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Market Snapshot
briefing.com
| Dow | 33888.09 | -462.56 | (-1.35%) | | Nasdaq | 10998.36 | -167.85 | (-1.50%) | | SP 500 | 3966.90 | -59.34 | (-1.47%) | | 10-yr Note | -1/32 | 3.70 |
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| | NYSE | Adv 663 | Dec 2392 | Vol 824 mln | | Nasdaq | Adv 1214 | Dec 3420 | Vol 4.2 bln |
Industry Watch
| Strong: -- |
| | Weak: Energy, Utilities, Materials, Real Estate, Information Technology |
Moving the Market
-- Global growth concerns due to reports of increased social protests in China over the zero-COVID policy
-- Consolidation mindset with the S&P 500 near its 200-day moving average (4,054) heading into today
-- Hesitation ahead of key economic data later this week
-- Sizable loss in Apple weighing on index performance
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Something in the air
There is a weak tone in the equity futures market this morning and it is more than just a tryptophan hangover. It is an expression of growing concerns about global growth prospects due to reports of increased social protests in China over the government's zero-COVID policy.
While there is much support outside of China for the protests themselves, there is also some angst that they will embolden Chinese leader Xi Jinping to clamp down even more with his zero-COVID policy. The lockdowns, the mass testing, and the protests, though, are regarded as ongoing disruptions to supply chains and logistics operations that are not good for the Chinese economy or the global economy.
That understanding has manifested itself in crude oil futures prices. WTI crude is down 2.9% to $74.10/bbl, leaving it down 14.3% for the month, and Brent crude is down 2.8% to $81.37/bbl, leaving it down 12.3% for the month.
Currently, the S&P 500 futures are down 31 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 73 points and are trading 1.0% below fair value, and the Dow Jones Industrial Average futures are down 210 points and are trading 0.7% below fair value.
This weakness, however, isn't just about China. The reports out of China have also become a good excuse to take some money off the table following a big run by the market.
Since November 3, the S&P 500 has surged 8.2% and the Nasdaq Composite has gained 8.5%. The move by the S&P 500 has left it flirting with its 200-day moving average (4,054), so there is a measure of technical resistance in the air as well knowing that the summer rally got stopped cold in its tracks with the re-test of the 200-day moving average.
Other elements are in the air, too, lending to this morning's hesitation on the part of buyers.
Several Fed officials will be speaking this week before they enter their quiet period. Fed Chair Powell highlights the list of speakers with an appearance at the Brookings Institution on Wednesday to talk about the Economic Outlook, Inflation, and the Labor Market.
There is also a slate of key economic releases this week that will offer some updated insight on economic conditions and the Fed's expected policy path. The November Consumer Confidence Report will be out on Tuesday followed by the November ADP Employment Change, Revised Q3 GDP, and October JOLTS - Job Openings Reports on Wednesday, the October Personal Income and Spending and November ISM Manufacturing Index on Thursday, and the November Employment Situation Report on Friday.
Tucked in between will be some ongoing earnings reports, so there won't be a shortage of trading catalysts.
On a related note, the casino stocks are making some headway this morning after China granted a 10-year renewal of gaming concessions to several operators, including Las Vegas Sands (LVS) and Wynn Resorts (WYNN). That has been about the only good news coming out of China over the weekend where a lot of situations, ranging from social to economic, are up in the air.
-- Patrick J. O'Hare, Briefing.com
Aptiv slides on an analyst downgrade today; still, long-term dynamics remain favorable (APTV)
A downgrade from Morgan Stanley today to "Equal-Weight" from "Overweight" has kept a lid on Aptiv (APTV -3%) shares from maintaining momentum sparked by upbeat Q3 earnings earlier this month. APTV supplies electrical components to the 25 most prominent automotive manufacturers globally, with five of its largest customers comprising around 39% of its FY21 revenue.
Briefing.com notes that although near-term concerns may create volatility for the stock, favorable trends support a strong demand backdrop over the long term.
- A major concern for APTV is its heightened attention on supporting the high-growth electric vehicle (EV) market. The current inflationary environment and rising interest rates create an unfavorable stage for EVs, especially when stacked against their lower-priced internal combustion engine (ICE) counterparts. Meanwhile, the used vehicle market may become more popular if inflationary pressures do not subside.
- Another near-term issue for APTV is ongoing supply chain constraints, which took a minor bite out of the company's FY22 free cash flow outlook as it carries an increased inventory of key components.
- At the same time, economic conditions could further deteriorate, particularly in Europe, adding another obstacle for APTV to overcome.
- However, on the flip side, even though the EV market may experience some turbulence over the next year, every auto manufacturer is developing a comprehensive lineup of EVs, benefiting APTV in the long run.
- Bookings for APTV's Signal and Power Solutions segment, its largest at ~74% of FY21 sales, reached $3.7 bln in 3Q22, underscoring the strong demand from EV makers for APTV's advanced electrical components.
- Although APTV's global footprint creates uncertainty, it should be a net positive for the firm as it gives it a commanding presence, benefiting from EV rollouts across dozens of manufacturers. It will also provide APTV with the ability to capture tailwinds from developing markets.
Bottom line, turbulence should be expected for APTV over the near term as it contends with numerous headwinds. For FY23, APTV expects ongoing adverse FX impacts and a possibility that deteriorating economic conditions in Europe could lead to reduced production levels. Still, long-term dynamics remain favorable, and APTV's focus on strategically deploying capital to counter current headwinds should help position it for accelerated growth once these challenges begin to subside.
Builders FirstSource aggressive buyback activity makes it clear management sees value here (BLDR)
- Builders FirstSource (BLDR) is seeing a nice pop today on news it will increase its share buyback authorization by $1 bln for a total of $1.5 bln.
- As a major supplier of homebuilding products (trusses, wall panels, stairs, windows, trim, doors etc.), BLDR has been facing some macro headwinds with mortgage rates on the rise. Add in the fact that its CEO Dave Flitman recently stepped down. The company is searching for a new CEO. This maybe causes some uncertainty, but probably not a big deal. BLDR also reaffirmed guidance when it made this announcement.
- BLDR has made the point that it's a much different company than it was during the housing market crisis 15 years ago. Specifically, BLDR has dramatically enhanced its footprint through numerous acquisitions, which has helped broaden its diversification. For example, it recently acquired Trussway, which expands its footprint in multifamily trusses and accelerates its growth in the Southwest and Southeast.
- Just look at its Q3 organic sales in value-added products. Overall, it grew by nearly 20%. Single-family sales increased only 2%, but repair, remodel and other increased over 30% and multifamily increased 16%. So even as single family has slowed, BLDR's exposure to other areas helped offset that weakness.
- Finally, on the buybacks, BLDR has been extremely aggressive in buying back shares. Through October, it has repurchased $2 bln this year and $3.8 bln over the past 15 months. That's enormous for a company with a $9.2 bln market cap. BLDR has retired nearly 30% of its shares outstanding. The buybacks are a clear statement that it believes its shares are undervalued and that is can manage well even if the industry slows.
Pinduoduo surges following strong Q3 upside results (PDD)
Pinduoduo (PDD +14%) is surging today after the Chinese ecommerce giant reported strong upside Q3 results for both EPS and revenue. Revenue jumped 65% yr/yr to $4.99 bln, a significant acceleration from 36% growth in Q2 and 7% in Q1. We were not really sure what to expect given the COVID lockdowns during the quarter and the impact that might have. Also, the slowing economy in China was a concern that perhaps consumers would pull back on spending.
- On the other hand, PDD's high exposure to agriculture likely helped results. PDD's online platform primarily connects farmers with consumers directly to sell fruits and vegetables. However, Pinduoduo also sells lots of other categories, including electronics, home appliances, cosmetics etc. Of note, while PDD operates primarily in China, it has been starting to branch out into international markets. We were interested to hear of any developments.
- Of note, in September 2022, PDD launched Temu in the US, which it hopes can compete with Amazon across a number of categories including clothing, shoes, appliances, beauty, automotive etc.
- PDD has said before that it would not just simply repeat what others have done. It will strive to create its own unique value regarding services like Temu. PDD has been able to take share from larger peers in China like BABA and JD by focusing on extreme value pricing. Based on prior comments, it sounds like that will be its strategy to challenge AMZN in the US.
- However, we think it is going to be a heavy lift to make deep inroads in the US quickly as most Americans are unfamiliar with the Temu brand and AMZN already has a dominant presence. Plus AMZN's retail sales have been slowing down since the height of the pandemic. We did not really get much of an update on Temu on the call today, but the service just launched so maybe there is not much to talk about yet.
Overall, this was another impressive quarter for PDD as it follows up a strong upside result in Q2 as well. A beat was not a huge surprise given that BABA very strong results a couple of weeks ago. However, PDD reported surprisingly large upside results, which is propelling the stock. Investors were not expecting this much upside. In fairness, PDD did caution on the call that this current level of profitability in Q3 is temporary and unlikely to be maintained as it plans to increase investments.
We are intrigued by PDD's international expansion plans. We plan to keep a close eye on Temu although we remain skeptical it can really challenge Amazon. However, its extreme value pricing might give it a plate at the table as consumers tighten their belts, but we will see.
Shopify's robust Black Friday sales growth checks out with investors (SHOP)
Shares of Shopify (SHOP +2%) are enjoying robust buying activity today following reports that the e-commerce platform for small businesses registered 17% sales growth yr/yr on Black Friday. After a better-than-feared Q3 report in late October and healthy online spending levels this past Friday, shares have extended their run to over 50% from October 11 lows. A high short interest of around 56% has been a significant contributor to SHOP's winning streak and is likely to thank for part of today's pronounced upbeat reaction.
This is illuminated when taking a look at many of SHOP's competitors, which are not experiencing similar favorable gains today, such as Amazon (AMZN), eBay (EBAY), and Etsy (ETSY), even though other reports indicated record online Black Friday sales. For example, the New York Post reported online spending on Black Friday reached $9.12 bln this year, a 2% jump yr/yr and over a 1% climb from the prior record set in 2020.
Still, although SHOP's short interest may be fanning the flames today, the fire starter was its headline 17% sales growth, which smashed industry metrics. In fact, with the October CPI reaching 7.7% yr/yr, it is unclear how much inflation played a role in Black Friday sales achieving record highs. This could explain why SHOP's peers are taking a backseat to the e-commerce platform's fantastic gains today.
- Today's spark comes at a good time for SHOP, which is looking to sustain the momentum created by its Q3 earnings report, where a major headline was that business trends may be finally stabilizing. This was evidenced by SHOP's nearly 22% sales growth yr/yr on an 11% increase in gross merchandise volume (GMV), matching the previous quarter. Peer GoDaddy (GDDY) experienced similar numbers, seeing GMV grow 10% to around $29 bln, comparable to its prior quarter.
- SHOP's recently launched point-of-sale (POS) Go played a meaningful role in its solid Black Friday sales growth. POS Go enables merchants to accept more payment methods at their store locations, such as credit cards. During its Q3 earnings call, SHOP noted that POS Go had already seen enthusiastic adoption in just three weeks since launch.
- Another contributor was capital funding for merchants. SHOP noted in October that this makes a real difference in merchant success rates, especially as more banks and lenders shut off pathways to financing for smaller businesses. SHOP's capital funding has not been a minor figure either, providing cumulative funding of $4 bln through August 2022, up significantly from $2 bln through 2021.
Bottom line, SHOP's strong sales growth this Black Friday is encouraging that its efforts to navigate the current tricky environment are finding success, a healthy step toward the company's renewed focus on improving profitability. The uplifting sales growth on Friday also bodes well for SHOP achieving some of the items it forecasted for Q4, including GMV growth outperforming the broader U.S. retail market.
American Eagle extends its run sparked by excellent OctQ earnings earlier this week (AEO)
Shares of American Eagle (AEO +1%) are extending their run today, ascending to levels not seen since May, sustaining the robust momentum kickstarted by strong Q3 (Oct) results from earlier this week. There were multiple highlights from Q3, including a massive earnings beat, AEO's largest in over 20 quarters. Revs also fell less than analysts anticipated, dropping just 2.6% yr/yr to $1.24 bln.
These were solid headline numbers, but we view a few other developments as more inspiring.
- Following the theme of many of its peers, AEO is leveraging the strength of its operations to put itself in a good position to better compete with the challenging macroeconomic environment.
- More specifically, AEO is planning its inventories tightly, pulling on levers to chase into demand. The firm is also looking to reduce expenses, improving its bottom line and free cash flow.
- AEO already made healthy progress regarding inventories, taking deliberate steps to clear through spring and summer goods earlier this year. As a result, its inventory was in good shape in Q3, up just 8% yr/yr, a massive improvement from the increase of 36% in Q2 (Jul). AEO further noted that it expects a sequential improvement in Q4 (Jan), with ending inventory falling on a yr/yr basis.
- Looking ahead to 2023, AEO expects a highly promotional environment. Despite this, the company guided to Q4 gross margins of 32-33%, slightly at the higher end of its prior low 30s outlook.
Although the stock has been making some powerful moves since AEO's Q3 earnings report, near-term concerns remain. The company touched on this during its earnings call, stating that it is still cautious regarding the road ahead as discretionary spending levels remain suppressed. Also, even though freight costs are easing, AEO may need to implement more aggressive markdown activity if economic conditions sour, which would weigh on gross margins. Nevertheless, we think AEO is taking the appropriate actions to handle the unfavorable environment, which should position it nicely to react quickly to demand signals.
Lastly, if last quarter was any indication, AEO's report is a good sign for Zumiez (ZUMZ), which reports OctQ earnings on December 1.
Closing Summary
28-Nov-22 16:25 ET
Dow -497.37 at 33853.28, Nasdaq -176.86 at 10989.35, S&P -62.10 at 3964.14
[BRIEFING.COM] Today's trade was distinctly negative after a big run so far this month. Heading into today, the Nasdaq Composite and S&P 500 were up 8.5% and 8.2%, respectively, since November 3. This move had the S&P 500 flirting with a key technical resistance level, the 200-day moving average at 4,054.
Coming off the sizable rally, market participants took some money off the table today ahead of Fed Chair Powell's speech on Wednesday and worries that a slew of economic data releases this week could reflect a need to mark down earnings even further. The data lineup includes the November Consumer Confidence, October Personal Income and Spending, November ISM Manufacturing Index, and November Employment Situation reports.
Growth concerns connected to China were also in play today following reports of social unrest over the government's zero-COVID policy.
The ensuing sell off was broad based with declining issues leading advancing issues by a greater than 3-to-1 margin at the NYSE and a greater than 2-to-1 margin at the Nasdaq. All 11 S&P 500 sectors closed in the red with losses ranging from 0.3% (consumer discretionary) to 2.8% (real estate).
The communication services (-1.6%), financial (-1.8%), and information technology (-2.1%) sectors were influential laggards. The most heavily-weighted info tech sector was weighed down by Apple (AAPL 144.22, -3.89, -2.6%), which sold off on a Bloomberg report that the company could lose 6 million iPhone Pro models from events at the Foxconn plant.
There was an impressive intraday reversal for WTI crude oil futures, which fell to $73.60/bbl earlier on growth concerns connected to China. By the close of the cash session, WTI crude oil futures rose 0.7% to $77.17/bbl, helped presumably by some short covering activity and speculation that OPEC+ could consider a production cut at next week's meeting.
The U.S. Dollar Index also saw an impressive reversal today, down to 105.36 earlier but reached 106.69 by the close of the stock market.
The inversion along the yield curve deepened slightly today, reflecting the market's ongoing growth concerns, but the movement was modest in size. The 10-yr Treasury note yield rose one basis point to 3.70% and the 2-yr note yield fell 2 basis points to 4.46%.
Separately, New York Fed President Williams (FOMC voter) and St. Louis Fed President Bullard (FOMC voter) ostensibly aided the consolidation effort with the former saying "inflation is far too high" and the latter indicating that the Fed may be more aggressive and pursue rate hikes into 2023.
There was no U.S. economic data of note today.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:00 a.m. ET: September FHFA Housing Price Index (prior -0.7%)
- 9:00 a.m. ET: September S&P Case-Shiller Home Price Index (Briefing.com consensus 10.7%; prior 13.1%)
- 10:00 a.m. ET: November Consumer Confidence (Briefing.com consensus 100.0; prior 102.5)
- Dow Jones Industrial Average: -6.9% YTD
- S&P Midcap 400: -11.6% YTD
- Russell 2000: -18.5% YTD
- S&P 500: -16.8% YTD
- Nasdaq Composite: -29.4% YTD
Energy complex futures settle mixed
28-Nov-22 15:35 ET
Dow -462.62 at 33888.03, Nasdaq -197.58 at 10968.63, S&P -59.60 at 3966.64
[BRIEFING.COM] The market is taking another leg lower with roughly 30 minutes left in the session.
Energy complex futures settled in mixed fashion. WTI crude oil futures are rose 0.7% to $77.18/bbl while natural gas futures fell 6.8% to $7.20/mmbtu.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:00 a.m. ET: September FHFA Housing Price Index (prior -0.7%)
- 9:00 a.m. ET: September S&P Case-Shiller Home Price Index (Briefing.com consensus 10.7%; prior 13.1%)
- 10:00 a.m. ET: November Consumer Confidence (Briefing.com consensus 100.0; prior 102.5)
WTI crude oil futures near session highs
28-Nov-22 15:00 ET
Dow -462.56 at 33888.09, Nasdaq -167.85 at 10998.36, S&P -59.34 at 3966.90
[BRIEFING.COM] The main indices trade at or near session lows.
Axsome Therapeutics (AXSM 73.60, +16.78, +29.5%) is up 30% after announcing AXS-05 achieves primary endpoint in the ACCORD phase 3 Trial in Alzheimer's Disease Agitation.
A short time ago, Reuters reported the EU failed to agree on a Russian oil price cap. WTI crude oil futures are up 1.3% to $77.28/bbl.
Market on a steady decline
28-Nov-22 14:30 ET
Dow -459.63 at 33891.02, Nasdaq -180.56 at 10985.65, S&P -60.77 at 3965.47
[BRIEFING.COM] The stock market is on a steady decline.
As the market fell to new lows, the S&P 500 consumer discretionary sector (-0.4%) joined the other ten sectors in negative territory.
Copper futures fell 1.2% today to $3.61/lb.
Small cap stocks are faring somewhat worse than their larger peers. The Russell 2000 (-1.8%) shows the steepest loss among the main indices.
Casino stocks trade up
28-Nov-22 14:05 ET
Dow -447.58 at 33903.07, Nasdaq -156.23 at 11009.98, S&P -56.22 at 3970.02
[BRIEFING.COM] The main indices again fell to new session lows with two hours left in the session.
Casino stocks Las Vegas Sands (LVS 43.74, +0.57, +1.3%), Melco Resorts (MLCO 7.33, +0.74, +11.2%), and Wynn Resorts (WYNN 78.38, +3.45, +4.6%) are trading up today on news that China granted the companies 10-year license renewals. Melco also received an upgrade to Overweight from Neutral at JPMorgan.
The U.S. Dollar Index continues to inch higher, up 0.5% to 106.50.
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