| | | Market Snapshot
briefing.com
| Dow | 37430.19 | -284.85 | (-0.76%) | | Nasdaq | 14592.21 | -173.73 | (-1.18%) | | SP 500 | 4704.81 | -38.02 | (-0.80%) | | 10-yr Note | +2/32 | 3.91 |
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| | NYSE | Adv 785 | Dec 1981 | Vol 978 mln | | Nasdaq | Adv 1177 | Dec 3145 | Vol 5.4 bln |
Industry Watch
| Strong: Energy, Communication Services, Utilities |
| | Weak: Real Estate, Materials, Financials, Consumer Discretionary, Industrials |
Moving the Market
-- Digesting the minutes for the December 12-13 FOMC meeting, which were not overly dovish
-- A continued inclination to take profits after the big run to end 2023
-- The 10-yr note yield briefly hit 4.00%, but yields ultimately settled the session lower
-- Oil prices bouncing after sliding below $70.00/bbl overnight
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Closing Summary
03-Jan-24 16:25 ET
Dow -284.85 at 37430.19, Nasdaq -173.73 at 14592.21, S&P -38.02 at 4704.81
[BRIEFING.COM] The stock market registered broad based losses today. The Russell 2000 underperformed other major indices, declining 2.7%, while the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite declined 0.8%, 0.8%, and 1.2%, respectively.
Early selling, driven by profit-taking activity, had the major indices trading down ahead of the 2:00 p.m. ET release of the minutes for the December 12-13 FOMC meeting. The market experienced some volatility in response to the minutes, ultimately settling near session lows. The S&P 500 briefly slipped below the 4,700 level at its low of the day.
In discussing the policy outlook, the committee viewed the policy rate as likely at or near its peak for this tightening cycle. The Fed made it clear, however, that it isn't divorcing itself entirely from the idea that it might still have to raise rates again.
Rate cut expectations have decreased slightly following this release. The probability of 25 basis points rate cut at March FOMC meeting stands at 70.8% versus 79.0% yesterday and the probability of 25 basis points rate cut to at May FOMC meeting is 60.3% versus 73.6% yesterday.
Just about everything participated in downside moves today. Eight of the 11 S&P 500 sectors logged a decline with five of those sectors falling more than 1.0%. The real estate sector (-2.4%) saw the largest decline by a wide margin followed by the consumer discretionary sector (-1.9%).
Meanwhile, the energy sector outperformed, gaining 1.5%, as oil prices climbed ($72.82/bbl, +2.29, +3.3%).
Early selling in the Treasury market started to dissipated before 2:00 ET, but yields hit their intraday lows following the release. The 2-yr note yield declined one basis point to 4.32% and the 10-yr note yield fell four basis points to 3.91%.
- Dow Jones industrial Average: -0.7%
- S&P 500: -1.4%
- S&P Midcap 400: -2.6%
- Nasdaq Composite: -2.8%
- Russell 2000: -3.4%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -9.4%; Prior -1.5%
- December ISM Manufacturing Index 47.4% (Briefing.com consensus 47.1%); Prior 46.7%
- The key takeaway from the report is that the manufacturing sector remains stuck in contraction, but the report was not devoid of good market news, as the Prices Index sliding to 45.2% from 49.9% reflects a further easing of inflation pressures.
- November JOLTS - Job Openings 8.790 mln; Prior was revised to 8.852 mln from 8.733 mln
Looking ahead, Thursday's economic calendar features:
- 8:15 ET: December ADP Employment Change (Briefing.com consensus 114,000; prior 103,000)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 220,000; prior 218,000) and Continuing Claims (prior 1.875 mln)
- 9:45 ET: Final December S&P Global U.S. Services PMI (prior 50.8)
- 10:30 ET: Weekly natural gas inventories (prior -87 bcf)
- 11:00 ET: Weekly crude oil inventories (prior -6.911 mln)
Treasury yields decline
03-Jan-24 15:35 ET
Dow -216.79 at 37498.25, Nasdaq -148.23 at 14617.71, S&P -31.15 at 4711.68
[BRIEFING.COM] The three major indices are little changed in recent action.
The 2-yr note yield declined one basis point to 4.32% and the 10-yr note yield fell four basis points to 3.91% even though the FOMC Minutes had a hawkish undertone. The release showed that several policymakers see the potential for the fed funds rate range to stay at a peak level for longer than the market expects.
Looking ahead, Thursday's economic calendar features:
- 8:15 ET: December ADP Employment Change (Briefing.com consensus 114,000; prior 103,000)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 220,000; prior 218,000) and Continuing Claims (prior 1.875 mln)
- 9:45 ET: Final December S&P Global U.S. Services PMI (prior 50.8)
- 10:30 ET: Weekly natural gas inventories (prior -87 bcf)
- 11:00 ET: Weekly crude oil inventories (prior -6.911 mln)
Energy complex futures settle higher
03-Jan-24 15:05 ET
Dow -204.56 at 37510.48, Nasdaq -130.32 at 14635.62, S&P -27.73 at 4715.10
[BRIEFING.COM] The market moved slightly lower over the last half hour.
WTI crude oil futures rose 3.3% today to $72.82/bbl and natural gas futures settled 2.5% higher at $2.45/mmbtu.
The S&P 500 energy sector is trading up 1.8%. The only other sector trading up is communication services (+0.5%).
Markets move narrowly higher after FOMC minutes
03-Jan-24 14:30 ET
Dow -146.81 at 37568.23, Nasdaq -119.06 at 14646.88, S&P -21.04 at 4721.79
[BRIEFING.COM] The major averages moved narrowly higher following the release of the FOMC's minutes from its December meeting. Recent trading has the S&P 500 (-0.44%) is in second place.
In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves. Participants held that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee's objective.
Further, the minutes also showed the Committee judged upside risks to inflation as having diminished but noted that inflation was still well above it's longer-run goal and that a risk remained that progress toward price stability would stall.
Also, the staff continued to view uncertainty around the baseline projection as elevated.
In recent trading the yield on the benchmark 10-yr treasury note is at session lows, down just shy of two basis points at 3.918%.
Gold slides into FOMC minutes
03-Jan-24 13:55 ET
Dow -157.82 at 37557.22, Nasdaq -123.84 at 14642.10, S&P -23.17 at 4719.66
[BRIEFING.COM] The major averages are still lower across the board ahead of the FOMC minutes from the Dec. 12-13 meeting, which are due at the top of the hour. The tech-heavy Nasdaq Composite (-0.84%) is the worst off on Wednesday afternoon.
Gold futures settled $30.60 lower (-1.5%) to $2,042.80/oz, slipping as the dollar held firm ahead of the aforementioned FOMC minutes.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $102.62.
Page One
Last Updated: 03-Jan-24 09:04 ET | Archive
Market feels mega-cap tilt
The first trading day of 2024 had a negative tilt to it, but only because of the lopsided weakness in the mega-cap stocks. The S&P 500 Equal-Weighted Index was just about flat for the session.
There is more of that tilt this morning, which is largely why the futures for the major indices are leaning lower.
Currently, the S&P 500 futures are down 21 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 104 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 136 points and are trading 0.4% below fair value.
Pre-market indications show the "Magnificent 7" stocks all trading lower in what appears to be a continuing profit-taking effort. Some might even label it a de-risking move given the concentration risk in the names that accrued throughout 2023.
The market's eyes will be fixed on these names, but not necessarily locked in on them. Where participants are going to be locked in is watching to see if the broader market can hold the line on rotational activity or if any continuing weakness in the mega-cap stocks diminishes investor sentiment to the point that everything rolls over.
Knowing that just about everything has rallied in the last nine weeks, it is fair to assume that the risk of profit taking is not a completely lopsided risk.
There is some added trading risk embedded in today's session. We say that because the market won't be devoid of market-moving news catalysts after today's open.
The December ISM Manufacturing Index (Briefing.com consensus 47.1%; prior 46.7%) and the November JOLTS - Job Openings Report (Prior 8.733 million) will be released at 10:00 a.m. ET.
The primary focal point, though, is apt to be the release of the minutes for the December 12-13 FOMC meeting at 2:00 p.m. ET. At the time, the market loved hearing Fed Chair Powell suggest there was some talk at the meeting about when it might be appropriate to lessen the policy restraint.
Market participants will want to see today just how involved that conversation was. If it doesn't sound as lively as the market thought it was at the time, then market rates are at risk of backing up and serving as a catalyst for stocks rolling over.
Treasuries were a bit weaker yesterday and they are a bit weaker ahead of the stock market's open. The 2-yr note yield is up two basis points to 4.35% and the 10-yr note yield is up two basis points to 3.97%.
There hasn't been much corporate news of note, but analysts have provided some trading fodder with a bevy of ratings actions, including a Wolfe Research upgrade of Citigroup (C) and JPMorgan Chase (JPM) to Outperform from Peer Perform, a KeyBanc Capital Markets upgrade of Verizon (VZ) to Overweight from Sector Weight, a Mizuho downgrade of ExxonMobil (XOM) to Neutral from Buy, and a Goldman Sachs downgrade of Charles Schwab (SCHW) to Neutral from Buy.
Finally, today marks the end of the Santa Claus Rally period (last five trading days of the year and the first two trading days of the new year). With yesterday's retreat, Santa Claus has fallen off the radar. The S&P 500 enters today down just shy of 0.1% over the trading span of interest.
-- Patrick J. O'Hare, Briefing.com
SentinelOne sinks as dilutive impact of PingSafe acquisition causes disappointment (S)
Cybersecurity company SentinelOne (S) has been on a role recently, becoming a more formidable threat to endpoint protection leader CrowdStrike (CRWD) as its Singularity Platform gains traction. With that momentum behind it, SentinelOne is looking to strike while the iron's hot, announcing a cash-and-stock deal to acquire PingSafe, a cloud native application protection platform (CNAPP).
- Shares of SentinelOne are selling off on the news, although some of the weakness is related to profit-taking following a 45% surge in December to close out 2023. It's understandable that the company would look to capitalize on its higher stock price to help finance this transaction, but investors aren't taking too kindly to the idea of a dilutive deal.
- SentinelOne has made significant progress in terms of profitability, trimming its Q3 non-GAAP net loss to ($7.7) mln from ($44.4) mln in the year-earlier period, so the thought of taking a step backwards isn't sitting too well.
- The company didn't provide specific financial terms of the deal, nor did it offer any financial data for PingSafe. This lack of clarity may not be helping the cause, adding an element of uncertainty around SentinelOne's future financials.
- Given that the company's recent financial results have been strong, as illustrated by its 11% increase in net new ARR last quarter and an eight-percentage point expansion in non-GAAP gross margin to 79%, rocking the boat now may seem undesirable to some.
- From a strategic standpoint, SentinelOne believes that PingSafe is a great fit that will bolster its cloud workload security and cloud data security capabilities. Key competitors such as CRWD and Palo Alto Networks (PANW) provide CNAPP, which is a cloud-native platform that combines multiple tools and capabilities into a single software program that makes detecting and resolving cloud security threats easier and faster.
- By adding PingSafe to SentinelOne's AI and analytics capabilities, the company's cloud security offerings will become a more comprehensive and fully integrated platform that eliminates the need for enterprises to stitch together multiple-point solutions.
- This strategy of providing a simplified and unified security system has been a winning formula for SentinelOne's other products. A key advantage for the Singularity Platform is that its AI-powered autonomous threat protection and response capabilities are delivered across all endpoints and cloud workloads simultaneously. Therefore, analysts can then access and view incidents and threats on one console, providing for a quicker response.
Overall, using the same playbook to create a best-of-breed cloud security platform looks like a winning move over the long-term, but investors aren't rewarding SentinelOne today as the potentially dilutive impact to earnings in the near-term takes the spotlight.
Walt Disney gains an ally in ongoing proxy battle against Trian Partners (DIS)
The drama surrounding Walt Disney (DIS) and the expanding list of activist investors that are looking to influence the entertainment giant's leadership and direction has taken a couple more turns this morning. As DIS's proxy battle with Nelson Peltz's Trian Partners heats up and carries on, an ally has emerged with ValueAct Capital Management publicly supporting the company's recommended nominees for its Board of Directors. DIS and ValueAct also entered into a confidentiality agreement in which DIS pledged to share information and to consult with the asset management firm on strategic matters.
- DIS has been a lightning rod for activist activity and that has especially been the case over the past few years as the company struggles to turn its stock around amid an extensive transformation effort. Since Bob Iger returned as CEO in November 2022, the stock has fallen by 7.5% compared to a gain of nearly 20% for the S&P 500.
- To be fair, Mr. Iger inherited a Direct-to-Consumer (DTC) business that was losing over a billion dollars per quarter while the legacy cable TV business continued a downward spiral driven by an ongoing cord-cutting trend.
- Nevertheless, Mr. Peltz instigated a proxy battle against DIS in late 2022, seeking multiple seats on DIS's Board of Directors as Trian Partners amassed a $3+ bln stake in the company. Mr. Peltz, who was a supporter of former DIS CEO Bob Chapek, eased the pressure on DIS after Mr. Iger announced more cost-cuts and indicated that non-core assets -- such as cable TV channels -- could be on the chopping block.
- However, Mr. Peltz has turned the heat back up in recent months, expressing his concerns regarding CEO succession planning, compensation, and corporate governance.
From a financial performance standpoint, though, DIS has made some major strides.
- For instance, in 4Q23 the company beat top and bottom-line expectations with each of DIS's three operating segments -- Entertainment, Sports, and Experiences -- achieving significant yr/yr growth in operating income. Notably, through a combination of cost-cutting measures and price increases for Disney+, the DTC segment shaved nearly $1.0 bln off its operating losses from a year ago. With the operating loss shrinking to $(420) mln in 4Q23, DIS remains confident that the streaming business will reach profitability in 4Q24.
- Although Mr. Iger has backed away from his prior plans of divesting legacy TV assets, he has stated that more cost-cutting opportunities are available in that business. Additionally, DIS is moving full steam ahead with its DTC expansion strategy, agreeing to purchase the remaining 33% stake in Hulu from Comcast (CMCSA), while transitioning ESPN into a sports streaming platform.
These improvements and actions have drawn the support of yet another activist investor: Blackwells Capital. That firm will nominate three directors at DIS, but it stands behind Mr. Iger and his turnaround strategy. Recall that on November 29, DIS appointed James Gorman, CEO of Morgan Stanley (MS), and Sir Jeremy Darroch as new members of Board of Directors, but the appointments did little to quiet the noise from these activist investors.
In our view, all of this activist investor activity is creating another distraction for DIS, making its turnaround even more difficult to accomplish. Based on its Q4 results, we believe that the company is finally turning a corner and is poised for a rebound in 2024.
PGT Inc. at all-time highs today after receiving a competing takeover offer from Miter Brands (PGTI)
PGT Inc (PGTI +3%) tops previous all-time highs today after receiving an unsolicited proposal from privately-held Miter Brands to acquire the impact-resistant frame window and door maker for $41.50 per share in an all-cash deal. The proposal comes just two weeks after PGTI shook hands with Masonite International (DOOR) to sell the company for $41.00 per share in a cash-and-stock deal, receiving $33.50 per share in cash and $7.50 in DOOR's common stock. Not only is Miter Brands' offer higher, but it is also an all-cash proposal, giving it a leg up on DOOR.
- Miter Brands has been targeting PGTI for the past several months. In October, Reuters reported that PGTI rebuffed a $33/share, or $1.9 bln, offer from Miter Brands. Immediately, Miter contemplated raising its bid to $36/share; both offers were considerably higher than the roughly $26/share PGTI was trading at. Miter eventually did up the ante, only to be rejected again by PGTI last month.
- Then came DOOR, which offered $41/share for PGTI, translating to an 8x forward earnings valuation. While not particularly overvaluing PGTI, DOOR shareholders were disappointed by the details of the transaction, namely, that DOOR would finance its acquisition with new debt and/or equity, diluting its EPS in the process.
- Given that shares of DOOR are under some selling pressure today, the market may be worried that the company may need to bump its offer up to keep PGTI from shaking hands with Miter Brands, leaning even more heavily on debt and/or equity.
The winner here is PGTI, which now has two companies competing over it. While we liked DOOR's acquisition of PGTI as it would diversify its product portfolio and result in potentially $100 mln in annual synergies over the next several years, it is pertinent that the price is right, especially given that DOOR is in the throes of a turnaround. Management announced restructuring plans last year, which have already weighed on GAAP earnings.
Bottom line, Miter Brands' offer throws a wrench in DOOR's plans. A bidding war is precisely what DOOR was likely trying to avoid when it came to PGTI with an offer nicely above Miter Brands' initial proposal. Now, it has to decide whether to sweeten the deal or step aside, forging a much-needed growth catalyst and letting a key competitor in Miter Brands become an even larger force to be reckoned with.
DoorDash begins 2024 a tad sluggish on reports of planned expansion beyond core business (DASH)
DoorDash (DASH -3%) is a tad sluggish to start 2024, as shares retreat modestly following an FT report that the food delivery company is looking to expand beyond its primary U.S. restaurant business. Building its categories beyond restaurants, both domestically and abroad, was DASH's central focus to start last year after closing its approximately €7.0 bln acquisition of food and merchandise delivery platform Wolt during the summer of 2022. Given DASH's market leadership in the U.S. within the food delivery business, it is advantageous for the company to keep its foot on the gas, capitalizing on its sturdy global footprint and diversifying its revenue streams further.
- Outside the U.S., DASH operates in 27 countries, all of which came through its Wolt partnership. In November, DASH noted that despite growing at multiples across several geographies, it was not pleased yet with where its product was, admitting it still has plenty of room left. Compared to the U.S., DASH conceded that it was trailing its core market from a penetration and product adoption perspective. As a result, overseas expansion, whether food delivery or branching out to other channels, would be a focal point in 2024.
- Still, expanding into new verticals was an underlying factor behind DASH's excellent performance in 2023. DASH's new categories business, i.e., deliveries from merchandise vendors, accelerated sequentially in Q3, with the grocery business alone doubling in gross order volume yr/yr. With DASH already commanding a network of drivers, it can improve unit economics at a brisk pace within its new categories business.
- Fragmentation has been a major issue for the food delivery business in recent years, with previous platforms like GrubHub and Postmates acquired by competitors during the pandemic. Given DASH's leadership position, M&A may be a part of its expansion plans to maintain its market dominance and distance itself from its next largest competitors. Therefore, we suspect a few acquisition announcements from DASH this year likely tilted toward overseas expansion.
There will still be speed bumps this year, primarily from cumulative inflationary pressures and weight-loss drugs. On the latter, management has not noticed an impact, echoing remarks from several executives across various organizations within the food industry lately. CEO Tony Xu added that it is still too early to tell whether the drugs will act as a headwind, tailwind, or sidewind. On inflation, DASH is feeling it on the cost side through certain regulations surrounding minimum wage and on the demand side with consumers tightening their wallets as student loan payments resume and widespread inflation clips discretionary income. However, DASH has talked about already enduring peak inflation, which has continued to rise at a slower pace throughout the latter half of 2023.
Nevertheless, with turnaround momentum at its back, DASH seeks to capitalize on an excellent 2023, putting its capital to work through efficient investments and possible M&A.
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