Market Snapshot
briefing.com
| Dow | 33647.25 | +107.52 | (0.32%) | | Nasdaq | 11330.59 | +194.52 | (1.75%) | | SP 500 | 3999.58 | +42.26 | (1.07%) | | 10-yr Note | +5/32 | 3.80 |
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| | NYSE | Adv 2260 | Dec 734 | Vol 1.0 bln | | Nasdaq | Adv 3025 | Dec 1583 | Vol 5.5 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Consumer Staples |
| | Weak: Health Care, Materials |
Moving the Market
-- Cooler-than-expected Producer Price Index for October, fueling the belief that the Fed is apt to take a less aggressive rate-hike approach
-- Positive reaction to earnings news from Walmart
-- BofA Global Fund Manager Survey showed elevated cash position of 6.2%, stirring contrarian buying interest
-- Falling Treasury yields and weakening dollar
-- Geopolitical angst after unconfirmed reports that Russian missiles intended for Ukraine hit Poland (NATO member)
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Closing Summary
15-Nov-22 16:25 ET
Dow +56.22 at 33595.95, Nasdaq +162.19 at 11298.26, S&P +34.48 at 3991.80
[BRIEFING.COM] The stock market closed off its best levels of the day, but overall, showed some impressive resilience to selling efforts today. The major indices started the session with decent gains, albeit in choppy conditions, fueled by a pleasing earnings report from Walmart (WMT 147.44, +9.05, +6.5%) and an October Producer Price Index (PPI) that came in cooler-than-expected.
The PPI report for October revealed some welcome disinflation at the producer level with total PPI up 8.0% yr/yr, versus 8.4% in September, and core PPI, which excludes food and energy, up 6.7% yr/yr, versus 7.1% in September. This added fuel to the market's notion that the Fed is likely to take a less aggressive rate-hike approach going forward.
Things deteriorated in a hurry, however, after unconfirmed reports circulated that Russian missiles hit NATO member Poland, killing two people there. The deterioration took the S&P 500 below the 4,000 level and the index was unable to reclaim a position above that level for the rest of the session.
Still, after the initial knee-jerk selling, the positive bias in the market prevailed and the major averages recovered nicely from session lows.
There was also a knee-jerk response to the reports about Poland in the Treasury and currency markets. Like the stock market, things quickly returned to levels seen before the reports hit the wires indicating there wasn't a major flight-to-safety like one would expect to see on such reports.
The 2-yr note yield fell six basis points to 4.35% and the 10-yr note yield fell seven basis points to 3.80%.
Other factors aside from Walmart and the October PPI that worked in the stock market's favor today included:
- China reporting weaker-than-expected retail sales, industrial production, and fixed asset investment data for October, stirring hope that new stimulus will be enacted and that officials will find away to embrace a shift away from the economically-damaging zero-COVID policy.
- The BofA Global Fund Manager Survey again showing an elevated cash position of 6.2% that is higher than what was seen during the global financial crisis and the 2020 pandemic panic, stirring contrarian buying interest.
- Falling Treasury yields and a weakening dollar (the U.S. Dollar Index was down 0.1% to 106.54).
Mega cap stocks were integral today to index level gains and the recovery effort off session lows. The Vanguard Mega Cap Growth ETF (MGK) was up 1.3% versus a 0.9% gain in both the S&P 500 and Invesco S&P 500 Equal Weight ETF (RSP).
Nine of the 11 S&P 500 sectors closed in positive territory. Health care (-0.1%) and materials (-0.1%) were alone in the red while communication services (+1.8%) and information technology (+1.2%) sat atop the leaderboard.
The communication services sector was boosted by a big gain in Paramount (PARA 19.44, +0.95, +5.1%) after Berkshire Hathaway (Warren Buffett) disclosed an increased position in the company in its 13F filing. Alphabet (GOOG 98.72, +2.69, +2.8%) and Netflix (NLFX 310.20, +10.93, +3.7%) also helped with sector gains. The latter received a double-upgrade to Buy from Underperform at BofA Securities.
The information technology sector was bolstered by strong semiconductor components. TSMC (TSM 80.46, +7.66, +10.5%) was a winning standout for the group after Berkshire Hathaway disclosed a new position of ~60.06 million shares in a 13F filing. The PHLX Semiconductor Index was up 3.0%.
Energy complex futures settled the session higher. WTI crude oil futures rose 1.0% to $86.69/bbl and natural gas futures rose 2.2% to $6.44/mmbtu.
Ahead of Wednesday's open, Target (TGT), Lowe's (LOW), and TJX (TJX) headline the earnings reports.
Wednesday will bring a slew of economic data for market participants to digest, including:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.1%)
- 8:30 ET: October Import/Export Prices, October Retail Sales (Briefing.com consensus 0.9%; prior 0.0%), and Retail Sales ex-auto (Briefing.com consensus 0.6%; prior 0.1%)
- 9:15 ET: October Industrial Production (Briefing.com consensus 0.0%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 80.3%; prior 80.3%)
- 10:00 ET: September Business Inventories (Briefing.com consensus 0.5%; prior 0.8%) and November NAHB Housing Market Index (Briefing.com consensus 36; prior 38)
- 10:30 ET: Weekly crude oil inventories (prior +3.92 mln)
Reviewing today's economic data:
- November Empire State Manufacturing 4.5 (Briefing.com consensus -5.0); Prior -9.1
- The Producer Price Index for final demand increased 0.2% month-over-month in October (Briefing.com consensus +0.5%) following a downwardly revised 0.2% increase (from 0.4%) for September. Excluding food and energy, the Producer Price Index for final demand was unchanged (Briefing.com consensus +0.4%) following a downwardly revised 0.2% increase (from 0.3%) in September.
- The key takeaway from the report is the clear signs of disinflation embedded in it. Like the CPI report, inflation is still too high at the producer level, yet the direction is more important than the level for the market at this point. The lower trend in PPI, coupled with the decline in processed goods for intermediate demand (-0.2% m/m) and unprocessed goods for intermediate demand (-11.7% m/m), will feed the market's newfound belief that the Fed is apt to take a less aggressive rate-hike approach and ultimately settle on a lower terminal rate than previously thought.
- Dow Jones Industrial Average: -7.6% YTD
- S&P Midcap 400: -10.4% YTD
- Russell 2000: -15.9% YTD
- S&P 500: -16.3% YTD
- Nasdaq Composite: -27.4% YTD
S&P 500 fighting to get above 4000
15-Nov-22 15:25 ET
Dow +97.00 at 33636.73, Nasdaq +193.65 at 11329.72, S&P +42.01 at 3999.33
[BRIEFING.COM] The stock market trades in a narrow range as the S&P 500 fights to get back above 4,000.
After the close, Advance Auto (AAP) is set to report earnings.
Ahead of Wednesday's open, Target (TGT), Lowe's (LOW), and TJX (TJX) headline the earnings reports.
Wednesday will bring a slew of economic data for market participants to digest, including:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.1%)
- 8:30 ET: October Import/Export Prices, October Retail Sales (Briefing.com consensus 0.9%; prior 0.0%), and Retail Sales ex-auto (Briefing.com consensus 0.6%; prior 0.1%)
- 9:15 ET: October Industrial Production (Briefing.com consensus 0.0%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 80.3%; prior 80.3%)
- 10:00 ET: September Business Inventories (Briefing.com consensus 0.5%; prior 0.8%) and November NAHB Housing Market Index (Briefing.com consensus 36; prior 38)
- 10:30 ET: Weekly crude oil inventories (prior +3.92 mln)
Energy complex futures settle higher
15-Nov-22 15:05 ET
Dow +107.52 at 33647.25, Nasdaq +194.52 at 11330.59, S&P +42.26 at 3999.58
[BRIEFING.COM] The S&P 500 is running into resistance at the 4,000 level.
Energy complex futures settled the session higher. WTI crude oil futures rose 1.0% to $86.69/bbl and natural gas futures rose 2.2% to $6.44/mmbtu.
On a related note, the S&P 500 energy sector (+0.8%) is near the middle of the pack for the 11 sectors.
Market continues to recover
15-Nov-22 14:30 ET
Dow +53.60 at 33593.33, Nasdaq +168.62 at 11304.69, S&P +32.33 at 3989.65
[BRIEFING.COM] The stock market is recovering from its recent lows as the S&P 500 climbs towards the 4,000 level.
Mega cap stocks are integral to the market's recovery. The Vanguard Mega Cap Growth ETF (MGK) is up 1.5% versus a 0.8% gain in the S&P 500.
Separately, copper futures settled 0.7% higher at $3.81/lbs.
Market bounces from recent lows
15-Nov-22 14:10 ET
Dow -134.56 at 33405.17, Nasdaq +84.24 at 11220.31, S&P +9.95 at 3967.27
[BRIEFING.COM] The major indices bounced somewhat off their recent lows.
Treasury yields took a sharp turn lower as the stock market fell. The 2-yr note yield is down five basis points to 4.35% and the 10-yr note yield is down eight basis points to 3.79%.
The CBOE Volatility Index shot up 8.7%, or 2.07, to 25.80.
Page One
Last Updated: 15-Nov-22 09:04 ET | Archive
Market cheers another welcome inflation surprise
The ground the market lost in the final hour of trading yesterday looks like it will be quickly made up at the start of today's trading.
Currently, the S&P 500 futures are up 73 points and are trading 1.8% above fair value, the Nasdaq 100 futures are up 338 points and are trading 2.9% above fair value, and the Dow Jones Industrial Average futures are up 373 points and are trading 1.1% above fair value.
There are a number of winds at the back of the futures market this morning:
- Walmart (WMT) is up 7.1% after posting better-than-expected earnings results and announcing a $20 billion share repurchase authorization.
- Treasury yields are lower.
- The U.S. Dollar Index is down 1.0% to 105.61.
- China reported weaker-than-expected retail sales, industrial production, and fixed asset investment data for October, stirring hope that new stimulus will be enacted and that officials will find away to embrace a shift away from the economically-damaging zero-COVID policy.
- The BofA Global Fund Manager Survey again showed an elevated cash position of 6.2% that is higher than what was seen during the global financial crisis and the 2020 pandemic panic, stirring contrarian buying interest.
- The October Producer Price Index (PPI), like the October Consumer Price Index (CPI), was softer than expected and much better than feared.
Briefly, the Producer Price Index for final demand increased 0.2% month-over-month (Briefing.com consensus +0.5%) following a downwardly revised 0.2% increase (from 0.4%) for September. Excluding food and energy, the Producer Price Index for final demand was unchanged (Briefing.com consensus +0.4%) following a downwardly revised 0.2% increase (from 0.3%) in September.
The monthly changes left the Producer Price Index for final demand up 8.0% year-over-year, versus 8.4% in September, and the Producer Price Index for final demand, excluding food and energy, up 6.7% year-over-year, versus 7.1% in September.
The key takeaway from the report is the clear signs of disinflation embedded in it. Like the CPI report, inflation is still too high at the producer level, yet the direction is more important than the level for the market at this point. The lower trend in PPI, coupled with the decline in processed goods for intermediate demand (-0.2% m/m) and unprocessed goods for intermediate demand (-11.7% m/m), will feed the market's newfound belief that the Fed is apt to take a less aggressive rate-hike approach and ultimately settle on a lower terminal rate than previously thought.
The futures market, which was already doing well ahead of the PPI report, extended its gains after the data. Similarly, Treasury yields and the U.S. Dollar Index, which were already moving lower ahead of the PPI report, moved even lower after the report.
Currently, the 2-yr note yield is down nine basis points to 4.32% and the 10-yr note yield is down nine basis points to 3.78%.
The relatively friendly inflation data is triggering some hope that there will be a repeat performance of the post-CPI rally. That is asking a lot since a lot of pent-up rate-hike fears were released that day. Nonetheless, there is more room to cheer the latest inflation report and the implication that inflation is now coming off the boil.
-- Patrick J. O'Hare, Briefing.com
Energizer's upside earnings report and restructuring program put a charge into shares (ENR)
Energizer (ENR) is powering up today after the battery and auto care company beat EPS and revenue expectations for 4Q22, despite contending with persistent inflation, category-wide volume declines, and an appreciating dollar. Importantly, the company also turned a corner on cash flow generation, achieving free cash flow of $95 mln in the quarter. This allowed ENR to pay down $60 mln of debt, while retiring another $25 mln subsequent to the end of the quarter. At the center of ENR's improved results is the company's pricing actions and its cost management efforts as SG&A expenses remained virtually flat yr/yr at $120 mln.
Coming off a disappointing 3Q22 earnings report in which ENR missed revenue estimates and lowered its FY22 EPS guidance, these results were a step in the right direction. However, the company still has plenty of room for improvement, especially as it relates to margins. In Q4, adjusted gross margin contracted by 150 bps yr/yr to 36.2% due to higher input and freight costs. The company's pricing actions have helped to offset these pressures, but production is running at peak inflationary costs and has been too difficult to fully overcome.
Therefore, ENR also announced a new profit recovery program called Project Momentum which includes a company-wide restructuring component. In our opinion, it is this news that's really sparking the stock's rally today.
- The roots of this program took hold earlier this year when ENR implemented several initiatives to combat the inflationary headwinds. These efforts, which were meant to restore gross margins and to improve cash flow, included projects to improve operational and distribution network efficiencies, procurement savings, and SG&A reductions. Today, the company is consolidating these actions into the single Project Momentum program.
- ENR is targeting annualized pre-tax savings of approximately $80-$100 mln through this initiative. In FY23, the company expects to achieve $30-$40 mln of those savings. Looking specifically at the restructuring component of the plan, ENR is forecasting pre-tax savings of about $65-$80 mln.
- Although gross margin will continue to be impacted by inflation and lower operational efficiencies due to volume declines in 1H23, ENR expects that margins will improve each quarter thereafter. Specifically, the company believes it will start the year with gross margin in the 37-38% range, but to improve by 100-150 bps yr/yr for FY23.
The main takeaway is that the operating environment is still very challenging for ENR's Battery and Auto Care segments, but better days may be on the horizon. Consumers pulled back on spending for consumer electronics this year following a spending spree during the pandemic, hurting demand for batteries. However, ENR estimates that consumers are now using 15% more batteries than they were pre-pandemic. Accordingly, the company expects to deliver low-single digit organic sales growth in FY23 on resilient demand for batteries, with both margins and cash flow generation improving as it implements its Project Momentum initiative.
Home Depot posts another constructive quarterly report on sturdy home improvement demand (HD)
The housing market may be cooling off and inflation may be squeezing consumers' budgets, but Home Depot (HD) continues to display impressive resilience, delivering another top and bottom-line beat in 3Q22. Although total sales and comparable sales growth has tapered off from the remarkable levels seen during the height of the pandemic, HD's business hasn't softened as significantly as many had anticipated. With comparable sales increasing by 4.3% on top of last year's 6.1% increase, it's evident that people are still spending healthily on home improvement projects.
Shares of HD had rallied hard into the report, gaining nearly 9% since early November. Many stocks have experienced a resurgence in the wake of last week's better-than-expected CPI report. HD, though, has benefitted more than most due to its relationship to the rate-sensitive housing market. Easing inflation could result in a less hawkish Fed, which is a positive for both homebuilders and HD. This recent strength in HD may explain why the stock initially saw a sell-the-news reaction to the solid earnings report.
Considering that HD also reaffirmed its FY23 outlook, including mid-single digit EPS growth and comparable sales growth of about 3.0%, the negative knee-jerk reaction was a bit surprising. However, there are a couple blemishes that could be used as an excuse to lock in recent gains.
- After declining by 3.0% last quarter and by 8.2% in Q1, consumer transactions decreased by 4.3% this quarter. HD wasn't lapping a difficult yr/yr comparison, either, with consumer transactions down by 5.5% in the year-earlier period. Helping to offset this slide in consumer transactions was a bump higher in average ticket, which was up by 8.8% to $89.67.
- CEO Ted Decker commented that the solid Q3 results were driven by project-related categories. These are projects that oftentimes require a professional and are typically more costly than DIY tasks. Strength in this category is a positive for HD since about half of its business is derived from the professional market.
- Inflation and HD's corresponding price increases are also driving its average ticket higher.
Another potential issue is that merchandise inventories have increased by 16% since January 30, 2022 to $25.7 bln. The higher inventory levels could cause HD to become more promotional in certain categories, applying pressure on gross margin. That wasn't the case in Q3, though, as gross margin ticked higher by about 100 bps from last quarter.Also easing our concern is the fact that merchandise inventories actually decreased by roughly $400 mln sequentially.Overall, HD performed quite well in Q3 as demand for home improvement products remains sturdy. The company's upside results, and reaffirmation of guidance, also bodes well for rival Lowe's (LOW), which is slated to issue Q3 results before the open tomorrow morning.
Walmart: Attention Walmart shoppers, the retail giant posted impressive Q3 results (WMT)
Walmart (WMT +7.5%) investors are clearly pleased with the retail giant's Q3 (Oct) earnings report this morning. In addition to a solid earnings beat, the company also announced a $20 bln share repurchase plan. Also, the guidance was the holiday Q4 (Jan) period was quite strong as well. Because Walmart is so large and reports early in the retail reporting cycle, this report should help calm some nerves as we get earnings reports from other retailers over the next two weeks.
- Walmart beat pretty handily on EPS and revs. Also, Walmart US comps (ex-fuel) in Q3 grew +8.2%, well ahead of the +3% prior guidance and a nice acceleration from +6.5% comps in Q2 (Jul). What's more is that WMT was lapping pretty tough +9.2% comps in the year ago period. Sam's Club comps (excl fuel) were strong as well at +10.0%, up a bit from +9.5% in Q2 and a very good number considering it was lapping +13.9% comps last year.
- Granted some of this strong comp number was fueled by higher grocery prices driven by inflation. Food sales continued to lead with mid-teens growth. WMT is attracting value-seeking customers across the household income spectrum which helped it gain market share in groceries. The company was particularly encouraged to see yr/yr growth in food units sold after a slight decline last quarter. WMT also made good progress on improving in-stock levels in groceries despite the heavy volumes. Of note, WMT has seen incremental levels of inflation month-over-month be less significant but it's not clear if this is a sustainable trend.
- General merchandise sales declined low single digits with softness in electronics, home, and apparel. However, back-to-school was strong. WMT notes that high fuel prices and mid-teens food inflation have forced consumers to manage household budgets more tightly making frequent trade-offs and focusing spend toward everyday essentials.
- Looking ahead, despite a good start to Q4, its guidance assumes that the consumer could slow spending, especially in general merchandise categories given persistent inflation in food and consumables. As such, WMT is guiding to Q4 Walmart US comps (ex-fuel) comps of +3% with food and consumables growth continuing to outpace general merchandise. However, after the big beat in Q3, we have to wonder if WMT is just being conservative.
Overall, this was a very good quarter for the company with the Walmart US comps being the standout metric. Bigger picture, today's October PPI data moved the way of October CPI, which is a hopeful sign that perhaps inflation is slowing. Then WMT on the call said it noticed a sequential tick lower on inflation. This by no means signals a trend, but provides it is a good sign to see signals from multiple sources, especially a big retailer like Walmart. Finally, when you combine this report with a solid beat from Home Depot (HD) this morning, it makes us less nervous as we had into other retail earnings reports this week and next. Target (TGT) is up next with its report tomorrow morning. We would like to see similar numbers from them.
Sea Limited catches a huge gust of wind after charting a new course toward profitability in Q3 (SE)
The combination of rising interest rates and widespread inflation has proved to be a difficult storm for Sea Limited (SE +32%) to weather this year, evidenced by its shares sinking nearly 80%. However, during Q3, the e-commerce, digital entertainment, and financial services giant of Asia Pacific set out for a new course, one where profitability trumps growth at all costs. Much to investors' excitement, SE outlined new strategies to navigate the rising interest rate environment, which it believes will put it on a route to self-sufficiency, where it no longer has to rely on external funding.
- SE's new plan revolves mainly around tightening its spending. The company has begun reducing spending and future investment commitments on office space, logistics facilities, and employee travel and entertainment. SE also stopped all new financial equity investments.
- Digging deeper, SE meaningfully accelerated cost-saving initiatives across each of its businesses in Q3. At Shopee, its e-commerce offering, SE scaled back marketing expenses. At Garena, its digital entertainment arm, SE is now focused on its existing franchises, taking a more selective approach toward launching new games. At SeaMoney, its financial services division, SE no longer prioritizes off-line adoption of ShopeePay, something that tended to be a key driver of revenue growth in previous quarters.
- We think the biggest announcement from Q3 was SE's expectation of becoming adjusted EBITDA breakeven for its largest business by revenue, Shopee, by the end of 2023. Since SE went public over five years ago, Shopee has operated in the red, being subsidized by Garena. As such, achieving breakeven adjusted EBITDA would be a significant accomplishment.
- SE has already made strides in working toward its adjusted EBITDA goal for Shopee. In Q3, E-commerce adjusted EBITDA improved 27.5% yr/yr and 23.5% sequentially to $(495.7) mln. Although SE clearly has a long road toward its goal, Q3 marked the first quarter where adjusted EBITDA did not worsen on a yr/yr basis in over 15 straight quarters.
- Cost-saving efforts were even better for SeaMoney, where adjusted EBITDA losses fell 57% yr/yr to $(68) mln. SeaMoney has steadily improved its profitability profile over the past few quarters, so the improvements from Q3 are not as notable as that for Shopee. Still, it demonstrates SE's seriousness regarding its shift toward a more self-sustaining business model.
Although SE's new course already bore fruit in Q3, it will likely remain choppy over the near term. SE's historically resilient Garena division is now enduring unfavorable dynamics, such as reopening trends and reduced consumer discretionary spending, resulting in bookings falling yr/yr for the third consecutive quarter in Q3. SE also lowered its FY22 bookings guidance. SE also noted that its new plan will likely result in no growth or even negative growth in specific operating metrics over the near term.
Nevertheless, considering the challenging macroeconomic environment, we view SE's initiatives as the proper steps to take. Once it wades through the near-term uncertainty, its moves should give it adequate footing to reaccelerate growth again but more efficiently and sustainably.
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.
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