Market Snapshot
briefing.com
| Dow | 38661.05 | +75.86 | (0.20%) | | Nasdaq | 16031.54 | +91.95 | (0.58%) | | SP 500 | 5104.76 | +26.11 | (0.51%) | | 10-yr Note | +26/32 | 4.10 |
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| | NYSE | Adv 1939 | Dec 824 | Vol 1.0 bln | | Nasdaq | Adv 2591 | Dec 1667 | Vol 5.5 bln |
Industry Watch
| Strong: Utilities, Information Technology, Health Care, Consumer Staples, Materials, Energy, Industrials |
| | Weak: Communication Services, Consumer Discretionary |
Moving the Market
-- Buying on weakness after declines so far this week
-- Rebound action in some mega cap stocks and semiconductor shares
-- Drop in Treasury yields
-- Reacting to Fed Chair Powell's semiannual monetary policy testimony before Congress
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Closing Summary
06-Mar-24 16:25 ET
Dow +75.86 at 38661.05, Nasdaq +91.95 at 16031.54, S&P +26.11 at 5104.76
[BRIEFING.COM] Stocks bounced back today after yesterday's retreat. The major indices faded from their highs in the afternoon trade, but still closed with gains ranging from 0.2% to 0.7%. A buy-the-dip mentality, which as worked well for participants since the start of the year, contributed to the positive bias.
Renewing buying activity in growth stocks and the tech space following impressive earnings and outlook from cybersecurity software provider CrowdStrike (CRWD 329.57, +32.01, +10.8%) also contributed to the upside moves.
Many stocks participated in today's broad rally. The Invesco S&P 500 Equal Weight ETF (RSP) gained 0.6% and nine of the 11 S&P 500 sectors finished higher. The utilities sector (+1.0%) saw the largest gain, followed by the heavily-weighted information technology sector (+0.9%).
Meanwhile, losses in some mega cap constituents led the communication services (-0.2%) and consumer discretionary (-0.4%) sectors to underperform the broader market.
Market participants were also digesting the first day of Fed Chair Powell's semiannual monetary policy testimony before the House Financial Services Committee, which failed to produce any surprising headlines. Mr. Powell acknowledged that it will likely be appropriate to lower the fed funds rate range later this year.
Rate cut expectations were little changed by the remarks. The probability of a 25 basis points rate cut to 5.00-5.25% at June FOMC meeting is 71.4% now versus 72.4% yesterday, according to the CME FedWatch Tool.
In other news, New York Community Bancorp (NYCB 3.46, +0.24, +7.5%) rallied after announcing an over $1 billion equity investment anchored by former U.S. Treasury Secretary Steven Mnuchin's Liberty Strategic Capital, Hudson Bay and Reverence Capital. Shares initially plunged more than 40.0% today on a Wall Street Journal report that the company was seeking to raise capital.
The 10-yr note yield slid three basis points to 4.10% and the 2-yr note yield settled one basis point higher.
- S&P 500: +7.0% YTD
- Nasdaq Composite: +6.8% YTD
- S&P Midcap 400: +5.7% YTD
- Dow Jones Industrial Average: +2.6% YTD
- Russell 2000: +2.0% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications 9.7%; Prior -5.6%
- February ADP Employment Change 140K (Briefing.com consensus 150K); Prior was revised to 111K from 107K
- January JOLTS - Job Openings 8.863 mln; Prior was revised to 8.889 mln from 9.026 mln
- January Wholesale Inventories -0.3% (Briefing.com consensus -0.1%); Prior 0.4%
Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 217,000; prior 215,000), Continuing Claims (prior 1.905 mln), January Trade Balance (Briefing.com consensus -$63.3 bln; prior -$62.2 bln), revised Q4 Productivity (Briefing.com consensus 3.1%; prior 3.2%) and Unit Labor Costs (Briefing.com consensus 0.6%; prior 0.5%)
- 10:30 ET: Weekly natural gas inventories (prior -96 bcf)
- 15:00 ET: January Consumer Credit (Briefing.com consensus $10.0 bln; prior $1.6 bln)
Thursday's economic calendar; Treasuries settle mostly higher
06-Mar-24 15:35 ET
Dow +36.96 at 38622.15, Nasdaq +64.56 at 16004.15, S&P +18.35 at 5097.00
[BRIEFING.COM] Things are little changed at the index level in recent action.
The 2-yr note yield settled one basis point higher at 4.56% and the 10-yr note yield slid three basis points to 4.10%.
Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 217,000; prior 215,000), Continuing Claims (prior 1.905 mln), January Trade Balance (Briefing.com consensus -$63.3 bln; prior -$62.2 bln), revised Q4 Productivity (Briefing.com consensus 3.1%; prior 3.2%) and Unit Labor Costs (Briefing.com consensus 0.6%; prior 0.5%)
- 10:30 ET: Weekly natural gas inventories (prior -96 bcf)
- 15:00 ET: January Consumer Credit (Briefing.com consensus $10.0 bln; prior $1.6 bln)
Stocks move slightly lower, but maintain gains
06-Mar-24 15:00 ET
Dow +25.33 at 38610.52, Nasdaq +80.12 at 16019.71, S&P +20.32 at 5098.97
[BRIEFING.COM] The market moved lower over the last half hour. The Dow Jones Industrial Average is trading just 0.04% higher now.
Still, only two of the 11 S&P 500 sectors are trading lower. The consumer discretionary (-0.4%) and communication services (-0.2%) sectors are weighed down by losses in their largest components.
The Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.4% gain.
March Beige Book says economic activity increased slightly; NYCB gets $1 bln equity investment
06-Mar-24 14:30 ET
Dow +51.32 at 38636.51, Nasdaq +111.60 at 16051.19, S&P +26.68 at 5105.33
[BRIEFING.COM] The equity market reaction to the release of the Fed's March Beige Book was fairly muted; the Beige Book showed economic activity increased slightly, on balance, since early January, with eight Districts reporting slight to modest growth in activity, three others reporting no change, and one District noting a slight softening.
Additionally, the Beige Book stated the outlook for future economic growth remained generally positive, with contacts noting expectations for stronger demand and less restrictive financial conditions over the next 6 to 12 months.
We'd also mention news out in the last half hour that New York Community (NYCB 1.86, -1.36, -42.24%) has received a $1 bln equity infusion from Liberty Strategic Capital, Hudson Bay Capital, Reverence Capital Partners, Citadel Securities as well as other firms. Also, former U.S. Treasury Secretary Steven Mnuchin, Joseph Otting, Allen Puwalski and Milton Berlinski were named to the NYCB Board of Directors.
Looking briefly at treasury yields, the yield on the benchmark 10-yr note is little changed over the prior half hour, down about four basis points to 4.115%.
Gold higher ahead of Beige Book
06-Mar-24 13:55 ET
Dow +80.19 at 38665.38, Nasdaq +91.29 at 16030.88, S&P +24.32 at 5102.97
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.57%) holds the lead with about two hours to go on Wednesday; as a reminder, the Fed's March Beige Book is due out in about five minutes.
Gold futures settled $16.30 higher (+0.8%) to $2,158.20/oz, continuing its recent gains for much the same reasons as in the past few days.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $103.29.
Foot Locker tumbles after issuing weak FY25 EPS guidance, delaying long-term margin goal (FL)
Foot Locker (FL -30%) exited Q4 (Jan) on the wrong foot, delaying its path to 8.5-9.0% operating margins by two years, triggering a substantial correction today. The footwear and apparel retailer continues encountering unfavorable macroeconomic trends, forcing elevated promotional activity to clear out excess inventory.
Unfortunately, these markdowns are generating additional problems. Consumers have grown accustomed to lower prices and may experience sticker shock as FL transitions away from its high promotional levels. As such, management anticipates continual merchandise margin pressure in the immediate term. For reference, merchandise margins slipped by 400 bps yr/yr in Q4. Meanwhile, FL is rolling out its enhanced loyalty program, further dampening margin growth. As a result, FL issued disappointing adjusted EPS guidance for FY25, projecting $1.50-1.70, a minor uptick from the $1.42 delivered in FY24.
When combining these trends with a stock that has moved over 100% since bottoming in late August, investors are fleeing today, sending shares back toward levels prior to upbeat Q3 (Oct) results in late November.
- There were still several uplifting developments from Q4 (Jan). FL delivered comps of -0.7%, substantially above its negative 7-9% forecast, providing a 2% revenue lift yr/yr to $2.38, exceeding analyst estimates. The healthy top-line growth fueled FL's bottom-line outperformance, delivering adjusted EPS above consensus at $0.38.
- FL noted that trends meaningfully accelerated sequentially, primarily at its Foot Locker and Kids Foot Locker banners. As such, it was able to proactively reinvest into selected markdowns, particularly apparel, to end FY24 with a healthy inventory position, which should lead to gross margin recovery this year, albeit toward the back half.
- As FL's biggest partner, NIKE (NKE), moves toward a DTC model, FL has been making strides in diversifying its brand portfolio. Sales from brands outside NIKE increased to 40% during Q4, up from 37% last year. A notable highlight was New Balance, which more than doubled sales.
- Shifting off-mall is a vital component of FL's long-term strategy. As of Q4, FL's off-mall penetration reached 39% of its total North American square footage, up 5 pts yr/yr and edging closer to the company's 50% by 2026 target. Additionally, FL's new store formats represented 16% of its global square footage, up from 11% in the year-ago period. Comp and traffic trends tend to be more favorable at these new formats, making it critical for FL to reach its 20% target by 2026.
FL's journey toward expanding sneaker culture and becoming the go-to footwear retailer is ambitious, and it may continue facing various setbacks given the challenging economic conditions. While today's sell-off presents a decent buying opportunity given the several bright spots from Q4, we advise caution as FL has been a highly volatile stock throughout the past year.
JD.com jumping higher as shift to lower priced products drives improved results in Q4 (JD)
A sluggish economic recovery in the wake of the pandemic, a regulatory crackdown from the Chinese government on tech companies, and fierce competition in the eCommerce retail space, especially from Pinduoduo (PDD), has taken a major toll on JD.com (JD). On a yr/yr basis, shares were down by about 55% prior to today gains, which are being fueled by JD's better-than-expected Q4 report and its announcement of a new $3.0 bln share repurchase program.
- At just 3.6% in Q4, JD's yr/yr revenue growth is still quite modest and is a long way from the 20-30% growth it routinely achieved in 2019-2021. However, what matters now is that the company's new strategy of improving the customer experience and competing more on price is starting to show positive results.
- Similar to the U.S. consumer, shoppers in China are seeking out better values and are avoiding big-ticket purchases, which didn't align favorably with JD's traditional focus on the consumer electronics and appliances categories. Therefore, the company has expanded its product assortments to include more lower-priced options in those categories, while also adding to its apparel, sports, and home goods product lines.
- The changes are having the desired effect as electronics and appliances were up 6% and 4%, respectively, outpacing the industry. Meanwhile, home goods and decoration, sports, and apparel registered double-digit yr/yr growth, while also driving higher user traffic and conversion rates.
- On the customer experience side, JD has launched a few new features, including free shipping, instant refunds, and one-click for best price guarantee. These enhancements are also resonating with customers as user behavior metrics improved in Q4. For example, user shopping frequency on TV continued to rise in Q4, especially among existing users and Plus members. Although the company didn't disclose a specific membership growth rate, it stated that JD Plus, its loyalty program, had another quarter of robust growth and that activity from Plus members grew faster than its total GMV.
- JD is confident that it can build on these improvements, calling 2024 a "year of execution." On that note, the company is already doing a good job with managing costs and increasing its efficiency. In Q4, retail operating margin expanded to 3.0% from 2.6% in the year-earlier quarter.
Overall, JD's Q4 results wouldn't be characterized as spectacular, but they were a step in the right direction and with expectations sitting at rock bottom levels, the performance was good enough to spark a nice rally today.
Ross Stores seeing tepid reaction despite robust Q4 comps, expanding margins and nice guidance(ROST)
Ross Stores (ROST) is trading roughly flat following its Q4 (Jan) report last night. ROST beat handily on EPS and revenue. Comps for this off-price retailer were much better than expected as well.
- The Q1 (Apr) EPS guidance was actually above consensus, which is pretty rare. ROST usually is conservative on guidance for the next quarter, so that was a plus. However, full year EPS guidance was light. In addition to earnings, ROST announced a $2.1 bln share buyback authorization and a 10% dividend hike.
- Turning to same store comps, they were excellent in Q4 at +7% vs +2-3% prior guidance and vs +5% in Q3. Comps were entirely driven by higher traffic and shoppers' positive response to improved assortments throughout its stores. The average basket was flat as slightly higher average unit retails were offset by slightly lower units per transaction. For the holiday season, cosmetics, home and children were the best performing areas. Accessories was slightly above the chain average and apparel trailed the chain. Geographic results were broad-based. dd's DISCOUNTS sales trends slightly trailed Ross' growth.
- We were particularly interested in ROST's comp guidance. The company guided to Q1 and full year comps of +2-3%. ROST noted that uncertainty in the macroeconomic and geopolitical environments remains. In addition, while inflation has moderated, prices for necessities like housing, food and gasoline remain elevated. ROST said this continues to pressure the low-to-moderate income customers' discretionary spend. However, ROST tends to be conservative with its comp guidance.
- Operating margin is another metric we watch. In Q4, it jumped to 12.4% from 10.7% a year ago, and it was nicely above prior guidance of 11.3-11.5%. This improvement was mainly due to the strong gains in same-store sales and lower freight costs that were partially offset by higher incentives. ROST guided to Q1 operating margin of 11.1-11.4%, which is down a bit sequentially, but up nicely from 10.1% in the prior year period.
Overall, we felt this was a very good quarter for ROST, especially the robust Q4 comps, operating margin and rare upside guidance for Q1. The buyback announcement and dividend hike were positives as well. We think the tepid market reaction is because investors were likely expecting a good result and maybe ROST's cautious comments on the consumer also is weighing on sentiment. WMT, TGT and TJX also performed well in Q4, so a good result from ROST was likely baked in already. Also, the stock has been on a steady climb since late September (+36%). We think these results bode well for off-price retail peer BURL, which reports before the open tomorrow.
CrowdStrike's strong beat-and-raise report shows that its customers still spending vigorously (CRWD)
The "spending fatigue" that Palo Alto Networks (PANW) referenced when it issued downside Q2 guidance on February 20 was nowhere to be found in CrowdStrike's (CRWD) stellar Q4 earnings report, which included record net new ARR of $282 mln and record operating margin of 25%. CRWD is soaring higher in the wake of its beat-and-raise performance, but other cybersecurity names, such as SentinelOne (S), Zscaler (ZS), and Fortinet (FTNT), are also rallying as CRWD's strong results and outlook ease concerns of a broad-based slowdown in cybersecurity spending.
- During the earnings call, CEO George Kurtz characterized the macro environment as stable and consistent with prior quarters, adding that deal scrutiny is likely to continue throughout the year. If the spending environment hasn't deteriorated, then that suggests PANW's struggles are more company specific in nature.
- According to Mr. Kurtz, CRWD is gaining market share because its Falcon platform is the only single-platform on the market that resolves threats well beyond endpoint protection. Customers can easily and quickly consolidate all of their cybersecurity needs onto Falcon, gaining immediate access to identity protection, cloud security, and LogScale next-gen SIEM solutions.
- This one-stop-shop approach is clearly resonating with customers and is highlighted by a number of different metrics, including the record-setting net new ARR which resulted from the closing of many large consolidation deals.
- On that note, in Q4, CRWD closed more than 250 deals that were greater than $1.0 mln in value and more than 490 deals greater than $500K in value. There is no slowdown in sight, either, as the company exited Q4 will a record Q1 pipeline.
- Demand is strong across CRWD's products -- the Q4 module adoption rate for five or more modules was 64% -- but its cloud security solution is a standout. Net new ARR grew by nearly 200% yr/yr and CRWD ended the quarter as one of the largest cloud security businesses on the market with ending ARR north of $400 mln. The cloud is a favored target for cyber-attacks, evidenced by a 75% increase in cloud intrusion attempts, per CRWD's internal data.
- To round off the good news, CRWD's gross margin increased by over 280 bps yr/yr to 78%, driven by pricing power and workload optimization supported by continued investments in data center. The margin expansion, coupled with the 32% top-line growth, enabled Q4 EPS to more than double yr/yr to $0.95.
The main takeaway is that the cybersecurity spending concerns that materialized following PANW's earnings report last month were largely misplaced as CRWD continues to gain market share. While macro-related headwinds do persist, the threat landscape has never been more serious, according to CRWD, which should continue to translate into a healthy spending environment for most cybersecurity companies.
Thor Industries heads downhill on lowered FY24 guidance; headwinds more stubborn than expected (THO)
Thor Industries (THO -9%) slides downhill quickly today after registering weakness across the board in Q2 (Jan). The world's largest RV maker missed earnings and sales estimates in the quarter -- the first time it fell short of both figures since 2Q23 -- while also issuing discouraging FY24 (Jul) guidance, meaningfully lowering its EPS and revenue forecasts.
We pointed out yesterday that given the recent +40% rally since November, THO was facing heightened scrutiny in Q2, making it essential to not just register beats on its top and bottom lines in the quarter but also to, at the least, reiterate its FY24 outlook. By falling short of these benchmarks, investors are expressing concern today over a potentially more prolonged recovery period than initially expected.
- In Q2, THO delivered its lightest bottom-line performance since its negative quarter five years ago at $0.13 per share, translating to a 74% drop yr/yr, well below analyst expectations of positive yr/yr growth. Meanwhile, revenue slipped by 6% yr/yr to $2.21 bln, which improved over the much wider declines of the past four quarters but was still below consensus.
- What happened? Macroeconomic conditions continue to prove formidable for the RV industry. Cumulative inflationary pressures and elevated interest rates prevent current RV owners from upgrading and generate hesitation among potential newcomers. Coinciding with these headwinds is a seasonal lull period for the RV industry as dealers gear up for the spring selling season.
- THO continues to work closely with its partners to match wholesale production with the retail sales pace to keep from overproducing. Many plants around THO's headquarters have been halting output for extended periods, with several rounds of layoffs materializing across THO and rival Winnebago (WGO) brand factories.
- Meanwhile, just as high-interest rates hike financing costs for consumers, dealers similarly feel the sting. THO noted that dealers face elevated floorplan financing costs, putting considerable pressure on their operations and forcing them to focus on limiting inventory levels to better manage interest expenses.
- Conditions in Europe, which comprise roughly a third of THO's total sales each year, are not much better. Campers across the Atlantic prefer motorized units, which remain supply-constrained due to persistent chassis supply disruptions. However, THO noticed relative strength in retail registrations during CY23, falling just 4.2%/yr.
- Nevertheless, North America's economic challenges far outweigh the minor bright spot in Europe. As a result, THO cut its FY24 projections, targeting EPS of $5.00-5.50, down from $6.25-7.25, and revs of $10.0-10.5 bln, down $500 mln compared to its previous forecast of $10.5-11.0 bln.
Management remained optimistic about long-term demand, citing high RV utilization, strong show attendance, and solid repeat buyer activity. However, as dealers endure yr/yr declines in retail sales activity thus far in 2024, THO anticipates cautious buying behavior throughout the year, as dealers remain careful not to overstock their showrooms. As such, THO may continue to face selling pressure in the near future, especially after such an impressive rally over the past four months.
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