| | | Market Snapshot
| Dow | 34634.72 | +116.49 | (0.34%) | | Nasdaq | 13611.54 | -66.65 | (-0.49%) | | SP 500 | 4435.54 | -8.49 | (-0.19%) | | 10-yr Note | +2/32 | 4.35 |
|
| | NYSE | Adv1115 | Dec1715 | Vol767 mln | | Nasdaq | Adv1443 | Dec2884 | Vol4.8 bln |
Industry Watch
| Strong:Consumer Staples, Real Estate, Health Care, Utilities |
| | Weak:Information Technology, Communication Services, Materials, Consumer Discretionary, Energy |
Moving the Market
-- Weak mega cap stocks leading broad based losses
-- Treasury yields climbing off intraday lows
-- Digesting the latest move by the FOMC and Fed Chair Powell's remarks
|
Closing Summary
20-Sep-23 16:30 ET
Dow-76.85at 34441.38,Nasdaq-209.06at 13469.13,S&P-41.75at 4402.28
[BRIEFING.COM] The stock market started the session with a positive bias as participants waited for the 2:00 p.m. ET release of the FOMC decision. The early upside moves were supported by falling oil prices and market rates. The Nasdaq had a modest loss in the early going, due to lagging mega caps, but the A-D line was positive and the other major indices were in the green.
Both the stock and bond market experienced volatile price action following the September FOMC Statement. As expected, the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%. There were few changes to the directive itself, but the market was focused on the Summary of Economic Projections and dot plot, which conveyed two key takeaways: (1) Policy rates are anticipated to remain higher for longer and (2) Fed officials are not expecting to cut rates in 2024 as much as they were anticipating when they updated their forecasts in June.
The median fed funds rate estimate for 2023 was unchanged at 5.6%, but the median estimate for 2024 was 5.1%, versus 4.6% in June. The former estimate suggests officials are still leaning in favor of one more rate hike this year, whereas the latter revision connotes an expectation that rates will come down by only 50 basis points in 2024, as opposed to 100 basis points when estimates were provided in June. Meanwhile, the median estimate for 2025 was 3.9% versus 3.4% in June, and a median estimate of 2.9% was introduced for 2026. The longer-run fed funds rate estimate was maintained at 2.5%, leaving one to infer that the Fed is going to stay committed to its 2.0% inflation target.
The turbulent price action continued as Fed Chair Powell gave his press conference. Mr. Powell said several times that the Fed is going to "proceed carefully" when thinking about making a policy move, but said it's plausible that the neutral rate is higher than the longer run rate (2.5%), which he said is part of the explanation for why the economy has been more resilient than expected.
The wrinkle for the market wasn't that the Fed is decidedly hawkish at this point, it was that the Fed is still not dovish.
Stock settled into a steady decline in the late afternoon, led by the mega caps, that left the S&P 500 just above the 4,400 level. The Vanguard Mega Cap Growth ETF (MGK) fell 1.6% versus a 0.9% decline in the market-cap weighted S&P 500.
Most of the S&P 500 sectors closed in the red with communication services (-1.9%) and information technology (-1.8%) logging the biggest declines. The consumer staples sector (+0.2%) led the outperformers.
Klaviyo(KVYO32.76, +2.76, +9.2%), which priced its IPO at $30, traded as high as $37 before pulling back with the rest of the market in the afternoon trade.
Treasury yields settled the session mixed compared yesterday, but well off their lows for the day. The 2-yr note yield, at 5.05% just before 2:00 p.m. ET, settled at 5.13%. The 10-yr note yield, at 4.32% just before 2:00 p.m. ET, settled at 4.35%.
- Nasdaq Composite: +28.7% YTD
- S&P 500: +14.7% YTD
- S&P Midcap 400: +4.7% YTD
- Dow Jones Industrial Average: +3.9% YTD
- Russell 2000: +2.8% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 5.4% with refinance applications jumping 13.0% and purchase applications increasing 2.0%.
- The weekly EIA crude oil inventories showed a draw of 2.14 million barrels versus last week's build of 3.96 million barrels.
Looking ahead, Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 225,00; prior 220,000), Continuing Claims (prior 1.688 mln), Q2 Current Account Balance (Briefing.com consensus -$222.0 bln; prior -$219.3 bln), and September Philadelphia Fed Survey (Briefing.com consensus -2.0; prior 12.0)
- 10:00 ET: August Existing Home Sales (Briefing.com consensus 4.10 mln; prior 4.07 mln) and August Leading Indicators (Briefing.com consensus -0.4%; prior -0.4%)
- 10:30 ET: Weekly natural gas inventories (prior +57 bcf)
Market settles into decline ahead of the close
20-Sep-23 15:35 ET
Dow-25.18at 34493.05,Nasdaq-157.77at 13520.42,S&P-31.91at 4412.12
[BRIEFING.COM] The market took a sharp turn lower recently.
Treasuries settled in mixed fashion after a volatile response to the latest move by the Fed and to Chair Powell's remarks. The 2-yr note yield rose one basis point to 5.13% and the 10-yr note yield fell two basis points to 4.35%.
Looking ahead, Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 225,00; prior 220,000), Continuing Claims (prior 1.688 mln), Q2 Current Account Balance (Briefing.com consensus -$222.0 bln; prior -$219.3 bln), and September Philadelphia Fed Survey (Briefing.com consensus -2.0; prior 12.0)
- 10:00 ET: August Existing Home Sales (Briefing.com consensus 4.10 mln; prior 4.07 mln) and August Leading Indicators (Briefing.com consensus -0.4%; prior -0.4%)
- 10:30 ET: Weekly natural gas inventories (prior +57 bcf)
Whipsaw action as Fed Chair Powell gives remarks
20-Sep-23 15:05 ET
Dow+116.49at 34634.72,Nasdaq-66.65at 13611.54,S&P-8.49at 4435.54
[BRIEFING.COM] The market experienced some volatility recently amid Fed Chair Powell's press conference.
Mr. Powell has indicated that the pause today does not mean the Fed reached that stance of monetary policy that they are seeking. He reiterated the Fed's view that a soft landing is still plausible for the economy.
Elsewhere, energy complex futures settled with losses. WTI crude oil futures fell 0.8% to $89.75/bbl and natural gas futures fell 4.0% to $2.73/mmbtu.
Fed leaves rates unchanged; projections are for 50 bps in cuts in 2024 vs 100 bps at last update
20-Sep-23 14:30 ET
Dow+145.56at 34663.79,Nasdaq-48.97at 13629.22,S&P-2.30at 4441.73
[BRIEFING.COM] The market faded to session lows after the Federal Open Market Committee (FOMC) left interest rates unchanged at a range of 5.25-5.50%, as widely expected. The Committee remains highly attentive to inflation risks. Currently, the S&P 500 (-0.05%) is just off lows of the day.
In further comments the FOMC said recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.
The Committee also said that, in determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, it would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
The Fed's updated economic projections showed that expectations are for only 50 basis points of potential rate cuts in 2024 versus 100 basis points at time of June projections.
Gold extends winning streak ahead of FOMC decision
20-Sep-23 13:55 ET
Dow+175.67at 34693.90,Nasdaq-29.52at 13648.67,S&P+4.61at 4448.64
[BRIEFING.COM] The major averages have begun to fade a bit in front of the Fed's rate decision, which is due to hit at the top of the hour wherein the FOMC is widely expected to leave target range for fed funds rate unchanged. The tech-heavy Nasdaq Composite (-0.22%) is still the lone laggard.
Gold futures settled $13.40 higher (+0.7%) to $1,967.10/oz, ending higher for a fifth consecutive session.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $104.74.
Page One
Last Updated: 20-Sep-23 09:05 ET | Archive
Waiting anxiously for the Fed's projections
The central bank policy narrative is alive and kicking today, but that doesn't mean market participants are being dragged into the action kicking and screaming.
Currently, the S&P 500 futures are up 16 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 53 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 117 points and are trading 0.3% above fair value.
The central bank everyone has eyes on today is the Federal Reserve, but before looking there, we should note that some weaker than expected August CPI data out of the UK has stirred speculation that the Bank of England will hold off on a rate hike at tomorrow's meeting.
Separately, the People's Bank of China entered today's central bank conversation after it decided to leave the one-year and five-year loan prime rates unchanged, as expected.
Now, for the Federal Reserve it is widely expected to leave the target range for the fed funds rate unchanged at 5.25-5.50%. That decision will be communicated in a policy directive released at 2:00 p.m. ET along with an updated Summary of Economic Projections (SEP) and dot plot.
All of that will be subject to stern analysis (and over-analysis) to divine what it could mean for the timing of future policy rate decisions. In the same vein, market participants will be hanging on every word spoken by Fed Chair Powell at his 2:30 p.m. ET press conference to explain today's decision and to provide some context for the Fed's economic and interest rate forecasts.
What Fed Chair Powell says will be just as important as how he says it. Tone matters, as everyone learned during his 2022 Jackson Hole speech.
Keen attention will be paid to the median forecast for the 2024 federal funds rate. The June projection was 4.6%, which was 100 basis points below the median forecast for the 2023 federal funds rate, so participants are going to be anxious to see if the Fed dials back its own rate-cut projections. In turn, the longer-run rate of 2.5% will also be in focus. A higher rate there would be construed by some as an indication that the Fed is loosening the rope on its 2% inflation target.
One can expect some knee-jerk trading reactions amid all of the breaking policy news and projections. That is par for the course on a Fed day, but it is best not to get caught up in the initial reactions.
A point we expect Fed Chair Powell to drive home is that the Fed is going to stay data dependent for its policy decisions; therefore, what is said today could be rendered meaningless in a few weeks or months if incoming data refute what the Fed and Fed Chair Powell say today.
For now, the equity futures market says it will be a modestly higher open for stocks, which are drawing a little inspiration from the pullback in market rates and oil prices. The 2-yr note yield is down six basis points to 5.06%, the 10-yr note yield is down three basis points to 4.34%, and WTI crude futures are down 1.1% to $89.48 per barrel.
-- Patrick J. O'Hare, Briefing.com
Coty extends its rally after hiking its FY24 (Jun) outlook today on accelerated demand (COTY)
Coty (COTY +5%)is looking radiant today after increasing its FY24 (Jun) outlook. The cosmetic maker observed healthy momentum across key markets and categories since it issued its initial FY24 guidance last month, underpinning resilient beauty demand despite macroeconomic pressures.
With several retailers registering robust beauty demand during their most recent quarters, includingKohl's (KSS),Ulta Beauty (ULTA), andNordstrom (JWN), COTY's underwhelming FY24 adjusted EPS guidance last month was a minor letdown. Also, although COTY projected core LFL (like-for-like) sales growth estimates to land toward the high end of its medium-term +6-8% prediction, it did not reflect outsized demand.
However, management was still optimistic that positive momentum would continue into FY24, driven by strength within its prestige category, maintaining a healthy level of prudence given that it would continue taking price. With this prediction materializing, showcased by COTY's raised FY24 outlook today, investors feel more comfortable piling into the stock.
- For FY24, COTY expects +10-12% core LFL (like-for-like) sales growth in 1H24, up 2 pts from its previous forecast. Additionally, core LFL sales growth for the full year should now be around +8-10%, also a 2 pt improvement over earlier targets.
- Prestige fragrances, an anchor for COTY over the past several quarters, outgrowing the broader market in Q4 (Jun), is fueling the company's increased LFL sales outlook.
- COTY also targets a minor margin bump over prior forecasts, expecting 10-30 bps of adjusted EBITDA margin expansion in FY24. This projection implies around $1.075-1.085 bln in adjusted EBITDA, a $10 mln increase from previous guidance.
- Last quarter, COTY anticipated elevated inflation to persist throughout FY24, mainly during the first half, weighing on margins. Although management did not touch on inflationary trends today, we suspect its previous remarks to remain in place. As such, margins will likely not see more meaningful improvement until the back half of FY24.
- Over the medium run, COTY did not change any expectations, remaining committed to expanding EPS by a mid-20% CAGR.
COTY's mild JunQ results last month underpinned a cooling beauty demand environment, a disappointing development after the industry's extended sustained demand since pandemic restrictions were lifted worldwide. As a result, COTY's raised FY24 guidance today lit a fire under its shares as it signaled that demand is not tailing off. The beauty category continues to show relative inelasticity no matter the geography, an uplifting sign ahead of earnings season next month.
Goldman Sachs continues to cut the cord on its consumer business as it looks to sell GreenSky (GS)
Goldman Sachs'(GS) foray into consumer businesses was viewed by CEO David Solomon as an opportunity to diversify the company's revenue streams and expand its addressable market, but that strategy clearly didn't pan out the way he intended. Coming off one of GS's most difficult quarters in recent history, which included a $504 mln goodwill impairment charge in the Consumer Platforms segment, Mr. Solomon is changing course and is looking to shed unprofitable consumer businesses. According to theWall Street Journal, GS is about to take a major step in this culling process as it's in advanced discussions to sell GreenSky, a specialty consumer lending unit, to a group of investment firms that includes Sixth Street, Pacific Investment Management, and KKR.
- The deal is reportedly worth about $500 mln, which is a tough pill to swallow considering that GS paid more than $1.7 bln to acquire GreenSky in 2021. However, the dollar amount on the transaction isn't really the main focal point. Rather, the fact that GS is cutting itself loose from a business that has weighed so heavily on its results is what really matters.
- In Q2, the Consumer Platform Solutions segment posted a pre-tax net loss of ($872) mln due to a 75% yr/yr surge in provision for credit losses and the aforementioned $504 mln impairment charge related to GreenSky.
- Rising interest rates have taken a serious toll on GreenSky. Not only do higher rates curtail demand for loans, but they also increase funding costs for GreenSky, compressing the spread that it earns between those costs and the amount it charges to consumers.
- Selling off GreenSky isn't the only action that GS has taken to unwind its consumer business. The company has also been busy unloading personal loans from its Marcus unit, which is another business that has dragged down its profitability. In July, GS sold about $1.0 bln in Marcus loans, putting the spotlight on another consumer business that has flopped.
- As GS throws in the towel on its consumer strategy, an even greater emphasis will be placed on its bread-and-butter investment banking, advisory, and wealth management businesses. It's no secret that equity underwriting and advisory have been mired in prolonged slumps. Last quarter, GS's advisory revenue dropped by 46% in Q2, leading to a 20% decline in investment banking fees. Optimism for a rebound is rising, though.
- Over the past week, three high-profile IPOs generated robust demand and priced strongly. Those IPOs --Arm Holdings(ARM),Instacart(CART), andKlaviyo(KVYO) -- each had Goldman Sachs as a lead underwriter on their deal.
- The successful launches of these IPOs could unlock a wave of new deals in the coming weeks and months, providing GS's investment banking business with a much-needed shot in the arm.
The main takeaway is that GS's entrance into the mass-market consumer space never seemed like a great fit for a firm that's known for catering to high-net-worth individuals and institutional clients. Therefore, the company's exit is a sensible move in our view, allowing it to return to its roots. GS will remain very dependent on the more volatile investment banking and trading businesses, but its strong reputation and market leadership in these markets will work in its favor.
General Mills hits 52-week lows as selling pressure continues despite upbeat AugQ results (GIS)
Cheerios and Pillsbury ownerGeneral Mills (GIS)registered earnings and revenue beats in Q1 (Aug) on improving volumes, but shares are still enduring selling pressure today. GIS also reiterated its FY24 earnings and organic net sales forecasts, reflecting confidence that its brands will retain elasticities despite an inflationary consumer landscape forcing shoppers down alternate routes, such as lower baskets and private labels. Although, after keeping its FY24 guidance unchanged earlier this month during a conference, investors likely anticipated reaffirmed targets today.
- Headline numbers were reasonably consistent, with GIS's EPS of $1.14 translating to single-digit upside for the fourth-straight quarter. Revenue growth of 4.0% yr/yr to $4.9 bln marked a return to top-line upside after last quarter's narrow miss. Outside of GIS's Pet business, where sales were stagnant yr/yr, all segments saw positive growth. North American Retail and Foodservice edged 3% and 8% higher, respectively, while International led the way, jumping 10%.
- Volumes slipped by 2% on a reported and organic basis, a considerable improvement from the 6% decline in Q4 (May). However, GIS was lapping a favorable -12% and -5% reported and organic volume decline from this quarter's year-ago period, so improvement over MayQ was likely expected.
- Adjusted gross margins of 35.4%, a 50 bp improvement yr/yr, was a positive standout in AugQ. The expansion was driven by favorable mark-to-market effects and price realization, eclipsing higher input costs. However, adjusted operating margins declined for the second-consecutive quarter, contracting 40 bps yr/yr to 18.3%.
- Guidance remained unchanged. GIS expects FY24 EPS growth of +4-6% yr/yr and organic net sales growth of +3-4%. Management's comments, including moderating inflation, stabilizing supply chains, and a resilient but cautious consumer, also were unchanged from earlier this month.
- However, one item to note was a decline in retail inventory, a potential red flag regarding end demand. CEO Jeff Harmening conceded that the inventory decline was a surprise. Still, he said it should not occur in subsequent quarters after a few prominent customers worked through inventory adjustments to improve their balance sheets during AugQ.
While GIS's AugQ performance exceeded street estimates, it was still rather stale. After a nearly 30% sell-off since YTD highs in May, investors have been hungry for more encouraging results from GIS. Its brands remain in demand, with elasticities staying relatively low. However, consumers are steadily removing these brands from the top of their shopping lists, opting for private label substitutes as evidenced by robust off-brand growth from mass merchants likeWalmart (WMT),which enjoyed 9% private grocery label growth in JulQ. Although food-at-home categories are staples every household must consume, brands can still be susceptible to macroeconomic conditions. Brand loyalty can quickly evaporate in a global economy where stubborn widespread inflation keeps the cost of living elevated.
Still, the good news is that when economic conditions improve, GIS's brands will likely be among the first items consumers return to, given their close price proximity to private labels, vast presence at grocers, and difference in quality, making GIS's lackluster stock performance over the past four months a potentially short-term correction.
Steelcase surges following surprisingly good quarter from this office furniture supplier (SCS)
Steelcase (SCS +25%)is making a strong move higher following its Q2 (Aug) earnings report last night. This supplier of office furniture beat handily on EPS. Analysts were expecting a small yr/yr decline in adjusted EPS, but the number grew a robust 48% yr/yr. Also, revenue inched 1% lower yr/yr but that also was better than expected. The Q3 (Nov) guidance was mixed, but SCS raised full year EPS guidance by a good amount to $0.80-0.90.
- The company cited continued improvement in its order fulfillment patterns and higher selling prices as the primary reasons for the upside results. Steelcase went on to note that, although project activity has softened, it has seen strong growth in its continuing business as customers make investments to refresh their existing spaces. The macro environment across its international markets has been mixed, which led it to take previously announced restructuring actions in the International segment.
- The Americas region held up well with 1% organic growth. The problem was more from its International segment, which saw an 8% organic decline in revenue. The overall organic decline was driven by lower volume, offset in part by higher pricing. Orders, adjusted for an acquisition, divestitures and FX effects, declined 7% yr/yr. In the Americas, orders reflected a decline in project business, partially offset by double-digit growth in continuing business. In International, growth in Asia Pacific partially offset declines in EMEA.
- Margins were a bright spot, with gross margin climbing to 33.2% from 29.1% a year ago and operating margin improving to 4.8% from 3.3% a year ago. That may not sound like much, but in a thin margin business, that is a nice improvement and helps explain the robust EPS upside. The improvements were primarily driven by higher prices and operational improvements, partially offset by lower volume.
Overall, this was a surprisingly good quarter for a company in an industry that has been struggling with the slow pace of workers returning to the office. We think today's huge stock reaction really demonstrates the high level of negativity baked into this stock. Clearly, investors were surprised to see these upside results and solid full year guidance.
Steelcase says that more companies are issuing return to office mandates. The company is optimistic that demand levels will improve as customers seek its help to evolve their workplaces. This is not to say that the office furniture space is out of the woods, but this was an encouraging report. Other office furniture stocks are higher in sympathy:MLKN+4%,HNI+2%.
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. |
|
