Market Snapshot
| Dow | 38892.80 | -11.24 | (-0.03%) | | Nasdaq | 16253.96 | +5.44 | (0.03%) | | SP 500 | 5202.39 | -1.95 | (-0.04%) | | 10-yr Note | -1/32 | 4.42 |
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| | NYSE | Adv 1644 | Dec 1114 | Vol 799 mln | | Nasdaq | Adv 2407 | Dec 1847 | Vol 4.4 bln |
Industry Watch
| Strong: Consumer Discretionary, Real Estate, Utilities, Financials |
| | Weak: Energy, Health Care, Information Technology, Consumer Staples |
Moving the Market
-- Mixed index level action due to losses in some heavily-weighted names
-- Some hesitation in front of potentially market-moving events this week, including March CPI on Wednesday and first quarter earnings season starting Friday
-- Treasuries reflecting ongoing recalibration of rate cuts; probability of a rate cut at June FOMC meeting dropped below 50%
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Closing Summary
08-Apr-24 16:25 ET
Dow -11.24 at 38892.80, Nasdaq +5.44 at 16253.96, S&P -1.95 at 5202.39
[BRIEFING.COM] The stock market had a mixed showing today on below-average volume at the NYSE. The major indices traded in relatively narrow ranges, ultimately settling little changed from Friday. There was not a lot of conviction on either side of the tape as participants look ahead to influential events later in the week.
The standout events include more inflation data in the form of the March Consumer Price Index on Wednesday and Producer Price Index on Thursday.
This morning's release of the New York Fed's Survey of Consumer Expectations did not move the market much. The one-year-ahead inflation expectation remaining at 3.0% for the third consecutive month. At the three-year-ahead horizon, expectations increased to 2.9% from 2.7% while expectations for the five-year-ahead horizon dropped to 2.6% from 2.9%.
There was also an element of hopeful anticipation in play today in front of first quarter earnings results from some big banks ahead of the open on Friday. JPMorgan Chase (JPM 198.48, +1.03, +0.5%), Wells Fargo (WFC 57.79, +0.39, +0.7%), and Citigroup (C 61.73, +0.13, +0.2%), which are among the names reporting earnings, logged decent gains today.
Other bank stocks outperformed in sympathy. The SPDR S&P Bank ETF (KBE) gained 1.5% and the SPDR S&P Regional Banking ETF (KRE) climbed 1.7%. The S&P 500 financials sector was among the top performers, rising 0.4%.
On a related note, strength in regional bank shares led to the outperformance of the Russell 2000, which closed 0.5% higher today.
Rising market rates did not dampen buying interest in stocks. The 10-yr note yield settled four basis points higher at 4.43% and the 2-yr note yield settled six basis points higher at 4.79%.
This price action was related in part to the market's ongoing recalibration of rate cut expectations, along with some hesitation in front of this week's Treasury sales. There is a $58 billion 3-yr note auction on Tuesday, a $39 billion 10-yr note auction on Wednesday, and a $22 billion 30-yr bond auction on Thursday.
There was no US economic data of note today.
- S&P 500:+9.1% YTD
- Nasdaq Composite: +8.3% YTD
- S&P Midcap 400: +7.9% YTD
- Dow Jones Industrial Average: +3.2% YTD
- Russell 2000: +2.3% YTD
Looking ahead, Tuesday's economic data is limited to the NFIB Small Business Optimism at 6:00 ET.
Stocks stick to sideways flow ahead of close
08-Apr-24 15:25 ET
Dow +24.04 at 38928.08, Nasdaq +14.66 at 16263.18, S&P +3.30 at 5207.64
[BRIEFING.COM] The major indices are trading in a sideways flow ahead of the close.
WTI crude oil futures settled 0.4% lower to $86.50/bbl. On a related note, the S&P 500 energy sector is trading up 0.04%.
The 10-yr note yield settled four basis points higher at 4.43% and the 2-yr note yield settled six basis points higher at 4.79%.
Market moves mostly sideways
08-Apr-24 14:55 ET
Dow +22.27 at 38926.31, Nasdaq +20.34 at 16268.86, S&P +4.42 at 5208.76
[BRIEFING.COM] The major indices traded in relatively narrow ranges over the last half hour.
None of the S&P 500 sectors are moving more than 0.9% in either direction. The consumer discretionary sector leads the pack, up 0.9%, while the health care (-0.3%) and heavily-weighted information technology (-0.3%) sectors bring up the rear.
Looking ahead, Tuesday's economic data is limited to the NFIB Small Business Optimism at 6:00 ET.
Albemarle higher on positive analyst note; Kroger underperforms in S&P 500 on Exane downgrade
08-Apr-24 14:25 ET
Dow +41.72 at 38945.76, Nasdaq +23.15 at 16271.67, S&P +5.51 at 5209.85
[BRIEFING.COM] The broader market is still modestly higher on Monday afternoon, the S&P 500 (+0.11%) near the middle of today's range.
Elsewhere, S&P 500 constituents Albemarle (ALB 132.47, +9.02, +7.31%), Camden Property (CPT 102.00, +5.38, +5.57%), and Bath & Body Works (BBWI 47.22, +1.73, +3.80%) dot the top of today's standings. Jefferies was out positive on the lithium group this morning while upgrading ALB peer Sociedad Quimica y Minera (SQM 49.78, +2.17, +4.56%), while CPT and BBWI benefit from broader strength in the real estate (+0.68%) and consumer discretionary (+0.91%) sectors.
Meanwhile, grocery giant Kroger (KR 55.63, -1.68, -2.93%) is underperforming after a downgrade to Underperform at Exane BNP Paribas.
Gold rides Chinese demand to modest gains on Monday
08-Apr-24 14:00 ET
Dow +51.39 at 38955.43, Nasdaq +22.80 at 16271.32, S&P +7.36 at 5211.70
[BRIEFING.COM] The markets jumped a bit in the last half hour, the tech-heavy Nasdaq Composite and the S&P 500 sharing +0.14% gains apiece.
Gold futures settled $5.60 higher (+0.2%) to $2,351.00/oz, aided in part by news that the People's Bank of China increased its gold reserves for the 17th consecutive month.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $104.14.
Spirit Airlines gains altitude after improving liquidity by deferring aircraft deliveries (SAVE)
Spirit Airlines (SAVE) is flying higher today after reaching an agreement with European aircraft maker Airbus (EADSY) to delay aircraft deliveries that were originally scheduled for 2Q25 through the end of 2026. The ultra low-cost carrier has pushed those deliveries, which total 99 new aircraft, to the 2030-2031 timeframe.
- This might not seem like very bullish news since the deferred deliveries will negatively impact SAVE's top-line. Without expanding its fleet, the airline will be hard-pressed to increase its capacity and compete with the major airlines, each of which continue to ramp up capacity due to strong travel demand.
- However, considering SAVE's financial troubles, any move that improves its liquidity and balance sheet is viewed as a positive. This action will do just that. SAVE estimates that the agreement with EADSY will improve its liquidity position by approximately $340 mln over the next two years, on top of the $150-$200 mln that SAVE announced last week.
- Recall that on April 1, SAVE announced that it reached an agreement with International Aero Engines (IAE), an affiliate of Pratt & Whitney, related to a GTF engine manufacturing issue that required inspection. That manufacturing issue and inspection forced aircraft to be grounded and created engine availability problems. Consequently, IAE agreed to provide SAVE with a monthly credit through the end of 2024 as compensation.
- Due to the GTF engine availability issues, and the new aircraft deferrals, SAVE has also decided to furlough approximately 260 pilots, effective September 1, 2024. That also isn't the rosiest news, but what investors are homing in on now, following the termination of the deal with JetBlue Airways (JBLU) about a month ago, is whether SAVE can avoid bankruptcy in the coming years.
- The proposed deal with JBLU was largely viewed as a lifeline for SAVE, which has approximately $1.1 bln in senior secured notes that are due next year. In 2026, SAVE has another $500 mln of convertible bonds that will be maturing, and, as of December 31, 2023, the company only had about $1.0 bln in cash on the books.
These cost-saving actions should help SAVE to fly through some turbulence in the near-term, but bigger picture uncertainties remain. More specifically, it remains to be seen whether SAVE can return to profitability any time soon after posting losses in three of the past four quarters as the major airlines continue to squeeze low-cost carriers by ramping up capacity.
Perion Network plunges after slashing guidance due to changes for Microsoft Bing (PERI)
Israel-based ad tech company Perion Network (PERI) is plunging to multi-year lows after slashing its Q1 and FY24 guidance as changes implemented by Microsoft's (MSFT) Bing in its search distribution marketplace battered its business. PERI has focused on diversifying the company's revenue base, expanding its geographical and channel reach through organic and inorganic means, but MSFT is still the key driver behind its business at approximately 35% of revenue as of the end of 2022.
- What immediately stands out about PERI's guidance cut is how drastic the downward revision was. The midpoint of its new FY24 revenue outlook of $590-$610 mln represents a staggering 31% reduction from its prior guidance of $860-$880 mln, while its updated adjusted EBITDA forecast of $78-$80 mln equates to a cut of 56%.
- PERI stated that changes in ad pricing and "other mechanisms" at Bing were to blame, leading to a reduction in Revenue Per Thousand Impressions (RPM) and in search volume. In the press release, PERI commented that the changes also impacted other Bing distribution partners. According to MSFT, other advertising partners include Adobe (ADBE), Concentrix (CNXC), and Shopify (SHOP), among many others.
- Rewinding to PERI's Q4 earnings report on February 7, the Search business was quite strong with revenue increasing by 33% yr/yr to $114.4 mln as average daily searches grew by 37%. A budget shift towards direct response advertising bolstered the growth. There really was no sign or indication that the Search business was about to fall off a cliff, explaining why this morning's news is catching investors completely off-guard.
- Search is also PERI's largest business by far at nearly 50% of Q4 revenue. Therefore, the steep decline in this business will easily outweigh the strength in PERI's CTV and Retail Media businesses, which grew by 69% and 196%, respectively, in Q4. However, total revenue for Retail Media only totaled $20.2 mln and CTV represented just 12% of overall display advertising.
- Acquisitions have and will continue to play a significant role in PERI's growth. On that note, the company completed its acquisition of Hivestock in Q4, increasing PERI's digital out-of-home (DOOH) product portfolio while expanding its footprint into the Brazilian market. The company will need to lean more heavily on M&A activity now to fuel its growth given the negative changes at Bing.
The main takeaway is that PERI's severe guidance cut comes as a major surprise after delivering solid Search results in Q4 and as the company strives to diversify its revenue streams.
BJ's Wholesale gets a boost from upgrade today; traffic picking up as shoppers seek value (BJ)
BJ's Wholesale Club (BJ +1%) is trading higher today after Goldman upgraded the stock to Buy from Neutral. But even before this upgrade, shares for this warehouse club operator have been noticeably strong since early February, when it was trading around $65. The stock is now above $76.
- With some good things going on at the company, Briefing.com wanted to provide a quick update on BJ's Wholesale Club ahead of its Q1 (Apr) earnings report next month. On March 7, BJ reported Q4 (Jan) earnings that were better than expected with its highest yr/yr revenue growth of the year. Comps (ex-fuel) increased by +0.5% in Q4, which was at the high end of guidance. This was an improvement from Q3's flat comp. It was also encouraging to see BJ guide to +1-2% comps (ex-fuel) for FY24. BJ has also been improving its digital capabilities for shoppers. Digitally-enabled comps jumped +28.0% in Q4.
- A big driver of comps was robust traffic in Q4. BJ said that traffic was positive all year, but accelerated even further in Q4, contributing about 3 percentage points to comps. Importantly, BJ said it turned the corner on unit volumes in Q4 with positive comp units led by its consumables business. As a result, BJ continued to gain market share in Q4, as it has all year. Its perishables, grocery and sundries divisions delivered comp growth of nearly 1% in Q4, driven entirely by volume growth, unlike the rest of the market which continues to face unit declines.
- Another aspect to the story is that the company is broadening its geographic reach. BJ has historically been Northeast-focused, but has been expanding into new markets. It recently announced five new clubs in the Southeast and Midwest, including new markets in Knoxville and Myrtle Beach. It also now has a large presence in Florida. BJ says its real estate pipeline is the strongest it has been in 20 years.
Overall, there are some good things going on with BJ's Wholesale Club. Traffic has really been picking up, which makes sense given BJ's high exposure to groceries and somewhat lower exposure to discretionary categories. Comps are also heading in the right direction as members become more resourceful on tighter budgets. BJ is attractive for its value offerings and that is showing up in the higher traffic numbers.
We think what is helping is that BJ is a retailer that has positioned itself between warehouse clubs and grocery stores. It combines the bulk savings of a warehouse club but offers a broader assortment of perishable and grocery products. With groceries in high demand these days, BJ's wider selection is helping to draw in customers. Consumers are spending less on discretionary items and more on groceries, which is helping BJ. Costco and Sam's Club remain the giants in the warehouse club space, but BJ seems to be carving out a nice space for itself.
Tesla falls on report that it's scrapping plans for mass market EV, but losses trimmed (TSLA)
Elon Musk founded a tunnel construction company called "The Boring Company", but boring days are few and far between for his electric vehicle company Tesla (TSLA). In a dramatic twist, Reuters is reporting that TSLA has scrapped its highly anticipated plans to build an affordable mass-market car dubbed "Model 2" due to fierce competition in China. For his part, Elon Musk pushed back on the story, posting on X that "Reuters is lying (again)", which has helped to reverse some of the stock's earlier losses.
- If indeed accurate, the scrapping of a mass-market vehicle would constitute another major blow for a company whose growth rates are already losing much of their charge. Those growth concerns were just put under the spotlight on Tuesday when TSLA reported an 8.5% decline in deliveries for Q1.
- What is undisputed is the fact that rising competition in China, from the likes of BYD Company (BYDDY), NIO (NIO), and Li Auto (LI), is taking a toll on TSLA, cutting into its market share.
- While Elon Musk has acknowledged the tough competition in China, he also hasn't provided any hints that TSLA is planning to ditch its aspirations to make a more affordable care. During the Q4 earnings call in late January, Musk commented that the current schedule to begin production on the next-generation vehicle platform is set for the end of 2025 -- although, he admitted that he's often too optimistic when it comes to timelines.
- Furthermore, CFO Vaibhav Teneja discussed how TSLA is between two major growth curves with the first one being the expansion of Model 3 and Model Y, and the next one to be initiated with the next-generation platform. That next-gen platform is expected to produce a crossover or hatchback that's priced in the $25,000 range.
- On the other hand, Musk has tried to hammer home the point that TSLA's future is tied to AI and its full self-driving (FSD) technology. When TSLA reported 2Q23 results, Musk quipped that "autonomy will make all these numbers look silly." Developing robo-taxis is a major factor in this vision, although that timeline remains highly uncertain.
- Regardless, substantial revenue generation from software or robo-taxis remains in the distant future and TSLA needs a successful new EV launch to help bridge the gap between now and then. It's evident that Cybertruck isn't going to be the answer, but investors and analysts were still banking on the mass-market vehicle to provide that next significant growth catalyst. Deliveries, revenue, and earnings estimates have already been in a downward trend, but longer-term estimates will be ratcheted significantly lower if TSLA does forgo a mass market vehicle.
- That said, the economics of manufacturing a lower priced EV will be very challenging, especially as TSLA tries to compete against the Chinese manufacturers, which are now taking aim at the U.S. market. BYD, for instance, already offers an EV in the $10-$15K range. TSLA's margins, which have already taken a beating from continual price cuts, would be pressured even further, particularly when production numbers are low during the first year.
The main takeaway, though, is that the possibility of TSLA scrapping its mass market vehicle represents another damaging hit to its growth prospects, at a time in which the company's growth is stagnating.
Johnson & Johnson bolsters MedTech segment again with another sizable acquisition (JNJ)
Johnson & Johnson (JNJ) is making another splash in the M&A space, announcing that it's acquiring ShockWave Medical (SWAV) in a deal valued at approximately $13 bln. The purchase price of $335/share in cash represents just a 4.7% premium over yesterday's closing price, but that's because shares of SWAV were already pricing in an acquisition. Recall that on March 26, the Wall Street Journal reported that JNJ was considering an acquisition of SWAV for $11 bln. Using SWAV's stock price from March 25, the $335/share offer equates to a premium of about 17%.
- After spinning off its consumer business, Kenvue (KVUE), in August 2023, JNJ is left with two main operating segments: Innovative Medicine (pharmaceuticals) and MedTech. Of the two, MedTech has been the stronger performer recently, generating sales growth of 13% in Q4 with acquisitions playing a key role in that growth. Specifically, its $16.6 bln acquisition of heart pump maker Abiomed in December 2022, and, to a lesser extent, its $400 mln buyout of Laminar in November 2023, has bolstered MedTech's growth.
- With the acquisition of SWAV, JNJ is using that same playbook to further accelerate MedTech's growth. The addition looks like a good fit as SWAV will expand MedTech's cardiovascular portfolio, particularly in underpenetrated categories within cardiovascular intervention.
- SWAV is a first-to-market provider of innovative intravascular lithotripsy (IVL) technology for the treatment of calcified coronary artery disease (CAD) and peripheral artery disease (PAD), successfully treating approximately 400,000 patients globally.
- IVL uses sonic pressure waves to break up calcium lesions in arteries, which can lead to heart attacks, helping to improve blood flow. While currently indicated for patients with CAD or PAD, SWAV is exploring the potential use of IVL in other indications, such as carotid artery disease and structural heart disease.
- SWAV's growth has been strong. In FY23, revenue jumped by 49% yr/yr to $730.2 mln, driven by higher purchase volume of its IVL products in the U.S. and increasing adoption of its products internationally. For FY24, the company guided for revenue of $910-$930, representing yr/yr growth of 26% at the mid-point. Equally impressive as the top-line growth is SWAV's gross margin, which came in at 88% in Q4, roughly flat on a yr/yr basis.
- Thanks to SWAV's strong growth and healthy margins, the economics of the deal look appealing overall, although JNJ expects financing costs to dilute adjusted EPS by $0.10 in 2024 and by approximately $0.17 in 2025. JNJ is financing the acquisition with cash on hand and debt. From an operational standpoint, though, the transaction is expected to be accretive to JNJ's and MedTech's operating margin, while also accelerating revenue growth.
The main takeaway is that JNJ has a successful track record of making sound acquisitions to bolster its growth and the acquisition of SWAV looks no different. After a rather lackluster Q4 earnings report, JNJ's growth could use a shot in the arm, and the addition of SWAV will help provide that antidote.
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