Market Snapshot
briefing.com
| Dow | 36204.44 | -41.06 | (-0.11%) | | Nasdaq | 14185.49 | -119.54 | (-0.84%) | | SP 500 | 4569.78 | -24.85 | (-0.54%) | | 10-yr Note | -29/32 | 4.29 |
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| | NYSE | Adv 1404 | Dec 1425 | Vol 1.02 bln | | Nasdaq | Adv 2370 | Dec 1999 | Vol 6.31 bln |
Industry Watch
| Strong: Utilities, Real Estate, Health Care, Consumer Staples |
| | Weak: Communication Services, Information Technology, Materials, Consumer Discretionary, Energy |
Moving the Market
-- Rising Treasury yields keeping stock market in check
-- Weakness in mega cap stocks due to profit-taking activity weighing on index performance
-- Strength in airline stocks after Alaska Air (ALK) and Hawaiian Holdings (HA) deal announcement
-- Strength in other discretionary stocks, such as retailers and homebuilders |
Closing Summary
04-Dec-23 16:15 ET
Dow -41.06 at 36204.44, Nasdaq -119.54 at 14185.49, S&P -24.85 at 4569.78
[BRIEFING.COM] After some up and down price action in the early going, the major indices stuck to relatively narrow trading ranges throughout most of the session.
Mega caps and semiconductor stocks were weighing heavily on index performance. NVIDIA (NVDA 455.10, -12.55, 2.7%) was one of the most influential stocks in that respect. The Vanguard Mega Cap Growth ETF (MGK) declined 1.1% today and the PHLX Semiconductor Index fell 1.2%.
The market-cap weighted S&P 500 closed with a 0.5% loss while the equal-weighted S&P 500 eked out a 0.1% gain.
Money was rotating into other stocks, which provided some offsetting support to the broader market. Airlines were winning standouts in that respect after news that Alaska Air (ALK 34.07, -5.66, -14.3%) plans to acquire Hawaiian Holdings (HA 14.22, +9.36, +192.6%) for $18.00 per share. The US Global Jets ETF (JETS) climbed 4.2%.
Banks, retailers, and homebuilders were also relatively strong today. The SPDR S&P Bank ETF (KBE) jumped 1.2%; the SPDR S&P Retailer ETF (XRT) rose 1.1%; and the SPDR S&P Homebuilder ETF (XHB) climbed 0.7%.
Crypto-related stocks were another pocket of strength, benefitting from recent rise in cryptocurrency prices. Bitcoin is at $40,632 after briefly rising past $41,000 and Ethereum is at $2,228.75. Coinbase Global (COIN 141.09, +7.33, +5.5%) jumped more than 5.0%.
Rising Treasury yields acted as a limited factor for the broader market in addition to losses in mega cap and semiconductor shares. The 2-yr note yield rose nine basis points to 4.65% and the 10-yr note yield rose six basis points to 4.29%.
Separately, gold futures settled $47.50 lower (-2.3%) to $2,042.20/oz, ending firmly off overnight all-time highs above $2,100/oz, on some likely profit taking activity.
- Nasdaq Composite: +35.9%
- S&P 500: +19.2%
- Dow Jones industrial Average: +9.3%
- S&P Midcap 400: +8.8%
- Russell 2000: +6.7%
Reviewing today's economic data:
- October Factory Orders -3.6% (Briefing.com consensus -2.6%); Prior was revised to 2.3% from 2.8%
- The key takeaway from the report is that the October decrease was the largest month-over-month contraction since April 2020, when factory orders plunged 13.5% as coronavirus-related lockdowns spread. The October report also featured a downward revision to September figures, including orders for nondefense capital goods excluding aircraft, indicating that business spending in September was weaker than originally estimated.
Looking ahead, Tuesday's economic data is limited to the final November S&P Global US Services PMI at 9:45 ET and the November ISM Non-Manufacturing PMI at 10:00 ET.
Treasuries settle with losses
04-Dec-23 15:25 ET
Dow -66.03 at 36179.47, Nasdaq -157.89 at 14147.14, S&P -33.29 at 4561.34
[BRIEFING.COM] Stock are moving mostly sideways ahead of the close.
WTI crude oil futures declined 1.4% to $73.02/bbl.
The 2-yr note yield rose nine basis points to 4.65% and the 10-yr note yield rose six basis points to 4.29%. The US Dollar Index climbed 0.4% to 103.72.
Looking ahead, Tuesday's economic data is limited to the final November S&P Global US Services PMI at 9:45 ET and the November ISM Non-Manufacturing PMI at 10:00 ET.
Cryptocurrencies remain elevated
04-Dec-23 15:00 ET
Dow -61.47 at 36184.03, Nasdaq -156.09 at 14148.94, S&P -31.01 at 4563.62
[BRIEFING.COM] The major indices are little changed over the last half hour.
Cryptocurrencies remain near recent highs. Bitcoin is up 4.4% to $40,710 and Ethereum is up 2.2% to $2,236.00.
That price action has boosted crypto-related stocks like Coinbase (COIN 141.29, +7.53, +5.6%).
S&P 500 remains in second place on Monday afternoon
04-Dec-23 14:30 ET
Dow -89.49 at 36156.01, Nasdaq -159.09 at 14145.94, S&P -34.08 at 4560.55
[BRIEFING.COM] The S&P 500 (-0.74%) is in second place on Monday afternoon, down now about 34 points.
Elsewhere, S&P 500 constituents Albemarle (ALB 119.99, -6.17, -4.89%), Synopsys (SNPS 527.60, -18.36, -3.36%), and Ralph Lauren (RL 129.32, -4.31, -3.23%) pepper the bottom of today's standings. SNPS is seeing weakness on rotation out of technology names, while RL is losing a bit of its recent Black Friday rally.
Meanwhile, Ohio-based specialty retail company Bath & Body Works (BBWI 36.41, +2.52, +7.44%) is atop the index amid some notable options activity.
Gold stumbles into the close despite notching new all-time high overnight
04-Dec-23 14:00 ET
Dow -81.03 at 36164.47, Nasdaq -151.89 at 14153.14, S&P -32.82 at 4561.81
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-1.06%) is today's top lagging index, down more than 150 points.
Gold futures settled $47.50 lower (-2.3%) to $2,042.20/oz, ending firmly off overnight all-time highs above $2,100/oz, on some likely profit taking as well as strength in the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $103.81.
Page One
Last Updated: 04-Dec-23 09:01 ET | Archive
Lower open indicated after big gains of late
The S&P 500 futures are down 26 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 117 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 146 points and are trading 0.4% below fair value.
Stock futures indicate a lower open, cooling off following big gains of late. Gold futures are holding steady near the record high they hit last week, trading down 0.6% to $2,077.20/ozt now. Other commodity futures are trading down. WTI crude oil futures are down 0.8% to $73.45/bbl and natural gas futures are down 4.3% to $2.69/mmbtu.
Crypto-related stocks are up big this morning as cryptocurrency prices surge. Bitcoin is up 3.6% to $40,420 and Ethereum is up 2.6% to $2,241.16.
On the M&A front, Hawaiian Holdings (HA) will be acquired by Alaska Air (ALK) for $18.00 per share.
Treasury yields are moving higher. The 2-yr note yield is up six basis points to 4.62% and the 10-yr note yield is up two basis points to 4.25%.
Today's economic data is limited to October Factory Orders at 10:00 ET.
In other news, a US destroyer and several commercial ships were attacked in the Red Sea, according to The Wall Street Journal.
Science Applications capitalizing on upgrade cycles at intelligence and military customers (SAIC)
Government and defense contractor Science Applications (SAIC) is jumping to all-time highs after delivering another beat-and-raise earnings report as the company continues to see strong bookings activity from various military and intelligence branches, including the Navy and U.S. Space Force. In particular, these organizations are modernizing and enhancing their IT systems, while also bolstering their cybersecurity capabilities, creating steady demand for SAIC's engineering, technical, installation, and maintenance services.
- SAIC also successfully navigated through a leadership transition with Toni Townes-Whitley assuming the role of CEO on June 12, taking the reins from Nazzic Keene, who announced her intention to retire in May.
- This morning was the first earnings call for Ms. Townes-Whitley and, after coming over from Microsoft (MSFT) where she served as President of U.S. Regulated Industries, all indications are that the transition is going as smoothly as possible.
- As the company's raised guidance would suggest, its close-knit relationships with its customers remain fully intact following the leadership transition. More specifically, SAIC increased its FY24 EPS guidance to $7.20-$7.40 from $7.00-$7.20 and its revenue forecast to $7.20-$7.25 bln from $7.125-$7.225 bln.
- In fact, in each quarter of this fiscal year, SAIC has raised its FY24 guidance, reflecting the ramp up of work on new and existing programs and improved labor productivity.
- During last quarter's earnings call, SAIC commented that certain contract transitions could affect the timing of revenue recognition with growth weighted toward the back half of the fiscal year. This morning, the company reassured investors that its upgraded outlook not only reflects this factor, but it also takes into account the possibility of a short-lived disruptive government funding environment.
- Additionally, during SAIC's 2023 Investor Day in April, it targeted sustainable organic revenue growth of 2-4%, but Ms. Townes-Whitley stated this morning that the new leadership team has a goal of outperforming that growth.
The main takeaway is that SAIC continues to capitalize on technical and IT upgrade cycles within the U.S. government, intelligence, and military branches, as illustrated by net new bookings of $2.5 bln in Q3. Potential disruptions in revenue recognition are a risk, but SAIC's consistent beat-and-raise performances show that it is more insulated than most IT-related companies from macroeconomic headwinds.
Alaska Air sees some turbulence after saying Aloha to acquiring Hawaiian Airlines (ALK)
Alaska Air (ALK -16%) and Hawaiian Holdings (HA +180%) are joining forces. The two companies have signed a definitive agreement under which Alaska Airlines will acquire Hawaiian Airlines for $18 per share in cash, for a transaction value of approximately $1.9 bln, inclusive of $0.9 bln of Hawaiian Airlines net debt. The deal has been approved by both boards and is expected to close within 12-18 months. The combined company will be based in Seattle under the leadership of Alaska Airlines CEO Ben Minicucci.
- In terms of the rationale, the companies cite complementary domestic, international, and cargo networks. This will expand choices for consumers on the West Coast and throughout the Hawaiian Islands. Passengers will benefit from more choice and increased connectivity across both airlines' networks, with service to 138 destinations in the Americas, Asia, Australia and the South Pacific. ALK travelers will benefit from HA's international and long-haul offerings.
- Importantly, the combined airline will maintain both its Alaska Airlines and Hawaiian Airlines brands while integrating into a single operating platform. The combination will be able to offer a range of price points across a range of cabin classes, including Alaska Airlines' high-value, low-fare options and Hawaiian Airlines' international and long-haul product, which is on par with network carriers. The deal will maintain Neighbor Island service to serve air dependent communities in Hawaii.
- Hawaii residents will benefit because the combination will triple the number of destinations throughout North America that can be reached nonstop or one stop. Honolulu will become ALK's second largest hub. ALK believes Honolulu has the potential over time to approach Seattle in terms of revenue. Also, the deal enables greater international connectivity for West Coast travelers throughout the Asia-Pacific region with one-stop service through Hawaii.
- The stock reactions are quite stark. HA is surging today, which is no surprise. The stock closed at $4.86 on Friday and now they are getting a whopping $18/sh offer price, all in cash. Nevertheless, HA shares are trading a good bit below the $18 offer price, which tells us investors perhaps have concerns over whether the deal will survive regulatory scrutiny and perhaps questions as to whether investors will vote to approve the deal at the current price.
- ALK is sharply lower, which we think is for several reasons. First, the premium seems quite hefty. ALK argues that the 0.7x revenue multiple falls well below the industry transaction average of 1.7x. We would push back on that a bit because HA's revs have been depressed because of the recent wildfires. Also, the share price premium is what it is, and that is quite frothy. Also, the deal was all in cash, which makes the hefty premium all the more surprising.
- Other issues that are weighing on ALK's share price is the fact that Southwest (LUV) has been adding a good number of flights in Hawaii, making competition tougher. ALK is also taking on a good amount of debt. We think regulatory concerns are another factor. Recall that the DOJ is suing to block JetBlue's (JBLU) acquisition of Spirit Airlines (SAVE), so this deal could face some challenges as well.
- And finally, analysts seemed concerned on the call that ALK uses Boeing 737s. Buying HA will add Airbus planes, both narrow body and wide body. That will add complexity/costs to maintenance. On the call, ALK conceded the increased complexity, but the advantages far outweigh the complexities.
Overall, ALK investors are not too excited about this deal. There are definitely positives to it, but they are not liking the lofty premium being paid. That is especially the case for an airline (HA) that is facing increased competition from Southwest and has a fleet that is not 737-focused. However, HA shareholders are quite happy with this combination.
Roche Hldg looks for next Ozempic or Mounjaro with acquisition of Carmot Therapeutics (RHHBY)
Eli Lilly's (LLY) Mounjaro and Novo Nordisk's (NVO) Ozempic have emerged as blockbuster treatments in the obesity and weight loss markets and now Swiss pharmaceutical company Roche Holding (RHHBY) is making a move into the field. The company agreed to acquire privately held Carmot Therapeutics for $2.7 bln in cash up front with the potential of paying out an additional $400 mln depending on the achievement of certain milestones.
- Given the runaway success of treatments like Mounjaro, which generated over $1.4 bln in sales in Q3 (+653% yr/yr), it's easy to understand RHHBY's interest in Carmot Therapeutics. With Carmot Therapeutics filing for an IPO last month, the timing of the deal also makes sense.
- Had RHHBY waited until the company went public, there would have been a good chance that it would pay a much steeper price as buzz about Carmot's lead obesity treatment pushed shares higher.
- Similar to Mounjaro and Ozempic, Carmot's lead asset, CT-388, is a dual GLP-1/GIP receptor agonist that's injected once per week. CT-388, which is intended to treat obesity in patients with or without type 2 diabetes, demonstrated substantial weight loss in the Phase 1b study.
- RHHBY believes that there's a need in the market for an obesity treatment that works faster with better tolerability and CT-388 may check off those boxes.
- However, CT-388 and Carmot's other candidates are earlier stage assets. In fact, it may be a few years before CT-388 is approved, marketed, and generating revenue for RHHBY -- assuming the Phase 2 and Phase 3 trials are successful.
- Furthermore, in a market that's estimated to grow to $100 bln by 2030, the obesity and weight loss space is bound to become even more competitive in the coming years. As just one example, AstraZeneca (AZN) and China-based Eccogene entered into a licensing agreement three weeks ago for an investigational (Phase 1) oral once-daily treatment for the treatment of obesity and type-2 diabetes.
So, there are still plenty of uncertainties and risks for RHHBY, but the risk/reward profile on this $2.7 bln bet does look attractive for a company that's forecasted to generate over $66 bln in revenue this year. In a market that's currently dominated by just two companies -- LLY and NVO -- there is plenty of room for other treatments, especially if those treatments are more effective and/or are more convenient. On that note, Carmot's CT-996 candidate, which is currently in Phase 1 studies, is a once-daily pill that may ultimately become the jewel of this acquisition.
Spotify's 17% workforce reduction proving spot-on as shares gap up to one-year highs today (SPOT)
Spotify's (SPOT +7%) decision to cut its total workforce by roughly 17% today is proving spot-on, generating enough enthusiasm to maintain its current rally. Shares of the music and podcast streaming platform are up nearly +50% since bottoming weeks after a Q2 earnings miss and bearish Q3 guidance in late July.
This is not the first time SPOT has had to eliminate a portion of its workforce, announcing a 2% cut in June. The company has been amid other cost-cutting measures for over a year in the wake of dramatically slowing economic growth and rising interest rates. Recall earlier this year that management acknowledged its multi-billion dollar investment in signing exclusive podcasting deals was not yielding a sufficient return, deciding to forgo renewal of some of its agreements. With podcasting a central pillar of SPOT's long-term focus, its decision to let go of some of its exclusive rights was disappointing.
However, considering SPOT delivered its first quarter of positive net earnings in over a year in Q3, it was the proper move to continue toward sustained profitability. Furthermore, SPOT registered 26% monthly active user (MAU) growth yr/yr in Q3, similar to the +27% improvement in Q2. Premium subscriber growth was also steady, expanding by 16% yr/yr compared to a +17% jump in Q2. This consistency signaled to SPOT that users did not prioritize the company's exclusive podcasts. Instead, it likely underpinned SPOT's competitive edge within the music streaming business.
- Competition is intense within the music streaming business, with several alternatives from bigger fish such as Apple (AAPL) and Google (GOOG), alongside other mediums like Sirius XM Holding's (SIRI) Sirius XM and Pandora. Despite this, SPOT has continued to add to its subscriber base, showcasing the platform's ease of use, expansive selection, and attractive fees.
- By consistently bolstering its subscriber base, it can continue to fend off competitors when negotiating with music labels and artists. Content creators will likely want their music or podcast on Spotify to reach a large audience. As of Q3, SPOT boasts 574 mln total MAUs, a 130% spike in just four years.
- SPOT had a few blunders regarding podcasting overpaying to sign exclusive rights deals with certain individuals. However, just like within the live TV streaming industry, podcasting is where cord-cutters gravitate, digesting their news, sports, pop culture, etc., via streaming instead of cable TV or radio. With SPOT condensing music and podcast streaming into one platform, it could steadily monetize exclusive podcast listeners, eventually pulling them away from their alternative music streaming services.
After a turbulent 2022, SPOT's moves this year to cut costs and focus on driving profitability have consistently been proven right. They also have not come at the expense of its competitive advantages. SPOT noted that it could have conducted layoffs over the next two years but ultimately decided against this action given the gap between its current financial position and its end goal. We think ripping the band-aid off is the proper step toward fulfilling its longer-term vision.
Dell pulls back following earnings/guidance as PC demand slowed in Sep/Oct (DELL)
Dell (DELL -5%) is trading lower despite reporting another large EPS beat with its Q3 (Oct) earnings report last night. This was Dell's fifth consecutive large EPS beat. Dell also reported impressive revenue upside. However, Dell missed on revs and guided Q4 (Jan) below analyst expectations.
- Breaking it down by segment, Infrastructure Solutions Group (ISG) saw revenue decline 12% yr/yr, but was flat sequentially to $8.50 bln with 12.6% segment operating margin vs 14.3% last year. Storage revenue declined 13% yr/yr while servers and networking fell 10%. Dell saw server ASPs expand in both AI-optimized and traditional servers. Also, customer demand for AI servers nearly doubled sequentially and demand remains well ahead of supply.
- The comment that stood out to us was Dell saying that it's seeing the beginning of a traditional server rebound and historically storage follows a couple of quarters later. That seems to be showing up in the sequential growth metrics.
- Turning to Client Solutions Group (CSG), segment revenue fell 11% yr/yr to $12.28 bln with 7.5% operating margin vs 7.7% last year. Commercial and consumer revenue were $9.8 bln and $2.4 bln, respectively. The demand momentum seen in June and July continued into August but slowed as the quarter progressed, which caused CSG revenue to decline sequentially and come in short of internal expectations.
- Dell saw improved PC demand in June and July, however, the business slowed in September and slowed even more in October. Dell saw customers being more selective, particularly large commercial customers, enterprise customers, and particularly in North America. The big change was the number of large deals slowed over the course of the quarter as customers again became more cautious and selective, which led to increased pricing pressure.
Overall, investors are disappointed with Dell's results and guidance. The stock gapped higher following its Q2 report in early September and kept moving higher, which tells us sentiment was running high heading into this report. And then last week, HPQ had a good report. However, Dell was noticeably more cautious on this Q3 call than it was for its Q2 call. Probably what is keeping the stock from falling even lower was management saying it is seeing the beginning of a traditional server rebound and storage historically follows a couple of quarters later. This is being seen as a bit of a silver lining for what was rough guidance.
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