Market Snapshot
| Dow | 37798.97 | +63.86 | (0.17%) | | Nasdaq | 15865.25 | -19.77 | (-0.12%) | | SP 500 | 5051.41 | -10.41 | (-0.21%) | | 10-yr Note | -26/32 | 4.66 |
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| | NYSE | Adv 948 | Dec 1763 | Vol 933 mln | | Nasdaq | Adv 1522 | Dec 2685 | Vol 5.0 bln |
Industry Watch
| Strong: Information Technology, Consumer Staples, Health Care |
| | Weak: Real Estate, Utilities, Energy, Consumer Discretionary, Materials |
Moving the Market
-- Volatility following remarks from Fed Chair Powell that mostly corroborated the market's thinking on rate cuts
-- DJIA outperforming thanks to earnings-related gain in UnitedHealth (UNH)
-- Jump in market rates despite this morning's weaker-than-expected data
-- Gains in some mega cap names limiting downside moves for major indices
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Closing Summary
16-Apr-24 16:30 ET
Dow +63.86 at 37798.97, Nasdaq -19.77 at 15865.25, S&P -10.41 at 5051.41
[BRIEFING.COM] Stocks had a volatile session today. The S&P 500 settled 0.2% lower, the Nasdaq Composite ultimately logged a 0.1% decline, and the price-weighted Dow Jones Industrial Average eked out a 0.2% gain thanks to strength in its heaviest component, UnitedHealth (UNH 468.89, +23.26, +5.2%), after reporting earnings.
The S&P 500 and Nasdaq Composite traded close to their prior closing levels in the early going, showing relatively modest gains or losses. Choppiness increased, however, in the afternoon trade as participants reacted to commentary from Fed Chair Powell.
Mr. Powell didn't say anything too surprising and the market interpreted his remarks as corroborating the recent rate cut recalibrations. Chairman Powell said at a panel discussion that restrictive policy needs more time to work since recent data has not shown progress on the inflation front. There was also a Wall Street Journal article from Nick Timiraos indicating that Mr. Powell tempered rate cut expectations.
The Treasury market had a muted response to these developments. Yields were already elevated despite this morning's weaker-than-expected Housing Starts and Building Permits Report for March. The 2-yr note yield rose two basis points to 4.96% and the 10-yr note yield settled three basis points higher at 4.66%.
The jump in market rates contributed to an underlying negative bias in the market through most of the session. Decliners had a nearly 2-to-1 lead over advancers at both the NYSE and at the Nasdaq.
Negative responses to earnings news from Bank of America (BAC 34.68, -1.27, -3.5%) and other names also contributed to the overall downside bias. The SPDR S&P Bank ETF (KBE) declined 1.3%.
- S&P 500:+5.9% YTD
- Nasdaq Composite: +5.7% YTD
- S&P Midcap 400: +2.6% YTD
- Dow Jones Industrial Average: +0.3% YTD
- Russell 2000: -2.9% YTD
Reviewing today's economic data:
- March Housing Starts 1.321 mln (Briefing.com consensus 1.485 mln); Prior was revised to 1.549 mln from 1.521 mln; March Building Permits 1.458 mln (Briefing.com consensus 1.518 mln); Prior was revised to 1.523 mln from 1.518 mln
- The key takeaway from the report is that it provided no signs of relief for a supply-constrained housing market. Single-unit starts were down by double-digit percentages in every region except the West (+1.3%); meanwhile, building permits -- a leading indicator -- for single-family units were down in every region, highlighted by a 5.3% decline in the South, which is the country's largest housing market.
- March Industrial Production 0.4% (Briefing.com consensus 0.4%); Prior was revised to 0.4% from 0.1%; March Capacity Utilization 78.4% (Briefing.com consensus 78.6%); Prior was revised to 78.2% from 78.3%
- The key takeaway from the report is that industrial production remained on a growth track in March, driven by gains in manufacturing output that one would expect to see in a growing economy.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.1%)
- 10:30 ET: Weekly crude oil inventories (prior +5.84 mln)
- 14:00 ET: April Beige Book
- 16:00 ET: February Net Long-Term TIC Flows (prior $36.1 bln)
Mega caps and semiconductor shares continue to support market
16-Apr-24 15:30 ET
Dow +199.09 at 37934.20, Nasdaq +41.92 at 15926.94, S&P +10.35 at 5072.17
[BRIEFING.COM] The major indices are trading near session highs ahead of the close.
Mega cap stocks and semiconductor shares are still supporting the broader market at this point. The Vanguard Mega Cap Growth ETF (MGK) is up 0.4% and the PHLX Semiconductor Index (SOX) is up 1.3%.
Looking ahead, United Airlines (UAL), Omnicom (OMC), J.B. Hunt Transport (JBHT), Interactive Brokers (IBKR), Hancock Whitney (HWC), and Fulton Fincl (FULT) report earnings after the close.
Dow component Travelers (TRV) is among the notable names reporting earnings in front of tomorrow's open. Abbott Labs (ABT), U.S. Bancorp (USB), ASML (ASML), and others are also reporting earnings.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.1%)
- 10:30 ET: Weekly crude oil inventories (prior +5.84 mln)
- 14:00 ET: April Beige Book
- 16:00 ET: February Net Long-Term TIC Flows (prior $36.1 bln)
Fed Chair Powell commentary fuels volatility in stocks
16-Apr-24 15:05 ET
Dow +185.50 at 37920.61, Nasdaq +49.60 at 15934.62, S&P +11.06 at 5072.88
[BRIEFING.COM] The major indices are near session highs amid ongoing volatility in response to Fed Chair Powell's commentary. The S&P 500 is up 0.2% and the Nasdaq Composite shows a 0.3% gain.
Mr. Powell didn't say anything too surprising, though, and largely confirmed what the market was already thinking. That is, recent inflation data has shown a lack of progress in returning inflation to the Fed's 2% goal and that it is appropriate to give restrictive policy more time to work.
Treasuries didn't react much to his comments. The 10-yr note yield is at 4.66% and the 2-yr note yield is at 4.97%.
Albemarle, Paramount pressure S&P 500 on Tuesday
16-Apr-24 14:30 ET
Dow +48.78 at 37783.89, Nasdaq -16.50 at 15868.52, S&P -10.73 at 5051.09
[BRIEFING.COM] The S&P 500 (-0.21%) is now in last place on Tuesday afternoon.
Elsewhere, S&P 500 constituents Albemarle (ALB 114.12, -6.38, -5.29%), Paramount (PARA 10.44, -0.46, -4.22%), and Truist (TFC 35.46, -1.24, -3.38%) dot the bottom of the average. ALB slides on general weakness in materials stocks in addition to a target cut out of BofA Securities to $146, while TFC dips as banks are generally weaker following some earnings reports.
Meanwhile, Super Micro Computer (SMCI 933.21, +50.46, +5.72%) is outperforming after a bullish analyst call from Loop Capital.
Gold higher as geopolitical tensions continue
16-Apr-24 14:00 ET
Dow +69.33 at 37804.44, Nasdaq -16.45 at 15868.57, S&P -9.01 at 5052.81
[BRIEFING.COM] The markets have jostled around comments from Fed Chair Jerome Powell at The Washington Forum on the Canadian Economy wherein he suggested it would take longer to have confidence in the progress on inflation as he thinks recent data shows a lack of progress on that front. The Nasdaq Composite (-0.10%) is now in second place.
Gold futures settled $24.80 higher (+1.0%) to $2,408.80/oz, higher as lingering geopolitical uncertainty fuels the yellow metal's gains.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $106.38.
Morgan Stanley jumps on upbeat Q1 results; says underlying trend suggests growing confidence (MS)
Morgan Stanley (MS +3%) receives a smattering of applause today as investors approve of the investment and financial services titan's upbeat Q1 performance, including wider top and bottom-line upside compared to Q4. MS also predicted Q2 net interest income (NII) to land around the same as in Q1, underscoring signs of stabilization.
While CEO Edward Pick still cautioned about a backdrop of economic and geopolitical uncertainty, echoing remarks from other prominent bank CEOs, including JPMorgan's (JPM) Jamie Dimon and Goldman Sachs' (GS) David Solomon, several encouraging trends from the quarter were enough for investors to be rather accepting of these macroeconomic challenges.
- MS splits its business into three primary segments: Institutional Securities (46% of Q1 revs), Wealth Management (45%), and Investment Management (9%). Each of the company's segments registered yr/yr revenue growth, resulting in a 4.3% improvement in overall sales to $15.14 bln, a decent acceleration from the +1.2% growth recorded last quarter.
- Institutional Securities was the laggard in Q1, delivering a 3.2% improvement in net revs yr/yr, a mild growth rate that reflected a sharp slowdown in M&A transactions. MS's 27.7% decline in Advisory revs due to the drop in M&A activity contrasted GS's 23.5% jump in Q1, a 180 from last quarter when MS's Advisory business crushed GS's. Still, MS was encouraged by the health of its Advisory pipeline, which could swell if interest rates begin dropping.
- Wealth Management net revs grew by a decent rate at 4.9%, supported by a healthy jump in Asset Management revs as asset prices continued to expand over the past year. However, like last quarter, net new assets continued to decline, slipping by 13.4% yr/yr, worse than the 7.9% dip in Q4.
- Investment Management enjoyed the most robust growth at 6.8%, directly underscoring a buoyant equity market as a higher average AUM resulted in a swift uptick in Asset Management fees.
- Against the backdrop of broad-based growth, MS was well-portioned to deliver a much wider EPS beat in Q1 than it did in Q4, topping estimates by double digits for the first time since 1Q22. Expenses also played a significant role, with MS's expense ratio increasing by just 1 pt yr/yr to 71%, far better than the 7 pt jump to 84% registered in Q4. Management noted that it made good progress on the expense front during the quarter, reducing its headcount and trimming excess costs.
MS's Q1 report contained several positive standouts, but most notable was the company's healthy pipelines. While management conceded that near-term uncertainty could impact the timing surrounding realizing benefits connected to its pipelines, the underlying trend suggests that confidence is increasing, a meaningful difference from where MS stood following its Q4 results in mid-January.
Bank of America feels the effects of higher rates as NII and EPS pressured in Q1 (BAC)
Following in the footsteps of banking counterparts JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C), each of which reported Q1 earnings last Friday, Bank of America (BAC) disclosed that higher interest rates are creating a headwind, pressuring its net interest income and earnings. While BAC did edge past Q1 earnings estimates, EPS fell by about 12% yr/yr to $0.83, mainly driven by a 3% decrease in net interest income (NII).
The near-term horizon doesn't look much better, either, with BAC forecasting NII of $14.0 bln in Q2, representing a dip of roughly 1.5% yr/yr. The good news is that BAC expects Q2 to be the low point for NII and that it anticipates growth to resume in the back half of the year.
- Higher interest rates are having a significant impact on deposits and deposit costs. In BAC's Consumer Banking segment, average deposits declined by 7% yr/yr to $952 mln as consumers sought out higher yielding investments. Lower deposits means that BAC has less capital to lend out for mortgages, auto loans, personal loans, etc. Accordingly, revenue in the Consumer Banking segment dropped by 5% to $10.2 bln.
- Average loans and leases were up 3% to $313 bln, reflecting higher interest earned on loans due to rising rates. Also, combined credit and debit card spending was healthy, increasing by 5% to $219 bln. However, net income still decreased by 4% in Consumer Banking, even as the provision for credit losses remained relatively flat on a yr/yr basis at $1.1 bln. This decrease is related to the compression on NII as BAC pays out higher deposit rates.
There were a few bright spots, though.
- Bolstered by an accelerating recovery in the IPO market, investment banking fees jumped by 35% yr/yr to $1.6 bln. Beyond the improved market conditions, the strong growth was driven by 115 bps in market share gains as BAC slid into the #3 spot for investment banking fees.
- Additionally, the Global Wealth and Investment Management segment achieved record revenue of $5.6 bln, fueled by a 12% increase in asset management fees due to the strong stock market and positive client flows of $25 bln.
Overall, though, it was a mixed, if not disappointing performance for BAC that put the negative impact of higher interest rates under the spotlight once again.
Johnson & Johnson heads a bit lower following Q1 results; Shockwave deal remains on pace (JNJ)
Johnson & Johnson (JNJ -2%) is trading slightly lower after reporting Q1 earnings results this morning. JNJ reported slight upside in Q4 for both EPS and revs. The EPS upside was larger than Q4, but smaller than the double-digit beats of the prior four quarters. Revenue rose 2.3% yr/yr to $21.38 bln, which was in-line.
- Perhaps more troubling was JNJ slightly lowering its outlook for FY24 reported sales. However, that looks to be mostly FX-related because its operational sales outlook (constant currency) was increased. In addition to earnings, JNJ increased its dividend by 4.2%. JNJ says it's off to a solid financial start in 2024 complemented by sustained momentum within its Innovative Medicine and MedTech pipelines, marked by regulatory and clinical milestones.
- Innovative Medicine segment (formerly known as Pharma) reported sales in Q1 grew 1.1% yr/yr (+2.5% operational) to $13.56 bln. This segment saw growth of 8.4% in the US and a decline of 6.9% outside of the US, although FX had a big impact. Excluding the impact of the COVID-19 vaccine, operational sales growth was 8.3% both worldwide and outside of the US.
- IM segment growth was driven by key brands and uptake from recently launched products. JNJ continues to see strong sales growth across its multiple myeloma portfolio. Pulmonary hypertension was another strong area for growth with sales up 22.4%, driven by favorable patient mix, share gains and market growth. However, JNJ does caution that favorable patient mix has been a driver in recent quarters, but will start to lap tougher results starting in Q2.
- JNJ saw better growth out of its MedTech segment, with reported sales up 4.5% yr/yr (+6.3% operational) to $7.82 bln. In cardiovascular, electrophysiology delivered double-digit growth of 25.9%, driven by global procedure growth, new product uptake, commercial execution and a one time inventory build in Asia-Pacific. Its recent Abiomed acquisition was a bright spot, with sales up 50%, driven by continued strong adoption of Impella technology.
- JNJ recently announced it would acquire Shockwave Medical (SWAV). The deal will further extend JNJ's position in cardiovascular intervention and accelerates its shift into higher-growth markets. Cardiovascular intervention is one of the fastest-growing global medtech markets. Shockwave will bolster JNJ's position in coronary artery disease (CAD) and peripheral artery disease (PAD). JNJ continues to expect the deal to close mid-2024.
Overall, this was a decent but not great quarter. The EPS upside was decent but not as large as prior quarters. Also, the in-line revs were a bit disappointing following several quarters of upside. MedTech continues to lead in terms of growth, which tells us people are finally getting around to surgical procedures that had been postponed during the pandemic. The dividend increase was also nice to see. However, the overall Q1 report was a lackluster way to begin 2024.
UnitedHealth showcases its ability to deliver EPS upside in Q1 despite several setbacks (UNH)
UnitedHealth (UNH +5%) springs to life today after returning to delivering earnings upside in Q1 following last quarter's rare miss, exceeding revenue expectations, and reaffirming its FY24 EPS outlook despite encountering many setbacks. The health insurance giant has been knocked down several times since its ascension to all-time highs in December, from rising medical costs due to an uptick in outpatient care, a severe cybersecurity attack, and the Centers for Medicare & Medicaid Services (CMS) keeping its 2025 Medicare Advantage (MA) rate unchanged. The obstacles culminated in shares of UNH sinking to multi-year lows ahead of its Q1 report, a 20% drop from peak to trough.
However, this selling pressure set a low bar for UNH in front of its Q1 report today, resulting in a healthy bounce as investors breathe a heavy sigh of relief over the company's ability to still deliver bottom-line upside and remain confident in achieving its previously outlined FY24 earnings forecast of $27.50-28.00.
- The centerpiece of UNH's upbeat report was its adjusted EPS of $6.91, returning to form by exceeding analyst forecasts by double digits despite absorbing a $0.30-0.40 per share disruption related to the cyberattack at its Change Healthcare business, which is part of Optum. It is worth noting that any expenses connected to restoring any system affected by the attack will not be included in UNH's adjusted EPS figure.
- Supporting its encouraging bottom-line performance in Q1 were care patterns consistent with UNH's expectations heading into 2024. During its Q4 conference call, the company projected a medical care ratio (MCR) of 83.5-84.5%, a nice dip from the 85.0% registered in Q4. For Q1, UNH's MCR fell in-line with its FY24 forecast at 84.3%, which included 40 bps from the cyberattack. While the figure still represented a 210 bp jump from the year-ago period, much of it was caused by a previously noted headwind related to Medicare funding reductions.
- Speaking of which, after CMS left its MA rate unchanged at 3.70%, the market worried that as more seniors chose MA, given its savings, UNH would have to develop ways to absorb higher costs. Management touched on this today, noting that its strategy focuses on providing stability in the reduced funding environment, and it is confident its long-term approach, which it started last year, puts it in a strong competitive position.
- UNH's competitive position is also aided by the continued upward momentum of OptumRx, expanding revs by 12% yr/yr in Q1 to $30.8 bln. Meanwhile, OptumHealth's revs climbed by 16% to $26.7 bln, bolstered by an increasing number of patients served. UNH noted it was on track to approach 5.0 mln patients in value-based care by year-end, which should further support the company's bottom-line expansion. In total, UNH's overall revenue edged 8.6% higher yr/yr to $99.8 bln.
Plenty of clouds hung over UNH leading into its Q1 report today, most notably the CMS's recent MA rate decision. However, while costs will likely remain a lingering headwind, UNH's Q1 performance showcased its ability to absorb the numerous impacts it encountered recently, underpinning clearer skies ahead. It also bodes well for many of UNH's peers ahead of their Q1 reports this month, such as Elevance Health (ELV) on April 18, Humana (HUM) on April 24, Molina Healthcare (MOH) on April 24, and Centene (CNC) on April 26.
Salesforce and Informatics (INFA) both endure selling pressure on talks of a potential merger (CRM)
Salesforce (CRM -5%) and Informatica (INFA -9%) are seeing their shares slip today despite a potential M&A deal between the tech firms. The WSJ reported today that CRM is in talks to acquire INFA, which currently commands a market cap of around $10.5 bln, making it potentially CRM's largest purchase since paying $27.7 bln for Slack in 2021.
Typically, the acquired firm tends to enjoy a healthy bump in its share price on news of a possible takeover. However, INFA is enduring a sell-off worse than CRM. The cause lies in reports noting that CRM wants INFA below Friday's closing price of $38.50. Meanwhile, CRM shares are also taking a hit as investors question whether now is a good time to snatch up INFA, which could come at a hefty price, and embed it into its long-term vision revolving around generative AI.
- What does INFA do? The company offers an AI-powered data management cloud platform, allowing its customers to connect all types of enterprise data and pursue strategies based on cloud analytics. Given its attention to AI, shares of INFA have benefited enormously from the surging interest in the relatively new technology, doubling as of Friday's close since November and flirting with all-time highs achieved shortly after its October 2021 IPO.
- However, despite the secular AI-induced tailwind, INFA's revenue growth has not been overly impressive, climbing by 11.6% yr/yr in Q4 and ending FY23 with a mild 6.0% improvement. Furthermore, INFA expects FY24 revs to edge just 6.3% higher. As such, CRM investors are concerned that, despite possibly presenting a takeover offer below INFA's recent highs, the company may be overpaying.
- CRM is also exploring a massive acquisition during a measured buying climate, which weighed on its recent FY25 (Jan) revenue outlook. CFO Amy Weaver commented in February that the impact of a muted buying environment from the past year takes time to ultimately flow through its subscription revenue stream.
- Still, even if CRM offers around $35.00/share to acquire INFA, it would translate to a 6x forward sales multiple, tracking closely to CRM's. Also, with AI being thrown into the ring, tech firms are quickly hunting for ways to either maintain their leadership position in their respective fields or overtake a close rival. Given INFA's software and extensive customer base, including Marathon Oil (MRO) and Lenovo (LNVGY), the company appears to be a good fit for CRM, helping it lead the customer relationship management industry.
Talks between CRM and INFA surrounding a possible merger are driving a sell-the-news reaction on both sides today as CRM shareholders are concerned about the price it could pay, while INFA shareholders are upset about a below-market price it could receive. Nevertheless, despite today's reactions, both companies are engaging in complementary lines of business and could each benefit from the other. Perhaps the more overarching issue centers on when the broader spending environment will rebound more meaningfully.
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