Market Snapshot
| Dow | 42124.65 | +61.29 | (0.15%) | | Nasdaq | 17974.25 | +25.95 | (0.14%) | | SP 500 | 5718.57 | +16.02 | (0.28%) | | 10-yr Note | 0/32 | 3.74 |
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| | NYSE | Adv 1542 | Dec 1194 | Vol 978 mln | | Nasdaq | Adv 1772 | Dec 2418 | Vol 5.2 bln |
Industry Watch
| Strong: Energy, Utilities, Real Estate, Materials, Consumer Discretionary, Industrials |
| | Weak: Information Technology, Health Care, Communication Services |
Moving the Market
-- Not a lot of conviction after big run of late
-- Ongoing optimism that the economy is heading for a soft landing
-- Expectations for consolidation
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Closing Summary
23-Sep-24 16:30 ET
Dow +61.29 at 42124.65, Nasdaq +25.95 at 17974.25, S&P +16.02 at 5718.57
[BRIEFING.COM] The Dow Jones Industrial Average (+0.2%) and S&P 500 (+0.3%) extended further into record territory and the Nasdaq Composite settled 0.1% higher. The Russell 2000 underperformed, dropping 0.3% after outperforming its peers of late.
Market breadth was mixed through the entire session, reflecting a lack of conviction from either buyers or sellers after the big run of late. Advancers led decliners by a 3-to-2 margin at the NYSE and decliners led advancers by a 4-to-3 margin at the Nasdaq.
Market participants remain optimistic about a soft landing scenario for the economy, but there's also a growing sense that stocks are due for some consolidation.
Many semiconductor stocks settled higher, leading the PHLX Semiconductor Index (SOX) to close 0.5% above Friday's settlement. TSMC (TSM 174.76, +0.68, +0.4%) was a story stock in the space after a Wall Street Journal report that TSMC and Samsung are considering new chip-making facilities in the United Arab Emirates.
Boeing (BA 156.30, +3.01, +2.0%) also made headlines today, turning sharply higher after confirming that it substantially increased the machinist contract offer, attempting to end the strike.
This price action helped boost the S&P 500 industrial sector (+0.7%). Other sectors that outperformed the index included the energy (+1.3%), consumer discretionary (+1.3%), real estate (+1.1%), and utilities (+1.0%) sectors.
The 10-yr yield settled one basis point higher at 3.74% and the 2-yr yield settled one basis point higher at 3.58%.
- Nasdaq Composite: +19.9% YTD
- S&P 500: +19.7% YTD
- S&P Midcap 400: +12.2% YTD
- Dow Jones Industrial Average: +11.8% YTD
- Russell 2000: +9.5% YTD
Reviewing today's economic data:
- September S&P Global US Manufacturing PMI - Prelim 47.0; Prior 47.9
- September S&P Global US Services PMI - Prelim 55.4; Prior 55.7
Looking ahead, Tuesday's calendar features:
- 9:00 ET: July FHFA Housing Price Index (prior -0.1%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 6.0%; prior 6.5%)
- 10:00 ET: September Consumer Confidence (Briefing.com consensus 102.9; prior 103.5)
- 13:00 ET: $69 bln 2-yr Treasury note auction results
Stocks move slightly higher ahead of the close
23-Sep-24 15:35 ET
Dow +80.83 at 42144.19, Nasdaq +36.67 at 17984.97, S&P +17.80 at 5720.35
[BRIEFING.COM] The major indices are moving modestly higher ahead of the close.
The 10-yr yield settled one basis point higher at 3.74% and the 2-yr yield settled one basis point higher at 3.58%.
Looking ahead, Tuesday's calendar features:
- 9:00 ET: July FHFA Housing Price Index (prior -0.1%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 6.0%; prior 6.5%)
- 10:00 ET: September Consumer Confidence (Briefing.com consensus 102.9; prior 103.5)
- 13:00 ET: $69 bln 2-yr Treasury note auction results
BA moves up after increasing contract offer
23-Sep-24 14:55 ET
Dow +48.56 at 42111.92, Nasdaq +31.22 at 17979.52, S&P +13.07 at 5715.62
[BRIEFING.COM] There hasn't been much up or down movement at the index level in recent trading. The S&P 500 sports a 0.2% gain and the Nasdaq Composite trades 0.2% higher while the Russell 2000 trades 0.3% lower.
Boeing (BA 156.78, +3.45, +2.3%) shares moved higher after confirming that it substantially increased the machinist contract offer, attempting to end the strike.
BA is among the top performing names in the S&P 500 industrial sector (+0.6%) and in the Dow Jones Industrial Average (+0.1%).
Tesla outpeforms on positive Barlcays note, Moody's dips in S&P 500 after RayJay downgrade
23-Sep-24 14:30 ET
Dow +70.71 at 42134.07, Nasdaq +34.43 at 17982.73, S&P +15.15 at 5717.70
[BRIEFING.COM] The S&P 500 (+0.27%) is in first place on Monday afternoon, up about 15 points and near afternoon highs.
Elsewhere, S&P 500 constituents Tesla (TSLA 248.76, +10.51, +4.41%), Bath & Body Works (BBWI 30.42, +1.14, +3.89%), and Tapestry (TPR 44.05, +1.48, +3.48%) pepper the top of today's standings. Barclays analysts suggested TSLA Q3 deliveries may beat, while broader gains in the consumer discretionary help drive BBWI an TPR higher.
Meanwhile, Moody's (MCO 478.88, -15.78, -3.19%) is one of today's top laggards after being cut to Underperform at Raymond James citing long-term growth challenges and downside risk to revenue expectations.
Gold adds to recent strength
23-Sep-24 14:00 ET
Dow +56.32 at 42119.68, Nasdaq +27.58 at 17975.88, S&P +12.48 at 5715.03
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.15%) is in second place with about two hours to go on Monday.
Gold futures settled $6.30 higher (+0.2%) to $2,652.50/oz, hitting new highs once more as the bullish sentiment following the Fed's rate cut last week continues.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $100.79.
The Big Picture
Last Updated: 20-Sep-24 15:31 ET | Archive
Market needs companies to earn their keep
The S&P 500 hit a new record high, energized by the Fed's aggressive move to cut the target range for the fed funds rate by 50 basis points to 4.75-5.00%. There were cogent arguments that the Fed needed to be aggressive because the policy rate is still too high relative to the inflation rate.
The inference is that the Fed risks inviting tough economic times by keeping real rates too high for too long.
There were also arguments that suggested the Fed should not cut rates -- or certainly not by 50 basis points with the first move -- since the PCE inflation rate of 2.5% is still above the Fed's 2.0% target, weekly initial jobless claims are nowhere near recession levels, and stock prices are at record highs.
The inference is that the Fed could reignite inflation by easing policy too much, too soon.
We aren't here to litigate either case today. The market will do that on its own, but early returns suggest the market has literally bought into the argument that the Fed needs to be aggressive, and pro-active, to ensure the labor market doesn't weaken further and jeopardize the soft-landing outcome.
That buy-in has driven multiple expansion, which is to say stock prices have gone up at a faster pace than earnings estimates. That isn't an offside reaction with market rates falling and the Fed itself projecting another 150 basis points worth of easing between now and the end of 2025.
The key to it all, however, is that earnings estimates stay onside.
A Welcome Sight
So far, analysts continue to model generally good things for the earnings outlook.
The forward 12-month estimate is $266.63, up from $259.79 at the end of June, according to FactSet. Calendar-year 2025 earnings, meanwhile, are projected to be $276.84. That is 15.1% higher than the calendar-year 2024 estimate of $240.55. The calendar-year 2026 estimate sits at $311.38, up 12.5% from the current calendar-year 2025 estimate.
Double-digit earnings growth is always a welcome sight, but it is admittedly difficult to be "farsighted" into 2026 right now knowing the 2017 tax cuts expire at the end of 2025, leaving tax policy up in the air in front of the November election.
Corporate tax rates, individual tax rates, and capital gains tax rates are all subject to change based on the election outcome, and any changes will change the calculus for 2026 estimates.
For now, the 2026 estimate is a nice placeholder.
Multiple Expansion
The prevailing estimate in the market is the forward 12-month EPS estimate, which has been losing pace in recent weeks. Since the low on September 6, the S&P 500 has increased 5.6% while the forward 12-month EPS estimate has risen 1.5%.
It is encouraging to see the EPS estimate still rising, but the corresponding earnings multiple is as well. In the same period, the forward 12-month P/E ratio has gone from 20.4 to 21.5. The latter is a 34% premium to the 20-year average and a 19% premium to the 10-year average, according to FactSet.
As discussed in last week's column, that is a rich P/E multiple for the market-cap weighted S&P 500 but, to be fair, the price-to-earnings growth ratio of 1.43 (P/E divided by earnings growth rate) is a modest discount to the 10-year average of 1.49.
What It All Means
Earnings growth is a very important denominator, and why the earnings estimate trend will be a market driver. In turn, that is why economic growth is held dear by the market because earnings prospects ride on economic growth prospects.
Hence, the market has been cheered by the Fed taking an aggressive line with its rate cut, seeing it as a down payment on the house call that the economy will not suffer a hard landing.
Nobody wants that, because the harder the economy falls, the harder earnings estimates fall, and richly valued stocks follow suit.
The market has made great strides on its charge to record territory, but companies need to earn their keep if the market is going to keep on keeping on at rich valuations that are easier to discount when earnings growth estimates are rising.
-- Patrick J. O'Hare, Briefing.com
(Editor's Note: the next installment of The Big Picture will be published the week of September 30)
Carpenter Tech trades to another new all-time high today even as airplane build rates stall (CRS)
With Boeing's (BA) safety and production issues making a lot of headlines and with BA shares trading at 52-week lows, it would make sense to wonder why an aerospace supplier like Carpenter Tech (CRS) would be seeing its stock surge to all-time highs. With it being a fairly slow news day, we wanted to take this opportunity to dig into the story as it's a company many people are not familiar with. And we wanted to profile it ahead of its Q1 (Sep) results next month.
- This supplier of premium specialty alloys (titanium, nickel, cobalt) recently closed out FY24 on a high note. In late July, CRS reported a hefty EPS beat for Q4 (Jun) and authorized a $400 mln share buyback plan. CRS's Aerospace & Defense segment, its largest segment by far, produced impressive results with revenue jumping 28% yr/yr and 19% sequentially to $376.3 mln.
- First, CRS noted that industry demand remains robust, as measured by passenger traffic, airline miles and airline operators' desire for new planes. The backlog for commercial airplane builds reported by Boeing and Airbus is now over 15,000 planes, or roughly nine years of demand. CRS also said that airline operators want the newest generation of airplanes to replace aging fleets, to realize the fuel efficiency and to meet the additional needed capacity.
- CRS concedes that there is some noise in the supply chain about build rates. However, the company counters that by explaining it has broad exposure to aerospace platforms. This includes narrow-body and widebody, Airbus and Boeing and MRO (maintenance, repair, overhaul) and OEM. For example, as new builds have lagged, MRO demand has remained elevated. As a result, customers may prioritize a different portfolio of products in the near-term.
- Looking ahead, CRS sees significantly higher demand on the horizon. The company is confident that there will be ongoing airplane build rate increases given the extraordinary current and increasing future demand. It has a large backlog of orders both in aerospace and other markets, like defense, energy and medical.
- Defense customers continue to request emergency orders to support elevated military activity levels due to ongoing world events. CRS will continue to prioritize these orders. In Medical, CRS saw another record quarter in JunQ with sales up 9% sequentially and 38% yr/yr. Medical customers continue to see strong market demand based on robust procedure backlogs. CRS is also seeing strong demand for power generation.
Overall, it sounds like CRS is not concerned about near term build rates. It is responding by shifting more focus to its MRO business, which makes sense because airlines are having to make due with current planes as they wait on new planes. Also, defense, medical and energy markets are performing well. On a final note, investors also need to keep in mind that even with modest build rate increases, CRS expects a hefty increase in operating income in FY 25 ($460-500 mln vs $354.1 mln in FY24).
TEGNA stands to benefit from a tight election and easing interest rates (TGNA)
TEGNA (TGNA), a new addition to our Yield Leaders Rankings, moved in at number two last week due to its compelling shareholder yield of 13.1%. The stock has not done much in 2024, sitting near its flatline following some ups and downs. However, a few trends are going in TGNA's favor, which can kick off a more substantial rally while also providing shareholders with an attractive 3.5% annual dividend yield.
What is TGNA? Like its counterpart, Sinclair Broadcast (SBGI), TGNA owns TV stations across major U.S. markets. Unlike SGBI, however, TGNA boasts 64 TV stations in 52 U.S. markets, making it the largest owner of the top four network affiliates, i.e., NBC, ABC, CBS, and FOX, in the top 25 markets, reaching around 39% of U.S. TV households. The company operates just one segment, generating $2.9 bln in revs last year, primarily from subscriptions, e.g., fees paid by satellite, cable, and telecoms to carry its TV stations, and advertising.
What has been holding TGNA back this year? The U.S. economy has cast a cloud on TGNA over the past several quarters. The company has not delivered a positive quarter of yr/yr revenue growth since 4Q22. Management chalked up its most recent underwhelming Q2 results to a sluggish and uncertain economy that has been echoed in national advertising spending, which continues to track below expectations this year.
- However, silver linings are appearing. During Q2, TGNA noticed that local ad spending was faring well despite the headwinds suppressing national ad spending, underpinning a willingness from small and medium local businesses to spend. This trend may accelerate now that the Federal Reserve has started cutting interest rates since local ad spending can often branch from automotive, housing-related, and other interest-rate-sensitive businesses. TGNA pointed out that during Q2, these sectors produced a drag on overall ad revenue.
- Meanwhile, political ad revs are helping partially offset TGNA's recent softness. Last week, SBGI raised its political advertising revenue outlook for the upcoming quarter and 2024. Increasing political ad revs do not just reflect a tight national election but also highlight the diverse audiences tuning into local stations. SBGI has commented that more than twice as many adults trust their local news compared to national news. TGNA noted in Q2 that it was seeing robust bookings from political ad spending.
- Coinciding with these developments has been TGNA's aggressive buybacks, repurchasing around 3% of its total shares outstanding during Q2. Going back to May of last year, TGNA has bought back 27% of its shares outstanding. The company is not slowing down either. TGNA has achieved just 56% of its total $350 mln commitment of returns to shareholders via buybacks and dividends.
Headwinds have not completely disappeared as the economy remains wobbly. Furthermore, cord-cutting can weigh on cash flows. However, the recent interest rate cut could kickstart a boost in ad spending. Additionally, live sports keep local channels necessary for pay-TV providers to continue carrying them. With the stock trading down mildly over the year, TGNA currently offers an attractive entry point for income seekers looking for potentially significant price appreciation. As always, a 15-20% stop loss limit should be used.
Intel's rebound continues following Qualcomm takeover report, but odds of a deal are slim (INTC)
The past couple of weeks have been a whirlwind for Intel (INTC) and its shareholders amid a flurry of headlines, including reports that the chip maker may turn its Foundry business into an independent subsidiary. As consequential as that news was, an even bigger possibility is brewing. Last Friday, the Wall Street Journal reported that Qualcomm (QCOM) has approached INTC about making a friendly takeover deal that would amount to the largest technology deal in history.
Shares of INTC, which had rebounded earlier in the week after disclosing a major new Foundry win with Amazon (AMZN) Web Services, jumped higher on Friday afternoon following the WSJ story, while QCOM moved lower. Given INTC's struggles, especially in the data center market where it has fallen miles behind NVIDIA (NVDA) and Advanced Micro Devices (AMD), and the company's massive capital needs as it expands its U.S. manufacturing capacity, it's easy to understand the market's apprehension. Furthermore, QCOM is already contending with its own challenges as its core handset market remains in a slump.
- On the plus side, an acquisition of INTC would instantly transform QCOM into a leader in the PC and laptop markets via INTC's x86 chips. A key component of QCOM's strategy is to diversify its revenue streams and lessen its dependence on the very seasonal handset market and a buyout of INTC would turbo charge those diversification efforts.
- The issue, though, is that QCOM is already breaking into the notebook PC market with its competing Arm-based (ARM) Snapdragon CPUs. In fact, QCOM has been gaining momentum here and is well-positioned to benefit as more AI-powered capabilities are released, so completely upending the PC business through an acquisition of INTC would likely be hard for some shareholders to understand.
- A tie up between QCOM and INTC would also invite a huge amount of regulatory risk and uncertainty. It seems highly unlikely that the FTC would rubber stamp a deal between two of the largest semiconductor companies in the world, especially when the government is already tightening the screws on tech giants like Alphabet (GOOG), Apple (AAPL), and Meta Platforms (META) due to competitive concerns. Regulatory uncertainties would hang over both stocks for many months, while also providing a distraction that could cause executives at both companies to take their eyes of the ball.
- QCOM isn't the only company that's taken an interest in INTC. This morning, Bloomberg reported that Apollo Global Management (APO) has made an offer to invest as much as $5.0 bln into INTC in exchange for equity. That's more good news for INTC as the capital infusion not only represents a vote of confidence in the company's future, but it also could bolster its manufacturing expansion investments.
The main takeaway is that a blockbuster deal between QCOM and INTC seems improbable due to both strategic and regulatory reasons, but the expression of interest from QCOM and APO is another positive development for INTC.
EchoStar's inital gains following uplifting news from the FCC on Friday fade (SATS)
EchoStar (SATS) initially sustained its high orbit today following news that the FCC granted the company's 5G network buildout framework on Friday after the close. However, upon market opening, gains quickly faded.
While pay-TV remains SATS's primary business, comprising two-thirds of total revs in Q2, the company has been investing heavily in wireless as part of a plan to replace Sprint's presence after it was acquired by T-Mobile (TMUS) in 2020. SATS's wireless banner operates as Boost Mobile, which utilizes Dish Wireless towers in combination with towers from AT&T (T) and TMUS. Dish Network, which owns Dish Wireless and is all under the SATS umbrella, has poured tens of billions into constructing towers and purchasing spectrum licenses. As a result, Dish Network's financials -- ultimately SATS's financials following a merger earlier this year -- have deteriorated over the years, making setbacks sting considerably.
However, by that same token, good news can usher in a wave of buying support. Shares of SATS are still up roughly +80% from August lows. The stock was initially kicked into gear by a Bloomberg report earlier this month noting that Dish Network was in discussions to settle a lawsuit with creditors surrounding a transfer of assets. Buyers then stepped on the gas after Bloomberg reported last week that AT&T was discussing a merger between DirecTV and Dish Network.
- The FCC granting SATS's buildout framework is meaningful. One of the major hurdles Dish Network faced before it merged with SATS was making the jump from covering a required 70% of the U.S. population to 75%. While a 5% leap seems simple, it meant having to cover rural areas, which required paying for new infrastructure. With the FCC's approval, SATS now anticipates covering 80% of the U.S. population by the end of this year, an additional 30 mln households from its 70% requirement.
- Part of the higher coverage relies on AT&T and TMUS. Individuals in areas where SATS has yet to deploy 5G coverage will tap into its partners' networks. This also translates to greater efficiency as it reduces the resources required to install infrastructure twice at each tower.
- So why are shares sluggish today? Investors have priced in plenty of good news in a relatively short timeframe, taming Friday's announcement. Also, SATS is still operating on shaky ground. Exiting Q2, its balance sheet carried over $24 bln in net debt. Meanwhile, sales are contracting yr/yr, hindered by cord-cutting trends eroding the demand for Dish Network, putting constant pressure on net income.
The sentiment surrounding SATS has gone from bleak to energetic in just a span of three weeks after a string of uplifting stories rushed to center stage. While investors initially responded positively to Friday's FCC announcement, a rapid run-up over the past few weeks combined with a concerning balance sheet stunted today's gains. There is plenty of uncertainty swirling around SATS, which can produce big price swings in either direction. As such, SATS should be viewed cautiously, especially after its monster rally.
MillerKnoll falls to 2024 lows as an uptick in customer-requested delays in Q1 spark concern (MLKN)
Furniture maker MillerKnoll (MLKN -12%) topples over today after delivering a few discouraging numbers in Q1 (Aug), including a top and bottom-line miss and mixed Q2 (Nov) guidance. As interest rates fall following a 50 bp cut from the Federal Reserve on Wednesday, investors anticipate that companies operating in highly discretionary fields, like MLKN, will benefit. As such, while the market may have been willing to shrug off downbeat Q1 results, it does not accept near-term earnings guidance falling short of expectations. Meanwhile, shares of MLKN held up relatively well despite its counterpart Steelcase (SCS) registering a lukewarm AugQ report and issuing bearish NovQ revenue guidance earlier this week. The amalgamation of these factors set MLKN up for a steep pullback, with shares sinking to 2024 lows.
- In Q1, adjusted EPS inched a penny lower yr/yr to $0.36, falling short of consensus for the first time since 2021. Revenue remained stuck in reverse for the seventh straight quarter, dropping by 6.1% yr/yr to $861.5 mln.
- Driving MLKN's top-line miss was a similar problem SCS encountered. The average time from order entry to customer-requested ship date is widening. As we mentioned in our analysis on SCS yesterday, delays are not as troubling as cancellations. However, they inject increased uncertainty. Delays limit MLKN's ability to build and ship products within the quarter, causing a higher percentage of orders to remain in its backlog.
- On a positive note, new orders climbed by 2.4% yr/yr to $935.9 mln. In MLKN's largest Americas Contract segment, new orders climbed 5.2% higher, gaining momentum throughout the quarter, with August touting the highest levels. International Contract and Specialty new orders enjoyed a 2.7% bump higher. Global Retail lagged, with new orders sliding by 4.7%, reflecting particular weakness across the housing market.
- MLKN's retail operations are a key differentiator compared to its rivals, and this may have been why the market was not too quick to push the stock lower yesterday despite SCS's concerning guidance. The reason is that the Fed's 50 bp cut is expected to lift the housing market, eventually spurring increased order trends.
- Nevertheless, due to timing issues, MLKN's guidance was mixed. The company expects adjusted EPS of $0.51-0.57 in Q2, missing analyst expectations. However, MLKN guided to $950-990 mln in sales next quarter, nicely exceeding consensus. Margins are an underlying factor in the uneven outlook. MLKN commented that a shift in the business and product mix offsets labor and overhead efficiency improvements, keeping a lid on margin performance moving into Q2.
- However, MLKN left its FY25 (May) adjusted EPS outlook of $2.20 unchanged, pointing to uplifting trends in global contract demand alongside an anticipated boost from lower interest rates.
There were bright spots from Q1, primarily revolving around an easing monetary policy. Also, as more companies ask workers to return to the office, MLKN stands to benefit significantly. However, customers requesting delayed delivery, which has a lagging effect on revenue, is producing nervousness among investors today. HNI (HNI) could encounter a similar development when it reports SepQ results next month.
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