| | | Market Snapshot
| Dow | 42352.75 | +341.16 | (0.81%) | | Nasdaq | 18137.85 | +219.37 | (1.22%) | | SP 500 | 5751.07 | +51.13 | (0.90%) | | 10-yr Note | -33/32 | 3.98 |
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| | NYSE | Adv 1731 | Dec 1015 | Vol 819 mln | | Nasdaq | Adv 2911 | Dec 1279 | Vol 5.1 bln |
Industry Watch
| Strong: Consumer Discretionary, Financials, Energy, Communication Services, Materials |
| | Weak: Real Estate, Utilities |
Moving the Market
-- Reacting to a much stronger-than-expected jobs report for September
-- Buying on weakness after losses this week
-- Feeling good about soft landing prospects for the economy
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Closing Summary
04-Oct-24 16:30 ET
Dow +341.16 at 42352.75, Nasdaq +219.37 at 18137.85, S&P +51.13 at 5751.07
[BRIEFING.COM] The stock market closed the week with solid gains, which led the Dow Jones Industrial Average to a fresh all-time high. Market participants were responding to this morning's release of the September Employment Situation Report.
The report showed stronger than expected hiring, a drop in unemployment, and a rise in average hourly earnings. This was consistent with the market's soft landing narrative, which led to a recalibration in rate cut expectations due to the notion that the Fed won't have to act as aggressive going forward compared to the September meeting.
The likelihood of a 50 basis points rate cut at the November FOMC meeting dropped to 0.0% from 32.1% yesterday and 53.3% a week ago, according to the CME FedWatch Tool.
Treasury yields shot higher in response to the data. The 10-yr yield settled 13 basis points higher at 3.98% and the 2-yr yield settled 22 basis points higher at 3.93%.
The jump in rates didn't deter buying in the stock market, which was also related to buy-the-dip interest after this week's losses. The three major indices settled slightly higher for the week thanks to today's move higher. The market-cap weighted S&P 500 rose 0.9% and the equal-weighted S&P 500 jumped 0.8%.
Gains in the semiconductor space and mega cap stocks provided some support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) jumped 1.1% and the PHLX Semiconductor Index (SOX) settled 1.6% higher.
Two S&P 500 sectors closed lower, clipped by rising market rates, and five sectors closed at least 1.0% higher. The financial (+1.6%) and consumer discretionary (+1.6%) sectors closed higher while the real estate (-0.7%) sector logged the biggest decline.
- Nasdaq Composite: +20.8% YTD
- S&P 500: +20.6% YTD
- Dow Jones Industrial Average: +12.4% YTD
- S&P Midcap 400: +12.1% YTD
- Russell 2000: +9.2% YTD
Reviewing today's economic data:
- September Nonfarm Payrolls 254K (Briefing.com consensus 135K); Prior was revised to 159K from 142K, September Nonfarm Private Payrolls 223K (Briefing.com consensus 125K); Prior was revised to 114K from 118K, September Avg. Hourly Earnings 0.4% (Briefing.com consensus 0.3%); Prior was revised to 0.5% from 0.4%, September Unemployment Rate 4.1% (Briefing.com consensus 4.2%); Prior 4.2%, September Average Workweek 34.2 (Briefing.com consensus 34.3); Prior 34.3
- The key takeaway from the report is that the labor market is in a solid position to keep the U.S. economy on a growth trajectory.
Sharp move in market rates doesn't deter equity market
04-Oct-24 15:35 ET
Dow +286.52 at 42298.11, Nasdaq +197.56 at 18116.04, S&P +43.59 at 5743.53
[BRIEFING.COM] The Dow Jones Industrial Average (+0.6%) and S&P 500 (+0.7%) trade near session highs in front of the close.
The equity market has maintained a positive bias through the entire session despite the sharp move higher in market rates. The 10-yr yield settled 13 basis points higher at 3.98% and the 2-yr yield settled 22 basis points higher at 3.93%.
The 10-yr yield was 23 basis points higher on the week and the 2-yr yield was 37 basis points higher for the week.
Mega caps extend gains, boosting broader market
04-Oct-24 15:05 ET
Dow +215.69 at 42227.28, Nasdaq +157.36 at 18075.84, S&P +32.59 at 5732.53
[BRIEFING.COM] The three major indices moved in a lateral flow over the last half hour.
Some mega cap names have extended gains through the session, providing some support to the broader market. NVIDIA (NVDA 124.47, +1.62, +1.3%), Microsoft (MSFT 417.94, +1.40, +0.3%), and Meta Platforms (META 592.61, +9.81, +1.7%) are standouts in that respect.
The Vanguard Mega Cap Growth ETF (MGK) shows a 0.7% gain.
Amentum, Albemarle higher in S&P 500 on Friday
04-Oct-24 14:30 ET
Dow +169.31 at 42180.90, Nasdaq +142.44 at 18060.92, S&P +27.60 at 5727.54
[BRIEFING.COM] The S&P 500 (+0.48%) is in second place on Friday afternoon, up about 27 points.
Elsewhere, S&P 500 constituents Amentum Holdings (AMTM 27.30, +1.90, +7.48%), Albemarle (ALB 99.93, +5.62, +5.96%), and Discover Financial (DFS 143.59, +7.22, +5.29%) dot the top of the standings. AMTM is making a move of its brief all-time lows, ALB is up amid reports that industry giant Rio Tinto (RIO) may be looking for acquisitions, and DFS leads financials higher to close out the week.
Meanwhile, Equifax (EFX 281.53, -11.97, -4.08%) is today's top laggard despite UBS starting coverage on the stock at Buy, tgt $360.
Gold slips up on Friday, erasing weekly gains
04-Oct-24 14:00 ET
Dow +136.24 at 42147.83, Nasdaq +123.87 at 18042.35, S&P +24.34 at 5724.28
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.69%) is atop the major averages.
Gold futures settled $10.40 lower (-0.4%) to $2,667.80/oz, ending down less than $1 this week.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $102.54.
DXC Technology possibly on the cusp of a broader turnaround while still at a decent valuation (DXC)
A new addition to our Value Leaders rankings this week, DXC Technology (DXC) is a relatively lesser-known IT services provider that was recently at the center of takeover discussions between Apollo (APO) and Kyndryl (KD), the company that IBM (IBM) spun off several years ago. DXC has encountered turbulence this year, sinking to around four-year lows in May following troubling FY25 (Mar) guidance, with EPS and revs falling considerably short of analyst expectations.
However, a new CEO, Raul Fernandez, was appointed in February to enact a major overhaul. Given his recent appointment, Q4 numbers were largely out of his hands. Since that dismal quarter, Mr. Fernandez's actions are already starting to bear fruit. Also, while takeover talks have cooled, they are not entirely off the table; APO and KD discussed acquisition at a high of $25.00 per share in June. Mr. Fernandez may opt to keep the company independent. However, he may also seek to extract more shareholder value by turning around operations before entertaining bids at a higher price.
- Beginning with the bad news, market uncertainty continues to produce cautious behavior from many of DXC's customers. This has restrained discretionary spending on short-term project work across the company's Global Business Services (GBS) and Global Infrastructure Services (GIS) segments. However, DXC forecasted this when initially outlining its FY25 outlook, helping to already ground investor expectations. In fact, conditions have unfolded better than DXC anticipated, fueling its slightly raised FY25 guidance in August.
- To squeeze as much out of the deflated demand environment as possible, Mr. Fernandez immediately revamped the company's go-to-market approach within its sales organizations. These moves included deploying dedicated client partners with expertise in certain industries, updating the compensation structure, and elevating incentives.
- Early success has branched from these efforts. DXC noted in August that its pipeline expanded nicely, driven by new deal inflows in its largest segment. The company added that within its pipeline, it noticed a greater mix of larger deals progressing to the later stages of the sales cycle. While these engagements will likely contribute less to near-term revenue, they fortify DXC's longer-term base.
- DXC's insurance software business remains a laggard, with revenue growth continuing to flatline. That is not to say this business is not lucrative; it generates over $1.0 bln in annual revs, boasting 21 of the top 25 global insurance carriers as customers. As such, this business seems more likely than a total takeover, at least in the short run. DXC commented in August that it is still exploring various strategic opportunities within its insurance business.
DXC is still operating in a dynamic market environment, which can produce elevated volatility over the near term. Future announcements surrounding M&A may also spur swings in the stock price. However, for buy-and-hold investors, DXC may be on the verge of a broader turnaround, especially after displaying encouraging signs last quarter. Meanwhile, the stock still trades at an attractive 7x forward earnings valuation. As always, a stop loss limit in the 15-20% is a good idea.
Exxon Mobil's Q3 earnings took a hit from sliding oil prices and weaker refining margins (XOM)
When Exxon Mobil (XOM) reports Q3 results in late October, its earnings will show that a sharp decline in oil prices and weaker refining margins weighed on its bottom-line as sluggish consumer spending trends and a mixed landscape in the industrial and construction markets slowed global energy markets. After the close yesterday, XOM disclosed certain factors that will impact its Q3 profits, including an estimated hit of $600 mln to $1.0 bln in its upstream business due to softer oil prices, and another $600 mln to $1.0 bln haircut resulting from significantly lower industry refining margins, which continue to normalize from the historically high levels seen a year ago.
- A change in timing effects and in scheduled maintenance, particularly in the refining business, will partly offset these headwinds. Furthermore, analysts are still expecting XOM's EPS to edge modestly higher on a yr/yr basis in Q3 as it continues to pump out record amounts of crude oil.
- Fueled by a 15% increase in net production for the upstream business, the company generated its second highest Q2 earnings of the past decade. After closing on its blockbuster acquisition of Pioneer Natural Resources on May 3, 2024, XOM achieved record quarterly production for its Permian Basin assets. This robust production activity drove a $1.5 bln increase in upstream earnings, excluding tax-related items, on a year-to-date basis as of June 30, 2024.
- While oil refining margins weakened in Q3, XOM is projecting a modest bump of approximately $100 in refining margins for both chemical products and specialty products. Lower feed and energy costs are providing a benefit here, mitigating a subdued demand environment.
Overall, XOM's Q3 update indicates that the company faced a more challenging business climate as crude oil prices fell by 17% during the quarter, but we believe that the market is largely looking past yesterday's disclosures. Instead, the focal point is currently resting on the conflict between Israel and Iran and the impact that its having on oil prices. Since September 26, crude oil has rallied by about 10% and prices could move much higher if Israel follows through on a threat to attack Iran's oil infrastructure.
Apogee Enterprises surges to new all-time high following EPS beat and positive outlook (APOG)
Apogee Enterprises (APOG +22%) is nicely higher after reporting Q2 (Aug) results last night. Apogee beat handily on EPS yet again and has now posted six consecutive double-digit EPS beats. Revenue declined as expected, but down only 3.2% yr/yr to $342.4 mln. Analysts were expecting an even larger drop. Apogee also raised FY25 EPS guidance pretty substantially to $4.90-5.20 from $4.65-5.00. It also reaffirmed FY25 revenue guidance at a -7% to -4% decline.
- Similar to Q1, the revenue decline in Q2 was partly due to a strategic shift away from less differentiated, lower margin product lines and a reflection of continued softness in some end markets, particularly non-residential construction. Despite the lower volume, Apogee still was able to increase adjusted operating margin to 12.6% from 11.5% a year ago. This was Apogee's second consecutive quarter with margins above 12%.
- Architectural Framing Systems, its largest segment, saw an 11% yr/yr sale decline to $141.4 mln, primarily reflecting reduced volume due to exiting certain lower-margin product lines and lower end-market demand. However, Framing sales did improve 6% sequentially despite the lower volume. Its Architectural Glass segment had a 4.2% revenue decline to $90.1 mln. APOG said its Glass team continues to exceed expectations due to strong pricing and mix, despite pressure on volume.
- Apogee posted a decline in its Large-Scale Optical unit primarily due to lower volume in its retail channel, partially offset by a more favorable mix. However, it made progress on its LSO capacity expansion project, which the company expects to come online during the second half of the fiscal year. Its best performing segment was Architectural Services, where sales jumped 16.1% to $98 mln, primarily due to a more favorable mix of projects and increased volume.
- Apogee remains excited about its pending acquisition of UW Solutions, which it announced last month. The cost was $240 mln, so it was a large acquisition for Apogee. The transaction is expected to close in Q3 (Nov). UW Solutions is a supplier of high-performance coated substrates serving attractive end markets, including building products for distribution centers and manufacturing facilities, as well as premium products for the graphic arts market. Apogee plans to integrate UW Solutions into its LSO segment. UW Solutions is expected to add $100+ mln of revenue at accretive adjusted EBITDA margins.
Overall, this was a solid upside quarter from APOG with strong guidance. It was also better than feared given the weakness in non-residential construction. What a company like Apogee really needs is for rates to decline and the Fed is moving in this direction. Lower rates will encourage customers to move forward with these capital-intensive construction projects. However, given the move in the stock, investors are clearly happy with Apogee's Q2 results and guidance.
Rivian Automotive slices its FY24 production goal following worsening supplier-related issues (RIVN)
Rivian Automotive (RIVN -5%) encounters a roadblock today, slashing its FY24 production guidance by as many as 10,000 units due to component shortages that have worsened in recent weeks. Investors were already put on alert over possible production setbacks last month after CEO Robert Scaringe commented that the company was running into some supplier-related hiccups. However, the EV maker, known for its electric truck and SUV, the R1T and R1S, respectively, did not alter its guidance, signaling a modicum of optimism that it could navigate the challenges.
Therefore, by reducing its FY24 production outlook to 47,000-49,000 vehicles from 57,000 vehicles previously, RIVN shocked shareholders today, prompting a sharp pullback. Shares are now down by nearly 50% from July highs.
- This is not the first time RIVN has hit some snags on the supplier side. The company paused its Amazon (AMZN) delivery truck production earlier this year due to part shortages. Also, throughout 2022 and early 2023, several suppliers were not ramping parts at similar rates as RIVN's production lines, creating intermittent disruptions.
- To put into perspective the complexities associated with ramping production in 2022, RIVN more than doubled its units produced just one year later to over 57,000. However, with its updated outlook for FY24, RIVN's production is set to contract yr/yr by as much as 17%.
- While supply lines have normalized since the pandemic, RIVN's problem centers on its second-generation R1 models. In relaunching its Gen 2 models, RIVN underwent a massive upgrade to its network architecture, changing out over half the suppliers and parts. Management added that no part has gone untouched, opening the door for significant supply disruptions.
- These supplier woes also threaten RIVN's goal of achieving positive gross margins by year's end. Last month, when supplier setbacks were not as acute, Mr. Scaringe conveyed firm confidence in reaching positive gross margins by Q4. However, he noted that the company must achieve a certain volume to absorb the plant's fixed costs.
The good news is that RIVN's current headwinds revolve around supply, a problem that often can be more easily fixed than demand. Mr. Scaringe did mention last month that the tone of EVs has grown more politicized, which has altered consumer sentiment. However, the company reiterated its FY24 delivery goal of low single-digit growth yr/yr today, or around 50,500-52,000 units, reflecting sustained demand. RIVN is also developing its R2 platform, eyeing the $40,000-50,000 vehicle market, a segment with few EV choices outside the Tesla (TSLA) Model Y, to broaden its TAM.
Speed bumps have become a regular occurrence for RIVN lately. Macroeconomic headwinds continue to shrink the size of its current price market of over $70,000 as inflation squeezes discretionary income and elevated interest rates hike the cost of financing. Supply disruptions only throw an additional wrench in RIVN's near-term plans. While the company may still be positioned to reach its longer-term goals, including 25% margins, current developments are failing to amp up investor sentiment.
BigCommerce slips after naming a new CEO following several periods of lackluster growth (BIGC)
Following slowing growth, a declining number of enterprise accounts, and lackluster profitability, BigCommerce (BIGC -1%) initiated a change at the top, removing former CEO Brent Bellm and appointing President Travis Hess as his successor. The move has not garnered much of a positive reaction today, reflecting the massive hill BIGC still needs to climb. Shares have tumbled by over 35% on the year and over 95% from 2020 highs.
With a new leader, BIGC is looking to reenergize itself. However, economic conditions and competitive pressures are acting as formidable headwinds. At the same time, BIGC's balance sheet is troubling, experiencing several periods of negative cash flows and widening net losses. With so much on his plate, investors are skeptical that the act of appointing a new CEO alone will be enough of a spark to jumpstart BIGC's array of issues.
- What does BIGC do? The company's primary business is offering its software-as-a-service, or SaaS, platform for businesses to set up online marketplaces, similar to its main rival, Shopify (SHOP). BIGC caters primarily to enterprises, with roughly two-thirds of its total revs branching from this cohort, but also has a third of its revs stemming from small and medium-sized businesses, or SMBs.
- What has been going so wrong for BIGC? Competition has been a thorn in BIGC's side. SHOP bolstered its brand recognition during the pandemic and came out the other side in a much better position than BIGC, illuminated by sustained periods of 20%+ revenue growth and steadily improving profitability. Compare this to BIGC, which has not delivered growth of 20%+ since 3Q22, posting a tepid +8.5% improvement on its top line in Q2. Meanwhile, BIGC's net income stagnated recently, delivering nearly flat yr/yr growth in Q2.
- SHOP's outperformance relative to BIGC indicates potentially constant market share loss for BIGC, putting it into a deeper hole for Mr. Hess to deal with.
- SHOP's success may be luring BIGC's current and potential enterprise customers to its platform. BIGC has endured sliding enterprise account numbers for three consecutive quarters, with the total stuck around 5,900. While average revenue per enterprise account has grown -- up 7% yr/yr in Q2 -- it has proven insufficient in igniting more attractive top-line growth.
While these sticking points are concerning and keeping shares of BIGC near all-time lows, Mr. Hess has the potential to remove some of the water from a sinking ship. The new CEO has comprehensive experience in IT consulting, previously holding leadership roles at Accenture (ACN). He has also served on partner advisory boards for SHOP and other software firms. As such, sweeping changes may be in store for BIGC in the near future. The company reports Q3 results sometime in the next few weeks.
Nevertheless, BIGC needs to prove itself before investors feel confident about piling in. Competition is intense, with plenty of options to pick from when setting up an e-commerce site. At the same time, macroeconomic conditions are unfavorable and can produce heightened volatility and uncertainty.
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