Market Snapshot
briefing.com
| Dow | 33004.34 | +2.00 | (0.01%) | | Nasdaq | 13181.73 | +122.26 | (0.94%) | | SP 500 | 4245.36 | +15.91 | (0.38%) | | 10-yr Note | +26/32 | 4.74 |
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| | NYSE | Adv 1700 | Dec 1108 | Vol 926 mln | | Nasdaq | Adv 2380 | Dec 1920 | Vol 4.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Communication Services, Materials, Real Estate, Consumer staples, Financials |
| | Weak: Energy, Utilities |
Moving the Market
-- Treasury yields declining after the 10-yr 4.88% and the 30-yr hit 5.01% in overnight action, but moving off their lows after this morning's econ data
--Strength from mega cap, semiconductor, and growth stocks leading upside moves
-- Nagging sense that stocks are oversold on a short-term basis and due for a bounce
| Closing Summary
04-Oct-23 16:25 ET
Dow +127.17 at 33129.51, Nasdaq +176.54 at 13236.01, S&P +34.30 at 4263.75
[BRIEFING.COM] The major indices had a choppy session, ultimately finishing near their best levels of the day. The price action in an oversold Treasury market provided an excuse for an oversold stock market to rebound.
The 2-yr note yield settled at 5.09%, which is five basis points lower than yesterday's settlement, after hitting 5.17% overnight. The 10-yr note yield settled at 4.74%, down seven basis points from yesterday's settlement, after hitting 4.88% overnight.
Mega cap performance was integral to index level moves today. The Vanguard Mega Cap Growth ETF (MGK) closed up 1.5% while the market-cap weighted S&P 500 gained 0.8%. Apple (AAPL 173.66, +1.26, +0.7%) for its part logged a gain despite a downgrade to Sector Weight from Overweight at KeyBanc Capital Markets.
Semiconductor and growth stocks acted as additional support for the broader market. The PHLX Semiconductor Index rose 1.4% and the Russell 3000 Growth Index closed 1.3% higher.
Still, many other stocks came along for the bounce, evidenced by a 0.6% gain in the Invesco S&P 500 Equal Weight ETF (RSP). Nine of the 11 S&P 500 sectors registered gains. The consumer discretionary (+2.0%), communication services (+1.3%), and information technology (+1.3%) sectors, which all house mega-cap constituents, closed at the top of the leaderboard.
The energy sector (-3.4%), meanwhile, logged the biggest decline as oil prices dropped 5.2% to $84.70/bbl. That decline was attributed to concerns about weakening demand in a slower growth environment influenced by higher interest rates.
Separately, there was a cloud of political uncertainty hanging over the market after the House voted 216-210 in an unprecedented action to remove Kevin McCarthy as Speaker of the House. This is likely to complicate the negotiations to avoid another government shutdown after November 17 since business in the House will be stalled until a new Speaker is elected. Nonetheless, that cloud of uncertainty did not rain on today's rebound parade.
This morning's release of the ADP Employment Change Report showed weaker-than-expected job growth in September and the ISM Services PMI showed a modest deceleration in the pace of expansion versus August, but August factory orders came in much stronger than expected, rebounding smartly from a decline in July.
- Nasdaq Composite: +26.5% YTD
- S&P 500: +11.1% YTD
- S&P Midcap 400: +0.4% YTD
- Dow Jones Industrial Average: -0.1% YTD
- Russell 2000: -1.8% YTD
Reviewing today's economic data:
- The ADP Employment Change report indicated that private payrolls grew by 89,000 in September (Briefing.com consensus 150,000) following a revised increase of 180,000 in August (from 177,000)
- The weekly MBA Mortgage Applications Index fell 6.0% with purchase applications declining 6.0% and refinance applications plunging 7.0%
- The ISM Services PMI decreased to 53.6% in September (Briefing.com consensus 53.7%) from 54.5% in August. The dividing line between expansion and contraction is 50.0%, so the September reading connotes an expansion in services sector activity, but at a slightly slower pace than August. September marked the ninth consecutive month of growth for the services sector.
- The key takeaway from the report is that the largest sector of the U.S. economy remains in growth mode, paced by ongoing growth in new order activity and employment, and still defying any hard-landing views.
- Factory orders surged 1.2% month-over-month in August (Briefing.com consensus 0.3%) following an unrevised 2.1% decline in July. Excluding transportation, factory orders increased 1.4% month-over-month on the heels of a 0.9% increase in July. Shipments of manufactured goods jumped 1.3% month-over-month after increasing 0.7% in July.
- The key takeaway from the report is that factory orders, down in July, rebounded smartly in August, which is not indicative of an economy losing its growth momentum in a convincing way.
- The weekly EIA crude oil inventories showed a draw of 2.22 million barrels following last week's draw of 2.17 million barrels.
Thursday's economic calendar includes:
- 08:30 ET: Weekly Initial Claims (Briefing.com consensus 225,000; prior 204,000) and Continuing Claims (prior 1.670 mln); August Trade Balance (Briefing.com consensus -$65.1 bln; prior -$65.0 bln)
- 10:30 ET: Weekly natural gas inventories (prior +90 bcf)
Treasury yields settle lower
04-Oct-23 15:30 ET
Dow +107.12 at 33109.46, Nasdaq +181.15 at 13240.62, S&P +33.13 at 4262.58
[BRIEFING.COM] The S&P 500 and Nasdaq reached new session highs recently thanks to their mega cap components.
The 2-yr note yield settled at 5.09% after hitting 5.17% overnight, which is five basis points lower than yesterday's settlement. The 10-yr note yield settled at 4.74% after hitting 4.88% overnight, down seven basis points from yesterday's settlement.
Thursday's economic calendar includes:
- 08:30 ET: Weekly Initial Claims (Briefing.com consensus 225,000; prior 204,000) and Continuing Claims (prior 1.670 mln); August Trade Balance (Briefing.com consensus -$65.1 bln; prior -$65.0 bln)
- 10:30 ET: Weekly natural gas inventories (prior +90 bcf)
Energy sector remains in last place
04-Oct-23 15:05 ET
Dow +2.00 at 33004.34, Nasdaq +122.26 at 13181.73, S&P +15.91 at 4245.36
[BRIEFING.COM] The major indices all turned higher over the last half hour. The Dow Jones Industrial Average tipped back into positive territory recently.
Energy complex futures settled mixed. WTI crude oil futures fell 5.2% to $84.70/bbl and natural gas futures rose 1.0% to $2.98/bbl. The S&P 500 energy sector remains in last place on the leaderboard, down 3.9%.
Elsewhere, the U.S. Dollar Index is down 0.2% to 106.80.
Walgreens once more in the depths of the S&P 500 on Wednesday
04-Oct-23 14:30 ET
Dow -59.08 at 32943.26, Nasdaq +86.81 at 13146.28, S&P +6.22 at 4235.67
[BRIEFING.COM] The S&P 500 (+0.15%) is in second place among the major averages, having moved largely sideways over the prior 30 minutes.
S&P 500 constituents Walmart (WMT 160.83, +1.74, +1.09%), Nike (NKE 95.52, +0.43, +0.45%), and Honeywell (HON 181.43, +0.29, +0.16%) pepper the top of the standings. This morning Oppenheimer analysts called WMT, among others, a top pick in the consumer staples group, while HON gains some momentum after news of a license agreement with VSE Corp (VSEC 52.34, +3.87, +7.98%).
Meanwhile, Walgreens Boots Alliance (WBA 21.98, -0.57, -2.53%) slides to the bottom of the S&P despite a dearth of corporate news.
Gold lower despite dollar, yield losses
04-Oct-23 14:00 ET
Dow -35.50 at 32966.88, Nasdaq +91.95 at 13151.42, S&P +9.01 at 4238.46
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.70%) is still atop the major averages, even though gains have moderated somewhat over the last half hour.
Gold futures settled $6.70 lower (-0.4%) to $1,834.80/oz, failing to attract meaningful buying interest despite a weaker dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $106.79.
Page One
Last Updated: 04-Oct-23 09:00 ET | Archive
Rebound attempt driven by drop in Treasury yields
Some of the items that have reportedly been working against the stock market for a while now are working in its favor at the moment. Treasury yields are lower; oil prices are lower; and the dollar is weaker. In response, the equity futures market is trading higher.
Currently, the S&P 500 futures are up 12 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 67 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 69 points and are trading 0.2% above fair value.
That's not exactly a rip-roaring rally effort relative to the losses the major indices have suffered since the start of August, but at least it is something and that "something" looks to be honing in on Treasury yields.
The 2-yr note yield, 10-yr note yield, and 30-yr bond yield hit 5.17%, 4.88%, and 5.01%, respectively, in overnight trading. The move above 5.00% for the 30-yr bond, though, appeared to be a technical buying trigger from an oversold position. The 2-yr note yield has since slipped back to 5.08%, the 10-yr note yield has dropped to 4.73%, and the 30-yr bond yield has fallen to 4.87%.
A weaker-than-expected ADP Employment Change Report for September helped ease things a bit, but it's important to note that the bulk of improvement from the overnight high yields occurred in front of that 8:15 a.m. ET release.
Briefly, ADP estimated that 89,000 jobs were added to private-sector payrolls in September (Briefing.com consensus 150,000) following an upwardly revised 180,000 (from 177,000) in August. Small businesses added 95,000 jobs, medium establishments added 72,000 jobs, and large businesses shed 83,000 employees. It was noted that job stayers saw a 5.9% year-over-year pay increase, which was the 12th straight month of slowing growth.
Another interesting component of the report is that the leisure/hospitality industry was basically responsible for the job gains in September, adding 92,000 jobs. We find this interesting because there was a rush to label this report as an encouraging report for the policy outlook (i.e., bad economic news is good news), but one shouldn't forget that the leisure/hospitality industry is a hotbed of discretionary spending, and that is still where the bulk of the job growth can be found, so it's not exactly a telltale signal of weak demand.
We digress.
A sorely oversold market (and simply a sore market that has taken a beating in recent weeks) liked the headline at face value. Now, we will have to wait and see how it interprets the September ISM Non-Manufacturing Index (Briefing.com consensus 53.7%; prior 54.5%) at 10:00 a.m. ET. That is a report that will carry some market-moving cachet.
That isn't all that is on the market's mind, however. Mortgage application demand hit its lowest level since 1996; KeyBanc Capital Markets downgraded Apple (AAPL) to Sector Weight from Overweight; and the House, in an unprecedented action, voted 216-210 after yesterday's close, to remove Kevin McCarthy (R-CA) as Speaker of the House.
House business will now be at a standstill until a new Speaker is elected, but the added rub is that the motion to dismiss McCarthy was driven by a wing of his own party that didn't like how he worked with Democrats to avert a government shutdown. From a market standpoint, that understanding is creating added uncertainty about the ability to broker a deal to avert a shutdown after November 17 when the current continuing resolution expires.
That might become a more nettlesome point down the road, but the rebound path the stock market is ahead of the open leads back to the lower yields in the Treasury market.
-- Patrick J. O'Hare, Briefing.com
RPM Inc coated in green today following upbeat AugQ results; overseas demand looking up (RPM)
Investors coat RPM Inc (RPM +6%) in green today after the specialty coatings manufacturer exceeded top and bottom-line projections in Q1 (Aug). RPM also reiterated its FY24 (May) revenue outlook of mid-single-digit growth yr/yr.
- RPM's MAP 2025 initiatives have added to its success in recent quarters, bolstering margins and leading to an 11.5% jump in Q1 EPS yr/yr to $1.64, a record quarter for the company. Meanwhile, revenue accelerated from Q4 (May), climbing 4.1% yr/yr to $2.01 bln -- a Q1 record -- driven by pricing and modest volume gains.
- CEO Frank Sullivan summed up the current economic climate in one word: mixed. Some geographies, like Africa, the Middle East, and Latin America, continue to display resilience to macroeconomic headwinds. Conversely, Europe remains relatively weak, returning to positive yr/yr growth for the first time in over a year in Q1. North American demand has stayed moderate. However, RPM was lapping unfavorable comps in the region when revs climbed by nearly 23%.
- Despite the mixed economic picture, all segments outside Specialty Products Group, RPM's smallest unit, expanded sales yr/yr in Q1. The standout was Construction Products Group, which achieved record sales of $783 mln, a 10.8% increase yr/yr, led by strength in roofing, facades, and parking structures. Meanwhile, Performance Coatings Group and Consumer Group improved their top lines by 4.1% and 1.5%, respectively. RPM observed healthy demand across flooring systems, while higher prices provided a decent boost.
- In Specialty Products, OEM demand was subdued, mainly among businesses serving the residential sector. Furthermore, sales were adversely affected by customers holding inventory below historical averages, pressuring volumes.
- This unfavorable trend contributed to RPM maintaining a conservative FY24 outlook. Management conceded that trends from Q1 would likely persist over the near term, anticipating particular softness in new construction markets and OEM demand. Nevertheless, MAP 2025 is providing tailwinds, while declining inflationary and destocking pressures make for a less challenging second half of the year.
RPM's Q1 results were encouraging and signaled positive developments ahead of its peers' upcoming quarterly reports, including PPG Industries (PPG) on October 18, Sherwin-Williams (SHW) on October 24, and Axalta Coating Systems (AXTA) on October 26. For perspective, PPG and AXTA derive more than half their sales from overseas, a positive attribute given RPM's comments. Conversely, SHW heavily depends on the U.S., which could pressure upcoming results.
Intel's transformation takes next big step with separation of Programmable Solutions Group (INTC)
As part of Intel's (INTC) transformation to become a leading manufacturer of semiconductors in the U.S., the company is seeking to streamline its operations in order to focus on its core businesses, while also looking to raise capital to help finance the construction of new factories.
Last night, INTC took another significant step in this evolution by announcing its intention to separate its Programmable Solutions Group (PSG) into a standalone business through an IPO. The IPO, which isn't expected to launch for another two or three years, would not only help to unlock value for the PSG business, but it would also potentially improve INTC's competitiveness in its Client Computing Group (CCG) and Data Center and AI Group (DCAI) segments.
About one year ago, INTC completed its spin-off of autonomous driving technology company Mobileye (MBLY), which was similarly executed through an IPO. Market participants largely applauded the move and both stocks have performed quite well since then. INTC has gained about 30%, thanks mainly to a stabilization in the PC market, while MBLY has surged by nearly 90%.
While we're not predicting that the same scenario will play out for this spin-off, we do believe the separation makes sense and it should ultimately lead to stronger financials for both companies.
- CEO Pat Gelsinger acknowledged that the PSG business hasn't been performing as strongly as it should be, primarily because INTC has only focused on the cloud computing and communications markets. The PSG business, which was created when INTC acquired Altera for about $16 bln in 2015 and generated revenue of $484 mln in 4Q21, manufacturers specialized chips known as field programmable gate arrays, or FPGAs. These chips can be programmed even after they have been installed into equipment and are also used in industrial, military, and aerospace applications.
- INTC, however, didn't adequately address PSG's opportunities in each of these markets, holding the business back. As a standalone company that will be led by Sandra Rivera, who currently serves as an Executive Vice President at INTC, PSG will be able to more fully capitalize on its growth potential.
- For INTC, it can capitalize on PSG's stronger growth by maintaining a majority stake in the company after the IPO. Furthermore, INTC can use the proceeds raised in the IPO to expand its manufacturing capacity in the U.S.
- Perhaps most importantly, though, more of INTC's resources and workforce can be dedicated to turning its core CCG and DCAI operations around. A key priority for INTC is to narrow the competitive and technological gap that has formed over the past several years. Of course, building out its AI capabilities in order to better compete against NVIDIA (NVDA) and Advanced Micro Devices (AMD) will be an integral part of that strategy.
The decision to spin-off the PSG business represents the next big step in INTC's transformation as it moves ahead with its chip manufacturing expansion plans. It has been a very bumpy ride ride for both INTC and its investors, but the company finally seems to be heading in the right direction and this move could help accelerate its progress.
Helen of Troy's slimmer Q2 EPS beat and narrowed FY24 sales guidance proves its Achilles heel (HELE)
While on the surface, Helen of Troy's (HELE -8%) Q2 (Aug) results were solid, topping earnings and sales estimates, a slimmer EPS beat compared to last quarter, narrowed FY24 revenue guidance, and lingering macroeconomic uncertainties are proving to be the houseware and beauty product manufacturer's Achilles heel today. HELE, which owns the OXO and Vicks brands, has been engaged in a company-wide restructuring this year termed "Project Pegasus," which has helped its bottom line during a period of waning discretionary spending. Unfortunately for HELE, the initiative, albeit still on track to achieve $20 mln in savings in FY24 (Feb), did not offset macroeconomic headwinds as much as in Q1 (May), partially fueling today's sell-off.
- Also, not helping investor sentiment today was stubbornly weak demand in Q2. HELE's top line remained in decline, slipping by 5.7% yr/yr to $491.6 mln. Furthermore, while, like in Q1, revenue exceeded analyst expectations, it did not translate to an improved FY24 sales outlook. In fact, HELE trimmed the high end of its prediction by $5.0 mln, expecting revs of $1.965-2.015 bln, narrowed from $1.960-2.020 bln.
- Each of HELE's segments experienced sales declines in the quarter. Home & Outdoor edged 0.2% lower to $240.0 mln, and Beauty & Wellness fell by 10.4% to $251.6 mln.
- In Home & Outdoor, stagnant growth stemmed from lower insulated beverage sales and adverse impacts from the Bed, Bath & Beyond bankruptcy, offset by a few silver linings, including robust travel-related product demand. HELE maintained its projection of negative 1.7% to positive 1.0% growth in this segment for FY24.
- In Beauty & Wellness, consumers continued to hold off on their spending on appliances, such as heaters, fans, and humidification products. Meanwhile, retailers continued working down current inventory levels, keeping a lid on new orders. Management continues anticipating softness in this segment, keeping its FY24 sales outlook at 8.0% to 5.8% decline unchanged.
- Conversely, gross and operating margins increased in Q2, expanding 420 bps and 50 bps yr/yr, respectively. However, tempering the enthusiasm surrounding a solid margin bump was that it primarily stemmed from lower freight costs, lapping the negative impact of EPA compliance costs, and lower inventory obsolescence expense. Furthermore, despite surpassing estimates, EPS of $1.74 still represented a 23.3% decline yr/yr, underpinning an unfavorable economic landscape.
- Speaking of which, management continues to anticipate a slower economy and pressure on consumer spending. As such, it is maintaining focus on Project Pegasus, which should still result in $75-85 mln annualized pre-tax operating profit improvement achieved by the end of FY26 (Feb). Also, encouragingly, HELE reiterated its FY24 EPS outlook of $8.50-9.00 despite the lackluster demand backdrop.
Leading into HELE's Q2 report, we warned that the market would likely be let down by a smaller earnings beat compared to Q1 (May), given the company's focus surrounding Project Pegasus. However, HELE has noticed signs of stabilization in key home categories, while beauty categories are meeting performance expectations. HELE will also begin lapping less challenging comparisons in subsequent quarters. Therefore, shares are looking more attractive, especially following today's sell-off.
Acuity Brands is lighting it up; stock up nicely as it wraps up FY23 with strong EPS upside (AYI)
Acuity Brands (AYI +4%) is lighting it up today. It wrapped up FY23 on a strong note with a healthy EPS beat with its Q4 (Aug) report this morning. As expected, revenue fell 9% yr/yr to $1.01 bln. This was generally in-line, or it could be described as a very slight miss. If so, this was technically AYI's third consecutive top line miss although this quarter's miss was notably smaller than the previous two.
- The strong EPS performance looks like it will continue into FY24. On the call, the mid-point of AYI's EPS guidance was above analyst expectations while revenue was generally in-line. This is based on the assumptions that its ABL segment will deliver sales down low to mid-single digits as a result of conditions in the Lighting macro environment. AYI expects its ISG segment will grow in the mid-teens as it continues to take share and expand geographically.
- Within the ABL segment, the only channel that saw yr/yr growth was retail, which grew 6% yr/yr to $46.6 mln. ABL's largest channel by far is its Independent sales network, which saw sales decline 8.3% yr/yr to $676 mln. Unfortunately, AYI says customers are just buying less Lighting and Lighting controls. AYI expects roughly the same market conditions in Lighting for the remainder of this calendar year with the potential for some improvement in the next calendar year.
- A positive sign was AYI saying that it started FY23 with a large backlog, but was able to reduce that backlog through 1H23. The company says lead times have now compressed and that has led to destocking. AYI is now getting to a more normal relationship between order rate and shipment.
- Another bright spot was margins. Adjusted operating margin increased to 16.1% vs 15.3% a year ago. And that is despite a 9% revenue decline. The company has been focusing on higher margin sales rather than chasing every dollar even if the margins are not great. So to grow margins despite the revenue decline really shows AYI made good progress on focusing on higher margin sales. Part of this is because AYI had a refresh of approximately 20% of its product portfolio in FY23 and introduced many new product families.
Overall, FY23 was a difficult year for lighting products. We are nevertheless seeing a strong reaction in the stock today. We think the healthy Q4 EPS beat, the robust FY24 EPS guidance and some positive commentary on the call are driving the stock higher today. It is clear that AYI's decision to focus on higher margin sales may be impacting the top line, but it is delivering improved margins and EPS upside. What stood out was AYI saying that there is some potential for improvement in lighting in calendar 2024. There has been a lot of negativity with AYI, so that language is providing hope that some improvement could be on the way.
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.
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