| | | Market Snapshot
briefing.com
| Dow | 32417.59 | -366.71 | (-1.12%) | | Nasdaq | 12643.01 | +47.41 | (0.38%) | | SP 500 | 4157.09 | +19.86 | (0.48%) | | 10-yr Note | +1/32 | 4.85 |
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| | NYSE | Adv 706 | Dec 2114 | Vol 945 mln | | Nasdaq | Adv 1398 | Dec 2988 | Vol 4.2 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Communication Services |
| | Weak: Energy, Health Care, Financials, Utilities, Consumer Staples, Real Estate |
Moving the Market
-- Strength in the mega caps boosting index performance
-- Digesting another heavy slate of earnings news, headlined by Amazon.com (AMZN)
-- Reacting to the September Personal Income and Spending report, which featured inflation numbers that are not likely to persuade the Fed to cut rates anytime soon
-- Geopolitical angst remains in play after reports that the US carried out airstrikes against Iranian backed targets in Syria
-- S&P 500 falling below 4,130, which marks a 10% decline from the July 31 high (i.e. a technical correction)
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Closing Summary
27-Oct-23 16:30 ET
Dow -366.71 at 32417.59, Nasdaq +47.41 at 12643.01, S&P +19.86 at 4157.09
[BRIEFING.COM] The major indices all closed near session lows. Negative price action had the S&P 500 (-0.5%) test the 4,100 level, hitting 4,103 at its low. Today's close marks a 10.3% decline in the S&P 500 from the July 31 high (i.e. a technical correction). Meanwhile, a big gain in Amazon.com (AMZN 127.74, +8.17, +6.8%) following better-than-expected earnings and guidance helped support the Nasdaq Composite, which closed with a 0.4% gain.
Other mega caps outperformed alongside Amazon, as evidenced by a 0.5% gain in the Vanguard Mega Cap Growth ETF (MGK). Semiconductor stocks were another pocket of strength after Intel (INTC 35.54, +3.02, +9.3%) beat earnings estimates. The PHLX Semiconductor Index climbed 1.2%.
Just about everything else aside from mega caps and semiconductor stocks declined today. Eight of the 11 S&P 500 sectors decline with six of them registering losses larger than 1.0%. The energy sector (-2.3%) was the worst performer by a wide margin thanks to losses in Chevron (CVX 144.35, -10.40, -6.7%) and Exxon Mobil (XOM 105.55, -2.05, -1.9%) after they reported earnings.
The financials sector (-1.9%) was the next worst performer, weighed down by a loss in JPMorgan Chase (JPM 135.69, -5.07, -3.6%) after CEO Jamie Dimon confirmed that he and his family plan to sell a portion of their holdings.
The only sectors to close in the green -- consumer discretionary (+1.7%), information technology (+0.6%), and communication services (+0.1%) -- house the outperforming mega cap stocks.
The negative bias was partially driven by geopolitical angst after reports that the US carried out airstrikes against Iranian backed targets in Syria, and separate reports that Israel is expanding ground operations in Gaza. Participants learned about those developments ahead of the weekend when market's are closed for trading and investors can't react in real-time.
Market participants were also reacting to this morning's release of the September Personal Income and Spending report, which featured inflation numbers that are not likely to persuade the Fed to cut rates anytime soon.
The 2-yr note yield fell two basis points to 5.03% and the 10-yr note yield settled unchanged at 4.85%.
- Nasdaq Composite: +20.8% YTD
- S&P 500: +7.4% YTD
- Dow Jones Industrial Average: -2.2% YTD
- S&P Midcap 400: -4.3% YTD
- Russell 2000: -7.1% YTD
Reviewing today's economic data:
- September Personal Income 0.3% vs Briefing.com consensus of 0.4%; Prior 0.4%; September Personal Spending 0.7% (Briefing.com consensus 0.5%); Prior 0.4%; September PCE Prices 0.4% (Briefing.com consensus 0.3%); Prior 0.4%; September PCE Prices - Core 0.3% (Briefing.com consensus 0.3%); Prior 0.1%
- The key takeaway from the report is that the PCE Price Index and the core PCE Price Index had a sticky feel to them, meaning they lacked a stronger trend of disinflation. That is apt to keep the Fed in a more hawkish mindset, which doesn't mean the Fed will be moved to raise rates soon. What it does mean is that the Fed won't be thinking about a rate cut anytime soon.
- October Univ. of Michigan Consumer Sentiment - Final 63.8 (Briefing.com consensus 63.1); Prior 63.0
- The key takeaway from the report is that the decline relative to the final September reading was owed to weakening sentiment among higher-income consumers and those with sizable stock holdings. Furthermore, expected business conditions weakened among all consumers and year-ahead inflation expectations jumped back to a level last seen in May.
There is no U.S. economic data of note of Monday.
Treasury yields settle mostly lower; stocks remain near session lows
27-Oct-23 15:35 ET
Dow -390.97 at 32393.33, Nasdaq +41.48 at 12637.08, S&P -22.40 at 4114.83
[BRIEFING.COM] The market remains near session lows heading into the close.
The 2-yr note yield fell two basis points to 5.03% and the 10-yr note yield settled unchanged at 4.85%.
There is no U.S. economic data of note of Monday.
Looking ahead, Apple (AAPL) headlines next week's earnings calendar, reporting after Thursday's close.
Energy sector falls alongside XOM, CVX
27-Oct-23 14:55 ET
Dow -430.51 at 32353.79, Nasdaq +16.50 at 12612.10, S&P -30.91 at 4106.32
[BRIEFING.COM] The major indices remain near session lows.
The Invesco S&P 500 Equal Weight ETF (RSP) is down 1.3% near its low of the session.
Energy complex futures settled mixed. WTI crude oil futures rose 3.0% to $85.53/bbl and natural gas futures fell 1.6% to $3.16/mmbtu. The S&P 500 energy sector (-2.4%) remains buried in last place, falling alongside Chevron (CVX 144.81, -9.94, -6.4%) and Exxon (XOM 105.37, -2.25, -2.1%) after they reported earnings.
Earnings movers dominate S&P 500 standings; Charter falls to 14-week lows post results
27-Oct-23 14:30 ET
Dow -380.79 at 32403.51, Nasdaq +10.08 at 12605.68, S&P -29.17 at 4108.06
[BRIEFING.COM] The S&P 500 (-0.71%) is in second place on Friday, down about 29 points and on pace to shed nearly -2.7% this week.
S&P 500 constituents Juniper Networks (JNPR 26.68, +1.60, +6.38%), Eastman Chemical (EMN 72.70, +2.60, +3.71%), and Seagate (STX 67.85, +2.01, +3.05%) pepper the top of the standings. JNPR and EMN outperform following earnings, while STX recoups some of yesterday's -1.9% post-earnings dip owing in part to a number of sell side analyst target increases.
Meanwhile, Stamford-based telecom giant Charter Comm (CHTR 371.69, -40.02, -9.72%) is one of today's worst performers as mostly flat revs and underwhelming subscriber adds were enough to take the stock to 14-week lows today.
Gold settles modestly higher on Friday, week as investors await more news from the Middle East
27-Oct-23 14:00 ET
Dow -325.91 at 32458.39, Nasdaq +31.94 at 12627.54, S&P -23.10 at 4114.13
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+0.25%) is clinging to modest gains, now probing session lows; the Nasdaq at one point this morning boasted a +1.4% advance.
Gold futures settled $1.10 higher (+0.1%) to $1,998.50/oz, closing out the week with gains of +0.2%, cooling off from last week's +2.7% advance as investors awaited more updates from the conflict between Israel and Hamas.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $106.44.
Page One
Last Updated: 27-Oct-23 09:02 ET | Archive
Eyes on Amazon
Much has been made of the weakness in the mega-cap stocks this week and rightly so. That is why all eyes are on Amazon.com (AMZN) today and how it trades throughout the session.
Amazon.com reported its quarterly results after yesterday's close, and they were undeniably good from a profit standpoint. Shares of AMZN are up 5.6%, which makes sense. It is earnings season after all.
That move has helped foster some buy-the-dip action in other mega-cap stocks, which is giving a needed boost to the Nasdaq 100 futures along with Intel's (INTC) better-than-expected report and outlook. Shares of INTC are up 7.2%.
In turn, these stocks are lending support to the S&P 500 futures, which have taken stock of the positive price action in the likes of Chipotle Mexican Grill (CMG), Exxon Mobil (XOM), Stanley Black & Decker (SWK), L3 Harris (LHX), and Capital One (COF) following their earnings results that has overshadowed the weakness in Chevron (CVX) following its earnings results.
Still, it feels as if there is a holdback provision in the futures trade. That also makes sense given the disarming price action seen throughout the week, the ingrained geopolitical angst in front of the weekend, and the continued interest rate volatility.
Currently, the S&P 500 futures are up 18 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 128 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up four points and are trading in-line with fair value.
The holdback in our estimation relates to doubts about whether the positive disposition will be maintained into the close. That is why the manner in which Amazon.com trades is so important to today's action. If it rolls over intraday, it likely won't be alone and the prominent mega-cap drag on the broader market seen this week will return.
The September Personal Income and Spending Report didn't cause any real drag on the market at first blush, but we would argue that it was a bit of drag when it comes to the inflation trend.
Briefly, personal income increased 0.3% month-over-month (Briefing.com consensus 0.4%) following a 0.4% increase in August. Personal spending jumped 0.7% (Briefing.com consensus 0.5%), perhaps not so surprising in light of what was seen in yesterday's advance Q3 GDP report.
The PCE Price Index was up 0.4% month-over-month (Briefing.com consensus 0.3%) and up 3.4% year-over-year, unchanged from August. The core-PCE Price Index, which excludes food and energy and is the Fed's preferred inflation gauge, rose 0.3% month-over-month, as expected, and was up 3.7% year-over-year versus 3.8% in August.
The key takeaway from the report is that the PCE Price Index and the core PCE Price Index had a sticky feel to them, meaning they lacked a stronger trend of disinflation. That is apt to keep the Fed in a more hawkish mindset, which doesn't mean the Fed will be moved to raise rates soon. What it does mean is that the Fed won't be thinking about a rate cut anytime soon.
The initial reaction in the Treasury market to this report was relatively neutral. The 10-yr note yield, at 4.86% in front of the news, is at 4.87% now. That calm reaction has been appreciated by the equity futures market, but it hasn't necessarily driven the equity futures market to any great extent.
Ideally, the stock market will shift into a higher gear as the cash session progresses and find a smoother path after traversing a pothole-laden road this week. A lot is riding on Amazon's turn at the wheel and the 10-yr note yield's behavior as a backseat driver.
-- Patrick J. O'Hare, Briefing.com
Ford Motor hits speed bump with EPS miss, FY23 guidance withdrawal (F)
Ford Motor (F -12%) is trading sharply lower today following its Q3 earnings report last night. It missed on EPS and withdrew FY23 guidance, just as GM did earlier this week. Before digging into it, recall that Ford recently changed its business segment reporting. Ford segments now consist of Ford Model e (EV segment), Ford Blue (gas and hybrid vehicles), and Ford Pro (commercial vehicles).
- Adjusted EBIT in Q3 was $2.2 bln with a margin of 5%. Both improved yr/yr, however, costs increased, underscoring the fact that Ford still has more work to do especially on warranty expense and material cost. In terms of withdrawing guidance, Ford says it was on track to comfortably deliver on prior guidance of full-year adjusted EBIT of $11-12 bln. However, the UAW strike created significant uncertainty. Even though Ford reached a tentative UAW agreement and its employees are returning to work, there is still disruption in the industry with ongoing strikes and the impact to the shared supply base. Plus, the ramp up of production will take time.
- We did not get a lot of specifics on the UAW deal. Once the deal is ratified, Ford will provide a deeper look at the contract and its impact. Right now, Ford is focused on restarting three important assembly plants, calling back more than 20,000 Ford employees to work, supporting its suppliers as they restart etc.
- Its Model e segment posted $(1.3) bln of losses in the quarter, reflecting continued investments and a more challenging market. Given the dynamic EV environment, Ford is being judicious about production and adjusting future capacity to better match market demand. For example, Ford notes it took out some Mustang Mach-E production and it has been slowing down on several investments.
- Ford Blue posted Q3 EBIT of $1.7 bln, up $300 mln yr/yr, driven by lower commodity costs and higher pricing that more than offset higher warranty costs. Ford notes it has a wave of new products coming in the next few months: the new F-150, the Ranger, a brand-new Explorer and Expedition and Navigator. Close to 60% of its volume and revenue in the US will be new and refreshed next year.
- Ford Pro generated EBIT of $1.7 bln and delivered a strong double-digit margin of 12%. Ford describes Pro as a massive driver of Ford's overall growth and profitability. Ford says its competitors seem to be trying to cut and paste its Pro strategy, but the moat will not be easy to cross. Commercial order banks are healthy, fueled by a large backlog of infrastructure projects (5G, road construction). Pro also continued to see strong growth in both new software subscriptions and mobile repair orders.
Overall, the EPS miss and withdrawal of guidance are weighing on the stock today. Ford's cautious comments on the EV market are also likely adding to the weakness. We also think investors wanted more details on the UAW agreement. As such, a lot of uncertainty remains. However, we should get more clarity when Ford reports Q4 results in early February. We will then get our first look at FY24 guidance.
Boston Beer Co sells off as Truly's recovery slows in Q3, leading to a wide earnings miss (SAM)
Boston Beer Co's (SAM -11%) extensive Q3 earnings miss provides little fanfare today, triggering a considerable sell-the-news reaction. The company behind the Samuel Adams, Twisted Tea, and Truly brands was coming off an excellent quarter, delivering its widest earnings beat in over two years fueled by upbeat demand for Twisted Tea. Given that backdrop, SAM's Q3 report was uninspiring despite the few silver linings from the quarter.
- GAAP earnings of $3.70 per share, a 67% jump yr/yr, was less than analysts expected. SAM has been amid margin enhancement initiatives, primarily modernizing its supply chain and targeting areas to cut costs, such as raw materials and packaging. SAM is also reviewing its contracts with pack suppliers, adjusting to better align with changing demand. SAM has also been upgrading its brewery performance, moving volume back to internal breweries where possible, which provides a decent margin bump, and adjusting contracts with co-manufacturers.
- While these strategies helped keep gross margins over 45% for the second straight quarter, SAM forecasts profitability to get squeezed in Q4, expecting to end the year between 42-43%. However, lower margins in Q4 should not be surprising as the quarter tends to be accompanied by seasonally lower volumes.
- Speaking of which, depletions fell 6% on a FY23 basis and 3% on a comparable basis, consistent with SAM's previous FY23 outlook of down 2-8%. As expected, with just one quarter left in FY23, SAM narrowed its FY23 depletions and shipments forecast to down 5-7% from down 2-8%.
- Trends in Q3 were similar to Q2. Twisted Tea sustained positive momentum, boasting 34% sales growth and adding 3.2 dollar share points. Management maintained its confidence in robust Twisted Tea demand to close out FY23, projecting double-digit growth.
- Conversely, Truly, which SAM took a considerable bet on two years ago that went against it quickly, continued to lag, registering a 26% sales decline and losing 3 dollar share points. However, there appears to be light at the end of the tunnel regarding Truly, as the sales and market share declines were modestly improved from Q2. Management conceded that it was not satisfied with Truly's pace of improvement but was encouraged by underlying trends in Q3, pointing to a sturdy position for an eventual turnaround.
- SAM's other brands were bland, struggling in a difficult craft beer market. Inflationary pressures have shifted consumer tastes toward lower-priced beer brands like Constellation Brands' (STZ) Modelo. Nevertheless, Samuel Adams' total share across all channels ticked slightly higher in Q3.
Bottom line, after such solid Q2 results, investors were hoping for continued improvements in Q3. Truly's sluggish recovery is casting a cloud over Twisted Tea's sustained positive performance. While Truly may take longer than expected to rebound fully, there were still encouraging trends in Q3, potentially setting up SAM to reaccelerate growth in FY24.
Exxon Mobil slips on earnings miss, but company is gushing with cash as oil prices remain high (XOM)
An upswing in crude oil prices from last quarter, coupled with improved refinery margins, drove Exxon Mobil's (XOM) earnings higher on a qtr/qtr basis, but the oil and gas giant still fell short of analysts' EPS and revenue expectations. The sequential improvement was also a known commodity because back on October 5, XOM released an operating update that laid out the qtr/qtr changes in operating profit for each of its segments. At that time, it appeared that the company's Q3 earnings would generally meet analysts' estimates, thanks to strength in the Upstream segment, but it seems that weakness in the Chemical Products segment wasn't completely factored in.
- Aside from the weakness in Chemical Products, which experienced a 70% qtr/qtr dive in operating profit to $249 mln, XOM's results were solid. Cash flow from operations particularly stands out, increasing by $6.6 bln qtr/qtr to $16.0 bln, helping to add $3.4 bln in cash to the balance sheet.
- Thanks to that robust cash flow generation, XOM boosted its quarterly dividend to $0.95/share from $0.91/share.
- This increase in cash flow is mainly attributed to the Upstream segment as XOM ramped up production, adding nearly 80,000 net oil-equivalent barrels per day, and benefitted from higher crude oil prices compared to Q2.
- On a yr/yr basis, crude oil prices are much lower because it's lapping a period in which prices soared due to Russia's invasion of Ukraine. In fact, operating income plunged by about $6.3 bln from last year in the Upstream segment.
- That surge in commodity prices, though, facilitated record earnings for XOM in 2022 that sparked a rally that took its stock price to all-time highs by this September. In turn, XOM capitalized on its high stock price to make a blockbuster $60 bln all-stock acquisition of Pioneer Natural Resources (PXD) on October 11.
- If the acquisition is completed in 1H24 as XOM expects, then the company will become the dominant force in the Permian Basin.
- Similar to the Upstream segment, earnings fell sharply on a yr/yr basis in Energy Products due to weaker industry refining margins. However, record global refinery throughput of 4.2 mln barrels per day helped push earnings higher by $100 mln qtr/qtr to $2.4 bln.
- The clear laggard was Chemical Products, which makes products that are used in economically sensitive industries such as automotive, industrial, and consumer packaging. Higher feedstock costs and lower price realizations due to supply/demand imbalances in certain end markets caused earnings to plunge to $249 mln from $828 mln in Q2.
It's hard to say that XOM delivered a disappointing quarter when its business generated $16.0 bln in cash flow. The relatively modest earnings miss is providing enough of an excuse to sell the stock today, but the company seems poised to continue churning out huge amounts of cash flow and earnings, especially if the conflict in the Middle East expands and drives crude oil prices higher.
Intel launches higher as beat-and-raise report turns more doubters into believers (INTC)
Bolstered by a recovery in a PC market that has grappled with an inventory oversupply situation for nearly two years, Intel (INTC) delivered an encouraging beat-and-raise Q3 earnings report, confirming that its turnaround is taking hold. The better-than-expected results and outlook follows last quarter's beat-and-raise earnings report and while revenue was still down by about 7% yr/yr in Q3, the top-line trend continues to move in the right direction. In fact, the midpoint of INTC's Q4 revenue guidance of $14.6-$15.6 bln represents yr/yr growth of nearly 8% -- which would be the company's first y/yr revenue increase since 4Q21.
- Going hand-in-hand with the improving demand picture, gross margins are also recovering in a meaningful way after troughing a few quarters ago. In Q3, non-GAAP gross margin expanded by 600 bps qtr/qtr to 45.8%, comfortably beating its guidance of 43.0%.
- Although INTC still has a long way to go to return to the 60%+ range that investors were accustomed to a few years ago, it expects non-GAAP gross margin to keep improving.
- For Q4, the company guided for non-GAAP gross margin of 46.5%, easily beating analysts' expectations.
- The Client Computing Group (CCG) segment, which provides CPUs for PCs and laps, is leading INTC's comeback. After falling by 12% in Q2, revenue was down by just 3% in Q3 as INTC's customers finally worked through their inventory that caused a major supply and demand imbalance. With the PC market expected to return to growth next year, the CCG segment is well positioned to build on this momentum.
- INTC's competitive standing in the data center market isn't nearly as strong as NVIDIA (NVDA) and Advanced Micro Devices (AMD) have emerged as clear leaders in the space. Revenue in the Data Center and AI (DCAI) segment was down by 10% to $3.8 bln, falling short of analysts' estimates.
- During the earnings call, CEO Pat Gelsinger acknowledged that NVDA is winning plenty of business in this initial buildout phase of AI-powered data centers, but he believes that demand for INTC's processors will eventually accelerate since they are needed to run AI-based programs and services.
- Furthermore, on the PC side, INTC will be launching chips that support AI applications and features next year, which should move the needle in terms of revenue.
The strong earnings report isn't the only good news that INTC had to share.
- Ever since Mr. Gelsinger announced that INTC would become a leading U.S.-based chip manufacturer about two years ago, directly taking on the dominant Taiwan Semiconductor Company (TSM), there has been plenty of skepticism that this strategy would end well for the company. Not only is INTC sinking billions of dollars into new facilities in Ohio and Arizona, but the company had also fallen behind in terms of technology.
- Last night, though, Mr. Gelsinger stated that the company is "ahead of schedule" regarding the interest it's receiving for its foundry business.
- Additionally, on the technology side, CFO David Zinsner commented that the company has secured business with three customers for its 18A chip manufacturing process, which is slated to begin in 2H24.
Overall, this earnings report went about as well as market participants could have hoped for. While INTC still has plenty of work to do, especially on the data center side of the business, its turnaround is hitting another gear, and it's starting to turn some doubters about its foundry strategy into believers.
Amazon in Prime position today; impressive Q3 report leads to strong move in the stock (AMZN)
Amazon (AMZN +8%) is in Prime position as it trades higher following Q3 results. Amazon reported strong upside for both EPS and revenue. Maybe the best metric was operating income jumping 343% yr/yr to $11.19 bln, well ahead of prior guidance of $5.5-8.5 bln. AMZN guided to Q4 operating income of $7-11 bln. Perhaps the one disappointment was Q4 revenue guidance of $160-167 bln was a bit below analyst expectations for the holiday period.
- Let's start with the Stores segment. AMZN describes its move earlier this year from a single national fulfillment network in the US to eight distinct regions. This represented one of the most significant changes to its fulfillment network in its history. This change has gone more smoothly and made more of an impact than Amazon had optimistically expected. Regional fulfillment clusters with higher local in-stock levels means shorter distances and fewer touches to get items to customers. This lowers costs and results in quicker deliveries. Delivery speed is very important and helps explain the significant growth AMZN is seeing in consumables and everyday essentials.
- Customers remain cautious about price, trading down where they can and seeking out deals. AMZN is also seeing lower spend on discretionary items. AMZN continues to see strong demand across everyday essentials including categories like beauty and health and personal care. AMZN says its inventory is in the best position it has ever been in as we head into the holiday season.
- Turning to AWS, this segment posted +12% growth in constant currency (CC), which matched Q2 at +12% CC, so there is some stabilization there. AWS had been in a downward trend from +16% CC in Q1, +20% CC in Q4, +28% CC in Q3, +33% CC in Q2 and +37% CC in Q1. Companies have moved more slowly in an uncertain economy in 2023 to complete deals. However, AMZN is seeing the pace and volume of closed deals pick up. The company was particularly encouraged by the strong last couple of months of new deals signed. Specifically, AMZN signed several new deals in September with an effective date in October, so they were not included in Q3 results. However, this collection was higher than the total reported deal volume for all of Q3.
- Investors need to understand that deal signings are always lumpy and the revenue happens over several years, but the recent deal momentum has been encouraging. Similar to what AMZN shared last quarter, optimization still remain a headwind, but the rate of new cost optimizations has slowed down in AWS. AMZN is encouraged by the strength of its customer pipeline.
- Turning to Advertising Services, segment revenue grew +25% CC, a pick up from +22% CC in Q2 and +23% CC in Q1 and Q4. This segment tends to be more up and down, but it has been durable lately. Segment growth is being driven by sponsored products as AMZN leans into machine-learning to improve the relevancy of ads.
Overall, this Q3 report was quite impressive all around. The Stores segment is performing well. We also think investors had concerns about AWS following Microsoft Azure's strong performance this week. Azure said it was taking share, but AWS performed quite well and its comment about deals picking up was great to hear. It looks like AWS is stabilizing and starting to turn a corner. Finally, the stock has pulled back recently, so sentiment was low heading into this report and we think that is adding to today's push.
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