Market Snapshot
briefing.com
| Dow | 33956.53 | -30.56 | (-0.09%) | | Nasdaq | 12118.15 | -39.56 | (-0.33%) | | SP 500 | 4148.83 | -3.76 | (-0.09%) | | 10-yr Note | +2/32 | 3.57 |
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| | NYSE | Adv 1316 | Dec 1577 | Vol 778 mln | | Nasdaq | Adv 1910 | Dec 2551 | Vol 4.8 bln |
Industry Watch
| Strong: Financials, Information Technology, Industrials, Materials, Energy |
| | Weak: Health Care, Communication Services, Utilities |
Moving the Market
-- Double upgrade of NVIDIA boosting semiconductor stocks
-- Reacting to commentary from Fed officials
-- Weakness in bank stocks after earnings reports from Bank of America (BAC), Goldman Sachs (GS), and BNY Mellon (BK)
-- Homebuilder outperform after pleasing housing data from March
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Closing Summary
18-Apr-23 16:30 ET
Dow -10.55 at 33976.54, Nasdaq -4.31 at 12153.40, S&P +3.55 at 4156.14
[BRIEFING.COM] Today's session was decidedly mixed under the index surface. The main indices had a lackluster showing, spending most of the day trading right around their flat lines. Investors were reacting to a slate of earnings news, some positive economic data, and commentary from a few Fed officials.
Briefly, St. Louis Fed President Bullard (not an FOMC voter) acknowledged the need to raise rates further since inflation remains persistently high and Atlanta Fed President Bostic (not an FOMC voter) said in a CNBC interview that he thinks the Fed should hike rates one more time and hold rates there "for quite some time."
Following their better-than-expected Q1 earnings, Bank of of America (BAC 30.56, +0.19, +0.6%) and Lockheed Martin (LMT 501.41, +11.77, +2.4%) were among the more influential winners today. BAC, which was down as much as 1.9% at one point, helped drive a 0.3% gain in the S&P 500 financial sector and LMT helped propel the industrials sector (+0.5%) to the top of the sector leaderboard.
Meanwhile, Dow components Johnson & Johnson (JNJ 161.01, -4.66, -2.8%) and Goldman Sachs (GS 333.91, -5.77, -1.7%) registered outsized losses following their earnings reports. Both companies reported better-than-expected Q1 earnings, but GS came up shy with its revenue.
Bank stocks in general were weak today as evidenced by the 1.3% decline in the SPDR Bank ETF (KBE) and the 2.2% decline in the SPDR Regional Bank ETF (KRE). Regional bank losses also weighed on the Russell 2000, which closed with a 0.4% loss.
Notably, homebuilders were a pocket of strength today after this morning's better-than-expected housing starts data from March, which was accented with welcome gains in both starts and permits for single family units. The SPDR Homebuilder ETF (XHB) was up 1.7% and the iShares U.S. Home Construction ETF (ITB) rose 2.3%.
The PHLX Semiconductor Index was another pocket of relative strength, up 0.4%, after NVIDIA (NVDA 276.67, +6.65, +2.5%) was upgraded to Buy from Reduce at HSBC.
Like stocks, Treasuries were mixed and little changed today. The 2-yr note yield was up three basis points to 4.21% and the 10-yr note yield slipped two basis points to 3.57%.
- Nasdaq Composite: +16.1% YTD
- S&P 500: +8.2% YTD
- Russell 2000: +3.1% YTD
- Dow Jones Industrial Average: +2.5% YTD
- S&P Midcap 400: +2.0% YTD
Reviewing today's economic data:
- Total housing starts might have declined 0.8% month to a seasonally adjusted annual rate of 1.420 million (Briefing.com consensus 1.407 million), but that was due to a decline in multi-unit starts. Single-unit starts were up 2.7% month-over-month to 861,000. Building permits, meanwhile, declined 8.8% month-over-month, driven by a 24.3% decline in permits for 5 units or more, whereas single-family permits increased 4.1% month-over-month to 818,000.
- The key takeaway from the report is the growth seen in single-family starts and single-family permits -- a leading indicator -- which is needed given the limited supply of existing homes for sale.
Abbott Labs (ABT), Ally Financial (ALLY), ASML (ASML), Baker Hughes (BKR), Bed Bath & Beyond (BBBY), Citizens Financial Group (CFG), Elevance Health (ELV), Morgan Stanley (MS), Synchrony Financial (SYF), Travelers (TRV), and U.S. Bancorp (USB) are among the more notable companies reporting earnings ahead of Wednesday's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 5.3%)
- 10:30 ET: Weekly crude oil inventories (prior 597,000)
- 14:00 ET: April Fed Beige Book
Main indices remain little changed ahead of close
18-Apr-23 15:35 ET
Dow -0.28 at 33986.81, Nasdaq -15.11 at 12142.60, S&P +2.28 at 4154.87
[BRIEFING.COM] Things are little changed heading into the close.
After the close, United Airlines (UAL) and Netflix (NLFX) are among the most notable companies reporting earnings. Omnicom (OMC), Intuitive Surgical (ISRG), Interactive Brokers (IBKR), and Western Alliance Bancorp (WAL) are also some of the names reporting earnings.
Abbott Labs (ABT), Ally Financial (ALLY), ASML (ASML), Baker Hughes (BKR), Bed Bath & Beyond (BBBY), Citizens Financial Group (CFG), Elevance Health (ELV), Morgan Stanley (MS), Synchrony Financial (SYF), Travelers (TRV), and U.S. Bancorp (USB) are among the more notable companies reporting earnings ahead of Wednesday's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 5.3%)
- 10:30 ET: Weekly crude oil inventories (prior 597,000)
- 14:00 ET: April Fed Beige Book
Homebuilders outpace broader market
18-Apr-23 14:55 ET
Dow -30.56 at 33956.53, Nasdaq -39.56 at 12118.15, S&P -3.76 at 4148.83
[BRIEFING.COM] The main indices all took a turn lower recently.
Homebuilder are outpacing the broader market today following this morning's better-than-expected housing starts data from March. The SPDR S&P Homebuilders ETF (KHB) is up 1.4% and the iShares U.S. Home Construction ETF (ITB) is up 1.9%.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 0.2% to $80.89/bbl and natural gas futures rose 4.1% to $2.37/mmbtu.
Tyler Tech outperforms in S&P 500 following Goldman upgrade
18-Apr-23 14:30 ET
Dow +26.87 at 34013.96, Nasdaq -4.54 at 12153.17, S&P +4.77 at 4157.36
[BRIEFING.COM] The S&P 500 (+0.11%) is narrowly in the lead to this point on Tuesday afternoon, up less than 5 points.
S&P 500 constituents CF Industries (CF 74.75, -3.26, -4.18%), Steris (STE 183.50, -4.64, -2.47%), and Match Group (MTCH 35.27, -0.79, -2.19%) dot the bottom of the S&P. Fertilizer stocks, including CF, trade lower on Tuesday, while STE and MTCH fall despite a dearth of corporate news.
Meanwhile, Texas-based software firm Tyler Tech (TYL 372.03, +9.43, +2.60%) is near the top of the standings following an upgrade to Buy at Goldman.
Gold snaps back-to-back losses on Tuesday
18-Apr-23 14:00 ET
Dow +16.99 at 34004.08, Nasdaq -5.02 at 12152.69, S&P +3.55 at 4156.14
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.04%) now sits alone in negative territory among the major averages.
Gold futures settled $12.70 higher (+0.6%) to $2,019.70/oz, snapping back-to-back losses, helped by modest losses in yields and dollar.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $101.75.
Market driving toward important intersection
The stock market is approaching an important intersection. The S&P 500 can see 4,200 straight ahead, but as of yet it doesn't know if the light will be green, yellow, or red when it gets there.
We saw all those lights yesterday; however, the S&P 500 and the other indices finished on a green light that had them speeding to their highs of the session into the close.
Today the market is poised to get a green light at the open. Currently, the S&P 500 futures are up 18 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 93 points and are trading 0.8% above fair value, and the Dow Jones Industrial Average futures are up 29 points and are trading 0.1% above fair value.
There are several catalysts that have shifted the market into drive:
- Bank of America (BAC), Johnson & Johnson (JNJ), and Lockheed Martin (LMT) impressed with better-than-expected Q1 earnings results
- China reported a 4.5% year-over-year increase in Q1 GDP that was stronger than expected
- HSBC double upgraded NVIDIA (NVDA) to Buy from Reduce; NVDA is up 0.9% in pre-market trading
- The BofA Global Fund Manager Survey was the most bearish survey of 2023, an indication that has fostered contrarian buying interest
- The Housing Starts and Building Permits Report for March showed some welcome increases in single-family starts and permits
It isn't entirely full speed ahead, though, for the market. Dow component Goldman Sachs (GS) topped Q1 earnings expectations but its revenue came up shy of estimates. It is down 3.4% in pre-market trading and is the primary reason for the relative weakness in the Dow Jones Industrial Average futures.
Regional bank stocks, meanwhile, are looking lackluster in pre-market action and J.B. Hunt Transport Services (JBHT) spoke of a freight recession on its earnings conference call, which is a bit of a drag on sentiment.
Still, the broader market is overcoming those issues at the moment, bolstered primarily by the relative strength of the mega-cap stocks and the seeming magnetic appeal of the 4,200 level. Recall that the market's red-hot start this year ran out of gas at 4,195 on February 2.
The latter understanding is why there is so much interest in the market's flirtation again with 4,200. Participants are anxious to see if the market proceeds smoothly through that intersection or gets stopped there by a red light.
Briefly, there was no stoppage of homebuilding activity overall in March. Total housing starts might have declined 0.8% month-over-month to a seasonally adjusted annual rate of 1.420 million (Briefing.com consensus 1.407 million), but that was due to a decline in multi-unit starts. Single-unit starts were up 2.7% month-over-month to 861,000. Building permits, meanwhile, declined 8.8% month-over-month, driven by a 24.3% decline in permits for 5 units or more, whereas single-family permits increased 4.1% month-over-month to 818,000.
The key takeaway from the report is the growth seen in single-family starts and single-family permits -- a leading indicator -- which is needed given the limited supply of existing homes for sale.
-- Patrick J. O'Hare, Briefing.com
Lockheed Martin launched to 52-week highs following upbeat Q1 numbers fueled by its Space unit (LMT)
Lockheed Martin (LMT +2%) blasts through previous resistance, forming fresh 52-week highs, following sizeable top and bottom line beats in Q1. The underlying theme in the quarter was resilient demand and minor supply chain issues, allowing LMT to kick off 2023 on the right foot and position it to meet its commitments for the year. The leading defense contractor reiterated its FY23 outlook, its commitment to delivering free cash flow at or above $6.2 bln, and its plans to return to growth in 2024.
- LMT delivered $15.13 bln in sales during Q1, a 1.1% jump yr/yr, assisting its adjusted EPS to remain relatively flat yr/yr at $6.43. LMT's Space segment was its only business to enjoy sales growth in Q1, climbing 15.6% to $2.96 bln. The positive momentum in Space can be attributed to classified programs. LMT's other segments, Aeronautics, Missiles & Fire Control (MFC), and Rotary & Mission Systems (RMS), each witnessed declining revs yr/yr in the quarter, albeit not by more than 3%.
- Breaking down some of LMT's business lines, in MFC, the company commented that its first long-range missile able to travel at speeds greater than Mach 5 is slated for delivery by the mid-2020s. This hypersonic technology is a central focus of LMT over the long term and is pouring capital into developing the technology on an accelerated timeline.
- Meanwhile, in Aeronautics, which includes LMT's F-35 program, the company does anticipate F-35 deliveries to be lower-than-expected due to hardware delivery timing. However, LMT does not expect this to materially impact sales and profit goals.
- LMT's strong numbers in Q1 reflect steady investments by the U.S. and its allies in defense. The preliminary details of the FY24 President's Budget Request (PBR) released last month further underscore a heightened emphasis on security, illuminated by a 3% increase over the FY23 funding. LMT noted that near-term threats posed by China and Russia are spurring additional demand for its advanced technologies, including procurement of 83 F-35 aircraft, ongoing expansion in classified programs, and increased munitions funding.
- These developments, coupled with LMT's strong start to the year, drove the company's reaffirmed FY23 outlook. LMT continues to project EPS of $26.60-26.90 and revs of $65.0-66.0 bln.
Overall, Q1 contained plenty of encouraging developments, paving the way for LMT to hit its FY23 targets and remain on track to return to growth next year. Supply chain challenges are mostly a thing of the past, with only a few pockets of notable weaknesses, particularly in MFC and RMS, a lingering issue for LMT, which will likely persist into 2024. Still, if overall numbers in Q1 were any indication, LMT has demonstrated success in delivering growth despite these problems.
Bottom line, it is hard to bet against the leading defense contractor for the U.S., which boasts the largest military budget across the globe. Even though shares moved to one-year highs today, upside still exists, especially when investing for the long term.
Goldman Sachs fails to match earnings results from banking peers as trading revenue falls short (GS)
Last week, the country's largest banks set a positive tone for this earnings season, posting better-than-expected results and setting the stage for another round of upbeat earnings from financial bellwethers this week, including from Goldman Sachs (GS). The company's 1Q23 performance, however, didn't live up to the heightened expectations as revenue fell short of estimates, mainly due to a 16% decline in its Global Banking & Markets segment.
- Unlike JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C), each of which beat on the top and bottom lines in Q1, GS doesn't have a substantial consumer-facing business. Therefore, the company is not benefiting from a rising interest rate environment that's pushing net interest income significantly higher -- at least, not to same the degree that JPM, BAC, C, and other banks have benefitted. Instead, GS mainly participates on the institutional side of the industry, relying heavily on its investment banking and trading businesses.
- In fact, after several years of building up an online consumer banking business through its Marcus brand, GS is now in the process of unwinding that strategy as it refocuses on its traditional trading, advisory, and investment banking services. Over the past three years, GS's Consumer Platform segment has racked up cumulative losses of about $3 bln, prompting the company to explore strategic options for the unit. In Q1, GS took a major step in that process, executing a partial sale of its Marcus loan portfolio that negatively impacted total revenue by $470 mln.
That loss of revenue created a void that would mostly need to be filled by GS's Global Banking & Markets segment. Unfortunately, the results weren't as strong as anticipated, especially for the fixed income trading business.
- Given the heightened volatility across asset classes that are sensitive to interest rate movements, expectations were pretty high for GS's FICC trading desk. While FICC trading fees jumped by 66% qtr/qtr, total net revenue for FICC fell by 17% yr/yr to $3.93 bln, missing analysts' estimates by a fairly wide margin. The company blamed significantly lower revenue in currencies and commodities for the decline. Adding salt to the wound, JPM's fixed income trading revenue was flat on a yr/yr basis, easily outpacing GS in Q1.
- Advisory was another sore spot for GS, although the weakness here is more unsurprising due to the cold environment for deal making. Revenue for Advisory plunged by 42% qtr/qtr to $818 mln, reflecting a substantial decline in completed merger and acquisition transactions.
- Similarly, the market for new issues remains soft in these volatile and uncertain conditions, causing equity underwriting revenue to decrease by 8% yr/yr to $255 mln. Relative to Q4, though, activity perked up a bit with equity underwriting revenue up 39% sequentially.
Lastly, GS's expense management was under the spotlight this quarter after the company badly missed EPS estimates in Q4, partly due to a 16% increase in compensation and benefits.
- This time around, the company fared a little better as operating expenses climbed by 9%, which was inflated by $355 mln worth of impairments related to real estate investments that impacted its depreciation and amortization lines.
Overall, we would characterize GS's earnings report as mixed, but skewing towards the disappointing side, mainly because the company didn't fully capitalize on the favorable trading conditions on the fixed income side.
Johnson & Johnson trades a bit lower despite nice EPS upside and dividend hike (JNJ)
Johnson & Johnson (JNJ -2.3%) is trading slightly lower following its Q1 results this morning. It was a very solid report with its largest EPS beat since 3Q21, nice revenue upside and JNJ raised FY23 guidance. JNJ also threw in a 5.3% increase to its quarterly dividend. This was an important quarter as it was the first full quarter to include the Abiomed acquisition.
- Last quarter, only one segment reported yr/yr sales growth, but Q1 showed growth in every segment. Its largest segment by far is Pharmaceutical, which grew sales at 4.2% yr/yr to $13.41 bln with growth led by US sales at 5.9% and intl sales up 2.4%. Darzalex, a biologic for the treatment of multiple myeloma, was noticeably strong with sales up 22% yr/yr to $2.26 bln. JNJ says it continues to make progress on its CARVYKTI launch and it is expanding access and reimbursement for SPRAVATO.
- MedTech delivered a strong quarter with sales up 7.3% to $7.48 bln, which now includes Abiomed. JNJ says it is still early days, but it's pleased with the integration and performance of Abiomed. Segment sales were driven primarily by electrophysiology products in Interventional Solutions, contact lenses in Vision, wound closure products in General Surgery, and knees in Orthopaedics. MedTech has benefitted from continued pent-up demand for procedures and commercial uptake of recently launched products. JNJ expects relatively stable procedure volumes for the remainder of the year.
- The Consumer Health segment posted the strongest growth, up 7.4% yr/yr, but at $3.85 bln, this is JNJ's smallest segment. The growth was good, but keep in mind that JNJ was lapping supply constraints in 1H22. Sales were largely driven by OTC products, including TYLENOL and MOTRIN analgesics, upper respiratory products, IMODIUM and international smoking cessation products. Neutrogena and Aveeno in Skin Health/Beauty also helped push sales higher.
- It is worth noting that CEO Joaquin Duato has now been in charge for a full year. He is a long time insider who took the helm in January 2022. His goal has been to reshape JNJ pretty dramatically. In addition to the Abiomed deal, recall that JNJ is in the process of spinning off its consumer health business, renamed Kenvue, which has been burdened by numerous lawsuits alleging its baby powder contained asbestos. The spin-off will allow JNJ to focus on pharmaceuticals and medical devices. JNJ has filed an S-1, so the separation is moving along. The spin-off is expected in 2023.
Overall, the numbers came in better than expected, which bodes well for other pharma/Medtech names we get into earnings season this week. There will be a lot of changes with JNJ in 2023, so it's worth keeping an eye on. Between the Abiomed deal, the Stelara loss of exclusivity, and the consumer health spin off, JNJ should look pretty different later this year. The new CEO is certainly making some big changes.
J.B. Hunt Transport looks to change out a flat tire after top and bottom line misses in Q1 (JBHT)
J.B. Hunt Transport (JBHT) is looking to change out a flat tire today after missing top and bottom line estimates in Q1. This is not the first time the intermodal and trucking transport firm missed EPS and revenue estimates during the quarter. In fact, despite falling short on both metrics last quarter, shares still managed to tick meaningfully higher on the day, primarily due to management's relatively upbeat tone, underscoring that perhaps the worst of JBHT's woes were now in the rearview mirror.
Unfortunately for JBHT, this was not so much the case with last night's Q1 report, which was largely a continuation of the unfavorable themes seen in Q4.
- JBHT's Q1 earnings call started with President Shelley Simpson noting that the company is in a freight recession. Specifically, the current environment is creating deflationary price pressure on an industry constantly facing inflationary cost pressures. This dynamic is eating into JBHT's profitability and sales growth.
- As a result, adjusted EPS contracted by 17% yr/yr to $1.89 while revs tumbled by 7% to $3.23 bln. JBHT's operating segments, outside of Dedicated Contract Services (DCS), experienced declines yr/yr in the quarter. DCS being the outlier has been a consistent theme over the past several quarters, not seeing a decline since JBHT's pandemic quarter (2Q20).
- Part of the reason can be attributed to long-term, cost-plus contracts within this segment, which range from 3-10 years. Although JBHT is seeing some moderation in its pipeline, it expects to achieve its sales targets for the year.
- On the flip side, Intermodal, JBHT's largest segment, saw revs dip 4% to $1.54 bln, fueled by tempered capacity demand, lower imports, and elevated inventory levels across the supply chain. Volumes slid 5%, with the most pronounced drop occurring in March at 8%. By region, transcontinental fell 9% while Eastern grew by 1%. The growth in JBHT's Eastern volumes is notable as the area is the most competitive across the U.S. and Canada.
- Furthermore, as we have heard from rail networks lately, service predictability improved to near pre-pandemic levels during Q1.
- JBHT's other segments, including Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload, all shared similar themes as intermodal. That is, demand softened, leading to lower volumes.
After management's commentary during its earnings call last quarter, investors were hopeful that JBHT would see sunnier skies ahead. Sadly, after disappointing Q1 results, it is looking like it may take until 2H23 for JBHT to begin experiencing a recovery, particularly in intermodal volumes. Still, this is a positive development. JBHT discussed how many customers are optimistic about a second-half rebound this year, a topic we have heard numerous times across multiple industries lately.
On a side note, it is worth keeping Marten Transport (MRTN) on the radar. The company reports Q1 earnings today after the bell.
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