| | | Market Snapshot
briefing.com
| Dow | 33244.68 | +363.63 | (1.11%) | | Nasdaq | 10410.61 | +257.48 | (2.54%) | | SP 500 | 3851.21 | +67.57 | (1.79%) | | 10-yr Note | +26/32 | 3.83 |
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| | NYSE | Adv 2595 | Dec 476 | Vol 682 mln | | Nasdaq | Adv 3734 | Dec 840 | Vol 4.0 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Communication Services, Real Estate, Materials |
| | Weak: -- |
Moving the Market
-- Pullback in Treasury yields
-- Favorable reaction to weekly initial and continuing jobless claims report
-- Strong showing from mega cap stocks thus far
-- Broad buying interest amid thinner trading conditions
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Closing Summary
29-Dec-22 16:25 ET
Dow +345.09 at 33226.14, Nasdaq +264.80 at 10417.93, S&P +66.06 at 3849.70
[BRIEFING.COM] It was a decidedly good day for the stock market as some of the most beaten-up names led the main indices to sizable gains in a pent-up rebound trade. The broader market drew support from mega cap stocks, which have suffered sizable losses recently on valuation concerns and presumably tax-loss selling activity by participants who bought into the seemingly invincible stocks last year.
Entering today's session, Tesla (TSLA 121.82, +9.11, +8.1%) was down 42% for the month, Apple (AAPL 129.61, +3.57, +2.8%) was down nearly 15%, and the Vanguard Mega Cap Growth ETF (MGK) (+2.5%) was down 11.3% in December. Many stocks saw similar price action, which led to the broad-based rally effort today. Advancers led decliners by a greater than 5-to-1 margin at the NYSE and a greater than 4-to-1 margin at the Nasdaq.
All 11 S&P 500 sectors logged gains today with mega cap leadership pushing the communication services (+2.7%), information technology (+2.6%), and consumer discretionary (+2.6%) sectors to the top of the leaderboard. On the flip side, the countercyclical consumer staples (+0.4%) and utilities (+0.8%) sectors fell to the bottom of the pack.
The semiconductor space was another source of support for the broader market. The PHLX Semiconductor Index was up 3.3%. Taiwan Semiconductor Manufacturing Co. (TSM 76.00, +2.94, +4.0%) was a winning standout for the group after holding a 3nm volume production and capacity expansion ceremony, marking a key milestone for advanced manufacturing.
Notwithstanding today's positive price action, the S&P 500 closed below the 3,850 level, where it has been stuck since mid-December. It was still a good change of pace, though, for what was deemed a disappointing Santa Claus rally period entering today.
The Santa Claus rally period encompasses the last five trading days of the year and the first two trading sessions of the new year, and it is believed to be a good sign for how the new year will start when it produces a cumulative gain over that stretch. To be clear, 2022 was a definite exception to that belief. Recall that the 2021 Santa Claus rally produced a net gain of 1.4% for the S&P 500 and yet the S&P 500 declined 5.3% this January and 5.0% in the first quarter.
When this year's Santa Claus rally period began, the S&P 500 stood at 3,822.39. Today the S&P 500 closed at 3,849.28, which is to say Santa Claus has come in from the cold.
The Treasury market settled in mixed fashion. The 2-yr note yield rose two basis points to 4.37% and the 10-yr note yield fell six basis points to 3.83%.
- Dow Jones Industrial Average: -8.6% YTD
- S&P Midcap 400: -14.1% YTD
- S&P 500: -19.2% YTD
- Russell 2000: -21.3% YTD
- Nasdaq Composite: -33.0% YTD
Reviewing today's economic data:
- Initial jobless claims for the week ending December 24 increased by 9,000 to 225,000 (Briefing.com consensus 220,000) while continuing jobless claims for the week ending December 17 increased by 41,000 to 1,710,000.
- The key takeaway from the report is that the level of continuing jobless claims is the highest since February and up noticeably since September when it was just shy of 1.350 million, suggesting that a very tight labor market is showing some signs of loosening up based on the extended time it is taking for dislocated employees to find a new position.
- Weekly EIA Natural Gas Inventories showed a draw of 213 bcf versus a draw of 87 bcf last week
- Weekly EIA Crude Oil Inventories showed a build of 0.718 million barrels after last week's draw of 5.89 million barrels
Friday's economic data is limited to the December Chicago PMI (Briefing.com consensus 40.0; Prior 37.2) at 9:45 a.m. ET.
Market clings to narrow range ahead of the close
29-Dec-22 15:35 ET
Dow +350.62 at 33231.67, Nasdaq +278.59 at 10431.72, S&P +68.88 at 3852.52
[BRIEFING.COM] Things are little changed in the last half hour. The main indices are sticking to a narrow trading range near their session highs.
The Treasury market settled in mixed fashion. The 2-yr note yield rose two basis points to 4.37% and the 10-yr note yield fell six basis points to 3.83%.
Friday's economic data is limited to the December Chicago PMI (Briefing.com consensus 40.0; Prior 37.2) at 9:45 a.m. ET.
S&P 500 can't break above 3850
29-Dec-22 15:00 ET
Dow +363.63 at 33244.68, Nasdaq +257.48 at 10410.61, S&P +67.57 at 3851.21
[BRIEFING.COM] The S&P 500 continues to knock up against the 3,850 level, but so far it can't break meaningfully above that mark.
Growth stocks have extended their gains and outpace value stocks by a wider margin compared to earlier in the session. Earlier, the Russell 3000 Growth Index was up 1.9% versus a 1.3% gain in the Russell 3000 Value Index. Now, the Russell 3000 Growth Index is up 2.3% versus a 1.6% gain in the Russell 3000 Value Index.
The U.S. Dollar Index is losing ground today, down 0.6% to 103.84.
AmerisourceBergen dips after Justice Dept. launches suit
29-Dec-22 14:30 ET
Dow +388.77 at 33269.82, Nasdaq +273.29 at 10426.42, S&P +71.15 at 3854.79
[BRIEFING.COM] The S&P 500 (+1.88%) is firmly situated in second place on Thursday afternoon, hovering just off session highs.
S&P 500 constituents Illumina (ILMN 202.66, +11.85, +6.21%), Warner Bros. Discovery (WBD 9.45, +0.58, +6.54%), and Stanley Black & Decker (SWK 75.95, +3.77, +5.22%) push higher today. Both WBD and SWK rebound nicely on Thursday after showing solid losses the day prior.
Meanwhile, pharmaceutical product distributor AmerisourceBergen (ABC 166.99, -0.37, -0.22%) is one of today's worst-performing constituents, underperforming after the Justice Department announced a lawsuit against ABC and its subsidiaries alleging controlled substances act violations.
Gold higher as dollar trips into final session of the year
29-Dec-22 14:00 ET
Dow +374.09 at 33255.14, Nasdaq +267.35 at 10420.48, S&P +69.25 at 3852.89
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+2.62%) stands atop the major averages, up more than 267 points.
Gold futures settled $10.20 higher (+0.6%) to $1,826.00/oz, aided in part by a modest dip in the dollar.
Meanwhile, the U.S. Dollar Index is down about -0.6% to $103.88.
Page One
Last Updated: 29-Dec-22 09:02 ET | Archive
Mega-cap stocks to act as weather gauge
If you are not enthused by the news that the futures market is signaling a positive start for the major indices, we can understand why. The stock market has not acted well this week, registering losses in both sessions that have left the Santa Claus rally out in the cold.
Alas, we'll see if the stock market can match the weather today and warm up nicely after a particularly cold stretch. Today's open at least will see temperatures rising.
Currently, the S&P 500 futures are up 30 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 123 points and are trading 1.2% above fair value, and the Dow Jones Industrial Average futures are up 182 points and are trading 0.6% above fair value.
This positive bias has been forged on rebound-minded action in the mega-cap stocks, none more prominent at this juncture than Tesla (TSLA) which is up 6.1% in pre-market trading but still down 38% for the month.
This morning's move, though, coupled with a 2.9% gain in NVIDIA (NVDA), a 1.6% gain in Apple (AAPL), a 1.1% gain in Alphabet (GOOG), and 0.8% gains in Microsoft (MSFT) and Meta Platforms (META) has fortified the early indication for the broader market.
Also helping somewhat -- in a convoluted way -- is the understanding that it seems to be getting a little more difficult for laid off employees to find a new job.
Briefly, initial jobless claims for the week ending December 24 increased by 9,000 to 225,000 (Briefing.com consensus 220,000) while continuing jobless claims for the week ending December 17 increased by 41,000 to 1,710,000.
The key takeaway from the report is that the level of continuing jobless claims is the highest since February and up noticeably since September when it was just shy of 1.350 million, suggesting that a very tight labor market is showing some signs of loosening up based on the extended time it is taking for dislocated employees to find a new position.
The futures for the major indices moves to their highs of the morning following this release, which also coincided with some improvement in the Treasury market and a further drop in the U.S. Dollar Index (-0.4% to 104.05).
The 2-yr note yield, at 4.37% before the release, dipped to 4.35%, and the 10-yr note yield, at 3.88% before the release, dipped to 3.86%. That is what we would call "measured improvement," but the excitability of the equity futures market after the release connotes a strong desire to get out of the cold.
Things are going to heat up for the stock market at the open, then, but the warm, fuzzy feeling most participants are seeking is a hot close.
To that end, the behavior of the ice-cold mega-cap stocks today should be the market's weather gauge.
-- Patrick J. O'Hare, Briefing.com
Beyond Meat is cooking on McDonald's (MCD) new Double McPlant launching in the U.K. & Ireland (BYND)
Beyond Meat (BYND +12%) is cooking today after one of its key partners, McDonald's (MCD), announced it would roll out the new Double McPlant in all its U.K. and Ireland-based locations beginning on January 4. Part of why shares of BYND are rebounding strongly on the announcement after hitting 52-week lows yesterday is their high short interest of 39%, which can add fuel to up-and-down swings as shorts cover or add to their positions.
- MCD has played a critical role in BYND's foodservice success, particularly outside the U.S. For example, the McPlant has already become a permanent menu item in the U.K., Ireland, Austria, and the Netherlands, underscoring healthy demand for the product.
- Although adoption in the U.S. has been slower, franchises like Taco Bell (YUM) and Panda Express have started offering BYND options at select locations.
- Expansion throughout the foodservice industry is pivotal to BYND's success at the grocery store as consumers may choose plant-based meats to cook at home after trying an already-prepared dish.
- Heightened focus on further penetration in the foodservice industry was one of BYND's core pillars to pivot to a cash flow-positive operation. Part of this centered on a narrower set of partners. With MCD expanding its BYND offerings, we would expect other partners to follow, especially overseas, where plant-based meat adoption has been quicker.
Nevertheless, headwinds still linger. Inflation is likely BYND's biggest opponent over the near term. The company's offerings tend to command higher price points than animal-based proteins. With consumers currently trading down from premium meat options, such as some cuts of beef, BYND's grocery store options will likely not see significant demand until inflationary pressures ease more considerably.
However, in the interim, BYND is fixated on achieving positive cash flow and hastening its path to profitability. With a narrowed focus on its foodservice partners as part of this strategy, MCD's announcement today underpins early success. It may also indicate further expansion of current BYND offerings at several other franchise partners.
DoorDash and Uber (UBER) boast moderate gains even as takeout demand reportedly increases (DASH)
Food ordering and delivery platforms DoorDash (DASH) and Uber (UBER), which also hosts a ride-sharing platform, are ticking higher today even after a WSJ article highlighted the shift consumers are making toward picking up their food. Shares of each company still underperform the broader tech sector on the year, with DASH tumbling over 65% and UBER over 40%. Meanwhile, Dutch online food delivery company Just Eat Takeaway.com (JTKWY), which owns Grubhub, is down over 60%.
- We have noticed restaurants and convenience outlets, like Darden Restaurants (DRI), McDonald's (MCD), and Casey's General (CASY), provide some color on how they have leaned into bolstering curbside pickup and that consumers may be picking up more rather than choosing delivery due to cost. It also does not help that some chains, like DRI, and most pizza-focused franchises, such as Domino's (DPZ) and Papa John's (PZZA), boast a first-party delivery service. In fact, DRI has noted that it does not like the third-party delivery model, choosing to grow its "To Go" business instead.
- However, on the other hand, delivery remains a central focus for many operating in the food service industry. For example, McDonald's (MCD) discussed its emphasis on McDelivery, where it partnered with DASH to elevate customer convenience.
- UBER also boasts many healthy partnerships, growing its merchant base by about 11% yr/yr in Q3.
- At the same time, DASH and UBER's foray into non-restaurant delivery services, including the grocery marketplace, may face increasing headwinds due to the numerous competitors in this space. The two companies face off against Instacart, which has been wanting to go public for some time, Shipt, whose parent company Target (TGT) has been integrating into its operations, and Walmart (WMT), which recently cut ties with DASH, centering on building its network of drivers.
- The good news is that during Q3, DASH's grocery marketplace reached Marketplace gross order value (GOV) growth of over 100% with variable profit as a percentage of Marketplace GOV improving yr/yr and sequentially.
- Additionally, UBER has also been adding non-restaurant merchants to its delivery business, noting in early November that around 10% of its eaters monthly also use its grocery product.
It is worth noting that increasing demand for takeout did not materially affect Q3 numbers for DASH and UBER. For example, DASH posted adjusted EBITDA of $87 mln in Q3, cruising past its expectation of $25-75 mln. The company guided to $85-120 mln in adjusted EBITDA for Q4. Likewise, UBER surpassed its adjusted EBITDA guidance of $440-470 mln in Q3, posting $516 mln while also providing an upbeat Q4 adjusted EBITDA outlook.
Overall, the near term will likely be rocky, as inflationary pressures dampen demand for food delivery and sustain eat-at-home trends. Competition within non-restaurant delivery will also be a challenge. Still, DASH and UBER have proven doubters wrong in the past, and recent quarterly numbers do not show signs of a concerning slowdown.
Cal-Maine Foods is a bit scrambled today as egg producer heads lower on EPS miss (CALM)
Cal-Maine Foods (CALM -12%) is headed sharply lower following its Q2 (Nov) earnings report last night. This egg producer missed on EPS by a good amount, however, it was not all bad news as revenue more than doubled to a record $801.7 mln, which was modestly better than expected. CALM does not provide guidance, so it is hard to get a sense of what to expect in the second half of the fiscal year.
- First off, CALM is benefitting from record average selling prices for conventional eggs. This is being caused by reduced supply related to the outbreak in the US of highly pathogenic avian influenza (HPAI) and good customer demand. Fortunately, there have been no positive tests for HPAI at any of CALM's production facilities.
- This is typically a strong seasonal quarter and consumer demand for shell eggs continued to be good, especially leading up to the Thanksgiving holiday. CALM saw record quarterly volume levels for specialty eggs sold.
- Just to get sense of how high prices have gotten, conventional egg net average selling price per dozen increased to $2.883 vs $1.151 a year ago. CALM saw record revenue for both conventional and specialty eggs. Net average selling price for specialty eggs rose 24.9% to $2.370 per dozen vs $1.898 last year. Q2 also marked CALM's highest ever quarterly sales of specialty eggs at $227.8 mln, or 29.4% of total shell egg revenue. This is important because specialty eggs carry higher margins.
- Speaking of which, as market demand for specialty eggs has increased, especially cage-free eggs, CALM notes that it has made substantial investments to expand its cage-free capacity. Also, the company notes that a significant number of its customers have announced goals to offer cage-free eggs on or before 2026. This increasing exposure to higher-margin cage-free eggs is an important part of CALM's growth story.
Overall, CALM seems to be benefitting from significantly higher prices for eggs thanks to a tight supply and good demand as more people eat at home these days. Granted, they stumbled here on EPS, but CALM does not guide and its earnings can be pretty hit-or-miss relative to consensus estimates. So it is not a total surprise.
We think the stock is down so much is because it has been making a steady move higher since June even as the overall market has stumbled. Higher egg prices and some bullish commentary from CALM on the last call probably had expectations running pretty high heading into this report, so the large EPS miss is a bit of a shock. Looking ahead, a potential concern is that supply is likely to normalize at some point, which could hurt egg prices.
CVS Health: A 2023 Stock Idea as its "all weather" attributes make it a compelling choice (CVS)
With the final days of 2022 upon us, we now look ahead to a new year that holds some promise for brighter days after a rough year that has seen the S&P 500 shed 19% year-to-date. However, we also acknowledge that the macroeconomic outlook for 2023 is cloudy with fears of a recession on the minds of many. We expect that growth concerns will continue to define the stock market as rising interest rates, lingering supply chain issues, and geopolitical tensions remain primary undercurrents. Against this highly uncertain backdrop, one "all weather" stock that we believe can fare well in 2023 is healthcare giant CVS (CVS).
When contemplating investment ideas for 2023, there were a few specific attributes that we were looking for. At the top of the list was a well-established track record of profitability and consistent performance relative to EPS and revenue expectations -- even during volatile economic conditions. Other key factors included a reasonable valuation, a shareholder-friendly capital allocation strategy, and an identifiable catalyst for earnings growth. CVS checks off all of these boxes.
Driven by well-rounded growth across each of its business segments (Health Care Benefits, Pharmacy Services, Retail/LTC), CVS is coming off a solid beat-and-raise Q3 earnings report in which it handily exceeded top and bottom-line estimates. In fact, the company hasn't missed EPS expectations in over five years, while revenue growth has remained in positive territory throughout that span. In contrast, main rival Walgreens Boots Alliance (WBA) has posted revenue declines in three of the past four quarters, indicating that CVS continues to gain market share against the company.
CVS's Health Care Benefits division, which provides health insurance through various Aetna plans, has really stood out.
- Fueled by a 590,000 increase in members, and an easing of COVID-related health care costs, the segment generated revenue and adjusted operating income growth of 10% and 40% in Q3.
- This business received a setback in October when the 2023 Star Ratings were released, showing that the Aetna National PPO plan was cut to 3.5 stars from 4.5. The Star Rating system, ran by the Centers for Medicare & Medicaid Services, rates health plan quality and can have an impact on membership numbers.
- When the rating cut was released, concerns that CVS's earnings would take a hit began to intensify, particularly for FY24 when the ratings change affects government bonus payments.
- Those concerns, though, were eased during the Q3 earnings call when CFO Shawn Guertin stated that CVS will deploy capital towards share repurchases to address 2024 earnings headwinds. For FY24, the company is still aiming for double-digit EPS growth.
From a broader perspective, we believe that CVS's strategy to diversify the business in its effort to become a full-service healthcare company will drive earnings growth and the stock higher.
- Relatedly, the company's $8.0 bln acquisition of Signify Health last September could be a game-changer for CVS. SGFY, which uses a combination of analytics and at-home visits from physicians to provide healthcare, will expand CVS's capabilities and total addressable market.
- The acquisition will also complement the pharmacy business since physicians can direct patients to CVS's pharmacies to fulfill prescriptions.
- With a network of over 10,000 clinicians across the U.S., SGFY already has considerable reach. However, its reach, scale, and revenue generating potential should expand considerably with CVS's resources behind it.
Finally, CVS is trading with a reasonable forward P/E of 10.6x, giving the stock plenty of leeway for appreciation. The cherry on top is that the company just boosted its quarterly dividend to $0.605/share from $0.55/share, equating to a dividend yield of about 2.6%. The bottom line is that while CVS isn't going to amaze investors with its growth rates, its consistency, profitability, share buybacks, and dividends make it a compelling choice for 2023.
J.M. Smucker jamming to new highs as it's poised to benefit from new post-pandemic habits (SJM)
J M Smucker (SJM) has been jamming to a slow and steady beat in recent months, trading to a new all-time high yesterday. The company held a bullish Investor Day in mid-December, which seems to have been a recent catalyst for the stock. With tech stocks out of favor, investors have been rotating into high quality food & beverage names for safety. SJM is a consumer goods company, its brands include Smuckers, Jif, Folgers, and Milk-Bone.
- The company splits its revenue segments into US Pet Foods (~35%), US Coffee (~31%), and US Consumer Foods (~23%). International / Away From Home makes up 13%. SJM has positioned itself in three of the most attractive and resilient categories in the food space. We commend SJM for reshaping its portfolio with four divestitures over the last two fiscal years to focus on higher growth areas. That includes the sale of its natural beverage and grains businesses; its private label dry pet food business; the Natural Balance premium pet food business; and maybe the highest profile was its 2020 sale of Crisco oils and shortening to B&G Foods.
- The overarching theme we see is that SJM wants to focus on the post-pandemic consumer and the new habits that have been formed since the pandemic. As a general note, SJM is benefitting from people spending more time at home, and thus eating at home more often. But when we dig into each category, it is pretty interesting to get some granularity on each segment.
- At its recent Investor Day, the company did a great job breaking down how the consumer has changed since the pandemic. The pet category is benefitting from more pets and pet parents than ever. Dog and cat ownership have both increased by 10% since 2019, which means 5 mln new households for each. Besides the raw numbers, pet parents are increasingly viewing pets as true members of the family.
- The pandemic also changed the coffee category, which SJM says remains incredibly strong as coffee consumption in the US is at a two-decade high. With increased consumption of at-home coffee throughout the pandemic, consumers have invested in upgrading their home coffee bars. Finally, in its consumer food categories, snacking and new eating behaviors continue to benefit SJM. There is a greater focus on convenient, low preparation, and on the go options. SJM says the culture of snacking in the US has changed dramatically with around one-third of consumers saying they snack more often compared to 2019 and half of all food and beverage occasions are snacking occasions.
Overall, SJM may not be as exciting as high-growth companies or companies with cutting-edge technology, but its boring business may be worth a look as a hedge against the weakness in tech stocks as we approach 2023. The pandemic has created many new habits for consumers that should benefit many of SJM's product categories. Finally, SJM pays a healthy 2.6% dividend yield.
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