| | | Market Snapshot
| Dow | 42924.89 | -6.71 | (-0.02%) | | Nasdaq | 18573.12 | +33.12 | (0.18%) | | SP 500 | 5851.20 | -2.78 | (-0.05%) | | 10-yr Note | 0/32 | 4.20 |
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| | NYSE | Adv 1165 | Dec 1523 | Vol 804 mln | | Nasdaq | Adv 1878 | Dec 2304 | Vol 6.4 bln |
Industry Watch
| Strong: Consumer Staples, Communication Services, Energy, Real Estate |
| | Weak: Industrials, Materials, Consumer Discretionary, Utilities , Health Care |
Moving the Market
-- Rising Treasury yields
-- Relative weakness in some mega caps and chipmakers
-- Valuation concerns with market near record highs
-- Mixed responses to earnings news
| Closing Summary
22-Oct-24 16:15 ET
Dow -6.71 at 42924.89, Nasdaq +33.12 at 18573.12, S&P -2.78 at 5851.20
[BRIEFING.COM] The stock market held up okay at the index level. The S&P 500 (-0.1%) slowly moved off its opening low through the session, ultimately settling near its intraday high. The Nasdaq Composite closed 0.2% higher and the Dow Jones Industrial Average settled little changed from yesterday.
Mega caps provided integral support for index performance today. Microsoft (MSFT 427.51, +8.73, +2.1%) and Meta Platforms (META 582.01, +6.85, +1.2%) were standouts from the space. Many stocks declined, however, in a continuation of the consolidation trade that began yesterday.
Market breadth favored decliners by a 3-to-2 margin at the NYSE and by a 4-to-3 margin at the Nasdaq. The equal-weighted S&P closed 0.5% lower and six S&P 500 sectors declined. The industrial sector was the worst performer, dropping 1.2%. The consumer staples sector logged the largest gain, increasing 0.9%.
Rising market rates contributed to the downside bias in equities. The 10-yr yield settled another two basis points higher at 4.20%. This is 13 basis points higher than Friday's settlement. The 2-yr yield settled one basis point higher today, and nine basis points higher this week, at 4.04%.
Earnings news since yesterday's close garnered mostly negative responses despite some better-than-expected results from blue chip names. Dow components Verizon (VZ 41.50, -2.20, -5.0%) and 3M (MMM 131.73, -3.11, -2.3%) were standouts in that respect, along with GE Aerospace (GE 176.66, -17.57, -9.1%) and Lockheed Martin (LMT 576.98, -37.63, -6.1%). General Motors (GM 53.73, +4.80, +9.8%) went against the grain, closing sharply higher after above-consensus earnings and guidance.
- Nasdaq Composite: +23.7% YTD
- S&P 500: +22.7% YTD
- Dow Jones Industrial Average: +13.9% YTD
- S&P Midcap 400: +12.9% YTD
- Russell 2000: +10.1% YTD
There was no US economic data of note today. Wednesday's calendar features:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index
- 10:00 a.m. ET: September Existing Home Sales
- 10:30 a.m. ET: EIA Crude Oil Inventories
- 2:00 p.m. ET: October Beige Book
BKR, TXN, STX, others report earnings after the close
22-Oct-24 15:30 ET
Dow +45.28 at 42976.88, Nasdaq +46.26 at 18586.26, S&P +2.15 at 5856.13
[BRIEFING.COM] The market-cap weighted S&P 500 briefly tipped into positive territory over the last half hour. The equal-weighted S&P 500 still trades down 0.4%.
Baker Hughes (BKR 36.01, -0.43, -1.2%), Texas Instruments (TXN 194.84, -0.93, -0.5%), and Seagate Tech (STX 112.48, +0.08, +0.1%) are among the names reporting earnings after the close.
Separately, Wednesday's calendar features:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index
- 10:00 a.m. ET: September Existing Home Sales
- 10:30 a.m. ET: EIA Crude Oil Inventories
- 2:00 p.m. ET: October Beige Book
Mega caps support index moves
22-Oct-24 15:05 ET
Dow +18.22 at 42949.82, Nasdaq +21.56 at 18561.56, S&P -4.41 at 5849.57
[BRIEFING.COM] The Nasdaq Composite (+0.1%) and Dow Jones Industrial Average (+0.03%) trade slightly higher than prior closing levels.
Gains in the mega cap space have provided some support, boosting the Vanguard Mega Cap Growth ETF (MGK), which trades 0.03% higher now.
Treasuries remain near intraday high yields. The 10-yr yield is at 4.20% and the 2-yr yield is at 4.03%.
Philip Morris, Quest Diagnostics higher in S&P 500 after earnings
22-Oct-24 14:30 ET
Dow +55.22 at 42986.82, Nasdaq +45.30 at 18585.30, S&P +1.88 at 5855.86
[BRIEFING.COM] The S&P 500 (+0.03%) is up less than two points on Tuesday afternoon, giving back some of the brief afternoon highs reached over the last half hour.
Elsewhere, S&P 500 constituents Philip Morris International (PM 129.85, +10.89, +9.15%), Quest Diagnostics (DGX 157.77, +10.40, +7.06%), and Norfolk Southern (NSC 262.37, +14.21, +5.73%) pepper the top of the standings all following earnings.
Meanwhile, Georgia-based auto and industrial parts firm Genuine Parts (GPC 116.59, -26.53, -18.54%) is getting hit hard after this morning's earnings miss and downside guidance.
Gold rises to all-time highs
22-Oct-24 14:00 ET
Dow +65.96 at 42997.56, Nasdaq +50.07 at 18590.07, S&P +2.14 at 5856.12
[BRIEFING.COM] The major averages rose to session highs over the last half hour, the tech-heavy Nasdaq Composite (+0.27%) up about 50 points.
Gold futures settled $20.90 higher (+0.8%) to $2,759.80/oz, finding another all-time high today amid U.S. election uncertainty and the ongoing conflict in the Middle East.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $104.06.
SAP SE pushes to 52-week highs following an AI-led beat-and-raise in Q3 (SAP)
SAP SE (SAP +1%) gaps to 52-week highs today on the backs of another impressive beat-and-raise in Q3. The enterprise software provider continued to extract benefits from an insatiable appetite for AI while realizing further gains from its ongoing cloud transformation over the past four years. Strength in the quarter emerged from new and existing customer wins. Also during the quarter, SAP completed its $1.5 bln tuck-in acquisition of WalkMe, a tech-focused firm specializing in digital adoption platforms.
- As is growing more common for SAP, the company registered mild top and bottom-line upside in Q3, expanding its adjusted EPS by 6% yr/yr and revenue by 9%. Cloud revenue swelled by 25%, resembling growth last quarter and showcasing SAP's ability to continue transitioning legacy clients to the cloud.
- AI is an underlying factor in SAP's steady cloud revenue growth. CEO Christian Klein mentioned that around 30% of the company's cloud order entry in the quarter included deals that involved AI use cases. SAP reached its goal of 100 AI use cases across its suite well ahead of time, buoyed by its Gen AI Hub, which supported a more than tripling of consumption by its partners sequentially. Even better, the consumption by SAP's customers more than quadrupled.
- There are longer-term margin concerns surrounding AI as customers leverage the technology in scale. SAP does not anticipate risks related to margins in 2025. However, beyond next year, the company remarked that it is speculative how AI activity will affect gross margins as current prices remain in flux. SAP added that it is likely that AI will be margin accretive, but it cannot yet say for certain.
- SAP anticipates sustained momentum going forward, modestly bumping up its cloud and software revenue forecast for FY24. The increased outlook was underpinned by SAP's software suite. The last quarter of each year tends to be the most critical for SAP as it is typically its largest, placing disproportionate weight on Q4 to fulfill full-year financial targets. The final quarter also sets the tone heading into FY25.
Consistency has been SAP's bread-and-butter in 2024, delivering solid quarterly reports capitalizing on an unwavering AI trend. The company's Q3 report was no different, setting Q4 up to be another excellent quarter. However, with shares at all-time highs, SAP trades in priced-to-perfection territory. Minor hiccups, particularly in the upcoming all-important final quarter, could spur considerable selling pressure.
3M in a sticky situation as rising expectations create a higher bar to hurdle (MMM)
With improving financial results come higher expectations, and such was the case for 3M (MMM), which exceeded EPS and revenue expectations again in 3Q24 as another quarter of positive organic sales growth and stronger operating margins drove the upside performance. Unlike most of MMM's earnings reports in recent history, the run up to the results this time was decisively bullish with shares up by 30% since it last reported earnings on July 25, explaining why the stock is struggling to gain much traction today.
Furthermore, it's worth noting that the magnitude of MMM's earnings beat was more modest in Q3 relative to the past several quarters, providing investors with an excuse to lock in some gains. From a fundamental perspective, though, recently appointed CEO William Brown still has the company trending in the right direction.
- For the third consecutive quarter, MMM delivered positive organic sales growth, which came in at +1.0% on an adjusted basis. That may seem like an unimpressive feat, but it marks a significant improvement compared to 2021 and 2022, when MMM was consistently posting negative organic sales growth.
- Like last quarter, the Transportation & Electronics segment was the standout, generating organic growth of 3.9%. The ongoing rebound in demand for consumer electronics (organic sales up low-double-digits) was a primary driver here, helping to offset softness in the automotive and aerospace end markets.
- Strength in the new home construction market provided a lift to the Safety & Industrial segment. Organic net sales in roofing granules saw a high-single-digit increase, while adhesives and tapes experienced a rebound in Q3, increasing by mid-single-digits.
- Meanwhile, Consumer remains the laggard as sluggish demand for home office, packaging, and consumer safety products continues to weigh on the segment. In Q3, organic sales for Consumer slipped lower by 2.0% yr/yr.
- After a flurry of restructuring activities, including thousands of layoffs and the spin-off of the healthcare unit this past April, MMM's productivity and efficiency has improved. This is reflected by its adjusted operating margin expanding by 1.4 percentage points yr/yr to 23.0%, helping to push adjusted EPS higher by 18% yr/yr. Additionally, after reaffirming its FY24 EPS guidance in mid-September, MMM raised its outlook to $7.20-$7.30 from its prior forecast of $7.00-$7.30.
The main takeaway is that MMM delivered a solid beat-and-raise earnings report despite a mixed landscape across its end markets. After several years of sub-par results, MMM is executing on a higher level now, but the company still faces plenty of challenges, including ongoing litigation issues related to its "forever chemicals" lawsuits.
GE Aerospace descends on soft adjusted sales growth in Q3 and reduced LEAP deliveries guidance (GE)
GE Aerospace (GE -9%) is descending today despite delivering another decent beat-and-raise in Q3. Demand remained robust in the quarter, supporting the aerospace engine manufacturer's adjusted revenue growth, which removes the impacts from GE Vernova (GEV), spun off in April, of +6%. However, this improvement fell short of analyst expectations. Furthermore, GE lowered a few of its FY24 growth targets, reflecting fallout from the Boeing (BA) strike and lingering supply chain constraints. With the stock hovering around all-time highs yesterday, GE was in no position to disappoint. As a result, shares are pulling back today.
- Another nitpick from Q3 was the slim earnings beat. Since GE spun off GEV, it registered double-digit beats. In Q3, it squeaked out mild bottom-line upside. Still, from a profitability standpoint, GE continued to fire on all cylinders, expanding operating margins by 150 bps yr/yr to 20.3%, ultimately pushing EPS 25% higher to $1.15 despite the tepid adjusted revenue growth.
- Demand is not an issue for GE. Total orders surged by 28% yr/yr, keeping pace with the past few quarters. A testament to its technological advantage, GE continued to seal wins in widebodies and narrowbodies, building on its considerable backlog of $149 bln. Over 90% of this backlog is in Services, which enjoyed a 10% bump in revs yr/yr.
- Supply has been a sticking point. GE registered a 4% drop in total engine shipments yr/yr, including a 6% drop in LEAP deliveries (powers several major aircraft, including the Airbus A320neo and Boeing 737 MAX). The second consecutive quarter of contracting shipments drove GE's lower-than-anticipated adjusted revenue growth.
- However, GE has progressed in this area, taking steps with its suppliers to increase inputs and expand capacity. This manifested in engine output rising 22% sequentially, including commercial up 25% and defense up 8%. GE also expects input to continue increasing in Q4, supported by a sequential step-up in output.
- Nevertheless, supply issues and lingering adverse impacts of the extended union strike at Boeing are expected to hinder performance in the immediate future. GE predicted sequential growth in LEAP engine deliveries but foresees FY24 deliveries to drop by around 10% yr/yr, significantly lower than GE's previous flat to +5% prediction. GE also lowered its internal shop visit growth for the year.
- The silver lining was profitability; GE raised its FY24 EPS outlook to $4.20-4.35 from $3.95-4.20. Also, GE kept its adjusted revenue growth forecast of high single digits unchanged.
Demand for aerospace remains robust across the commercial, defense, and aftermarket sectors, highlighted by resilient order growth and a healthy backlog. However, supply-related woes are getting in the way, as are Boeing's problems. Furthermore, GE did not change its $1.0 bln in EBIT forecast for 2025 despite the company sitting at around $550 mln, placing sky-high expectations on improvements next year. Still, GE remains a firmly established player in the aerospace industry, putting it in a sound position to reignite growth. As such, pullbacks offer decent entry points for longer-term investors.
General Motors cruising higher following healthy Q3 earnings beat (GM)
General Motors (GM +8%) is trading sharply higher after the automotive giant reported strong upside Q3 results this morning. GM has now posted $0.35+ EPS beats in three consecutive quarters. Revenue rose 10.5% yr/yr to $48.76 bln, which was much better than expected and its first double-digit growth since 2Q23. GM raised its FY24 adjusted EPS to $10.00-10.50 from $9.50-10.50, but it was roughly by the same amount as the Q3 beat.
- Adjusted EBIT is the most closely followed metric. It jumped 15.5% yr/yr but fell 7% sequentially to $4.12 bln in Q3, with a 8.4% adjusted EBIT margin vs 8.1% in the year ago period. GM also boosted the low end of FY24 adjusted EBIT guidance to $14-15 bln from $13-15 bln. What really stood out was GM substantially boosting its FY24 adjusted automotive free cash flow guidance to $12.5-13.5 bln from $9.5-11.5 bln.
- EBIT margin was driven by higher wholesale volumes, strong pricing, ongoing cost containment and the EV valuation allowance benefit was up $900 mln yr/yr and better than what GM assumed in its guidance. About half of the pricing benefit was from really strong performance from its mid-size SUVs, especially the Chevrolet Traverse.
- There was a lot of good information on the call. For one thing, revenue growth was driven by volume growth in both ICE (internal combustion engines) and EVs. Also, GM mentioned it benefitted from some pull forward from Q4 into Q3, which likely explains some of the big upside. Q3 benefitted from a pull forward of some full size SUV production to support the ramp of the refresh model during Q4. Also, GM prioritized full size pickup availability. GM estimates these factors boosted sales by around $400 mln.
- During Q&A, GM was asked about the competition. GM said it sees a lot of behavior from competitors , including higher incentive levels. GM will continue to manage its portfolio to its own demand. Dealer inventory levels ended the quarter at 68 days for ICE vehicles, along with 10-12 EVs per dealer to help increase customer awareness. The seasonally strong Q4 sales period, launch timing and lower wholesales puts GM on track to end the year with total ICE inventory in its targeted range of 50-60 days.
- China was a problem area in Q2, but it sounds like some progress has been made. GM says its growing portfolio of EVs and plug in hybrids played a key role. In fact, its new EVs outsold ICE models for the first time. GM says it has made progress aligning production to demand in Q3. Importantly, GM's dealer inventory has been reduced by more than 50% since the start of the year, which will allow GM to better manage pricing and costs.
Overall, investors clearly like what they see in GM's Q3 report. Even if some of the big upside was caused by a pull forward from Q4, the results were still nicely ahead of expectations, fueled by strong volume and pricing. Also, GM was somewhat more positive on China. While it remains a competitive market, GM made progress aligning production to demand and EV sales seem to have done better. We think this report bodes well for GM's suppliers and Ford (F) as we move through earnings season.
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.
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