| | | Market Snapshot
| Dow | 33539.20 | -127.10 | (-0.38%) | | Nasdaq | 13245.77 | +44.49 | (0.34%) | | SP 500 | 4296.93 | -2.77 | (-0.06%) | | 10-yr Note | +1/32 | 4.57 |
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| | NYSE | Adv 1252 | Dec 1537 | Vol 1.0 bln | | Nasdaq | Adv 2224 | Dec 2123 | Vol 5.1 bln |
Industry Watch
| Strong: Consumer Discretionary, Real Estate, Information Technology, Utilities |
| | Weak: Energy, Health Care, Financials, Communication Services, Industrials |
Moving the Market
-- Mixed market at the index level and under the surface
-- Treasury yields creeping higher
-- Relative strength in the mega caps
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Closing Summary
29-Sep-23 16:30 ET
Dow -158.84 at 33507.46, Nasdaq +18.05 at 13219.33, S&P -11.65 at 4288.05
[BRIEFING.COM] Stocks were showing some strength in the early going, building on the rebound that started Wednesday afternoon. The S&P 500, Nasdaq, and Dow Jones Industrial Average were up 0.8%, 1.4%%, and 0.7%, respectively, at their highs of the morning. The major indices rolled over, though, and closed near their worst levels of the session.
The Nasdaq eked out a small gain, thanks to relative strength in the mega caps, while the other major indices closed in the red. Market breadth was also mixed. Decliners led advancers by a 4-to-3 margin at the NYSE and advancers led decliners by an 11-to-10 margin at the Nasdaq.
Seven of the S&P 500 sectors closed with losses. Energy (-2.0%) was the worst performer by a wide margin while the consumer discretionary sector (+0.5%) led the pack.
A drop in market rates was a positive development and helped drive the initial upside moves. Yields climbed off their lows of the day, though, which coincided with stocks deteriorating. The 10-yr note yield settled two basis points lower than yesterday at 4.57%, but it hit 4.52% earlier. The 2-yr note yield fell four basis points to 5.04% after falling to 5.02%.
This morning's pleasing economic data acted as another tailwind for stocks in the early going. The Personal Income/Outlays report for August showed a moderation in the yr/yr core PCE rate to 3.9% from 4.3% in July, though the headline PCE rate accelerated to 3.5% from 3.4%.
In other news, the UAW called on an additional 7,000 workers at Ford (F 12.42, -0.14, -1.1%) and General Motors (GM 32.97, -0.19, -0.6%) to strike at noon ET today, but it did not organize additional strikes at Stellantis (STLA 19.13, -0.14, -0.7%).
There were no reports indicating progress in Washington, suggesting that the government is on track to enter a partial shutdown on Sunday.
- Nasdaq Composite: +26.3% YTD
- S&P 500: +11.7% YTD
- S&P Midcap 400: +3.0% YTD
- Russell 2000: +1.4% YTD
- Dow Jones Industrial Average: +1.1% YTD
Reviewing today's economic data:
- Personal Income increased 0.4% month-over-month in August (Briefing.com consensus 0.5%) after increasing 0.2% in July. Personal spending was up 0.4% month-over-month (Briefing.com consensus 0.5%) after increasing an upwardly revised 0.9% (from 0.8%) in July. The PCE Price Index was up 0.4% (Briefing.com consensus 0.4%) while the core PCE Price Index rose 0.1% (Briefing.com consensus 0.4%).
- On a year-over-year basis, the headline PCE Price Index was up 3.5% versus an upwardly revised 3.4% in July (from 3.3%). However, the core PCE Price Index decelerated to 3.9% yr/yr from an upwardly revised 4.3% (from 4.2%) in July.
- The key takeaway from the report is that core price growth was a bit cooler than expected, though the overall report wasn't weak enough to cause a sudden shift in the market's fed funds rate range expectations.
- The Adv. Trade in Goods deficit narrowed to $84.3 billion from $90.9 billion (from -$92.2 billion) in August. Wholesale inventories declined 0.1% in August from a revised 0.2% decline (from -0.1%). Retail inventories jumped 1.1% in August from a revised 0.5% increase (from 0.3%).
- Chicago PMI fell to 44.1 in September (Briefing.com consensus 48.3) from 48.7 in August.
- The final reading of the University of Michigan Consumer Sentiment Index for September came in at 68.1 (Briefing.com consensus 67.7) versus the preliminary reading of 67.7. The final reading for August was 69.5 and one year ago in September, the reading was at 58.6.
- The key takeaway from the report is that inflation expectations were revised up from their preliminary readings for the month, but they reflected some moderation in expectations when compared to final readings for August.
Monday's economic calendar features:
- 9:45 a.m. ET: Final September S&P Global U.S. Manufacturing PMI (prior 47.9)
- 10:00 a.m. ET: August Construction Spending (Briefing.com consensus 0.5%; prior 0.7%) and September ISM Manufacturing Index (Briefing.com consensus 47.8%; prior 47.6%)
Treasuries settle with gains
29-Sep-23 15:35 ET
Dow -192.56 at 33473.74, Nasdaq +17.98 at 13219.26, S&P -13.62 at 4286.08
[BRIEFING.COM] The major indices moved mostly sideways over the last half hour.
The 2-yr note yield fell four basis points to 5.04% and the 10-yr note yield fell two basis points to 4.57%.
Monday's economic calendar features:
- 9:45 a.m. ET: Final September S&P Global U.S. Manufacturing PMI (prior 47.9)
- 10:00 a.m. ET: August Construction Spending (Briefing.com consensus 0.5%; prior 0.7%) and September ISM Manufacturing Index (Briefing.com consensus 47.8%; prior 47.6%)
Market climbs off lows
29-Sep-23 15:00 ET
Dow -127.10 at 33539.20, Nasdaq +44.49 at 13245.77, S&P -2.77 at 4296.93
[BRIEFING.COM] The major indices are trying to climb off their lows.
Meanwhile, the U.S. Dollar Index turned lower, down 0.1% to 106.11.
WTI crude oil futures fell 3.4% to $90.78/bbl and natural gas futures rose 0.8% to $2.93/mmbtu.
On a related note, the S&P 500 energy sector (-2.0%) is trading near its low of the day, sporting the largest decline among the 11 sectors by a wide margin.
S&P 500 holds onto second place; Carnival dips on adj. EBITDA guide down
29-Sep-23 14:30 ET
Dow -197.98 at 33468.36, Nasdaq +6.54 at 13207.82, S&P -15.80 at 4283.90
[BRIEFING.COM] The S&P 500 (-0.37%) is in second place as we approach the final hour of Friday's action.
S&P 500 constituents Carnival (CCL 13.46, -0.98, -6.79%), SLB (SLB 58.59, -2.35, -3.86%), and Hilton (HLT 149.17, -4.50, -2.93%) dot the bottom of the standings. CCL falls after the company issued a underwhelming adj. EBITDA forecast for Q4, while SLB slips on declining crude oil futures.
Meanwhile, Colorado-based apparel and footwear company V.F. Corp (VFC 17.43, +0.84, +5.06%) gains in sympathy to Nike's (NKE 95.87, +6.24, +6.96%) profit beat.
September losses swing gold to Q3 declines
29-Sep-23 14:00 ET
Dow -221.24 at 33445.10, Nasdaq -9.89 at 13191.39, S&P -20.69 at 4279.01
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.07%) is the shallowest decliner.
Gold futures settled $12.50 lower (-0.7%) to $1,866.10/oz, down -3.3% in the third quarter, cemented by a -5.1% decline in the month of September.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $106.04.
Page One
Last Updated: 29-Sep-23 09:06 ET | Archive
Rebound continues after inflation data
The S&P 500 futures are up 29 points and are trading 0.7% above fair value. The Nasdaq 100 futures are up 138 points and are trading 0.9% above fair value. The Dow Jones Industrial Average futures are up 212 points and are trading 0.6% above fair value.
Stocks are poised to continue rebounding at the open, supported by the belief that the market is oversold on a short-term basis and due for a bounce. The drop in market rates has also been supportive. The 10-yr note yield is down seven basis points to 4.55% and the 2-yr note yield is down six basis points to 5.02%.
The move in Treasuries follows a cooler than expected CPI reading for September from France while the eurozone reading slowed to 4.3% yr/yr from 5.2% in August and the core reading slowed to 4.5% from 5.3%.
Personal Income increased 0.4% month-over-month in August (Briefing.com consensus 0.5%) after increasing 0.2% in July. Personal spending was up 0.4% month-over-month (Briefing.com consensus 0.5%) after increasing an upwardly revised 0.9% (from 0.8%) in July. The PCE Price Index was up 0.4% (Briefing.com consensus 0.4%) while the core PCE Price Index rose 0.1% (Briefing.com consensus 0.4%).
On a year-over-year basis, the headline PCE Price Index was up 3.5% versus an upwardly revised 3.4% in July (from 3.3%). However, the core PCE Price Index decelerated to 3.9% yr/yr from an upwardly revised 4.3% (from 4.2%) in July.
The key takeaway from the report is that core price growth was a bit cooler than expected, though the overall report wasn't weak enough to cause a sudden shift in the market's fed funds rate range expectations.
The trade deficit narrowed to $84.3 billion from $90.9 billion (from -$92.2 billion) in August. Wholesale inventories declined 0.1% in August from a revised 0.2% decline (from -0.1%). Retail inventories jumped 1.1% in August from a revised 0.5% increase (from 0.3%).
Vail Resorts heads downhill as slowing mountain travel demand hits results and outlook (MTN)
Vail Resorts (MTN) is heading down hill today after reporting disappointing 4Q23 results and issuing a tepid outlook for 1Q24 due to a continuation of softer-than-expected demand for summer mountain travel in North America and unfavorable weather conditions during the Australian winter season. The ski resort operator's cautious forecast for Q1 is in sync with the spate of guidance cuts we've seen from the airline industry recently, which has seen a cooling off in leisure travel demand as consumers rein in spending.
- Total net revenue increased by just 1% yr/yr to $269.8 mln, missing analysts' expectations and representing MTN's weakest growth since 2Q21. Below average snowfall during the Australian winter season negatively impacted revenue in the Mountain and Lodging segments. The company also cited a wider variety of vacation options in the North America market following various travel restrictions in the prior two years as a headwind.
- Simultaneously, MTN has ramped up its investments in its employees, cutting further into its margins and profits. While these investments improved staffing levels for dining and ski school operations, they also played a role in MTN's operating income sliding to ($160) mln from ($98.1) mln in the year-ago period.
- The bigger issue, though, relates to MTN's Q1 guidance. The company is forecasting a net loss of ($191)-($168) mln and adjusted EBITDA of ($150)-($134) mln. For some context, MTN posted a net loss of ($139.3) mln in the year-ago period, and adjusted EBITDA of ($108.4) mln. Not only is MTN anticipating a continuation of the negative trends in Australia and North America that impacted its Q4 results, but it's also expecting wage inflation/investments and foreign exchange impacts to weigh on its profits.
- On the positive side, season ski pass sales were pretty healthy. Through September 22, 2023, North American ski season pass sales grew by approximately 7% in units and 11% in sales dollars. That bodes well for the peak ski season quarters of Q2 and Q3.
- On that note, MTN's FY24 guidance looks much better with the company forecasting net income of $316-$394 mln, representing a 50% yr/yr increase at the midpoint. MTN also guided for healthy resort EBITDA Margin of approximately 31.0%, based on the midpoint of the guidance range.
The main takeaway is that MTN's Q4 revenue miss, coupled with its disappointing Q1 guidance and related commentary, is amplifying fears that a slowdown in leisure travel demand is taking hold and will pressure MTN's growth rates and profitability in FY24.
Carnival heads lower despite Q3 upside; its Q4 EPS outlook was a bit weak (CCL)
Carnival (CCL -7%) is sailing in pretty choppy waters despite reporting upside with its Q3 (Aug) earnings report this morning. The cruise line reported double digit EPS upside. Revenue rose an impressive 59% yr/yr to an all-time record of $6.85 bln, which was also better than expected. However, the mid-point of the Q4 (Nov) adjusted EPS guidance of $(0.18)-(0.10) was a bit below analyst expectations.
- Adjusted EBITDA is a good metric to use given the huge depreciation generated by capital-intensive cruise ships and because CCL guides for this metric. That came in at $2.2 bln in Q3, which was above prior guidance of $2.05-2.15 bln. Adjusted EBITDA guidance for Q4 is $800-900 mln. CCL nipped its FY23 adjusted EBITDA guidance to $4.10-4.20 bln from $4.10-4.25 bln. It was just a slight change, but with the Q3 upside, that implies some weakness in Q4. CCL cited a $125 mln unfavorable impact from fuel and currency since it last provided guidance.
- Demand looks to be quite robust. Carnival says the outperformance was driven by demand, with both its North America and Australia segment and Europe segment equally outperforming expectations. Its continental European brands have stepped up nicely. Carnival continues to be encouraged with its revenue trajectory heading into next year as it sees no signs of slowing from consumers.
- Booking volumes during Q3 continued at significantly elevated levels, setting a new Q3 record for total bookings during the quarter. Elevated level continued in September. CCL says booking volumes during the quarter were running nearly 20% above 2019 levels. This has helped CCL extend the booking curve even further, with its North American brands exceeding historical highs and its European brands essentially achieving pre-pause levels.
- Also, CCL says the cumulative advanced booked position for full year 2024 is well above the high end of the historical range at higher prices than 2023 levels. Its booked position for 2024 is further out than CCL has ever seen and at strong prices. With less remaining inventory to sell, despite a 5% increase in capacity, CCL is well positioned to drive pricing higher and deliver strong yield improvement in 2024.
Overall, this was a solid quarter for Carnival with nice upside results for Q3. Demand, pricing and bookings were all very strong. Probably what stood out to us was CCL saying its booked position for 2024 is further out than CCL has ever seen. Despite the good demand outlook, the stock is lower. We think the somewhat cautious Q4 EBITDA guidance is weighing on the stock. Demand looks great but higher costs remain an issue. Despite today's hiccup, we think CCL is a name to keep on the radar as it's benefitting from pent up demand for travel and the stock is still well off its highs.
NIKE scores points with investors by drawing down inventory, but demand outlook remains soft (NKE)
NIKE (NKE) is sprinting higher after posting better-than-feared 1Q24 results that eased concerns about the company's inventory situation and the impact that it could have on its margins moving forward. Helping the cause is the fact that expectations were quite low heading into the report, as illustrated by the stock's near 20% dive since mid-August that sent shares to their lowest levels of the year. Had NKE been running higher into the print, we believe the stock's reaction would be much different because the results and outlook do reflect the sluggish demand environment that has plagued many retailers, including NKE partners Dick's Sporting Goods (DKS) and Foot Locker (FL).
- For the first time since 1Q22 (reported on Sept. 23, 2021), NKE missed top-line expectations as revenue inched higher by just 1.6%. A key concern ahead of earnings was that the weakening Chinese economy would reverse the momentum that NKE established in that market last quarter when revenue jumped by 25%. That fear came to fruition as growth slowed to 12%, missing analysts' expectations.
- During the earnings call, CEO John Donahoe downplayed the slowdown in China, stating that he has recently traveled to the country and has seen strong enthusiasm for NKE's products and that he feels very positive about the company's position there.
- On the home front, the pullback in discretionary spending continues to weigh on NKE's growth as sales in North America dipped by 2% yr/yr to $5.4 bln. However, a silver lining is that the wholesale business didn't deteriorate further after experiencing a 2% drop in revenue last quarter. In Q4, revenue increased by 1% on a constant currency basis to $7.0 bln amid a promotional retail environment.
- A meaningful acceleration in growth isn't in the cards for Q2 with NKE guiding for slight yr/yr revenue growth, but that forecast did take market participants worst case scenario off the table. Given the strengthening macro-related headwinds -- especially in China -- there was some concern that NKE could guide for flat, or even worse, growth in Q2.
- That promotional environment, combined with NKE's high inventory levels heading into the quarter, put the company's gross margin under the spotlight. As it turns out, NKE's gross margin performance is a main highlight of the earnings report, expanding by 60 bps qtr/qtr to 44.2% and beating analysts' estimates.
- Better yet, the company expects Q2 gross margin to increase by about 100 bps yr/yr due to lower markdown activity and pricing improvements.
- Relatedly, NKE is making good progress on working through its inventory, which decreased by 10% yr/yr to $8.7 bln. This puts the company in better position as the all-important holiday shopping season approaches.
Overall, NKE performed well in Q2 considering the high degree of difficulty stemming from a slowdown in consumer spending, an associated promotional retail environment, and mounting economic headwinds in China. Most importantly, the company's gross margin is improving even as it works through its inventory, easing the most prominent concern that has weighed on the stock. However, NKE isn't quite out of the woods just yet since the demand outlook remains murky at best.
BlackBerry heads a bit lower on earnings; deal slippage impacted Cyber unit (BB)
BlackBerry (BB -3%) is slightly lower following its Q2 (Aug) results last night. BB reported an adjusted loss of $(0.04), but that was narrower than expected. Revenue fell 21.4% yr/yr to $132 mln, which was a bit below expectations.
Many think of BB as a mobile phone company but it's not. Blackberry phones are no longer designed or made by Blackberry. Instead, BB licensed the Blackberry name to third party manufacturers. Today, BB focuses on IoT (automotive) and cybersecurity. BB also recently sold a patent portfolio to Key Patent Innovations for $170 mln cash up front, which BB has received. Plus the deal value could total as much as $900 mln over time as KPI monetizes the patents.
- The more exciting segment and the growth segment is on the IoT side. Segment revs declined 4% yr/yr but rose 9% sequentially to $49 mln. This was right in-line with guidance provided in early September.
- BB says its IoT business continues to win new designs and add royalty backlog at a strong rate. In the quarter, QNX secured 20 new design wins in auto and 7 in general embedded market verticals. The company expects a strong finish for IoT revenue this fiscal year, with sequential growth in Q3 (Nov) and with Q4 (Feb) forecasted to be the strongest quarter for revenue in QNX history.
- BB is excited for its next generation QNX Software 8.0, which it sees as uniquely positioned to maximize generative AI in embedded systems, particularly in auto safety. BB sees this release as making a fundamental shift in market performance. Feedback from the beta trial has been very positive, with customers and partners impressed with performance capability and functionality. Perhaps, some of these will convert into revenue in Q4.
- Nevertheless, BB said it's taking a prudent view with its IoT revenue outlook for the next two quarters. Automakers are dealing with the UAW strike, the transition to software-defined vehicles, as well as the electrification pivot and supply chain challenges. Delays to either preproduction software development programs or auto production could impact revenue. However, BB expects these to be relatively short-term timing issues and maintains its $225-240 mln segment revenue outlook.
- The Cybersecurity segment is much larger, but revenue fell 29% yr/yr and 15% sequentially to $79 mln. BB saw some deal slippage which hurt segment revs in Q2. BlackBerry says the cybersecurity industry is experiencing elongated deal cycles, deals that require multiple rounds of review and scrutiny. While this is not impacting win rates, it is having a real impact on the timing of when deals close. This is especially true in government where BlackBerry has a very strong presence. While this materially impacted Q2 revenue, BB remains confident with how these deals are progressing and expects them to close this fiscal year.
- BB expects a strong second half for revenue in its Cyber business, with a pipeline of deals that include large, mainly perpetual govt opportunities. As a result, BB reiterated its full-year Cyber revenue outlook.
We are seeing a muted reaction in the stock today, mainly because the Q2 results were generally in-line with BlackBerry's guidance from a few weeks ago. So there was no real surprise. It does sound like the second half of the year will show improvement in both segments, but BlackBerry is dealing with some issues, including the UAW strike on the IoT side and increased deal scrutiny on the Cybersecurity side. We think investors need to remain cautious.
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.
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