Market Snapshot
briefing.com
| Dow | 33290.18 | -240.56 | (-0.72%) | | Nasdaq | 11844.66 | +45.52 | (0.39%) | | SP 500 | 4053.94 | -18.96 | (-0.47%) | | 10-yr Note | -3/32 | 3.43 |
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| | NYSE | Adv 966 | Dec 1905 | Vol 853 mln | | Nasdaq | Adv 1785 | Dec 2666 | Vol 5.3 bln |
Industry Watch
| Strong: Information Technology |
| | Weak: Health Care, Utilities, Industrials, Energy, Materials, Consumer Staples |
Moving the Market
-- Strength in Microsoft (MSFT) following earnings news
-- Price action in Treasuries continues to signal slowdown concerns
-- Ongoing fallout in First Republic Bank (FRC)
-- Muted response to positive earnings acting as a drag on investor sentiment
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Closing Summary
26-Apr-23 16:30 ET
Dow -228.96 at 33301.78, Nasdaq +55.19 at 11854.33, S&P -15.64 at 4057.26
[BRIEFING.COM] The major indices closed the session in mixed fashion, yet today's trade skewed negative under the surface. Price action was especially disappointing when considering the 7.2% gain Microsoft (MSFT 292.37, +19.95, +7.2%) registered today after reporting earnings. The major indices had been moving higher early on thanks in large part to support from the mega cap space, but ultimately closed near their lows of the day. As the broader market declined, the negative price action itself became a driver of selling interest.
Even Alphabet (GOOG 104.45, -0.16, -0.2%), which had been up as much as 2.3% after reporting better than expected/feared quarterly results, closed the session with a slim loss.
The negative bias today was stemming from growth concerns, First Republic Bank's (FRC 5.69, -2.41, -29.8%) ongoing fallout, and misgivings about debt ceiling matters and the Fed's policy path.
Relatively disappointing guidance from the likes of Texas Instruments (TXN 164.46, -4.93, -2.9%) and Norfolk Southern (NSC 201.02, -6.10, -3.0%), in addition to the 0.4% decline in nondefense capital goods orders in March -- a proxy for business spending, piled onto the festering slowdown concerns.
There were some individual earnings-related winners today, though. Aside from Microsoft, Chipotle Mexican Grill (CMG 2009.85, +229.85, +12.9%) and Dow component Boeing (BA 203.03, +0.84, +0.4%) were among the most notable standouts in that regard.
Still, the overall vibe in the market was downbeat as evidenced by a 1.0% decline in the Invesco S&P 500 Equal Weight ETF (RSP).
Treasuries settled the session mixed, but price action in recent sessions signaled slowdown concerns. The 2-yr note yield, which saw 3.86% today, fell three basis points to 3.92%. The 10-yr note yield, which fell to 3.38% earlier, settled up four basis points to 3.43%.
Separately, the U.K.'s CMA said it will block Microsoft's acquisition of Activision Blizzard (ATVI 76.81, -9.93, -11.5%), which weighed heavily on the latter stock.
- Nasdaq Composite: +13.3% YTD
- S&P 500: +5.6% YTD
- Dow Jones Industrial Average: +0.5% YTD
- S&P Midcap 400: UNCH YTD
- Russell 2000: -1.8% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 3.7%; Prior -8.8%
- March Durable Orders 3.2% (Briefing.com consensus 0.7%); Prior was revised to -1.2% from 1.0%; March Durable Goods - ex transportation 0.3% (Briefing.com consensus -0.1%); Prior was revised to -0.3% from 0.0%
- The key takeaway from the report, though, is that nondefense capital goods orders excluding aircraft -- a proxy for business spending -- declined 0.4% in March following a 0.7% decline in February.
- March Adv. Intl. Trade in Goods -$84.6 bln; Prior was revised to -$92.0 bln from -$91.6 bln
- March Adv. Retail Inventories 0.7%; Prior was revised to 0.3% from 0.8%
- March Adv. Wholesale Inventories 0.1%; Prior was revised to 0.1% from 0.2%
- The weekly EIA Crude Oil Inventories showed a draw of 5.05 million barrels after last week's draw of 4.58 million barrels.
Valero Energy (VLO), Comcast (CMCSA), Caterpillar (CAT), Merck (MRK), AbbVie (ABBV), American Airlines (AAL), Bristol-Myers (BMY), Sanofi (SNY), Northrop Grumman (NOC), Honeywell (HON), Eli Lilly (LLY), Southwest Air (LUV), Mastercard (MA), Altria (MO), Grainger (GWW), Keurig Dr Pepper (KDP), Hershey Foods (HSY), Church & Dwight (CHD), and Hasbro (HAS) are among the more notable companies reporting earnings.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Advance Q1 GDP (Briefing.com consensus 2.0%; prior 2.6%), advance Q1 Chain Deflator (Briefing.com consensus 3.7%; prior 3.9%), weekly Initial Claims (Briefing.com consensus 245,000; prior 245,000), and Continuing Claims (prior 1.865 mln)
- 10:00 ET: March Pending Home Sales (Briefing.com consensus 1.0%; prior 0.8%)
- 10:30 ET: Weekly natural gas inventories (prior +75 bcf)
Market continues to lose ground ahead of close
26-Apr-23 15:35 ET
Dow -283.56 at 33247.18, Nasdaq +48.41 at 11847.55, S&P -20.63 at 4052.27
[BRIEFING.COM] The market remains in a slow, steady decline heading into the close.
After the close today, Meta Platforms (META ), Molina Healthcare (MOH), Pioneer Natural Resources (PXD), Waste Mgmt (WM), C.H. Robinson (CHRW), O'Reilly Auto (ORLY), United Rentals (URI), eBay (EBAY), KLA Corporation (KLAC), ServiceNow (NOW), EQT Corp. (EQT), Spirit Airlines (SAVE), Mattel (MAT), and Roku (ROKU) are among the more notable companies reporting earnings.
Valero Energy (VLO), Comcast (CMCSA), Caterpillar (CAT), Merck (MRK), AbbVie (ABBV), American Airlines (AAL), Bristol-Myers (BMY), Sanofi (SNY), Northrop Grumman (NOC), Honeywell (HON), Eli Lilly (LLY), Southwest Air (LUV), Mastercard (MA), Altria (MO), Grainger (GWW), Keurig Dr Pepper (KDP), Hershey Foods (HSY), Church & Dwight (CHD), and Hasbro (HAS) are among the more notable companies reporting earnings.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Advance Q1 GDP (Briefing.com consensus 2.0%; prior 2.6%), advance Q1 Chain Deflator (Briefing.com consensus 3.7%; prior 3.9%), weekly Initial Claims (Briefing.com consensus 245,000; prior 245,000), and Continuing Claims (prior 1.865 mln)
- 10:00 ET: March Pending Home Sales (Briefing.com consensus 1.0%; prior 0.8%)
- 10:30 ET: Weekly natural gas inventories (prior +75 bcf)
Treasury yields back off highs as equities decline
26-Apr-23 15:05 ET
Dow -240.56 at 33290.18, Nasdaq +45.52 at 11844.66, S&P -18.96 at 4053.94
[BRIEFING.COM] The main indices continue to trend lower.
At the same time, Treasury yields are backing up from session highs. The 2-yr note yield, which reached 3.99% earlier, is down five basis points to 3.90%. The 10-yr note yield, which hit 3.46% earlier, is up three basis points at 3.42%.
Energy complex futures settled the session lower. WTI crude oil futures fell 3.5% to $74.36/bbl and natural gas futures fell 7.6% to $2.12/mmbtu. On a related note, the S&P 500 energy sector is among the worst performers, down 1.5%.
Old Dominion underperforming after earnings, Allegion outperforming after earnings
26-Apr-23 14:30 ET
Dow -172.24 at 33358.50, Nasdaq +87.73 at 11886.87, S&P -8.48 at 4064.42
[BRIEFING.COM] The major averages dipped to session lows in the last 10 minutes, though now stand modestly off those levels. The S&P 500 (-0.21%) is in second place.
S&P 500 constituents Old Dominion (ODFL 306.26, -33.11, -9.76%), SolarEdge Technologies (SEDG 281.45, -27.76, -8.98%), and Generac (GNRC 95.34, -6.76, -6.62%) dot the bottom of the standings. ODFL slips after earnings, SEDG is lower in sympathy following Enphase Energy's (ENPH 166.11, -54.49, 24.70%) guidance miss, while GNRC is pressured by general weakness in utilities stocks.
Meanwhile, industrials firm Allegion (ALLE 107.69, +5.74, +5.63%) is among today's top performers following earnings.
Gold lower, gives back $2K level
26-Apr-23 14:00 ET
Dow -161.76 at 33368.98, Nasdaq +89.41 at 11888.55, S&P -7.69 at 4065.21
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+0.76%) is now the lone gainer among the major averages.
Gold futures settled $8.50 lower (-0.4%) to 1,996.00/oz as earnings from regional banks and sentiment about the debt ceiling weighed on the yellow metal.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $101.48.
There is Microsoft and then there is a subdued market
The futures for the major indices are trading higher, yet we wouldn't go so far as to suggest there is a bullish bias driving things. There is a clear Microsoft (MSFT) bias that is bullish. That stock is up 8.6% but that move hasn't necessarily translated into a stampede by the bulls after yesterday's poor showing by the stock market.
Currently, the S&P 500 futures are up 12 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 137 points and are trading 1.1% above fair value, and the Dow Jones Industrial Average futures are up 59 points and are trading 0.2% above fair value.
Bear in mind, too (no pun intended), that Alphabet (GOOG) topped the consensus EPS estimate and announced a $70 billion share buyback authorization, and that Chipotle Mexican Grill (CMG), Texas Instruments (TXN), Visa (V), Humana (HUM), and PacWest Bancorp (PACW) also reported pleasing earnings news.
Dow component Boeing (BA) came up shy of Q1 consensus earnings estimates, but pleased investors by reaffirming its FY23 outlook and announcing increased production plans for its 737 program. Shares of BA are up 2.1%.
The overarching point is that the overall body of earnings reporting work for the March quarter since yesterday's close has been quite good, yet the overall reaction has been quite subdued. Take Microsoft out of the equation and the equity futures for the major indices would look quite anemic.
We'll have to see how this plays out when the cash market opens for trading. That is, will the road rise to meet Microsoft or will the road just be filled with dips and bumps while Microsoft rises well above it?
One stock that is certainly hitting a pothole is Activision (ATVI). It is down 10% after the UK's CMA blocked Microsoft's deal to acquire Activision, saying it would substantially weaken competition. Microsoft and Activision plan to fight that ruling.
Separately, concerns about the U.S. economy weakening substantially continue to fester. Those concerns were evident in the Treasury market yesterday and they have not been tempered to any great extent today despite the generally good earnings news. The 2-yr note yield, which dropped 18 basis points yesterday, is down another three basis points this morning to 3.92%. The 10-yr note yield, which fell 12 basis points yesterdays, is up just one basis point to 3.41%.
Today's moves were largely established before the March Durable Goods Orders Report was released at 8:30 a.m. ET, but we can see why sellers of Treasuries have kept mostly to the sidelines after that report.
Total durable goods orders were up a robust 3.2% month-over-month in March (Briefing.com consensus +0.7%), powered by a 78.4% increase in new orders for nondefense aircraft and parts. Excluding transportation, durable goods orders rose a more modest 0.3% (Briefing.com consensus -0.1%).
The key takeaway from the report, though, is that nondefense capital goods orders excluding aircraft -- a proxy for business spending -- declined 0.4% in March following a 0.7% decline in February.
The equity futures market had a relatively muted response to the data, which is in keeping with its overall disposition excluding Microsoft.
-- Patrick J. O'Hare, Briefing.com
Visa's upside results driven by resilient consumer spending, but volume growth now moderating (V)
About one week after credit card company American Express (AXP) reported quarterly results that featured a 14% jump in total network volumes, payment processing giant Visa (V) issued upside Q2 results, further solidifying the notion that consumer spending is still healthy.
- Like AXP, Visa is benefitting from resilient demand for travel, dining, and entertainment, pushing the company's U.S. payment volume and cross-border volume (excluding Europe) higher by 10% and 32%, respectively.
- Consumers may be spending more on dining in general, but Visa is also experiencing stronger usage at restaurants. At U.S. quick service restaurants, Visa's penetration surpassed 40% with the company seeing increased traction across several major metro areas like Los Angeles, New York, San Francisco, and Seattle.
Internationally, an accelerating recovery in cross-border travel is providing a boost to payment volumes.
- Visa noted that travel in and out of Asia reached 2019 levels during the quarter, while travel into the U.S. is very close to a full recovery. CEO Ryan McInerney added that he believes that the travel recovery hasn't completely played out just yet.
It's worth noting, though, that most of the quarter benefitted from lapping the Omicron variant in the year-earlier period.
- In March, payment volume growth began to tick lower and has remained at similar levels through April so far.
- More specifically, a 2% decrease in U.S. ticket size is mainly to blame for the deceleration in growth. A moderation in inflation is the root cause here as transaction growth of about 8% remains consistent with Q2 levels.
- Although Visa didn't provide specific financial guidance for Q3, the company did state that it expects the slower volume trends seen in March and April will persist through the rest of the quarter. One key factor to consider is that Visa will be lapping peak fuel prices from last summer in Q3, which will negatively impact the volume growth rate
From a longer-term perspective, Mr. McInerney offered a bullish take on Visa's growth potential, commenting that consumer payments still represents a massive opportunity and that there's a long runway for growth. To capitalize on that opportunity, Visa intends to grow credentials and acceptance, thereby bringing more buyers onto its network.
Overall, this was a solid quarterly report for Visa, helping to ease concerns that consumer spending is drying up amid the macroeconomic uncertainty. On a final note, AXP's and Visa's results are positive data points ahead of Mastercard's (MA) earnings report tomorrow morning.
Chipotle Mexican Grill shares fired up on excellent Q1 numbers and upbeat guidance (CMG)
Chipotle Mexican Grill (CMG +14%) is sizzling today as shares leap to 52-week highs following the fast-casual restaurant chain's substantial earnings beat in Q1. Just about every metric was a positive standout in Q1. CMG exceeded its high-single-digit comp growth forecast, serving up comps of +10.9% in the quarter. The company also provided full-year comp guidance for the first time since before the pandemic, expecting same-restaurant sales to remain upbeat in the mid-to-high single-digit percentage range for FY23.
- Drilling deeper, Q1 earnings of $10.50 per share crushed estimates and marked CMG's widest beat in over five years. Meanwhile, revs jumped 18.8% yr/yr to $2.40 bln, CMG's best quarterly growth rate since 4Q21.
- What led to CMG's blowout quarter? Transaction trends were positive throughout Q1, with higher-income consumers continuing to flock to Chipotle locations. At the same time, CMG benefited from a recovery in the lower-income consumer. Although this cohort is still not back to pre-COVID levels, it has dramatically improved over the past six months. Additionally, CMG witnessed solid demand for new menu items, like the Fajita Quesadilla and Chicken Al Pastor.
- Also worth mentioning was CMG's commitment to improving its guests' and employees' experiences. For example, CMG is constantly tweaking methods to improve throughput in its restaurants, testing changes to pickup times based on different deployment levels. The company also added digital tipping to incentivize workers to improve throughput.
- CMG's margins saw a tremendous lift from the year-ago period. Restaurant-level margins expanded by roughly 490 bps to 25.6%, fueled by higher sales, labor efficiencies, and continually lower avocado prices. Margins would have seen even further gains without persistent higher-priced items, including queso beans, rice, salsa, and tortillas.
- Looking ahead to Q2 and FY23, CMG expects its positive momentum to continue, evidenced by the solid transaction trends experienced in Q1 trickling into April. Input costs are also likely to remain stable over the next quarter. As a result, CMG projects Q2 and FY23 comp growth in the mid-to-high single-digit percentage range. The company also expects to open 255 to 285 new restaurants, including 10 to 15 relocations to add a Chipotlane (drive-thru).
- CMG also mentioned that lower-income consumers returning to its stores at levels close to its higher-income base was a positive macro sign.
Overall, CMG's commitment to strengthening its operations, targeting areas of inefficiency, and implementing ideas to keep guests and employees happy manifested in the excellent top and bottom-line figures in Q1, lighting a fire under the stock. Furthermore, unlike McDonald's (MCD), which also delivered solid results in Q1 earlier this week, CMG is not projecting a recession in the near term.
Although a less conservative outlook could come back to bite CMG, management noted that even if a recession were to occur, the company is very well-prepared. For instance, CMG owns all of its restaurants and carries no debt, removing the risk of franchisees feeling pressure due to an upcoming debt payment.
Microsoft computes some big gains on surprisingly large EPS beat, good for mega cap tech (MSFT)
Microsoft (MSFT +7.5%) is sharply higher today after reporting a big EPS beat for Q3 (Mar) last night. In fact, this was MSFT's largest EPS beat in the past eight quarters and it guided Q4 (Jun) revs in-line. In our preview, we noted our caution heading into this report and we think many investors shared our concerns. However, MSFT came through with impressive results.
- Let's start with Azure, which grew +27%, but +31% constant currency (CC), generally in-line with the low-30s CC prior guidance and we would argue better than feared given all the macro headwinds. Azure growth continues to slow from +38% CC in DecQ, +42% CC in SepQ and +46% CC in JunQ. MSFT then guided to +26-27% CC in JunQ but we think that guidance was better than feared.
- MSFT saying that Azure took market share was encouraging to hear. Also, it said Unilever went all-in on Azure in MarQ in one of the largest ever cloud migrations in the consumer goods industry. However, it was not all good news as MSFT noted that Azure customers continued to exercise some caution as optimization and new workload trends from the prior quarter continued as expected.
- Moving beyond Azure, Teams usage is at an all-time high and surpassed 300 mln monthly active users this quarter. LinkedIn saw record engagement. Gaming set MarQ records for monthly active users and monthly active devices.
- Commercial revenue was up 19% CC. MSFT saw better-than-expected renewal strength, including across Microsoft 365, which also benefited Windows Commercial. PC demand was a bit better than expected, particularly in the Commercial segment, which benefited Windows OEM and Surface, even as channel inventory levels remain elevated. Advertising spend landed in line with expectations. MSFT has seen share gains in Azure, Dynamics, Teams, Security, Edge, and Bing.
- There was more news besides earnings today. Microsoft is in the process of acquiring Activision Blizzard (ATVI), but that transaction hit a snag today as the UK CMA said it will block the deal because the combination would weaken competitiveness in the cloud gaming market. ATVI said it will appeal, but CNBC's David Faber says the likelihood of success is "very slim." We think this could jeopardize the deal or potentially change it substantially if divestitures are required.
Overall, this was an impressive report for Microsoft and shows that our concerns were perhaps overblown. We also think that this report, coupled with a strong Alphabet (GOOG) report, could reset some of the negativity we have seen in recent weeks around the mega cap tech space. We think these reports bode well for Meta Platforms (META), which reports tonight and Amazon (AMZN), which reports tomorrow after the close.
Alphabet's search for stronger results answered with upside report as ad demand stabilizes (GOOG)
Cost-cutting measures, a stabilization in ad spending, and a surprise turn to profitability in the Cloud segment enabled Google parent Alphabet (GOOG) to top 1Q23 EPS estimates, ending a streak of four consecutive earnings misses. GOOG, which helped kick off this earnings season for the tech sector, described its core Search business as "resilient" in Q1, while the Cloud segment once again delivered the strongest revenue growth at +28%.
- The upside results aren't the only piece of good news that the company had to share. GOOG also announced a huge $70 bln stock buyback authorization, providing the company with another EPS lever to pull while it continues to work through a cost restructuring program.
- On that note, GOOG's cost-cutting initiatives, including the 12,000 layoffs it announced in January, did have an impact in Q1. This is reflected in its operating margin improving by six percentage points on a sequential basis to 30%.
However, other aspects of GOOG's earnings report were less impressive.
- Most notably, YouTube ad revenue was down again, decreasing by nearly 3% to $6.69 bln. While that number did top analysts' muted expectations, and is better than last quarter's 8% drop, the general takeaway is that ad demand on the video platform remains soft.
- In addition to the pullback in ad spending on YouTube, competition from TikTok has cut into YouTube's market share. On the positive side, GOOG noted last night that YouTube Shorts -- its answer to TikTok's short format videos -- experienced an 80% surge in the number of channels that uploaded to Shorts.
GOOG's financial results weren't necessarily the main event yesterday, though. Taking center stage was the company's updates on its AI/chatbot development, which GOOG's future growth largely hinges on.
- The primary message from the earnings call was that AI is now GOOG's primary focus and that the technology will be deployed across all of its products areas, including the advertising business.
- Generative AI will not only create a top-line catalyst as its integrated into ads, phones, and the cloud, but it will also facilitate better cost efficiencies across the company by redistributing workloads within data centers.
- GOOG was clearly bullish on its AI prospects. Whether this optimism is ultimately enough to ease the growing competitive concerns stemming from Microsoft (MSFT)/OpenAI's ChatGPT remains to be seen.
Overall, we view GOOG's earnings report as a step in the right direction following a few rough quarters. While the ad business certainly isn't booming, it at least appears to have stabilized, which may bode well for Meta Platforms' (META) earnings report later today.
Texas Instruments' Q1 EPS beat proves insufficient as flat Q2 outlook sparks demand worries (TXN)
Texas Instruments (TXN -2%) may have topped analysts' earnings expectations in Q1, but its in-line Q2 projections and muted tone during its conference call are keeping a lid on shares today. During the quarter, not much was surprising for the semiconductor manufacturer centered on analog and embedded processing chips. Its two primary end markets, industrial and automotive, grew consistent with prior forecasts. Meanwhile, TXN's personal electronics business continued to endure broad-based weakness.
However, after rival Analog Devices' (ADI) uplifting JanQ report in mid-February, investors may have been hoping for slightly better results from TXN, especially within its primary industrial end market, which comprises 40% of total revs. For instance, ADI noted that it continued to gain market share in industrial and automotive, which both charged its upbeat numbers. ADI also commented that industrial orders remained the strongest out of each of its end markets. Additionally, given the resilience of industrials, the company was cautiously optimistic in the near term.
- Turning to TXN's Q1 figures, adjusted earnings dove 23.6% yr/yr to $1.82 but exceeded the midpoint of TXN's $1.64-1.90 forecast. Revs also fell, declining 10.7% to $4.38 bln but squeaking ahead of the center of TXN's $4.17-4.53 bln projection. Gross margins contracted by 480 bps yr/yr to 65%.
- Breaking down revenue by end market, industrials were relatively flat sequentially, while automotive climbed by mid-single digits. Conversely, personal electronics tumbled by about 30% from Q4, with enterprise systems taking a similar spill while communications equipment dropped in the mid-teens.
- Although the industrial market saw flat growth sequentially, this was still an encouraging development, especially after it fell around 10% in Q4. Still, TXN would not comment precisely if it is noticing a level of stability and strength within this market -- remarks made by some of TXN's peers lately -- only stating that the overall outlook is flat into Q2.
- That flat outlook manifested in TXN's Q2 guidance. The company expects adjusted EPS of 1.68-1.88, similar to its Q1 forecast, and revs of $4.17-4.53, identical to its Q1 projection. Management typically does not call out specifics surrounding end markets unless something significant occurs, so similar dynamics from Q1 will likely carry over into Q2.
Although expectations are not sky-high given the elevated uncertainty within the semiconductor industry, TXN's general "flat" theme in Q1 will not ignite much exuberance. Still, on the other hand, today's sell-the-news reaction feels a bit overblown. It does not help that management withholds additional details into its near-term views, which may be sparking demand worries. However, longer-term fundamentals remain unchanged. The industrial and automotive markets, which total 65% of TXN's revs, are staring at a higher level of chip content as applications like automation and vehicle electrification continue gaining momentum.
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