| | | Market Snapshot
| Dow | 44401.93 | -240.59 | (-0.54%) | | Nasdaq | 19736.23 | -123.08 | (-0.62%) | | SP 500 | 6052.85 | -37.42 | (-0.61%) | | 10-yr Note |
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| | NYSE | Adv 1273 | Dec 1506 | Vol 1.06 bln | | Nasdaq | Adv 2055 | Dec 2280 | Vol 7.91 bln |
Industry Watch
| Strong: Health Care; Real Estate |
| | Weak: Utilities; Communication Services; Industrials; Financials |
Moving the Market
--Weakness in NVIDIA (NVDA) as China opens antimonopoly investigation, according to Bloomberg
--Buyer restraint on valuation concerns
--Waiting on key events this week: Oracle earnings report (after close today), November CPI (Wednesday), November PPI (Thursday), and ECB policy decision (Thursday)
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Closing Stock Market Summary
09-Dec-24 16:25 ET
Dow -240.59 at 44401.93, Nasdaq -123.08 at 19736.23, S&P -37.42 at 6052.85
[BRIEFING.COM] The S&P 500 and Nasdaq Composite were unable to follow up Friday's record highs with new record highs today. They opened the day lower and never managed to reclaim a posture in positive territory as buyers lacked enthusiasm ahead of several key events this week, including Oracle's (ORCL 190.71, -0.98, -0.5%) earnings report after the close, the November Consumer Price Index on Wednesday, the November Producer Price Index on Thursday, and the ECB policy meeting on Thursday.
Beyond those considerations, buyers were stifled today by a weak showing from NVIDIA (NVDA 138.81, -3.63, -2.6%), which fell on a Bloomberg report of China opening an antimonopoly investigation, and festering valuation concerns that also mixed with chatter of the market being overbought on a short-term basis and due for some consolidation.
Today's retreat was orderly and narrow at first, but it eventually cut across the market. Small-cap stocks and mid-cap stocks had a stronger start to the session. The Russell 2000 was up as much as 0.8% and the S&P Midcap 400 Index was up as much as 0.5% before both gave in to selling interest and closed down 0.7% and 0.5%, respectively.
Shortly after the open, advancers led decliners at the NYSE and Nasdaq by a better than 2-to-1 margin, but by the close decliners held an edge over advancers at both the NYSE and Nasdaq.
There wasn't a news catalyst for the shift in the tape. It simply turned as buyers turned to the sidelines. Buyers didn't abandon the market altogether, though. There was some clear-cut strength in Chinese ADRs and related ETFs after Chinese leaders said fiscal stimulus will be more proactive and monetary policy "moderately loose," as opposed to "prudent," in 2025. The iShares China Large-Cap ETF (FXI) surged 9.5%.
Separately, there were some nice-sized gains in story stocks like Interpublic Group (IPG 30.30, +1.03, +3.6%), which is going to be acquired by Omnicom (OMC 92.82, -10.60, -10.3%) in a stock-swap deal, and in Hershey (HSY 193.65, +18.95, +10.9%), which has garnered takeover interest from Mondelez Intl. (MDLZ 61.44, -1.42, -2.3%), according to Bloomberg.
Hershey was the best-performing stock in the S&P 500 and Omnicom was the worst-performing stock.
Comcast (CMCSA 39.05, -4.10, -9.5%) was nipping at the heels of Omnicom for worst-performing stock after warning that the impact of Hurricanes Helene and Milton will result in a little over 100,000 broadband subscriber losses in the fourth quarter. That view, Omnicom's losses, and weakness in Meta Platforms (META 613.57, -10.20, -1.6%) cast a pall on the communication services sector (-1.3%), which joined the financial (-1.4%) and utilities (-1.3%) sectors as today's weakest areas.
The health care (+0.2%) and real estate (+0.1%) sectors were the only two S&P 500 sectors to eke out a gain in a day of attrition for the stock market.
The Treasury market also saw some losses today that resulted in higher yields. The 2-yr note yield settled the session up three basis points at 4.13% and the 10-yr note yield settled the session up five basis points at 4.20%. Those moves followed President-elect Trump's weekend "Meet the Press" interview in which, among other things, he reiterated his aim to extend the tax cuts, levy tariffs as needed, and deport illegal immigrants.
In related news, the New York Fed's November Survey of Consumer Expectations showed a 0.1 percentage point increase in inflation expectations for the year ahead (to 3.0%), three years ahead (to 2.6%), and five years ahead (to 2.9%).
- Nasdaq Composite: +31.5% YTD
- S&P 500: +26.9% YTD
- S&P Midcap 400: +19.2% YTD
- Russell 2000: +18.0% YTD
- Dow Jones Industrial Average: +17.9% YTD
Reviewing today's economic data:
- October Wholesale Inventories increased 0.2% month-over-month (Briefing.com consensus 0.2%) following a 0.2% decline in September.
Looking ahead, Tuesday's economic calendar includes:
- 06:00 ET: November NFIB Small Business Optimism Index (prior 93.7)
- 08:30 ET: Revised Q3 Productivity (Briefing.com consensus 2.2%; prior 2.2%) and Unit Labor Costs (Briefing.com consensus 1.9%; prior 1.9%)
Oracle report looms after the close
09-Dec-24 15:30 ET
Dow -195.22 at 44447.30, Nasdaq -146.20 at 19713.11, S&P -38.31 at 6051.96
[BRIEFING.COM] Today's downward drift persists heading into the final 30 minutes of trading. There hasn't been a lot of trading excitement in today's session, but that could soon change in the after-hours session when Oracle (ORCL 189.34, -2.35, -1.2%) and Toll Brothers (TOL 155.01, +0.91, +0.6%) report their results.
Oracle's report and outlook will be the focal point given its influence on the information technology sector (-0.6%) and the AI trade. The report from luxury homebuilder Toll Brothers won't be overlooked completely, though, since it will offer some color on homebuyer demand among more affluent buyers.
Those earnings results will be followed by an earnings report from AutoZone (AZO 3329.00, +19.56, +0.6%) and the revised Q3 Productivity report before Tuesday's open, and then the $58 billion 3-yr note auction at 1:00 p.m. ET.
Buyers lacking enthusiasm
09-Dec-24 15:00 ET
Dow -130.87 at 44511.65, Nasdaq -114.68 at 19744.63, S&P -32.30 at 6057.97
[BRIEFING.COM] The major indices continue to suffer from a lack of enthusiastic buying interest in today's session and the overhang of some relative weakness in the mega-cap space that features losses in NVIDIA (NVDA 138.31, -4.13, -2.9%), Meta Platforms (META 610.86, -12.91, -2.1%), Tesla (TSLA 384.50, -4.72, -1.2%), and Eli Lilly (LLY 805.04, -21.67, -2.6%).
The Vanguard Mega-Cap Growth ETF (MGK) is down 0.7%, although Apple (AAPL 246.45, +3.61, +1.5%), Microsoft (MSFT 445.92, +2.35, +0.5%), Alphabet (GOOG 176.86, +0.57, +0.3%), and Amazon.com (AMZN 227.98, +0.95, +0.4%) have tempered today's downside action.
Elsewhere, metals in the commodities space have seen upside action today in a move that followed China's pledge to be more proactive with its fiscal and monetary stimulus in 2025.
Gold futures settled 1.0% higher at $2685.40/troy oz., copper futures added 1.7% to $4.27/lb, and silver futures jumped 3.3% to $32.60/troy oz.
S&P 500 down as Comcast and AMD lag; Hershey soars on takeover chatter
09-Dec-24 14:30 ET
Dow -109.55 at 44532.97, Nasdaq -92.84 at 19766.47, S&P -28.25 at 6062.02
[BRIEFING.COM] The S&P 500 (-0.46%) has shifted to second place among the major average over the last half hour, down now about 28 points.
Elsewhere, S&P 500 constituents Comcast (CMCSA 39.11, -4.04, -9.36%), Cintas (CTAS 206.60, -17.11, -7.65%), and Advanced Micro Devices (AMD 131.35, -7.24, -5.22%) pepper the bottom of the standings. CMCSA dips after mgmt said at a sell side conference that Q4 broadband sub numbers would be impacted by recent hurricanes, while AMD falls after catching a BofA downgrade this morning to Neutral citing competitive AI risks and potential PC slowdown.
Meanwhile, Hershey Foods (HSY 197.18, +22.48, +12.87%) is today's top performer, showing strong gains in the face of reports out this morning that Mondelez (MDLZ 61.66, -1.20, -1.91%) has approached HSY about a takeover.
Gold hits two-week high on renewed Chinese buying and Fed rate cut sentiment
09-Dec-24 14:00 ET
Dow -72.80 at 44569.72, Nasdaq -64.70 at 19794.61, S&P -21.05 at 6069.22
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-0.33%) is in second place among the major averages.
Gold futures settled $26.20 higher (+1.0%) to $2,685.80/oz, hitting a two-week high, driven by renewed buying from China's central bank after a six-month hiatus and expectations of a U.S. Federal Reserve interest rate cut next week.
Meanwhile, the U.S. Dollar Index is narrowly higher, up less than +0.1% to this point on the day.
Macy's back on activist investors' shopping lists amid ongoing turnaround attempt for company (M)
Department store operator Macy's (M), which has been in perpetual turnaround mode over the past several years, is ringing up some gains as its sagging stock price has lured in two new activist investors. After the Wall Street Journal disclosed that Barington Capital has amassed a stake in Macy's -- the size of which is undisclosed -- Barington and Thor Equities published a presentation this morning, calling on the struggling department store owner to make a series of changes that the firms believe could lead to gains of 150-200% for shareholders over the next three years.
- Of course, this isn't Macy's first recent run in with activist investors. About one year ago, Arkhouse Management and Brigade Capital Management began an effort to take Macy's private. That endeavor, which was ultimately unsuccessful after Macy's rebuffed a sweetened buyout offer of $24.80/share on July 15, did land two new members on Macy's Board of Directors. However, Macy's rejection of the bid, which equated to a 38% premium to the stock price at that time, also showed how resolute the company is in remaining independent and moving forward with its Bold New Strategy turnaround plan.
- To that end, Macy's quickly published its own press release following Barington's, stating that it remains confident in its Bold New Strategy, which continues to gain traction across all three pillars. As a reminder, those three pillars include strengthening the Macy's nameplate, accelerating luxury growth, and simplifying and modernizing its end-to-end operations. More concretely, the plan involves closing 150 full-line Macy's stores, with 50 closures slated for this year, while also launching the "First 50 Stores" -- a batch of pilot Macy's stores that's testing new retail strategies, formats, and emphasizing certain brands such as Birkenstock (BIRK) and NIKE (NKE). Macy's also intends to expand its Bloomingdale's and Bluemercury footprint in a bet that luxury will continue to outperform.
- While the initiative has had some early success, as illustrated by the initial First 50 stores delivering comps of +1.9% in Q3 compared to -2.0% for Macy's overall go-forward business, Barington and Thor don't believe that Macy's changes will drive meaningful and sustainable shareholder value. As such, the firms are pushing Macy's to take a more drastic approach that considers strategic alternatives for Bloomingdale's and Bluemercury, and creating a real estate subsidiary that maximizes the value of its properties. Further, the firms would like Macy's to reduce its capital expenditures to 1.5-2.0% of sales from the current rate of 4% of sales, enabling it to increase its share buybacks to $2-$3 bln over the next three years.
Macy's is no stranger to activist investors and with its stock down by about 15% on a year-to-date basis, it's unsurprising that the company remains a target. After surviving Arkhouse's and Brigade Capital's takeout attempt this summer, Macy's intentions to continue executing its turnaround plan are clear. Whether the company is more open to Barington's and Thor's ideas for shareholder value creation remains to be seen, but the activist pressure should keep Macy's Board of Directors plenty motivated to keep driving improvement and more efficiency.
Omnicom and The Interpublic Group to team up to create massive ad agency (OMC)
We have some big M&A news in the global advertising agency space this Monday morning. Omnicom (OMC -7.4%) will acquire The Interpublic Group (IPG +8.8%) in an all-stock transaction. IPG shareholders will receive 0.344 OMC shares for each share of IPG they own. Following the close of the transaction, OMC shareholders will own 60.6% of the combined company and IPG shareholders will own 39.4%. The deal is expected to close in 2H25.
- The transaction would create the world's largest advertising agency with combined 2023 revenue of $25.6 bln. The combined company will retain the Omnicom name and trade under the OMC ticker symbol on the NYSE. John Wren will remain Chairman & CEO of Omnicom with Phil Angelastro remaining as CFO of Omnicom. Philippe Krakowsky and Daryl Simm will serve as Co-Presidents and COOs of Omnicom.
- The new Omnicom will deliver end-to-end services across media, precision marketing, CRM, data, digital commerce, advertising, healthcare, public relations and branding. OMC says the deal will combine highly complementary data and technology platforms, enabling new offerings to better serve clients. Also, the companies expect the combination to generate annual cost synergies of $750 mln and to be accretive to adjusted EPS for both Omnicom and Interpublic shareholders.
- Another factor likely playing a role is the changing technological landscape in the advertising arena, especially the impact of AI. Big ad agencies are seeing increasing competition as companies like TikTok, Google Ads and Facebook Ads siphon off ad spending. These companies are developing AI ad creation tools that clients can use to create their own ads. They are also using AI and automation to offer enhanced services. Combining OMC and IPG should help these agencies compete better.
- On the call, analysts asked about potential hurdles in terms of regulatory approval issues given that OMC is the third largest ad agency in the world and IPG is the fourth. They both have massive ad buying power, which may provide an unfair advantage. However, OMC explained that the ad world is not just divided among the big four ad agencies. Companies like Google, Facebook, Amazon, and many others are servicing clients' marketing needs. OMC also said the Trump administration is expected to be more business-friendly.
Overall, this deal makes a lot of sense for these massive ad agencies, assuming the deal will pass regulatory muster. The new Omnicom will benefit from cost savings and should be in a better position to compete with online advertising services. IPG is trading higher given the nice premium, however, shares of OMC are heading lower. Investors typically do not like to see an acquiring company use stock to finance M&A deals as it dilutes current shareholders. Also, using stock sends a signal that perhaps management thinks its share price is on the fully valued side.
Palantir Technologies fades move to new highs today on further U.S. government demand for AI (PLTR)
While shares of Palantir Technologies (PLTR -3%) were gaining decent momentum heading into the AI software developer's Q3 report last month, they have exploded since, nearly doubling in just over a month as several uplifting announcements and speculation fuel considerable appreciation. After Q3 earnings triggered a monster rally, additional kindling was provided after PLTR announced it would transfer its Class A common stock to the Nasdaq from the NYSE, anticipating eventually meeting the eligibility requirement of the Nasdaq-100 index. Following this development, PLTR stated that it was granted FedRAMP high baseline authorization, building on its previous moderate authorization.
News from today and Friday after the close had the stock pushing to record highs before profit-taking ensued. On Friday, PLTR and Anduril, a U.S. defense technology firm specializing in autonomous systems, primarily drones, announced the upcoming launch of a new consortium delivering AI infrastructure for the U.S. government. Then, primarily underpinning today's jump, PLTR announced an expansion of its U.S. Special Operations Command (USSOCOM) contract, a one-year delivery valued at just under $37 mln, putting PLTR as the lead software integrator for the Special Operations Command's Mission Command System.
- What makes PLTR's USSOCOM contract expansion so compelling today? Making PLTR the lead software integrator for the USSOCOM's Mission Command System and marking the first time the company is supporting U.S. Special Operations Forces (SOF) underscores increasing confidence in its AI software technology.
- The public sector contributes around half of PLTR's annual revenue, making it a critical component of its overall growth. U.S. government revenue growth accelerated tremendously in Q3 compared to the beginning of FY24, expanding at the quickest rate yr/yr in nearly four years, a testament to PLTR's Builder Bootcamps launched this year. Branching out within the U.S. government, where switching to competing software often occurs less frequently and slower than within the private sector, paves the way for further acceleration in subsequent quarters.
- The Anduril/Palantir partnership bolsters PLTR's reach and influence within the U.S. government. The partnership focuses on national security data, turning collected data created by sensors, vehicles, weapons, and robots (extracted by Anduril) into AI capabilities by leveraging PLTR's AI Platform (AIP). While financial details on the partnership were not disclosed, it has the capacity to extend to other industry partners, potentially providing additional streams of revenue down the road.
Following PLTR's Q3 results, we commented that without cracks in the unrelenting momentum of AI, the company remains in a sturdy position to extract further gains. Given the breathtaking rise since, profit-taking may be in the cards. PLTR's steady flow of promising announcements has yet to snap any current momentum. However, at a 172x forward earnings multiple and 74x forward sales valuation, somewhat reminiscent of where PLTR traded in early 2021, any minor hiccups could ignite heavy selling pressure.
Hewlett Packard Enterprise reaches all-time highs today as AI underpins strong Q4 results (HPE)
Unwavering demand for AI systems pushed Hewlett Packard Enterprise (HPE +10%) past analyst earnings and sales expectations in Q4 (Oct). Even though the server, storage, and networking systems provider projected Q1 numbers only in line with consensus, management expressed bullishness on 2025, commenting that multiple tailwinds should contribute to solid revenue growth. As a result, shares are soaring to a new record high, a roughly +50% move following a sell-off on Q3 (Jul) performance in early September.
- In typical fashion, HPE exceeded bottom-line estimates by a few pennies, delivering adjusted EPS of $0.58, an 11.5% jump yr/yr. Non-GAAP gross margins compressed by 390 bps yr/yr to 30.9% due to a record contribution from AI systems revenue (AI-related server offerings carry lower margins than traditional offerings) and a lower mix of Intelligent Edge sales. However, due to expense reductions, non-GAAP operating margins climbed by 140 bps yr/yr to 11.1%.
- HPE's top line accelerated for the third consecutive quarter, leaping by 15.1% yr/yr to $8.46 bln, cruising past HPE's $8.10-8.40 bln forecast. HPE's Server segment primarily underpinned its strong performance, growing by double-digits yr/yr for the third straight quarter at 31% to $4.7 bln. AI systems and traditional servers both supported the impressive gains. AI systems backlog swelled to over $3.5 bln exiting Q4 while traditional server order growth topped double-digits for the third quarter in a row.
- Hybrid Cloud, which combines on-premises data center and public cloud networking and storage, experienced an 18% pop in revenue yr/yr to $1.6 bln, substantially above HPE's prediction of a slight increase. Private Cloud and the ongoing ramp of Alletra MP contributed to the outperformance in the quarter. Financial Services also gained, inching 2% higher to $893 mln. Financing volumes ballooned by 41% to a new all-time high of $2.1 bln, led by robust demand for more investment capacity to deploy AI and accelerate cloud adoption.
- The laggard in Q4 remained Intelligent Edge, which endured a 20% drop in revs yr/yr to $1.1 bln. However, HPE is still optimistic that this business is on a path to recovery as customers have already mostly digested excess inventories. Furthermore, HPE is noticing more large deals in its pipeline.
- Looking toward next quarter, HPE anticipated some stagnation sequentially, targeting adjusted EPS of $0.47-0.52 and revenue growth in the mid-teens percentage yr/yr. An ongoing recovery in Intelligent Edge primarily contributes to the potentially flatlining growth next quarter. Meanwhile, a greater shift toward AI servers may boost revenue but take a bite out of margins.
After cautious comments surrounding certain clients and geographies last quarter, HPE squashed lingering fears with its Q4 report as numbers indicated further recovery progress. As AI shows no signs of slowing, HPE is capitalizing on a secular tailwind that it anticipates will fuel further growth in 2025. Meanwhile, HPE expects its previously announced acquisition of Juniper Networks (JNPR) to close in early 2025, which is consistent with its previously stated timeframe. Adding JNPR should further enhance HPE's overall portfolio, given the similarities between the two organizations.
lululemon athletica turns to international business to reignite growth amid U.S. slowdown (LULU)
After a steady decline in comparable sales growth over the past year, athleisurewear and yoga pants retailer lululemon athletica (LULU) rebounded in 3Q25, boosted by strong growth across its international markets and a stabilization in the U.S. Importantly, this improved sales performance isn't the result of higher promotional activity -- markdowns were flat yr/yr -- but rather, strengthening momentum in China and early returns from its U.S. turnaround plan were key drivers behind LULU's top and bottom-line beat. The cherry on top is that LULU also announced a $1.0 bln increase to its stock repurchase program.
- Adding to the positive vibes, CEO Calvin McDonald stated during the earnings call that the holiday shopping season is off to a solid start and that he's pleased with the traffic trends seen in both the e-Commerce and store channels over the Thanksgiving weekend. With nearly two-thirds of the holiday season still in front of LULU, and with macro-related headwinds persisting, the company is taking a careful approach in terms of planning.
- As such, LULU's inline Q4 EPS and revenue guidance is likely being viewed as conservative, perhaps setting the stage for another upside performance when it reports Q4 results in early March.
- As has been the case lately, the international business was the standout with comparable sales growing by 22% on constant currency basis. The company achieved growth in each international market, but China led the way with comps jumping by 24% (cc), driven by a direct sales approach that includes hosting wellbeing events and activations.
- In Q3, LULU hosted events in nine Chinese cities, anchored by its activation in Shanghai.
- Meanwhile, the company is making strides in the U.S., where a combination of rising competition, sluggish consumer spending trends, and the lingering effects of some merchandising missteps in the spring have crippled its growth. Revenue was flat on a qtr/qtr basis in the U.S., reflecting a stabilization in demand, and a return to growth may be on the horizon as LULU's turnaround plan gains traction.
- More specifically, the company has implemented a new reporting structure within its product team, leading to better coordination and faster decision making within the merchandising teams.
- Additionally, after introducing a spring product assortment that lacked newness and was understocked in certain colors and sizes, LULU is expanding its assortments by adding updated colors, prints, and patterns, beginning by 1Q25.
- Despite the competitive environment and soft consumer spending trends, LULU has resisted turning to promotions to drive sales growth. As a result, its gross margin expanded by 150 bps to 58.5%.
The main takeaway is that while LULU is a long way from the impressive growth rates seen in 2021-2023, its Q3 earnings report stopped the bleeding, easing concerns that its U.S. business would remain in a deep slump that extended throughout the holiday shopping season. At the same time, the emergence of LULU's international business -- especially mainland China -- is taking the sting out of the slowing Americas market, providing the company with a needed growth catalyst.
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