Market Snapshot
briefing.com
| Dow | 32977.37 | -455.94 | (-1.36%) | | Nasdaq | 13072.13 | -235.65 | (-1.77%) | | SP 500 | 4226.30 | -62.09 | (-1.45%) | | 10-yr Note | -30/32 | 4.80 |
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| | NYSE | Adv 456 | Dec 2403 | Vol 927 mln | | Nasdaq | Adv 922 | Dec 3393 | Vol 4.6 bln |
Industry Watch
| Strong: Utilities |
| | Weak: Consumer Discretionary, Real Estate, Information Technology, Financials, Communication Services |
Moving the Market
-- Ongoing worries about market rates, which turned sharply higher after JOLTS - Job Openings
-- Jump in rates triggering worries about valuations and increased competition for stocks in higher-yielding, risk-free alternatives
-- Carryover momentum from yesterday's disappointing price action
-- Broad based losses, but outsized influence from mega cap stocks
-- Uncertainty related to motion to dismiss Kevin McCarthy (R-CA) as House Speaker
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Closing Summary
03-Oct-23 16:30 ET
Dow -430.97 at 33002.34, Nasdaq -248.31 at 13059.47, S&P -58.94 at 4229.45
[BRIEFING.COM] Stocks struggled amidst rising market rates again today. An early bounce attempt in both the stock and bond markets quickly faded as yields shot higher in response to the release of the August JOLTS - Job Openings data at 10:00 a.m. ET.
The Job Openings and Labor Turnover Survey showed a sharp increase in job openings compared to July (to 9.610 mln from 8.920 mln), which reflected ongoing strength in the tight labor market. The 2-yr note yield, which stood at 5.08% just before the data, settled four basis points higher than yesterday at 5.14%. The 10-yr note yield, which was at 4.70% before the data, settled at 4.80%, which is 12 basis points higher than yesterday.
The jump in rates fueled concerns about valuations and increased competition for stocks posed by higher-yielding, risk-free alternatives. Another point of concern for stock market participants is how quickly rates have moved up. The 10-yr note yield is up 71 basis points since the start of September and the 2-yr note yield is up 29 basis points over the same time frame, presumably pressured by factors other than pressing inflation concerns.
Worries about the budget deficit and attendant supply issues to fund the growing deficit in the face of softening demand have been touted as one of the main factors driving yields higher.
Broad based losses today were paced by growth stocks and mega caps. The Russell 3000 Growth Index fell 1.9% and the Vanguard Mega Cap Growth ETF (MGK) dropped 1.9% versus a 1.4% for the market-cap weighted S&P 500 and a 1.2% decline for the Invesco S&P 500 Equal Weight ETF (RSP). Decliners had a better than 5-to-1 lead over advancers at the NYSE and a better than 7-to-2 lead at the Nasdaq.
Ten of the 11 S&P 500 sectors registered declines. The utilities sector (+1.2%) was alone in the green after plunging nearly 5.0% yesterday while the consumer discretionary sector (-2.6%) sported the largest decline followed by real estate (-1.9%), information technology (-1.8%), and financials (-1.7%).
In other news, the U.S. Dollar Index hit 107.35 immediately after the JOLTS data, but pulled back from its best levels and settled at 106.99 amid speculation Japan's Ministry of Finance intervened to stem the yen's weakness. USD/JPY, at 150.16 earlier, was down 0.7% to 148.79.
Also, the market was digesting news throughout the day regarding a motion to dismiss Kevin McCarthy (R-CA) as Speaker of the House.
The CBOE Volatility Index jumped 13.5% to 20.02.
- Nasdaq Composite: +24.8% YTD
- S&P 500: +10.2% YTD
- S&P Midcap 400: -0.1% YTD
- Dow Jones Industrial Average: -0.4% YTD
- Russell 2000: -1.9% YTD
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.3%)
- 8:15 ET: September ADP Employment Change (Briefing.com consensus 150,000; prior 177,000)
- 9:45 ET: Final September S&P Global U.S. Services PMI (prior 50.5)
- 10:00 ET: August Factory Orders (Briefing.com consensus 0.3%; prior -2.1%) and September ISM Non-Manufacturing Index (Briefing.com consensus 53.7%; prior 54.5%)
- 10:30 ET: Weekly crude oil inventories (prior -2.17 mln)
Treasuries settle lower
03-Oct-23 15:35 ET
Dow -489.56 at 32943.75, Nasdaq -290.56 at 13017.22, S&P -68.09 at 4220.30
[BRIEFING.COM] The major indices are moving sideways near their worst levels of the day.
The 2-yr note yield rose four basis points to 5.15% and the 10-yr note yield rose 12 basis points to 4.80%.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.3%)
- 8:15 ET: September ADP Employment Change (Briefing.com consensus 150,000; prior 177,000)
- 9:45 ET: Final September S&P Global U.S. Services PMI (prior 50.5)
- 10:00 ET: August Factory Orders (Briefing.com consensus 0.3%; prior -2.1%) and September ISM Non-Manufacturing Index (Briefing.com consensus 53.7%; prior 54.5%)
- 10:30 ET: Weekly crude oil inventories (prior -2.17 mln)
Energy complex settles higher
03-Oct-23 15:05 ET
Dow -455.94 at 32977.37, Nasdaq -235.65 at 13072.13, S&P -62.09 at 4226.30
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
WTI crude oil futures settled 0.8% higher at $89.30/bbl and natural gas futures rose 3.5% to $2.95/mmbtu.
On a related note, the S&P 500 energy sector (-0.3%) shows one of the slimmest declines among the 11 sectors.
Carnival falls on Morgan Stanley forecast cut, NiSource atop S&P 500 on sharp rebound
03-Oct-23 14:30 ET
Dow -496.46 at 32936.89, Nasdaq -271.01 at 13036.76, S&P -68.89 at 4219.50
[BRIEFING.COM] The S&P 500 (-1.61%) is in second place, down now about 69 points with losses tapping session lows over the prior half hour.
S&P 500 constituents Carnival (CCL 12.77, -0.87, -6.38%), Viatris (VTRS 9.40, -0.65, -6.47%), and Airbnb (ABNB 128.35, -8.21, -6.01%) pepper the bottom of the index. Morgan Stanley cut their cruise forecasts in a note this morning, pushing CCL and its peers lower, while ABNB slides on a morning KeyBanc Capital Markets downgrade to Sector Weight.
Meanwhile, NiSource (NI 24.01, +0.83, +3.58%) is atop the standings, rebounding sharply from yesterday's equally sharp declines.
Gold lower on Tuesday
03-Oct-23 14:00 ET
Dow -467.28 at 32966.07, Nasdaq -257.75 at 13050.02, S&P -64.66 at 4223.73
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-1.94%) is at the bottom of today's range, down about 257 points.
Gold futures settled $5.70 lower (-0.3%) to $1,841.50/oz, continuing to face pressure alongside rising yields and a modestly stronger dollar.
Meanwhile, the U.S. Dollar Index is up approx. +0.2% to $107.06.
Page One
Last Updated: 03-Oct-23 09:00 ET | Archive
Stocks eyeing Treasuries closely
If we told you the 10-yr note yield is higher this morning and that the equity futures are lower, would you be surprised? We didn't think so given the correlation between rising rates and falling stock prices that was rekindled in September.
Well, that rekindling is sparking some more fires this morning. The 10-yr note yield is up four basis points to 4.72% after flirting with 4.75% earlier, and the equity futures are all lower.
Currently, the S&P 500 futures are down 29 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 131 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 167 points and are trading 0.5% below fair value.
There hasn't been a specific news driver to account for the bump in yields, yet that is the very reason why the bump in yields has created some added angst for investors. It has given rise to various theories -- none of which sound good -- as to why Treasury yields are moving higher.
One of the more concerning theories involves deficit concerns and attendant supply issues to fund the growing deficit in the face of softening demand. Other theories note the possibility of selling by foreign holders looking to reinvest in domestic markets, selling by foreign central banks as part of an effort to prop up weaker currencies, or simply a momentum trade. There is also "QT," which isn't so much a theory as it is a fact.
In any case, the stock market is finding it difficult to regain any rebound footing with the Treasury market continuing to get tripped up by selling interest.
Granted the market-cap weighted S&P 500 ended yesterday flat, but the equal-weighted S&P 500 declined 1.1% as the 10-yr note yield climbed 11 basis points to 4.68%.
We will see what today brings, but for now, the disposition of the futures market suggests the open will bring more selling interest.
One level everyone is watching is 4202. That is the 200-day moving average for the S&P 500. We are not suggesting the market will head there off the open, only that it is a level that has cachet as an inflection point for this consolidation phase. A break below the 200-day on a closing basis could invite a deeper correction or, alternatively, if support holds, it could serve as the springboard for a stronger rebound effort.
The technical gravitas the 200-day moving average holds is why it resonates as a focal point for market participants.
Other focal points of interest today include the start of FTX founder Sam Bankman-Fried's criminal trial, Rep. Matt Gaetz (R-FL) filing a motion to remove Kevin McCarthy (R-CA) from his position as Speaker of the House, the Reserve Bank of Australia leaving its cash rate unchanged at 4.10%, Cleveland Fed President Mester (non-FOMC voter) saying one more rate hike this year might be needed, according to Bloomberg, and the August JOLTS - Job Openings Report at 10:00 a.m. ET.
Ultimately, though, the behavior of the Treasury market will be the stock market's primary point of interest.
-- Patrick J. O'Hare, Briefing.com
Airbnb travels toward August lows following a downgrade at KeyBanc today (ABNB)
The market is not checking in with Airbnb (ABNB -5%) today after the alternative accommodations provider received a downgrade to "Sector Weight" from "Overweight" at KeyBanc. Although plenty of analysts Briefing.com tracks have reiterated their ratings throughout the year, today's downgrade marked just the second time an analyst lowered their rating following Gordon Haskett's change to "Underperform" in January.
Briefing.com notes that after a challenging 2022, which cut shares of ABNB in half, the company has seen greener pastures in 2023, enjoying an over +50% jump YTD. However, headwinds are lingering on the horizon that could materially weigh on future share growth.
- Competition from hotel chains may pick up momentum if inflation does not cool more meaningfully. ABNB recently launched Airbnb Rooms to better compete on price with hotel chains, carrying average prices of $67 per night. Although this feature is relatively new, it might not affect ABNB's overall financials much. While the average daily rate (ADR) is expanding for hotel operators like Marriott (MAR), climbing 6% globally yr/yr in Q2, hotel chains boast better privacy and accommodations compared to the average room hosted on ABNB's platform.
- Additionally, companies like MAR and Hilton (HLT) do not encounter similar costs as hosts on ABNB, which could cap the company's supply, increasing overall customer prices. ABNB's service fees have already been rising steadily over the past several years, increasing the total booking costs for travelers. One of the major advantages ABNB boasted over its rivals was price. However, with booking costs reaching parity and, in many cases, outpacing the cost of staying at a hotel, travelers have started returning to traditional lodging options.
- Meanwhile, Expedia (EXPE) and Booking Holdings (BKNG) have amassed a decent alternative accommodation portfolio. EXPE's Vrbo recently partially offset overall growth in Q2 as it was still amid a platform migration. However, with this headwind in the rear-view mirror, EXPE can take advantage of travelers still seeking alternative accommodations while also showing competing hotel and other lodging prices around the area.
- Regulatory hurdles may also remain a persistent challenge for ABNB as it continues to expand in the U.S. and overseas. ABNB has touched on this in past earnings calls, discussing that reasonable regulation can be a foundation for future growth. Still, it could create volatility as the company remains focused on capturing more demand from the traditional lodging market.
ABNB has enjoyed solid appreciation this year as inflation started to ease and travel demand returned. However, the economic landscape could sour in the coming months if inflationary pressures do not continue to cool, prompting travelers to look for cheaper lodging options that traditional hotel chains offer.
ODDITY Tech sitting pretty after raising Q3 guidance, but shares still well below IPO price (ODD)
When ODDITY Tech (ODD) launched its IPO in July, there was plenty of excitement surrounding the online beauty and wellness company, as reflected by the deal pricing above raised expectations and opening for trading with a 40% gain. Last night, market participants were reminded of what made ODD such a compelling IPO when the company raised its Q3 guidance. A refresher was badly needed, too, because after that red-hot start, ODD quickly fell out of favor and the stock experienced a free-fall, plunging to post-IPO lows on September 25.
- One item that immediately stands out about ODD's raised guidance is the magnitude of the increase in its net revenue growth forecast. When ODD reported Q2 results on August 9, it guided for net revenue growth of 18-23%, which was largely viewed as a disappointment coming off growth of 55% in Q2. Now, ODD is anticipating significantly stronger net revenue growth of 29-31%.
- The upwardly revised growth outlook is especially impressive given the slowdown in discretionary spending. On that note, competitor Ulta Beauty (ULTA) took a cautious tone about the demand backdrop when it reported 2Q24 results on August 25, stating that while consumer confidence remains strong, signs point to moderating growth.
- As such, ULTA only slightly lifted its EPS, revenue, and comps guidance for FY24, suggesting that ODD's more bullish view may be partly driven by market share gains.
- Indeed, ODD's tech-driven approach, which leans on machine learning models and AI to capture customer data on its platform, has become a disruptive force in the makeup and beauty industry. According to ODD, nearly 80% of the $600 bln global beauty and wellness market is offline as retailers and wholesalers have been slow to adapt to the digital transformation.
- The rapid and dramatic growth of ODD's IL MAKIAGE and SpoiledChild brands highlights the success of the company's digital-based strategy. After launching IL MAKIAGE in 2018, ODD is already projected to generate nearly $500 mln in revenue this fiscal year.
- The strong top-line growth is only part of the equation. Thanks to its healthy gross margins, ODD is also comfortably profitable, posting adjusted EPS of $0.56 in Q2, up 70% yr/yr. Better yet, margins are improving further as the company scales its operations. Last night, ODD also raised its Q3 gross margin forecast to 68.5% from 67.5%, and its adjusted EBITDA guidance to 21.0-21.5% from 20.8%.
The fact that ODD raised its Q3 guidance in a challenging business climate characterized by slowing discretionary spending not only highlights the resiliency of the beauty and wellness product categories, but it also shows that ODD's tech-driven approach is making waves in the industry.
McCormick is under pressure on lackluster earnings; China has been slow to recover (MKC)
McCormick (MKC -9%) is not spicing it up as much as investors would have liked with its Q3 (Aug) earnings results this morning. After a huge EPS beat in Q1, this supplier of spices, seasoning mixes, and condiments followed that up with a much smaller beat in Q2 and now in Q3 EPS was just in-line. Revenue was a slight miss, but generally in-line. Perhaps a slight positive was MKC inching up its FY23 EPS guidance by $0.02, which implies slight upside for Q4 (Nov).
- Investors are not reacting well to the lackluster Q3 results. This was an important quarter, not only because it included the summer grilling season, but the company also has a new CEO. Brendan Foley took the helm on September 1. In fairness, his tenure started after the quarter ended, but he is facing some difficult near term challenges.
- Breaking down the numbers a bit, Q3 revenue rose 5.6% yr/yr to $1.68 bln, or +6% constant currency (CC), which is down from +10% CC yr/yr growth in Q2. MKC cites a slower than expected economic recovery in China, the Kitchen Basics divestiture, the exit of the Consumer business in Russia, and the company's strategic decisions to discontinue low margin business.
- To understand how MKC is doing, we need to analyze its segments independently because each segment is affected by the market in different ways. Its two segments are Consumer (59% of FY22 revs) and Flavor Solutions (41%), which caters to food manufacturers and foodservice customers.
- On the Consumer side, sales increased just 1% yr/yr to $937.1 mln with minimal FX impact. Sales reflected a 5% increase from raising prices partially offset by lower volume of 4%. The geographic regions varied quite a bit (Americas +1%, EMEA +10% CC, APAC -11% CC). China sales were impacted by a slower than anticipated economic recovery as well as lapping strong demand in the prior year. MKC does expect growth in China to resume in Q4 as it laps COVID-related disruptions. However, China's growth is expected to be less than MKC originally anticipated.
- FS segment sales jumped 12% to $748 mln, or +11% CC, reflecting a 10% increase from pricing actions and 1% volume growth. Volume growth was partially impacted by strategic decisions to discontinue low margin business. Q3 marked MKC's tenth consecutive quarter with double-digit CC sales growth for its FS segment. FS segment sales growth was strong across all regions (Americas +11%, EMEA +15% CC, APAC +13% CC).
Overall, investors are clearly disappointed in MKC's Q3 results. We figured a lot of negativity had been priced in already given the 17% pullback in the shares since late July. That tells us investors are really not liking these numbers. A big reason is that the China recovery has been slower than expected. However, we think the +1% growth in the Americas on the Consumer side was a big letdown as well. Nevertheless, MKC says the fundamental strength of the spices & seasonings category is evident as cooking at home has remained elevated since pre-COVID and consumers have an increasing demand for flavor. Also, MKC is expecting a strong holiday season. However, investors want to see better results.
Eli Lilly slips following $1.4 bln PNT acquisition; still, frothy multiple likely the culprit (LLY)
Eli Lilly (LLY -2%) is feeling the heat today after announcing it would acquire POINT Biopharma (PNT +85%) for $12.50 per share, or roughly $1.4 bln. Conversely, given the ~87% premium LLY is paying for PNT, the biotech firm's shares are skyrocketing toward the agreed-upon price tag. PNT is a pharmaceutical firm boasting a pipeline of preclinical-stage radioligand therapies to treat various forms of cancer. PNT's lead programs are currently in late-phase development, with topline data from its most mature program, PNT2002, expected in 4Q23.
Shares of LLY have exploded this year following multiple encouraging developments, climbing as high as +65% YTD as of last month before encountering selling pressure over the past several weeks. The stock took off on a huge beat-and-raise Q2 report in early August as LLY's type 2 diabetes treatment, Mounjaro, soared in popularity as a weight-loss drug. The U.S. FDA has yet to even approve Mounjaro specifically for weight loss, which could happen this year, potentially adding more fuel to LLY's massive run this year.
With Mounjaro and LLY's Alzheimer's disease treatment donanemab being the central focus of investors given their lucrative potential, today's announcement of a $1.4 bln purchase is likely not driving today's selling pressure. In fact, bolstering its oncology pipeline is a good move for LLY; oncology revenue comprised roughly 18% of FY22 revs. Instead, LLY's negative reaction today likely reflects lingering concern over how much enthusiasm surrounding the potentially lucrative weight-loss drug market has already been priced in and uncertainty around donanemab, which should see regulatory action from the FDA by year's end.
- LLY's forward earnings multiple has spiked considerably over the past several months, hitting 50x when shares hit highs in September compared to around 35x in early March, reflecting bubbling excitement over Mounjaro.
- However, weight-loss drugs, including Ozempic from Novo Nordisk (NVO), could still face meaningful headwinds. For example, robotic clinical product manufacturer Intuitive Surgical (ISRG) noted in July that despite increased patient interest in weight loss drugs, it continued gaining share in the bariatric surgical market, underpinning healthy demand. Management pointed out that there are still several factors patients must consider regarding weight-loss drugs, including costs, side effects, what happens when one stops taking the medication, etc., which could adversely impact long-term demand.
- Also, although LLY submitted donanemab for approval, commercial success is not guaranteed. There are potential side effects and insurance hurdles that could hinder growth.
LLY's PNT purchase may have carried a premium price tag. However, its selling pressure today is likely more related to the broader market pullback as well as shares trading at a relatively frothy valuation, especially given that the weight-loss drug market is still in its early stages and may not blossom into the profitable market investors are anticipating.
Tesla's Q3 production miss is shrugged off, but a possible Cybertruck delay could disappoint (TSLA)
Following a record-setting Q2 in which Tesla (TSLA) produced more than 466,000 vehicles, the electric vehicle maker took a step back in Q3 as production fell by nearly 8% qtr/qtr to 430,488 vehicles. The total missed analysts' expectations, but the shortfall didn't exactly come as a major surprise, either. Over the past couple of weeks, estimates had been coming down, indicating that analysts underestimated the impact of TSLA's planned downtimes at its Shanghai factory.
In order to prepare for the upcoming Model 3 refresh, TSLA has been upgrading its facility in China, which cut into Q3 production numbers. Since this was telegraphed by Elon Musk during the Q2 earnings call, and since the production decline doesn't appear to be demand related, market participants are largely shrugging off the miss.
More importantly, though, TSLA also stated that its 2023 volume target of 1.8 mln vehicles remains unchanged.
However, there are a couple items that can't be brushed aside as easily as the production miss.
- Over the weekend, the Wall Street Journal reported that the long-awaited Cybertruck launch appears to be pushed back yet again. Originally scheduled to debut in 2021, Cybertruck was finally expected to arrive in Q3, according to Elon Musk. That delivery event, though, that Musk alluded to last April hasn't materialized, putting market participants and prospective customers back into a guessing game.
- Since Cybertruck is viewed as a meaningful growth catalyst for 2024 and beyond, another significant delay could negatively impact production and earnings estimates for next year. Unlike the Q3 production miss, that would likely put a dent into the stock.
- There is also some concern that TSLA's inventories are building to uncomfortable levels amid rising interest rates and mounting macroeconomic concerns in China. Rather than the Q3 production miss being solely attributable to factory shutdowns, TSLA may also be looking to manage inventories by building fewer vehicles.
- In Q2, global vehicle inventory (days of supply) surged by 300% yr/yr to 16 and climbed higher from Q1's mark of 15.
Overall, market participants are willing to give TSLA a pass on the Q3 production miss since the shortfall appears to mostly be related to scheduled factory shutdowns. Still, there is some cause for concern as TSLA's inventory levels continue to rise, and as the company seemingly backtracks once again on its Cybertruck launch aspirations.
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