| | | Market Snapshot
briefing.com
| Dow | 34945.47 | -45.74 | (-0.13%) | | Nasdaq | 14113.67 | +9.84 | (0.07%) | | SP 500 | 4508.24 | +5.36 | (0.12%) | | 10-yr Note | +28/32 | 4.45 |
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| | NYSE | Adv 1056 | Dec 1738 | Vol 906 mln | | Nasdaq | Adv 1458 | Dec 2801 | Vol 4.5 bln |
Industry Watch
| Strong: Communication Services, Health Care, Information Technology, Utilities |
| | Weak: Energy, Consumer Staples, Consumer Discretionary |
Moving the Market
-- Not a lot of conviction after the big run of late
-- Negative reactions to results from Walmart (WMT), Cisco (CSCO), and Palo Alto Networks (PANW) following earnings results and guidance weighing on the broader market
-- Relative strength in mega cap stocks
-- Sharp move in oil related to slowdown concerns and technical selling
-- S&P 500 closing above the 4,500 level
| Closing Summary
16-Nov-23 16:20 ET
Dow -45.74 at 34945.47, Nasdaq +9.84 at 14113.67, S&P +5.36 at 4508.24
[BRIEFING.COM] The S&P 500, which closed above 4,500, and the Nasdaq Composite eked out slim gains thanks to support from mega cap stocks. The broader market, meanwhile, experienced some normal consolidation, but losses were modest compared to the size of recent gains.
The Vanguard Mega Cap Growth ETF (MGK) rose 0.5% while the market-cap weighted S&P 500 logged a 0.1% gain. The equal weighted S&P 500 declined only 0.3%. Declining issues led advancing issues by a 5-to-3 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Big negative reactions to disappointing earnings and/or guidance from Walmart (WMT 156.04, -13.74, -8.1%), Cisco (CSCO 48.04, -5.24, -9.8%), and Palo Alto Networks (PANW 242.30, -13.88, -5.4%) helped create an excuse for market participants to take profits.
Small and mid cap stocks lagged their larger peers after outperforming all week. The Russell 2000 fell 1.6% today, weighed down by its energy components, but is still up 4.0% this week. The S&P Mid Cap 400 declined 1.1%, but is still up 3.1% this week.
Only four of the 11 S&P 500 sectors logged a decline. The energy sector (-2.1%) saw the largest loss, falling as oil prices slid ($72.92/bbl, -3.64, -4.8%) in response to slowdown worries and technical selling after closing yesterday below their 200-day moving average. The consumer staples sector (-1.2%) was the next worst performer due in part to the loss in Walmart.
Meanwhile, the heavily-weighted communication services (+0.9%) and information technology (+0.7%) sectors registered the biggest gains.
The 10-yr note yield fell nine basis points to 4.45% and the 2-yr note yield declined six basis points to 4.85% after this morning's economic releases fit with the soft landing scenario for the economy. The data included initial jobless claims, the October Export-Import Price Index, the November Philadelphia Fed Index, October Industrial Production, and the November NAHB Housing Market Index.
In other news, the Senate passed the continuing resolution and President Biden and President Xi agreed to resume high-level, direct military talks, and bilateral cooperation in combating global illicit drug manufacturing and trafficking.
- Nasdaq Composite: +34.9% YTD
- S&P 500: +17.4% YTD
- Dow Jones Industrial Average: +5.4% YTD
- S&P Midcap 400: +3.5% YTD
- Russell 2000: +0.7% YTD
Reviewing today's economic data:
- Weekly Initial Claims 231K (Briefing.com consensus 220K); Prior was revised to 218K from 217K; Weekly Continuing Claims 1.865 mln; Prior was revised to 1.833 mln from 1.834 mln
- The key takeaway from the report is that it fits the Fed's preferred script of seeing some softening in the labor market. Initial claims are at their highest level since August and continuing jobless claims are their highest level since November 2021.
- October Export Price Index -1.1%; Prior was revised to 0.5% from 0.7%
- October Export Prices ex-ag. -1.0%; Prior was revised to 0.7% from 1.0%
- October Import Price Index -0.8%; Prior was revised to 0.4% from 0.1%
- October Import Prices ex-oil -0.2%; Prior -0.2%
- November Philadelphia Fed Index -5.9 (Briefing.com consensus -7.5); Prior -9.0
- October Industrial Production -0.6% (Briefing.com consensus -0.4%); Prior was revised to 0.1% from 0.3%; October Capacity Utilization 78.9% (Briefing.com consensus 79.4%); Prior was revised to 79.5% from 79.7%
- The key takeaway from the report is that it was adversely affected by the UAW strike, which has since ended. Motor vehicle and parts production, therefore, should turn into a tailwind for November industrial production, which is a thought that takes some of the sting out of the disappointing headline number for October.
- November NAHB Housing Market Index 34 (Briefing.com consensus 40); Prior 40
Friday's economic calendar is limited to October Housing Starts (Briefing.com consensus 1.365 mln; prior 1.358 mln) and Building Permits (Briefing.com consensus 1.445 mln; prior 1.473 mln) at 8:30 a.m. ET.
Treasuries settle with gains
16-Nov-23 15:30 ET
Dow -108.85 at 34882.36, Nasdaq -5.58 at 14098.26, S&P -0.26 at 4502.62
[BRIEFING.COM] Things are little changed over the last half hour. Stocks are trading in a tight range heading into the close.
The 10-yr note yield fell nine basis points to 4.45% and the 2-yr note yield declined six basis points to 4.85%.
Friday's economic calendar is limited to October Housing Starts (Briefing.com consensus 1.365 mln; prior 1.358 mln) and Building Permits (Briefing.com consensus 1.445 mln; prior 1.473 mln) at 8:30 a.m. ET.
WTI crude oil futures sink nearly 5.0%
16-Nov-23 15:00 ET
Dow -125.81 at 34865.40, Nasdaq -10.08 at 14093.76, S&P -1.38 at 4501.50
[BRIEFING.COM] The S&P 500 is still sticking close to the 4,500 level.
WTI crude oil futures tumbled 4.9% today to $72.92/bbl. The S&P 500 energy sector (-2.5%) trades just off its low of the day.
Separately, the US Dollar Index is down 0.1% to 104.34.
CarMax weighed down by Amazon/Hyundai partnership
16-Nov-23 14:35 ET
Dow -166.31 at 34824.90, Nasdaq -22.20 at 14081.64, S&P -6.24 at 4496.64
[BRIEFING.COM] The S&P 500 (-0.14%) is today's shallowest declining major average, down just 6 points vs. yesterday's close.
Elsewhere, S&P 500 constituents CarMax (KMX 62.88, -5.05, -7.43%), Baker Hughes (BKR 32.90, -1.76, -5.08%), and Paramount (PARA 12.59, -0.58, -4.40%) pepper the bottom of today's standings. KMX, along with auto re-sale and dealership peers, are weaker today after Amazon (AMZN 142.31,-0.89, -0.62%) announced a partnership with Hyundai (HYMTF 41.10, +1.21, +3.03%), while BKR dips alongside other energy complex names amid weakness in oil futures, while PARA continues its up and down trade in recent days.
Meanwhile, Generac (GNRC 114.09, +3.31, +2.99%) is among today's top performers, continuing to move higher in recent sessions now up circa +35% month-to-date.
Gold helped along by declining yields, equities
16-Nov-23 14:00 ET
Dow -149.80 at 34841.41, Nasdaq -31.21 at 14072.63, S&P -8.16 at 4494.72
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.22%) is in second place on Thursday afternoon with about two hours remaining in the session.
Gold futures settled $23 higher (+1.2%) to $1,987.30/oz as weaker yields and losses in equities provided a lift.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.27.
Page One
Last Updated: 16-Nov-23 09:06 ET | Archive
A no-show pullback so far
We can tell you that the equity futures are looking soft this morning, but that doesn't mean the major indices will trade lower today. They might -- and probably should -- but the notion that they are overbought and due for a pullback hasn't stopped them yet.
They have been on a bender so to speak since their late-October lows. The Nasdaq Composite is up 12.4%, the Russell 2000 is up 10.3%, the S&P 500 is up 9.7%, and the Dow Jones Industrial Average is up 8.2%.
Big moves in a short amount of time naturally lead to claims that the indices are ripe for a retreat.
We said roughly the same over a week ago while also pointing out that when "everyone" is expecting a pullback is when the indices can squeeze higher, because what is expected to happen doesn't happen. The resilience creates a fear of missing out on further gains and chasing action, and that is exactly what we have seen.
It hasn't been without reason. The soft landing-peak Fed narrative has been helped this week by the Consumer Price Index, Producer Price Index, and Retail Sales reports, and it has been helped along again this morning by the Initial and Continuing Jobless Claims, Export-Import Price Index, and Philadelphia Fed Index reports.
- Initial claims for the week ending November 11 increased by 13,000 to 231,000 (Briefing.com consensus 220,000). Continuing jobless claims for the week ending November 4 increased by 32,000 to 1.865 million.
- The key takeaway from the report is that it fits the Fed's preferred script of seeing some softening in the labor market. Initial claims are at their highest levels since August and continuing jobless claims are their highest level since November 2021.
- Export prices were down 1.1% month-over-month in October and down 4.9% year-over-year. Excluding agricultural products, they were down 1.0% month-over-month and down 4.5% year-over-year. Import prices were down 0.8% month-over-month and down 2.0% year-over-year. Excluding fuel, import prices were down 0.2% month-over-month and down 0.9% year-over-year.
- The November Philadelphia Fed Index checked in at -5.9 (Briefing.com consensus -7.5) versus -9.0 in October. The dividing line between expansion and contraction is 0.0, so the November reading reflects an ongoing contraction but at a slower pace than the prior month.
In turn, the soft landing-peak Fed narrative has been helped to a certain extent by Walmart (WMT). The world's largest retailer posted better-than-expected fiscal Q3 earnings following a big run ahead of its report and said its customers are becoming increasingly price sensitive, that it expects sales growth to moderate in Q4 versus prior quarters, and anticipates deflation in coming months.
Shares of WMT are down 6.0%. That isn't as bad as the drop in Cisco (CSCO), which is down 9.8% after reporting weaker-than-expected orders for its fiscal Q1 and issuing below-consensus guidance for fiscal Q2 and fiscal 2024. Separately, Palo Alto Networks (PANW) is down 7.1% after tempering its FY24 billings guidance.
In other developments, the Senate passed the continuing resolution to keep the government funded through January 19 and February 2. President Biden is expected to sign it, averting a government shutdown during the holidays.
Also, President Biden agreed with President Xi to resume high-level, direct military talks, and bilateral cooperation in combatting illicit global drug manufacturing and trafficking.
Currently, the S&P 500 futures are up one point and are trading fractionally above fair value, the Nasdaq 100 futures are down 11 points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are down 31 points and are trading fractionally below fair value. The 2-yr note yield is down seven basis points to 4.84% and the 10-yr note yield is down eight basis points to 4.46%.
-- Patrick J. O'Hare, Briefing.com
Cisco down sharply on weak guidance; bottleneck has shifted downstream to implementation (CSCO)
Cisco Systems (CSCO -12%) has started off FY24 on a rocky note with its Q1 (Oct) report last night. Cisco reported a large EPS beat with modest upside revenue. Q1 non-GAAP operating margin of 36.6% was nicely ahead of its 34-35% prior guidance. However, the main problem is that Cisco guided sharply below analyst expectations for both Q2 (Jan) and FY24. It also guided to a good size sequential decline in non-GAAP operating margin in Q2 at just 31.5-32.5%.
- So, why the weak guidance? Cisco says that, after three quarters of exceptionally strong product delivery, its customers are now focused on installing and implementing these unprecedented levels of products. Basically, the bottleneck that Cisco previously saw in the supply chain has now shifted downstream to implementation by customers and partners.
- While macro challenges still exist, Cisco believes this implementation phase is the primary reason for the slowdown in new orders. The company saw it mostly with its larger enterprise, service provider and cloud customers, and it was most pronounced in October. Cisco believes this phase is temporary and estimates there is an additional 1-2 quarters worth of shipped orders in customers' hands still waiting to be deployed. This will hurt Cisco's results for the next couple of quarters.
- Looking ahead, Cisco expects product order growth rates will increase in the second half of the fiscal year, which means AprQ and JulQ. In an apparent bid to calm investor nerves, Cisco says that its win rates are stable, cancelation and return rates remain below pre-pandemic levels, and it has gained market share. This looks to be more of timing issue.
Overall, investors appear frustrated with Cisco. Just as Cisco seemed to be starting to turn a corner with $1.00+ EPS quarters and double digit revenue growth in Q3-Q4, after years of single digits or declines, the company stumbles again. In fairness, this does not look to be a competitive loss issue or weakened demand issue.
In prior quarters, customers were buying as fast as Cisco could produce products due to the supply chain issues. But now, they have to implement what they already bought. Cisco summed it up well, saying that the bottleneck has shifted downstream from the supply chain to implementation. The next couple of quarters look to be rough as customers digest these purchases, but Cisco should start to get past this issue in spring/summer.
Macy's ringing up some nice gains as lower inventory, fewer promotions lead to easy EPS beat (M)
A more budget conscious consumer has put a serious dent into retailers' sales figures, and high-end department store Macy's (M) is no exception, but the company's inventory management and its ability to be more selective with promotions provided it with an edge in Q3. Macy's easily surpassed EPS expectations, and, unlike rival Dillard's (DDS), which reported Q3 results last week, the company also topped muted sales estimates.
- Retailers from Walmart (WMT) to luxury furniture company RH (RH) have felt the effects of softening discretionary spending. Macy's was not immune as comparable sales fell by 6.3% on an owned-plus-licensed basis.
- Notably, the company's luxury banners fared better with Bloomingdale's posting a comp decline of 4.4%, while Bluemercury impressively generated positive comp growth of 2.5% on an owned basis.
- The discrepancy in performance between the flagship Macy's brand and the luxury nameplates is not an encouraging data point for Nordstrom (JWN), which is trading sharply lower today.
- JWN, which is set to report Q3 earnings on November 21, has struggled to turn its off-price Nordstrom Rack banner around.
- In Q2, net sales for Nordstrom Rack decreased by 4.1%, following declines of 11.9% in Q1 and 8.1% in Q4.
- The benefit of catering to a more affluent customer base played out in the form of fewer promotions for Macy's. Working hand-in-hand with Macy's greater assortment of full-price merchandise is the company's solid inventory management.
- In Q3, merchandise inventories were down by 6% yr/yr, placing Macy's in a favorable position as the holiday shopping season kicks into high gear.
- This combination of lower inventories and fewer promotions drove gross margin higher by 150 bps yr/yr to 40.3%.
- Although Macy's is still predicting a slower holiday shopping season, as reflected by the fact that it barely nudged its FY24 comp guidance higher to (7.0)%-(6.0)% from (7.5)%-(6.0)%, its profits and margins should fare better than its department store competitors. On that note, its FY24 EPS guidance of $2.88-$3.13 comfortably exceeded expectations.
Overall, sluggish consumer spending its hurting Macy's like virtually every other retailer, but the company's execution -- most notably its inventory reduction efforts -- has set it apart from other department store operators.
Alibaba falls as several moving pieces, including no more Cloud IPO, prove disappointing (BABA)
Alibaba (BABA -9%) encounters turbulence today despite registering decent upside on its bottom line in Q2 (Sep) and growing revs in-line with consensus. There were several moving parts to the China-based e-commerce and cloud giant's SepQ report. Among the headlines, the most striking was BABA's decision to no longer pursue a full spin-off of its Cloud Intelligence Group, citing uncertainties triggered by recent U.S. export restrictions on advanced computing, or AI, chips. Instead, BABA is focused on growing the business through a newly outlined sustainable growth model based on AI-driven demand.
While no Cloud IPO is deflating, other items from BABA's SepQ release were rather uplifting. BABA reiterated its confidence in a successful IPO of Cainiao Smart Logistics, its logistics arm. The company also delved into four structural pillars related to its long-term thinking, undertaking a review of its businesses to identify ways to enhance return on invested capital, investing cash flow for future growth, evaluating ways to monetize the value of its roughly $67 bln in noncore assets, and returning cash to shareholders first by paying an annual dividend of $0.125 per ordinary share or $1.00 per ADS.
These actions are part of a much different-looking BABA, initiated by new CEO Eddie Yongming Wu and new Chairman Chung Hasin Tsai. Mr. Wu acknowledged that it was time to transform operations in light of BABA's immense and complex set of businesses. Therefore, while headline results in SepQ, including a double-digit earnings beat and 8.5% revenue growth yr/yr to RMB 224.79 bln, were sound, they are not the subject of discussion or the underlying factor driving today's bearish reaction.
- That is not to say there were no uplifting developments during the quarter. Order volume and consumer numbers increased across Taobao and Tmall, BABA's e-commerce brands. Merchants became more willing to invest in advertising, a trend we saw yesterday from rival JD.com (JD). Profitability also increased across these businesses as losses narrowed due to many of BABA's ongoing investments.
- International e-commerce saw even more outstanding gains during SepQ, boasting a 53% jump in revs yr/yr. We heard from U.S.-based e-commerce firm eBay (EBAY) last week state that its Cross Border Trade (CBT) offering buoyed growth during SepQ, illuminating a shift from consumers toward lower-priced Chinese goods, often found on platforms like BABA's AliExpress and PDD Holdings' (PDD) Temu.
- It is worth keeping an eye on this development as U.S.-based organizations, including EBAY and Amazon (AMZN), could see a material hit to financial performance if consumers continue tilting their tastes toward cheap China-domiciled substitutes in the wake of cumulative inflation.
- BABA also remained optimistic about AI, excited about long-term growth opportunities from the rapidly growing technology.
Nevertheless, the bad outweighed the good, primarily too many moving pieces creating a heightened uncertainty. Since squashing Alibaba co-founder Jack Ma's Ant Group IPO in October 2020, BABA has dealt with one headwind after another. While the current disruptions to its internal business organization may be precisely what BABA needs to return to form, we think it is better to wait a few quarters to see how quickly benefits are realized before jumping on board.
NetEase delivers solid Q3 results, but gets washed up in Chinese ADR selloff (NTES)
NetEase (NTES), a China-based online gaming, music, and internet search company, cruised past earnings expectations once again in Q3, but broad-based weakness across many Chinese ADRs is offsetting the positive earnings news. The company also announced that its CFO, Mr. Charles Zhaoxuan Yang, has resigned effective November 30, 2023, for personal reasons. The unexpected departure creates some additional uncertainty for NTES as it navigates through a gauntlet of macroeconomic and geopolitical challenges.
- The broad weakness in Chinese ADRs is stemming from two primary events: disappointment surrounding the meeting between President Biden and China's leader Xi Jingping, and Alibaba's (BABA) decision to scrap its plan to spin-off its cloud business.
- On the former point, while the meeting was said to be cordial, it didn't result in any concrete agreements on trade, indicating that existing bans and tariffs will remain in place.
- On the latter point, BABA backtracking on its spin-off plans due to U.S. export bans on advanced semiconductors provides real-time evidence of how the trade tensions could negatively impact Chinese companies.
- It's also worth pointing out that NTES had already rallied by about 15% since mid-October, setting the stage for a sell-the-news reaction as traders locked in profits.
Looking beyond these factors, NTES' results were solid overall as the company's diversified game portfolio helped push revenue growth higher. Specifically, revenue growth accelerated to nearly 14% in Q3, up from just 4% last quarter.
- Online games and related value-added services (virtual items sold within games), which account for about 80% of total revenue, saw a 16.5% increase in revenue to $3.0 bln. Newly launched games, such as Justice mobile, Racing Master, and Dunk City Dynasty -- NTES' first self-developed basketball game -- provided a boost to revenue and user growth.
- Youdao, the company's internet search business that competes with Baidu (BIDU) and Tencent's (TCEHY) Sogou, achieved record-high revenue of nearly $211 mln, up by about 10% yr/yr. Like its U.S. counterpart Google (GOOG), Youdao is benefiting from a rebound in marketing activity and advertising spending.
The main takeaway is that NTES posted solid results overall as non-GAAP EPS grew by 19% yr/yr and as revenue growth accelerated. However, some profit-taking and weakness across Chinese ADRs is creating an obstacle for the stock today.
Palo Alto Networks' FY24 billings guidance fractured by higher-for-longer interest rates (PANW)
The rising cost of money, i.e., higher-for-longer interest rates, is starting to produce wide variability regarding the timing of payment receipts for Palo Alto Networks (PANW -5%), fracturing its FY24 billings guidance and alarming investors today. Extended sales cycles, higher deal scrutiny, and increasing budget constraints have been headwinds discussed by numerous software-based organizations for most of the past year. While these hurdles have affected many companies, PANW, a cloud-based cybersecurity provider, has been able to steer through these obstacles mostly unscathed.
An escalating cybersecurity threat landscape has provided a seemingly impenetrable shield for PANW as ransomware attacks can cost organizations many multiples more than the cost of PANW's firewalls and other cyber protection tools. This demand has been reflected in competitors' monstrous gains on the year, including Zscaler (ZS) and CrowdStrike (CRWD). Also, while some of its peers, like Fortinet (FTNT), sold off on weak quarterly results this past earnings season, PANW held firm, underpinning a fortified competitive edge.
The resilient demand has underpinned PANW's roughly +30% run over the past six months, giving it around a 40x forward earnings multiple. However, by that same token, shares became overextended, leading to profit-taking today following PANW trimming its FY24 billings guidance to $10.7-10.8 bln, down $200 mln from its previous outlook of $10.9-11.0 bln.
- The economic climate has been reverting toward normalization for the bulk of 2023; backlog has been shipped as supply chain issues have dwindled. As a result, PANW's headline numbers in Q1 (Oct) were consistent with past performances, clearing analysts' earnings and sales estimates. Non-GAAP operating margins expanding by 760 bps yr/yr from higher efficiencies and scale drove a 66.3% spike in adjusted EPS to $1.38. Meanwhile, revenue growth stayed in 20%+ territory, edging 20.1% higher to $1.88 bln.
- Unfortunately for PANW, being added to this normalization is a higher-for-longer interest rate environment, shifting customer behavior. For example, some customers are asking for deferred payment terms, either with annual billings or through financing. Other customers are seeking additional discounts for paying upfront.
- While this trend does not indicate souring demand, it creates variability in total billings. Management is still confident in the robust demand for cybersecurity over the near and long term, commenting that the current billings variability is purely a consequence of ongoing payment negotiations.
- Fueling PANW's optimism that demand remains sound is continually buoyant remaining performance obligations (RPO), which the company has mentioned is increasingly becoming a more important leading indicator for its business given that it is not affected by billing terms, and low churn.
- Outside of billings, the rest of PANW's guidance was decent, raising its FY24 adjusted EPS forecast to $5.40-5.53 from $5.27-5.40 and reiterating its FY24 sales outlook of $8.15-8.20 bln.
While one quarter of disruption may not indicate a longer-lasting pattern, PANW's reduced FY24 billings guidance is concerning given how impressive the company has performed this year, and could be the canary in the coal mine for the health of the ostensibly sound cybersecurity market.
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