Market Snapshot
briefing.com
| Dow | 38722.69 | -68.66 | (-0.18%) | | Nasdaq | 16085.11 | -188.26 | (-1.16%) | | SP 500 | 5123.69 | -33.67 | (-0.65%) | | 10-yr Note | 0/32 | 4.09 |
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| | NYSE | Adv 1521 | Dec 1232 | Vol 944 mln | | Nasdaq | Adv 2101 | Dec 2156 | Vol 5.4 bln |
Industry Watch
| Strong: Real Estate, Financials, Energy, Utilities |
| | Weak: Information Technology, Consumer Staples, Consumer Discretionary, Materials |
Moving the Market
-- Digesting the February employment report, which fit the market's soft landing narrative
-- Mega caps giving back early gains due to consolidation activity, weighing on index performance
-- Carryover momentum after recent gains contributing to underlying positive bias
-- Treasuries not reacting much to the employment report
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Closing Summary
08-Mar-24 16:25 ET
Dow -68.66 at 38722.69, Nasdaq -188.26 at 16085.11, S&P -33.67 at 5123.69
[BRIEFING.COM] The stock market opened to broad buying activity that had the major indices building on yesterday's gains. The initial upside moves were driven by ongoing strength in the mega cap space, along with some relief that the February employment report went the market's way in terms of corroborating the soft landing narrative.
Nonfarm payrolls increased by a better-than-expected 217,000 following a downwardly revised 229,000 increase in January, the unemployment rate rose to 3.9% from 3.7%, and average hourly earnings growth was smaller than expected at 0.1% month-over-month.
The major indices quickly rolled over, though, coinciding with some mega cap names gave back their early gains due to profit-taking activity. NVIDIA (NVDA 875.28, -51.41, -5.6%), which had been up as much as 5.1% in the early going, and Meta Platforms (META 505.95, -6.24, -1.2%), which had been up as much as 2.2%, were losing standouts in that respect.
Weakness in the semiconductor space also contributed to the index level rollover. The PHLX Semiconductor Index (SOX) declined 4.0% today, due in part to the loss in NVIDIA, along with a sharp earnings-related decline in shares of Broadcom (AVGO 1308.72, -98.29, -7.0%).
The "rest" of the market held up better than the mega cap and semiconductor spaces, but many stocks finished lower after selling picked up the afternoon. The Invesco S&P 500 Equal Weight ETF (RSP) registered a 0.1% decline.
The increase in selling activity was related to a lingering sense that the market is due for a pullback with major indices and many individual names trading near all-time highs.
Still, selling was relatively modest and the A-D line was positive at the NYSE. Six of the 11 S&P 500 sectors finished lower and four of them logged a gain. The real estate (+1.1%) and energy (+0.4%) sectors saw the largest gains while the information technology sector was the worst performer by a decent margin, falling 1.8%.
The next worst performer was consumer staples, which fell 0.8% due in part to a loss in shares of Costco (COST 725.56, -60.03, -7.6%) after reporting quarterly results.
The 2-yr note yield declined two basis points today, and four basis points this week, to 4.49%. The 10-yr note yield was unchanged today, but declined nine basis points this week to 4.09%.
- S&P 500: +7.4% YTD
- Nasdaq Composite: +7.2% YTD
- S&P Midcap 400: +6.1% YTD
- Dow Jones Industrial Average: +2.7% YTD
- Russell 2000: +2.7% YTD
Reviewing today's economic data:
- February Nonfarm Payrolls 275K (Briefing.com consensus 195K); Prior was revised to 229K from 353K; February Nonfarm Private Payrolls 223K (Briefing.com consensus 150K); Prior was revised to 177K from 317K; February Avg. Hourly Earnings 0.1% (Briefing.com consensus 0.3%); Prior was revised to 0.5% from 0.6%; February Unemployment Rate 3.9% (Briefing.com consensus 3.7%); Prior 3.7%; February Average Workweek 34.3 (Briefing.com consensus 34.3); Prior was revised to 34.2 from 34.1
- The key takeaway from the report, accounting for the fresh data and the revised data, is that it fits the soft landing/no landing narrative that is integral for a positive earnings growth outlook. In that regard, then, it has provided some validation for the stock market's run to record highs.
Looking ahead, there is no US economic data of note on Monday.
Stocks turn lower; Treasury yields settle little changed today
08-Mar-24 15:35 ET
Dow -15.38 at 38775.97, Nasdaq -145.56 at 16127.82, S&P -24.00 at 5133.36
[BRIEFING.COM] The major indices turned lower over the last half hour, coinciding with mega caps extending their losses. The Vanguard Mega Cap Growth ETF (MGK) is down 0.9%.
The 2-yr note yield declined two basis points today, and four basis points this week, to 4.49%. The 10-yr note yield was unchanged today, but declined nine basis points this week to 4.09%.
Looking ahead, there is no US economic data of note on Monday.
Value stocks outperform compared to growth
08-Mar-24 15:00 ET
Dow +112.96 at 38904.31, Nasdaq -85.95 at 16187.43, S&P -9.26 at 5148.10
[BRIEFING.COM] The major indices moved slightly higher recently. The S&P 500 is down 0.24% and the Dow Jones Industrial Average trades up 0.25%.
Value stocks are outperforming compared to growth stocks today. The Russell 3000 Growth Index trades down 0.4% while the Russell 3000 Value Index sports a 0.2% gain.
Earlier, Chicago Fed President Austan Goolsbee (FOMC voter) said he expects the Fed to reduce rates this year, according to Bloomberg.
Constellation Energy trims weekly gains, Albemarle slides in S&P 500 after downgrade
08-Mar-24 14:30 ET
Dow +73.91 at 38865.26, Nasdaq -123.24 at 16150.14, S&P -16.99 at 5140.37
[BRIEFING.COM] In the last half hour the Dow Jones Industrial Average (+0.19%) resurfaced above flat lines, while the S&P 500 (-0.33%) remains in second place.
Elsewhere, S&P 500 constituents Constellation Energy (CEG 170.15, -9.43, -5.25%), Albemarle (ALB 118.59, -4.07, -3.32%), and ResMed (RMD 188.50, -4.10, -2.13%) are among today's top laggards. CEG peels off its recent rally, trimming week-to-date gains to +0.09% (+9.17% at this week's highs), while ALB caught a downgrade to Hold at Vertical this morning.
Meanwhile, Etsy (ETSY 72.62, +4.22, +6.17%) is outperforming, bucking the broader market trend lower.
Gold widens weekly advance on Friday, aided by rising unemployment rate
08-Mar-24 14:00 ET
Dow -73.03 at 38718.32, Nasdaq -197.07 at 16076.31, S&P -37.25 at 5120.11
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-1.21%) is just barely off lows, consolidating near its levels from the previous half hour.
Gold futures settled $20.30 higher (+0.9%) to $2,185.50/oz, up about +4.3% this week, aided today by a rise in the unemployment rate emboldened recent sentiment about a June rate cut.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $102.76.
DocuSign's accelerated billings growth in Q4 and upbeat guidance underpins possible recovery (DOCU)
Investors sign off on DocuSign's (DOCU +4%) uplifting Q4 (Jan) report today, applauding its top and bottom-line beats alongside upbeat Q1 (Apr) and FY25 (Jan) guidance. However, today's moderate gains do not exactly feel like a win, given how much the stock was up immediately following results yesterday after the close. Shares popped by as much as +17%, reaching highs of nearly $63.00, below previous resistance before steadily fading, only to drop significantly upon market open today.
Nevertheless, there were several encouraging developments from the quarter as DOCU looks to reignite growth while managing costs prudently.
- DOCU delivered continued non-GAAP operating margin expansion in Q4, increasing the figure by 100 bps yr/yr to 25%, reaching the high end of its 24-25% projection. The solid margin growth aided DOCU's 17% jump in adjusted EPS yr/yr to $0.76, ahead of consensus. Profitability has been the focal point of DOCU for years after growth-at-all-costs became no longer feasible. The company announced another round of layoffs last month in connection with a restructuring plan to enhance operational efficiency, which will help boost to future earnings.
- Revenue growth continued cooling in Q4, improving by 8% yr/yr to $712.39 mln compared to +9% in Q3, +11% in Q2 (Jul), and +12% in Q1. However, billings growth, which indicates future revenue growth, accelerated to +13% yr/yr in the quarter, a quick reversal from the 5 pt sequential drop-off in Q3 to +5%.
- Plenty of factors drove DOCU's increasing billing growth. Customer usage continued to improve, particularly in key verticals such as technology, insurance, financial services, and health care, which exceeded the total business baseline. Meanwhile, customer retention remained stable with positive large customer momentum -- approximately half of the 8 pt sequential billings acceleration stemmed from renewals surrounding large customers. Additionally, new customer acquisition volume stayed robust, ending the year 11% higher yr/yr.
- Another meaningful driver was international revenue, a critical component of DOCU's long-term success. International revs grew at more than double the company's overall growth rate, comprising 27% of total revs, up 2 pts yr/yr.
- In FY25, DOCU will remain focused on profitability while pulling levers to reenergize longer-term growth. Management anticipates another year of non-GAAP operating margin growth, targeting 26.5-28.0%, up from 26.0% in FY24. Similarly, DOCU guided to FY25 revs of $2.915-2.927 bln, a 6% lift yr/yr at the midpoint, and billings of $2.970-3.024 bln, a 3% bump.
A pandemic darling stock, DOCU has encountered numerous headwinds since the Federal Reserve's rate-raising campaign began over two years ago. However, many of these headwinds are easing. Management is also encouraged by ongoing stabilization across its business, which led to its highest yr/yr billings growth in over a year. While the road ahead is far from smooth, DOCU may be amid the early innings of a broader recovery.
Costco selling plenty of gold bars, but net sales not golden overall as top-line falls short (COST)
Investors had been buying shares of Costco (COST) in bulk with the stock surging by 18% on a year-to-date basis to hit all-time highs ahead of yesterday's Q2 earnings report. Needless to say, expectations were elevated as a strong holiday shopping season for the leading membership warehouse retailer was already baked into the stock. With little margin for error, COST exceeded EPS expectations for the fifth consecutive quarter and adjusted comp growth was solid at +5.8%, but it fell short on net sales, spurring a profit-taking pullback.
- The net sales miss is catching participants a bit off-guard because COST already reported strong comparable sales growth of 8.1% for December, reflecting another successful holiday shopping season. Furthermore, that solid growth wasn't just fueled by ongoing strength in the food and sundries category. In December, non-food categories experienced a high-single-digit increase with jewelry, gift cards, and tires exhibiting notable strength.
- This upswing in demand for non-food categories, including for big-ticket items like appliances and consumer electronics, is evidenced by the sharp acceleration in growth for the eCommerce channel. In Q2, eCommerce comparable sales increased by 18.2%, with CFO Richard Galanti noting that appliances were "very, very strong." Sales of one ounce gold bars were also robust as COST sold about $100 mln worth of gold during the quarter.
- It appears that disinflation, especially for gasoline, is a significant cause for the top-line miss. In fact, Mr. Galanti disclosed that gas deflation negatively impacted net sales by approximately 0.4%. Additionally, a shift in COST's fiscal calendar as a result of the 53-week year for FY23 created a 1.5% headwind to net sales. That item should've already been included in analysts' estimates, though.
- The sales miss aside, COST is still executing well and is clearly a preferred shopping destination for consumers looking for better value. Paid household members grew by an impressive 7.8% in Q2 for a total of 73.4 mln members, while the renewal rate continues to tick higher, increasing by 0.1% to 90.5% on a worldwide basis. These membership metrics, along with the 5.3% traffic growth in Q4, are good indicators that COST continues to gain market share.
- Lastly, COST's reluctance to raise its membership fees continues to be a source of disappointment. During the earnings call, Mr. Galanti, who will be departing on March 15, stuck to his guns, stating that it's still a matter of when, not if, COST raises fees. However, this decision will fall on the watch of incoming CFO Gary Millerchip, who previously served as Kroger's (KR) CFO.
The main takeaway is that COST was poised for a sell-the-news reaction following the stock's substantial rally to start 2024, and the top-line miss provided the excuse to trigger that profit-taking pullback. Overall, though, business remains quite healthy for COST and its strong membership growth suggests that it will remain that way for the foreseeable future.
Marvell heads lower on weak Q1 guidance, but sounds more optimistic about Q2 and 2H (MRVL)
Marvell (MRVL -9%) is not looking so "Marvell-ous" after the semiconductor company reported Q4 (Jan) results last night. Marvell reported in-line Q4 results, but its guidance for Q1 (Apr) was well below analyst expectations for both EPS and revs. As we said in our preview, investors should expect weak Q1 guidance and we got it. MRVL had prepped investors for a difficult quarter. The good news is that the company seemed more positive on Q2 (Jul) and 2H24. In addition to earnings, Marvell announced a $3 bln increase to its existing stock repurchase program.
- Data Center, which is Marvell's largest market at 54% of JanQ sales, segment revenue jumped 54% yr/yr and 38% sequentially to $765.3 mln, nicely above prior guidance of mid-30% growth sequentially. Growth was driven by the cloud portion of its data center end market. Marvell expects Q1 sequential growth in the low-single digits as it should benefit from initial shipments of its cloud-optimized AI silicon programs, however, it also expects a more than seasonal sequential decline from enterprise on-premise data centers.
- Turning to its Carrier and Enterprise end markets, as Marvell noted on the last call, these end markets have been dealing with soft industry demand. Both were down sequentially in Q4 (-2% for Enterprise; -46% for Carrier Infrastructure) and Marvell expects them to decline again in Q1 on a sequential basis: Carrier to decline by 50% and Enterprise Networking to decline by 40%.
- The silver lining is that Marvell expects revenue declines in these end markets to be behind it after Q1 and the company forecasts a recovery in the second half of the fiscal year. Longer term, Marvell expects both of these end markets to eventually return to $1+ bln each in revenue on an annual basis once demand normalizes, and MRVL begins to realize the benefits of upcoming Marvell-specific product cycles.
- Its Consumer end market declined 15% sequentially to $143.9 mln, in-line with mid-teens guidance. Marvell is projecting a huge 70% sequential decline in Q1, reflecting the completion of deliveries for an end-of-life program as well as significantly weaker demand from the game console market. Finally, Automotive/Industrial sales fell 23% sequentially to $82.3 mln, primarily driven by a sharp decline in industrial sales where order patterns can be lumpy in any given quarter.
To break it all down, the only segment performing well for Marvell is Data Center. Everything else sounds pretty brutal. The good news is that DC is huge, accounting for more than half JanQ sales, and it's booming. So that is important. Also, we think the stock is not down more because MRVL had prepped investors on the last call that Q1 was going to be rough, so they were prepared mentally. We think its comments about growth returning in Q2 (Jul) and a 2H turnaround is providing relief for investors. As for next quarter, investors will be all ears on the Q1 call in late May to be sure guidance will be pointing back up for Q2 and 2H.
Broadcom slips following Q1 results as softening non-AI demand sparks mild profit-taking (AVGO)
Broadcom (AVGO -2%) slides today despite sizeable top and bottom-line upside in Q1 (Jan) and reiterated FY24 (Oct) revenue guidance. Immediately following the release of Q1 results, shares of the semiconductor and infrastructure software supplier sank fairly aggressively, hitting lows of -9%.
Why are shares lower today? AVGO ran nearly +30% to start the year and +50% since Q4 (Oct) results in early December, a considerable rally in a short period, which increases profit-taking risk. Furthermore, outside of AI, AVGO's end markets are struggling. This is best illuminated by the company's reaffirmed FY24 sales outlook of approximately $50.0 bln, despite a 10 pt sequential uptick in AI's slice of total semiconductor revenue to 35%. While AI is more than picking up the slack from AVGO's other businesses, it is concerning that demand across these divisions either deteriorated meaningfully or remained flat from last quarter.
Still, AVGO benefited considerably from unrelenting AI demand during the quarter, which it anticipates will only grow stronger as the year progresses. Given the remarkable AI frenzy, buoyant demand for the new technology is primarily what investors crave, making it easier to shrug off softening sales elsewhere and keeping shares from slipping further.
- During Q1, AVGO's AI revs quadrupled yr/yr to $2.3 bln, offsetting an ongoing cyclical slowdown in enterprise software and telecoms. As a result, the company's largest segment, Semiconductor Solutions, edged 4% higher yr/yr to $7.4 bln. Meanwhile, in its more fortified Infrastructure Software segment following the integration of VMware, revs shot up 153% -- 132 pts of which was driven by VMware -- to $4.6 bln. In total, AVGO's top line grew 34.2%, or 11.0% when removing VMware, to $11.96 bln.
- AVGO's $69.0 bln acquisition of VMware two years ago was not received with open arms from investors. However, it is starting to pay off, particularly in terms of AI. AVGO anticipates double-digit sequential revenue growth for VMware throughout FY24, supported partly by a previously announced partnership with NVIDIA (NVDA), which enables Virtual Cloud Foundation to run GPUs, allowing customers to deploy their AI models on and off-premise.
- Looking ahead, AVGO broke down each of its Semiconductor business lines' projected growth for the year. The standout was networking, which includes AI, growing over 35% yr/yr, up from 30%. Conversely, server storage will now slip by a mid-20 percent from a high teens percent, and broadband will fall by 30% compared to a mid-teens drop. Meanwhile, wireless and industrial resales were left unchanged at flat growth and down high-single digits, respectively.
AVGO's price action today is reminiscent of that following similar results last quarter. As such, it would not be surprising if shares continue trending higher following a stagnant day. The exceptional AI interest could keep the wind at AVGO's back for the foreseeable future. However, after such an impressive run over the past three months, we urge caution at these levels, especially with demand outside of AI either remaining stale or growing worse.
Kroger rings up impressive numbers in Q4; continues benefiting from value-seeking behavior (KR)
Kroger (KR +8%) is ringing up excellent gains today, reaching multi-year highs on impressive profitability during Q4 (Jan), which management anticipates will persist through FY25 (Jan). The national grocer has steadily trended higher since its previous earnings report in late November. Encouraging developments from Q3 (Oct), including outperforming despite economic pressures, sustained household growth, particularly among digitally engaged households, and ongoing success in eliminating excess costs, carried into the final quarter of KR's fiscal year and likely into FY25.
- Investors approved of Kroger's headline numbers in Q4, including a 35% bump in adjusted EPS yr/yr to $1.34, translating to the company's widest beat in over five years, and a 6.4% improvement in revenue to $37.06 bln. Identical sales excluding fuel decreased by -0.8%, consistent with expectations. Kroger finished the year with comp growth of +0.9%, hitting the higher end of its +0.6-1.0% forecast.
- Kroger attributes its success to the four strategic pillars it has focused on throughout the year: fresh produce, private labels, seamless (digital growth), and personalization. An omnichannel consumer experience is the foundation of Kroger's long-term strategy, targeting greater digital penetration and an expanding store network. Within digital, Kroger expanded sales by 12% yr/yr during FY24 and anticipates another double-digit year in FY25. Meanwhile, regarding stores, Kroger plans more openings this year than in 2023.
- The omnichannel experience is vital to Kroger's long-term growth. Management mentioned that in-store and online customers spend three to four times more than in-store-only shoppers.
- Kroger's previously announced $24.6 bln takeover of Albertsons (ACI) will also bolster its physical footprint substantially. While Kroger has hit some roadblocks in pursuit of closing the deal, given an ongoing FTC lawsuit, Kroger remains confident in closing the merger, pointing to a strong M&A track record.
- Also likely supporting robust demand is a broad trade-down trend among value-seeking consumers. United Natural Foods (UNFI) pointed out yesterday how it is struggling to compete with mass merchants and club stores as inflation pushes customers toward lower-priced outlets. While Kroger does not boast as expansive a store network as Walmart (WMT) or Costco (COST), it is likely taking traffic from more regional grocery stores. For example, like UNFI, SpartanNash (SPTN) recently endured declining yr/yr sales growth in its most recent quarter.
- Looking ahead, favorable trends are not budging. Kroger anticipates adjusted EPS of $4.30-4.50, the midpoint of which surpassed analyst estimates, and identical sales growth without fuel of +0.25-1.75%.
Kroger's solid Q4 report demonstrates that the more value a grocer offers the consumer, the better it performs during the current inflationary environment. Rivals such as WMT and COST are further proof of this with their healthy comp growth. BJ's Wholesale (BJ) is another example following its improving traffic and comp trends in Q4 (Jan). Kroger's pending Albertsons acquisition may keep volatility relatively high, given the uncertainty surrounding the deal closing. However, we like how Kroger has showcased its ability to continue attracting shoppers while balancing cost-saving tactics with meaningful investment initiatives.
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