Market Snapshot
briefing.com
| Dow | 33441.45 | -120.27 | (-0.36%) | | Nasdaq | 12289.17 | +109.44 | (0.90%) | | SP 500 | 4131.26 | +10.82 | (0.26%) | | 10-yr Note | +28/32 | 3.44 |
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| | NYSE | Adv 1664 | Dec 1215 | Vol 910 mln | | Nasdaq | Adv 2523 | Dec 1872 | Vol 4.9 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Real Estate, Utilities |
| | Weak: Energy, Financials, Industrials, Consumer Staples |
Moving the Market
-- Digesting the relatively pleasing April Consumer Price Index report, which may lead the Fed to keep rates unchanged at the June FOMC meeting
-- Debt ceiling concerns remain in focus
-- Treasury yields falling sharply after CPI data
-- Rally taking root after S&P 500 dipped below 4,100
-- Growth concerns
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Closing Summary
10-May-23 16:25 ET
Dow -30.48 at 33531.24, Nasdaq +126.89 at 12306.62, S&P +18.47 at 4138.91
[BRIEFING.COM] Today's trade was mostly mixed. The Dow Jones Industrial Average spent most of the session in negative territory while the Nasdaq and S&P 500 outperformed, supported by gains in the mega cap space.
Price action was somewhat tepid today until a rebound effort took root in the afternoon when the S&P 500 briefly slipped below the 4,100 level. Ultimately, the Nasdaq and S&P 500 closed comfortably above unchanged levels. Mega cap stocks offered integral support to the broader market, leaving the Vanguard Mega Cap Growth ETF (MGK) up 1.1% while the Invesco S&P 500 Equal Weight ETF (RSP) closed flat and the market-cap weighted S&P 500 rose 0.5%.
Alphabet (GOOG 112.28, +4.34, +4.0%) was a big driver of the mega cap outperformance, as it rallied amidst the company's presentation at its Developers Conference, which included updates on its AI initiatives.
Initially, market participants reacted favorably to the April Consumer Price Index (CPI), but a closer look fostered uncertainty about the Fed's policy path. Total CPI was up 4.9% year-over-year in April, down from 5.0% in March, which marks the sub-5.0% reading in two-years. Core-CPI, which excludes food and energy, was up 5.5% year-over-year in April, down from 5.6% in March.
Presumably, the April CPI report will sway the Fed to entertain holding the target range for the fed funds rate steady at 5.00-5.25% at its June meeting, but importantly, a 5-handle on core-CPI isn't going to sway the Fed to think it needs to cut rates anytime soon.
That understanding, along with ongoing concerns about the debt ceiling and a possible hard landing for the economy, kept the market in check through most of the session.
In the early going, continued softness in the regional bank space had been another limiting factor. Some of the pressure there dissipated by the close with some regional bank shares coming along for the rally. The SPDR S&P Regional Banking ETF (KRE) had been down as much as 2.2%, but closed with a 1.0% loss. Western Alliance (WAL 27.48, +0.53, +2.0%) squeezed out a slim gain while PacWest (PACW 6.08, -0.03, -0.5%), which saw a loss of 5.4% at its low, closed with a modest 0.5% decline.
Still, the S&P 500 financials sector (-0.6%) closed near the bottom of the pack, along with industrials (-0.3%). The energy sector (-1.2%) saw the biggest decline as oil prices fell due to growth concerns. WTI crude oil futures fell 1.6% to $72.56/bbl.
The communication services sector (+1.7%) was the best performer by a decent margin thanks to the gain in Alphabet. The information technology (+1.2%) and real estate (+1.0%) sectors were also top performers.
Treasuries settled with gains across the curve. The 2-yr note yield fell 10 basis points to 3.90% and the 10-yr note yield fell eight basis points to 3.44%.
- Nasdaq Composite: +17.6% YTD
- S&P 500: +7.8% YTD
- Dow Jones Industrial Average: +1.2% YTD
- S&P Midcap 400: +0.8% YTD
- Russell 2000: -0.1% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 6.3% with refinancing applications jumping 10% and purchase applications rising 5%.
- Total CPI was up 0.4% month-over-month (Briefing.com consensus +0.4%) and up 4.9% year-over-year, versus up 5.0% in March. Core-CPI, which excludes food and energy, was also up 0.4% month-over-month (Briefing.com consensus +0.3%) and up 5.5% year-over-year, versus up 5.6% in March.
- The index for shelter (+0.4%) was the largest contributor to the increase in total CPI and core-CPI; however, the 0.4% increase was the smallest increase for the shelter index since January 2022.
- The key takeaway from the report as far as the market is concerned is that the moderation in inflation, coupled with the moderation in the shelter index, should at least spur the Fed to entertain keeping its policy rate on hold when it meets again in June.
- The weekly EIA crude oil inventories data showed a build of 2.95 million barrels after last week's draw of 1.28 million barrels.
- The April Treasury Budget showed a surplus of $176.2 billion compared to a surplus of $308.2 billion in the same period a year ago. The Treasury Budget data is not seasonally adjusted so the April 2023 figure cannot be compared to the March 2023 figure. The surplus in April was the result of receipts ($638.5 billion) exceeding outlays ($462.3 billion).
- The key takeaway from the report is that individual income and corporate tax receipts combined were $461.5 billion, which was 32.3% less than April 2022.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: April PPI (Briefing.com consensus 0.3%; prior -0.5%), Core PPI (Briefing.com consensus 0.3%; prior -0.1%), weekly Initial Claims (Briefing.com consensus 247,000; prior 242,000), and Continuing Claims (prior 1.805 mln)
- 10:30 ET: Weekly natural gas inventories (prior +54 bcf)
Market continues to climb ahead of close
10-May-23 15:35 ET
Dow +12.80 at 33574.52, Nasdaq +154.50 at 12334.23, S&P +26.93 at 4147.37
[BRIEFING.COM] The market continues to climb. The Dow Jones Industrial Average tipped back into positive territory recently.
Treasuries settled with gains across the curve. The 2-yr note yield fell 10 basis points to 3.90% and the 10-yr note yield fell eight basis points to 3.44%.
Energy complex futures fell today, reflecting growth concerns. WTI crude oil futures fell 1.6% to $72.56/bbl and natural gas futures fell 4.0% to $2.33/mmbtu.
Looking ahead to tomorrow, market participants will receive the following economic data:
- 8:30 ET: April PPI (Briefing.com consensus 0.3%; prior -0.5%), Core PPI (Briefing.com consensus 0.3%; prior -0.1%), weekly Initial Claims (Briefing.com consensus 247,000; prior 242,000), and Continuing Claims (prior 1.805 mln)
- 10:30 ET: Weekly natural gas inventories (prior +54 bcf)
Rally takes root after S&P 500 dips below 4100
10-May-23 15:00 ET
Dow -120.27 at 33441.45, Nasdaq +109.44 at 12289.17, S&P +10.82 at 4131.26
[BRIEFING.COM] The major indices continue to climb. The afternoon rally really got started after the S&P 500 briefly slipped below the 4,100 level.
The April Treasury Budget showed a surplus of $176.2 billion compared to a surplus of $308.2 billion in the same period a year ago. The Treasury Budget data is not seasonally adjusted so the April 2023 figure cannot be compared to the March 2023 figure. The surplus in April was the result of receipts ($638.5 billion) exceeding outlays ($462.3 billion).
The key takeaway from the report is that individual income and corporate tax receipts combined were $461.5 billion, which was 32.3% less than April 2022.
Walt Disney (DIS) will headline the earnings reports after the close today.
Typical budget surplus in April down yr/yr
10-May-23 14:30 ET
Dow -218.30 at 33343.42, Nasdaq +72.87 at 12252.60, S&P -1.47 at 4118.97
[BRIEFING.COM] the major averages moved slightly higher following the release of the February Treasury Budget; though the government turned out a typical surplus this month, the yr/yr comparison was decently lower, impacted by a strong yr/yr rebound from the year prior as the economy began to recover from pandemic-era lows. The S&P 500 (-0.04) is in second place at this point.
The Treasury Budget for April showed a surplus of $176.2 bln versus a surplus of $308.2 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the April surplus cannot be compared to the deficit of $378.0 bln for March.
Total receipts of $638.5 bln fell 26.0% compared to last year while total outlays of $462.3 bln declined about 16.8% compared to last year.
The total year-to-date budget deficit now stands at $924.5 bln vs $360.0 bln at this point a year ago.
Gold settles lower ahead of Treasury Budget
10-May-23 13:55 ET
Dow -271.02 at 33290.70, Nasdaq +30.15 at 12209.88, S&P -11.90 at 4108.54
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.25%) briefly flirted with flat lines in the last half hour, though now stands decently above those levels.
Gold futures settled $5.80 lower (-0.3%) to $2,037.10/oz, weaker following this morning's CPI reading.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $101.59.
As a reminder, the Treasury Budget for April will be released in about 5 minutes at the top of the hour.
Market puts a positive spin on April CPI
President Biden met with congressional leaders at the White House yesterday to discuss the debt ceiling and nothing was agreed to other than to meet again on Friday. The good news, we suppose, is that they are still talking. The frustrating news is that no one is communicating news of an agreement that would take a debt default off the table as a market risk factor.
Granted there have been assurances that "we will not default on our debt," but that talk remains cheap relative to the massive cost of not taking action in time to raise the debt ceiling before the extraordinary measures being employed now by the Treasury Department to pay the nation's bills are exhausted.
The stock market for one isn't giving in to the worst-case scenario. It is holding fairly steady all things considered, pre-occupied more it seems with what the Federal Reserve is -- or is not going to do -- with its monetary policy.
Accordingly, it is choosing to pay more attention at the moment to the April Consumer Price Index (CPI) than it is to the partisan posturing over the debt ceiling, resigned to accept the idea that the historical record shows the debt limit is always increased in spite of the partisan posturing that pre-dates a projected X-date.
The material risk of course is that this time is different, yet the stock market's behavior to this point implies that a default is still seen as a low probability.
Coming back to the CPI data, the stock market has seen it initially in a positive light even though core inflation had a sticky dimension to it. The futures for the major indices were showing modest losses in front of its release at 8:30 a.m. ET, but they shot higher as the headlines hit while Treasury yields shot lower.
Total CPI was up 0.4% month-over-month (Briefing.com consensus +0.4%) and up 4.9% year-over-year, versus up 5.0% in March. Core-CPI, which excludes food and energy, was also up 0.4% month-over-month (Briefing.com consensus +0.3%) and up 5.5% year-over-year, versus up 5.6% in March.
The index for shelter (+0.4%) was the largest contributor to the increase in total CPI and core-CPI; however, the 0.4% increase was the smallest increase for the shelter index since January 2022.
The key takeaway from the report as far as the market is concerned is that the moderation in inflation, coupled with the moderation in the shelter index, should at least spur the Fed to entertain keeping its policy rate on hold when it meets again in June.
That optimistic view is filtering through the capital markets.
The U.S. Dollar Index, up 0.2% earlier, is now down 0.3% to 101.31. The 2-yr note yield, sitting at 4.05% just before the release, is now at 3.96%, down four basis points from yesterday's settlement. The 10-yr note yield, sitting at 3.51% just before the release, is now at 3.46%, down six basis points from yesterday's settlement. There is an 85.8% probability of the Fed holding rates steady in June, versus 78.8% yesterday, according to the CME FedWatch Tool.
The S&P 500 futures, down five points just before the release, are up 32 points and are trading 1.1% above fair value, the Nasdaq 100 futures, down five points just before the release, are up 117 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures, down 57 points just before the release, are up 156 points and are trading 0.5% above fair value.
-- Patrick J. O'Hare, Briefing.com
Akamai Tech may be turning a corner in its transformation as reflected in margin improvement (AKAM)
After Akamai Tech (AKAM) hit a speed bump last quarter by issuing downside guidance for 1Q23 and FY23, the company's mission to become a leading security and cloud computing provider appears to be back on track.
Last night, AKAM posted an encouraging beat-and-raise earnings report that featured an important milestone in its transformation. Traditionally known as a content delivery network company, AKAM's security business became its largest revenue stream for the first time as revenue increased by 6% yr/yr to $406 mln.
Diversifying its business away from content delivery, which can be unpredictable and seasonally lumpy, is a sensible strategy in our view.
However, this transition has come at a significant cost in the form of margin and profit erosion as AKAM invests in new cloud computing sites. The company had good news to share in this regard, too, creating hope that AKAM is now turning a corner and is poised to deliver improved profitability.
- In Q4, non-GAAP operating margin fell by 3 percentage points to 28%. For the first time in at least six quarters, AKAM's non-GAAP operating margin expanded on a sequential basis in Q1, coming in at 29%.
- Furthermore, during the earnings call, CEO Tom Leighton affirmed that the company remains committed to returning to its target operating margin of at least 30% as it works to accelerate top-line growth.
Expanding the security and cloud computing businesses is at the center of AKAM's growth strategy.
- AKAM has made consistent progress in this area with security and cloud revenue accounting for 57% of total revenue in Q1, up from about 51% in the year-earlier quarter.
- It's worth pointing out, though, that this growing percentage of security and cloud revenue is partly attributable to the decline of the delivery business. Delivery revenue decreased by 9% on a constant currency basis in Q1 to $394 mln from $444 mln in the year-earlier period.
- Meanwhile, the growth rate of the combined security and cloud businesses continues to decelerate, falling to 16% in constant currency this quarter, from 28% in both Q4 and Q3, and 30% in Q2.
- Accordingly, AKAM's overall revenue growth rate for Q1 slipped to just 1.4% -- the company's lowest growth rate in more than five years.
Offsetting that disheartening data point is AKAM's brighter outlook for Q2 and FY23.
- In particular, the company's upwardly revised FY23 EPS guidance of $5.69-$5.84 versus its prior forecast of $5.40-$5.60 is lighting a fire under the stock.
- The improved bottom-line outlook is both a function of an anticipated upswing in revenue growth and the associated improvement in margins, and cost-cutting efforts through workforce reductions and real estate rationalization.
- In regard to revenue growth, AKAM's new FY23 guidance contemplates growth of about 4.1%, up slightly from its prior expectation for growth of 3.4%.
The main takeaway is that while AKAM's growth rate is slowing, even as the security and cloud businesses continue to expand, investors are seeing a light at the end of the tunnel in terms of margin erosion and profit declines as its transformation progresses.
Twilio's weak Q2 sales guide sparks a sell-off; management hesitates to call it a bottom (TWLO)
Twilio (TWLO -15%) is testing December lows today despite surpassing analysts' earnings and sales expectations in Q1, registering its 17th consecutive EPS beat, and guiding Q2 earnings in line with consensus. These highlights were overshadowed by TWLO's weak Q2 sales forecast of $980-990 mln, coming up short of analysts' over $1.0 bln estimate.
CEO Jeff Lawson commented that incorporated into the company's Q2 guide were stubborn macroeconomic headwinds. Although Mr. Lawson expressed that he was not seeing changes in the organization's churn or losing market share, he witnessed a moderation in its consumer-facing usage patterns. Meanwhile, when asked if Q2 may mark a bottom for TWLO's revenue growth rate, executive Elena Donio did not provide a firm answer, noting that there are reasons for optimism, but the company continues to see evidence of lengthening sales cycles and contracting conversion rates. Another executive added that he would hesitate to call Q2 a bottom.
Therefore, even though TWLO's Q2 sales outlook barely missed analyst forecasts, the possibility of worsening conditions is adding fuel to today's sell-off.
- There were still some positive developments from Q1, including another double-digit earnings beat, a 12% jump in active customer accounts yr/yr, and decent revenue growth of 15.4% to $1.01 bln. Although, it is worth pointing out that TWLO's sales growth continues to stall, decelerating for each of the past seven quarters and tumbling significantly from the +60-80% growth rates seen throughout 2018-2021.
- As a developer of communication tools used by organizations to text and alert consumers, many of TWLO's customers tend to operate in fields dependent on consumer spending, such as retail, e-commerce, social media, and cryptocurrencies. On that last point, TWLO is particularly feeling crypto-related headwinds as the industry has lost significant favor compared to the year-ago period before several crypto exchanges and coin collapses. As a result of softening consumer spending, TWLO's revenue growth was clipped by a few hundred bps.
- Due to the economic choppiness, TWLO has been amid a shift toward focusing more on profitability, cutting costs through workforce reductions and expense trimming, which manifested in tremendous bottom-line growth to $0.47 per share in Q1 from $0.00 in the year-ago period. The company expects further profitability in Q2, illuminated by its decent $0.27-0.31 earnings forecast.
Bottom line, after demonstrating early success with its focus on streamlining operations last quarter, investors overlooked an ongoing downtrend in revenue growth, a worrisome sign for TWLO going forward. Although the market was hopeful the soft demand aspect would soon reverse course or at least stabilize, the opposite is happening, causing TWLO's positive profitability developments to take a back seat. With management's lack of conviction in calling Q2 a bottom for revenue growth, TWLO shares may not enjoy meaningful upside until this hurdle is cleared.
Rivian Automotive receives jolt after upside earnings report, reaffirm of production outlook (RIVN)
It's been a rough ride for electric vehicle (EV) stocks lately, but Rivian Automotive (RIVN) is bucking the trend today after topping 1Q23 EPS and revenue expectations as vehicle deliveries increased by 17% qtr/qtr to 9,395. The news that's really putting a charge into the stock, though, is that RIVN maintained its FY23 production guidance of 50,000 vehicles, representing yr/yr growth of about 100%.
Concerns about easing demand amid an economic slowdown, combined with pricing pressures in the wake of Tesla's (TSLA) aggressive price-cutting strategy, have soured sentiment on the EV space. Furthermore, lingering supply chain disruptions and high material costs have created significant production challenges. In fact, RIVN reiterated in its Q1 shareholder letter that the supply chain will continue to be the main limiting factor of its output.
When RIVN reported Q4 results on February 28, it disclosed the FY23 production guidance of 50,000, which fell short of analysts' estimates. Heading into this earnings report, there was some concern that the company would ratchet that forecast lower, especially after Lucid Group (LCID) lowered its FY23 production expectations on Monday.
More so that RIVN's actual quarterly results, the company's production guidance and outlook for FY24 are the key focal points for investors.
- In order to achieve profitability, RIVN must drive stronger manufacturing efficiencies, which is achieved through higher production rates. As RIVN's production continues to climb higher, its bottom-line performance is steadily improving.
- Since 4Q21, loss per share has narrowed from ($2.43) to ($1.25), while adjusted EBITDA has improved from ($1.46) bln to ($1.06) bln.
- Along with greater manufacturing efficiencies, cost cutting efforts, including a 6% reduction in its workforce, have RIVN's bottom-line showing consistent improvement.
- On that note, the company is now targeting positive gross profit in 2024, with approximately half of the improvement derived from greater volume. The remaining half is split between material cost reductions and increases in average selling prices. For some context, RIVN generated negative gross profit of ($3.1) bln in FY22.
The main takeaway is that RIVN is distancing itself from other EV startups, such as Fisker (FSR), Lightning eMotors (ZEV), and LCID, as it stays on track with its production plans. Whether demand takes a hit under softening economic conditions is still a concern, especially since RIVN's vehicles have sticker prices north of $70k. Overall, though, most of RIVN's operational and financial metrics are heading in the right direction.
Airbnb's mild Q2 bookings forecast sinks shares today; pricey valuation comes into play (ABNB)
Airbnb's (ABNB -10%) top and bottom-line upside in Q1 added further evidence that travel demand remains robust, a positive trend showcased last week through solid Q1 reports from peers Expedia Group (EXPE) and Booking Holdings (BKNG). However, unlike its competitors, ABNB is amid intense selling pressure despite its decent headline results.
A soft Q2 Nights and Experiences Booked forecast is the underlying factor spurring today's sell-the-news reaction. ABNB noted that bookings will be up against unfavorable yr/yr comparisons next quarter, cautioning that this would cause bookings growth to be lower than its +12-16% sales growth forecast. EXPE warned of a similar scenario last week, stating that Vrbo (the direct competitor to Airbnb) is facing tougher yr/yr comps in Q2. However, although it is unclear how much of EXPE's Lodging segment sales (76% of FY22 revs) are derived from Vrbo, it is significantly less than ABNB's total reliance on alternative accommodations. Plus, EXPE is amid a platform-wide migration to move some of its offerings, including Vrbo, to the Brand Expedia stack, so disruptions were to be expected.
- ABNB still boasted decent numbers in Q1, including swinging a GAAP profit, delivering EPS of $0.18 from $(0.03) in the year-ago period. Revenue growth also remained above 20%, while Nights and Experiences Booked growth climbed 19% yr/yr to 121 mln. Also, after hitting a record $1.6 bln in free cash flow in Q1, ABNB authorized a new $2.5 bln share buyback program.
- Many positive trends occurred during Q1, including guests booking trips further in advance, increasing overseas and urban travel, and sustained longer-stay bookings. A few notable highlights include cross-border bookings expanding by 36% yr/yr, with a pronounced recovery in Asia Pacific, where bookings jumped by over 40%. Meanwhile, international travel outside the Asia Pacific soared by 160%. Also, longer stays -- a cohort that gained popularity during the pandemic -- comprised a decent chunk of overall bookings at 18% in Q1.
- ABNB discussed its three strategic priorities to ensure long-term growth, including making hosting mainstream, perfecting the core service, and expanding beyond the core service. Out of the three, we view ABNB's expansion as the most noteworthy. The platform remains underpenetrated in various global markets, providing ABNB with a massive addressable market it has yet to fully tap into. Two examples it has recently targeted include Germany and Brazil, which ABNB has remarked have come with positive results thus far.
- Looking at FY23, ABNB anticipates adjusted EBITDA margins broadly in-line with FY22, translating to around 35%. Part of the flat margin growth stems from the average daily rate (ADR) declining yr/yr in FY23. Although ADR was flat yr/yr in Q1, ABNB expects it to begin its descent in Q2, driven by mix shifts and its new pricing tools launched last week.
Bottom line, ABNB's mild bookings growth outlook for Q2 is igniting a substantial sell-off today, sending shares toward their 200-day moving average (110.62). With high expectations already set after EXPE's and BKNG's solid Q1 results last week, ABNB had little room for error, especially given its pricey 37x forward earnings multiple, a premium relative to EXPE at 10x and BKNG at 20x.
Wendy's trades to a new 52-week high following strong Q1 report and comps (WEN)
Wendy's (WEN) is heading higher today after reporting Q1 results this morning. It was the typical Wendy's report with a small EPS beat and decent upside revenue. The burger chain also reaffirmed FY23 EPS and system wide sales guidance. What did stand out were some robust same store comps at +8.0% (+7.2% US comps; +13.9% International comps).
- WEN says its US comps were driven by its ability to hold its strong dollar and traffic share within the QSR burger category. It also widened its share gap relative to several competitors. US comps were helped by strategic pricing actions plus yr/yr customer count growth each month of the quarter.
- Marketing programs also provided a boost as they focused on Wendy's compelling value offerings and its iconic fresh beef and hot and crispy French fries. WEN also said it leveraged March Madness to reach millions of fans as the official hamburger of the tournament.
- The breakfast daypart continues to perform well thanks to the strength of French Toast Sticks and its Croissant promotion. WEN has plans to drive the breakfast business further in the US and Canada with a focus on building awareness around its offerings and launching exciting menu innovations. WEN also plans to focus more on late-night sales and delivery.
- Canada is its largest international market and it posted double-digit comps. Its Canadian breakfast business accelerated, helped by the launch of French Toast Sticks and a croissant promotion. Strong growth from the breakfast daypart plus continued rest of the day strength led to another quarter of strong Canadian comps and increasing traffic share, faster than all QSR burger competitors.
Overall, we are a little surprised the stock is not seeing a more positive reaction to what are pretty robust US comps. However, given that WEN was lapping Omicron from Jan 2022 and given the big comps we saw from McDonald's (MCD), maybe investors had already priced in a strong comp number. Finally, the stock has been in a sideways trading range in the $20-23 area since November. However, if the stock can break above that range, that would be a positive sign for further gains.
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