| | | Market Snapshot
briefing.com
| Dow | 37689.54 | -20.56 | (-0.05%) | | Nasdaq | 15011.35 | -83.78 | (-0.56%) | | SP 500 | 4769.83 | -13.52 | (-0.28%) | | 10-yr Note | -4/32 | 3.88 |
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| | NYSE | Adv 772 | Dec 1998 | Vol 871 mln | | Nasdaq | Adv 1244 | Dec 3099 | Vol 5.4 bln |
Industry Watch
| Strong: Consumer Staples, Health Care |
| | Weak: Communication Services, Consumer Discretionary, Real Estate, Information Technology, |
Moving the Market
-- Not a lot of conviction on the last trading day of the year
-- S&P 500 hovering below all-time closing high contributing to the muted action
-- Lack of meaningful news drivers
-- Mega cap stocks rolled over, weighing on major indices |
Closing Summary
29-Dec-23 16:30 ET
Dow -20.56 at 37689.54, Nasdaq -83.78 at 15011.35, S&P -13.52 at 4769.83
[BRIEFING.COM] The major indices closed with losses on the final trading day of the year. Volume picked up compared to recent sessions, but was still on the lighter side at the NYSE.
The Russell 2000 underperformed other indices, registering a 1.2% loss. Meanwhile, the Dow Jones Industrial Average (-0.1%), S&P 500 (-0.3%), and Nasdaq Composite (-0.6%) closed with modest losses off their lows of the day. Relative strength in some mega cap names had provided support to the three major indices early on, leading them to trade slightly higher than yesterday's closing levels.
Amazon.com (AMZN 151.94, -1.44, -0.9%), which was up 0.3% at its early high, and NVIDIA (NVDA 495.22, 0.00, +0.0%), which was up 1.0% at its early session high, were standouts in that respect. Just about everything retreated from session highs around mid-morning, though.
The lack of strong conviction was unsurprising on the last session of the year after a surge higher since October, and with the S&P 500 still trading just below its all-time high. The S&P 500 has climbed 15.8% since October 27, registering a 24.2% gain this year.
The muted price action was also the result of market participants looking ahead to the extended holiday weekend. Markets will be closed on Monday for New Year's Day.
Only the defensive-oriented consumer staples (+0.2%) and health care (+0.03%) sectors closed with a gain. Eight of the remaining nine S&P 500 sectors logged losses ranging from 0.1% (utilities) to 0.6% (consumer discretionary), while the real estate sector dropped 1.2%.
The 2-yr note yield declined four basis points today to 4.25% and the 10-yr note yield rose three basis points to 3.88%.
Today's economic data was limited to the Chicago PMI, which dropped to 46.9% in December (Briefing.com consensus 50.0%) from 55.8% in November.
- Nasdaq Composite: +43.4%
- S&P 500: +24.2%
- Russell 2000: +15.1%
- S&P Midcap 400: +14.5%
- Dow Jones industrial Average: +13.7%
Looking ahead, Tuesday's economic data includes:
- Final December S&P Global U.S. Manufacturing PMI (prior 49.4) at 9:45 ET and November Construction Spending (prior 0.6%) at 10:00 ET
Energy complex futures settle lower
29-Dec-23 15:35 ET
Dow -20.92 at 37689.18, Nasdaq -62.56 at 15032.58, S&P -9.39 at 4773.96
[BRIEFING.COM] The major indices are trading in narrow ranges ahead of the close.
Energy complex futures settled lower again. WTI crude oil futures declined 0.4% to $71.52/bbl and natural gas futures dropped 2.1% to $2.32/mmbtu.
On a related note, the S&P 500 energy sector is trading down 0.2%.
Stocks move mostly sideways
29-Dec-23 15:05 ET
Dow -37.30 at 37672.80, Nasdaq -65.74 at 15029.40, S&P -11.43 at 4771.92
[BRIEFING.COM] The market has moved sideways over the last half hour.
The 2-yr note yield declined four basis points today to 4.25%, which is down 17 basis points for 2023. The 10-yr note yield rose three basis points today to 3.88%, which is unchanged for 2023.
As a reminder, markets will be closed on Monday for New Year's Day. Looking ahead, Tuesday's economic data includes:
- Final December S&P Global U.S. Manufacturing PMI (prior 49.4) at 9:45 ET and November Construction Spending (prior 0.6%) at 10:00 ET
Albemarle, PayPal among top S&P 500 laggards on Friday
29-Dec-23 14:30 ET
Dow -38.02 at 37672.08, Nasdaq -59.90 at 15035.24, S&P -11.91 at 4771.44
[BRIEFING.COM] The S&P 500 (-0.25%) is in second place on Friday afternoon, little changed over the prior half hour.
Elsewhere, S&P 500 constituents Albemarle (ALB 144.92, -4.51, -3.02%), PayPal (PYPL 61.57, -1.51, -2.39%), and Illumina (ILMN 139.19, -2.94, -2.07%) dot the bottom of the average, weaker despite a dearth of corporate news.
Meanwhile, Hershey Foods (HSY 186.53, +2.42, +1.31%) is one of today's best performers.
Gold trims 2023 gains on Friday, caps off first yearly gains since 2020
29-Dec-23 14:00 ET
Dow -66.77 at 37643.33, Nasdaq -68.30 at 15026.84, S&P -14.19 at 4769.16
[BRIEFING.COM] With about two hours remaining in the final trading day of 2023 (and Friday) the tech-heavy Nasdaq Composite (-0.45%) is at the bottom of the major averages.
Gold futures settled $11.70 lower (-0.6%) to $2,071.80/oz, up $245.60 (+13.4%) over this past year, putting the wrapping on its first yearly advance since 2020. The yellow metal has been looked on favorably as the markets brace for what's likely to be a Fed rate cut in early 2024.
Meanwhile, the U.S. Dollar Index is narrowly lower at $101.19.
Page One
Last Updated: 29-Dec-23 08:55 ET | Archive
Year-end rally present in search of a bow
The last trading day of the year has arrived, and so far it looks nothing like the last nine weeks of the year. If it did, the equity futures market would be sharply higher. As it stands now, the equity futures market is little changed.
Currently, the S&P 500 futures are down two points and are trading roughly in-line with fair value, the Nasdaq 100 futures are down two points and are trading roughly in-line with fair value, and the Dow Jones Industrial Average futures are down seven points and are trading fractionally above fair value.
All eyes will be on the S&P 500 today and whether it can close 2023 at a new record high. It came close yesterday, hitting 4,793.30 at its intraday high, but it couldn't quite get to the record closing high threshold of 4,796.56 reached on January 3, 2022.
What a tidy wrap to this year-end rally effort it would be if the S&P 500 finished today's session at a record closing high. Quantitatively, it would bring full closure to a two-year odyssey that has been governed predominately by interest rate swings.
We won't put it past this thinly-traded market to put a bow on 2023 with a record finish, but it will take six-and-a-half more trading hours to see if the stunning year-end rally provides one final present for investors.
There isn't any news flow of note to get things moving in a concerted manner.
There are some spotty headlines involving some widely-traded companies. For instance, NVIDIA (NVDA) is aiming to introduce a slower version of its gaming chip in China, according to CNBC; Dow component UnitedHealth (UNH) entered into an agreement to sell its operations in Brazil to a private investor and reaffirmed its FY24 adjusted EPS guidance; and China, according to Reuters, has resumed flying all Boeing (BA) 737 Max jets.
Still, the market looks poised to begin today's session on a flattish note.
The Treasury market, which has had its own year-end party that has been the catalyst for the year-end stock market party, is looking mixed. The 2-yr note yield is unchanged at 4.29% and the 10-yr note yield is up three basis points to 3.88%. The Treasury market will close early at 2:00 p.m. ET (stocks get to go the normal distance).
The lone data point today is the December Chicago Purchasing Managers Index (Briefing.com consensus 50.0; prior 55.8) at 9:45 a.m. ET.
That report may not move the market much, but it hits close to home for your Chicago-based group here, which would like to thank you for your readership throughout 2023 and wish you a happy and prosperous 2024!
-- Patrick J. O'Hare, Briefing.com
Jabil completes divesture of Mobility business sooner than expected, looks like a smart move (JBL)
Jabil (JBL) is roughly flat despite lowering guidance for Q2 (Feb). In fairness, the reduction seems to be entirely related to Jabil being able to divest its Mobility business sooner than expected. The Q2 guidance provided on December 14 assumed a January 31 close date for the mobility divestiture. However, the deal has now officially closed and hence the lowered guidance. So it looks entirely to be a timing issue, not an operational or demand issue, so not a big deal.
- Circling back to the divestiture details. This was a pretty big sale. Jabil sold its Mobility business to BYD Electronic in a cash transaction valued at $2.2 bln. The deal was previously announced on September 26. Jabil says the earlier close and receipt of funds will enable it to begin initiating plans to reduce stranded costs and begin executing a series of accelerated buybacks throughout FY24.
- As a result, Jabil expects to fully utilize its current $2.5 bln dollar repurchase authorization this fiscal year. The sale also gives Jabil confidence that it will be able to offset lower income in Q2 and deliver core earnings for FY24 in excess of $9.00 per share.
- The deal also makes sense from a strategic standpoint. Its Mobility business focuses on making consumer electronics. This deal will lower Jabil's exposure to the boom-bust and highly competitive consumer electronics market. Consumer has been a weak area for Jabil with discretionary spend lower. It makes sense for them to focus on higher growth areas, like EVs, autonomous driving, AI, cloud, renewable energy and healthcare.
- Jabil's business has been decent but not great. The company had to lower FY24 guidance in late November based on a broad slowdown of demand across multiple end-markets. Customers have been adjusting demand schedules as they react to a slowdown heading into the end of the calendar year. Although Jabil feels this slowdown will be temporary, it felt a guide down was appropriate.
Jabil still expects growth in key areas like EVs and renewables, albeit at a modestly slower pace than previously anticipated. Its healthcare business remains robust. In cloud, Jabil is doing well in the AI data center space. It is important to note that this business moved into a consignment model last year, which makes revenue look unusually low relative to previous years. In reality, the business is growing volumes by roughly 20%. Connected Devices has seen softening for some time, and Jabil does not see this changing in the near-term. Within enterprise, communications and 5G, Jabil has said it continues to expect softness based on global roll-outs. Renewables have seen softness in solar and wind.
As you can see, Jabil's end market are probably best described as mixed right now. As such, selling off the struggling Mobility segment makes a lot of sense. People are not spending as much on discretionary items, like consumer electronics, given the macro headwinds. So this should improve results over the next few quarters and it will strengthen the balance sheet. And finally, we view today's downside guidance as non-event, more of a timing issue than anything else.
NVIDIA trying to close an excellent year on a high note after introducing China-focused GPU (NVDA)
NVIDIA (NVDA) tries to close out a phenomenal year on a high note today after introducing a de-tuned version of its highest-end GeForce RTX 4090 graphics card (dubbed the RTX 4090D) in China yesterday. NVDA has discussed launching China-focused AI chips since the U.S. instituted new export restrictions on AI chips to China, designing products below computing thresholds. The 4090D meets the updated requirements and management's anticipated launch window of 1Q24.
We have outlined before the importance of being able to sell to China, with the region comprising approximately a fifth of NVDA's total revenue. Competition is also heating up in the region as China-based Huawei develops its own AI chips, in some cases outperforming NVDAs.
However, NVDA already touched on launching China-focused chips geared toward complying with U.S. export regulations during its OctQ earnings call in November, stating that its products focused on circumventing U.S. export curbs would become available in the coming months. NVDA added that these products would likely not provide a material lift to Q4 (Jan) revenue.
Therefore, the market is more on edge regarding NVDA's other products, including those based on its Hopper architecture.
- NVDA's Hopper architecture is geared toward data centers, with its H100 product, which costs roughly $40,000 compared to around $2,000 for the 4090, touting meaningful performance bumps over the highest-end RTX card. NVDA's newest Hopper-based cards are in full production and ramping into a new multibillion-dollar product line in 2024. Management remarked last month that the product can help customers create an AI factory.
- Without being able to export these lucrative AI-focused products to China (as well as other affected destinations, including Vietnam and certain countries in the Middle East), NVDA anticipates sales to these areas to decline dramatically in Q4.
While introducing a slower-spec 4090 GPU in China is good news, it is not what investors patiently await. NVDA mentioned last month that it is working with customers in affected areas to pursue licenses from the U.S. but added that it was too early to know whether the licenses would be granted for any significant amount of revenue. This interruption may be offset by outsized demand in other regions over the near term. However, if delays drag on, NVDA could begin to see more meaningful revenue disruption in subsequent quarters in 2024.
Management has touched on the need for countries and businesses to invest in AI infrastructure to support economic growth and industrial innovation. If China cannot acquire the latest AI-powered GPUs from NVDA, it likely will not sit on its hands, opting to purchase from domestic competitors. Having surged by over 240% this year, NVDA is trading in territory where minor hiccups could drive significant profit-taking.
Brinker has been showing good momentum lately as marketing as reinvigorated sales (EAT)
Brinker Intl (EAT) has been showing good momentum since about mid-October, with the stock up around 50% since then and making another new 52-week high this week. This restaurant operator (Chili's, Maggiano's) finally seems like it is starting to turn the corner and we think investors are finding some value here. In Q1 (Sep), EAT reported its largest EPS beat in the last three quarters. It also increased FY24 EPS guidance pretty substantially to $3.35-3.65 from $3.15-3.55.
- Same restaurant comps were good at +5.8% (Chili's +6.1%; Maggiano's +2.6%), but comps have been trending lower (+6.6% in JunQ; +10.8% in MarQ). Comps improved primarily due to increased menu pricing and favorable item mix. Despite comps trending lower, Chili's has posted four consecutive quarters of outperformance versus the casual dining industry. And importantly, its traffic gap versus the industry narrowed throughout SepQ despite the discontinuation of Maggiano's Italian Classics virtual brand and despite cycling through the deep discounting on It's Just Wings.
- EAT says this traffic progress demonstrates the improving strength of its core Chili's business. Part of that is because EAT has stepped up its marketing efforts. The company is on air with its third wave of advertising since restarting campaigns in March. Consumers are responding well to its $10.99 platform. EAT believes advertising superior value is a good way to deal with any economic headwinds.
- Furthermore, EAT says it has steadily gained share of wallet over the past four quarters across all day parts, particularly dinner, and across all income groups with higher income households growing the fastest. As it moves further into FY24, EAT anticipates delivering sustained traffic growth ahead of the industry.
- Also, EAT is pretty excited about its Chicken Crisper relaunch at Chili's. Through recipe simplification, selling larger piece counts, and pricing behind improved sauce and side innovation, EAT says the average crisper food cost as a percentage of sales has moved from 23% to 20% and Chili's is now selling 40% more crispers. A much bigger business with lower food costs and better margins is a great result.
In terms of why the stock has been moving, we think it is a combination of things. EAT's comps have been healthy. Investors appear to like the advertising restart as Chili's value offering resonates with consumers right now. We also think people are just looking at the stock and thinking it's cheap. Even after its run, EAT trades at a P/E of just 12.5x. And even though the stock has moved into the mid-$40's, it is still well below where it was in early 2021, in the $75 area.
The Big Picture
Last Updated: 29-Dec-23 16:23 ET | Archive
2023 Year in Review
In the simplest of terms, 2023 was a magnificent year for the market! Of course, things weren't so simple. There were plenty of surprises in 2023:
- China's COVID reopening was a relative bust.
- There was a mini banking crisis in March that the Fed concluded needed its intervention.
- Kevin McCarthy (R-CA) was ousted as Speaker of the House by his own party's doing.
- The Federal Reserve raised rates four times in 2023, contributing to a collective 525 basis points of rate increases since the Fed started raising rates in March 2022, yet Q3 real GDP was up an astounding 4.9%.
- Israel went to war with Hamas following an October 7 terrorist attack by Hamas on Israeli citizens.
- The 30-yr fixed mortgage rate topped 8.00%.
- Bitcoin futures gained as much as 174%, soaring in part on the prospect of a spot bitcoin ETF approval.
- The 10-yr note yield, which started the year at 3.88%, hit 5.02% in mid-October, and ended the year at 3.88%.
- Seven stocks accounted for roughly two-thirds of the gain in the market-cap weighted S&P 500.
- Despite a protracted inversion of the yield curve and 20 straight monthly declines in the Leading Economic Index, the recession many people saw coming never came.
The latter was the most pleasant surprise for the market, matched perhaps by the improvement in inflation. The PCE Price Index was up 5.4% year-over-year in December 2022, but was up only 2.6% year-over-year in November 2023, aided by falling oil prices, which posted their first annual decline since 2020. The core PCE Price Index was up 4.9% year-over-year in December 2022, but was up 3.1% year-over-year in November 2023.
The inflation rate still has room for improvement, but it was clear that the trend became the market's friend in 2023, confirming that the Fed's policy tightening efforts were succeeding in bringing down inflation.
The added connection -- and, arguably, the most important connection -- is that the labor market remained solid, consumer spending persisted with surprising strength, and economic data overall substantiated the notion that the Fed could very well achieve a soft landing for the economy.
All Aboard
As 2023 drew to a close, the Fed made it sound as if it was on board with the market's thinking, declaring that it is going to proceed carefully with future policy decisions and that it had started to talk about the timing of when it should start removing some of its policy restraint.
The Summary of Economic Projections showed a median estimate of three rate cuts in 2024 versus only two rate cuts in the Fed's September projections. The market loved what it saw in the December projections but raced ahead on its own accord and priced in the probability of six (!) rate cuts in 2024.
2023 was indeed a year of interest rate swings. January saw a downswing in Treasury yields only to be followed by a sharp upswing in February that got quickly reversed amid the banking crisis in March.
There were some gyrations into May before Treasuries, dealing with some angst about the budget deficit and the Fed keeping rates higher for longer, rode an escalator up to their high yield for the year by mid-October. They then took an escalator down into year-end, catalyzed by a belief that inflation will continue to moderate, and that the Fed is done raising rates and will pivot to a rate-cut cycle in early 2024.
That rapid descent in Treasury yields was precipitated by short-covering activity and positioning changes on the part of fund managers. The same rang true for the rapid ascent in stock prices in the fourth quarter.
The Scope of Magnificence
Before the fourth quarter, though, it was still a magnificent market, only the magnificence was rooted largely in seven stocks: Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon.com (AMZN), NVIDIA (NVDA), Tesla (TSLA), and Meta Platforms (META).
These seven stocks were stalwarts, bulwarks, and nothing short of extraordinary in their performance. Price gains for these seven stocks ranged from 48% to 239%. They were favored for their market-leading positions, their financial strength, their earnings outperformance, their AI exposure, and, frankly, the need for fund managers to keep up with benchmarks.
Their collective might was the basis for the outperformance of the market-cap weighted S&P 500 and Nasdaq 100 throughout the year.
At their lows on October 27, the market-cap weighted S&P 500 was up 6.9% for the year and the Nasdaq 100 was up 29.2% versus the S&P 500 Equal-Weighted Index, which was down 5.7% for the year, and the Russell 2000, which was down 7.2%.
But then, just about everything turned magnificent into year-end as interest rates dropped.
In fact, from the low on October 27 to the close on December 29, the S&P 500 Equal-Weighted Index and Russell 2000 were more magnificent than the market-cap weighted S&P 500, gaining 18.3% and 24.1%, respectively, versus a gain of 16.2% for the market-cap weighted S&P 500.
To be fair, the price-weighted Dow Jones Industrial Average showed some magnificence of its own in reaching a record high in December, climbing as much as 16.9% from its October 27 low, and the Nasdaq 100 stayed magnificent, gaining 19.1%.
The scope of gains across the market, and the speed at which they occurred, proved yet again the benefits of a systematic investment approach and the hazards of trying to time the market.
So Long 2023
To say that the stock market closed out 2023 with a full head of steam is an understatement. It went hard charging into year-end, driven by rate-cut hopes, short-covering activity, performance chasing, a fear of missing out on further gains, and a rush to increase equity weightings in investment portfolios.
There is a contention in some corners that the year-end rally pulled forward returns for 2024, which is to say returns in 2024 might be less than they could be had this rally not happened.
All we can say to that is, "we'll see."
What we know about 2023 is that the economy's performance, the Treasury market's performance, and the stock market's performance surprised in a magnificent way for investors. It wasn't always easy to watch, but it is the endpoint that matters and there is a lot to celebrate there as we say so long to 2023.
-- Patrick J. O'Hare, Briefing.com
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| Nasdaq Composite | 43.4% | | S&P 500 | 24.2% | | Russell 2000 | 15.1% | | S&P Midcap 400 | 14.4% | | Dow Jones Industrial Average | 13.7% | Market 2023 Price Return Source: FactSet
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| Information Technology | 56.4% | | Communication Services | 54.4% | | Consumer Discretionary | 41.0% | | Industrials | 16.0% | | Materials | 10.2% | | Financials | 9.9% | | Real Estate | 8.3% | | Health Care | 0.3% | | Consumer Staples | -2.2% | | Energy | -4.8% | | Utilities | -10.2% | Sector 2023 Price Return Source: FactSet
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