Market Snapshot
briefing.com
| Dow | 33977.22 | -33.16 | (-0.10%) | | Nasdaq | 11138.84 | +55.26 | (0.50%) | | SP 500 | 4002.88 | +11.90 | (0.30%) | | 10-yr Note | +32/32 | 3.50 |
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| | NYSE | Adv 2059 | Dec 916 | Vol 1.1 bln | | Nasdaq | Adv 2655 | Dec 1939 | Vol 6.0 bln |
Industry Watch
| Strong: Communication Services, Information Technology, Real Estate, Consumer Discretionary |
| | Weak: Consumer Staples |
Moving the Market
-- Cooler-than-expected Consumer Price Index for November
-- Big drop in Treasury yields and weakening dollar
-- Strength in mega cap stocks bolstering the broader market
-- S&P 500 falling below its 200-day moving average (4034)
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Closing Summary
13-Dec-22 16:30 ET
Dow +103.60 at 34113.98, Nasdaq +113.08 at 11196.66, S&P +29.09 at 4020.07
[BRIEFING.COM] The cooler-than-expected Consumer Price Index (CPI) for November set the stock market up for another upbeat session. The main indices all registered sizable gains shortly after the open. Specifically, the Dow Jones Industrial Average was up 707 points or 2.1%, the Nasdaq Composite was up 428 points or 3.8%, and the S&P 500, which gapped above resistance at its 200-day moving average (4,034), was up 110 points or 2.8%.
Briefly, total CPI was up 0.1% month-over-month (Briefing.com consensus +0.3%) and core-CPI, which excludes food and energy, was up 0.2% (Briefing.com consensus +0.3%). Those monthly changes left total CPI up 7.1% year-over-year, versus 7.7% in October, and core-CPI up 6.0% year-over-year, versus 6.3% in October.
The big rally effort was fueled by the notion that a welcome moderation in headline inflation should convince the Fed to temper the pace of its rate hikes and perhaps place a lower ceiling on its terminal rate.
Things started to deteriorate, however, after the S&P 500 was met with resistance at the 4,100 level around 10:00 a.m. ET. The main indices steadily eroded from there, relinquishing a large chunk of the opening gains by the time of the closing bell. In the process, the S&P 500 fell back below its 200-day moving average.
Initial buying was broad based and was aided by short-covering activity, yet many stocks pulled in from those early highs in what was a broad based retreat.
Presumably, some attention on a sticky, and elevated, core services number in today's CPI report forced investors to rein in their enthusiasm in front of the FOMC policy decision on Wednesday, the release of an updated Summary of Economic Projections, and Fed Chair Powell's press conference where he's expected to comment more on the Fed's thought process.
Still, ten of the 11 S&P 500 sectors logged gains today led by real estate (+2.0%) and energy (+1.8%). The consumer staples sector (-0.2%) was the lone laggard in negative territory.
The 2-yr Treasury note yield fell 18 basis points to 4.21% and the 10-yr note yield fell 11 basis points to 3.50%. The U.S. Dollar Index was down 1.0% to 104.04.
- Dow Jones Industrial Average: -6.1% YTD
- S&P Midcap 400: -11.6% YTD
- Russell 2000: -18.4% YTD
- S&P 500: -15.7% YTD
- Nasdaq Composite: -28.1% YTD
Reviewing today's economic data:
- November NFIB Small Business Optimism survey rose to 91.9 from 91.3 in October
- Total CPI was up 0.1% month-over-month (Briefing.com consensus +0.3%) and core-CPI, which excludes food and energy, was up 0.2% month-over-month (Briefing.com consensus +0.3%).
- On a year-over-year basis, total CPI was up "only" 7.1%, versus 7.7% in October, and core-CPI was up "only" 6.0%, versus 6.3% in October.
- The key takeaway from the report at first blush is that overall inflation is cooling and that the Fed should be convinced to temper the pace of its rate hikes and perhaps place a lower ceiling on its terminal rate.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.9%)
- 8:30 ET: November Import Prices (prior -0.2%), Import Prices ex-oil (prior -0.1%), Export Prices (prior -0.3%), and Export Prices ex-agriculture (prior -0.3%)
- 10:30 ET: Weekly crude oil inventories (prior -5.19 mln)
- 14:00 ET: December FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 3.75-4.00%)
Wednesday's economic data
13-Dec-22 15:35 ET
Dow +143.56 at 34153.94, Nasdaq +128.54 at 11212.12, S&P +33.60 at 4024.58
[BRIEFING.COM] The main indices are trying to push higher heading into the close.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.9%)
- 8:30 ET: November Import Prices (prior -0.2%), Import Prices ex-oil (prior -0.1%), Export Prices (prior -0.3%), and Export Prices ex-agriculture (prior -0.3%)
- 10:30 ET: Weekly crude oil inventories (prior -5.19 mln)
- 14:00 ET: December FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 3.75-4.00%)
Energy complex futures settle near highs
13-Dec-22 15:10 ET
Dow -33.16 at 33977.22, Nasdaq +55.26 at 11138.84, S&P +11.90 at 4002.88
[BRIEFING.COM] Things are little changed in the last half hour. The main indices remain confined to a narrow trading range.
Energy complex futures settled near their highs of the day. WTI crude oil futures are rose 3.4% to $75.57/bbl and natural gas futures are up 5.3% to $6.95/mmbtu.
Meanwhile, Treasury yields have been inching higher. The 2-yr note yield is down 18 basis points to 4.21% and the 10-yr note yield is down 11 basis points to 3.51%.
Match Group, iPhone apps jump on reports Apple may soon allow third party app stores
13-Dec-22 14:30 ET
Dow +61.56 at 34071.94, Nasdaq +102.58 at 11186.16, S&P +26.95 at 4017.93
[BRIEFING.COM] The S&P 500 (+0.68%) remains firmly in second place on Tuesday afternoon.
S&P 500 constituents Match Group (MTCH 47.24, +3.69, +8.47%), Halliburton (HAL 36.84, +2.54, +7.41%), and Cooper (COO 329.45, 15.33, +4.88%) dot the top of the standings. MTCH and fellow iPhone apps jumped in recent trading after reports Apple (AAPL 145.01, +0.52, +0.36%) is planning to allow third party app stores as part of an overhaul, while HAL enjoys gains alongside today's crude oil price jump.
Meanwhile, airline firm American Airlines (AAL 13.34, -0.86, -6.06%) is one of a handful of jetliners that underperform today. In general, this morning's cooler-than-expected CPI report sent crude oil prices into rally mode due to a dollar that weakened on the prospects of a more dovish Fed. Thus, the prospects for higher fuel costs and lower profit margins are weighing on airlines.
Gold gains after CPI data shows slowdown in inflation
13-Dec-22 14:00 ET
Dow +43.39 at 34053.77, Nasdaq +79.55 at 11163.13, S&P +20.34 at 4011.32
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.71%) is alone atop the standings on Tuesday afternoon, well off morning highs of +3.83%.
Gold futures settled $33.20 higher (+1.9%) to $1,825.50/oz, its highest levels since June, after this morning's CPI data illustrated a slowdown in inflation.
Meanwhile, the U.S. Dollar Index is down about -1.0% to $104.09.
United Airlines fails to take flight in wake of historic Dreamliner order with Boeing (UAL)
After issuing an impressive blowout 3Q22 earnings report in mid-October, United Airlines (UAL) is seeing more clear skies ahead for the travel industry, even in the face of challenging macroeconomic conditions. In fact, UAL is so confident about its future prospects that it blessed Boeing (BA) with the largest 787 Dreamliner order in BA's history. That historic order, which is estimated to be worth $30-$40 bln, before discounts, includes 100 787 jets, with the option to purchase 100 more. Additionally, UAL is purchasing 100 737 MAX jets as the airline looks to modernize its fleet while making it more fuel efficient.
Initially, UAL climbed higher on this news. In our view, the positive reaction was understandable because it sets the company up for stronger revenue growth and enhanced margins in the years ahead.
- In the past two years, UAL has been busy expanding its international business, adding 40 new routes with 13 new destinations. These efforts paved the way for UAL to make this big splash with its 787 order. As a quick reminder, the 787 Dreamliner is a fuel efficient wide-body plane that's best suited for international flights, thanks to its ability to fly long distances without refueling.
- The new Dreamliners will steadily replace UAL's older 767 and 777 models with the first jets being delivered in 2024. By 2032, the company anticipates that all of its 767 aircraft will be replaced.
- In the more immediate future, UAL plans to upgrade the interiors of its existing fleet, including for its entire fleet of mainline, narrow-body jets. About 100 aircraft are targeted to be completed in 2023 with the remainder set to be completed by the end of 2025.
This all seems like positive news, especially since UAL reaffirmed its expectation of achieving an adjusted pre-tax margin of about 9% in 2023 and approximately 14% in 2026. Perhaps there's some concern about UAL's capex budget ballooning from $9 bln in 2023 to $11.0 bln in 2024, but there's another likely explanation for UAL's weakness.
- Airlines are weak across the board with American Airlines (AAL), Delta Air Lines (DAL), and Southwest Airlines (LUV) each trading with sizable losses. The sell-off in these stocks really accelerated in the wake of the cooler-than-expected CPI report. That report sent crude oil prices into rally mode due to a dollar that weakened on the prospects of a more dovish Fed. Therefore, the prospects for higher fuel costs and lower profit margins are weighing on airlines.
- Secondarily, JetBlue (JBLU) issued soft Q4 guidance this morning, estimating that revenue per available seat mile will come in at the low end of the previous 15-19% growth range. However, the lower outlook is partly due to the negative impact from Hurricane Nicole.
Although the stock isn't reflecting it today, we believe that UAL's huge investment to modernize its fleet to support its international growth strategy is a bullish development. Not only does it speak to UAL's confidence about the future of international travel -- which continues to lag behind domestic travel -- but it also positions the company to better capitalize on this recovery relative to its competitors.
Terex's initial gains today quickly evaporate as supply chain concerns linger (TEX)
Terex (TEX -2%) saw its gains, triggered by reiterated FY22 guidance and FY27 financial targets, paved over quickly today. There was not an evident spark that set shares in a downward motion. Instead, the initial jump was likely an overreaction since a few weak points became noticeable after drilling into TEX's FY27 targets.
TEX is a global manufacturer of aerial work platforms and materials processing machinery, supporting products used in construction, maintenance, manufacturing, minerals, and materials management applications. The company splits its operations into Aerial Work Platforms (AWP), which accounted for 56% of FY21 revs, and Materials Processing (MP), which made up 44% of FY21 revs.
- TEX's reiterated FY22 guidance of $4.00-4.20 in earnings and $4.3 bln in sales, representing around 11% growth yr/yr, were reassuring that the demand environment had not materially deteriorated since TEX's raised FY22 outlook in late October.
- However, using TEX's FY22 revenue target, its FY27 sales goal of approximately $6.0 bln translates to only 6.9% annualized growth, a sharp slowdown from the +11% expected this year.
- Although TEX's other FY27 targets, such as $8.00-9.50 in earnings, over double what is expected in FY22, and 13-14% operating margins, a 400 bp improvement over FY22 estimates, there may be concerns that lingering supply chain woes will interfere with TEX achieving these goals. Earlier this month, TEX commented that FY23 will be governed by its supply chain, not demand, which remains solid.
- Also, shares have struggled to break meaningfully above $46.50 since slipping below that level in January. Therefore, with the stock surging by 50% from late September lows, only to get rejected at this level once again, perhaps investors used the quick jump today as an opportunity to take profits.
Even though shares of TEX quickly turned red on the day, the company still boasts many positives. For one, TEX has already seen a modest improvement in supplier on-time delivery. Its consistent quarterly revenue of around $1.0 bln has been almost entirely supply-chain driven, meaning that as improvements continue, it should translate into solid top-line growth. Furthermore, TEX has repeatedly mentioned that demand is not an issue, noting last quarter, customers were already seeking to reserve 2024 production slots. Meanwhile, there are strong tailwinds at TEX's back, including the modernization of the U.S. electrical grid.
Bottom line, TEX's FY27 financial projections are mostly uplifting and underscore resilient demand trends that should translate to consistent top-line growth, especially if supply chains continue to improve.
Eli Lilly's earnings outlook disappoints again, but compelling drug pipeline eases the pain (LLY)
Pharmaceutical giant Eli Lilly (LLY) has enjoyed a remarkable run this year with shares gaining about 33% year-to-date, but the stock is exhibiting notable relative weakness today after the company issued disappointing guidance for FY23. In particular, LLY's EPS guidance of $8.10-$8.30 fell well short of expectations, even as the company's revenue outlook of $30.3-$30.8 bln edged past analysts' estimates.
LLY has a track record of missing earnings expectations, making the stock's rally quite surprising. In fact, the company has fallen short on the bottom-line in five of the past seven quarters. Additionally, although LLY beat EPS and revenue forecasts last quarter, it revised its FY22 EPS and revenue guidance lower to $7.70-$7.85 from $7.90-$8.05, and to $28.5-$29.0 bln from $28.8-$29.3 bln, respectively. This morning, the company reaffirmed that downwardly revised outlook.
One reason why LLY's erratic earnings performance hasn't bothered investors too much is because its troubles are partly related to foreign exchange headwinds. After estimating a negative FX impact of roughly $700 mln for FY22, LLY significantly upped that projection to about $1.0 bln last quarter. If the company's subpar earnings performance was due to operational/execution issues, then the stock probably wouldn't be faring nearly as well. A compelling product pipeline of newly launched drugs and drugs that may be launched next year is also helping the cause.
- While LLY's downside FY22 guidance was the primary story surrounding its Q3 earnings report, a key highlight was that its new Type 2 diabetes drug, Mounjaro, got off to a very fast start. In Q3, Mounjaro generated sales of $187.3 mln, prompting CFO Anat Ashkenazi to describe demand as "unprecedented" due to its strong efficacy and positive patient outcomes.
- The coming year could also see the regulatory approval and much-anticipated launch of donanemab, LLY's treatment for early Alzheimer's Disease. On November 30, the company reported that the drug met all primary and secondary endpoints in the Phase 3 study and that it reduced brain amyloid plaque levels vs. baseline by 65.2%.
- Recall that in late September, Biogen (BIIB) announced positive Phase 3 data for its Alzheimer's Disease treatment, lecanemab, including a reduction in cognitive and functional decline of 27% after 18 months of treatment. Importantly, both lecanemab and donanemab target a protein plaque called amyloid beta, which is believed to be the key agent behind the progression of AD.
- Therefore, if the FDA grants approval to lecanemab on January 6, 2023 -- the current PDUFA date -- then it seems likely that donanemab's odds of receiving approval would also be high.
- Other drugs that are lined up for potential FDA approval this year include mirikizumab (Crohn's Disease), lebrikizumab (asthma), and pirtobrutinib (lymphocytic leukemia). These drugs could add to the list of recently approved and commercially available drugs that have fueled LLY's growth.
- For instance, in Q3, Verzenio, Trulicity, Mounjaro, Jardiance, Taltz, Emgality, Retevmo, Cyramza, Tyvyt and Olumiant grew by 19% and represented 70% of revenue in the quarter.
The main takeaway is that LLY's struggles on the bottom-line are continuing as FX headwinds and R&D expenses cut into its profits. However, with a compelling pipeline of drugs ready for potential approval in FY23, many investors are willing to look past LLY's erratic earnings performance with an eye towards stronger growth next year.
Boeing getting modest lift on largest 787 Dreamliner order in company history
Boeing (BA +1%) is getting some lift after announcing a deal with United Airlines (UAL -6%) under which the carrier is placing an order for 100 787 airplanes, with the option to purchase 100 more. This is important because it is the largest 787 Dreamliner order in Boeing history. United is also purchasing 100 737 MAX jets, exercising 44 existing options and placing 56 new orders.
- The deal was not entirely a surprise because Reuters published a story last week that a 787 deal would be announced soon. However, it is still good to see the agreement finalized and with this being the largest 787 order ever, it is a big deal. Also, recall that Boeing just resumed 787 deliveries in August after getting FAA approval. BA had been dealing with fuselage-related quality issues but that is no longer an issue.
- This is great news for Boeing and UAL as well, which is also trading higher today. Air travel demand has rebounded in 2022. Bookings in pretty much every geography are strong, with the exception of China. What is notable about this order is that the 787 is a wide-body (two aisles) airplane. And Boeing has stressed over many earnings calls that the narrow-body (one aisle) market was certain to recover before the wide-body market, which are used more for international flights. So this is a good sign that the wide-body market is improving.
- Rising fuel prices likely played a big role in UAL's decision to modernize its fleet. Thanks partly to composite materials replacing aluminum in the fuselage, the 787 Dreamliner provides an impressive 25% improvement in fuel use compared with the airplanes it replaces while the 737 MAX reduces fuel use and CO2 emissions by 20%. The better fuel efficiency from the 787 opens many more long haul, non-stop routes for airlines without the need to refuel. But it's not just fuel, the 787 also offers a smoother ride, larger and dimmable windows, and lower maintenance costs.
- There was no mention in today's press release if BA plans to increase its 787 production. On its call in October, Boeing said it was producing 787s at low rate with the plan to gradually return to five airplanes per month over time. BA ended Q3 with 115 787s in inventory, so we suspect BA will work that down before increasing production. However, we will be listening for any production increases during the Q4 call in late January.
Announcements like this should translate into improved financial results in the coming quarters and years. Recall that in Q3, Boeing's CA segment saw revenue jump 40% yr/yr, mostly fueled by the resumption of 787 deliveries and higher 737 deliveries. But even with that, BA still came up short on EPS and revenue in Q3. BA also said its turnaround is going to take longer than expected as supply chain issues plus macro issues (inflation, labor etc.) will remain a challenge in 2023. Today's announcement does not fix everything, but it is certainly a positive signal that demand remains robust and it is a sign the 787 is back.
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