Market Snapshot
briefing.com
| Dow | 33052.87 | +123.91 | (0.38%) | | Nasdaq | 12851.23 | +61.75 | (0.48%) | | SP 500 | 4193.80 | +26.98 | (0.65%) | | 10-yr Note | +1/32 | 4.88 |
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| | NYSE | Adv 2012 | Dec 832 | Vol 1.1 bln | | Nasdaq | Adv 2596 | Dec 1704 | Vol 4.3 bln |
Industry Watch
| Strong: Real Estate, Utilities, Financials, Materials, Industrials, Consumer Staples |
| | Weak: -- |
Moving the Market
-- Monitoring activity in the Treasury market
-- Bank of Japan tweak to yield curve control policy less hawkish than feared, tempering concerns about a carry-trade unwind
-- Some carryover buying interest from yesterday's bounce
-- Digesting a heavy batch of mixed earnings news
| Closing Summary
31-Oct-23 16:30 ET
Dow +123.91 at 33052.87, Nasdaq +61.75 at 12851.23, S&P +26.98 at 4193.80
[BRIEFING.COM] The major indices all started the session with somewhat mixed action, oscillating around yesterday's closing levels. Buying activity picked up in the afternoon trade, though, which helped some mega caps to recover from early losses or extend early gains. The afternoon move higher left the major indices near their highs of the day with somewhat modest gains. The S&P 500 for its part was approaching 4,200 today.
Apple (AAPL 170.77, +0.48, +0.3%), which reports quarterly results after Thursday's close, was down as much as 1.4%, but closed with a gain. Microsoft (MSFT 338.11, +0.80, +0.2%) also recovered from a loss, having been down as much as 0.8%.
The Vanguard Mega Cap Growth ETF (MGK) rose 0.5% and the market-cap weighted S&P 500 closed with a 0.7% gain. All 11 S&P 500 sectors closed with a gain led by real estate (+2.0%) and financials (+1.1%). The communication services sector (+0.2%) saw the slimmest gain.
A big batch of earnings news since yesterday's close was met with mixed reactions. Dow components Caterpillar (CAT 226.05, -16.11, -6.7%) and Amgen (AMGN 255.70, -7.49, -2.9%) were losing standouts following their earnings reports while Pinterest (PINS 29.88, +4.78, +19.0%) and Arista Networks (ANET 200.37, +24.65, +14.0%) registered outsized gains after their quarterly results.
Market participants were also looking ahead to the remainder of this week's market-moving events. Those events include the FOMC decision tomorrow, followed by Apple's earnings reports and the Bank of England's policy decision on Thursday.
In other central bank news, the Bank of Japan announced that the upper bound of 1.0% for 10-yr JGB yields will be viewed now as a "reference point" rather than a strict cap, which has been viewed as less hawkish-than-feared. That announcement helped temper concerns about a more aggressive unwinding of carry trades, which have been supportive for some time for the Treasury market and the stock market.
The 2-yr note yield settled three basis points higher at 5.08% and the 10-yr note yield was unchanged from yesterday at 4.88%. The USD/JPY was at 151.62, up 1.7%, in response to the BOJ decision.
- Nasdaq Composite: +22.8% YTD
- S&P 500: +9.2% YTD
- Dow Jones Industrial Average: -0.3% YTD
- S&P Midcap 400: -2.6% YTD
- Russell 2000: -5.6% YTD
Reviewing today's economic data:
- October Chicago PMI 44.0 (Briefing.com consensus 45.0); Prior 44.1
- Q3 Employment Cost Index 1.1% (Briefing.com consensus 1.0%); Prior 1.0%
- The key takeaway from the report is that compensation costs decelerated to 4.3% for the 12-month period ending in September versus 5.0% in September 2022. Still, that's not enough of a change to convince the Fed that it can think about cutting rates anytime soon.
- August FHFA Housing Price Index 0.6%; Prior 0.8%
- August S&P Case-Shiller Home Price Index 2.2% (Briefing.com consensus 0.3%); Prior was revised to 0.2% from 0.1%
- October Consumer Confidence 102.6 (Briefing.com consensus 100.0); Prior was revised to 104.3 from 103.0
The key takeaway from the report is that rising prices and higher interest rates are pressuring consumer confidence, particularly among householders aged 35 and up irrespective of income group.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.0%)
- 8:15 ET: October ADP Employment Change (Briefing.com consensus 100K; prior 89K)
- 9:45 ET: Final October S&P Global US Manufacturing PMI (prior 49.8)
- 10:00 ET: September Construction Spending (Briefing.com consensus 0.4%; prior 0.5%), October ISM Manufacturing Index (Briefing.com consensus 49.0; prior 49.0), and September job openings (prior 9.610 mln)
- 10:30 ET: Weekly crude oil inventories (prior +1.37 mln)
- 14:00 ET: November FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
Market remains near highs ahead of the close
31-Oct-23 15:35 ET
Dow +97.72 at 33026.68, Nasdaq +52.62 at 12842.10, S&P +24.06 at 4190.88
[BRIEFING.COM] The three major indices are moving mostly sideways near session highs.
The 2-yr note yield settled three basis points higher at 5.08% and the 10-yr note yield was unchanged from yesterday at 4.88%.
Wednesday's economic calendar:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.0%)
- 8:15 ET: October ADP Employment Change (Briefing.com consensus 100K; prior 89K)
- 9:45 ET: Final October S&P Global US Manufacturing PMI (prior 49.8)
- 10:00 ET: September Construction Spending (Briefing.com consensus 0.4%; prior 0.5%), October ISM Manufacturing Index (Briefing.com consensus 49.0; prior 49.0), and September job openings (prior 9.610 mln)
- 10:30 ET: Weekly crude oil inventories (prior +1.37 mln)
- 14:00 ET: November FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
Some earnings after the close; energy futures settlement
31-Oct-23 15:05 ET
Dow +131.39 at 33060.35, Nasdaq +66.45 at 12855.93, S&P +28.07 at 4194.89
[BRIEFING.COM] The major indices are revisiting session highs. The S&P 500 is within a few points from the 4,200 level.
WTI crude oil futures fell 1.7% to $80.87/bbl and natural gas futures rose 6.5% to $3.82/mmbtu. On a related note, the S&P 500 energy sector (-0.1%) trades near the bottom of the pack.
Advanced Micro (AMD), ONEOK (OKE), Lumen Technologies (LUMN), Yum China (YUMC), Caesars Entertainment (CZR), Sonoco Products (SON), Match Group (MTCH), First Solar (FSLR), and Paycom Software (PAYC) are among the notable names reporting earnings after the close.
Russell 2000 pacing index gains
31-Oct-23 14:35 ET
Dow +62.62 at 32991.58, Nasdaq +28.18 at 12817.66, S&P +16.51 at 4183.33
[BRIEFING.COM] The Russell 2000 continues to pace index level gains, trading up 0.8%.
Value stocks have a performance edge over growth stocks. The Russell 3000 Growth Index is up 0.3% and the Russell 3000 Value Index is up 0.7%.
Separately, the CBOE Volatility Index is down 6.8% to 18.40.
Gold spooked off morning highs
31-Oct-23 14:00 ET
Dow +97.48 at 33026.44, Nasdaq +47.59 at 12837.07, S&P +22.25 at 4189.07
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.37%) is in second place, having followed its major average counterparts to HoDs over the prior half hour.
Gold futures settled $11.30 lower (-0.6%) to $1,994.30/oz, hurrying off their morning highs quicker than the caffeine come-off at the second store on Black Friday. Still, the yellow metal notched gains of +6.9% in October, pushing YTD gains to +9.2%.
Meanwhile, the U.S. Dollar Index is up about +0.6% to $106.74.
Page One
Last Updated: 31-Oct-23 09:01 ET | Archive
Air flows in and out of market
It would appear that the stock market has the Treasury market on its side for the time being. The 10-yr note yield is down three basis points to 4.85% after hitting 4.80% earlier in what might rightfully be called a relief trade.
The relief has come in two parts. The first part relates to the Treasury's downwardly revised Q4 borrowing estimate of $776 billion (prior $852 billion). That was announced yesterday, but we would argue that there is some carryover exhale today. Still, the market isn't breathing entirely easy knowing that the refunding announcement, which will lay out the size of auctions for various maturities, will be made Wednesday ahead of the FOMC decision.
The second part, which is the main driver this morning, is that the Bank of Japan (BOJ) took a less hawkish-than-feared approach in tweaking its yield curve control policy. The tweak is that the upper bound of 1.0% for 10-yr JGB yields will be viewed now as a "reference point" rather than a strict cap. There was some conjecture, though, that the upper bound could be set as high as 1.5%.
In any case, with the BOJ keeping its short-term policy rate at -0.1% and not loosening control of the yield curve more fully, it has tempered concerns about a more aggressive unwinding of carry trades that have been supportive for the Treasury market and the stock market.
Notably, the yen is down big against the dollar today. USD/JPY sits at 150.93, up 1.2% and pressing a 33-year high. That weakening is going to stir talk of intervention by Japan's Ministry of Finance that could result in some selling of Treasuries. For now, though, all that talk is still hot air based on the yen's standing.
There has been some air in the equity future market this morning, yet it has also been deflating on the approach to today's open. Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up five points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are up 16 points and are trading fractionally above fair value.
Dow component Caterpillar (CAT) has taken some of the air out of the market. The industrial giant topped third quarter consensus revenue and EPS estimates, but its guidance that Q4 sales are expected to be slightly higher than year-ago period has been deemed disappointing. Shares of CAT are down 4.8% in pre-market trading.
Fellow Dow component Amgen (AMGN) is also trading lower, down 1.0% after topping Q3 earnings estimates and providing in-line FY23 EPS guidance.
These companies have headlined another rush of earnings reporting this morning that has been met with mixed reactions.
In economic news, the Q3 Employment Cost Index showed compensation costs for civilian workers increasing 1.1% (Briefing.com consensus 1.0%), seasonally adjusted, versus a 1.0% increase for the three-month period ending in June. Wages and salaries were up 1.2% and benefit costs increased 0.9% from June 2023.
The key takeaway from the report is that compensation costs decelerated to 4.3% for the 12-month period ending in September versus 5.0% in September 2022. Still, that's not enough of a change to convince the Fed that it can think about cutting rates anytime soon.
The Treasury market saw some selling interest in the wake of the data, which precedes the August FHFA Housing Price Index and August S&P Case-Shiller Home Price Index at 9:00 a.m. ET, the October Chicago PMI at 9:45 a.m. ET, and the October Consumer Confidence Index at 10:00 a.m. ET.
Other economic headlines today include reports that China's manufacturing PMI fell back into contraction territory in October and that the eurozone's flash CPI reading for October showed a deceleration in the rate to 2.9% from 4.3%.
That is some mixed economic news that fits the current tone of the equity futures trade coming off a nice rebound-minded session on Monday.
-- Patrick J. O'Hare, Briefing.com
JetBlue Airways suffers a hard landing as slowing demand and rising fuel costs combine in Q3 (JBLU)
JetBlue Airways (JBLU) is experiencing some major turbulence today after reporting disappointing Q3 results that fell short of EPS and revenue expectations, while also issuing downside EPS and revenue guidance for Q4. Like every other airline, JBLU contended with higher-than-expected fuel costs during the quarter, but the much bigger concern has to do with demand.
- In the earnings press release, JBLU cited air traffic control disruptions and unfavorable weather conditions as two key headwinds that negatively impacted revenue. In fact, the company had already warned back on September 28 that those two issues were taking a toll on the top-line, causing it to cut its guidance.
- Specifically, JBLU warned that Q3 revenue would be near the low end of its prior guidance range.
While those issues were anticipated, what seems to be catching market participants off guard is the more organic drop in demand.
- Last week, competitor -- and potential merger partner -- Spirit Airlines (SAVE) posted a Q3 earnings beat with revenue matching estimates, but the budget airline offered some cautious commentary regarding current demand trends.
- The company stated that it continues to see discounted fares through the pre-Thanksgiving period and that it has not seen the anticipated return to a normal demand and pricing environment for the peak holiday season.
- Making matters worse, U.S. flying capacity has been on the rise, putting additional pressure on pricing. This is reflected in JBLU's yield per passenger metric, which slid by nearly 14% yr/yr.
- Unlike the big four carriers -- Delta Air Lines (DAL), American Airlines (AAL), United Airlines (UAL), and Southwest Air (LUV) -- JBLU doesn't have the wiggle room to significantly lift prices since it operates in the lower-priced carrier market.
- With the exception of LUV, those bigger airlines are also able to offset the slowing domestic demand by adding more international flights. When DAL reported Q3 earnings on October 12, it disclosed that international passenger revenue jumped by 35% yr/yr. Unfortunately for JBLU, the airline doesn't have a vast international footprint.
Separately, the government's antitrust case against JBLU and SAVE also began today.
- Regulators are attempting to thwart the $3.8 bln merger over concerns that a combination of the two would lead to higher ticket prices for consumers, with more limited flight options. The companies argue that they would be better able to compete against the big four as a combined company. At this point, it seems unlikely that the merger will be cleared for completion.
The main takeaway is that JBLU and other low-cost carriers are bearing the brunt of a slowdown in consumer spending, making it difficult to mitigate the impact of rising fuel and labor costs.
Trex higher after solid Q3 report; feels better heading into 2024 than it heading into 2023 (TREX)
Trex (TREX +2%) is trading higher following its Q3 report last night. Shares of this supplier of wood-alternative decking and railing have been trending lower in recent months on concerns about the consumer, a slowing housing market and rising rates. Trex reported nice Q3 upside for EPS and revenue. It also guided Q4 revs in-line, although Q4 is a seasonally slower period so it's not as critical. Investors are more interested in how spring/summer 2024 will shape up.
- On the call, management described consumer demand for Trex products as being resilient, with channel sell-through growth in the mid-single digits in Q3. Growth benefited from the successful launch of new products, along with brand and marketing investments.
- Trex says it remains focused on growing market share as it converts more of the traditional wood decking market to Trex. Trex notes that there are perhaps 50-60 mln wood decks in the US and about half of those are either past or at the point of needing replacement.
- Trex saw positive market response in Q3 to its Trex Signature and Trex Transcend Lineage products, two recently launched lines targeting the higher-end consumer. Lineage offers a proprietary heat mitigation technology and a more refined, clean look. It has been well-received in the marketplace. Trex is planning a national rollout for Signature decking, which is competing well at the high end of the market. Trex spent many years developing these products and is pleased with the reception from both channel partners and consumers.
- In terms of 2024, management did not want to provide specific guidance this early, but did say it is feeling more positive about the Trex consumer today than it was a year ago. Many consumers are not moving because they do not want to relinquish their low mortgage rate. As such, instead of moving up to a better home, they are looking to improve their existing space by upgrading their wood decks. As such, Trex expects that tailwind on the repair and remodel side to continue.
- Channel partners are also feeling more positive about Trex products going into next year than they did going into 2023. And these partners want to ensure they have the right inventory on the ground to be able to support those consumers.
Overall, this was a good quarter for Trex. The upside was not as large as Q2, but still solid numbers. Trex sounds pretty positive heading into 2024, but we think investors wanted to hear a more bullish outlook for spring/summer. However, rising rates and a cautious consumer continue to be macro headwinds.
Pinterest tacks on an upside earnings report, driven by improving ad spend and new features (PINS)
Just as the rebound in the ad market helped fuel better-than-expected quarterly results from Meta Platforms (META), Snap (SNAP), and Google (GOOG), social media company Pinterest (PINS) also rode the ad recovery to deliver an upside Q3 report. However, it's not just improving industry trends that helped facilitate PINS third consecutive top and bottom-line beat. The company has also reined in expenses, while introducing new features and capabilities that are generating stronger conversion rates, greater advertiser value, and, ultimately, higher revenue growth.
This combination is leading to impressive adjusted EBITDA growth and EBITDA margin expansion. In Q3, adjusted EBITDA surged by 139% yr/yr to $184.7 mln, while adjusted EBITDA margin expanded by 13 percentage points to 24%. Total expenses increased by a modest 1.8% in Q3 and PINS expects operating expenses to decline by 9-13% in Q4 as revenue grows by 11-13%. Accordingly, the company bumped its FY23 adjusted EBITDA margin guidance higher, forecasting an increase of 600 bps yr/yr compared to its prior projection of a 400 bps expansion.
On the product side, PINS efforts to deepen user engagement and improve monetization are paying dividends.
- For example, during Q3, PINS launched the "More Ideas" tab that enables users to easily find and access their board themes, while its AI recommendation engine uses the content from those boards to recommend addition pins. This is resulting in stronger engagement as users are provided with new content ideas.
- CEO Bill Ready also commented that the company is making good progress with incorporating shopping into the platform. PINS recently launched a new AI-powered browsing feature that recommends new content from similar use cases across the platform that are based on a user's interest.
- For advertisers, PINS has recently launched a product called "API for Conversion" that enables advertisers to send conversions directly to Pinterest. These conversions can then be used for retargeting ad campaigns and be reviewed for improved conversion visibility.
- To drive more adoption of API for Conversion, PINS has established key partnerships with companies like Adobe (ADBE) and Salesforce (CRM) Commerce Cloud.
- As of August, API for Conversions accounted for 28% of total revenue compared to 14% at the start of the year.
- Finally, PINS' direct links feature, which was launched in Q3, is showing significant promise. This solution is for advertisers who either don't have an app or who primarily rely on the website for sales and traffic.
- Direct links creates a seamless shopping experience for these advertisers and the results so far have been impressive. PINS has seen an 88% increase in outbound click-through rates and a 39% decrease in cost per outbound click for early adopters of direct links.
The main takeaway is that PINS is benefitting from a mix of company-specific initiatives and an improving ad spending environment. Better yet, the company is capitalizing on these catalysts without ramping spending up, which is fueling robust profit growth.
Caterpillar digging itself into a deeper hole despite posting solid EPS and revenue upside (CAT)
Caterpillar (CAT -6%) continues to dig itself into a deeper hole despite registering another wide earnings beat on solid top-line upside in Q3. The global construction equipment maker also anticipates FY23 to end better than it previously thought, projecting adjusted operating margins slightly above its previously targeted range relative to the corresponding expected level of sales -- for example, CAT would hit margins above its 16-19% forecast if it achieves $64.5 bln in revenue this year.
Why are shares continuing to sell off? CAT's $16.81 bln in revenue during the quarter, a 12.1% jump yr/yr, marked a deceleration from the +21.4% improvement last quarter. Additionally, CAT's total sales represented a 3% decline sequentially. Meanwhile, while adjusted operating margins grew by 430 bps yr/yr to 20.8%, earnings of $5.52 per share still translated to a mild decline from Q2. Furthermore, CAT's order backlog, a function of demand and lead times, fell by $2.6 bln. However, given the improving supply chain, allowing customers to wait longer to place orders, a contracting backlog was expected. CAT anticipates its backlog to continue coming down over the next several quarters.
In a climate with nagging headwinds and elevated near-term uncertainty, a modest top and bottom-line decline qtr/qtr is troubling. It magnifies these lingering fears and signals to investors that CAT could be entering a period of challenging demand dynamics.
- Each of CAT's segments did post positive growth during Q3, with its two largest, Construction Industries (41% of Q3 revs) and Energy & Transportation (41%), leading the pack, expanding their top lines by 12% and 11% yr/yr, respectively. Meanwhile, Resource Industries, CAT's mining division, reported revenue growth closely behind its two biggest segments at 9%.
- Geographically, there were weak points. Latin America and Asia Pacific delivered negative yr/yr sales growth for the first time this year, falling 11% and 1%, respectively. While CAT maintained its expectations of soft demand conditions in China, reiterating that construction activity will be well below the typical 5-10% of enterprise sales range in FY23, it did bump its forecast of Latin America construction activity. CAT now anticipates activity in the region to be roughly flat yr/yr in FY23 compared to its prior estimate of a slight decline.
- Also, North America and EMEA continued to shine, expanding sales by 25% and 8% yr/yr, respectively. Management commented that demand stayed healthy for residential and nonresidential construction domestically. A similar trend occurred in the Middle East, which has been a positive standout for most of this year, offsetting persistent difficulties in Europe, which CAT expects to endure continued weakness to close out the year.
- Looking beyond 2023, CAT is optimistic. The company pointed to a healthy backlog, improving dealer inventories, and decent market conditions underpinning its glass-half-full attitude toward 2024.
Delivering slowing sales growth while investors remain uneasy about the near-term future is proving to be a recipe for continued selling pressure for CAT. There were still several bright spots from the quarter. However, the market is taking a conservative approach, waiting for added clarity regarding interest rates, geopolitical matters, and macroeconomic conditions.
Revvity sinks on reduced FY23 forecasts and withdrawn 2024-2026 financial goals (RVTY)
Revvity (RVTY -14%), formerly PerkinElmer, missed earnings and revenue forecasts in Q3, a 180 from its upbeat figures last quarter. While lackluster headline performance is casting a cloud over shares of the diagnostic, life science, and industrial testing organization, the overwhelming issue today is RVTY's reduced FY23 outlook. The company slashed its adjusted earnings and revenue forecasts to $4.53-4.57 from $4.70-4.90 and $2.72-2.74 bln from $2.80-2.85 bln, respectively. Today's lowered guidance marks the third consecutive quarter RVTY has had to adjust its FY23 outlook lower.
- What happened? Softness occurred late in the quarter due to a downturn in demand from RVTY's pharma and biotech customers. This drove a low-single-digit organic drop in the company' Life Sciences business. This trend had a spillover effect, pressuring RVTY's applied genomics and genomic lab divisions within its Diagnostics segment, causing this business to register sales growth of just 4% organically yr/yr, excluding COVID.
- Both of these segments' revenue figures were lower than RVTY forecasted last quarter. As a result, total revenue of $670.3 mln, a 5.9% drop yr/yr, fell short of internal and analyst expectations.
- Discouragingly, the bad news did not stop at a problematic Q3. RVTY anticipates the headwinds from the quarter to carry over into Q4, resulting in non-COVID organic revenue growth to be down in the mid-single digits yr/yr, bringing FY23 growth to approximately +2%, considerably down from the company's +4-6% estimate outlined three months ago. Furthermore, these challenges are not letting off the gas after 2023 is completed. RVTY projects the pharma/biotech issues to persist into at least 1H24.
- While cautiously optimistic undertones could have helped prevent such a striking sell-off today, management did not offer much to alleviate newfound fears. Alongside its cut FY23 guidance, RVTY withdrew its previously provided 2024-2026 mid-term financial goals, pending an updated analysis of how industry demand may play out over that timeframe. Management expects a new forecast by the end of the year.
- To contend with the unfavorable demand landscape, RVTY is focusing on costs, looking to take additional actions heading into next year beyond the approximately $80 mln of expenses it should have already cut by the end of 2023.
Bottom line, RVTY is amid more market pressure than it previously anticipated. The company believes its business is better insulated from macro and industry pressures than some of its peers. However, that does not mean it is immune to a softer spending environment. Recently hitting 52-week lows, the healthcare sector has been struggling lately. RVTY's lowered FY23 guidance and withdrawn mid-term financial outlook do not help put the healthcare industry in a better light. Nevertheless, there are silver linings from RVTY's Q3 report, including robust Software and Immunodiagnostics demand. Unfortunately for the company, it could take time until the bulk of its business begins to enjoy a meaningful turnaround.
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