| | | Market Snapshot
| Dow | 42931.60 | -344.31 | (-0.80%) | | Nasdaq | 18540.00 | +50.45 | (0.27%) | | SP 500 | 5853.98 | -10.69 | (-0.18%) | | 10-yr Note | -30/32 | 4.18 |
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| | NYSE | Adv 578 | Dec 2160 | Vol 815 mln | | Nasdaq | Adv 1329 | Dec 2935 | Vol 6.1 bln |
Industry Watch
| Strong: Information Technology |
| | Weak: Real Estate, Consumer Discretionary, Health Care, Financials, Communication Services |
Moving the Market
-- Some consolidation activity after record highs for S&P 500 and DJIA
-- Jump in market rates keeping pressure on equities
-- Relative strength in some mega cap names
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Closing Summary
21-Oct-24 16:30 ET
Dow -344.31 at 42931.60, Nasdaq +50.45 at 18540.00, S&P -10.69 at 5853.98
[BRIEFING.COM] The stock market faced some selling pressure today after six straight weeks of gains for the S&P 500 (-0.2%). The index closed at a record high on Friday, along with the Dow Jones Industrial Average (-0.8%), so today's downside bias was related in part to normal consolidation activity.
Selling in the stock market was also a function of rising market rates. The 10-yr yield settled 11 basis points higher at 4.18% and the 2-yr yield settled seven basis points higher at 4.02%.
The Nasdaq Composite outperformed other major indices, climbing 0.3% compared to Friday's close thanks to gains in some mega cap names. NVIDIA (NVDA 143.71, +5.71, +4.1%), Microsoft (MSFT 418.78, +0.62, +0.2%), and Apple (AAPL 236.48, +1.48, +0.6%) were among the influential winners from the space.
Many other stocks participated in today's retreat. 23 of the 30 Dow components fell and ten of the 11 S&P 500 sectors declined. The information technology sector (+0.9%) was alone in positive territory, boosted by its heavily-weighted components, while the rate-sensitive real estate sector (-2.1%) logged the largest decline by a decent margin.
The health care sector (-1.2%) was the next worst performer, clipped by a sizable decline in shares of Cigna (CI 320.23, -15.77, -4.7%) following a Bloomberg report that it was in talks to takeover Humana (HUM 260.57, -6.57, -2.5%).
The negative action in equities also reflected a wait-and-see mentality in front of a busy week of earnings. Tesla (TSLA 218.85, -1.85, -0.8%), Boeing (BA 159.82, +4.82, +3.1%), and UPS (UPS 131.33, -4.60, -3.4%) are some of the headliners on the earnings calendar.
- Nasdaq Composite: +23.5% YTD
- S&P 500: +22.7% YTD
- Dow Jones Industrial Average: +13.9% YTD
- S&P Midcap 400: +13.6% YTD
- Russell 2000: +10.5% YTD
Reviewing today's economic data:
- September Leading Indicators -0.5% (Briefing.com consensus -0.3%); Prior was revised to -0.3% from -0.2%
There's no US economic data of note on Tuesday.
Earnings in front of Tuesday's open
21-Oct-24 15:30 ET
Dow -339.40 at 42936.51, Nasdaq +10.16 at 18499.71, S&P -16.56 at 5848.11
[BRIEFING.COM] The Nasdaq Composite tipped back into positive territory over the last half hour, up 0.1%.
General Motors (GM 49.05, -0.13, -0.3%), Verizon (VZ 43.69, -0.29, -0.7%), Comcast (CMCSA 40.54, -1.39, -3.3%), RTX (RTX 125.48, -0.44, -0.4%), Lockheed Martin (LMT 613.42, +1.61, +0.3%), Sherwin-Williams (SHW 383.16, -5.20, -1.3%), and 3M (MMM 134.46, -0.68, -0.5%) are among the names reporting earnings in front of Tuesday's open.
There's no US economic data of note on Tuesday.
Russell 200 continues underperformance
21-Oct-24 15:05 ET
Dow -370.56 at 42905.35, Nasdaq -10.90 at 18478.65, S&P -22.84 at 5841.83
[BRIEFING.COM] There hasn't been much up or down movement at the index level in recent trading.
The Russell 2000 continues to underperform other major indices, trading 1.5% lower.
Meanwhile, the S&P 500 shows a 0.4% and the equal-weighted S&P 500 trades 0.9% lower.
Monolithic Power and chip peers lower to start the week; Kenvue atop S&P 500 after Starboard reports
21-Oct-24 14:35 ET
Dow -370.72 at 42905.19, Nasdaq -6.96 at 18482.59, S&P -21.41 at 5843.26
[BRIEFING.COM] The S&P 500 (-0.37%) is in second place on Monday afternoon.
Elsewhere, S&P 500 constituents Monolithic Power (MPWR 869.70, -46.58, -5.08%), Builders FirstSource (BLDR 185.23, -9.74, -5.00%), and Target (TGT 150.15, -6.69, -4.27%) dot the bottom of the standings. Broad weakness in chip stocks pressures MPWR the most today, while general weakness in homebuilder stocks drags BLDR lower,
Meanwhile, New Jersey-based consumer health firm Kenvue (KVUE 22.81, +1.09, +5.02%) is today's top performer after the WSJ reported activist Starboard Value had built a stake in the company.
Gold slips off morning highsas dollar, yields firm
21-Oct-24 14:00 ET
Dow -324.67 at 42951.24, Nasdaq +14.25 at 18503.80, S&P -13.87 at 5850.80
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.08%) is now in positive territory, having moved modestly higher over the prior half hour.
Gold futures settled $8.90 higher (+0.3%) to $2,738.90/oz, slipping a bit off morning highs as the dollar and yields have firmed up as the session has progressed.
Meanwhile, the U.S. Dollar Index is up +0.5% to $103.95.
Walt Disney takes a step forward in CEO succession plans following turnaround in DTC business (DIS)
Walt Disney's (DIS) CEO succession plans have been a bit of a contentious topic -- the lack of progress was a key reason why activist investor Nelson Peltz launched a proxy battle against DIS's Board of Directors this past March -- but the company took a big step forward today. The company announced that its Board intends to replace CEO Bob Iger in early 2026 (his current contract expires at the end of 2026), which is a little later than its original plan of 2025.
That's not the only major change that DIS will be making. DIS also announced that James Gorman, who will be stepping down as Morgan Stanley's (MS) CEO on December 31, 2024, will replace Mark Parker as Chairman of the Board, effective January 2, 2025.
- The shakeup comes as DIS continues to turn the once cash-burning DTC business around. When Mr. Iger took over for Bob Chapek as CEO in November 2022, his most pressing task was to stop the bleeding in DTC as the company was spending very aggressively to keep Disney+ subscriber growth racing higher. For some perspective, two years ago the DTC posted an operating loss of ($1.06) bln. In DIS's latest quarter (3Q25), DTC Streaming posted an operating profit of $47 mln compared to a ($512) mln loss in the year-earlier quarter.
- Mr. Iger certainly deserves plenty of credit for the massive turnaround in DTC, but it hasn't been completely smooth sailing at DIS since he took over. This is reflected in DIS's stock price, which is virtually unchanged since Mr. Iger stepped in as CEO, compared to a 48% gain for the S&P 500. In a role reversal from the past few years, it's now the theme park business that's weighing on sentiment.
- A more cost-conscious consumer has shifted towards less expensive travel and experiences options, putting a dent in demand for DIS's domestic theme parks. Driven by some softness at Walt Disney World and Disneyland, operating income dipped by 3% in Q3 to $2.2 bln, with the company also forecasting a mid-single-digit operating income decline in Q4.
- Whoever steps in as DIS's next CEO will be tasked with improving the growth for the Experiences segment. Helping their cause will be the $30.0 bln the company has earmarked over the next decade for theme park investments.
- Considering DIS's major pivot towards sports, it wouldn't be overly surprising if the next CEO has considerable experience in the professional sports industry or within DIS's ESPN network. On that note, the company has interviewed ESPN Chairman Jimmy Pitaro for the CEO role, as well as Experiences Chairman Josh D'Amaro and Entertainment Co-Chairman Dana Walden and Alan Bergman. As a reminder, DIS plans to launch an ESPN-only streaming platform in late 2025.
The main takeaway is that participants have been looking for more clarity out of DIS in terms of its succession planning, so today's disclosure is a step in the right direction. However, there are still plenty of question marks, such as who may be the front-runner for the position, while DIS still has plenty of other challenges on its plate, such as slowing demand for its theme parks.
Spirit Airlines soaring after receiving debt refinancing extension, but more steps needed (SAVE)
Beleaguered ultra-low-cost carrier Spirit Airlines (SAVE) is taking off after announcing a financing maneuver that at the very least will help the company to stave off bankruptcy in the near-term. More specifically, SAVE disclosed that it reached an agreement with U.S. Bank National Association to extend a debt refinancing program until December 23, 2023. This marks the second time that SAVE has secured an extension -- originally, the deadline was set for September 20, but its creditors pushed the date to today.
- For some quick background, in May 2009, SAVE entered into an agreement with U.S. Bank National Association (USBNA) in which USBNA would process payments made to SAVE under the Visa (V) or Mastercard (MA) brand names. If SAVE were to default on its debt, then this agreement would be in jeopardy of being dissolved. With about $1.1 bln of secured debt coming due in less than a year, and the company burning through cash at a rapid rate, extending the debt refinancing deadline was imperative.
- While all airlines have been hurt by the ramp up in capacity over the past several quarters, ultra-low-cost carriers like SAVE have been especially crushed. The big four carriers -- Delta Air Lines (DAL), United Airlines (UAL), American Airlines (AAL), and Southwest Airlines (LUV) -- have been able to mitigate the effects of a supply and demand imbalance by leaning on their premium products and higher-margin international businesses. SAVE, on the other hand, has very little wiggle room in this price war.
- This is evident in SAVE's recent financial results. In Q2, the company posted an operating loss of ($152.5) mln and cash flow from operations of ($270.0) mln compared to $130.7 mln in the year-earlier period.
- The turbulence facing SAVE really intensified when JetBlue (JBLU) and SAVE announced this past March that they agreed to terminate their merger agreement from July 2022. That deal was facing major regulatory approval hurdles making it highly unlikely that the transaction would be completed by the merger agreements outside date of July 24, 2024. Had that deal gone through, JBLU would have been able to help shelter SAVE from its debt troubles.
The main takeaway is that while today's debt refinancing extension brings some much-needed relief to SAVE, it only really kicks the can down the road a bit. SAVE is still facing substantial going concern risks and it ultimately will need to forge significant refinancing agreements with its lenders to avoid bankruptcy.
Virtu Financial has been moving higher in recent months on hopes of a good Q3 report (VIRT)
Virtu Financial (VIRT) is not a well-known name, but we wanted to write a quick profile as it sits atop our latest YIELD Leaders rankings. That's because the company has been buying back shares at a good clip, plus it pays a decent dividend. Also, we wanted to provide some color ahead of its Q3 earnings report later this week (Thursday Oct 24, before the open).
- The company is primarily a market maker, it buys or sells a broad range of securities and generates revenue through market making activities, commission and fees on execution service activities. Investors should understand that Virtu's earnings can be a bit volatile because they depend in large part on volatility in trading markets generally.
- With the Fed cutting rates, with geopolitical issues on the rise, with an election around the corner, and with earnings season ready to kick into full gear this week, Virtu should benefit from some near term volatility.
- In Q2, VIRT beat handily on both EPS and revenue. What stood out about last quarter was its Market Making segment. Despite a muted background, its business performed very well. Also, an area that VIRT has been expanding into is options. The company said its growing options business delivered stronger performance than the prior quarter despite lower addressable opportunities.
- Building its global options capabilities continues to be a top priority and the company expects this to be a significant part of its future as its global footprint grows.
- Virtu also remains optimistic about its growth potential in the fixed income markets. Virtu said its opportunity in fixed income is especially exciting when combined with the synergistic benefits from its growing ETF block desk. Also, crypto Market Making was a meaningful contributor in Q2 despite spot Bitcoin ETF volumes being down over 30% compared to Q1. Virtu is expanding its crypto venue footprint.
Finally, the stock has been making a nice move in recent months and traded to a new 52-week high last week. We suspect investor sentiment is running high heading into its Q3 report this week given its impressive results last quarter and that was when volatility was pretty subdued. Also, share buybacks by the company are a good sign.
The Cigna Group pulls back following reports it resumed M&A talks with Humana (HUM) (CI)
The Cigna Group (CI -3%) is gapping down toward August lows today after Bloomberg reported that the health insurance giant resumed its merger talks with fellow insurer Humana (HUM). The two discussed a potential merger late last year. CI reportedly proposed a cash-and-stock deal with stock comprising a significant component. This dilutive characteristic disgruntled investors and prompted a sharp pullback. Ultimately, talks broke down over price in mid-December. CI decided to consider bolt-on acquisitions instead and announced a $10 bln repurchase plan. That news thrilled shareholders, sparking a rally that saw CI shares climb +40% as of Friday's close.
With M&A talks back on the table, a similar reaction is unfolding today as CI slips while HUM gains. However, the situations CI and HUM find themselves in are drastically different from last year.
- Since last year, HUM shares have taken an opposite path from CI, plunging by over 40%. The culprit has been HUM's Medicare Advantage (MA) business. To kickstart the problems, the Centers for Medicare & Medicaid Services (CMS) implemented new rate cuts across the board for 2025 at the same time that costs are swelling. Meanwhile, the CMS proposed changes to the Star Ratings for 2025, causing only 25% of HUM's Medicare Advantage (MA) members to be in plans with four stars or higher, down from 94% this year.
- The impact of the updated star rating system was a bad-to-worse scenario for HUM, resulting in the stock dropping by around 25% over the course of a few trading sessions late last month. This significant correction, with shares hovering near April 2020 levels, has made HUM a more attractive takeover candidate. It may also lessen the weight of the stock component in a cash-and-stock deal, a potential factor in why shares of CI are not pulling back as significantly as they did when the rumors first swirled of a possible merger.
- CI agreed to offload its Medicare business, which includes MA, to Health Care Services Corp in January for $3.3 bln. CI noted that the divestiture followed extended under-performance. The company was already a relatively tiny player in the Medicare industry. On the flip side, HUM derived over 80% of its FY23 revenue from Medicare premiums. By acquiring HUM, CI would be instantly propelled toward the top of the Medicare market, competing with giants UnitedHealth Group (UNH) and CVS Health's (CVS) Aetna.
Former talks between CI and HUM fizzling out last year may have been a benefit in disguise. The health of HUM's stock has only withered away since, making it much cheaper to acquire, while CI shares have soared, providing it with solid buying power. Price was the sticking point last time the two discussed a merger and could again be a point of contention. However, given the headwinds pushing against HUM, which only seem to be worsening, its bargaining power is fading, making a deal more likely.
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.
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