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Market Snapshot
briefing.com
| Dow | 34492.87 | +146.05 | (0.43%) | | Nasdaq | 13670.58 | +79.56 | (0.59%) | | SP 500 | 4423.65 | +17.94 | (0.41%) | | 10-yr Note | +2/32 | 4.21 |
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| | NYSE | Adv 2073 | Dec 748 | Vol 666 mln | | Nasdaq | Adv 2598 | Dec 1695 | Vol 3.6 bln |
Industry Watch
| Strong: Communication Services, Industrials, Information Technology, Real Estate |
| | Weak: Utilities |
Moving the Market
-- Carryover momentum from Friday's rebound
-- Reacting to M&A activity
-- News-driven pop in shares of 3M (MMM) boosting the DJIA
-- Choppy action in mega cap stocks driving index performance
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Closing Summary
28-Aug-23 16:25 ET
Dow +213.03 at 34559.85, Nasdaq +114.48 at 13705.50, S&P +27.60 at 4433.31
[BRIEFING.COM] The stock market started the last week of August on an upbeat note. The major indices settled the session near their best levels of the day on extremely light volume at the NYSE. The positive bias was partially fueled by carryover upside momentum from Friday's rebound effort that took root after some knee-jerk selling in response to Fed Chair Powell's speech at the Jackson Hole Symposium.
The major indices exhibited some choppy behavior as a result of fickle price action in the mega cap stocks, but they never slipped into negative territory due to broad buying under the index surface. NVIDIA (NVDA 468.35, +8.17, +1.8%) had been down as much as 2.5% at its low of the day, but closed with a 1.8% gain.
The Vanguard Mega Cap Growth ETF (MGK) rose 0.7%, the Invesco S&P 500 Equal Weight ETF (RSP) rose 0.8%, and the market-cap weighted S&P 500 rose 0.6%.
3M (MMM 104.12, +5.17, +5.2%) was a standout winner today, pacing the Dow Jones Industrial Average and the S&P 500 industrials sector (+0.8), following reports that the company is nearing a $5.5 billion settlement in the military earplugs case.
In addition to industrials, the communication services (+1.1%) and fellow cyclically-oriented real estate (+0.8%) sectors showed some of the largest gains. The utilities sector (-0.04%) was alone in the red at the close.
On the M&A front, the FTC filed a motion to withdraw matter from adjudication regarding Amgen's (AMGN 256.55, +0.17, +0.1%) bid to acquire Horizon Therapeutics (HZNP 112.15, +5.48, +5.1%), Danaher (DHR 261.50, +5.97, +2.3%) is acquiring Abcam (ABCM 22.35, -1.01, -4.3%) for $24.00 per share in cash, Kimco Realty (KIM 18.77, +0.02, +0.1%) is acquiring RPT Realty (RPT 11.23, +1.66, +17.4%) in an all-stock transaction, and KSL Capital Partners is acquiring Hersha Hospitality Trust (HT 9.79, +3.51, +55.9%) at an approximately 60% premium of $10.00 per share in cash.
The 2-yr note yield settled one basis point higher at 5.06% while the 10-yr note yield fell three basis points to 4.21%.
There was no U.S. economic data of note today, but the August Index Consumer Confidence Index and the July JOLTS - Job Openings Report will be released at 10:00 a.m. ET tomorrow. Other data releases tomorrow include the June FHFA Housing Price Index and June S&P Case-Shiller Home Price Index at 9:00 a.m. ET.
The economic calendar for the remainder of the week will feature a number of important releases, including the second estimate for Q2 GDP, July Personal Income and Spending, the August ISM Manufacturing Index, and the August Employment Situation Report.
- Nasdaq Composite: +30.9% YTD
- S&P 500: +15.5% YTD
- S&P Midcap 400: +6.1% YTD
- Russell 2000: +7.1% YTD
- Dow Jones Industrial Average: +4.3% YTD
Treasuries settle mixed
28-Aug-23 15:30 ET
Dow +161.32 at 34508.14, Nasdaq +77.15 at 13668.17, S&P +18.24 at 4423.95
[BRIEFING.COM] The major indices moved mostly sideways over the last half hour.
Energy complex futures settled the session with gains. WTI crude oil futures rose 0.3% to $80.10/bbl and natural gas futures rose 0.3% to $2.67/mmbtu.
The 2-yr note yield settled one basis point higher at 5.06% while the 10-yr note yield fell three basis points to 4.21%.
Looking ahead to Tuesday, market participants will receive the following economic data:
- 9:00 ET: June FHFA Housing Price Index (prior 0.7%) and June S&P Case-Shiller Home Price Index (Briefing.com consensus 0.9%; prior -1.7%)
- 10:00 ET: July job openings (prior 9.824 mln) and August Consumer Confidence (Briefing.com consensus 116.0; prior 117.0)
Semiconductors come along for the rebound
28-Aug-23 15:00 ET
Dow +146.05 at 34492.87, Nasdaq +79.56 at 13670.58, S&P +17.94 at 4423.65
[BRIEFING.COM] The major indices are climbing somewhat higher.
Recent upside moves brought all 11 S&P 500 sectors into positive territory.
Semiconductor stocks are participating in today's gains. The PHLX Semiconductor Index is up 0.7%.
Generac gains ahead of hurricanes
28-Aug-23 14:30 ET
Dow +111.35 at 34458.25, Nasdaq +53.99 at 13644.64, S&P +11.51 at 4417.22
[BRIEFING.COM] The S&P 500 (+0.26%) is in last place among the major averages and currently sit near lows of the session, albeit on gains of about 12 points.
S&P 500 constituents Boston Scientific (BSX 53.54, +2.78, +5.48%), Western Digital (WDC 41.12, +1.63, +4.13%), and Generac (GNRC 119.30, +4.36, +3.79%) pepper the top of the standings. BSX gains on AVENT study results, while WDC moves higher alongside storage peers like MU +2.1% and STX +1.8%, and GNRC advances ahead of hurricane storms.
Meanwhile, Minnesota-based biotech firm Bio-Techne (TECH 77.70, -2.46, -3.07%) slips despite positive William Blair initiation this morning.
Gold finds best finish in nearly three weeks
28-Aug-23 14:00 ET
Dow +126.23 at 34473.13, Nasdaq +50.99 at 13641.64, S&P +11.93 at 4417.64
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.38%) is still atop the standings, though the major averages have taken a bit of a dip in recent trading.
Gold futures settled $6.90 higher (+0.4%) to $1,946.80/oz, the yellow metal's highest finish in nearly three weeks, aided in part by only modest moves in the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is unchanged at $104.07.
Page One
Last Updated: 28-Aug-23 08:57 ET | Archive
Continuing to recover from the double dip
Fed Chair Powell's speech at the Jackson Hole Symposium was the center of the market's attention on Friday. At first, stocks dipped, then they rose, and then they dipped again. They had a "double dip."
We know George Costanza is okay with a double dip, but most people are not. It turned out that most people participating in Friday's market (and that wasn't many based on the paltry trading volume) were not okay with the double dip and decided to buy on the second dip that took the S&P 500 to 4,356.
When Friday's session came to a close, the S&P 500 stood at 4,405 and had ended a three-week losing streak along with the Nasdaq Composite.
There is some carryover buying interest in the equity futures market this morning.
Currently, the S&P 500 futures are up 18 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 85 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 144 points and are trading 0.4% above fair value.
Gains in the mega-cap stocks, a 5.7% pop in shares of Dow component 3M (MMM) on reports it is close to a $5.5 billion settlement in the military earplugs case, and a spate of M&A activity have helped underpin the positive bias.
A dip in market rates isn't hurting either. The 2-yr note yield, which was at 5.10% a short time ago, is now at 5.05%, unchanged from Friday's settlement, and the 10-yr note yield is down four basis points to 4.20%.
Some might point to a rash of stock market support measures out of China, which include a 50% cut in the stamp duty, a lower margin financing requirement, and restrictions on stock sales by large shareholders, as another causal factor. That would be overselling that news as a positive catalyst and here's why: the Shanghai Composite ended its session up 1.1% after being up as much as 5.0% initially.
In other words, participants there were quick to sell into the news in an expression of doubt about its impact in righting what is wrong for the Chinese market.
On the M&A front, the FTC filed a motion to withdraw matter from adjudication regarding Amgen's (AMGN) bid to acquire Horizon Therapeutics (HZNP), Danaher (DHR) is acquiring Abcam (ABCM) for $24.00 per share in cash, Kimco Realty (KIM) is acquiring RPT Realty (RPT) in an all-stock transaction, and KSL Capital Partners is acquiring Hersha Hospitality Trust (HT) at an approximately 60% premium of $10.00 per share in cash.
There is no U.S. economic data of note today, but the remainder of the week will feature a bevy of important economic releases that include the August Consumer Confidence Index, July JOLTS - Job Openings Report, the second estimate for Q2 GDP, July Personal Income and Spending, the August ISM Manufacturing Index, and the August Employment Situation Report.
-- Patrick J. O'Hare, Briefing.com
Jabil's margins and earnings growth prospects brighten with proposed sale of mobility business (JBL)
Manufacturing and product design company Jabil (JBL) is launching higher after announcing that it has entered into a preliminary agreement to sell its mobility business to China-based BYD Electronic Company for about $2.2 bln. The companies have agreed to complete due diligence on the deal before finalizing the terms of the transaction, but the idea of JBL divesting the mobility unit is clearly resonating with market participants.
- By divesting the mobility business, which makes components and encasements for devices -- including for Apple's (AAPL) iPhones and iPods -- JBL would lower its exposure to the sluggish consumer electronics market. At about $4.4 bln in annual sales (10-12% of total sales), the mobility unit is a significant piece of JBL's overall business.
- JBL would also lessen its dependence on Apple (AAPL), which accounts for nearly 20% of the company's revenue, and it would reduce its geopolitical risk as the divestiture would include the sale of its manufacturing facilities in China.
- What market participants are especially excited about, though, is that JBL intends to use the sale proceeds to further invest in its higher growth opportunities. This most notably includes a booming automotive business that posted 60% revenue growth last quarter. In particular, EV growth continues to be robust with JBL commenting during last quarter's earnings call that its growth is "limited only by the pace at which we can scale up production across multiple geographies with several OEMs."
- The automotive end market, combined with strength in other secular growth areas like renewable energy infrastructure and cloud computing, enabled JBL to deliver strong upside Q3 results in mid-June. However, the company continues to take a conservative approach with its outlook -- Q4 EPS and revenue guidance was merely in line with expectations -- due to lower demand in its consumer facing markets, such as smartphones. With an exit from the mobility business, JBL's outlook should turn more bullish.
- Lastly, JBL also plans to use a portion of the proceeds for share buybacks, which is always music to investors'' ears.
The main takeaway is that the proposed divestiture of JBL's mobility business looks attractive on several accounts, but the main reason being that it would likely enhance its margin and earnings growth profile as the focus increases on stronger end markets like EVs and cloud computing.
AppFolio hits 52-week highs on an upgrade to "Outperform" at William Blair today (APPF)
AppFolio (APPF +4%) hits 52-week highs today following an upgrade to "Outperform" from "Mkt Perform" at William Blair. Today's upgrade is the second in just one week, with Stephens placing an "Overweight" rating on APPF on August 21, up from its previous "Equal-Weight" rating.
Briefing.com notes that two back-to-back analyst upgrades underscore increasing bullishness toward APPF, a software company helping landlords and investment firms in the real estate business manage their properties, including screening potential tenants, processing payments, and providing insurance-related risk mitigation. As a software provider, APPF has been at the receiving end of the AI-related boom this year.
With elevated costs and property management firms looking to increase efficiency, APPF is amid a decent tailwind, countered by a few lingering headwinds.
- APPF's revenues are predominately from subscription fees, which vary by property type and scale with the size of its customers' businesses. At the end of Q2, APPF boasted over 19,100 customers, a 7% jump from the year-ago period. In Q2, its core value-added services revenue may have climbed a respectable 30% yr/yr, but this growth was more moderate than in the previous few quarters.
- Although catering to a relatively resilient rental housing market, APPF has been unable to avoid the negative impact of the current economic climate, which has seen spending soften, particularly in the software vertical. Management noted that the high payment adoption rate over the past several years is normalizing in 2023. As a result, APPF has undergone some restructuring, similar to many software-based tech firms lately, announcing plans to reduce its workforce by nearly 9% earlier this month.
- However, in an APPF survey of over 2,000 property managers, the company found that employees spend over a third of their time on repetitive tasks that AI could automate. This opportunity adds tremendous upside potential for APPF, which could significantly boost its subscription revenue over the next several quarters if its customers begin signing on to its newly unveiled AI product portfolio.
- AI may also unlock additional opportunities upmarket. APPF has been looking to expand its total addressable market by penetrating areas of the housing market bogged down by efficiency challenges, such as the affordable housing market. For instance, qualifying affordable housing residents requires a fair amount of reporting across many different systems, while affordable operators also have to meet rigid compliance standards. AI can solve a lot of the headaches associated with these tasks.
By operating within the tech and real estate sectors, APPF offers exposure to two vastly different fields. Still, after an ~80% run to start 2023, a lot of excitement surrounding APPF's long-term potential may already be priced in. Meanwhile, the real estate sector sits roughly flat on the year, underperforming most of its counterparts. Nevertheless, property management is a relatively under-penetrated industry with a long runway regarding transitioning toward a digital future. APPF is carving out a leadership position in this market, which, combined with the advantages AI brings in reducing busy work, offers compelling long-term upside.
3M moves closer to putting litigation overhang behind it with proposed earplugs settlement (MMM)
A major part of 3M's (MMM) story in recent years has revolved around litigation and the multi-billion-dollar lawsuits facing the company, which has acted as a significant overhang on the stock. Over the weekend, though, Bloomberg reported that MMM is nearing a settlement that could resolve the long-standing litigation surrounding allegedly faulty earplugs that were sold to the military. The stock is reacting positively to this development, but the company is still contending with some substantial challenges.
- One key reason why shares are moving higher is because an agreement moves MMM one step closer to putting this litigation in the rearview mirror, while providing more clarity regarding the financial implications. The lingering uncertainty created by the lawsuit cast an overhang on the stock, weighing on its valuation.
- According to the report, the settlement amount that MMM has agreed to is close to $5.5 bln. If that holds true, then the payout would be significantly less than market participants had been expecting -- perhaps as much as 67% less. However, it's possible that the final settlement could be higher as negotiations are still playing out.
- MMM is clearly making it a priority to put its litigation troubles behind it. In June, the company entered into a resolution to support PFAS ("forever chemicals") remediation for public water utilities including a commitment to pay over $12.0 bln over a five-year period. Some states are pushing back on that payout amount, though, arguing that it's not enough to resolve the damage that has been done.
- Like the proposed PFAS settlement, MMM is not admitting to any wrongdoing in its earplug resolution. The company attests that with proper training, the earplugs -- which it acquired after purchasing Aearo Technologies in 2008 - provide adequate protection against hearing loss from noise damage. With more than 300,000 claims from veterans, though, that assessment faces plenty of scrutiny.
- Litigation issues aside, MMM is still contending with softness in its consumer-facing markets, especially within its Transportation & Electronics and Consumer segments. In Q2, weak demand for smartphones, TVs, and tablets drove a 22% decline in the electronics category, while weaker sales of office supplies such as scotch tape and post-it notes caused organic revenue to decrease by 2.2% in the Consumer segment.
The main takeaway is that the prospects of settling these long-standing lawsuits is a positive development for the stock as it moves MMM closer to removing a major overhang while providing more clarity. Nothing is set in stone at this point for either the earplugs or PFAS proposed settlement amounts, but market participants are pleased to see that MMM is moving the ball on this issue.
Abcam slips as investors recoil at the terms of its merger deal with Danaher (DHR) today (ABCM)
After initially deciding to explore strategic alternatives, including a possible sale, in late June, Abcam (ABCM -3%) has finally agreed to be acquired today by Danaher (DHR +1%) for $24.00 per share in cash. The approximately $5.7 bln deal represents a roughly 3% premium to Friday's closing price. Details of the merger include Abcam continuing to operate as a standalone company within Danaher's Life Sciences segment. The transaction is expected to close in mid-2024 and is subject to regulatory and Abcam shareholder approval.
Around the start of June, shares of Abcam started to take off. There were reports of activist Starboard Value building a stake in Abcam a few days before the company's announcement that it received takeover interest from multiple organizations. The stock continued to climb, receiving a significant boost after the board noted that it would consider a sale in late June.
As a result of the excitement surrounding Abcam over the past several months and the Danaher deal representing a minor 3% premium, below where Abcam shares were trading right after its announcement to pursue a sale, investors are feeling let down today. Although, by that same token, given the nearly 40% appreciation since June lows, Danaher is paying a relatively hefty premium for Abcam, which has been pricing in a sale for some time. Still, given the price tag Abcam agreed to be acquired for, there is the possibility that shareholders will not agree to the terms, adding a layer of uncertainty over the acquisition. At the same time, the deal is subject to regulatory approval, including the FTC, Chinese regulators, and regulators across some European countries.
On the flip side, Danaher is gaining momentum today as its investors cheer the deal. The merger would bolster Danaher's Life Sciences segment, which has seen two huge acquisitions over the past decade, including Pall for $13.8 bln in 2015 and Cytiva for $13.8 bln in 2020. Life Sciences comprised around 22% of Danaher's FY22 sales, and given that the business includes a range of consumables used by customers studying DNA and RNA for therapies and vaccines, it has enjoyed solid growth over the past few years, jumping 20% yr/yr in FY21 and 10% in FY22. Life Sciences has also been helping partially offset weakness in Bioprocessing, which has weighed on Danaher's FY23 outlook.
Bottom line, for Abcam shareholders, today's reaction is a buy-the-rumor, sell-the-news event. Although Danaher is paying an over 35% premium from where Abcam was trading at the start of June, compared to Friday's closing price, its purchase price appears weak from an Abcam shareholders' perspective. Conversely, we like the deal for Danaher, given that the company is paying ~9x Abcam's FY24 sales and could use some assistance offsetting lingering softness in its Bioprocessing unit.
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