Market Snapshot
| Dow | 39043.32 | +37.83 | (0.10%) | | Nasdaq | 16177.77 | -87.87 | (-0.54%) | | SP 500 | 5165.31 | -9.96 | (-0.19%) | | 10-yr Note | -3/32 | 4.19 |
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| | NYSE | Adv 1657 | Dec 1127 | Vol 1.1 bln | | Nasdaq | Adv 2055 | Dec 2165 | Vol 4.8 bln |
Industry Watch
| Strong: Energy, Utilities, Materials, Financials, Real Estate, Communication Services |
| | Weak: Information Technology |
Moving the Market
-- Consolidation activity in mega cap stocks and semiconductor-related names
-- Sharp dip in afternoon trade with no obvious news catalyst
-- Buying interest in other areas of the market
-- Rising Treasury yields not acting as a deterrent for buying in the stock market
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Closing Summary
13-Mar-24 16:30 ET
Dow +37.83 at 39043.32, Nasdaq -87.87 at 16177.77, S&P -9.96 at 5165.31
[BRIEFING.COM] The stock market had a mixed showing today. The Dow Jones Industrial Average (+0.1%) and Russell 2000 (+0.3%) closed with gains while the S&P 500 (-0.2%) and Nasdaq Composite (-0.5%) logged declines. The major indices all took a quick, sharp dip in the afternoon trade with no obvious catalyst to account for the moves.
The afternoon air pocket was likely related to a sell program as most sectors pulled back in unison before stabilizing. Many stocks were able to win back some lost ground ahead of the close. The Invesco S&P 500 Equal Weight ETF (RSP) registered a 0.1% gain.
NVIDIA (NVDA 908.88, -10.25, -1.1%) was an influential laggard today after jumping more than 7% yesterday. Apple (AAPL 171.13, -2.10, -1.2%), Meta Platforms (META 495.57, -4.18, -0.8%), and Tesla (TSLA 169.48, -8.06, -4.5%), which was downgraded to Underweight from Equal Weight at Wells Fargo, were also among the influential laggards.
Most of the S&P 500 sectors closed with gains. Seven sectors closed higher while four sectors registered declines. The heavily-weighted information technology sector (-1.1%) was the worst performer today, followed by the rate-sensitive real estate sector (-0.6%).
The consumer staples sector (+0.1%) logged the slimmest gain among the seven sectors that closed higher. This price action was due in part to an earnings-related decline in Dollar Tree (DLTR 128.42, -21.27, -14.2%).
Treasuries settled with losses again. The 10-yr note yield rose four basis points to 4.19% and the 2-yr note yield rose two basis points to 4.62%. On a related note, today's $22 billion 30-yr bond reopening was met with excellent demand.
- S&P 500: +8.3% YTD
- Nasdaq Composite: +7.8% YTD
- S&P Midcap 400: +6.7% YTD
- Dow Jones Industrial Average: +3.6% YTD
- Russell 2000: +2.2% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 7.1% with refinance applications jumping 12% and purchase applications rising 5%.
Thursday's economic calendar features:
- 8:30 ET: February PPI (Briefing.com consensus 0.3%; prior 0.3%), Core PPI (Briefing.com consensus 0.2%; prior 0.5%), February Retail Sales (Briefing.com consensus 0.7%; prior -0.8%), Retail Sales ex-auto (Briefing.com consensus 0.5%; prior -0.6%), weekly Initial Claims (Briefing.com consensus 218,000; prior 217,000), and Continuing Claims (prior 1.906 mln)
- 10:00 ET: January Business Inventories (Briefing.com consensus 0.3%; prior 0.4%)
- 10:30 ET: Weekly natural gas inventories (prior -40 bcf)
Stocks turn lower with no specific catalyst
13-Mar-24 15:35 ET
Dow +13.05 at 39018.54, Nasdaq -95.56 at 16170.08, S&P -12.32 at 5162.95
[BRIEFING.COM] Stocks took a sharp turn lower recently. Many stocks participated in the downside moves, leading the S&P 500 to trade down 0.3%. The Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.1% decline.
There was no specific catalyst to account for the moves. Decliners have a fractional lead over advancers at the Nasdaq now. Advancers still lead decliners by a 5-to-3 margin at the NYSE.
Separately, Thursday's economic calendar features:
- 8:30 ET: February PPI (Briefing.com consensus 0.3%; prior 0.3%), Core PPI (Briefing.com consensus 0.2%; prior 0.5%), February Retail Sales (Briefing.com consensus 0.7%; prior -0.8%), Retail Sales ex-auto (Briefing.com consensus 0.5%; prior -0.6%), weekly Initial Claims (Briefing.com consensus 218,000; prior 217,000), and Continuing Claims (prior 1.906 mln)
- 10:00 ET: January Business Inventories (Briefing.com consensus 0.3%; prior 0.4%)
- 10:30 ET: Weekly natural gas inventories (prior -40 bcf)
Info tech continues to lag, weighing down indices
13-Mar-24 15:05 ET
Dow +66.65 at 39072.14, Nasdaq -47.91 at 16217.73, S&P -4.37 at 5170.90
[BRIEFING.COM] The major indices turned slightly lower over the last half hour. Market breadth is still positive, though, and eight out of the 11 S&P 500 sectors are trading higher.
The energy sector is leading the outperformers, trading up 1.7%, followed by the materials (+1.0%), utilities (+0.6%), and financials (+0.5%) sectors. Meanwhile, the information technology sector (-0.9%) is lagging despite a gain in Microsoft (MSFT 416.00, +0.72, +0.2%). This gain was not enough to offset losses in NVIDIA (NVDA 907.37, -11.76, -1.3%) and Apple (AAPL 171.69, -1.56, -0.9%).
The rate-sensitive real estate sector (-0.6%) is the next worst performer, clipped by the jump in rates. The 10-yr note yield is up three basis points to 4.19%.
Freeport-McMoRan higher as copper prices rise in rumors of Chinese production cuts; Micron dips
13-Mar-24 14:30 ET
Dow +107.16 at 39112.65, Nasdaq -44.32 at 16221.32, S&P +0.24 at 5175.51
[BRIEFING.COM] The S&P 500 (flat) is narrowly higher, trading places between modest gains and losses over the prior half hour.
Elsewhere, S&P 500 constituents Freeport-McMoRan (FCX 43.49, +3.13, +7.76%), Valero Energy (VLO 159.86, +9.13, +6.06%), and PayPal (PYPL 62.43, +2.40, +4.00%) hold solid gains. Copper prices drive gains in FCX after headlines that Chinese smelters had agreed to a production cut, VLO moves higher amid gains in crude prices, and PYPL earlier appointed former SoFi (SOFI 7.42, -0.06, -0.80%) exec. A. Webster as an EVP.
Meanwhile, Micron (MU 93.80, -3.62, -3.72%) is near the bottom of the standings, underperforming alongside other chip stocks tied to reports the Pentagon had scrapped a planned grant to Intel (INTC 43.66, -1.58, -3.49%).
Gold higher at midweek
13-Mar-24 14:00 ET
Dow +138.16 at 39143.65, Nasdaq -40.54 at 16225.10, S&P +2.27 at 5177.54
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-0.25%) is still in the red, hovering near highs of the session.
Gold futures settled $14.70 higher (+0.7%) to $2,180.80/oz, allowed higher by a sinking dollar.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $102.70.
3M tacking on more gains today on rising hopes of a more robust turnaround (MMM)
For 3M (MMM) shareholders, there has been little to feel good about over the past few years as shares have been cut in half since the middle of 2021 due to the company's persistent litigation troubles and its flailing growth. However, the past two days have provided a rare ray of light for the stock with shares jumping by about 8.5%, instigated by yesterday's announcement that the company will welcome William Brown as its new CEO, starting on May 1.
- That leadership transition news, which has sparked hopes that MMM's prolonged turnaround effort will finally translate into stronger growth, was followed up by some reassuring commentary from current CEO Mike Roman during this morning's JP Morgan Industrials conference. Specifically, Mr. Roman, who will become Executive Chairman when Mr. Brown takes the helm as CEO, commented that Q1 is playing out about as expected, but with some pockets of strength in the automotive aftermarket business and in electronics, particularly in Asia and China.
- That's encouraging because it indicates a continuation of momentum coming out of Q4 when the Transportation & Electronics segment swung to positive growth of +2.7%, following declines of 1.8% and 2.4% in the preceding two quarters. The jump to positive growth was fueled by a stabilization in the consumer electronics end market, which was roughly flat in Q4.
- Mr. Roman still characterized the industrial end market as mixed overall, but his upbeat commentary revolving around a recovery in the electronics markets, coupled with a reaffirm of FY24 revenue guidance, is providing some reassurance. Essentially, he took some risk off the table as it relates to Q1 earnings.
- On that note, Mr. Roman also nudged MMM's FY24 EPS guidance higher by $0.05/share to $2.05-$2.20. This is related to an $8.4 bln debt financing in late February in which the soon-to-be healthcare spinoff, called Solventum (SOLV), will keep $600 mln with the remainder going to MMM. The $0.05/share is due to interest on the SOLV portion of the debt. On the topic of Solventum, Mr. Roman stated that MMM plans to retain a 19.9% stake, which it intends to monetize in the first five years.
- There's plenty of moving parts around MMM and its turnaround has remained stuck in neutral, as evidenced by eight consecutive quarters of yr/yr revenue declines. However, the fact that the company is bringing in an outside in William Brown, who previously served as CEO of defense contractor L3Harris (LHX), shows that the company is ready to shake things up.
- MMM has made good progress in terms of resolving its litigation issues, especially for the Combat Arms lawsuit, so a main focus now for investors is for MMM to generate stronger growth. To do so, Mr. Brown may ramp up R&D spending to reignite MMM's innovation engine, or he may turn to acquisitions to jumpstart growth.
The main takeaway is that the sour sentiment hanging over MMM is finally showing some signs of brightening. Incoming CEO William Brown has his work cut out for him, but most of MMM's markets have stabilized, or even improved, such as consumer electronics. Mr. Brown's task will be to turn that stabilization into positive growth. If he can do that, then a battered MMM could see an elusive sustained rally.
Williams-Sonoma's full price strategy in a down furniture market paying off (WSM)
The furniture and home decor category may be experiencing a downturn as severe as the one seen during the great financial crises, according to Wayfair (W) CFO Kate Gulliver, but that's not stopping Williams-Sonoma (WSM) from delivering quarterly results that far exceed analysts' expectations. For the fourth consecutive quarter, WSM easily beat EPS expectations, reflecting the company's commitment to maintaining price integrity and managing inventories, while supply chain headwinds seen in 1H23 continue to transition into tailwinds.
The good news didn't stop there. WSM also increased its quarterly cash dividend by 26% to $1.13/share and announced a new $1.0 bln stock repurchase program in a show of confidence.
- Demand during the holiday shopping season was sluggish, as expected, but sales were better-than-feared and moved in the right direction from last quarter. Comparable brand revenue declined by 6.8%, which is an improvement from last quarter's 14.6% drop, but perhaps most impressive was the performance from WSM's namesake brand. In Q4, comps for Williams-Sonoma actually increased by 1.6%, demonstrating that the banner is taking market share.
- Rewinding to the Q3 earnings call, WSM commented that its in-stock levels heading into the holiday season were near historical highs and that its regional inventory composition was in very good shape. Furthermore, while demand for big-ticket items on the furniture side has been soft, interest in smaller, less-costly projects has remained steady. This is creating solid demand for products like table linens, decorative lighting, frames, and bedding.
- The metric that really stands out though is gross margin, which expanded by 480 bps yr/yr to 46.0%. Also, despite operating in a highly promotional environment, selling margin jumped by 560 bps due to higher merchandise margins and lower costs resulting from supply chain efficiencies. A more efficient supply chain is enabling WSM to offer a strong product assortment, which, in turn, is creating an improved customer experience and lessening WSM's need to offer promotions to unload merchandise.
- A housing market that WSM characterized as the "slowest in decades" is significantly adding to the degree of difficulty, but the company's FY25 revenue and comp guidance suggests that it's anticipating some macro-related improvements. Specifically, it guided for comps of -4.5% to +1.5% compared to -9.9% for FY24, while its revenue outlook for a 3% decline to a 3% increase is also better than expectations.
The main takeaway is that WSM is executing extremely well amid a category downturn of historical proportions. At the center of this impressive performance is WSM's solid inventory management and supply chain optimization efforts, enabling the company to maintain a full-price strategy.
Dollar Tree chopped down a bit as weak guidance and struggles at Family Dollar weigh (DLTR)
Dollar Tree (DLTR -15%) is losing a few leaves today after reporting Q4 (Jan) results this morning. The dollar store chain missed by a good bit on EPS, while revenue was generally in-line. The Q1 (Apr) guidance was a similar story with downside EPS and in-line revs. We also got our first look at full year guidance, and to our surprise, both EPS and revs were in-line. This tells us DLTR is facing more headwinds in 1H than 2H.
- In fairness, the company explained on the call that Q4 adjusted EPS includes $0.17 of net costs primarily related to actuarial insurance adjustments that were not contemplated when management provided guidance. Without these unanticipated costs, Q4 operating results exceeded its expectations. Also, adjusted operating margin expanded 70 bps to 8.7%. However, the Q1 EPS guidance is quite a bit below analyst expectations as DLTR expects shrink and mix will be 1H24 headwinds.
- Enterprise same store comps increased +3.0%, which was generally in-line with prior guidance of low single digit growth. Comps were driven by a +4.6% increase in traffic, partially offset by a -1.5% decline in average ticket. Dollar Tree segment comps were good at +6.3% vs mid-single digit prior guidance. However, Family Dollar segment comps were a trouble spot, down -1.2% (below -1% to +1% prior guidance).
- The company said it continued to take unit market share in consumables in Q4. Its strong gains in traffic and market share are being fueled by Dollar Tree's ability to attract new and higher income customers. Dollar Tree estimates it added 3 mln new customers in 2023, mostly from households earning over $125,000 a year. One of the most important initiatives at Dollar Tree is its multi-price point strategy. Dollar Tree has substantially completed the rollout of $3-$4-$5 frozen and refrigerated items. Dollar Tree expects to add 300+ items at price points ranging from $1.50 to $7.
- Family Dollar has been more of a problem area as persistent inflation and reduced govt benefits continue to pressure lower income consumers. FD's discretionary comp was down a whopping -12%. Apparel, home decor, electronics and general merch remain weak as lower income consumers continue to be very deliberate with spend. DLTR now plans on closing ~600 Family Dollar stores in 1H24 plus 370 Family Dollar and 30 Dollar Tree stores will close over the next several years as leases end.
Overall, this was a disappointing result. We think the weak Q1 EPS guidance coupled with persistent problems at Family Dollar are weighing on shares today. The results/guidance were a surprise given that the stock has been trending higher since October and given that many value-oriented retailers posted good results in Q4, including WMT, TGT, TJX, BURL, ROST. This makes us a bit more nervous for FIVE, which reports next week (Mar 20), but moreso for dollar store peer DG, which reports tomorrow before the open.
Intel slips after the Pentagon reportedly pulls out of its $2.5 bln chip grant (INTC)
Intel (INTC -1%) edges lower today after Bloomberg reported that the Pentagon will pull out of its plans to spend up to $2.5 bln on a chip grant to the U.S.-based semiconductor manufacturer. Just last week, reports swirled that INTC was poised to grab a $3.5 bln contract to produce advance chips for the U.S. military, news which helped push shares over +3% higher the following day. As such, Bloomberg's article yesterday after the close is meaningful since, because the U.S. Commerce Department is expected to make up for the shortfall, the total dollar amount investors expected INTC to receive in federal funding could be lower.
However, it is not concrete that the total funds INTC will receive will be $2.5 bln less. Before the news broke, the Commerce Department had previously been responsible for just $1.0 bln of the funds. Now, because the Commerce Department must make up the difference, uncertainty has been injected into INTC shares, driving today's moderate pullback.
Nevertheless, even though Bloomberg's report does not strike us as overly alarming, INTC is facing plenty of hurdles on its road to recovery after a tumultuous inventory glut in 2022, which is still ongoing, that sent shares plummeting to levels not seen since 2015. The stock still trades roughly 35% below 2021 highs.
- Compared to the world's largest chip maker, Taiwan Semi (TSM), INTC remains technologically disadvantaged, leaving considerable growth on the table as TSM benefits from outsized demand from AI leaders NVIDIA (NVDA) and Advanced Micro (AMD).
- Meanwhile, INTC's Data Center and AI (DCAI) segment endured declining revenue growth during its most recent quarter, a discouraging development for investors anticipating the company to start to make inroads competitively with NVDA and AMD.
- If INTC's technologies reach parity or come close to TSM, big tech firms have already transitioned from INTC, making it a more challenging path toward recapturing market share from TSM. For instance, Apple (AAPL) ditched Intel chips for its Macs around four years ago, designing its own chips in-house on TSM's technology. Given the performance improvements AAPL enjoyed from the transition, it appears doubtful they would resign a deal with INTC.
- Sales to China, which comprises over a quarter of INTC's total revenue, could come under regulatory pressures. NVDA and AMD have already halted sales of some of its chips to China due to export curbs; INTC could be next.
Bottom line, while uncertainty surrounding whether INTC will receive the $2.5 bln expected from the Pentagon is stirring up some selling pressure today, the company is staring at much more substantial headwinds over the near term as it continues dealing with ongoing inventory adjustments, competitors cementing leadership positions in AI, and potential regulatory setbacks.
Casey's General runs out of gas on a Q3 sales miss; long term still compelling (CASY)
Casey's General (CASY), a Midwest U.S. fuel station and convenience store chain, has been struggling to get going today despite exceeding Q3 (Jan) earnings estimates. A modest sales miss, registering a 0.1% drop yr/yr when analysts anticipated positive growth, is keeping a lid on shares today. Meanwhile, with the stock up a respectable +7% on the year, a meaningful gain for this steady-grower, CASY simply did not have much left in the tank.
Nevertheless, CASY delivered several bright spots in Q3, including robust inside same-store sales growth, decent margins, and continuous market share capture.
- Inside comp growth accelerated sequentially, expanding by +4.1% in Q3 compared to +2.9% last quarter, partly assisting a 20 bp margin bump to 41.3%. Prepared food and dispensed beverage was the standout category, boasting comps of +7.5% with an average margin of 59.6%, a 230 bp improvement yr/yr. Meanwhile, grocery and general merchandise enjoyed positive momentum, benefiting nicely from CASY's private label program.
- Margins were favorably impacted by easing commodity costs, primarily cheese (a key ingredient for CASY given its popular pizzas), alongside moderate menu pricing adjustments. These tailwinds underpinned CASY's double-digit earnings beat in the quarter, posting EPS of $2.33.
- On the fuel side, CASY registered a slight downtick in fuel gallon comps, edging -0.4% lower. Additionally, retail fuel sales fell by 11% yr/yr due to sliding average gas prices. As a result, CASY's overall top line missed the mark in the quarter. Still, fuel margins were solid, coming in at 37.3 cents per gallon, marking the company's 11th straight quarter with margins above 34.5 cents per gallon. Also, CASY's fuel volumes again exceeded its geographic market, with data indicating volumes in the Mid-Continent region slipping by 5% during the quarter.
- Looking ahead, CASY left its FY24 (Apr) financial goals unchanged, continuing to project inside comp growth of +3.5-5.0% with margins of 40-41% and same-store fuel gallons sold between negative 1% and positive 1%. Thus far through Q4, inside comps are trending near the high end of CASY's outlook, while fuel gallons are landing closer to the lower end.
While fuel comps are trending toward the lighter side of CASY's outlook for the year, potentially hindering top-line growth, there was still plenty to like from Q3. CASY continues demonstrating its competitive edge over competing gas stations and convenience stores through constant inside comp growth without compromising margins. Given its positioning in the Midwestern U.S., where many individuals live a driving distance from work, school, and social activities, we continue to like CASY as a solid buy-and-hold stock.
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