Market Snapshot
| Dow | 33605.80 | -13.04 | (-0.04%) | | Nasdaq | 13128.52 | +64.91 | (0.50%) | | SP 500 | 4283.87 | +10.34 | (0.24%) | | 10-yr Note | -7/32 | 4.63 |
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| | NYSE | Adv 1506 | Dec 1321 | Vol 921 mln | | Nasdaq | Adv 2290 | Dec 2017 | Vol 4.8 bln |
Industry Watch
| Strong: Energy, Industrials, Communication Services |
| | Weak: Utilities, Consumer Staples, Health Care, Consumer Discretionary |
Moving the Market
-- Treasury yields moving climbing off earlier lows; 10-yr note yield sitting just below 4.60%
-- Big move higher in oil prices weighing over the broader market
-- Relative strength in the mega cap space
-- Digesting news that the People's Bank of China injected liquidity and pledged to step up policy coordination
| Closing Summary
27-Sep-23 16:25 ET
Dow -68.61 at 33550.23, Nasdaq +29.24 at 13092.85, S&P +0.98 at 4274.51
[BRIEFING.COM] Stocks were seemingly poised for a rebound in the early going following sharp losses yesterday and this month. Equities started to fade, however, as oil prices and market rates moved higher. The major indices ultimately settled off their lows thanks to a mega-cap powered climb in the afternoon trade.
Notably, the afternoon improvement happened despite yields and crude oil futures remaining elevated. The 10-yr note yield, which fell to 4.48% on no news shortly before the stock market opened, settled seven basis points higher at 4.63%. The 2-yr note yield hit 5.04% overnight, but settled unchanged from yesterday at 5.14%. The U.S. Dollar Index rose 0.4% to 106.70.
WTI crude oil futures jumped 3.8% to $93.93/bbl, which stoked lingering concerns about inflation expectations, rising gas prices, and a slowdown in consumer spending. That move helped drive a 2.5% gain in the S&P 500 energy sector.
The next best performing sector was industrials (+0.8%) followed by communication services (+0.5%) and information technology (+0.2%). The rate-sensitive utilities sector (-1.9%) saw the steepest decline.
Despite the mixed index level performance, breadth was positive this session. Advancers had a roughly 11-to-10 lead over decliners at the NYSE and the Nasdaq.
Mega caps, semiconductor stocks, and growth stocks outperformed and helped support the broader market. The Vanguard Mega Cap Growth ETF (MGK) rose 0.1% after being down nearly 1.0%, the Russell 3000 Growth Index rose 0.2%, and the PHLX Semiconductor Index rose 1.0%.
Separately, the Russell 2000 paced index level gains (+1.0%) thanks to its energy components.
- Nasdaq Composite: +25.1% YTD
- S&P 500: +11.3% YTD
- S&P Midcap 400: +2.3% YTD
- Dow Jones Industrial Average: +1.2% YTD
- Russell 2000: +1.0% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index declined 1.3% with purchase applications falling 1% and refinance applications dropping 2%.
- Total durable goods orders increased 0.2% month-over-month in August (Briefing.com consensus -0.2%) following a downwardly revised 5.6% decline (from -5.2%) in July. Excluding transportation, durable goods orders were up 0.4% (Briefing.com consensus 0.3%) following a downwardly revised 0.1% increase (from 0.5%) in July.
- The key takeaway from the report is that orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- were up a robust 0.9% month-over-month, rebounding from a 0.4% decline in July.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Q2 GDP -- third estimate (Briefing.com consensus 2.1%; prior 2.1%), Q2 GDP Deflator -- third estimate (Briefing.com consensus 2.0%; prior 2.0%), weekly Initial Claims (Briefing.com consensus 215,000; prior 201,000), and Continuing Claims (prior 1.662 mln)
- 10:00 ET: August Pending Home Sales (Briefing.com consensus -1.0%; prior 0.9%)
- 10:30 ET: Weekly natural gas inventories (prior +64 bcf)
Market remains off low heading into the close
27-Sep-23 15:35 ET
Dow -71.56 at 33547.28, Nasdaq +34.86 at 13098.47, S&P +1.01 at 4274.54
[BRIEFING.COM] Things are little changed at the index level.
The 2-yr note yield settled unchanged at 5.14% and the 10-yr note yield jumped seven basis points to 4.63%.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Q2 GDP -- third estimate (Briefing.com consensus 2.1%; prior 2.1%), Q2 GDP Deflator -- third estimate (Briefing.com consensus 2.0%; prior 2.0%), weekly Initial Claims (Briefing.com consensus 215,000; prior 201,000), and Continuing Claims (prior 1.662 mln)
- 10:00 ET: August Pending Home Sales (Briefing.com consensus -1.0%; prior 0.9%)
- 10:30 ET: Weekly natural gas inventories (prior +64 bcf)
Stocks still holding steady despite 10-yr yield
27-Sep-23 15:05 ET
Dow -13.04 at 33605.80, Nasdaq +64.91 at 13128.52, S&P +10.34 at 4283.87
[BRIEFING.COM] The major indices remain well off their lows. The Russell 2000 is up 1.1%.
Still, the 10-yr note yield is up seven basis points to 4.62%. The 2-yr note yield is unchanged at 5.13%.
Separately, energy complex futures settled higher. WTI crude oil futures jumped 3.8% to $93.93/bbl and natural gas futures rose 2.0% to $2.91/mmbtu.
Generac outperforming in S&P 500 following Investor Day
27-Sep-23 14:25 ET
Dow -238.23 at 33380.65, Nasdaq -65.62 at 12997.99, S&P -24.06 at 4249.47
[BRIEFING.COM] The S&P 500 (-0.56%) is once again in second place as we sit closer to the closing bell on Wednesday, having moved mostly sideways over the prior half hour.
S&P 500 constituents Organon (OGN 16.57, -0.68, -3.94%), PayPal (PYPL 56.89, -2.04, -3.46%), and Stryker (SYK 264.34, -9.21, -3.37%) dot the bottom of the index despite a dearth of corporate news.
Meanwhile, Wisconsin-based generator manufacturer Generac (GNRC 109.09, +5.87, +5.69%) is atop the S&P; the company is holding its 2023 Investor Day today.
Gold falls below $1,900 level on dollar, yield gains
27-Sep-23 14:00 ET
Dow -244.60 at 33374.28, Nasdaq -71.65 at 12991.96, S&P -25.69 at 4247.84
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-0.55%) is the shallowest declining major average, having stepped modestly higher off session lows from the prior half hour.
Gold futures settled $28.90 lower (-1.5%) to $1,890.90/oz, pressured to a six-month low amid rising yields and strength in the greenback.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $106.78.
Page One
Last Updated: 27-Sep-23 09:03 ET | Archive
Treasuries and stocks spinning on rebound-minded axis
The major indices had a bad day yesterday, continuing what has been a bad -- actually, very bad -- month for them. The Russell 2000 is down 7.3%, the Nasdaq Composite is down 6.9%, the S&P Midcap 400 is down 6.6%, the S&P 500 is down 5.2%, and the Dow Jones Industrial Average is down 3.2% in September.
It shouldn't be any stretch of the imagination, then, to deduce why the equity futures market is pointing to a higher open. It is as simple as believing the market is due for a bounce from a short-term oversold condition that saw the S&P 500 fall below 4,300 yesterday for the first time since early June.
Currently, the S&P 500 futures are up 17 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 54 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 116 points and are trading 0.4% above fair value.
The upside action has been helped along this morning by a dip in market rates, which is fitting knowing that their rapid rise this month has been the primary catalyst for the stock market's somewhat rapid descent this month.
The 2-yr note yield, which is up 23 basis points in September, is down seven basis points this morning to 5.07%, and the 10-yr note yield, which is up 41 basis points this month, is down five basis points this morning to 4.50%.
The improvement in Treasury yields can be spun on the same rebound-minded axis. Treasuries have also been oversold on a short-term basis, which is leaving many participants to think that they are due for a bounce, too.
Notably, they have not looked overly concerned this morning to Minneapolis Fed President Kashkari (FOMC voter) telling CNBC that he is not sure if the Fed has a sufficiently restrictive policy rate yet and that his dot in the Summary of Economic Projections envisions one more rate hike in 2023 and the Fed holding steady in 2024 (i.e., no rate cuts next year). They were also not overly bothered by reports of a pickup in business spending in the August Durable Goods Orders Report.
Total durable goods orders increased 0.2% month-over-month in August (Briefing.com consensus -0.2%) following a downwardly revised 5.6% decline (from -5.2%) in July. Excluding transportation, durable goods orders were up 0.4% (Briefing.com consensus 0.3%) following a downwardly revised 0.1% increase (from 0.5%) in July.
The key takeaway from the report is that orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- were up a robust 0.9% month-over-month, rebounding from a 0.4% decline in July.
We wouldn't call the bid in the equity futures market "robust," but the bid is there and it will translate into a higher open for a beleaguered stock market that will be drafting off expected gains in the mega-cap stocks.
Something else that is flying beneath the radar for now it seems is the pickup in oil prices. WTI crude futures are up 2.2% to $92.37/bbl. Rising oil prices, which are up 10.4% this month, have contributed to the rise in market rates, so it will be interesting to see if the Treasury market turns its focus back to the oil price move.
For now, the Treasury market and the stock market are locked in on a rebound try from oversold conditions.
-- Patrick J. O'Hare, Briefing.com
Mattel toys with 52-week highs today following an upgrade at Morgan Stanley (MAT)
Mattel (MAT +2%) continues to toy with 52-week highs following a modest push higher today on Morgan Stanley's initial "Overweight" rating. The toy manufacturer, which owns popular brands like Hot Wheels and Barbie, has traded sideways since enjoying a tremendous rally in June on the successful Barbie movie. Shares currently trade approximately +20% higher on the year.
However, despite today's appreciation, Briefing.com is concerned that the market has already priced in much of the potential growth MAT could experience during the holiday shopping season.
- MAT's brands have built a decent competitive edge, as has its ability to ink licensing contracts, such as the recent launch of its Disney Princess and Disney Frozen line. However, that may not be sufficient during a retail demand landscape seeing meaningfully reduced discretionary spending. During its quarterly earnings calls, management continues to discuss the adverse impacts of retailers managing inventory levels and widespread industry softness. This was illuminated by MAT reiterating its FY23 outlook despite decent outperformance in Q2.
- The recent Barbie movie provided massive exposure to MAT's famous doll brand. However, it did not translate to significant gains in Q2, as Barbie gross billings declined yr/yr. Also, although MAT stated that just a week after Barbie's global film release, its movie-related products sold out across major distribution channels, helping sales trends turn positive in July, it still left its FY23 outlook unchanged. As such, it would not be surprising to find that any Barbie movie-related hype may not spur much additional growth during 2H23.
- Cost inflation continues to be an issue. During Q2, price hikes and savings initiatives were a tailwind to adjusted gross margins, only for input costs to offset the gain, keeping margins flat yr/yr. On a positive note, inflationary costs are moderating. However, with crude prices ticking up to one-year highs, plastics, a key input across MAT's product lineup, may also see higher prices, weighing on future margin expansion.
- Although recently resolved, Hollywood labor strikes likely delayed development projects, potentially clipping product sales tied to on-screen entertainment. However, adverse effects may not show up until 2024, the degree to which could be hard to measure.
MAT has several encouraging developments in the works, especially revolving around its Barbie brand. However, the stock's recent ~20% jump during the last week of June adds a meaningful layer of downside risk over the near term, particularly given a concerning economic environment ripe with suppressed discretionary spending.
Progress Software regressing today as soft guidance sparks concerns of slowing demand (PRGS)
Like many technology stocks, Progress Software (PRGS) has had a rough September, and its slump took a turn for the worse after the DevOps and business applications company reported Q3 results last night. Although PRGS exceeded EPS and revenue expectations for the third straight quarter, the company's soft Q4 guidance is overshadowing the upside results, sparking concern that its resiliency in a tough business climate is starting to waver.
The stock has recovered some of its earlier losses as value-oriented investors scoop up shares following a month-to-date loss that reached nearly 15% today. Indeed, there are several positives that buyers can point to, but PRGS isn't receiving the benefit of the doubt in this volatile market.
- Annual recurring revenue (ARR) is the key demand metric for PRGS and, in the words of CFO Anthony Folger, provides the best view of its underlying performance. In Q3, ARR increased by 18% on a constant currency basis to $577 mln. The growth essentially matches last quarter's increase of 19% and was supported by a solid retention rate that was just under 101%.
- It is worth noting, though, that on a pro forma basis in which PRGS' acquisition of MarkLogic is included in Q3 and the year-ago period, ARR growth was much more modest at just 2%.
- On the topic of MarkLogic, PRGS stated that its performing in line with expectations and that the integration of the business is on track to meet the anticipated timeline. The $355 mln deal, which was completed in February 2023, bolstered PRGS's infrastructure software portfolio by adding NoSQL database and semantic metadata management products.
- When PRGS announced the acquisition last January, it stated that MarkLogic should add more than $100 mln in annual revenue, contribute strong cash flows, and be accretive to earnings in FY24.
- Acquisitions play an important role in PRGS's overall growth strategy. Similar to last quarter's earnings call, CEO Yogesh Gupta commented last night that the M&A landscape remains very favorable for acquisitions and that the company is "as busy as ever" sourcing and assessing opportunities. He added that PRGS is ready to pull the trigger again on a deal whenever the right asset comes along.
- From a product standpoint, demand was broad-based across its portfolio and throughout all geographies. In particular, OpenEdge, an application development platform for running business-critical applications, was a standout once again in Q3.
- The concern, however, is that this momentum is fading in the face of growing macroeconomic uncertainty. Mr. Gupta tried to ease those concerns during the earnings call, reiterating the mission-critical nature of its technology, but the company's Q4 outlook paints a more cautious picture. After issuing upside EPS and revenue guidance for Q3 last quarter, PRGS guided Q4 EPS and revenue below expectations last night.
In an IT spending environment characterized by lengthening sales cycles and smaller deals, PRGS has held up quite well and that continued into Q3. Although the company's Q4 guidance didn't miss the mark by a large margin, it doesn't take much in these market conditions to shake investors' confidence. The stock's recent selloff may ultimately prove to be a buying opportunity, but growth stocks like PRGS are currently facing an uphill battle as interest rates march higher.
MillerKnoll surges following beat-and-raise; echoes what we saw from SCS last week (MLKN)
MillerKnoll (MLKN +30%) is surging today after the office furniture company reported strong upside with its Q1 (Aug) report last night for both EPS and revs. It also guided Q2 (Nov) EPS above analyst expectations with revs in-line. MLKN also raised full year EPS guidance to $1.85-2.15 from $1.70-2.00. This was a similar script from what we saw from its peer Steelcase (SCS) last week.
- MillerKnoll says that office leasing in the US began to rebound in calendar Q2 and MLKN is seeing this amongst its clients as companies continue to announce return to office policies. This is similar to what we heard from Steelcase last week. While the US Internationally, MLKN is seeing some pockets of softness, mainly in Europe and China. On the Retail side, MLKN says the deceleration in the North American housing market and the upswing in rates across Europe have impacted Retail demand.
- Revenue in Q1 fell 15% yr/yr to $918 mln, but that was actually a good bit better than analyst expectations and at the high end of prior guidance of $880-920 mln. Margins were a bright spot with gross margin up 450 bps yr/yr to 39%, fueled by price increases, ongoing benefits from integration-related synergies and positive shifts in product and channel mix.
- The good top line results were driven by a strong performance from its Americas Contract segment, which is its largest segment. AC segment sales were $490 mln, an organic yr/yr decrease of 1.7%. However, new orders for this segment were $487 mln, up 2.1% yr/yr. MLKN sees this as particularly encouraging because it's the first time in four quarters the company reported an increase in order levels in the Americas segment.
- Turning to its International Contract & Specialty segment, sales were $228 mln, down 10.9% yr/yr organically. Near term macro headwinds, particularly in China and parts of Europe, are impacting demand. Finally, its Global Retail segment posted sales of $199 mln, down 13.6% organically. The slowdown in the North American housing market and the rise in rates globally continue to affect demand for this segment.
Our overall take here is that this was an impressive quarter from MillerKnoll. It confirms what we saw last week from Steelcase. There seems to be an increase in return to office mandates, which is moving the sales needle for office furniture companies. The SCS report and now the MLKN report makes us think the industry, while still difficult, is slowly improving. We think these reports bode well for office furniture peer HNI, which reports in a few weeks.
Paychex cashing in on solid AugQ results today; demand environment remains stable (PAYX)
Paychex (PAYX +3%) looks to cash in on solid Q1 (Aug) results today as the human capital management (HCM) software provider returns to topping bottom-line estimates after matching analyst forecasts last quarter. Meanwhile, PAYX delivered modest revenue upside, an improvement over the narrow miss in Q4 (May). PAYX also bumped the higher end of its FY24 EPS growth forecast by 1 pt while leaving its revenue guidance unchanged, underpinning a stable demand environment.
- Headline numbers were a return to form for PAYX, registering adjusted EPS of $1.14, exceeding consensus by single digits, and revenue growth of 6.6% yr/yr to $1.29 bln, just above consensus.
- Small and medium-sized businesses (SMBs), PAYX's primary revenue source, continued turning to PAYX's more hassle-free alternatives to Microsoft Excel and other more time-consuming ways to track payroll, HR, and other HCM-related duties in Q1. This healthy demand shows up in PAYX's Management Solutions division, which enjoyed 6% sales growth yr/yr to $955.5 mln. Meanwhile, PAYX's Professional Employer Organization (PEO) business, where it serves as co-employer of its clients' employees, saw revs expand by 5% to $297.8 mln.
- Notably, PAYX remarked that SMBs have remained resilient despite the challenging macroeconomic environment. During tumultuous times, including higher interest rates and compound inflation, especially on the labor side, SMBs are more prone to folding and taking cautionary measures compared to larger enterprise clients. However, CEO John Gibson stated that data shows small businesses hiring workers at moderate levels while wage inflation normalizes. These remarks are consistent with the "stable macro environment" we heard last quarter.
- Still, this acts as a double-edged sword, as bearish trends also carried over from the past several quarters. For example, SMBs remain challenged in accessing capital and managing cash flows.
- As a result, PAYX stayed prudent in its FY24 outlook, projecting adjusted EPS growth of +9-11%, a point higher than its +9-10% forecast in Q4 (May), and revenue growth of +6-7%, unchanged from last quarter. Other estimates from Q4 also remained unchanged, including business segment growth targets and operating margins of 41-42%.
PAYX's Q1 figures may not have been eye-popping, but they were still decent and largely what the market has come to expect. It is also commendable that PAYX delivered consistency against an unfavorable economic landscape. Still, on that note, it is worth maintaining a healthy dose of caution toward PAYX over the near term, given its exposure to the SMB segment of the economy.
Nevertheless, PAYX software offers considerable advantages to SMBs still amid digital transformations. Given the tight labor market and potentially continually increasing regulatory environment, SMBs will likely continue opting for third-party answers to their HR-related responsibilities.
Costco doesn't raise membership fees, causing some disappointment, but Q4 results were solid (COST)
After falling short of sales estimates in each of the past three quarters, Costco (COST) exceeded top-line expectations in 4Q23 on an upswing in store traffic to +5.2%, healthy membership growth of 7%, and improving demand for big-ticket items. Altogether, these factors helped accelerate COST's total sales growth to 9.5% from just 2.0% last quarter, while also enabling the company to edge past EPS estimates.
With shares climbing higher by nearly 15% since COST last reported earnings in late May, the initial knee-jerk reaction was to lock in some profits. Additionally, there is some disappointment that COST refrained from raising its membership fees once again, especially since it's been over six years since the last increase. High inflation has prevented COST from increasing membership prices as it didn't want to pile on to the challenges that its customers have been facing. With inflation easing relative to last year, some market participants were anticipating that COST would pull the trigger on the membership fee increase last night. While that didn't come to fruition, CFO Richard Galanti did state that raising fees "isn't a matter of if, but when."
In the meantime, COST continues to be a likely share gainer in the grocery space and is executing well in a difficult climate.
- Total adjusted comparable sales, which exclude the impacts of gas prices and FX, were generally in line with expectations at +3.8%. Since COST reports comps on a monthly basis, a major surprise wasn't expected here. It's also unsurprising that food and sundries were once again the strongest categories in Q4.
- What is surprising is that COST's big-ticket categories, which represent about 50-60% of total e-commerce sales, showed meaningful improvement in Q4. Although the e-commerce channel was still down by 0.6%, that is much better than the 10% drop COST reported in Q3.
- In Q3 and Q2, big-ticket discretionary categories (home furnishings, jewelry, hardware, electronics) were down 15% and 20%, respectively. In Q4, though, these categories were down by only 5%, with particular strength seen in appliances, which were up by 30%.
- Rising gas prices are providing another boost. This is reflected in the bump in store traffic growth to +5.2% from +4.8% last quarter. Since COST's members receive a discount on gasoline purchases, traffic tends to increase when gas prices rise.
- During the earnings call, Mr. Galanti highlighted the fuel business, noting that while it's down a bit from last year, it's still quite profitable and was an area of strength in Q4.
Overall, this was a solid quarter for COST and an improvement from its recent results. The company's robust membership renewal rate of 92.7% and healthy membership growth indicates that consumers are still flocking to its stores to find value in buying items in bulk. While the lack of a membership fee increase is causing some initial disappointment, the fact that COST still has that card to play should support the stock looking ahead.
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