Market Snapshot
briefing.com
| Dow | 30121.47 | +908.59 | (3.11%) | | Nasdaq | 10656.53 | +239.58 | (2.30%) | | SP 500 | 3675.65 | +98.55 | (2.76%) | | 10-yr Note | -4/32 | 3.95 |
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| | NYSE | Adv 2056 | Dec 869 | Vol 1.0 bln | | Nasdaq | Adv 2752 | Dec 1482 | Vol 5.2 bln |
Industry Watch
| Strong: Energy, Financials, Materials, Information Technology |
| | Weak: -- |
Moving the Market
-- Resilience to selling efforts following hotter-than-expected September CPI report, which stoked concerns about continued aggressive Fed moves
-- Modest pullback in Treasury yields after a sharp rise on the heels of the CPI report
-- Strength mega cap stocks, namely Apple
-- S&P 500 finds support after falling below 3,500
-- Semiconductors staging an impressive comeback from opening lows
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Closing Summary
13-Oct-22 16:25 ET
Dow +827.87 at 30040.75, Nasdaq +232.05 at 10649.00, S&P +92.88 at 3669.98
[BRIEFING.COM] Thursday's trade ended on a distinctly upbeat note, but that's not how the day started. The September Consumer Price Index (CPI) came in hotter-than-expected and the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average fell 2.4%, 3.2%, and 1.9%, respectively, shortly after today's open. The stock market staged a big comeback, however, after the S&P 500 broke below 3,500. The Nasdaq Composite and the S&P 500 both snapped a six-session losing streak.
It seemed that the rally was driven by technical buyers stepping in when the S&P 500 fell below 3,500, which effectively marked a 50% retracement of the pandemic rally. The S&P 500 put in a new low for 2022 (3491.58) before started on its massive rebound track. That rebound, which saw the index climb back above 3,600, was likely helped out by short covering activity.
Price action in the Treasury, UK gilt, and currency markets supported the rebound effort. Reports emerged before the open that UK Prime Minister Liz Truss might scale back her fiscal stimulus plan, which gave some much-needed relief to the gilt market and British pound after recent volatility. The 10-yr gilt yield fell 33 basis points to 4.19% on the news.
The U.S. Dollar Index, which peaked at 113.92 shortly after the CPI report, was down 0.7% to 112.50 with GBP/USD +1.9% to 1.1315 and EUR/USD +0.8% to 0.9776.
Treasury note yields also peaked shortly after the CPI report but pulled back from those levels. The 10-yr note yield, which reached 4.07% this morning, settled at 3.95%. The 2-yr note yield, which jumped to 4.52% this morning, settled at 4.45%.
A reversal in price action for semiconductor and mega cap stocks, namely Apple (AAPL 142.99, +4.65, +3.4%), were important drivers of the rebound efforts. Apple was down 2.9% at its intraday low and the PHLX Semiconductor Index was down 4.9%. The SOX Index ultimately finished with a 2.9% gain. Taiwan Semiconductor Manufacturing Co. (TSM 66.62, +2.51, +3.9%) was a top performer for the group after reporting favorable quarterly results and guidance.
Another support factor for the rally was the strength in the S&P 500 financials sector (+4.1%), which ended the day at the top of the leaderboard. BlackRock (BLK 566.03, +34.93, +6.6%) was a winning standout for the group after reporting quarterly results this morning. JPMorgan Chase (JPM 109.37, +5.76, +5.6%), which will report its results before Friday's open, was another notable leader.
On the flip side, the consumer discretionary sector (+1.0%) showed the smallest gain today among the S&P 500 sectors; however, it ended 5.3% above its lows of the morning.
Ahead of Friday's open, JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Morgan Stanley (MS) headline the earnings reports.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: September Retail Sales (Briefing.com consensus 0.2%; prior 0.3%), Retail Sales ex-auto (Briefing.com consensus 0.0%; prior -0.3%), September Import Prices (prior -1.0%), Import Prices ex-oil (prior -1.0%), September Export Prices (prior -1.6%), and September Export Prices ex-agriculture (prior -1.8%)
- 10:00 ET: August Business Inventories (Briefing.com consensus 0.9%; prior 0.6%) and preliminary October University of Michigan Consumer Sentiment survey (Briefing.com consensus 58.6; prior 58.6)
Reviewing today's economic data:
- Total CPI rose 0.4% in September (Briefing.com consensus 0.2%) following a 0.1% increase in August. Core CPI, which excludes food and energy, rose 0.6% in September (Briefing.com consensus 0.4%) following a 0.6% increase in August. On a year-over-year basis, total CPI was up 8.2%, versus 8.3% in August, but core CPI was up 6.6% versus 6.3% in August.
- The key takeaway from the report is the recognition that core inflation has gotten worse, driven by widespread pricing pressures that included another 0.7% increase in the shelter index. This understanding will cement expectations for a 75-basis point rate hike at the next FOMC meeting and stir worries that the Fed will stay on an aggressive rate-hike path longer than hoped.
- Weekly initial jobless claims totaled 228,000 (Briefing.com consensus 225,000) from last week's total of 219,000. Continuing claims totaled 1.368 million after last week's revised total of 1.365 million (from 1.361 million).
- The key takeaway from the report is that initial claims are still running at relatively low levels that suggest the labor market continues to run hot -- or, at least too hot for the Fed's liking.
- Weekly EIA Natural Gas Inventories showed a build of 125 bcf versus a build of 129 bcf last week
- Weekly EIA Crude Oil Inventories showed build on 9.88 million barrels after a 3.36 million barrel draw last week
Dow Jones Industrial Average: -17.3% YTD
S&P Midcap 400: -19.0% YTD
S&P 500: -23.0% YTD
Russell 2000: -23.0% YTD
Nasdaq Composite: -31.9% YTD
Little changed ahead of the close
13-Oct-22 15:30 ET
Dow +850.59 at 30063.47, Nasdaq +241.00 at 10657.95, S&P +95.86 at 3672.96
[BRIEFING.COM] Heading into the close, the major averages trade at or near session highs.
Ahead of Friday's open, JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Morgan Stanley (MS) headline the earnings reports.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: September Retail Sales (Briefing.com consensus 0.2%; prior 0.3%), Retail Sales ex-auto (Briefing.com consensus 0.0%; prior -0.3%), September Import Prices (prior -1.0%), Import Prices ex-oil (prior -1.0%), September Export Prices (prior -1.6%), and September Export Prices ex-agriculture (prior -1.8%)
- 10:00 ET: August Business Inventories (Briefing.com consensus 0.9%; prior 0.6%) and preliminary October University of Michigan Consumer Sentiment survey (Briefing.com consensus 58.6; prior 58.6)
Energy continues to outperform
13-Oct-22 15:05 ET
Dow +908.59 at 30121.47, Nasdaq +239.58 at 10656.53, S&P +98.55 at 3675.65
[BRIEFING.COM] The major indices continue a steady climb.
The S&P 500 energy sector (+4.4%) remains in first place among its peers. Schlumberger (SLB 44.14, +2.12, +5.1%) shows some of the biggest gains for the group. Earlier, Bloomberg reported the company is aiming to sell part of its US valves unit for $800 million.
Energy complex futures settled higher. WTI crude oil futures are up 1.8% to $89.02/bbl and natural gas futures are up 4.1% to $6.72/mmbtu.
KeyCorp, regional banking peers outperform in S&P 500
13-Oct-22 14:30 ET
Dow +753.80 at 29966.68, Nasdaq +184.83 at 10601.78, S&P +78.99 at 3656.09
[BRIEFING.COM] The major averages have moved mostly sideways in the last half hour, the benchmark S&P 500 (+2.21%) firmly situated in second place.
S&P 500 constituents KeyCorp (KEY 16.68, +1.09, +6.99%), Warner Bros. Discovery (WBD 12.40, +0.74, +6.35%), and HP Inc. (HPQ 26.00, +1.31, +5.31%) dot the top of the standings. Regional banks, including KEY, are among today's top performers in the S&P, while WBD and HPQ appear to be moving in part related to broader strength in the tech sector.
Meanwhile, Etsy (ETSY 95.78, -10.38, -9.78%) is today's top laggard despite a dearth of corporate news.
Gold ends slightly lower on Thursday
13-Oct-22 13:55 ET
Dow +810.66 at 30023.54, Nasdaq +214.10 at 10631.05, S&P +87.61 at 3664.71
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+2.06%) is at the "bottom" of the standings, albeit still higher by more than +2% as more aggressive gains have permeated the market elsewhere.
Gold futures settled less than $1 lower to $1,677.00/oz, pressured in part by this morning's worse than expected inflation reading.
Meanwhile, the U.S. Dollar Index is down about -1.0% to $112.17.
Taiwan Semiconductor's positive long-term view overpowers its bearish short-term remarks (TSM)
Taiwan Semiconductor (TSM +3%) is appreciating nicely today after delivering a solid beat-and-raise in Q3. The semiconductor manufacturer's favorable results follow numerous warnings from competitors and customers over the past couple of months as the semiconductor industry endures considerable demand softness.
However, that is not to say TSM is not also experiencing weakening demand. TSM stated that it is observing softness in consumer end markets, spurring its customers to adjust their inventory levels, affecting TSM's 1H23 utilization rate. TSM anticipates a few quarters in FY23 to pass until inventory is rebalanced to healthier levels. Also, while data center and automotive markets are holding up decently, TSM sees the possibility of adjustment down the road. These bearish remarks show up somewhat in TSM's Q4 guidance. The company expects revs of $19.9-20.7 bln, representing just 28.9% growth yr/yr at the midpoint, far below the +35.9% jump registered in Q3, +36.6% in Q2, and +36.0 in Q1.
Nonetheless, TSM's positive comments on long-term demand and ability to outperform the industry during the next few quarters greatly overpowered its less enthusiastic remarks.
- TSM is projecting positive growth for FY23 while maintaining its long-term revenue growth target of +15-20% annualized (in U.S. dollar terms).
- This is partly due to TSM's ability to operate with less volatility than the overall semiconductor industry. Remember that TSM produces over half of the world's semiconductors and nearly all of the more advanced chips. This commanding presence allows TSM to continue winning new business while enabling its customers to win business. It also creates solid end-market diversification.
- It is also worth noting that high-performance computing (HPC) demand remains strong, and TSM is ahead of INTC in technological advancement to capture and maintain market share in this field.
Still, shares of TSM are down close to 50% on the year, a close resemblance to the overall semiconductor sector, underscoring the difficult environment currently plaguing the company. With smartphone and PC demand falling off a cliff recently, illustrated by Advanced Micro's (AMD) over $1 bln cut to its Q3 sales forecast, FY23 will prove quite the hurdle for TSM. The company already tightened FY22 CapEx to around $36 bln from last quarter's expectation of $40-44 bln due partly to capacity optimizations based on the current bearish outlook. It expects further tightening moving forward as well.
Nevertheless, although TSM is not overly optimistic about the state of its industry over the near term, its reaffirmed long-term guidance highlights that despite industry corrections, it can continue to grow at a high level.
Delta Air Lines flying higher as strong demand for premium seats drives record revenue (DAL)
Delta Air Lines (DAL) is taking flight today after posting an impressive 3Q22 earnings report as unrelenting demand for air travel continues to fuel a powerful recovery across the industry. As usual, DAL is the first airline to issue quarterly results, but American Airlines (AAL) set a positive tone earlier this week when it bumped its Q3 revenue guidance higher. Therefore, it's unsurprising that DAL also flew past top line estimates with total revenue increasing by 11% versus 3Q19 to a quarterly record of $13.98 bln.
A couple key items regarding DAL's sales trends stand out.
- Ticket revenue from premium products, such as Delta One Suites and Premium Select Seats, increased by 8% versus 3Q19 to $4.35 bln and accounted for roughly 38% of total passenger revenue. Meanwhile, ticket revenue for the main cabin was down by 2% to $5.9 bln.
- Relatedly, total revenue per seat mile (TRASM) increased by a robust 34%, indicating that passengers are paying much higher fares and are upgrading to premium seats.
- The strongest growth relative to 3Q19 was in trans-Atlantic flights, with revenue up by 12% to $2.3 bln for those routes. Domestic revenue was up by just 2% to $8.2 bln.
- Taking the above data points into account, it's evident that the typical middle-class consumer who flies once or twice a year isn't the primary driver behind DAL's upswing. Pent-up demand for leisure travel has been a calling card for that customer group, benefiting low-frills airlines like Southwest (LUV), Frontier Group (ULCC), Spirit Airlines (SAVE), and Allegiant Travel (ALGT).
- In our view, the fact that DAL caters to a customer class with deeper pockets -- including corporations -- is a positive attribute that better insulates it from macroeconomic volatility.
- According to DAL, corporate sales have recovered by 80% of pre-pandemic levels, with momentum building over the past several weeks.
Since a strong revenue performance was widely anticipated for Q3, most of the attention centers on DAL's costs, earnings, and outlook. The news here is mostly bullish, too.
- Cost per available seat mile (CASM) surged by 43% due to higher fuel prices and rising labor expenses. Additionally, staffing shortages across the air travel industry are still an issue, causing DAL to cut back on its schedule. Capacity in Q3 was down by 17% compared to 2019 levels, which means there are fewer available seats to spread its costs across.
- Despite the surge in CASM, the company was still comfortably profitable, achieving an operating margin of 11.6% as the jump in TRASM more than offset higher costs.
- What's really sending shares higher, though, is DAL's upside Q4 EPS guidance and the bullish commentary from CEO Ed Bastian. Specifically, he stated that there are no signs that demand is slowing down, and that the airline is planning to return to 2019 capacity levels by mid-2023. For Q4, capacity is expected to be 8-9% below 2019 levels, representing an improvement from this quarter.
DAL's strong Q3 report builds upon the upwardly revised guidance from AAL a few days ago, setting the stage for a solid earnings season from the airline industry. There has been no letup in demand for air travel and there are clear skies ahead, according to DAL. Like other airlines, the company is capitalizing on pent-up demand for travel, but healthy demand for its premium products is also enabling it to mitigate rising costs. It will be interesting to see if low-cost carriers are able to keep pace with DAL.
Applied Materials is looking chipper today despite the chip equipment giant lowering guidance
Applied Materials (AMAT +4%) is looking chipper today despite the semiconductor equipment giant lowering guidance pretty substantially for Q4 (Oct) for both revenue and adjusted EPS.
- It was not a demand issue, but rather it was the US government's recent decision to implement new export regulations for US semiconductor technology sold in China. This includes wafer fabrication equipment, which is AMAT's bread-and-butter, as well as related parts and services. AMAT estimates that the new regulations will reduce its Q4 sales by $250-550 mln.
- As such, AMAT lowered its Q4 revenue outlook to $6.15-6.65 bln from $6.25-7.05 bln and adjusted EPS to $1.54-1.78 from $1.82-2.18 prior guidance. To make matters worse, it will not just be a one quarter hit. AMAT expects the new regulations will impact sales in Q1 (Jan) by a similar amount as in Q4.
- The stock is lower, but not by as much as you might expect given the large guidance cut. We think a couple of things are happening. First, a guidance cut from AMAT and other chip equipment names was pretty much expected when the new regulations were published on Friday. The stock had already fallen 14% since last Thursday's closing price in anticipation of what this would mean.
- The other thing that may be helping is that AMAT said the sales impact of the regulation change was being partially offset by supply chain performance improvements. We think investors are pleased to hear there have been improvements on the supply chain front. This has been a persistent problem for AMAT in recent quarters.
Overall, the guidance reduction was quite substantial and clearly a negative for AMAT, but not entirely unexpected. Unfortunately, it sounds like it will have a similar impact on JanQ. And we would not be surprised to see it extend beyond that. The one silver lining perhaps is some improvement on the supply chain front. Finally, we think it is likely we will see more chip equipment names guide lower soon.
Walgreens Boots Alliance ticks up as investors are relieved by in-line FY23 EPS guidance (WBA)
Walgreens Boots Alliance (WBA +5%) is inching higher today after topping Q4 (Aug) earnings estimates. Also, investors are relieved that the retail pharmacy chain's FY23 earnings outlook was in-line with analyst expectations. WBA has been stepping up its investments to bolster its Walgreens Health business, pouring over $5.0 bln into its primary care offering VillageMD, roughly $2.0 bln into acquiring specialty pharmacy care provider Shields, and most recently spending over $700 mln to acquire post-acute and home care provider CareCentrix.
Investors have been skeptical of CEO Rosalind Brewer's aggressive push to become a major player in the healthcare provider space since she took the helm in March 2021. It did not help that WBA's sizeable investments coincided with an increasingly challenging macroeconomic backdrop, where inflationary pressures and a lack of COVID-related tailwinds were dinging retail pharmacy sales. For example, WBA delivered U.S. retail pharmacy comps of just +1.6% in Q4 and +1.6% in Q3 (May), a far cry from comps of over +7% in prior quarters.
However, Walgreens Health is scaling up, and WBA is anticipating margins to build over time. This was illustrated with WBA's FY23 adjusted EPS guidance of $4.45-4.65, representing only a 9.7% decline yr/yr. Further evidence stemmed from WBA raising its Healthcare sales target for FY25 to $11-12 bln from $9-10 bln, as well as reiterating its long-term company-wide adjusted EPS growth rate of mid to high single-digits in FY24 and building to low teens growth in FY25.
Still, there are a few issues still plaguing WBA.
- WBA decided to single-handily turn around AllianceRX earlier this year, which has continued to drag down results. In Q4, AllianceRX took a 10 pt bite out of pharmacy sales, causing the figure to fall 8.8% yr/yr, a recurring theme over the past few quarters. Also, total sales were negative solely from AllianceRX, falling 5.3% yr/yr to $32.45 bln, with AllianceRX causing a 660 bp hit.
- After conducting a strategic review, WBA also decided to retain ownership of its Boots U.K. division earlier this year. WBA's choice was primarily a reflection of currently challenging financial market conditions, so there is still a possibility WBA will circle back to divesting Boots in the future. The good news is that Boots did post +15.2% retail comp growth yr/yr in Q4 despite lapping +15.0% comps in the year-ago period. Still, with WBA implementing a transformation cost management program for Boots, including store closures, the business could weigh on earnings in the meantime.
Nevertheless, with our first insight into FY23 earnings, it is clear that WBA's Healthcare investments are beginning to bear fruit, no longer weighing on earnings as much as in FY22. Likewise, this segment's sales are maintaining a high growth rate, with WBA projecting pro forma sales growth of 45-55% in FY23. Although the current economic environment still adds a layer of uncertainty in WBA achieving these goals, WBA's Q4 numbers show its ability to traverse choppy waters.
On a final note, WBA's results possibly indicate what to expect from CVS Health (CVS) when it reports SepQ earnings on November 2.
September CPI report creates another interest rate mess
Fiscal and monetary policy worlds are colliding today and that has set off a chain reaction.
The fiscal side of things stems from reports that UK Prime Minister Truss is thinking about scaling back her fiscal stimulus plan and allowing an increase in the corporate tax rate. This speculation has led to a surge in the UK gilt market and in the British pound. The 10-yr UK gilt is down 26 basis points to 4.26% and GBP/USD is up 1.0% to 1.1206.
This speculation comes with the Bank of England poised to end its emergency gilt purchase program on Friday. Nothing has been finalized in terms of the fiscal stimulus plan, but clearly, market participants liked what they were hearing.
The S&P 500 futures were up 42 points, the Nasdaq 100 futures were up 102 points, and the Dow Jones Industrial Average futures were up 340 points. Unfortunately, the futures market ran headlong into a hot Consumer Price Index (CPI) Report for September.
Currently, the S&P 500 futures are down 74 points and are trading 2.1% below fair value, the Nasdaq 100 futures are down 307 points and are trading 2.8% below fair value, and the Dow Jones Industrial Average futures are down 487 points and are trading 1.6% below fair value.
Treasuries, in turn, have given up their UK-fed gains. The 2-yr note yield, sitting at 4.29% in front of the CPI report, has soared to 4.48%, and the 10-yr note yield, sitting at 3.85% in front of the CPI report, has jumped to 4.03%.
Briefly, total CPI was up 0.4% month-over-month in September (Briefing.com consensus 0.2%) following an unrevised 0.1% increase in August. Core CPI, which excludes food and energy, jumped 0.6% month-over-month (Briefing.com consensus 0.4%) following an unrevised 0.6% increase in August.
On a year-over-year basis, total CPI was up 8.2%, versus 8.3% in August, but core CPI was up 6.6% versus 6.3% in August.
The key takeaway from the report is the recognition that core inflation has gotten worse, driven by widespread pricing pressures that included another 0.7% increase in the shelter index. This understanding will cement expectations for a 75-basis point rate hike at the next FOMC meeting and stir worries that the Fed will stay on an aggressive rate-hike path longer than hoped.
Separately, initial jobless claims for the week ending October 8 increased by 9,000 to 228,000 (Briefing.com consensus 225,000). Continuing jobless claims for the week ending October 1 increased by 3,000 to 1.368 million.
The key takeaway from the report is that initial claims are still running at relatively low levels that suggest the labor market continues to run hot -- or, at least too hot for the Fed's liking.
Now, we'll have to see if the stock market can find a way to walk away from the post-CPI accident in better shape than it now appears to be. To be sure, it had some inkling from yesterday's Producer Price Index that today's report might not look so good; and the fed funds futures market had already priced in an 84.5% probability of a 75-basis point rate hike at the next meeting.
What has changed, though, is that there is a higher probability now in the fed funds futures market for a higher terminal rate of 4.75-5.00% by February. Yesterday, that probability stood at 29.7%. Today it is 67.9%.
The equity futures market right now, then, is a bit of an interest rate mess related to monetary policy considerations. That is going to spill over to the cash market, much like it has been doing all year, and it has tempered the early enthusiasm about the fiscal hope involving the UK.
-- Patrick J. O'Hare, Briefing.com
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