| | | Market Snapshot
briefing.com
| Dow | 34947.28 | +1.81 | (0.01%) | | Nasdaq | 14125.48 | +11.81 | (0.08%) | | SP 500 | 4514.02 | +5.78 | (0.13%) | | 10-yr Note | 0/32 | 4.44 |
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| | NYSE | Adv 1946 | Dec 832 | Vol 982 mln | | Nasdaq | Adv 2846 | Dec 1409 | Vol 4.4 bln |
Industry Watch
| Strong: Energy, Financials, Industrials, Consumer Discretionary, Utilities, Real Estate |
| | Weak: Communication Services, Consumer Staples, Information Technology, Health Care |
Moving the Market
-- Fear of missing out on further gains
-- Positive response to earnings and/or guidance from Gap, Inc. (GPS) and Ross Stores (ROST)
-- Relative weakness in the mega cap space
-- S&P 500 staying above 4,500 level
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Closing Summary
17-Nov-23 16:25 ET
Dow +1.81 at 34947.28, Nasdaq +11.81 at 14125.48, S&P +5.78 at 4514.02
[BRIEFING.COM] Today's trade had the major indices confined to relatively narrow ranges. Stocks closed the session off their highs, which had the S&P 500 above the 4,500 level. The Russell 2000 paced index level gains, jumping 1.4%, thanks to strength in its energy components as oil prices rebounded.
Relative weakness in some mega cap stocks kept the other major indices in check. That was particularly noticeable late in the session when Microsoft (MSFT 369.83, -6.33, -1.7%) saw a pickup in selling interest on the news that Sam Altman had been ousted as CEO of OpenAI, with the board saying it no longer had confidence in his ability to continue leading OpenAI.
Alphabet (GOOG 136.94, -1.76, -1.3%) and NVIDIA (NVDA 492.98, -1.82, -0.4%) were also influential laggards from the mega cap space. Apple (AAPL 189.69, -0.02, -0.01%) had been down as much as 0.6% earlier, but settled the day flat.
The market-cap weighted S&P 500 rose 0.1% while the Invesco S&P 500 Equal Weight ETF (RSP) closed with a 0.5% gain.
Six of the S&P 500 sectors logged a gain and five of them declined. Moves in either direction were muted, though, except the energy sector, which jumped 2.1% in response to WTI crude oil futures rising 4.2% to $76.00/bbl.
The consumer discretionary sector (+0.7%) was the next best performer, boosted by gains in Amazon.com (AMZN 1145.18, +2.35, +1.7%) and Tesla (TSLA 234.30, +0.71, +0.3%). A big gain in Ross Stores (ROST 128.82, +8.67, +7.2%) after reporting earnings also contributed to sector gains.
Fellow retailer Gap (GPS 17.85, +4.18, +30.6%) was another top performing stock after reporting earnings, although it is not a sector component.
Applied Materials (AMAT 148.59, -6.22, -4.0%) was a losing standout after reporting earnings, sinking with a Reuters report that it is the subject of a DOJ criminal probe over shipments to China's top chipmaker, SMIC, weighing heavily on sentiment.
The 2-yr note yield rose five basis points today, and fell 15 basis points this week, to 4.90%. The 10-yr note yield was unchanged from yesterday, but down 19 basis points this week, at 4.44%.
- 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:
- Total housing starts increased 1.9% month-over-month, but were down 4.9% year-over-year, to a seasonally adjusted annual rate of 1.372 million (Briefing.com consensus 1.365 million). Building permits -- a leading indicator -- were up 1.1% month-over-month, and down 4.4% year-over-year, to a seasonally adjusted annual rate of 1.487 million (Briefing.com consensus 1.445 million).
- The key takeaway from the report is that building activity, particularly for the much needed single-family unit, remains subdued in the face of higher costs and financing rates. Single-unit starts were up just 0.2% month-over-month while single-unit permits rose 0.5% month-over-month. The number of single-family units under construction at the end of the period was down 0.6% month-over-month and the number of single-family units completed was down 0.9% month-over-month.
Monday's economic calendar features:
- October Leading Indicators (prior -0.7%) at 10:00 ET and $16 bln 20-yr Treasury bond auction results at 13:00 ET
Treasury yields settle sharply lower on the week
17-Nov-23 15:30 ET
Dow +15.01 at 34960.48, Nasdaq +17.72 at 14131.39, S&P +8.66 at 4516.90
[BRIEFING.COM] The major indices are revisiting session highs ahead of the close.
The 2-yr note yield rose five basis points today, and fell 15 basis points this week, to 4.90%. The 10-yr note yield was unchanged from yesterday, but down 19 basis points this week, at 4.44%.
Monday's economic calendar features:
- October Leading Indicators (prior -0.7%) at 10:00 ET and $16 bln 20-yr Treasury bond auction results at 13:00 ET
XOM and CVX climb alongside oil prices
17-Nov-23 15:05 ET
Dow +20.88 at 34966.35, Nasdaq +21.12 at 14134.79, S&P +8.20 at 4516.44
[BRIEFING.COM] Stocks moved mostly sideways in recent trading.
WTI crude oil futures jumped 4.2% today to $76.00/bbl. Natural gas futures fell 3.1% to $3.13/mmbtu.
Exxon Mobil (XOM 105.31, +2.85, +2.8%) and Chevron (CVX 145.04, +3.26, +2.3%) are both up more than 2.0%, reacting to the move in oil prices. Those gains are boosting the S&P 500 energy sector, which is up 2.5%.
Expedia higher on Evercore ISI upgrade; analysts trim BBWI targets, shares drop in S&P 500
17-Nov-23 14:30 ET
Dow +10.92 at 34956.39, Nasdaq +24.70 at 14138.37, S&P +7.21 at 4515.45
[BRIEFING.COM] The S&P 500 (+0.16%) is in second place after the Nasdaq Composite (+0.18%) overtook the index during the prior half hour.
Elsewhere, S&P 500 constituents Expedia (EXPE 136.54, +6.72, +5.18%), Etsy (ETSY 72.95, +2.80, +3.99%), and Marathon Oil (MRO 25.71, +0.96, +3.88%) dot the top of today's standings. EXPE outperforms owing in part to an Evercore ISI upgrade to Outperform, while MRO is helped along by gains in crude futures.
Meanwhile, Ohio-based specialty retailer Bath & Body Works (BBWI 29.36, -0.74, -2.46%) is among the worst performers in the S&P today as analysts across the board trimmed their targets on the stock following yesterday's downside guidance.
Gold slips on Friday on its way to a decent rebound off last week's losses
17-Nov-23 14:00 ET
Dow +35.98 at 34981.45, Nasdaq +13.13 at 14126.80, S&P +6.99 at 4515.23
[BRIEFING.COM] The major averages are now all higher on the day, the tech-heavy Nasdaq Composite (+0.09%) clinging to a second-place stance with trading just below session highs.
Gold futures settled $2.60 lower (-0.1%) to $1,984.70/oz, clawing back some of last week's -3.1% losses with a +2.4% move higher over the previous five sessions.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $103.93.
Page One
Last Updated: 17-Nov-23 09:00 ET | Archive
Still a pull forward
Thanks to the mega-cap stocks, the pullback in the S&P 500 and Nasdaq Composite that everyone expects to happen still didn't happen on Thursday. Both indices eked out small gains, although the broader market, viewed through the lens of the S&P 500 Equal-Weighted Index, pulled back all of 0.3%.
The Russell 2000, plagued by weakness in its energy components as WTI crude oil futures dropped 4.8% to $72.92 per barrel, was a weak spot, declining 1.5%. Even so, the Russell 2000 is still up a heady 4.0% for the week.
Things are lined up at the moment for a positive start for the S&P 500, so call it a pull forward rather than a pullback.
Currently, the S&P 500 futures are up eight points and are trading 0.2% above fair value, the Nasdaq 100 futures are down 11 points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are up 101 points and are trading 0.3% above fair value.
The resilience factor has something to do with this morning's gains. The lack of concerted selling interest is keeping alive the fear of missing out on further gains and is driving some performance chasing.
Other factors at work today, however, include the ongoing suppression of interest rates, the decidedly upbeat reaction to earnings reports from retailers Gap, Inc. (GPS), which is up 18.0%, and Ross Stores (ROST), which is up 6.9%, and an October Housing Starts and Building Permits Report that was nestled in the soft landing basket.
Total housing starts increased 1.9% month-over-month, but were down 4.9% year-over-year, to a seasonally adjusted annual rate of 1.372 million (Briefing.com consensus 1.365 million). Building permits -- a leading indicator -- were up 1.1% month-over-month, and down 4.4% year-over-year, to a seasonally adjusted annual rate of 1.487 million (Briefing.com consensus 1.445 million).
The key takeaway from the report is that building activity, particularly for the much needed single-family unit, remains subdued in the face of higher costs and financing rates. Single-unit starts were up just 0.2% month-over-month while single-unit permits rose 0.5% month-over-month. The number of single-family units under construction at the end of the period was down 0.6% month-over-month and the number of single-family units completed was down 0.9% month-over-month.
Something else even weaker this morning, though, is the stock of chip equipment maker Applied Materials (AMAT). Shares of AMAT are down 6.8% following its fiscal Q4 earnings results and a Reuters report that the company is the subject of a criminal probe by the Department of Justice related to shipments sent to China's top chipmaker, SMIC.
The fallout in AMAT, and other chip equipment makers, has applied some pressure to the Nasdaq 100 futures that accounts for its relative underperformance, but where things stand at the moment is a drop in the pullback bucket for an index that has risen 12.6% from its low on October 26.
-- Patrick J. O'Hare, Briefing.com
Gap surges as investors buy into ongoing turnaround efforts, shrug off weak JanQ guidance (GPS)
After multiple missteps over the years, resulting in a CEO shakeup and extensive restructuring initiatives, Gap (GPS +29%) may finally be turning over a new leaf. The apparel retailer, owning several familiar global brands, including Old Navy and Banana Republic, delivered its best quarter of profitability since 3Q22 and reversed its string of top-line misses in Q3 (Oct).
GPS still projected mild Q4 (Jan) revenue guidance, a common theme amongst retailers lately as consumers continue to deal with a challenging economic environment going into the holiday shopping season. Management also acknowledged that it still has plenty of work to get its brands back to form.
Nevertheless, the highlights from OctQ underscored long-awaited benefits from the company's ongoing restructuring, driving today's momentous gains.
- GPS's financial discipline actions, including lowering transportation costs, improving discounting, and deploying more effective sourcing strategies, combined with commodity costs easing, resulted in over $550 mln in anticipated annualized cost savings. Meanwhile, the company has reduced its inventory by almost $800 mln compared to peak levels last year.
- These initiatives paved the way for GPS to expand its adjusted operating margins by 290 bps yr/yr to 6.8% in OctQ. For perspective, GPS registered a negative 5.7% operating margin just over a year ago in 1Q22. The significantly improved operating margins fueled GPS's impressive adjusted EPS of $0.59, considerably ahead of analyst expectations.
- While GPS has done what it must to bolster profitability, it cannot control outside factors, i.e., unfavorable demand. Revenue was still down yr/yr, falling by 6.7%, GPS's fourth straight quarter of declining revenue. Meanwhile, same-store growth was negative at -2%. However, both of these metrics represented sequential improvements. GPS also noted that it grew market share at its Gap and Old Navy brands, where comps outperformed, coming in at -1% and +1%, respectively.
- The impressive numbers from OctQ provided the confidence GPS needed to reiterate its FY24 revenue growth outlook of down mid-single digits yr/yr despite projecting a light holiday sales quarter. GPS expects JanQ revs to be flat to slightly negative compared to the year-ago period, coming up a tad short of analyst predictions.
Investors are looking well beyond GPS's relatively soft JanQ sales and focusing entirely on the company's swift turnaround. There are still several facets across GPS's business that require tweaking. For example, Banana Republic delivered -8% comps in OctQ, reflecting the brand's ongoing repositioning. Additionally, Athleta's performance in OctQ was dismal, delivering -19% comp growth, although this was largely due to the year-ago period's heavy discounting tactics. However, management is actively focusing on its brands' core features, such as capitalizing on a quiet luxury space with Banana Republic and aligning Athleta's product line with the lucrative active apparel category.
While GPS still has a way to go before its turnaround tactics are finalized and it can reaccelerate growth across its portfolio, its OctQ performance represents a massive step in the right direction.
Beazer Homes has some cracks in the foundation as average home selling prices slip (BZH)
Staying true to recent form within the homebuilding industry, Beazer Homes (BZH) cruised past EPS and revenue estimates in Q4 as new home orders jumped by nearly 43% yr/yr to just north of 1,000. Like its peers before it, including D.R. Horton (DHI), Lennar (LEN), and KB Homes (KBH), the company's results benefited from a lack of existing homes for sale on the market. A less familiar storyline, though, is that construction cycle times are also shrinking as supply chain issues are resolved. In fact, BZH reclaimed more than two months of construction cycle time, enabling it to close on contracts much faster.
However, a strong performance was widely anticipated, as reflected in the stock's 35% surge since late October, and the earnings report was far from perfect.
- Although rising mortgage rates are preventing homeowners from putting their homes on the market, thereby increasing the existing housing supply, rising interest rates are also hurting home affordability. As a result, BZH is ramping up concessions and lowering home prices in order to stay competitive.
- In Q4, the average selling price of homes in BZH's backlog declined by 5.4% to $518K and the company sees more price declines on the horizon.
- For 1Q24, the company is forecasting average selling price to dip to $510K with the average price dropping to about $500K for the full year.
- Although mortgage rates have cooled off in recent weeks after reaching multi-decade highs of about 8% in October, BZH is not assuming that this drop will translate into a significant improvement in the pace of sales for Q1. During the earnings call, BZH noted that while quarter-to-date sales are up on a yr/yr basis, sales were notably sluggish when mortgage rates were at the 8% level.
- The company's guidance for net new orders calls for growth to slow to about 30% in Q1 off of a very low base in the year-ago period. With homebuilding gross margin forecasted to slip to about 23% from 24.3% in Q4, BZH's EPS Q1 EPS guidance of $0.70 fell short of expectations.
The main takeaway is that the favorable demographic and supply and demand dynamics continue to underpin better-than expected quarterly earnings reports from homebuilders, but the fundamentals are mixed overall. Price reductions and other concessions are chipping away at margins and earnings and those factors seem likely to be a major part of the equation in 2024.
Applied Materials gaps lower as an extended rally, a U.S. probe, and uncertainties weigh (AMAT)
Applied Materials (AMAT -5%) sinks despite recording Q4 (Oct) earnings and sales ahead of consensus and providing decent Q1 (Jan) guidance, where the midpoints of its EPS and revenue figures came in above estimates. In fact, taken at its surface, the semiconductor equipment firm did not appear to register a blemish worthy of triggering such a meaningful sell-off today.
So why are shares gapping down? Context is important. Ahead of AMAT's OctQ report yesterday after the close, shares rallied almost +20% from October 25 lows, hitting 52-week highs. This recent take-off was AMAT's best run all year, so profit-taking was definitely in the cards if OctQ results did not rise above lofty expectations. Meanwhile, a Reuters article released minutes before AMAT's report yesterday added a new layer of concern. Reuters reported that AMAT was under U.S. criminal investigation for possibly dodging export restrictions on SMIC (SMICY), China's largest semiconductor manufacturer. With very little information about the probe, the market can only speculate, which, when considering AMAT's recent climb to one-year highs, helped lead to today's pullback.
AMAT's attitude surrounding 2024 was also somewhat mixed. Management was bullish that overall demand for its products will remain robust, anticipating leading-edge foundry-logic demand to be stronger versus a weak 2023, underpinned by increasing PC, cloud, and AI data center spending. However, countering this was AMAT's expectation that demand for its ICAPS (IoT, Communication, Automotive, Power, and Sensor) business would be lower versus a relatively solid 2023, fueled by softness in the industrial automation and automotive end markets.
Nevertheless, while these factors contributed to today's selling pressure, AMAT is still up by over +50% on the year, reflecting several consistent positive developments that carried through to OctQ.
- Among the consistency is AMAT's quarterly headline numbers, delivering its sixth consecutive earnings and sales beat in OctQ, expanding its bottom line by 4.4% yr/yr to $2.12 on a 130 bp bump in non-GAAP gross margins and top line by 3.8% yr/yr to $6.72 bln.
- AMAT's Applied Global Services (AGS) and Display segments exhibited relative strength, expanding revs by 3.6% and 18.7% respectively. Notably, in AGS, underlying growth drivers of this business more than offset trade restrictions enacted in October 2022 and declining fab utilization rates. Providing a nice tailwind for AGS has increased complexity, upping the number of tools in AMAT's installed base and increasing the revenue per tool.
- AMAT's largest segment, Semiconductor Systems, lagged in OctQ, declining 3.1% yr/yr to $4.88 bln. However, for FY23, AMAT noted that this segment outperformed the market, driving potential market share capture.
- AMAT was relatively upbeat for the near term, projecting adjusted EPS of $1.72-2.08 and revs of $6.07-6.87 bln. Although these are wide ranges, signaling some uncertainty on the horizon, it is what we have come to expect from AMAT, which has kept a wide range in its quarterly guidance since 2022.
A significant rally, a U.S. criminal investigation, and a mixed tone regarding 2024 created the perfect recipe for AMAT to retreat today after reaching 52-week highs yesterday. While uncertainties remain, AMAT's OctQ was still healthy, making today's pullback a decent entry point for buy-and-hold investors.
Ross Stores up sharply on EPS and comp beat; mgmt sounds positive heading into holiday season (ROST)
Ross Stores (ROST +9%) is heading nicely higher following its Q3 (Oct) report last night. ROST beat handily on EPS and revenue. Comps were much better than expected as well. The Q4 (Jan) holiday period guidance was decent, although ROST tends to be conservative on guidance. There is a lot to unpack here. The EPS beat was not quite as large as Q2's upside, but still double digits.
- Turning to same store comps, they came in at +5% in Q3, well ahead of prior guidance of +2-3%. Traffic was the primary driver of comp growth. Cosmetics, accessories and shoes were again the strongest performing areas, while geographic results were broad-based. Shoppers are responding favorably to its strong value offerings.
- We were particularly interested in ROST's Q4 holiday comp guidance. The company reaffirmed guidance for Q4 comps at +1-2%. ROST continues to face macroeconomic volatility, persistent inflation and more recently, geopolitical uncertainty. In addition, ROST notes it is lapping it most difficult quarterly sales comparison of the year in Q4. It also expects a very promotional retail environment.
- Operating margin is another metric we watch. In Q3, it rose to 11.2%, up from 9.8% last year and above prior guidance of 10.3-10.5%, as leverage from the same store sales gain and lower freight costs was partially offset by higher incentives and store wages. ROST has benefitted from lower ocean freight costs all year, however, the company expects to see that benefit moderate in Q4 because it started to see pretty significant rate reductions about this time last year. Q4 guidance is 11.3-11.5%.
- Despite challenges in the external environment, ROST is encouraged by its healthy above-plan results to date this year. It also remains confident in the resilience of the off-price sector and its own ability to operate successfully within it, especially given consumers' heightened focus on value and convenience.
Overall, this was a very good quarter for ROST. We had some concerns following a mediocre report from its off-price retail peer TJX on Wednesday. In particular, TJX offered weak guidance for Q4. We could nitpick that we would have liked to have seen better comp guidance for Q4 from ROST, but given all the macro issues, a reaffirmation is pretty good in this environment.
This report bodes well for Burlington's (BURL) report next week (Nov 21). More generally, ROST confirmed what we are hearing from other retailers (WMT, TGT). Namely, that shoppers are looking more for value items. That is good for off-price retailers like ROST. What stood out in Q3, was not just the +5% comps, but that it was mostly driven by traffic. That is good evidence that more shoppers are trading down.
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.
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