Market Snapshot
briefing.com
| Dow | 33692.26 | -94.56 | (-0.28%) | | Nasdaq | 11025.80 | +3.95 | (0.04%) | | SP 500 | 3960.17 | -3.76 | (-0.09%) | | 10-yr Note | -31/32 | 3.57 |
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| | NYSE | Adv 852 | Dec 2168 | Vol 865 mln | | Nasdaq | Adv 1649 | Dec 2871 | Vol 4.2 bln |
Industry Watch
| Strong: Communication Services |
| | Weak: Energy, Consumer Staples, Health Care, Materials, Industrials |
Moving the Market
-- Hesitation in front of next week's Consumer Price Index (CPI) and angst about the Fed's path forward following hotter-than-expected Producer Price Index (PPI) for November
-- Treasury yields moving sharply higher after the PPI report
-- Late afternoon selling as the S&P 500 fell below its earlier intraday low at 3955
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Closing Summary
09-Dec-22 16:25 ET
Dow -305.02 at 33481.80, Nasdaq -77.39 at 10944.46, S&P -29.13 at 3934.80
[BRIEFING.COM] Today's session started on a weaker note as market participants digested the hotter-than-expected Producer Price Index (PPI) for November. For most of the session the main indices clung to narrow trading ranges near their flat lines with both buyers and sellers lacking conviction. Things deteriorated noticeably, however, with about 30 minutes left in the session when the S&P 500 cracked an intraday support zone in the 3955 area. The selling pinned the indices deeper in negative territory and left them at their lows for the day when the closing bell rang.
The PPI report kept market participants on edge ahead of next week's Consumer Price Index and FOMC meeting, the latter of which will also include an updated Summary of Economic Projections that will provide some insight on terminal rate projections.
On a month-over-month basis, the PPI and core-PPI readings were higher than expectations, but the year-over-year readings (7.4% for total PPI and 6.2% for core PPI) were down from 8.1% and 6.8%, respectively, in October.
Still, the stock market's reaction was relatively subdued with the three main indices falling less than 1.0% today.
Longer-dated Treasuries had a more noticeable reaction. The 10-yr note yield rose eight basis points today to 3.57%. The 2-yr note yield, meanwhile, rose by two basis points to 4.34%.
The late afternoon sell off, which had the semblance of a sell program, left ten of the 11 S&P 500 sectors in negative territory. Energy (-2.3%) was the top laggard despite oil prices squeezing out a slim gain this session ($71.46/bbl, +0.06, +0.1%).
On the flip side, the communication services sector (+0.02%) was the lone holdout in positive territory. A nice gain in Netflix (NFLX 320.01, +9.75, +3.1%) bolstered sector performance after the company received an upgrade to Overweight from Equal Weight at Wells Fargo.
Despite the noticeable decline ahead of the close, most of today's outsized moves were reserved for individual stocks like lululemon (LULU 326.39, -48.12, -12.9%) and DocuSign (DOCU 49.16, +5.41, +12.4%), which reacted in different ways to their latest earnings reports and outlooks.
- Dow Jones Industrial Average: -7.9% YTD
- S&P Midcap 400: -13.1% YTD
- Russell 2000: -20.0% YTD
- S&P 500: -17.5% YTD
- Nasdaq Composite: -29.7% YTD
Reviewing today's economic data:
- The Producer Price Index for final demand increased 0.3% month-over-month in November (Briefing.com consensus +0.2%) following an upwardly revised 0.3% increase (from 0.2%) in October. The index for final demand, less foods and energy, increased 0.4% month-over-month (Briefing.com consensus +0.2%) following an upwardly revised 0.1% increase (from 0.0%) in October.
- On a year-over-year basis, the index for final demand was up 7.4%, versus 8.1% in October, and the index for final demand, less foods and energy, was up 6.2%, versus 6.8% in October.
- The key takeaway from the report is that it will pique concerns about next week's Consumer Price Index not being as friendly as expected either, which in turn will keep the market on edge about the Fed's monetary policy path. Beyond that consideration, it is good nonetheless to see the year-over-year change in PPI and core PPI moving lower, although the current levels are still far too high.
- Wholesale Inventories fell to 0.5% in October from a revised 0.8% in September (from 0.6%).
- The preliminary December University of Michigan Index of Consumer Sentiment checked in at 59.1 (Briefing.com consensus 57.0) versus the final reading of 56.8 for November. In the same period a year ago, the index stood at 70.6.
- The key takeaway from the report is that sentiment improved in conjunction with rising stock prices and falling gas prices. Notably, inflation expectations also improved with the downturn in gas prices.
Looking ahead to Monday, market participants will receive the following economic data:
- 9:45 a.m. ET: Final IHS Markit Services PMI reading for November (prior 46.1)
- 10:00 a.m. ET: October Factory Orders (Briefing.com consensus 0.7%; prior 0.3%)
- 10:00 a.m. ET: November ISM Non-Manufacturing Index (Briefing.com consensus 53.5%; prior 54.4%)
Little changed ahead of the close
09-Dec-22 15:35 ET
Dow -129.96 at 33656.86, Nasdaq -12.49 at 11009.36, S&P -8.82 at 3955.11
[BRIEFING.COM] All the major indices sit just below their flat lines heading into the close.
A short time ago, Bank of America CEO said in a CNBC interview that he predicts a slight recession early next year.
The CBOE Volatility Index has been falling this session, down 0.2% or 0.04 to 22.25.
Looking ahead to Monday, market participants will receive the following economic data:
- 9:45 a.m. ET: Final IHS Markit Services PMI reading for November (prior 46.1)
- 10:00 a.m. ET: October Factory Orders (Briefing.com consensus 0.7%; prior 0.3%)
- 10:00 a.m. ET: November ISM Non-Manufacturing Index (Briefing.com consensus 53.5%; prior 54.4%)
Treasury yields inch higher; WTI crude oil futures rise
09-Dec-22 15:05 ET
Dow -94.56 at 33692.26, Nasdaq +3.95 at 11025.80, S&P -3.76 at 3960.17
[BRIEFING.COM] The stock market continues to stick to a narrow trading range around the unchanged mark.
WTI crude oil futures were able to settle the session with a modest gain ($71.46/bbl, +0.06, +0.1%) after trending lower most of the day. Natural gas futures settled 5.5% higher at $6.29/mmbtu.
Treasury yields are ticking somewhat higher. The 2-yr note yield is up three basis points to 4.34% and the 10-yr note yield is up seven basis points to 3.56%.
Halliburton, Etsy underperform in S&P 500 on Friday
09-Dec-22 14:30 ET
Dow -96.36 at 33690.46, Nasdaq +6.99 at 11028.84, S&P -3.93 at 3960.00
[BRIEFING.COM] The S&P 500 (-0.10%) is still in second place at this point on Friday afternoon, having moved mostly sideways in the last half hour.
S&P 500 constituents Halliburton (HAL 33.27, -1.60, -4.59%), Etsy (ETSY 128.75, -5.75, -4.28%), and Moderna (MRNA 178.01, -6.69, -3.62%) slip to the bottom of the standings. HAL was initiated with a Strong Buy at Raymond James this morning, while MRNA falls after back-to-back strong gains.
Meanwhile, Paramount Global (PARA 19.09, +0.99, +5.47%) tops the index, outperforming alongside other streaming peers like Netflix (NFLX 324.29, +14.06, +4.52%) and Warner Bros. Discovery (WBD 11.14, +0.38, +3.53%).
Gold ekes out gains this week, aided by Friday push
09-Dec-22 14:00 ET
Dow -83.31 at 33703.51, Nasdaq +4.70 at 11026.55, S&P -3.65 at 3960.28
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+0.04%) is the only remaining major averages in positive territory.
Gold futures settled $9.20 higher (+0.5%) to $1,810.70/oz, up a little less than +0.1% on the week, a lid kept on gains owing to a late-week rebound in treasury yields.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $104.74.
Page One
Last Updated: 09-Dec-22 09:03 ET | Archive
Market's nervous eye shifts to next week's CPI report after PPI report comes in a little hot
The stock market has kept a nervous eye on the November Producer Price Index (PPI) all week, yet the equity futures market reflected some hopeful anticipation in front of the release that it would show some friendly numbers.
That hope was dashed when the PPI report hit the wires at 8:30 a.m. ET. The numbers themselves weren't mean so to speak. They were simply less friendly than what market participants had hoped they would be.
Specifically, the Producer Price Index for final demand increased 0.3% month-over-month (Briefing.com consensus +0.2%) following an upwardly revised 0.3% increase (from +0.2%) in October. The index for final demand, less foods and energy, increased 0.4% month-over-month (Briefing.com consensus +0.2%) following an upwardly revised 0.1% increase (from 0.0%) in October.
On a year-over-year basis, the index for final demand was up 7.4%, versus 8.1% in October, and the index for final demand, less foods and energy, was up 6.2%, versus 6.8% in October.
The key takeaway from the report is that it will pique concerns about next week's Consumer Price Index not being as friendly as expected either, which in turn will keep the market on edge about the Fed's monetary policy path. Beyond that consideration, it is good nonetheless to see the year-over-year change in PPI and core PPI moving lower, although the current levels are still far too high.
The S&P 500 futures, which were up 21 points ahead of the release, are now down eight points and are trading 0.1% below fair value. The Nasdaq 100 futures are down 21 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 58 points and are trading 0.1% below fair value.
These indications have the cash market on track for a slightly lower open, but the damage is much less severe than it would have been a few months ago.
The Treasury market also saw some backtracking on the PPI numbers. The 2-yr note yield, which was at 4.26% just ahead of the release, is up to 4.32%, and the 10-yr note yield, which was at 3.47% just ahead of the release, is up to 3.51%. Again, that's not necessarily an outsized response to a "hot" inflation reading.
There is perhaps a modicum of appreciation for the 0.9% month-over-month decline in prices for processed goods for intermediate demand and the 3.2% month-over-month decline in prices for unprocessed goods for intermediate demand possibly setting the stage for a better wholesale inflation reading the next time around.
In any case, the knee-jerk selling to the PPI report is understandable. Quite simply, it did not live up to the market's more hopeful expectations, so we suspect some algorithmic trading kicked in to account for the miss.
The generally modest retreat following the report, however, could eventually become a rebound catalyst, with the more favorable year-over-year trend supplanting the less favorable month-over-month numbers as the focal point.
That point notwithstanding, any rebound enthusiasm should be naturally constrained by the uncertainty that still exists leading into the Consumer Price Index next Tuesday and the FOMC decision and release of updated economic projections on Wednesday.
-- Patrick J. O'Hare, Briefing.com
DocuSign's new CEO puts his signature on a much-improved quarterly performance (DOCU)
DocuSign (DOCU), a pioneer of e-signature technology, has fallen on hard times recently as in-person meetings resume and as competition intensifies, but the stock is soaring today following a much better-than-expected quarterly report. In need of a shake-up, DOCU replaced former CEO Dan Springer with Allan Thysgesen, a Google (GOOG) veteran, this past October. With the company cruising past muted Q3 EPS and revenue expectations and delivering billings of $659.4 mln, crushing its guidance of $584-$594 mln, it's safe to say that Thysgesen is off to a solid start.
When Thysgesen took the helm of DOCU a couple of months ago, he identified a few key missteps that have weighed on the company's financial performance.
- For instance, during last night's earnings call, he noted that the company didn't scale the workforce properly after it experienced such strong growth during the pandemic. Consequently, DOCU's innovation capabilities took a hit, enabling competitors to grab market share.
- The company's go-to-market strategy was lacking and became increasingly inefficient as it struggled with high employee turnover within its sales team.
- When the market began to turn due to changing macroeconomic conditions, DOCU was slow to adjust, and it was unable to fully address the softening landscape because it didn't have the proper operations in place.
Although these issues haven't been completely remedied in Thysgesen's short stint as CEO, the company has taken some important steps that are already paying dividends. One significant development is that attrition within sales continued to moderate and DOCU is seeing more stabilization in the field. Additionally, the company is focusing on making the customer experience more seamless, primarily by building out its self-service capabilities. While at GOOG, Thysgesen was deeply involved in building out the self-service platform for the advertising business. With 1 million self-serve customers already under DOCU's belt, he has a running start for this initiative.
As encouraging as DOCU's upside earnings report was, it certainly wasn't without some blemishes.
- Dollar net retention rate slipped to 108% from 110% last quarter and DOCU expects this metric to continue trending lower for the remainder of the year. Muted buying patterns and slower expansion rates are to blame for the decline.
- While billings growth of 17% easily beat expectations in Q3, DOCU is anticipating a pullback in growth next quarter and beyond. For Q4, the company is forecasting billings of $705-$715 mln, equating to growth of 5-7%, while FY24 billings growth is expected to be in the low single-digits.
- Relatedly, DOCU acknowledged during the earnings call that macro conditions have become more challenging and that it's seeing smaller deal sizes as customers scrutinize their spending budgets. Two verticals in particular where DOCU is experiencing weakness are real estate and financial services.
The main takeaway is that business is stabilizing for DOCU and the company seems to be back on the right track with Thysgesen leading the way. The company is not out of the woods just yet, though, as it tries to separate itself from an increasingly crowded field in the face of difficult macroeconomic conditions.
lululemon athletica's cautionary comments on the near term sparks a sell-the-news reaction (LULU)
lululemon athletica (LULU -13%) is selling off today despite posting upside on its top and bottom lines in Q3 (Oct) and raising its FY23 guidance. The athletic apparel company also boasted its biggest day ever in sales and traffic on Black Friday, an encouraging sign of a robust holiday shopping season.
However, there were some items from Q3 that are fueling concerns today. Inside same-store sales growth of +17% was on the lighter side, as was LULU's single-digit EPS beat. Also, LULU recognized that the current environment remains challenging, and with the company still staring at several high-volume weeks, sales growth could taper off. Meanwhile, FX headwinds and cost inflation continued to weigh on gross margins, which contracted 130 bps yr/yr, wider than LULU's 50-70 bp forecast. Additionally, China, LULU's second-largest market by the number of stores, saw revs grow below expectations due to COVID-related lockdowns.
- Investors may also be concerned about inventory levels, which were up 85% yr/yr on a dollar basis. However, LULU has noted over the past few quarters that it is rebuilding inventories. In fact, LULU remarked that the higher inventory in Q3 enabled its strong 28.0% yr/yr sales growth. Also, LULU expects Q4 (Jan) inventory growth to begin moderating, expanding by around 60% yr/yr.
- LULU's supply chains also improved in Q3, with its factories returning to pre-pandemic levels of production efficiency. Also, ocean delivery times have come down from the 70 days the company endured last quarter.
- As apparel retailers are forced to slash prices to remove excess inventory, investors may be concerned that LULU will eventually follow suit. The good news is that although markdowns clipped around 40 bps off margins in Q3, levels were relatively flat compared to 2019. At the same time, LULU does not anticipate markdowns to trend meaningfully higher than 2019 levels in Q4 either.
- Speaking of Q4, guidance was not as upbeat as last quarter, with the midpoints of its EPS outlook of $4.20-4.30 and revenue forecast of $2.605-2.655 bln, falling short of consensus. However, this somewhat conservative guidance incorporates the uncertainty of the remaining holiday season, which could maintain the current momentum seen on Black Friday, propelling LULU past the high end of its projections.
- LULU also raised its CapEx target for FY23, expecting $630-655 mln, a $20 mln hike from prior guidance. However, the increase reflects increased investments in LULU's supply chain, digital capabilities, and new store openings, which should support future growth.
Overall, a few weak points in Q3 are fueling some uneasiness today. Also, LULU's cautionary comments on the near term did not alleviate fears of weakening consumer demand recently stoked by peer V.F. Corp (VFC), which slashed its FY23 (Mar) guidance last week.
Still, today's move may be an overreaction. LULU remains on track to grow its annual revs to $12.5 bln by 2026. Meanwhile, while the adult active apparel industry fell 4% yr/yr in Q3, LULU noted it gained 1.5 pts of market share in the U.S. during this time, underpinning its ability to navigate a potentially more pronounced slowdown in consumer demand.
Broadcom extends its rally on sustained demand trends in Q4 and upbeat Q1 guidance (AVGO)
Broadcom (AVGO +3%) is adding to its ongoing rally today after delivering its fourth-straight double-digit earnings beat and third-straight quarter of 20+% revenue growth, highlighting sustained demand in Q4 (Oct). Meanwhile, the chipmaker, whose major customers include Apple (AAPL) and Cisco (CSCO), guided Q1 (Jan) revs nicely above consensus. AVGO also hiked its dividend by 12%, translating to a new annual yield of 3.5% from 3.1%, and expects to resume its $13 bln repurchase program as soon as it can under SEC rules.
There was a bit of caution sprinkled into the otherwise upbeat Q4 report. Although CEO Hock Tan believes AVGO is not shipping beyond actual demand, supplying customers who can consume the product immediately, he was cautiously optimistic about these trends extending through FY23. Mr. Tan commented that the sustained strength in consumption of AVGO's products in FY23 is unknown. Still, the company has yet to see some of its largest enterprise customers talking about reducing IT spending.
- AVGO's Q4 numbers did not show a reversal of these solid demand trends. Adjusted earnings expanded by 33.8% yr/yr to a record $10.45 while sales of $8.93 bln, representing 20.6% growth, also set a record.
- Growth was broad-based, with strong showings from hyperscalers, service providers, and enterprises. Networking revs jumped 30% yr/yr to $2.5 bln, storage connectivity surged 50% to $1.2 bln, and broadband grew 20% to $1.0 bln. Although much lighter than AVGO's other businesses, wireless revs climbing 13% to $2.1 bln was a notable standout given the weakening consumer demand environment touched on by many of AVGO's peers lately.
- However, Q1 (Jan) is not shaping up to boast similar gains in wireless, with AVGO projecting flat to low-single-digit growth sequentially. With AAPL being AVGO's wireless customer, the China lockdowns are adversely impacting logistics. AVGO also stated that Q2 (Apr) was too distant to accurately predict how this dynamic would shake out. However, on the plus side, the issue is primarily supply-related, which poses less threat than weakening demand.
- Also, regarding Q1, AVGO predicts total revs to jump 15.5% yr/yr but remain flat sequentially, guiding to around $8.90 bln, meaningfully better than analysts forecasted. CEO Hock Tan remarked that the resilient demand felt in most of its end markets will trickle into Q1, with most of its businesses seeing similar yr/yr growth as they did in Q4.
AVGO's Q4 report was mostly uplifting, with lingering concerns surrounding AAPL and the demand backdrop in FY23 keeping shares somewhat in check. Also, AVGO's $61 bln VMware (VMW) deal continues to hang over the stock as many regulatory obstacles still need to be hurdled. However, there should be less uncertainty after the EU decision deadline on December 20; AVGO remains confident in the deal closing during FY23. Still, Q4 numbers underpin sustained demand trends, with Q1 continuing this momentum. It is also encouraging to see AVGO lift its dividend and resume its $13 bln share repurchase program.
Costco succumbs to inflation as soft big-ticket item sales leads to EPS and sales miss (COST)
For the first time in over five years, Costco (COST) missed expectations on both the top and bottom-lines in 1Q23 as sales cool off after a streak of strong double-digit growth that began when the pandemic struck in the spring of 2020. While its customers are still stocking up on food and everyday items, COST is seeing a slowdown in demand for big-ticket items such as jewelry, electronics, and appliances.
Until this quarter, sales of discretionary products had held up quite well for COST, especially relative to other big box retailers like Walmart (WMT) and Target (TGT), thanks in part to its more affluent customer base. However, inflationary pressures are finally taking their toll as illustrated by a high single-digit decrease in e-commerce volume for electronics and appliances, which represent 40-50% of COST's total e-commerce volume.
After COST reported disappointing November adjusted comps of +5.3% last week, the Q1 revenue miss and deceleration in comp growth to +7.1% from +10.4% last quarter doesn't come as a major surprise. When drilling down on the components that contributed to the slowdown, though, the sequential deceleration really comes to light.
- Traffic increased by just 2.2% in the U.S., compared to a 5.2% increase in Q4. Heading into the report, we were concerned that the recent drop in gasoline prices would hurt COST's traffic. A key catalyst for store traffic over the past several quarters has been COST's discounted gasoline prices, which has provided a major draw for consumers. It appears that the lure of discounted gas prices has lost some of its appeal.
- COST's customers are also spending less when they do shop. In Q1, average transaction size was up 6.9% in the U.S., down from last quarter's 10.0% mark. This drop makes sense when considering the erosion in demand for big-ticket items. Additionally, the easing of gasoline prices is playing a role in the smaller transaction size.
COST did lap difficult yr/yr comparisons, making the Q1 performance look a little worse than it was. Specifically, in the year-earlier period, COST reported adjusted comps of +9.9%, fueled by a 5.9% increase in U.S. traffic and an 8.5% jump in average ticket size.
Inflation is also heading in the right direction, which could boost customer traffic in Q2. During the earnings call, CFO Richard Galanti stated that inflation for COST's products ran between 6-7% on a year basis, down from 8% in the prior quarter. Despite the modest improvement, core merchandise gross margin slipped by 31 bps, excluding gas inflation, with non-foods and fresh foods applying most of the pressure.
The stock is holding up pretty well in the face of COST's disappointing earnings report. This is partly a function of a 10% dip in the stock following the November comparable sales report, which reset expectations lower. Overall, business is still healthy, but COST's results show that not even it is immune to macroeconomic headwinds.
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