Market Snapshot
briefing.com
| Dow | 29380.41 | -212.03 | (-0.72%) | | Nasdaq | 10882.37 | +14.59 | (0.13%) | | SP 500 | 3674.19 | -19.11 | (-0.52%) | | 10-yr Note | -52/32 | 3.88 |
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| | NYSE | Adv 511 | Dec 2557 | Vol 1.0 bln | | Nasdaq | Adv 1297 | Dec 3090 | Vol 4.6 bln |
Industry Watch
| Strong: Consumer Staples |
| | Weak: Real Estate, Energy, Utilities, Health Care |
Moving the Market
-- Carryover negative momentum
-- Rising Treasury yields keep pressure on investor sentiment
-- Volatility in currency market
-- Relative strength in mega cap stocks helps limit losses
-- Bank of England failing to take action to support the British pound
| Closing Summary
26-Sep-22 16:30 ET
Dow -329.60 at 29262.84, Nasdaq -65.00 at 10802.78, S&P -38.19 at 3655.11
[BRIEFING.COM] The stock market had another weak showing today, building on recent losses. It looked poised to stage a rebound midmorning with the Nasdaq up more than 1.0% at its high. Upside momentum quickly faded and the stock market sank, bringing the S&P 500 slightly below Friday's low (3,644). The selling impulse weakened at that point and stocks managed to bounce a bit, but the S&P 500 did log a fresh closing low for the year (3,655).
Price action in the stock market today was driven by price action in the Treasury market, which itself was driven by huge swings in the foreign exchange market. The British pound tumbled to an all-time low against the dollar (1.0349) before staging a sharp recovery to 1.0933 amid a growing belief that the Bank of England (BoE) would step-in with an emergency rate hike to support the currency.
An update from the Bank of England today indicated that a "full assessment" of matters will occur at its next scheduled meeting (November 3). So, there was no intervention today and market participants have been led to believe that there won't be any supportive rate hike action until November.
That recognition fueled renewed selling interest of the pound and Treasuries. The US Dollar Index was up 0.8% to 114.05 with GBP/USD -1.5% to 1.0692.
The 2-yr note yield, at 4.20% shortly before the BoE update, settled at 4.31%. The 10-yr note yield, at 3.75% shortly before the BoE update, settled at 3.88%.
Relative strength from mega cap stocks helped limit index level losses. The Vanguard Mega Cap Growth ETF (MGK) closed with a 0.5% loss versus a 1.5% loss in the Invesco S&P 500 Equal Weight ETF (RSP). The S&P 500 closed down 1.0%.
Ten of the 11 S&P 500 sectors closed in the red with losses ranging from 0.2% (consumer discretionary) to 2.6% (real estate). The lone holdout in the green, consumer staples (+0.01%), barely squeezed a gain. Decliners led advancers by a 5-to-1 margin at the NYSE and a better than 2-to-1 margin at the Nasdaq.
Casino stocks were one bright spot in the market today following reports China will allow Macau tour groups for the first time in three years. Melco Resorts (MLCO 6.85, +1.35, +25.5%), Las Vegas Sands (LVS 39.66, +4.19, +11.8%), and Wynn Resorts (WYNN 66.80, +7.15, +12.0%) were winning standouts for the group.
Energy complex futures settled mixed. WTI crude oil futures fell 2.7% to $76.63/bbl. Natural gas futures rose 0.3% to $7.01/mmbtu. Unleaded gasoline futures fell 1.0% to $2.28/gal.
There was no U.S. economic data of note today.
Looking ahead to Tuesday, market participants will receive the following economic data:
- August Durable Orders (Briefing.com consensus -0.1%; prior 0.0.%) and Durable Orders, Excluding Transportation (Briefing.com consensus 0.3%; prior 0.3%) at 8:30 a.m. ET
- July FHFA Housing Price Index (prior 0.1%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 17.0%; prior 18.6%) at 9:00 a.m. ET
- September Consumer Confidence (Briefing.com consensus 105.0; prior 103.2) and August New Home Sales (Briefing.com consensus 500,000; prior 511,000) at 10:00 a.m. ET
Dow Jones Industrial Average: -19.5% YTD
S&P Midcap 400: -22.4% YTD
S&P 500: -23.3% YTD
Russell 2000: -26.3% YTD
Nasdaq Composite: -31.0% YTD
Market moving sideways ahead of the close
26-Sep-22 15:25 ET
Dow -267.89 at 29324.55, Nasdaq -10.42 at 10857.36, S&P -25.93 at 3667.37
[BRIEFING.COM] Recent price action has the stock market moving sideways off session lows.
Ahead of tomorrow's open, TD Synnex (SNX) and Jabil (JBL) are set to report earnings.
Looking ahead to Tuesday, market participants will receive the following economic data:
- August Durable Orders (Briefing.com consensus -0.1%; prior 0.0.%) and Durable Orders, Excluding Transportation (Briefing.com consensus 0.3%; prior 0.3%) at 8:30 a.m. ET
- July FHFA Housing Price Index (prior 0.1%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 17.0%; prior 18.6%) at 9:00 a.m. ET
- September Consumer Confidence (Briefing.com consensus 105.0; prior 103.2) and August New Home Sales (Briefing.com consensus 500,000; prior 511,000) at 10:00 a.m. ET
Major indices lift off lows
26-Sep-22 15:00 ET
Dow -212.03 at 29380.41, Nasdaq +14.59 at 10882.37, S&P -19.11 at 3674.19
[BRIEFING.COM] The stock market lifted off its low in the last half hour. The Nasdaq pushed back into positive territory, up 0.1%.
The 10-yr note yield pulled back some as stocks moved higher. It was at 3.90% a short time ago but now sits at 3.87%. The 2-yr note yield is up 12 basis points to 4.33%.
The US Dollar Index also pulled back from its highs, at 114.28 a short time ago, it now sits at 114.03.
The CBOE Volatility Index is climbing today, up 8.1% (or 2.43) to 32.31.
Lumen Tech slips after JP Morgan speculates that funding needs may cause firm to eliminate dividend
26-Sep-22 14:30 ET
Dow -326.72 at 29265.72, Nasdaq -34.79 at 10832.99, S&P -34.23 at 3659.07
[BRIEFING.COM] The S&P 500 (-0.93%) is still in second place to this point on Monday afternoon.
S&P 500 constituents Lumen Technologies (LUMN 7.70, -0.43, -5.29%), Best Buy (BBY 65.40, -3.38, -4.91%), and Ventas (VTR 41.20, -2.23, -5.13%) slide to the bottom of the standings to open the week. JP Morgan analysts commented on LUMN today, suggesting the company was likely to cut or eliminate its dividend altogether citing funding needs, while VTR falls in tandem with REIT peers across the market.
Meanwhile, big box retailer Costco (COST 481.47, +15.07, +3.23%) is one of today's better performers despite a dearth of corporate news.
Gold slides as dollar gains, 10-yr yield hits 2010 highs
26-Sep-22 14:00 ET
Dow -344.72 at 29247.72, Nasdaq -49.20 at 10818.58, S&P -37.93 at 3655.37
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-0.45%) hosts the shallowest declines among the major averages.
Gold futures settled $22.20 lower (-1.3%) to $1,633.40/oz, pressured in part by a rise in the dollar as well as strong gains in treasury yields with the yield on the 10-year treasury bond near April 2010 levels.
Meanwhile, the U.S. Dollar Index is up about +0.9% to $114.22.
Wynn Resorts and other Macau casino operators hitting the jackpot as China reinstates e-visas (WYNN)
When scanning today's leaderboard, one group of stocks immediately jumps off the page. Casino stocks, especially those with significant exposure to Macau, such as Wynn Resorts (WYNN), Las Vegas Sands (LVS), and Melco Resorts & Entertainment (MLCO), are hitting the jackpot today. The catalyst stems from Reuters, which reported that China is planning to reinstate an e-visa program that mainland travelers and group tours commonly used before the pandemic hit in 2020. If everything goes according to plan, Macau will be in line to welcome back Chinese group tours in November, representing a major milestone in the gambling hub's recovery.
This is viewed as a significant positive development for Macau in general, and for the casino owners that operate in the region.
- Although Macau has remained open to mainland China travelers, the removal of the e-visa option made it a much more onerous process to visit the tourist destination. In fact, it can take up to a week or more to gain approval to visit Macau. This time-consuming procedure, combined with on-again, off-again COVID-related lockdowns and restrictions, has deeply cut into Macau's primary revenue stream. For some context, it's estimated that tourists from mainland China account for as much as 90% of a casino's revenue in Macau.
- With an e-visa, travelers can be almost instantly approved to visit Macau. Therefore, the recovery in visitation is bound to sharply accelerate, but there is a lot of ground to be gained.
- While visitation to Macau increased by 30.7% in FY21 on a yr/yr basis, it is still down by a staggering 80.4% compared to 2019 levels.
- Through its 72% ownership stake in Wynn Macau, Ltd., WYNN owns and operates two resorts in Macau: Wynn Palace and Wynn Macau. In FY21, the two casino resorts generated revenue of $1.51 bln (~40% of total revenue), which was up by 54% yr/yr. However, that is still only 33% recovered versus 2019 levels. The most recent financial news for Wynn Macau hasn't been very bright, either.
- In July, Macau instituted a shutdown of all resorts for two weeks due to local COVID outbreaks. This development has severely impacted Wynn Macau's Q3 results, as reflected in an EBITDA burn of approximately $1 mln per day on a quarter-to-date basis (as of August 9).
- For LVS, the stakes are even higher in Macau following the company's sale of its Las Vegas properties in 1Q22. Now, the vast majority of its business is derived through its Venetian Macau, Londoner Macau, and Parisian Macau resorts.
- Accordingly, LVS has been hit even harder than WYNN by the COVID-related restrictions in Macau. In 1Q22 and 2Q22, LVS posted revenue declines of 21% and 11%, respectively. For these same two quarters, WYNN generated an increase of 31%, followed by a decrease of just 8%.
The main takeaway is that there's finally a ray of hope that Macau casino owners can make substantial progress in returning to 2019 business levels. That won't happen overnight, of course, but the reinstatement of the e-visa program should turbo-charge the recovery effort.
Chegg is acing it today on an analyst upgrade, its second in just three weeks (CHGG)
Chegg (CHGG +8%) is showing off its book smarts today, outperforming the broader markets after an upgrade at Needham, citing a better-than-expected fall enrollment setting the stage for the educational services provider to exceed its Q3 guidance.
Briefing.com notes that today's upgrade is significant as it's the second in just the past three weeks. Along with upbeat fall enrollment statistics setting a positive tone for CHGG ahead of its Q3 earnings report on October 31, Briefing.com also notes a few other tailwinds that could help shares of CHGG out of their rut since tumbling last November.
- CHGG returned to the skills market through its recently launched partnership with Guild, a platform for employers to provide their workers with the opportunity to expand their skills. Guild mainly serves frontline workers, which carry the most potential to enhance their skills for career growth. The terms of CHGG's partnership are also very favorable, as the company rides along with Guild's sales team without a cost of sales outside of a commission paid to Guild; the rest is profit for CHGG.
- A possible recession could also play in CHGG's favor. The company noted last month that historically, higher education enrollment increases during a recession. CHGG benefits most when a high number of students choose more challenging degrees, such as those in Science and Engineering.
- CHGG is also a potential takeover candidate. In June, Byju's, an Indian educational technology company, offered $1.0 bln to acquire CHGG peer 2U (TWOU). Although Byju's ended up buying Indian-based Aakash, it shows that the educational technology market is ripe for some consolidation.
- It is also worth pointing out that management displayed its confidence in CHGG's long-term success by authorizing an increase in its securities buyback authorization by $1 bln in June. Although this allows management to repurchase either debt or stock, it nonetheless indicates a healthy balance sheet with solid free cash flows.
Shares of CHGG have stumbled on the year, down over 30% even after factoring in today's price action. However, there are reasons to view CHGG as undervalued, despite trading around 18x forward earnings -- although this represents a discount relative to TWOU at 26x. CHGG was also somewhat cautious on its Q3 guide, expressing its tempered enthusiasm toward a strong fall based on excellent summer school activity, building in a higher likelihood of outperformance in the quarter. Looking beyond Q3, even if the economy turns, CHGG is still positioned to chug along nicely.
Li Auto pumps the brakes on Q3 delivery expectations, but robust demand picture charges shares (LI)
Chinese electric vehicle (EV) maker Li Auto (LI) initially reversed lower after cutting its Q3 delivery outlook, but shares are now charging higher. After originally forecasting deliveries of 27,000-29,000 vehicles, the company currently expects to deliver approximately 25,500 vehicles. On a sequential basis, the guidance represents an 11% dip from the last quarter when LI generated deliveries of 28,687. With the reduction in expected deliveries, LI's revenue may decline on a qtr/qtr basis yet again, just as it did in Q2 and Q1.
The cause behind LI's downward revision is a very familiar issue: namely, supply chain constraints continue to curtail production, limiting its ability to meet demand.
- LI's quarterly deliveries are mired in a downtrend, which is worrisome because it indicates that the supply chain situation still isn't improving. Assuming LI meets its new delivery guidance this quarter, the company's deliveries over the past four quarters would be as follows: 4Q21: 35,221; 1Q22: 31,716; 2Q22: 28,687; and 3Q22: 25,500.
- What's especially discouraging is that production purportedly improved later in Q2 as China lifted some COVID-related restrictions and lockdown measures. However, it's now evident that little progress has been made and that LI is still having difficulty securing parts and components.
- The ongoing struggle to source parts and materials doesn't bode well for LI's vehicle margins in Q3. This scarcity means that the company is forced to pay higher prices, which was a factor last quarter as vehicle margin slipped by 120 bps sequentially to 21.2%.
- It stands to reason that if LI is still encountering shortages, then its competitors, including Tesla (TSLA), Nio (NIO), and XPeng (XPEV), are also dealing with similar circumstances. In fact, when NIO reported Q2 results on September 7, it guided Q3 revenue below expectations. Unlike LI, the company does anticipate deliveries to increase qtr/qtr, forecasting a 20-28% jump.
- The lingering supply chain disruptions are particularly frustrating for LI because the company just launched its second EV model -- the Li L9 SUV -- this past June. During the first 72 hours following the launch, LI accumulated over 30,000 orders for the L9. Unfortunately for LI, translating those orders into revenue will be a major challenge until these bottlenecks are resolved.
LI's guidance cut clearly isn't good news, so it's surprising to see the stock motoring higher. There are a few explanations for the strength, though.
First, the company reiterated that demand remains robust. That comment is in sync with China's auto sales report for August, which showed a 100% yr/yr surge in EV sales. Additionally, with LI shares down by about 35% since mid-July, a lot of the bad news surrounding the supply chain has likely already been baked into the stock. Lastly, Chinese EV stocks received a boost this morning on reports that XPEV's co-founder and CEO bought 2.2 mln ADRs of XPEV. That large purchase is viewed as a major vote of confidence for this beleaguered group of stocks.
Planet Fitness gets a nice workout thanks to upgrade, just what the stock needs following drop(PLNT)
Planet Fitness (PLNT +3%) is getting a nice workout from investors after the fitness center giant received an upgrade to Strong Buy from Market Perform from Raymond James, including a $70 price target. The stock had been under pressure over the last week as the overall market has rolled over. That price action likely helped spur the firm's decision to upgrade now.
- Briefing.com has generally been a fan of Planet Fitness. We like the business model. It's clearly focused on the casual workout consumer. The $10 per month price point with no contract commitment is very attractive to the casual workout person who does not want to spend $50-70 per month and be tied down by a long contract. Many consumers are realistic and understand that their fitness journey does take breaks sometimes. But at $10/mo, the cost is so minimal, most people probably do not even cancel when they take a break.
- PLNT also appeals to the casual workout consumer with its welcoming, non-intimidating environment, which it calls the Judgement Free Zone. There are big signs in the gym saying You Belong Here and No Judgment Zone. It seems silly but it helps to make people who perhaps are not in the best shape to feel welcome and not feel like everyone is looking at them. It is really a smart marketing angle and shows that PLNT knows the casual customer well.
- Also, its trainers offer unlimited free fitness instruction to all members in small groups through its PE@PF program, which also appeals to beginners and the more casual workout consumer.
- PLNT has grown to become one of the largest fitness centers in the US with 2,300+ locations. And what is interesting is that the vast majority (95%) are franchised, which means the capital and operating costs are being borne by the franchisee. PLNT primarily collects royalties and manages the marketing side of the business. And there is a lot of growth ahead as its franchisees have committed to open more than 1,000 additional stores.
Overall, despite the upgrade today, Briefing.com remains a bit cautious in the near term. That big drop in the stock in the past week makes us nervous. It looks to have been fueled by the overall market plus some recent management changes may be spooking investors a bit. Also, PLNT missed on Q2 revs when it reported results last month and issued cautious EPS guidance. But PLNT has been posting good membership growth as people return to gyms following the pandemic. We plan to keep PLNT on the radar and want to see some improvement with its Q3 results in November.
DocuSign's new CEO is a step in the right direction to ignite a turnaround (DOCU)
With the initial excitement gone, shares of DocuSign (DOCU -4%) struggle to ink any meaningful gains today after the cloud-based eSignature company named a new CEO. DOCU tapped former Google (GOOG) executive Allan Thygesen to take the reins starting October 10 after its former CEO Dan Springer agreed to part ways in late June.
Shares of DOCU have endured a lengthy downward trend since December 2021 after the stock took a beating following disappointing OctQ earnings, which showed demand that was pulled forward during the pandemic was slowing down considerably. Shares currently sit over 65% lower on the year and over 80% from record highs.
Clearly, Allan Thygesen is taking the helm during a tumultuous time for DOCU. However, if his previous experience at Google is any indication, he may be what DOCU needs to turn the ship around.
- Starting in 2017, Thygesen was President, Americas & Global Partners, at Google, where he led the company's advertising business in North and South America, which make up over half of Google's total revs. During Thygesen's tenure, Google's overall advertising business exploded, shooting up over 100% from FY17 to FY21, partly a reflection of solid leadership.
- As an outsider stepping into the leadership role at DOCU, Thygesen may also be more adept at making difficult decisions that might have to be done to spark a turnaround.
- That is not to say former CEO Dan Springer, which was in the head position since 2017 and took the company public, scaling it to handle the unprecedented demand in 2020, did not have to make tough choices. However, Thygensen's marketing background could bring a fresh perspective and a different take on the path DOCU should be undergoing, possibly setting the stage for a more significant shakeup than Springer may have been willing to endure.
DOCU has a lot of work ahead of it to get its shares back up to 2021 levels. However, as a market leader in the eSignature business, DOCU remains well-positioned for a turnaround, and we see a CEO shakeup as a step in the right direction. By leading Google's ad business for half a decade, Thygesen has insight into market trends, which could help steer DOCU in a direction to boost billings growth, which has fallen off a cliff lately, expected to grow only 6% yr/yr in FY23 compared to +37% in FY22 and +56% in FY21.
Capital markets showing their angst
There is a lot of volatility in the capital markets amid a lot of anxiousness about dramatic price moves in currency markets and sovereign bond markets. Stock markets aren't exactly in the best shape either, because what is happening in other markets is contributing to the anxiousness in the stock market that, in turn, is contributing to risk-off positioning.
What we know this morning is that the British pound hit a record-low against the dollar (1.0382), staring at the possibility of parity after UK Chancellor Kwarteng said over the weekend that "there is more to come" in terms of fiscal stimulus offerings.
The pound has moved sharply off that record low (GBP/USD +0.3% to 1.0890) on speculation that the Bank of England may step in soon with an emergency rate hike to help defend the currency.
As a reminder, Japan intervened last week to help defend the yen; India has now reportedly intervened to help support the rupee; and China has raised the required reserve ratio on currency forward sales by banks to 20% to curb the yuan's depreciation.
There is a lot of drastic action in the currency markets, which is lending to the idea that a financial accident of some systemic kind could be in the making. There is just no telling. You can drive around thinking you might have an accident, but don't. Then, one day, an accident happens all of a sudden.
Nonetheless, there is a pervasive sense of worry about the behavior of the capital markets that is weighing on investor sentiment and reducing the inclination to buy aggressively into the weakness for stocks.
The S&P 500 futures are down 10 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down nine points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 81 points and are trading 0.2% below fair value.
Those are not heavy indications in terms of expected losses at today's open, but coming off a week in which the major indices declined between 4.0% and 6.8%, and a period in which the S&P 500 has declined 10.1% in the last nine sessions, they are not light either.
The scope of that decline, coupled with reports highlighting extremely bearish sentiment readings and high put-to-call ratios, is raising the potential for a contrarian-minded rally effort.
That potential has been there for the past few weeks, but the past few weeks have still been accented with a negative bias, largely because interest rates have moved appreciably higher in a quick way. Therefore, a lot of market participants are waiting for the price action to be their rebound guide.
Rates are up again this morning, too, along with the volatility in the Treasury market. The 2-yr note yield is up two basis points to 4.23% (but hit 4.34% overnight) and the 10-yr note yield is up four basis points to 3.75% (but hit 3.80% overnight).
The equity futures market has improved as market rates have dropped from their overnight highs and the British pound has staged a reversal. Volatility reigns supreme in a jittery market environment.
-- Patrick J. O'Hare, Briefing.com
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