Market Snapshot
| Dow | 42208.22 | +83.57 | (0.20%) | | Nasdaq | 18074.50 | +100.25 | (0.56%) | | SP 500 | 5732.93 | +14.36 | (0.25%) | | 10-yr Note |
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| | NYSE | Adv 1695 | Dec 1066 | Vol 1.0 bln | | Nasdaq | Adv 2367 | Dec 1849 | Vol 5.37 bln |
Industry Watch
| Strong: Materials, Industrials, Communication Services, Information Technology, Consumer Discretionary |
| | Weak: Health Care, Real Estate, Consumer Staples, Utilities, Financials, Energy |
Moving the Market
--China announces wave of policy stimulus measures
--Leadership from NVIDIA and mega-cap space
--Energy prices rise amid geopolitical concerns and hurricane activity in Gulf of Mexico
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Closing Stock Market Summary
24-Sep-24 16:20 ET
Dow +83.57 at 42208.22, Nasdaq +100.25 at 18074.50, S&P +14.36 at 5732.93
[BRIEFING.COM] There might not have been a lot of buying conviction in today's market, but more importantly there was no real selling conviction either. There was some buy-the-dip interest that coursed through NVIDIA (NVDA 120.87, +4.61, +4.0%) and the mega-cap space; and there was also an appreciation for a wave of policy stimulus measures announced in China that coursed through the materials (+1.4%) and industrials (+0.7%) sectors.
The People's Bank of China said the 7-day reverse repurchase rate will be lowered by 20 basis points to 1.50%, the required reserve ratio will be cut by 50 basis points, the down payment requirement for second-home buyers will be reduced to 15% from 25%, and there will be a CNY800 bln ($113 bln) liquidity support facility for stocks.
China's Shanghai Composite surged 4.2% on the news. That move was the basis for the outsized move in Chinese ADRs, like Li Auto (LI 24.72, +2.52, +11.4%) and Alibaba (BABA 97.19, +7.10, +7.9%), and the hefty gain logged by the iShares China Large-Cap ETF (FXI 30.40, +2.72, +9.8%).
The hope that China's stimulus measures will succeed in providing a needed boost to the Chinese economy spilled over to the commodities market, which was also eyeing the formation of Hurricane Helene in the Gulf of Mexico and the heightened military conflict between Israel and Hezbollah. Copper futures jumped 3.0% to $4.49/lb while WTI crude futures increased 1.7% to $71.56/bbl.
Freeport McMoRan (FCX 48.72, +3.58, +7.9%), a leading gold and copper producer, was the best-performing S&P 500 component followed by Estee Lauder (EL 91.98, +5.28, +6.1%), Las Vegas Sands (LVS 44.38, +2.25, +5.3%), Wynn Resorts (WYNN 84.16, +3.96, +4.9%), and Caterpillar (CAT 385.93, +14.76, +4.0%), all of which would stand to benefit from a pickup in economic activity in China.
Their gains contributed to the relative strength seen in the consumer discretionary (+0.8%) and industrials (+0.7%) sectors. NVIDIA for its part was a big contributor to the strength seen in the Philadelphia Semiconductor Index (+1.3%) and the relative strength in the information technology sector (+0.8%).
NVIDIA found support after briefly trading below its 50-day moving average (115.73) this morning. On a related note, Barron's reported that CEO Jensen Huang completed a preplanned stock sale several months ahead of an anticipated schedule. Investors presumably liked the thought that his preplanned sale will no longer be an overhang on the stock.
There was an overhang on the financial sector (-0.9%) today. It lost ground, undercut by weakness in the bank stocks. The SPDR S&P Bank ETF (KBE) and SPDR S&P Regional Banking ETF (KRE) declined 1.3% and 1.4%, respectively.
Treasury yields also declined following a weaker-than-expected Consumer Confidence Report for September. The 2-yr note yield, at 3.59% just before the 10:00 a.m. ET release, settled today's session at 3.55%, down three basis points from yesterday's settlement. The 10-yr note yield, at 3.79% just before the release, finished unchanged at 3.74%. The Treasury market also digested a $69 billion 2-yr note action that saw the high yield match the when-issued yield of 3.52%.
- Nasdaq Composite: +20.4% YTD
- S&P 500: +20.2% YTD
- S&P Midcap 400: +12.1% YTD
- Dow Jones Industrial Average: +12.0% YTD
- Russell 2000: +9.7% YTD
Reviewing today's economic data:
- July FHFA Housing Price Index (actual 0.1%; prior 0.0%)
- July S&P Case-Shiller Home Price Index (actual 5.9%; Briefing.com consensus 6.0%; prior 6.5%).
- The Conference Board's Consumer Confidence Index fell to 98.7 in September (Briefing.com consensus 102.9) from an upwardly revised 105.6 (from 103.5) in August. September's decline was the largest since August 2021.
- The key takeaway from the report is that consumers' views of the current labor market situation continued to soften and became more pessimistic about future labor market conditions -- a sentiment that could weigh on consumer spending activity.
Looking ahead, Wednesday's calendar features:
- 07:00 ET: MBA Mortgage Applications index (prior +14.2%)
- 10:00 ET: August New Home Sales (Briefing.com consensus 695K; prior 739K)
- 10:30 ET: EIA crude Oil Inventories (prior -1.63M)
- 13:00 ET: $70 billion 5-yr note auction
Tracking sideways
24-Sep-24 15:30 ET
Dow +42.94 at 42167.59, Nasdaq +83.42 at 18057.67, S&P +10.31 at 5728.88
[BRIEFING.COM] There hasn't been any meaningful movement since the last update, which itself pointed to the fact that there hasn't been a lot of movement for the major indices for most of the afternoon trade.
The Dow Jones Industrial Average has seen a decent point swing today. It had been up as many as 156 points, but gave all of that back and then some before finding its footing again. Like the other indices, it is now modestly higher heading into the final 30 minutes of trading.
Overall, it has been a carefully calibrated session thus far. The market-cap weighted S&P 500 is up 0.2% and the equal-weighted S&P 500 is up 0.2%.
Advancers lead decliners by a little better than 4-to-3 margin at the NYSE and a roughly 4-to-3 margin at the Nasdaq.
Tomorrow's session will include the August New Home Sales Report (Briefing.com consensus 695K; prior 739K), the response to earnings reports from KB Home (KBH 87.05, -1.15, -1.3%) and Cintas (CTAS 205.08, +1.08, +0.5%), and a $70 billion 5-yr note auction.
Home on the range
24-Sep-24 15:00 ET
Dow -7.67 at 42116.98, Nasdaq +82.84 at 18057.09, S&P +8.67 at 5727.24
[BRIEFING.COM] The major indices have been pinned in narrow trading ranges for much of the afternoon session, ebbing and flowing it seems on the behavior of the mega-cap cohort.
Notably, there has been a decent-sized intraday swing in Treasury yields, with today's weaker-than-expected Consumer Confidence Index for September acting as the fulcrum.
In a curve-steepening trade led by the front end, the 2-yr note yield is down four basis points to 3.55% (having hit 3.61% earlier) and the 10-yr note yield is unchanged at 3.74% (having hit 3.80%) earlier. Stocks have been a little slow to respond to the interest rate movement, partly because they have moved in a big way in recent weeks as rates came down in a big way in anticipation of the Fed starting what is expected to be an aggressive rate cut cycle.
At the same time, any "weak" economic data will engender some concerns that the Fed could be behind the curve in fending off a hard landing for the economy. That thought notwithstanding, the market has continued to show impressive resilience to selling interest.
Earlier, we featured NVIDIA (NVDA 121.33, +5.07, +4.4%) as a key source of support for the broader market, having bounced back sharply from early weakness. We were unaware at the time of a specific news catalyst for the abrupt turn, but CNBC.com is citing a Barron's report that suggests it stems from a recognition that CEO Jensen Huang completed a preplanned stock sale earlier than expected (the implication presumably being that his insider selling won't be viewed as an overhang on the stock, as the preplanned sale was anticipated to be completed by the end of Q1 2025).
S&P 500 holds in second place; Celanese, FedEx decently higher
24-Sep-24 14:30 ET
Dow -10.32 at 42114.33, Nasdaq +83.38 at 18057.63, S&P +7.37 at 5725.94
[BRIEFING.COM] The S&P 500 (+0.13%) is in second place among the major averages, little changed over the prior half hour.
Elsewhere, S&P 500 constituents Celanese (CE 132.36, +4.63, +3.62%), FedEx (FDX 266.61, +7.82, +3.02%), and Generac (GNRC 150.90, +4.66, +3.19%) dot the top of the standings despite a dearth of corporate news.
Meanwhile, New York-based biotech firm Regeneron Pharma (REGN 1025.44, -66.54, -6.09%) piles on the losses, now down north of -10% over the last two sessions.
China stimulus measures boost gold
24-Sep-24 14:00 ET
Dow -9.42 at 42115.23, Nasdaq +97.88 at 18072.13, S&P +8.99 at 5727.56
[BRIEFING.COM] With about two hours left on Tuesday afternoon the tech-heavy Nasdaq Composite (+0.54%) holds a commanding lead, up more than threefold on the S&P 500 (+0.16%).
Gold futures settled $24.50 higher (+0.9%) to $2,677.00/oz, aided in part by news out of China that the country announced several stimulus measures.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $100.55.
CNH Industrial farms healthy gains today following an analyst upgrade (CNH)
CNH Industrial (CNH +4%) farms healthy gains today, reaching its best levels since May, following an upgrade to "Outperform" from "Mkt Perform" at Raymond James.
Briefing.com notes that the agriculture industry has faced a few setbacks over the past year, producing tepid yields for CNH, which recently delivered its widest yr/yr revenue contraction since mid-2022. However, while headwinds are still generating uneasiness within the ag industry while new construction activity remains shaky, CNH may have already endured a bottom.
- What does CNH do? Since spinning off its commercial vehicles and powertrain business in 2022, CNH has focused on manufacturing agricultural and construction equipment. Its brands directly compete with Deere (DE), AGCO (AGCO), Caterpillar (CAT), and various privately held and overseas companies. In agriculture, CNH's brands are known for their similar quality to Deere, creating meaningful brand loyalty. The same can be said for CNH's construction banners. However, ag remains its core business, comprising over 80% of industrial activity revs in FY23.
- The ag industry is dealing with a downcycle. However, CNH shored up structural costs, production cadence, and sourcing to prepare for this. The company's cost reduction program is aggressive, eyeing $550 mln in savings this year. Even though CNH has had to trim its FY24 EPS outlook twice thus far, its bottom line has held up decently, given how weak its top-line performances have been this year, contracting by 16.4% yr/yr in Q2 and 9.8% in Q1.
- Cost savings will remain CNH's focus throughout the current cycle. Management has expressed confidence in sustaining margin improvements despite industry demand compression. This focus should provide a sturdy foundation once demand rebounds.
- When demand bounces back remains unclear. However, CNH was upbeat about farmer balance sheets in July, which remain in good shape despite incomes tracking below the 20-year average. Meanwhile, equipment is aging, and new equipment dramatically improves yields, offsetting the steeper costs. Even though CNH believes that the industry could remain flattish for a while, it does not anticipate a significant step-down, such as what transpired 15 years ago.
- Deere talked about similar dynamics last month. A possible significant catalyst could be replacement demand, which may begin boosting sales sooner rather than later as interest rates ease. New equipment has tangible benefits, such as producing greater yields and increasing efficiency. Also, while incomes are stagnant, farmland values continue to rise, keeping farmers' financials relatively sound.
Skies may be far from sunny for CNH and the broader ag industry. However, clouds are not darkening, and with interest rates coming down, some may be beginning to retreat. In the interim, CNH's cost-saving initiatives should maintain its profitability. Furthermore, by right-sizing dealer inventories, less used inventory will be on lots, helping eventually nudge consumers toward new equipment.
AutoZone in need of maintenance as soft discretionary merchandise category weighs on results (AZO)
For the first time in over five years, AutoZone (AZO) missed quarterly EPS expectations as the company's domestic DIY business continues to experience some weakness in the discretionary merchandise categories. The company's downside Q4 results, which also include a modest top-line miss, complete a set of recent disappointing earnings reports from the auto parts retailer space, further confirming that many consumers are only spending on the highest priority vehicle repair and maintenance jobs. Recall that on August 22, Advance Auto (AAP) missed Q2 EPS and revenue estimates, while also slashing its FY24 guidance, which was preceded by a Q2 top and bottom-line miss from O'Reilly Auto (ORLY) on July 24.
- Echoing a similar message as ORLY CEO Brad Beckham, who commented during the Q2 earnings call that the discretionary appearance and accessory categories were soft, AZO noted that its business continues to be impacted by weakness in discretionary merchandise and deferrals of non-critical repairs. This is reflected in AZO's total company same store sales sliding to growth of just +0.7%, down from last quarter's growth of +1.9%.
- Along with the declining comp growth, operating expenses as a percentage of sales ticked higher to 31.6% from 31.2%, primarily due to higher store payroll as a percentage of sales compared to a year ago, while gross margin dipped by 21 bps yr/yr to 52.5%. Taken together, these items caused AZO's long winning streak against analysts' EPS estimates to come to an end.
- While demand on the DIY side remains sluggish, the domestic commercial business stood out once again, posting strong comps of +10.9%. AZO's commercial initiatives, such as offering a wider assortment of parts and improving parts delivery times, are paying dividends. The company is also expanding its commercial program, which is now available in over 90% of its domestic stores.
- AZO's international business was another bright spot. Despite lapping a remarkable comp of +31.2% in the year-earlier period, international comps still came in at +4.9% in 4Q24. A key pillar of the company's growth strategy is to grow its footprint in Mexico and Brazil. During Q4, AZO opened 31 new stores in Mexico and 18 new stores in Brazil.
A bumpy earnings report was anticipated, as reflected by the stock's 4.5% drop since the end of August, so the downside results from AZO didn't come as a major surprise. The good news for AZO and its competitors is that this deferral headwind will eventually reverse course into a tailwind as consumers can no longer delay certain maintenance and repair jobs. From a company-specific standpoint, AZO also believes that it's gaining market share in both the retail and commercial businesses, which also bodes well for the company once spending trends improve.
Thor Industries up despite bleak FY25 guidance; market liking possible rate cut fueled demand (THO)
Following downbeat FY25 guidance, it is clear the journey ahead for RV manufacturer Thor Industries (THO +5%) remains littered with speedbumps. The company that owns Airstream and Jayco projected another year of earnings and sales compression, worse than consensus, which predicted a modest top and bottom-line improvement. Even though THO has been known to surpass estimates frequently, doing so again in Q4 (Jul), its guidance still reflects an industry that is hampered by stubborn macroeconomic headwinds.
- While beginning to ease following the Fed's sizeable cut last week, interest rates remain problematic for the RV industry. Dealers did enjoy increased retail activity during the spring selling season, consistent with the RV Industry Association's ("RVIA") monthly trends data. However, interest rates are elevating floor plan costs, making it challenging for dealers to carry too much inventory, which is still difficult to move in light of expensive financing costs for consumers.
- Prominent RV dealer Camping World Holdings (CWH) was forced to liquidate older model years during Q2, commenting that the data for the overall industry is worsening. The company estimated an excess of 14,000 units on dealer lots from the 2022 and 2023 model years, causing severe distress and leading to CWH taking in certain dealerships to turn around their hemorrhaging cash flows.
- The economic issues plaguing CWH appear in the RVIA's latest CY24 unit shipments forecast, lowering its projection for the year to 311,600-336,600, down from 328,900-359,100. Given the RVIA's history of consistently trimming its projections, it would not be surprising to see these numbers lowered further.
- However, the RVIA's updated projection still translates to yr/yr growth of just under 4%. Likewise, its early 2025 outlook represents a minor acceleration, estimating a roughly 7% improvement yr/yr. Given these figures, investors may have expected THO to, at the very least, project FY25 financial targets near the RVIA's predictions. Unfortunately, a slowdown in retail activity with an unknown recovery timetable led to THO's bearish FY25 guidance, predicting EPS of $4.00-5.00 versus $4.94 in FY24 and revs of $9.0-9.8 bln compared to FY24's $10.04 bln.
It is not entirely doom and gloom for THO. The company did topple Q4 earnings and sales estimates, delivering flat yr/yr earnings growth and a 7.4% drop in revs to $2.53 bln. Meanwhile, market conditions in Europe are more favorable than North America, evidenced by relative strength in retail registrations. Also, THO noted that the recent interest rate cut could spur demand during the 2025 spring selling season.
Cautious ordering patterns may remain the norm for THO and the broader RV industry for the near term, a bearish development ahead of rival Winnebago's (WGO) AugQ report. The industry is entering its lull period ahead of the colder months, so the next few quarters will likely look bleak. However, there could be a resurgence in demand next spring, especially if interest rates continue to come down aggressively. Today's market is looking ahead to the positives lower interest rates can bring, pushing shares mildly higher despite a soft Q4 report.
AAR Corp loses a bit of altitude despite upside AugQ results; benefitting from aging airplanes (AIR)
AAR Corp. (AIR -3.5%) is losing a bit of altitude today after reporting Q1 (Aug) earnings last night. This provider of aviation services for commercial and defense aircraft buys/sells airplane parts and provides airframe inspection, maintenance, and repair services.
- AIR reported its largest EPS beat since Q1 of last fiscal year. Revenue rose a healthy 20.4% yr/yr to $661.7 mln, which was well above analyst expectations and was driven by growth in each of its segments. Sales to commercial customers and to government customers both increased 20% yr/yr, primarily due to the acquisition of the Product Support business but there was organic growth as well. Sales to commercial customers were 71% of sales.
- Parts Supply is its largest and most profitable segment and where it sees very significant opportunity for organic growth. Segment sales rose 5.4% yr/yr to $249.7 mln. This segment contains two activities: new parts distribution and used serviceable material (USM). In new parts distribution, sales grew a robust 26% organically, driven by continued market share gains. AIR benefited from commercial demand strength and a recovery in government volumes.
- AIR also made the point that it's the largest independent distributor of OEM parts, and this independent status is a key advantage which eliminates conflicts of interest. This is a key driver behind its consistent market share gains. For USM activity within Parts Supply, AIR saw a decline in yr/yr sales driven entirely by the lack of whole assets, predominantly engine available in the market. The continued delay of new aircraft deliveries has resulted in lower retirements and thus fewer used parts.
- Turning to its Repair & Engineering segment, sales jumped 58% yr/yr to $217.6 mln. Excluding the Product Support acquisition, sales growth was 6% as AIR continues to see strong underlying demand for its MRO services. Even though its hangars are largely at capacity, AIR says it continues to grow inside of its existing footprint with both increased efficiency and improved throughput. Nevertheless, its hanger capacity expansions in Miami and Oklahoma City remain on track for operation beginning in 2HCY25.
- A key part of the AIR story is its expanding adjusted operating margins, which increased to 9.1% from 7.3% a year ago. This was the result of continued organic margin expansion as well as contribution from recent acquisitions. AIR has been expanding its adjusted operating margin each quarter over the past three years and expects continued margin expansion.
Overall, there was a lot to like in this report with nice upside to EPS and revenue as well as margin expansion. AIR is benefiting from structural tailwinds, elevated levels of air travel, and an aging fleet which drives demand for its aftermarket services. Also, its new parts segment is sporting impressive growth and demand for its MRO services sounds robust with additional capacity on the way. In terms of why shares are lower, it may be that most of the top line growth came from acquisitions. Also, its used parts business is struggling a bit because airlines are not retiring old planes, so there are not as many used parts to buy/sell. However, we are a bit surprised to see the stock lower as there seemed to be more good than bad.
Carpenter Tech trades to another new all-time high today even as airplane build rates stall (CRS)
With Boeing's (BA) safety and production issues making a lot of headlines and with BA shares trading at 52-week lows, it would make sense to wonder why an aerospace supplier like Carpenter Tech (CRS) would be seeing its stock surge to all-time highs. With it being a fairly slow news day, we wanted to take this opportunity to dig into the story as it's a company many people are not familiar with. And we wanted to profile it ahead of its Q1 (Sep) results next month.
- This supplier of premium specialty alloys (titanium, nickel, cobalt) recently closed out FY24 on a high note. In late July, CRS reported a hefty EPS beat for Q4 (Jun) and authorized a $400 mln share buyback plan. CRS's Aerospace & Defense segment, its largest segment by far, produced impressive results with revenue jumping 28% yr/yr and 19% sequentially to $376.3 mln.
- First, CRS noted that industry demand remains robust, as measured by passenger traffic, airline miles and airline operators' desire for new planes. The backlog for commercial airplane builds reported by Boeing and Airbus is now over 15,000 planes, or roughly nine years of demand. CRS also said that airline operators want the newest generation of airplanes to replace aging fleets, to realize the fuel efficiency and to meet the additional needed capacity.
- CRS concedes that there is some noise in the supply chain about build rates. However, the company counters that by explaining it has broad exposure to aerospace platforms. This includes narrow-body and widebody, Airbus and Boeing and MRO (maintenance, repair, overhaul) and OEM. For example, as new builds have lagged, MRO demand has remained elevated. As a result, customers may prioritize a different portfolio of products in the near-term.
- Looking ahead, CRS sees significantly higher demand on the horizon. The company is confident that there will be ongoing airplane build rate increases given the extraordinary current and increasing future demand. It has a large backlog of orders both in aerospace and other markets, like defense, energy and medical.
- Defense customers continue to request emergency orders to support elevated military activity levels due to ongoing world events. CRS will continue to prioritize these orders. In Medical, CRS saw another record quarter in JunQ with sales up 9% sequentially and 38% yr/yr. Medical customers continue to see strong market demand based on robust procedure backlogs. CRS is also seeing strong demand for power generation.
Overall, it sounds like CRS is not concerned about near term build rates. It is responding by shifting more focus to its MRO business, which makes sense because airlines are having to make due with current planes as they wait on new planes. Also, defense, medical and energy markets are performing well. On a final note, investors also need to keep in mind that even with modest build rate increases, CRS expects a hefty increase in operating income in FY 25 ($460-500 mln vs $354.1 mln in FY24).
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