Market Snapshot
briefing.com
| Dow | 34061.32 | +222.24 | (0.66%) | | Nasdaq | 13478.28 | +184.09 | (1.38%) | | SP 500 | 4358.34 | +40.56 | (0.94%) | | 10-yr Note | +33/32 | 4.51 |
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| | NYSE | Adv 2380 | Dec 472 | Vol 1.0 bln | | Nasdaq | Adv 3361 | Dec 979 | Vol 4.9 bln |
Industry Watch
| Strong: Real Estate, Materials, Utilities, Consumer Discretionary, Financials, Industrials |
| | Weak: Energy |
Moving the Market
-- Sharp drop in yields after this morning's economic data
-- Decline in Apple (AAPL) following its earnings report and weak revenue growth outlook for fiscal Q1
-- Digesting the weaker-than-expected jobs report and ISM Non-Manufacturing Index
-- Seasonality; November has been the strongest month on average for the S&P 500 historically
-- S&P 500 climbing past its 50-day moving average (4,347)
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Closing Summary
03-Nov-23 16:25 ET
Dow +222.24 at 34061.32, Nasdaq +184.09 at 13478.28, S&P +40.56 at 4358.34
[BRIEFING.COM] The stock market closed out this winning week on a strong note. A loss in Apple (AAPL 176.65, -0.92, -0.5%) in response to a fiscal Q1 revenue outlook that did not live up to analysts' expectations limited index gains somewhat, but broad buying activity offset the weakness in Apple. Buyers were keying off a sharp drop in rates that followed this morning's economic data.
The 10-yr note yield fell 16 basis points today and 31 basis points this week to 4.51%. The 2-yr note yield fell 12 basis points to 4.86%. These moves followed an October Employment Situation Report that showed slower payroll growth, rising unemployment, and slower wage growth, as well as an October ISM Services PMI that dropped to 51.8% from 53.6% in September, reflecting a slowdown in the pace of expansion for the services sector.
Many stocks participated in today's advance, which was aided by short-covering activity and a fear of missing out on further gains in a seasonally strong period for the market. Even Apple recovered a good bit of what it had lost, having been down as much as 2.4% earlier.
The S&P 500 closed above its 50-day moving average (4,347) after falling to 4,103 at last Friday's low. The Russell 2000, which had underperformed relative to other major indices recently, closed with the biggest gain today (+2.8%) and a whopping 7.6% gain for the week.
Ten of the 11 S&P 500 sectors registered a gain, led by the rate-sensitive real estate sector (+2.4%). The energy sector (-1.0%) was alone in the red at the close, due in part to falling oil prices ($80.78/bbl, -1.79, -2.2%). Crude futures settled lower due to traders presumably not liking the implication of slower growth embedded in the employment data, the October ISM Services PMI, and a dour view on demand patterns from global shipping giant Maersk.
Separately, there was a ton of earnings news since yesterday's close. Expedia (EXPE 112.71, +17.87, +18.8%) and Paramount Global (PARA 13.76, +1.84, +15.4%) were some of the biggest movers following their earnings reports. Fortinet (FTNT 50.48, -7.11, -12.4%) and Bill.com (BILL 66.93, -22.54, -25.2%), meanwhile, saw some of the steepest losses after reporting their results.
- Nasdaq Composite: +28.8% YTD
- S&P 500: +13.5% YTD
- Dow Jones Industrial Average: +2.8% YTD
- S&P Midcap 400: +2.0% YTD
- Russell 2000: -0.03% YTD
Reviewing today's economic data:
- October Nonfarm Payrolls 150K (Briefing.com consensus 175K); Prior was revised to 297K from 336K; October Nonfarm Private Payrolls 99K (Briefing.com consensus 143K); Prior was revised to 246K from 263K;
- October Avg. Hourly Earnings 0.2% (Briefing.com consensus 0.3%); Prior was revised to 0.3% from 0.2%; October Unemployment Rate 3.9% (Briefing.com consensus 3.8%); Prior 3.8%; October Average Workweek 34.3 (Briefing.com consensus 34.3); Prior 34.4
- It seems silly to cheer weakening activity in the labor market, but the key takeaway from this report is that it resonates as a "soft landing report" that will keep the Fed from raising the fed funds rate again.
- October S&P Global US Services PMI - Final 50.6; Prior 50.1
- October ISM Non-Manufacturing Index 51.8% (Briefing.com consensus 53.0%); Prior 53.6%
- The key takeaway from the report is that the largest sector of the U.S. economy is in a slower growth mode, but, importantly for the soft landing view, is not contracting.
There is no U.S. economic data of note on Monday.
Treasuries settle with solid gains
03-Nov-23 15:35 ET
Dow +232.82 at 34071.90, Nasdaq +191.26 at 13485.44, S&P +45.16 at 4362.94
[BRIEFING.COM] The market pulled back from session highs, but the major indices are still sporting nice gains.
The 2-yr note yield fell 12 basis points today and 17 basis points this week to 4.86%. The 10-yr note yield fell 11 basis points today and 29 basis points this week to 4.56%. The U.S. Dollar Index fell 1.0% to 105.04.
There is no U.S. economic data of note on Monday.
Stocks continue to climb; oil prices settle lower
03-Nov-23 15:05 ET
Dow +302.55 at 34141.63, Nasdaq +224.65 at 13518.83, S&P +55.30 at 4373.08
[BRIEFING.COM] Stocks continue to climb. The Russell 2000 is up 3.2% today and 8.0% this week.
WTI crude oil futures sell 2.2% to $80.78/bbl and natural gas futures rose 0.8% to $3.79/mmbtu.
On a related note, the S&P 500 energy sector remains alone in negative territory, down 1.0%.
Gartner, Insulet among best S&P 500 performers on Friday post earnings
03-Nov-23 14:30 ET
Dow +268.56 at 34107.64, Nasdaq +200.52 at 13494.70, S&P +48.73 at 4366.51
[BRIEFING.COM] The S&P 500 (+1.13%) is in second place on Friday afternoon, up about 49 points.
S&P 500 constituents Gartner (IT 389.04, +51.45, +15.24%), Insulet (PODD 161.77, +21.33, +15.19%), and Caesars Entertainment (CZR 44.33, +3.70, +9.11%) pepper the top of the index. IT and PODD move higher on earnings, while CZR gains despite a dearth of corporate news.
Meanwhile, New Jersey-based Church & Dwight (CHD 85.80, -6.16, -6.70%) is one of today's worst performers despite mostly upside Q3 results as pressure on margins appears to be the culprit.
Gold climbs out of weekly losses on Friday as jobs data dents yields, dollar
03-Nov-23 14:00 ET
Dow +283.03 at 34122.11, Nasdaq +194.43 at 13488.61, S&P +49.95 at 4367.73
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.46%) is atop the standings, hovering just off HoDs.
Gold futures settled $5.70 higher (+0.3%) to $1,999.20/oz, up less than $1 on the week, climbing out of weekly losses on Friday as the dollar and yields were spooked by jobs data out this morning.
Meanwhile, the U.S. Dollar Index is down about -1% to $105.05.
Page One
Last Updated: 03-Nov-23 08:57 ET | Archive
October employment report checks the right boxes
Apple (AAPL) reported its fiscal Q4 results after yesterday's close, and let's just say it -- and the broader market -- had the benefit of good timing with that report. The overall results were okay, but its expectation that fiscal Q1 revenue will be similar to last year's fiscal Q1 revenue, which equates to a roughly 5.0% year-over-year decline, was not.
Shares of AAPL are down 1.8%, creating a drag for the broader market, but we dare say that if this report came out a few weeks ago, it would have been a bigger drop for AAPL and a much bigger drag for the broader market.
The broader market, however, has a shock absorber now that it didn't have a few weeks ago. It has a 10-yr note yield at 4.54% versus 5.00% a few weeks ago. That shock absorber has cushioned the ride for a lot of stocks over the past week. Entering today, the Russell 2000 is up 4.9% from last Friday's low, the S&P 500 is up 5.2%, the Nasdaq Composite is up 5.5%, and the Vanguard Mega-Cap Growth ETF (MGK) is up 6.1%.
Those are big moves in a short period of time. It is natural that things would cool off a bit, but it is also natural to think, with rates down and favorable seasonality in play, that the market is going to rediscover its willingness to buy on weakness.
That willingness is on display at the moment. The S&P 500 futures were down three points and the Nasdaq 100 futures were down 39 points just ahead of the October employment report at 8:30 a.m. ET. Currently, the S&P 500 futures are up 21 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 48 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 157 points and are trading 0.5% above fair value.
One can probably surmise from the turnaround that the October employment report was a soothing one for the market. That would be correct as it checked the boxes of slower payroll growth, rising unemployment, and slower average hourly earnings growth.
It seems silly to cheer weakening activity in the labor market, but the key takeaway from this report is that it resonates as a "soft landing report" that will keep the Fed from raising the fed funds rate again.
Fed Chair Powell said at his press conference that the FOMC is not thinking about cutting rates right now at all, yet the market is embracing the thought that this employment data could mean the Fed is at least a step closer to starting to think about cutting rates.
The 2-yr note yield, at 5.21% a few weeks ago and at 4.98% just before the report was released, is now at 4.84%. The 10-yr note yield, at 4.63% just before the report was released, is at 4.54%.
Notable headlines from the September Employment Situation Report:
- October nonfarm payrolls increased by 150,000 (Briefing.com consensus 175,000). The 3-month average for total nonfarm payrolls decreased to 204,000 from 233,000. September nonfarm payrolls revised to 297,000 from 336,000. August nonfarm payrolls revised to 165,000 from 227,000.
- October private sector payrolls increased by 99,000 (Briefing.com consensus 143,000). September private sector payrolls revised to 246,000 from 263,000. August private sector payrolls revised to 114,000 from 177,000.
- October unemployment rate was 3.9% (Briefing.com consensus 3.8%), versus 3.8% in September. Persons unemployed for 27 weeks or more accounted for 19.8% of the unemployed versus 19.1% in September. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.2% versus 7.0% in September.
- October average hourly earnings were up 0.2% (Briefing.com consensus 0.3%) versus an upwardly revised 0.3% (from 0.2%) in September. Over the last 12 months, average hourly earnings have risen 4.1%, versus 4.3% for the 12 months ending in September.
- The average workweek in October was 34.3 hours (Briefing.com consensus 34.3), versus 34.4 hours in September. Manufacturing workweek was little changed at 40.0 hours. Factory overtime dipped 0.1 hour to 2.9 hours.
- The labor force participation rate decreased to 62.7% from 62.8% in September.
- The employment-population ratio held steady fell to 60.2% from 60.4% in September.
-- Patrick J. O'Hare, Briefing.com
Carvana's relief rally continues following sustained profitability in Q3 (CVNA)
After a more than 50% correction since September highs, Carvana (CVNA +9%) shares are finally kicking into gear today, sparked by better-than-feared Q3 results. The used vehicle retailer registered a massive jump in net income compared to last quarter, underscoring the company's focus on improving profitability.
- After rival CarMax (KMX) registered disappointing profitability in AugQ in late September, concerns started that CVNA could endure a similar outcome in Q3. What made KMX's mild EPS performance glaring was that it had been purposefully giving up some market share to preserve its margin profile, further highlighting a potentially challenging economic backdrop for CVNA.
- Nevertheless, CVNA's attention to margins has helped boost profitability despite facing unfavorable demand conditions, evidenced by retail vehicle sales tumbling 21% yr/yr in the quarter. Although worth noting is that this is slightly better than CVNA's prediction last quarter of retail units remaining flat sequentially in Q3.
- Specifically, adjusted EBITDA remained in positive territory for the second straight quarter, albeit contracting slightly sequentially. Margins also remained positive, soaring from negative 5.5% in 3Q22 to a healthy 5.3% this quarter, a 10 bp improvement from Q2. With CVNA's return to positive adjusted EBITDA being a major factor in lifting shares to one-year highs in Q2, maintaining this trend in Q3 is reassuring that perhaps CVNA is finally on a path to sustainable profitability.
- Revenue still fell yr/yr for the fifth consecutive quarter, tumbling 18% to $2.77 bln. However, this was mostly in-line with analyst expectations. Meanwhile, non-GAAP total gross profit per unit (GPU) contracted by $634 sequentially to $6,396, driven by smaller benefits compared to Q2.
- Looking ahead, macroeconomic and industry dynamics remain uncertain, which keeps a layer of volatility in play over the near term. However, as long as the environment remains relatively stable, CVNA is confident in achieving a non-GAAP total GPU above $5,000 for the third straight quarter in Q4. Meanwhile, CVNA anticipates significant total GPU and adjusted EBITDA expansion in 2024.
Generating meaningful net income and free cash flow remains CVNA's long-term goal. Given CVNA's past and the immediate future with heightened macroeconomic volatility, bumps along the way to reaching these financial goals are expected. While its debt restructuring deal last quarter went a long way in easing financial pressures, there are still plenty of doubters surrounding whether CVNA can come out of the current lackluster demand backdrop in a healthy financial position. However, so far, CVNA is making solid progress toward being a fierce contender in the used car retail space.
Block has solid profit growth squarely in sight on strong Cash App growth and cost cuts (SQ)
Rising interest rates and high inflation have taken a toll on payment platform company Block (SQ), as illustrated by the stock's 65% crash since early 2022, but SQ is experiencing a much-needed bounce higher today after delivering a beat-and-raise Q3 earnings report. Not only has SQ contended with macro-related headwinds, but it has also faced some internal strife as its CEO departed the company in early October. Jack Dorsey, who co-founded SQ and previously served as the company's CEO, returned to that role after Alyssa Henry stepped down.
- The slowdown in discretionary spending is still impacting SQ -- gross payment volume increased by just 11% compared to 20% a year-earlier -- but its performance relative to competitor PayPal (PYPL), which issued downside Q4 guidance on Wednesday night, appears stronger. Underpinning this outperformance is the consistent strong growth of Cash App, SQ's person-to-person payment service.
- In Q3, revenue for Cash App jumped by 34% to $3.58 bln, nearly matching last quarter's growth of 36%.
- Furthermore, the Cash App Card reached 22 mln month active users as of September, providing an avenue for users to adopt other financial services like Cash App Savings, Direct Deposit, and Borrow.
- SQ has also kept a tight lid on costs. On a qtr/qtr basis, non-GAAP operating expenses declined by about 4% to $1.44 bln and further cost cuts may be on the way. Yesterday, Business Insider reported that the company recently warned employees of additional job cuts over the next several months.
- This combination of healthy Cash App growth and cost-cutting fueled a 46% surge in adjusted EBITDA to $477 mln, which easily beat expectations. What's really driving the stock higher, though, is SQ's expectation for even greater profitability on an adjusted EBITDA basis.
- More specifically, the company raised its FY23 adjusted EBITDA guidance higher to $1.66-$1.68 bln from $1.50 bln, while guiding for a 44% increase in FY24 to $2.4 bln.
- The cherry on top is that SQ also authorized $1.0 bln for share repurchases, providing SQ with a lever to pull in terms of EPS.
The main takeaway is that while SQ is significantly impacted by the consumer spending slowdown, it's better insulated than other payment processing companies due to the rampant success of Cash App. In addition to its cost containment efforts, the strong growth of Cash App is driving healthy profit growth amid a very challenging environment.
Skyworks grounded as inventory glut in Broad Markets business weighs on outlook (SWKS)
Echoing the same message as Qualcomm (QCOM) from Wednesday night's earnings call, Skyworks (SWKS) stated that the excess inventory situation is modestly improving in the Android market, helping the semiconductor company to edge past Q4 estimates. However, SWKS is still under shipping relative to demand -- which is gradually improving -- as the industry rebalances, while its Broad Markets segment is still grappling with an inventory glut in certain markets.
Apple (AAPL), SWKS's largest customer at about 50-60% of total revenue, also reported Q4 results last night, slightly beating top and bottom-line estimates. Ahead of the report, concerns were growing regarding iPhone 15 sales, especially after Bloomberg reported in mid-October that the smartphone was off to a slow start in China. It turned out that iPhone revenue of $43.8 bln surpassed expectations, which filtered through to SWKS's upside results. AAPL's 1Q24 guidance, though, fell short of expectations with the company forecasting revenue to be similar to last year.
Therefore, it doesn't come as a surprise that SWKS also issued soft Q1 guidance. Unfortunately, the company's challenges extend beyond AAPL.
- The Broad Markets business consists of the automotive, infrastructure, and IoT markets and represented about 35% of SWKS's total revenue in Q4. SWKS is seeing softer demand spreading from consumer to certain durable sectors as its customers continue to work through excess inventory.
- Due to the lingering oversupply in the channel, SWKS's factories aren't operating at full capacity. This, in turn, is putting pressure on gross margin, which contracted to 47.1% from 51.3% in the year-earlier period. The company expects margins to remain at these levels in the near-term, guiding for Q1 gross margin of 46-47%.
- Despite the difficult business conditions, SWKS plans to ramp up expenses in Q1 as it invests in mobile to drive market share gains. Specifically, the company guided for operating expenses of $193-$197 mln, representing a qtr/qtr increase of 10% at the mid-point of the range. In an environment where market participants are rewarding companies that are cutting costs, SWKS's decision to bump expenses higher probably isn't helping the stock's cause.
- The good news is that during Q4, the company reduced its own inventory by $116 mln to $1.12 bln. Furthermore, SWKS says that it's on track to reduce inventory below $1.0 bln by the end of Q1. As inventory returns to more normalized levels, SWKS should be able to increase factory utilization, providing its margins with a boost.
- Also, from a longer-term perspective, the company remains bullish on its growth opportunities. For instance, in the mobile business, SWKS expects that RF content will expand in the coming years as high-performance 6G smartphones are launched. As smartphones begin to incorporate AI capabilities, a major upgrade cycle could follow.
The main takeaway is that the excess inventory situation remains a headwind for SWKS, especially in the Broad Markets business, while the Mobile business is still far from healthy. SWKS anticipates that the Mobile business will gain momentum heading into 2024, but a more meaningful recovery may still be a couple quarters away.
Apple heads lower despite upside SepQ; light DecQ guidance makes for ho-hum holiday (AAPL)
Apple (AAPL -1%) is trading modestly lower after reporting Q4 (Sep) results last night. The headline numbers were a nice EPS beat and in-line revenue. However, on the call, Apple said it expects Q1 (Dec) revs to be flat yr/yr, which would imply a shortfall in revenue for the holiday quarter.
- iPhone performed well with revenue coming in slightly ahead of expectations. Revenue rose 2.8% yr/yr to $43.81 bln, a new record iPhone result for SepQ. Apple says it was thrilled to debut the iPhone 15 lineup. Apple had a strong performance in several markets, including an all-time record in India and SepQ records in Canada, Latin America, the Middle East and South Asia. Its iPhone active installed base grew to a new all-time high.
- Probably the biggest disappointment was Mac sales, which fell 34% yr/yr to $7.61 bln, which was below street estimates. In fairness, Mac was lapping a very difficult compare last year. Apple was dealing with supply disruptions from factory shutdowns in JunQ last year. It was then able to fulfill significant pent-up demand during SepQ last year. Apple was also hurt by MacBook Air launching in JunQ this year vs SepQ last year. Apple expects Mac's yr/yr performance in DecQ to significantly accelerate relative to SepQ.
- iPad revenue fell 10% yr/yr at $6.44 bln, which was better than street ests. In terms of the yr/yr decline, iPad was dealing with the same supply disruption dynamics as the Mac. Apple expects the yr/yr performance for the iPad to decelerate significantly in DecQ relative to SepQ due to a different timing of product launches. Apple launched a new iPad Pro and iPad 10th Generation during DecQ last year.
- Wearables revenue was down 3% yr/yr at $9.32 bln, which was slight upside to street ests. Services revenue jumped 16% yr/yr to an all-time record $22.3 bln, which was above street ests. Apple achieved all-time revenue records across App Store, advertising, AppleCare, iCloud, payment services and video as well as a SepQ revenue record in Apple Music.
Overall, it was a solid quarter but the guidance for DecQ is a bit worrisome. It tells us consumers may be wary about shelling out big money for a new iPhone in this macro environment, when their current model is probably good enough. The stock has been trending lower since early August, which was when Apple reported JunQ results and missed street ests for iPhone sales. When you couple that with weak DecQ guidance, it makes investors nervous about consumers willing spend on new iPhones.
Also, while Apple noted that iPhone set a SepQ record for sales in Mainland China, there have been news reports that Huawei is gaining ground in China. We think this DecQ guidance adds to the fears. All in all, this was a decent way to end FY23, but investors would have liked to have seen a more bullish outlook for the holiday period.
Expedia Group takes off on uplifting Q3 results and reiterated FY23 revenue guidance (EXPE)
Expedia Group (EXPE +16%) embarks toward greener pastures today as investors cheer the travel services platform provider's outsized Q3 performance and $5.0 bln share buyback program. Concerns were brewing ahead of EXPE's Q3 report, especially after rival Airbnb (ABNB) issued bearish Q4 guidance, including moderating bookings growth, reflecting a relatively high degree of travel demand variability. With a somewhat gloomy tone set, EXPE's Q3 results were a breath of fresh air, topping earnings and sales estimates on accelerating growth and margin expansion while reiterating its double-digit FY23 revenue growth forecast.
- Outside the fires in Maui, which disproportionately hurt EXPE's Vrbo (similar to Airbnb) business, travel demand remained solid, a theme hit on by several travel-based organizations lately. North American and European demand was steady, while more pronounced growth occurred in Asia Pacific and Latin America. China was an essential driver of total growth, with bookings soaring over 150% yr/yr. Prices also started to stabilize, with average daily rates (ADRs) in hotels and Vrbo holding steady across each region.
- Conversely, within air and vehicle categories, EXPE witnessed modest pricing pressure. Meanwhile, the recent outbreak of war in the Middle East is negatively impacting global travel early in October.
- EXPE's business-to-business (B2B) segment was a key pillar to its success in Q3, expanding revs by 26% yr/yr. However, at over 70% of overall revs, EXPE's business-to-consumer (B2C) segment carries more weight. While this segment lagged noticeably compared to B2B, growing revs just 4% yr/yr, this still marked a 400 bp acceleration from Q2, reflecting increasing momentum.
- As a result, EXPE was well-positioned to post solid headline numbers, expanding its bottom line by 34% yr/yr to $5.41 per share and top line by 9% to $3.93 bln. Additionally, gross bookings ticked 7% higher and booked room nights up 9%. While sustained travel demand was needed to register these results, another notable factor was EXPE finally completing the final leg of its Vrbo migration, which has created numerous headwinds over the past couple of quarters.
- To streamline and simplify its end-user experience, EXPE was migrating its multiple banners to a consolidated Expedia platform, completing its Hotels.com migration earlier this year. After delays set in surrounding its Vrbo migration, being done with this initiative is removing a meaningful overhang.
EXPE's Q3 report was not just a story of sustained travel demand but a reflection of its competitive advantage, particularly given ABNB's mild Q4 outlook. While EXPE and ABNB offer similar services, a key differentiator is EXPE's exposure to hotels, as well as flights and rental cars. A comment from EXPE that stood out was that lodging gross bookings, which climbed by 8% yr/yr in Q3, would have been even higher if not for Vrbo, as hotels grew at a 14% clip, underpinning a shift by consumers toward value, an attribute hotels tend to boast over alternative accommodations. This could create a further headwind for ABNB if inflation does not cool rapidly and interest rates remain elevated.
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