Market Snapshot
| Dow | 43275.91 | +36.86 | (0.09%) | | Nasdaq | 18489.55 | +115.94 | (0.63%) | | SP 500 | 5864.67 | +23.20 | (0.40%) | | 10-yr Note | +1/32 | 4.07 |
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| | NYSE | Adv 1475 | Dec 1234 | Vol 877 mln | | Nasdaq | Adv 2473 | Dec 1756 | Vol 5.1 bln |
Industry Watch
| Strong: Communication Services, Information Technology, Consumer Discretionary, Materials |
| | Weak: Energy |
Moving the Market
-- Gains in mega cap stocks
-- Big gain in Netflix (NFLX) after better-than-expected earnings and guidance
-- Earnings-related losses in Dow components American Express (AXP) and Procter & Gamble (PG)
-- Drop in market rates after this morning's data
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Closing Summary
18-Oct-24 16:15 ET
Dow +36.86 at 43275.91, Nasdaq +115.94 at 18489.55, S&P +23.20 at 5864.67
[BRIEFING.COM] The S&P 500 (+0.4%) and Dow Jones Industrial Average (+0.1%) set fresh record highs on this winning week. The Nasdaq Composite (+0.6%) jumped more than 100 points while the Russell 2000 slid 0.2% after outperforming through the week.
A big gain in Netflix (NFLX 763.89, +76.24, +11.1%) following better-than-expected earnings results and guidance provided some support to the broader market. This price action also boosted the S&P 500 communication services sector (+0.9%), which logged the largest gain today.
The next best performing sector was real estate (+0.7%), followed by utilities (+0.6%) and information technology (+0.5%). The financial sector settled flat, weighed down by an earnings-related loss in Dow component American Express (AXP 276.79, -8.99, -3.2%). Shares declined despite better-than-expected Q3 EPS results and above-consensus guidance.
The only sector to register a decline was energy (-0.4%), which underperformed through the week as oil prices dropped below $70.00/bbl. WTI crude oil futures settled Friday at $68.62/bbl.
The upside bias in equities is also related to a drop in market rates following this morning's data. The Housing Starts (1.354 mln; Briefing.com consensus 1.350 mln) and Building Permits (1.428 mln; Briefing.com consensus 1.455 mln) report for September showed above-consensus starts coupled with some softness in permits.
The 10-yr yield settled two basis points lower today and unchanged for the week at 4.07%. The 2-yr yield settled four basis points lower today and one basis point higher this week at 3.95%.
- Nasdaq Composite: +23.2% YTD
- S&P 500: +23.0% YTD
- S&P Midcap 400: +15.0% YTD
- Dow Jones Industrial Average: +14.8% YTD
- Russell 2000: +12.3% YTD
Reviewing today's economic data:
- September Housing Starts 1.354 mln (Briefing.com consensus 1.350 mln); Prior was revised to 1.361 mln from 1.356 mln, September Building Permits 1.428 mln (Briefing.com consensus 1.455 mln); Prior was revised to 1.470 mln from 1.475 mln
- The key takeaway from the report is that the change single-unit starts and permits varied across regions after showing across-the-board growth in August.
Monday's economic data features September Leading Indicators (Briefing.com consensus -0.3%; prior -0.2%) at 10:00 ET.
Treasuries settle little changed
18-Oct-24 15:25 ET
Dow +12.24 at 43251.29, Nasdaq +119.59 at 18493.20, S&P +21.40 at 5862.87
[BRIEFING.COM] Things are little changed at the index level in recent trading.
The 10-yr yield settled two basis points lower today and unchanged for the week at 4.07%. The 2-yr yield settled four basis points lower today and one basis point higher this week at 3.95%.
Looking ahead to next week, earnings season ramps up. Tesla (TSLA) and Dow component Boeing (BA) are both on the earnings calendar on Wednesday.
Monday's economic data features September Leading Indicators (Briefing.com consensus -0.3%; prior -0.2%) at 10:00 ET.
Mega caps continue to lead
18-Oct-24 15:00 ET
Dow +48.52 at 43287.57, Nasdaq +131.23 at 18504.84, S&P +25.20 at 5866.67
[BRIEFING.COM] The stock market remains near session highs. The major indices show gains ranging from 0.1% to 0.7%.
Apple (AAPL 235.52, +3.37, +1.5%), Microsoft (MSFT 417.80, +1.08, +0.3%), NVIDIA (NVDA 138.04, +1.12, +0.8%), and Amazon.com (AMZN 190.27, +2.73, +1.5%), which are the weightiest stocks in the S&P 500, trade up nicely on the final session of the week.
The Vanguard Mega Cap Growth ETF (MGK) shows a 0.8% gain.
Lamb Weston, Dexcom higher in S&P 500 on Friday
18-Oct-24 14:30 ET
Dow +75.85 at 43314.90, Nasdaq +134.95 at 18508.56, S&P +28.94 at 5870.41
[BRIEFING.COM] The S&P 500 (+0.50%) is in second place on Friday afternoon.
Elsewhere, S&P 500 constituents Lamb Weston (LW 78.77, +7.77, +10.94%), Dexcom (DXCM 72.17, +2.62, +3.77%), and Blackstone (BX 174.68, +4.95, +2.92%) pepper the top of the standings. LW gains after activist Jana Partners confirmed an active stake, DXCM gains ahead of next week's earnings, and BX caught several sell side analyst target raises following yesterday's earnings report.
Meanwhile, Missouri-based agribusiness firm Bunge (BG 89.96, -5.64, -5.90%) is today's top laggard, lower on cautious analyst comments.
Gold ends higher this week
18-Oct-24 14:00 ET
Dow +26.07 at 43265.12, Nasdaq +126.14 at 18499.75, S&P +23.13 at 5864.60
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+0.69%) is atop the standings.
Gold futures settled $22.50 higher (+0.8%) to $2,730.00/oz, up then a clean +2% on the week, ending ahead of the $2,700 level as the ongoing conflict in the Middle East as well as U.S. election jitters drive safe-haven demand.
Meanwhile, the U.S. Dollar Index is down about -0.3% today to $103.52.
Intuitive Surgical soars to record highs as healthy procedure growth drives Q3 beat-and-raise (ISRG)
Robotic surgery equipment maker Intuitive Surgical (ISRG) is soaring to all-time highs after delivering an impressive beat-and-raise Q3 earnings report, fueled by a combination of strong procedure growth and robust demand for its systems -- notably including its new da Vinci 5 system. The da Vinci 5 system, which was launched in 1Q24 and features several key upgrades, such as Force Feedback technology, is viewed as a major growth catalyst for FY25.
- After some significant supply chain issues prevented ISRG from fully rolling out da Vinci 5 earlier this year, those bottlenecks appear to be dissipating. In Q3, ISRG placed 110 da Vinci 5 robots, up from 70 placements last quarter. During the earnings call, the company reiterated that it expects to be fully ramping the system by mid-2025.
- Overall, ISRG placed 379 surgical systems during the quarter, up from 312 last quarter. System placements are viewed as a key metric because they lead to more procedures, which, in turn, generates more revenue from instruments and accessories.
- On that note, worldwide da Vinci procedures grew by approximately 18% yr/yr, remaining steady relative to Q2 and Q1, when procedures increased by 18% and 19% respectively. Meanwhile, instruments and accessories revenue jumped by 18% to $1.26 bln, bolstered by a 73% rise in Ion procedure volume. The Ion system is used to perform lung biopsies.
- The one main soft spot for ISRG continues to be bariatric producers, which declined by mid-single-digits in the U.S. As has been the case over the past several quarters, the soaring popularity of new GLP-1 weight loss drugs has created a headwind for these procedures. However, strength in other procedure categories, such as general surgery, gynecology, and thoracic, are offsetting this weakness.
- Looking ahead, ISRG remains bullish about its prospects, nudging the low end of its FY24 procedure growth outlook higher to +16.0-17.0% from its prior guidance of +15.5-17.0%. The high end of this range assumes that bariatric stabilizes at current growth rates, while headwinds in China and Korea don't worsen.
The main takeaway is that ISRG is still contending with some challenges, particularly in China and Europe where capital issues linger, but momentum is on its side as the da Vinci 5 rollout gains steam.
Crown pops to fresh one-year highs following a solid beat-and-raise in Q3 (CCK)
One of the world's largest aluminum beverage can makers, Crown (CCK +4%), is trading at fresh one-year highs today after delivering a solid beat-and-raise in Q3, buoyed by robust beverage demand across the U.S. CCK supplies cans to several prominent global enterprises, from Coca-Cola (KO) and PepsiCo (PEP) to Anheuser-Busch InBev (BUD) and Molson Coors (TAP). As such, the company's quarterly results provide keen insight into how these companies may perform ahead of their quarterly reports.
- CCK enjoyed global beverage shipment growth of 5% yr/yr in Q3, aided by growth across key markets. Brazil, Europe, Mexico, and the U.S. recorded at least a +5% increase. Strength in beverage can volumes offset lower volumes across most of CCK's other businesses (CCK supplies packaging for transit, food, and aerosol markets). As a result, revenue growth reversed its extended streak of yr/yr declines, inching 0.2% higher to $3.07 bln.
- Segment income on a combined basis expanded by 10% yr/yr, assisting CCK's second straight double-digit earnings beat. The company grew its bottom line by 15% yr/yr to $1.99 per share. Management attributed the gains to excellent manufacturing performance, which included higher efficiencies and lower spoilage. Furthermore, the company's Asian team executed the capacity reduction program announced last year, leading to a full realization of benefits sooner than expected.
- A notable laggard from Q3 came from the Asia Pacific region, where CCK endured an 11% decline in unit volume sales. Demand weakness was seen throughout the region, particularly in Transit Packaging. CCK noted that conditions will likely stay in contraction through at least the end of the year, which kept its FY24 outlook relatively cautious.
- CCK did raise its FY24 adjusted EPS guidance to $6.25-6.35 from $6.00-6.25. However, only one quarter remains in the year, and the increase was essentially due to the upside delivered in Q3. For Q4, CCK projected earnings to be in line with expectations.
Ahead of CCK's Q3 report, concerns mounted after PEP delivered relatively flat Q3 numbers, with North American beverage volumes compressing by 3% yr/yr. However, CCK's diversified customer base helped counter this weak point. A similar story occurred last quarter. PEP's North American beverage volumes slipped by 3%, only for CCK and PEP's competitors, including KO and Keurig Dr Pepper (KDP), to report decent beverage volume growth shortly after. Following CCK's Q3 numbers, this scenario may be unfolding once again.
Bottom line, with CCK's stronghold in the aluminum beverage can industry globally, touting a well-diverse portfolio of customers, the company remains positioned for further upside.
American Express gets swiped as modest drop in spending growth sparks sell-the-news reaction (AXP)
With shares of American Express (AXP) trading at all-time highs, and up 53% on a year-to-date basis, the credit card company had a very high bar to hurdle when it issued its 3Q24 earnings report earlier this morning. Discover Financial Services' (DFS) upside Q3 earnings report from Wednesday, which featured net interest income growth of 10%, only served to raise the expectations further. As anticipated, AXP did deliver solid results, comfortably topping EPS expectations as its affluent customer base continued to spend at a healthy clip. However, billings and revenue growth did slow, and AXP's updated FY24 revenue guidance of "around 9%" is a downgrade from its prior outlook of 9-11%.
These factors, along with CFO Christope LeCaillec's admission that its cardholders have become a little more cautious with their spending were enough to spark a sell-the-news reaction. Overall, though, there was still plenty to like with AXP's results.
- Driven by effective cost management and a 6% increase in billed business to $387.3 bln, EPS increased by about 6% yr/yr to $3.49. Better yet, AXP raised its FY24 EPS guidance to $13.75-$14.05 from its prior outlook of $13.30-$13.80, while also noting during the earnings call that mid-teens EPS growth in 2025 can be expected. If fact, Mr. LeCaillec stated that it can achieve mid-teens EPS growth range even if the company doesn't reach 10% or 11% revenue growth.
- In addition to providing more resilient spending trends, another advantage of AXP's affluent customer base is that its credit quality is quite strong. On that note, the net write-off rate in Q3 dipped to just 2.2% from 2.4% last quarter. Further, with a lower net reserve build yr/yr, the provisions for credit losses remained manageable at $1.4 bln compared to $1.2 bln in the year-earlier period.
- Billed business growth did slow to 6% compared to 8% a year ago, with the slowdown completely driven by a pullback in the Travel & Entertainment (T&E) and Airline categories. Specifically, spending growth in both T&E and Airline slowed to 6% versus 13% a year ago.
Overall, business remains healthy for AXP, and the company remains a best-in-class name in the credit card industry thanks to its solid execution and coveted affluent customer base. We mainly view today's selloff as a profit-taking pullback as the company remains poised to deliver mid-teens EPS growth next year.
Netflix streams to a new all-time high on beat-and-raise; ads tier is gaining scale (NFLX)
Netflix (NFLX +11%) is nicely higher following its Q3 report last night. NFLX reported another nice double-digit EPS beat with revenue upside. The Q4 guidance was impressive with pretty significant upside EPS guidance. Netflix also guided to Q4 revs that was above analyst expectations. Importantly, Netflix expects to achieve a key milestone in Q4 with its first ever $10 bln revenue quarter. NFLX also guided to FY25 revs of $43-44 bln with 28% operating margin.
- Let's dig into it. Global streaming paid net adds in Q3 were a healthy +5.07 mln, which was above street estimates. NFLX had cautioned that Q3 would be lapping the first full quarter with paid sharing last year. That tempered estimates for growth this time around. However, NFLX expects paid net adds to be higher in Q4 than in Q3 due to normal seasonality and a strong content slate. Netflix no longer officially guides for net adds and in 1Q25 it will stop reporting the metric altogether.
- Advertising was a bright spot in Q3 with ads membership up 35% quarter on quarter. Also, ads plan accounted for over 50% of sign-ups in its 12 ads countries (has not been rolled out everywhere yet). Netflix views this metric as a leading indicator about growth in the future for its ads tier. Netflix expects to be at critical scale in each of its 12 ads countries in 2025. Also, its ad tech platform is on track to launch in Canada in Q4 and more broadly in 2025.
- The primary goal is to grow its ad-tier memberships so that Netflix can get to a sufficient scale to be relevant in each market for advertisers. A big way to drive advertising is live programming and Netflix is expanding there. It has the Tyson-Paul fight in December, it's broadcasting two NFL games on Xmas. It also has 52 weeks of WWE coming in January.
- On pricing, Netflix recently increased prices in a few countries in EMEA plus Japan and starting today it will increase prices in Spain and Italy. NFLX phased out the Basic plan in the US and France this past quarter and will do the same in Brazil in Q4. Its ads plan offers a lower price point for consumers, which is proving to be popular. Netflix is also pleased with engagement on its ads plan with view hours per membership similar to its standard plan.
- Another metric that stands out is operating margin, which we think will become a more important measuring stick as NFLX phases out reporting its net add metric in 1Q25. In Q3, it came in at 29.6% vs 28.1% prior guidance. It also raised its FY24 forecast to 27% from 26% and guided for Q4 at 21.6%. NFLX also guided to 2025 operating margin of 28%, a slight improvement from 27% in 2024.
Overall, Netflix's sizeable beat-and-raise in Q3 was quite impressive and it stands in stark contrast to the struggles we are seeing from other streaming platforms. They are struggling to break a profit, meanwhile NFLX is boasting about 28% operating margins in 2025. What stood out to us is that its ads business is really taking off with 50% of sign-ups coming from its ads tier in countries where it has been rolled out. Ads should be a more meaningful contributor in 2025.
Procter & Gamble's Q1 results pressured by weakening conditions in China and the Middle East (PG)
Household staple giant Procter & Gamble (PG) is amid a muted response today after falling a hair shy of analyst revenue estimates in Q1 (Sep), primarily reflecting deteriorating economic conditions in China and the Middle East. PG's consolidated volumes were flat from the year-ago period, a minor deceleration from the +1% delivered last quarter. PG did reiterate its financial targets for FY25 (Jun). Also, when backing out currency fluctuations and M&A impacts, volumes and sales were 1% and 2% higher yr/yr, respectively.
- Categories were mixed in Q1. Grooming and Fabric & Home Care enjoyed positive volume growth of 4% and 1%, respectively. Conversely, Beauty, Health Care, and Baby, Feminine & Family Care encountered modest yr/yr volume compression. When combined with unfavorable FX impacts across the board, the result was a 0.6% drop in revs yr/yr to $21.74 bln, underperforming analyst expectations of modest growth.
- Geographically, the Asia Pacific, Middle East, and Africa regions contributed most to the tepid numbers, delivering a low single-digit decline in organic sales. China was particularly bleak, with organic sales plunging by 16%. Management stated it will likely take a few more quarters before China returns to growth. On the bright side, North America, Europe, and Latin America each exhibited relative strength, boasting low to mid-single-digit organic sales growth, helping offset much of the weakness across China and the Middle East.
- For the second straight quarter, PG snuck by bottom-line estimates, delivering EPS growth of 5% yr/yr to $1.93. The company's earnings beat reflected productivity improvements during the quarter and a 30 bp bump in core operating margins, helping take the sting out of ongoing commodity cost and FX headwinds.
- PG expects macroeconomic conditions to remain volatile for the near future. Still, despite this, the company reiterated its FY25 guidance, projecting adjusted EPS of $6.91-7.05, revenue growth of +2-4%, and organic revenue growth of +3-5%. A disappointing development was that PG kept its EPS outlook unchanged despite an improving commodity cost headwind, producing a $200 mln drag instead of $300 mln, as other operating income pressures intensified moderately. PG also reaffirmed its headwinds will be front-half weighted.
The volatility stemming from China and the Middle East is generating angst amongst investors today. However, when removing these markets' influence on Q1, PG's performance was decent. North America, Europe, and Latin America maintained healthy organic sales growth yr/yr despite lapping unfavorable numbers. Volumes are holding despite PG's decision to keep its pricing strategy, underpinning brand loyalty and a strong preference for quality surrounding everyday essentials, even as inflationary pressures squeeze consumer budgets. While the uncertainty over when headwinds will ease could keep selling pressure active on PG, the company remains confident in its continuous market share momentum in the U.S. and other key markets, keeping it an attractive buy over the long term.
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