Market Snapshot
briefing.com
| Dow | 33872.32 | +38.80 | (0.11%) | | Nasdaq | 13277.38 | +38.48 | (0.29%) | | SP 500 | 4303.21 | +8.01 | (0.19%) | | 10-yr Note | -24/32 | 3.75 |
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| | NYSE | Adv 1074 | Dec 1785 | Vol 832 mln | | Nasdaq | Adv 1518 | Dec 2886 | Vol 4.4 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services |
| | Weak: Materials, Energy, Utilities, Industrials |
Moving the Market
-- S&P 500 closing yesterday at 4,293.93, marking a 20% increase from the October closing low, which meets the technical definition of being in a new bull market
-- Strong mega caps while the broader market shows weakness
-- Rising market rates
-- Still in wait-and-see mode ahead of the May Consumer Price Index and Fed decision next week
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Closing Summary
09-Jun-23 16:25 ET
Dow +43.17 at 33876.69, Nasdaq +20.62 at 13259.52, S&P +4.93 at 4300.13
[BRIEFING.COM] The stock market had a mixed showing to close out a constructive week overall for the bulls. The S&P 500 climbed past 4,300 for the first time since August after yesterday's closing level (4,293.93) marked a 20% advance off the October closing low, which meets the technical definition of entering a new bull market. The index couldn't maintain that position on a closing basis, however, ultimately settling the session just a whisker shy of 4,300.
Initially, many stocks were participating in index gains. The Invesco S&P 500 Equal Weight ETF (RSP) was up 0.4% at its high for the day, but closed with a 0.1% loss after many stocks pulled back.
The market reverted back to 2023 form shortly after the open, which is to say that mega cap stocks supported the major indices while the broader market was relatively weak. The Vanguard Mega Cap Growth ETF (MGK), which had been up as much as 1.2%, closed with a 0.4% gain.
Even Tesla (TSLA 244.40, +9.54, +4.1%), which logged its eleventh straight gain after announcing a charging network deal with General Motors (GM 36.23, +0.38, +1.1%), pulled back from a gain of 7.5% at its high of the day.
The shift in market breadth as the session progressed also reflected underlying weakness. Shortly after the open, advancers and decliners at the NYSE and Nasdaq were nearly even. By the close, decliners led advancers by a 5-to-3 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq.
S&P 500 sector performance was mixed. Strength from their respective mega cap components had the information technology (+0.5%), consumer discretionary (+0.4%), and communication services (+0.1%) sectors near the top of the leaderboard.
The communication services sector had added support from Netflix (NFLX 420.02, +10.65, +2.6%), which is reportedly seeing an increase in subscriptions after cracking down on password sharing. Also, Adobe (ADBE 454.00, +14.97, +3.4%) was a standout winner from the info tech sector after being upgraded to Overweight from Equal Weight at Wells Fargo.
The cyclically-oriented materials (-0.8%) and energy (-0.6%) sectors closed at the bottom of the pack.
Mega caps outperformed despite rising market rates. The Treasury market was on the defensive today with participants eyeing a rush of new supply in coming weeks and months as the Treasury works to replenish its General Account. The 2-yr note yield rose 10 basis points to 4.62% and the 10-yr note yield rose three basis points to 3.75%.
There was no U.S. economic data of note today.
- Nasdaq Composite: +26.7% YTD
- S&P 500: +12.0% YTD
- Russell 2000: +5.9% YTD
- S&P Midcap 400: +4.6% YTD
- Dow Jones Industrial Average: +2.2% YTD
Economic data on Monday is limited to the May Treasury Budget at 2:00 p.m. ET, but the focal point on the economic calendar next week will be the May Consume Price Index, which is released on Tuesday. That report will be followed by the May Producer Price Index and the FOMC decision on Wednesday. The FOMC meeting will also include updated economic and interest rate projections from Fed members.
Treasuries settle with losses; S&P 500 heading toward close above 4,300
09-Jun-23 15:35 ET
Dow +73.91 at 33907.43, Nasdaq +37.53 at 13276.43, S&P +9.66 at 4304.86
[BRIEFING.COM] The S&P 500 is moving sideways, tracking toward its first close above 4,300 since last August.
Treasuries settled the session with losses. The 2-yr note yield rose 10 basis points to 4.62% and the 10-yr note yield rose three basis points to 3.75%.
Economic data on Monday is limited to the May Treasury Budget (prior $176.0 billion) at 2:00 p.m. ET.
Energy complex settles lower
09-Jun-23 15:05 ET
Dow +38.80 at 33872.32, Nasdaq +38.48 at 13277.38, S&P +8.01 at 4303.21
[BRIEFING.COM] The major indices are oscillating around narrow ranges.
Energy complex futures settled the session lower. WTI crude oil futures fell 1.3% to $70.30/bbl. Natural gas futures fell 3.8% to $2.26/mmbtu.
On a related note, the S&P 500 energy sector (-0.5%) remains near the bottom of the pack. The materials (-0.8%) and real estate (-0.6%) are also top laggards among the 11 sectors.
DISH Network underperforming in S&P 500 ahead of 5G deadline
09-Jun-23 14:30 ET
Dow +85.86 at 33919.38, Nasdaq +75.53 at 13314.43, S&P +15.16 at 4310.36
[BRIEFING.COM] The S&P 500 (+0.35%) is firmly in second place to this point on Friday afternoon.
S&P 500 constituents Match Group (MTCH 41.44, +2.39, +6.12%), Tesla (TSLA 247.07, +12.21, +5.20%), and Etsy (ETSY 92.40, +4.84, 5.53%) pepper the top of the S&P. TSLA outperforms after GM charging news, while ETSY moves to it's best levels in nearly three weeks.
Meanwhile, DISH Network (DISH 6.56, -0.87, -11.71%) is today's top laggard after reports the company is "desperate" to raise money ahead of the 5G deadline.
Gold little changed on Friday, modestly higher on the week
09-Jun-23 14:00 ET
Dow +46.77 at 33880.29, Nasdaq +72.88 at 13311.78, S&P +12.78 at 4307.98
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (+0.55%) is atop the standings, at afternoon highs in recent trading.
Gold futures settled $1.40 lower (-0.1%) to $1,977.20/oz, ending the week +0.39% higher, as late-week weakness in the dollar allowed for gains in the yellow metal.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $103.54.
Some running of the bulls
The S&P 500 couldn't quite clear the 4,300 level yesterday. It topped out at 4,298. One hurdle it did clear, however, was the bear market. With a close at 4,293.93, the S&P 500 moved more than 20% above the October closing low, which enables it to meet the technical definition of being in a new bull market.
Not everyone will be accepting of the bull market indication knowing that the equal-weight S&P 500 is up only 14% from last year's closing low. Nonetheless, a 20% gain and a 14% gain in roughly eight months' time is a hefty return by any standard that is cause for not only relief, but also for celebration.
The question on everyone's mind is, will this good fortune for the stock market continue? The answer is unknowable today since it rests in what the future brings the market in terms of economic data, earnings growth, interest rate movements, and policy action.
Things, though, are on a better track with the market having established a pattern of higher highs and higher lows off the October lows, which is the look of an uptrend. The S&P 500 will need to clear 4,305 (closing high last August) to keep that pattern intact.
That is not a big jump from where it is now, yet this morning's futures trade suggests the S&P 500 isn't going to make a leap of any kind at the open.
Currently, the S&P 500 futures are up three points and are trading in-line with fair value, the Nasdaq 100 futures are up 52 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down 64 points and are trading 0.2% below fair value.
This mixed disposition ahead of the open has been a regular occurrence this week, but the broader market has still had some legs under it with non-tech and cyclical stocks doing most of the running.
The Vanguard Mega-Cap Growth ETF (MGK) is down 0.6% for the week, yet the market-cap weighted S&P 500 is up 0.3% while the Invesco S&P 500 Equal-Weight ETF (RSP) is up 1.1%. The Russell 2000 has been even better with a 2.7% gain.
There are a couple of mega-cap runners in today's pre-market action, though. NVIDIA (NVDA) is up 1.2% and Tesla (TSLA), which has scored ten straight gains, is up 6.2% following a charging network deal with General Motors (GM).
The bump in NVDA and TSLA, along with a 3.9% gain in Adobe (ADBE), which was upgraded to Overweight from Equal Weight at Wells Fargo, and a 6.7% gain in DocuSign (DOCU) following its better-than-expected earnings report and outlook, has the Nasdaq 100 futures in a frontrunning position.
The "rest of the market" is kind of hanging around for lack of a better phrase. That's not a bad thing given the nice run the rest of the market has had this week as it reflects a lack of concerted selling interest, which is what one typically sees in a bull market.
Of course, the rest of the market isn't in a bull market at this stage, but one has to be impressed with its charge of late.
-- Patrick J. O'Hare, Briefing.com
Corning catches an upgrade as recent price increases bode well for margins and profits (GLW)
With shares virtually unchanged on a year-to-date basis compared to a 12% gain for the S&P 500, display glass company Corning (GLW) was badly in need of a spark. This morning, GLW received that overdue boost when Morgan Stanley (MS) upgraded the stock to Overweight from Equal Weight, while lifting the price target to $38 from $35. The impetus for the upgrade was based on the firm's belief that the risk/reward profile has swung to a more favorable position as GLW is poised to capitalize on its recent price increases.
- Rewinding to last December, China, which accounted for approximately 30% of GLW's total revenue in 2022, began to shift away from its zero-COVID policy. This change had a profound effect on the company's business as a wave of new virus cases resulted in lower consumer spending, workforce shortages, and, ultimately, lower demand for its display, environmental, and specialty materials products.
- In Q4, net sales for its Display Technologies segment, which manufactures glass substrates that are used in mobile phones, tablets, PCs, and TVs, fell by 17% yr/yr to $783 mln.
- Due to the tough business conditions, GLW implemented a series of actions in Q4 to improve profitability and cash flow. These actions included price increases in the optical communications and life sciences segments, an inventory reduction of $115 mln, and an adjustment of the company's productivity ratio.
When GLW reported better-than-expected Q1 results on April 25, the impact from its initiatives were noticeable.
- Despite demand remaining at recessionary levels in several key markets, core gross margin increased by 160 bps sequentially to 35.2%, driven by pricing and productivity improvements.
- Additional gross margin expansion should materialize after the company announced a 20% increase to its display glass substrate prices on May 23. Those price increases are on top of improving volumes and higher panel maker utilization rates as conditions brighten for GLW's Display Technologies segment.
MS's argument is that the stock isn't reflecting the benefits of GLW's price increases and stronger demand environment. Given the stock's weak performance and reasonable valuation with a forward P/E of about 16x, we tend to agree with that assessment.
Mission Produce enjoys a bountiful harvest after reversing its string of earnings misses in Q2 (AVO)
Avocado distributor Mission Produce (AVO +7%) is enjoying plenty of green today after reversing its series of earnings misses, squeaking out a bottom-line beat in Q2 (Apr). AVO's financial results are highly correlated with avocado prices. When prices jump, AVO experiences a solid revenue boost. However, relative to last year, prices remain depressed, keeping AVO's sales from enjoying positive growth. This trend contributed to AVO's sales tumbling 20.5% yr/yr in Q2 to $221.1 mln.
Nonetheless, lower prices tend to provide a lift to overall volumes. As a result, despite AVO's average per unit sales price falling 36% yr/yr in Q2, avocado volumes sold climbed 19%, helping offset the lower per unit margins on avocado sales. This dynamic paved the way for AVO to slightly top earnings estimates in the quarter, sustaining its recent rally efforts. Shares are now up around 17% on the year.
- The avocado industry is looking ripe for continued volume gains. AVO noted that the industry reiterated that volumes should be approximately 20% higher in Q3 (Jul) compared to the previous year due to several factors.
- Because of unfavorable pricing, the seasonal avocado harvest in California, one of AVO's primary sources, will be more heavily weighted toward Q3 and Q4 (Oct), a stark contrast to last year when surging prices influenced farmers to bring avocados to market as soon as possible.
- The harvest outlook in Peru, another core market, is shaping up to be quite favorable this year. Also, unlike last season, when the size of avocados coming out of Peru was too large, a problem when the crop is sold individually instead of per tonne, AVO noted that the crop this year should be much improved.
- Major avocado exporter Mexico is also seeing better volumes than last year when supplies were significantly limited, driving pricing to near-record levels.
- AVO also anticipates pricing to climb sequentially, creating a favorable combination. Still, on a yr/yr basis, prices will likely track around 35-40% lower.
Although not quite as exciting as the numerous AI plays, AVO offers exposure to a growing avocado industry that some analysts expect could see annualized growth of +5-7% over the next few years. Given the health benefits of avocados, a greater emphasis on active and healthy lifestyles could provide a nice tailwind for the industry.
Geopolitical and regulatory risks will always be a factor to consider. Still, AVO, which makes nearly all its money from distribution and marketing, is positioning itself to capitalize on favorable trends, building out its distribution network with a new facility in the U.K., and diversifying its vertical integration by investing in land improvements across multiple countries.
DocuSign trades lower despite strong Q1 upside as macro headwinds remain a concern (DOCU)
DocuSign (DOCU -3%) jumped initially following its Q1 (Apr) report last night, but has come back off its highs. The e-signature giant beat handily on EPS and revenue. It also guided Q2 (Jul) revenue above analyst expectations and raised full year revenue guidance. The stock has given up some of its initial gains. We think some cautious comments on the call may be responsible.
- In terms of the key operating metrics, billings is a closely watched number and DocuSign performed well in this regard. Billings in Q1 grew 10% yr/yr to $674.8 mln, well above the $615-625 mln prior guidance, driven by a higher rate of on-time renewals. Perhaps more impressive was non-GAAP operating margin, which jumped to a record 27% from 17% a year ago. This was well ahead of the 21-22% prior guidance. However, DOCU expects this to decline as it moves through the fiscal year.
- Of note, international revenue grew 17% yr/yr to $168 mln, representing 25% of revenue. DOCU sees international expansion as a largely untapped opportunity. DOCU is making investments with market-specific product innovation like identity verification. It is also building a stronger local market presence to strengthen its footprint. DOCU recently released funding to further invest in Germany and Japan. DOCU just went live with its first CLM customer in Japan this past quarter.
- These results were impressive especially considering that DOCU faces a challenging macro environment. DOCU concedes that it is seeing smaller deal sizes and lower expansion rates across the business as customers scrutinize budgets. DOCU is seeing a more moderate pipeline and lower volumes. Looking ahead, DOCU continues to see headwinds impacting its expansion rates coupled with muted customer-buying patterns as budgets remain under scrutiny. Dollar net retention was 105% in Q1, but DOCU expects this metric to continue to experience downward pressure. We heard similar budget scrutiny comments from SMAR and GTLB just in the past week.
- We were surprised to see DOCU provide upside Q2 revenue guidance given the macro headwinds it's facing. If we were going to nitpick, DOCU guided to Q2 billings of $646-656 mln and Q2 non-GAAP operating margin of 24-25%. That would be a sequential decline for both metrics, but DOCU tends to be conservative with guidance, so we do not want to read too much into that.
Overall, DocuSign began FY24 on a strong note with good upside in Q1 for EPS, revenue, billings and operating margin. The Q2 revenue guidance was impressive as well. However, we think the cautionary comments on the call and the billings guidance are blunting the strong upside in Q1 in terms of the stock action. Also, the stock had run 25% from its May 3 lows heading into this report, so we think a good quarter was likely priced in.
Tesla amped up again after General Motors partners with company to access its Superchargers (TSLA)
The good news keeps pouring in for Tesla (TSLA), which is trading at its highest levels since early October of last year, with the stock receiving yet another boost courtesy of General Motors (GM). About two weeks after rival Ford Motor (F) reached an agreement with TSLA that provides its EV customers with access to Tesla Superchargers, GM announced a similar deal with TSLA last night. Specifically, the partnership will allow GM's EV drivers to use 12,000 Tesla Superchargers across North America starting in 2024 in a move that market participants are viewing as a win-win situation.
For TSLA, the benefit of these agreements with GM and Ford is two-fold.
- First, and most importantly, providing GM and Ford access to its Superchargers will likely give it an insurmountable lead in the race to establish an industry standard for charging. Currently, there are two primary charging systems in the market: the North American Charging Standard (NACS) design that TSLA has adopted, and the Combined Charging System (CCS) used by GM, Ford, and other EV makers.
- Initially, GM customers will need to use an adapter to access TSLA's Supercharger stations, but beginning in 2025, the company's EVs will be built with a NACS inlet, removing the need for an adapter.
- With GM and Ford switching over to the NACS connector design, TSLA's charging network will significantly expand while likely ultimately becoming the single standard. A more robust charging network across the country will make TSLA's vehicles even more marketable, reducing customers' concerns about inadequate charging options on the roadways.
- Second, TSLA will generate substantially more revenue from its Supercharger stations. In 3Q23, Services and Other Revenue, which includes paid Supercharging fees, increased by 44% to $1.8 bln.
- Although the Services and Other category only represented about 8% of TSLA's total revenue in Q3, that percentage should increase as GM and Ford EV customers begin accessing its charging stations.
- For some context, GM has said that it will have the capacity to build 1.0 mln EVs in North America by 2025, while Ford is targeting a 2.0 mln EV run rate by 2026.
From GM's perspective, the upside of partnering with TSLA is that it will instantly and significantly expand the charging network for its customers, without having to invest in the buildout of its own system. CEO Mary Barra commented that collaborating with TSLA "knocks down a possible barrier to car buyers, some of whom worry about adequate charging" on the roads.
The main takeaway is that this agreement with GM is another big win for TSLA, amplifying a bullish sentiment that has defined the stock over the past month. Earlier this week, it was reported that all trims of the company's Model 3 sedan now officially qualify for the full $7,500 tax credit, following a report from Electrek on May 25 that TSLA's Model Y became the world's best-selling car. Looking further down the road, the upcoming launch of the Cybertruck later this summer could represent the next catalyst for TSLA.
Braze's beat-and-raise in Q1 and potential AI-related benefits lights a fire under the stock (BRZE)
Investors are fully engaged with Braze (BRZE +21%) today following a solid beat-and-raise in Q1 (Apr). Fellow customer experience platform provider Sprinklr (CXM) already pulled BRZE nicely higher earlier this week after CXM shares spiked to one-year highs on a beat-and-raise in AprQ. Nevertheless, BRZE cleared the higher bar easily, reflecting resilient demand within the customer engagement field.
That is not to say BRZE is operating without its share of hurdles. The company acknowledged that the broader macroeconomic environment remains challenging, with elevated deal scrutiny and longer sales cycles persisting. However, the market has likely already priced this in, especially after CXM touched on similar macro trends. Meanwhile, BRZE incorporated this cautiousness into its FY24 outlook, increasing its forecasts despite an unfavorable economy.
- BRZE's Q1 results did not showcase much of the difficult demand landscape. Sales surged by 31.4% yr/yr to $101.8 mln, while non-GAAP operating margins expanded by over 700 bps yr/yr, helping narrow BRZE's net losses to $(0.13) per share from $(0.19) in the year-ago period.
- BRZE added a solid number of new customers in the quarter, expanding its base by 24% yr/yr to 1,866. Notably, BRZE's large customer cohort, defined as those spending at least $500,000 annually, grew quicker, jumping 27% to 164.
- Management noted that the company benefited strongly from a healthy combination of existing customer contract expansion, renewals, and new business in the quarter. CEO William Magnuson added that BRZE continued capitalizing on vendor consolidation, which he believes will persist as enterprises simplify their technology ecosystems by utilizing customer engagement platforms like Braze that can perform several tasks under one house.
- AI was also a central component of BRZE's buoyant Q1 numbers and will remain such for the foreseeable future. BRZE discussed how AI-driven advancements will be its ace in the hole to take market share from legacy systems. Given how large-language models like ChatGPT function best when engaging in speech with users, it makes sense that BRZE is stepping up its AI-related investments. For example, AI can provide excellent content creation, lowering the burden on employees to generate images and message content for its customer base.
- BRZE is optimistic that its rollout of new AI offerings, combined with proven resilience in the customer engagement industry, will help defend against macroeconomic pressures. As a result, the company upped its FY24 outlook, expecting adjusted EPS of ($0.51)-($0.55), up $0.04, and revs of $442.5-446.5 mln, up from $433-438 mln.
Bottom line, BRZE's beat-and-raise in Q1 greased the wheels today, but the potential advantages brought on by AI are keeping the wheels in motion. Customer engagement platforms like BRZE stand to benefit significantly from generative AI as it can reduce costs and improve productivity for its customers. Still, we urge caution chasing at current levels, especially since BRZE's current and upcoming AI enhancements have yet to prove a real game changer.
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