Market Snapshot
briefing.com
| Dow | 31586.95 | +502.36 | (1.62%) | | Nasdaq | 10949.72 | +90.15 | (0.83%) | | SP 500 | 3803.96 | +51.14 | (1.36%) | | 10-yr Note | -1/32 | 4.23 |
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| | NYSE | Adv 1753 | Dec 1310 | Vol 986 mln | | Nasdaq | Adv 2261 | Dec 2319 | Vol 4.7 bln |
Industry Watch
| Strong: Consumer Staples, Health Care, Industrials, Utilities, Financials |
| | Weak: Materials, Real Estate |
Moving the Market
-- Carryover upside momentum from last week's gains
-- 10-yr note yield was pushing towards 4.30% earlier, but pulled back from that level
-- Heavy losses in Chinese stocks following reelection of President Xi
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Closing Summary
24-Oct-22 16:20 ET
Dow +417.06 at 31501.65, Nasdaq +92.90 at 10952.47, S&P +44.59 at 3797.41
[BRIEFING.COM] The stock market logged sizable gains today, building on last week's rally. The day started on a mixed note, however, with the major averages oscillating around the flat line as the 10-yr Treasury note yield tested the 4.30% level. Selling quickly subsided in the Treasury market and stocks built upside momentum. The S&P 500, which slipped below 3,500 on October 13, briefly traded above 3,800 before ending just below that level.
The 10-yr note yield ultimately settled up two basis points to 4.23%. The 2-yr note yield fell three basis points to 4.48%.
Notably, the stock market held up pretty well even as the 10-yr note yield reached its session high. Market participants remain drawn to the notion that the Fed could take a less aggressive rate-hike approach in December and beyond. Today's weak preliminary Manufacturing and Services PMI data for October from IHS Markit supported this thinking.
Many stocks came along for the rally, which left nine of the 11 S&P 500 sectors in positive territory. Health care (+1.9%) held the top spot while materials (-0.6%) fell to the bottom.
One notable area of weakness was Chinese stocks and U.S. stocks with high exposure to the Chinese market. This comes after Xi Jinping secured an unprecedented, third five-year term to serve as China's leader. That wasn't surprising, but it did come as a shock to many investors that he managed to surround himself only with loyalists who are apt to help him pursue tighter regulations and the continuation of China's zero-Covid policy.
JD.com (JD 36.66, -5.49, -13.0%) and Pinduoduo (PDD 44.46, -14.51, -24.6%) were losing standouts for Chinese stocks while Las Vegas Sands (LVS 35.05, -4.02, -10.3%) and Starbucks (SBUX 83.76, -4.85, -5.5%) also suffered losses on concerns related to Xi's power grab.
Energy complex futures settled in mixed fashion. WTI crude oil futures fell 0.3% to $84.64.bbl while natural gas futures rose 5.2% to $5.21/mmbtu.
Also, it has been reported that Rishi Sunak will be the next UK prime minister.
General Motors (GM), Valero Energy (VLO), Centene (CNC), UPS (UPS), Sherwin-Williams (SHW), PulteGroup (PHM), Haliburton (HAL), General Electric (GE), Raytheon Technologies (RTX), Biogen (BIIB), Coca-Cola (KO), and 3M (MMM) headline the earnings reports ahead of Tuesday's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:00 ET: August FHFA Housing Price Index (Briefing.com consensus -0.7%; prior -0.6%), August S&P Case-Shiller Home Price Index (Briefing.com consensus 14.0%; prior 16.1%)
- 10:00 ET: October Consumer Confidence (Briefing.com consensus 105.5; prior 108.0)
Economic data today was limited to the preliminary October IHS Markit Manufacturing PMI, which came in at 49.9 versus the prior reading of 52.0 and the preliminary October IHS Markit Services PMI came in at 46.6 versus the prior reading of 49.3.
Dow Jones Industrial Average: -13.3% YTD
S&P Midcap 400: -18.1% YTD
S&P 500: -20.3% YTD
Russell 2000: -22.1% YTD
Nasdaq Composite: -30.0% YTD
Market near session highs ahead of close
24-Oct-22 15:30 ET
Dow +488.56 at 31573.15, Nasdaq +118.90 at 10978.47, S&P +54.66 at 3807.48
[BRIEFING.COM] The major averages trade near session highs ahead of the close. The S&P 500 is above the 3,800 level.
After the close, Discover Financial Services (DFS), Packaging Corp (PKG), Alexandria RE (ARE), Logitech Int'l SA (LOGI), and Zions Bancorp (ZION) are set to report earnings after the close.
General Motors (GM), Valero Energy (VLO), Centene (CNC), UPS (UPS), Archer-Daniels (ADM), General Electric (GE), Raytheon Technologies (RTX), Novartis AG (NVS), Coca-Cola (KO), and 3M (MMM) headline the earnings reports ahead of Tuesday's open.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:00 ET: August FHFA Housing Price Index (Briefing.com consensus -0.7%; prior -0.6%), August S&P Case-Shiller Home Price Index (Briefing.com consensus 14.0%; prior 16.1%)
- 10:00 ET: October Consumer Confidence (Briefing.com consensus 105.5; prior 108.0)
S&P 500 finds resistance at 3800
24-Oct-22 15:00 ET
Dow +502.36 at 31586.95, Nasdaq +90.15 at 10949.72, S&P +51.14 at 3803.96
[BRIEFING.COM] The S&P 500 is attempting to break above the 3,800 mark, but seems to be running into resistance there.
Energy complex futures settled in mixed fashion. WTI crude oil futures fell 0.3% to $84.64.bbl while natural gas futures rose 5.2% to $5.21/mmbtu.
Despite oil prices settling a bit higher today, the S&P 500 energy sector (+0.5%) trades near the bottom of the pack.
HCA continues rebound off earnings losses
24-Oct-22 14:30 ET
Dow +407.43 at 31492.02, Nasdaq +52.30 at 10911.87, S&P +38.83 at 3791.65
[BRIEFING.COM] The S&P 500 (+1.03%) is firmly situated in second place among the major averages on Monday afternoon.
S&P 500 constituents HCA (HCA 207.77, +11.11, +5.65%), Tractor Supply (TSCO 206.60, +9.23, +4.68%), and Dollar Tree (DLTR 149.27, +5.66, +3.94%) are among today's top performers. HCA continues to rebound from Friday's post-earnings opening losses, while consumer discretionary names like TSCO and DLTR show solid gains.
Meanwhile, Las Vegas Sands (LVS 34.42, -4.65, -11.90%), among other names impacted by news out of China today, fell to a three-month low earlier in the session.
Gold modestly lower to start the week
24-Oct-22 14:00 ET
Dow +340.54 at 31425.13, Nasdaq +26.29 at 10885.86, S&P +30.95 at 3783.77
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (+0.24%) is today's shallowest gainer among the major averages, keeping close tabs on levels near Friday's close.
Gold futures settled $2.20 lower (-0.1%) to $1,654.10/oz, pressured in part by stronger equities and a modest move in the dollar.
Meanwhile, the U.S. Dollar Index is unchanged at $112.02.
HNI inches up on better-than-feared Q3 results; near term remains a challenge (HNI)
Office furniture maker HNI (HNI +1%) is seeing modest appreciation today despite posting a top-line miss in Q3 as the company's earnings beat garners all the attention. Also, HNI's Q3 headline results look similar to AugQ numbers posted by competitors Steelcase (SCS) and MillerKnoll (MLKN) last month. As a result, investors are not putting HNI in a similar hot seat as expectations were relatively low ahead of the company's Q3 earnings report.
- Factors that led to sales growing just 2.1% yr/yr to $598.8 mln were much the same as those outlined by SCS and MLKN. The current macroeconomic backdrop is weak, leading to orders from larger contract customers remaining subdued. Smaller transactional order activity was also soft during Q3.
- Smaller order activity tends to react more rapidly to economic concerns, building in a leading economic indicator for the office furniture industry going forward. Once this metric ticks back up, larger orders may soon follow.
- A bright spot in Q3 stemmed from solid demand amongst mid-market customers, where more workers have returned to the office, whether entirely or in a hybrid model. HNI noted that strength in this market is encouraging as it reflects a broader underlying strength in demand once the economy stabilizes.
- MLKN expressed similar comments late last month, noting that pockets in the core office business are still experiencing plenty of resiliency in activity. SCS did not differ much either, remarking that it is seeing a continued improvement in return-to-office trends.
- Looking toward Q4, conditions are not expected to get much better. Adjusted EPS is expected to decline sequentially from the $0.71 posted in Q3 but still exceed year-ago numbers. HNI's Workplace Furnishings segment, its largest by revenue, will continue to see decelerating revenue growth, like in Q3. HNI's other segment, Residential Building Products, is expected to endure a similar fate as Workplace Furnishings.
Although Q3 results and Q4 guidance were not overly upbeat, HNI was confident its core strategies would drive margin expansion and revenue growth over the long haul. Still, the company acknowledged that the near term will be difficult, not straying too far from the sentiment felt by its peers.
Yum China plunges following President Xi's reelection, putting lockdown fears in spotlight (YUMC)
Chinese stocks are taking a big hit today and Yum China (YUMC), which operates over 12,000 KFC and Pizza Hut restaurants in China, is one of the weakest names among the group. The sell-off is primarily being spurred by the reelection of President Xi to a third term and the associated concerns about his strict zero COVID policy. Some mixed economic data from China, including a weaker-than-expected Retail Sales reading for September, may also be contributing to the weakness. However, given that YUMC has been so severely impacted by COVID-related lockdowns, we believe the reelection news is by far the more significant issue.
While addressing the Communist Party Congress over the weekend, Xi staunchly defended the zero COVID program, stating that the safety of the country's citizens must come first. This policy, though, which is only implemented in China, has had a crippling effect on the country's economy. Although China's Q3 GDP of 3.9% did edge past the 3.5% expectation, the economy there is on pace to grow by the slowest rate in decades (not including the 2020 COVID year) in 2022.
Adding to investors' angst, Li Qiang, the current Communist Party Chief of Shanghai, is in line to become China's next premier in March. As Premier, Li will have considerable control over economic policy. That's concerning because Li has been a very vocal advocate for Xi's zero COVID approach, signaling that any softening of business restrictions is unlikely to materialize any time soon.
For YUMC, the reelection and the affiliated government appointments will likely prolong, and potentially exacerbate, its struggles.
- In 2Q22, same store sales decreased by 16% yr/yr, with declines of 16% at KFC and 15% at Pizza Hut. During April and May, over 2,500 of YUMC's stores were either temporarily closed or only provided takeaway and delivery services. The Shanghai market took the brunt of the zero COVID policy as only 30% of YUMC's restaurants were open and able to offer limited services.
- As a result of the sales deleveraging and commodity/wage inflation, restaurant margin contracted by 370 bps yr/yr to 12.1%. Combined with a 13% yr/yr revenue decrease, the margin deterioration caused EPS to plunge by 52% to $0.20.
- Late in Q2, the Chinese government began lifting some of its lockdown restrictions, but the easing didn't last long. After a new, highly transmissible COVID variant began spreading in July, many cities went back into full or partial lockdown modes again.
- With nearly 5,500 stores in China, Starbucks (SBUX) is another restaurant chain with substantial exposure to lockdown risks. McDonald's (MCD) has roughly 2,200 locations in China, but that only represents about 5% of its total restaurant base, compared to about 30% for SBUX.
The main takeaway is that the reelection of President Xi in China, and his appointments who have a similar hardline approach with COVID and lockdowns, means that YUMC will likely be contending with strict business restrictions for the foreseeable future.
Alibaba sinks on weak economic data and fears of continual regulatory hurdles in China (BABA)
Alibaba (BABA -15%), alongside many China tech stocks, is being stomped on today after less-than-stellar economic data on the region was released and China President Xi Jinping secured a third five-year term. Large tech firms are among some of the worst performers today, with companies like JD.com (JD -15%), Pinduoduo (PDD -25%), Baidu (BIDU -13%), and Tencent (TCEHY -14%) each slumping by around double-digit percentages.
The one-two punch of somewhat disappointing economic data and President Xi Jinping remaining at the helm for another term is weighing heavily on BABA, which is now sinking below its 2014 IPO price of $68.00.
- BABA was hit particularly hard by new regulations, started under President Xi Jinping's leadership, over the past couple of years, beginning with the Chinese government scrapping BABA Founder Jack Ma's planned Ant Group IPO. The company was also recently slapped with fines by regulators after failing to comply with anti-monopoly declaration rules.
- At the same time, President Xi Jinping's zero-COVID policy has been a considerable hurdle for BABA, as supply chain disruptions have wreaked havoc on the company's e-commerce offering, which comprises around 70% of its total revs. During BABA's Q1 (Jun) earnings call in early August, the company repeatedly noted that although many businesses were negatively impacted by COVID resurgences in major cities, they saw a return to normalization as restrictions eased, highlighting the problems these restrictions have created.
- The economic data, albeit better than expected across many metrics, still indicated ongoing regional struggles. For example, though Q3 GDP grew 3.9% yr/yr, a significant jump from 0.4% in Q2, it still fell short of China's official 5.5% target.
- One of the positive developments was that Industrial Production climbed 6.3% yr/yr in September, the steepest pace since February.
Although today's massive outflow in BABA, among many other China stocks, seems like an overreaction, President Xi Jinping's unknown plans over the next five creates uncertainty, especially for BABA. Furthermore, even though economic data point to improvement, weaknesses still exist. Meanwhile, BABA has been dealing with company-specific issues, illuminated by its significantly decelerating growth profile, where revs declined yr/yr in Q1, its first quarterly decline as a public company. BABA's cloud business also slowed down in Q1 at a time when U.S.-based competitors, like Amazon (AMZN), were seeing accelerating cloud growth.
Today's sell-off does create an attractive entry point from a historical point of view, and perhaps once President Xi Jinping's intentions become more apparent over the next several weeks, shares will move higher. However, we continue to urge caution trading BABA, as well as many of its peers, as China's political and economic situation remains highly uncertain, especially with geopolitical tensions fairly elevated.
Dorman Products trades lower despite upside Q3 results, but rising costs pressured guidance (DORM)
Dorman Products (DORM -5%) is trading lower today despite reporting upside results for Q3 results this morning for both EPS and revenue. The main problem was some downside guidance for FY22, which tells us that the problems DORM has been facing in recent quarters are continuing.
- This major supplier of automotive aftermarket parts actually reported decent Q3 results. While EPS was just modestly above consensus, DORM reported strong top line upside. The main problem was a pretty significant cut in FY22 EPS guidance to $4.70-4.90 from $5.00-5.20.
- And that followed a guidance cut during its Q2 report in July from $5.35-5.55. The fact that DORM cut EPS guidance pretty severely despite the slight upside in Q3, tells us that this was a pretty drastic reduction to its Q4 outlook. The silver lining was that DORM slightly raised FY22 revenue guidance. However, this looks to be related to its just-closed acquisition of SuperATV, so it does not look to be a raise for its existing business.
- Demand was not an issue as it remained strong yet again. In fact, DORM cites several tailwinds that are benefitting the vehicle aftermarket. Specifically, as vehicle miles driven continue to increase, the average age of vehicles continues to rise. The number of cars in the 8-13 year-old sweet spot for the aftermarket continues to grow, and the lack of availability of new vehicles benefits the aftermarket.
- The problem is more on the cost side, including rising interest rates, supply chain costs, wage pressures and commodity inflation. This led to some margin pressure with adjusted gross margin falling to 32.0% from 34.0% in Q2 and from 34.4% a year ago. The silver lining here is that DORM sees signs that global supply chain constraints are easing, which should lead to significantly lower ocean freight and commodity costs. That will be reflected in future quarters and should improve margins.
Overall, it was disappointing to see DORM guide down for the second quarter in a row. As new vehicle production is hampered by chip shortages, consumers have had to drive their current vehicles longer and that means more aftermarket part sales. That dynamic is being borne out as sales/demand remains robust. It is just that the cost side is rising more quickly than people were expecting. It seems to have accelerated in Q3, which makes us cautious on DORM in thew near term.
Boston Beer Co surges after its Q3 results display a healthy recovery from past woes (SAM)
Boston Beer Co (SAM +18%) is receiving plenty of cheer from investors today after the company crushed earnings estimates in Q3 on robust demand for Twisted Tea, improving wholesaler service levels, and continual supply chain improvements.
- In Q3, SAM was lapping favorable comparisons from the year-ago period when Hard Seltzer demand fell off a cliff, causing the company's Truly brand to endure a lengthy period of downbeat sales. As a result, in Q3, adjusted EPS soared to $3.85 from $(1.67) in the year-ago period. Revs also saw nice growth of 6.2% yr/yr to $596.45 mln.
- Despite the solid headline results, the Hard Seltzer category in measured off-premise channels is still down 15% on a volume basis YTD, with SAM's Truly brand underperforming the category, down 21% after seeing volumes drop by 25% in Q3. SAM also remains bearish on the category, predicting volume declines between 15-20% for the year.
- Additionally, the current economic environment is shifting volume from Hard Seltzers back to lower-priced premium light beers, which helped rival Constellation Brands' (STZ), which owns Modelo and Corona, beer business outperform the entire category in AugQ.
- On a side note, this is good news for other premium light beer providers, such as Anheuser-Busch (BUD) and Molson Coors Beverage (TAP).
- However, SAM's #2 position in the "Beyond Beer" category is helping cushion against the ongoing Hard Seltzer challenges. For example, Twisted Tea expanded its market share in Flavored Malt Beverages (FMB) in Q3, gaining 4.3 points yr/yr as volume growth accelerated from 24% YTD to 33% in the past quarter. Meanwhile, through its partnership with PepsiCo (PEP), SAM's Hard Mountain Dew is displaying encouraging numbers in its early outings (the brand has only launched in nine states).
- For FY22, SAM only narrowed the ranges on its earnings, depletions, and shipment forecasts. However, given the struggles the company experienced this year, the tightened ranges come as a positive development. The company expects adjusted EPS of $7.00-10.00, from $6.00-11.00, and depletions and shipments of (7)%-(4)% from (8)%-(3)%.
- On a more muted note, SAM lowered its gross margin outlook for FY22 to 42-43.5% from 43-45% due to higher inventory obsolescence, driven by SAM transitioning its Truly brand, which is being reformulated.
The main takeaway is that SAM is optimistic about its longer-term outlook as it continues recovering from the considerable Hard Seltzer slowdown. The near-term is creating a bit more uncertainty, especially with inflationary pressures shifting volume away from some of SAM's brands, but SAM's strong balance sheet, with its debt-to-EBITDA ratio remaining around 0.2x as of Q3, sets it up for long-term growth.
Page One
Last Updated: 24-Oct-22 09:03 ET | Archive
A big week ahead for earnings and economic news
The stock market is looking to keep last week's turnaround effort going and it will have a lot to look at this week to determine where it wants to go.
It will do so without hearing anything from Fed officials. They are in their blackout period ahead of the November 1-2 FOMC meeting. An assertion by The Wall Street Journal reporter Nick Timiraos that the Fed will debate how to communicate a smaller rate-hike step in December, after a 75-basis point rate hike in November, was the primary catalyst for Friday's rally effort.
Treasury yields came off the boil following that report. The 10-yr note yield, which had been pushing 4.32%, settled Friday's session at 4.21%. It is simmering at 4.19% this morning.
As an aside, the 10-yr UK gilt yield is down 22 basis points to 3.84% amid reports that Rishi Sunak is the frontrunner to replace Liz Truss as prime minister and that Finance Minister Hunt will soon announce a tax increase for high earners that could raise GBP20 billion.
The improvement there, along with the improvement in natural gas prices ($4.89, -0.07, -1.3%), has cleared the way for European equity markets to start the week on an upbeat note.
The same cannot be said for Chinese markets. The Shanghai Composite dropped 2.0% while Hong Kong's Hang Seng plunged 6.4%. The weakness there came in the wake of the news that Xi Jinping had secured an unprecedented, third five-year term as China's leader. Worries that he will pursue tighter regulations and the persistence of the zero-Covid policy undercut investor sentiment along with some weaker-than-expected retail sales data for September.
Many Chinese stocks with U.S. listings, such as JD.com (JD), Pinduoduo (PDD), and Baidu (BIDU), are showing double-digit percentage losses in pre-market action.
Their weakness has not undermined sentiment, however. If anything, it might be helping sentiment to the extent that worries about a less market-friendly regime in China could encourage safe-haven flows to the U.S. The yuan hit its lowest level against the dollar today since 2008.
Currently, the S&P 500 futures are up 28 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 44 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 251 points and are trading 0.8% above fair value.
Investor sentiment will be on trial this week. Roughly one-third of the S&P 500 will be reporting its September quarter earnings results. We will be hearing from companies across a wide swath of industries, and sectors, but none will hold more sway as potential market movers than Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOG), and Meta Platforms (META).
Beyond the earnings news, there will also be some featured economic reports this week, starting with the October Consumer Confidence Index on Tuesday, the September New Home Sales Report on Wednesday, the Advance Q3 GDP Report on Thursday, and the September Personal Income and Spending Report on Friday, which will feature the Fed's preferred inflation gauge in the form of the PCE Price Index.
-- Patrick J. O'Hare, Briefing.com
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