Market Snapshot
briefing.com
| Dow | 34466.38 | -157.89 | (-0.46%) | | Nasdaq | 13658.19 | -52.05 | (-0.38%) | | SP 500 | 4437.58 | -15.95 | (-0.36%) | | 10-yr Note | -5/32 | 4.37 |
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| | NYSE | Adv1164 | Dec1656 | Vol896 mln | | Nasdaq | Adv1740 | Dec2564 | Vol4.5 bln |
Industry Watch
| Strong:Health Care, Communication Services |
| | Weak:Consumer Discretionary, Industrials, Real Estate, Consumer Staples, Communication Services |
Moving the Market
-- Wait-and-see ahead of FOMC announcement tomorrow
-- Rising market rates keeping stocks in check
-- Mega caps recovering from lows helped boost broader market
-- Oil prices pulling back coincided with the major indices recovering from session lows
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Closing Summary
19-Sep-23 16:30 ET
Dow-106.04at 34518.23,Nasdaq-32.05at 13678.19,S&P-9.50at 4444.03
[BRIEFING.COM] The major indices ended the day in negative territory, but closed well off their lows of the day, paced by the ebb and flow of the mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) had been down 1.0% at its low before closing with a 0.2% loss. Other stocks, however, also improved in the afternoon trade.
The market-cap weighed 500 and the Invesco S&P 500 Equal Weight ETF (RSP) both fell just 0.2%. Market breadth was negative, but modestly so. Decliners had a less than 3-to-2 lead over advancers at both the NYSE and the Nasdaq.
An intraday pullback in crude oil, which topped $92.00/bbl earlier in the session, aided the afternoon recovery effort. WTI crude oil futures settled 0.04% lower at $90.49/bbl.
The overall negative bias was partially driven by hesitation in front of Wednesday's FOMC announcement, which will also feature an updated Summary of Economic Projections and dot plot.
Rising market rates acted as another headwind. The 2-yr note yield rose eight basis points to 5.12% and the 10-yr note yield rose five basis points to 4.37% despite a $13 billion 20-yr bond reopening that was met with solid demand.
Only two of the S&P 500 sectors closed in the green -- health care (+0.1%) and communication services (+0.01%) -- while the energy sector (-0.8%) saw the largest decline.
Instacart(CART33.70, +3.70, +12.3%) was an individual stock standout. The company priced its IPO at $30/share last night, opened for trading at $42, but gave back a big chunk of that opening gain.
- Nasdaq Composite: +30.7% YTD
- S&P 500: +15.7% YTD
- S&P Midcap 400: +5.3% YTD
- Russell 2000: +3.7% YTD
- Dow Jones Industrial Average: +4.1% YTD
Today's economic data was limited to housing starts, which hit their lowest level in August (1.283 million) since June 2020, and building permits -- a leading indicator -- which were up 6.9% month-over-month to a stronger-than-expected 1.543 million with permits for single units up 2.0%.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.8%)
- 10:30 ET: Weekly crude oil inventories (prior +3.96 mln)
Treasuries settle with losses
19-Sep-23 15:35 ET
Dow-130.18at 34494.09,Nasdaq-39.44at 13670.80,S&P-11.71at 4441.82
[BRIEFING.COM] The major indices settled into a sideways flow after pulling back from their afternoon highs.
Treasuries settled with losses across the curve. The 2-yr note yield rose eight basis points to 5.12% and the 10-yr note yield rose five basis points to 4.37%.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.8%)
- 10:30 ET: Weekly crude oil inventories (prior +3.96 mln)
Oil prices settle lower; market pulls back from afternoon highs
19-Sep-23 15:05 ET
Dow-157.89at 34466.38,Nasdaq-52.05at 13658.19,S&P-15.95at 4437.58
[BRIEFING.COM] The major indices are pulling back from their afternoon highs, following the lead of mega cap stocks.
The Vanguard Mega Cap Growth ETF (MGK) was trading flat a short time ago, but sports a 0.4% decline now. The market-cap weighted S&P 500 is also down 0.4% while the Invesco S&P 500 Equal Weight ETF (RSP) shows a 0.2% decline.
WTI crude oil futures ultimately settled slightly lower than yesterday, down 0.04% to $90.49/bbl. The S&P 500 energy sector (-1.2%) remains buried in last place among the 11 sectors.
Enphase Energy leading S&P 500 after Director stock purchase
19-Sep-23 14:30 ET
Dow-167.61at 34456.66,Nasdaq-32.05at 13678.19,S&P-14.39at 4439.14
[BRIEFING.COM] The S&P 500 (-0.32%) is in second place to this point on Tuesday.
S&P 500 constituentsCeridianHCM(CDAY 69.72, -2.62, -3.62%),Freeport-McMoRan(FCX 38.79, -1.40, -3.48%), andDeere(DE 398.60, -12.24, -2.98%) pepper the bottom of the standings. Modest weakness in copper futures aids a decline in FCX today, while DE slips on an Evercore ISI downgrade citing agricultural production cuts.
Meanwhile,EnphaseEnergy(ENPH 122.24, +5.08, +4.34%) is atop the S&P after Director T. Rodgers disclosed the purchase of approx. $4 mln in shares.
Gold little changed ahead of this week's Fed decision
19-Sep-23 14:00 ET
Dow-177.32at 34446.95,Nasdaq-32.79at 13677.45,S&P-14.95at 4438.58
[BRIEFING.COM] A rise to afternoon highs has the Nasdaq Composite near today's best levels, down just -0.24% vs. today's lows of -0.96%.
Gold futures settled narrowly higher to $1,953.70/oz, peeling back from the marked advance over the prior few sessions which saw the yellow metal finish at near two weeks highs.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $105.09.
Page One
Last Updated: 19-Sep-23 09:01 ET | Archive
Fed forecast angst carries over
You might have heard that there is an FOMC meeting this week. It begins today and concludes on Wednesday with the release of the policy directive, updated Summary of Economic Projections (SEP) and dot plot, and Fed Chair Powell's press conference.
The interest rate decision is effectively a foregone conclusion. According to the CME FedWatch Tool, there is a 1.0% probability of a 25 basis points rate hike on Wednesday. The intrigue surrounding this meeting relates to the messaging of the SEP and dot plot, and the tone Fed Chair Powell adopts in explaining the policy decision and the Fed's forecasts.
Today, however, is Tuesday, so we're not there yet. Accordingly, the wait-and-see stance that permeated Monday's trading looks to have carried over today.
Currently, the S&P 500 futures are down five points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 28 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 37 points and are trading 0.1% below fair value.
Other news factors carrying over today include a bump in market rates, a bump in oil prices, and a bump in the UAW's rhetoric to include a warning that there will be strikes at more plants if there is no serious progress in negotiations by noon on Friday.
The 2-yr note yield is up four basis points to 5.08%, the 10-yr note yield is up four basis points to 4.36%, and the continuous contract for WTI crude futures is up 1.4% to $91.82 per barrel.
Those moves have been deterrents for investors worried about their implications for growth and spending, which are interconnected. On a related note, the OECD published a new outlook that projects slower global growth in 2024, noting there are significant downside risks. Specifically, the OECD expects 3.0% global growth for 2023 and 2.7% for 2024; its U.S. outlook calls for 2.2% growth in 2023 and 1.3% in 2024.
There was a lack of growth in housing starts in August. Total starts declined 11.3% to a seasonally adjusted annual rate of 1.283 million units (Briefing.com consensus 1.435 million). Single-unit starts were down 4.3% to a seasonally adjusted annual rate of 941,000. There was better news on the permits front. Total building permits increased 6.9% to 1.543 million (Briefing.com consensus 1.442 million) with permits for single units up 2.0% to 949,000.
The key takeaway from the report is that starts were clearly weak in August, yet the strength in permits -- a leading indicator -- lends some hope that September will feature better news on the home construction front, which is needed given the tight supply of existing homes for sale.
-- Patrick J. O'Hare, Briefing.com
Block's Square CEO Alyssa Henry to depart, pushing shares down to 52-week lows today (SQ)
Block (SQ -2%)takes a spill today following the payment platform's announcement of Square CEO Alyssa Henry's plan to depart on October 2. Alyssa Henry, who has been with Square for nearly a decade, will be replaced by founder Jack Dorsey, who heads up the company's Block division, the overarching ecosystem of SQ's many businesses.
- With the company's founder still at the helm, why are investors selling last night's announcement?Square, SQ's primary business, comprises virtually all of the company's annual net revs, providing numerous services to sellers running and growing their businesses. Furthermore, SQ's famous Cash App, which allows users to send and receive payments, purchase equities, and file taxes, is also housed under Square.
- Although Ms. Henry oversaw SQ's ascension to all-time highs in 2021, economic conditions have since soured, triggering a lengthy sell-off that has taken shares of SQ back to pre-pandemic levels (an over 80% drop from the 2021 peak). Gross payment volumes (GPV) weakened over this period as the end consumer felt the sting of stubborn inflation. Food & Drink and Retail comprised 50% of SQ's total FY22 GPV, making it particularly challenging for the company to mount a meaningful comeback as these more discretionary categories endure softer traffic.
- In Q2, GPV per existing seller (a good measure of same-store growth) continued to decrease since 3Q22, primarily driving moderation in GPV growth.
- However, some silver linings from Q2 might alleviate any hiccups from Alyssa Henry's departure. SQ noticed relative stability in the churn of existing sellers compared to historical levels during the quarter. Upmarket growth also remained sound, with gross profit from mid-market sellers climbing 20% yr/yr. Meanwhile, Cash App saw significantly higher retention for active users, with June enjoying a 15% bump in monthly transacting user growth. Because of these favorable developments, SQ raised its FY23 adjusted EBITDA outlook to $1.50 bln from $1.36 bln.
Although considered a tech company, SQ has not participated in the tech rally this year, tumbling over 20% YTD and reaching fresh 52-week lows today. Its relatively weak stock price resembles one of its closest rivals,PayPal (PYPL), which is tracking similarly on the year, down roughly 16%. However, both companies have expressed optimism regarding a stable macroeconomic environment as they move through the back half of the year, which tends to be the best given the back-to-school and holiday shopping seasons.
Although Square CEO Alyssa Henry will undoubtedly be missed, given her influence over the company and ability to navigate the choppy pandemic-related waters of 2020 and 2021, her departure may coincide with a bottom for SQ. With Jack Dorsey stepping in to fill Ms. Henry's role, SQ remains in good hands and well-positioned to return to outsized growth as long as the stabilization trends touched on last month continue.
Autozone in need of some repair work today as slowing commercial growth weighs on shares (AZO)
Following a disappointing 3Q23 earnings report in which the company missed revenue and same store sales expectations,AutoZone(AZO) bounced back with a top and bottom-line beat in 4Q23 as business picked up in the back half of the quarter. In Q3, unfavorable weather, particularly in March, hindered sales and limited the positive impact that AZO typically receives from tax refund season. As the weather improved in Q4, so did AZO's sales with total company same store sales increasing by 4.5% compared to last quarter's more modest 1.9% growth.
The auto parts retailer is also making some major changes to its leadership structure. In a separate press release, AZO announced that Tom Newbern has been promoted to COO, while Jamere Jackson will permanently take on the CFO role. These appointments come on the heels of AZO announcing a CEO transition in June as Bill Rhodes will hand the reins over to current EVP of Merchandising, Marketing, and Supply Chain Philip Daniele this coming January. Since AZO is promoting within the company to form its new executive team, we don't anticipate that a significant change in its strategy is forthcoming.
A key component of that strategy is to expand its commercial, or its DIFM (do-it-for-me), business. In that regard, AZO's performance in Q4 is being viewed as a disappointment.
- Domestic commercial sales for the quarter grew by just 3.9% to $1.499 bln, missing analysts' expectations and down from last quarter's 6.3% growth. AZO did lap very strong growth of 22% in the year-earlier quarter, but the company is clearly facing some headwinds in this business.
- Specifically, rising interest rates and high used car prices have hurt some areas of the DIFM business. It's also possible that some consumers are putting off non-critical repairs as they pull back on spending.
- However, AZO believes that it is still gaining market share and that the DIFM segment has plenty of runway for growth.
- On the positive side, International continues to standout with same store sales surging by over 34% in Q4. Currently, AZO has about 740 stores in Mexico and about 100 in Brazil, compared to more than 6,300 stores in the U.S.
- In Mexico, the company's ROIC is actually better than it is in the U.S. During last quarter's earnings call, AZO stated that it doesn't expect to slow down its expansion efforts in Mexico anytime soon.
- During Q4, AZO opened 27 new stores in Mexico and 17 new stores in Brazil.
With an assist from more favorable weather, AZO returned to form in Q4 and comfortably beat EPS and revenue estimates. The upside performance, though, is being overshadowed by slowing growth in AZO's domestic commercial business, which is a key component of its overall growth strategy.
Carnival and Royal Caribbean cruising a bit higher on upgrades; demand for cruising strong
Carnival (CCL +0.2%)andRoyal Caribbean (RCL +2%)are cruising modestly higher today following upgrades for both companies by Truist this morning. The firm moved CCL to Hold from Sell and RCL to Buy from Hold. Sell side firms have gotten more positive on the cruise stocks in recent months. Among the firms Briefing.com tracks, CCL has received seven upgrades since late May while RCL has received two. There also have been no downgrades of either name in 2023.
- Briefing.com thinks investors should keep cruise lines on the radar. We should get an update on the industry soon when Carnival reports Q3 (Aug) on Sep 29 and Royal Caribbean reports Q3 (Sep) results in late Oct/early Nov. As such, we wanted to provide our quick take on the industry. Truist upgraded the stocks today, but the following is Briefing.com's analysis:
- In late June, CCL reported solid Q2 (May) results. The loss was narrower than expected and CCL beat pretty handily on revs. But we think the qualitative comments were just as important. Specifically, CCL said it was seeing an acceleration in demand, with total bookings reaching a new all-time high for all future sailings. Booking volumes for Q2 exceeded Q1's booking volumes, which was the previous record high. In addition, CCL says it's benefitting from favorable pricing trends. Booking lead times for its North America and Australia (NAA) segment are now further out than CCL has ever seen. The main knock on the quarter was weak EPS guidance for Q3.
- In late July, RCL handily beat on EPS and revs. It also guided Q3 and FY23 EPS well ahead of analyst expectations. RCL also said that booking volumes in Q2 remained significantly higher than the corresponding period in 2019 and at record pricing levels. Demand for 2023 sailings has significantly exceeded RCL's expectations and bookings for 2024 sailings are up significantly vs all prior years at record prices.
- While analyzing each quarter is important, it is also worth taking a step back. CCL was a $50 stock in early 2020, just before the pandemic struck and even after its recent run, it is currently trading below $16. If it can even make it back to $30, that is still a nice return. RCL has performed better and has made a nice run since late April. However, it has pulled back over the last six weeks.
Overall, based on the language about bookings from both CCL and RCL, it sounds like the cruise industry is benefitting from pent up demand for cruising as consumers spend more on experiences rather than things. A potential concern is the weak Q3 guidance we have seen from airlines over the past week. It seems travel demand has cooled a bit after a hot summer, so that makes us a bit nervous. Also, CCL's Q3 guidance was not the greatest and CCL has given us head fakes in the past when we thought its business was turning around. Regardless, we should get a clearer picture when both companies report in the coming weeks.
Apogee Enterprises initial gains on upbeat Q2 earnings fade alongside broader market weakness (APOG)
Commercial window supplier and installerApogee Enterprises (APOG)is trying to remain above its flatline today after surpassing Q2 (Aug) earnings estimates by its widest margin in four quarters, fueling its raised FY24 (Feb) adjusted EPS forecast. Given that APOG reiterated its FY24 revenue growth outlook of flat to slightly lower yr/yr, investors initially tossed APOG's AugQ revenue miss out the window today. Also, there were likely expectations that sales would remain relatively soft through the end of the year after management discussed choppiness in bidding and award activity last quarter. However, even though APOG was up over +4% to start the day, it gave it all back as the broader markets began to break down.
- Like last quarter, APOG topped EPS forecasts by double-digits, expanding its bottom line by 28% yr/yr to $1.36. Operating margins jumped 290 bps yr/yr to 11.5%, exceeding APOG's 10% target for the first time since establishing its financial goals in late 2021. With eight consecutive quarters of sequential margin improvement under its belt, it is clear APOG's progress toward shifting to higher margin offerings is paying off nicely.
- Although APOG's top two segments, Framing Systems and Glass, both expanded operating margins yr/yr, APOG's overall margin growth can be attributed to strength in Glass, which enjoyed over 10 pts of margin growth yr/yr. Meanwhile, Framing margins edged 140 bps higher.
- Top-line results were less upbeat, dipping 4.9% yr/yr to $353.7 mln, falling short of consensus. While Glass (~26% of AugQ revs) was again the notable standout, being the sole segment to improve sales with top-line growth of 21.6%, all other components contracted yr/yr, including Framing Systems business (~45%), which fell 8.1% and Services (~25%), which tumbled by 17.5%. Management noted that volumes remained soft across Services and Framing Systems.
- Looking into the back half of the year, APOG continues to monitor macroeconomic trends. With relatively weak volumes across over half of its portfolio, APOG remained prudent in its FY24 revenue forecast. On the other hand, because of its success shifting toward higher margin offerings, APOG was confident lifting its FY24 adjusted EPS guidance to $4.35-4.65 from $4.15-4.45, which was already a jump from initial guidance of $3.90-4.25.
With APOG boasting leadership in the commercial window install space, its mostly uplifting results paint a relatively good picture of the health of the non-residential construction market. Steel giants likeSteel Dynamics (STLD)andNucor (NUE)expressed in July their optimism surrounding non-residential starts and build rates remaining strong through the rest of 2023 and into 2024. Construction equipment titanCaterpillar (CAT)also commented on a robust non-residential market as benefits from recent legislation, like the CHIPS Act, begin to unfold.
We mentioned last quarter that APOG's decision to pivot toward higher margin areas was wise. We continue to hold this view and believe it should provide a good profitability cushion as APOG heads into FY25, especially if economic conditions deteriorate. |
