Market Snapshot
briefing.com
| Dow | 32936.37 | -190.87 | (-0.58%) | | Nasdaq | 13018.32 | +34.52 | (0.27%) | | SP 500 | 4217.04 | -7.12 | (-0.17%) | | 10-yr Note | +28/32 | 4.84 |
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| | NYSE | Adv 875 | Dec 1934 | Vol 892 mln | | Nasdaq | Adv 1444 | Dec 2881 | Vol 4.6 bln |
Industry Watch
| Strong: Communication Services, Consumer Discretionary, Consumer Staples, Information Technology |
| | Weak: Energy, Materials, Utilities, Real Estate, Financials, Health Care |
Moving the Market
-- The 10-yr yield reverses noticeably from 5.00% area after hedge fund manager Bill Ackman says he has covered his short in bonds
-- S&P 500 settles back below 200-day moving average
-- Rising geopolitical tensions in the Middle East
-- Relative strength from mega cap stocks
| Closing Summary
23-Oct-23 16:30 ET
Dow -190.87 at 32936.37, Nasdaq +34.52 at 13018.32, S&P -7.12 at 4217.04
[BRIEFING.COM] The stock market started, and ended, this session on a softer note. There was a nice rally, however, that began around mid-morning as stocks climbed and Treasury yields, which had already been moving lower, declined further. Upside moves had the S&P 500 back above its 200-day moving average (4,235) after the index slipped below the 4,200 level right out of the gate, hitting 4,189 at its low.
The rally effort coincided with an X post from hedge fund manager Bill Ackman, who said he had covered his short in bonds because "There is too much risk in the world to remain short bonds at current long-term rates." The 10-yr note yield moved from 4.97% to as low as 4.84% following his remark and the S&P 500 hit an intraday high of 4,255.
The turnaround effort for stocks, however, faded in the afternoon session. The S&P 500 closed below its 200-day moving average, sporting a 0.2% decline. Relative strength from the mega cap space limited downside moves for the S&P 500 and Dow Jones Industrial Average while the Nasdaq Composite (+0.3%) closed with a small gain. The Invesco S&P 500 Equal Weight ETF (RSP) fell 0.6%.
The Vanguard Mega Cap Growth ETF (MGK) climbed 0.4%. Even Apple (AAPL 173.00, +0.12, +0.1%), which was down as much as 1.7%, settled with a gain despite reports of discounted iPhone 15 sales in China and supplier Foxconn facing a tax probe by Chinese authorities.
Market breadth reflected a lack of conviction on the part of buyers that was related to rising tension in the Middle East, along with hesitation about where rates are headed and the pickup in earnings reports this week. Decliners led advancers by a greater than 2-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
The earnings calendar this week features reports from Alphabet (GOOG 137.90, +1.16, +0.9%) and Microsoft (MSFT 329.32, +2.65, +0.8%) after Tuesday's close, Meta Platforms (META 314.01, +5.36, +1.7%) after Wednesday's close, and Amazon.com (AMZN 126.56, +1.39, +1.1%) after Thursday's close.
Outperforming mega cap stocks propelled their respective S&P 500 sectors to the top of the leaderboard. The energy sector (-1.6%) was the worst performer, weighed down by a loss in Chevron (CVX 160.68, -6.15, -3.7%), which announced a $53 billion, or $171.00 per share, all stock acquisition of Hess Corp. (HES 161.30, -1.72, -1.1%), and a drop in oil prices ($85.50/bbl, -2.55, -2.9%) that was spurred in part by global growth worries.
There was no U.S. economic data of note today, but key data later in the week includes Q3 GDP on Thursday and the September Personal Income and Spending report on Friday, which features the Fed's preferred inflation gauge (the PCE Price Indexes).
- Nasdaq Composite: +24.4% YTD
- S&P 500: +9.8% YTD
- Dow Jones Industrial Average: -0.6% YTD
- S&P Midcap 400: -2.5% YTD
- Russell 2000: -5.4% YTD
INTC shares drop on NVDA chip news; Treasuries settle near low yields
23-Oct-23 15:35 ET
Dow -169.02 at 32958.22, Nasdaq +54.25 at 13038.05, S&P -3.58 at 4220.58
[BRIEFING.COM] Stocks are fading ahead of the close. The S&P 500 recently slipped into negative territory.
Notably, the major indices turned lower despite Treasuries settling near their low yields. The 2-yr note yield fell three basis points to 5.06% and the 10-yr note yield fell nine basis points to 4.84%.
Shares of Intel (INTC 33.79, -1.13, -3.2%) turned lower after a Reuters report indicated that NVIDIA (NVDA 428.40, +14.70, +3.6%) will make Arm-based (ARM 50.63, +2.87, +5.9%) PC chips to challenge Intel.
Looking ahead, Tuesday's economic data is limited to the Flash October S&P Global US Manufacturing PMI (prior 49.8) and flash October S&P Global US Services PMI (prior 50.1) at 9:45 ET.
Energy complex settles mixed
23-Oct-23 15:05 ET
Dow -22.04 at 33105.20, Nasdaq +114.65 at 13098.45, S&P +16.23 at 4240.39
[BRIEFING.COM] The S&P 500 and Nasdaq Composite are little changed over the last half hour while the Dow Jones Industrial Average narrowed its loss.
Energy complex futures settled mixed. WTI crude oil futures fell 2.9% to $85.50/bbl and natural gas futures rose 0.9% to $2.93/mmbtu.
On a related note, the S&P 500 energy sector (-1.6%) remains buried in last place on the leaderboard.
MGM Resorts gains on HSBC initiation, OXY falls in S&P 500 after Chevron buys peer Hess
23-Oct-23 14:30 ET
Dow -42.99 at 33084.25, Nasdaq +108.64 at 13092.44, S&P +13.10 at 4237.26
[BRIEFING.COM] The S&P 500 (+0.31%) is in second place on Monday afternoon.
S&P 500 constituents MGM Resorts (MGM 36.82, +1.57, +4.45%), Carnival (CCL 11.40, +0.37, +3.35%), and NVIDIA (NVDA 428.45, +14.58, +3.52%) pepper the top of today's standings. MGM gains on a morning initiation out of HSBC, while NVDA leads the PHLX Semiconductor Index (SOX 3,329.13, +12.99, +0.39%) higher despite a dearth of corporate news.
Meanwhile, Occidental Petro (OXY 62.67, -2.51, -3.85%) is underperforming after investors sigh at Chevron's (CVX 160.55, -6.28, -3.76%) purchase of Hess (HES 161.08, -1.94, -1.19%); CVX was rumored to be a suitor for OXY.
Gold pauses rally, awaiting further news from the Middle East
23-Oct-23 14:00 ET
Dow -10.10 at 33117.14, Nasdaq +123.74 at 13107.54, S&P +19.54 at 4243.70
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.95%) remains atop the standings.
Gold futures settled $6.60 lower (-0.3%) to $1,987.80/oz, putting the Friday rally which took the yellow metal past $2K on hold as investors play a wait-and-see trade pending further news from the war between Israel and Hamas.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $105.61.
Walt Disney jumps as it nears a deal to sell a majority stake in its India-based Star business (DIS)
While Walt Disney (DIS +1%) seeks options in potentially offloading its cable TV business, the entertainment behemoth encounters headwinds related to its streaming services. Hulu and ESPN+ have faced a weak advertising market throughout the past year, with few signs pointing to a rapid turnaround occurring in the immediate term.
Even though live sporting events have sustained viewership, with current stats pointing to a modest increase in the number of individuals in the U.S. watching live sports compared to this time last year, it has not strengthened DIS's view of potentially shedding its cable networks that support live sports, including ABC. CEO Bob Iger has repeatedly mentioned that these assets are not core to the company's business.
In connection with DIS ongoing strategic review, Bloomberg reported today that DIS is nearing a deal with India-based conglomerate Reliance Industries to sell a controlling stake in its Star business, valued at potentially up to $8.0 bln. DIS operates hundreds of channels outside the U.S., primarily under the Fox, National Geographic, and Star brands. The Star branded channels air a combination of generative entertainment and live sporting events, including cricket, soccer, and tennis.
- Included in Star is Disney+ Hotstar, DIS's subscription-based direct-to-consumer (DTC) service available in India and a few neighboring countries. This service has seen declining subscribers all year, recently registering a 24% drop yr/yr in Q2. However, since this business carries a significantly lower average revenue per user (ARPU) versus Disney+, it is not a material component of the company's overall DTC results, highlighting its non-core status.
- Additionally, Mr. Iger commented last quarter that international streaming has quite a bit of unevenness. He noted that some markets will be conducive to investment while others should be avoided. DIS's India business has been on the chopping block for some time, with the company reportedly seeking partners for several months.
- Still, DIS will likely maintain a minority stake in its Star business, consistent with Mr. Iger's remarks that even though DIS could begin investing less in local programming, it may still maintain the service, keeping profitability the top priority.
DIS has been looking to reduce its exposure to India for some time, so today's report is not a complete surprise. However, plenty of changes are likely still to come. With shares stuck around 2020 lows, DIS must act to restore investor confidence. However, turning the ship around will likely be no easy task for Bob Iger.
Chevron makes its own M&A splash with acquisition of Hess Corporation, matching Exxon Mobil (CVX)
Less than two weeks after Exxon Mobil (XOM) announced its $60 bln blockbuster deal to acquire Pioneer Natural Resources (PXD), Chevron (CVX) is answering that huge M&A play with its own $60 bln acquisition. Earlier this morning, CVX disclosed that it had agreed to acquire Hess Corporation (HES) for $171/share in an all-stock transaction as the company joins XOM in making a massive bet on the future of fossil fuels.
- With CVX only paying about a 5% premium over HES's closing price from last Friday, it doesn't appear that CVX is overpaying for the acquisition. However, HES had already gained over 25% since early June and shares reached all-time highs last week, so the stock was already priced at a premium.
- On a P/Adj. EBITDA basis, CVX is paying a multiple of about 11.5x, on a trailing 12-month basis.
- For the sake of comparison, PXD was valued at about 6-7x its expected EBITDA for 2024 based on the $60 bln acquisition price.
- CVX will be adding some attractive assets to its portfolio. While XOM doubled down on the Permian Basin with its purchase of PXD, CVX is expanding into the Guyana oil field, where HES is producing about 400,000 barrels of oil per day. Additionally, CVX will gain exposure to the Bakken shale basin in North Dakota, complementing its positions in the Permian Basin.
- From a financial standpoint, it will take some time before the deal pays off in terms of generating positive cash flow on a per share basis. Specifically, CVX is targeting 2025 as the year in which the acquisition will turn accretive to cash flow per share.
- The company is issuing about 317 mln new shares of common stock to finance the deal, which, of course, is dilutive to cash flow per share and EPS.
- On the positive side, CVX intends to mitigate the dilutive impact by increasing share repurchases by $2.5 bln to the top end of its guidance range of $20 billion per year in a continued upside oil price scenario.
- Like the XOM/PXD deal, this acquisition could face some push back from regulators, especially since the Biden Administration is looking to move more towards renewable energies. On the other hand, these two deals could spark a wave of consolidation in the oil and gas industry, creating a few other large participants that help to level out the playing field.
The main takeaway is that CVX is acquiring a premier oil and gas company with a compelling portfolio of assets, positioning itself to be a dominant force in the upstream business for years to come, along with XOM. Due to the dilutive nature of the all-stock deal, the stock is reacting negatively to the news, but we believe the acquisition could be a key catalyst for the stock down the road.
FMC Corp heads sharply lower on downside guidance; destocking is the main culprit (FMC)
FMC (FMC -13%) is under pressure after lowering guidance pretty significantly. FMC is a major supplier of insecticides, herbicides, fungicides and crop nutrition that farmers rely on to protect their crops from disease and pests.
- What struck us was the size of the Q3 guidance cut. FMC now expects Q3 revenue of just $982 mln vs. $1.19-1.27 bln prior guidance while adjusted EPS guidance was slashed to just $0.44 from $0.90-1.32. Adjusted EBITDA guidance was not spared as FMC now expects that to be just $175 mln vs $240-290 mln prior guidance. And it's not just Q3, FMC also guided to Q4 revs of $1.139-1.379 bln, which is below analyst expectations.
- So, what happened? FMC says its revised outlook is mainly driven by substantially lower sales volumes in Latin America, particularly destocking in Brazil and to a lesser degree drought in Argentina. While results for EMEA, North America and Asia were broadly in line with company expectations, destocking behavior continued in those regions as well. FMC concedes the magnitude of the destocking in Brazil was much greater than the company had anticipated.
- Basically, what destocking means is that customers are using up product they already have before ordering more product. This may be done to reduce cash outlays, it also may signify increasing confidence by customers that they can easily obtain more product in the future without risk of shortages. There have been fertilizer shortages in recent years, caused by the pandemic and the Russia-Ukraine conflict. Both countries are major exporters.
- With destocking conditions not expected to improve in the near-term, FMC also announced today that it has initiated an immediate restructuring process for its operations in Brazil and has launched a broader, more comprehensive process to review and adjust its total company cost structure. FMC says it will provide more details at its Investor Day on November 16. The silver lining here is that application of products by growers remains stable, destocking is the main problem.
One thing we have learned about fertilizer stocks over the years is that their earnings can be pretty volatile. That's because the prices they pay for chemical inputs vary quarter-to-quarter, plus it's not always clear how easily they can pass these higher prices on to end customers. Also, end demand can vary quite a bit as weather/droughts play a role as well. And now we see that channel inventory is another variable that adds to volatility.
Unfortunately, this is just the latest in a series of downside guidance announcements from FMC in 2023. It was a similar pattern last quarter and the quarter before. As such, the stock has been in a steady decline since early May. We would be cautious about bottom fishing down here. FMC needs to show some stabilization first. This guidance makes us nervous about other crop fertilizer/nutrient stocks as we head into earnings season. We would be wary about names like CTVA, MOS, NTR, CF, IPI, BG, SMG. That's because FMC's guidance seems more industry-based than company-specific. We suspect customers built up inventories on fear of shortages, but those fears have since retreated.
Philips recovers as investors grow optimistic about Q3 potentially marking a bottom (PHG)
Following an extensive downbeat trend, sliding nearly 20% since August highs, Philips (PHG +2%) shares are trying to recover today after the medical device manufacturer cleared analysts' Q3 earnings and sales estimates. PHG also narrowed down its previous FY23 outlook, anticipating +6-7% comp growth versus mid-single-digit growth outlined last quarter and adjusted EBITDA margins of 10-11%, higher than its previous upper end of high-single-digit range prediction.
Investors were initially underwhelmed by PHG's healthy Q3 figures, sending shares as low as -4% during pre-market trading. The underlying factor was likely another quarter of weak order intake growth, which accounts for roughly 40% of overall sales. In Q3, comparable order intake was -9%, deteriorating from -8% in Q2 (-4% excluding Russia) and flat growth in Q1. Management chalked this up to longer lead times, reduced demand in China, and an unfavorable comparison base related to high levels in 2021. Specifically, PHG continued observing hospital systems in the U.S. and other mature geographies exhibit cautious buying behavior. Meanwhile, China remains adversely impacted by ongoing government-initiated anti-corruption measures.
Still, instead of waiting for these headwinds to dissipate, PHG is implementing the necessary actions to reduce order lead times by improving its supply chain reliability and leveraging its brands to enhance comparable order intake. Furthermore, despite the lackluster order intake growth, PHG's order book remained buoyant, around 20% higher than 2021 levels when widespread supply chain disruptions unfold. Most notably, PHG anticipates a sequential improvement in order intake in Q4, signaling a likely bottom in Q3.
- Drilling deeper into PHG's Q3 results revealed plenty of things to like. Revenue edged 3.7% higher and +11.0% higher on a comparable basis to €4.47 bln. Growth came from all of PHG's business lines, with notable strength in Diagnosis & Treatment and Connected Care, which registered comps of +14% and +10%, respectively.
- Earnings of €0.33 came on a substantial 540 bp uptick in PHG's operating margins to 10.2%. PHG has been amid restructuring and productivity initiatives for nearly two years, realizing material benefits over the past several quarters. In Q3, PHG realized €258 mln in savings, a solid uptick from €112 mln last quarter.
- An overhang on PHG over the past two years has been its voluntary recall of certain Respironics devices. PHG noted that the ongoing recall remains its highest priority, with the remediation of sleep therapy devices nearly finished. PHG is also in discussion with the FDA on the details of further testing. Once this cloud clears, it will remove an ongoing layer of uncertainty.
Overall, the story surrounding PHG today is that investors are optimistic about long-lasting improvements. This upbeat attitude was reflected in shares immediately finding support during the pre-market session. With the stock trading around April levels, we like PHG at current prices, especially with Q4 signaling a long-awaited recovery in order intake rates.
CSX stuck at the depot today as Q3 results contained pockets of strength and weakness (CSX)
CSX (CSX) shares are stuck at the depot today, avoiding the broader market sell-off but not gaining much steam either. Being pulled from both directions reflects the overall tone from the railroad giant's Q3 report. CSX barely missed bottom-line estimates but squeaked out a beat on its top line. Meanwhile, management's remarks surrounding its business lines and end markets contained areas of strength offset by other areas of weakness.
However, an overwhelmingly positive comment from CSX, potentially explaining why shares are still trending slightly positive, was that it is noticing gradually improving sequential trends across several of its end markets during Q3, boosting management's confidence in a much more favorable 2024.
- The most notable standout was CSX's Intermodal business, which, albeit posted a 14% revenue drop yr/yr on a 7% decline in volumes, enjoyed improving dynamics as the quarter progressed, echoing comments from Union Pacific (UNP) and J.B. Hunt (JBHT) earlier this week. CSX stated that volumes in the summer turned positive on a yr/yr basis, improving since.
- However, on the flip side, international intermodal activity remained weak. CSX did not see any clear signs of a positive inflection yet, as retailers stay cautious about the health of the end consumer. CSX did note that activity stabilized in the quarter as destocking slowed, but it has not seen this translate to higher order rates or imports.
- CSX's operating ratio, a good gauge of profitability used commonly within the railroad industry, continued to rise to 63.8% from 59.9% in Q2, underpinning bearish themes touched on all year. These include lower fuel recovery, reduced intermodal storage revs, lower export coal prices, and higher cost inflation, particularly regarding labor.
- Still, after management mentioned how unsatisfactory this result was, it outlined that it would analyze its entire network to see where it could operate more efficiently.
- Other businesses, including merchandise, minerals, and coal, were positive standouts in the quarter despite registering weak sales growth. Merchandise enjoyed solid core pricing gains offset by lower fuel surcharge, with automotive demonstrating meaningful strength. Minerals were sustained by infrastructure activity, while coal was boosted by export demand, which soared 26% yr/yr.
CSX's Q3 report was a story of give and take, wrapped in a layer of cautious optimism heading into the end of 2023 and the beginning of 2024. While a general unease regarding the global economy persists, illuminated by shares of CSX hugging their flatline on the year, there are reasons to view the glass half full.
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