Market Snapshot
briefing.com
| Dow | 33730.39 | -166.53 | (-0.49%) | | Nasdaq | 12051.76 | -105.45 | (-0.87%) | | SP 500 | 4125.07 | -30.72 | (-0.74%) | | 10-yr Note | +4/32 | 3.543 |
|
| | NYSE | Adv 1070 | Dec 1804 | Vol 838 mln | | Nasdaq | Adv 1602 | Dec 2834 | Vol 4.5 bln |
Industry Watch
| Strong: Utilities, Industrials, Consumer Staples |
| | Weak: Energy, Consumer Discretionary, Communication Services, Health Care, Real Estate, Materials |
Moving the Market
-- Tesla (TSLA) receiving negative reaction to earnings results
-- Mixed reactions to earnings results from other companies, yet more negative than positive
-- Falling Treasury yields, reflecting slowdown concerns
-- Still in wait-and-see mode ahead of more earnings results
|
Closing Summary
20-Apr-23 16:30 ET
Dow -110.39 at 33786.53, Nasdaq -97.67 at 12059.54, S&P -24.73 at 4131.06
[BRIEFING.COM] The stock market had a mostly negative disposition today, digesting a slate of weak economic data and disappointing earnings results from Tesla (TSLA 162.99, -17.60, -9.8%). Bank stocks were also a big drag on the broader market today following several earnings misses from regional banks.
Despite Tesla's sizable decline and other headwinds, index level performance was fairly resilient until mid-afternoon. Some relative strength from other mega cap names helped spur a rebound effort from openeing declines for the major indices, which traded right around their flat lines before selling picked up around 2:00 p.m. ET. The afternoon pullback looked technical in nature after the S&P 500 failed to break above the 4,150 level, hitting 4,148 at its high of the day.
Bank stocks were a notable pocket of weakness for the entire session. This followed relatively disappointing earnings reports from several regional banks, such as Zions Bancorporation (ZION 31.12, -1.60, -4.9%) and Truist Financial (TFC 33.48, -1.31, -3.8%). The SPDR Regional Bank ETF (KRE) fell 1.9% and the SPDR Bank ETF (KBE) decline 1.7%.
Dow component American Express (AXP 163.28, -1.67, -1.0%) was another notable loser following a large Q1 earnings miss. AXP, however, did reiterate its full year outlook. Fellow Dow component IBM (IBM 126.36, +0.04, +0.03%) finished the day little changed after its earnings report.
There were some big outperformers today, however. Chief among them were the homebuilders following a positive response to D.R. Horton's (DHI 107.60, +5.74, +5.6%) impressive quarterly results and outlook. This fueled buying interest in other homebuilders as evidenced by the 1.7% gain in the iShares U.S. Home Construction ETF (ITB) and a 0.7% gain in the SPDR S&P Homebuilder ETF (XHB).
Treasuries saw gains across the curve, reflecting slowdown concerns following some weak economic data this morning that featured the highest continuing jobless claims level since November 27, 2021, the weakest reading for the Philadelphia Fed Index (-31.3) since May 2020, the weakest level for the U.S. Leading Economic Index since November 2020, and a 22% year-over-year decline in existing home sales in March. The 2-yr note yield fell nine basis points to 4.17% and the 10-yr note yield fell six basis points to 3.55%.
The Treasury market overlooked a Wall Street Journal report that New York Fed President Williams (FOMC voter) signaled support for another rate hike at the May FOMC meeting and Cleveland Fed President Mester's view, according to CNBC, that policy needs to move somewhat further into tightening territory with the fed funds rate above 5.00%.
- Nasdaq Composite: +15.2% YTD
- S&P 500: +7.6% YTD
- S&P Midcap 400: +2.9% YTD
- Dow Jones Industrial Average: +1.9% YTD
- Russell 2000: +1.6% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending April 15 increased by 5,000 to 245,000 (Briefing.com consensus 242,000) while continuing jobless claims for the week ending April 8 increased by 61,000 to 1.865 million.
- The key takeaway from the report is that continuing jobless claims are at their highest level since November 27, 2021, suggesting it is becoming more challenging to find new employment after a layoff.
- The April Philadelphia Fed Index slumped to -31.3 (Briefing.com consensus -20.0) from -23.2 in March. That is the eighth straight reading in negative territory for this manufacturing survey and the lowest reading since May 2020. The dividing line between expansion and contraction for this report is 0.0.
- With the diffusion index for general activity running at -1.5 (versus -8.0 in March), the key takeaway from the report is that respondents' expectations for growth over the next six months remain subdued.
- Existing home sales declined 2.4% month-over-month in March to a seasonally adjusted annual rate of 4.44 million (Briefing.com consensus 4.50 million) versus a downwardly revised 4.55 million (from 4.58 million) in February. Sales were down 22.0% from the same period a year ago.
- The key takeaway from the report is the recognition that the inventory of existing homes for sale remains extremely tight, which is due in part to the strength of the labor market (and ability to work remotely) and the jump in mortgage rates that is deterring existing home owners' interest in moving.
- The Leading Index was down 1.2% in March (Briefing.com consensus -0.4%) after falling a revised 0.5% (from -0.3%) in February.
- Weekly natural gas inventories increased by 75 bcf after increasing by 25 bcf a week ago.
Ahead of tomorrow's open, Procter & Gamble (PG), Freeport-McMoRan (FCX), and SLB (SLB) are among the more notable companies reporting earnings.
Looking ahead to Friday, market participants will receive the following economic data:
- 9:45 ET: Preliminary April IHS Markit Manufacturing PMI (prior 49.2) and preliminary IHS Markit Services PMI (prior 52.6)
Market remains in steady grind lower
20-Apr-23 15:30 ET
Dow -176.56 at 33720.36, Nasdaq -125.65 at 12031.56, S&P -34.20 at 4121.59
[BRIEFING.COM] The market continues to decline ahead of the close.
Treasuries settled with gains across the curve. The 2-yr note yield fell nine basis points to 4.17% and the 10-yr note yield fell six basis points to 3.55%.
Ahead of tomorrow's open, Procter & Gamble (PG), Freeport-McMoRan (FCX), and SLB (SLB) are among the more notable companies reporting earnings.
Looking ahead to Friday, market participants will receive the following economic data:
- 9:45 ET: Preliminary April IHS Markit Manufacturing PMI (prior 49.2) and preliminary IHS Markit Services PMI (prior 52.6)
S&P 500 rejected near 4,150
20-Apr-23 15:05 ET
Dow -166.53 at 33730.39, Nasdaq -105.45 at 12051.76, S&P -30.72 at 4125.07
[BRIEFING.COM] The market continues to decline after the S&P 500 was rejected near the 4,150 level, reaching 4,148 at its high of the day.
In addition, some mega cap stocks have reversed relative strength as evidenced by the 0.8% decline in the Vanguard Mega Cap Growth ETF (MGK), which had been outperforming this session.
After the close today, PPG Industries (PPG) and CSX (CSX) are among the more notable companies reporting earnings.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 2.9% to $77.08/bbl and natural gas futures rose 1.0% to $2.25/mmbtu.
S&P 500 in second place, earnings movers starting to populate standings
20-Apr-23 14:30 ET
Dow -51.95 at 33844.97, Nasdaq -61.35 at 12095.86, S&P -15.87 at 4139.92
[BRIEFING.COM] The S&P 500 (-0.38%) is now in second place among the major averages.
S&P 500 constituents Seagate Tech (STX 58.01, -4.85, -7.72%), Philip Morris International (PM 96.85, -4.66, -4.59%), and General Motors (GM 33.28, -1.30, -3.76%) pepper the bottom of the standings. STX and PM reported earnings overnight, while GM is slated to report next week (4/25).
Meanwhile, Wisconsin-based industrials firm Snap-On (SNA 261.13, +21.36, +8.91%) is atop the S&P following earnings.
Gold higher on Thursday
20-Apr-23 14:00 ET
Dow -34.13 at 33862.79, Nasdaq -9.75 at 12147.46, S&P -7.20 at 4148.59
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-0.08%) hosts the shallowest losses, inching ever closer to breakeven on the session.
Gold futures settled $11.80 higher (+0.6%) to $2,019.10/oz, allowed higher owing in part to a cooldown in the dollar and yields.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $101.80.
S&P 500 rebound effort stalls on slowdown concerns
The S&P 500 has been running at stall speed for most of the week, reportedly waiting to see the earnings reports for the mega-cap companies, most of which report next week. Tesla (TSLA), however, reported last night and it appears investors didn't love what they heard.
Shares of TSLA are down 8.9% in pre-market action. That moves follows an in-line report for Q1 that featured a 21.0% automotive gross margin, a view that pushing for higher volumes (via price cuts) and a larger fleet is the right choice here versus a lower volume and higher margins, and Elon Musk saying he expects 12 months of "stormy weather" in the economy.
For a stock that has risen 47% this year, versus an 8.2% gain for the S&P 500, that report and outlook didn't exactly come across as perfection and Tesla seems to be paying the price for it -- for now anyway.
In any case, the reaction to Tesla's report has cast a pall on the broader market along with some other disappointments that include an earnings miss from Dow component American Express (AXP), an earnings miss and deposit decline reported by Zions Bancorporation (ZION), weaker-than-expected fiscal Q4 guidance from Lam Research (LRCX), some underwhelming FY23 guidance from AT&T (T), and Taiwan Semiconductor Manufacturing Co. (TSM) saying its Q1 business was impacted by weakening macroeconomic conditions and softening end market demand and that it expects to continue to be impacted in Q2 by customers' further inventory adjustment.
Some companies, though, shared better news. Dow component IBM (IBM) topped Q1 earnings estimates, homebuilder D.R. Horton (DHI) easily surpassed Q1 earnings estimates and raised its FY23 revenue outlook above consensus, tool company Snap-On (SNAP) breezed by analysts' Q1 consensus EPS estimate, and used-car dealership AutoNation (AN) also blew past earnings expectations.
The sum of the earnings parts, though, isn't adding up today to a positive bias.
Currently, the S&P 500 futures are down 28 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 112 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 170 points and are trading 0.5% below fair value.
The current that seems to be flowing beneath it all is economic slowdown concerns, which itself feeds into earnings concerns. This morning's economic data has generated some "stormy weather."
Initial jobless claims for the week ending April 15 increased by 5,000 to 245,000 (Briefing.com consensus 242,000) while continuing jobless claims for the week ending April 8 increased by 61,000 to 1.865 million.
The key takeaway from the report is that continuing jobless claims are at their highest level since November 27, 2021, suggesting it is becoming more challenging to find new employment after a layoff.
Separately, the April Philadelphia Fed Index slumped to -31.3 (Briefing.com consensus -20.0) from -23.2 in March. That is the eighth straight reading in negative territory for this manufacturing survey and the lowest reading since May 2020. The dividing line between expansion and contraction for this report is 0.0.
With the diffusion index for general activity running at -1.5 (versus -8.0 in March), the key takeaway from the report is that respondents' expectations for growth over the next six months remain subdued.
The Treasury market seems to be looking at the growth outlook as being subdued as well in the wake of the latest earnings and economic news. The 2-yr note yield is down nine basis points to 4.17% even though New York Fed President Williams (FOMC voter) signaled his support for another rate hike at the May FOMC meeting, according to The Wall Street Journal, and the 10-yr note yield is down six basis points to 3.54%.
The notion that the economy is slowing but that Fed officials are still suggesting more rate hikes are needed to cool inflation is what has the broader market on edge about a sharper economic slowdown coming to fruition because of a Fed policy mistake. The knock-on effect is that market participants are questioning how much they want to pay for earnings going into stormy weather, so the run to 4,200 for the S&P 500 has been stalled.
-- Patrick J. O'Hare, Briefing.com
American Express sinks after EPS miss, but customer spending still resilient in tough climate (AXP)
Providing a glimpse into the health of the consumer, credit card company American Express (AXP) reported mixed 1Q23 results earlier this morning while also reaffirming its FY23 EPS and revenue growth outlook.
Overall, AXP's earnings report offered an encouraging view of consumer spending in a difficult macroeconomic environment as total network volumes increased by 14% yr/yr to $398.9 bln. However, the company missed earnings expectations for the second consecutive quarter, this time mainly due to its provision for credit losses coming in at $1.1 bln, which was far above what analysts had anticipated.
- On one hand, AXP's earnings miss doesn't seem overly concerning since it wasn't driven by slacking demand.
- On the other hand, the fact that the company felt it was necessary to have a net reserve build of $320 mln, pushing its provision for credit losses up to $1.1 bln, suggests that its executives are feeling pretty cautious about the economy.
- On that note, CEO Stephen Squeri acknowledged that he's mindful of the mixed signals in the external environment.
As it currently stands, though, AXP's customers are still spending at a healthy clip, particularly in the restaurant and entertainment categories.
- More specifically, entertainment spending jumped by 39%, reflecting the resiliency of AXP's more affluent customer base. CFO Jeff Campbell highlighted the competitive advantage of catering to a more affluent crowd, stating that AXP's stability helped it attract more deposits in the wake of the collapses of SIVB Financial and Signature Bank.
- AXP, which offers savings accounts to its customers, saw retail deposits climb by about $11 bln in the quarter.
Delinquencies are ticking slightly higher with loans 30+ days past due reaching 1.1% of total loans, compared to 1.0% last quarter and 0.9% in 3Q22. Overall, that is still a very manageable figure and isn't too much of a concern at this point.
- What is a bit more troublesome is that AXP continues to ramp up its spending in order to drive its growth.
- Last quarter, the company's expenses increased by 15% as travel-related benefits climbed higher due to the redemption of travel rewards. In Q1, expenses shot higher by 22% to $11.1 bln, resulting from higher customer engagement costs (marketing) and the increased usage of travel-related benefits.
- Along with the higher-than-expected provision for credit losses, the sharp increase in expenses are to blame for AXP's earnings miss.
Overall, we view AXP's earnings report as pretty solid, especially since the company reaffirmed its outlook for FY23. AXP's healthy volume growth also represents a positive data point for Visa's (V) and Mastercard's (MA) upcoming earnings reports, slated for April 25 and April 27, respectively.
D.R. Horton brings the house down with a blowout MarQ report; good sign for homebuilders (DHI)
D.R. Horton (DHI +6%) is bringing the house down with its blowout Q2 (Mar) earnings report today, igniting a powerful rally behind its stock price, which is gapping toward 52-week highs. The homebuilder crushed earnings estimates, posting its widest beat in over five years. Revenue growth did dip into negative territory for the first time in over 20 quarters, sliding 0.3% yr/yr. However, this was substantially better than the sizeable decline analysts feared.
- One of the brightest highlights from Q2 was DHI's net sales orders skyrocketing 73% sequentially. Given the higher mortgage rates and inflationary pressures, the explosive growth was made all the more impressive.
- Although the unfavorable environment did cause DHI's cancellation rate for the quarter to tick up 2 pts yr/yr to 18%, this was drastically better from the 27% in Q1 (Dec) and 32% in 4Q22 (Sep), underscoring improving confidence amongst buyers.
- A factor assisting DHI's positive results was its ongoing use of incentives and pricing adjustments it started implementing last summer. Although by putting higher incentives and home price reductions into effect, DHI's gross margins on home sales did contract sequentially for the second-straight quarter, tumbling by 230 bps to 21.6%. However, the good news is that DHI does not anticipate further declines in Q3 (Jun), forecasting 21-22% margins.
- Others in the industry, like Lennar (LEN) and KB Home (KBH), have relied on incentives to move homes. LEN noted last month that due to the volatility in the market surrounding interest rates and inflationary pressures, it maintained volume through incentives. Similar to DHI, this strategy also clipped margins for these firms. Still, evidenced by the predictions from DHI's peers, it looks as though margins are beginning to stabilize.
- Helping DHI carve out a bottom regarding its margins was working with its trade partners to reduce construction costs as well as lower lumber prices.
- Looking ahead, DHI expects volatility to persist with heightened uncertainty surrounding mortgage rates, capital markets, and general economic conditions. Nevertheless, the company's Q3 (Jun) and FY23 (Sep) outlook was relatively upbeat. DHI expects Q3 revs of $8.0-8.5 bln, a decent improvement from the $7.97 bln posted in Q2. The company also anticipates FY23 revs of $31.5-33.0 bln, well ahead of consensus.
DHI's Q2 results reflected a tremendous ability to dodge numerous macroeconomic obstacles. The company's geographic footprint, boasting 106 markets across 33 states, more extensive than KBH and LEN, helps to diversify its revenue stream, as does its various housing plans, which range from 1,000-4,000 square feet. Although economic variables could pressure DHI's future financial performance, the company remains bullish on long-term trends, including the undersupply of homes and favorable demographics.
On a final note, DHI's results are a good sign ahead of PulteGroup's (PHM) MarQ earnings on April 25. PHM boasts a similar geographic footprint with a wide range of housing plans.
Tesla's aggressive price cuts put major dent in margins, sending stock in reverse (TSLA)
The million-dollar question heading into Tesla's (TSLA) 1Q23 earnings report was whether the electric vehicle maker's margins would at least meet expectations following a series of price cuts in the U.S. and China.
- Last night, investors didn't receive the answer they were looking for as automotive gross margin (excluding regulatory credits) cratered by five percentage points sequentially to about 16%, while TSLA's overall gross margin of 19% fell well short of estimates.
- Some may recall that CFO Zachary Kirkhorn stated that FY23 automotive gross margin should stay above 20% for FY23, but a steep drop in ASPs this quarter pushed the metric below that floor level.
Despite the plunge in gross margin, TSLA still managed to meet EPS estimates.
- However, TSLA's profitability and cash flow on a yr/yr basis is heading in reverse. Specifically, net income and free cash flow tumbled by 22% and 80%, respectively. Making matters worse for the stock, CEO Elon Musk signaled during the earnings call that more price cuts could be on the horizon, stating that he intends to continue leveraging the company's position as a cost leader.
- Essentially, Musk is creating a price war in the EV market -- whether he wants to admit it or not -- in order to protect/gain market share and grow volumes, at the expense of profits. This isn't a positive development for other EV makers, especially for up-and-coming companies like Rivian (RIVN) or Lucid Group (LCID) that are already being squeezed by manufacturing inefficiencies due to low production volumes.
- It's also not a positive for TSLA -- at least, not in the short-term. The stock is not cheap, trading with a Forward P/E of nearly 50x. With the "E" component of that valuation metric set to decline, the "P" component will have to follow suit in order to avoid a valuation that truly reaches nose-bleed levels.
On the positive side, TSLA did reaffirm its expectation to deliver about 1.8 mln vehicles in FY23, representing impressive yr/yr growth of 31%.
- In fact, just like last quarter, Musk said that the company may be able to reach the 2 mln mark this year for deliveries. Even as Musk predicts more "stormy weather" for the economy this year, he expects that demand will hold up quite well.
- Additionally, Mr. Kirkhorn noted that cost reductions and improved efficiency at its new factories should support improved margins later this year. Whether those factors are enough to fully offset the price cuts and drive automotive gross margin back above 20% remains to be seen, but at least the trend for improved production efficiency is accelerating.
The main takeaway is that TSLA's aggressive price cutting strategy is having a worse-than-feared impact on its margins and profits, which is a bad recipe for an expensive stock. From a longer-term perspective, the company's strategy to drive volume higher and extend its lead in the EV market will probably pay dividends, but it's going to be bumpy ride for investors as its profits dwindle.
IBM trades roughly flat following mixed quarter; cautious outlook offsets solid EPS beat (IBM)
IBM (IBM) is trading roughly flat today after bouncing back with a big EPS beat following a rare EPS miss in Q4. Investors were also pleased to see IBM reaffirm its FY23 free cash flow outlook of $10.5 bln. It was not all good news as Q1 revs were a bit light and the company shaved its FY23 outlook for constant currency (CC) revenue growth to +3-5% from "mid-single digits." We typically view "mid" as 4-6%, so we view 3-5% as a slight decrease.
- IBM's performance was led by Software (+5.6% CC) and Consulting (+8.2% CC) as clients continue to accelerate their digital transformations, modernize their applications and automate their workflows. All three of its geographies grew, with high-single-digit growth in both EMEA and Asia Pacific. IBM noted that, more recently, clients are prioritizing digital transformation projects that focus on cost takeout, productivity, and quick returns. That is why IBM is seeing a lot more interest in using AI to boost productivity and reduce costs.
- Its Infrastructure segment was the laggard with roughly flat (+0.1% CC) revs. This segment ebbs and flows more on product launches and IBM is now in the fourth quarter of z16 availability. The silver lining is that this z16 cycle has outpaced prior cycles and Infrastructure is IBM's smallest segment.
- Looking ahead, IBM continues to expect Software revenue growth in line with the mid-single-digit model. Consulting continues to see strong demand for digital transformations and application modernization. However, IBM did say it's seeing some deceleration in Consulting from the previous robust growth levels, especially in the US. Specifically, IBM is seeing some pressure on more discretionary projects in the US. It now sees Consulting revenue growth in the +6-8% range. Infrastructure is about to wrap on the z16 introduction. As a result, IBM expects 2023 Infrastructure revenue to decline.
The stock is trading roughly flat which tells us investors are taking a mixed view on the quarter. The big EPS beat and FCF reaffirm were nice to see, but shaving the full year CC growth outlook and the cautious commentary on the Consulting unit are blunting the positive news. In terms of what this report means for other tech names as earnings season kicks off in earnest next week, it makes us a bit more cautious, especially with regards to the guidance we can expect from others.
Lam Research surges as gloomy JunQ outlook priced in; TSM also left CapEx plan unchanged (LRCX)
Lam Research (LRCX +7%) is etching out big gains today despite forecasting Q4 (Jun) earnings and revs meaningfully below consensus last night. The semiconductor equipment giant, whose customers are made up of the world's leading semiconductor manufacturers like Intel (INTC), Micron (MU), Samsung (SSNLF), and Taiwan Semi (TSM), did manage to exceed analysts' earnings and sales forecasts in Q3 (Mar). However, given LRCX's conservative guidance in recent quarters due to the heightened volatility in the semiconductor market, investors may have already priced this in.
Still, by that same token, the market has been given time to price in a gloomy near-term outlook within the semiconductor industry. Leading into LRCX's report, it was well-documented that wafer fab equipment (WFE) spending would be severely depressed this year. MU slashed its FY23 (Aug) CapEx projection in March, forecasting just $7.0 bln, a 40% reduction from FY22, with WFE spending tumbling 50%. Shortly after that, Samsung reportedly cut production of specific chips to help reduce elevated inventories. Then, earlier this week, reports swirled that TSM would trim its FY23 CapEx plan to $28-32 bln, a substantial reduction from its initial $32-36 bln forecast. However, helping LRCX today was TSM stating that its CapEx plan would remain unchanged at $32-36 bln. KLA Corp (KLAC) is also ticking higher on LRCX's report and the positive development at TSM.
- Shifting to MarQ results, revs fell 4.7% yr/yr to $3.87 bln while adjusted EPS of $6.99 translated to a 5.5% dip, both exceeding the midpoint of LRCX's prior forecasts. As expected, weakness primarily stemmed from memory spending, which fell to a historic low in MarQ. With memory spending hitting these rock bottom levels, the market is not anticipating much further downside.
- Furthermore, LRCX has noted previously that current spending levels are unsustainable to support long-term growth in bit demand. This sentiment is especially true today, given the recent explosion in AI applications, which can have around 3x the memory and 8x the storage content of a regular server.
- At the same time, given LRCX's established leadership position within the memory space, the company is primed to benefit mightily once memory spending recovers. For example, LRCX's installed base for memory has expanded by close to 40% compared to the previous economic downcycle.
- Still, as LRCX's JunQ guidance signals, the demand landscape remains challenging, at least for the near term. The company expects adjusted EPS of $4.00-5.50 and revs of $2.8-3.4 bln, both representing further deceleration from the previous quarter. CEO Timothy Archer mostly reiterated the company's FY23 WFE spending forecast of being in the low to mid-$70 bln range -- adding "low" as a buffer represented a minor tweak from DecQ. Memory spending is expected to decline around 50% yr/yr in FY23, led by NAND, or flash memory.
The main takeaway is that although the near term remains challenging, LRCX's outlook did not signal further concerns that would not have been expected, given recent guidance from many of its peers. On a side note, NAND leading the decline in FY23 is not a good sign ahead of Western Digital's (WDC) MarQ report on May 8. WDC derives half its revs from flash memory.
|
