlier this year, focusing on cost discipline, underpinning unfavorable macro headwinds facing the industry. Furthermore, PLTK does not expect the challenging environment to improve until 2024, likely keeping the volatility relatively high for the remainder of the year.
Bottom line, by operating in the mobile market, the world's largest gaming platform, PLTK has plenty of upside potential. Still, the current economy is not shining favorably on the mobile market, which PLTK expects to linger for at least the rest of 2023, which could continue pressuring future growth.
Delta Air Lines descends after mixed Q1 report as rising costs continue to act as headwind (DAL)
After American Airlines (AAL) raised its Q1 EPS guidance yesterday, but still fell short of expectations (based on the midpoint of its outlook), rival Delta Air Lines (DAL) reported mixed results for its March quarter -- the seasonally slowest quarter for the industry. For the third time in the past four quarters, DAL missed earnings estimates, despite benefitting from robust leisure travel demand and an accelerating recovery in corporate and international travel. The Q1 earnings miss, however, isn't the only factor that's driving the stock action in DAL today.
- The Atlanta-based airline also issued upside EPS and revenue guidance for Q2, while reaffirming its outlook for FY23. In fact, its Q2 forecast, which calls for record June quarter revenue, easily topped expectations, indicating that the worst impacts from rising costs will soon be in the rearview mirror.
- On that note, DAL's non-fuel CASM increased by 4.7% y/yr in Q1, slightly worse than the 3-4% increase the company had anticipated.
- Like other airlines, DAL is contending with higher labor costs as it looks to rebuild capacity in the wake of the pandemic. Recall that on March 1, DAL ratified a new Pilot Working Agreement that's worth $7.2 bln over the course of four years. As part of the agreement, DAL's pilots immediately received an 18% pay increase, with a 5% increase pegged for next year.
- About two weeks later, United Airlines (UAL) significantly lowered its Q1 EPS guidance due to anticipated expenses related to a potential new collective bargaining agreement with employees represented by the Air Line Pilots Association.
- The good news for DAL, though, is that non-fuel unit costs are only expected to be 1-3% higher on a yr/yr basis with CFO Dan Janki adding that he remains confident that unit costs will decline in 2H23.
Costs are beginning to normalize just as DAL enters the seasonally strong summer months.
- Total unit revenue (TRASM) grew by 16% in Q1 versus 2019 levels and that momentum is continuing into Q2.
- Notably, demand for premium products remains strong and business and international travel demand is accelerating. Revenue from premium products accounted for 56% of total operating revenue in Q1 as demand for premium seats continued to outpace main cabin demand. Additionally, small and medium business bookings were fully recovered versus 2019 levels, while international corporate sales improved to approximately 90% recovered to 2019 levels (excluding China).
Overall, this was a solid earnings report for DAL, thanks to its bright outlook for the key summer travel months. The stock, however, has failed to hang onto its initial gains following the earnings report, perhaps reflecting investors' concerns that consumers will eventually push back on higher fares and cut back on travel spending as economic headwinds persist.
Immersion's leadership in the haptic technology field make it an interesting medium-term play (IMMR)
Haptic feedback, the vibrations when interacting with specific hardware, is used across various applications, from mobile phones to buttons on a vehicle's steering wheel. Interestingly, one company dominates this space: Immersion (IMMR), which most recently sits at #10 on our Value Leaders Rankings.
IMMR has been in the haptic technology space since the 1990s, which, given this history, has allowed it to command over 1,200 issued or pending patents globally as of FY22. Provided the breadth of its patent portfolio, IMMR has made sure to defend against the myriad of tech giants looking to circumvent these patents over the years, winning suits against huge names like Sony (SONY), Apple (AAPL), and Microsoft (MSFT). Most recently, last year, IMMR filed a complaint against Meta Platforms (META), alleging that its AR/VR systems infringed on six IMMR patents.
Outside the courtroom, IMMR boasts strong fundamentals, a healthy balance sheet, and increasingly popular technology, making its valuation of 13x forward earnings look quite attractive.
- Although revenue has been somewhat stagnant over the past couple of years, holding steady at around $30-40 mln, future catalysts could kickstart growth. One example is within the automotive industry, where computer systems and technology are proliferating. Alongside most physical buttons being replaced by touch-sensitive dials, which incorporate haptic feedback, advanced driver assistance systems (ADAS) are becoming standard safety features, all of which utilize haptic feedback to alert drivers of potential hazards.
- Meanwhile, with haptics being used across numerous fields, like robotics, gaming peripherals, internet-of-things (IoT) devices, and medical equipment, IMMR is potentially amid multiple tailwinds that could help accelerate its top-line.
- Being a company that boasts such a robust patent portfolio that has already had to battle colossal tech names over infringement, it would not be surprising to find one of these tech firms buy out IMMR, especially given its healthy financials. For example, IMMR's long-term debt-to-equity multiple is 0%, as the company has virtually no debt on its books. This is uncommon amongst small-cap firms, especially given how long interest rates sat at rock-bottom levels.
- It is also worth pointing out that IMMR recently implemented a dividend, providing $0.13 per share in Q1 and $0.03 in Q2. Additionally, IMMR has $50 mln remaining under its share buyback authorization.
Still, risks remain. IMMR is not pouring much into R&D anymore, seeing its total spending plummet 67% yr/yr to $1.4 mln in FY22, meaning that the company is almost entirely dependent on its current patent portfolio. Patents also expire, typically 17 years from the date of issuance in the U.S. After increasing its patent count to over 3,400 at the end of FY18, IMMR held around 3,200 issued or pending patents one year later. This number was sliced in half two years after that, dropping to just 1,200 by the end of FY22.
Still, given the pace at which tech evolves, companies cannot wait for patents to expire. Also, given IMMR's track record in court, it would be surprising to see it lose future lawsuits. Bottom line, although the stoppage of R&D concerns long-term growth, IMMR offers a compelling play on the increasing popularity of haptic technology over the medium term.
Fastenal heads lower despite slight EPS upside; demand continues to grow (FAST)
Fastenal (FAST -2.4%) is heading lower today despite reporting upside Q1 results. As one of the largest distributors of fasteners and industrial/construction supplies (bolts, nuts, screws, rivets, etc.), we like to keep an eye on Fastenal to get a sense of the manufacturing economy. FAST also sells safety supplies, tools, janitorial supplies etc. Because FAST always reports early in the earnings cycle, it provides a window into what to expect from others as earnings season progresses.
- We think a possible reason the stock is lower is because FAST reported a very slight EPS beat. However, the company is known for modest beats, so there may be more going on than just that. Revenues rose 9.1% yr/yr to $1.86 bln, which was in-line. Unfortunately, FAST does not provide guidance. Demand is not the problem as FAST reported growth in underlying demand in markets tied to industrial capital goods and commodities, which more than offset a modest contraction for construction supplies.
- FAST implemented broad price increases in 2022 which helped mitigate marketplace inflation. FAST said that the combination of good demand, more stable cost trends, and its long supply chain for imported fasteners and certain non-fastener products produced stable price levels for its products. All of this helped FAST maintain operating margin at 21.2% vs 21.0% last year and that is despite a gross margin decline. FAST has been experiencing relatively strong growth from onsite customers and non-fastener products, which tend to have a lower gross margin.
- Onsite locations, where FAST has a sales office on-premise with its larger customers, is another metric we watch closely. FAST had 89 new Onsite signings in Q1 and it had 1,674 active sites as of March 31, a 16.3% yr/yr increase. We view FAST's Onsite locations as a key component to its growth as it carves out a nice economic moat given that customers with an Onsite location are unlikely to go with another company's fasteners.
Overall, FAST's results were decent but not great. Since FAST does not guide, we are not getting a great sense about their expectations of how the rest of the year will play out. For now, it sounds like demand continues to grow, which is good to see. As we head into earnings season, we are pleased to hear FAST talk positively about the demand picture, which bodes well for manufacturing/construction names. However, we plan to keep an eye on Fastenal in the coming quarters to see how the manufacturing space handles a potentially slowing economy.
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