Market Snapshot
| Dow | 43734.16 | +1512.28 | (3.58%) | | Nasdaq | 18979.25 | +540.08 | (2.93%) | | SP 500 | 5929.53 | +146.77 | (2.54%) | | 10-yr Note |
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| | NYSE | Adv 1726 | Dec 1087 | Vol 683 mln | | Nasdaq | Adv 2760 | Dec 1523 | Vol 6.60 bln |
Industry Watch
| Strong: Financials, Energy, Consumer Discretionary, Industrials, Information Technology |
| | Weak: Utilities, Real Estate, Consumer Staples, Health Care |
Moving the Market
--Optimism about growth prospects after Donald Trump wins presidential election and polling results point to likelihood of GOP sweep of Congress
--Financial stocks rallying big on optimism about deregulation
--Small-cap stocks surge on pro-growth optimism
| FOMC decision is Thursday's main event
06-Nov-24 15:30 ET
Dow +1512.28 at 43734.16, Nasdaq +540.08 at 18979.25, S&P +146.77 at 5929.53
[BRIEFING.COM] Entering the closing stretch of today's trading, the indices are basically sitting at their highs for the session. There has been some selling interest today, but the weight of gains in large-cap and mega-cap stocks has been a countervailing force that has made it look as if the indices have been impenetrable when it comes to selling activity.
The market-cap weighted S&P 500 is up 2.5% and the equal-weighted S&P 500 is up 2.4%. As nice as those gains are, they pale in comparison to the 5.7% gain in the Russell 2000 and the 3.9% gain in the S&P Midcap 400.
Thursday's session will feature the weekly Initial Jobless Claims Report, the Q3 Productivity Report, September Wholesale Inventories, and the September Consumer Credit Report. The main event, though, will be the FOMC decision at 2:00 p.m. ET followed by Fed Chair Powell's press conference at 2:30 p.m. ET.
Regional banks stocks soaring
06-Nov-24 15:00 ET
Dow +1444.36 at 43666.24, Nasdaq +526.40 at 18965.57, S&P +140.50 at 5923.26
[BRIEFING.COM] The stock market remains grounded in its rally effort, as the major indices continue to hold near their highs for the session.
The regional bank stocks comprise one of today's best-performing areas. The SPDR S&P Regional Banking ETF (KRE) is up 12.5%. There is some chasing action in that trade, and in many other trades today that are benefitting from momentum action tied to the election outcome.
Small-cap stocks are a popular play in that regard, as is Tesla (TSLA 288.92, +37.48, +14.9%), which is leveraging Elon Musk's strong support of president-elect Trump.
Small-cap value in leadership position
06-Nov-24 14:25 ET
Dow +1445.39 at 43667.27, Nasdaq +512.83 at 18952.00, S&P +137.83 at 5920.59
[BRIEFING.COM] The Russell 2000 continues to have a banner day, now up 5.5% as investors embrace a catch-up trade to larger-cap counterparts and the notion that above-potential growth will persist in the U.S. on the back of lower tax rates and deregulation under a new administration.
Small-cap value is in the leadership position in the small-cap space today. The Russell 2000 Value Index is up 6.1%.
With the market riding high on growth optimism today, relative and absolute strength is seen in many pockets with a cyclical orientation. That would include the financial (+5.7%), industrials (+3.9%), energy (+3.8%), and consumer discretionary (+3.2%) sectors.
There are some losers
06-Nov-24 13:55 ET
Dow +1455.87 at 43677.75, Nasdaq +508.75 at 18947.92, S&P +138.08 at 5920.84
[BRIEFING.COM] In aggregate the stock market is looking quite good today. That doesn't mean, however, that all stocks are looking good.
There is Super Micro Computer (SMCI 21.44, -6.26, -22.6%), for instance, which is getting slammed after tempering its fiscal Q1 and Q2 outlook and acknowledging it is not sure when it will be able to file its annual 10K report. Exact Sciences Corp (EXAS 54.78, -16.73, -23.3%) is another big loser following its earnings report.
In the Dow Jones Industrial Average, Home Depot (HD 387.50, -12.59, -3.2%), Nike (NKE 75.30, -2.68, -3.4%), Procter & Gamble (PG 160.75, -5.01, -3.0%), Coca-Cola (KO 63.86, -1.51, -2.3%), and Walmart (WMT 82.49, -1.19, -1.4%) are all lower, plagued by a combination of concerns that include rising interest rates, a stronger dollar that is a headwind for multinationals, and worries about tariff proposals for China that are expected to be met with tariff retaliation.
30-yr bond auction met with strong demand
06-Nov-24 13:25 ET
Dow +1439.82 at 43661.70, Nasdaq +491.69 at 18930.86, S&P +133.01 at 5915.77
[BRIEFING.COM] Not that stocks needed much more help today, but they got an added dose of good news at the top of the hour when the $25 billion 30-yr bond auction was met with strong demand.
The high yield stopped through the when-issued yield by 2.2 basis points while the bid-to-cover ratio (2.64x) was well above the prior 12-auction average (2.39x). Indirect takedown (62.7% vs 67.0%) was a touch below average, which was also the case at yesterday's 10-yr note offering.
Treasury yields have come in a bit after the auction while the Nasdaq Composite, S&P 500, and Russell 2000 all pushed to new session highs.
The 2-yr note yield, at 4.29% earlier, is up five basis points at 4.26% and the 10-yr note yield, at 4.48% earlier, is up 11 basis points at 4.40%.
Coupang pulls back from multi-year highs yesterday despite delivering upbeat Q3 numbers (CPNG)
Coupang (CPNG -11%) sinks today despite surpassing earnings and sales estimates in Q3 on a decent uptick in active customers and improving profitability within its new business division. Shares of the South Korean-based e-commerce company were gaining quickly since sinking toward multi-month lows in early August. The stock was at multi-year highs heading into Q3 results yesterday after the close, an over +20% move since August and a roughly +70% climb on the year. Given this context, CPNG's Q3 numbers, specifically its adjusted EPS, which was a penny less than last quarter, are not cutting it today, triggering a sell-the-news reaction.
- CPNG's Q3 adjusted EPS of $0.06 still marked another quarter of consistent profitability. Since shifting toward profits above growth in 2022, CPNG has delivered positive earnings in nine out of the past ten quarters. Management attributes this feat to a heightened focus on extracting efficiencies across its operations, such as deploying more automation and scaling margin-accretive offerings. Gross margins improved by 270 bps yr/yr when excluding Farfetch, the apparel company CPNG purchased earlier this year, to 28.1%.
- Revenue growth accelerated from last quarter, jumping by 27.2% yr/yr to $7.87 bln. Growth was largely supported by a 16% expansion in Product Commerce segment revs, which comprised 88% of Q3 revs. Average spend levels remained healthy in the quarter; net revs for active customers edged 4% higher yr/yr, or 8% in constant currency. Total active customers increased by 11% yr/yr to 22.5 mln.
- Complementing CPNG's core e-commerce business is its host of side gigs, including Eats (similar to DoorDash), Play (video streaming service), and Taiwan (services offered in the region), all contained in its Developing Offerings segment. This segment held its momentum enjoyed throughout the year, expanding revs by nearly 350% yr/yr, primarily lifted by Farfetch. When backing out this business, revs jumped by over 145%. Speaking of Farfetch, CPNG hit its milestone of reaching near-breakeven adjusted EBITDA in Q3, earlier than its year-end forecast.
- While CPNG does not issue formal guidance, management adds some comments. The company remains steadfast in its excitement over the untapped potential that lies ahead. However, it can take time for CPNG to continue to scale while maintaining profitability, particularly within its Developing Offerings segment. For instance, although Farfetch reached near-breakeven profitability in Q3, CPNG mentioned that there is still work to do before it begins to post consistent profits.
CPNG's Q3 report underscored steady upward momentum. Even though EPS may have dipped modestly lower sequentially, CPNG is delivering consistency amid a dynamic economic environment. Due to the nature of CPNG's investments and the timing of expenses, performance can fluctuate each quarter. However, over a longer timeframe, the company is conducting the right moves to expand its customer base and accelerate growth.
Qualys posts another quality earnings report, bolstered by new business wins (QLYS)
Qualys (QLYS) is soaring after issuing a strong beat-and-raise Q3 earnings report as the selling environment stabilized and as its customers continued to consolidate their cybersecurity tools onto its unified platform. Additionally, with the launch of Qualys TotalAI in Q4, QLYS is poised to capitalize on the emergence of AI and large language models and the significant security risks that these technologies present.
Although the company believes that budget scrutiny will linger into the foreseeable future, the launch of new products and capabilities, such as TotalAI and Enterprise TruRisk Management, and the bullish growth trends in new business wins, are expected to keep the positive momentum going. As such, QLYS issued upside Q4 EPS and revenue guidance of $1.28-$1.38 and $154.5-$157.50 mln, respectively.
- One of the brightest highlights was the disclosure that new business achieved a fifth consecutive quarter of double-digit growth. That's a testament to the effectiveness of its cybersecurity products and its marketing strategy, which relies heavily on leveraging its partner ecosystem. On that note, revenue from its channel partners grew by 17% in Q3, far outpacing the 1% growth on the direct side.
- QLYS also experienced stronger upsell activity this quarter, as reflected in its net dollar expansion rate climbing higher to 103% from 102% last quarter. As the company releases new products and capabilities, it's winning a larger percentage of customers' wallets.
- One minor blemish is that the company expects gross margin to be pressured a bit as it invests in its data centers in order to achieve greater operational efficiencies. More specifically, these investments amounted to a 1% headwind to Q3 gross margin, which was flat overall yr/yr at 83%, and QLYS is anticipating a similar 1% negative impact in Q4.
- Lastly, QLYS's solid earnings report is a bullish data point for competitors such as CrowdStrike (CRWD) and Zscaler (ZS), which are scheduled to issue their quarterly results on November 26 and November 27, respectively.
The IT spending climate has been constrained for many quarters, but investing in cybersecurity has generally been a priority and QLYS's beat-and-raise performance indicates that this trend remained in place in Q3. It's a highly competitive field, but QLYS's ongoing success in winning new business in a challenging environment shows that it's one of the premier names in the cybersecurity space.
Trump Trade: We take a look at which areas should benefit and which areas should get hurt
With Trump's win last night, our team of analysts brainstormed on sectors where his administration may be a positive and some areas where it could be a negative. This is not an exhaustive list, but some areas of interest:
- POSITIVE: Bank stocks should benefit from less regulatory oversight (BAC, C, CMA, JPM, PNC, WFC) and possibly higher rates on higher inflation/deficits; investment banks should benefit as well, particularly those with more exposure to M&A advisory (GS, MS). Regional Banks should benefit from the prospect of less regulation/fewer capital restrictions.
- Bitcoin and crypto are expected to do well as Trump has embraced the industry. Beneficiaries include COIN, HOOD, MSTR, BITO.
- Coal stocks are likely to benefit as Trump has not been a fan of clean energy. Fewer restrictions on coal production will help. Higher coal production would be good for rail stocks.
- Steel stocks are rallying today (X, CMC, NUE, STLD, MT, WOR) on the Trump victory. Not only has he promised to be more protectionist in terms of tariffs to protect American companies from foreign competition, but steel companies also get a second benefit in that coal prices may come down as Trump lessens regulation in terms of production (increases supply). Steel producers are a big consumer of coal to make steel.
- Electric utilities are another big consumer of coal. If supply increases, that should lower costs for them. Nuclear stocks would be another beneficiary.
- Defense stocks are likely to benefit from increased spending (AVAV, BA, GD, LMT, NOC, RTX).
- Biotech/pharma stocks should benefit as Trump will likely reduce scrutiny over drug prices.
- Consumer finance has been in crosshairs of regulators over fees: COF, DFS, SYF. Trump may alleviate some of that pressure.
- Private prison stocks should see a benefit (CXW +30%, GEO +29% are surging today) on the likelihood of border detention centers and prisons.
- Tesla (TSLA) is up nicely given Elon Musk's close relationship with Trump and what that might mean for his company.
- Trump Media (DJT) is up big today, not surprisingly. However, this is a volatile stock and caution is required.
- Possibly FNMA/FMCC as two of his top supporters own significant stakes and have been advocating for a plan to revive them.
- NEGATIVE:
- Solar stocks (TAN, FSLR, SEDG, ENPH, CSIQ) and other forms of clean energy are trading lower as Trump favors traditional energy sources and is not a big proponent of clean energy.
- Hospitals (CYH, THC, UHS) are trading lower on concerns that Trump with a GOP Congress could curtail certain aspects of the Affordable Care Act.
- Integrated oil stocks are higher as "Drill, baby, drill!" was a key mantra. However, that would ramp up supply and possibly pressure oil prices. However, it would be a benefit for oil drilling/oil service industries.
- Commodities trading lower on likelihood of a strong dollar, including gold (GLD -3%), also copper lower, possibly on China tariffs (COPX -6%).
CVS Health springs higher as investors start to warm up toward new CEO and restructuring plan (CVS)
CVS Health (CVS +10%) delivers Q3 earnings in-line with its previously lowered forecast and topples revenue expectations in the quarter, sufficient to alleviate recent selling pressure today. Shares were hovering near recent four-year lows ahead of today's report, triggered by a cascade of setbacks, from a weakening retail environment to rising medical costs. This series of obstacles ultimately led to a shakeup at the CEO position, with David Joyner replacing Karen Lynch three weeks ago. Mr. Joyner did not announce significant changes today. Instead, he is opting to stay the course of the company's ongoing restructuring actions to better contend with constantly bubbling costs.
- These rapidly rising medical costs were immediately evident in CVS's medical benefit ratio (MBR), which ballooned by 950 bps yr/yr to 95.2% in Q3. Similar to its health insurance peers, including Humana (HUM) and UnitedHealth Group (UNH), CVS is battling higher utilization and acuity in Medicaid related to the impact of redeterminations. On the bright side, CVS believes that signs of stabilization materialized toward the end of the quarter.
- Part of CVS's restructuring actions includes shuttering hundreds of stores, targeting 900 by year's end and announcing plans to close additional locations in 2025, tracking closely to rival Walgreens Boots Alliance (WBA), which is also amid a downsizing. Alongside a weakening retail environment, competitive pressures are intensifying. Amazon (AMZN) is seeking to disrupt the brick-and-mortar pharmacy industry, mentioning last month that it can deliver to 95% of first-time Amazon Pharmacy customers within two days.
- Still, as AMZN pointed out, physical pharmaceutical retailers comprise over 90% of prescriptions dispensed in the U.S., and CVS makes up a hefty piece of that pie, boasting $32.42 bln in revenue within its Pharmacy & Consumer Wellness segment in Q3, a 12.3% jump yr/yr. The double-digit gains were supported by increased prescription volume and drug mix, with same-store volumes edging +9.1% higher.
- While Health Services, which includes Caremark, recorded a 5.9% dip in revs yr/yr to $44.13 bln, dragged down by the previously disclosed loss of a large client and continued pharmacy client price improvements, Health Care Benefits enjoyed an encouraging 25.5% bump in revs to $33.0 bln, aided by growth in Medicare and commercial product lines. As a result, CVS grew total revs by 6.3% to $95.43 bln, nicely ahead of analyst forecasts.
Management is not provide formal guidance at this time but did offer some commentary. If trends persist at current levels, CVS's MBR could swell by over 700 bps yr/yr in Q4. The company also remains cautious in its outlook for front-store sales. However, come 2025, management sees a few tailwinds that could help spur upward momentum as next year unfolds, including improvement in contributions from its Health Care Benefits segment, which should result in margin recovery. CVS also expects growth in its Health Services business. While CVS sees 2025 as a transition year, it is confident it is taking the necessary steps to position it for long-term growth in subsequent years, an uplifting view.
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.
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