Market Snapshot
briefing.com
| Dow | 37266.67 | -94.45 | (-0.25%) | | Nasdaq | 14855.62 | -88.73 | (-0.59%) | | SP 500 | 4739.21 | -26.77 | (-0.56%) | | 10-yr Note | -4/32 | 4.11 |
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| | NYSE | Adv 705 | Dec 2065 | Vol 896 mln | | Nasdaq | Adv 1380 | Dec 2887 | Vol 5.2 bln |
Industry Watch
| Strong: -- |
| | Weak: Information Technology, Communication Services, Consumer Discretionary, Materials, Real Estate, Industrials |
Moving the Market
-- Hesitation to buy, rather than motivation to sell
-- Rethinking hopeful rate cut view following comments from central bankers
-- Rising market rates
-- Weak mega caps and semiconductor stocks, pressured by rising rates
-- Digesting the December retail sales report, which added to the notion that Fed won't cut rates as soon as the market hopes
| Closing Summary
17-Jan-24 16:30 ET
Dow -94.45 at 37266.67, Nasdaq -88.73 at 14855.62, S&P -26.77 at 4739.21
[BRIEFING.COM] Today's trade featured a negative bias. The major indices were able to close off their lows, though, thanks to a push higher in the last half hour of trading. The late afternoon improvement, which left the S&P 500 and Nasdaq Composite near their best levels of the day, was largely driven by mega cap stocks making upside moves.
The Vanguard Mega Cap Growth ETF (MGK) was down as much as 1.5% earlier, closed near its best level of the session with a 0.5% loss. Meta Platforms (META 368.37, +0.91, +0.3%) eked out a slim gain after being down as much as 2.4%.
The overall negative vibe was related to rising market rates and a recalibration of the market's optimistic rate cut view. The 2-yr note yield jumped 14 basis points to 4.36% and the 10-yr note yield climbed four basis points to 4.11%.
Activity in the Treasury market was partially a reaction to this morning's release of the December retail sales report, which did not go the market's way. That is to say, consumer spending was slightly better than expected in December and not likely to persuade the Fed to cut rates as much, or as early, as the market hopes.
On a related note, European Central Bank President Lagarde echoed recent comments by other central bankers, saying rate cuts are likely to begin this summer, according to FT.
The fed funds futures market is now pricing in a 59.1% probability of a 25 basis points rate cut at the March FOMC meeting versus a 66.9% probability yesterday, according to the CME FedWatch Tool.
Still, selling activity was fairly modest, suggesting market participants are simply hesitant to buy at this level rather than anxious to sell. The Invesco S&P 500 Equal Weight ETF (RSP) declined 0.8%.
The S&P 500 financial sector closed with a 0.3% decline after some components reported quarterly results since yesterday's close. Charles Schwab (SCHW 63.45, -0.86, -1.3%) and U.S. Bancorp (USB 40.82, -0.56, -1.4%) were influential laggards from the sector after their quarterly results while Citizens Financial Group (CFG 31.73, +0.53, +1.7%) went against the grain with a gain.
Meanwhile, the rate-sensitive real estate sector (-1.9%) saw the largest decline.
- S&P 500: -0.6%
- Nasdaq Composite: -1.0%
- Dow Jones Industrial Average: -1.1%
- S&P Midcap 400: -3.2%
- Russell 2000: -5.6%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 10.4%; Prior 9.9%
- December Retail Sales 0.6% (Briefing.com consensus 0.4%); Prior 0.3%; December Retail Sales ex-auto 0.4%; Prior 0.2%
- The key takeaway from the report is that consumer spending remained healthy in the final month of 2023, which does not strengthen the argument for an imminent start to a rapid rate cut campaign by the FOMC.
- December Export Prices -0.9%; Prior -0.9%
- December Export Prices ex-ag. -0.9%; Prior -1.0%
- December Import Prices 0.0%; Prior was revised to -0.5% from -0.4%
- December Import Prices ex-oil 0.0%; Prior was revised to 0.1% from 0.2%
- December Industrial Production 0.1% (Briefing.com consensus -0.1%); Prior was revised to 0.0% from 0.2%; December Capacity Utilization 78.6% (Briefing.com consensus 78.8%); Prior was revised to 78.6% from 78.8%
- The key takeaway from the report is that output remained relatively steady in December, though it followed downward revisions to November's production rate and capacity utilization.
- November Business Inventories -0.1%; Prior -0.1%
- January NAHB Housing Market Index 44 (Briefing.com consensus 38); Prior 37
Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 206,000; prior 202,000), Continuing Claims (prior 1.834 mln), December Housing Starts (Briefing.com consensus 1.417 mln; prior 1.560 mln), and Building Permits (Briefing.com consensus 1.478 mln; prior 1.460 mln)
- 10:30 ET: Weekly natural gas inventories (prior -140 bcf)
- 11:00 ET: Weekly crude oil inventories (prior +1.34 mln)
Stocks move sideways ahead of the close
17-Jan-24 15:30 ET
Dow -173.56 at 37187.56, Nasdaq -137.74 at 14806.61, S&P -38.60 at 4727.38
[BRIEFING.COM] The three major indices chopped around in a sideways flow over the last half hour.
M&T Bank (MTB), Fastenal (FAST), Northern Trust (NTRS), KeyCorp (KEY), and First Horizon (FHN) are among the names reporting earnings ahead of tomorrow's open.
Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 206,000; prior 202,000), Continuing Claims (prior 1.834 mln), December Housing Starts (Briefing.com consensus 1.417 mln; prior 1.560 mln), and Building Permits (Briefing.com consensus 1.478 mln; prior 1.460 mln)
- 10:30 ET: Weekly natural gas inventories (prior -140 bcf)
- 11:00 ET: Weekly crude oil inventories (prior +1.34 mln)
WTI crude oil futures settle with slim gain
17-Jan-24 15:05 ET
Dow -160.18 at 37200.94, Nasdaq -142.90 at 14801.45, S&P -39.45 at 4726.53
[BRIEFING.COM] There hasn't been much up or down movement at the index level over the last half hour. The Treasury market hasn't seen much up or down action, either. The 10-yr note yield is up three basis points to 4.10% and the 2-yr note yield is up 14 basis points to 4.36%.
Elsewhere, WTI crude oil futures eked out a 0.2% gain to settle at $72.55/bbl after falling below $71.00/bbl earlier.
Kinder Morgan (KMI), Discover Financial Services (DFS), Alcoa (AA), H.B. Fuller (FUL), Wintrust Fin (WTFC), and Synovus (SNV) report earnings after today's close.
Beige Book shows little to no change in economic activity; potential falling rates aid optimism
17-Jan-24 14:25 ET
Dow -162.88 at 37198.24, Nasdaq -152.48 at 14791.87, S&P -38.88 at 4727.10
[BRIEFING.COM] The broader market reaction to the Fed's January Beige Book was mostly tame; the S&P 500 (-0.82%) shaved a hair off today's losses over the prior half hour. The report showed that there was little or no change in economic activity since the prior Beige Book period. Six Districts noted that their contacts had reported slight or modest price increases, and two noted moderate increases.
The prospect of falling interest rates was cited by numerous contacts in various sectors as a source of optimism. In contrast, concerns about the office market, weakening overall demand, and the 2024 political cycle were often cited as sources of economic uncertainty. Overall, most Districts indicated that expectations of their firms for future growth were positive, had improved, or both.
Turning to the S&P 500, worst performers today include Boston Properties (BXP 66.02, -3.46, -4.98%), Jabil (JBL 120.65, -4.76, -3.80%), and Estee Lauder (EL 125.00, -4.76, -3.67%).
One of today's top performers is Humana (HUM 151.33, +12.54, +2.86%).
Gold continues recent slump, Beige Book due
17-Jan-24 13:55 ET
Dow -195.44 at 37165.68, Nasdaq -182.33 at 14762.02, S&P -45.97 at 4720.01
[BRIEFING.COM] With about two hours left on Wednesday the tech-heavy Nasdaq Composite (-1.22%) remains today's top lagging index; the Fed's January Beige Book is due at the top of the hour.
Gold futures settled $23.70 lower (-1.2%) to $2,006.50/oz, pressured by this morning's dovish policy comments from Fed Governor Waller.
Meanwhile, the U.S. Dollar Index is up +0.2% to $103.58.
Page One
Last Updated: 17-Jan-24 09:03 ET | Archive
Moderating near-term rate cut expectations pressure market
The S&P 500 futures are down 30 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 143 points and are trading 0.9% below fair value, and the Dow Jones Industrial Average futures are down 189 points and are trading 0.5% below fair value.
Equity futures indicate a lower open amid rising market rates. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, is up 12 basis points from yesterday at 4.34%. The 10-yr yield is up four basis point from yesterday at 4.11%.
Enthusiasm about possible near-term rate cuts has been tempered further by European Central Bank President Lagarde, who echoed recent comments by other central bankers, saying rate cuts are likely to begin this summer, according to FT.
Yields were already heading higher in front of the 8:30 ET data release, but selling increased in response.
Total retail sales increased 0.6% month-over-month in December (Briefing.com consensus 0.4%) after an unrevised 0.3% increase in November. Retail sales, excluding autos, increased 0.4% month-over-month after increasing an unrevised 0.2% in November. Excluding autos and gasoline station sales, retail sales rose 0.7% month-over-month.
The key takeaway from the report is that consumer spending remained healthy in the final month of 2023, which does not strengthen the argument for an imminent start to a rapid rate cut campaign by the FOMC.
Export prices declined 0.9% in December following a 0.9% decline in November. Export prices, excluding agriculture, declined 0.9% in December following a 1.0% decline in November.
Import prices were unchanged in December following a revised 0.5% decline in November (from -0.4%). Import prices, excluding oil, were unchanged in December following a revised 0.1% increase in November (from 0.2%).
Earlier, the MBA Mortgage Applications Index increased 10.4% with purchase applications jumping 9% and refinance applications climbing 11%.
Participants will receive the December Industrial Production and Capacity Utilization report at 9:15 ET, followed by the November Business Inventories and January NAHB Housing Market Index at 10:00 ET.
Calavo Growers ripe for selloff after issuing soft sales guidance, delaying earnings release (CVGW)
Calavo Growers (CVGW), a leading provider of avocados and fresh-cut fruit, vegetables, and prepared food, is ripe for a sell-off today after postponing the release of its Q4 results last night while also issuing downside FY23 revenue guidance of $972 mln. The cause for the earnings and financial statement filing delay is due to findings from the Audit Committee that merit additional investigation, particularly as it relates to CVGW's operations in Mexico. While the company does not believe that any matters under investigation affect any previously issued financial statements, this development shakes investors' confidence as it pertains to CVGW's internal controls.
To complete the busy news morning, CVGW also announced that it has signed a non-binding letter of intent to evaluate a sale of its Fresh Cut business with F&S Fresh Foods. The total transaction value is estimated to be $100 mln with the proceeds going towards debt reduction and to shareholder return actions.
- Since Lee Cole returned to his CEO post last April, his priority has centered on growing and improving the profitability of CVGW's core avocado and guacamole business. Divesting the Fresh Cut business, which has struggled recently, aligns with this strategy and it should help to improve the company's financial performance.
- In Q3, the Prepared Segment, which includes Fresh Cut, saw net sales decline by 14% to $115.8 mln, while overall gross profit decreased by $3.1 mln yr/yr to $3.7 mln. The main driver for the gross profit decline was an $8.1 mln drop in the Fresh Cut division as softer volume and higher input costs pressured its results.
- Although CVGW didn't offer specifics behind its weaker-than-expected FY23 guidance, it's reasonable to assume that Fresh Cut remained a laggard, especially since CVGW is willing to part ways with the business.
- The avocado business, on the other hand, has performed well, even in the face of sharply lower prices. More specifically, the average selling price of avocados in the Grown segment plunged by 38% yr/yr in Q3, but Grown gross profit still increased by $9.6 mln to $21.4 mln. The company credited an enhanced focus on operational execution and customer service as key factors behind the improvement.
Clearly, the downside FY23 revenue guidance, combined with the revelation of some kind of error or issue related to CVGW's 10-K filing, is front and center in investors' minds today. However, we do believe that the decision to divest the Fresh Cuts business will bear fruit down the road as SG&A costs and long-term debt is reduced, while the company looks to maximize the profit potential of its avocado business.
Spirit Airlines still losing altitude after yesterday's court ruling blocking its JBLU merger (SAVE)
Spirit Airlines (SAVE -24%) continues to rapidly lose altitude today following yesterday's court ruling blocking the previously announced merger with JetBlue (JBLU -9%). More than half of SAVE's market cap has been wiped out this week on the news, as shares trade at pandemic lows.
The discount airline was already amid turbulence late last year after cutting its Q3 (Sep) guidance, a trend seen across the airline industry, underscoring a broad-based slowdown made worse by rising fuel costs. The reduced outlook sent SAVE to a one-year low, as a higher promotional environment cut deeply into its operating margins.
The economic hurdles made the proposed merger less appealing than it already was when JBLU agreed to buy SAVE in July 2022 for $33.50 per share, outbidding Frontier Group (ULCC). Investors were never quite warm toward JBLU's $3.8 bln offer to purchase SAVE, as shares have steadily descended by around 50% since.
While the ruling could still be appealed, JBLU may be better off accepting the court's decision.
- Both airlines have endured their share of woes over the past year. However, SAVE has particularly struggled to cope with the heightened promotional environment, particularly given its already-discounted nature, as well as rising costs, including fuel and labor. For example, as of the most recent quarter, SAVE's adjusted operating margins were -15.4%, far worse than many of its peers, including JBLU, which recorded -5.2% margins.
- JBLU would act as a financial lifeline for SAVE, providing access to capital and a more comprehensive route network. While synergies could have possibly been realized from the merger, leading to margin improvement, they likely would not have been as significant as those enjoyed by SAVE.
- With economic conditions breaking down across the travel industry as cumulative inflation erodes discretionary purchasing power by the end consumer, it may be more beneficial for JBLU to focus on internal improvements, including its structural cost program, which was on track to deliver $150-200 mln in savings by the end of this year.
Yesterday's court ruling is certainly a worst-case scenario for SAVE. It is also negatively affecting the industry as airlines, particularly smaller ones, may no longer be attractive acquisition targets as mergers may not escape the U.S. Justice Department. Still, we think JBLU is better off without SAVE potentially dragging it down, even if it would have bolstered its market position, particularly on the lower-cost side.
Interactive Brokers rallies despite EPS miss on prospects of higher rates for longer (IBKR)
Traders are hitting the buy button on Interactive Brokers (IBKR), the provider of an online trading platform, despite missing EPS expectations for the third time in the past four quarters. The small Q4 EPS miss is being brushed aside as the prospect of higher rates for longer permeates through the markets.
- Higher interest rates have created a strong tailwind for net interest income, which accounts for over 50% of IBKR's total net revenue. Not only does the company earn more interest from clients' idle cash, but higher rates also allow it to charge more on margin loans. Due to these factors, net interest income jumped by 29% yr/yr in Q4 to $730 mln.
- Therefore, this recent bump higher in interest rates and the less optimistic view regarding rate cuts in the near future are seen as positives for IBKR.
- With this in mind, if the Fed does cut rates this year, as anticipated, then IBKR's net interest income would take a hit. Specifically, Mr. Brody estimated that for each 25 bps decrease in the Fed fund rate, IBKR's annual net interest income would be reduced by $56 mln. Furthermore, the impact of rate decreases in all relevant non-U.S. dollar benchmark rates would tack on another $18-$20 mln hit to annual net interest income for every 25 bps decrease in those benchmarks.
- Another way that high interest rates have helped IBKR is through offering higher yields on cash balances than its competitors. Currently, IBKR is paying a healthy 4.83% on qualified U.S. dollar balances, which is a significant source of new customer acquisition. During Q4, customer accounts grew by 23% to $2.56 mln.
- From a trading perspective, business was mixed in Q4 with options displaying notable strength as contract volumes increased by 21%. However, equity volume was weak, down 22%, largely offsetting the strength in options. Overall, daily average revenue trades (DARTs) edged higher by 2%, while commission revenue grew by 5% to $348 mln.
- Lastly, IBKR's margins really stand out, thanks to its focus on automation and expense control. Pre-tax margin was 72% for Q4 -- the best in the industry, according to IBKR -- and the company believes that it will remain above the 70% level, even if the Fed cuts rates a few times this year.
The main takeaway is that IBKR is performing well in a challenging and complex market, as illustrated by its 17% adjusted EPS growth. Although rate cuts would put a significant dent in IBKR's net interest income growth, those concerns are easing today as market participants contemplate a less accommodative Fed.
Progress Software advancing today on reasonably upbeat FY24 guidance, stabilizing demand (PRGS)
Progress Software (PRGS +1%) is advancing today after registering upbeat Q4 (Nov) results, including a top and bottom-line beat. The business application development software provider also provided a reasonably decent initial FY24 outlook. Numbers in Q4 outshined frustrating Q3 (Aug) results released in late September, which triggered a correction of 10% over the following month. Furthermore, PRGS's tone relating to FY24 was bright, foreseeing sustainable product demand and stability in the demand environment and enjoying the benefits of a full year of its early 2023 acquisition of MarkLogic.
- PRGS's bottom line of $1.02 cleared its previous forecast of $0.87-0.93 handily. The impressive earnings result emanated from solid cost management, achieving virtually all planned synergies on integrating MarkLogic and robust top-line growth.
- Revenue growth remained in the double-digit range during Q4, expanding by 11.5% yr/yr to $177.52 mln, ahead of PRGS's $171-177 mln prediction. The outperformance was led by multiple products, particularly OpenEdge, a development platform for running business-critical applications. However, because many of the products PRGS offers are on term-based licenses, the timing of contract renewals can disproportionately impact quarterly revs.
- As such, annualized recurring revenue (ARR) is a more closely-watched metric. On that note, it was comforting to see PRGS improve this metric by 17% yr/yr on a constant currency basis to $574 mln, consistent with previous quarterly growth rates. However, when accounting for MarkLogic in Q4 and the year-ago quarter, ARR ticked just 1% higher yr/yr.
- Still, PRGS's $355 mln purchase of MarkLogic has achieved nearly every goal initially outlined in January 2023, such as reaching $100 mln in annual revenue. PRGS anticipates MarkLogic to propel its FY24 revs to over $725 mln while expanding total operating margins. As a result, PRGS is targeting FY24 revs of $722-732 mln and adjusted EPS of $4.58-4.68.
- M&A will remain a central focus for PRGS in 2024. CEO Yogesh Gupta commented that it will remain highly active in the M&A market, especially as market factors continue to shift in its favor. PRGS's best acquisition target combines high recurring revs with attractive retention rates. Mr. Gupta added that it is not looking at unicorns but great workhorses.
After painting a cautious picture last quarter, PRGS's Q4 results were slightly more ambitious ahead of FY24, helping push shares higher today. PRGS continues to repay debt whenever possible while also repurchasing shares, with $194 mln remaining under its current authorization. With the stock relatively flat since the start of 2023, PRGS possesses attractive upside this year, especially as the demand environment stabilizes.
Impinj trading nicely higher on Q4 upside guidance; investors are clearly relieved (PI)
Impinj (PI +9%) is making a big move today after providing upside revenue guidance. This provider of RAIN RFID chips now expects Q4 revs to exceed $70 mln, nicely above its $65.5-68.5 mln prior guidance. Impinj helps companies track products through the supply chain as its chips are smaller than a grain of sand. Unlike a barcode, its chips can be read up to 30 feet away without line of sight at speeds of up to 1,000 items per second.
- With retail apparel being its largest end market by far (67-75% of revs historically), we think investors had some nervousness going into PI's Q4 report (full results to be reported on Feb 8 after the close).
- Consumers are focusing more on essential needs and less on discretionary items, which includes apparel. Also, the supply chain for retail apparel has improved a lot since last year. As such, they need not stock as much inventory, they can order product when they need it and feel more confident it will arrive. A good example is Abercrombie (ANF), which has said its "chase" strategy has returned, allowing it to quickly adapt to changing fashion trends.
- Impinj did not offer a lot of detail this morning as to why it is guiding for upside. However, at an investor conference in November, the company did explain that it has been going through some inventory destocking around endpoint ICs. At the time it said, it had made mixed progress in Q3, with some partners on track or ahead of schedule and some behind. It also said it expected to make further progress in Q4 and that its larger partners could end the year reasonably healthy.
- Something that stood out to us from that conference was Impinj saying it is starting to see some green shoots in the macro data. Specifically, retail import data, which is a measure of production for Impinj, has improved for the last six months. PI was still down 10-20% yr/yr but that was much better than the down 30-40% it was dealing with at the beginning of 2023. PI saw the US market as stabilizing with Europe maybe a quarter or two behind with Asia more mixed.
Overall, investors are clearly relieved to see the upside Q4 guidance given some of the macro headwinds in the retail apparel space. Also, this guidance makes us think Impinj's inventory destocking headwind seems to be easing. After guiding down a couple of times earlier in the year, the company seems to be turning a quarter as it heads into 2024.
Looking further out, Impinj has made expansion into general merchandise, which is massive, a key priority. Unfortunately, the rollout has gone slower than expected as Impinj has been seeing a steeper learning curve among suppliers outside of apparel, which have been deploying for 10 years. The company explains that many suppliers in the general merchandise space (toys, electronics, stationery etc.) are tagging items for the first time. However, Impinj is working to get these suppliers up and running.
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