Market Snapshot
| Dow | 43729.34 | -0.59 | (0.00%) | | Nasdaq | 19269.45 | +285.99 | (1.51%) | | SP 500 | 5973.11 | +44.07 | (0.74%) | | 10-yr Note | +29/32 | 4.340 |
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| | NYSE | Adv 1659 | Dec 1060 | Vol 1.1 bln | | Nasdaq | Adv 2279 | Dec 1996 | Vol 9.3 bln |
Industry Watch
| Strong: Information Technology, Communication Services, Consumer Discretionary, Real Estate |
| | Weak: Financials, Energy, Industrials |
Moving the Market
-- Momentum following yesterday's post-election rally
-- Fear of missing out on further gains
-- Digesting FOMC policy announcement at 2:00 ET followed by Powell's press conference at 2:30 ET
-- Dropping Treasury yields
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Closing Summary
07-Nov-24 16:30 ET
Dow -0.59 at 43729.34, Nasdaq +285.99 at 19269.45, S&P +44.07 at 5973.11
[BRIEFING.COM] The S&P 500 (+0.7%) and Nasdaq Composite (+1.5%) moved further into record territory while the Dow Jones Industrial Average closed little changed from yesterday. The Russell 2000 declined 0.4% after yesterday's 6% surge.
The S&P 500 and Nasdaq Composite were higher through the whole session, hitting session highs in response to Fed Chair Powell's press conference, which followed the unanimous FOMC vote to cut the target range for the fed funds rate by 25 basis points to 4.50-4.75%, as expected.
The positive response in equities wasn't related so much to anything the Fed Chair said about policy, but rather more about what he didn't say -- or imply. Specifically, he didn't implicitly remove the possibility of another rate cut at the December FOMC meeting. Mr. Powell reiterated, as we thought he might, that policy is not on a preset course and that decisions will be made on a meeting-by-meeting basis.
The Fed chair seemed to be marveling at the strength of the economy and the Fed's policy settings, both of which he thinks are in a very good place. He deferred answering questions about how president-elect Trump's policy proposals might affect the Fed's decision-making, noting simply the Fed can't really model for them because it doesn't know any of the specifics yet.
As an aside, he sounded terse indicating he wouldn't resign his position if president-elect Trump asked him to, and said simply that the president firing or demoting him is not permitted under the law.
The major indices ultimately settled below session highs while Treasury yields, which moved to session lows during the press conference, settled near intraday lows. The 10-yr yield dropped nine basis points to 4.34% and the 2-yr yield dropped five basis points to 4.22%.
The initial upside bias in stocks was related to momentum from yesterday's post-election rally, along with a fear of missing out on further gains. A batch of economic data that was mostly in line with expectations also helped the positive bias. Today's releases featured a smaller than expected uptick in weekly jobless claims (to 221,000 from 218,000; Briefing.com consensus 222,000) and a preliminary reading of the Q3 Productivity/unit labor costs report that featured a smaller than expected increase in productivity (2.2%; Briefing.com consensus 2.3%) and a bigger than expected rise in labor costs (1.9%; Briefing.com consensus 0.5%)
- Nasdaq Composite: +28.4%
- S&P 500: +25.2%
- S&P Midcap 400: +18.0%
- Dow Jones Industrial Average: +16.0%
- Russell 2000: +17.5%
Reviewing today's economic data:
- Weekly Initial Claims 221K (Briefing.com consensus 222K); Prior was revised to 218K from 216K, Weekly Continuing Claims 1.892 mln; Prior was revised to 1.853 mln from 1.862 mln
- The key takeaway from the report is essentially the same as last week. Layoff activity remains calm, but for employees who do get laid off it is more challenging to find a new job, which is a reality consistent with a softening labor market.
- Q3 Productivity-Prel 2.2% (Briefing.com consensus 2.3%); Prior was revised to 2.1% from 2.5%, Q3 Unit Labor Costs-Prel 1.9% (Briefing.com consensus 0.5%); Prior was revised to 2.4% from 0.4%
- The key takeaway from the report is that productivity growth is helping to keep labor costs in check.
- September Wholesale Inventories -0.2% (Briefing.com consensus -0.1%); Prior was revised to 0.2% from 0.1%
Friday's economic calendar features the preliminary November University of Michigan Consumer Sentiment survey at 10:00 ET.
Treasuries settle with gains after FOMC decision
07-Nov-24 15:35 ET
Dow +49.74 at 43779.67, Nasdaq +292.06 at 19275.52, S&P +48.91 at 5977.95
[BRIEFING.COM] The S&P 500 (+0.8%) and Nasdaq Composite (+1.5%) reached fresh session highs ahead of the close.
Treasuries settled with gains, leading the 10-yr yield to drop nine basis points to 4.34% and the 2-yr yield to drop five basis points to 4.22%. This followed a smaller than expected uptick in weekly jobless claims (to 221,000 from 218,000; Briefing.com consensus 222,000) and a preliminary reading of the Q3 Productivity/unit labor costs report that featured a smaller than expected increase in productivity (2.2%; Briefing.com consensus 2.3%) and a bigger than expected rise in labor costs (1.9%; Briefing.com consensus 0.5%).
The Treasury market was also digesting the FOMC decision to cut the target range for the fed funds rate by 25 basis point to 4.50-4.75%. Fed Chairman Powell repeated in his press conference that decisions will be made on a meeting-by-meeting basis, adding that the labor market is not a source of meaningful inflationary pressures at this time. He also said that the election has no immediate impact on the central bank's decision making.
Stocks and bonds hold up well as Fed Chair gives comments
07-Nov-24 15:10 ET
Dow +6.39 at 43736.32, Nasdaq +286.71 at 19270.17, S&P +44.71 at 5973.75
[BRIEFING.COM] The three major indices remain near their best levels as Fed Chair Powell gives remarks.
Mr. Powell acknowledged that "we're not declaring victory, but we feel like the story is very consistent within inflation continuing to come down on a bumpy path over the next couple of years and settling around 2%." He also indicated that economy remains strong, but warned that "fiscal policy is on an unsustainable path. The level of our debt relative to the economy is not unsustainable."
Treasury yields haven't reacted much to the policy directive or to the Fed Chair's comments. The 10-yr yield is down ten basis points to 4.33% and the 2-yr yield is down seven basis points to 4.20%.
No surprises in FOMC decision
07-Nov-24 14:25 ET
Dow -19.78 at 43710.15, Nasdaq +253.36 at 19236.82, S&P +35.47 at 5964.51
[BRIEFING.COM] Today's Federal Open Market Committee (FOMC) decision was not expected to be surprising -- and it wasn't. The FOMC voted unanimously to cut the target range for the fed funds rate by 25 basis points to 4.50-4.75%.
Prior to the decision, the fed funds futures market had priced in a 100% probability that there would be a rate cut of 25 basis points.
Not surprisingly, the initial reaction in the market to this policy decision was muted. What market participants are anxious to hear is what Fed Chair Powell says at the 2:30 p.m. ET press conference.
Briefing.com's expectation is that he will reiterate that the Fed is going to remain data-dependent for its decisions and that policy decisions will be made on a meeting-by-meeting basis. Market participants, however, will be keen to hear if he makes any implicit comments that suggest the Fed might lean toward holding off on another rate cut at its December FOMC meeting.
According to the CME FedWatch Tool, there is a 29% probability that there won't be a rate cut in December -- still fairly low but roughly double where it was a month ago.
The directive describing today's decision said, "The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate." There was a nod, too, to the recognition that inflation has made progress toward the Fed's 2% goal but remains "somewhat elevated."
The Nasdaq Composite is up 1.4%; the S&P 500 is up 0.6%; the Dow Jones Industrial Average is flat; and the Russell 2000 is down 0.2%. the 2-yr note yield is down five basis points to 4.22% and the 10-yr note yield is down eights basis points to 4.35%.
Gold helped higher by dollar, yield losses
07-Nov-24 14:00 ET
Dow +17.02 at 43746.95, Nasdaq +255.68 at 19239.14, S&P +38.70 at 5967.74
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.35%) is today's top-performing average with about two hours to go on the session, and ahead of the Fed's rate decision which is due out at the top of the hour.
Gold futures settled $29.50 higher (+1.1%) to $2,705.80/oz, helped higher by declines in the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is down about -0.7% to $104.39.
Hershey Foods slips after weakening trends hurt Q3 numbers; confident in sales growth in 2025 (HSY)
A sour economic backdrop, elevated cocoa prices, and disappointing marketing performance set the stage for another lackluster quarterly report from Hershey Foods (HSY -2%). The chocolate and snack food giant missed adjusted earnings estimates by double-digits in back-to-back quarters in Q3 on lighter-than-expected revenue. With headwinds unabating, HSY trimmed its FY24 guidance, slicing around $0.49 off its earnings outlook and predicting revenue growth to stagnate yr/yr, a retreat from its previous +2% growth estimate.
- Cocoa prices have gradually declined from the crazy levels they reached earlier this year. However, they are still up over 40% from last year. To preserve its margins, HSY has been forced to pass these prices onto consumers, who are already contending with higher prices across much of their budgets. HSY noted that consumers across all incomes continue to make budgetary tradeoffs, shifting their shopping behavior toward channels like club, dollar, and online stores, where it has less developed exposure.
- At the same time, HSY's retail partners are managing inventory more tightly. Additionally, HSY is dealing with increasing competitive pressures, noting that in the U.S., it lost share to smaller players and private labels, particularly in the take-home chocolate category. Adding to the headaches, HSY commented that its promotional programming fell short of expectations during the quarter.
- These problems culminated in total snacking consumption softening to just +0.1% in the quarter, down meaningfully from the +0.9% -- an already weak figure -- in Q2. As a result, HSY delivered another quarter of underwhelming performance. HSY's adjusted EPS slid by 10.0% yr/yr to $2.34 on a 1.4% drop in revenue to $2.99 bln. Discouragingly, the issues are sticking around for the near term, eroding HSY's FY24 guidance.
What is HSY doing to counter economic troubles? Management noted that it is sharpening its seasonal planning. Already, the company feels good about the second-half growth plans discussed last quarter gaining momentum. For instance, sweets consumption accelerated from +5% in August to +23% in October, reflecting decent demand during Halloween.
Over the long term, HSY has outlined its priorities for returning to growth. First and foremost, HSY is looking to reignite the demand for chocolate. Trade and media investment is being redeployed to support HSY's many chocolate brands. Also, new offerings like freeze-dried Jolly Rancher candies are being rolled out to support HSY's confectionery business recovery. Meanwhile, HSY is prioritizing sustaining upward momentum in its salty snacks division, leaning on celebrity brand ambassadors and further media investments. Overseas, HSY is focusing on growth markets, including Latin America, the U.K., Australia, and India.
Overall, it was another tough quarter for the chocolate maker. While cocoa fundamentals are improving, it could take time before a recovery in West Africa (where cocoa is primarily harvested) and production growth across the rest of the world materializes. However, HSY is optimistic that 2025 should see the early innings of these trends, predicting positive sales growth, setting up the company to begin accelerating growth heading into 2026.
Qualcomm rides recovering handset market and emerging AI catalysts to post strong Q4 results (QCOM)
A strengthening recovering in the smartphone market, especially on the higher-end side, and continued strength in the automotive business helped Qualcomm (QCOM) handily beat 4Q24 EPS and revenue expectations. The semiconductor company also appears to be capitalizing on AI-related growth catalysts in a more meaningful way, such as the launch of Gen-AI enabled PCs and laptops, via its Snapdragon 8 series chips. With solid momentum across its three business lines -- Handsets, IoT, and Automotive -- QCOM provided a bullish outlook for 1Q25 as its EPS and revenue forecast were both above expectations, based on the midpoint of the guidance ranges.
- QCOM's growth strategy revolves around diversifying its end markets and revenue streams, but the handset market still accounts for approximately 60% of its total revenue. In Q4, handset revenue grew by 12% yr/yr to $6.09 bln, matching last quarter's growth rate, reflecting a rebounding smartphone market. Working in QCOM's favor is the fact that it skews towards the premium end of the smartphone market, including in China, its largest market. On that note, Android revenue grew by over 20%, driven by the company's premium-tier Snapdragon 8 Elite platform.
- For 1Q25, QCOM is forecasting growth to slow in handsets, projecting a mid-single-digit revenue increase. However, China is expected to remain a source of strength with revenue from Chinese OEMs jumping by 40% sequentially.
- The biggest turnaround occurred in QCOM's IoT business, which generated revenue growth of 22% to $1.68 bln, after posting yr/yr declines in each of the prior three quarters in FY24. IoT had been bogged down by a stubborn inventory glut across its OEM customers, but strengthening demand for AI-enabled PCs has pulled IoT out of its slump. During the earnings call, CEO Cristiano Amon noted that QCOM has expanded on its Snapdragon X series with the launch of Snapdragon X Plus 8-core platform, enabling OEMs to offer thinner and lighter Copilot+ PCs. Overall, QCOM now has a total of 58 platforms launched or in development across its X Series lineup.
- Turing to Automotive, the strong momentum continues as revenue jumped by 68% yr/yr to $899 mln, with another 50% increase forecasted for 1Q25. This growth is being fueled by the emergence of ADAS and self-driving technologies. To that end, QCOM recently launched the Snapdragon Cockpit Elite and Snapdragon Ride Elite platforms, which are being developed for assisted driving functionalities.
The main takeaway is that QCOM's diversification strategy paid big dividends in Q4 as each of its businesses delivered solid growth. Longer-term risks do remain, most notably including the expected loss of Apple (AAPL) as a customer as the iPhone maker moves to its own chips, but QCOM's expanding presence in the PC/laptop market should help to provide a buffer, especially if a strong PC upgrade cycle ensues with the launch of new AI features.
Arm Holdings plc bounces strongly following an initial pullback on its unchanged FY25 outlook (ARM)
After immediately retreating despite exceeding top and bottom-line forecasts in Q2 (Sep), investors lent Arm Holdings (ARM +3%) a hand out of the gate today, picking it up from premarket lows of -7%. The CPU designer did not post glaring weaknesses from Q2. The smartphone market continued to gradually recover, AI demand remained hot, and the adoption of ARM's latest chips continued to mount. However, given these uplifting trends, ARM's unchanged FY25 (Mar) guidance initially proved inadequate. While the market likely wanted a more rosy outlook to align with the upward momentum unfolding across ARM's operations, it has been quick to shrug off this minor nitpick.
- Since ARM's IPO last year, the company has delivered meaningful quarterly earnings and revenue upside. Q2 was no exception, as ARM registered adjusted EPS of $0.30 on revs of $844 mln, a 4.7% improvement yr/yr.
- Management declared that the demand for AI is everywhere, raising the need for ARM's platform, reflected by a 23% jump in royalty revenue yr/yr to $514 mln in Q2. Supporting double-digit gains is the ongoing smartphone market recovery. However, more important is the content per device. Companies are incorporating more CPUs inside their chips based on ARM's latest v9 architecture, compounding royalty revenue. For example, smartphone unit growth was a mild 4% in the quarter, yet ARM's royalty revenue for smartphones surged by 40%.
- Meanwhile, ARM benefits from its technological advantage of running AI from the edge, e.g., on an iPhone (AAPL), to the cloud, e.g., in NVIDIA's (NVDA) Grace Blackwell platform. ARM is also working alongside other big tech firms, including Meta Platforms (META), on optimizing its Llama 3.2 offering, Microsoft (MSFT) with its Azure Cobalt virtual machines, and Google (GOOG) in its Axion processors.
- Pulling against the AI-led royalty revenue growth was a 15% drop in licensing revenue to $330 mln. Still, the drop outpaced ARM's expectations of a 25% decline. Management mentioned it is seeing fairly broad licensing demand across all markets and sectors. ARM's licensing pipeline acts as a relatively dependable forward indicator for the strength of the business and royalties, making its better-than-expected yr/yr compression a good sign for future growth.
- Still, ARM kept its FY25 financial goals unchanged, targeting adjusted EPS of $1.45-1.65 and revs of $3.8-4.1 bln. The underlying cause was licensing timing, which fluctuates from quarter to quarter. ARM added that the timing of some of its large licensing deals in the works and the shape of subsequent revenue recognition is unclear. However, the company does expect all of these deals to close eventually.
AI underpinned ARM's solid Q2 numbers, while a gradual smartphone market recovery provided further kindling. While the stock has more than doubled YTD, shares currently trade at roughly 20% below all-time highs reached in July. Some nerves may still be lingering regarding the ongoing inventory correction affecting many semiconductors. Also, with around a fifth of revs dependent on China, further uneasiness could be branching from the shaky economic conditions in the region.
Zillow investors are SOLD! on huge Q3 revenue growth; Rentals segment starting to make its mark (ZG)
Zillow (ZG +23%) is heading sharply higher after reporting Q3 results last night. Zillow reported its typical solid EPS beat. However, what really stood out was its 17.1% yr/yr revenue growth to $581 mln, nicely above prior guidance of $545-560 mln. This was Zillow's strongest top line growth since 1Q22. Adjusted EBITDA grew 19% yr/yr to $127 mln, well above the $95-110 mln prior guidance. Zillow also guided Q4 revs in-line. Of note, this was the first full quarter since Jeremy Wacksman became CEO.
- Residential segment revenue grew 12% yr/yr to $405 mln, nicely above $375-385 mln prior guidance. This was notable higher than Q2's +8% yr/yr growth. Its Premier Agent revenue benefited from continued conversion improvements as more buyers and sellers transacted with Zillow agent partners. ZG also had a strong quarter of growth in Zillow Showcase, its premium marketing package, which now represents nearly 1.5% of all new for-sale listings in the country. Also, its New Construction marketplace and software from ShowingTime+ and Follow Up Boss performed well. ZG said the combination of these factors led to better-than-expected results.
- Rentals revenue jumped 24% yr/yr to $123 mln, driven primarily by multifamily revenue, which grew 38%. ZG increased the number of multifamily properties on its apps and sites by 34%, reaching an all-time high of 47,000 properties, up quite a bit from 44,000 at the end of Q2. Zillow rolled out a national ad campaign for Rentals this summer (Q2-Q3) and it appears to have paid off as it noticeably expanded Zillow brand awareness for apartment seekers. With steady growth, ZG believes Zillow Rentals is well on its way toward becoming a $1+ bln revenue opportunity.
- Mortgages was another bright spot as revenue surged 63% yr/yr to $39 mln, with purchase loan origination volume growing 80%.
- Looking ahead to Q4, ZG expects total revenue of $525-540 mln and adjusted EBITDA of $90-105 mln. The company expects that the housing market will continue to bounce around at current levels, implying modest yr/yr growth in Q4. While there continues to be a pent-up desire to move, affordability remains a challenge. ZG says its Q4 outlook takes this into consideration.
Overall, Zillow performed well with a healthy EPS beat, but what really jumped off the page was the huge revenue growth. There was a noticeable yr/yr acceleration in all three operating segments relative to Q2. The company is best known for home sales, but branching into Rentals and Mortgages has been a smart move. Rentals growth was particularly impressive in Q3, and now makes up more than 20% of revs.
Doing sales and rentals makes sense, because when rates are high, more people rent and when rates decline, more people buy. So the two segments complement each other. On a final note, rates have increased in recent weeks, which may impact the spring selling season. That will be something to watch.
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.
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