| | | Market Snapshot
briefing.com
| Dow | 33605.10 | +197.56 | (0.59%) | | Nasdaq | 13497.32 | +65.98 | (0.49%) | | SP 500 | 4338.15 | +29.65 | (0.69%) | | 10-yr Note | -- |
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| | NYSE | Adv 1929 | Dec 893 | Vol 747 mln | | Nasdaq | Adv 2022 | Dec 2226 | Vol 3.8 bln |
Industry Watch
| Strong: Energy, Industrials, Communication Services, Real Estate |
| | Weak: -- |
Moving the Market
-- Reacting to the news that Israel declared war on Hamas after surprise attack launched by Hamas over the weekend
-- Worries about a larger regional conflict sending oil prices higher
-- Treasury market closed in observance of Columbus Day/Indigenous Peoples' Day
-- Reacting to the price action in Treasury futures
-- Short-covering activity
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Closing Summary
09-Oct-23 16:25 ET
Dow +197.07 at 33604.61, Nasdaq +52.90 at 13484.24, S&P +27.16 at 4335.66
[BRIEFING.COM] The stock market opened on a lower note as investors reacted to news that Israel declared war on Hamas after a surprise attack launched by Hamas over the weekend. Stocks rallied in the afternoon trade, however, to finish the session near their highs of the day, albeit on light volume that reflected the uncertainty associated with the Israel-Hamas war.
Some flight to safety action seen in Treasury futures, which traded today while the Treasury market was closed for Columbus Day, was cited as a catalyst for the afternoon rally. Other support factors included the dollar giving back its early gains and the stock market's overall resilience to selling efforts.
That resilience likely triggered some short-covering activity and invited additional buying on the belief that stocks are due for a bounce from an oversold condition.
Oil prices traded higher in response to the Israel-Hamas conflict, which some fear could turn into a wider regional conflict. Today's move in oil prices, however, did not have a worst case scenario feel to it. WTI crude oil futures rose 4.1% to $86.42/bbl.
The move in oil helped drive a 3.5% gain in the S&P 500 energy sector. The industrials sector (+1.6%) was the next best performer, benefitting from outsized gains in its defense components like Northrop Grumman (NOC 471.61, +48.37, +11.4%), L3Harris (LHX 180.21, +16.32, +10.0%), and Lockheed Martin (LMT 436.53, +35.80, +8.9%).
There was no U.S. economic data of note today. Tuesday's economic data is limited to the September NFIB Small Business Optimism at 6:00 a.m. ET and the August Wholesale Inventories report at 10:00 a.m. ET.
- Nasdaq Composite: +28.8% YTD
- S&P 500: +12.9% YTD
- S&P Midcap 400: +1.8% YTD
- Dow Jones Industrial Average: +1.4% YTD
- Russell 2000: -0.3% YTD
Stocks remain near highs ahead of the close
09-Oct-23 15:35 ET
Dow +163.83 at 33571.37, Nasdaq +49.09 at 13480.43, S&P +24.17 at 4332.67
[BRIEFING.COM] Things are little changed in recent action. The three major indices sport gains ranging from 0.4% to 0.8%.
Advancers lead decliners by a 7-to-3 margin at the NYSE, but decliners still have an 11-to-10 lead over advancers at the Nasdaq.
Tuesday's economic data is limited to the September NFIB Small Business Optimism at 6:00 a.m. ET and the August Wholesale Inventories report at 10:00 a.m. ET.
Energy complex futures settle higher
09-Oct-23 15:05 ET
Dow +197.56 at 33605.10, Nasdaq +65.98 at 13497.32, S&P +29.65 at 4338.15
[BRIEFING.COM] The major indices are near sitting their highs of the day.
Ten of the 11 S&P 500 sectors are trading up while the consumer staples sector (-0.2%) trades alone in negative territory.
Energy complex futures settled with gains. WTI crude oil futures rose 4.1% to $86.42/bbl and natural gas futures rose 0.8% to $3.38/mmbtu.
Israel/Hamas conflict-exposed defense stocks higher in S&P 500, UAL falls on rising oil prices
09-Oct-23 14:25 ET
Dow +187.82 at 33595.40, Nasdaq +53.84 at 13485.18, S&P +27.43 at 4335.93
[BRIEFING.COM] The S&P 500 (+0.64%) is atop the major averages in the waning hours of trading on Monday, hovering just off session highs.
S&P 500 constituents Northrop Grumman (NOC 469.97, +46.73, +11.04%), CF Industries (CF 85.51, +4.60, +5.69%), and SLB (SLB 58.32, +2.62, +4.70%) dot the top of today's trading. NOC and CF appear to be gaining strength alongside perceived beneficiaries of the war between Israel/Hamas, while SLB is buoyed by today's rise in crude futures with trading also helped by an intraday initiation at Societe Generale.
Meanwhile, United Airlines (UAL 39.83, -1.99, -4.76%) is one of the S&P's worst constituents on Monday, pressured in part by rising oil prices.
Gold, haven investments shine on Monday amid geopolitical turmoil
09-Oct-23 14:00 ET
Dow +173.89 at 33581.43, Nasdaq +42.21 at 13473.55, S&P +23.54 at 4332.04
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.31%) has pulled ahead of flat lines, stronger over the prior half hour alongside its fellow major averages.
Gold futures settled $19.10 higher (+1.0%) to $1,864.30/oz, holding solid gains given increased interest in haven assets amid the ongoing conflict in Israel.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $106.25.
Page One
Last Updated: 09-Oct-23 09:03 ET | Archive
Israel-Hamas War adds to known unknowns
There was a measure of relief at the end of Friday's session that the stock market bounced back from early losses following the release of the September employment report and scored some healthy gains that enabled the S&P 500 to avoid a fifth consecutive losing week. That sense of relief, however, quickly turned back into a feeling of angst when it was learned over the weekend that Hamas launched a surprise attack on Israel, killing hundreds, and driving Israel to declare war on Hamas.
This week begins then with a new level of geopolitical uncertainty that is keeping buyers sidelined for the time being. Objectively, though, the fallout seen so far in the capital markets has been more modest than one might think given the gravity of the Israel-Hamas situation that has prompted the U.S. to send the USS Gerald R. Ford Carrier Strike Group to the Eastern Mediterranean.
Currently, the S&P 500 futures are down 30 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 122 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 217 points and are trading 0.7% below fair value.
In turn, oil prices have risen, but so far are not moving in an extreme manner. WTI crude futures are up 3.9% to $86.05/bbl and Brent crude futures are up 3.8% to $87.78/bbl.
The Treasury market is closed today for the Columbus Day holiday, which is also referred to as Indigenous People's Day, but other sovereign bond markets that are open haven't seen a massive flight to safety. The 10-yr German bund yield, for instance, is down just four basis points to 2.84% and the UK's 10-yr gilt yield is down only three basis points to 4.55%.
The overarching concern is that the Israel-Hamas War evolves into a wider regional conflict. There have been press reports that suggest Hamas had backing from Iran for the surprise attack, but thus far Israel's retaliatory focus has been on Hamas and Gaza.
This is all happening at a time when the U.S. House of Representatives lacks a Speaker following last week's stunning ouster of former Speaker Kevin McCarthy. The House is unable to conduct any business, other than the business of electing a new Speaker, until a new Speaker is elected -- and there is heightened uncertainty about that process, both in terms of who will be elected and how long it will take to elect the new Speaker.
That's the backdrop entering the week, which will also feature the release of the September Consumer Price Index on Thursday, the start of the third quarter earnings reporting season, and the lingering angst about the path of interest rates.
In brief, the equity futures market might not look as bad as one would expect, but it still doesn't look good.
The stock market will start today's session on a lower note, having to deal with another known unknown.
-- Patrick J. O'Hare, Briefing.com
Tyson Foods struggles to take flight as shares hit fresh 52-week lows today (TSN)
Investors continue to give Tyson Foods (TSN -1%) the cold shoulder, sending shares to new 52-week lows. Although not new information, today's WSJ's report on the economic impact of TSN closing one of its plants in Missouri keeps the unfavorable demand backdrop in focus. TSN announced in early August, alongside its disappointing Q3 (Jun) results, that it would close four of its chicken facilities (in addition to two other plant closures previously mentioned) across the U.S. Furthermore, management did not rule out the possibility of additional closures, commenting that it is constantly evaluating its overall footprint and the surrounding demand.
While shares are trading back down around 2018, 2020, and 2023 lows, levels that saw a decent influx of buyers, several headwinds may keep TSN from taking flight, at least over the near term.
- An avian flu (HPAI) outbreak may again weigh on financials. During Q2 (Mar), HPAI did not significantly impact TSN's operations. However, it closed key export markets, hindering TSN's chicken-related operating margins, which fell to negative 5.8% from positive 4.8% in the year-ago period. We heard from Cal-Maine Foods (CALM) last week that the adverse effects of the HPAI outbreak from earlier this year seeped into Q1 (Aug), hurting profits in the quarter. CALM added that HPAI remains present in the wild bird population, increasing uncertainty surrounding further outbreaks.
- TSN is undergoing a restructuring, closing plants and laying off workers. While the company has already witnessed tangible benefits from its multi-point plan to modernize and streamline operations, CEO Donnie King conceded that it is not where it should be. These initiatives, coinciding with weak demand clipping prices, are a recipe for disappointing earnings to persist. Over the past two quarters, TSN registered EPS of $0.15 and $(0.04), a considerable difference from its typical triple-digit performances posted before 2023. Furthermore, TSN has endured seven straight quarters of contracting adjusted operating margins sequentially.
- TSN is competing against other food processors and cheaper protein alternatives. Since Tyson sells raw chicken, beef, and pork, commodities easily replicable, it likely does not carry meaningful brand loyalty. Instead, TSN competes on volume, given its global presence. Unfortunately, during the current lackluster demand environment, where the end consumer is seeking out lower-cost proteins, TSN has not realized many benefits from this advantage, as volumes have remained flat or declined yr/yr in five out of the past eight quarters.
Bottom line, the global economy is proving to be quite the hurdle for TSN to clear lately. While the market has priced in plenty of negativity, sending shares toward multi-year lows today, we continue to believe it is better to wait until confirmation that demand has stabilized before entering for the long term.
Israel conflict and the implications this may have on the financial markets (EIS)
The big news over the weekend was Israel formally declaring war on Hamas after Hamas militants launched surprise attacks on Israel on Saturday. The death toll has surpassed 1,100 in Israel and Gaza. We wanted to take a quick look at some of the implications this may have on the financial markets.
First off, this development has caught the world off guard. There were not stories of a potential attack ahead of time, which would have allowed the markets to prepare by pricing in potential risk. As such, we expect we will see a good deal of volatility today as the financial markets digest the news and price markets/securities appropriately. The markets are lower today on this news.
What stood out to us from the statement from Israeli Prime Minister Benjamin Netanyahu was him saying that "This war will take time. It will be difficult. Challenging days are ahead of us." That is a signal that this conflict will endure for some time. In the past, Israel might retaliate with missile launches for a day or two, but this situation is clearly much more serious. There are also concerns this Israeli-Hamas conflict could evolve into a wider regional conflict, especially if other countries had involvement.
Let's take a quick look at areas to be impacted:
- Israeli stocks: Unfortunately, the conflict could impact companies in Israel with lost production/performance. It could also make foreign companies a bit more leery in terms of making investments in Israel and sending employees there. Possible related stocks: MBLY, CHKP, NICE, TEVA, ESLT, WIX, PLTK, ZIM, SEDG, TSEM, FORTY.
- Oil (USO) is trading higher on the conflict. Clearly, whenever you are talking about conflict in the Middle East, oil prices go up. And in particular, the concerns about this potentially evolving into a wider regional conflict could lead to prices continuing to rise in the coming weeks and months.
- US Defense stocks: President Biden has said US support for Israel is "rock solid and unwavering." A White Houe statement said additional assistance for the Israeli Defense Forces is now on its way to Israel with more to follow over the coming days. US defense stocks (GD, LMT, NOC, RTX, BA has sizeable defense segment) are sharply higher today. A smaller company like AVAV may also be worth keeping on the radar as the Ukraine conflict accelerated greater adoption of small drones and loitering munitions.
Datadog placed in the doghouse at BofA Securities; lowered rating sparks selling pressure (DDOG)
BofA Securities placed Datadog (DDOG -4%) in the doghouse today, downgrading the observability and security SaaS platform for cloud applications to "Neutral" from "Buy." Per the analysts Briefing.com tracks, today's downgrade marks the second lowered rating since DDOG's Q2 earnings report in early August. In contrast, DDOG received an upgrade just last week, which followed an "Outperform" rating initiated by TD Cowen around a month earlier.
Briefing.com notes that while there are tailwinds at work for DDOG, including a broad-based shift toward digitalization, bolstering the demand for real-time observability of IT environments and cloud monitoring, several headwinds are potentially weighing on DDOG's near-term outlook.
- The observability field is highly competitive. Giants like Amazon (AMZN), Microsoft (MSFT), Cisco (CSCO), and Splunk (SPLK), and up-and-coming players like New Relic (NEWR), pose meaningful competitive risks, particularly as DDOG looks to enhance its positioning amongst enterprises. Competitive woes may have already weighed on DDOG's recent quarterly figures.
- In Q2, new customer growth slowed slightly, expanding +23% yr/yr compared to a +29% improvement in Q1. Meanwhile, DDOG noticed higher churn at the low end. However, management pointed out that a portion of churn tended to be consolidation onto the platform, which has been ongoing for some time.
- Economic conditions are unfavorable. Given DDOG's consumption-based model, which charges customers depending on usage, revenue can fluctuate more than traditional monthly and annual contracts. During challenging economic times, customers cut back on their consumption, which has already clipped DDOG's top-line performance over the past several quarters, illuminated by growth slowing dramatically to +25% yr/yr in Q2 from +33% in Q1, +44% in 4Q22, and +61% in 3Q22.
- One of the factors behind DDOG's post-Q2 sell-off was that its existing customers pulled back their consumption at greater levels than competitors. However, management brushed this off, commenting that this is likely just due to a different customer mix compared to rivals.
- Shares are still relatively expensive. DDOG trades at 58x forward earnings and 12x forward sales. Although 2023 has seen less importance placed on valuations, given the substantial upside potential related to AI, DDOG's premium multiples could weigh on near-term appreciation.
- We noted after DDOG's Q2 results that its FY23 sales outlook of $2.05-2.06 bln falling short of consensus was a meaningful blemish given its rich valuation.
While there were encouraging signs in Q2, such as stabilization trends among existing customers and the number of customers using two or more products, near-term demand could cap financial performance. DDOG's downbeat FY23 sales forecast highlighted the choppy macroeconomic backdrop. As such, it might be better to hold off on DDOG over the immediate term, waiting to see if stabilization trends hold through another quarter.
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