Market Snapshot
briefing.com
| Dow | 34152.60 | +56.74 | (0.17%) | | Nasdaq | 13639.86 | +121.08 | (0.90%) | | SP 500 | 4378.38 | +12.40 | (0.28%) | | 10-yr Note | +28/32 | 4.57 |
|
| | NYSE | Adv 1197 | Dec 1635 | Vol 883 mln | | Nasdaq | Adv 2047 | Dec 2255 | Vol 4.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Communication Services |
| | Weak: Energy, Materials, Real Estate, Industrials, Utilities |
Moving the Market
-- Ongoing strength in mega cap and growth stocks
-- A drop in market rates acting as support for stocks
-- Relative strength from the mega cap space
-- A big drop in oil presumably tied to growth concerns
| Closing Summary
07-Nov-23 16:30 ET
Dow +56.74 at 34152.60, Nasdaq +121.08 at 13639.86, S&P +12.40 at 4378.38
[BRIEFING.COM] Like yesterday, relative strength in the mega cap stocks propelled the major indices to close with gains. The Vanguard Mega Cap Growth ETF (MGK) climbed 1.0%, the Nasdaq Composite rose 0.9%, and the market-cap weighted S&P 500 rose 0.2%.
The broader market saw some selling activity, but remained resilient overall. The equal weighted S&P 500 declined only 0.2%.
A drop in market rates, short-covering activity, and/or a fear of missing out on further gains in this seasonally strong period for the market presumably acted as support for equities.
The 2-yr note yield fell two basis points to 4.92% and the 10-yr note yield fell nine basis points to 4.57%. These moves follow a decent 3-yr note auction, along with some weak economic data for September out of Europe that featured a 1.4% month-over-month decline in industrial production in Germany and a 12.4% year-over-year decline in PPI for the eurozone.
Notably, the rate-sensitive utilities (-0.7%) and real estate (-0.9%) sectors still declined today despite the drop in yields. The materials (-1.9%) and energy (-2.2%) sectors were also some of the worst performers. The latter was sliding alongside oil prices ($77.33/bbl, -3.77, -4.7%), which appeared to be reacting to growth concerns more so than geopolitical angst.
The consumer discretionary (+1.2%), information technology (+1.1%), and communication services (+0.6%) sectors closed at the top of the leaderboard, benefitting from gains in mega cap components.
Growth stocks were another source of support for the broader market, drafting off the big move in cloud applications provider Datadog (DDOG 102.20, +22.65, +28.5%) following its earnings report.
On a related note, Uber (UBER 49.92, +1.78, +3.7%) and NXP Semi (NXPI 185.80, +3.00,+ 1.6%) were standout winners after reporting earnings.
- Nasdaq Composite: +30.3% YTD
- S&P 500: +14.0% YTD
- Dow Jones Industrial Average: +3.0% YTD
- S&P Midcap 400: +0.7% YTD
- Russell 2000: -1.6% YTD
Reviewing today's economic data:
- September Trade Balance -$61.5 bln (Briefing.com consensus -$60.1 bln); Prior was revised to -$58.7 bln from -$58.3 bln
- The key takeaway from the report is that there was strength in% both imports and exports in September, demonstrating the continued strength of the U.S. economy and the appeal of U.S. goods abroad at a time of softening global demand.
- Consumer credit increased by $9.0 bln in September (Briefing.com consensus $9.0 bln) after decreasing a downwardly revised $15.8 bln (from -$15.6 bln) in August.
- The key takeaway from the report is that tighter lending standards and reduced borrowing needs in the face of higher interest rates have slowed the pace of credit expansion, particularly for nonrevolving deb.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.1%)
- 10:00 ET: September Wholesale Inventories (Briefing.com consensus 0.0%; prior -0.1%)
- 10:30 ET: Weekly crude oil inventories (prior +0.774 mln)
Treasuries settled with gains; consumer credit
07-Nov-23 15:35 ET
Dow +78.70 at 34174.56, Nasdaq +146.56 at 13665.34, S&P +17.87 at 4383.85
[BRIEFING.COM] Things are little changed over the last half hour.
Treasuries settled with gain across the curve. The 2-yr note yield fell two basis points to 4.92% and the 10-yr note yield fell nine basis points to 4.57%.
Consumer credit increased by $9.0 bln in September (Briefing.com consensus $9.0 bln) after decreasing a downwardly revised $15.8 bln (from -$15.6 bln) in August.
The key takeaway from the report is that tighter lending standards and reduced borrowing needs in the face of higher interest rates have slowed the pace of credit expansion, particularly for nonrevolving deb.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.1%)
- 10:00 ET: September Wholesale Inventories (Briefing.com consensus 0.0%; prior -0.1%)
- 10:30 ET: Weekly crude oil inventories (prior +0.774 mln)
Energy complex futures sink
07-Nov-23 15:05 ET
Dow +58.46 at 34154.32, Nasdaq +124.16 at 13642.94, S&P +11.95 at 4377.93
[BRIEFING.COM] The major indices are moving mostly sideways near session highs.
WTI crude oil futures fell 4.7% today to $77.33/bbl and natural gas futures fell 2.8% to $3.47/mmbtu. On a related note, the S&P 500 energy sector (-2.3%) remains in last place on the leaderboard.
Separately, the US Dollar Index is up 0.4% to 105.58.
Gen Digital atop S&P 500 on earnings, Air Products lower following Q4 revs miss
07-Nov-23 14:30 ET
Dow +69.35 at 34165.21, Nasdaq +149.19 at 13667.97, S&P +17.45 at 4383.43
[BRIEFING.COM] The S&P 500 (+0.40%) is in second place on Tuesday afternoon, up about 17 points.
S&P 500 constituents Gen Digital (GEN 19.04, +1.59, +9.11%), Expedia Group (EXPE 120.04, +8.45, +7.57%), and Adobe (ADBE 584.25, +18.80, +3.32%) pepper the top of the standings. GEN moves higher on earnings, EXPE is a sympathy mover on TripAdvisor's (TRIP 18.06, +1.95, +12.10%) report, while ADBE benefits from broader strength in tech as well as a sympathy move to DDOG's earnings.
Meanwhile, Pennsylvania-based chemicals producer Air Products (APD 257.76, -33.54, -11.51%) is today's worst performer after this morning's Q4 sales miss.
Gold slips once more as Middle East tensions simmer
07-Nov-23 14:00 ET
Dow +55.91 at 34151.77, Nasdaq +142.68 at 13661.46, S&P +15.96 at 4381.94
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+1.06%) remains today's best-performing average.
Gold futures settled $15.10 lower (-0.8%) to $1,973.50/oz, touching its lowest levels since mid October as haven demand continued to wane with tensions in the Middle East not progressing past the previous fervor.
Meanwhile, the U.S. Dollar Index is up +0.3% to $105.58.
Page One
Last Updated: 07-Nov-23 09:01 ET | Archive
Taking a bit of a breather
There is no quit in the stock market rally effort. Granted things might have slowed from a run to a walk, yet the S&P 500 and Nasdaq Composite crossed the finish line yesterday with their win streaks intact at six and seven sessions, respectively.
Over the course of that run, the S&P 500 has jumped 6.0% and the Nasdaq Composite has surged 7.3%. Frankly, it has been more like a sprint than a run, which is why there is some thinking that the market is going to need a breather.
The broader market had a bit of a breather yesterday. The S&P 500 Equal-Weight Index declined 0.5%; however, with the support of the mega-cap stocks, the market-cap weighted S&P 500 managed a 0.2% gain.
Currently, the S&P 500 futures are down four points and are trading 0.1% below fair value, the Nasdaq 100 futures are up 18 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are down 51 points and are trading 0.3% below fair value.
That's not a giant exhale by any means, but it does look like there is a bid by the market to catch its breath coming off last week's huge gains. That is no surprise at all. If anything, it is some possible oxygen for the market because "everyone" is expecting some sort of consolidation period. If that consolidation doesn't happen, "everyone" then starts worrying about missing out on further gains.
We'll see what takes shape, but rest assured that "everyone" is keeping close tabs on the price action and the condition of the tape. They are also keeping close tabs on the Treasury market, which has been a beehive of volatility from which no one wants to get stung.
A few weeks ago, the 10-yr note yield peeked its head above 5.00%. A few days ago it saw 4.50%. In overnight action, the yield crossed at 4.66%, slid to 4.59%, rebounded to 4.64% and currently sits at 4.60%.
The $112 billion of debt issuance this week starts today with the $48 billion 3-yr note auction at 1:00 p.m. ET.
The earnings news since yesterday's close has been met with a fairly mixed response. Uber (UBER) is the headliner this morning. It topped Q3 earnings estimates, but missed on revenue. Its stock is down 2.6% in pre-market trading.
Today's economic calendar has featured some mixed trade data out of China, which included weaker than expected exports in October (-6.4% year-over-year) and stronger-than-expected imports (+3.0% year-over-year), and some widening in the U.S. trade deficit in September.
Briefly, the trade deficit was $61.5 billion in September (Briefing.com consensus -$60.1 billion) versus a downwardly revised $58.7 billion (from -$58.3 billion) in August. Exports were $5.7 billion more than August exports while imports were $8.6 billion more than August imports.
The key takeaway from the report is that there was strength in both imports and exports in September, demonstrating the continued strength of the U.S. economy and the appeal of U.S. goods abroad at a time of softening global demand.
In central bank news, the Reserve Bank of Australia raised its cash rate by 25 basis points to 4.35%, as expected, yet the language of the policy directive also suggested the bank may be seeing a need to take a breather on further rate hikes.
-- Patrick J. O'Hare, Briefing.com
NXP Semi registered decent Q3 results; expects improving demand in 2024 (NXPI)
NXP Semi (NXPI +1%) shares maintain their recent upward momentum today, buoyed by better-than-expected bottom-line results in Q3 on relatively flat revenue growth. The semiconductor manufacturer operating across the automotive, industrial, mobile, and communications markets also projected Q4 earnings and revs consistent with analyst expectations.
However, although shares are enjoying modest buying activity today, NXPI's Q3 report contained several opposing dynamics, potentially keeping a lid on the stock's near-future appreciation.
- Headline numbers in Q3 were consistent with what NXPI has reported lately: mild earnings upside on stagnant yr/yr revenue growth. Specifically, adjusted EPS climbed 32.6% to $3.70, despite a 190 bp contraction in adjusted operating margins yr/yr, sufficient for NXPI's second consecutive earnings beat, while revenue contracted by 0.3% to $3.43 bln, the company's third straight quarter of a slight yr/yr sales decline.
- Still, aside from communication infrastructure, which despite growing revs by 8% yr/yr to $559 mln, was still below the midpoint of NXPI's prior forecast, each of the company's end markets performed in-line or better than expected in Q3. Automotive revs grew 5% yr/yr to $1.89 bln, industrial revs fell 15% to $607 mln, and mobile revs declined 8% to $377 mln.
- Geographically, NXPI experienced incremental improvements across most regions, with China, its most crucial region comprising 36% of FY22 revs, advancing solidly compared to Q2, marking another quarter of sequential gains.
- Still, looking toward the year's final quarter, NXPI anticipates earnings of $3.44-3.86 per share and revs of $3.30-3.50 bln, similar to its Q3 outlook, implying another quarter of relatively mild results.
- NXPI also provided an early look at FY24, commenting that it continues observing an operating environment filled with cross currents. The macroeconomic situation remains weak, with demand in China, albeit improving, staying subdued, the geopolitical picture remaining uneasy, and inflation staying elevated.
- On a more positive note, management is optimistic about a return to yr/yr revenue growth in 2024, anticipating a soft landing for the business. Strength will stem from global automotive production ticking 1% higher yr/yr and shifting toward semiconductor-rich EVs, as well as industrial trends promoting content growth similar to automotive. Conversely, communication infrastructure will likely remain weak.
Bottom line, NXPI's Q3 report may not have been exceptional, underpinned by trends consistent with previous forecasts. However, a meaningful silver lining was a notably more upbeat year ahead. We have heard from others in the industry, such as KLA Corp (KLAC) and Lam Research (LRCX), indicating an improving demand profile in 2024. NXPI's remarks reinforce this brighter future, albeit tempered by lingering uncertainties.
D.R. Horton looking constructive today as tight housing supply again drives blowout results (DHI)
For the fourth consecutive quarter, homebuilder D.R. Horton (DHI) easily surpassed EPS and revenue expectations, even as mortgage rates climbed to over 8% to reach their highest levels in over 20 years. The chronic shortage of housing that's being exacerbated by rising mortgage rates, causing current homeowners to stay put in their current homes, continues to be the driving force behind the strong results for homebuilders. In mid-September, peers Lennar (LEN) and KB Home (KBH) also delivered better-than-expected Q3 reports, fueled by these same dynamics.
- Looking ahead, DHI expects new housing demand to remain healthy, as reflected by its upside 1Q24 and FY24 revenue guidance of $7.4-$7.6 bln and $36-$37 bln, respectively. The company acknowledged, though, that affordability has become an issue and will remain so next year.
- With an average closing price of about $383,000 in Q4 (-5% yr/yr), DHI caters more to first time homebuyers than other homebuilders such as Toll Brothers (TOL), which had an average delivered price per home of over $1.0 mln last quarter. Therefore, DHI's customer base is more sensitive to higher interest rates, which means it must ramp up incentives to keep demand humming.
- On that note, it was surprising to see that gross margin on home sales increased by 180 bps qtr/qtr to 25.1% due to a modest increase in average sales price and lower materials costs. However, DHI does expect homebuilding gross margin to dip in 1Q24 compared to Q4 as it offers more incentives, including price cuts and mortgage rate buydowns. Specifically, the company guided for overall gross margin of 23.7-24.2%.
- The anticipated margin erosion will create a headwind for earnings growth in FY24. In fact, DHI's EPS is already declining, sliding by nearly 5% yr/yr to $4.45 in Q4 as homebuilding SG&A expense climbed by 30 bps to 7.1% of revenue.
The main takeaway is that the general story remains much the same as it did earlier this year for DHI and its competitors. Favorable demographics and a tight housing supply continue to underpin strong demand for new housing and that seems unlikely to change any time soon. The primary uncertainty revolves around incentives and how generous homebuilders will need to become in order to maintain this level of demand. For now, it seems that the upswing in incentives will remain manageable, with the primary caveat being that the economy and job market remain stable.
Uber gets a green light despite revenue miss as profitability continues to improve (UBER)
Driven by improving revenue margin (formerly reported as take rate), higher advertising revenue, and solid expense management, Uber's (UBER) profitability continues to expand, including in 3Q23. Not only did UBER exceed EPS expectations for the fourth consecutive quarter, but adjusted EBITDA also surged by 110% yr/yr to $1.1 bln, beating its guidance of $975 mln to $1.025 bln, while adjusted EBITDA margin reached an all-time high of 3.1%.
- One issue, though, is that the company fell short of revenue estimates for the second time in a row while revenue growth of 11.4% represented its slowest growth since the COVID-impacted quarter of 1Q21.
- The top-line miss, and decelerating growth is amplifying concerns that the pullback in consumer spending -- including for leisure travel -- is starting to take a toll on rideshare demand.
- Additionally, rival Lyft (LYFT), which reports Q3 earnings after the close tomorrow afternoon, has made it a mission to claw back lost market share by becoming more competitive with pricing. However, given LYFT's recent struggles, including its pedestrian 3% revenue growth in Q2, it seems unlikely that the company gained much ground on UBER in Q3.
- It's also worth noting that UBER's Mobility and Delivery (Uber Eats) revenue growth was negatively impacted by eight percentage points due to accounting changes. More specifically, the company cited "business model changes in some countries that classified certain sales and marketing costs as contra revenue" as a negative factor.
- On a Gross Bookings basis, UBER's growth actually ticked higher to 21% yr/yr from 16% in Q2. Furthermore, CEO Dara Khosrowshahi noted that trips and gross bookings reached all-time highs in October, driven by strength in both Mobility and Delivery.
- He anticipates that these positive trends will continue throughout Q4, as illustrated by UBER's strong Gross Bookings guidance of $36.5-$37.5 bln (+20.5% at the midpoint) and adjusted EBITDA guidance of $1.18-$1.24 bln (+82% at the midpoint).
- The profitability turnaround for Uber Eats continues to impress. It wasn't too long ago that many doubted whether the business could ever generate healthy, consistent profits due to its thin margins and the competitive landscape.
- UBER has proved the skeptics wrong, though, as Uber Eats adjusted EBITDA soared by 128% yr/yr to $413 mln in Q3. The improvement is mainly attributable to better cost leverage from higher volumes and increased advertising revenue.
Overall, this was another solid quarter for UBER, despite the revenue miss. While sluggish discretionary spending likely did have some impact on both the Mobility and Delivery businesses, UBER's leadership positioning and its focus on driving higher profits came to the forefront once again.
Datadog fetches significantly higher prices as stabilization trends follow through to Q3 (DDOG)
After a sharp sell-off ensued following Datadog's (DDOG +29%) comments in early August that cloud-native customers were scrutinizing their costs, investors are breathing a sigh of relief today as the observability and security platform returned to widespread growth among all of its end markets in Q3. DDOG specifically mentioned that companies across all industries and sizes are building cloud applications. DDOG's upbeat headline results and Q4 guidance highlighted this positive reversal from last quarter.
- Adjusted EPS soared nearly 100% yr/yr to $0.45 in Q3, translating to DDOG's first double-digit beat since 1Q22, underpinned by a 7 pt improvement in non-GAAP operating margins from the year-ago period to 24%. DDOG has constantly been targeting areas needing optimization, resulting in ongoing efficiencies within its cloud costs and lifting its bottom line consistently throughout the past several quarters.
- Another notable highlight in Q3 was DDOG's revenue growth of 25.4% yr/yr to $547.54 mln, surpassing estimates easily, an uplifting change from last quarter when the company delivered relatively mild top-line upside. Customers boasting at least $100K in annual recurring revenue (ARR) grew by 20% yr/yr to approximately 3,310.
- As a consumption-based organization, charging customers per their usage, revenue can fluctuate more frequently compared to a standard contract-based model. This has led to a sharp deceleration in revenue growth over the past year. However, in Q3, usage growth of existing customers improved sequentially, reflecting early signs of a turnaround.
- Furthermore, DDOG noticed the crowd optimization activity it faced throughout this year started to moderate during Q3. Encouragingly, the stabilization trend among DDOG's larger customer cohort toward the end of Q2 carried through to Q3, a development we mentioned ahead of the company's Q3 report that could ignite a flood of buyers today.
- After a solid performance in Q3, DDOG projected Q4 earnings and revs firmly ahead of consensus, targeting adjusted EPS of $0.42-0.44, illuminating continued execution on profitability, and revs of $564-568 mln, reflecting sustained stabilization trends.
While DDOG continues to see adverse impacts from optimization occurring throughout its business, it is confident that the intensity and breadth of this development are moderating. At the same time, new customer acquisition remains robust, underscoring stable demand levels; DDOG finished the quarter with a record number of new deals and over $100K in annual commitment. These trends bode well for peers Snowflake (SNOW) and MongoDB (MDB), both of which are up nicely today in sympathy with DDOG.
Finally, alongside an expected strong finish to a volatile year, DDOG anticipates customers of all industries and sizes to continue driving meaningful growth over the mid-to-long term. AI, which is still in its early stages, is a meaningful component of this long-term tailwind, providing outsized potential for accelerating growth once the technology becomes more mature.
Sanmina wraps up FY23 on a sour note as inventory adjustment weigh on results/guidance (SANM)
Sanmina (SANM -13%) is heading sharply lower following its Q4 (Sep) earnings report last night. This EMS provider missed on EPS and revenue and guided Q1 (Dec) EPS and revs below analyst expectations. Granted, only two estimates are available, but the results and guidance were a good bit below that and investors are reacting to it.
- The main problem is ongoing customer inventory adjustments, primarily in its communications end market, as the supply chain has significantly improved. Basically, it sounds like customers feel more confident that they can get supply on a timely basis, so there is less of a need to stock up on inventory, so they are buying less right now.
- It sounds like it will be more than a one quarter hit. Sanmina expects to see some headwinds for the next couple of quarters driven by inventory adjustments and some softness in economy. The majority of the inventory adjustments and softness is coming from its communication markets, but it is affecting other market as well. Sanmina offered a silver lining, saying that it expects to see a nice improvement in market demand in 2HFY24 (JunQ, SepQ).
- Sanmina has made market diversification a key priority. However, communication, which focuses on optical networks, was still its largest market in FY23 at 24% of revs. Other markets include Industrial (22%), Medical (20%), Defense/Aerospace/Automotive (18%), and finally, Cloud Infrastructure (16%). Sanmina has been expanding into more profitable projects, including in renewable energy and grid management.
- In Medical, Sanmina focuses on disposables, wearables, hospital equipment. Sanmina sees some demand adjustments in medical as customers adjust to last year's backlog. Defense/Aerospace demand remains very healthy. Automotive is also a very strong market. With a good amount of exposure to EVs, we thought Sanmina might be cautious in light of OEMs describing softening EV demand, but that was not the case. So that was a small positive.
- Sanmina's top line performance is the headline today, but margins are also critical because EMS is a thin margin industry. And any change has a big impact on results. Q4 non-GAAP operating margin was 5.7%, in line guidance of 5.5-6.0%. That was flat sequentially from 5.7% in JunQ, but up from 5.3% in the prior year period. As such, the margin performance was a minor bright spot in this report. Unfortunately, Sanmina is guiding to perhaps a slight tick down to 5.3-5.7% in DecQ.
Overall, it seems FY24 (Sep) is shaping up as follows: softness in demand in 1H with demand improving in 2H. As such, the next couple of quarters could be rough for Sanmina. Investors may be reacting to the longevity of the weakness. We are now getting on the tail end of earnings season and we have heard about inventory adjustments from several companies, so this is not unusual. And these inventory adjustments have a way of working themselves out over a couple of quarters. While there is near term pain, it is a good thing that customers work down their inventories. That will create demand later on.
|
