| | | Market Snapshot
| Dow | 43389.60 | -55.39 | (-0.13%) | | Nasdaq | 18791.83 | +111.69 | (0.60%) | | SP 500 | 5893.63 | +23.00 | (0.39%) | | 10-yr Note | +2/32 | 4.41 |
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| | NYSE | Adv 1551 | Dec 1134 | Vol 906 mln | | Nasdaq | Adv 2139 | Dec 2186 | Vol 8.5 bln |
Industry Watch
| Strong: Consumer Discretionary, Consumer Staples, Energy, Materials, Communication Services |
| | Weak: Industrials, Health Care |
Moving the Market
-- Mega cap stocks build upside momentum, boosting broader equity market
-- Treasury yields moving lower, supporting buying in equities
-- Waiting on earnings news this week from NVIDIA (NVDA) and a batch of retailers
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Closing Summary
18-Nov-24 16:25 ET
Dow -55.39 at 43389.60, Nasdaq +111.69 at 18791.83, S&P +23.00 at 5893.63
[BRIEFING.COM] The S&P 500 (+0.4%), Nasdaq Composite (+0.6%), and Russell 2000 (+0.1%) closed with gains. The day started out slow, but buying picked up steam after Treasury yields moved lower. The 10-yr yield approached 4.50% overnight, but settled one basis point lower than Friday at 4.41%.
The upside bias was also fueled by buy-the-dip interest following last week's consolidation, which saw the major indices give back some of their post-election gains. Strength in mega-cap stocks and semiconductor-related names contributed to overall index gains. However, NVIDIA (NVDA 140.15, -1.83, -1.3%) was among the outliers, trading lower after reports from The Information suggested customers are concerned about overheating issues with its AI chips. The company is set to report earnings after Wednesday’s close.
Meanwhile, Tesla (TSLA 338.74, +18.02, +5.6%) was up sharply, extending its post-election rally on news from Bloomberg that the Trump administration may ease regulations on self-driving cars. The stock has surged 37.8% since November 5, helping lift the S&P 500 consumer discretionary sector by 0.9%.
The energy sector (+1.0%) was the best performer, driven by rising commodity prices. WTI crude oil futures settled 3.2% higher at $69.18/bbl, while natural gas futures settled 5.3% higher at $2.97 per mmbtu.
Nine out of the 11 sectors closed higher than Friday’s close, indicating broad-based buying interest. The health care sector settled little changed from Friday, weighed down by Eli Lilly (LLY 727.20, -19.00, -2.6%) after reports that some Republican Senators are reportedly open to Robert F. Kennedy Jr.'s nomination for Secretary of Health and Human Services.
Today's economic data included the November NAHB Housing Market Index, which rose to 46 in November (Briefing.com consensus 43) from 43 in October.
Looking ahead to Tuesday, the October Housing Starts and Building Permits report will be released at 8:30 ET.
- Nasdaq Composite: +25.2%
- S&P 500: +23.6%
- S&P Midcap 400: +15.5%
- Dow Jones Industrial Average: +15.1%
- Russell 2000: +13.8%
Treasuries settle mostly higher
18-Nov-24 15:35 ET
Dow -56.30 at 43388.69, Nasdaq +125.41 at 18805.55, S&P +24.52 at 5895.15
[BRIEFING.COM] The stock market moved mostly sideways at the index level in recent trading. The S&P 500 trades about 25 basis points higher.
The 10-yr yield dropped one basis point to 4.41% and the 2-yr yield dropped two basis points to 4.28%.
Looking ahead to Tuesday, the October Housing Starts and Building Permits report will be released at 8:30 ET.
Treasuries remain near intraday low yields
18-Nov-24 15:05 ET
Dow -67.42 at 43377.57, Nasdaq +118.56 at 18798.70, S&P +24.56 at 5895.19
[BRIEFING.COM] There hasn't been much up or down action at the index level in recent trading.
Walmart (WMT 83.95, -0.29, -0.4%), Vipshop (VIPS 13.83, -0.10, -0.7%), and Jacobs Solutions (J 139.83, -0.17, -0.2%) trade down in front of their earnings reports Tuesday morning. Medtronic (MDT 88.01, +0.48, +0.6%), which also reports earnings Tuesday morning, trades higher.
Elsewhere, Treasuries remain near their intraday low yields. The 10-yr yield is at 4.41%.
S&P 500 in second place, Henry Schein pops on activist chatter
18-Nov-24 14:30 ET
Dow -102.13 at 43342.86, Nasdaq +71.40 at 18751.54, S&P +16.13 at 5886.76
[BRIEFING.COM] The S&P 500 (+0.27%) is in second place on Monday afternoon.
Elsewhere, S&P 500 constituents Henry Schein (HSIC 72.82, +4.06, +5.90%), Walgreens Boots Alliance (WBA 8.67, +0.44, +5.35%), and Moderna (MRNA 38.66, +1.81, +4.91%) pepper the top of the standings. HSIC moved higher after a Reuters story suggested activist investor Ananym Capital was pushing to overhaul the company's Board, cut costs, and consider sale of its medical distribution unit, while MRNA caught a premarket upgrade at HSBC to Hold.
Meanwhile, recent spin-off Amentum Holdings (AMTM 22.91, -2.29, -9.09%) is continuing its fall to (albeit brief) all-time lows.
Gold advances on weaker dollar, yields
18-Nov-24 14:00 ET
Dow -47.07 at 43397.92, Nasdaq +120.60 at 18800.74, S&P +25.53 at 5896.16
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.65%) holds a modest lead on the S&P 500 (+0.43%).
Gold futures settled $44.50 higher (+1.7%) to $2,614.60/oz, breaking what had become a fairly extended losing streak as the dollar and bond yields show modest weakness.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $106.24.
NVIDIA slips following reports of overheating issues tied to its Blackwell GPU (NVDA)
NVIDIA (NVDA -1%) is dipping today after The Information reported that its flagship AI GPU platform, Blackwell, is experiencing overheating issues when installed in high-capacity server racks, housings found in data centers that support many servers, routers, storage units, etc. To alleviate the problem, NVDA must redesign the server racks, which could delay the broader adoption of Blackwell and disrupt expected revenue.
During its Q2 (Jul) earnings call, NVDA mentioned that by Q4 (Jan), it expects to ship several billion dollars in Blackwell revenue. At the same time, NVDA commented that demand continues to exceed supply, illuminating the unwavering appetite for the company's leading AI-powered system, a trend that NVDA anticipates will persist into 2025.
NVDA reports Q3 (Oct) results on Wednesday after the close. The company is up against elevated expectations, given its history of topping revenue estimates by roughly $1.5 bln over the past five quarters while also projecting quarterly revenue of around $1.5 bln higher than the consensus. While the reported Blackwell overheating issues will likely not damper Q3 revenue, it could disrupt Q4 projections, potentially causing NVDA to guide by less than its recent upbeat trend. With the stock pushing to all-time highs last week, any missteps could weigh heavily on NVDA and, subsequently, the broader market.
- Nevertheless, today's news may not be too significant. Redesigning server racks, albeit a setback, does not indicate deteriorating demand. During the previous earnings season, robust AI-related demand was a recurring theme among tech giants and chip makers. As such, the worst-case scenario may be that Blackwell revenue is pushed into future periods.
- Meanwhile, NVDA's Hopper architecture continues to enjoy tremendous success. NVDA noted that the demand for Hopper continued to accelerate during Q2 even as organizations gear up to adopt Blackwell. In fact, NVDA added that Hopper shipments should tick higher during the back half of FY25.
- This trend showcases that Blackwell is not cannibalizing sales from Hopper. Management stated that it has many new products for Hopper and that existing products will continue to ramp over the next few quarters, supporting 2H25 growth relative to 1H25 even as Blackwell begins to bring in substantial revenue.
Today's overheating concern surrounding Blackwell is not immaterial, as it could lead to NVDA's Q4 revenue outlook falling shy of sky-high expectations. However, since the overheating is largely due to the server rack rather than the GPU itself, any delays may be quickly resolved, leading to outsized revenue growth in later periods, especially if the demand for AI continues to accelerate at such a breakneck pace.
Tesla speeds higher as incoming Trump Administration reportedly set to prioritize AVs (TSLA)
Since Donald Trump was elected as President of the United States on November 6, shares of Tesla (TSLA) have charged higher by about 28% on the expectation that Elon Musk's support for his candidacy would pay future dividends under a new Trump administration. It now appears that Musk's alliance with incoming President Trump is indeed about to pay off. According to Bloomberg, members of President-elect Trump's transition team are planning to set a federal framework that would make fully self-driving (FSD) vehicles one of the Transportation Department's main priorities.
- This development is having the opposite effect on shares of rideshare companies Uber (UBER) and Lyft (LYFT), each of which are trading with steep losses today. Although TSLA's highly publicized Robotaxi unveiling on October 10 was mostly viewed as a bust, a more favorable regulatory environment for autonomous vehicles could help speed up TSLA's timeline. Musk is targeting Cybercab to reach volume production in 2026, which looks like a more realistic goal now that the Trump Administration will be in his corner.
- At this point, it's uncertain what steps the Transportation Department may take to help accelerate the deployment of AVs. In fact, President-elect Trump hasn't named who his Transportation Secretary will be yet. However, one change could be increasing the number of AVs that manufacturers are allowed to deploy. Currently, the NHTSA only allows auto manufacturers to deploy 2,500 AVs per year, limiting how quickly car makers can collect and analyze AV driving data.
- With that said, a more favorable regulatory environment doesn't resolve the substantial technology and production roadblocks that still exist. After several years of massive R&D investments into the technology, TSLA's FSD driver assistance system is still experiencing major issues. This past October, the NHTSA opened yet another investigation into the company's FSD feature after receiving reports of four crashes, including a fatal one that involved a pedestrian. According to the NHTSA report, the FSD system failed to react appropriately to reduced roadway visibility conditions.
- TSLA's FSD system has also faced various recalls, including one that impacted over 2.0 mln vehicles last December. These issues come even as TSLA's capex has soared to nearly $11.0 bln on a TTM basis, with a significant portion of those investments earmarked for TSLA's "Dojo" supercomputer that trains AI models using video and data from its vehicles to improve FSD.
It's been a bumpy ride for TSLA lately as rising competition and high interest rates have weighed heavily on its growth -- automotive revenue inched higher by just 2% in Q3 -- but the market is in the process of pricing in the company's next growth wave. First, TSLA is expected to begin production of Model 2, its more affordable, mass market EV in 1H25. While we believe there is still plenty of room for skepticism regarding TSLA's robotaxi plans and AVs in general, the Model 2 launch may be followed by the launch of Cybercab in 2026. If all goes to plan -- and that's a big if -- then TSLA's growth rates look set to receive a huge jolt over the next two years.
Pure Storage edges higher following the announcement of its GenAI Pod today (PSTG)
Following eight straight red trading sessions, Pure Storage (PSTG +2%) is looking to snap its bearish streak today after announcing an expansion of its AI portfolio. The company launched a full AI stack (includes all components needed to operate applications) offering on its platform, Pure Storage GenAI Pod, which helps remove some of the complexity from AI deployment. The GenAI Pod is aimed at the NIM, or microservices, space, allowing companies to achieve scaling advantages by breaking giant code bases into smaller service-specific applications. Microservices are used extensively by companies across multiple verticals, from Amazon to Netflix.
- What does Pure Storage do? Flash data storage is its bread and butter. PSTG is confident that, given the power and performance needed by AI, flash will eventually replace traditional disk drives. Last year, CEO Charles Giancarlo predicted that disk-based systems would cease being a strong part of the data storage market in around five years. This was a bold prediction, given that around 90% of hyperscalers, i.e., Google, Amazon, etc., leverage hard disks. However, this also illustrates how lucrative disrupting this market would be for PSTG.
- Enterprises currently lean on flash for their high-performance environments but remain loyal to hard drives for other storage needs. This is mainly because of price, which remains the primary hindrance to wider flash adoption. Still, flash continues to see improvements in pricing and capabilities. Also, even if the price always stays higher, the total cost of ownership, when incorporating performance gains, could undercut hard drives.
- What makes the GenAI Pod important? PSTG noted in September that while traditional AI is relatively mature and continues to sell in that environment, the NIM space is still to be developed. The company is working on vertical use cases with NVIDIA within the NIM field and is looking to capitalize on the smaller end of AI scaling. PSTG added that many organizations will focus exclusively on small-scale AI training.
PSTG's commitment to bolstering its AI portfolio is garnering a positive response today. However, since all-time June highs, the stock has corrected by around 30%, driven by a combination of a frothy 40x forward earnings valuation, which has now slid to around 27x, and a muted macroeconomic environment. During a September conference, PSTG noted that economic conditions have not changed for better or worse since the beginning of the year, meaning it is not great but not terrible. During its Q2 earnings call in late August, PSTG began seeing greater intentions from organizations to buy. Still, PSTG has yet to see a positive inflection in the storage market.
Nevertheless, as the only company that operates direct-to-flash, making flash compete more effectively and earlier in the life cycle versus hard drives, PSTG has tremendous long-term potential if AI demand continues to swell as businesses seek technologies offering attractive price-to-performance ratios to run power and data-hungry AI workloads.
Shift4 Payments shifting into high gear, stock gets boost for being added to S&P400 MidCap (FOUR)
Shift4 Payments (FOUR +6%) is shifting into high gear following news late Friday this payments processor will join the S&P MidCap 400. We think joining the index is a feather in its cap and a sign that the company continues to grow nicely since its IPO debut in June 2020, when it priced at $23 per share. This positive news was welcome following a Q3 earnings miss last week. However, there have also been a number of high profile wins for the company in recent weeks.
- Since we did not cover its Q3 report in-depth last week, let's take a quick look. Despite facing some consumer softness in spend, FOUR still posted impressive revenue growth of 50.2% yr/yr to $365.1 mln. Unfortunately, that was light of analyst expectations. FOUR was also a bit light on EPS. However, what stood out to us was how profitable FOUR is. It reported huge Q3 adjusted EBITDA margin at a record 51.3%.
- During Q3, FOUR experienced the customary seasonal spending lift in July and August as consumers took vacations and travelled more. However, spending in restaurants moderated and most customers in that vertical were experiencing a roughly -3% decline in same store comps. FOUR also saw some modest softness in other verticals in September as leisure travel subsided in conjunction with back to school.
- Restaurants are a huge vertical for FOUR as its point-of-sale (POS) terminals are used in about a third of table service restaurants in the US. Also, FOUR says about 40% of the hotels in the country are Shift4 customers and a significant portion of the stadiums in the US. As such, its results are impacted by macro issues to a large degree, especially consumer spending levels, inflation, interest rates etc.
- In light of the macro headwinds, FOUR said it was really pleased with what was a reasonably strong Q3. FOUR felt it did a good job executing on the variables that it can control. FOUR was able to post records among volume, gross revenue less network fees, adjusted EBITDA and adjusted free cash flow. It was also one of FOUR's strongest quarters for new logo wins, especially within hospitality. FOUR has also won a lot of stadium deals lately.
- Shift4 was also excited about recently acquiring a majority stake in Germany-based Vectron Systems, one of the largest European suppliers of POS systems to the restaurant and hospitality verticals. The deal brought in 65,000 restaurants that were using Vectron's software but that was not bundled with a payment offering. A key differentiator for FOUR in the US is that it combines software, hardware and payments into one device. Europe has been slower to adopt this bundled approach, so FOUR sees a good opportunity.
Overall, investors are clearly pleased to see Shift4 join the S&P MidCap 400. Index funds will be required to buy FOUR, but the milestone also should raise the company's profile. It also shows how much the company has grown since its IPO debut. Finally, the stock has been in a nice uptrend since mid-May despite the macro headwinds on consumer spend. We think this bodes well for 2025 assuming consumer spend picks up.
Post dragged down by a broader market pullback and continued adjusted volume declines in Q4 (POST)
Consumer packaged goods maker Post (POST -2%), which derives most of its revenue through cereal and pet food, quickly went stale today despite surpassing top and bottom-line forecasts in Q4 (Sep). Shares did initially creep higher on energetic Q4 numbers. However, enthusiasm quickly diminished out of the gate today.
A broader market pullback is one factor weighing on the stock. Another factor is the constant adjusted volume declines across most of POST's segments during the quarter, which may be starting to test investors' patience. When excluding one-time benefits, most segments outside Foodservice saw yr/yr volume compression almost every quarter in FY24.
However, this may not be entirely surprising, as management has conveyed that it focuses more on EBITDA and capital allocation. Still, POST cannot sustain persistent volume declines over the long term. The company noted today that it will continue to aggressively manage its lower margin businesses and not worry about volume reduction, expressing confidence that trends will start to rebound over time as it optimizes its footprint.
- POST's profitability and capital allocation strategy continue to bear fruit. In Q4, the company registered its eighth straight quarter of double-digit earnings upside. While adjusted EBITDA did remain flat yr/yr in Q4, on a two-year stack, POST has delivered a 45% uptick in the metric, half resulting from organic growth and the other half from acquisitions. POST has leveraged these gains into robust free cash flow, generating around $1.0 bln over that timeframe, giving POST the capacity to target M&A opportunities.
- M&A has been vital to POST's steady yr/yr revenue growth over the past two quarters despite lapping periods of over +20% growth. In Q4, sales inched 3.3% higher yr/yr to $2.01 bln. Post Consumer Brands, comprised of cereal and pet food, grew by 3.9% to $1.05 bln due to POST's $235 mln acquisition of Perfection Pet Foods, which kept revs from slipping by 2.7%. This dynamic was prevalent in Weetabix, POST's U.K. banner, which recorded positive growth due to its Deeside purchase and FX benefits.
- In Refrigerated Retail, which includes side dishes, egg, cheese, and sausage products, sales fell by 2.9%. However, the segment delivered a 0.7% volume bump, aided by side dishes and sausage growth.
- Foodservice was the star in Q4, touting a 4.7% sales improvement on a 3.6% uptick in volumes, driven by distribution gains in eggs and potatoes. This segment has been a steady grower for POST throughout the year, and management expects this to carry through to FY25. Speaking of which, POST outlined its adjusted EBITDA goal for FY25, projecting $1.41-1.46 bln, a 2.3% improvement yr/yr.
POST's Q4 report reflected management's attention to enhancing profitability, controlling what it can in a challenged economic environment where restaurant traffic continues to pull back and inflation still hurts the end consumer. Without a more favorable demand backdrop, POST's adjusted revenue growth may stall over the near term. However, the company has done a solid job preserving margins and bolstering its balance sheet, providing the fuel needed to navigate a tricky economy.
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