| | | Market Snapshot
| Dow | 43239.05 | +161.35 | (0.37%) | | Nasdaq | 18373.61 | +6.53 | (0.04%) | | SP 500 | 5841.47 | -1.00 | (-0.02%) | | 10-yr Note | -7/32 | 4.10 |
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| | NYSE | Adv 1246 | Dec 1484 | Vol 816 mln | | Nasdaq | Adv 1888 | Dec 2331 | Vol 5.8 bln |
Industry Watch
| Strong: Energy, Information Technology, Financials |
| | Weak: Real Estate, Utilities, Health Care, Communication Services, Consumer Staples |
Moving the Market
-- Strength in semiconductor-related names after Taiwan Semiconductor Manufacturing Company (TSM) reported pleasing Q3 results, along with better-than-expected Q4 guidance
-- Positive responses to earnings from the likes of Blackstone (BX), and Dow component Travelers (TRV)
-- Treasury yields moving higher after strong economic data adds to notion that the Fed won't be as aggressive with rate cuts
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Closing Summary
17-Oct-24 16:25 ET
Dow +161.35 at 43239.05, Nasdaq +6.53 at 18373.61, S&P -1.00 at 5841.47
[BRIEFING.COM] The S&P 500 (-0.02%) and Nasdaq Composite (+0.04%) settled near their prior closing levels, the Dow Jones Industrial Average closed 0.4% higher, and the Russell 2000 (-0.3%) declined slightly after leading index gains this week.
There was a negative bias under the index surface related to rising market rates and the notion that the Fed won't be as aggressive as previously thought after more solid economic data. Decliners led advancers by an 11-to-10 margin at the NYSE and by a 3-to-2 margin at the Nasdaq.
This morning's data included September retail sales, which were stronger than expected, and initial jobless claims, which were not as bad as feared. The 10-yr yield, at 4.03% shortly before the data, settled eight basis points higher than yesterday at 4.08%. The 2-yr yield, at 3.95% before 8:30 ET, settled at 3.98% after reaching 4.00%.
Downside moves in the equity market were somewhat limited due in part to strength in semiconductor stocks. The PHLX Semiconductor Index (SOX) settled 1.0% higher after Taiwan Semiconductor Manufacturing Company (TSM 205.84, +18.36, +9.8%) reported pleasing Q3 results, along with better-than-expected Q4 guidance.
Positive responses to earnings results from the likes of Blackstone (BX 169.73, +10.02, +6.3%) and Dow component Travelers (TRV 264.82, +21.87, +9.0%) also provided a measure of support to the equity market.
Five S&P 500 sectors closed higher led by energy (+0.4%), information technology (+0.4%), and financials (+0.3%). The rate-sensitive utilities (-0.9%) and real estate (-0.7%) sectors closed near the bottom of the pack.
- S&P 500: +22.5% YTD
- Nasdaq Composite: +22.4% YTD
- S&P Midcap 400: +15.0% YTD
- Dow Jones Industrial Average: +14.7% YTD
- Russell 2000: +12.5% YTD
Reviewing today's economic data:
- Weekly Initial Claims 241K (Briefing.com consensus 270K); Prior was revised to 260K from 258K, Weekly Continuing Claims 1.867 mln; Prior was revised to 1.858 mln from 1.861 mln
- The key takeaway from the report is that it is muddled by the effects of the hurricanes, yet it is being greeted with a sense of pleasant surprise that initial jobless claims were much better than feared.
- September Retail Sales 0.4% (Briefing.com consensus 0.2%); Prior 0.1%, September Retail Sales ex-auto 0.5% (Briefing.com consensus 0.1%); Prior was revised to 0.2% from 0.1%
- The key takeaway from the report is that consumer spending on goods accelerated in September with notable increases seen in many discretionary categories like miscellaneous store retailers (+4.0%), clothing and clothing accessories (+1.5%), and food services and drinking places (+1.0%). This is a "no landing" type of report.
- October Philadelphia Fed Index 10.3 (Briefing.com consensus 4.0); Prior 1.7
- September Industrial Production -0.3% (Briefing.com consensus -0.1%); Prior was revised to 0.3% from 0.8%, September Capacity Utilization 77.5% (Briefing.com consensus 77.9%); Prior was revised to 77.8% from 78.0%
- The key takeaway from the report is that industrial production in September was pressured by two extraordinary factors, which implies a rebound in growth should follow as those extraordinary factors find correction. The Boeing strike held back growth by an estimated 0.3% and the effects of Hurricanes Helene and Milton subtracted an estimated 0.3%.
- August Business Inventories 0.3% (Briefing.com consensus 0.3%); Prior was revised to 0.3% from 0.4%
- October NAHB Natural Gas Inventories 43 (Briefing.com consensus 43); Prior 41
Friday's economic calendar includes the September Housing Starts and Building Permits report at 8:30 ET.
META, GOOG, other mega caps move lower
17-Oct-24 15:40 ET
Dow +161.79 at 43239.49, Nasdaq +13.56 at 18380.64, S&P -0.21 at 5842.26
[BRIEFING.COM] The S&P 500 (flat) trades near its worst level of the session heading into the close. The equal-weighted S&P 500 trades 0.2% lower.
Downside moves coincided with some mega caps pulling back. Meta Platforms (META 576.68, -0.11, -0.1%) and Alphabet (GOOG 164.59, -2.15, -1.3%) are standouts in that respect.
Friday's economic calendar includes the September Housing Starts and Building Permits report at 8:30 ET.
NFLX reporting after the close; PG, SLB reporting Friday morning
17-Oct-24 15:05 ET
Dow +161.41 at 43239.11, Nasdaq +45.59 at 18412.67, S&P +5.72 at 5848.19
[BRIEFING.COM] The stock market moved sideways at the index level in recent trading.
Netflix (NFLX) headlines the earnings news this afternoon. Procter & Gamble (PG) and SLB (SLB) are among the names reporting earnings ahead of Friday's open.
Separately, the 10-yr yield sits at 4.09%.
Snap-On, Steel Dynamics perform well in S&P 500 after earnings
17-Oct-24 14:30 ET
Dow +152.46 at 43230.16, Nasdaq +38.19 at 18405.27, S&P +5.82 at 5848.29
[BRIEFING.COM] A coordinated selling effort took the major average modestly lower in the last half hour, the S&P 500 (+0.1%) now hovering just above flat lines and near afternoon lows.
Elsewhere, S&P 500 constituents Snap-On (SNA 324.68, +26.60, +8.92%), Steel Dynamics (STLD 136.48, +6.62, +5.10%), and Chubb (CB 300.72, +7.62, +2.60%) pepper the top of the average. SNA and STLD are higher after earnings, while CB benefits from broader strength in insurance stocks following Travelers' (TRV 263.14, +20.19, +8.31%) Q3 beat.
Meanwhile, California-based managed care firm Molina Healthcare (MOH 290.62, -40.38, -12.20%) is one of the worst performers today in sympathy to Elevance Health (ELV 432.67, -64.29, -12.94%) results.
Gold higher on Thursday
17-Oct-24 14:00 ET
Dow +201.02 at 43278.72, Nasdaq +104.23 at 18471.31, S&P +20.25 at 5862.72
[BRIEFING.COM] With about two hours to go on Thursday the Nasdaq Composite (+0.57%) is today's top-performing average.
Gold futures settled $16.20 higher (+0.6%) to $2,707.50/oz, amid U.S. election uncertainty and the ongoing conflict in the Middle East, eclipsing 30% gain this year.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $103.82.
Discover Financial Services finding some buyers as high interest rates help fuel EPS beat (DFS)
High interest rates may have cut into net interest income (NII) across the banking industry in Q3 as higher funding costs created a headwind again, but the opposite rang true for Discover Financial Services (DFS). After the close last night, the credit card company reported upside Q3 results, comfortably exceeding EPS estimates, fueled by a 10% increase in NII to $333.0 mln. Thanks to those high interest rates, DFS's net interest margin was up 43 bps yr/yr to 11.38%.
- As some may recall, Capital One (COF) announced back in February that it intends to acquire DFS in an all-stock transaction that was valued at just over $35.0 bln at the time. However, as expected, this deal is receiving plenty of scrutiny from both regulators and consumers, so we view the closing of this merger as questionable, at best. There are certainly compelling aspects to that proposed merger, including COF gaining hold of its own in-house credit card issuing business, but DFS is also operating quite well on a standalone basis at the moment.
- On a yr/yr basis, EPS jumped by 42% to $3.69, bolstered by the aforementioned NII increase, a 4% yr/yr increase in total loans to $127.0 bln, and a decrease of $229 mln in provision for credit losses to $1.5 bln. On the last point, credit card net charge-offs improved a bit from last quarter, dipping by 27 bps to 5.28%, while 30-day delinquencies remained in line with seasonal trends at 3.84%.
- The company is also making good progress on its effort to divest its student loan portfolio, disclosing that it has completed the first of four student loan sale closings. To quickly rewind, DFS announced on July 17 that it planned to sell its private student loan portfolio to funds owned by Carlyle Group (CG) and KKR (KKR), estimating that the deal would generate up to $10.8 bln in proceeds. In addition to the influx of capital, the divestiture would enable DFS to simplify its operations, enabling it to better focus on its core credit card and personal loan businesses.
DFS's solid results set the stage for fellow credit card companies American Express (AXP), Mastercard (MA), and Visa (V) to deliver solid results when they report earnings later this month. AXP is the next one up with its earnings report set to be released tomorrow morning, followed by Visa on October 29 and MA on October 31.
Taiwan Semi seeing extremely robust AI-related demand, Q3 report fueling chip space today (TSM)
Taiwan Semi (TSM +13%) is looking quite chipper today. The world's largest contract chipmaker is up sharply following a robust Q3 report this morning, which is fueling a rise in other semiconductor (AVGO +3%, ARM +2.6%, MU +2.3%, NVDA +2.3%, ADI +1.6%) and semi equipment (AMAT +1.5%, LRCX +1.1%) names today. This marked TSM's first double-digit EPS beat in the past year. Revenue in Q3 rose 36% yr/yr and 12.9% sequentially to US$23.5 bln, which was above the high end of prior guidance of US$22.4-23.2 bln.
- What was even more impressive was the strong upside guidance for Q4. TSM expects Q4 revenue of $26.1-26.9 bln, which was well above analyst expectations. Margins were another bright spot with operating margin of 47.5%, which was well above prior guidance of 42.5-44.5%. TSM also guided to robust Q4 operating margin of 46.5-48.5%.
- Its Q3 results were supported by strong smartphone and AI-related demand. Moving into Q4, TSM expects its business to continue to be supported by strong demand for its leading edge process technologies. TSM continues to see extremely robust AI-related demand from customers throughout 2H24. It now forecasts the revenue contribution from server AI processors to more than triple this year and account for a mid-teen percentage of total revenue in 2024.
- By product, 3-nanometer process technology contributed 20% of wafer revenue in Q3, while 5nm and 7nm accounted for 32% and 17%, respectively. Advanced technologies, defined as 7-nm and below, accounted for 69% of wafer revenue. By platform, HPC increased 11% sequentially to account for 51% of Q3 revs. Smartphone increased 16% to account for 34%. IoT increased 35% to account for 7%. Automotive increased 6% to account for 5%. DCE decreased 19% to account for 1%.
- Turning to its global manufacturing footprint, TSM is expanding into new geographies. In Arizona, TSM has received strong commitments from US customers and US federal, state and city governments. TSM has made significant progress in the past several months. TSM's plan is to build three fabs in Arizona with the first fab expected to reach volume production in the beginning of 2025. The second fab is scheduled for chip production in 2028. With 68% of 2023 revs coming from North America, building fabs in Arizona makes sense. TSM is also expanding in Japan.
Overall, this was an impressive Q3 report for Taiwan Semi with its upside results and strong margins. But what really stood out was the Q4 guidance for revenue and margins. Any fear that AI-related demand might be waning or overdone was put to bed with this guidance and commentary. Also, Taiwan Semi is a behemoth, so if it is seeing robust AI demand, you can be sure others are as well. And that is particularly true for its customers, which include AMD, Amazon's AWS, AVGO, INTC, NVDA, NXPI, QCOM and Sony.
On a final note, names like NVDA get a lot of press attention, but we would argue TSM deserves to be mentioned in the same breath. Its stock has been a huge mover as well and it also is seeing huge AI-related demand and it sports some massive operating margins.
CSX goes a bit off the rails today after posting disappointing Q3 earnings report (CSX)
In the wake of J.B. Hunt's (JBHT) better-than-expected Q3 earnings report on Tuesday night, which featured a return to positive volume growth for its intermodal business, hopes were high that railroad operator CSX's (CSX) Q3 results followed the same track. That wasn't the case, however, as CSX fell short of EPS estimates and lowered its Q4 expectations for volume and revenue growth. Specifically, CSX guided for revenue to be down moderately on modest volume growth. Previously, the company was anticipating mid-single-digit growth for both revenue and volume in 2H24.
- Unfortunately, the modest momentum that the company saw in its intermodal business faded a bit as revenue dipped by 2% to $509 mln (14% of total Q3 revenue) and volume grew by just 3% in Q3 compared to last quarter's 5% growth. The outlook for Q4 doesn't look much better, either, with CSX forecasting slower yr/yr growth for intermodal volumes, reflecting seasonality and a weak domestic trucking market that's grappling with soft pricing.
- A struggling intermodal business isn't the only headwind that CSX is contending with. Due to low natural gas prices and a sluggish steel industry, demand for coal has weakened, weighing on volumes. Following last quarter's 3% drop in coal volume (-12% for revenue), CSX saw coal volumed decline by 2% this quarter (-7% for revenue), driven by a challenged domestic coal market.
- On a more positive note, new business wins and stability in some key markets, such as chemicals, ag/food products, auto, and forest products, pushed merchandise volume higher by 3%. The result is especially encouraging given that the recent hurricanes had a negative impact.
- Furthermore, despite the tough business conditions, EPS still grew by 12% yr/yr to $0.46, while operating margin expanded by 180 bps yr/yr to 37.4%. Lower fuel and PS&O (Purchased Services & Other) expenses helped drive the improved profitability.
Overall, CSX's results and outlook were decent considering the macroeconomic environment, but growth remains lackluster, and its performance doesn't elicit much excitement for peers Union Pacific (UNP), Canadian Pacific Kansas City (CP), and Norfolk Southern (NSC) when they report earnings on October 24, October 23, and October 22, respectively.
Elevance Health's Q3 earnings and FY24 guidance hurt badly by worsening Medicaid cost trends (ELV)
Health insurer Elevance Health (ELV -13%) wilts to 52-week lows today after posting a rare earnings miss in Q3 and slicing its FY24 EPS outlook. The Medicaid business is to blame; management described the current challenges in its Medicaid business as unprecedented. The company's benefit expense ratio, or BER, which measures the percentage of premiums used to cover costs, rose dramatically in Q3, swelling 270 bps yr/yr to 89.5%, due largely to a timing mismatch between Medicaid rates and the higher acuity, or severity and priority of members' medical conditions.
ELV is not alone in battling with bubbling medical costs and the adverse impacts of state-driven Medicaid member redeterminations -- the process by which states determine who remains eligible for Medicaid. Earlier this week, UnitedHealth Group (UNH) discussed the ongoing timing mismatch that weighed on ELV, noting that states tend to use old care activity data that, when eligibility is shifting considerably, the number and average acuity of people covered changes significantly. UNH anticipated this headwind to be transitory, adding that the volume impact is probably now behind it. ELV's tone was not as optimistic, but management conveyed similar remarks, noting that it is confident rates will eventually reflect the acuity of its members as enrollment continues to stabilize.
However, given the magnitude of ELV's guidance cut today, alongside unyielding cost headwinds from Q3, investors are not sharing ELV's confidence.
- The jump in ELV's BER in Q3 shows up immediately with its sizeable earnings miss, delivering a 7% contraction yr/yr to $8.37 when analysts forecasted growth. Part of the rising costs are a byproduct of the mix shifts associated with the end of the pandemic. States have been disenrolling members no longer eligible since last year. As a result, the total number of members continued to fall yr/yr, down 3.3% in Q3.
- Still, the largest component of increasing costs stems from Medicaid cost trends developing worse than expected. ELV remarked that even though Medicaid rate increases are set to reach record levels this year, they are inadequate to cover cost trends ranging from three to five times greater than historical averages. ELV is working with its state partners to ensure they capture the acuity of the company's Medicaid membership in future rates.
- Unfortunately, over the near term, headwinds will persist. As a result, ELV slashed its FY24 adjusted EPS outlook to approximately $33.00 compared to its prior outlook of at least $37.20. Management projects its BER will be 100 bps higher than it previously targeted, bringing it to around 88.5% for the year.
There is some good news. ELV's revenue growth flipped positive in Q3, growing by 5.3% yr/yr and topping estimates. ELV also anticipates sustained momentum in its commercial business, buoyed by expanding exchange offerings to three new states. ELV also boasts an expansive economic moat, commanding an exclusive license of the Blue Cross Blue Shield brand across over a dozen states. Nevertheless, near-term cost pressures have no clear ending in sight, eroding investor confidence.
Abbott Labs maintains its positive trend following solid Q3 results today (ABT)
Abbott Labs (ABT +1%) trades modestly higher today after squeaking out another bottom-line beat in Q3 on revenue growth consistent with analyst estimates. There were some mixed feelings heading into ABT's Q3 report following a notable weakness from peer Johnson & Johnson's (JNJ) Q3 performance yesterday. JNJ endured softness in Asia-Pacific, primarily China, where ABT derives around a fifth of annual revs. However, ABT commented that it felt good about China as it remains an attractive market. At the same time, ABT's Q3 results were sound, providing investors the confidence to keep shares trending positively.
- Sales increased 4.9% yr/yr in Q3 and 7.6% on an organic basis (removing FX impacts) to $10.63 bln. When backing out COVID testing sales, ABT's top line was even more robust, expanding by 8.2%. Segment performance was split on a reported basis. Nutrition and Diagnostics delivered sales declines of 0.3% and 1.5%, respectively. Conversely, Established Pharmaceuticals and Medical Devices boasted a 2.7% and 11.7% improvement, respectively. However, when removing FX impacts and COVID-19 testing sales, growth was positive across the board.
- In Nutrition, the U.S. exhibited relative strength, pushing sales 11.9% higher yr/yr on an adjusted organic basis, including a 12% lift in Pediatric Nutrition supported by market share gains in the infant formula business. Similarly, in Adult Nutrition, ABT enjoyed an 11.5% bump in sales, capitalizing on the growing demand for products offering high protein and low sugar, such as those under the Ensure and Glucerna banners.
- Diagnostics was the main laggard in the quarter due to its heavy exposure to COVID-19 testing kits. However, excluding this impact, the segment performed decently, registering a 3.3% revenue increase. ABT saw decent gains in Core Laboratory Diagnostics, boasting significant account wins that the company expects will sustain growth into 2025.
- Established Pharmaceuticals, or EPE, and Medical Devices were the stars of Q3. EPE's revenue stems entirely from international markets, a central factor to the 4.3 pt hit revenue took due to currency fluctuations. Several countries across Latin America, Southeast Asia, and the Middle East, delivered double-digit growth. In Medical Devices, sales were bolstered by growth across many products within the Diabetes Care and Heart Failure categories. A notable standout was in Diabetes Care, where sales of continuous glucose monitors ballooned by 19.1%.
- As typically is the case with ABT, the company maintained a conservative outlook, leaving its FY24 organic growth outlook of +9.5-10% unchanged. Furthermore, ABT projected Q4 adjusted EPS of $1.31-1.37, in-line with consensus.
Investors like what they saw from ABT in Q3, igniting a similar reaction to what we saw with JNJ yesterday following its Q3 numbers. The market was well aware of ABT's history guiding conservatively, so even though it did not raise its outlook despite the modest upside in the quarter, this is not kindling any negative feelings.
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