Market Snapshot
| Dow | 42221.88 | +427.28 | (1.02%) | | Nasdaq | 18439.17 | +259.19 | (1.43%) | | SP 500 | 5782.76 | +70.07 | (1.23%) | | 10-yr Note | -1/32 | 4.29 |
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| | NYSE | Adv 2190 | Dec 497 | Vol 892 mln | | Nasdaq | Adv 3062 | Dec 1174 | Vol 7.0 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Industrials, Communication Services, Financials, Energy, Real Estate |
| | Weak: -- |
Moving the Market
-- Wait-and-see mode in front of election results
-- Relief that some uncertainty around the election will clear up after tonight
-- Gains in mega caps and semiconductor-related names boosting index performance
-- Treasury yields settle mixed after a jump in the ISM Services PMI and a solid 10-yr note sale
| Closing Summary
05-Nov-24 16:20 ET
Dow +427.28 at 42221.88, Nasdaq +259.19 at 18439.17, S&P +70.07 at 5782.76
[BRIEFING.COM] The stock market had a solid showing on Election Day. The S&P 500 jumped 1.2%; the Nasdaq Composite gained 1.4%; the Dow Jones Industrial Average settled 0.4% higher; and the Russell 2000 rose 1.9%.
Stocks were already moving higher before buying increased in response to a jump in the ISM Services PMI for October that should bode well for economic and earnings growth. The positive bias was also related to relief that some unknowns about the election will be cleared up before trading begins on Wednesday.
Buyers were not deterred by the idea that other unknowns around the election may still linger after election night. Some states use extended time to count votes for House races and there is the possibility of recounts.
Still, many stocks participated in upside moves. The equal-weighted S&P 500 jumped 1.2% and 24 of the 30 Dow components closed with gains. All 11 S&P 500 sectors closed higher and seven of them were at least 1.0% higher than yesterday. The consumer discretionary sector (+1.8%) led the pack.
The information technology sector (+1.5%) was among the top performers, benefitting from gains in some mega caps and chipmakers. NVIDIA (NVDA 139.91, +3.86, +2.8%) was a standout from space, passing Apple (AAPL 223.45, +1.44, +0.7%) in terms of market cap.
Outsized moves are mostly reserved for names with specific catalysts. Palantir Technologies (PLTR 51.13, +9.72, +23.5%), DuPont (DD 85.67, +3.82, +4.7%), GlobalFoundries (GFS 41.37, +5.36, +14.9%) registered big gains in response to earnings.
Treasuries settled in mixed fashion. The 10-yr yield settled two basis points lower at 4.29% and the 2-yr yield settled three basis points higher at 4.21%. This price action followed this morning's economic data and was in response to today's $42 billion 10-yr note sale, which met solid demand.
- Nasdaq Composite: +22.8% YTD
- S&P 500: +21.2% YTD
- Dow Jones Industrial Average: +12.0% YTD
- S&P Midcap 400: +13.5% YTD
- Russell 2000: +11.5% YTD
Reviewing today's economic data:
- The September Trade Balance Report at 8:30 a.m. ET showed a widening in the trade deficit to $84.4 billion (Brieifng.com consensus -$74.0 billion) from a revised $70.8 billion (from -$70.4 billion) in August. That widening was the result of exports being $3.2 billion less than August exports and imports being $10.3 billion more than August imports.
- The key takeaway from the report is that the imbalance between exports and imports is indicative of a U.S. economy that is running stronger than its global counterparts.
- The S&P Global US Services PMI declined to 55.0 in the final October reading from 55.2.
- The ISM Services PMI increased to 56.0% in October (Briefing.com consensus 53.5%) from 54.9% in September. That is the highest reading since July 2022. The dividing line between expansion and contraction is 50.0%, so the October reading reflects services sector activity accelerating from September.
- The key takeaway from the report is that the pace of expansion in the largest sector of the U.S. economy accelerated to a two-year high with employment activity returning to expansion after a brief contraction in September. The Backlog Index showed a deepening contraction, which could slow the pace of expansion in the coming months.
Looking ahead to Wednesday, market participants receive the following economic data: weekly MBA Mortgage Applications Index at 7:00 ET, weekly EIA Crude Oil Inventories at 10:30 ET.
Treasuries settle mixed
05-Nov-24 15:30 ET
Dow +372.56 at 42167.16, Nasdaq +248.10 at 18428.09, S&P +63.10 at 5775.79
[BRIEFING.COM] Stocks remain steady near intraday highs after Treasuries settled in mixed fashion.
The 10-yr yield settled two basis points lower at 4.29% and the 2-yr yield settled three basis points higher at 4.21%. This price action followed the ISM Services PMI for October (56.0%; Briefing.com consensus 53.5%), which showed an unexpected acceleration from September's reading (54.9%). It was also in response to today's $42 billion 10-yr note sale, which met solid demand.
Separately, CVS Health (CVS), Sunoco LP (SUN), Teva Pharma (TEVA), Johnson Controls (JCI), Shopify (SHOP), and others report earnings in front of Wednesday's open.
Stocks sit near highs with one hour remaining
05-Nov-24 15:00 ET
Dow +338.50 at 42133.10, Nasdaq +217.10 at 18397.09, S&P +55.57 at 5768.26
[BRIEFING.COM] The major indices remain near session highs with about an hour left of trading.
Looking ahead to Wednesday, market participants receive the following economic data: weekly MBA Mortgage Applications Index at 7:00 ET, weekly EIA Crude Oil Inventories at 10:30 ET.
Super Micro Computer (SMCI), Devon Energy (DVN), Lumen Technologies (LUMN), Intl Flavors (IFF), Microchip (MCHP), and others report earnings this afternoon.
Small and mid caps benefit in broad rally
05-Nov-24 14:35 ET
Dow +367.30 at 42161.90, Nasdaq +241.59 at 18421.58, S&P +60.95 at 5773.64
[BRIEFING.COM] The stock market is holding steady near session highs on Election Day.
Every S&P 500 sector is higher, led by consumer discretionary (+1.8%) and industrials (+1.5%). The "worst" performing sector is energy, which sports a 0.3% gain.
Broad buying interest also has small and mid cap stocks participating in upside moves. The Russell 2000 is 1.4% higher and the S&P Mid Cap 400 shows a 1.0% gain.
Treasury yields move lower
05-Nov-24 13:55 ET
Dow +354.26 at 42148.86, Nasdaq +223.56 at 18403.55, S&P +56.89 at 5769.58
[BRIEFING.COM] The major indices moved mostly sideways in recent trading. The Nasdaq Composite sports a 1.2% gain.
Treasury yields moved lower after today's $42 billion 10-yr note sale met solid demand. The auction drew a high yield of 4.347%, which stopped through the when-issued yield by 0.3 bps while the bid-to-cover ratio (2.59x) was above the average seen at the previous twelve auctions (2.51x). Indirect takedown (61.7%) made for the only blemish, since it was a bit below average (67.2%).
The 2-yr yield moved to 4.21% from 4.23% and the 10-yr yield moved to 4.31% from 4.35%.
Restaurant Brands Int'l serves up disappointing Q3 results, continuing an industry trend (QSR)
A more budget-conscious consumer, coupled with a fiercely competitive industry, combined to create a very challenging business climate in 3Q24 for quick serve restaurant companies. In the wake of lackluster earnings reports from Wendy's (WEN) on October 31, and McDonald's (MCD) on October 29, Restaurant Brands Int'l (QSR) followed suit and posted disappointing Q3 results. The owner of the Burger King (BK), Popeye's Louisiana Kitchen (PLK), and Tim Hortons (TH) banners missed Q3 EPS and sales estimates as consolidated comparable sales growth slowed to just +0.3% from +1.9% last quarter.
- The most pronounced downturn occurred at PLK, where comparable sales came in at (4.0)% compared to +4.9% in Q2. Given that PLK's menu prices are a little higher than BK's or MCD's, for instance, it makes sense that the fried chicken chain would experience a bigger drop. Similarly, Yum Brands' (YUM) KFC division saw comps drop by 4% in Q3, while Taco Bell's comps were up 4%, thanks to its more value-centric menu. On that note, QSR does intend to add more value offerings to PLK's menu, including a meal that costs $5-$6.
- Meanwhile, BK's struggles continued as comps dipped to (0.7)%, matching last quarter's performance, as the turnaround in QSR's largest division failed to gain momentum. That ongoing turnaround plan, which features $400 mln worth of investments to remodel aging stores and update restaurant technology, has experienced some fits and starts since being launched in September 2022. Rewinding to last year, it appeared that the turnaround was kicking into high gear as BK's comps in 3Q23 jumped by 10.3%, preceded by a 13.8% increase in 2Q23. As macro-related headwinds stiffened in 2024, though, BK's momentum has faded.
- Tim Hortons, the Canada-based coffeehouse and breakfast chain, was the only banner to deliver positive comps at +2.3%. However, that was still down from last quarter's +5.4% mark.
- QSR's system-wide sales growth of 3.2% was mainly driven by the company's footprint expansion efforts, particularly for PLK and its smaller Firehouse Subs (FHS) brand. Net restaurant growth for PLK was 4.1%, while FHS's footprint grew by 3.9% for a total of 1,300 restaurants at the end of Q3.
- A key positive is that QSR saw an improvement in consolidated comps in October and that it remains confident in its ability to achieve adjusted operating income growth of 8% or better in 2024 and beyond. For some context, the company generated adjusted operating income growth of 6.1% in Q3.
QSR's earnings results generally followed the same track as rivals WEN, YUM, and MCD, reflecting a difficult environment that's placing even more emphasis on value. We anticipate that QSR will ramp up its promotional activity by adding more deals to its menus, which should provide a spark for comps, but that could come at the cost of lower profit margins.
Cirrus Logic heads lower despite big upside; disappointing DecQ guidance is main reason (CRUS)
Cirrus Logic (CRUS -8%) is heading lower following its Q2 (Sep) results last night. CRUS reported a huge EPS beat, its sixth consecutive beat of at least $0.20. However, this was its smallest beat during that period. Revenue rose a heathy 12.6% yr/yr and 45% sequentially to $541.9 mln, at the higher end of prior guidance of $490-550 mln, due to strong demand for products shipping into smartphones.
- The main problem was downside revenue guidance for Q3 (Dec) at just $480-540 mln. CRUS is known for being conservative on guidance, but this downside was quite severe and seems like more than just its usual conservatism. Also, guidance last quarter was well to the upside, so this was a negative surprise and seems to be the main driver of weakness in the stock price today.
- CRUS's largest customer by far is Apple (AAPL), which represented 87% of FY24 sales (up from 83% in FY23 and 79% in FY22), so there is a high correlation between the two companies. Last week, Apple reported Q4 (Sep) results that were modestly better than expected with modest upside for iPhone sales relative to street ests. However, Apple's Q1 (Dec) revenue guidance was a tad lighter than expected.
- On the call, the first question was about the guidance. CRUS explained that SepQ benefitted from an extra week of higher volume production associated with the peak ramp period, so that impacted DecQ guidance. Also, DecQ last year saw more Android production than it would normally see in that period. This was due to a large Android customer ramping their product earlier than they normally do. As such, that impacted this year's yr/yr growth rate.
- In its flagship smartphone audio business, CRUS was excited to begin shipping its next generation custom boosted amplifier and its first 22-nanometer smart codec in recently launched smartphones. The new amplifier provides significant power and efficiency improvements, while the smart codec offers meaningful advances in audio and mixed signal processing capabilities.
- Also, CRUS continues to expand into new applications and markets outside of smartphones. In particular, it's excited about its laptop business. While still in the early stages of revenue contribution, CRUS secured its first high-volume mainstream design win with its latest PC codec in SepQ. CRUS also shipped its first power product designed specifically for laptops in multiple Tier 1 customers' devices.
Overall, while CRUS reported nice upside in SepQ, the DecQ revenue guidance is unnerving investors a bit. The company tends to be conservative with guidance, but this guidance seems to be more than just its usual lean toward conservative guidance. We did have concerns going into this report after peer Qorvo's (QRVO) very weak results last week. However, Qorvo has more Android exposure and that was where it saw softness. As such, we were surprised to see this guidance from CRUS.
Wynn Resorts' downbeat Q3 results ignite selling pressure; demand in Macau remains healthy (WYNN)
Casino and hotel operator Wynn Resorts (WYNN -8%) missed Q3 earnings and sales estimates by sizeable margins, spurring a significant pullback today. Demand remained healthy across WYNN's core markets, including Las Vegas and Macau, which are located in China and comprise around half of the company's annual revenue.
However, challenging yr/yr comparisons and ongoing room renovations encroached on overall performance in the quarter. WYNN has been enhancing its hotel room experiences over the past few quarters, causing thousands of room nights to go out of service. A clear point of contention among investors today is that WYNN's renovations are expected to cause 2025 to resemble 2024 in terms of group room nights, which could continue to pressure quarterly numbers. These blemishes are not just dwarfing the silver linings from the quarter but also WYNN's $1.0 bln increase to its share repurchase authorization, representing around 10% of its market cap.
- For the second straight quarter, WYNN fell short of top and bottom-line estimates, delivering adjusted EPS of $0.90 in Q3 on a meager 1.3% lift in revenue yr/yr to $1.69 bln. Operating revenue in Las Vegas inched 1.9% lower yr/yr to $607.2 mln. The relative weakness stemmed from a modest drop in table hold, which refers to how much money a casino wins from a table. On the flip side, WYNN's revenue in Boston crept 1.8% higher yr/yr to $214.1 mln.
- Rising labor costs have been hindering WYNN's profitability for the past few quarters, especially in Las Vegas. In Q3, wage pressure underpinned a 210 bp contraction in EBITDAR margins yr/yr in Las Vegas to 33.4%. However, in Boston, WYNN enjoyed a 60 bp lift in margins yr/yr, reflecting success in mitigating union-related payroll increases with cost efficiencies.
- WYNN's primary Macau market delivered a few highlights, including a 6.3% improvement in revenue yr/yr to $871.7 mln, supported by table games hold remaining in a normal range. If revs hold around a similar rate in Q4, WYNN is staring at a roughly +16% jump in Macau revenue yr/yr for FY24. While EBITDAR margins did compress by 90 bps yr/yr, they advanced by 210 bps compared to 3Q19. The yr/yr contraction reflected higher payroll expenses.
- Looking ahead, WYNN's longer-term outlook surrounding Macau remains decidedly bullish. Meanwhile, WYNN's construction of its hotel/casino in the UAE is rapidly progressing. WYNN believes the UAW will become a $3-5 bln gaming market. Outside of the UAE, WYNN continues to explore potential opportunities in attractive cities.
While plenty of positive developments filled WYNN's Q3 report, its overall performance was disappointing. Concerns surrounding China may be the biggest hurdle for WYNN to overcome in the near term as the economy in the region deteriorates, placing higher dependence on government stimulus to avoid a deeper fallout. Others in the industry are dealing with similar headwinds but remain confident in sustained demand. Las Vegas Sands (LVS) expressed optimism last month that Macau will return to a stronger place in the near future. Likewise, MGM Resorts (MGM) enjoyed record growth in Macau during Q3, fueling confidence in the market's long-term health.
DuPont makes a name for itself as an AI play after delivering solid Q3 earnings report (DD)
Chemical company DuPont (DD) may not be the first name that comes to mind when thinking about AI plays, but the emergence of new AI technologies was a key factor behind the company's better-than-expected Q3 earnings and raised FY24 EPS guidance. The positive impact of AI can also be seen on the top-line. After ten consecutive quarters of yr/yr revenue declines, DD has now posted back-to-back quarters of positive growth with revenue growth improving to 4.4% in Q3 from 2.5% last quarter.
- While DD is experiencing stronger results across most of its business, the Electronics & Industrial segment is the engine behind the accelerating growth. In Q3, organic sales for the segment jumped by 10%, fueled by a 20% increase for Semiconductor Technologies. The Semiconductors Technologies business produces materials used during the fabrication, assembly, and advanced packaging of semiconductors.
- The 20% growth, which matched last quarter's increase, was a result of rising demand for AI-related technologies and an associated demand recovery for consumer electronics, as well as stronger demand in China.
- DD's Water & Protection segment also experienced an upswing in demand, especially for its medical packaging products, as net sales decreased by just 2% compared to last quarter's 7% decrease. On a sequential basis, medical packaging sales grew by 10%, helping to offset softness in Shelter Solutions, which serves the residential and commercial construction markets with its protection and insulation products (Tyvek, Styrofoam, ArmorWall).
- As a result of the stronger top-line growth, DD achieved better operating leverage, leading to a 150-bps improvement in Operating EBITDA margin to 26.8%. In turn, the company handily exceeded Q3 EPS expectations, enabling it to raise its FY24 EPS guidance to $3.90 from its prior outook of $3.70-$3.80.
- Lastly, CEO Lori Koch, who was appointed to that position on May 22, 2024, commented that the company is making good progress on the business separation plan that it announced in conjunction with the CEO transition. Under the plan, DD would separate its Electronics business from the Water business, with the new DuPont being comprised of the existing businesses within the Water & Protection segment (excluding Water Solutions) and the majority of businesses within Industrial Solutions (including healthcare). DD is expecting the separation to be completed within the next year-and-a-half.
The main takeaway is that DD's exposure to the semiconductor industry is sparking a turnaround after a couple of challenging years that were marked by consistent revenue declines. Along with lower interest rates, which should be beneficial to DD's Shelter Solutions business, the emergence of AI should continue to act as a potent growth catalyst for the company.
Palantir Technologies spikes to new all-time highs on accelerating AI-related demand in Q3 (PLTR)
For back-to-back quarters, Palantir Technologies (PLTR +21%) delivered beats on its top and bottom lines in Q3 and forecasted upbeat Q4 revenue figures. Not much has been able to slow PLTR down this year as the stock tacks on roughly +200% gains YTD following today's explosive move. As an AI software developer founded as a CIA-funded startup two decades ago, artificial intelligence has underpinned PLTR's exceptional appreciation this year. Commercial enterprises and governments, from the U.S. to its allies, are latching onto the surging popularity of AI, supporting PLTR's accelerating growth in Q3 and its third consecutive quarter projecting energetic quarterly revenue guidance.
- PLTR's top line continued to accelerate, advancing by 30% yr/yr to $725.52 mln, supporting its improving profitability, with non-GAAP EPS expanding by 43% yr/yr to $0.10. Total customer count continued to grow nicely, up 39% yr/yr and 6% sequentially to 629.
- U.S. government revenue has been ramping up in recent quarters. However, in Q3, the segment took a giant step forward, growing revs by 40% yr/yr and 15% sequentially to $320 mln, a seven-fold increase compared to the prior year and the best growth rate over the past 15 quarters.
- International government revenue did not fare as well, growing by just 13% yr/yr and slipping by 5% from last quarter to $89 mln. However, this was expected as PLTR warned last quarter that the segment would be playing catch-up due to unfavorable deal timing.
- The commercial side was the showcase in Q3. Like U.S. government, U.S. commercial revs shifted into a higher gear, registering 54% growth yr/yr, up from the +33% delivered last quarter, to $179 mln. Management mentioned that this business is enjoying unprecedented demand as the company's AIP offering (AI software) drives new customer conversions and existing customer expansions. Commercial customers swelled by 77% yr/yr compared to 37% growth in the year-ago period.
- Internationally, commercial revs inched just 3% higher yr/yr and declined by 7% from last quarter to $138 mln, resulting from ongoing headwinds in Europe and a step-down in revenue from one enterprise in the Middle East.
- PLTR's Q4 revenue forecast of $767-771 mln, translating to roughly 26% growth yr/yr at the midpoint, underscores sustained AI demand. U.S. commercial revenue is expected to hold its impressive growth rate, with PLTR predicting at least a 50% jump yr/yr next quarter. Outside of revenue, management lifted its other financial targets for the year, including adjusted income and free cash flow.
Riding the AI wave kickstarted by NVIDIA (NVDA) over a year ago, PLTR has been on an unstoppable journey to all-time highs since. The company's quarterly revenue growth has consistently improved since last year, supporting a steady bump in profitability, ultimately leading to its inclusion in the S&P 500 last quarter. Without any cracks in AI appearing, PLTR remains in an excellent position to extract further gains as it showcases its technological advantage in the increasingly lucrative AI space.
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