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Market Snapshot
briefing.com
| Dow | 32821.49 | +415.24 | (1.28%) | | Nasdaq | 10494.31 | +79.21 | (0.76%) | | SP 500 | 3801.49 | +30.87 | (0.82%) | | 10-yr Note | -4/32 | 4.21 |
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| | NYSE | Adv 1939 | Dec 1117 | Vol 917 mln | | Nasdaq | Adv 2505 | Dec 2082 | Vol 4.4 bln |
Industry Watch
| Strong: Communication Services, Financials, Energy, Health Care |
| | Weak: Utilities, Consumer Discretionary, Real Estate |
Moving the Market
-- Weakening dollar
-- Apple (AAPL) recovered from earlier losses after cutting iPhone 14 Pro and iPhone 14 Pro Max production expectations
-- More speculation that China will relax its zero-COVID policy in coming months even though health officials there said China will continue to adhere to that policy
-- Potential for Tuesday's election to lead to gridlock for the next few years
-- Rising Treasury yields; 10-yr note yield hitting 4.20%
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Closing Summary
07-Nov-22 16:30 ET
Dow +423.78 at 32830.03, Nasdaq +89.27 at 10504.37, S&P +36.25 at 3806.87
[BRIEFING.COM] Today's trade shaped up to be decidedly positive, but it wasn't always that way. The major indices experienced choppy action most of the session, pressured by rising Treasury yields and price action in Apple (AAPL 138.92, +0.54, +0.4%). The stock market shifted into rally mode in the afternoon, however, which brought the S&P 500 above the 3,800 level. The shift in momentum coincided with the U.S. Dollar Index, which had been on a steady decline, taking another leg lower.
The U.S. Dollar Index fell 1.8% on Friday and was down another 0.7% to 110.16 today.
The stock market showed impressive resilience to selling today, which acted as its own positive catalyst. Other supporting factors included speculation that China could relax its zero-COVID policy in coming months and an expectation that the midterm election results will lead to legislative gridlock that will make it near impossible to pass any new tax hikes or big spending plans.
Apple, which was able to squeeze out a slim gain, suffered losses and weighed on index level performance earlier today. This comes after the company cut its iPhone 14 Pro and iPhone 14 Pro Max production expectations. The reaction was not outsized given that the specter of such a warning loomed large over Apple last week, which declined nearly 11% from its high on Tuesday to its close on Friday.
Market breadth reflected broad buying interest. Advancers led decliners by a roughly 2-to-1 margin at the NYSE and a 4-to-3 margin at the Nasdaq.
Most of the S&P 500 sectors closed in positive territory. Communication services (+1.8%) sat atop the leaderboard, boosted by gains in Meta Platforms (META 96.72, +5.93, +6.5%) after The Wall Street Journal reported the company is planning large layoffs that will help Meta cut costs.
The energy sector (+1.7%), which will presumably face less regulatory pressure in a gridlock environment, was another winning standout today. Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 0.7% to $91.99/bbl while natural gas futures rose 8.1% to $7.27/mmbtu.
On the flip side, the utilities (-1.9%) sector suffered the steepest loss.
Buyers in the equity market were not deterred when the 10-yr Treasury note yield settled at 4.21% and the 2-yr note yield rose six basis points to 4.73%.
Norwegian Cruise Line (NCLH), Perrigo (PRGO), Expeditors Intl (EXPD), Constellation Energy (CEG), DuPont (DD), GlobalFoundries (GFS), Squarespace (SQSP), and Coty (COTY) are among the notable earnings reporters ahead of Tuesday's open.
Economic data on Tuesday is limited to the October NFIB Small Business Optimism Index (prior 92.1) at 6:00 a.m. ET.
Today's economic data was limited to the consumer credit report for September, which showed an increased of $25.0 bln following an upwardly revised $30.1 billion (from $23.8 billion) in August.
Dow Jones Industrial Average: -9.7% YTD
S&P Midcap 400: -14.6% YTD
S&P 500: -20.1% YTD
Russell 2000: -19.4% YTD
Nasdaq Composite: -32.5% YTD
Market climbs ahead of close
07-Nov-22 15:25 ET
Dow +462.42 at 32868.67, Nasdaq +106.54 at 10521.64, S&P +40.17 at 3810.79
[BRIEFING.COM] The major averages are marching higher ahead of the close.
Consumer credit increased by $25.0 bln in September following an upwardly revised $30.1 billion (from $23.8 billion) in August.
The key takeaway from the report is that consumer credit growth persisted, demonstrating that the demand for credit has not vanished in a rising interest rate environment. That point notwithstanding, a slowdown in the pace of expansion is expected as home lending activity and auto lending activity weaken in the face of high prices and high interest rates.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 0.7% to $91.99/bbl while natural gas futures rose 8.1% to $7.27/mmbtu.
After today's close, Diamondback Energy (FANG), Activision Blizzard (ATVI), Take-Two (TTWO), Lyft (LYFT), TripAdvisor (TRIP), Teradata (TDC), SolarEdge Technologies (SEDG), and Mosaic (MOS) are set to report quarterly results.
Norwegian Cruise Line (NCLH), Perrigo (PRGO), Expeditors Intl (EXPD), Constellation Energy (CEG), DuPont (DD), GlobalFoundries (GFS), Squarespace (SQSP), and Coty (COTY) are among the notable earnings reporters ahead of Tuesday's open.
Economic data on Tuesday is limited to the October NFIB Small Business Optimism Index (prior 92.1) at 6:00 a.m. ET.
Dollar continues to fall; S&P 500 above 3800
07-Nov-22 15:00 ET
Dow +415.24 at 32821.49, Nasdaq +79.21 at 10494.31, S&P +30.87 at 3801.49
[BRIEFING.COM] Recent price action brought the major averages to fresh session highs.
This move coincided with Apple (AAPL 138.81, +0.45, +0.3%) lifting well off its lows and reaching positive territory.
Growth stocks are leading the recent upside charge after trailing value stocks earlier in the session. The Russell 3000 Growth Index is up 1.1% versus a 0.8% gain in the Russell 3000 Value Index.
Also, the U.S. Dollar Index continued to drift lower, down 0.7% to 110.08.
The advance-decline line reflected a mixed market for most of the session, but now advancers lead decliners by a nearly 2-to-1 margin at the NYSE and a 3-to-2 margin at the Nasdaq.
NiSource slips after earnings
07-Nov-22 14:35 ET
Dow +435.78 at 32842.03, Nasdaq +87.47 at 10502.57, S&P +34.26 at 3804.88
[BRIEFING.COM] The rally to highs has continued in recent trading, the benchmark S&P 500 (+0.91%) moving back above 3800.
S&P 500 constituents EQT Corp. (EQT 44.41, +3.33, +8.11%), DISH Network (DISH 14.41, +1.06, +7.94%), and Trimble (TRMB 57.06, +3.27, +6.08%) pepper the top of the standings. TRMB moves higher after announcing a collaboration with HP Inc. (HPQ 28.80, +0.51, +1.80%) and a new cloud software tool in collaboration with Microsoft Azure (MSFT 227.66, +6.27, +2.83%).
Meanwhile, Indiana-based utilities firm NiSource (NI 23.90, -1.99, -7.69%) is one of today's worst performers following earnings.
Gold higher on Monday as dollar retreats
07-Nov-22 14:00 ET
Dow +301.29 at 32707.54, Nasdaq +19.33 at 10434.43, S&P +16.24 at 3786.86
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (+0.18%) is still bringing up the rear among the major averages, though still stands slightly higher.
Gold futures settled $3.90 higher (+0.2%) to $1,680.50/oz, aided in part by a modest retreat in the dollar.
Meanwhile, the U.S. Dollar Index is down about -0.7% to $110.10.
Page One
Last Updated: 07-Nov-22 09:02 ET | Archive
Market dancing with the dollar
The dollar got clobbered on Friday and stocks rallied. It is down again this morning and the equity futures market has a positive disposition.
Currently, the U.S. Dollar Index is down 0.3% to 110.53. The S&P 500 futures, meanwhile, are up ten points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 32 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 93 points and are trading 0.3% above fair value.
It is an interesting symmetry, only because the Fed has been pretty clear that it is not done yet raising rates. It might slow the pace of its rate hikes but it has "a ways to go," according to Fed Chair Powell before getting to a restrictive level that is sufficient for getting inflation back down to the 2.0% target.
Other central banks are starting to signal that they, too, might be slowing the pace of their rate hikes. In relative terms, then, the dollar should still be in demand, but for whatever reason, it isn't at the moment.
The selling could be tied to some unwinding of a crowded trade, meaning the dollar is hitting a tactical air pocket. Again, we can't say for sure, but the action in the currency market bears close watching as a market driver.
To that end, it is one of several moving parts this morning that is drawing attention. Other moving parts include the following:
- Apple (AAPL) warning of lower-than-expected iPhone 14 shipments because of production issues in China
- The Wall Street Journal reporting that Meta Platforms (META) could announce a large number of layoffs this week
- A Washington Post report that suggests the White House is urging Ukraine to be more open to possible peace negotiations with Russia
- Lingering speculation that China will relax its zero-COVID policy in coming months even though health officials there said China will continue to adhere to that policy
- The specter of Tuesday's midterm election and the possibility that it will lead to legislative gridlock for the next few years
- China reporting a 0.3% yr/yr decline in October exports and a 0.7% yr/yr decline in October imports as a reflection of a weakening in global economic activity
- An 8.5% jump in natural gas futures to $7.33/mmbtu and oil prices, while down 0.6% at the moment, hanging above $90.00/bbl
The Apple news might have been considered a bigger shock to the stock market a week ago, but a week ago it was considered to be a possibility given the reported COVID restrictions that impeded production capabilities at the Foxconn manufacturing plant in China.
AAPL has fallen 11% from its high last Tuesday, so the fallout this morning after the warning has been relatively modest all things considered. It is down just 1.5%, but nonetheless that has created a drag on the S&P 500, Nasdaq 100, and Dow Jones Industrial Average futures.
META, which is up 3.0%, is helping to offset some of that weakness. Investors are responding favorably to the notion that large layoffs are going to create some expense savings for the company.
Still, Apple carries far more market weight than Meta does. With a $2.2 trillion market capitalization, it is nearly 10x the size of Meta Platforms.
These companies will be talking points today, yet the October Consumer Price Index that will be released on Thursday will be a talking point throughout the week. That report will offer the latest read on consumer inflation and it will certainly fuel the market's thinking about whether the next rate hike in December will be 50 basis points or 75 basis points.
-- Patrick J. O'Hare, Briefing.com
Walgreens Boots Alliance further bolsters its U.S. Healthcare unit with Summit Health-CityMD (WBA)
Walgreens Boots Alliance (WBA +3%) is moving higher today on VillageMD's agreement to acquire Summit Health-CityMD, a primary, specialty, and urgent care provider, for approximately $8.9 bln. As a majority stakeholder, WBA is investing $3.5 bln to support the deal. Recall after WBA poured $5.2 bln into VillageMD last year, it upped its stake to over 60%.
Investors have not been too kind to WBA this year, sending shares around 30% lower, partly highlighting their concern that the company's sizeable investments to bolster its primary and pharmacy care offerings would ding earnings growth.
- However, today's purchase is expected to be immediately accretive to WBA's bottom line, projecting an added $0.07 in FY23 and $0.11 in FY24, only to increase thereafter.
- Furthermore, WBA raised its U.S. Healthcare segment's FY25 sales goal considerably to $14.5-16.0 bln from $11.0-12.0 bln.
- Lastly, U.S. Healthcare is now expected to reach positive adjusted EBITDA by the end of FY23, one year ahead of WBA's FY24 projection detailed just last month. Although it should be noted that this would mean WBA would have to hit the high end of its FY23 adjusted EBITDA outlook of $(50) mln to $25 mln, which is up from prior expectations of $(240)-$(220) mln.
The main takeaway is that WBA's purchase marks a significant step in the right direction in enhancing its next growth engine, U.S. Healthcare, which was one of its four strategic priorities introduced last year. Last month, WBA already demonstrated positive developments in this segment, such as accelerating full ownership of CareCentrix, its home care offering, while boasting pro forma growth of 75% from its VillageMD and Shields banners in FY22. However, with WBA expecting U.S. Healthcare to contribute over half of its annual adjusted EPS growth over the long term, it makes sense it is stepping on the gas to bolster this segment even further.
Bottom line, WBA may be struggling relative to its main rival CVS Health (CVS), which has seen its shares trade flat on the year. However, we like that WBA has continued to deliver on one of its core strategic growth pillars in U.S. Healthcare, and today's acquisition should only expand the positive results it has shown thus far.
Meta Platforms receives a boost on report of layoffs, but big picture questions remain (META)
Meta Platforms (META), which is suffering through its most challenging period as a public company, is on the verge of laying off thousands of employees as it looks to slash expenses. According to the Wall Street Journal, which broke this story, the broad-based job cuts could come as early as Wednesday. It doesn't come as a surprise that layoffs are coming since META CEO Mark Zuckerberg has signaled a few different times that workforce reductions were under consideration. Most recently, during the 3Q22 earnings conference call, Zuckerberg commented that while some teams within the company will grow meaningfully, others will stay flat or will shrink next year.
However, Zuckerberg also stated that he anticipated head count at the end of 2023 to be approximately in line with 3Q22 levels. That statement was somewhat surprising and disappointing to investors who were expecting META to significantly lower its cost structure. On that note, META's FY23 operating expense guidance of $96-$101 mln, representing a projected yr/yr increase of 15% at the midpoint, did not go over well and was a primary reason why the stock cratered by about 25% the day after its earnings report.
Today, though, shares are moving higher on the report as the magnitude of the layoffs come into focus. Over the past couple of months, META has trimmed its workforce in a more targeted way, but the number of job cuts in this round may be more than what many were expecting. In fact, the Wall Street Journal reported that META's job cuts could be the most of any technology company so far this year. To put that into perspective, Twitter (TWTR) laid off nearly 3,700 employees last week after Elon Musk took the helm.
With META expecting its revenue to decline on a yr/yr basis for the third consecutive quarter in Q4, it's evident that the company needs to be right sized and better aligned with an eroding demand landscape. Its troubles, including market share losses to TikTok and privacy changes for Apple's (AAPL) iOS, are well documented. However, the big picture issues that are plaguing META run even deeper and can't be fully remedied by layoffs.
- As META began to lose ground to TikTok and to other competitors, Zuckerberg set his sights on virtual/augmented reality and the Metaverse. A new segment called Reality Labs was created to house the AR/VR products, while META's social media apps were separated out to the Family of Apps segment.
- Although it's still relatively early in META's transformation process, the results for Reality Labs so far have been quite discouraging. In Q3, Reality Labs' revenue tumbled by nearly 50% to $285 mln, while the operating loss worsened to $(3.7) bln from $(2.6) bln in the year-earlier period.
- META has no plans to let off the accelerator, though, and is forecasting FY23 capex of $96-$101 bln, equating to an estimated yr/yr increase of 12%. A majority of the spending will be poured into the loss-generating Reality Labs segment.
The main takeaway is that investors are relieved to see that META is taking its cost cutting efforts seriously after the company issued disappointing FY23 operating expense guidance. Serious questions and doubts regarding the company's metaverse aspirations remain, though, and we anticipate that META's financial performance will continue to underwhelm for the foreseeable future.
Palantir Technologies continues to slide as Q4 guidance signals further deceleration in revs (PLTR)
Cloud-based data analytics firm Palantir Technologies (PLTR -12%) continues to slide today following a Q3 earnings miss and downbeat Q4 revenue guidance. Being a relatively pricey cloud stock -- trading at ~8x forward sales -- shares of PLTR already slid over 8% since the Fed meeting on November 2, where the Fed raised interest rates another 75 bps and did not signal a pivot from its current hawkish stance.
However, even though the Fed's rate-raising campaign has weighed on PLTR this year, it has endured its share of company-specific issues, further evidenced by a few less-than-stellar Q3 numbers.
- When PLTR went public just over two years ago, investors' primary focus was on meaningfully improving commercial growth. Therefore, playing a major role in today's price action is commercial revs slowing dramatically in Q3, going from +46% yr/yr in Q2 to just 17% in Q3. Even worse, in PLTR's core U.S. market, commercial revs decelerated to just 53% yr/yr from +120% in Q2. PLTR cited the ongoing macroeconomic slowdown as a reason commercial revs barely budged in Q3 relative to Q2.
- A silver lining is that net new U.S. commercial customers grew 124% yr/yr and 11% sequentially, marking PLTR's seventh-straight quarter of sequential growth over 10%.
- Also, a factor outside PLTR's control, a strong U.S. dollar, took a bite out of its commercial growth in Q3.
- PLTR's Q4 guidance was not very appealing either, expecting revs of $503-505 mln, or 16.4% at the midpoint, representing another quarter of slowing growth. FX headwinds did play a role, estimated to dent revs by $5 mln. However, despite excluding such an impact, PLTR's Q4 guidance does not shine very brightly as it still marks under 30% sales growth.
- We repeatedly bring up the 30% number, as this was PLTR's three-year annual sales target just two quarters ago, highlighting how rapidly its expectations have shifted. Also, unlike last quarter when CEO Alex Karp still noted that he believed PLTR would reach its FY25 goal of $4.5 billion in sales, nothing was said during its Q3 earnings call.
Overall, the environment is not fitting for PLTR and its still-relatively pricey multiple, evidenced by another quarter of uninspiring results. Conversely, PLTR's valuation is becoming more attractive as shares have plummeted by over 60% on the year and are now trading around its direct listing price of $7.25. The company is also sitting on a pile of cash at $2.4 bln with no debt. Still, we think it is best to view PLTR from the sidelines as a slowdown in the global economy is now coinciding with a still-hawkish Federal Reserve, which may continue to prove a heavy weight to bear over the near term.
TreeHouse Foods getting chopped down a bit as we get our first look following meal prep sale (THS)
TreeHouse Foods (THS -8%) is heading sharply lower today following its Q3 results this morning. This huge supplier of private label food and beverages has been undergoing a lot of changes lately. Today, we got our first look at earnings following a large sale and perhaps investors are not super thrilled with how the slimmer TreeHouse performed.
- On October 3, THS completed the sale of a significant portion of its Meal Preparation business, including pasta, dressing, preserves etc. THS sold the business to Investindustrial for $950 mln, which computes as a 13.6x EBITDA multiple. That is quite high for the food industry. It seems THS struck while the iron was hot. With consumers feeling the inflation pinch, they have been trading down to private label options at the grocery store. So the business is quite attractive these days and thus the nice multiple.
- The deal accomplishes two things: 1) it allows THS to focus on its more lucrative and higher growth/margin snack and beverage businesses, and 2) it strengthens the balance sheet with $500 mln in debt reduction.
- Turning to earnings, we cannot really compare EPS to analyst expectations because consensus includes the business that was sold. However, THS did report that Q3 sales from continuing operations rose 16.4% yr/yr to $875 mln with adjusted EBITDA margin of 8.8%. The Q4 guidance was impressive with revs expected to grow +22-24% yr/yr, also primarily driven by pricing, plus a big sequential increase in adjusted EBITDA margin at 10.5-12.0%, driven by pricing and peak seasonality.
Overall, the market seems to be less enthused now that we get our first look at TreeHouse post-sale. Perhaps they wanted to see a more robust top line and more robust adjusted EBITDA margin with the slower-growth meal prep business off the books. However, we think the Q4 guidance looks pretty solid. We think investors may be overreacting a bit.
Longer term, we like the direction CEO Steve Oakland is taking the company. The meal prep sale follows the sale of its ready-to-eat cereal business to Post Holdings for $85 mln last year. Focusing on more lucrative and higher margin categories like snacks and beverages makes a lot of sense. Also, just having a more narrow focus generally allows a company to be more nimble and innovative. Finally, we like TreeHouse's heavy exposure in private label, which is a good place to be as consumers feel the inflation pinch.
Twilio takes a tumble as growth rate sharply decelerates and margin contraction continues (TWLO)
Twilio (TWLO), a cloud communications platform provider, beat analysts' 3Q22 EPS and revenue estimates, continuing a winning streak that extends beyond five years. However, the stock is still getting crushed today because the company issued weak Q4 guidance, confirming fears that macroeconomic headwinds are causing its customers to pull back on spending. Specifically, its outlook for revenue of $995-$1.005 bln equates to yr/yr growth of just 18% at the midpoint, representing a steep deceleration from this quarter's growth of 33%. In fact, since 2Q21, TWLO's top-line growth rate has been trending lower, steadily dropping from the mid-60% level seen last year.
Until this quarter's earnings conference call, TWLO had maintained a relatively upbeat posture regarding its near-term prospects, while highlighting the resiliency of its business. For instance, during the Q2 earnings call, President Elena Donia commented that the company hadn't seen a significant deterioration in demand and that companies are prioritizing investments in solutions like TWLO's that drive revenue and efficiency. She did acknowledge, though, that a couple of isolated areas of softness were emerging, including crypto, social, and consumer on-demand. Not only did those verticals weaken further in Q3, but new cracks also formed in areas such as e-Commerce and retail.
Compounding the problem is that TWLO decided after the 2020 election cycle to off-board political traffic from its platform to avoid friction with some of its customers. Consequently, Q3 and Q4 will not experience the typical spike in political-based traffic that typically occurs during election cycles.
Unfortunately, the troubles aren't relagated to TWLO's Q4 revenue outlook.
- Non-GAAP gross margin continues to contract, sinking to 25% in Q3 from 33% last quarter, and from 41% in 1Q22. The company is moving further and further away from its long-term gross margin target of 60% and investors are clearly losing confidence that it will reach that mark any time soon.
- TWLO attributes the erosion to a higher mix of lower margin international revenue. In Q3, international revenue accounted for 34% of total revenue, which was actually down from 35% in Q2 and Q1.
- When asked about this contradiction during the earnings call, COO Khozema Shipchandler explained that the 35% figure is based on where the customer's address is, not necessarily where the traffic ends up. Shipchandler added that TWLO has U.S. and international customers that reside internationally, and that send messages internationally, which have a slightly lower gross margin.
- As a result of the eroding gross margin and declining revenue growth, TWLO's profits are heading in the wrong direction. This quarter's ($0.27)/share loss was its worst showing in over five years and the company is forecasting another loss for Q4, guiding for EPS of ($0.11)-($0.06).
- Despite this backslide, TWLO maintained its expectation of achieving non-GAAP operating profitability in FY23. To help reach that goal, the company announced an 11% workforce reduction in September, but more changes to its cost structure may be needed.
TWLO is getting punished because the slowdown in growth is much more pronounced than investors were anticipating. Coming off of the Q2 earnings report, it seemed that demand was holding up relatively well, outside of a few weak spots. Conditions have soured significantly since then, though, and TWLO is now experiencing a broad-based downturn in customer spending levels. Making matters worse, TWLO's margins are on the downtrend, putting its profitability aspirations into question for next year.
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