| | | Market Snapshot
| Dow | 43914.12 | -234.44 | (-0.53%) | | Nasdaq | 19902.84 | -132.05 | (-0.66%) | | SP 500 | 6051.25 | -32.94 | (-0.54%) | | 10-yr Note | -4/32 | 4.32 |
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| | NYSE | Adv 717 | Dec 2014 | Vol 889 mln | | Nasdaq | Adv 1205 | Dec 3099 | Vol 7.0 bln |
Industry Watch
| Strong: Consumer Staples, |
| | Weak: Consumer Discretionary, Information Technology, Communication Services, Industrials |
Moving the Market
-- Weakness in technology stocks after disappointing FY25 guidance from Adobe (ADBE)
-- Linger concerns about valuation
-- Reacting to the November PPI, which showed inflation at the producer level moving in the wrong direction
-- Treasury yields little changed after PPI
| Closing Summary
12-Dec-24 16:30 ET
Dow -234.44 at 43914.12, Nasdaq -132.05 at 19902.84, S&P -32.94 at 6051.25
[BRIEFING.COM] The S&P 500 (-0.5%), Nasdaq Composite (-0.7%), and Dow Jones Industrial Average (-0.5%) closed with losses. The Russell 2000 underperformed other major indices, dropping 1.3%. An overall downside bias was reflected in negative market breadth, which favored decliners by a 3-to-1 margin at the NYSE and by a 5-to-2 margin at the Nasdaq.
Selling interest was related to normal profit-taking amid lingering concerns about valuations and the market being overbought on a short-term basis. There were many factors in play that sparked selling interest, or kept buying activity in check. These factor included disappointing FY25 guidance from Adobe (ADBE 474.63, -75.30, -13.7%) and weaker-than-expected economic data, which sent Treasury yields higher.
This morning's economic reports revealed a softening labor market and rising inflation at the producer level. Weekly initial jobless claims increased to 242,000 from 225,000 and continuing claims increased to 1.886 million from 1.871 million.
The November Producer Price Index (PPI) report showed the index for final demand was up 3.0% year-over-year versus 2.6% in October. Excluding food and energy, the index for final demand was up 3.4% year-over-year (3.45% unrounded versus 3.37% in October).
The softening in labor data supports the market's thinking that the Fed will continue cutting rates, and expectations for a 25 basis points rate cut by the FOMC next week were little changed despite the hot inflation data.
The fed funds futures market sees a 94.7% probability of a 25 basis points rate cut at the FOMC meeting next week, down from the 97.5% probability yesterday and up from 71.0% one week ago, according to the CME FedWatch tool.
The 10-yr Treasury note yield jumped five basis points to 4.32% and the 2-yr yield settled three basis points higher at 4.19%.
In other news, the ECB's cut its key policy rates by 25 basis points, as expected.
- Nasdaq Composite: +32.6% YTD
- S&P 500: +26.9% YTD
- S&P Midcap 400: +18.4% YTD
- Russell 2000: +16.5% YTD
- Dow Jones Industrial Average: +16.5% YTD
Reviewing today's economic data:
- Weekly Initial Claims 242K (Briefing.com consensus 220K); Prior was revised to 225K from 224K, Weekly Continuing Claims 1.886 mln; Prior 1.871 mln
- The key takeaway from the report is that initial jobless claims are the highest they have been since mid-October, which will contribute to the belief that the labor market is softening -- a softening the Fed would like to prevent from becoming anything more by lessening its policy restraint.
- November PPI 0.4% (Briefing.com consensus 0.3%); Prior was revised to 0.3% from 0.2%, November Core PPI 0.2% (Briefing.com consensus 0.2%); Prior 0.3%
- The key takeaway from the report is that inflation at the producer level is moving in the wrong direction, evidenced by the large jump in goods inflation, particularly food, that raises the potential for pass-through pressures for consumers.
Friday's economic calendar features: November Import Prices (prior 0.3%), Import Prices ex-oil (prior 0.2%), Export Prices (prior 0.8%), and Export Prices ex-agriculture (prior 0.6%) at 8:30 ET
COST, AVGO, RH trade down in front of earnings
12-Dec-24 15:35 ET
Dow -173.21 at 43975.35, Nasdaq -107.56 at 19926.87, S&P -23.60 at 6060.59
[BRIEFING.COM] The major indices remain near session lows ahead of the close.
Costco (COST 988.51, -6.07, -0.6%) turned lower ahead of its earnings report this afternoon. Broadcom (AVGO 18.17, -3.04, -1.6%) and RH (RH 380.03, -18.47, -4.6%) also trade down in front of their earnings reports.
There's no notable earnings news in front of Friday's open.
Treasury yields climb as stocks decline
12-Dec-24 15:05 ET
Dow -227.27 at 43921.29, Nasdaq -88.09 at 19946.34, S&P -25.30 at 6058.89
[BRIEFING.COM] The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average trade near session lows with declines ranging from 0.4% to 0.5%.
Treasury yields continue to climb as stocks decline. The 10-yr yield is at 4.33% and the 2-yr yield is at 4.19%. Sharp losses followed this week's economic data.
Looking ahead, Friday's economic data includes November Import and Export prices at 8:30 ET.
Small cap stocks underperform
12-Dec-24 14:40 ET
Dow -194.73 at 43953.83, Nasdaq -83.58 at 19950.85, S&P -22.38 at 6061.81
[BRIEFING.COM] The three major indices moved lower over the last half hour. The S&P 500 trades down about 25 points compared to yesterday.
Small and mid cap stocks are underperforming the broader equity market. The Russell 2000 shows a 1.1% decline.
Separately, some commodity futures settled the session lower. Gold futures dropped 1.7% to $2,709.30/oz and copper futures dropped 0.5% to $4.24/lb.
Stocks move mostly sideways
12-Dec-24 14:10 ET
Dow -159.88 at 43988.68, Nasdaq -55.60 at 19978.83, S&P -16.30 at 6067.89
[BRIEFING.COM] The major indices moved mostly sideways over the last half hour. The Nasdaq Composite trades about 60 points lower than yesterday.
Mega caps and semiconductor shares continue to weigh down the broader market. The Vanguard Mega Cap Growth ETF (MGK) shows a 0.2% decline and the PHLX Semiconductor Index (SOX) trades 0.7% lower.
Elsewhere, the 10-yr yield hit 4.32%.
Oxford Ind pulls back on earnings miss; even higher income consumers feeling inflation pinch (OXM)
Oxford Industries (OXM -7%) is sharply lower following disappointing Q3 (Oct) earnings results/guidance last night. This apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was and some emerging brands, focuses on the laid-back vacation vibe. OXM cited several macro headwinds, most notably, the continued challenging consumer environment. Distractions due to the election and hurricanes also impacted the Southeastern US.
- OXM has now missed on EPS in four consecutive earnings reports and the last two misses have been quite large. What's more, analysts were expecting a profit in Q3, but OXM posted a loss. Sales declined 5.2% yr/yr to $308 mln with declines among all core brands. The Q4 (Jan) guidance was not great either with downside EPS and the mid-point of revenue guidance was slightly below analyst expectations.
- On the last call, OXM had warned of a relatively soft Q3. OXM said it was on track to finish within the forecast, but then the impact of two hurricanes pushed it below the bottom of the range for both EPS and sales. OXM explained that its customer tends to be older and headline-sensitive, so the election was a distraction. Also, the Southeastern US is OXM's most important region, with Florida alone representing a third of its DTC (direct-to-consumer) business.
- These issues were exacerbated by a consumer that already felt the cumulative effects of several years of high inflation. Also, OXM owns a portfolio of premium brands that sell primarily at full price with very limited exposure to off-price and outlet channels. OXM sees its full price premium strategy as a long-term competitive strength, but in the current environment, it is a headwind.
- A silver lining is that customer traffic has remained healthy, but reduced purchase conversion is hurting results. OXM says this indicates that its customer remains interested in its brands, but continues to be cautious when making purchase decisions. Despite short-term headwinds, OXM has not backed off investing in the business with new stores, Marlin Bars, a new distribution center and technology, all of which are adding expense at a time when the top line is weak. That hurts EPS.
- Looking ahead to Q4, November started on a similar trajectory as Q3, but since the election, business has begun to improve. OXM saw a strong finish to November with a very solid Thanksgiving weekend. The holiday season is more condensed this year due to the late Thanksgiving but OXM believes in its holiday assortment and marketing plans. Indigo Palms was a rare bright spot in Q3 and it performed extremely well during November.
With a generally higher income core customer base, it would be natural to think OXM would be less impacted by macro issues. However, even higher income people are cautious these days and are focusing more on value, which hurts OXM. Looking ahead to next year, OXM's #1 priority is stabilizing and expanding operating margin. OXM is encouraged by recent sales trends and by forward wholesale bookings. On a final note, Briefing.com notes that the stock has come under pressure in recent months, but today's strong reaction makes us nervous that a bottom has yet to be reached.
Adobe sells off as healthy AI demand from Q4 does not follow through to weak FY25 guidance (ADBE)
Adobe (ADBE -12%) experiences heavy selling pressure today after its FY25 (Nov) earnings and revenue projections come up short of analyst expectations. The digital document and media editor software developer did surpass Q4 (Nov) earnings, sales, and net new Digital Media annualized recurring revenue (ARR) estimates, fueled by sustained demand for AI. However, with so much buzz surrounding Generative AI, the market was looking for healthier headline figures next year, deflating investor sentiment today.
- Starting with ADBE's solid Q4 numbers, the company registered adjusted EPS of $4.81, well above its $4.63-4.68 prediction, continuing its impressive streak of over 20 consecutive bottom-line beats. Revenue continued to expand by low double-digits, jumping by 11.1% yr/yr to $5.61 bln, exceeding ADBE's $5.50-5.55 bln guidance.
- ADBE's Digital Media segment, which houses its Document Cloud and Creative units, grew sales by 12% yr/yr to $4.15 bln, boasting net new ARR of $578 mln, surpassing its forecast of ~$550 mln. Creative revenue climbed by 10% to $3.30 bln, supported by strong demand for content across mobile, desktop, and streaming platforms. Document Cloud revenue shot up by 17% yr/yr to $843 mln, gaining 25% more monthly active users and surpassing 650 mln paid and free users.
- The Digital Experience segment, which supports businesses through gathering analytics on customer experiences, registered 10% revenue growth to $1.40 bln. Subscription revenue growth moved slightly quicker at 12%. Nearly half of the Fortune 100 companies are now leveraging ADBE's Experience tools.
- ADBE attributed much of its consistent growth in the quarter to AI, including enabling the firm to add over $2.0 bln in Digital Media net new ARR in FY24. The company introduced several AI models across its portfolio this year, such as AI Assistant, which ADBE noted allows users to complete document-related tasks four times faster on average. Additionally, the introduction of Firefly Services in GenStudio has enjoyed early success, with generations crossing the 16 bln mark.
- Nevertheless, despite management anticipating AI to set the stage for another strong year ahead, it did not show up in its FY25 guidance, targeting adjusted EPS of $20.20-20.50 and revs of $23.30-23.55 bln, both below consensus. FX headwinds are part of the reason; ADBE expects a roughly $200 mln FX-related headwind to FY25 revenue. The other component is an uptick in new users and products. New users are often more price sensitive, hindering ADBE's ability to extract as much revenue compared to the core of its business for creative professionals.
ADBE's Q4 performance was solid, but it failed to follow through with its FY25 guidance. Given the unwavering demand for AI touched on by management, investors needed to see this carry through to next year. However, with ADBE guiding to decelerating revenue growth next year, investors feel let down, pushing shares toward six-month lows today.
Uber riding higher after delivering upbeat outlook during Barclays Conference (UBER)
It's been a very bumpy ride for Uber (UBER) and its shareholders lately with shares skidding lower by nearly 30% since mid-October as concerns about slowing rideshare growth and the possible impact that robotaxis may have on its business have weighed on sentiment. On the former point, the company provided an upbeat outlook for its Mobility segment during yesterday's Barclays Conference, forecasting mid-to-high or low-twenties growth for the first three quarters of FY25. For a reference point, gross bookings for Mobility grew by 24% on a constant currency basis in 3Q24.
On the latter point, UBER's robotaxi plans hit a speedbump yesterday after General Motors (GM) surprised the market by announcing its decision to scrap its robotaxi development plans due to the substantial capital required to fund that unprofitable business. This move puts UBER's partnership with GM into serious doubt, which was announced in August and would have brought Cruise autonomous vehicles onto the Uber platform, beginning next year.
- During the Barclays event, UBER also stated that it expects a mid-to-high teens gross bookings CAGR over a three-year period, providing some assurance that the recent downturn in growth for Mobility won't accelerate further. When the company reported Q3 results on October 31, the stock sold off sharply as Mobility gross bookings growth slowed to 24% from 27% in Q2. Further, UBER's Q4 gross bookings guidance of $42.75-$44.25 bln equated to yr/yr growth of 18% at the midpoint, representing a decrease from Q3's growth of 20% and Q2's increase of 21%.
- Supporting Mobility's growth in the coming years will be UBER's efforts to expand into less densely populated markets that have limited on-demand transportation services. During the Q3 earnings call, CEO Dara Khosrowshahi commented that about 45% of the U.S. population lives in places with limited rideshare coverage, providing an opportunity for UBER to focus on more rural and suburban markets.
- In terms of the company's robotaxi ambitions, GM's planned exit not only removes a key partner from the mix, but the departure of a well-capitalized company like GM also shook the market's confidence in robotaxis overall. In other words, if GM is unwilling to pour its resources into robotaxi development, it begs the question whether investing in a highly uncertain endeavor like robotaxis is worth the risk for any other company.
- With that said, UBER's robotaxi aspirations are far from dead. The company has recently expanded its partnership with Google's (GOOG) Waymo with the companies aiming to launch autonomous rideshare vehicles in Atlanta in 2025.
Badly in need of some positive headlines that could stem the stock's steep selloff, the Barclays Conference provided UBER with a forum to spin a more positive narrative. The company's updated guidance, including its expectation to grow adjusted EBITDA at a 40% clip from 2023-2026, did just that, helping the stock to reverse course and move higher.
Ciena surges to 20+ yr high; AI traffic is not limited to data centers (CIEN)
Ciena (CIEN +15%) is surging today despite wrapping up FY24 on a mixed note. The telecom / networking equipment giant missed pretty badly on Q4 (Oct) EPS with in-line revenue. However, investors are clearly focusing on the bullish comments on the call. Also, Ciena guided to upside revenue for both Q1 (Jan) and for FY25. Perhaps most importantly, Ciena raised its long-term (FY25-27) average annual revenue growth target to +8-11% from +6-8%.
- Adjusted gross margin declined to 41.6% from 43.7% a year ago. This was lower than Ciena had expected and explains the EPS miss. The margin shortfall was caused by a larger than typical provision for excess and obsolescence in its inventory. While EPS was light, what stood out was that orders in Q4 were once again above revenue for the second consecutive quarter. This was a surprise after Ciena said on its last call that it expected orders to be below revenue.
- As always, bandwidth demand remains the most consistent driver for Ciena's business and has been growing at about 30% per year over the last couple of decades led by cloud and AI. Ciena said it expects bandwidth growth will rise above those historical levels over the coming years.
- Ciena made a good point: AI is not just a data center phenomenon. Traffic is already flowing out of the data center and impacting all parts of the network today. Ciena is beginning to see evidence of this in its business today in several ways across service providers and cloud providers. Cloud providers are making significant investments in large scale infrastructure projects to support AI growth. For this, they require a next-generation of intelligent line systems like the ones Ciena provides.
- And it's not just on the cloud side, Ciena explained that purchasing patterns among North American service providers also continue to improve, with supply and demand coming into balance as they worked through inventory build-up from prior periods during Q4. Service provider orders in North America actually outpaced revenue for the first time in nearly two years.
It is rare to see such a big move in Ciena's shares. The company can be hit-or-miss around earnings/guidance, but this guidance was pretty eye-popping for Ciena. In particular, what is really giving the stock a boost is Ciena increasing its long term guidance pretty substantially. Ciena said it's very confident in its business going forward. It is seeing plans for strong cap-ex investments by its cloud provider customers. That was evident in this guidance.
GE Vernova powers higher as set of bullish guidance reflects emerging AI-based growth catalyst (GEV)
In the wake of yesterday's Investor Update event, GE Vernova (GEV) is powering higher once again, continuing a spectacular move that has seen shares soar by 145% since last April's spin-off from General Electric. As part of that event, GEV provided a slate of forward guidance that painted a bullish picture for the company's expected sales and margins in both the near- and longer-term timeframes. Additionally, the company announced a $6.0 bln share repurchase program and initiated its first quarterly dividend of $0.25/share.
The strong outlook and shareholder-friendly capital allocation plans solidified the notion that GEV, which consists of General Electric's former power, wind, and energy segments, is poised to benefit from a rapidly growing need for more power due to the proliferation of AI data centers, the electrification of many products, and increasing investments in an aging power grid.
- For FY24, GEV sees revenue trending towards the higher end of its prior guidance range of $34.0-$35.0 bln, with free cash flow also trending towards the upper end of its forecasted range of $1.3-$1.7 bln. The company also increased it free cash flow guidance to $2.0-$2.5 bln from $1.2-$1.8 bln. Fueling the brighter outlook is GEV's Power and Electrification businesses as demand for gas turbines and electrical grid equipment continues to strengthen. Rewinding to its Q3 earnings report on October 23, Power saw orders surge by 34% yr/yr to $5.2 bln, while orders for Electrification jumped by 17% organically.
- Looking out to FY25, GEV raised its revenue guidance to $36-$37 bln from its former outlook of mid-single digit growth, which implied revenue of $35-$37 bln. Meanwhile, free cash flow is expected to increase to $2.0-$2.5 bln compared to its initial guidance of $1.2-$1.8 bln.
- In our view, what really stands out within GEV's batch of guidance is its expectation for much stronger margins in the years ahead. Specifically, the company now sees EBITDA margins expanding to 14% by 2028, from 5.5-6.0% in FY24 and high-single digits in FY25. This expansion will be driven by better equipment pricing in Power and Electrification, a leaner organization, and healthy margins from services.
- Still, GEV is not quite firing on all cylinders. The company's Wind business continues to struggle amid supply chain challenges, inflationary pressures, and delays in offshore projects in the U.S. and abroad. With President-elect Donald Trump also taking aim at the wind energy industry, the future doesn't look very bright, either. In fact, CEO Scott Strazik stated that the company isn't taking new orders for offshore wind turbines and is anticipating more losses for wind next year.
Overall, GEV's Investor Update event added more fuel to the fire for bulls as the company's strong guidance affirmed its place as a major beneficiary of the AI data center boom.
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