| | | Market Snapshot
briefing.com
| Dow | 34827.70 | +489.83 | (1.43%) | | Nasdaq | 14094.38 | +326.64 | (2.37%) | | SP 500 | 4495.70 | +84.15 | (1.91%) | | 10-yr Note | +59/32 | 4.44 |
|
| | NYSE | Adv 2559 | Dec 250 | Vol 1.0 bln | | Nasdaq | Adv 3333 | Dec 1034 | Vol 5.3 bln |
Industry Watch
| Strong: Real Estate, Consumer Discretionary, Utilities, Materials, Communication Services, Information Technology |
| | Weak: -- |
Moving the Market
-- Reacting to the better-than-expected October CPI, which fits with the market's thinking that the Fed will not raise rates again
-- Broad based gains with just about everything participating
-- A sharp drop in yields in response to the data
-- Short-covering activity and a fear of missing out on further gains
|
Closing Summary
14-Nov-23 16:25 ET
Dow +489.83 at 34827.70, Nasdaq +326.64 at 14094.38, S&P +84.15 at 4495.70
[BRIEFING.COM] The major indices all closed with sizable gains, ending near their highs of the day on heavier than average volume. The S&P 500, which flirted with the 4,100 level on October 27, was trading above 4,500 at its high today before settling the session just below that level. The Russell 2000 surged 5.4%, which leaves the index positive for the year (+2.1%).
Equities reacted to a sharp drop in rates on the heels of the better-than-expected October Consumer Price Index (CPI), which corroborated the market's thinking that the Fed is done raising rates.
Total CPI was unchanged month-over-month (Briefing.com consensus +0.1%) and up 3.2% year-over-year versus 3.7% in September. Core CPI, which excludes food and energy, was up 0.2% month-over-month (Briefing.com consensus +0.3%) and up 4.0% year-over-year versus 4.1% in September.
The fed funds futures market priced out the probability of any additional rate hikes by the Fed, and now sees a 65.4% probability of the first rate cut in May 2024, according to the CME FedWatch Tool.
The 2-yr note yield, at 5.02% just before 8:30 a.m. ET, settled 22 basis points lower than yesterday at 4.82%. The 10-yr note yield, at 4.62% just before the data, declined 19 basis points from yesterday to 4.44%. The U.S. Dollar Index also sank after the CPI data, down 1.5% to 104.05.
Buying activity was broad based with just about everything coming along for the rally. The equal weighted S&P 500 climbed 2.9% and the market-cap weighted S&P 500 rose 1.9%. All 11 S&P 500 sectors closed with a gain. The rate-sensitive real estate sector (+5.3%) led the pack followed by utilities (+3.9%) and consumer discretionary (+3.3%). The energy sector (+0.5%) saw the slimmest gain.
Home Depot (HD 303.63, +15.56, +5.4%) was an individual standout after reporting pleasing Q3 results.
- Nasdaq Composite: +34.7% YTD
- S&P 500: +17.1% YTD
- Dow Jones Industrial Average: +5.1% YTD
- S&P Midcap 400: +4.1% YTD
- Russell 2000: +2.1% YTD
Reviewing today's economic data:
- October CPI 0.0% (Briefing.com consensus 0.1%); Prior 0.4%; October Core CPI 0.2% (Briefing.com consensus 0.3%); Prior 0.3%
- The key takeaway from the report is that inflation is moving in the right direction, and because it is, the market will continue to believe that the Fed won't be moving the target range for the fed funds rate any higher.
Wednesday's economic calendar features:
- 07:00 ET: MBA Mortgage Applications Index (Prior 2.5%)
- 08:30 ET: October Retail Sales (Briefing.com consensus -0.3%; Prior 0.7%) and Retail Sales, Ex-Auto (Briefing.com consensus -0.2%; Prior 0.6%)
- 08:30 ET: October PPI (Briefing.com consensus 0.1%; Prior 0.5%) and core PPI (Briefing.com consensus 0.3%; Prior 0.3%)
- 08:30 ET: November Empire State Manufacturing (Briefing.com consensus -5.0; Prior -4.6)
- 10:00 ET: September Business Inventories (Briefing.com consensus 0.4%; Prior 0.4%)
Treasuries settle with big gains
14-Nov-23 15:35 ET
Dow +543.23 at 34881.10, Nasdaq +348.56 at 14116.30, S&P +92.62 at 4504.17
[BRIEFING.COM] The market is little changed over the last half hour.
Treasuries settled with big gains after the October CPI report corroborated the market's thinking that the Fed is done raising rates. The 2-yr note yield fell 22 basis points to 4.82% and the 10-yr note yield fell 19 basis points to 4.44%.
Wednesday's economic calendar features:
- 07:00 ET: MBA Mortgage Applications Index (Prior 2.5%)
- 08:30 ET: October Retail Sales (Briefing.com consensus -0.3%; Prior 0.7%) and Retail Sales, Ex-Auto (Briefing.com consensus -0.2%; Prior 0.6%)
- 08:30 ET: October PPI (Briefing.com consensus 0.1%; Prior 0.5%) and core PPI (Briefing.com consensus 0.3%; Prior 0.3%)
- 08:30 ET: November Empire State Manufacturing (Briefing.com consensus -5.0; Prior -4.6)
- 10:00 ET: September Business Inventories (Briefing.com consensus 0.4%; Prior 0.4%)
S&P 500 back above 4,500
14-Nov-23 15:05 ET
Dow +553.92 at 34891.79, Nasdaq +335.78 at 14103.52, S&P +91.81 at 4503.36
[BRIEFING.COM] The S&P 500 is back above the 4,500 level.
WTI crude oil futures fell 0.2% to $78.15/bbl today and natural gas futures fell 2.8% to $3.31/mmbtu. On a related note, the S&P 500 energy sector (+0.5%) remains in last place on the leaderboard.
JD.com (JD), Target (TGT), and Advance Auto (AAP) headline the earnings news ahead of Wednesday's open.
S&P 500 familiarly in second place on Tuesday afternoon
14-Nov-23 14:30 ET
Dow +481.07 at 34818.94, Nasdaq +302.52 at 14070.26, S&P +82.47 at 4494.02
[BRIEFING.COM] The S&P 500 (+1.87%) is in second place to this point on Tuesday afternoon, up about 82 points.
Elsewhere, S&P 500 constituents Enphase Energy (ENPH 90.02, +11.47, +14.60%), V.F. Corp (VFC 15.60, +1.45, +10.25%), and Alexandria RE (ARE 104.60, +10.29, +10.91%) pepper the top of today's standings. ENPH surges on Tuesday amid this morning's CPI data which served to fuel thoughts that the Fed won't be raising interest rates, while interest rate groups like REITs (including ARE) show solid gains.
Meanwhile, CME Group (CME 209.21, -7.87, -3.63%) is underperforming despite a dearth of corporate news.
Inflation reading gives gold a boost
14-Nov-23 14:00 ET
Dow +469.99 at 34807.86, Nasdaq +303.53 at 14071.27, S&P +81.92 at 4493.47
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+2.20%) continues to hold the lead among the major average with about two hours to go on Tuesday.
Gold futures settled $16.30 higher (+0.8%) to $1,966.50/oz, helped on by this morning's CPI reading.
Meanwhile, the U.S. Dollar Index is down about -1.4% to $104.14.
Page One
Last Updated: 14-Nov-23 09:00 ET | Archive
October CPI just what the markets wanted to see
Monday's trade was pretty much a wash for the major indices. They were little changed on light volume, as market participants kept to the sidelines in front of today's release of the October Consumer Price Index (CPI). Still, "little changed" would have to be considered a victory for the bulls given the scope of gains seen since late October.
Briefly, the S&P 500 is up 7.5% from its October 27 low and the Nasdaq Composite is up 9.8% from its October 26 low.
Those gains are going to be extended at today's open, too, thanks to an October Consumer Price Index that was better than expected and better than feared.
Total CPI was unchanged month-over-month (Briefing.com consensus 0.1%) following a 0.4% increase in September. Core CPI, which excludes food and energy, was up 0.2% month-over-month (Briefing.com consensus 0.3%) following a 0.3% increase in September. The shelter index, up 0.3%, was the largest factor in the increase in core CPI.
On a year-over-year basis, total CPI was up 3.2%, versus 3.7% in September, and core CPI was up 4.0%, versus 4.1% in September. That was the smallest 12-month change in core CPI since September 2021.
The key takeaway from the report is that inflation is moving in the right direction, and because it is, the market will continue to believe that the Fed won't be moving the target range for the fed funds rate any higher.
Treasury yields sunk and equity futures spiked immediately after the report. In addition, the probability of the first rate cut happening in May 2024 was moved to 59.8% from 34.7% just before the report, according to the CME FedWatch Tool.
The 2-yr note yield, at 5.02% shortly before the CPI release, plunged to 4.87% after the release. The 10-yr note yield was at 4.60% and now it sits at 4.48%.
Currently, the S&P 500 futures are up 63 points and are trading 1.4% above fair value, the Nasdaq 100 futures are up 264 points and are trading 1.7% above fair value, and the Dow Jones Industrial Average futures are up 374 points and are trading 1.1% above fair value.
The thrust of that move has been predicated on interest rate relief and it is bound to be a catalyst for short-covering activity and "flat squeezes" at today's open. A flat squeeze is a way of saying that participants on the sidelines, fearful of putting cash to work, will likely be squeezed back into action out of fear of missing out on further gains and/or on their own conclusion that the market-friendly CPI reading makes them feel better now about putting some cash to work.
It's not an overstatement to say that the October CPI Report has overshadowed everything else today.
Before its release, House Speaker Johnson was telling CNBC that he believes the continuing resolution to fund the government will pass later today, and Home Depot (HD) had reported earnings and issued guidance that was looked at as better than feared. Nonetheless, there wasn't much conviction in the futures trade. That all changed after the CPI Report.
-- Patrick J. O'Hare, Briefing.com
Harrow posting some harrowing losses in wake of dismal Q3 report (HROW)
Harrow (HROW), an eyecare pharmaceutical company, is plunging to new 52-week lows after issuing a dismal Q3 earnings report that not only fell short of EPS and revenue estimates for the quarter, but also included a downward revision to its FY23 guidance. Adding insult to injury, HROW's FY24 revenue guidance of over $180 mln also disappointed.
- The company did still generate strong top-line growth of 50% with revenue of $34.3 mln reaching a quarterly record. Due to that healthy growth, adjusted EBITDA also soared, jumping by 270% yr/yr to $9.2 mln.
- This growth was primarily driven by increases in HROW's branded pharmaceutical products and the successful launch of IHEEZO, its FDA approved eye gel that's used for patients undergoing eye procedures.
Unfortunately, the good news ends there.
- Last December, HROW acquired the exclusive U.S. rights to five eye pharmaceuticals (ILEVRO, NEVANAC, VIGAMOX, MAXIDEX, and TRIESENCE) from Novartis (NVS). These five products, which HROW dubs as its "Fab Five", are encountering marketing and sales delays.
- More specifically, the company estimates that it's approximately three months behind its revenue forecasts for these products.
- Making matters worse, one of those products, TRIESENCE, is facing manufacturing issues as the results from the first performance qualification (PPQ) batch did not meet all the required specifications.
- While HROW is still committed to having TRIESENCE available next year, it's FY24 revenue guidance did not include any contribution from the drug.
- Lastly, HROW's compounding business also underperformed expectations as it invested in improving efficiencies and compliance related to manufacturing, quality control systems, and its sales and customer service teams.
Altogether, these issues are having a significant impact on HROW's financials, but we also believe that the stock is getting hammered because some of these issues come down to execution. In other words, a loss of investor confidence may be at the root of this collapse in the stock.
Perhaps this drastic selloff will someday look like it was a buying opportunity. Indeed, HROW does have some potent growth catalysts in its corner, including another significant acquisition of Santen's branded ophthalmic portfolio this past July. However, HROW will be a "show me" stock for the time being and it will take a couple strong quarters to turn the tide back in its favor.
Home Depot building some nice gains following a better-than-feared earnings report (HD)
Similar to the past few quarters, Home Depot (HD) saw sluggish demand for big-ticket items and customers opted for smaller projects in Q3, but the home improvement retailer still edged past EPS and revenue expectations. While HD didn't lift its FY24 guidance, it narrowed its outlook for EPS, revenue, and comparable sales, to complete a report that's being viewed as better-than-feared.
- Expectations were quite muted heading into the print as concerns about slowing consumer spending weighed on sentiment. Home furnishings and decor companies, such as RH (RH) and Williams-Sonoma (WSM), lowered their guidance in their most recent earnings reports due to the macro-related headwinds.
- Therefore, the fact that HD essentially maintained its outlook for FY24 is seen as a positive, given the tough business climate.
Many of the trends that were evident in Q2 continued into Q3.
- For instance, consumers are spending less per trip as they cut back on spending, and as inflationary pressures ease. In Q3, average ticket decreased by 0.3% to $89.36, after coming in about flat last quarter at $90.07.
- Falling lumber prices compared to a year ago are also pushing HD's average ticket lower.
- Additionally, the do-it-yourself (DIY) side of the business continues to lag, as reflected in another drop in customer traffic. Specifically, customer transactions were down 2.4% this quarter to 399.8 mln.
- This is a negative data point for rival Lowe's (LOW), which is scheduled to report Q3 earnings on November 21. However, LOW has made consistent progress in growing out its Pro business, helping it to offset waning demand in DIY.
- On the positive side, HD continued to keep a tight lid on expenses, which were up by just 3.6% yr/yr, and gross margin continues to hold steady, contracting by just 20 bps yr/yr to 33.8%.
Looking ahead, FY24 is shaping up to be another challenging year for both HD and LOW. HD's updated guidance calls for EPS to decline by 9-11%, with both revenue and comparable sales falling by 3-4%. By not cutting its guidance, though, HD took the worst-case scenario off the table, which is good enough to spark a rally in the stock after shares had dipped by about 13% since the company last reported earnings in mid-August.
On heads lower despite Q3 upside; plans to add fewer additional wholesale doors (ONON)
On Holding (ONON -3%) is heading lower despite reporting nice upside with its Q3 report this morning. The Switzerland-based footwear company beat handily on EPS and revenue and raised FY23 revenue guidance. While not providing specific Q4 guidance, On says it's heading into the holiday season with a lot of confidence. However, On also announced it's planning to add fewer additional wholesale doors in the future and to focus on existing wholesale partners and its own DTC channels, E-com and retail.
- Sales jumped 46.5% yr/yr to CHF 480.5 mln, which marked the seventh consecutive record top-line quarter. A highlight in recent weeks was Hellen Obiri's win at the NYC Marathon, becoming the first woman in 34 years to win the marathon in NYC and Boston in the same season. In addition, On athletes and tennis sensations Iga Swiatek and Ben Shelton each finished off their season with a tournament victory. On is excited for the Paris Olympics 2024.
- Its fastest growing channel in Q3 was direct to consumer (DTC), which rose 54.6% yr/yr to CHF 164.7 mln. On's ambition has been for DTC to outgrow wholesale. However, wholesale was no slouch in Q3 with sales growing 42.6% to CHF 315.7 mln. Looking ahead to Q4, On increased its FY23 sales outlook by CHF 30 mln and now expects to reach CHF 1.79 bln, which is +46% growth. This updated outlook implies a Q4 growth rate of 21% (+30% CC), which will again be driven by On's DTC channel.
- The Q4 picture is less exciting on the wholesale side as On expects a Q4 wholesale growth rate of high single digits, impacted by some transitory issues. These include the early holiday shipment of some wholesale orders recorded in Q3, which resulted in a pull forward of Q4 volumes. In addition, Q4 will see the initial impacts of the strategic wholesale door closures in the EMEA region. Also, On is lapping tougher comps in Q4 wholesale volumes because the year ago benefitted from supply disruptions in 3Q22.
- Going forward, On expects its DTC segment to outgrow wholesale, supported by On's accelerated rollout of its own retail store concepts and the lower number of new wholesale channel door additions. On expects the higher DTC share, alongside On's premium positioning and ongoing high full-price share, will push gross margin higher in the future. Speaking of margins, On reached its highest gross margin since its IPO, increasing to 59.9% from 57.1% last year. This was driven by high full-price sales, the increased DTC share vs the prior year, favorable freight and FX rates.
Overall, we are a bit surprised the stock is lower despite the nice upside. We think a few things are happening. The comments about Q3 benefitting from a pull forward of orders from Q4 takes some of the shine off the Q3 upside. Also, the cautious comments about its wholesale segment in Q4 were a bit of a letdown.
Furthermore, On's strategy of adding fewer wholesale doors in the future may be worrying some. We get it that On should focus on its higher growth DTC channels, but the majority of its sales are via whole sale. To reduce wholesale doors is a bit risky. Finally, as we have said before, given the jolt that Hoka brand has given to Deckers Outdoor (DECK), we think ONON is worth keeping on the radar as the brand is growing nicely but issues have crept up in recent quarters, keeping a lid on the stock.
Sea Limited sells off as its second quarter of growth over profitability results in a net loss (SE)
Sea Limited (SE -17%) reverting course back to growth last quarter after a quick stint focusing on profitability has continued to be met by disappointment. While the e-commerce, gaming, and digital payments company operating mainly in the Asia Pacific did top sales expectations in Q3 -- a reversal from its Q2 miss -- delivering a net loss after three consecutive quarters of positive earnings keeps investor frustration active today.
Management discussed its reasons for quickly pivoting away from profitability despite an unfavorable economic landscape across its key markets. For one, SE's time emphasizing financial discipline resulted in significantly improved cash reserves and operational efficiency, putting it in a sturdy position to pursue more competitive growth-focused strategies. Secondly, SE looks to capitalize on the surging popularity of live streaming, similar to the Home Shopping Network, where sellers show off their products over live video. Pinduoduo (PDD) was an early adopter of the live-streaming trend, which has helped push its shares significantly higher than domestic competitors like Alibaba (BABA) on the year.
Perhaps most importantly, competition is heating up. SE is battling several relatively new entrants across its markets. When competition accelerates, market share consolidates. By investing in market share gains now, SE hopes to be in a structurally better position with more fortified market leadership once economic conditions stabilize.
- As a result of SE's renewed energy targeting growth, earnings plunged in Q3 to a loss of $(0.26) per share from $0.54 posted in Q2. Top-line growth was not much better, expanding just 4.9% yr/yr to $3.31 bln, SE's fourth straight quarter of single-digit revenue growth, a considerable drop-off from the triple-digit figures it recorded during 2020 and 2021.
- However, SE could be in the early innings of a broader turnaround. Its e-commerce platform, Shopee, saw gross orders and gross merchandise volume (GMV) accelerate sequentially, achieving 24% and 11% growth, respectively. Average monthly active buyers also advanced qtr/qtr, climbing 11% on improved buyer retention and order frequency.
- Garena, SE's gaming division, enjoyed a sequential uptick in bookings growth while quarterly active users remained stable from Q2. These trends, albeit not explosive, are positive indicators of improving dynamics, especially since they clashed with the back-to-school season across several markets, which tends to be accompanied by seasonal softness.
- SeaMoney, SE's digital financial services business, remained a highlight, delivering a 4% jump in revs qtr/qtr on a 5% bump in gross loans receivable. Non-performing loans past due by over 90 days as a percentage of gross loans receivable was 1.6%, improved from 2.0% in Q2.
A wave of sellers washed over SE last quarter after announcing its return to prioritizing growth above profitability, underscoring doubt about whether it was the right time to quickly pour capital back into expanding operations. We noted at the time that another quarter of disappointing headline results would likely keep sellers in control. Despite sequentially improving metrics in Q3, we continue to have this view and believe staying on the sidelines until economic conditions turn and growth reaccelerates is the better move.
|
|
