Market Snapshot
briefing.com
| Dow | 31762.32 | +260.67 | (0.83%) | | Nasdaq | 11160.21 | +207.74 | (1.90%) | | SP 500 | 3847.27 | +49.86 | (1.31%) | | 10-yr Note | +32/32 | 4.11 |
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| | NYSE | Adv 2603 | Dec 476 | Vol 1.0 bln | | Nasdaq | Adv 3497 | Dec 1080 | Vol 5.0 bln |
Industry Watch
| Strong: Real estate, Consumer Discretionary, Communication Services, Information Technology |
| | Weak: Energy |
Moving the Market
-- Big pullback in Treasury yields
-- Strength from mega cap stocks
-- Positive reaction to some earnings reports since yesterday's close
-- Carryover upside momentum
-- Growing belief that the Fed will soften its approach after the November meeting
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Closing Summary
25-Oct-22 16:25 ET
Dow +337.12 at 31838.77, Nasdaq +246.50 at 11198.97, S&P +61.77 at 3859.18
[BRIEFING.COM] Today's trade was distinctly positive as the major averages built on recent gains. A big pullback in Treasury yields precipitated broad buying interest in the stock market. The 10-yr note yield fell 13 basis points to 4.11% and the 2-yr note yield fell two basis points to 4.46%. The S&P 500 closed well above the 3,800 level after dipping below 3,500 on October 13.
The moves in the Treasury market followed some weak-looking home price data for August that was contained in the FHFA Housing Price Index (-0.7% m/m) and the S&P Case-Shiller 20-City Composite Index (+13.1% yr/yr, but down from +16.0% yr/yr in July). Those reports supported market participants' growing belief that the Fed may soften its approach after the November meeting.
To be fair, buying momentum in the Treasury market lost some of its vigor following the weak 2-yr bond auction, which saw a high yield of 4.46% tail the when-issued yield by 1.2 basis points. The stock market, however, remained on a steady incline.
Favorable quarterly results from names like Coca-Cola (KO 58.95, +1.38, +2.4%), General Motors (GM 37.01, +1.29, +3.6%), and Sherwin-Williams (SHW 220.20, +7.67, +3.6%) added fuel to the rally effort.
Mega cap stocks had a strong showing, offering addition support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) closed up 2.3% versus a 1.6% gain in the S&P 500.
Ten of the 11 S&P 500 sectors logged gains on the day led by the real estate sector (+3.9%). The energy sector (-0.1%) was alone in negative territory despite a modest increase in oil prices. WTI crude oil futures rose 0.4% to $84.97/bbl.
Small and mid cap stocks fared better than their larger peers today. The Russell 2000 (+2.7%) and S&P Mid Cap 400 (+2.5%) showed some of the biggest gains among the indices.
Ahead of Wednesday's open, Automatic Data (ADP), Boeing (BA), Bristol-Myers (BMY), General Dynamics (GD), Harley-Davidson (HOG), Hilton (HLT), Kraft Heinz (KHC), Norfolk Southern (NSC), Roper (ROP), Seagate Tech (STX), Waste Mgmt (WM) headline the earnings reports.
Market participants will receive a slew of economic data tomorrow that includes:
- 7:00 ET: Weekly MBA Mortgage Index (prior -4.5%)
- 8:30 ET: September advance goods trade deficit (prior -$87.30 bln), September advance Retail Inventories (prior 1.4%), and September advance Wholesale Inventories (prior 1.3%)
- 10:00 ET: September New Home Sales (Briefing.com consensus 575,000; prior 685,000)
- 10:30 ET: Weekly crude oil inventories (prior -1.73 mln)
Reviewing today's economic data:
- August FHFA Housing Price Index -0.7% (Briefing.com consensus -0.7%); Prior -0.6%
- August S&P Case-Shiller Home 13.1% (Briefing.com consensus 14.0%); Prior was revised to 16.0% from 16.1%
- October Consumer Confidence 102.5 (Briefing.com consensus 105.5); Prior was revised to 107.8 from 108.0
- The key takeaway from the report is that consumers' concerns about inflation picked up again in October on the back of rising gas and food prices.
Dow Jones Industrial Average: -12.4% YTD
S&P Midcap 400: -16.1% YTD
S&P 500: -19.0% YTD
Russell 2000: -20.0% YTD
Nasdaq Composite: -28.4% YTD
Market lifts to new highs
25-Oct-22 15:30 ET
Dow +360.59 at 31862.24, Nasdaq +251.58 at 11204.05, S&P +63.50 at 3860.91
[BRIEFING.COM] The stock market lifted to new highs heading into the close.
Alphabet (GOOG), Chipotle Mexican Grill (CMG), Enphase Energy (ENPH), F5 Networks (FFIV), Juniper Networks (JNPR), Mattel (MAT), Microsoft (MSFT), Skechers USA (SKX), Spotify (SPOT), Texas Instruments (TXN), Visa (V) are all set to report earnings after today's close.
Ahead of Wednesday's open, Automatic Data (ADP), Boeing (BA), Bristol-Myers (BMY), General Dynamics (GD), Harley-Davidson (HOG), Hilton (HLT), Kraft Heinz (KHC), Norfolk Southern (NSC), Roper (ROP), Seagate Tech (STX), Waste Mgmt (WM) headline the earnings reports.
Market participants will receive a slew of economic data tomorrow that includes:
- 7:00 ET: Weekly MBA Mortgage Index (prior -4.5%)
- 8:30 ET: September advance goods trade deficit (prior -$87.30 bln), September advance Retail Inventories (prior 1.4%), and September advance Wholesale Inventories (prior 1.3%)
- 10:00 ET: September New Home Sales (Briefing.com consensus 575,000; prior 685,000)
- 10:30 ET: Weekly crude oil inventories (prior -1.73 mln)
Market remains near highs; energy settlement levels
25-Oct-22 15:00 ET
Dow +260.67 at 31762.32, Nasdaq +207.74 at 11160.21, S&P +49.86 at 3847.27
[BRIEFING.COM] The major averages trade are little changed in the last half hour, trading just off session highs.
Energy complex futures settled the session higher WTI crude oil futures rose 0.4% to $84.97/bbl; natural gas futures rose 7.8% to $5.62/mmbtu; unleaded gasoline futures rose 1.9% to $2.55/gal.
On a related note, the S&P 500 energy sector hasn't been able to keep out of the red today, down 0.8%.
The CBOE Volatility Index is making noticeable moves today, down 4.5%, or 1.33, to 28.52.
Brown & Brown falls on Q3 miss; insurance names lower across the market
25-Oct-22 14:30 ET
Dow +287.35 at 31789.00, Nasdaq +215.24 at 11167.71, S&P +52.38 at 3849.79
[BRIEFING.COM] The S&P 500 (+1.38%) is still firmly situated in second place among the major averages on Tuesday afternoon.
S&P 500 constituents IQVIA (IQV 196.68, +17.12, +9.53%), Centene (CNC 82.67, +6.86, +9.05%), and Intuitive Surgical (ISRG 236.75, +16.48, +7.48%) pepper the top of the index. IQV gains alongside general strength in healthcare names, CNC moves higher on this morning's earnings beat, and ISRG advances on news of a $1 bln accelerated share repurchase agreement with Citibank.
Meanwhile, insurance firm Brown & Brown (BRO 56.79, -6.29, -9.97%) is today's top laggard following last night's Q3 miss.
Gold higher on Tuesday as yields, dollar retreat
25-Oct-22 14:00 ET
Dow +206.52 at 31708.17, Nasdaq +175.85 at 11128.32, S&P +41.72 at 3839.13
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+1.61%) holds firm atop the standings.
Gold futures settled $3.90 higher (+0.2%) to $1,658.00/oz, helped largely by a move lower in yields and the greenback.
Meanwhile, the U.S. Dollar Index is down about -0.9% to $110.99.
General Electric held back by its Renewable Energy segment again, but spin offs remain on track (GE)
Ongoing struggles in General Electric's (GE) Renewable Energy segment, which experienced a 41% nosedive in orders, caused the industrial company to miss 3Q22 EPS estimates and cut its FY22 EPS and free cash flow guidance once again. In Q2, the company reduced its FY22 free cash flow outlook to $5.5 bln from $6.5 bln, while CEO Larry Culp stated that the company is trending toward the lower end of its $2.80-$3.50 EPS guidance. Now, the company is forecasting free cash flow of $4.5 bln and EPS of $2.40-$2.80.
Along with GE's Power segment, Renewable Energy is set to be spun off into a separate company called Vernova, currently scheduled for early 2024. Before that transaction occurs, GE will spin off its Healthcare unit in early 2023. Ultimately, GE will become a standalone aviation company, providing jet engines, aircraft parts, and maintenance for commercial and defense customers.
Similar to recent quarters, the Aerospace segment was the clear standout in Q3.
- Revenue jumped by 25% to $6.7 bln, led by a 33% increase in services. Surging demand for air travel is providing the primary catalyst as airlines order more parts and take their aircraft in for more maintenance due to rising flight activity.
- Aerospace was also the only segment to achieve margin expansion. Higher services volume and favorable pricing pushed segment margin higher by 280 bps to 19.1%.
- Based on the strong earnings reports from the commercial airline industry, it's not surprising that GE's outlook for Aerospace is bullish. Specifically, the company reaffirmed its expectation to generate top-line growth of more than 20% for FY22, with margins in the high-teens.
- The Power Segment, which manufacturers gas and steam turbines for the oil and gas industry, saw orders increase by 20%, but revenue was lower by 5% to $3.5 bln. Supply chain issues are still problematic, causing uneven timing for shipments of certain turbines. GE is anticipating low-single-digit growth for Power in FY22 with margins expanding.
- In the earnings press release, Culp confirmed that the Healthcare segment is on track to be spun off during the first week of January. With that transaction fast approaching, it was a good time for Healthcare to post one of its strongest quarters in recent history. Driven by strong backlog execution, revenue increased by 10% to $4.6 bln, and margin stabilized, increasing by 100 bps sequentially.
- Last quarter, lockdowns in China created significant supply chain disruptions, preventing GE from fully meeting the healthy demand. Revenue in Q2 was up by just 4% while margin contracted by 300 bps to 14.4%.
The main takeaway is that GE's downwardly revised FY22 EPS and free cash flow guidance is weighing on the stock, offsetting notable strength in the Aerospace segment. However, next quarter figures to be the last quarter in which this current version of GE is intact. Once the Healthcare and Energy segments are spun off, GE's Aerospace segment will be free to fully capitalize on the ongoing recovery in the airline industry.
3M adheres to recent trend of beating EPS estimates, but outlook marred by FX and inflation (MMM)
Price increases across its diverse product portfolio, along with cost-cutting actions, enabled 3M (MMM) to beat earnings estimates for the ninth consecutive quarter in 3Q22. Despite persistent raw materials and logistics inflation, the industrial giant achieved a 40 bps yr/yr improvement in adjusted operating income margin to 21.5%.
However, the strengthening U.S. dollar, slowing disposable respirator sales, and China's zero COVID policy are still weighing on the company. These headwinds caused MMM to lower its FY22 guidance in back-to-back quarters, with the company now forecasting EPS of $10.10-$10.35 and total revenue growth of (3.5)-(3.0)%. Last quarter, MMM guided for EPS of $10.30-$10.80 and total revenue growth of (2.5)-(0.5)%.
Taking a closer look at these issues, the strengthening dollar in particular is creating a headache for MMM. Nearly 60% of the company's revenue is generated outside the U.S., so the foreign exchange impact is considerable. Specifically, the FX impact on total sales growth for FY22 is now expected to be -4.5%, compared to MMM's prior estimate of -4.0%.
Meanwhile, respirator demand continues to wane as sales declined by 34% yr/yr, reducing MMM's total organic sales growth by 1.4 percentage points for a final result of +2%. The effect of slowing respirator sales will continue into Q4, with MMM expecting organic sales growth to be negatively impacted by 2% in the quarter. Overall, MMM's revised FY22 guidance implies total Q4 sales of $7.9-$8.2 bln, which is below analysts' estimates, and organic sales growth of 1.0-3.0%.
From a demand standpoint, it's a mostly positive picture, but supply chain disruptions are still a limiting factor for sales.
- The strongest segment was Transportation and Electronics, which generated organic sales growth of 3.0%, on top of 5.1% growth in the year-earlier period. A majority of the growth is stemming from the auto OEM end market, although semiconductor shortages continue to put a cap on production.
- Eroding respirator demand hit the Safety & Industrial segment the hardest as organic sales growth edged higher by 1.7%. A few areas of strength included the automotive aftermarket, roofing granules, and electrical markets.
- The Consumer segment saw the biggest qtr/qtr improvement with organic sales growth of 1.5% compared to -2.5% in the prior quarter. A key caveat, though, is that the segment faced much easier comparisons in Q3 relative to Q2. In the current quarter, MMM lapped growth of 7.6%, compared to growth of 17.8% in 2Q21. While demand for stationery and office supplies held up well, home improvement related products (filters, masking papers and films, hooks and hanging products, etc.) experienced a decline.
- Since the Health Care segment is poised to be spun off next year, its results aren't as pertinent as they used to be. Organic growth increased by 1.7%, driven by strength in food safety, separation, and health information systems.
Overall, it was another mixed quarterly report for MMM. The company's pricing actions were quite effective and its cost containment efforts, featuring flat yr/yr growth for adjusted operating expense, are paying dividends. Unfortunately, factors that are mainly out of MMM's control, such as FX impacts and inflation, are not easing in a material way.
Coca-Cola's beat-and-raise in Q3 continues to prove the resiliency of its exceptional brands (KO)
Coca-Cola (KO) shares are moving slightly higher after the Dow Jones component reported a beat-and-raise in Q3 driven by broad-based strength. KO's Q3 numbers stand out against an economic backdrop ripe with hurdles, including inflation and deteriorating consumer sentiment. Meanwhile, foreign exchange headwinds continue to create bottlenecks in KO's ability to realize additional growth on its top and bottom lines. KO is not anticipating many obstacles to ease considerably in the short run either, estimating global inflation and FX impacts to remain hurdles in FY23.
Nevertheless, even after rival PepsiCo (PEP) raised the bar earlier this month, delivering a beat-and-raise in Q3 despite encountering similar headwinds, KO surpassed market expectations, demonstrating the power of its exceptional brands.
- Net revenue growth of 10% yr/yr to $11.1 bln was largely fueled by substantial gains in North America and Latin America, where revs surged 21% and 12%, respectively. Excluding currency impacts, organic revs soared, leaping 16% yr/yr. The excellent top-line growth helped fuel bottom-line growth of 6% to $0.69.
- Also playing a pivotal role in KO's earnings growth was consumer elasticities holding up nicely in core categories. This was illuminated by global unit case volumes expanding by 4% yr/yr in Q3 despite KO continually implementing price hikes to contend with intense inflationary forces. For example, KO's price/mix added 12 pts to net revenue growth in the quarter.
- KO's volume gains in Q3 closely resembled those posted by PEP, which saw its Beverages division grow volume by 3% yr/yr in Q3. On a regional basis, KO only outperformed PEP in Europe, posting similar numbers in North America (where volumes grew 1%), Latin America, and Asia Pacific.
- With consumer elasticities holding up and KO continually seeing further improvements in away-from-home channels, where it derives around half its total revs, KO expanded its adjusted operating margin by around 100 bps yr/yr in Q3.
- KO's outlook for the last quarter of FY22 and FY23 was mostly positive. The company slightly increased its FY22 adjusted EPS and organic revenue growth forecasts, predicting +6-7% and +14-15% yr/yr, respectively. KO also noted it was encouraged by the momentum seen from its organic revenue growth heading into FY23.
- Still, KO did provide a few cautionary notes, stating that global inflation will remain a problem in FY23 with commodity prices continuing their volatility.
KO's Q3 earnings report carried over similar themes from Q2. That is, KO's brand power remained a key ingredient to its volume and earnings growth despite operating in an inflationary environment. As a result, we continue to like KO during the market's current volatility, as it has a track record of delivering consistent results.
On a side note, KO's and PEP's beat-and-raise quarters are a good sign for Keurig Dr Pepper (KDP), which reports Q3 earnings pre-market on October 27.
General Motors steps on the gas with big Q3 EPS upside and supply chain improvements (GM)
General Motors (GM +3%) is trading higher after the automotive giant reported Q3 results this morning. GM reported big EPS upside although revenue was a bit light. GM also reaffirmed FY22 net income guidance of $9.6-11.2 bln, EBIT-adjusted guidance of $13-15 bln and adjusted EPS guidance of $6.50-7.50.
- Adjusted EBIT is the most closely followed metric. It jumped 47% yr/yr to $4.287 bln and is $10.675 bln YTD, which implies $2.325-4.325 bln for Q4. If you'll recall, last quarter, GM made the decision to build more than 90,000 North American vehicles without certain components. Q3 EBIT was positively impacted by the completion of nearly 75% of those vehicles, which was well ahead of plan. Not only did GM recognize that revenue, but it was high margin revenue as they were primarily full-size trucks.
- Maybe even more important than the headline numbers, GM got more bullish on the supply chain. GM has seen gradual improvement, including for semiconductors. Short-term disruptions will continue to happen, but GM is taking steps to minimize them and build long-term resiliency. This includes signing several strategic supply agreements for mature nodes where supply is most constrained.
- Demand remains strong, especially for its highest margin vehicles with very fast churn rates. These include heavy duty pickups like the Sierra, which is turning in about 10 days, and full-size SUVs are turning faster. Pricing in Q3 was favorable vs Q2 and well above Q3 last year. However, costs were also up yr/yr, primarily due to increased commodity and logistics expenses. As a result, adjusted EBIT margin dipped to 10.2% from 10.9% a year ago despite a +56% increase in sales.
- GM remains excited about its EV plans. The Chevrolet Bolt EV and EUV are selling at record levels. Of note, to meet strong demand, GM will soon be transitioning production of the Cadillac LYRIQ and GMC Hummer from using imported cells to cells produced at its cell joint venture plant in Ohio. Construction is also underway on two more cell plants. Perhaps a slight negative on the EV front was GM noting a slightly slower launch of cell and pack production than expected. Its plan is now to produce 400,000 EVs in North America from 2022-1H24 vs prior guidance of 2022-2023.
Overall, this was a solid quarter. What stood out was the robust adjusted EBIT, which led to the big EPS upside. The other big highlight was the positive commentary on the supply chain, which seems to finally be improving. Briefing.com was a bit concerned with GM's decision to build vehicles without certain components, but that turned out to be a smart idea. And it led to a huge EBIT tailwind in Q3. This report bodes well for Ford (F), which reports tomorrow after the close. We will listen closely to be sure Ford is seeing the same easing on the supply chain. Then maybe we can finally get more bullish on the automakers heading into 2023.
HNI inches up on better-than-feared Q3 results; near term remains a challenge (HNI)
Office furniture maker HNI (HNI +1%) is seeing modest appreciation today despite posting a top-line miss in Q3 as the company's earnings beat garners all the attention. Also, HNI's Q3 headline results look similar to AugQ numbers posted by competitors Steelcase (SCS) and MillerKnoll (MLKN) last month. As a result, investors are not putting HNI in a similar hot seat as expectations were relatively low ahead of the company's Q3 earnings report.
- Factors that led to sales growing just 2.1% yr/yr to $598.8 mln were much the same as those outlined by SCS and MLKN. The current macroeconomic backdrop is weak, leading to orders from larger contract customers remaining subdued. Smaller transactional order activity was also soft during Q3.
- Smaller order activity tends to react more rapidly to economic concerns, building in a leading economic indicator for the office furniture industry going forward. Once this metric ticks back up, larger orders may soon follow.
- A bright spot in Q3 stemmed from solid demand amongst mid-market customers, where more workers have returned to the office, whether entirely or in a hybrid model. HNI noted that strength in this market is encouraging as it reflects a broader underlying strength in demand once the economy stabilizes.
- MLKN expressed similar comments late last month, noting that pockets in the core office business are still experiencing plenty of resiliency in activity. SCS did not differ much either, remarking that it is seeing a continued improvement in return-to-office trends.
- Looking toward Q4, conditions are not expected to get much better. Adjusted EPS is expected to decline sequentially from the $0.71 posted in Q3 but still exceed year-ago numbers. HNI's Workplace Furnishings segment, its largest by revenue, will continue to see decelerating revenue growth, like in Q3. HNI's other segment, Residential Building Products, is expected to endure a similar fate as Workplace Furnishings.
Although Q3 results and Q4 guidance were not overly upbeat, HNI was confident its core strategies would drive margin expansion and revenue growth over the long haul. Still, the company acknowledged that the near term will be difficult, not straying too far from the sentiment felt by its peers.
Page One
Last Updated: 25-Oct-22 08:50 ET | Archive
A lot of weight on the market's shoulders
The equity futures market is lower this morning but the Treasury market is not to be blamed. The 10-yr note yield is down seven basis points to 4.16%.
Currently, the S&P 500 futures are down 14 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 15 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 161 points and are trading 0.5% below fair value.
There really isn't anything to blame for the negative disposition other than perhaps the strong gains that have been registered of late. Since its low on October 13, the S&P 500 is up 8.8%, leaving it just shy of 3,800, which some have said is a level providing some technical resistance.
Granted there have been a few earnings blemishes, like the lowered FY22 outlook from Dow component 3M (MMM), the earnings miss from Discover Financial Services (DFS), and the disappointing Q4 guidance from Corning (GLW), but in aggregate the earnings news has been reasonably good.
General Motors (GM), UPS (UPS), Coca-Cola (KO), Biogen (BIIB), and Sherwin-Williams (SHW) are all trading higher after their earnings reports managed to impress investors one way or another.
Their gains are generating some offsetting support, yet there is a big earnings shadow that is hanging over the market and likely keeping investor enthusiasm in check this morning after the market's big run.
That shadow is the earnings reports that will be heard after today's close from Microsoft (MSFT), Alphabet (GOOG), and Visa (V). Those three companies alone comprise $3.58 trillion of market capitalization versus $541 billion for GM, UPS, KO, BIIB, and SHW combined.
And not to forget Apple (AAPL), Amazon.com (AMZN), and Meta Platforms (META), which report later in the week, and account for another $3.87 trillion of combined market capitalization.
It is not a stretch, then, to say that the stock market has a lot of weight on its shoulders right now. Market participants are waiting to see if it buckles under the weight of guidance from these companies or levitates further because the guidance from those companies takes the weight off the market's shoulders.
The answer will be apparent by the end of the week. All that is apparent right now is that the major indices are on track for a softer open for reasons that are more technical and sentimental in nature.
-- Patrick J. O'Hare, Briefing.com
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