| | | Market Snapshot
| Dow | 33881.64 | -82.16 | (-0.24%) | | Nasdaq | 13205.67 | -6.14 | (-0.05%) | | SP 500 | 4318.32 | -1.74 | (-0.04%) | | 10-yr Note | -30/32 | 4.545 |
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| | NYSE | Adv1362 | Dec1502 | Vol798 mln | | Nasdaq | Adv1982 | Dec2356 | Vol4.1 bln |
Industry Watch
| Strong:Energy, Consumer Discretionary, Materials, Industrials, Health Care |
| | Weak:Real Estate, Utilities, Consumer Staples |
Moving the Market
-- Emerging sense that the market is due for a bounce
-- S&P 500 finding support after slipping below the 4,305 level, hitting 4,302 at its early low
-- Rising long-term rates keeping stocks in check
-- Outperforming mega caps supporting index gains
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Closing Summary
25-Sep-23 16:30 ET
Dow+43.04at 34006.84,Nasdaq+59.51at 13271.32,S&P+17.38at 4337.44
[BRIEFING.COM] The major indices registered modest gains on Monday, but the complexion of things beneath the index surface showed an otherwise mixed market on a day when long-term rates continued to rise. The major indices nonetheless closed near their highs for the session.
The 10-yr note yield jumped ten basis points to 4.54%, which is its highest level in nearly 16 years. Equities took that move in stride, though, after an initial bout of selling. The 2-yr note yield was unchanged at 5.12%.
Stocks moved somewhat lower at the open, pressured by the jump in rates and carryover downside momentum after last week's losses. Things turned around quickly, though, and the major indices bounced off their lows, helped by a reversal in the mega cap stocks. The index bounce also coincided with the S&P 500 slipping below an initial support level at 4,305, which attracted some overdue buying interest amid a sense that stocks were short term oversold.
The market-cap weighted S&P 500 rose 0.4% and Vanguard Mega Cap Growth ETF (MGK) rose 0.5%. With today's gains, however, the S&P 500, Nasdaq, and Russell 2000 are still down 3.8%, 5.4%, and 6.1%, respectively, for the month.
Eight of the 11 S&P 500 sectors closed in the green. The energy sector (+1.3%) saw the largest gain by a decent margin while the consumer staples sector (-0.4%) fell to the bottom of the pack.
Decliners led advancers by a roughly 11-to-10 margin at both the NYSE and the Nasdaq. Volume was on the lighter side today as a number of participants were out in observance of Yom Kippur.
In other news, Chicago Fed President Goolsbee (FOMC voter) was the latest Fed official to say he believes that the Fed has more to do to bring inflation back down to the target level.
There was no U.S. economic data of note today.
- Nasdaq Composite: +26.8% YTD
- S&P 500: +13.0% YTD
- S&P Midcap 400: +3.3% YTD
- Dow Jones Industrial Average: +2.6% YTD
- Russell 2000: +1.3% YTD
Looking ahead, Tuesday's economic calendar features:
- 9:00 ET: July FHFA Housing Price Index (prior 0.3%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 0.5%; prior -1.2%)
- 10:00 ET: August New Home Sales (Briefing.com consensus 695,000; prior 714,000) and September Consumer Confidence (Briefing.com consensus 105.0; prior 106.1)
Tuesday's econ calendar
25-Sep-23 15:35 ET
Dow-21.05at 33942.75,Nasdaq+27.59at 13239.40,S&P+7.98at 4328.04
[BRIEFING.COM] The market is little changed.
The 10-yr note yield settled ten basis points higher at 4.54%. The 2-yr note yield was unchanged at 5.12%.
Looking ahead, Tuesday's economic calendar features:
- 9:00 ET: July FHFA Housing Price Index (prior 0.3%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 0.5%; prior -1.2%)
- 10:00 ET: August New Home Sales (Briefing.com consensus 695,000; prior 714,000) and September Consumer Confidence (Briefing.com consensus 105.0; prior 106.1)
Energy complex settles mixed
25-Sep-23 15:05 ET
Dow-82.16at 33881.64,Nasdaq-6.14at 13205.67,S&P-1.74at 4318.32
[BRIEFING.COM] The market took a sharp turn lower recently. The three major indices slipped into negative territory.
Mega caps are still relative outperformers, offering some support to the broader market.
WTI crude oil futures settled a mixed cash session 0.7% lower at $89.62/bbl. Natural gas futures rose 1.1% to $2.90/mmbtu. On a related note, the S&P 500 energy sector (+1.0%) remains at the top of the leaderboard despite crude oil futures giving up some ground today.
Steel Dynamics, Sealed Air ride pair of Citigroup upgrades to top of S&P 500
25-Sep-23 14:30 ET
Dow-27.50at 33936.30,Nasdaq+31.63at 13243.44,S&P+7.55at 4327.61
[BRIEFING.COM] The S&P 500 (+0.17%) is in second place once more on Monday afternoon up about 8 points.
S&P 500 constituentsSteelDynamics(STLD 104.86, +3.76, +3.72%),SealedAir(SEE 32.60, +1.19, +3.79%), andGEHealthCare(GEHC 66.47, +2.14, +3.33%) pepper the top of the index. STLD moves higher after Citigroup's morning upgrade to Buy, while Citi analysts also upgraded SEE to Buy citing easier to achieve cost saves and volume inflection as well as supportive valuation.
Meanwhile,Moderna(MRNA 97.70, -2.29, -2.29%) is near the bottom of the S&P is in the midst of a four-session skid which has seen the stock shed nearly xxx%.
Gold lower to open final week of September
25-Sep-23 14:00 ET
Dow-17.05at 33946.75,Nasdaq+32.46at 13244.27,S&P+8.62at 4328.68
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.25%) holds the best gains, up about 33 points.
Gold futures settled $9.00 lower (-0.5%) to $1,936.60/oz, pressured in part by strength in the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $105.96.
Page One
Last Updated: 25-Sep-23 09:01 ET | Archive
A continuing resolution to remain on the defensive
There is a sense of lethargy in the equity futures market this morning, as participants remain fatigued by the sight of rising interest rates and the thought that policy rates could still have higher to go.
Currently, the S&P 500 futures are down 13 points and are trading 0.3% 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 79 points and are trading 0.2% below fair value.
These are modest declines, but they follow on the heels of large losses last week for the major indices.
A poor showing from the mega-cap stocks drove those losses, but there was a general buyers' strike as it seemed no one wanted to cross the picket line to buy stocks with rates rising, oil prices rising, UAW strike temperatures rising, and the threat of a government shutdown rising.
There hasn't been any news this morning to turn the tide of broader market sentiment.
One bit of good news, though, is that reports indicate a tentative three-year deal has been reached between the studios and the Writers Guild of America to end the writers' strike. That has provided some uplift for the studio stocks, but it has not been a broader market booster.
That's due partially to the understanding that the UAW strike, which has the potential to be much more disruptive from an economic standpoint, is still on with targeted strikes extending this past Friday to the parts and distribution centers forGeneral Motors (GM)andStellantis (STLA).
Other items in focus include a tough outing for Chinese markets after property developer Evergrande reportedly said it cannot issue new debt and is scrapping a planned $35 billion debt restructuring, and ongoing chatter that the U.S. government is likely to shut down October 1 because of an inability to reach agreement on a continuing resolution to keep the government funded.
It is possible, then, that the August Personal Income and Spending Report, which is slated for release this Friday and contains the Fed's preferred inflation gauge in the form of the PCE Price Index, will be the last government release for a bit. That will all depend on when a continuing resolution can be passed by Congress.
For now, with the 10-yr note yield at 4.51%, the stock market has a continuing resolution to stay on the defensive.
-- Patrick J. O'Hare, Briefing.com
Li Auto stuck in reverse as rising economic concerns in China could put a dent in demand (LI)
Chinese electric vehicle makerLi Auto(LI) has emerged as one of the brightest up-and-coming EV producers in that country, but its growth has tapered off from the sky-high levels seen earlier this year and in 2022. For instance, August vehicle deliveries grew by just 2% month-on-month, after jumping by 21% in July and by 10% in June. These slowing growth concerns have weighed on the stock -- shares are down by nearly 25% since early August -- and escalating macroeconomic troubles in China are adding fuel to the fire today.
- Many Chinese ADRs are trading lower today as China's troubled real estate and property sector fall under the microscope yet again. Evergrande, the massive Chinese property developer that filed for U.S bankruptcy protection in August, disclosed over the weekend that it can no longer issue new debt. Therefore, the company's restructuring plans are now in doubt, creating fears that its demise could create a ripple effect across the Chinese economy.
- In the meantime, competitorNIO(NIO) is pushing back on aBloombergreport that said that the company is seeking to raise about $3 bln from investors. NIO issued a press release this morning stating that it currently has no reportable capital raising activity, other than the $1 bln convertible-debt offering that closed today. While the stock has recouped most of today's losses, it is still lower by about 19% since last Monday.
- When combined with the rising anxieties surrounding China's economy, the idea of NIO raising a substantial amount of capital gives the impression that the company is looking to shore up its capital base ahead of more challenging times. However, since NIO is refuting the accuracy of that article, perhaps this concern is overblown.
- LI is by far the weakest of the Chinese EV stocks today. The much steeper selloff may be due to the fact that LI makes higher end vehicles that are more expensive than most of its competitors. In August, the company once again held the top sales spot among high end new energy SUVS priced above RMB300,000 in China. In a more uncertain macroeconomic environment, consumers may look to trade down to more affordable vehicles, and/or they may have trouble securing financing for more expensive cars.
- Lastly, we also noticed that U.S.-based EV makers such asTesla(TSLA),Rivian(RIVN), andLucid Group(LCID) are all moving higher today, perhaps partly due to some capital flowing out of Chinese EV names and into U.S. EV names.
The bottom line is that Chinese EV stocks remain a very volatile bunch and the near-term outlook looks shaky-at-best as cracks within China's economy begin to resurface. We do believe that the Chinese government will continue to support the EV market through various incentives, but sentiment likely won't materially improve on these names until investors are feeling more confident about China's economy.
NIKE catches a downgrade ahead of earnings report, but bad news may already be priced in (NKE)
Whenever an analyst makes a ratings call just ahead of a company's earnings report, we tend to take notice because it speaks to that analysts' conviction level about their call. In other words, an analyst wouldn't go out on a limb and upgrade or downgrade a stock with an earnings report looming if they weren't highly confident about their decision. On that note, Jefferies' downgrade ofNIKE(NKE) to Hold from Buy caught our attention today with the leading athletic footwear and apparel company set to report 1Q24 earnings after the close on Thursday, September 28. The firm also cut its price target to $100 from $140.
Jefferies isn't the only firm that's feeling cautious ahead of NKE's results. Last week, Wells Fargo lowered its price target to $120 from $130 while stating that it expects to hear more bad news than good news when NKE reports.
Since NKE last reported earnings on June 29 -- which was its first EPS miss in twelve quarters -- the stock has plunged by more than 20%. Therefore, it's clear that market participants are sharing in this apprehensive view. There are a couple main factors that are driving the bearish sentiment.
- About one month ago,Dick's Sporting Goods(DKS) issued disappointing Q2 results, badly missing EPS estimates as sales grew by just 3.6% yr/yr. The company, which is a major retail partner of NKE's, also cut its FY24 EPS guidance well below analysts' estimates. This was a negative data point for NKE, indicating that the slowdown in consumer discretionary spending is weighing on demand for footwear, athleisurewear, and sports equipment.
- Rewinding to NKE's Q4 earnings report, the company commented that the retail environment is expected to remain promotional in FY24, putting pressure on its wholesale partners through 1H24.
- Although NKE's inventory declined by about $400 mln sequentially in Q4, the company's inventory still totaled about $8.5 bln, putting it in a difficult spot as it looks to unload stale merchandise in a promotional climate.
- This likely led to increased markdown activity in Q1, putting more pressure on its margins. Last quarter, gross margin declined by 140 bps to 43.6% and it seems likely that gross margin weakened further as NKE tries to clear out its inventory.
- Compounding the issue is that the economy in China has taken a turn for the worse. Following several rough quarters in China in which COVID-19 restrictions badly hurt NKE's sales, business improved last quarter with Q4 revenue growing by 25% in constant currency. However, we fear that the rising macroeconomic headwinds in China will set NKE back again in this key market.
The main takeaway is that analysts and investors alike are anticipating a rough earnings report from NKE on Thursday night. However, given that the stock is already pricing this in, we believe that it can see a relief rally if NKE shows good progress on working through its inventory.
Writers strike may end soon as tentative deal is reached, bodes well for actor strike as well (WBD)
Strikes have been in the news a lot lately, including the UAW strike and the Hollywood strikes. The good news is that at least one of them seems to be getting resolved. According to multiple news reports, the Writers Guild of America has reached a tentative agreement with the Alliance of Motion Picture and Television Producers on a contract. It still needs to be ratified by members, but it sounds like this will get wrapped up soon.
- Not a lot of details have been made public, but it was a 3-year deal. The WGA strike has been going on a long time, since May 2. That is likely because these negotiations were tackling some pretty tough issues. Pay and the size of writing staffs were key topics, but so were more complicated issues like the fear of artificial intelligence eliminating writing jobs. How much of a cut writers get from streaming revenue was also a hot topic. We suspect more details on where the parties came out on these issues will be revealed soon.
- It is important to note that this deal only pertains to the writers strike. The SAG-AFTRA (Screen Actors Guild-American Federation of Television and Radio Artists) strike continues. However, we suspect that the writers deal will be able to provide a roadmap or blueprint on how to resolve the actors' issues because there are similarities.
- While AI may seem like less of a threat to actors, the use of synthetic performers is a real concern. Getting better residuals from streaming revenue is also an important topic for actors. So there are a lot of similarities in their demands. As such, we think the WGA agreement should help set the parameters for the actors to reach a deal.
So what does this mean?It is clearly good news for media/streaming companies, but it is just the first step. Our view is that it is very important that the actors deal gets done soon so the industry can truly move on. Production cannot really get back into full swing until both the writers and actors agree to deals.
Warner Bros. Discovery (WBD)lowered guidance a few weeks ago. The media company had assumed the strikes would be resolved by early September, but lowered guidance when it changed its outlook that they would persist through the end of 2023. As such, we think if these deals get wrapped up, we will be less concerned about other companies lowering guidance as earnings season kicks off in a few weeks.
Finally, the stock reaction to this news is pretty muted among media/streaming companies (WBD, PARA, ROKU, AMZN, DIS, NFLX), which surprises us a bit. However, we think investors are waiting on more details.
Amazon steps up its AI game, investing $4.0 bln in generative AI developer Anthropic (AMZN)
Amazon (AMZN +1%)is moving into the generative AI space more aggressively following its strategic collaboration with Anthropic today. Amazon plans to invest up to $4.0 bln in Anthropic, giving it a minority ownership position. Anthropic will, in turn, utilize AWS as its primary cloud provider, training its future large language models (LLMs) on AWS Trainium and Inferentia chips.
Anthropic is an artificial intelligence startup founded by former OpenAI members, the company behind the famous ChatGPT technology. Amazon's investment displays its push to better compete against tech titansMicrosoft (MSFT)andAlphabet (GOOG), which either have a significant investment in ChatGPT in Microsoft's case or already offering a competing generative AI chatbot such as Alphabet's Bard.
- While Amazon may have been late to the AI-powered chatbot scene, it has not been entirely asleep at the wheel, investing heavily in AI for years. Last month, management discussed how it has been working on custom AI chips for training (Trainium and Inferentia) for several years. As a result, Amazon noted that these chips are already on their second versions, marketing them to customers to build and run LLMs on AWS.
- Additionally, Amazon is stepping into the AI-powered chatbot field while still well within its early stages of growth. Organizations are still figuring out how to approach the technology. It does not help that the macroeconomic environment has suppressed spending amongst IT departments, forcing executives to remain conservative in their budgeting. Therefore, even though 2023 has seen a massive AI-fueled rally, the technology may not be widely deployed until economic conditions become more favorable.
- E-commerce is conducive to generative AI. For example,eBay (EBAY)uses the technology to populate seller listing information. Meanwhile,Shopify (SHOP)recently launched an AI-enabled assistant purposely built for merchants to tackle more time-consuming tasks. Amazon is in the sweet spot of offering companies the ability to capitalize on its AI training models and utilize the technology for its e-commerce business by giving customers more insightful search results or helping merchants better market their products.
Amazon's Anthropic investment could go a long way to putting further distance between its primary e-commerce rivals. It should also boost its positioning in offering LLMs to customers. However, that does not mean that, given how premature generative AI is, there will not be potential setbacks. Amazon has found itself in hot water regarding how it would place its private label products ahead of the competition within search results. Asking its future potential chatbot what the best product is for a particular item only for it to tend to recommend Amazon-labeled products could hurt its credibility. At the same time, the current economy may keep businesses from investing meaningfully in AI despite its potential benefits. Nevertheless, Amazon's increasing aggressiveness in investing in AI is justified, given how ferocious prominent tech giants have been bolstering their AI business.
McDonald's plan to hike royalty fees will have new U.S franchisees grimacing (MCD)
Operating aMcDonald's(MCD) franchise has been an especially lucrative endeavor lately, as illustrated by the company's impressive Q2 results that featured robust U.S. comp growth of +11.7%. However, for those looking to get in on the action by opening and operating a new franchise in the U.S., the price is about to go up as MCD looks to cash in on its momentum. According toReuters, franchise royalty fees for U.S. restaurants will increase to 5% from 4% beginning January 1, 2023, for franchisees opening new locations.
Importantly, the increase will not affect current franchisees, who currently operate about 95% of MCD's 13,500 restaurants. While that would have a far more substantial impact on MCD's top-line, the pushback from existing franchisees would be huge, creating a massive schism between MCD's management and those that run the vast majority of its restaurants.
When considering that MCD hasn't raised royalty fees in nearly thirty years and given the fact that franchisees have seen their cash flow grow significantly in recent year, the decision to hike royalty fees on new francisees is understandable. In terms of moving the needle on the top-line, though, it probably won't have much impact.
- Unlike some of its main rivals, such asRestaurant Brands International's(QSR) Burger King, MCD has been quite inactive when it comes to new restaurant openings in the U.S. In fact, in 2022, the company opened a grand total of six net new restaurants, which actually represented its first unit growth since 2014. In contrast, Burger King opened 444 new restaurants in 2Q23 on a yr/yr basis.
- MCD is picking up the pace a bit in 2023, targeting 400 new locations in the U.S. or in its international markets of Germany, France, the U.K., Canada, and Australia. Most of those new restaurants, though, are expected to be in the markets outside of the U.S. After accounting for closures, the net number of new openings in the U.S. will likely still be rather immaterial.
- The much bigger story revolving around MCD is the success of its marketing campaign that's centering around old-school characters like Grimace and the Hamburgler. The company is leaning on nostalgia and the results have been decidedly positive. For instance, last quarter, Grimace became a TikTok star, accumulating over 3 bln views as people wished the purple mascot a happy birthday. MCD parlayed that social media success into strong sales of its Grimace shakes.
MCD's confidence in its ability to bump up its royalty fees on new U.S. franchisees is a reflection of the underlying strength of its business, but it's not expected to impact its financials much. Despite the tough macroeconomic conditions, MCD has been on a roll, easily surpassing analysts' earnings, sales, and comps expectations in the first two quarters of 2023. With the company striking gold with its nostalgic marketing strategy, MCD looks poised for a strong second half of 2023. |
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