| | | Market Snapshot
briefing.com
| Dow | 37404.35 | +322.35 | (0.87%) | | Nasdaq | 14963.86 | +185.92 | (1.26%) | | SP 500 | 4746.75 | +48.40 | (1.03%) | | 10-yr Note | -25/32 | 3.886 |
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| | NYSE | Adv 2220 | Dec 541 | Vol 841 mln | | Nasdaq | Adv 3143 | Dec 1136 | Vol 5.5 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Health Care, Communication Services, Real Estate, Materials, Industrials |
| | Weak: Utilities, Energy |
Moving the Market
-- Bouncing after yesterday's retreat
-- Digesting better-than-expected results and guidance from Micron (MU)
-- Drop in oil prices related to a Reuters report that Angola is leaving OPEC
-- Reacting to economic data that fit with the soft landing narrative
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Closing Summary
21-Dec-23 16:25 ET
Dow +322.35 at 37404.35, Nasdaq +185.92 at 14963.86, S&P +48.40 at 4746.75
[BRIEFING.COM] The stock market rebounded today following a late-session slide on Wednesday. The Dow Jones Industrial Average rose 0.9%; the S&P 500 climbed 1.0%; the Nasdaq Composite jumped 1.3%; and the Russell 2000 gained 1.7%.
Gains had been less robust throughout most of the session until buying increased over the last 30 minutes of trading, leaving the major indices near their highs of the day.
Today's buying activity was broad-based. The Invesco S&P 500 Equal Weight ETF (RSP) closed with a 1.2% gain and all 11 S&P 500 sectors traded higher. Advancers had a better than 4-to-1 lead over decliners at the NYSE and a nearly 3-to-1 lead at the Nasdaq.
Semiconductor stocks were noticeably strong, providing a measure of support to the broader market, after better-than-expected results and guidance from Micron (MU 85.48, +6.79, +8.6%). The PHLX Semiconductor Index registered a 2.8% gain.
The upside bias was also supported by a continued inclination to buy on weakness, a batch of economic data that meshed with the soft landing narrative, and a drop in oil prices ($73.89/bbl, -0.35, -0.5%) related to a Reuters report that Angola is leaving OPEC, which may leave OPEC with less control on production levels. WTI crude oil futures had dropped below $73.00/bbl earlier in the session.
The 2-yr note yield fell two basis points to 4.33% and the 10-yr note yield settled one basis point higher at 3.89%.
As a reminder, the November Personal Income and Spending report will be released 8:30 a.m. ET on Friday. This report will feature the Fed's preferred inflation gauge in the form of the core PCE Price Index.
- Nasdaq Composite: +43.0%
- S&P 500: +23.6%
- Russell 2000: +14.5%
- S&P Midcap 400: +14.3%
- Dow Jones industrial Average: +12.8%
Reviewing today's economic data:
- November Leading Economic Index -0.5% (Briefing.com consensus -0.4%) vs downwardly revised -1.0% (from -0.8%) for October
- Initial jobless claims for the week ending December 16 increased by 2,000 to 205,000 (Briefing.com consensus 218,000) and continuing jobless claims for the week ending December 9 decreased by 1,000 to 1.865 million.
- The key takeaway from the report is virtually the same as last week, because initial claims were virtually the same in the latest week: the level of initial claims is still a long way from being associated with levels registered during a recession.
- The third estimate for Q3 real GDP was revised lower, but it was still a heady 4.9% (Briefing.com consensus 5.2%) versus the second estimate of 5.2% and 2.1% in the second quarter. The GDP Price Deflator was revised down to 3.3% (Briefing.com consensus 3.6%) from 3.6% in the second estimate and 1.7% in the second quarter.
- The key takeaway from the report is that the downward revision largely reflected a downward revision to consumer spending growth to 3.1% from 3.6% in the second estimate.
- The December Philadelphia Fed Index checked in at -10.5 (Briefing.com consensus -3.0) versus -5.9 for November. A number below 0.0 for this series is indicative of contraction.
- The key takeaway from this report for a market anticipating a soft landing is that most future activity indicators rose, which points to widespread expectations for overall growth for the next six months.
Friday's economic calendar features:
- 08:30 ET: November Personal Income (Briefing.com consensus 0.4%; Prior 0.2%)
- 08:30 ET: November Personal Spending (Briefing.com consensus 0.2%; Prior 0.2%)
- 08:30 ET: November PCE Price Index (Briefing.com consensus 0.1%; Prior 0.0%)
- 08:30 ET: November Core PCE Price Index (Briefing.com consensus 0.2%; Prior 0.2%)
- 08:30 ET: November Durable Goods Orders (Briefing.com consensus 2.5%; Prior -5.4%)
- 08:30 ET: November Durable Goods Orders - Ex Transportation (Briefing.com consensus 0.2%; Prior 0.0%)
- 10:00 ET: November New Home Sales (Briefing.com consensus 689K; Prior 679K)
- 10:00 ET: December Univ. of Michigan Consumer Sentiment - Final (Briefing.com consensus 69.7; Prior 69.4)
Treasuries settle little changed; Stocks build upside momentum
21-Dec-23 15:35 ET
Dow +264.56 at 37346.56, Nasdaq +165.23 at 14943.17, S&P +40.25 at 4738.60
[BRIEFING.COM] Upside moves are building up steam. The S&P 500 is up 0.8%, the Nasdaq Composite is up 1.1%, and the Dow Jones Industrial Average is up 0.7%.
The 2-yr note yield fell two basis points to 4.33% and the 10-yr note yield settled one basis point higher at 3.89%.
Friday's economic calendar features:
- 08:30 ET: November Personal Income (Briefing.com consensus 0.4%; Prior 0.2%)
- 08:30 ET: November Personal Spending (Briefing.com consensus 0.2%; Prior 0.2%)
- 08:30 ET: November PCE Price Index (Briefing.com consensus 0.1%; Prior 0.0%)
- 08:30 ET: November Core PCE Price Index (Briefing.com consensus 0.2%; Prior 0.2%)
- 08:30 ET: November Durable Goods Orders (Briefing.com consensus 2.5%; Prior -5.4%)
- 08:30 ET: November Durable Goods Orders - Ex Transportation (Briefing.com consensus 0.2%; Prior 0.0%)
- 10:00 ET: November New Home Sales (Briefing.com consensus 689K; Prior 679K)
- 10:00 ET: December Univ. of Michigan Consumer Sentiment - Final (Briefing.com consensus 69.7; Prior 69.4)
Stocks hold steady with one hour left today
21-Dec-23 15:00 ET
Dow +145.03 at 37227.03, Nasdaq +113.00 at 14890.94, S&P +25.23 at 4723.58
[BRIEFING.COM] The market moved slightly higher over the last half hour.
WTI crude oil futures settled 0.5% lower than yesterday at $73.89/bbl after dipping below $73.00/bbl earlier following a Reuters report that Angola is leaving OPEC.
Natural gas futures climbed 5.7% to $2.58/mmbtu.
On an energy related note, the S&P 500 energy sector is trading down 0.1%.
Cintas outperforms after beat and raise, Paychex slips in S&P 500
21-Dec-23 14:30 ET
Dow +147.45 at 37229.45, Nasdaq +107.97 at 14885.91, S&P +24.13 at 4722.48
[BRIEFING.COM] The S&P 500 (+0.51%) is in second place in afternoon trading, having consolidated gains over the prior half hour.
Elsewhere, S&P 500 constituents VF Corp (VFC 19.04, +1.10, +6.13%), Cintas (CTAS 586.09, +32.43, +5.86%), and Moderna (MRNA 91.21, +5.02, +5.82%) pepper the top of today's standings. CTAS hit all-time highs earlier today following this morning's beat and raise report, while MRNA gains alongside strength in healthcare (+0.82%) stocks.
Meanwhile, Paychex (PAYX 118.98, -8.88, -6.95%) is at the bottom of the S&P following this morning's Q2 print and guidance.
Gold modestly higher on Thursday
21-Dec-23 14:00 ET
Dow +161.56 at 37243.56, Nasdaq +113.25 at 14891.19, S&P +25.62 at 4723.97
[BRIEFING.COM] With about two hours remaining on Thursday the tech-heavy Nasdaq Composite (+0.77%) holds the lead, up about 113 points.
Gold futures settled $3.60 higher (+0.2%) to $2,051.30/oz following this morning's lower revised GDP reading and weekly jobless claims which increased slightly.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $101.96.
Page One
Last Updated: 21-Dec-23 09:02 ET | Archive
On the rebound
The stock market was complacently going about its winning business yesterday when it was struck by a rush of selling interest in afternoon trading. The S&P 500, which hit 4,778 at yesterday's high, closed the session at 4,698, down 1.5% for the day.
The obvious question is, what happened? The easy answer is that the market finally succumbed to general profit-taking interest after its huge run from late October. The vague answer, but one that seems easier to account for as the precipitant for the abrupt reversal, was trading activity in zero-day options, according to an industry source interviewed by CNBC at the time.
Your author won't profess to knowing the mechanics, or the basis, for why the options trade might have been the catalyst for the selloff, but "general profit taking" seems a little too easy as the explanation considering the market was on cruise control, riding on a smooth road, when all of a sudden the tires blew out.
In any case, the rebound bid in the equity futures market this morning suggests yesterday's selloff was the result more of esoteric trading behavior than everyone, en masse, suddenly agreeing that they should take some money off the table.
That rebound bid, however, isn't just buy-the-dip fluff. There is some resonance behind it that includes better-than-expected results and guidance from Micron (MU), lower oil prices ($72.84, -1.38, -1.9%) on a Reuters report that Angola is leaving OPEC, Air Current reporting that Boeing (BA) has secured CAAC clearance for 737 Max deliveries in China, and yet another pleasing weekly initial jobless claims report that fits neatly with the soft landing narrative.
Briefly, initial jobless claims for the week ending December 16 increased by 2,000 to 205,000 (Briefing.com consensus 218,000) and continuing jobless claims for the week ending December 9 decreased by 1,000 to 1.865 million.
The key takeaway from the report is virtually the same as last week, because initial claims were virtually the same in the latest week: the level of initial claims is still a long way from being associated with levels registered during a recession.
We know from the third estimate for Q3 GDP, which was released at the same time, that the economy was a long way from recession in the third quarter. Real GDP was revised lower, but it was still a heady 4.9% (Briefing.com consensus 5.2%) versus the second estimate of 5.2% and 2.1% in the second quarter. The GDP Price Deflator, meanwhile, was revised down to 3.3% (Briefing.com consensus 3.6%) from 3.6% in the second estimate and 1.7% in the second quarter.
The key takeaway from the report is that the downward revision largely reflected a downward revision to consumer spending growth to 3.1% from 3.6% in the second estimate.
Separately, the December Philadelphia Fed Index checked in at -10.5 (Briefing.com consensus -3.0) versus -5.9 for November. A number below 0.0 for this series is indicative of contraction.
The key takeaway from this report for a market anticipating a soft landing is that most future activity indicators rose, which points to widespread expectations for overall growth for the next six months.
Treasuries seemed to like the totality of the data. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, is down three basis points to 4.32%, and the 10-yr note yield is down four basis points to 3.84%. By the way, the 10-yr note yield settled 2022 at 3.88%, so the yield, which hit 5.02% on an intraday basis in mid-October, is now down for the year.
As far as stocks go, they appear to be exercising an option to move higher and exorcising yesterday's devilish selloff.
Currently, the S&P 500 futures are up 35 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 169 points and are trading 1.1% above fair value, and the Dow Jones Industrial Average futures are up 224 points and are trading 0.7% above fair value.
-- Patrick J. O'Hare, Briefing.com
Apogee Enterprises' emphasis on improving margins fuels its ninth straight EPS beat in Q3 (APOG)
Commercial window manufacturer Apogee Enterprises (APOG +2%) may not have delivered Earth-shattering Q3 (Nov) results, missing revenue estimates and reducing its FY24 (Feb) revenue growth forecast. However, extending its streak of earnings beats -- registering double-digit upside in Q3 -- increasing its FY24 EPS forecast, and conveying a relatively bullish tone on a potential rebound in commercial construction next year is propelling shares to five-year highs today.
- Margins were a notable standout in the quarter, a testament to the successful execution of APOG's cost-saving measures aimed at improving the cost structures across its segments. Gross margins expanded by 310 bps yr/yr to 26.6%, and operating margins saw a 170 bp lift to 11.1%, nicely above the company's long-term 10% target. The upbeat margin growth also led to APOG's raised FY24 adjusted EPS guidance of $4.55-4.70, up from $4.35-4.65.
- Architectural Glass did most of the heavy lifting during Q3, expanding net sales by 11.6% yr/yr to $91.0 mln and primarily driving APOG's buoyant operating margins. Conversely, Architectural Framing Systems and Architectural Services saw volume pressure, leading to a net sales decline of 15.4% and 7.2% to $139.6 mln and $94.7 mln, respectively. As a result of the underperformance across these two businesses, APOG missed revenue estimates, recording a 7.7% decline yr/yr to $339.7 mln.
- The underwhelming volumes reflect ongoing uncertainty surrounding the construction markets. APOG mentioned that non-residential construction has enjoyed robust growth during the year. However, 60% of the growth stemmed from manufacturing projects, a subsector where APOG has low participation. Meanwhile, across other sectors of non-res construction, much of the year's growth was fueled by inflation-related pricing rather than volumes.
- Looking ahead to 2024, lingering macroeconomic challenges, including higher interest rates, tighter lending standards, and widespread cost inflation, that have weighed on volume growth within non-res construction will likely continue. These factors not only contributed to APOG's weak revenue growth in Q3 but also toward its lowered FY24 guidance, projecting revs to decline by 3% yr/yr instead of holding steady as in its prior forecast.
- However, APOG countered these bearish trends with a glass-half-full view, noting that it still expects commercial construction growth rates in the low single digits in 2024. Furthermore, the company is observing institutional and infrastructure projects that continue to benefit from government funding. Also, the recent Federal Reserve signaling of a pause on interest rates could produce a shorter and shallower downturn for commercial construction. At the same time, this development should loosen the market for M&A, providing APOG with financially accretive acquisition opportunities.
Overall, while not APOG's best quarter, it underscored encouraging developments on the horizon, especially if interest rates start to fall more aggressively. We have repeatedly mentioned that APOG's pivot toward higher margin areas was an intelligent move, and we maintain this view as it provides a solid profitability cushion as the company heads into still-disruptive economic conditions in 2024.
Paychex taking a pay cut today as slowing job growth dents its outlook (PAYX)
Payroll services and human capital management (HCM) company Paychex (PAYX) is taking a pay cut today after reporting mixed Q2 results and issuing revenue growth guidance for Q3 and FY24 that was slightly weaker than anticipated. After indicating last quarter that FY24 revenue growth might be stronger than the 6-7% it had forecasted, PAYX now expects growth will be in the middle of that range.
- Coming off a solid performance last quarter in which PAYX edged past EPS and revenue estimates as demand from small and medium-sized businesses (SMBs) -- the company's bread and butter market -- remained relatively healthy, business conditions became a bit more challenging in Q2.
- During the earnings call, CEO John Gibson commented that PAYX's small business employment watch showed a moderation in both job growth and wage inflation. Furthermore, while he hasn't seen any signs of a recession in the data, he noted that PAYX started to see some softening in its large client business segments, including the HR outsourcing business.
- Still, business remained relatively strong across a number of areas, including Professional Employer Organization (PEO), mid-market, HCM, and retirement. In these businesses, revenue for 1H24 grew by 6%, driven by new client growth across PAYX's suite of HCM offerings and an increase in the number of PEO worksite employees.
- Although the challenging macroeconomic backdrop is creating a headwind for job growth, the tight labor market and rising health care and benefits costs are also causing many companies to reevaluate their HR and benefits strategies.
- PAYX's top-line growth of about 6% doesn't look overly exciting, but the steadiness of its business is an attractive quality. The company's revenue retention remains above pre-pandemic levels as client retention continues to improve. In fact, its HR outsourcing solutions business is at record levels for retention.
Overall, PAYX took a small step backward from last quarter due to external macroeconomic factors that are beyond its control. Despite the tough conditions, the company continues to churn out earnings growth as EPS increased by 9% yr/yr and its Q3 operating margin guidance of 44-45% represents a nice expansion from the 40.2% achieved in Q2. However, it's difficult to see the stock gaining much upward traction unless conditions in the labor market materially pick up.
Carnival cruising higher today on impressive earnings beat and bookings commentary (CCL)
Carnival (CCL +7.5%) is sailing nicely higher today following its Q4 (Nov) earnings report this morning. The cruise line reported solid EPS upside. Revenue rose an impressive 40.6% yr/yr to a Q4 record of $5.40 bln, which was also better than expected. However, CCL guided to a Q1 adjusted loss of approx. $(0.22), which below analyst expectations. The company also guided FY24 adjusted EPS that was below analyst expectations.
- Adjusted EBITDA is a good metric to use given the huge depreciation generated by capital-intensive cruise ships. That came in at $946 mln in Q4, which was above prior guidance of $800-900 mln and well above the $(96) mln loss last year. Adjusted EBITDA guidance for Q1 is approx. $800 mln and for FY24 it is approx. $5.6 bln.
- Carnival says it ended FY23 on a high note with another record-breaking quarter and that it consistently outperformed in all four quarters of the year, buoyed by a strengthening demand environment across all brands. Net yields for Q4 were significantly higher than a very strong 2019 and even higher than CCL had anticipated.
- In terms of bookings, CCL says it entered FY24 with the best booked position it has ever seen. Specifically, it has nearly two-thirds of its occupancy already on the books for 2024, at considerably higher prices (in constant currency). CCL noted that booking volumes during Q4 continued at significantly elevated levels, above both prior year and 2019 comparable periods, while recent booking volumes around Black Friday and Cyber Monday reached an all-time high for that period. Also, its European brands are showing remarkable strength with booking volumes running up well into the double digits at considerably higher prices (CC).
Overall, this was a solid quarter for Carnival with nice upside results for Q4. Demand, pricing and bookings were all very strong. Probably what stood out to us was CCL saying its booked position for 2024 is the best booked position it has ever seen. We are a little surprised that the downside guidance is not weighing on the stock more, but we think investors had factored in some weak guidance, especially because CCL does have a tendency to be a bit conservative on guidance
Cintas makes a uniformly strong move as it gets back to beating EPS by double-digits (CTAS)
Cintas (CTAS +6%) is trading nicely higher after reporting strong results for Q2 (Nov) this morning. After a much more narrow beat in Q1, Cintas got back to its usual double-digit EPS beat in Q2 and decent revenue upside. Probably the highlight of the quarter was Cintas again raising its FY24 EPS and revenue outlook by more than the Q2 upside, which implies upside for Q3-Q4. That happened in Q1 and now again in Q2. That is a good sign of management's confidence in its 2H outlook.
- We like to keep an eye on Cintas because it is a window into how businesses see their near term prospects. Cintas is best known as the largest supplier of work uniforms in the US, but it also gets more than half of its revenue from facility services (cleaning supplies, mops, first aid cabinets, PPE, fire extinguishers, alarms etc.)
- Its Uniform Rental and Facility Services is the much larger segment of the two. Segment revenue rose 8.2% yr/yr to $1.85 bln. Other revenue, of which its First Aid segment accounts for a big part, rose 13.3% yr/yr to $526.6 mln.
- Margins were a bright spot in Q2 as gross margin improved to 48.0% from 47.0% a year ago, fueled by strong volume growth and continued operational efficiencies. Energy expenses comprised of gasoline, natural gas and electricity were 40 bps lower yr/yr. Cintas drives a lot of trucks to make uniform deliveries, so gas prices make a big difference. Also, despite increases in investments for selling resources, technology and its management trainee program, operating margin improved to 21.0% from 20.5% a year ago.
- Quickly on the EPS guidance, Cintas bumped up its FY24 outlook pretty substantially to $14.35-14.65 from $14.00-14.45 prior guidance. With half of the fiscal year remaining, Cintas could have been conservative and just reaffirmed. That would have given Cintas more wiggle room in case the next quarter or two are weak. And to raise FY24 by more than the Q2 beat implies upside for 2H. As such, we think this guidance increase is a key positive and helps explain the unusually large move in the stock today.
Overall, it was great to see Cintas get back to its reporting double-digit EPS beats after a narrow beat in Q1. The company benefitted from strong volumes, which helped push margins higher and led to greater cost efficiencies. More broadly, we remain a fan of Cintas. Its business tends to be consistent and predictable with a strong recurring revenue component. Also, Cintas benefits from the trend toward businesses wanting to outsource functions so that its employees can focus on their core business.
Micron's turnaround in higher gear on improving pricing as rise of AI servers drives demand (MU)
The elevated inventory situation across the data center, PC, and smartphone end markets that has plagued Micron (MU) and other chip makers this year is nearing an end as demand improves, resulting in higher DRAM/NAND prices and an upside Q1 earnings report from MU. Due to this more favorable supply-demand balance, the company also guided Q2 EPS, revenue, and gross margin above expectations, while providing bullish commentary for its prospects in FY24 and FY25.
- Other semiconductor companies, such as Intel (INTC) and Advanced Micro Devices (AMD), have highlighted the recovery in the PC market as a key factor underlying their improved financial results. It didn't come as a surprise, then, that MU also benefitted from a healthier PC market in which demand from OEMs is closer to their end market demand.
- Looking ahead, MU expects the momentum to continue, forecasting PC unit volume growth of low-to-mid single digits in 2024 following two years of double-digit declines.
- The real story, though, is in the data center end market where GPU-enabled AI servers are just starting to take off. These more content-rich servers require higher bandwidth memory capacity, more power, and increased performance from memory and storage products.
- MU is addressing these requirements and is expanding into the AI server market with its new HBM3E, a chipset that MU began shipping samples of in Q1. The company is in the final stages of qualifying HBM3E to be used in NVIDIA's (NVDA) hugely successful Grace Hopper GH200 and H200 platforms.
- In 2024, MU anticipates that it will generate "several hundred million" dollars of HBM3E revenue as volume production ramps, with growth accelerating into 2025.
- As the supply-demand imbalance evens out and as generative AI becomes increasingly embedded into PCs and smartphones with on-device capabilities, the pricing dynamics for DRAM and NAND should continue to improve in FY24.
- In Q1, non-GAAP gross margin swung into positive territory at 0.8%, ahead of its upwardly revised guidance of (0.5)% to 0.0%, and well ahead of last quarter's (9.1)% performance. Another significant expansion is expected for Q2 with MU guiding for non-GAAP gross margin of 13.0%, +/- 1.5%.
MU's beat-and-raise Q1 earnings report looks like a precursor to even stronger results in FY24 as the memory space transitions from a downturn to a recovery, and finally, back to growth. Looking even further out, the company believes that FY25 could see a record total addressable market as AI applications proliferate across the data center, PC, and smartphone end markets.
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