The day began quietly enough. Mid-major to major equity indexes have been under pressure of late as enough macroeconomic data for the month of January had shown surprising strength. This was a strength that seemed to come almost out of nowhere, as from an economic perspective the year 2022 had gone out in a profound state of weakness. This strength has flipped the public perception of just how close the Federal Open Market Committee (FOMC) might be to a pause in policy as futures markets have had to price in a higher and later potential terminal fed funds rate.
The preceding made Thursday's rally, which is what happened on Thursday, though it may have snuck up on you, somewhat unwelcome. The day seemed to swing on dovish-sounding comments made by Atlanta Fed President Raphael Bostic, who told the media that he was "still very firmly" in the 25-basis-point camp for the FOMC's March 21-22 meeting. Bostic's comments should not have surprised as he wrote a similar-sounding essay just a day earlier. This is the era of the keyword-chasing, high-speed algorithms, though, so don't ask why, just chase or die. Bostic clearly believes the Fed is already in restrictive territory. All that is needed is for the economy to catch up in deed to where the central bank's stance is in policy.
What really happened, probably far more important in the short to immediate term than anything that Raphael Bostic may have reiterated on Thursday, was the S&P 500's technical reaction once that index touched, or actually pierced briefly, its 200-day simple moving average (SMA)...
Readers will see at the right that the index was bound at the open and close by the 50-day SMA at the top of the range and the 200-day SMA at the bottom. The day also presents as an "outside" day where the range is greater and the span between the open and close are greater than the day prior. That in itself is not a bullish, nor a bearish signal. What it does foretell in most cases is a coming (ASAP) period of increased volatility. To put it bluntly, somebody's probably getting hurt in the short term.
Readers will also see that while the Nasdaq Composite does not appear to be trapped between two key moving averages as does the S&P 500, this index also displayed an "outside" day for Thursday, signaling an increase in coming volatility.
Other Speakers
There were other Fed officials who spoke on Thursday. Neither of them was focused upon by the financial media as were the words of Raphael Bostic, for whatever reason. Federal Reserve Governor Christopher Waller, who as a member of the Board of Governors is always a voting member of the FOMC (Bostic does not vote this year), posted some comments on the central bank's website. "Wishful thinking is not a substitute for hard evidence in the form of economic data." Hmmm, tell us how you really feel, Chris. "We cannot risk revival of inflation" is pretty clear, as is "It could be that progress has stalled, or it is possible that the numbers released last month were a blip, perhaps associated with unusually favorable weather, and that forthcoming data will show that economic activity and inflation resumed their decline."
Boston Fed President Susan Collins also spoke publicly on Thursday in a radio interview up in Vermont. Collins, like Philadelphia's Patrick Harker, has impressed me since taking office with what appears to be a pragmatic take on where the trajectory of monetary policy should be. Should we take note when hawks are hawkish or when doves are dovish? Does it matter when those prone to speak more on impulse than from reason, do so (a big shout out to ole St. Loo). Pragmatists, though, do not express opinions born of dogma, nor do they speak in the heat of the moment. Their opinions matter more, at least they should, because they adjust as the situation evolves, and that's exactly what we should expect from leadership. Collins (like Harker), in my opinion, is one of those. A potential leader.
Not a voter this year, Collins said on Thursday: "I do believe that we will need to do some additional rate increases and exactly what the right amount is really needs to be dependent on a holistic review of the information that we receive." She added, "I do believe that it will be important to hold there (at the terminal rate) for some time because it takes a while for the effects of tighter financial conditions to work through the economy."
Drinking the Kool-Aid
So, equities drank the Kool-Aid on Thursday, despite a 10-Year Note that yielded as much as 4.087% by quitting time. Yields have come in a bit overnight. I see that 10-Year currently in a pretty decent fight right around the 4% mark. The US Dollar Index has also surrendered some ground overnight. This has allowed US equity index futures to hold their Thursday gains through the after-close and pre-opening hours.
On Thursday, nine of the 11 S&P sector-select SPDR ETFs showed gains for the session with five gaining at least 1% in doing so. Utilities (XLU) led the way higher after taking a beating all week (month/YTD). Interestingly, the Financials (XLF) were the worst-performing sector as the banks were really pounded. The XLF ETF may have only given up 0.48% for the day, but the Dow Jones US Bank Index lost 1.68% while the KBW Bank Index backed up to the tune of 1.76%. Remember, rising rates are only helpful in terms of net interest margin when the slope of the curve is not inverted.
Winners beat losers at both equity exchanges on Thursday, but by a far narrower margin than one might think when looking at the averages. The margin was a rough 8 to 7 at the New York Stock Exchange and even closer than that at the Nasdaq. However, advancing volume did take a 64.7% share of composite Nasdaq-listed trade and 57.7% of that same metric for NYSE listings, which is somewhat impressive. That said, aggregate trading volume increased across Nasdaq-listed securities but contracted on a day-over-day basis across those equities listed at the NYSE.
C3.ai Inc (AI) Reports
There were some key names that went to the tape with their quarterly numbers on Thursday night. Among them were Costco (COST) , Broadcom (AVGO) , Marvell Technology (MRVL) and Zscaler (ZS) . The one I was focused upon was C3.ai Inc. (AI) , as I am actually long that name, not in my most often traded portfolio, but in my speculative portfolio, or what I call my "book of lottery tickets."
C3 posted an adjusted earnings per share of $-0.06 (GAAP EPS: $-0.57) on revenue of $66.669 million for its fiscal third quarter, which ended Jan. 31. The adjusted EPS print and the revenue number both beat the street, even if those revenues were only good enough for year-over-year contraction of 4.5%. The lion's share of the adjustment was made for stock-based compensation expenses.
Subscription revenue for the period came to $57 million (85.6% of revenue). GAAP gross margin printed at 67% while adjusted gross margin landed at 76%. GAAP RPO (remaining performance obligation) came to $403.2 million, representing 151% of third-quarter annualized revenue. Adjusted RPO printed at $436.3 million. Current RPO (cRPO) increased 7% to $176.3 million.
Looking ahead, for the current quarter, AI sees total revenue of $70 million to $72 million, which is above the $69 million to $70 million that Wall Street was looking for. Adjusted income /loss from operations is seen at -$28 million to -$24 million. For the year, revenues are seen at $264 million to $266 million, also above consensus view, while adjusted operating income/loss is seen at -$73 million to -$69 million.
As far as the balance sheet is concerned, C3 ended the quarter with a current ratio of 7.69 and a cash position of $772 million. There is no entry for debt of any kind on the balance sheet. In short, these guys can burn cash for a little while before they need to worry.
I will not add to or chase the stock should this morning's pop hold into the regular session. I do not see any reason to even think about adding until the stock approaches that 61.8% Fibonacci retracement level of this year's move, which is close to $18.
Economics (All Times Eastern)
09:45 - S&P Global Services PMI (Feb-F): Flashed 50.5.
10:00 - ISM Non-Manufacturing Index (Feb): Expecting 54.5, Last 55.2.
13:00 - Baker Hughes Total Rig Count (Weekly): Last 753.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 600.
The Fed (All Times Eastern)
11:00 - Speaker: Dallas Fed Pres. Robert Lorie Logan.
11:45 - Speaker: Atlanta Fed Pres. Raphael Bostic.
15:00 - Speaker: Reserve Board Gov. Michele Bowman.
16:45 - Speaker: Richmond Fed Pres. Tom Barkin.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (HIBB) (2.96), (PACK) (-0.06)
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