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Market Snapshot
briefing.com
| Dow | 33847.56 | +96.67 | (0.29%) | | Nasdaq | 11257.63 | -5.55 | (-0.05%) | | SP 500 | 3998.28 | +5.28 | (0.13%) | | 10-yr Note | -5/32 | 3.87 |
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| | NYSE | Adv 901 | Dec 2211 | Vol 950 mln | | Nasdaq | Adv 1824 | Dec 2834 | Vol 4.9 bln |
Industry Watch
| Strong: Health Care |
| | Weak: Consumer Discretionary, Real Estate, Information Technology, Financials, Utilities |
Moving the Market
-- Market due for consolidation after big run last week
-- Downside leadership from mega cap stocks
-- Fed Governor Waller saying the "we've still got a ways to go" before stopping interest rate hikes
-- Rising Treasury yields and strengthening dollar
-- S&P 500 finds resistance at the 4,000 level
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Closing Summary
14-Nov-22 16:30 ET
Dow -211.16 at 33539.73, Nasdaq -127.11 at 11136.07, S&P -35.68 at 3957.32
[BRIEFING.COM] Today's trade was indicative of a normal consolidation period after last week's big gains. The major averages floated around the unchanged mark for most of the session before taking a sharp turn lower ahead of the close after the S&P 500 failed to maintain a position above the 4,000 level.
Things were held back today by the belief that the stock market moved too far and too fast last week given that economic and earnings prospects continue to deteriorate and Fed officials continue to talk tough about inflation still being too high.
The latter point was reflected by Fed Governor Christopher Waller (FOMC voter), who said "we've still got a ways to go" before stopping interest rate hikes, according to Bloomberg. To be fair, Fed Vice Chair Brainard said it may 'soon' be appropriate to slow the pace of rate hikes, according to CNBC.
Rising Treasury yields and a strengthening dollar also held back the stock market today. The 2-yr note yield rose 10 basis points to 4.41% and the 10-yr note yield rose five basis points to 3.87%. The U.S. Dollar Index was up 0.5% to 106.86.
Lagging mega cap stocks weighed on index performance. The Vanguard Mega Cap Growth ETF (MGK) closed down 1.2% versus a 0.9% loss in the S&P 500. Amazon.com (AMZN 98.49, -2.30, -2.3%) was a losing standout for the group after the NY Times reported the company plans to eliminate thousands of jobs.
Losses in Amazon and Tesla (TSLA 190.95, -5.02, -2.6%) contributed to the underperformance of the S&P 500 consumer discretionary sector (-1.7%). Hasbro (HAS 57.16, -6.25, -9.9%) exhibited the steepest losses among sector components, however, after the company was downgraded to Underperform from Buy at Bank of America.
The real estate sector (-2.7%) was another top laggard while the health care sector (+0.03%) was alone in positive territory at the close.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 3.5% to $85.83/bbl while natural gas futures rose 0.5% to $6.30/mmbtu.
Ahead of Tuesday's open, Walmart (WMT), Home Depot (HD), KE Holdings (BEKE), Tencent Music (TME), Aramark (ARMK), Sea Limited (SE), and Krispy Kreme, Inc. (DNUT) are among the earnings reporters.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 ET: October PPI (Briefing.com consensus 0.5%; prior 0.4%), Core PPI (Briefing.com consensus 0.4%; prior 0.3%), and November Empire State Manufacturing survey (Briefing.com consensus -5.0; prior -9.1)
There was no U.S. economic data of note today.
- Dow Jones Industrial Average: -7.7% YTD
- S&P Midcap 400: -11.6% YTD
- Russell 2000: -16.9% YTD
- S&P 500: -17.0% YTD
- Nasdaq Composite: -28.4% YTD
Market pulls back ahead of close
14-Nov-22 15:35 ET
Dow +10.49 at 33761.38, Nasdaq -50.95 at 11212.23, S&P -9.50 at 3983.50
[BRIEFING.COM] The stock market continues to pullback ahead of the close.
Ahead of Tuesday's open, Walmart (WMT), Home Depot (HD), KE Holdings (BEKE), Tencent Music (TME), Aramark (ARMK), Sea Limited (SE), and Krispy Kreme, Inc. (DNUT) are among the earnings reporters.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 8:30 ET: October PPI (Briefing.com consensus 0.5%; prior 0.4%), Core PPI (Briefing.com consensus 0.4%; prior 0.3%), and November Empire State Manufacturing survey (Briefing.com consensus -5.0; prior -9.1)
Market pulls back
14-Nov-22 15:00 ET
Dow +96.67 at 33847.56, Nasdaq -5.55 at 11257.63, S&P +5.28 at 3998.28
[BRIEFING.COM] The S&P 500 dipped back below 4,000 as the market pulled back from session highs.
Mega cap stocks continue to weigh in index performance. The Vanguard Mega Cap Growth ETF (MGK) is down 0.1% versus a 0.2% gain in the S&P 500.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 3.5% to $85.83/bbl while natural gas futures rose 0.5% to $6.30/mmbtu.
US Dollar Index pulls back from highs
14-Nov-22 14:35 ET
Dow +141.52 at 33892.41, Nasdaq +12.31 at 11275.49, S&P +11.20 at 4004.20
[BRIEFING.COM] The major averages remain near session highs.
The U.S. Dollar Index came off its high for the day to 106.70. It reached 107.27 earlier.
Copper futures settled 2.0% lower at $3.84/lbs.
A short time ago, CNBC reported the 8th Circuit Court of Appeals blocked President Biden's student loan forgiveness plan nationwide.
S&P 500 comfortably above 4000
14-Nov-22 14:05 ET
Dow +165.23 at 33916.12, Nasdaq +18.47 at 11281.65, S&P +13.06 at 4006.06
[BRIEFING.COM] The stock market continues to inch higher after the S&P 500 pushed above 4,000 level.
A short time ago, Fed Vice Chair Lael Brainard said it may ‘soon’ be appropriate to slow pace of rate hikes, according to CNBC.
Growth stocks are at a disadvantage today versus value stocks. The Russell 3000 Growth Index trades flat while the Russell 3000 Value Index sports a 0.5% gain.
Page One
Last Updated: 14-Nov-22 08:34 ET | Archive
Market does some algebra
Last week was a big week for the stock market in more ways than one. The huge gains achieved by the major indices were just one part of the equation. In fact, it was the answer to an algebraic equation that included a better-than-expected CPI report (x), a material decline in market rates (y), and a big drop in the dollar (z).
X+Y+Z = huge gains.
This morning, however, there is a little bit of questioning as to whether the market overreacted last week. That consideration is driving market participants to think more about the CPI report (x), it is pushing rates higher (y), and it has sparked a bounce in the dollar (z).
At the moment, then, X+Y+Z = modest losses for the equity futures market.
Currently, the S&P 500 futures are down 12 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 63 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 48 points and are trading 0.2% below fair value. The 10-yr note yield is up six basis points to 3.89% and the U.S. Dollar Index is up 0.5% to 106.85.
The mega-cap stocks, of course, were powerful drivers of last week's rally. They are down modestly this morning but that is putting some influential weight on the futures market.
Other factors include a contention from Fed Governor Waller that the Fed may slow the pace of its rate hikes but that it still has a ways to go before it stops raising interest rates, a Citigroup downgrade of Bank of America (BAC) to Neutral from Buy, and festering anxiety about the FTX bankruptcy and the potential for a contagion effect.
In other developments, China introduced a 16-point plan to support its property market, President Biden and President Xi met in Bali ahead of the G-20 Summit, and Democrats secured control of the Senate with victories declared over the weekend in the Arizona and Nevada races.
The GOP is still expected to win a narrow majority in the House, so the split Congress is seen as a likely avenue to a gridlocked environment the next few years that is reportedly considered by the market to be a positive development. Bloomberg reports that Democrats are considering an initiative to raise the debt ceiling during the lame-duck Congress.
Separately, market participants will be considering a lot of earnings news this week out of the retail sector, including reports from Walmart (WMT), Home Depot (HD), Target (TGT), Lowe's (LOW), Kohl's (KSS), Macy's (M), and TJX Cos. (TJX). There will also be a good bit of economic data, including the October PPI, Retail Sales, Industrial Production, Housing Starts, Existing Home Sales, and Leading Economic Index reports.
It should all add up to another interesting week of trading. For the time being, though, last week's addition is leading to a little subtraction.
-- Patrick J. O'Hare, Briefing.com
Clear Secure is clearly benefitting from a pick up in air travel, reports another profit in Q3 (YOU)
Clear Secure (YOU +15%) is making a nice move after reporting a surprise Q3 profit this morning and it declared a $0.25/sh special dividend. Its service, which allows travelers to pay a subscription to use dedicated airport security lanes that rely on biometrics (eyes, face) rather than traditional ID docs, has really been catching on. With travel rebounding, Clear Secure is seeing a noticeable pickup in its business. And it is not just airports, YOU has also been expanding at hotels, stadiums, and offices.
- Granted, it was not a large profit with adjusted EPS of $0.05, but for a company with a history of losses, it was notable that YOU has now posted back-to-back profits in Q2 and now in Q3. These were YOU's first two profitable quarters since its IPO in July 2021. Revenue jumped 71.4% yr/yr to $115.9 mln, which also was better than prior guidance of $111-113 mln. But probably the best metric was Q4 revenue guidance at $123-125 mln, which was well above analyst expectations.
- YOU saw a continuation in Q3 of the strong travel trends it saw in Q2, driving both membership growth and net retention. This led to better-than-expected Total Bookings growth of 46.7% to $145.7 mln. Both its in-airport and partner channels continued to perform well. In addition, YOU signed several new enterprise partners, such as Avis, and renewed several Health Pass partners.
- The company also noted that airport activity remained strong throughout Q3 including in September, a month in which it typically sees some seasonal slowdown post-Labor Day. In fact, YOU is seeing signs of a business travel recovery, complementing the strength in leisure travel. In particular, the Powered by CLEAR offering is gaining strong momentum with its Avis launch.
- Looking ahead, YOU sounds pretty excited about the upcoming launch of its TSA PreCheck service. It expects a soft launch of TSA PreCheck in Q4, with revenue from this program expected to build throughout 2023.
Overall, it is clear that YOU continues to benefit from a high level of pent-up demand for travel, which extended from summer into the fall. We think the special dividend is a good sign of the company's confidence going forward. It is clear that consumers are focusing more on experiences, rather than buying stuff at this point. Finally, there was a lot of excitement when YOU made its IPO debut last year. It priced at $31, which was above range and opened at $38.55 and was above $60 by early August. However, some lackluster earnings reports and concerns about when travelers would return have weighed on the stock. These last two reports were pretty solid and should get investors to take another look.
Oatly Group AB faced numerous setbacks in Q3, driving its new turnaround strategy (OTLY)
Oatly Group's (OTLY -10%) top and bottom-line misses, expanding net losses, and significantly reduced FY22 revenue guidance is spoiling the company's recent run today. Shares zoomed around 30% higher last week, highlighting investors' confidence in the oat milk and other plant-based dairy product supplier's ability to topple Q3 expectations. However, after a challenging quarter, which CEO Toni Petersson conceded fell well below expectations, shares are back on a downward trajectory, now down roughly 75% on the year and over 90% from all-time highs set in June 2021.
- What went wrong? OTLY faced a series of disruptions in Q3, including continued macro headwinds in EMEA, COVID-19 restrictions in Asia, and production issues at its Ogden facility. Combined, the headwinds resulted in OTLY's gross margins plummeting by over 23 pts yr/yr and 13 pts sequentially to 2.7%. These record low margins fueled OTLY's expanding net losses and earnings miss in Q3.
- The production issue at OTLY's Ogden facility was also the primary reason for its slashed FY22 revenue forecast. The company expects revs of just $700-720 mln, down considerably from $835-865 mln. OTLY commented that the problems at Ogden have since been resolved, with inventory rebuilding underway. Still, production volume improvements will be slow, extending into 2023.
- However, management is not digging in its heels and hoping for a turnaround. The company is undergoing strategic shifts to achieve three primary goals: prepare for the next growth phase, increase the organization's agility, and drive profitability with a more asset-light strategy.
- This "reset plan" depends on two fundamental screens: adjusting OTLY's supply chain network strategy and simplifying the organizational structure. The latter part involves reducing the company's headcount, which is already underway and should result in up to $50 mln in annual savings. The former part is much more extensive and revolves around OTLY shifting its investments to only its oat-based technology and capacity, which should also reduce the capital intensity of its future facilities. This will help pave the way for a more asset-light business model.
- The culmination of these initiatives is for OTLY to be adjusted EBITDA positive exiting 4Q23. Management also expects higher revenue growth in FY23 than the ~10% expected in FY22.
Overall, there is a lot of runway between now and when OTLY expects to turn a profit, which adds uncertainty that the company will achieve its end goal. Meanwhile, OTLY's Asia market looks likely to remain under pressure due to COVID-19, while a reversal in unfavorable economic conditions in EMEA does not appear likely over the near term. Although the $2.00 mark has acted as somewhat of a price floor for shares of OTLY over the past month, if economic conditions worsen, we would not be surprised to see the stock fall below that level. Therefore, we think it is better to watch OTLY from the sidelines, giving it time to see if its turnaround efforts will bear fruit.
Tyson Foods' second-straight EPS sets up for a wobbly trading day (TSN)
Tyson Foods (TSN -1%) quickly reverses today on a less than impeccable Q4 (Sep) report, where the company posted its second-straight earnings miss. On the plus side, TSN also delivered a sizeable sales beat and upside FY23 revenue guidance . Additionally, TSN's productivity program, detailed one year ago and designed to trim over $1.0 bln in recurring annual savings by the end of 2024, is now well ahead of schedule and expected to be reached by the end of FY23.
The now-accelerated productivity program is no small potatoes. In an environment where cost inflation is constantly pressuring margins, particularly for TSN, which tends to operate at already-slim operating margins of around 8%, the company's savings plan should help offset the high degree of variability in its product margins each quarter.
- In Q4, TSN's Beef segment, its largest by sales at ~35%, saw margins plummet by over 15 pts yr/yr as prices sank 8.2%. Part of the drop in prices stemmed from an ongoing slowdown in premium cuts of beef as consumer budgets tighten from widespread inflation. Higher consumer prices have also spurred trade-down activity toward less expensive alternatives, such as chicken. Last week, we heard similar remarks from plant-based protein supplier Beyond Meat (BYND).
- Pork also remained a laggard in Q4, being the only segment to experience a volume decline at 1.1% despite prices taking a slight tumble of 1.5%.
- However, on the other hand, TSN's Chicken segment, its second-largest by sales at ~33%, experienced a significant boost in Q4. Sales soared by over 19% on a 1.1% improvement in volumes despite prices climbing by over 18%. With favorable demand fueling a surge in prices, TSN's Chicken operating margins turned green, expanding from (3.5)% in 4Q21 to 7.4% in 4Q22.
- Prepared Foods saw a similar story as Chicken, with prices growing by double-digits yr/yr, lifting operating margins by over 400 bps. Although volumes were virtually unchanged, they accelerated dramatically from the 8.5% drop in Q3. TSN also noted that the segment is seeing positive volume momentum exiting the year.
- Overall momentum is also mostly accelerating for TSN as it enters FY23. Aside from its bullish outlook of $55-57 bln in sales, an 11.7% jump yr/yr at the midpoint, TSN also expects operating margins to expand in Chicken and Prepared Foods by around 2% and just under 1%, respectively, at the low end of each range.
- Meanwhile, on a less positive note, Beef will remain under pressure. TSN expects margins of just 2-4% in FY23, a massive drop from the 12.6% delivered in FY22.
Concerns that inflationary pressures will continue to weigh on TSN's bottom line still exist. However, demand is still present, evidenced by a surge in chicken sales in Q4 and improving Prepared Foods results. Meanwhile, TSN's relatively small International business is showing considerable signs of recovery, boasting a nearly 22% spike in volumes. Lastly, TSN's solid Q4 numbers offer clues on what to expect from peer Hormel Foods (HRL), which reports Q4 (Oct) earnings on November 30.
Dentsply Sirona seeing a bit of plaque build up following another EPS miss (XRAY)
Dentsply Sirona (XRAY -4%) is heading lower after the world's largest manufacturer of dental products missed on EPS and revenue in its Q3 report this morning. This was XRAY's third EPS miss in a row. While the prior two misses were small, XRAY missed by a wide margin in Q3 and we think this took investors by surprise. One would think that dental sales should be pretty steady and predictable but XRAY faced some headwinds this quarter.
- Both of its major segments saw similar weakness. On the Equipment side, revenue fell 9% yr/yr to $556 mln while Consumables sales fell 8.7% yr/yr to $391 mln. XRAY cites several headwinds, including foreign currency impacts, global supply chain challenges, and regional softness in the US and China.
- XRAY expects FX to shave $300 mln in revenue and $0.30 in EPS for the full year 2022. For a company that guided to FY22 revs of $3.85-3.88 bln, that is a significant impact. Regarding China, XRAY continues to see prolonged impacts from COVID-related shutdowns.
- The company also expects stronger global recessionary headwinds, particularly in the US and certain European markets. Due to higher consumer inflation, XRAY expects there will be a slowdown in elective procedures such as clear aligners and implants. Demand is likely to skew more towards more traditional procedures. XRAY believes this dynamic, coupled with higher interest rates, may reduce the demand for certain equipment in the coming months.
- XRAY was candid about its results saying that it is not satisfied with its Q3 numbers. However, management also sees this quarter as an important turning point because the company has initiated a comprehensive review of its entire business with the goal of returning the company to growth. To its credit, XRAY has huge scale, great products and an innovative pipeline of new products on the way. It is just that the execution in recent quarters has been lacking.
Dentsply Sirona has seen its share price fall precipitously from its high near $59 in late February to around $31 currently. Several EPS misses and the need to restate some results have taken a toll. The good news today is that the stock has moved nicely off its lows despite the large miss, which tells us a lot of negativity has been priced in. We would still be cautious on XRAY until it can show some better earnings results and we would wait to hear what direction the company will take after its comprehensive review.
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