Market Snapshot
briefing.com
| Dow | 37082.00 | -475.92 | (-1.27%) | | Nasdaq | 14777.94 | -225.28 | (-1.50%) | | SP 500 | 4698.35 | -70.02 | (-1.47%) | | 10-yr Note | +26/32 | 3.88 |
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| | NYSE | Adv 625 | Dec 2147 | Vol 1.0 bln | | Nasdaq | Adv 1297 | Dec 3026 | Vol 6.3 bln |
Industry Watch
| Strong: Communication Services |
| | Weak: Consumer Staples, Industrials, Utilities, Materials, Financials, Consumer Discretionary |
Moving the Market
-- Consolidation efforts after huge gains since late October
-- Disappointing FY24 revenue guidance from FedEx (FDX) contributes to slowdown worries
-- Geopolitical angst related to the Middle East and China
-- Chatter of trading activity in zero-day options hastening today's retreat
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Closing Summary
20-Dec-23 16:30 ET
Dow -475.92 at 37082.00, Nasdaq -225.28 at 14777.94, S&P -70.02 at 4698.35
[BRIEFING.COM] Today's trade looked a lot different in the early going compared to where things ended up. The Russell 2000 was up 0.9% at its early session high; the S&P 500 was up 0.2% at its high of the day; and the Nasdaq Composite was up 0.4% at its intraday high.
The market saw an abrupt reversal in afternoon trading that happened without a news catalyst. There was some talk that trading activity in zero-day options hastened the retreat, but in any case, the major indices were all overdue for a pullback after their huge run from late October and also likely fell prone to general profit-taking activity.
The afternoon slide left the major indices near their worst levels of the session with losses ranging from 1.3% to 1.9%. The S&P 500 closed just below the 4,700 level, which leaves the index up 14.1% from its low close on October 27 (4,117).
Just about everything came along for the retreat. The equal-weighted S&P 500 declined 1.7%, and the A-D line favored decliners by .. margin at the NYSE and a .. margin at the Nasdaq.
The only S&P 500 sector that declined less than 1.0% was communication services (-0.1%). A gain in Alphabet (GOOG 139.66, +1.56, +1.1%) related to a report from The Information that it is aiming to reorganize its advertising sales unit provided support to the sector.
The consumer staples (-2.0%) and utilities (-2.0%) sectors saw the steepest declines. The industrial sector fell 1.6%, due in part to a big loss in FedEx (FDX 246.25, -33.75, -12.1%) following its disappointing FY24 revenue guidance.
Geopolitical angst was a part of the market narrative today, which didn't move stocks that much, but contributed to buying interest in Treasuries. Bloomberg report that the U.S. and its allies are considering strikes against Houthi rebels in Yemen following their disruption of Red Sea shipping activity.
The 2-yr note yield fell ten basis points to 4.35% and the 10-yr note yield declined four basis points to 3.88%.
- Nasdaq Composite: +41.2%
- S&P 500: +22.4%
- Russell 2000: +12.6%
- S&P Midcap 400: +12.8%
- Dow Jones industrial Average: +11.9%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -1.5%; Prior 7.4%
- Q3 Current Account Balance -$200.3 bln (Briefing.com consensus -$201.0 bln); Prior was revised to -$216.8 bln from -$212.1 bln
- December Consumer Confidence 110.7 (Briefing.com consensus 104.0); Prior was revised to 101.0 from 102.0
- The key takeaway from the report is the recognition that there was renewed optimism across all ages and household income levels with attention being paid to improved inflation trends, business conditions, and job availability.
- November Existing Home Sales 3.82 mln (Briefing.com consensus 3.80 mln); Prior 3.79 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; however, the recent drop in mortgage rates is expected to be a driver of stronger sales activity in December. Existing home sales are counted when closed. New home sales are counted when contracts are signed.
Thursday's economic calendar features:
- 08:30 ET: Weekly Initial Jobless Claims (Briefing.com consensus 218K; Prior 220K) and Continuing Jobless Claims (Prior 1876K)
- 08:30 ET: Q3 GDP - Third Estimate (Briefing.com consensus 5.2%; Prior 5.2%) and Q3 GDP Deflator - Third Estimate (Briefing.com consensus 3.6%; Prior 3.6%)
- 08:30 ET: December Philadelphia Fed Index (Briefing.com consensus -3.0; Prior -5.9)
- 10:00 ET: November Leading Indicators (Briefing.com consensus -0.4%; Prior -0.8%)
- 10:30 ET: EIA Natural Gas Inventories (Prior -55 bcf)
Treasuries settle higher; stocks bounce off session lows
20-Dec-23 15:35 ET
Dow -372.56 at 37185.42, Nasdaq -195.08 at 14807.76, S&P -58.96 at 4709.41
[BRIEFING.COM] The three major indices trade just above session lows.
John Spallanzani from Miller Value Partners said on CNBC that there were some big prints on zero day options that contributed to the recent sell off.
The 2-yr note yield fell ten basis points to 4.35% and the 10-yr note yield declined four basis points to 3.88%.
Stocks sinking ahead of the close
20-Dec-23 15:00 ET
Dow -265.43 at 37292.55, Nasdaq -151.23 at 14851.61, S&P -45.56 at 4722.81
[BRIEFING.COM] Stocks took a sharp turn lower recently. The S&P 500 (-0.9%), Nasdaq Composite (-0.9%), and Dow Jones Industrial Average (-0.6%) are trading at session lows.
There was no specific catalyst to account for the move lower, which is likely driven by normal consolidation efforts.
Ten of the 11 S&P 500 sectors trade down. The consumer staples (-1.5%), consumer discretionary (-1.3%), financials (-1.2%), materials (-1.1%), and information technology (-1.1%) sectors are all down more than 1.0%.
S&P 500 slips into the red
20-Dec-23 14:30 ET
Dow +14.01 at 37571.99, Nasdaq +25.23 at 15028.07, S&P -1.31 at 4767.06
[BRIEFING.COM] The S&P 500 (-0.03%) has trickled into the red in the last half hour, down a little more than a point.
Elsewhere, S&P 500 constituents Alphabet (GOOG 141.88, +3.78, +2.74%), Johnson Controls (JCI 55.50, +1.38, +2.55%), and CVS (CVS 78.14, +1.88, +2.47%) pepper the top of today's standings. GOOG moves higher following reports the company is planning to reorganize it ad sales biz in addition to an Outperform recommendation from Raymond James, while CVS's gains appear to be spurred on by options activity.
Meanwhile, Aon (AON 295.16, -17.85, -5.70%) is underperforming after announcing the acquisition of NFP, a middle market property and casualty broker, benefits consultant, wealth manager and retirement plan advisor, for $13.4 bln in cash and stock.
Gold lower at midweek
20-Dec-23 14:00 ET
Dow +29.09 at 37587.07, Nasdaq +38.99 at 15041.83, S&P +1.85 at 4770.22
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.26%) holds a clean lead on Wednesday afternoon, peeling back slightly from levels half an hour ago, but still ahead of the pack.
Gold futures settled $4.40 lower (-0.2%) to $2,047.70/oz, stumbling off overnight highs amid a firmer dollar and gains in stocks.
Meanwhile, the U.S. Dollar Index is up +0.1% to $102.28.
Page One
Last Updated: 20-Dec-23 09:04 ET | Archive
Equity futures tilted lower
Your eyes don't deceive you. Those are minus signs in front of the indications for the equity futures this morning.
Currently, the S&P 500 futures are down 10 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 43 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 71 points and are trading 0.2% below fair value.
One might also be rubbing their eyes, wondering if they are seeing things clearly, knowing that Treasury yields have continued to slide, and yet the equity futures are tilted lower. That's not a vision problem.
Treasury yields are lower following some market-friendly CPI data for November out of the UK. Call that a good reason. Some less good reasons contributing to the drop in yields are demand worries surfacing from FedEx's (FDX) revised FY24 revenue outlook, which calls for a low single-digit decline versus prior guidance of approximately flat, and geopolitical angst.
The latter has been heightened by a Bloomberg report that the U.S. and its allies are considering military strikes against Houthi rebels in Yemen and an NBC News report that Chinese President Xi told President Biden at their San Francisco meeting last month that China will reunify Taiwan with China, preferably peacefully, but that the timing of the reunification has not been determined.
The 2-yr note yield is down seven basis points to 4.38% and the 10-yr note yield is down four basis points to 3.88%.
Of course, one can't gloss over the obvious reason the equity futures might also be lower, which is that the major indices have gone parabolic since late October and are apt to run into some profit-taking activity.
The surprise is that there still isn't a lot of conviction in those selling efforts. The S&P 500 has soared 16.2% since its low on October 27 and the S&P futures this morning are just 0.2% below fair value despite the FedEx warning?
Shares of FDX, by the way, are indicated 11.2% lower in pre-market trading. That will have an adverse impact on the industrials sector along with the 3.6% decline in shares of UPS (UPS), which are falling in sympathy with FedEx. General Mills (GIS) is down 3.9%, too, after lowering its FY24 organic revenue growth outlook due to a slower volume recovery. RV maker Winnebago (WGO) is down 4.6% on a fiscal Q1 earnings miss that included a 160 basis points decline in its gross profit margin due to volume deleverage and higher discounts and allowances.
Micron (MU) will report its quarterly results after the close, but the latest batch of earnings news outside the tech sector didn't measure up as one might have hoped -- yet, the weakness in the equity futures market doesn't even register as a blip relative to the scope of recent gains.
Old habits can be hard to break for a stock market that has settled into a winning trend, so the price action after the open will be monitored closely to see if there might be a change in trend. The November Existing Home Sales Report (Briefing.com consensus 3.80 million; prior 3.79 million) and the December Consumer Confidence Index (Briefing.com consensus 104.0; prior 102.0) at 10:00 a.m. ET could help in that determination.
Separately, it was reported earlier that the Q3 Current Account Balance was -$200.3 billion versus the revised Q2 deficit of $216.8 billion (from -$212.1 billion).
-- Patrick J. O'Hare, Briefing.com
Steelcase swivels off lows of -12% sparked by a Q3 sales miss as headwinds mostly short-lived (SCS)
Currently amid one-year highs, Steelcase (SCS +12%) swiveled off a significantly bearish reaction to its Q3 (Nov) report yesterday after the close that sent shares as low as -12%. The initial downbeat response was due to lighter-than-expected revs in the quarter, falling 5.9% yr/yr to $777.9 mln.
However, buyers rushed in at lows upon further inspection. The office furniture supplier's revenue miss was due to order fulfillment patterns in its Americas division not enjoying any sequential improvements like it originally expected because of isolated supplier issues. The good news is that SCS actively worked to resolve these situations and already expects them to settle during Q4 (Feb).
Alongside a short-lived revenue headwind in Q3, SCS is benefiting from several other positive developments today.
- Gross margins have been at the forefront of SCS's structural shift since the pandemic shifted the traditional office work model. SCS has continued progressing nicely on this front, expanding its gross margins by 360 bps yr/yr in Q3, a nice acceleration from the 210 bp improvement last quarter. As a result, even though revenue missed expectations, SCS still toppled earnings estimates in the quarter, growing its bottom line by 50% to $0.30 per share.
- Orders were another highlight, growing 15% yr/yr and 1% sequentially, maintaining a relatively stable level SCS has witnessed all year. The Americas grew orders by 16%, led by robust demand in SCS's large corporate customer segment, which has been strengthening throughout the year. Meanwhile, International orders jumped by 10% in the quarter, an encouraging increase that underscored positive momentum in the improvements SCS has been conducting in its EMEA and Asia-Pacific businesses, the latter of which recorded a 40% spike in orders in Q3.
- SCS is capping off its comeback year with a sturdy Q4 (Feb) predictions. Gross margins will continue to improve on a yr/yr basis, with SCS projecting a 170 bp jump to 31.5%. The company also expects adjusted EPS of $0.19-0.23, a meaningful bump from $0.19 in the year-ago period, and revs of $765-790 mln. SCS noted that revenue estimates would have been higher if not for the supply chain disruptions that cropped up in Q3, which extended delivery times.
SCS's Q3 report was initially met by strong investor pushback as a revenue miss ignited rapid profit-taking following the stock's roughly +45% move from last quarter. However, digging deeper revealed plenty to like from the quarter. Still, SCS did convey some caution, noting that while it continues to target mid-term organic sales growth of +5-7%, current demand conditions indicate that a lower level of growth is more plausible. Therefore, today's momentous move could encounter turbulence if the ongoing return-to-office trend unfolds slower than expected, weighing on order growth in the process.
Finally, interestingly, peer MillerKnoll (MLKN) is not tacking on similarly-sized gains as SCS ahead of its NovQ report today after the close.
FedEx unable to deliver for investors; stock falls on EPS miss and lowered revenue guidance (FDX)
FedEx (FDX -11%) is under pressure after reporting its first EPS miss in several quarters. Revenue in Q2 (Nov) fell 2.8% year/year to $22.16 bln, which was a bit light. However, what was more concerning was that FDX lowered its FY24 revenue outlook to a low single digit decline vs its prior forecast of approximately flat. FedEx did say it expects to repurchase an additional $1 bln of its shares in FY24 but that is not helping too much.
- Market conditions in the US remained soft, with Q2 demand lower than FDX had anticipated. The industry has now experienced 10 consecutive quarters of decline in US domestic average daily volume. Additionally, international market pressure continued even as its Europe and EMEA teams were able to grow parcel volume.
- Express, its largest segment, continues to struggle with revenue falling 6% yr/yr to $10.25 bln. This was driven by market contraction and lower fuel and demand surcharges. Global freight pounds were down 18% yr/yr, driven by lower Postal Service volume, as well as weakness in industrial production. Despite these headwinds, FDX noted that its networks are running extremely well. Ground segment revenue grew 3% yr/yr to $8.84 bln, driven by higher yield and volume.
- Freight segment revs fell 4% yr/yr to $2.36 bln as lower shipments offset an increase in yield. However, on a sequential basis, this segment's revenue decline moderated significantly as volume pressure lessened and revenue per shipment inflected positively. Also, new customers came over as a result of the Yellow bankruptcy/shutdown. FedEx has been able to maintain a majority of this volume.
- In terms of its outlook for the remainder of FY24, FedEx said in its 10-Q that it expects revenue will continue to be pressured by volatile macro conditions negatively affecting customer demand. At FedEx Express, the company expects a continued shift in service mix to negatively affect revenue and operating income in FY24. FDX also sees this year's peak holiday season as being relatively similar to last year but in-line with expectations.
Overall, this was a disappointing report for FedEx. The delivery giant had been missing slightly on revs in recent quarters, but strong margins helped usher in some big EPS upside results. That was not the case this time with a pretty sizeable EPS miss. The FY24 revenue guidance reduction was a letdown as well. We had been hoping a more robust holiday season was possible, but demand in the US has been soft.
Macro conditions have been a problem, plus the US Post Office has been looking to compete more for smaller parcels. Also, the stock had run quite a bit since late October, which tells us sentiment was running pretty high heading into this report. UPS is down in sympathy. This report makes us nervous for UPS's Q4 report in late January.
Winnebago still traversing through rough terrain in RV market, but rebound may emerge in 2024 (WGO)
The malaise hanging over the RV and motorhome market continued into Winnebago's (WGO) fiscal first quarter as revenue declined on a yr/yr basis for the fifth consecutive quarter even as the company ramped up discounts and allowances in an effort to jumpstart sales. While those increased promotional efforts did help WGO to exceed 1Q24 top-line expectations after missing on revenue in back-to-back quarters, they also put more pressure on the company's margins and earnings.
- For the first time in over five years, WGO fell short of EPS expectations as gross margin contracted by 130 bps on a qtr/qtr basis to 15.2%. The EPS miss may also be attributable to a larger-than-expected uptick in expenses. Compared to Q4, SG&A expenses were higher by nearly 11% to $71.1 mln. In comparison, SG&A expenses were lower by 3% on a qtr/qtr basis and down by 21% on a yr/yr basis.
- On the positive side, demand did improve from last quarter, indicating that WGO's discounts and allowances are starting to have a greater impact. Each of the company's businesses once again showed yr/yr sales declines, but the rate of decline significantly improved for two of the businesses.
- Towable RVs saw revenue fall by less than 5% compared to a 31% plunge in Q4, while motorhome sales were down by 28% compared to a 43% drop last quarter.
- In a reversal from Q4, the Marine segment was a laggard this time around with sales falling by 34% after posting the smallest decline of 21% last quarter.
- It's worth noting, though, that Marine lapped a very difficult yr/yr comparison as sales surged by 66% in the year-earlier period. Marine's growth has been fueled by a combination of market share gains for WGO's Barletta pontoon brand, and broader growth in the boating and water sport recreation market in the wake of the pandemic.
- Another rough quarter was widely anticipated, but with interest rates easing significantly over the past few weeks, market participants were especially curious whether WGO's outlook for FY24 would change for the better. While the company doesn't provide formal EPS or revenue guidance, its executives have offered color commentary on their expectations for FY24.
- Recall that last quarter, CEO Michael Happe commented that he expects dealers' inventory levels to further normalize as consumer demand stabilizes in the back half of FY24. Heading into the report, there was some hope that the timeline for an RV recovery might be accelerating due to the steep decrease in rates, but Mr. Happe's comments don't seem to reflect that.
- In the earnings press release, he reiterated that WGO is optimistic that the current cycle of RV destocking is approaching a conclusion and that market conditions in both retail and wholesale could begin to see improvement in mid-to-late 2024 -- roughly the same timeframe as previously forecasted.
The main takeaway is that a recovery in the RV and motorhome market has yet to come to fruition, but there are some green shoots starting to emerge as sales trends slowly improve. There is some disappointment that WGO didn't take a more bullish tone regarding its FY24 outlook given the steep drop in rates, but the company is likely just managing expectations and taking a cautious approach given that business conditions remain challenging.
General Mills takes a spill as value-seeking trends erode Q2 volumes and reduce FY24 guidance (GIS)
A Q2 (Nov) earnings beat is proving insufficient in turning around General Mills' (GIS -2%) depressed stock price today as a series of rough patches overshadowed a few silver linings. The Cheerios and Bisquick owner missed quarterly revenue projections and cut its FY24 (May) organic net sales and adjusted EPS growth forecasts. While several factors from Q2 were in-line with GIS's expectations, including moderating levels of cost inflation and a return toward historical price elasticities, the end consumer is growing weaker, competition is intensifying, and the overall macroeconomic backdrop remains highly fluid.
- The good news from Q2 revolved around GIS's Holistic Margin Management (HMM) cost-savings plan. The company has been reducing costs where it can, such as removing inefficiencies across its supply chain. At the same time, GIS's supply lines are stabilizing, and service levels are improving more swiftly than initially anticipated. As a result, adjusted gross margins received a bump in Q2, up 180 bps yr/yr, fueling GIS's eighth consecutive earnings beat.
- The flip side of improving supply chains is that GIS's competitors are similarly benefiting, improving their on-shelf availability, which has increased competitive pressures over the short term.
- Nevertheless, demand is weak. Consumers continue displaying stronger-than-anticipated value-seeking behaviors, delaying volume recovery in its categories. As a result, volumes slipped by 4 pts yr/yr, accelerating from the 2 pt decline posted last quarter despite lapping similar periods of weak volumes.
- The worst performer in Q2 was GIS's Pet segment, with volumes falling by 11 pts, leading to a 4% drop in organic net sales. Premium pet food, a core tenant of GIS's Pet segment, is under disproportionate pressure as pet owners seek lower-priced alternatives. The retail channel is enduring a similar flight, with consumers shifting toward e-commerce channels to cut costs.
- On a side note, even e-commerce pet supplier Chewy (CHWY) underperformed revenue expectations in OctQ. In contrast, more premium pet food supplier Freshpet (FRPT) held up relatively well, exceeding estimates across the board in SepQ. However, the demand landscape may have shifted since then, and FRPT's over +50% jump since November 1 could see profit-taking following its next quarterly report.
- GIS's other segments were somewhat stale. North America Retail volumes fell by 5 pts, contributing to a 2% drop in organic net sales, but did outpace U.S. retail sales growth by about 1 pt. North America Foodservice volumes edged a point lower, offset by price, leading to flat organic sales growth. International endured a 4 pt volume decline weighed down by a slowdown in China but was also offset by price, driving flat organic sales in the quarter.
While GIS did trim its FY24 forecasts, targeting organic net sales growth to range between negative 1% and flat compared to +3-4% growth and adjusted EPS increasing +4-5%, down slightly from its previous +4-6% prediction, the road ahead may not be as bumpy as Q2 results indicate. By registering buoyant segment margins despite ongoing volume declines, management showcased its ability to lean on cost savings measures to better contend with a challenging economic environment, placing the company in a sturdy position once demand conditions improve. While the near term may remain dynamic, GIS could finally be nearing a bottom following its nearly -30% correction from all-time highs posted in May.
Affirm's remarkable comeback hits higher gear with expanded Walmart partnership (AFRM)
Looking back to the beginning of 2023, it was dark times for buy now, pay later (BNPL) company Affirm (AFRM) as its stock hovered around all-time lows after crashing by 95% from its November 2021 highs. What a difference a year makes, though, as its stock continues its remarkable comeback amid a much more favorable business climate and a steady flow of bullish developments. This morning, AFRM added to the positive news trend, announcing that it has expanded its partnership with Walmart (WMT), which will now provide AFRM's buy now, pay later services at its checkout kiosks at over 4,500 stores.
The news is fueling a huge rally in the stock today, but upward momentum was already building over the past several weeks. Prior to today's skyrocket move higher, AFRM had gained over 150% since the beginning of November.
- From a macro-standpoint, the easing of interest rates has helped swing sentiment into a more bullish fashion. Not only do lower rates support strong loan growth, but they also reduce delinquency risks and lower AFRM's own borrowing costs.
- Additionally, with finances strained for many consumers, demand for BNPL services has jumped this holiday shopping season. A report published by Adobe Analytics showed that the number of shoppers using a BNPL service surged by 42.5% yr/yr on Cyber Monday. Considering that AFRM is by far the market leader in BNPL, it's clear that this upswing this holiday shopping season is providing it with a major boost.
A few company-specific items have also helped to turn the tables around for AFRM.
- On November 8, the company posted better-than-expected Q1 results that featured accelerating gross merchandise volume (GMV) growth of 28%. Notably, bigger-ticket categories like personal electronics, home & lifestyle, and sporting goods showed improvement after a few rough quarters.
- About a week before its upside earnings report, Amazon (AMZN) confirmed that it expanded its relationship with AFRM to include small businesses. AFRM's installment loans were already available to AMZN's retail customers, but now the millions of sole proprietors and small business owners on AMZN will have access to them. With over $30 bln in annual sales, Amazon Business is huge and represents a significant win for AFRM.
AFRM's expanded partnership with WMT (it's BNPL products were already available on Walmart's website) further distances itself from a field that has become more competitive. BNPL is becoming increasingly popular because the loans have set terms with no late fees or compound interest and AFRM is well-positioned to capitalize with partnerships in place with two of the largest retailers in the country.
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