Market Snapshot
briefing.com
| Dow | 35088.29 | -62.75 | (-0.18%) | | Nasdaq | 14199.98 | -84.55 | (-0.59%) | | SP 500 | 4538.19 | -9.19 | (-0.20%) | | 10-yr Note | 0/32 | 4.42 |
|
| | NYSE | Adv 935 | Dec 1896 | Vol 790 mln | | Nasdaq | Adv 1285 | Dec 3024 | Vol 4.1 bln |
Industry Watch
| Strong: Materials, Health Care, Consumer Staples |
| | Weak: Consumer Discretionary, Information Technology, Utilities, Real Estate, Communication Services |
Moving the Market
-- Normal consolidation after big gains
-- Reacting to a mixed batch of earnings from retailers
-- Wait-and-see ahead of NVIDIA (NVDA) earnings results after today's close
-- Relative weakness in mega cap stocks
-- Not a lot of conviction from sellers in this seasonally strong period for the market
| Closing Summary
21-Nov-23 16:30 ET
Dow -62.75 at 35088.29, Nasdaq -84.55 at 14199.98, S&P -9.19 at 4538.19
[BRIEFING.COM] The S&P 500 closed the session near its high of the day with a modest 0.2% loss. The negative bias was partially driven by profit-taking activity after big gains since late October. There was not a lot of conviction from sellers, though, in this seasonally strong period for the market. Volume at the NYSE and Nasdaq was lower than average.
Including today's modest declines, the S&P 500 and Nasdaq Composite are still up 8.2% and 10.5%, respectively, so far this month.
Relative weakness in some mega cap names weighed on index performance today. NVIDIA (NVDA 499.44, -4.65, -0.9%) was a standout in that regard ahead of its market-moving earnings report after today's close. Amazon.com (AMZN 143.90, -2.23, -1.5%) was another standout loser on reports of Jeff Bezos selling some stock.
Still, NVDA and AMZN both recovered from their worst levels as the broader market climbed off session lows, having been down as much as 2.4% and 3.2%, respectively.
Market participants were digesting a mixed batch of earnings from retailers as well. Lowe's (LOW 198.06, -6.38, -3.1%), Best Buy (BBY 67.62, -0.49, -0.7%), and American Eagle Outfitters (AEO 16.63, -3.12, -15.8%) all traded down after reporting earnings while Dick's Sporting Goods (DKS 121.59, +2.58, +2.2%) and Burlington Stores (BURL 165.06, +28.35, +20.7%) closed higher after their earnings results.
Seven of the S&P 500 sectors registered a loss and four sectors saw modest gains. The health care sector (+0.6%) closed at the top of the leaderboard while the heavily-weighted information technology sector (-0.8%) saw the biggest decline.
Separately, the FOMC Minutes for the Oct. 31 - Nov. 1 meeting indicated the committee's view that the Fed can proceed more carefully now, but may consider monetary policy tightening if incoming data indicated that progress stalled on bringing inflation in-line with the Fed's 2.0% target. In other words, they didn't say anything the market hadn't already heard. Accordingly, the reaction to the minutes was muted.
The 2-yr note yield settled three basis points lower at 4.87% and the 10-yr note yield settled unchanged at 4.42%, having digested the news that existing home sales in October proceeded at their slowest annual sales pace (3.79 million) since August 2010.
- Nasdaq Composite: +35.7% YTD
- S&P 500: +18.2% YTD
- Dow Jones Industrial Average: +5.9% YTD
- S&P Midcap 400: +4.3% YTD
- Russell 2000: +1.3% YTD
Reviewing today's economic data:
- October Existing Home Sales 3.79 mln (Briefing.com consensus 3.90 mln); Prior was revised to 3.95 mln from 3.96 mln
- The key takeaway from the report is that sales of existing homes continue to be crimped by high mortgage rates, high selling prices, and limited inventory.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.8%)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 227,000; prior 231,000), Continuing Claims (prior 1.865 mln), October Durable Orders (Briefing.com consensus -3.1%; prior 4.7%), and Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.5%)
- 10:00 ET: Final November University of Michigan Consumer Sentiment (Briefing.com consensus 60.9; prior 60.4)
- 10:30 ET: Weekly crude oil inventories (prior 3.60 mln)
- 12:00 ET: Weekly natural gas inventories (prior +60 bcf)
Stocks continue sideways ahead of the close
21-Nov-23 15:35 ET
Dow -80.25 at 35070.79, Nasdaq -90.45 at 14194.08, S&P -10.65 at 4536.93
[BRIEFING.COM] Things are little changed over the last half hour.
NVIDIA (NVDA 499.73, -4.29, -0.9%) reports earnings after today's close, along with HP Inc (HPQ), Nordstrom (JWN), Autodesk (ADSK), Urban Outfitters (URBN), and others.
The 2-yr note yield settled three basis points lower at 4.87% and the 10-yr note yield settled unchanged at 4.42%.
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.8%)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 227,000; prior 231,000), Continuing Claims (prior 1.865 mln), October Durable Orders (Briefing.com consensus -3.1%; prior 4.7%), and Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior 0.5%)
- 10:00 ET: Final November University of Michigan Consumer Sentiment (Briefing.com consensus 60.9; prior 60.4)
- 10:30 ET: Weekly crude oil inventories (prior 3.60 mln)
- 12:00 ET: Weekly natural gas inventories (prior +60 bcf)
Stocks move mostly sideways; energy complex settles lower
21-Nov-23 15:00 ET
Dow -68.81 at 35082.23, Nasdaq -84.70 at 14199.83, S&P -8.59 at 4538.99
[BRIEFING.COM] The major indices continue to trade in narrow ranges.
Energy complex futures settled lower. WTI crude oil futures fell 0.2% to $77.71/bbl and natural gas futures sank 2.0% to $2.99/mmbtu. The S&P 500 energy sector (-0.3%) trades near the middle of the pack.
Meanwhile, the health care (+0.6%) and materials (+0.5%) sectors are leading the pack.
FOMC Minutes released, S&P 500 holding modest losses in afternoon trading
21-Nov-23 14:25 ET
Dow -75.60 at 35075.44, Nasdaq -89.87 at 14194.66, S&P -9.40 at 4538.18
[BRIEFING.COM] The market was unphased by the FOMC's Minutes from the November meeting wherein the committee said it would proceed carefully on policy decisions. The FOMC also said that it would consider monetary policy tightening if incoming information indicated that progress toward the Committee's inflation objective was insufficient. The major averages are little changed from their levels 30 minutes ago, the S&P 500 (-0.21%) now down less than 10 points.
Looking at the S&P 500 today, stocks like Albemarle (ALB125.62, -4.74, -3.64%), ON Semi (ON 68.29, -2.39, -3.38%), and AES Corp. (AES 16.65 -0.56, -3.25%) are lagging, while Agilent Tech (A 123.79, +9.81, +8.61%) outperforms following earnings. ALB and AES are lagging despite relative outperformance from the materials (+0.5%) and utilities (+0.1%) sectors, while ON slips in part owing to comments from ADI management about inventory overhangs.
Gold settles decently higher
21-Nov-23 14:00 ET
Dow -70.06 at 35080.98, Nasdaq -90.57 at 14193.96, S&P -8.60 at 4538.98
[BRIEFING.COM] With about two hours remaining on Tuesday the tech-heavy Nasdaq Composite (-0.63%) is at the bottom of the standings, down about 91 points.
Gold futures settled $21.30 higher (+1.0%) to $2,000.60/oz, its highest finish since late July as the market digested the possibility that the Fed may be done raising interest rates and is pricing in its first rate cut for May 2024.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $103.61.
Page One
Last Updated: 21-Nov-23 08:52 ET | Archive
No mistaking things
The trading volume was lighter than average in yesterday's trade, but that didn't stop the stock market. The bias remained unmistakably bullish as the leadership remained unmistakably mega cap. There has been a little bit of backtracking this morning, however.
Currently, the S&P 500 futures are down 13 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 77 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 78 points and are trading 0.2% below fair value.
Some might characterize that as a negative bias. It really isn't. It is simply a bias toward consolidation after a huge run and in front of what will unmistakably be a market-moving event.
The said event is NVIDIA's (NVDA) earnings report and conference call after today's close. Shares of NVDA have soared 26.6% from their intraday low on October 26, having closed yesterday at an all-time high. With a move like that, it is unmistakable that expectations leading up to NVIDIA's report are sky high.
How NVDA responds after the report will be instrumental in how the broader market responds after the report.
In the meantime, the market is digesting a slate of results from retailers. The response to those results has been unmistakably mixed, highlighted by weakness in Lowe's (LOW), Best Buy (BBY), Kohl's (KSS), Abercrombie & Fitch (ANF), and American Eagle Outfitters (AEO) after their reports and strength in Dick's Sporting Goods (DKS), Burlington Stores (BURL), and Hibbett (HIBB) following their results.
Another item on the market's radar today is the release of the FOMC Minutes for the October 31-November 1 meeting at 2:00 p.m. ET.
Presumably, there won't be much reaction to the minutes given what the market has learned since the meeting, namely that there was some welcome disinflation in the October CPI and PPI reports, and that several Fed officials continue to toe the party line that there is still work to do to bring down inflation but that the Fed can be patient with policy decisions at this point.
Also, it is unmistakable that the fed funds futures market has its mind made up, no matter what anyone says, that the Fed is done raising rates.
The latter is unmistakably the housing market's hope. It has been compressed by the sharp rise in mortgage rates, which has followed along with the Fed's rate hikes. There will be a sight line to that compression when the October Existing Home Sales Report is released at 10:00 a.m. ET (Briefing.com consensus 3.90 million; prior 3.96 million).
-- Patrick J. O'Hare, Briefing.com
Baidu issues mixed Q3 results, but focus centering on AI growth opportunities (BIDU)
Chinese tech giant Baidu (BIDU) beat muted expectations in Q3 as revenue growth slowed amid stiff macroeconomic headwinds, but the company's current quarterly results aren't necessarily the main attraction. Rather, BIDU's latest version of its AI chatbot, ERNIE 4.0, is under the spotlight after launching last month.
- As BIDU's answer to OpenAI's ChatGPT, ERNIE failed to impress the public and investors when the original version launched last February. In fact, the company didn't even offer a live demo of the chatbot, opting to only provide a pre-recorded video of ERNIE, leaving many to wonder if its capabilities would stack up to ChatGPT's.
- After a few upgrades, though, it now appears that ERNIE 4.0 is ready for prime time. On that note, BIDU is now charging a small monthly fee to use ERNIE 4.0, which is embedded into various BIDU products, such as maps, file sharing, and search.
- While this revenue wasn't included in BIDU's Q3 results, ERNIE will begin contributing to the topline in Q4. During the earnings call, BIDU stated that ERNIE will help generate "hundreds of millions of yuan in additional ad revenue" in Q4.
That is good news, because BIDU's core business of online search and advertising is badly in need of a growth catalyst.
- In Q3, revenue for Baidu Core was up by just 5% to RMB 26.6 bln, down from last quarter's growth rate of 14%. In terms of new monthly active users, growth there was also pretty tepid at 5% to 663 mln.
- Along with macroeconomic pressures, BIDU is facing intensifying competition from Alibaba (BABA) and ByteDance, which has seen its market share increase in recent quarters.
- On the topic of BABA, when the Chinese e-commerce and cloud computing giant reported earnings last week, it disclosed that it no longer plans to spin-off its cloud segment due to uncertainties stemming from U.S. export controls on high-performance chips.
- Although BIDU didn't echo BABA's concerns about sourcing chips to power AI tech, the export restrictions do represent a potential risk as the company looks to ramp up its AI investments.
Overall, it was a mixed performance in Q3 as BIDU comfortably topped EPS estimates, even as revenue growth decelerated. However, enthusiasm is building for BIDU's rising AI growth opportunities, which is underpinning the stock's gains today.
Dick's Sporting Goods showcases its comeback qualities in OctQ, crushing EPS estimates (DKS)
A colossal earnings miss and slashed FY24 (Jan) guidance last quarter knocked Dick's Sporting Goods (DKS +3%) down, triggering a -24% correction, but the sporting goods retailer was not out. DKS quickly acted to fix the issues that ripped down its margins, optimizing its organization to align its talent and spending better while streamlining its overall cost structure.
As a result, DKS displayed its comeback qualities in Q3 (Oct), crushing analysts' earnings estimates while delivering positive comp growth on top of a challenging figure from the year-ago period. Due to this outsized performance in OctQ, DKS hiked its FY24 outlook, although it maintained a semblance of caution.
- Margins were the focal point in OctQ following an over 250 bp decline yr/yr in merchandise margins last quarter, primarily fueled by elevated inventory shrink. While a mild 23 bp improvement in merchandise margins in OctQ is not particularly special, it still marked a quick reversal from Q2 (Jul). Management noted that shrink remained a problem, albeit to a much less significant degree, clipping approximately 50 bps off margins. Nevertheless, due to favorable yr/yr comparisons and decisive cost-savings actions, DKS achieved 10% bottom-line growth in OctQ, posting EPS of $2.85.
- Meanwhile, the back-to-school season buoyed revenue in the quarter, a positive development that helped prop up sales growth across several retailers recently, including Macy's (M) and Target (TGT), ahead of DKS's OctQ report. Sales rose 2.8% yr/yr to $3.04 bln on +1.7% comp growth, which was on top of +6.5% comps in the year-ago period. CEO Lauren Hobart commented that the company continued to capture additional market share. This was likely due to the considerable investments DKS has made in enhancing its in-store experience.
- DKS has been transforming its floor space, constructing "House of Sport" locations filled with rock-climbing walls, batting cages, and ice rinks. At the same time, DKS's smaller, more common store formats are also receiving an overhaul, transitioning into a lite version of its massive "House of Sports" stores. With just 12 "House of Sport" stores opened, 9 of which opened this year, DKS is ambitious in its plans, targeting between 75-100 by 2027.
- With the turnaround wind at its back, DKS is confident in achieving modestly better financial performance in FY24 than previously anticipated. The company raised its FY24 EPS outlook to $12.00-12.60, up from $11.50-12.30, and comps of +0.5-2.0%, up from +0.0-2.0%. While encouraging, DKS's raised guidance is still below its initial forecast outlined in March, underpinning a cautious tone due to ongoing macroeconomic uncertainty.
DKS's OctQ results were a comeback story, showcasing management's fluidity to quickly adjust when times get tough. However, uncertainty remains, evidenced by a meaningful pullback from intraday highs of over +12% today. The nearly $1.00 earnings miss last quarter spooked investors and has likely kept shares from mounting a full recovery despite impressive OctQ results. We continue to like DKS's store overhaul, which may prove a substantial competitive advantage over the long term. Still, today's quick retreat off of highs gives us pause.
Burlington Stores surges following Q3 earnings report; long term outlook positive (BURL)
Burlington Stores (BURL +21%) is trading sharply higher after reporting Q3 (Oct) earnings this morning. The headline numbers were decent but did not blow us away. Based on the weakness in the stock in recent months, we think investors were bracing for potentially worse results/guidance. Also, BURL laid out some positive growth plans for the next several years. We think that is helping the share price today.
- Revenue was in-line with analyst expectations, but admittedly was slightly lower than what BURL had expected, driven by later opening dates for new stores during the quarter. This included a shift in a handful of new store openings into Q4 from Q3. There is a little confusion on which adjusted EPS number we should compare to consensus due to the acquisition of BBBY leases, but either way, it came in at the high end of guidance.
- Turning to same store comps, it came in at a very respectable +6%, in-line with prior guidance of +5-7% and slightly ahead of peer Ross Stores (ROST), which was +5%. BURL was very pleased with its comps trend through September, which included a solid showing for back-to-school. However, comps softened in October, due to unseasonably warm weather.
- Of note, BURL has higher exposure than its peers to cold weather categories, such as outerwear, which represents about 25% of sales. Many shoppers still think of BURL as Burlington Coat Factory. Looking ahead to Q4 (Jan), comps trends have improved in November as the weather has finally turned cooler. Current Q4 comp guidance is -2% to 0%. BURL also currently expects +2% comps next year.
- BURL also provided some bullish longer term guidance. Over the next five years, it expects to grow sales to approximately $16 bln, or roughly 60% aggregate growth from this year. It expects to open approximately 100 new stores in each of the next five years, mostly comprised of its 25,000 sq ft prototype located in busy strip malls. What stands out to us is BURL expecting annual comps to average in the mid-single digits, which is quite good, partly driven by new stores outcomping older stores. BURL is also expecting operating margin to expand to approximately 10% by 2028, driven by higher merchandise margins, lower markdowns, lower freight, lower supply chain costs etc.
- In terms of the consumer, BURL said its lower income customer is still feeling the inflation pinch. However, it also said it is seeing some early evidence that they are starting to recover from the shock of last year. BURL felt lower income consumers had a little more money to spend this back-to-school season as compared to last year. They may be feeling a little less economic pressure than they were in 2022.
Overall, we are a bit surprised to see such an outsized reaction to generally in-line results. We think investors are focusing on the strong EPS number, its bullish long term view and BURL's comments about the lower income consumer perhaps turning a corner. We also think the stock has been pretty beaten down in recent months, so expectations were running on the low end and these results were better than feared.
Best Buy getting sold as sales weaken in Q3, setting stage for bleak holiday shopping season (BBY)
A tough holiday shopping season was fully anticipated for consumer electronics retailer Best Buy (BBY), but the company's Q3 topline miss and its weak outlook for Q4 indicates that it will be even more sluggish than originally expected.
- With the exception of the entertainment category (gaming, music, movies, VR), which generated yr/yr sales growth of nearly 21%, each of BBY's product categories were down significantly on a yr/yr basis.
- Appliances were especially weak, lower by 15.3% yr/yr, followed by declines of 9.5% and 8.3% in consumer electronics and computing and mobile phones, respectively.
- Although BBY wasn't forecasting a major upswing in demand for Q3 -- its guidance called for comps to improve slightly from the Q2 decline of (6.2)% -- CEO Corrie Barry acknowledged that consumer demand has been even more uneven and difficult to predict than anticipated.
- Accordingly, BBY's Q3 comp of (6.9)% missed BBY's and analysts' estimates, as did its Q4 comp guidance of (7.0)%-(3.0)%.
- Discouragingly, Ms. Barry noted that sales trends continued to soften at the end of October. This is reflected in BBY's downwardly revised FY24 EPS, sales, and comp outlook, which essentially amounts to guidance for Q4 that is well below expectations.
- Specifically, its new guidance equates to Q4 EPS of $2.34-$2.64 and revenue of $14.3-$14.9 bln, with the midpoint of those guidance ranges falling far short of estimates.
- As demand has faded following a boom period during the pandemic, BBY has reduced its cost structure. In Q3, SG&A expense fell by 3% yr/yr to $1.88 bln. Furthermore, supply chain costs have normalized and BBY's membership offerings are generating higher service margin rates, driving domestic gross margin higher by 100 bps to 22.9%.
- These factors have helped to take some of the sting out of eight consecutive quarters of sales declines. In fact, despite those sales declines, BBY has exceeded EPS expectations in every quarter over the past five years.
- Ms. Barry has commented that this year will likely be a low point for tech demand and that is still the base case scenario. After the pull-forward in demand for PCs, laptops, and mobile devices that occurred during the pandemic in 2020-2021, an upgrade cycle should materialize in CY24. Additionally, BBY's weak guidance sets the bar even lower with the company approaching yr/yr comparisons that are quite favorable in the coming quarters.
Overall, it was a pretty dismal earnings report for BBY as the holiday shopping season is shaping up to be even worse than anticipated, but there's also a sense that BBY is hitting rock bottom now and that better days are ahead in 2024.
Lowe's retreats as fading DIY spending leads to slashed FY24 financial targets (LOW)
By lowering its FY24 (Jan) earnings, sales, and comp forecasts, Lowe's (LOW -2%) did not give investors much to write home about, especially after home improvement rival Home Depot (HD) narrowed its FY24 outlook, taking the worst-case scenario off the table. LOW did still topple Q3 (Oct) earnings expectations while delivering revenue mostly consistent with analyst estimates. Perhaps if LOW reported ahead of HD, this might have been sufficient to garner a positive reaction.
However, with HD already raising the bar last week and triggering an approximately +5% pop in LOW shares, the company's OctQ report is not cutting it today.
- What led to the discrepancy between LOW's and HD's OctQ reports? Deteriorating do-it-yourself or DIY spending. After HD commented that DIY demand remained a laggard in OctQ, evidenced by further declines in customer traffic and a 2.4% drop in transactions yr/yr, we warned that this could present trouble for LOW, which derives a much greater percentage of overall revenue from DIY sales, around 75%. As a result, LOW's delivered tepid -7.4% same-store sales growth and an 11.7% drop in revenue yr/yr to $20.74 bln, both outpaced by HD.
- Retreating DIY spending has been a consistent headwind for LOW throughout the year, but decent profitability and outperforming its primary rival helped investors look past this blemish. However, LOW's registering a slimmer earnings beat in OctQ compared to the previous two quarters while underperforming HD is piling on additional selling pressure today. Adjusted EPS contracted 6.4% yr/yr to $3.06, barely edging past analyst predictions.
- Gross margins were essentially flat yr/yr at 33%, further highlighting how significant the impacts of fading consumer demand had on LOW.
- Lagging DIY demand was the underlying factor behind LOW's slashed FY24 guidance. LOW now anticipates sales to total $86 bln, down from $87-89 bln, and comps of -5%, below its negative 2-4% prediction. The hit to its top line also led to LOW's reduced FY24 adjusted EPS projection of $13.00, down $0.40 from the midpoint of its previous $13.20-13.60 forecast.
On a lighter note, LOW has been bolstering its Pro division, leading to another round of positive Pro comps in OctQ. Nevertheless, HD is simultaneously investing aggressively in maintaining and expanding its Pro market share, improving the sales experience and building out capabilities to better serve more complex projects.
As pandemic-related tailwinds that kicked off a rush of DIY spending continue to fade, while demand for services from professional customers, such as renovators, contractors, electricians, and painters, remains stable, Pro sales could continue to eclipse DIY over the next several quarters. This dynamic paints a gloomy picture for LOW as it plays catch-up to HD's established Pro business. Still, both companies are not staring at smooth sailing ahead as interest rates and inflationary pressures keep a lid on in-store traffic and overall demand, potentially setting the stage for a challenging year ahead.
|
