Market Snapshot
| Dow | 44782.00 | -128.65 | (-0.29%) | | Nasdaq | 19403.95 | +185.78 | (0.97%) | | SP 500 | 6047.15 | +14.77 | (0.24%) | | 10-yr Note | -2/32 | 4.20 |
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| | NYSE | Adv 1201 | Dec 1521 | Vol 982 mln | | Nasdaq | Adv 2273 | Dec 2071 | Vol 6.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Communication Services, Information Technology |
| | Weak: Utilities, Energy, Real Estate, Materials, Consumer Staples, Health Care |
Moving the Market
-- Strength in semiconductor-related names despite Reuters report indicating US introduced more curbs on exports to China
-- Gains in mega caps supporting S&P 500, Nasdaq
-- Market rates dropping from earlier levels, but buying didn't pick up in equities
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Closing Summary
02-Dec-24 16:25 ET
Dow -128.65 at 44782.00, Nasdaq +185.78 at 19403.95, S&P +14.77 at 6047.15
[BRIEFING.COM] The S&P 500 (+0.2%) and Nasdaq Composite (+1.0%) started December with record highs while the Dow Jones Industrial Average declined 0.3%. The mixed action at the index level reflected a lack of strong conviction on either side of the tape. Decliners led advancers by a 4-to-3 margin at the NYSE, but advancers had an 11-to-10 lead over decliners at the Nasdaq.
Gains in chipmakers, which responded to better-than-feared export restrictions on semiconductors and semiconductor equipment to China, and in mega caps propelled the S&P 500 and Nasdaq Composite higher.
This price action also drove the S&P 500 communication services (+1.5%), consumer discretionary (+1.1%), and information technology (+1.0%) sectors to close higher while the remaining eight sectors registered losses ranging from 0.1% (consumer staples) to 2.1% (utilities).
Intel (INTC 23.93, -0.12, -0.5%) was a story stock from the semiconductor space, initially trading up as much as 5.9% before closing lower following news that CEO Pat Gelsinger is out and the company will be led by interim co-CEOs until a new CEO is hired.
The market received news of further developments in the Middle East, but stocks, bonds, and commodities didn't react much. President-elect Trump warned in a Truth Social post of consequences if Middle East hostages are not released. Also, The New York Times reported that Israel and Hezbollah have traded fire with both sides accusing the other of violating the ceasefire deal.
Treasuries, which can benefit from safe-haven buying during geopolitical tension, settled with losses, leaving the 10-yr yield two basis points higher at 4.20%. Oil prices, which can increase when worries about supply chain disruptions are piqued, settled little changed from Friday ($68.07/bbl, +$0.18, +0.3%).
The S&P 500 and Nasdaq Composite remained near session highs following the headlines.
There was also some Fedspeak in the mix today, but the equity market didn't react much to that, either. Atlanta Fed President Bostic (FOMC voter) said in a speech that "conditions on both sides of the Fed's mandate appear to be broadly healthy" and Fed Governor Waller said he is leaning toward supporting a cut to the policy rate at the December FOMC meeting.
The fed funds futures market did react to this, pricing in a 79.0% probability of a 25 basis points rate cut at the December FOMC meeting, up from 66.0% one day ago and 52.3% a week ago, according to the CME FedWatch Tool.
Separately, the dollar built up strength today, leading the US Dollar Index to move 0.7% higher to 106.46. This move relates to President-elect Trump saying he would impose 100% tariffs on countries moving away from the dollar as the world's reserve currency.
- Nasdaq Composite: +29.3%
- S&P 500: +26.8%
- S&P Midcap 400: +20.7%
- Russell 2000: +20.1%
- Dow Jones Industrial Average: +18.8%
Reviewing today's economic data:
- November S&P Global US Manufacturing PMI - Final 49.7; Prior 48.5
- November ISM Manufacturing Index 48.4% (Briefing.com consensus 47.6%); Prior 46.5%
- The key takeaway from the report is that manufacturing sector activity overall continues to be weak, but showed a green shoot with the new orders index returning to expansion territory after seven straight months of contraction.
- October Construction Spending 0.4% (Briefing.com consensus 0.1%); Prior 0.1%
- The key takeaway from the report is that residential construction activity rebounded nicely, led by single family construction.
Looking ahead, Tuesday's economic data is limited to the October JOLTS Jobs Openings report at 10:00 ET.
Treasuries settle with losses
02-Dec-24 15:30 ET
Dow -90.61 at 44820.04, Nasdaq +200.42 at 19417.31, S&P +20.69 at 6053.07
[BRIEFING.COM] The S&P 500 trades 20 points higher and the Nasdaq Composite trades 200 points higher with 30 minutes left in the session.
The 10-yr yield settled two basis points higher than Friday at 4.20% after reaching 4.24% earlier. The 2-yr yield settled four basis points higher at 4.20% after hitting 4.22%.
Looking ahead, Tuesday's economic data is limited to the October JOLTS Jobs Openings report at 10:00 ET.
Market breadth more mixed compared to earlier
02-Dec-24 15:00 ET
Dow -75.11 at 44835.54, Nasdaq +183.43 at 19400.32, S&P +16.82 at 6049.20
[BRIEFING.COM] The small cap Russell 2000 has moved into positive territory, trading 0.1% higher.
Market breadth is more mixed now compared to earlier in the session. Decliners still lead advancers by a 4-to-3 margin at the NYSE, but advancers have an 11-to-10 lead over decliners at the Nasdaq.
Separately, The New York Times reported that Israel and Hezbollah have traded fire with both sides accusing the other of violating the ceasefire deal.
Metal futures settle lower
02-Dec-24 14:30 ET
Dow -95.90 at 44814.75, Nasdaq +158.90 at 19375.79, S&P +12.00 at 6044.38
[BRIEFING.COM] Stocks continue to move sideways at this point in the session.
Metal futures settled lower. Gold futures declined 0.8% to $2,658.20/oz and copper futures settled 0.2% lower at $4.13/lb.
A short time ago, President-elect Trump warned in a Truth Social post of consequences if Middle East hostages are not released. Treasuries, which are a safe-haven trade during geopolitical tension, and oil prices, which increase when fears about supply disruptions are piqued, haven't moved much after the remarks.
Rate-sensitive sectors underperform equity market
02-Dec-24 14:00 ET
Dow -86.99 at 44823.66, Nasdaq +176.90 at 19393.79, S&P +15.11 at 6047.49
[BRIEFING.COM] The three major indices moved mostly sideways in recent trading.
The rate-sensitive real estate (-1.5%) and utilities (-1.7%) sectors underperform the broader equity market despite a pullback in market rates. The 2-yr note yield, which topped 4.22% earlier, is back to 4.19%, and the 10-yr note yield, which hit 4.24% earlier, sits at 4.19%.
Elsewhere, the US Dollar Index is up 0.7% to 106.50.
Intel jumps after CEO Pat Gelsinger announces retirement; interim co-CEOs to take charge (INTC)
Following a nearly four-year stint as Intel's (INTC +3%) CEO, Pat Gelsinger retired today, sparking modest enthusiasm among investors. Mr. Gelsinger will be replaced by a pair of interim co-CEOs, David Zinsner and Michelle Johnston Holthaus. David Zinsner is the current CFO, and Michelle Holthaus was appointed to the newly formed position of CEO of Intel Products, a new segment comprising INTC's Client Computing Group (CCG), Data Center and AI Group (DCAI), and Network and Edge Group (NEX). The segment not included in this new division is Foundry, INTC's chip manufacturing arm, which the company plans to turn into an independent subsidiary. INTC announced that Foundry's leadership structure would not change.
Mr. Gelsinger was tapped to lead Intel halfway through January 2021, replacing former CEO Bob Swan, who was ousted in just two years due to struggling growth and INTC shares significantly underperforming the broader market. With Mr. Gelsinger's retirement, INTC is now on its third CEO in less than six years once it formally names a permanent replacement.
- The constant shakeup at the top reflects a company battling ongoing setbacks. In 2021, the Board was fed up with ongoing delays in manufacturing next-gen chips. In 2024, the story revolves around AI and how the U.S.-based chip maker was caught flat-footed last year after NVIDIA (NVDA) showcased the powerful demand for AI chips. INTC's primary rival, Advanced Micro (AMD), quickly re-tooled its chips to capitalize on surging AI-related spending from hyperscalers, leaving INTC in the dust as it plays catch-up.
- INTC is undergoing a substantial restructuring. In Q2 (Jun), the company announced it would suspend its dividend and reduce its headcount by 15%. While few gains have been realized by the $10 bln cost reduction plan as INTC wrote down equipment and recognized restructuring charges, the company noted last month that it has made meaningful progress on its ongoing cost-savings plan.
- M&A activity has picked up over the past few months. While Qualcomm's (QCOM) initial interest in taking over the company has reportedly lessened, Lattice Semiconductor (LSCC) has reportedly discussed tossing out a bid for INTC's Altera division, which manufactures telecom chips. Private equity firms have also expressed interest in acquiring Altera. At a time when INTC's financials are shaky, any injection of cash from a sale of assets would likely provide investors with a confidence boost.
The yet-to-be-determined incoming CEO will be taking on a massive turnaround effort. INTC's future remains highly uncertain as it separates its Foundry segment, deals with possible takeover interest, manages M&A offers, and tries to remain competitive in a rapidly evolving AI landscape. However, despite all the setbacks, a new CEO with the proper vision of what path INTC must take to reenergize growth may be the key to unlocking the company's full potential. In the meantime, competitors are not slowing down their AI-related R&D, making it critical that INTC moves relatively quickly in naming a CEO.
ZEEKR Intelligent Technology receives a jolt as demand for EVs remained strong in November (ZK)
Demand for EVs remain brisk in China, bolstered by government subsidies and intensifying competition that has driven vehicle prices lower as manufacturers continue to ramp up discounts and incentives. Earlier this morning, several Chinese EV makers reported strong November delivery numbers, including a 106% yr/yr surge to 27,011 vehicles for recent IPO ZEEKR Intelligent Technology (ZK). The company, which focuses on the premium side of the EV market, also just launched its new ZEEKR MIX, a family-oriented five seat luxury van that began shipments on October 23, 2024.
- ZK isn't the only Chinese EV company to recently launch a new vehicle into the market. This past May, NIO (NIO) introduced a new brand called ONVO, which is positioned to compete against Tesla (TSLA). The first vehicle from ONVO, a mid-size SUV called "L60", had deliveries of 5,082 vehicles in November, pushing the company's total deliveries to 20,575 (+29% yr/yr) for the month.
- Additionally, on April 18, 2024, Li Auto (LI) launched its own mix-size SUV, the "L6", which has achieved over 160,000 cumulative deliveries -- the most of any Chinese EV model with a price above RMB 200,000.
- As more EVs continue to enter the market, the competitive environment is only becoming more intense. On that note, Bloomberg reported that TSLA and BYD Company (BYDDF) are becoming even more aggressive with their promotional activity in a bid to close out the year with a flurry. TSLA is offering 0% financing on five-year loans and a 10,000-yuan discount on its Model Y, while BYDDF is offering discounts up to 3,000 yuan on some of its models.
- ZK, NIO, LI, and XPeng (XPEV) are bound to follow suit and offer their own incentives, adding another chapter to a price war that's only heating up more as the calendar approaches 2025. That's not great news for margins and profits that are already squeezed from price cuts. For instance, ZK's vehicle margin contracted to 15.7% in 3Q24 from 18.1% in the year-earlier period, while LI's vehicle margin dipped to 20.9% from 21.2% in 3Q23.
- On the flip side, XPEV's vehicle margin significantly improved to 8.6% in 3Q24 from (6.1)% in the same period of 2023 and its gross margin reached a historical high of 15.3%, fueled by technology-driven cost savings and stronger volume growth. Accordingly, the company's non-GAAP net loss narrowed to RMB (1.53) bln from RMB (2.79) bln in the year-ago period.
The main takeaway is that adoption of EVs is rising rapidly in China, supported by the PRC's government goal of having EVs account for 45% of new car sales by 2027. However, fierce competition and difficult macroeconomic conditions are fueling a profit-eroding price war that could make it difficult for Chinese EV stocks to receive a major jolt in 2025.
Darden Restaurants trades to new highs; a number of restaurant chains have been strong (DRI)
After trending downward from March to July, Darden Restaurants (DRI) has been quietly making a comeback, trading to a new 52-week high on Friday. This operator of several restaurant chains (Olive Garden, LongHorn Steakhouse, Ruth's Chris, and Chuy's) was a recent YIELD Leaders profile for us in August and has been a good performer. We wanted to provide some quick color ahead of its Q2 (Nov) results on December 19.
- After a long period of being pretty quiet, Darden has been active on the M&A front in recent years. In June 2023, Darden acquired upscale steakhouse chain Ruth's Chris. At the time, Brieifng.com said it liked the deal as it gives Darden both a mid-tier and an upper-tier steakhouse chain. We also think its larger size will allow Darden to better negotiate beef prices for both chains. Tightening cattle supply has been keeping beef prices elevated.
- More recently, in October 2024, Darden closed on its acquisition of Chuy's, a Tex-Mex-inspired full-service casual dining restaurant chain. Darden sees Chuy's as complementing its existing portfolio and what's notable about Chuy's is that it's Darden's first foray into the popular Mexican dining category. Darden described Mexican as one of the fastest growing dining categories, and Chuy's is the largest full-service operator with strong unit economics.
- Darden's recent earnings have not been great. The company was surprised by a significant step down in traffic during July, which led to Q1 (Aug) EPS being lower than expected and that dragged down shares. However, sales trends rebounded in August and the first three weeks of September improved further, resulting in positive comps quarter-to-date for Q2 (Nov). We look forward to getting an update on the Q2 call in a couple of weeks.
- Comps is Q1 were not great either, at -1.1% (OG -2.9%, LS +3.7%, Fine Dining -6.0%), which was softer than Q4's flat comps (OG -1.5%, LS +4.0%, Fine Dining -2.6%). We suspect the positive comments on the last call is causing investors to think we will see improvement with its Q2 comps.
- Another recent highlight was Darden announcing a deal with Uber, which will enable customers to order delivery via Darden channels, with delivery handled by Uber Direct. An initial pilot is underway with a national expansion at Olive Garden expected to be complete by May 2025. DRI said that customers have been asking for home delivery and are willing to pay. DRI is initially focusing on Olive Garden, but may expand to other brands.
Overall, we have seen a notable uptick in shares of restaurant operators in recent weeks, with many at or near new 52-week highs, including Darden, Brinker (EAT), Cheesecake Factory (CAKE), BJ's Restaurants (BJRI), and Texas Roadhouse (TXRH). The notable exception is Bloomin' Brands (BLMN), which operates Outback Steakhouse, Carrabba's Italian Grill and others. It is near new lows. We profiled DRI in August in our YIELD report because there was an increase in insider buys and it has done well since.
Brinker has been smashing it even as other restaurant chains have struggled (EAT)
Brinker Intl (EAT) has been bucking the restaurant trend. While other chains have been struggling, this restaurant operator (Chili's, Maggiano's) has been impressive in recent quarters. The stock has been trending higher for much of 2024, but has really taken off since early October, up more than 70% in just the past two months to new all-time highs.
- On October 30, EAT reported a huge EPS beat for Q1 (Sep) with nice upside revs. It also raised FY25 EPS guidance pretty significantly to $5.20-5.50 from $4.35-4.75. To raise guidance so substantially this early in the fiscal year tells us management is confident about the balance of FY25. Oftentimes, management is hesitant to raise full year guidance early in the year in order to leave wiggle room in case subsequent quarters fall short, so that is a great sign.
- The metric that really jumps out at us was its huge consolidated comps of +13.0%, with its flagship Chili's brand posting even higher comps at +14.1%. driven by price of +6.8%, positive mix of +0.8%, and positive traffic of +6.5% with traffic improving sequentially throughout the quarter.
- Chili's has been paring down its menu with a greater focus on value. Over the past 2.5 years, Chili's has removed around a quarter of its menu to focus on core offerings: burgers, crispers, fajitas and margaritas, which now represent 47% of sales. Its 3-for-Me $10.99 bundle has been a hit. It includes an appetizer of unlimited chips and salsa, a 7.5-ounce burger and fries, and a bottomless soft drink. That is tough for competitors to match and Chili's advertising has been very effective.
- EAT says its 3-for-Me offering clearly resonates with guests who are looking for high quality food at a very reasonable price. While other chains have talked about a challenged consumer, Chili's has been seeing big traffic gains driven by its Big Smasher burger and its 3-for-Me offering. Another key driver is the success of its Triple Dipper with Q1 sales up 70% yr/yr. It's popular with younger guests who prefer more variety, customization and experiential flavors.
- Chili's has also been raising prices on several entrees. That includes the phaseout of its $10 lunch special, which included a starter and entrée. Plus if you are a rewards member, you can get a free drink each visit. It is tough to see how they were turning a profit on this deal. However, its lunch prices are now higher and the starter is only chips & salsa. While it's frustrating to lose that good deal, this is a more realistic price point.
Overall, EAT has really been turning itself around. Paring down the menu makes it simpler and makes employees more efficient. Also, we really think EAT has curated its value offering and has gotten it down to a science. We see that in the strong traffic growth despite raising prices in some areas. It seems that consumers in all income cohorts are looking for value these days. Briefing.com has been profiling Brinker for some time and we have wondered why the stock had been a laggard. However, it has been making up for lost time. In fairness, the stock does look overextended in the near term, but it's a name to keep on the radar.
Stellantis accelerates effort to reduce inventory levels with another production halt (STLA)
Stellantis (STLA), the struggling auto maker that owns brands such as Jeep, Chrysler, Ram, Fiat, and Maserati, has been cutting production and reducing headcount as the company continues to grapple with sluggish demand and bloated inventories across its dealer network. Those efforts to better align supply with demand are showing no signs of slowing with STLA temporarily halting production of the Fiat 500, an all-electric vehicle, at its Turin, Italy plant, according to Bloomberg.
- The facility, which is home to some 13,000 workers, will reportedly be idled from December 2 to January 5 due to uncertain market conditions for EVs in Europe, as well as ongoing softness for luxury cars in China and the U.S. While EVs are accounting for an increasing percentage of total auto sales in Europe, they have been on a downward sales trajectory this year. As of late October, EV volumes were down by nearly 6% on a year-to-date basis in the EU.
- This isn't the first production halt that STLA has recently executed. Just last week, Reuters reported that the company was planning to pause production at two other plants in Italy -- Termoli and Cassino -- with some workers also being furloughed during this time. Back in the U.S., STLA also has cut production of Jeep vehicles at its plant in Toledo, Ohio, while also laying off 1,100 employees there.
- Sluggish demand is only half of the problem for STLA. The company has been slow to adjust to softening market conditions, leaving dealers with too much inventory and a substantial backlog of vehicles. This was evident when STLA reported Q3 results on October 31 that included a 27% plunge in revenue to EUR 33.0 bln as every region, with the exception of South America, showed a double-digit decline. Eroding sales and margins also caused 1H24 EPS to plummet by 63% yr/yr to EUR 2.36.
- There is a silver lining, though. Specifically, the company is making good headway in its inventory reduction efforts. In the Q3 earnings report, STLA disclosed that total inventory decreased by 129,000 units to 1.33 mln as of September 30, 2024. Additionally, the company stated that it's on track to meet its goal of reducing U.S. inventory by 100,000 units by the end of November. This gave STLA the confidence to reaffirm its FY24 operating margin guidance of 5.5-7.0% and its industrial free cash flow forecast of EUR 5.0- EUR 10.0 bln.
Overall, the outlook for STLA and the EV market in general is rather murky, especially as new tariffs and the possible elimination of the $7,500 tax credit are introduced as President-elect Donald Trump takes office in January. The prospect of lower interest rates should help to offset some of the headwinds facing the EV market, but it will likely be tough sledding for STLA in FY25 as rising competition and weaker-than-expected demand for EVs provide roadblocks for earnings growth.
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