Market Snapshot
| Dow | 38503.69 | +263.71 | (0.69%) | | Nasdaq | 15696.64 | +245.33 | (1.59%) | | SP 500 | 5070.55 | +59.95 | (1.20%) | | 10-yr Note |
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| | NYSE | Adv 2362 | Dec 479 | Vol 907 mln | | Nasdaq | Adv 3045 | Dec 1129 | Vol 4.96 bln |
Industry Watch
| Strong: communication services, information technology, industrials, health care, consumer discretionary |
| | Weak: materials |
Moving the Market
--Better-than-expected earnings results with the industrials sector and consumer discretionary sector in focus
--Leadership of mega-cap stocks and small-cap stocks
--Follow-through buying interest after Monday's rebound trade
--Lower market rates
| Closing Summary
23-Apr-24 16:15 ET
Dow +263.71 at 38503.69, Nasdaq +245.33 at 15696.64, S&P +59.95 at 5070.55
[BRIEFING.COM] The stock market started on a higher note today and never really looked back, enjoying a session that saw very little selling interest at the index level. The major indices closed near their best levels of the day.
Today's positive turn was driven by favorable responses to earnings results, lower market rates, and broad-based buying interest that featured the outperformance of the small-cap stocks and the mega-cap stocks. The Russell 2000 jumped 1.8% while the Vanguard Mega-Cap Growth ETF (MGK) increased 1.7%.
The early bid in stocks got some backing when the 2-yr note yield backed away from 5.00%, catalyzed by some preliminary manufacturing PMI and services PMI data for April reported by S&P Global. Both reports registered softer readings than what was seen in March, with the manufacturing PMI number (49.9) sliding below the 50.0 line that demarcates expansion and contraction.
A stronger-than-expected New Home Sales Report for March at 10:00 a.m. ET didn't alter the Treasury market's mood, which garnered some added support at 1:00 p.m. ET from a $69 billion 2-yr note auction that was met with strong demand.
The 2-yr note yield settled the day down five basis points at 4.92% and the 10-yr note yield slipped three basis points to 4.60%.
Those moves facilitated some added rebound action in the growth stocks while placating a market angling to follow through on yesterday's rebound effort. Good earnings results out of the industrials sector, as well as the consumer discretionary sector, provided an added angle for follow-through buying interest. The Philadelphia Semiconductor Index jumped 2.2% while the Russell 3000 Growth Index increased 1.6%.
GE Aerospace (GE 162.65, +12.46, +8.3%), UPS (UPS 148.89, +3.53, +2.4%), Danaher (DHR 253.12, +17.04, +7.2%), General Motors (GM 45.10, +1.89, +4.4%), and PulteGroup (PHM 97.67, +3.61, +3.8%) set the earnings response tone, overshadowing disappointing results and/or guidance from Nucor (NUE 174.54, -17.09, -8.9%) and Packaging Corp. (PKG 170.74, -8.55, -4.8%) that left the materials sector (-0.8%) as the only S&P 500 sector in negative territory when the closing bell rang.
The remaining sectors were led by communication services (+1.9%), information technology (+1.7%), industrials (+1.4%), health care (+1.3%), and consumer discretionary (+1.2%). The latter featured the outperformance of Tesla (TSLA 144.61, +2.56, +1.8%), which was slated to report its quarterly results after today's close.
Indicative of today's upside bias, advancers led decliners by a nearly 5-to-1 margin at the NYSE and by a nearly 3-to-1 margin at the Nasdaq. The equal-weighted S&P 500 rose 0.9% against a 1.2% gain for the market-cap weighted S&P 500.
- S&P 500:+6.3% YTD
- Nasdaq Composite: +4.6% YTD
- S&P Midcap 400: +4.3% YTD
- Dow Jones Industrial Average: +2.2% YTD
- Russell 2000: -1.2% YTD
Reviewing today's economic data:
- The preliminary S&P Global U.S. Manufacturing PMI for April dropped to 49.9 from 51.9 in March while the preliminary S&P Global U.S. Services PMI fell to 50.9 from 51.7 in March.
- New home sales increased 8.8% month-over-month in March to a seasonally adjusted annual rate of 693,000 units (Briefing.com consensus 670,000) from a downwardly revised 637,000 (from 662,000) in February. On a year-over-year basis, new home sales were up 8.3%.
- The key takeaway from the report is that new home sales were up in every region, helped in part by another dip in the median sales price, although average prices were up with a pickup in sales of higher-priced homes, particularly in the West region.
Wednesday's economic calendar features:
- 07:00 ET: Mortgage Bankers Association weekly Mortgage Applications Index (prior 3.3%)
- 08:30 ET: March report for durable goods orders (Briefing.com consensus 1.8%; prior 1.4%) and durable goods orders, excluding transportation (Briefing.com consensus 0.3%; prior 0.5%)
Holding near session highs
23-Apr-24 15:25 ET
Dow +247.66 at 38487.64, Nasdaq +259.49 at 15710.80, S&P +59.37 at 5069.97
[BRIEFING.COM] It continues to be more of the same for the stock market, which is to say the indices continue to sit near their best levels of the session.
Tesla (TSLA 144.93, +2.88, +2.0%), Texas Instruments (TXN 166.38, +2.95, +1.8%), and Dow component Visa (V 274.29, +1.96, +0.7%) are the headliners for earnings reporting following today's close.
Tomorrow's economic calendar features the Mortgage Bankers Association weekly Mortgage Applications Index (prior 3.3%) and the March report for durable goods orders (Briefing.com consensus 1.8%; prior 1.4%) and durable goods orders, excluding transportation (Briefing.com consensus 0.3%; prior 0.5%).
Keeping hold of solid gains
23-Apr-24 15:00 ET
Dow +246.69 at 38486.67, Nasdaq +263.93 at 15715.24, S&P +60.23 at 5070.83
[BRIEFING.COM] The stock market continues to grind out a rebound effort, unfazed by any concerted selling interest in today's session beyond individual stock moves.
It has been a sideways drift for the major indices, with a slight upward tilt, for the better part of the last four hours. The $69 billion 2-yr note auction at 1:00 p.m. ET helped solidify today's effort, as it was met with strong demand that helped keep rates pinned close to their lows for the day.
Currently, the 2-yr note yield is down five basis points to 4.92% after hitting 5.00% earlier.
There was some chatter that the softer manufacturing and services PMI readings for April reported earlier by S&P Global could help the case for a rate cut. According to the CME FedWatch Tool, the probability of a 25 basis points rate cut to 5.00-5.25% at the June FOMC meeting is 16.8% today versus 16.6% yesterday. For July, though, the probability increased to 47.7% from 42.4% yesterday.
The summation is that a rate cut before the September FOMC meeting is unlikely, even if it is a little more probable today than yesterday.
Globe Life recovers portion of losses following earnings, MSCI dips in S&P 500 after earnings
23-Apr-24 14:30 ET
Dow +288.26 at 38528.24, Nasdaq +272.11 at 15723.42, S&P +64.62 at 5075.22
[BRIEFING.COM] The S&P 500 (+1.29%) is in second place, consolidating today's advance near HoDs in recent trading.
Elsewhere, S&P 500 constituents Globe Life (GL 74.44, +8.05, +12.13%), GE Vernova (GEV 146.85, +10.16, +7.43%), and United Rentals (URI 663.84, +34.54, +5.49%) dot the top of the standings. GL recoups a bit of its recent losses after last night's Q1 report, GEV reports on Thursday, and URI outperforms ahead of tomorrow's earnings.
Meanwhile, New York-based finance firm MSCI (MSCI 442.86, -72.31, -14.04%) is today's top laggard after Q1 revenue was a narrow miss; the company cited elevated cancels in their earnings press release.
Gold slips as geopolitical tensions continue to subside
23-Apr-24 14:00 ET
Dow +291.53 at 38531.51, Nasdaq +266.58 at 15717.89, S&P +64.35 at 5074.95
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+1.73%) is handily in the lead, up now about 265 points.
Gold futures settled $4.30 lower (-0.2%) to $2,342.10/oz, off earlier lows of about -1.8%, demand dulling as tensions in the Middle East haven't escalated in recent days.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $105.65.
SAP SE's Business AI fuels robust cloud growth in Q1; expects the trend to accelerate (SAP)
SAP SE (SAP +5%) gaps higher on inspiring Q1 results, headlined by the company's swiftest cloud backlog growth ever. The enterprise software developer attributed the record pace of growth to its Business AI portfolio, underpinning an unwavering AI demand backdrop. This is further illustrated by SAP's cloud backlog growth of +27% yr/yr outpacing its cloud revenue growth of +24% in the quarter.
- AI was the nucleus of SAP's Q1 performance, giving management more confidence over its other growth drivers in reaching its FY24 outlook and FY25 financial targets. What gave SAP an edge in Q1 was its focus on embedding Generative AI via its partnership with NVIDIA (NVDA) directly into its cloud products, releasing over 30 new AI scenarios across its cloud portfolio since Q4.
- SAP noted that its AI offerings already enjoyed high demand during the quarter, with many deals influenced by the company's Business AI suite. As a result, SAP's Cloud ERP (enterprise resource planning) Suite grew revs by 32% yr/yr, driving the company's overall revenue expansion of 8.1% yr/yr to €8.04 bln.
- The upward momentum from the quarter is expected to persist for the foreseeable future. In fact, SAP estimates its current modular and integrated cloud ERP suite presents a $700 bln market opportunity by 2027. CEO Christian Klein backed up this point by noting that customers across numerous verticals need to redesign core processes end-to-end to achieve their business transformations; Q1 marks just the beginning of this flywheel.
- Therefore, SAP left its FY24 guidance unchanged, continuing to project €17.0-17.3 bln of cloud revs in constant currency, €29.0-29.5 bln cloud and software revenue in cc, and €7.6-7.9 bln in adjusted operating profit in cc.
Most of SAP's Q1 metrics were uplifting, but there were a few notable exceptions. For instance, adjusted operating margins compressed by over 600 bps yr/yr in Q1, resulting in EPS of €0.81 missing analyst forecasts. Given the margin plunge in Q1, SAP will need significant margin improvements in subsequent quarters to reach its €10 bln EBIT forecast for FY25. Additionally, software licenses continued to demonstrate weakness, with revs down by 26% yr/yr in the quarter. However, it is worth noting that the percentage of this business is down to around 5% of SAP's total sales. Lastly, SAP noted a potential risk to its €8.0 free cash flow goal for 2025 if it spills over cash from its ongoing restructuring initiative.
Still, SAP delivered an impressive performance in Q1, setting a more positive tone ahead of peer IBM's (IBM) Q1 report tomorrow after the close. With consumer interest in AI seemingly going nowhere, SAP is staring at the beginning of a potentially long-lasting tailwind.
GE Aerospace flying higher as first earnings report following Vernova spinoff impresses (GE)
On April 2, General Electric completed its spin-off of power generation company GE Vernona (GEV), leaving the aerospace business as the last remaining piece of what was once a sprawling industrial conglomerate. That aerospace business, which is now known as GE Aerospace (GE), issued its first quarterly report since the spinoff, although the results included Vernona's numbers for the last time. As such, the Q1 earnings report was a bit on the messy side since it was unclear whether all analysts' estimates accurately reflected the impact of the spinoff.
However, what is clear is that momentum is continuing for GE after the split as demand on both the commercial and defense sides remain strong. Overall, GE's total orders soared by 34% yr/yr to $11.0 bln while operating profit increased by 24% to $1.5 bln.
- GE now separates its business into two operating segments: Commercial Engines & Services (CES) and Defense & Propulsion Technologies (DPT). On a revenue basis, CES is about twice as large as DPT at $6.1 bln (+16% yr/yr) and it continues to experience solid growth on strength in both services and equipment.
- It's no secret that commercial airlines are seeing an upswing in maintenance and repair needs, especially as Boeing (BA) continues to contend with quality control and production issues with its 737 MAX jet. Accordingly, services orders increased by 18% in Q1, driven by spare parts growth across the narrowbody and widebody markets.
- BA's production setbacks may be fueling stronger demand on the equipment side, too, which generated impressive order growth of 78% in Q1. Through a 50-50 joint venture with Safran Aircraft Engines called CFM International, GE helps manufacture the LEAP turbofan engine, which are used to power Airbus's (EADSY) A320neo jet -- a direct competitor to BA's 737 MAX. In the earnings press release, GE credited robust demand for LEAP for the surge in equipment orders.
- Turing to DPT, orders spiked by 34% to $3.0 bln and operating profit increased by 26% to $300 mln on a combination of favorable price and volume. Given the volatile geopolitical environment around the world, demand for defense products -- including the engines, propellers, flight control, and power generation components that GE provides to the military -- should remain quite healthy for the foreseeable future.
The bullish outlook for CES and DPT is reflected in GE's FY24 guidance, which calls for adjusted revenue growth in the low-double-digits and operating income of $6.2-$6.6 bln, up from its prior forecast of $6.0-$6.5 bln. Overall, the story for GE remains much the same as it did before the spinoff: namely, underlying demand for aerospace is strong as the travel industry's resurgence continues and as governments bolster their defense budgets.
Spotify hitting the right chord as improving profitability has stock reaching a high note (SPOT)
When it comes to improving monetization, margins, and profitability, Spotify (SPOT) is in rhythm with investors' wishes, as illustrated by the stock's surge higher following the company's easy Q1 earnings beat. Not only did SPOT's EPS of €0.97 cruise past analysts' estimates, but its operating income of €168 mln also reached a new quarterly high. The substantial bottom-line improvements were more than enough to offset any disappointment surrounding MAUs, which increased by 19% yr/yr to 615 mln, slightly missing SPOT's guidance of 618 mln.
- In the earnings press release, CEO Daniel Ek stated that SPOT experienced greater MAU variability in Q1 as the company reined in marketing activity. Simultaneously, the company is pushing through price increases as its "year of monetization" continues. That phrase, which was coined by Mr. Ek, looks set to unfold in a significant way, based on SPOT's Q2 guidance.
- Specifically, SPOT is forecasting gross margin of 28.1%, up 50 bps qtr/qtr, and operating income to increase by €82 mln qtr/qtr to €250 mln. Although its MAU guidance of 631 mln fell short of expectations, the tradeoff for improved profitability over MAU growth is one that investors are onboard with.
There are a few key factors driving SPOT's swing to profitability.
- Last July, the company announced that it was raising premium subscription prices in the U.S. for the first time in its history, charging $10.99/month for Premium Single. As a result, Premium ARPU is trending higher, increasing by 7% yr/yr in Q1. Combined with a 14% yr/yr increase in premium subscribers to 239 mln, premium revenue jumped by 20% to €3.25 bln.
- Additional price increases are on the way, too. On April 3, Bloomberg reported that SPOT is implementing a $1-$2/month price hike across five markets by the end of April, including the UK, Australia, and Pakistan.
- High margin ad-supported revenue also continues to grow at a healthy clip, bolstered by podcast advertising revenue. Driven by the popularity of podcasts like The Joe Rogan Experience and New Heights with Jason and Travis Kelce, ad-supported revenue grew by 18% in Q1 to €389 mln.
- Lastly, SPOT has kept a tight lid on expenses. Total operating expenses declined by 9% yr/yr, reflecting a decrease in personnel related costs and lower marketing spend. In early December, the company announced a 17% workforce reduction initiative, so expenses should remain constrained in the coming quarters.
The main takeaway is that after years of bleeding red ink, SPOT is finally turning a corner in terms of profitability, and it's doing so in a convincing manner. As such, the stock is responding very positively with shares launching to multi-year highs today.
General Motors driving higher on strong upside Q1 results, full size trucks fuel strong results (GM)
General Motors (GM +4.6%) is trading nicely higher after the automotive giant reported Q1 results this morning. GM reported big upside for EPS and revenue. This was its largest EPS beat since Q1 of last year. Perhaps even more important, GM raised its FY24 adjusted EPS to $9.00-10.00 from $8.50-9.50. GM also boosted FY24 adjusted EBIT guidance to $12.5-14.5 bln from $12-14 bln. Given the macro headwinds and slowing EV industry demand, we think investors were happy to see this guidance.
- Adjusted EBIT is the most closely followed metric. It rose 1.8% yr/yr to $3.87 bln in Q1, with a 9.0% adjusted EBIT margin vs 9.5% in the year ago period. North America adjusted EBIT margin was 10.6%.
- In North America, GM again grew market share in the US during Q1 despite incentives that remained well below the industry average, especially in its truck business. This was fueled by its full-size pickups as well as momentum in its midsize pickups. GM also continues to gain market share with its new small SUVs, including the Chevrolet Trax and the Buick Envista. These vehicles are helping GM win new customers.
- GM says it experienced consistent pricing trends during the quarter, below the 2.0-2.5% headwind it built into its full year guidance. Q1 pricing was down only about $200 mln yr/yr and pricing has remained relatively consistent in April. That said, pricing comparisons get tougher as it laps price increases taken in Q2 of last year.
- Retail sales were up 6% while fleet sales decreased more than 20%. GM says it encountered some production constraints impacting fleet deliveries on commercial vans and midsize pickups. GM expects to recover most of this volume in 2H24. GM made the strategic decision to produce more retail full size SUVs compared to last year to satisfy strong customer demand. Dealer inventory levels ended Q1 slightly above its 50-60 day target at 63 days. However, GM believes it's well positioned from an inventory standpoint as it heads into a seasonally stronger part of the year.
- Turning to EV pricing, GM recently lowered its price on the 2024 Blazer EV, which has been well received by dealers and customers. GM assumes some pricing pressure for both ICE and EVs, which has been built into its 2024 guidance. Importantly, this pricing action does not change its expectation to achieve positive variable profit for its EV portfolio in 2H24 and its mid-single digit margin target in 2025.
Overall, we think investors are quite pleased with GM's Q1 results and especially the raised guidance, which is a big reason why shares are higher. GM's full size trucks, which are high margin, continue to power its results. We like its decision to increase production there. The cautious comments on EV pricing were a bit disappointing but not surprising. We think investors were pleased to see GM maintain its EV profitability forecast. We think this report bodes well for Ford (F), which reports tomorrow after the close.
PepsiCo's stagnant volumes in Q1 prove unrefreshing; FY24 remains poised for sluggish growth (PEP)
PepsiCo's (PEP -2%) headline results in Q1 were improved across the board compared to Q4, delivering a more expansive earnings beat, returning to posting revenue upside, and leaving its FY24 targets unchanged after lowering its organic revenue growth outlook last quarter. However, investors are not finding PEP's fourth consecutive quarter of weak volumes refreshing, keeping its shares flat today.
While a normalization in category growth rates following the pandemic has weighed on PEP's volume growth for several quarters, a previously disclosed recall at Quaker Foods caused this business's volume to tank by 22% yr/yr, taking a bite out of Q1 Convenient Foods volume. If not for this impact, PEP would have avoided a negative 0.5% figure in the quarter. Still, this silver lining does not remove the bad taste in investors' mouths from the 5% drop in Beverages North America volume, PEP's sixth straight decline.
- PEP was coming off its first revenue miss since the pandemic, making its quick snap back to positive growth in Q1, registering 2.3% yr/yr to $18.25 bln, a relief. Similarly, even though organic revenue growth, which removes the impacts of FX, acquisitions, and divestitures, was soft, expanding by just 2.7%, PEP was confident the remaining quarters in FY24 would keep it on track to achieve its +4% organic sales growth target for the year.
- Meanwhile, PEP stayed true to form surrounding its bottom-line performance, posting its 13th consecutive earnings beat in Q1. Moderating commodity costs alongside price hikes have helped preserve core operating margins, pushing the figure 40 bps higher yr/yr in Q1 and keeping it from contracting since 4Q22. PEP expects this favorable trend to persist for the year, reiterating its EPS target of $8.15.
- However, while pricing can boost revs, it can eat into volumes. PEP has touched on the balancing act between price hikes and remaining competitive for several periods. Last quarter, management attributed its lowered organic growth guidance to a stressed end consumer facing a sticky inflationary environment, primarily in North America. This trend remained a headwind for PEP in Q1 as volumes in its Frito-Lay North America business slipped by 2% as effective net pricing jumped 3%. A similar development unfolded in Beverages North America.
- PEP's situation was not as shaky outside North America, posting volume growth across Convenient Foods and Beverages in Europe, Africa, the Middle East, and South Asia. Meanwhile, in Asia Pacific, Convenient Foods volume surged by 12% while Beverages were flat. The opposite took hold in Latin America, with foods edging 0.5% lower while Beverages improved by 2%.
We mentioned following tepid Q4 results in February that 2024 was looking like a year of gradual growth for PEP as pandemic-induced tailwinds virtually disappeared. PEP's Q1 report underscores this deflating trend, and it would be worrisome if rival Coca-Cola (KO) delivers outsized volume gains with its Q1 report on April 30.
Still, the demand backdrop is not worsening, and PEP touts global brands possessing meaningful consumer loyalty. While the near future could remain sluggish, PEP is firmly positioned to reignite growth once demand conditions, particularly in North America, begin to improve more substantially.
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