Market Snapshot
| Dow | 34680.46 | -226.65 | (-0.65%) | | Nasdaq | 13698.49 | -227.57 | (-1.63%) | | SP 500 | 4455.42 | -49.68 | (-1.10%) | | 10-yr Note | -3/32 | 4.33 |
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| | NYSE | Adv947 | Dec1864 | Vol3.4 bln | | Nasdaq | Adv1495 | Dec2817 | Vol8.3 bln |
Industry Watch
| Strong:-- |
| | Weak:Consumer Discretionary, Information Technology, Real Estate, Communication Services, Financials |
Moving the Market
-- Rising Treasury yields keeping stock market in check
-- Relatively weak mega cap stocks, pressured by rising rates
-- News that UAW launched targeted strikes at three manufacturing plants after failing to reach a deal with the Big Three automakers
-- Underwhelming guidance from Adobe (ADBE)
-- Quarterly options and futures expiration
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Closing Summary
15-Sep-23 16:25 ET
Dow-288.87at 34618.24,Nasdaq-217.72at 13708.34,S&P-54.78at 4450.32
[BRIEFING.COM] The stock market registered sizable declines on this quarterly options and futures expiration day. The S&P 500, Nasdaq, and Russell 2000 gave back all their gains for the week while the Dow Jones Industrial Average narrowed its weekly gain to a modest 0.2%. The major indices all closed near their worst levels of the session, which had the S&P 500 and Nasdaq below their 50-day moving averages.
Many stocks participated in downside moves, but mega caps and growth stocks had an outsized influence on index performance. The Russell 3000 Growth Index fell 1.6%. The Vanguard Mega Cap Growth ETF (MGK) fell 1.7% versus a 1.2% decline in the S&P 500. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) closed down 0.8%.
Weak semiconductor stocks also weighed heavily on index performance. That weakness followedArm's(ARM60.75, -2.84, -4.5%) successful IPO yesterday and aReutersreport thatTaiwan Semiconductor ManufacturingCo.(TSM89.25, -2.22, -2.4%) is delaying chip equipment shipments. The PHLX Semiconductor Index fell 3.0%.
Rising market rates and oil prices ($91.00/bbl, +0.74, +0.8%) contributed to the negative bias. The 2-yr note yield rose three basis points today, and seven basis points this week, to 5.04%. The 10-yr note yield rose four basis points today, and seven basis points this week, to 4.33%.
All 11 S&P 500 sectors closed in the red. The utilities sector (-0.5%) led the relative outperformers while the information technology sector (-2.0%) saw the steepest decline. The latter was weighed down by weak mega cap and semiconductor components, along with a big loss inAdobe(ADBE528.89, -23.27, -4.2%), which underwhelmed with its fiscal Q4 guidance.
Notably,General Motors(GM33.95, +0.29, +0.9%) andStellantis(STLA19.25, +0.41, +2.2%) registered gains despite failing to reach a deal with the UAW, which resulted in targeted strikes at three manufacturing plants (one for each of the automakers).Ford(F12.61, -0.01, -0.1%) for its part logged a small decline.
- Nasdaq Composite: +31.0% YTD
- S&P 500: +15.9% YTD
- S&P Midcap 400: +5.6% YTD
- Russell 2000: +4.9% YTD
- Dow Jones Industrial Average: +4.4% YTD
Reviewing today's economic data:
- August Import Prices 0.5%; Prior was revised to 0.1% from 0.4%
- August Import Prices ex-oil -0.1%; Prior was revised to -0.1% from 0.0%
- August Export Prices 1.3%; Prior was revised to 0.5% from 0.7%
- August Export Prices ex-ag. 1.7%; Prior 0.6%
- September Empire State Manufacturing 1.9 (Briefing.com consensus -10.0); Prior -19.0
- August Industrial Production 0.4% (Briefing.com consensus 0.2%); Prior was revised to 0.7% from 1.0%; August Capacity Utilization 79.7% (Briefing.com consensus 79.3%); Prior was revised to 79.5% from 79.3%
- The key takeaway from the report is that motor vehicle assemblies were weak in front of what is now a UAW strike, so the outlook for industrial production in September will be constrained by an expected disruption to auto manufacturing capabilities as a result of the strike.
- September Univ. of Michigan Consumer Sentiment - Prelim 67.7 (Briefing.com consensus 69.4); Prior 69.5
- The key takeaway from the report is that consumers' inflation expectations came down. That is something the Fed will like to see, but one is left to wonder if those expectations will remain in check if gas prices continue to increase.
Looking ahead, Monday's calendar features the release of the September NAHB Housing Market Index (prior 50) at 10:00 a.m. ET and July Net Long-Term TIC Flows (prior $195.9 billion) at 4:00 p.m. ET.
Econ data on Monday
15-Sep-23 15:35 ET
Dow-272.19at 34634.92,Nasdaq-213.56at 13712.50,S&P-51.71at 4453.39
[BRIEFING.COM] Things are little changed at the index level over the last half hour. Losses for the major indices range from 0.7% to 1.5%.
The U.S. Dollar Index is down 0.1% to 105.32.
Looking ahead, Monday's calendar features the release of the September NAHB Housing Market Index (prior 50) at 10:00 a.m. ET and July Net Long-Term TIC Flows (prior $195.9 billion) at 4:00 p.m. ET.
Energy complex settles mixed
15-Sep-23 15:00 ET
Dow-226.65at 34680.46,Nasdaq-227.57at 13698.49,S&P-49.68at 4455.42
[BRIEFING.COM] The major indices are trading narrow ranges off their lows.
Energy complex futures settled mixed. WTI crude oil futures rose 0.8% to $91.00/bbl. Natural gas futures fell 2.7% to $2.65/mmbtu. The S&P 500 energy sector is near the bottom of the lineup, down 1.0%.
Separately, the CBOE Volatility Index jump 9.6%, or 1.23, to 14.05.
Nucor falls on guidance, S&P 500 moving back toward lows
15-Sep-23 14:30 ET
Dow-260.54at 34646.57,Nasdaq-232.22at 13693.84,S&P-53.16at 4451.94
[BRIEFING.COM] The S&P 500 (-1.18%) has continued to fade to session lows in the last half hour, now down about 53 points.
S&P 500 constituentsNucor(NUE 156.32, -9.21, -5.56%),LamResearch(LRCX 620.55, -35.88, -5.47%), andEtsy(ETSY 63.96, -2.72, -4.08%) are among today's worst laggards. NUE fell to 11-week lows today in light of last night's downside Q3 guidance, LRCX shrugs off a bullish Wolfe Research initiation in part on reportsTaiwan Semi(TSM 89.25, -2.22, -2.43%) was delaying chip equipment shipments, while ETSY continues to fade following yesterday's intraday short report from Railroad Ranch Capital.
Meanwhile,Waters(WAT 278.17, +6.16, +2.27%) is atop the standings, stronger alongside fellow diagnostics peers likeA,BIO, andDHR.
Gold flips to weekly gains, helped by Friday's rally
15-Sep-23 14:00 ET
Dow-247.53at 34659.58,Nasdaq-216.67at 13709.39,S&P-48.11at 4456.99
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-1.56%) is still today's top laggard, having moved mostly sideways over the prior half hour.
Gold futures settled $13.40 higher (+0.7%) to $1,946.20/oz, ultimately ending the week with gains of about +0.2%, held down by late-week strength in the dollar and yields.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $105.25.
Page One
Last Updated: 15-Sep-23 09:02 ET | Archive
Keeping a nervous eye on rates and oil prices
The equity market has a mixed disposition this morning as participants have taken a conservative line ahead of today's open.
Currently, the S&P 500 futures are down six points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 48 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are down 22 points and are trading in-line with fair value.
There is some underlying angst on this quarterly options expiration day with market rates and oil prices continuing to press higher. The 10-yr note yield is up four basis points to 4.33% and WTI crude futures are up 0.3% to $90.40.
The equity market has held up well so far this week in spite of the higher rates and oil prices. The S&P 500 is up 1.1%, the Nasdaq Composite is up 1.2%, and the Russell 2000 is up 0.8%.
Nonetheless, buyer conviction would be expected to subside if rates and oil prices continue to rise.
Beyond those factors, the main news item today is that the UAW and the Big Three automakers were unable to reach a deal on a new contract. Consequently, the UAW has launched targeted strike actions at three manufacturing plants (one for each of the automakers).
This is not a surprise to the market given the tenor of remarks leading up to the deadline, but that doesn't mean it is a good thing for the economy, and it will become less of a good thing the longer it persists given the reach and importance of auto manufacturing supply chains.
In some better news, China reported an acceleration in industrial production and retail sales data for August that was also better than expected. Later this morning (9:15 a.m. ET), industrial production data for the U.S. will be released.
Earlier, the September New York Empire State Manufacturing Index checked in at 1.9 (Briefing.com consensus -10.0) following a -19.0 print for August. The dividing line between expansion and contraction is 0.0 for this series. Notably, the index for future business conditions increased six points to 26.3, which is the highest level in more than a year.
Import prices for August, meanwhile, jumped 0.5% following a 0.1% increase in July. Excluding fuel, import prices declined 0.1% on the heels of a 0.1% decline in July. Export prices rose 1.3% after a 0.5% increase in July. Excluding agricultural products, export prices increased 1.7% in the wake of a 0.6% increase in July.
On a year-over-year basis, import prices were down 3.0% (-0.8% ex fuel) while export prices were down 5.5% (-5.3% ex ag).
In corporate news,Adobe (ADBE)posted better than expected fiscal Q3 results but its fiscal Q4 guidance was underwhelming. It is trading down 3.7% in pre-market action, which has been a drag on the Nasdaq 100 futures.Walt Disney (DIS)is up 0.5% with speculation swirling that it might be looking to sell ABC. The company said it has not made any decisions about divesting ABC at this time. In any case, the notion that it could sell ABC seems to be overshadowing aBloombergreport that Disney+ subscribers are likely to come in below the company's forecast.
-- Patrick J. O'Hare, Briefing.com
Shake Shack looks to shake its recent bearish trend following an upgrade at Northcoast today (SHAK)
Shake Shack (SHAK)tries to shake its recent downward trend following an upgrade at Northcoast to "Buy" from "Neutral" today. Although still up nearly 50% on the year, shares of the urban-based quick-service restaurant chain have tumbled by over 20% since early August highs. The decline certainly adds a layer of concern, especially as inflationary pressures, namely energy, begin to tick back up, potentially eating into future sales.
However, Briefing.com points outthat today's Northcoast upgrade comes just one month after the same firm downgraded SHAK, a quick change of sentiment potentially reflecting an even quicker positive shift in demand. Aside from Northcoast's downgrade last month, analysts we track have not been bearish toward SHAK since January, either reiterating or upgrading their ratings.
Although the market faded much of today's gains, favorable dynamics are at play, creating a potentially attractive entry point for buy-and-hold investors.
- Since the end of Q2, SHAK noticed an uptick in sales momentum, boasting +4.5% same-store sales growth during July. Traffic trends are also improving as consumers lessen their taste for deliveries, instead flocking to SHAK's locations. Rising prices and stubborn inflationary trends likely play a role in spurring a shift toward in-person ordering. Still, higher in-person orders can lead to add-ons consumers may not have opted for when choosing delivery, boosting overall sales.
- Also lifting sales are higher menu prices. SHAK has had to implement several price hikes to help offset rising input costs. While SHAK did notice signs of food costs declining in Q2, most of its basket costs remained elevated. Still, this has been common across the quick-service restaurant industry;McDonald's (MCD),Wendy's (WEN), and Burger King(QSR)have all hiked their menu prices over the past two years. What gives SHAK an advantage is its objective and perspective quality. To avoid meaningful consumer resistance to price hikes, restaurants need to not just provide quality products but be able to market them as such. SHAK does a solid job at both.
- An expanding presence will also provide a longer-term tailwind. The sheer number of locations keeps MCD at the top of the quick-service restaurant landscape. One of SHAK's priorities is maximizing its total addressable market (TAM), targeting sites across the U.S. to deepen its footprint. Building out additional drive-thrus should also help improve sales over the long haul; a lack of drive-thrus was a serious issue for SHAK during the pandemic.
- SHAK is also bolstering its licensed business, opening new Shake Shacks around the globe, anticipating approximately 35 new licensed Shack openings in 2023.
By still being early in its growth story, SHAK will encounter its share of hurdles toward becoming a leading quick-service restaurant chain. Higher prices may keep a lid on near-term growth, especially with energy prices increasing, student loans resuming, and uneasiness surrounding the economy persisting. Nevertheless, SHAK offers a refreshing menu over its established peers, giving it a competitive edge as it builds out its store presence domestically and abroad.
Walt Disney mulls divesting linear TV assets; market shrugs off reduced Disney+ sub forecasts (DIS)
Walt Disney (DIS +1%)heads higher despite aBloombergreport noting that the entertainment giant is lowering its Disney+ subscriber forecast for FY24 (Sep) by "tens of millions." DIS also issued a statement regarding the ongoing review of ABC and other TV assets, following reports thatNexstar (NXST)could bid for said assets, stating that no decision has been made.
- Last year, former CEO Bob Chapek outlined a goal of reaching 230-260 mln Disney+ streaming subscribers by the end of FY24. Current CEO Bob Iger, who returned to DIS shortly after Mr. Chapek issued FY24 sub guidance, trimmed this forecast to 215-245 mln before noting that the company would no longer provide long-term subscriber forecasts.
- When Mr. Chapek projected as many as 260 mln Disney+ users, DIS crossed the 150 mln subscriber mark, sustaining impressive 30+% yr/yr growth. However, growth stopped in its tracks two quarters later and has remained flat yr/yr since.
- Alongside a souring economic landscape and higher annual subscription fees, the stunted Disney+ sub growth followed Mr. Iger's shift toward profitability, discussing plans to achieve DTC (direct-to-consumer offering, including streaming services) profitability by the end of FY24.
- As a result, the market likely anticipated DIS's inability to reach its initial target, partially explaining why investors are shrugging off the seemingly bearish news. Furthermore, coming up "tens of millions" short can be viewed as a plus given the headwinds DIS faced this year, especially after hiking its services' price tags.
Today's positive reaction also stems from reports beginning to crop up regarding DIS divesting its traditional TV assets, including ABC.
- After reports swirled that DIS and NXST were potentially discussing divesting ABC, DIS issued a statement, commenting that it is open to considering various strategic options for its linear business. DIS's statement signaled to the market that chances of offloading its traditional TV property are becoming increasingly likely.
- With the advertising market depressed and cord-cutting rising in popularity, TV has weighed on DIS's recent quarterly results, offsetting minor silver linings like positive theatrical performance. Mr. Iger mentioned this year that TV may not be core to the company's overall business.
- The headaches associated with DIS's recentCharter Communications (CHTR)deal may have accelerated its plan to move on from traditional TV.
CEO Bob Iger's return last year sparked a good deal of excitement, given his track record as CEO from 2005-2020. Removing DIS's linear TV assets would not be entirely shocking. Mr. Iger has been known to conduct surprising moves, such as vastly expanding DIS's content collection with the massive Marvel and Lucasfilm deals over a decade ago. Mr. Iger was also pivotal in DIS's launch of Disney+, so his focus on bolstering this service makes sense. With a library dating back over 60 years and content kids and adults may find hard to live without, we view Disney+ as much more sticky than competing streaming services, providing an economic moat allowing DIS to enjoy long-term success regardless of the direction it takes regarding traditional TV.
Adobe heads lower despite strong quarter; investors seem eager to lock in profits (ADBE)
Adobe (ADBE -5%)is trading lower today despite reporting a strong Q3 (Aug) result last night. This digital document giant has now posted four consecutive double digit EPS beats following four small beats, so that is a good trend. The revenue upside was more modest than recent quarters, but still decent. Adobe also guided EPS above analyst expectations for Q4 (Nov).
- Its Digital Media segment performed well with revenue rising 10% yr/yr (+13% constant currency) to $3.59 bln. This was nicely above prior guidance of $3.55-3.57 bln. DM is by far Adobe's larger segment, so people watch it closely. Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE segment revenue grew 10% yr/yr (+11% CC) to $1.23 bln, which was at the high end of its $1.21-1.23 bln prior guidance.
- On the creative side, Adobe says digital content creation and consumption are exploding across every creative category, customer segment and media type. Creative Cloud is the leading creativity platform, offering a comprehensive portfolio of products for every discipline across imaging, photography, design, video, animation and 3D.
- Adobe is particularly excited about Firefly, its family of creative generative AI models. In the six months since launch, Adobe says Firefly has captivated people around the world who have generated over 2 bln images. Adobe is excited about the potential to reimagine the content supply chain for all types of businesses. Adobe also noted some viral excitement for Firefly on social media, which has driven a lot of top-of-funnel customer opportunities. Also, on Wednesday, Adobe announced the commercial availability of several generative AI capabilities, natively integrated in Adobe Creative Cloud, Adobe Express and Adobe Experience Cloud.
- In terms of its pending Figma acquisition, which is used by millions of mobile and web developers, the US DOJ and the EU has been scrutinizing the deal based on anti-competitive concerns. Adobe said it continues to be excited about the pending Figma deal, but we did not hear management reaffirm its view that the deal remains on track to close by the end of 2023. So, maybe the ambiguity was a slight negative.
Overall, this was another very good quarter for Adobe. We do not see a lot to complain about this quarter or the guidance. We think that so much excitement has been priced in already. Adobe has gotten caught up in the AI mania/trend we have been seeing in recent months. Also, perhaps Adobe not reaffirming the Figma closing timeline is a slight negative. We think maybe investors are using this report to lock in some profits given the recent run in the share price (+57% since mid-May).
Lennar capitalizes on low housing supply again in Q3, but incentives are cutting into margins (LEN)
Demand for new homes is still quite healthy. After yesterday's close, homebuilderLennar(LEN) reported Q3 results that once again easily topped EPS and revenue expectations, offering the latest bullish insights into the new home market.
The overall story remains mostly unchanged as rising mortgage rates are keeping homeowners in their current homes, exacerbating an under supply of existing homes on the market. Simultaneously, favorable demographic trends and a related movement from urban areas into suburban and rural areas is driving new home demand higher.
Although LEN and competitors likeToll Brothers(TOL),D.R. Horton(DHI), andPulteGroup(PHM), are mainly benefitting from these trends, as illustrated by strong new order growth, the news isn't all positive. In fact, LEN's EPS and revenue declined by 25% and 2%, respectively, despite an 8% increase in deliveries.
- Of course, the downside of higher mortgage rates is that affordability becomes an issue for home buyers. To help alleviate the higher costs, LEN has ramped up incentives, including buying down mortgage rates. This, in turn, is pressuring LEN's margins and profits.
- In Q3, LEN's gross margin on home sales contracted by 480 bps yr/yr to 24.4% as revenue per square foot decreased. The average sales price for a delivered home fell to $448,000 from $500,000 a year ago and LEN expects average sales prices in Q4 to remain consistent with Q3.
- The good news is that material costs have dropped which should allow gross margin on home sales to remain steady in the 24-25% range in Q4.
- Demand is also expected to stay strong in Q4 with LEN guiding for new orders of 16,200-17,200, reflecting yr/yr growth of about 29% at the midpoint. However, analysts are still anticipating revenue to decline in Q4 due to lower yr/yr average selling prices. In 4Q22, the average home sales price was $483,000.
The main takeaway is that the under supply of existing homes on the market continues to fuel strong demand for new homes, but rising mortgage rates have become a bit of a "catch 22." On one hand, rising mortgage rates have prevented homeowners from listing their homes on the market, amplifying the under-supply situation. On the other hand, rising mortgage rates have created affordability issues, forcing LEN and others to become more aggressive with incentives, which is cutting into their margins and profits.
Etsy amid a relief rally following an upgrade at Wolfe Research today (ETSY)
Following an upgrade to "Outperform" from "Peer Perform" today at Wolfe Research, shares ofEtsy (ETSY +3%)are amid a minor relief rally. Today's upgrade follows multiple analysts either downgrading or reiterating their ratings on the e-commerce retailer known for handmade items. The last upgrade, per analysts Briefing.com tracks, was in April, shortly before ETSY's Q1 earnings report.
Briefing.com notesthat the stock has been quite the laggard this year, stumbling by over 40% even after incorporating today's move, considerably underperforming its close rivaleBay (EBAY). Part of why ETSY has faced adversity this year is its differentiating factor. Homemade and vintage crafts can be categorized as highly discretionary and tend to command relatively premium price points, which are not appealing attributes given the current economic climate. ETSY has conceded over multiple quarters running that it has faced stiff headwinds in consumer discretionary spending.
Nevertheless, share prices are becoming increasingly too attractive to ignore, especially after ETSY's rather upbeat Q2 report last month.
- Gross merchandise sales (GMS) may have stayed nearly flat yr/yr in Q2 at $3.01 bln. However, this does not paint the complete picture, as the metric enjoyed positive growth every month after April, including July (the first part of Q3), reflecting a favorable shift in demand and potential stabilization. Furthermore, GMS per active buyer maintained nearly all of ETSY's pandemic gains, expanding 28% since 2Q19.
- ETSY is working to reignite GMS growth during 2H23, making "big moves" during the holiday season to capitalize on an upcoming shopping season that may see fewer big-ticket items and instead relatively lower-priced specialized items, like those found on Etsy.
- At the same time, quarterly active buyers reached all-time highs during Q2 at 91 mln. Furthermore, new buyers totaled 6.0 mln, 40% higher than the average number of new buyers acquired quarterly during pre-pandemic periods. Also, the negative 6% yr/yr new buyer trends from Q1 improved to just 3% in Q2.
- Margins have been relatively sound during the challenging economic environment. In Q2, adjusted EBITDA margins did slide 140 bps yr/yr and 20 bps sequentially to 26.4%. However, management expects improvement going forward, projecting 27-28% margins in Q3, translating to flat yr/yr growth at the high end of its range.
- ETSY also anticipates a yr/yr and sequential improvement in GMS in Q3 at the midpoint of its $2.95-3.10 bln outlook.
ETSY's return to accelerated growth depends on the macro environment faring better than it has from here, keeping the risk of further share declines alive. That said, ETSY's Q2 performance indicates that the consumer is slowly returning to previous spending habits. Looking further out, ETSY boasts plenty of opportunities to expand its active buyer base in the U.S. and abroad as it attracts new buyers and reactivates its pool of 100 mln lapsed buyers. |
