Market Snapshot
| Dow | 39807.37 | +47.29 | (0.12%) | | Nasdaq | 16379.46 | -20.06 | (-0.12%) | | SP 500 | 5254.35 | +5.86 | (0.11%) | | 10-yr Note | -1/32 | 4.20 |
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| | NYSE | Adv 1705 | Dec 1023 | Vol 1.1 bln | | Nasdaq | Adv 2471 | Dec 1820 | Vol 5.2 bln |
Industry Watch
| Strong: Real Estate, Health Care, Energy, Financials, Utilities |
| | Weak: Communication Services, Information Technology, Consumer Discretionary |
Moving the Market
-- Lack of conviction with extended holiday weekend on tap (market is closed for Good Friday)
-- Contentment at quarter end with S&P 500 sitting at record high
-- Treasuries seeing somewhat mixed action, like equities
| Closing Summary
28-Mar-24 16:30 ET
Dow +47.29 at 39807.37, Nasdaq -20.06 at 16379.46, S&P +5.86 at 5254.35
[BRIEFING.COM] Today's trade was mixed. The S&P 500 and Dow Jones Industrial Average each logged a 0.1% gain while the Nasdaq Composite closed 0.1% lower. The Russell 2000 continued its recent outperformance, gaining 0.5%. The major indices all made a sharp turn higher around 3:00 ET with no specific news to account for the move, but ultimately drifted off those levels by the close.
Participation was light in front of the extended holiday weekend, contributing the muted index-level moves. Markets will be closed tomorrow for Good Friday, which makes today the final trading day of the quarter.
Losses in some heavily-weighted names also limited movement at the index level. The Vanguard Mega Cap Growth ETF (MGK) closed with a 0.3% decline. Meta Platforms (META 485.58, -8.28, -1.7%) and Microsoft (MSFT 420.72, -0.71, -0.2%) were among the influential laggards after registering big gains so far this year. META is up 37.2% in the first quarter and MSFT is up 11.9% since the start of the year.
Still, outsized move in either direction were generally reserved for stocks with specific news items driving the moves. Estee Lauder (EL 154.15, +9.11, +6.3%) was a standout, leading the S&P 500 components after an upgrade to Buy from Neutral at BofA Securities.
Dow component Home Depot (HD 383.60, -2.29, -0.6%) didn't log an outsized move today, but there was some news surrounding the stock after announcing an $18.25 billion acquisition of SRS Distribution.
The S&P 500 energy sector registered a 1.0% gain while the remaining ten sectors moved less than 0.8% in either direction.
The 2-yr note yield settled five basis points higher today, and two basis points higher this week, at 4.62%. The 10-yr note yield rose one basis point to 4.20%.
- S&P 500:+10.2% YTD
- S&P Midcap 400: +9.5% YTD
- Nasdaq Composite: +9.1% YTD
- Dow Jones Industrial Average: +5.6% YTD
- Russell 2000: +4.8% YTD
Reviewing today's economic data:
- Weekly Initial Claims 210K (Briefing.com consensus 213K); Prior was revised to 212K from 210K; Weekly Continuing Claims 1.819 mln; Prior was revised to 1.795 mln from 1.807 mln
- The key takeaway from the report is the low (and steady) level of initial jobless claims -- a leading indicator -- that also reinforces the market's belief that employment conditions remain favorable for continued economic growth.
- Q4 GDP - Third Estimate 3.4% (Briefing.com consensus 3.2%); Prior 3.2%; Q4 GDP Deflator - Third Estimate 1.6% (Briefing.com consensus 1.7%); Prior 1.6%
- The key takeaway from the report is that it is dated information and won't have market-moving impact other than to reinforce the market's belief that the economy fared much better than expected in the final quarter of 2023 despite the Fed's prior rate hikes.
- March Chicago PMI 41.4 (Briefing.com consensus 45.4); Prior 44.0
- March Univ. of Michigan Consumer Sentiment - Final 79.4 (Briefing.com consensus 76.5); Prior 76.5
- The key takeaway from the report is that overall sentiment was improved in March in conjunction with lessening inflation worries and rising stock prices.
- February Pending Home Sales 1.6% (Briefing.com consensus 2.1%); Prior was revised to -4.7% from -4.9%
Bond and equity markets are closed tomorrow for Good Friday, but there is still a slate of economic data to get through. The February Personal Income and Spending report, which features the Fed's preferred inflation gauge in the form of the PCE Price Indexes, will be released at 8:30 ET. Other data include the February advance goods trade deficit, advance Wholesale Inventories, and advance Retail Inventories at 8:30 ET.
Treasuries settle mixed; Friday's slate of econ data
28-Mar-24 15:30 ET
Dow +94.65 at 39854.73, Nasdaq -0.02 at 16399.50, S&P +14.23 at 5262.72
[BRIEFING.COM] The market is little changed over the last half hour. The major indices still trade near their best levels of the day after a sharp move higher.
The Treasury market had a mixed showing today like the stock market. The 2-yr note yield ultimately settled five basis points higher at 4.62% and the 10-yr note yield rose one basis point to 4.20%.
Bond and equity markets are closed tomorrow for Good Friday, but there is still a slate of economic data to get through. The February Personal Income and Spending report, which features the Fed's preferred inflation gauge in the form of the PCE Price Indexes, will be released at 8:30 ET. Other data include the February advance goods trade deficit, advance Wholesale Inventories, and advance Retail Inventories at 8:30 ET.
Market rallying with no specific news to account for move
28-Mar-24 15:00 ET
Dow +71.73 at 39831.81, Nasdaq +6.65 at 16406.17, S&P +12.73 at 5261.22
[BRIEFING.COM] The major indices turned sharply higher in recent action. The S&P 500 trades at its best level of the day, up 0.2%.
Many stocks are participating in the upside ride with no specific catalyst. The Invesco S&P 500 Equal Weight ETF (RSP) is up 0.5%.
Only one S&P 500 sector remains in negative territory -- communication services (-0.02%) -- while ten sectors trade higher, led by energy (+1.1%).
Estee Lauder gains in S&P 500 on BofA upgrade; Moderna gives back recent gains
28-Mar-24 14:25 ET
Dow +24.36 at 39784.44, Nasdaq -21.18 at 16378.34, S&P +4.63 at 5253.12
[BRIEFING.COM] The S&P 500 (+0.09%) is narrowly in front of the DJIA (+0.06%) as we approach the final portion of trading on Thursday.
Elsewhere, S&P 500 constituents Estee Lauder (EL 153.87, +8.83, +6.09%), AES (AES 17.82, +0.57, +3.30%), and Newmont Corporation (NEM 36.16, +0.91, +2.58%) pepper the top of the standings. EL moves higher following this morning's BofA upgrade to Buy, while AES is riding broader strength in utilities which hold gains as investors digest prospects of interest rate cuts, and NEM mirrors broader gains in gold miners.
Meanwhile, Moderna (MRNA 106.91, -3.68, -3.33%) is near the bottom of the index, giving back most of this week's gains.
Gold presses on to another ATH amid haven demand
28-Mar-24 14:00 ET
Dow +27.14 at 39787.22, Nasdaq -19.84 at 16379.68, S&P +4.48 at 5252.97
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-0.12%) is today's worst-performing major average.
Gold futures settled less than $25.70 higher (+1.2%) to $2,238.40/oz, up about +3.6% this week as the front month rolled over, notching another record high this week as investors propped up haven demand .
Meanwhile, the U.S. Dollar Index is up about +0.1% to $104.48.
MSC Industrial trades lower following mixed quarter; expects improvement later this fiscal year
MSC Industrial Supply (MSM -2.5%) is trading roughly flat following its Q2 (Feb) earnings report this morning. This distributor of metalworking and MRO products reported a slight EPS miss but missed on revenue. MSM is a company that Briefing.com keeps an eye on because it provides a glimpse into the industrial economy. Roughly 45% of its sales are metalworking products, and about 70% of its business is sold into manufacturing environments, both light and heavy.
- As it exits the first half of its fiscal year, MSM describes its performance as mixed. The company is pleased with how it is managing the business in a soft environment. However, its core customer growth rate has not yet improved in the face of a sluggish macro environment. The silver lining is that MSM expects to see improvement during the back half of its fiscal year.
- Specifically for Q2, MSM endured a slow start to the quarter with continued softness in heavy manufacturing verticals. That led to sales declining 2.7% yr/yr to $935.3 mln. That was its worst yr/yr revenue performance in the past 13 quarters and MSM has now posted back-to-back yr/yr revenue declines following 10 quarters of growth.
- Despite sales falling short of expectations, it was good to see gross margin tick up by 20 basis points yr/yr to 41.5%. However, Q2 adjusted operating margin did fall to 10.5% from 12.2% a year ago.
Overall, the stock is not moving much. We think investors were not really surprised to see the top line miss. MSM has high exposure to manufacturing and its business has been slow for several quarters. While MSM does not provide guidance, it was encouraging to hear that management expects a better 2H than 1H. However, its business can be difficult to predict and a lot of it is affected by macro conditions.
Hopefully, the Fed starts lowering rates later this year, which should help companies like MSM. Finally, the stock has been in a fairly narrow $93-105 trading range since June 2023. We suspect it will take an improvement in the macro environment to get the stock moving again.
MillerKnoll plunges as elevated interest rates clip Q3 revs and trigger bearish Q4 guidance (MLKN)
Numerous headwinds were thrown at MillerKnoll (MLKN -18%) during Q3 (Feb), from sustained demand pressures to elevated interest rates, keeping the home and office furniture maker from reaching its revenue projection and driving a bearish Q4 (May) outlook. MLKN is stepping up its restructuring initiatives to counteract these forces, announcing several programs across its Contract and Retail businesses, reducing its management headcount, and aligning its operating costs with a fluid economic backdrop.
However, while encouraging, MLKN warned that these actions are merely stepping stones to achieving its financial goals. Over the short run, demand will remain quiet as the company steers through the early innings of a market recovery.
- What exactly drove MLKN's weak top-line performance in Q3? The company's 11.4% decline in revs yr/yr to $873.2, well below its $890-930 mln forecast, and a 4.7% drop in organic new orders, emerged primarily from weak demand in its Americas business. Management noted that Q3, albeit a typically soft quarter, tends to accompany a step-up in activity that did not unfold.
- However, MLKN quickly jumped to its feet, optimizing prices and launching various initiatives to improve client decision-making. Part of MLKN's new strategy is combining its showrooms across most markets while investing more heavily in dealer showrooms, noting that North America already has over 40 showroom refreshes in progress.
- The company also urgently protected its margin profile, enhancing operational efficiency. At the same time, input costs moderated, culminating in a 450 bp bump in adjusted gross margins yr/yr to 38.6%, MLKN's fifth straight quarter of expansion. As a result, MLKN met its Q3 adjusted EPS projection of $0.40-0.48, registering $0.45 in the quarter.
- Meanwhile, internationally, demand was relatively healthy. MLKN delivered an organic 10.6% decline in net sales yr/yr to $217 mln, but a 7.9% jump in organic new orders, reflecting solid growth in December and February, driven by pockets of Europe, South Korea, India, China, Australia, and the Middle East.
- Nevertheless, there is only so much MLKN can do before factors outside its control step in the way. An elevated cost of capital for consumers and employers, alongside increased macroeconomic uncertainty, is taking its toll on MLKN's near-term financial performance. The company projected Q4 adjusted EPS of $0.49-0.57 and revs of $880-920 mln, both meaningfully below consensus.
Ahead of MLKN's Q3 report, there were some red flags. Peer Steelcase (SCS) fell short of analysts' revenue estimates in FebQ. Similarly, HNI (HNI) missed revenue targets in DecQ. However, both companies registered decent revenue and order growth, making MLKN's quarterly report pale in comparison. The significant divergence also partly explains why MLKN's peers, including Williams-Sonoma (WSM) and Wayfair (W), are all tracking higher today. Still, MLKN recorded a few uplifting developments, such as seeing positive leading indicators across its Americas business, which should give it a firm footing once economic conditions turn, making it worth keeping on the radar.
RH surges higher despite Q4 earnings miss; has made extensive transformation of its assortment (RH)
RH (RH +16.5%) is surging today following its Q4 (Jan) earnings report last night. What is surprising is that the stock for this luxury home furnishings company is sharply higher despite missing on EPS and revenue by a wide margin. It seems investors are focusing more on the upside revenue guidance for the current year and some upbeat comments made on the call last night.
- The company concedes that business conditions remain challenging and it expects them to remain challenging until interest rates ease and the housing market begins to rebound. In terms of the Q4 miss, RH noted that revenue was impacted by $40 mln due to the severe January weather and shipping delays related to the ongoing conflict in the Red Sea. If you add back the $40 mln, revenue was generally in-line. Also, RH noted it has been aggressively investing during the downturn, which has put pressure on short-term results but should allow it to benefit as the market recovers.
- A big area of investment has been an extensive transformation of its assortment. For example, RH has launched its new RH Outdoor Sourcebook, which it describes as the most dominant and disruptive collection of luxury outdoor furniture in the market. That arrived in homes in late February through mid-March with 14 new collections. The initial response has been exceptional, and RH expects to gain significant market share in this important category in FY24.
- In addition, its new RH Modern Sourcebook is scheduled to be in-home late April through early May, with 30 new collections across living, dining, bedroom, and bathroom, including original designs from the Harvey Probber estate, one of the most influential modern designers of the past century. RH expects the launch of RH Modern will further accelerate demand trends in Q2 (Jul) and throughout the second half of 2024.
- RH is also pretty excited about its Waterworks line of luxury bath and kitchen products (faucets, tubs, tile, hardware, lighting). Like most luxury brands in the home space, Waterworks generates the vast majority of its revenue from the trade market, selling to architects, designers, developers and builders. RH sees a significant opportunity to amplify the Waterworks business on the RH platform by exposing the brand to a much larger consumer audience. RH is developing a Waterworks Sourcebook with plans for a test mailing in 2025. Waterworks today is just shy of a $200 mln business but RH sees the potential for it to become a billion-dollar global brand.
Overall, it seems investors are giving RH a pass on the Q4 miss and focusing more on the new fiscal year, which sounds promising. RH expects conditions to remain challenging. However, it expects demand trends to accelerate throughout 2024. RH sounds confident that its decision to transform its collection during the downturn was the right move. It is putting its money where its mouth is. RH noted it has repurchased 35% of its shares outstanding over the last two years, which was pretty shocking to hear but it demonstrates management's confidence in its outlook.
Walgreens Boots Alliance jumps despite trimmed FY24 EPS outlook due to weak retail backdrop (WBA)
A persistently weak retail environment continues to make it challenging for Walgreens Boots Alliance (WBA +1%) to get back on its feet, forcing it to lower the high-end of its FY24 (Aug) adjusted earnings forecast. The reduced outlook was particularly frustrating after the pharmacy retailer slashed its dividend by 48% last quarter to focus on enhancing profitability. However, WBA is shaking off the negative pre-market reaction, underscoring investors' increasing confidence in the company's turnaround prospects.
- WBA's Q2 headline numbers were the star today. The company expanded adjusted EPS by 3.4% yr/yr to $1.20, significantly better than the yr/yr decline analysts predicted. Likewise, WBA outperformed top-line growth estimates by several points, improving sales by 6.3% to $37.05 bln.
- The top and bottom-line growth stemmed mainly from another quarter of solid performance in U.S. Pharmacy, which registered +8.7% comp growth. Inflationary pricing was again the primary underlying factor -- helping offset weak flu, cold, and respiratory activity -- alongside cost discipline. Another highlight was international, which enjoyed 6.6% revenue growth yr/yr to $6.02 bln, supported by robust +5.9% Boots UK retail comps.
- U.S. Healthcare, the segment WBA has been fortifying through roughly $17.0 bln worth of acquisitions and investments under former CEO Rosalind Brewer, grew sales by 14% on a pro forma basis in Q2, led by VillageMD and Shields. Notably, the segment finally reached positive adjusted EBITDA for the first time. Meanwhile, WBA reiterated its outlook of U.S. Healthcare achieving breakeven adjusted EBITDA in FY24.
- Albeit excluded from adjusted numbers, it is worth pointing out that WBA recognized a $12.4 bln non-cash goodwill impairment charge related to VillageMD after the company closed around 160 clinics and noticed slower-than-expected trends in patient panel growth. During the first half of FY24, WBA observed positive financial impacts from its actions to accelerate VillageMD's profitability. It believes this business is now better positioned for future growth.
- Looking ahead, WBA anticipates a stubbornly soft retail backdrop to clip its previous best-case FY24 earnings scenario, lowering its outlook to $3.20-3.35 from $3.20-3.50. Other headwinds, including lower sale-leaseback gains and reduced Cencora equity income, were also factors in WBA's trimmed guidance.
The bar was relatively low ahead of WBA's Q2 report, which marked the first full quarter under new CEO Tim Wentworth, as shares have languished recently, tumbling by over 20% on the year to slip below 2009 lows. Therefore, investors are reacting moderately positively to the few highlights from the quarter, primarily surrounding U.S. Healthcare. Additionally, by keeping the low end of its FY24 EPS guidance unchanged, investors are encouraged that WBA's situation is not deteriorating.
Nevertheless, economic conditions continue to weigh on its ability to transform into a full-fledged healthcare company. Making matters worse is that rival CVS Health (CVS) has not had to deal with integrating a host of billion-dollar acquisitions while navigating an unfavorable retail landscape, which puts it in a comparably healthier long-term financial position.
nCino's upbeat remarks overshadow a few blemishes from Q4, sending shares to one-year highs (NCNO)
nCino (NCNO +17%) is cashing in on its upbeat Q4 (Jan) report as shares reach one-year highs today. While the cloud banking platform provider topped adjusted EPS by a wider margin than in Q3 (Oct), revenue was moderately on the lighter side. Likewise, NCNO's revenue guidance for Q1 (Apr) and FY25 fell short of analyst estimates, underscoring pockets of persistent macroeconomic weakness.
So why are investors so pleased today? Management touched on several encouraging developments. The company noticed strength across all U.S. customer segments, with international demand significantly outpacing overall revenue growth. NCNO added that its Q4 results reflected a return to more normal buying patterns and behavior, including from its U.S. enterprise customers, which were disproportionately hurt by the regional banking crisis last year.
As such, investors are viewing NCNO's Q4 results, including a high single-digit earnings beat and 13.3% revenue growth yr/yr to $123.69 mln, through a more positive lens.
- International growth, representing 20% of NCNO's total revenue, was a notable highlight, delivering a 48% jump in revs yr/yr. Expansion overseas is one of NCNO's key growth pillars, making the development from Q4 incredibly encouraging for the company's long-term success.
- AI is also playing a factor. NCNO mentioned that it is observing strong traction across all three of its AI products. It added its largest Auto Spreading deal outside the U.S. during Q4, which followed the signing of its largest Portfolio Analytics deal in Q3. While management acknowledges that AI remains early in its lifecycle, it anticipates accelerating opportunities in FY25 and beyond.
- Management maintained an optimistic attitude throughout its conference call, noting that its customer base has been conveying a more upbeat tone lately. Part of why customer sentiment is shifting positively stems from stabilizing interest rates, providing customers with ample opportunity to advance their strategic investments despite elevated economic uncertainty. NCNO observed more customers ready to close on pending deals, giving it a robust pipeline entering FY25.
- Still, if there was a weak point from Q4, it was NCNO's guidance. The company projected adjusted EPS of $0.60-0.64 and revs of $538.5-544.5 mln for FY25. While NCNO's earnings forecast was better than expected, revenue was somewhat disappointing. An underlying factor was an estimated $31 mln subscription revenue headwind emanating from heightened churn during FY24, half of which was due to turmoil in the U.S. mortgage market. Nevertheless, NCNO anticipates churn will continue moderating toward historical norms as the mortgage market normalizes.
By operating in the financial services industry, NCNO has faced several setbacks over the past year, from a liquidity crisis in March 2023 to decades-high mortgage rates in October. However, the tide is shifting, and NCNO is well-positioned to pounce on improving demand trends coinciding with outsized AI-related opportunities.
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