Market Snapshot
briefing.com
| Dow | 33374.06 | -46.62 | (-0.14%) | | Nasdaq | 12625.69 | +124.95 | (1.00%) | | SP 500 | 4179.02 | +18.98 | (0.46%) | | 10-yr Note | -29/32 | 3.65 |
|
| | NYSE | Adv 1656 | Dec 1164 | Vol 867 mln | | Nasdaq | Adv 2306 | Dec 2091 | Vol 4.5 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Consumer Discretionary |
| | Weak: Real Estate, Utilities, Consumer Staples |
Moving the Market
-- Outperforming mega cap stocks bolstering index performance; MSFT, NVDA, GOOG, META all reaching new 52-week highs today
-- Walmart (WMT) reporting better than expected Q1 results, yet acknowledging that its shoppers are focusing more on consumer staples than discretionary items
-- Lingering uncertainty about the debt ceiling
-- Semiconductor strength
|
Closing Summary
18-May-23 16:30 ET
Dow +115.14 at 33535.82, Nasdaq +188.27 at 12689.01, S&P +39.28 at 4199.32
[BRIEFING.COM] It was another good day for the stock market, building on yesterday's gains. The major indices traded in mixed fashion, though, throughout most of the session until a late afternoon surge higher. That move saw the S&P 500 breach the 4,200 level for the first time since August 2022. Ultimately, the S&P 500 closed at its best level of the year, just a whisker shy of 4,200.
Mega cap stocks led the charge, again, with several names reaching new 52-week highs today. Microsoft (MSFT 318.52, +4.52, +1.4%), Alphabet (GOOG 123.52, +2.04, +1.7%), Meta Platforms (META 246.85, +4.36, +1.8%), and NVIDIA (NVDA 316.78, +15.00, +5.0%) are the standouts in that regard.
The midday lull was presumably a reflection of ongoing hesitancy about the debt ceiling. House Speaker McCarthy said he "sees a path" to getting the debt limit bill on the House floor for a vote next week, yet other press reports suggest a debt ceiling deal won't be easy to reach.
Market participants were also reacting to some mixed economic data, including lower-than-expected weekly initial jobless claims, a better-than-expected Philadelphia Fed Index for May, and weaker-than-expected existing home sales and leading economic indicators for April.
Nonetheless, the afternoon rally was fairly broad based, ratcheting up as the mega cap stocks took another leg higher along with the semiconductor stocks. The PHLX Semiconductor Index jumped 3.2% today.
Advancers led decliners by a 5-to-3 margin at the NYSE and a greater than 11-to-10 margin at the Nasdaq. The Invesco S&P 500 Equal Weight ETF (RSP) rose 0.8% versus a 0.9% gain in the market-cap weighted S&P 500.
Some Chinese stocks were left out of the rally after Alibaba (BABA 85.77, -4.91, -5.4%) reported quarterly results that featured declining year-over-year cloud growth. JD.com (JD 35.80, -1.54, -4.1%) and Pinduoduo (PDD 61.60, -4.85, -7.3%) sank in solidarity.
S&P 500 sector performance reflected the strong leadership from mega cap stocks. The information technology (+2.1%), communication services (+1.8%), and consumer discretionary (+1.5%) sectors led the pack. They were the only sectors to move more than 1.0% in either direction. The communication services sector also had help from Netflix (NLFX 371.29, +31.33, +9.2%), which jumped nearly 10% after the company said that its ad supported tier now has 5 million global monthly active users.
Notably, the consumer staples sector (-0.4%) was among the top laggards despite an earnings-related gain in Dow component Walmart (WMT 151.47, +1.94, +1.3%).
Treasuries settled with losses across the curve after digesting some better than expected initial claims data and a contention from Dallas Fed President Logan (FOMC voter) that current data does not yet support a pause in June. The 2-yr note yield rose 11 basis points to 4.27%. The 10-yr note yield rose seven basis points to 3.65%, its highest level since mid-March.
- Nasdaq Composite: +21.2% YTD
- S&P 500: +9.3% YTD
- S&P Midcap 400: +2.0% YTD
- Russell 2000: +1.3% YTD
- Dow Jones Industrial Average: +1.2% YTD
Reviewing today's economic data:
- Weekly Initial Claims 242K (Briefing.com consensus 259K); Prior 264K; Weekly Continuing Claims 1.799 mln; Prior was revised to 1.807 mln from 1.813 mln
- The key takeaway from the report is that initial claims are at levels that are much closer to signaling tightness in the labor market, which means the Fed is apt to stick to its tighter policy for longer.
- May Philadelphia Fed Index -10.4 (Briefing.com consensus -16.0); Prior -31.3
- April Existing Home Sales 4.28 mln (Briefing.com consensus 4.30 mln); Prior was revised to 4.43 mln from 4.44 mln
- The key takeaway from the report is the recognition that the inventory of existing homes for sale remains 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.
- April Leading Indicators -0.6% (Briefing.com consensus -0.5%); Prior -1.2%
Deere (DE), Foot Locker (FL), Catalent (CTLT), RBC Bearings (RBC) will report earnings ahead of Friday's open.
There is no notable U.S. economic data tomorrow.
Market climbs ahead of close
18-May-23 15:30 ET
Dow -4.04 at 33416.64, Nasdaq +147.56 at 12648.30, S&P +24.76 at 4184.80
[BRIEFING.COM] The market continues to climb ahead of the close.
Treasuries settled with losses across the curve. The 2-yr note yield rose 11 basis points to 4.27%. The 10-yr note yield rose seven basis points to 3.65%, its highest level since mid-March.
After the close, Applied Materials (AMAT), Ross Stores (ROST), and DXC Technology (DXC) are among the notable companies reporting earnings.
Deere (DE), Foot Locker (FL), Catalent (CTLT), RBC Bearings (RBC) will report earnings ahead of Friday's open.
There is no notable U.S. economic data tomorrow.
Semiconductors lead
18-May-23 15:00 ET
Dow -46.62 at 33374.06, Nasdaq +124.95 at 12625.69, S&P +18.98 at 4179.02
[BRIEFING.COM] The main indices continue to climb with the Dow nearing its flat line.
In addition the mega caps, semiconductor stocks are in a leadership role today. The PHLX Semiconductor Index is up 2.7%.
Energy complex futures settled in mixed fashion. Natural gas futures jumped 8.8% to $2.72/mmbtu. WTI crude oil futures fell 1.3% to $71.84/bbl.
On a related note, the S&P 500 energy sector has been climbing off session lows, trading flat now.
Take-Two gains on earnings, Target gives back post-earnings push
18-May-23 14:30 ET
Dow -79.95 at 33340.73, Nasdaq +101.33 at 12602.07, S&P +13.50 at 4173.54
[BRIEFING.COM] The S&P 500 (+0.32%) is firmly in second place to this point on Thursday.
S&P 500 constituents Take-Two (TTWO 141.90, +16.88, +13.50%), Copart (CPRT 87.31, +5.31, +6.48%), and Cadence Design (CDNS 214.92, +10.77, +5.28%) dot the top of the standings. TTWO and CPRT move higher following earnings, while CDNS gains in sympathy to Synopsys' (SNPS 406.58, +29.50, +7.82%) report.
Meanwhile, big box retailer Target (TGT 153.98, -6.98, -4.34%) gives back all of yesterday's gains and then some, retracing the post-earnings advance.
Gold down for third day in a row
18-May-23 14:00 ET
Dow -182.90 at 33237.78, Nasdaq +89.42 at 12590.16, S&P +4.61 at 4164.65
[BRIEFING.COM] With about two hours remaining on Thursday the tech-heavy Nasdaq Composite (+0.72%) remains today's best-performing major average.
Gold futures settled $25.10 lower (-1.3%) to $1,959.80/oz, pressured by gains in the dollar following comments from government officials that reaching a debt ceiling deal by Sunday was "doable".
Meanwhile, the U.S. Dollar Index is up about +0.7% to $103.60.
Contending with mixed signals
The stock market had it all going on yesterday in a bit of a surprise rally that was slow to develop at first but which gained momentum as the session progressed. Stocks of all sizes participated in the advance; value and growth stocks were on the same winning page; and there was a pro-cyclical orientation that generated some good vibes for market participants.
The basis for the rally, which saw the Russell 2000 gain 2.2% and the S&P 500 advance 1.2%, was attributed largely to a belief that a debt ceiling deal will get reached before any default, the robust rebound action in the regional bank stocks, and a soft landing/no landing outlook that was driven by the market's attention to the Atlanta Fed's GDPNow model estimate for Q2 real GDP growth being revised to 2.9% from 2.6%.
This move followed on the heels of large declines registered in Tuesday's trade, which also came as a bit of a surprise to market participants who have been accustomed to seeing the market adhere to some tight trading ranges.
Alas, the rebound seen yesterday was larger than the sell-off seen Tuesday, so the major indices enter today notably higher from where they started the week. However, knowing how wishy-washy the trading action has been for many weeks now, we'll refrain from saying they are sitting comfortably higher.
That's owed in part to the realization that market participants continue to contend with a lot of mixed signals that make it difficult to have a lot of conviction on both the buy side and the sell side. Some of today's news illustrates this point.
- Walmart (WMT) posted better than expected fiscal Q1 results while acknowledging that it has seen its sales mix negatively affected by a shift from general merchandise to grocery and health and wellness. In other words, Walmart is seeing its shoppers focus more on consumer staples than discretionary items.
- Japan's Nikkei was up 1.6% and flirting with a multi-decade high even though Japan's April import and export activity was weaker than expected.
- The May Philadelphia Fed Index improved to -10.4 (Briefing.com consensus -16.0) from -31.3 in April. That was a better trend than what seen earlier this week for the Empire State Manufacturing Survey, yet it bears pointing out that a number below 0.0 is still indicative of a contraction in manufacturing activity in the region.
- Initial jobless claims for the week ending May 13 decreased by 22,000 to 242,000 (Briefing.com consensus 259,000) while continuing jobless claims for the week ending May 6 decreased by 8,000 to 1.799 million.
- The key takeaway from the report is that initial claims are at levels that are much closer to signaling tightness in the labor market, which means the Fed is apt to stick to its tighter policy for longer.
Of course, a labor market running on the tighter side of things will continue to run interference for a hard-landing economic outcome happening sooner rather than later, if at all.
That's the silver lining of this report -- or maybe we should call it a grey lining since it will keep the market guessing about the Fed's monetary policy stance and the specter of the Fed overtightening. On a related note, Dallas Fed President Logan (FOMC voter) said today, according to CNBC, that the current data doesn't yet support pausing the Fed's rate hikes.
The 2-yr note yield is up nine basis points to 4.25% and the 10-yr note yield is up five basis points to 3.63%.
Currently, the S&P 500 futures are down five points and are trading 0.1% below fair value, the Nasdaq 100 futures are up two points and are trading roughly in-line with fair value, and the Dow Jones Industrial Average futures are down 86 points and are trading 0.2% below fair value.
That's a pathway to a relatively mixed start for the cash market and perhaps some more wishy-washy trading action.
-- Patrick J. O'Hare, Briefing.com
Take-Two soars to 52-week highs after projecting bookings to exceed $8.0 bln in FY25 (TTWO)
Take-Two (TTWO +12%), the video game publisher behind popular franchises like Grand Theft Auto and NBA 2K, is setting 52-week highs today following its remarks last night that FY25 (Mar) is shaping up to be a massive year. The company projected bookings to exceed $8.0 bln in FY25, a substantial leap from the $5.3 bln delivered in FY23. Management added that it expects the upward momentum from FY25 to carry into FY26. Given this forecast, we suspect that TTWO's most-anticipated release, Grand Theft Auto VI, will hit shelves sometime in 2024 or early 2025.
The excitement surrounding a possibly huge FY25 combined with decent Q4 (Mar) results is generating one of the largest single-day upward price moves in TTWO's recent history, returning shares to April 2022 highs.
- That is not to say TTWO did not encounter its share of headwinds in Q4. The company mentioned that the consumer backdrop remained challenging, consistent with what it faced throughout Q3 (Dec), as consumers continued to exercise restraint with their purchasing behaviors.
- Nevertheless, TTWO still registered net bookings of $1.39 bln in the quarter, above its $1.31-1.36 bln outlook. Recurring consumer spending growth also topped the company's expectations, driven primarily by Zynga (mobile games division) and Grand Theft Auto Online. Given the waning demand associated with mobile gaming in recent quarters, it was encouraging to see Zynga finish FY23 on a strong note, with in-app purchases surpassing management's expectations, sustaining this momentum through the Easter holiday.
- Grand Theft Auto V remained a critical driver of TTWO's upbeat Q4 numbers, boasting total units sold since its 2013 release of over 180 mln. Additionally, as supply chain constraints eased regarding new generation consoles from Sony (SONY) and Microsoft (MSFT), adoption of GTA V continued to climb, highlighting the additional upside TTWO can still tap into despite its most popular game's age.
- The continuously expanding popularity of Grand Theft Auto V is critical to note as it showcases the incredible potential its successor may have when it is possibly released within the next two years.
- Still, the unfavorable economic environment is likely to persist, reflected in TTWO's FY24 net bookings outlook of $5.45-5.55 bln, a mild 4% gain yr/yr at the midpoint. The development timelines of some of the company's titles were also lengthened, pushing net bookings out into the following year. However, on the bright side, TTWO expects to surpass its initial $50 mln annual savings target.
With the past year giving TTWO plenty of issues, from supply chain constraints limiting new console sales to souring consumer demand to extended-release timelines, the company's announcement of reaching over $8.0 bln in net bookings in FY25 is triggering an energized response today. Although development delays are common and could push releases past FY25, investors are nonetheless excited about the potential for a tremendous year ahead.
Cisco's orders drop as it works through backlog amid improving supply chain (CSCO)
Bolstered by an improving supply chain situation and steady demand for its networking devices and software, Cisco (CSCO) delivered yet another upside earnings report as Q3 revenue growth reached its highest level in over five years at 13.5%. As components become more available, CSCO is better able to fulfill an increasing number of orders, turning its robust backlog, which is more than twice the normal level, into revenue.
- The problem, though, is that as lead times shrink due to improved product availability, CSCO's customers are becoming less aggressive with their orders. As CSCO's CFO Richard Herren explains, the shorter lead times and improved ability to ship products means that customers are now in a "digestion period" as they work through completed orders.
- Relatedly, sales cycles are lengthening, particularly for service providers and some enterprise customers, due to a challenging macroeconomic environment that's creating some caution within IT departments.
- Consequently, total product orders fell by 23% in Q3.
- This warning would seemingly also be bad news for CSCO's main competitors, such as Juniper Networks (JNPR), Extreme Networks (EXTR), and Ciena (CIEN), but those stocks are holding up relatively well so far today. That's because investors may be considering another potential cause behind CSCO's cautious commentary: namely, market share losses. 4
- On that note, JNPR posted better-than-expected Q1 results on April 25% with revenue increasing by a stronger rate than CSCO's at 17.4%.
Perhaps there's a combination of elongating sales cycles and some market share losses in play, but we note that CSCO's guidance for Q4 was still solid and above expectations.
- In fact, the midpoint of CSCO's revenue guidance of $14.94-$15.20 bln represents a further acceleration in top-line growth to about 15%. Therefore, we believe that the company may simply be taking a conservation approach as it looks to manage rising expectations.
There's good reason for investors to feel optimistic about CSCO's prospects.
- For instance, order cancellation rates remain very low, below pre-pandemic rates, and the aging of CSCO's backlog has improved significantly. As such, Mr. Herren expects the company's backlog to return to more normalized levels by the middle of the fiscal year, making this digestion period a fairly short one -- assuming demand stays at current levels.
- Additionally, the company's business model transformation continues to show progress as it looks to lessen its dependence on expensive equipment while growing its recurring revenue base. In Q3, total software revenue increased by 18% yr/yr and total ARR was up 6% yr/yr.
In our view, CSCO has put together strong back-to-back quarterly reports, reflecting an improving supply chain and healthier demand environment. A slowdown in orders was inevitable once CSCO begin working through its huge backlog as component availability improved. If cancellation rates were rising, then we would be more concerned, but that hasn't been the case up to this point.
Alibaba's declining yr/yr Cloud growth overshadows solid MarQ earnings beat (BABA)
Chinese cloud and e-commerce giant Alibaba (BABA -4%) is slipping today, reversing its rebound efforts sparked last week by upbeat Q1 results from JD.com (JD) and further assisted by a return to positive advertising growth from Baidu (BIDU). With its peers setting the bar modestly higher, BABA's mild yr/yr revenue growth in Q4 (Mar) and declining yr/yr sales in its Cloud business are not cutting it today, spurring significant selling pressure.
BABA has seemingly endured one setback after another since Chinese regulators canceled former CEO Jack Ma's $37 bln IPO by Ant Group, the affiliate of Alibaba, toward the end of 2020. The IPO cancellation kicked off a series of tech-related crackdowns in the region, with BABA fined a substantial $2.8 bln for monopolistic behavior. Since then, BABA's financial performance has struggled, with growth in its Cloud business seeing considerable deceleration. Meanwhile, e-commerce gross merchandise volume (GMV) has declined now for four consecutive quarters. These woes are reflected in BABA's share price sinking by over 70% since October 2020 highs.
However, to help its ailing stock price, BABA announced a new organizational and governance structure in March, splitting its businesses into six separate groups managed by their own CEO. The company provided a detailed update on this initiative today, stirring up some enthusiasm but ultimately doing little to overcome rather tepid MarQ results.
- BABA's MarQ results did not contain many positive standouts. EPS of RMB 10.71 did represent another meaningful beat, but it came on light 2% revenue growth yr/yr to RMB 208.2 bln. BABA's Cloud revs carried on their decelerating pace, now falling yr/yr by 3%. Meanwhile, its China Commerce segment experienced another quarter of declining GMV yr/yr, falling by mid-single-digits. Although, it was encouraging to see that GMV growth turned around during March, signaling a potential recovery in subsequent quarters.
- On the bright side, International Commerce saw consolidated volumes expand by 15% yr/yr, an acceleration from the 3% increase delivered last quarter. BABA alluded to a recovery in this segment in Q3 (Dec), noting that the decline in AliExpress orders continued to narrow while its other international sites like Lazada and Trendyol experienced either a recovery or sustained growth.
- Another promising development was BABA's updates regarding spinning off its business groups. The company expects to complete most of the spin-offs within the next 12 months, such as its highly anticipated Cloud business, with a few groups likely taking around 6 months longer.
Overall, BABA's MarQ results looked relatively soft when stacked against its competition. The continual decline in Cloud growth is a problem, although, to be fair, it resembled the decelerating growth seen across the ocean with its U.S.-based competitors Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN). Still, with China showing solid signs of recovery since last quarter, investors expected more. The market will now look toward BABA's upcoming business group spin-offs to see if these developments provide the kindling needed for a turnaround.
Walmart heads higher following Q1 robust comps; overall results pretty similar to Target (WMT)
Walmart (WMT +2%) is higher after reporting Q1 (Apr) results. What strikes us is that they were pretty similar to Target's (TGT) results yesterday. Both had big EPS upside and guided Q2 (Jul) EPS below consensus. The noticeable differences were that WMT reported upside revenue and its US comps (excl fuel) were notably stronger than TGT's comps. Commentary about a cautious consumer and comps weakening as the quarter progressed were seen in both reports.
- Walmart US comps (excl fuel) in Q1 grew +7.4%, which was quite good compared to TGT's flat comps. Comps were down a bit from +8.3% in Q4 and +8.2% in Q3, but we think investors are quite happy with that comp even if it was lapping an easy +3.0% comp last year. Unfortunately, WMT has not been guiding for comps on a quarterly basis, hopefully that changes. Sam's Club comps (excl fuel) were strong as well at +7.0%, although that is down from +12.2% in Q4 and +10.0% in Q3. But that is a very good number considering it was lapping robust +10.2% comps last year.
- Comps were driven by strong growth in food and health and wellness, partially offset by a decline in general merchandise sales. Unseasonably cooler spring weather also hurt sales. WMT continues to gain share and grow unit volume in grocery. Consumers are trading down to private label foods more often. Consumer spending has proven resilient but, below the surface, WMT continues to see signs that customers remain careful, particularly in discretionary categories. Customers were also impacted by lower tax refunds and a reduction in SNAP benefits as emergency pandemic allotments enacted by Congress expire.
- Comps moderated as the quarter progressed. February was strong but March-April were a tick down, which is similar to what TGT said. Looking ahead, WMT did not provide comp guidance. However, WMT did say that Q2 has started off basically how Q1 ended, which is not a great sign. Consumer pocketbooks continue to be stretched. WMT saw this shift from food to general merchandise.
- In terms of the downside EPS guidance, the good news is that WMT's downside was much less severe that TGT. Nevertheless, there continues to be a great deal of uncertainty looking out over the balance of this year as macro pressures on the consumer have gradually intensified.
Overall, this quarter was pretty similar from what we saw from Target, so not a lot of surprises. The biggest differences were WMT's much stronger comps and TGT's downside Q2 EPS guidance being more severe. What strikes us is that both TGT and WMT traded higher despite weak Q2 guidance and despite comps weakening throughout Q1. That tells us a good deal of negativity is priced in already.
Old Dominion looks to break above its 200-day moving average following an upgrade at Evercore (ODFL)
Old Dominion (ODFL +1.9%), one of the largest North American less-than-truckload (LTL) carriers, is looking to recoup its losses yesterday after receiving its second upgrade in less than a month today at Evercore to "Outperform" from "In-line." The upgrade shortly followed Deutsche Bank's upgrade to "Buy" from "Hold" in late April. News that a deal to raise the debt ceiling looks more likely is also igniting an enthusiastic response today.
Briefing.com notes that with the Dow Jones Transportation Index, which ODFL is a part of, recently rebounding after flirting with 2023 lows in late April, analysts may be pricing in a bottom across multiple transportation firms. Other index components, such as AAL, JBHT, NSC, and UPS, all received upgrades in the past three weeks. It also helps that crude oil prices, a primary headwind for these companies, have fallen significantly from April highs.
Although recession fears remain, and ODFL's Q1 earnings report in late April sparked a considerable sell-off, there are a few silver linings worth outlining.
- ODFL did not help alleviate recession fears when it noted last month that an acceleration in volumes it initially anticipated had yet to unfold. In fact, on a yr/yr basis, shipments in April were trending down double digits. However, ODFL commented that its market share remained relatively consistent, with yields continuing to improve, reflecting the company's competitive positioning, a major advantage to help steer through potentially lingering economic challenges.
- Drilling deeper, one of ODFL's critical advantages is its capacity, enabling the firm to accelerate growth once the economy improves.
- While economic activity remains suppressed, ODFL is controlling costs to protect its profitability. The company improved its platform productivity in Q1, generating a 5.8% increase in platform shipments per hour while reducing its reliance on purchase transportation compared to the year-ago period, contributing to an overall improvement to its variable costs as a percentage of sales.
- ODFL's commitment to financial discipline will not only allow it to survive a softer demand environment but will also position it for significant earnings growth potential once economic activity picks back up.
Still, it is important to note that ODFL is not expecting a meaningful bounce in demand for the foreseeable future, especially given that the typical volume acceleration seen during Q2 had yet to occur as of late April, projecting the weak demand landscape to persist for the remainder of the year. Nevertheless, ODFL is managing what it can in an effort to position itself to be ready to fully capitalize on an eventual rebound in economic activity, which, given its productivity initiatives, should result in a considerable jolt to its financial performance.
|
