Market Snapshot
briefing.com
| Dow | 33826.65 | +17.78 | (0.05%) | | Nasdaq | 12030.95 | -41.49 | (-0.34%) | | SP 500 | 4133.52 | -1.27 | (-0.03%) | | 10-yr Note | +5/32 | 3.52 |
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| | NYSE | Adv 1579 | Dec 1313 | Vol 751 mln | | Nasdaq | Adv 1801 | Dec 2651 | Vol 4.8 bln |
Industry Watch
| Strong: Energy, Health Care, Materials, Utilities, Consumer Staples |
| | Weak: Real Estate, Information Technology, Consumer Discretionary, Financials |
Moving the Market
-- Wait-and-see ahead of earnings from some mega cap stocks
-- Without investors lacking conviction, mega cap stocks are driving a lot of the index level price action
-- Falling Treasury yields
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Closing Summary
24-Apr-23 16:25 ET
Dow +66.44 at 33875.31, Nasdaq -35.25 at 12037.19, S&P +3.52 at 4138.31
[BRIEFING.COM] The stock market had another lackluster showing today. Investors remain in wait-and-see mode ahead of some market-moving earnings news and economic data later this week. The main indices logged only modest gains or losses today, ultimately settling the session in mixed fashion.
The hesitancy today came ahead of a slate of important economic data this week, including the Fed's preferred inflation gauge on Friday (the March core-PCE Price Index), along with earnings results from Alphabet (GOOG 106.78, +0.87, +0.8%) and Microsoft (MSFT 281.77, -3.99, -1.4%) on Tuesday, Meta Platforms (META 212.79, -0.10, -0.1%) on Wednesday, and Amazon.com (AMZN 106.21, -0.75, -0.7%) on Thursday.
Without a lot of market-moving catalysts, mega cap stocks drove a lot of the index level price action today. The Vanguard Mega Cap Growth ETF (MGK) was down 0.2% while the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.2% and the market-cap weighted S&P 500 was up 0.1%.
Roughly half of the S&P 500 sectors logged a gain led by energy (+1.5%), benefitting from a nice gain in Halliburton (HAL 34.47, +1.07, +3.2%) ahead of its earnings results tomorrow morning. On the flip side, the information technology sector (-0.4%) was the top laggard, weighed down by losses in MSFT and First Solar (FSLR 209.90, -6.99, -3.2%). FSLR was downgraded to Sell from Neutral at Citigroup.
Notably, Dow component Coca-Cola (KO 63.95, -0.10, -0.2%) initially moved higher today as investors digested a better-than-expected Q1 earnings report, but KO gave back those early gains to close with a slim loss.
Market breadth mirrored the mixed action seen at the index level. At the close, advancers led decliners by a slim margin at the NYSE while decliners outpaced advancers by a 13-to-9 margin at the Nasdaq.
Treasuries registered gains across the curve. The 2-yr note yield fell three basis points to 4.13% and the 10-yr note yield fell six basis points to 3.52%.
- Nasdaq Composite: +15.0% YTD
- S&P 500: +7.8% YTD
- S&P Midcap 400: +2.8% YTD
- Dow Jones Industrial Average: +2.2% YTD
- Russell 2000: +1.6% YTD
There was no U.S. economic data of note today.
General Motors (GM), Centene (CNC), Verizon (VZ), Archer-Daniels (ADM), UPS (UPS), PepsiCo (PEP), Raytheon Technologies (RTX), General Electric (GE), Novartis AG (NVS), Dow (DOW), UBS AG (UBS), 3M (MMM), PACCAR (PCAR), Danaher (DHR), McDonald's (MCD), Halliburton (HAL), NextEra Energy (NEE), Sherwin-Williams (SHW), Kimberly-Clark (KMB), Tenet Healthcare (THC), PulteGroup (PHM), Spotify (SPOT), Biogen (BIIB), and JetBlue Airways (JBLU) are among the most notable companies reporting earnings ahead of Tuesday's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:00 ET: February FHFA Housing Price Index (prior 0.2%) and February S&P Case-Shiller Home Price Index (Briefing.com consensus 0.0%; prior 2.5%)
- 10:00 ET: March New Home Sales (Briefing.com consensus 630,000; prior 640,000) and April Consumer Confidence (Briefing.com consensus 104.1; prior 104.2)
Earnings after the close/ahead of tomorrow's open
24-Apr-23 15:30 ET
Dow +57.41 at 33866.28, Nasdaq -39.56 at 12032.88, S&P +1.77 at 4136.56
[BRIEFING.COM] The main indices are trying to move somewhat higher ahead of the close, but moves are still confined to a narrow range.
After the close today, First Republic Bank (FRC), Cleveland-Cliffs (CLF), Whirlpool (WHR), and Cadence Design (CDNS) are among the more notable companies reporting earnings.
General Motors (GM), Centene (CNC), Verizon (VZ), Archer-Daniels (ADM), UPS (UPS), PepsiCo (PEP), Raytheon Technologies (RTX), General Electric (GE), Novartis AG (NVS), Dow (DOW), UBS AG (UBS), 3M (MMM), PACCAR (PCAR), Danaher (DHR), McDonald's (MCD), Halliburton (HAL), NextEra Energy (NEE), Sherwin-Williams (SHW), Kimberly-Clark (KMB), Tenet Healthcare (THC), PulteGroup (PHM), Spotify (SPOT), Biogen (BIIB), and JetBlue Airways (JBLU) are among the most notable companies reporting earnings ahead of Tuesday's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:00 ET: February FHFA Housing Price Index (prior 0.2%) and February S&P Case-Shiller Home Price Index (Briefing.com consensus 0.0%; prior 2.5%)
- 10:00 ET: March New Home Sales (Briefing.com consensus 630,000; prior 640,000) and April Consumer Confidence (Briefing.com consensus 104.1; prior 104.2)
HAL leads energy sector outperformers
24-Apr-23 15:00 ET
Dow +17.78 at 33826.65, Nasdaq -41.49 at 12030.95, S&P -1.27 at 4133.52
[BRIEFING.COM] Things are little changed in the last half hour. The S&P 500 and Dow Jones Industrial Average trade right around their flat lines while the Nasdaq continues to lag.
Energy complex futures settled the session with gains. WTI crude oil futures rose 1.1% to $78.71/bbl and natural gas futures rose 1.6% to $2.26/mmbtu.
On a related note, the S&P 500 energy sector is the best performer today by a wide margin, up 2.0%. Halliburton (HAL 34.76, +1.36, +4.1%) shows the biggest gain among sector components ahead of its earnings report tomorrow morning.
Halliburton, Molina Healthcare gain ahead of earnings
24-Apr-23 14:30 ET
Dow +2.82 at 33811.69, Nasdaq -43.88 at 12028.56, S&P -2.51 at 4132.28
[BRIEFING.COM] The S&P 500 (-0.06%) is in second place on Monday, down about 3 points.
S&P 500 constituents Albemarle (ALB 183.75, +10.00, +5.76%), Halliburton (HAL 34.66, +1.26, +3.77%), and Molina Healthcare (MOH 283.24, +7.70, +2.79%) dot the top of the S&P. Lithium firm ALB is higher on Monday, rebounding from recent weakness which was tied to Chilean President Boric's comments about nationalizing the lithium industry, HAL moves higher ahead of tomorrow morning's report, while MOH gains ahead of Wednesday evening's print.
Meanwhile, Florida-based industrials firm Carrier Global (CARR 41.91, -3.31, -7.32%) is today's top laggard, falling after the WSJ announced the company was in "advanced talks" to acquire Viessmann.
Gold gains, finishes below $2K on Monday
24-Apr-23 14:00 ET
Dow +25.21 at 33834.08, Nasdaq -42.75 at 12029.69, S&P +0.83 at 4135.62
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.35%) is still in negative territory, though currently sits near afternoon highs.
Gold futures settled $9.30 higher (+0.5%) to $1,999.80/oz, allowed higher by a fade in both the dollar and yields.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $101.36.
Market ready to move on some big reports
The first quarter earnings reporting period will go into hyperdrive this week, which is partly why things are starting today at a slow pace. There were a handful of companies that reported their results this morning, including Dow component Coca-Cola (KO), but the real rush of reporting starts Tuesday.
Dow components 3M (MMM), Dow, Inc. (DOW), McDonald's (MCD), and Verizon (VZ) report before Tuesday's open and will cede the reporting spotlight to Alphabet (GOOG), Microsoft (MSFT), Texas Instruments (TXN), and Visa (V) after Tuesday's close.
Alphabet and Microsoft in particular promise to hold some market-moving sway with their reports and guidance, and will soon be joined in that respect by Meta Platforms (META), which reports after Wednesday's close, and Amazon.com (AMZN), which reports after Thursday's close.
This week, however, won't be defined only by the earnings reporting. A batch of important economic data that includes April Consumer Confidence (Tuesday), March New Home Sales (Tuesday), March Durable Goods Orders (Wednesday), the Advance Q1 GDP estimate (Thursday), Weekly Initial Jobless Claims (Thursday), the Q1 Employment Cost Index (Friday), and the March Personal Income and Spending Report (Friday), will also factor into the week's trading action.
To be sure, there hasn't been much "trading action" of late in the market. The S&P 500 starts today at 4,133.52, virtually unchanged from its intraday high on April 4 (4,133.13).
The trading action has been missing in action at the index level, partly because market participants have been anxiously awaiting this week and what is heard from the mega-cap companies, which have led the market's advance this year.
That wait-and-see disposition is on display again this morning. Currently, the S&P 500 futures are down one point and are trading in-line with fair value, the Nasdaq 100 futures are up three points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are down 31 points and are trading 0.1% below fair value.
Coca-Cola is up 1.7% following its earnings report, demonstrating how the action continues to take place at the individual stock level. The "market" itself is stuck, but with Alphabet, Microsoft, Meta Platforms, and Amazon.com accounting for $5.12 trillion of market capitalization combined, and Reuters reporting that hedge funds have their biggest net short position in S&P 500 index futures since October 2011, things seem destined to get unstuck this week.
Tucked in between all the earnings and economic reporting will be debt ceiling dealings. The House will reportedly vote on a GOP bill this week that calls for raising the debt ceiling and agreeing to spending reductions. That is expected to be a close vote, but, in any case, it is being labeled dead on arrival in the Senate because it requires spending reductions in exchange for raising the debt ceiling.
Both sides continue to say they won't let the U.S. default on its debt, but there is an uneasy sense in the market that this matter is going to have its share of drama before something gets done.
-- Patrick J. O'Hare, Briefing.com
C3.ai tags its 200-day moving average (17.35) as shares tumble on a downgrade at Wolfe Research (AI)
C3.ai (AI -10%) gapped significantly lower today following a downgrade to "Underperform" from "Peer Perform" at Wolfe Research. Although, shares tagged their 200-day moving average (17.35) before getting a slight bounce, possibly setting up for a higher low.
Briefing.com notes that C3.ai has exploded in popularity since the artificial intelligence-fueled chatbot ChatGPT started gaining enormous recognition to start the year. However, after reaching highs of +240% from December 28 lows in late March, the stock has pulled back extensively, falling over 45%. Still, with artificial intelligence remaining as lead stories across news networks and alternative media, and organization after organization touching on how it is utilizing the technology to fuel future growth, it is worth digging into whether C3.ai can recover from today's setback.
- What is C3.ai? The company bills itself as an enterprise AI application software firm, delivering products to develop and deploy AI-related applications fueling companies' digital transformations. C3.ai boasts five primary software offerings focused on developing AI applications, utilizing pre-built AI applications, deploying machine learning across various data, applying AI to customer relationship management (CRM) software, and employing AI for advanced data visualization.
- The company's sales have stagnated lately, growing just 7.1% yr/yr in 2Q23 (Oct) and then falling 4.4% in 3Q23 (Jan). In December, the firm commented on its focus on achieving non-GAAP profitability by 4Q24 (Apr) while growing its top line by over 30%. Although C3.ai did not reaffirm its +30% growth commitment in March, it did mention how it was still on track to reach its profitability target.
- Nevertheless, C3.ai boasts some promising prospects, including having over 290 pilot opportunities in its pipeline and encouraging early data from its transition to consumption-based pricing, suggesting a substantial increase in revenue growth rates in FY24 and beyond. The company was also excited about its enterprise search technology, C3 Generative AI, which it anticipates launching to customers this spring.
Still, C3.ai's significantly slowing revenue growth is a cause for concern, especially since its latest quarter of negative growth coincided with the start of the AI frenzy. Meanwhile, customer growth stagnated in JanQ, remaining flat sequentially at 236. Also, even though the company reiterated its profitability goal last quarter, there is still plenty of runway between now and 4Q24 that could cause C3.ai to push this target outward. For example, if AI's popularity diminishes, enterprises may pull back their potentially aggressive plans to implement the technology.
Bottom line, C3.ai has exciting developments in the works and is currently operating at a time when numerous companies across all sectors are discussing their future AI-related plans. However, there are still several concerns lingering on the horizon. Unless C3.ai takes full advantage of the AI-related opportunities at the moment, it could miss its upcoming financial targets.
Johnson & Johnson reportedly nearing IPO for consumer health unit in major test for IPO market (JNJ)
The IPO market may still be barren with less than forty deals pricing so far this year -- many of which are lower quality microcap stocks -- but that's not stopping Johnson & Johnson (JNJ) from proceeding with its spin-off plans for its consumer health segment. According to the Wall Street Journal, JNJ is prepared to begin its IPO road show as soon as today, setting the stage for the potential launch of an IPO for Kenvue in the next couple of weeks.
- Kenvue, which will be the new name for JNJ's consumer health division, will reportedly be pitched to institutional investors at a valuation of approximately $40 bln. Based on FY22 sales of about $15 bln for Kenvue, the proposed valuation would equate to a P/S of roughly 2.7x, which looks reasonable when compared to Proctor & Gamble's (PG) trailing P/S of 4.5x.
- If all goes according to plan and JNJ and its bankers (Goldman Sachs and JPMorgan Chase are the lead underwriters) are able to drum up a healthy amount of interest for the deal, a Kenvue IPO could come as early as next week. Shares would trade on the NYSE under the ticker "KVUE."
JNJ is certainly facing an uphill battle given the ice-cold IPO market, but its odds of a successful IPO for Kenvue may be a little better than they first seem.
- When General Electric (GE) completed its spin-off of its healthcare unit in early January, it was also contending with less-than-ideal conditions in the IPO market. Yet, demand for its GE Healthcare (GEHC) IPO was strong and shares are now trading about 60% higher since its debut. As for GE, its stock has climbed by over 40% since then as investors anticipate stronger earnings for GE as a standalone aviation company.
- Like GE's healthcare segment, JNJ's consumer health business has lagged behind the growth of its counterparts within the company. Specifically, in FY22, consumer health generated operational sales growth of 3.6%, compared to 6.7% and 6.2%, respectively, for the Pharmaceutical and MedTech businesses. GE Healthcare achieved organic sales growth of 7% in FY22, versus growth of 23% for Aviation.
- JNJ is trying to finally iron out the talc-based litigation overhang ahead of the Kenvue IPO, but questions remain. While JNJ refiled for bankruptcy for its LTL Management subsidiary, which would handle cancer victims' claims and contribute up to $8.9 bln to resolve those claims, the DoJ is reportedly balking at the new bankruptcy plans.
There's no guarantee, of course, that JNJ will enjoy the same level of success that GE has with its spin-off/IPO plans. However, the idea of unlocking value in a business by separating it from the two segments that will now garner a majority of JNJ's focus and investments is an appealing concept to investors. With an executive team that's fully dedicated to improving Kenvue's financial performance, investors may anticipate stronger earnings growth down the line.
For the IPO market, a successful launch of Kenvue's IPO would represent a much-needed shot in the arm. The JNJ road show development comes on the heels of The Information breaking a story last week that online event ticketing company SeatGeek confidentially filed for an IPO. Should Kenvue's IPO draw strong interest, then perhaps the timelines for SeatGeek, and other high-profile expected IPOs like Instacart and Arm Ltd., would accelerate.
Coca-Cola's Q1 EPS beat marks refreshing change from last quarter, sends shares slightly higher (KO)
Coca-Cola (KO) is edging higher after its Q1 earnings beat marked a refreshing change from its in-line figure last quarter. Also, the global beverage giant registered a beat on its top line and reiterated its FY23 EPS and organic growth forecasts. These results reflected sustained consumer demand despite stubborn inflationary pressures, a theme we witnessed for household staples titan Proctor & Gamble (PG) last week. It also sets a positive tone ahead of many other staples reporting earnings over the next few weeks, particularly PepsiCo (PEP) and Keurig Dr Pepper (KDP).
- KO returned to form in Q1, delivering a slight EPS beat while sustaining positive sales momentum, as revs climbed 4.8% to $11.0 bln. On an organic basis (removing FX and M&A impacts), sales jumped 12%, led by KO's EMEA and Latin America markets, which saw 23% and 19% growth in the quarter.
- KO's upbeat Q1 numbers were essentially the result of consumers absorbing higher prices. For example, prices rose 11% yr/yr in the quarter, but volumes still expanded by 3%, despite lapping an 8% jump in the year-ago period. It also marked a reversal from the 1% dip in Q4.
- The one exception was KO's EMEA market, which saw the most extensive price jump at 22%, spurring heightened trade-down activity during Q1, evidenced by volumes falling 3%, the only region to see a dip.
- However, on the flip side, in Latin America, where prices soared similarly at 18%, volumes still improved by 5%. Latin America has been a resilient market for KO and PEP in recent quarters, and it is encouraging to see this remain the case in Q1 even as prices continue to climb.
- Nevertheless, although KO's brand power allowed it to target additional price hikes, it could not keep its operating margins stable from the year-ago period, experiencing a 180 bp decline to 30.7%. However, the margin contraction was primarily fueled by adverse FX impacts; on a currency-neutral basis, non-GAAP operating margins saw a 40 bp improvement yr/yr to 31.8%.
- Looking ahead, KO's reiterated FY23 EPS and organic growth projections of +4-5% and +7-8%, respectively, were further reflections of the steady nature of its operations. Management did comment that the global economy remains uncertain in the months ahead. Also, rising interest rates will cause interest expenses to tick up in the quarters ahead.
- Although inflation costs are moderating, KO's cloudy view may be keeping a lid on a more aggressive outlook, especially after its Q1 results signaled resilient demand characteristics in most of its markets.
Bottom line, KO's Q1 report was a testament to the strength of its brands as consumers demonstrated their relative unwillingness to trade down to lower-cost private label alternatives, a good sign ahead of Q1 reports by PEP and KDP slated for April 25 and 27, respectively.
However, on a side note, there are critical differences between the three firms. For instance, PEP's Frito-Lay and Quaker lines' volumes have mostly underperformed its beverage divisions over the past year. Since snack foods may be less impervious to trade-down activity than beverages, they could weigh on results again in Q1. Meanwhile, KDP's slow-to-action surrounding price hikes has clipped past results, and its delayed pricing adjustments may take additional time to flow through to its P&L.
Philips is surging on strong Q1 upside; medical device makers have been impressive (PHG)
Koninklijke Philips (PHG +14%) is surging after reporting impressive Q1 results. Its report follows the recent trend we have been seeing from healthcare/medical device companies. Most notably Johnson & Johnson (JNJ) and Abbott Labs (ABT) both reported strong Q1 results last week. And today PHG continued that trend. ABT noted a behavioral shift post-COVID with people putting a higher priority on getting healthy and staying healthy. The numbers from these companies seem to bear that out.
- While JNJ and ABT are US-based, PHG is a Netherlands-based health technology company. Its business runs the gamut from Diagnosis & Treatment (diagnostic imaging equipment, ultrasound, informatics) to Connected Care (patient monitoring equipment, therapeutic care) to Personal Health (healthy living, preventative care).
- PHG does not have a lot of analyst coverage, but it reported its third consecutive double-digit EPS beat with nice revenue upside. PHG benefitted from good momentum in China and supply chain issues continued to improve. PHG reported 6% comparable sales growth along with improved margins and operating cash flow. PHG also reaffirmed prior guidance for FY23, including comparable sales growth in the low single digits, high single digit adjusted EBITDA margin and FCF of €0.7-0.9 bln.
- Sales growth was driven by Diagnosis & Treatment (D&T), its largest segment, with +15% comp sales growth. Ultrasound and Image-Guided Therapy were particularly strong. This led to D&T adjusted EBITDA margin jumping to 14.0% from 9.5% last year. It is always a great sign when a company's largest segment is also its best performing segment.
- Its Connected Care (CC) segment posted comp sales growth of +3%. Double digit comps in Hospital Patient Monitoring was largely offset by a decline in Sleep & Respiratory Care. Personal Health (PH) segment comps were the laggard at -6% due to lower consumer demand. The silver lining is that PH is the smallest segment, but it was still disappointing.
- PHG also addressed its previously announced recall by the FDA for certain Philips Respironics DreamStation1 CPAP machines. It said that the recall remains its highest priority and it has recorded a €575 mln provision in anticipation of an economic loss, an important step in addressing the litigation related to the recall.
Overall, this was an impressive quarter for PHG. With three big medical device companies reporting strong upside, that bodes well for others scheduled to report in the coming weeks. These companies are benefitting from consumers finally having non-urgent procedures that were put off during the pandemic. Also, people are trying to be healthier in general post-COVID. PHG is not as high-profile as JNJ and ABT, maybe because it's based in Europe. However, this report seems to have gotten some attention.
PPG Industries sets 52-week highs after crushing its raised Q1 EPS forecast (PPG)
PPG Industries (PPG) quickly set 52-week highs out of the gate this morning before paring back some initial gains. Today's upward swing was sparked by the paints, coatings, and specialty materials manufacturer's massive bottom-line beat in Q1, crushing its previous forecast, which it just raised earlier this month. PPG also introduced its FY23 earnings outlook, which, to a less enthusiastic degree, merely met analyst expectations.
- PPG's in-line FY23 earnings guidance contributed to its rather quick pullback from 52-week highs earlier today. Given the sizeable bottom-line beat, coming in $0.27 above the midpoint of its recently raised outlook, we would have liked to see PPG provide a less conservative full-year forecast, especially since its Q2 earnings guidance topped consensus.
- However, PPG remains cautiously optimistic on its near-term view, expecting macroeconomic conditions to be fairly consistent with Q1 with stabilizing economic activity in Europe and modest improvements in China. However, in the U.S., PPG anticipates a sequential economic slowdown within specific end-use markets, particularly construction-related fields.
- On a side note, while only 40% of PPG's sales stem from the U.S., giving the company more of a cushion to weather the slowing conditions domestically, it is not a good sign for Sherwin-Williams (SHW), which derives around 80% of its revs from the U.S.
- Conversely, given that Axalta Coating Systems (AXTA) depends on the U.S. about as much as PPG, its business may be similarly cushioned.
- AXTA and SHW report Q1 earnings on April 24 and 25, respectively.
- Revenue growth of 1.7% yr/yr to $4.38 bln in Q1 was decent. Aerospace and automotive OEMs leading the charge was consistent with PPG's remarks earlier this month. Latin America was also a bright spot, which PPG also alluded to when it raised its Q1 EPS forecast on April 3.
With shares of PPG receiving a fresh coat of green paint earlier this month following its raised Q1 earnings guidance, its Q1 results last night were mainly already priced in. The few pleasant surprises, such as earnings coming in even higher than PPG expected just two weeks ago, aerospace and Latin America enjoying accelerated demand, and supply chain disruptions continuing to diminish, helped the stock gap even higher. However, uncertainties are still on the horizon, particularly surrounding construction end markets in the U.S. and general economic uneasiness, keeping a lid on further upside today.
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