| | | Market Snapshot
| Dow | 43750.86 | -207.33 | (-0.47%) | | Nasdaq | 19107.67 | -123.07 | (-0.64%) | | SP 500 | 5949.18 | -36.21 | (-0.60%) | | 10-yr Note | +4/32 | 4.42 |
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| | NYSE | Adv 1031 | Dec 1680 | Vol 946 mln | | Nasdaq | Adv 1389 | Dec 2891 | Vol 8.7 bln |
Industry Watch
| Strong: Information Technology, Energy |
| | Weak: Consumer Discretionary, Health Care, Industrials, Materials, Communication Services |
Moving the Market
-- Digesting October PPI, which stirred concerns about sticky inflation, and weekly jobless claims, which reflect ongoing strength in the labor market
-- Watching Treasury market action following this morning's data
-- Expectations for some consolidation after huge gains in wake of election
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Closing Summary
14-Nov-24 16:25 ET
Dow -207.33 at 43750.86, Nasdaq -123.07 at 19107.67, S&P -36.21 at 5949.18
[BRIEFING.COM] The major indices closed with losses across the board. The S&P 500 dropped 0.6%, the Nasdaq Composite declined 0.6%, and the Dow Jones Industrial Average fell 0.5% while the Russell 2000 underperformed with a 1.4% loss.
Selling was driven by normal consolidation efforts after a huge run in equities following the election. The Russell 2000 is still 3.4% higher than its close ahead of the election results.
This morning's economic data provided initial fuel for ongoing profit-taking activity. The October Producer Price Index, released at 8:30 ET, reflected rising inflation at the wholesale level while weekly jobless claims remained below recession-like levels, reflecting ongoing strength in the labor market that may translate to higher consumer spending, piling more pressure on inflation.
The data was followed by 3:00 ET remarks by Fed Chair Powell indicating that the "economy is not sending any signals that we need to be in a hurry to lower rates."
The major indices hit session lows in response to the comments and market participants recalibrated rate cut expectations. The fed funds futures market now sees a 58.9% probability of a 25 basis points rate cut at the December FOMC meeting, down from 82.5%, according to the CME FedWatch tool.
Treasuries had a volatile response. The 10-yr yield was nearing 4.50% earlier, but settled three basis points lower than yesterday at 4.42% and the 2-yr yield settled one basis point higher at 4.29%.
Losses were fairly broad based, leading nine of the 11 S&P 500 sectors to register declines. Three of them closed more than 1.5% lower than yesterday.
Dow component Walt Disney (DIS 109.12, +6.40, +6.2%) went against the downside grain, jumping in response to earnings news.
- Nasdaq Composite: +27.3%
- S&P 500: +24.7%
- S&P Midcap 400: +16.6%
- Dow Jones Industrial Average: +16.1%
- Russell 2000: +15.3%
Reviewing today's economic data:
- Weekly Initial Claims 217K (Briefing.com consensus 220K); Prior 221K, Weekly Continuing Claims 1.873 mln; Prior was revised to 1.884 mln from 1.892 mln
- The key takeaway from the report is rooted in the low level of initial jobless claims -- a leading indicator -- which suggests employers are feeling reasonably good about the economic outlook, as they appear reluctant to layoff employees.
- October PPI 0.2% (Briefing.com consensus 0.2%); Prior was revised to 0.1% from 0.0%, October Core PPI 0.3% (Briefing.com consensus 0.3%); Prior 0.2%
- The key takeaway from the report is that there was inflation in this report -- not disinflation -- at the wholesale level. That will stir concerns about PCE inflation sticking at higher levels and the Fed not cutting rates as much as previously envisioned.
Looking ahead, Friday's economic calendar features:
Ibotta getting clipped as digital coupon company issues disappointing Q4 guidance (IBTA)
Ibotta (IBTA) isn't looking like such a great bargain to investors after the provider of a digital coupon and promotions platform issued its Q3 earnings report. Heading into the print, the stock had been on a roll, rallying by 27% since the beginning of October, indicating that expectations were high for the company, especially in the wake of signing a major new deal with grocery delivery company Instacart (CART) in August. While IBTA did indeed post strong Q3 results that topped EPS and revenue expectations, its guidance for Q4 fell flat, instigating a sharp profit-taking pullback in the stock.
- Total redemption revenue increased by a healthy 28% yr/yr to $84.5 mln while the total number of redeemers on the Ibotta Performance Network (IBN) soared by 63%. In fact, in Q3, coupon redeemers reached a new record high of 15.3 mln, illustrating how IBTA's business performs well in difficult economic times. On that note, the company commented nearly half of Americans are living paycheck-to-paycheck, while nearly a third of consumers are spending about 90% of their income on necessities.
- IBTA's redemption revenue growth is being entirely driven by third party redeemers (3P), such as Walmart (WMT), Kroger (KR), and Costco (COST). More specifically, third party publisher redemption revenue rocketed higher by 129% yr/yr, compared to a 20% drop in the direct-to-consumer channel.
- Not only is IBTA seeing a surge of consumers come to its platform, but it's also experiencing strong growth in the number of consumer-packaged goods (CPG) clients. In FY24, the company has seen a 65% increase in gross billings for its CPG redemption business.
- The strong redemption and revenue growth is generating operating leverage, resulting in Q3 adjusted EBITDA margin improving to 37% from 28% in the year-earlier period. Adjusted EBITDA of $36.5 mln came in above IBTA's Q3 guidance of $28-$32 mln.
- Clouding over these positives is IBTA's Q4 revenue guidance of $100-$106 mln, which fell short of expectations, and its forecast of a qtr/qtr decline in adjusted EBITDA to $30-$34 mln. Typically, Q4 is IBTA's seasonally strongest quarter of the year, but this year the company expects downward pressure on redemption revenue in Q4. This is due to its CPG customers exhausting their 2024 promotional budgets faster than anticipated, leaving less to allocate in Q4.
- On the positive side, IBTA said that it has received indications from its largest clients that they intend to increase their investment levels as they set their 2025 budgets. Furthermore, the company is expecting the CART partnership to contribute more meaningfully in 2025.
The main takeaway is that IBTA's disappointing Q4 guidance is clouding over its solid Q3 results, but the downside guidance does appear to be more temporary in nature as its CPG customers burnt through their promotional budgets faster than expected. IBTA's business should still thrive as consumers remain in a cost-conscious mindset, and as CPG companies look for ways to become more competitive on price.
JD.com's Q3 results not enough to squash lingering concerns over end-consumer demand in China (JD)
As the first prominent China-based e-commerce company to issue Q3 results, JD.com's (JD -4%) performance sets the stage ahead of its rivals' upcoming reports, including PDD (PDD) and Alibaba (BABA). While JD exceeded earnings estimates, a typical occurrence for the company, revenue growth, albeit in-line with consensus, was insufficient in squashing lingering concerns surrounding the health of the end consumer in China.
The region has been dealing with economic hardship as job losses mount and the real estate sector struggles, prompting major stimulus measures, including interest-rate cuts and lowering bank reserves. However, as other companies operating in China have discussed, JD mentioned that while consumer sentiment is beginning to improve, it can take time for these initiatives to trickle down to the end consumer.
- Revenue growth remained sluggish in Q3, expanding by 5.1% yr/yr to RMB 260.39 bln, led by relatively healthy demand within JD's general merchandise category, which boasted an 8% jump in revs. The non-discretionary supermarket category primarily underpinned this growth, recording another quarter of double-digit gains. JD has been enriching its supermarket product portfolio to cover more price tiers, supporting a 20% uptick in shopping frequency in the quarter.
- A component of China's stimulus includes subsidizing trade-ins for home appliances, electronics, and vehicles. JD has seen promising outcomes thus far, noting that the trade-in program has driven increased demand for appliances and consumer electronics, with sales climbing sequentially throughout each month in Q3. However, management added that the full potential of this policy has yet to be realized, primarily due to a lack of awareness and pockets of supply chain constraints.
- Profitability has been a highlight for JD over the past few quarters, underscoring improving supply chain capabilities. In Q3, non-GAAP operating margins inched 50 bps higher yr/yr to 5%, driving JD's 18th consecutive earnings beat. The company remarked that it remains at the beginning of exploring its potential to drive further profitability improvements.
- Going forward, JD will stay focused on strengthening its supply chain and fostering user growth and engagement. Thus far, its actions have led to encouraging numbers, including quarterly active customers growing at a double-digit clip yr/yr for the past four quarters, with Q3 being the highest. Additionally, JD is receiving a positive response regarding its increased coverage of free shipping service and its JD PLUS membership program.
There were several highlights in Q3, including a decent uptick in general merchandise demand and sustained solid shopping frequency growth. JD also stated that it is encouraged by the government's stimulus measures, which it anticipates will create employment in the lowest household income level, eventually boosting longer-term consumer confidence. However, JD's performance was not robust enough to alleviate fears over a longer-than-expected economic downturn in China, especially if the government does not enact further stimulus aimed more toward the end consumer.
Walt Disney investors "marvel" at strong Q4 results and outlook as theatrical business shines (DIS)
Walt Disney's (DIS) magical touch returned in 4Q24, thanks to another swing higher in profitability for DTC Streaming and a banner quarter for the theatrical film business in which CEO Bob Iger called "one of the best quarters in the history of our film studio." Although it's still contending with macro-related headwinds, the theme park business also performed better than anticipated, contributing to DIS's earnings beat and bullish outlook for FY25 that calls for high-single-digit EPS growth.
- After generating its first operating profit in its short history last quarter, all eyes were on DTC Streaming this quarter to see if the unit could continue to build off of that milestone achievement. Bolstered by price hikes for Disney+ and Hulu, subscriber growth, and lower marketing costs at Disney+, DTC Streaming did indeed keep the momentum going with operating income growing to $321 mln from $47 mln last quarter.
- While subscriber growth for Disney+ has cooled substantially, partly due to those steady price hikes, the streaming service continues to add subscribers at a better-than-expected pace. In Q4, Disney+ Core subscribers grew by 4% to $122.7 mln, easily exceeding analysts' estimates and representing an acceleration from Q3's growth of 1%. DIS did warn of a modest qtr/qtr decline in Q1 Disney+ subscribers, but the company has been exceeding its conservative guidance on this metric recently.
- Overall, the Entertainment segment delivered exceptional results as revenue increased by 14% to $10.8 bln and operating income surged by 352% yr/yr to $1.07 bln. The huge turnaround in profitability for DTC is playing a significant role here, but like last quarter, the star of the show was DIS's film studio business. Fueled by two blockbuster hits -- Inside Out 2 and Deadpool & Wolverine -- revenue in Content Sales/Licensing jumped by 39% yr/yr to $2.59 bln, helping operating income swing into positive territory at $316 mln compared to $(149) mln in the year-earlier period.
- What's really adding fuel to the fire for DIS shares is the company's outlook, particularly for Entertainment. Specifically, DIS is forecasting double-digit operating income growth for FY25 as Entertainment DTC's (which excludes EPSN+) operating income improves by $875 mln compared to FY24.
- Turning to Experiences, the slowdown in domestic leisure travel demand, coupled with a downturn in the international theme park business, weighed on Q4 results. Operating income fell by 6% yr/yr to $1.66 bln, which was essentially in line with DIS's guidance of a mid-single-digit decline for Q4. However, the company had good news to share here, too. During the earnings call, CEO Bob Iger commented that DIS saw a strengthening in the consumer and that he expects that trend to continue into 2025, benefitting the theme park business.
- On that note, DIS guided for operating income growth of 6-8% for Experiences, with that growth weighted towards 2H25. Hurricanes Helene and Milton will impact operating income by about $130 mln in Q1, but attendance and per capita spending trends are both moving in the right direction. Additionally, following a 32% plunge in Q4 operating profit for international parks that was partly due to the Paris Olympics, DIS expects demand to recover at both Disney Paris and Disney Shanghai.
It's difficult to cover all of the bases with DIS since there's always so much happening at the entertainment and media giant. In addition to everything noted above, the company also said that it plans to increase its quarterly dividend and to buy back $3 bln in stock in FY25. The bottom line is that while there are still some pockets of weakness, including the struggling linear cable business, DIS has struck the right balance between growth and profitability, and that is being reflected in the stock's sizable gains today.
Cisco kicks off FY25 on a solid note; customers have worked down inventory, resumed orders (CSCO)
Cisco Systems (CSCO -2%) is trading slightly lower despite the company reporting nice EPS upside for Q1 (Oct). Revenues fell 5.6% yr/yr to $13.84 bln, but analysts were expecting a larger drop. The Q2 (Jan) guidance was impressive with upside EPS and the mid-point of revenue guidance was above expectations. By geographic segment, revenue from the Americas was down 9%, EMEA down 2%, and APJC up 1%.
- Product revenue was down 9.2% yr/yr to $10.11 bln while Services revenue grew 6% to $3.73 bln. Networking was down 23% as Cisco was lapping an elevated level of shipments last year. However, Cisco did see strong order growth across its Networking products as customers have worked down inventory and deployed the networking products that were shipped to them last year. Security was up 100% yr/yr, but much of that was driven by the Splunk acquisition.
- Its recurring revenue metrics were a bright spot as ARR ended the quarter at $29.9 bln, up 22% with product ARR growth of 42%. Total subscription revenue increased 21% to $7.8 bln, representing 57% of Cisco's total revenue. Total software revenue was up 24% at $5.5 bln, with software subscription revenue up 35%. Cisco is not just a hardware company, it has made strides branching into software subscriptions, which provide recurring revenue streams.
- Building on the growing demand it saw at the end of FY24, product orders grew 20% yr/yr in Q1 and were up 9% organically. This is an acceleration from the 14% product order growth reported last quarter. Cisco sees this as a clear sign of normalizing demand. Enterprise product orders were up 33%, driven by particularly strong performance in the Americas and EMEA across a broad range of customers.
- Cisco saw continued strong momentum in service provider and cloud, with product orders up 28%, driven by triple-digit growth in webscale. Cisco said its AI pipeline continues to be strong. It has earned more design wins and remains confident it will exceed its target of $1 bln of AI orders this fiscal year from webscale customers.
- Its Networking portfolio saw double-digit product order growth overall, driven by switching, wireless and Internet infrastructure. Within data center switching, in particular, Cisco has seen three consecutive quarters of double-digit order growth and an acceleration from Q4 into Q1. Cisco expects this momentum to continue as customers are showing significant interest in its 400-gig and 800-gig switches based on Silicon One.
Overall, this was a very good quarter for Cisco. That was particularly evident in the strong order growth numbers. That tells us customers have finally worked down inventory levels and are ordering more product. It also sounds like its AI-related business is doing well with data center orders on the rise. In terms of the lackluster stock response, we think that is mostly because shares had run nearly 30% since its last earnings report. As such, a good report was likely priced in already and investors want to lock in some profits.
Advance Auto initiates major changes in Q3 to repair nagging issues, improve competitiveness (AAP)
After another earnings miss and a surprisingly steep sales miss in Q3, Advance Auto (AAP +8%) finalized a sweeping overhaul of its operations. The auto parts retailer is looking to close over 500 corporate stores and 200 independent locations alongside a handful of distribution centers. In connection with the closings, AAP will accelerate the pace of new store openings, likely anticipating that a refreshed look and more lucrative location will pull consumers away from the competition, including AutoZone (AZO) and O'Reilly (ORLY). AAP is also fortifying its product assortment, bringing parts to market faster and improving availability while managing prices and promotions to enhance gross margins.
AAP anticipates its actions will result in net sales of $8.4-8.6 bln in FY25, growing this to around $9.0 bln by FY27. While the FY27 figure is identical to AAP's FY24 projection, the company is shuttering 700 locations by mid-2025, removing a massive source of revenue. As such, AAP predicts achieving the same revenue from FY24 but with considerably less, which should provide a decent boost to earnings. AAP also expects comparable sales growth to inch higher over the next few years following its -1.0% estimate in FY24, targeting +0.5-1.5% in FY25 and positive low-single-digits in FY27.
- In the interim, the macroeconomic environment continues to hinder DIY demand, with comps sliding by a low-single-digit percentage in Q3. However, a new unfavorable development unfolded in Q3 as AAP's typically strong Pro business also endured a low-single-digit drop. As a result, AAP reversed its string of improving same-store sales performance, registering a -2.3% decline in Q3. This dragged total revenue down by 3.2% yr/yr to $2.15 bln, falling noticeably short of consensus.
- It is worth mentioning that two one-off events clipped comp growth by roughly 50 bps in Q3. First, AAP was adversely impacted by the global CrowdStrike system outage, which resulted in AAP being temporarily unable to serve customers. Second, Hurricane Helene disrupted sales at over 300 locations.
- Due to a favorable yr/yr comparison and a stabilization of product costs, AAP expanded its gross margins by 540 bps yr/yr to 42.3% in Q3. Adjusted operating income from continuing operations (AAP divested its Canadian Worldpac business this year) also improved mightily from -3.3% in the year-ago period. However, due to the one-off headwinds in Q3, AAP's adjusted EPS went red at $(0.04).
AAP has been amid a turnaround for some time, gradually making inroads on its initiatives to increase free cash flow and become more competitive. We mentioned in late February that AAP's check engine light was still flashing even after making a few repairs, likely resulting in a few more quarters before a turnaround can accelerate. However, AAP may finally be turning a corner. We noted in our preview that comprehensive changes could be coming given how far AAP has sunk this year, and outlining a sufficient plan of action could quickly flip investor sentiment. Nevertheless, given AAP's past turnaround struggles, it may be better to wait another quarter to see if its initiatives stay on track.
- 8:30 ET: October Retail Sales (Briefing.com consensus 0.3%; prior 0.4%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.5%), November Empire State Manufacturing (Briefing.com consensus 3.3; prior -11.9), October Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.1%), Export Prices (prior -0.7%), and Export Prices ex-agriculture (prior -0.9%)
- 9:15 ET: October Industrial Production (Briefing.com consensus -0.3%; prior -0.3%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.5%)
- 10:00 ET: September Business Inventories (Briefing.com consensus 0.2%; prior 0.3%)
Losses mounting ahead of the close after Powell speech
14-Nov-24 15:30 ET
Dow -202.32 at 43755.87, Nasdaq -118.56 at 19112.18, S&P -31.55 at 5953.84
[BRIEFING.COM] Losses in the major indices are building ahead of the close.
Increased selling activity coincided with Fed Chair Powell saying in a speech that the "economy is not sending any signals that we need to be in a hurry to lower rates." He added that the path to a more neutral policy setting in not preset.
Rate cut expectations have decreased. The fed funds futures market now sees a 55.5% probability of a 25 basis points rate cut at the December FOMC meeting, down from 82.5%, according to the CME FedWatch tool.
TSLA, bank stocks fall under profit-taking after election surge
14-Nov-24 15:00 ET
Dow -164.23 at 43793.96, Nasdaq -98.76 at 19131.98, S&P -27.00 at 5958.39
[BRIEFING.COM] The market turned lower in recent action with no specific catalyst.
Tesla (TSLA 313.64, -16.57, -5.1%) is falling under profit-taking activity after surging in the wake of the election results. Shares are still higher by nearly 25% since last Tuesday.
Bank stocks are also sliding after benefitting from post-election buying. The SPDR S&P Bank ETF (KBE) sports a 0.5% decline.
Semiconductor-related shares take leadership role
14-Nov-24 14:35 ET
Dow -123.63 at 43834.56, Nasdaq -70.23 at 19160.51, S&P -19.23 at 5966.16
[BRIEFING.COM] The major indices trade off session lows. The S&P 500 is 0.3% lower and the Dow Jones Industrial Average sports a 0.2% decline.
Chipmakers are still holding up well today, benefitting from some buy-the-dip interest. The PHLX Semiconductor Index (SOX) to trade 0.3% higher.
Separately, Treasury yields are moving slightly higher. The 10-yr yield, which hit 4.39% earlier, moved to 4.42% in recent action. The 2-yr yield hit 4.25% earlier, but moved to 4.29%.
Passive investors taking a pass
14-Nov-24 13:55 ET
Dow -174.32 at 43783.87, Nasdaq -88.35 at 19142.39, S&P -26.68 at 5958.71
[BRIEFING.COM] Outside of individual stocks like Walt Disney (DIS 109.00, +6.28, +6.1%), which impressed investors with its fiscal Q4 earnings report and FY25 outlook, there hasn't been any buying conviction at the index level.
Passive investors have been taking a pass so far, taking stock of the market's stretched valuation and short-term overbought posture perhaps as a basis to hold back for now. At its current level, the market cap-weighted S&P 500 is trading at 22.3x forward 12-month earnings, which is a 23% premium to the 10-year average of 18.1, according to FactSet data.
While Walt Disney is the Dow Jones Industrial Average's biggest point gainer and percentage mover today, UnitedHealth (UNH 591.82, -14.05, -2.3%) shares the counter distinction of being its biggest point loser. Salesforce (CRM 333.51, -8.21, -2.4%), however, has nudged it out as the Dow's biggest loser in percentage terms.
A look at the S&P 500 sectors shows the industrials (-1.5%) and consumer discretionary (-1.2%) sectors bringing up the rear while the heavily-weighted information technology sector (+0.1%) sits at the head of the pack with the utilities (+0.3%) and consumer staples (+0.1%) sectors. |
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