| | | Market Snapshot
| Dow | 33656.34 | +106.11 | (0.32%) | | Nasdaq | 13189.85 | +97.00 | (0.74%) | | SP 500 | 4298.12 | +23.61 | (0.55%) | | 10-yr Note | +1/32 | 4.578 |
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| | NYSE | Adv 1937 | Dec 900 | Vol 907 mln | | Nasdaq | Adv 2593 | Dec 1748 | Vol 4.6 bln |
Industry Watch
| Strong: Real Estate, Materials, Financials, Communication Services, Energy |
| | Weak: Utilities, Energy |
Moving the Market
-- Carryover momentum from the afternoon rebound yesterday
-- Feeling the market is due for a bounce after sharp losses in September
-- Declining Treasury yields creating a tailwind for stocks
-- Broad buying interest
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Closing Summary
28-Sep-23 16:30 ET
Dow +116.07 at 33666.30, Nasdaq +108.43 at 13201.28, S&P +25.19 at 4299.70
[BRIEFING.COM] The stock market experienced some choppiness in the early going, but quickly found some upside momentum following yesterday's afternoon bounce. The positive bias stemmed from a belief that the stock market is due for a bounce after suffering steep losses in September. The major indices all registered gains, but closed off their highs of the day. The S&P 500 finished just a whisker shy of 4,300.
Market breadth showed advancers outpacing decliners by a better than 2-to-1 margin at the NYSE and by a roughly 13-to-8 margin at the Nasdaq. The Invesco S&P 500 Equal Weight ETF (RSP) rose 0.7% versus a 0.6% gain for the market-cap weighted S&P 500.
True to September form, the price action in the Treasury market was a big directional driver for stocks. The 10-yr note yield fell to 4.59% in overnight action before spiking to 4.68% following this morning's initial jobless claims and revised Q2 GDP reports. It settled the session at 4.60%, down three basis points from yesterday.
The 2-yr note yield also saw some volatility before settling at 5.08%, which is five basis points below yesterday's settlement. Gains in the Treasury market were likely also driven by a belief that it is oversold on a short-term basis and also due for a bounce.
Even when market rates hit their highs of the session, stocks were holding up fairly well. Presumably, that was viewed as a positive development that invited additional rebound interest.
Some mega caps had been trading down in the early going, limiting index performance. Apple (AAPL 170.69, +0.26, +0.2%) and Microsoft (MSFT 313.64, +0.85, +0.3%) were among the influential laggards, down 1.7% and 1.1%, respectively, at their lows of the day. They would rebound as would other mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) rose 0.6%.
Semiconductor stocks were a notable pocket of strength. The PHLX Semiconductor Index (SOX) rose 1.8%. Micron (MU 65.20, -3.01, -4.4%) was the only SOX component to close in the red, trading down after its earnings report.
Ten of the 11 S&P 500 sectors logged a gain. The communication services sector (+1.2%) led the outperformers while the rate-sensitive utilities sector (-2.2%) logged the biggest decline.
- Nasdaq Composite: +26.1% YTD
- S&P 500: +12.0% YTD
- S&P Midcap 400: +3.3% YTD
- Dow Jones Industrial Average: +1.9% YTD
- Russell 2000: +1.6% YTD
Reviewing today's economic data:
- Initial claims for the week ending September 23 increased just 2,000 to 204,000 (Briefing.com consensus 215,000). Continuing jobless claims for the week ending September 16 increased by 12,000 to 1.670 million.
- The key takeaway from the report is that the low level of initial claims -- a leading indicator -- continues to fit the framework of a tight labor market.
- The third estimate for Q2 GDP was unchanged from the second estimate at 2.1%, as expected. The GDP Deflator, though, saw a friendly downward revision to 1.7% (Briefing.com consensus 2.0%) from 2.0%. Benchmark revisions showed real GDP increased at an annual rate of 5.6% from the second quarter of 2020 through the first quarter of 2023, 0.2 percentage point lower than previously indicated.
- The key takeaway from the report was the improved deflator reading. The 1.7% increase was the lowest since the second quarter of 2020.
Looking ahead to Friday, the economic calendar features:
- 8:30 ET: August Personal Income (prior 0.2%), Personal Spending (prior 0.8%), PCE Prices (prior 0.2%), Core PCE Prices (prior 0.2%), advance goods trade balance (prior -$91.2 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.1%)
- 9:45 ET: September Chicago PMI (prior 48.7)
- 10:00 ET: Final September University of Michigan Consumer Sentiment (prior 67.7)
Treasuries settle with gains
28-Sep-23 15:35 ET
Dow +108.66 at 33658.89, Nasdaq +113.56 at 13206.41, S&P +26.09 at 4300.60
[BRIEFING.COM] The three main indices moved slightly higher recently.
The 2-yr note yield fell eight basis points today to 5.08% and the 10-yr note yield fell three basis points to 4.60%. The U.S. Dollar Index fell 0.4% to 106.22.
Looking ahead to Friday, the economic calendar features:
- 8:30 ET: August Personal Income (prior 0.2%), Personal Spending (prior 0.8%), PCE Prices (prior 0.2%), Core PCE Prices (prior 0.2%), advance goods trade balance (prior -$91.2 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.1%)
- 9:45 ET: September Chicago PMI (prior 48.7)
- 10:00 ET: Final September University of Michigan Consumer Sentiment (prior 67.7)
Crude oil futures settle lower
28-Sep-23 15:00 ET
Dow +106.11 at 33656.34, Nasdaq +97.00 at 13189.85, S&P +23.61 at 4298.12
[BRIEFING.COM] The major indices moved mostly sideways over the last half hour.
WTI crude oil futures gave up some ground today after a big move higher yesterday, settling down 2.5% to $91.57/bbl. Natural gas futures rose 1.2% to $2.95/mmbtu.
On a related note, the S&P 500 energy sector (-0.1%) remains in negative territory.
Trimble gains on AGCO joint venture, CarMax slips in S&P 500 after sales, prices disappoint
28-Sep-23 14:30 ET
Dow +138.76 at 33689.03, Nasdaq +127.94 at 13220.79, S&P +30.34 at 4304.85
[BRIEFING.COM] The S&P 500 (+0.71%) is on pace to grab the silver medal today, having pushed moderately higher over the prior half hour.
S&P 500 constituents Trimble (TRMB 52.76, +3.55, +7.21%), Albemarle (ALB 172.61, +9.98, +6.14%), and Advanced Micro (AMD 103.03, +4.96, +5.06%) dot the top of the standings. TRMB moves higher after announcing a JV with AGCO Corp. (AGCO 120.93, +3.38, +2.88%), while AMD leads the PHLX Semiconductor Index (SOX 3,427.47, +66.06, +1.97%) on a broad-based sector rebound.
Meanwhile, CarMax (KMX 71.11, -8.58, -10.77%) is today's top laggard, pressured by falling sales and lower selling prices.
Gold slides as equity market rebounds off multi-month lows
28-Sep-23 14:00 ET
Dow +62.11 at 33612.38, Nasdaq +104.54 at 13197.39, S&P +21.98 at 4296.49
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (+0.80%) still holds the lead.
Gold futures settled $12.30 lower (-0.7%) to $1,878.60/oz despite losses in the dollar, pressured instead by gains in the equity market where buyers took the reins following a near three-week stretch which took the major averages to three-month lows.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $106.28.
Page One
Last Updated: 28-Sep-23 09:05 ET | Archive
Moving on Treasury market volatility
We can't say that rising interest rates got the better of the stock market on Wednesday, but we can say that they got the stock market's attention.
On an intraday basis, the yield on the 10-yr note climbed from 4.48% to 4.64%; however, the S&P 500 ended the day basically flat, helped by an afternoon rebound bid that occurred while the 10-yr note yield was rising.
It was a striking performance by the stock market, which many attributed to the mechanical/technical functioning of a market that has been seeing a buildup of short interest and is in a short-term oversold condition.
In other words, the recovery effort wasn't a fundamentally-driven affair. Be that as it may, it all counts the same no matter how you get there. Granted there wasn't much to count in terms of gains on Wednesday, but the direction of things in the afternoon was more important than the closing levels.
Not surprisingly, the equity futures market is showing some reserve this morning. That's partly because participants are waiting to see how things will unfold today for stocks and what role the Treasury market might play in the unfolding.
Currently, the S&P 500 futures are down four points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 34 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 10 points and are fractionally below fair value.
Treasury yields have been on a roller-coaster ride. The 10-yr note yield, which settled yesterday at 4.63%, scraped 4.59% in overnight action before drifting back up to 4.65% in front of this morning's data releases. It dropped to 4.60% in the immediate wake of those releases, shot higher to 4.68%, and is now at 4.64% as we write.
The releases of note were the weekly initial and continuing jobless claims report and the third estimate for Q2 GDP, which also included benchmark revisions from Q1 2013 to Q1 2023.
Initial claims for the week ending September 23 increased just 2,000 to 204,000 (Briefing.com consensus 215,000). Continuing jobless claims for the week ending September 16 increased by 12,000 to 1.670 million.
The key takeaway from the report is that the low level of initial claims -- a leading indicator -- continues to fit the framework of a tight labor market.
Separately, the third estimate for Q2 GDP was unchanged from the second estimate at 2.1%, as expected. The GDP Deflator, though, saw a friendly downward revision to 1.7% (Briefing.com consensus 2.0%) from 2.0%. Benchmark revisions showed real GDP increased at an annual rate of 5.6% from the second quarter of 2020 through the first quarter of 2023, 0.2 percentage point lower than previously indicated.
The key takeaway from the report was the improved deflator reading. The 1.7% increase was the lowest since the second quarter of 2020.
The Treasury market enjoyed some knee-jerk buying upon seeing the improved deflator reading, but that buying proved to be short-lived. Consequently, the equity futures market was reeled in and now points to a modestly lower open for stocks.
-- Patrick J. O'Hare, Briefing.com
Accenture's underwhelming FY24 guidance spurs a sell-the-news reaction today (ACN)
IT consulting firm Accenture (ACN -4%) took a spill today despite posting a modest beat on its bottom line in Q4 (Aug). The culprit was likely guidance, as FY24 adjusted EPS fell short of analyst estimates while the midpoint of FY24 sales projections was below consensus. Given its exposure to enterprises' IT departments, ACN has endured plenty of adversity throughout 2022 as spending dried up. However, 2023 has been accompanied by optimism, namely, the outsized potential generative AI brings. Unfortunately for ACN, despite decent AI-related demand, it is not translating to uplifting numbers in FY24, spurring today's profit-taking activity.
- Much of the commentary surrounding Q4 was a carry-over from Q3 (May). ACN continued observing greater caution worldwide, with suppressed discretionary spending, slower decision-making, and a considerable adverse impact from the communications and technology fields' persistent challenges.
- Nevertheless, like last quarter, ACN still delivered upbeat headlines, registering adjusted EPS of $2.71 and revenue growth of 3.6% yr/yr to $15.99 bln, slightly improved from the +2.5% jump in Q3. Adjusted operating margins received a 20 bp bump yr/yr, despite ACN pouring decent capital into its strategic initiatives. Meanwhile, cloud momentum continued tracking positively, delivering double-digit yr/yr growth in Q4.
- Generative AI also played a critical role in ACN's overall financial performance in Q4, with sales tripling sequentially to over $300 mln. With ACN announcing a $3.0 bln investment in AI last quarter, the massive sequential jump in sales is encouraging. Verticals leaning heavily into AI thus far include banking, public service, consumer goods, and utilities.
- CEO Julie Sweet maintained that meaningful demand within cloud migration, business modernization, and generative AI represent huge long-term possibilities. Underlying factors supporting this view included estimates that just 40% of workloads are in the cloud today, only a third of clients have modernized their enterprise resource planning (ERP) systems, and less than 10% boast mature AI capabilities.
- Still, this enthusiasm did not show up in ACN's FY24 guidance. The company expects adjusted EPS of $11.97-12.32, a +3-6% increase yr/yr, and revs of $65.4-67.3 bln, a +2-5% improvement.
While AI maintains its accelerating momentum, most other trends did not drastically change qtr/qtr in Q4. IT spending remains unfavorable, while guidance still does not show signs of a substantial turnaround. Also, ACN mentioned that since its AI projects are "pure Gen AI," rather than traditional data-related AI, they continue to hover in the millions of dollars range, reflecting experimentation amongst enterprises. ACN expects this to persist for some time.
The shift among business owners to move more operations into the cloud and implement digitalization on a broad scale should act as a long-lasting tailwind for ACN. However, the demand environment remains troubling in the interim, potentially keeping a lid on future share appreciation.
Jabil jumps following AugQ results and guidance; FY24 focus will be on higher growth area (JBL)
Jabil (JBL +13%) is sharply higher today after wrapping up FY23 on a strong note with its Q4 (Aug) report this morning. Jabil has now posted back-to-back double-digit EPS beats after smaller beats in Q1-Q2. Revenue fell 6.3% year/year to $8.46 bln was a bit light of analyst expectations, but within prior guidance of $8.2-8.8 bln. It was a similar pattern with its Q1 (Nov) guidance, upside EPS but downside revs. Jabil also upped its share buyback program to $2.5 bln, which was good to see.
- Its DMS (Diversified Manufacturing Services) segment was roughly flat yr/yr at $4.4 bln, which was better than internal expectations. The segment was driven by strength in Auto and Healthcare but that was completely offset by continued weakness in Connected Devices.
- Its EMS (Electronics Manufacturing Services) segment saw revenue fall 13% yr/yr to $4.0 bln. As expected, Jabil saw a major revenue shift in its Cloud business driven by its previously announced move to a consignment model for certain components. In Q4, the overall mix of consigned components came in higher than expected.
- Jabil's EV business stood out. Jabil supports products such as compute and control modules, power conversion, battery management, optical camera modules etc. Jabil says the path to mass adoption of EVs is exceedingly complex and there are very few companies as well positioned as Jabil to support customers' multiple complex programs on multiple continents. Cloud was another bright spot. It represents a relatively small portion of overall global IT spend, but Jabil expects secular growth to accelerate, fueled by data center infrastructure especially with the proliferation of AI and ML (machine learning).
- Jabil had some big news recently. It signed a definitive agreement to divest its Mobility business, which focuses on making consumer electronics, for $2.2 bln. The deal will lower its exposure to the boom-bust and highly competitive consumer electronics market. Consumer has been a weak area for Jabil with discretionary spend lower. It makes sense for them to focus on higher growth areas. Jabil confirmed today that its FY24 focus will be on EVs, autonomous driving, AI, cloud, renewable energy and healthcare.
Overall, this was an impressive quarter for Jabil. We think investors are pleased with its Q4 EPS upside, and especially the Q1 upside EPS guidance which was well above expectations despite macro headwinds. Revenue guidance was below expectations, but this dynamic of upside EPS and downside revs tells us margins are looking stronger than expected. More broadly, we like Jabil's pending sale of its mobility business. Moving away from notoriously competitive consumer electronics to focus on higher growth areas makes a lot of sense.
CarMax sent in reverse as volumes continue falling despite lower prices in AugQ (KMX)
CarMax's (KMX -9%) Q2 (Aug) report may not have been a lemon, registering top and bottom-line results in-line with consensus while intending to resume its $2.45 bln share repurchase program next quarter after pausing it late last year. However, with KMX emphasizing margins over volumes, the market likely anticipated significantly better bottom-line performance, especially after KMX delivered two consecutive quarters of double-digit beats.
At the same time, the used auto market remains under pressure as rising rates price out potential buyers. This is particularly the case with used autos, given their higher interest rates than new cars, where financial institutions can measure actual value more accurately. Meanwhile, volumes continue to contract. These blemishes are triggering KMX's recent momentum following its Q1 (May) beat in June to stop on a dime today.
- Sales fell 13.1% yr/yr to $7.07 bln, tracking closely with analyst forecasts, driven by volume declines and lower average selling prices, a lousy combination reflecting the challenging demand environment. During Q2, used units sold slipped by 7.4% yr/yr, while wholesale units dropped by 11.2%, despite average used and wholesale selling prices moving 4.0% and 12.3% lower, respectively. Wholesale volumes have not expanded yr/yr since 1Q23, while retail volumes have been in reverse since 3Q22 (Nov).
- KMX still did a decent job maintaining margins across its retail and wholesale businesses. Gross profit per retail used unit closely aligned with the year-ago period at $2,251 while wholesale profit per unit edged $82 higher yr/yr to $963. However, the lower volumes still clipped overall retail and wholesale margins, contracting 9% and 3%, respectively. As a result, EPS of $0.75 matched analyst expectations.
- CarMax Auto Finance (CAF), KMX's financing arm, registered income of $135 mln, a 26.2% decline yr/yr as its net interest margin remained compressed. At the same time, the company maintained a higher provision for loan losses.
- The UAW strike is being closely monitored by management. However, the company noted it was too early to know the precise impact of the situation, as any favorable effects would depend on the length of the strike.
KMX's headline Q2 figures may have met street estimates, but several issues were uncovered when peeking under the hood. We have heard from KMX and many of its peers, including AutoNation (AN) and Lithia Motors (LAD), that supply constraints during 2021 and 2022 continue fueling pent-up demand across the new and used vehicle market. However, this demand did not translate to a meaningful boost to KMX's quarterly results, as potential buyers struggled to secure financing and find affordable automobiles. The resumption of student loans may only exacerbate the problem.
Still, these headwinds appear to be gusts rather than long-lasting resistance. Current fleets are aging, a trend alluded to by after-market auto part retailers like AutoZone (AZO), forcing car owners to begin searching for replacements. Furthermore, KMX is not experiencing any additional hurdles in obtaining older, lower-priced vehicles, helping to improve its affordable inventory. As such, although KMX will likely continue down a bumpy road in the near term, it remains in decent shape for the long haul.
Micron's disappointing guidance reins in timeline expectations of full memory chip comeback (MU)
The memory chip market is recovering from a severe supply and demand imbalance and prices for DRAM and NAND chips are gradually moving higher, but Micron's (MU) mixed 1Q24 guidance indicates that the revival may take more time than expected to play out. Last night, MU posted upside Q4 results on improving demand as its customers work through the excess inventory that has plagued the chip industry for so long. However, the recovery is uneven across MU's end markets with PCs leading the way as smartphones and data centers lag behind.
- In turn, this is driving strong demand for lower-priced DRAM chips relative to NAND chips, which are used in smartphones. Additionally, CEO Sanjay Mehrotra commented that demand in the traditional server market remains lackluster, further slowing the comeback of MU and competitors like Seagate Technology (STX) and Western Digital (WDC).
- Relatedly, MU doesn't anticipate achieving positive gross margins until 2H24, disappointing some market participants who believed that MU would reach that mark in Q2. The ongoing softness within the higher margin NAND business is also the likely reason why MU guided Q1 EPS below expectations, even though revenue was above estimates at the midpoint as demand for DRAM accelerates.
- The good news is that margins are steadily improving. Rewinding to the trough quarter of Q2, MU reported non-GAAP gross margin of (31.4%). That improved to (16.1%) in Q3 and then to (9.1%) in Q4. For the current quarter, MU is targeting non-GAAP gross margin of (6.0%)-(2.0%), bolstered by further price increases for both DRAM and NAND products.
- Looking further down the road, MU is eyeing 2025 as a possible record year for both the company and the memory industry. The driving force will be robust growth for high-bandwidth memory chips that power AI technology. According to MU, AI servers require six-to-eight times the amount of DRAM content compared to a regular server, and three times the amount of NAND content.
- In 2024, the company expects high-bandwidth chips to generate "several hundred million" dollars' worth of sales, which could expand significantly if it has success in becoming a key supplier to NVIDIA (NVDA). Currently, MU is working on qualifying its most up-to-date high-bandwidth chips for use in NVDA's architecture.
The main takeaway is that MU's mixed guidance didn't match the optimism that Mr. Mehrotra has recently expressed about the recovery in the memory chip market. While conditions have improved from the dismal Q1-Q3 quarters, the pace of the recovery is slower than some had anticipated with MU now targeting a full upswing in 2025.
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.
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