Market Snapshot
| Dow | 43449.90 | -267.58 | (-0.61%) | | Nasdaq | 20147.55 | -95.57 | (-0.47%) | | SP 500 | 6050.61 | -23.47 | (-0.39%) | | 10-yr Note | +2/32 | 4.38 |
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| | NYSE | Adv 745 | Dec 1971 | Vol 1.1 bln | | Nasdaq | Adv 1556 | Dec 2775 | Vol 9.5 bln |
Industry Watch
| Strong: Consumer Discretionary |
| | Weak: Energy, Financials, Information Technology, Utilities, Industrials, Real Estate |
Moving the Market
-- Digesting some mixed economic news that fueled whipsaw action in Treasuries
-- Profit-taking after big gains this year and with major indices near all-time highs
-- Losses in some mega caps and chipmakers weighing down broader equity market
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Closing Summary
17-Dec-24 16:30 ET
Dow -267.58 at 43449.90, Nasdaq -95.57 at 20147.55, S&P -23.47 at 6050.61
[BRIEFING.COM] The stock market closed lower at the index level. The Russell 2000 underperformed, dropping 1.2%, while the S&P 500 (-0.4%), Nasdaq Composite (-0.3%), and Dow Jones Industrial Average (-0.6%). Many names participated in a broad retreat, leading the equal-weighted S&P 500 to decline 0.8%.
NVIDIA (NVDA 130.39, -1.61, -1.2%) underperformed again along with other chipmakers. Broadcom (AVGO 240.23, -9.77, -3.9%) logged a 4% decline and the PHLX Semiconductor Index (SOX) closed 1.6% lower. Gains in Apple (AAPL 253.48, +2.44, +1.0%), Microsoft (MSFT 454.46, +2.87, +0.6%), and Tesla (TSLA 479.86, +16.84, +3.6%), which constitute 16% of the S&P 500, provided some offsetting support to the broader market.
UnitedHealth (UNH 485.52, -12.98, -2.6%) was another influential laggard, along with managed care stocks with pharmacy benefit manager divisions like CVS (CVS 44.04, -2.56, -5.5%). This selling followed comments from President-elect Trump yesterday that he wants to "knock out the drug industry middle man" contributing to higher drug prices.
The 10-yr note yield, which was at 4.44% in front of this morning's data, settled two basis points lower than yesterday at 4.38%. The 2-yr yield, which was at 4.28% before 8:30 ET, settled unchanged from yesterday at 4.24%.
This price action followed the November retail sales report, which showed a soft 0.2% increase in sales, excluding autos. That line item was viewed as a sign of softening in consumer spending activity since the report is not adjusted for price changes, meaning there wasn't any real pickup in volume/demand driving the increase. Also, the $13 billion 20-yr bond reopening was met with relatively weak demand.
- Nasdaq Composite: +34.0% YTD
- S&P 500: +26.9% YTD
- S&P Midcap 400: +16.4% YTD
- Russell 2000: +15.2% YTD
- Dow Jones Industrial Average: +15.3% YTD
Reviewing today's economic data:
- November Retail Sales 0.7% (Briefing.com consensus 0.5%); Prior was revised to 0.5% from 0.4%, November Retail Sales ex-auto 0.2% (Briefing.com consensus 0.4%); Prior was revised to 0.2% from 0.1%
- The key takeaway from the report is in the ex-auto number, which was up modestly and a reflection of some softening spending activity given that it is not adjusted for price changes. In other words, the overall sales increase, excluding autos, appears to be more price driven than volume driven.
- November Industrial Production -0.1% (Briefing.com consensus 0.3%); Prior was revised to -0.4% from -0.3%, November Capacity Utilization 76.8% (Briefing.com consensus 77.3%); Prior was revised to 77.0% from 77.1%
- The key takeaway from the report is that industrial production didn't show any strong rebound from the prior two months that were adversely impacted by the hurricanes. There was some modest strength in manufacturing output, but total industrial production is still lagging.
- October Business Inventories 0.1% (Briefing.com consensus 0.2%); Prior was revised to 0.0% from 0.1%
- December NAHB Housing Market Index 46 (Briefing.com consensus 47); Prior 46
Looking ahead, market participants receive the following data tomorrow:
- 07:00 ET: MBA Mortgage Applications Index (prior 5.4%)
- 08:30 ET: November Housing Starts (Briefing.com consensus 1347K; prior 1311K) and Building Permits (Briefing.com consensus 1430K; prior 1416K)
- 08:30 ET: Q3 Current Account Balance (Briefing.com consensus -$283.0B; prior -$266.8B)
- 10:30 ET: EIA Crude Oil Inventories (prior -1.43M)
Treasuries settle little changed in front of FOMC decision
17-Dec-24 15:40 ET
Dow -327.07 at 43390.41, Nasdaq -104.58 at 20138.54, S&P -34.00 at 6040.08
[BRIEFING.COM] The S&P 500 trades about 40 points lower than yesterday ahead of the closing bell.
The 10-yr note yield settled two basis points lower at 4.38% and the 2-yr yield settled unchanged from yesterday at 4.24%.
Looking ahead, market participants receive the following data tomorrow:
- 07:00 ET: MBA Mortgage Applications Index (prior 5.4%)
- 08:30 ET: November Housing Starts (Briefing.com consensus 1347K; prior 1311K) and Building Permits (Briefing.com consensus 1430K; prior 1416K)
- 08:30 ET: Q3 Current Account Balance (Briefing.com consensus -$283.0B; prior -$266.8B)
- 10:30 ET: EIA Crude Oil Inventories (prior -1.43M)
NVDA, AVGO, other chipmakers lag broader market
17-Dec-24 15:00 ET
Dow -367.56 at 43349.92, Nasdaq -86.89 at 20156.23, S&P -33.86 at 6040.22
[BRIEFING.COM] The major equity indices are near session lows. Losses range from 0.6% to 1.1%.
Chipmakers have an outsized impact on the broader equity market today. The PHLX Semiconductor Index (SOX) shows a 2.0% decline with influential components like NVIDIA (NVDA 129.95, -2.03, -1.5%) and Broadcom (AVGO 236.84, -13.16, -5.4%) showing sizable declines.
This price action has contributed to the loss in the information technology sector, which trades 0.6% lower.
S&P 500 down; Amentum, Humana, and APA lead declines, Fox Corp. gains on digital growth
17-Dec-24 14:30 ET
Dow -346.89 at 43370.59, Nasdaq -83.66 at 20159.46, S&P -31.20 at 6042.88
[BRIEFING.COM] The S&P 500 (-0.51%) is in second place on Tuesday afternoon, consolidating afternoon losses over the last half hour.
Elsewhere, S&P 500 constituents Amentum Holdings (AMTM 21.47, -2.31, -9.71%), Humana (HUM 237.50, -22.96, -8.82%), and APA Corp. (APA 20.87, -1.07, -4.88%) pepper the bottom of the standings. AMTM falls on earnings and guidance, HUM and managed care peers remain pressured following recent comments from President-elect Trump, and APA caught a Wells Fargo downgrade this morning to Equal Weight but cites stronger long-term prospects for natural gas demand.
Meanwhile, Fox Corporation (FOXA 49.19, +2.13, +4.53%) is one of today's better performers after the company reported record FOX News digital numbers for November with equally impressive YouTube views and strong election coverage performance.
Gold slips as flat dollar and falling yields provide little support ahead of Fed policy meeting
17-Dec-24 14:00 ET
Dow -286.20 at 43431.28, Nasdaq -67.53 at 20175.59, S&P -25.77 at 6048.31
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.33%) has held up decently relative to the last half hour.
Gold futures settled $8.00 lower (-0.3%) to $2,662/oz, a mostly flat dollar and falling yields fail to perk up the yellow metal ahead of key Fed policy meeting.
Meanwhile, the U.S. Dollar Index is slightly higher at $106.87.
McCormick hugs its flatline following reports of a possible acquisition of Sauer Brands (MKC)
McCormick (MKC) inches higher today following a Bloomberg report that it is in talks to purchase Sauer Brands for as much as $1.0 bln. Sauer Brands is well known for its Duke's Mayonnaise lineup, but it also owns several other brands, including Kernel Season's and The Spice Hunter. While MKC is best known for its seasonings, it also controls a few food-related banners, such as Simply Asia and Thai Kitchen. With a solid lineup of seasonings and food items, MKC and Sauer complement each other nicely, making a possible acquisition of Sauer a decent fit for MKC.
- MKC has been gradually recovering from November bottoms that followed a steady sell-off on Q3 results in early October. The company caters to households and foodservice companies, which has caused some good and bad over the past few quarters. For instance, as at-home food prices eased, food-away-from home prices have struggled to come down as significantly.
- This dichotomy has fueled a rise in at-home consumption, benefitting MKC's Consumer segment while hindering restaurant traffic and hurting MKC's Flavor Solutions segment. With each of these businesses comprising around an equal proportion of MKC's total revenue, its top line has stalled out this year, struggling to break above low-single-digit yr/yr growth.
- However, acquisitions can help provide a decent revenue boost. While it is important not to overpay, if the Sauer Brands acquisition rumor is true, it could benefit MKC's revenue heading into 2025, a year the company expects growth to begin ramping up. MKC outlined its long-term financial expectations in late October. The company anticipates EPS growth of +9-11% and operating income growth of at least +7% over the next three years, with numbers ramping in 2025.
In the absence of acquisitions, MKC tends to return cash to shareholders through repurchases. As such, a relatively expensive purchase of Sauer Brands could temporarily pause stock buybacks as MKC prioritizes paying down debt. However, no representatives for either firm, including Falfurrias Capital Partners, which owns Sauer Brands, have commented on the transaction, making it speculation at this point. Also, despite a possible buyback halt, adding Sauer Brands' lineup to its portfolio would likely be a net benefit for MKC, especially as it heads into its "year of momentum" in 2025.
Pfizer's encouraging guidance gives stock a needed shot in the arm (PFE)
Still reeling from a dramatic post-pandemic fall from grace that's seen its shares plummet by nearly 60% from the early 2021 highs, Pfizer (PFE) is making a case that the extreme bearish sentiment weighing on its stock may be overdone. Before the open, the company reaffirmed its FY24 EPS and revenue forecast and issued in line FY25 EPS and revenue guidance, despite the fact that it expects Medicare Part D coverage changes related to the Inflation Reduction Act to negatively impact its top line by $1.0 bln in 2025.
The encouraging outlook helped ease concerns that incoming Health Secretary Robert F. Kennedy, Jr. poses a major threat to PFE's vaccine business. Mr. Kennedy has been an outspoken critic of vaccines due to his concerns about their safety, but PFE stated during today's conference call that the company doesn't expect significant changes to vaccine policies.
- PFE's solid guidance also comes on the heels of a strong beat-and-raise Q3 earnings report on October 29 that featured a 31% jump in revenue to $17.7 bln -- which crushed expectations. A recent COVID-19 wave boosted sales of COVID-19 treatment Paxlovid to $2.7 bln, and COVID-19 vaccine Comirnaty saw sales grow by 9% yr/yr to $1.4 bln. Non-COVID products were also strong, up 14%, led by the oncology portfolio.
- Prior to the Q3 report, PFE had experienced yr/yr revenue declines in five of the past six quarters, including plunges of 54% in 2Q23 and 42% in 3Q23. The steep drop-off in sales was fueled by waning demand for Comirnaty and Paxlovid.
- In the wake of its crashing sales, PFE also became a target of activist investment firm Starboard, which has accumulated a $1.0 bln stake in the company. In recent months, Starboard CEO Jeff Smith has called for the possible replacement of PFE CEO Albert Bourla, questioning PFE's use of cash following the windfall it generated during the pandemic. On that note, in March of 2023, Mr. Bourla green-lighted a huge $43.0 bln acquisition of oncology drug maker Seagen. While the addition could ultimately transform PFE into a cancer and immunology powerhouse, Seagan was only expected to contribute about $3.1 bln in revenue for FY24.
- With little in place to fill the void of declining Comirnaty and Paxlovid sales, PFE has turned to cost-cutting actions to support its earnings. PFE had some good news to share in this regard today, stating that it has delivered on its goal of achieving $4.0 bln in operating expense savings through 2024, while also announcing plans to cut costs by an additional $500 mln in 2025.
PFE's reaffirm of FY24 guidance and in line outlook for FY25 provides a sense of relief for investors, while also sending a message to Starboard that business is stronger than the activist investment firm is giving it credit for. However, with key products facing patent expirations in 2025 and 2026, such as Xeljanz and Eliquis, and with the volatile nature of PFE's COVID products, the company's financial performance may still be bumpy moving forward.
Nucor's Q4 earnings hit by falling prices and volumes, just like Steel Dynamics (NUE)
After Steel Dynamics (STLD) guided Q4 EPS well below expectations yesterday morning, steel producer Nucor (NUE) followed suit after the close last night, issuing downside Q4 EPS guidance of $0.55-$0.65. Like STLD, the company's earnings forecast badly missed the mark as decreasing volumes and lower average selling prices in its steel mills segment continue to weigh on profits. When NUE reported mixed Q3 results on October 21, the company warned that it anticipated Q4 earnings to be below Q3's EPS of $1.05 due to these volume and pricing pressures.
While NUE's cautious outlook sparked a short-lived post-earnings report selloff, the election of Donald Trump as President on November 5 rekindled hopes for NUE and a struggling steel industry that has been weighed down by high interest rates. This optimism centered on the idea that the supply of foreign steel would slow significantly as the Trump administration launched new tariffs, leading to higher steel prices. Additionally, the prospect of more interest rate cuts in 2025 drove a bullish theme for steel demand as construction projects, vehicles, appliances, and many other products become more affordable.
- So far, though, it hasn't played out as anticipated. Since that initial post-election pop, shares of NUE have cratered by 27% and are currently trading at multi-year lows. The main problem? Interest rates haven't cooperated, remaining stubbornly high, keeping a lid on steel demand across several key end markets.
- During the Q3 earnings call, NUE stated that while the Federal Reserve's recent rate cuts are a good start, more rate relief is needed and that it will likely take more time for lending conditions to loosen. Until then, steel demand in the industrial, construction, and consumer durables markets is likely to remain subdued.
- There are some pockets of strength. More specifically, the emergence of AI is facilitating the construction of more data centers, semiconductor factories, and advanced manufacturing plants. Furthermore, NUE anticipates new infrastructure spending to generate incremental demand in the years ahead.
- From a company specific standpoint, NUE is looking to lessen its dependence on highly cyclical businesses, while aligning more closely with secular trends. To accomplish this, the company is investing in its higher margin steel products segment, which manufacturers steel products for data centers, decking, doors, highway and agriculture, joists, and many other applications. During the 12-month period ending in September, the steel products segment accounted for 42% of NUE's pre-tax earnings, about three times more than historical averages.
In the wake of STLD's weak guidance, NUE's downside Q4 EPS outlook doesn't come as a major surprise, but it does reinforce a bearish sentiment that has enveloped the stock and the broader steel industry over the past month. The bottom line is, NUE and other steel stocks will have trouble gaining any sustainable upward momentum until interest rates come down and begin trickling through the economy.
eBay jumps on a $3.0 bln increase to its repurchase program; gaining steam ahead of 2025 (EBAY)
E-commerce auction platform eBay (EBAY +1%) is tacking on decent gains today after announcing an incremental $3.0 bln under its existing repurchase plan, representing roughly 10% of its current market capitalization. At the end of Q3, EBAY had around $1.2 bln remaining under its buyback authorization. There is no timetable for when EBAY will conduct its buybacks. During its Q3 conference call, management mentioned that its goal for 2024 was to buy back $3.0 bln shares total, implying around $750 mln of repurchases in Q4. Nevertheless, the increase reflects confidence in future cash flow, likely fueled by encouraging trends in Q3.
EBAY did see its shares sell-off following its Q3 report when it guided Q4 revenue below consensus. The central issue was EBAY's monetization efforts in the U.K., eliminating selling fees and following in the footsteps of its initiative in Germany over a year ago, which has demonstrated success. While inflation pressures and a shorter holiday shopping period also partly contributed to the weak guidance, the monetization efforts were the culprit. Since this should be a short-lived headwind, investors quickly piled back into EBAY, recouping lost ground over the next few trading sessions. Since then, the stock has steadily trended higher, a bullish sign heading into 2025.
- EBAY's Focus Categories, such as collectibles, automotive parts, refurbished electronics and household items, and luxury fashion apparel, have been paramount to its turnaround this year, returning to positive gross merchandise volume (GMV) growth in Q2. Despite the fluid economic environment, this group has grown at +4% yr/yr. Focus Categories has also acted as a reliable option in a saturated e-commerce market, competing against established giants in these fields, such as Amazon (AMZN), Walmart (WMT), and AutoZone (AZO).
- Meanwhile, AI is opening the door to an uptick in sellers, which could translate to a substantial revenue boost. EBAY has leveraged the technology to create its Magical Listings product, where individuals can take a picture of an item, and AI will fill in everything, from the description to the suggested price. In fact, AI will enhance the photo, putting it against a more appealing backdrop. EBAY sees this as a game-changer, pointing to thousands of dollars worth of items the average household would sell if not for the hassle of going through the listing process.
- Economic conditions remain troubling across the U.S., U.K., and Germany, which comprise 75% of EBAY's annual GMV. However, EBAY's business model can better weather these sticky economic issues as nearly everything it sells (~90%) is non-new in season, and 40% of everything transacted on its platform is used or refurbished, providing consumers with a cheaper but reliable, alternative to competing e-commerce firms.
Hurdles are present over the immediate term as EBAY deals with some fallout from the U.S. elections, a shorter holiday shopping period, and re-monetization efforts in the U.K. However, the company has plenty of wind at its back heading into 2025, from sustained Focus Categories growth to AI trends, potentially leading to accelerating GMV growth and another excellent year ahead.
Western Union breaks out of recent consolidation after significant $1.0 bln repurchase plan (WU) |
