Market Snapshot
briefing.com
| Dow | 33267.96 | +58.69 | (0.18%) | | Nasdaq | 10303.05 | -134.66 | (-1.29%) | | SP 500 | 3830.37 | -14.87 | (-0.39%) | | 10-yr Note | -31/32 | 3.86 |
|
| | NYSE | Adv 1329 | Dec 1733 | Vol 623 mln | | Nasdaq | Adv 1567 | Dec 3076 | Vol 3.7 bln |
Industry Watch
| Strong: Energy, Consumer Staples, Materials, Utilities, Industrials |
| | Weak: Communication Services, Information Technology, Consumer Discretionary, Health Care |
Moving the Market
-- Weakness in mega cap stocks weighing down broader market
-- Rising Treasury yields
-- Lack of follow through during this Santa Claus rally period (last five trading days of the year plus the first two trading sessions of the new year)
|
Closing Summary
27-Dec-22 16:30 ET
Dow +37.63 at 33246.90, Nasdaq -144.64 at 10293.07, S&P -15.57 at 3829.67
The stock market kicked off this last week of trading for the year in mixed fashion. The Dow Jones Industrial Average was able to squeeze out a slim gain while the S&P 500 and Nasdaq closed in the red, held down by sizable losses registered by mega cap stocks.
[BRIEFING.COM] Tesla (TSLA 109.10, -14.05, -11.4%), Apple (AAPL 130.03, -1.83, -1.4%), and NVIDIA (NVDA 141.21, -10.85, -7.1%) were among the more influential laggards, driving a 1.3% loss in the Vanguard Mega Cap Growth ETF (MGK). Apple fell to a new 52-week low while Tesla sold off, again, on news that production has been suspended at the company's Shanghai plant, which a company spokesman has denied. The fact that TSLA still struggled despite the denial underscores that investors have other worries on their minds like increased competition, weakening demand, and Elon Musk's Twitter distraction.
Losses in the mega cap space, however, seemingly turned into gains for other stocks. To that end, the Invesco S&P 500 Equal Weight ETF (RSP) closed up 0.1%.
Growth stocks were noticeably weak compared to value stocks. The Russell 3000 Growth Index sported a 1.0% loss versus a 0.1% gain in the Russell 3000 Value Index.
Most of the 11 S&P 500 sectors closed in the red. The heavily weighted consumer discretionary (-1.6%), communication services (-1.2%), and information technology (-1.0%) sectors were buried at the bottom of the pack, falling under the weight of their respective mega cap components. Meanwhile, the energy sector (+1.1%) closed at the top of the leaderboard.
The industrials sector (+0.3%) was among the outperformers today despite a sizable loss in Southwest Air (LUV 33.94, -2.15, -6.0%) after the airline canceled thousands of flights due to the winter storm.
Chinese stocks and U.S. stocks with high exposure to the Chinese market were a distinct pocket of strength today. This followed reports China, starting January 8, will end quarantine requirements for international travelers. Wynn Resorts (WYNN 84.33, +3.61, +4.5%), Alibaba (BABA 89.86, +4.21, +4.9%), and Baidu (BIDU 116.48, +4.87, +4.4%) were winning standouts for the group.
Treasury yields climbed noticeably higher today. The 2-yr note yield rose 12 basis points to 4.43% and the 10-yr note yield rose 11 basis points to 3.86%.
- Dow Jones Industrial Average: -8.5% YTD
- S&P Midcap 400: -14.3% YTD
- S&P 500: -19.7% YTD
- Russell 2000: -22.1% YTD
- Nasdaq Composite: -33.8% YTD
Reviewing today's economic data:
- The advanced report for international trade in goods showed an $83.35 billion deficit in November versus a prior revised $98.8 billion deficit in October (-$99.0 billion). The advanced report for retail inventories reflected a 0.1% build in November following a revised 0.4% decline in October (from -0.2%). The advanced report for wholesale inventories showed a 1.0% build in November after a revised 0.6% build in October (from +0.8%).
- FHFA Housing Price Index came in flat for October after a 0.1% increase in September
- S&P Case-Shiller Home Price Index fell to 8.6% (Briefing.com consensus 8.0%) in October from 10.4% in September
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior +0.9%)
- 10:00 a.m. ET: November Pending Home Sales (Briefing.com consensus -0.2%; prior -4.6%)
Market trying to climb higher ahead of the close
27-Dec-22 15:30 ET
Dow +96.96 at 33306.23, Nasdaq -116.02 at 10321.69, S&P -7.62 at 3837.62
[BRIEFING.COM] The major indices are trying to climb a bit higher heading into the close.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior +0.9%)
- 10:00 a.m. ET: November Pending Home Sales (Briefing.com consensus -0.2%; prior -4.6%)
Stuck in a narrow range
27-Dec-22 15:00 ET
Dow +58.69 at 33267.96, Nasdaq -134.66 at 10303.05, S&P -14.87 at 3830.37
[BRIEFING.COM] The market is stuck in narrow trading range.
Energy complex futures settled in mixed fashion. WTI crude oil futures settled flat at $79.58/bbl while natural gas futures rose 6.4% to $5.30/mmbtu.
Treasury yields remain elevated. The 2-yr note yield is up 11 basis points to 4.43% and the 10-yr note yield is up 11 basis points to 3.85%.
Moderna falls despite positive Barron's mention, Estee Lauder bucks cons. discretionary trade
27-Dec-22 14:25 ET
Dow +39.94 at 33249.21, Nasdaq -139.24 at 10298.47, S&P -18.03 at 3827.21
[BRIEFING.COM] The S&P 500 (-0.47%) is firmly in second place on Tuesday afternoon, down just 18 points.
S&P 500 constituents Moderna (MRNA 181.15, -17.93, -9.01%), NVIDIA (NVDA 141.92, -10.14, -6.67%), and CME Group (CME 166.96, -1.87, -1.11%) pepper the bottom of today's standings. MRNA slips despite a positive mention from Barron's, while CME trades ex-dividend today.
Meanwhile, cosmetics company Estee Lauder (EL 248.93, +7.91, +3.28%) stands near the top of Tuesday's action, outperforming despite a generally weaker cons. discretionary (XLY 127.83, -1.60, -1.24%) trade.
Gold higher as dollar dips on Tuesday
27-Dec-22 14:00 ET
Dow +44.57 at 33253.84, Nasdaq -135.50 at 10302.21, S&P -16.49 at 3828.75
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-1.29%) is dipping to afternoon lows, down more than 135 points.
Gold futures settled $18.90 higher (+1.0%) to $1,823.10/oz, modestly off intraday highs which jumped to their best levels in six months, aided in part by a weaker greenback.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $104.13.
Page One
Last Updated: 27-Dec-22 08:58 ET | Archive
Still buzzing about a potential Santa Claus rally
The news flow on the other side of the Christmas holiday has been predictably light. Meanwhile, the bias in the equity futures market on the other side of the Christmas holiday is oftentimes positive. Today, it is mixed.
Currently, the S&P 500 futures are up four points and are trading 0.1% above fair value, the Nasdaq 100 futures are down 22 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are up 72 points and are trading 0.2% above fair value.
We are in the midst of the Santa Claus rally period (last five trading days of the year and first two sessions of the year) and that is a time of year that often sees a positive bias as market participants take advantage of thinner trading conditions to do some bargain hunting in beaten up names.
This period does not always produce a net gain for the stock market, but when it does, it helps boost expectations for a positive start to the new year. Bear in mind, however, that the S&P 500 saw a net gain of 1.4% during the 2021 Santa Claus rally period and yet the S&P 500 declined 5.3% in January and 5.0% in the first quarter this year.
In other words, Santa isn't always all that he is cracked up to be. That point notwithstanding, there is a buzz about the Santa Claus rally period every year, partially because the news flow this time of year is typically light and, well, market participants need something to buzz about.
Alas, this is the time of year when you hear words/phrases like rebalancing, bargain hunting, and window dressing a lot more to help explain any positive bias in the stock market and the aura of the Santa Claus rally period.
Today, though, there is a bit of a buzz in the market because of another move by China to distance itself from the economically-damaging zero COVID policy. Starting January 8, China will no longer require international travelers to quarantine upon arrival.
That is a good bit of news along with a report from Mastercard that SpendingPulse data indicate holiday retail sales (Nov. 1-Dec. 24) in the U.S. increased 7.6% year-over-year. That was better than an expected 7.1% increase, according to The Hill.
Some less exciting news involves airlines canceling thousands of flights over the holiday weekend (and into this week) because of the winter storm. Southwest Airlines (LUV), though, is in the eye of the storm today after it canceled more than 70% of its flights on Monday and said more cancellations will be made this week. Other airlines had significantly fewer cancellations on Monday. Shares of LUV are down 4.2%.
Another notable loser this morning is Tesla (TSLA). It is down 5.4% on a Reuters report that it suspended production at its Shanghai plant. Tesla's (ongoing) losses are weighing heavily on the Nasdaq 100 futures along with modest declines in other mega-cap stocks.
-- Patrick J. O'Hare, Briefing.com
Tesla's reported shutdown of Shanghai facility kicks demand concerns into higher gear (TSLA)
In desperate need of an emergency brake to stop this year-end free-fall, Tesla (TSLA) is finding no relief today as concerns about softening demand kick into a higher gear. According to Reuters, the EV maker halted all production at its Shanghai plant on December 24, which follows a Bloomberg story from earlier this month that stated that TSLA cut its Model Y production by 20% at the same facility.
On both occasions, TSLA refuted the reports, but it seems pretty clear that the company is dialing back its activity in Shanghai as a combination of issues beset the company. In fact, an article from Investor's Business Daily essentially provided the "smoking gun" that business in China has weakened throughout December for TSLA. Specifically, IBD noted that Tesla registrations slipped to 8,915 from December 19-December 25, compared to 10,254 registrations the week before, and 12,977 registrations the week before that.
At the heart of the matter is the fear that TSLA's high-growth rate is in jeopardy of taking a major step backwards in FY23. As it currently stands, analysts are forecasting TSLA's revenue growth to slip to about 38% in FY23 from about 55% this year. Achieving a growth rate near 40% would still be a very impressive accomplishment for a company with a $360 bln market cap, but there's a growing sense that FY23 estimates will be ratcheted lower in the coming weeks. That belief stems from a few different factors.
- China just can't seem to break free from the grips of COVID-19. While the Chinese government has finally relented a bit on its crippling zero-COVID policy, now there are reports of virus breakouts across various parts of the country. This is causing worker shortages and is creating a ripple effect throughout supply chains, putting renewed pressure on production rates for manufacturers.
- Relatedly, TSLA competitor NIO, Inc. (NIO) significantly cut its Q4 delivery guidance today, stating that supply chain constraints have worsened in the wake of COVID-19 outbreak.
- On the topic of competition, the EV market in China is becoming much more competitive. While TSLA once dominated the field there, competitors like NIO, Li Auto (LI), XPeng (XPEV), and BYD (BYDFF) are steadily gaining ground on the company.
- On that note, the aforementioned IBD article also reported that BYD's vehicle registrations actually increased for the week ending December 25, reaching 51,636 compared to 50,462 in the prior week.
- In the U.S., rising interest rates, high inflation, and possibly Elon Musk's antics on Twitter are weighing on demand. The severity of the problem came to light last week when Reuters reported that TSLA doubled its discount on its Model 3 and Model Y vehicles to $7,500 in order to stoke sales.
On January 2, a clear picture of the demand environment will be revealed when TSLA issues its Q4 delivery and production report. With the stock plunging by nearly 30% since December 15, it's safe to say that investors are anticipating a disappointing number. However, once that report is in the rearview mirror, it wouldn't be surprising if TSLA shares receive a bit of a jolt as buyers look to capitalize on the stock's plunge. Overall, though, the prospects for a more meaningfully rebound in the near-term look questionable as a preoccupied Musk has his hands full.
Southwest Airlines facing a blizzard of criticism after cancelling thousands of flights (LUV)
The massive winter storm that wreaked havoc across the country over the past several days has morphed into a different kind of storm for Southwest Air (LUV). After canceling about 70% of its flights yesterday, and nearly 60% of its flights for today, LUV is facing a blizzard of criticism from angry travelers and from the U.S. Department of Transportation (USDOT).
Of course, bad weather is a factor that's completely out of LUV's control and it isn't alone in its severe service disruptions. The issue, though, is that LUV's difficulties were far more widespread than its competitors. In the words of the USDOT, LUV's rate of cancellations was "disproportionate and unacceptable", prompting the agency to investigate whether the airline could have avoided some cancellations and whether it's complying with its customer service plan.
For some context, the Wall Street Journal, citing aviation data provide Anuvu, reported that Delta Air Lines (DAL) canceled about 20% of its flights on Saturday and Sunday. With the improving weather, DAL and other airlines are also returning back to normal service levels, while LUV is still trying to dig itself out of this hole. There are a couple main reasons why LUV was completely buried by this storm.
- Of the big four airlines (UAL, AAL, DAL, and LUV), LUV has by far the most exposure to U.S. markets on a percentage of revenue basis. According to LUV, it is the largest carrier in 23 of the top 25 travel markets in the U.S. As the winter storm barreled across the country, over half of the airports that LUV operates in were impacted and contended with disruptions.
- In particular, Chicago and Denver -- two major hubs for LUV -- experienced sub-zero temperatures, causing planes and equipment to freeze.
- As LUV's busy flight schedule snowballed into an avalanche of cancellations, the company's crew-scheduling system failed to keep up with the all the changes. In turn, LUV was essentially flying blind as it tried to match and reschedule available crews with flights.
From a public relations and customer service standpoint, the wave of cancellations that left tens of thousands of travelers stranded during the Christmas holiday weekend is a nightmare for LUV. It's very difficult to assign a monetary value to this disaster, but it will likely be material, at least in the near-term. Not only is LUV covering travel costs (hotel, meals, rental cars) for its affected customers, but it's also offering full refunds for customers who change their travel plans. There could also be a fine from the USDOT coming, depending on the result of its investigation.
However, we doubt that this debacle -- as bad as it has been -- will have a real lasting effect on LUV and its financial performance. Perhaps a small percentage of impacted travelers will look to another carrier the next time they fly, but the negative feelings will eventually fade. Also, it's hard to imagine that many of LUV's frequent flyers would make the effort to change loyalty programs. The bigger fundamental concern, in our view, is the shaky economy and the recent jump in fuel costs.
NIO losing its charge today as the Chinese EV company cuts its Q4 delivery outlook (NIO)
NIO Inc. (NIO -6%) is under pressure today after the Chinese EV company lowered its Q4 delivery outlook. There was also a Reuters report that Tesla (TSLA -7%) suspended its Shanghai plant production, which is also weighing on the EV space today.
- NIO says that in December it has been hampered by supply chain constraints, caused by the COVID-19 outbreak in major cities in China. This has caused challenges in terms of deliveries and in terms of its production schedule. As a result, NIO is lowering its Q4 delivery outlook to 38,500-39,500 vehicles from prior guidance of 43,000-48,000 vehicles.
- Our first thought is that was a pretty large drop, which helps to explain why the stock is down so much even though the shares had already been weak in recent months. NIO does not provide updated guidance for Q4 revenue today, but we have to think its prior guidance of RMB17,368-19,225 mln is in jeopardy. And we wonder if NIO will offer more muted guidance for 2023 when it reports Q4 results, likely in March.
- Perhaps the silver lining is that the press release has no mention of demand being a problem. NIO focuses only on the supply chain constraints as an issue. So that was good to see. However, NIO is also not saying positive things about demand, it is just basically silent on the subject. We have to think if demand was brisk, management would have said so.
Overall, the lowered Q4 delivery guidance is a letdown. What's more is that it comes only about six weeks after NIO guided Q4 revenue below consensus by a good amount, which is pretty disappointing. Also, that 43-48K guidance was pretty recent on November 10. That tells us that December must have been a bad month and that makes us nervous heading into Q1. We never like to see a company stumble late in a quarter as that does not bode well for the next quarter.
Hopefully, the issues are truly mostly supply constraint-related and hopefully that situation improves in 1H23, but as of now, we would be cautious with NIO in the coming quarters.
Nutanix left out in the cold by Hewlett Packard Enterprise as it seeks acquisition partner (NTNX)
Nutanix (NTNX), a provider of cloud and virtualized storage systems, reportedly put itself up for sale in mid-October and quickly drew interest from Hewlett Packard Enterprise (HPE), according to Bloomberg. The prospects of NTNX being acquired lit a fire under the stock with shares soaring by as much as 58% since the Wall Street Journal first broke the story that the company was looking for a suitor.
Today, though, that buzz is fading in the wake of an update from Dealreporter suggesting that HPE has lost interest in acquiring NTNX. It's unclear what specifically caused HPE to reportedly walk away from the negotiating table, but the price tag and the current economic climate were likely at the center of the decision.
- Given the huge rally in NTNX shares over the past couple of months, acquiring the company has become a much costlier proposition. At the height of this recent rally, NTNX's market cap ballooned up to $7.75 bln, equating to a P/S of roughly 4.5x. Undoubtedly, HPE would be asked to pay a higher multiple than that, which doesn't look like a great deal when considering NTNX's erratic growth rates over the past couple of years.
- At the same time, concerns about economic growth in 2023 are escalating, causing enterprises to postpone and/or cut back on IT spending. Therefore, the idea of paying a premium price for a company that has had its share of struggles probably didn't seem very appealing to HPE.
From a strategic perspective, we can understand why HPE was interested in acquiring NTNX.
- At the core of HPE's turnaround plan and business model transition is its GreenLake cloud-based platform. In its mission to lessen its exposure to legacy on-premise servers and storage systems, HPE has prioritized growing GreenLake, which operates as a everything-as-a-service (XaaS) platform. That means that users can add functionality to their existing hardware -- such as more storage, Kubernetes, and disaster recovery - as they move to a hybrid cloud environment.
- With HPE doubling the level of growth for GreenLake in Q3, it is making good progress in its cloud transformation. However, the addition of NTNX, which implements its own subscription model, would really turbo-charge HPE's XaaS business model.
If the proposed deal has indeed fallen through, the good news for NTNX is that it's coming off a solid beat-and-raise 1Q23 report with Annual Contract Value (ACV) increasing by 27% to $232 mln. Although NTNX acknowledged that some customers are more closely scrutinizing deals due to macroeconomic factors, the company also stated that demand continues to be healthy. In particular, NTNX saw strong performance on the renewal side of the business as supply chain restraints ease for some of its server OEM partners. Lastly, just because HPE may have bowed out, that doesn't mean that NTNX can't find another partner. On that note, it's interesting that shares of NTNX have wiped out most of its opening losses, perhaps indicating that investors are still confident that NTNX will eventually be acquired.
Mission Produce under pressure on earnings miss as avocado prices tumble (AVO)
Mission Produce (AVO -15%) is under pressure today after wrapping up FY22 on a down note. This supplier of avocados reported Q4 (Oct) results that missed on EPS and revenue. Average avocado selling prices fell sharply, by 10% yr/yr. Lower prices were partially offset by a 6% increase in volume. Taken together, this caused margin compression and resulted in adjusted EPS being nearly cut in half to just $0.13 while adjusted EBITDA fell 35% yr/yr to $17.2 mln.
- While AVO was pleased with the commercial traction it is having with its Peruvian production, its Q4 results were hurt by the rapid decline in avocado pricing. In addition, inflation on the cost side coupled with a delay to its seasonal transition to Mexican production resulted in an unfavorable mix, lower pricing, and temporary margin compression.
- While AVO does not provide specific guidance, the silver lining here is that AVO sees a more normal marketplace emerging in FY23. Specifically, it expects better and more consistent supply conditions. AVO says it's prepared to meet demand during the upcoming peak Super Bowl season, and expects an improved operating performance for the full year 2023.
- In terms of Q1 (Jan), the company expects volumes to be higher yr/yr, primarily due to a larger Mexican harvest. Specifically, the overall Mexican crop is expected to be 20% higher than last year, but early season volumes have lagged that figure due to low pricing. Pricing is expected to be lower on a sequential basis, down 20-25% yr/yr.
Overall, this was a difficult quarter for Mission Produce as avocado prices dropped more quickly than expected. The stock had been slowly trending higher for much of 2022, but this Q4 report really took investors by surprise. We would be cautious with AVO in general because its earnings are notoriously hard to predict and they tend to miss on earnings fairly often. The company also does not provide specific guidance.
|
