Market Snapshot
briefing.com
| Dow | 32844.87 | +809.56 | (2.53%) | | Nasdaq | 11020.12 | +287.59 | (2.68%) | | SP 500 | 3897.61 | +90.24 | (2.37%) | | 10-yr Note | -28/32 | 4.01 |
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| | NYSE | Adv 2314 | Dec 722 | Vol 913 mln | | Nasdaq | Adv 3058 | Dec 1523 | Vol 4.6 bln |
Industry Watch
| Strong: Information Technology, Energy, Utilities, Consumer Staples |
| | Weak: Consumer Discretionary |
Moving the Market
-- Disappointing Q4 guidance from Amazon
-- Generally positive reaction to earnings news
-- Resilience to selling even as the 10-yr Treasury note yield rose above 4.00%
-- Apple (AAPL) enjoys big earnings-driven gain
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Closing Summary
28-Oct-22 16:25 ET
Dow +828.52 at 32863.83, Nasdaq +309.78 at 11042.31, S&P +93.76 at 3901.13
[BRIEFING.COM] The stock market closed out the week on an upbeat note. The major averages all logged sizable gains and closed the session near their highs of the day. A sharp move lower for Amazon.com (AMZN 295.72, -7.55, -6.8%) following its disappointing Q4 guidance was offset by a big earnings-driven gain in Apple (AAPL 155.74, +10.94, +7.6%). The stock market showed impressive resilience today. Buyers were not deterred when the 10-yr Treasury note yield settled the session above the 4.00% level, up seven basis points to 4.01%.
The 2-yr note yield also made a sizable move today, settling up nine basis points to 4.42%.
With the exception of Amazon, mega cap stocks had a strong session. The Vanguard Mega Cap Growth ETF (MGK) closed up 2.8% versus a 2.5% gain in the S&P 500 and a 2.1% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
S&P 500 sector performance reflected the broad nature of today's buying. 10 of the 11 sectors closed with gains, led by information technology (+4.5%). The sector was boosted by Apple, but outsized gains in Intel (INTC 29.07, +2.80, +10.7%) thanks to its favorable quarterly results also bolstered sector gains.
On the flip side, consumer discretionary (-0.3%) was the worst performer due to Amazon's big loss. However, the sector recovered nicely from a loss of 3.8% at today's low.
Advancers led decliners by a greater than 3-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Also, market participants received economic data today that did not contain anything that will prompt the Fed to reconsider its aggressive rate hike campaign, which the stock market took in stride.
Looking ahead to Monday, XPO Logistics (XPO), ON Semiconductor (ON), and Global Payments (GPN) are set to report earnings ahead of the open.
Economic data on Monday is limited to the October Chicago PMI reading (Briefing.com consensus 46.0; prior 45.7) at 9:45 a.m. ET.
Reviewing today's economic data:
- September Personal Income 0.4% (Briefing.com consensus 0.3%); Prior was revised to 0.4% from 0.3%; September Personal Spending 0.6% (Briefing.com consensus 0.4%); Prior was revised to 0.6% from 0.4%;
- September PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.3%; September PCE Prices - Core 0.5% (Briefing.com consensus 0.4%); Prior 0.5%
- The key takeaway from the report is that with continued income growth and a slightly hotter than expected Core PCE price growth, the Fed has an argument to maintain its aggressive rate hike course.
- Q3 Employment Cost Index 1.2% (Briefing.com consensus 1.2%); Prior 1.3%
- The key takeaway from the report is that the yr/yr compensation cost rate was reduced by just ten basis points from the Q2 reading (to 5.0% from 5.1%), so the Fed is unlikely to reconsider its aggressive rate hike stance based solely on this report.
- September Pending Home Sales -10.2% (Briefing.com consensus -5.1%); Prior was revised to -1.9% from -2.0%
- October Univ. of Michigan Consumer Sentiment - Final 59.9 (Briefing.com consensus 59.6); Prior 59.8
- The key takeaway from the report is that it was essentially unchanged from the preliminary reading, though inflation expectations for the year ahead dipped slightly, reversing a quarter of the increase that was seen in the preliminary reading.
Dow Jones Industrial Average: -9.6% YTD
S&P Midcap 400: -14.3% YTD
S&P 500: -18.2% YTD
Russell 2000: -17.7% YTD
Nasdaq Composite: -29.0% YTD
Econ data and earnings out on Monday
28-Oct-22 15:30 ET
Dow +820.23 at 32855.54, Nasdaq +299.63 at 11032.16, S&P +91.79 at 3899.16
[BRIEFING.COM] The stock market is inching higher ahead of the close.
The 10-yr note yield settled the session up seven basis points to 4.01% and the 2-yr note yield rose nine basis points to 4.42%.
Looking ahead to Monday, XPO Logistics (XPO), ON Semiconductor (ON), and Global Payments (GPN) are set to report earnings ahead of the open.
Economic data on Monday is limited to the October Chicago PMI reading (Briefing.com consensus 46.0; prior 45.7) at 9:45 a.m. ET.
Market breadth skews heavily towards advancers
28-Oct-22 15:05 ET
Dow +809.56 at 32844.87, Nasdaq +287.59 at 11020.12, S&P +90.24 at 3897.61
[BRIEFING.COM] The stock market continues to set new intraday highs.
Market breadth shows a heavy skew towards advancing issues. Advancers lead decliners by a greater than 3-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
WTI crude oil futures fell 1.3% to $87.89/bbl. The S&P 500 energy sector (+0.7%) trails the broader market despite earnings-driven gains in Exxon Mobil (XOM 111.02, +3.47, +3.2%) and Chevron (CVX 179.12, +1.23, +0.7%).
Earnings movers pepper both sides of S&P 500 on Friday
28-Oct-22 14:30 ET
Dow +753.79 at 32789.10, Nasdaq +259.08 at 10991.61, S&P +80.60 at 3887.97
[BRIEFING.COM] The S&P 500 (+2.12%) hosts the "shallowest" advance on Friday afternoon, albeit showing gains of more than +2%.
S&P 500 constituents Dexcom (DXCM 118.47, +17.22, +17.01%), Gilead Sciences (GILD 78.87, +8.67, +12.35%), and Verisign (VRSN 201.24, +15.45, +8.32%) dot the top of the index. DXCM is outperforming after last night's Q3 beat, GILD, too, beat analyst expectations in its Q3 report last night, while VRSN also beat last night.
Meanwhile, Denver-based medical care firm DaVita (DVA 71.37, -25.38, -26.23%) is today's top laggard after last night's Q3 miss and underwhelming guidance.
Gold goes from green to red on the week with Friday losses
28-Oct-22 14:00 ET
Dow +768.43 at 32803.74, Nasdaq +262.30 at 10994.83, S&P +81.95 at 3889.32
[BRIEFING.COM] The major averages haven't quit their march higher in any way, shape, or form, the tech-heavy Nasdaq Composite (+2.43%) still topping the standings.
Gold futures settled $20.80 lower (-1.3%) to $1,644.80/oz, down about -0.69% on the week, giving up the prospect of back-to-back weekly gains as pressure mounted from a modestly higher dollar and slight gains in treasury yields.
Meanwhile, the U.S. Dollar Index is up a modest +0.3% to $110.90.
Pinterest's unique platform traits help elevate it above its beleaguered social media peers (PINS)
Pinterest (PINS) defied the odds and surprised many by reporting a top and bottom line beat in 3Q22, emerging as a clear winner in the beaten down social media space. Not only did the company surpass quarterly expectations, but it also issued solid guidance for Q4, forecasting mid-single digit revenue growth, slightly beating analysts' expectations. Following the dismal reports from Snap (SNAP) and Meta Platforms (META), it was expected that the same macroeconomic and competitive troubles would hit PINS' results. To be sure, the company was impacted by the steep pullback in advertising spending, particularly in the mid-market and SMB areas, but a few main attributes allowed it to significantly outperform its counterparts.
During the earnings conference call, CEO Bill Ready credited the investments PINS has recently made in enhancing the user experience for the solid quarterly performance. For instance, the company has used machine learning to improve personalization, leading to customized recommendations for users. Importantly, unlike SNAP or META, users typically visit PINS for a specific purpose or to buy something. As an example, a user may visit PINS to discover fall home decoration ideas, which later turns into a purchase for a decoration item. This action-oriented behavior is enticing to an advertiser.
PINS has also added automation and measurement tools to its advertising platform, making its ads more permanent. Mr. Ready noted that approximately 90% of PINS' active advertisers are now using automated bidding.
One caveat to PINS' encouraging report is that the company did receive a one-time benefit from Apple's (AAPL) iOS update in September, which provided a boost to user growth and engagement. However, according to PINS, the impact was quite modest.
Overall, the key metrics underlying PINS' upside report show that its business has stabilized and is moving in the right direction.
- Although global Monthly Active Users (MAUs) were flat on a yr/yr basis at 445 mln, it did tick higher by about 2 mln from last quarter. Additionally, U.S. and Canada users grew by roughly 3 mln from last quarter. Rewinding to Q2, PINS reported that Global MAUs were flat qtr/qtr, while users in the U.S. and Canada dipped by 2 mln.
- This quarter marked the first time since 1Q21 that MAUs grew sequentially in the U.S. and Canada.
- Average Revenue per User (ARPU) was higher by 11% to $1.56 and in the U.S. and Canada, the increase was even more impressive at 15%. This was driven by better-than-expected strength from large U.S. retail advertisers.
The main takeaway is that while PINS isn't immune to macroeconomic volatility and the accompanying downturn in advertising spending, the unique attributes of its platform make it much better suited to mitigate the headwinds than its peers.
Intel posts surprise EPS beat, but aggressive cost cutting plan is key catalyst behind rally (INTC)
Intel's (INTC) earnings for 3Q22 surprisingly exceeded expectations by a wide margin, even as revenue declined by 15% yr/yr and as gross margin contracted by 12.4 percentage points yr/yr to 45.9%, missing its forecast of 46.5%. It seems that analysts became a bit too dreary with their EPS estimates, but it's hard to blame them. INTC is coming off a dismal Q2 report in which it badly missed EPS projections, and the news since then has only darkened. In the weeks leading up to the chip maker's report, semiconductor companies such as Advanced Micro (AMD), Micron (MU), and Applied Materials (AMAT) each severely cut their guidance.
Outside of hurdling this low earnings bar, INTC's results and outlook were weak once again. Its Q4 guidance for EPS of $0.20 fell well short of expectations, while the mid-point of its $14-$15 bln revenue forecast indicates that top line growth will tumble further to -26%. However, shares are still rallying despite these negatives because INTC said the two magic words: cost cutting.
Specifically, the company is targeting $3 bln in cost savings in 2023, with the amount increasing to $8-$10 bln annually by the end of 2025. That is an aggressive cost-cutting approach that will include a significant workforce reduction plan, a decrease in factory hours, and the delay of certain equipment purchases. Based on the magnitude of these cost cuts, it's clear that CEO Pat Gelsinger isn't anticipating conditions to improve any time soon. What has pleased investors, though, is that he's protecting the bottom line during this downturn and is positioning the company for rapid margin and earnings expansion once the cycle does turn higher again.
For now, it remains a rough picture for INTC's largest segments.
- The PC-centric Client Computing Group (CCG) experienced a 7% yr/yr drop in revenue to $8.1 bln as OEMs continued to reduce inventory levels. Demand for PCs and laptops has eroded in the face of inflation, rising rates, and the removal of the work-from-home catalyst. According to research firm IDC, PC shipments fell by 15% in the third quarter.
- Customer inventory reductions are also afflicting the Data Center and AI Group (DCAI) but rising competition from AMD in particular is also pressuring this segment. Revenue dove by 27% to $4.2 bln and operating income plunged from $2.3 bln in 3Q21 to essentially flat in 3Q22. DCAI was facing more difficult yr/yr comps than CCG as revenue and operating income grew by 10% and 8%, respectively, in the year-earlier period.
INTC's surprise EPS beat was a welcomed change from last quarter's big miss, although it mostly reflects just how bearish analysts have become in recent weeks. Overall, this was another turbulent quarter for INTC and there are more tough quarters on the horizon, too. That is well understood and has been baked into the stock, which is why shares are jumping higher on the cost-cutting news. Unlike Meta Platforms (META), which intends to ramp up expenses as it builds out the metaverse, INTC is looking to substantially cut costs as it expands its manufacturing footprint in the U.S.
Amazon investors see Halloween come a little early; spooks investors with downside Q4 guidance(AMZN)
Amazon (AMZN -9%) is under pressure today following its Q3 earnings report last night. As we stated in our preview, we had several concerns heading into this report. Revenue rose 14.7% yr/yr to at $127.1 bln, which was within prior guidance of $125-130 bln, but was slightly below consensus.
- EPS included an investment gain. As such, the more important metric for profitability is operating income, which at $2.525 bln was within prior guidance of $0-3.5 bln. However, it was a bit disappointing after nice upside in Q2. It is frustrating that AMZN does not provide an adjusted EPS number, but that makes the comparison to operating income all the more important. It's a clean apples-to-apples comparison as the gain is below the operating income line.
- As Q3 progressed, AMZN says it saw moderating sales growth across many of its businesses and that was evident in the weak guidance for Q4 with revenue of $140-148 bln and operating income of $0-4 bln. AMZN concedes that the macro environment remains challenging worldwide. Inflation, fuel prices and rising energy costs have caused consumers to reassess their purchasing power and has made companies re-evaluate their technology and advertising spend. FX has also been a headwind.
- It was not just the top line, op income was hurt by a step-up in Prime Video content and marketing costs, primarily driven by The Rings of Power and the launch of NFL Thursday Night Football. Results were also hurt by charges related to the closure of Amazon Care, fabric.com and Amazon Explore. In response, AMZN is tightening its belt, including pausing hiring in certain businesses and winding down some products and services.
- AWS was not great either as revenue (constant currency) has been slowing pretty quickly in recent quarters: +28% CC in Q3, +33% CC in Q2, +37% CC in Q1, +40% CC in Q4 last year. Also, segment operating margin fell to 26.3% vs 30.3% last year. On the call, AMZN conceded that it has seen an uptick in AWS customers focusing more on controlling costs. We were bracing for a weak number following MSFT's Azure weak result and we got it. AMZN does not guide for AWS but MSFT pointed to a big sequential drop in DecQ, so that makes us nervous about AWS next quarter.
- The one positive surprise was maybe its Advertising Services segment, which posted +30% CC revenue growth. That is up from +21% CC in Q2 and +25% CC in Q1. However, AMZN said on the call companies are tightening the belt for online ad spend.
It has not been a great week for mega cap tech names with META, MSFT and GOOG and now AMZN all falling sharply lower following earnings. AMZN had already traded lower heading into this report, but we think the weak Q4 guidance, which is the all-important holiday quarter, really spooked investors. I guess we are learning that even tech names are not impervious to macro conditions.
Apple looks crisp as investors look past supply issues causing a miss on iPhone sales in Q4 (AAPL)
Apple (AAPL +6%) is looking crisp today, recovering from a sell-the-news reaction after the company reported lower-than-expected iPhone sales in Q4 (Sep). CEO Tim Cook quelled fears of waning demand by citing supply issues as the culprit.
Still, AAPL is not immune to the macroeconomic obstacles weakening demand. CFO Luca Maestri pointed out that digital advertising and gaming are areas where the company is experiencing softness, reiterating comments made by Snap (SNAP), which is seeing the digital advertising market slow, and Take-Two (TTWO), whose mobile gaming division is facing softness. These headwinds will mainly negatively affect AAPL's Services segment, which it still expects to grow yr/yr in Q1 (Dec), but be impacted by the current economic situation and foreign currency fluctuations.
- Speaking of which, FX impacts clipped over 600 bps off AAPL's revenue growth in Q4. Still, the figure climbed 7.8% yr/yr to $90.15 bln, well ahead of consensus.
- Earnings also jumped ahead of analyst expectations in the quarter, gaining 4.0% yr/yr to $1.29 per share. Gross margins setting a Q4 record at 42.3%, which also met AAPL's prior expectations of 41.5-42.5%, helped the company expand its earnings despite the FX impact drag.
- iPhone revs of $42.6 bln, a 10% climb yr/yr, was also a Q4 record. A notable development was exceptional growth in emerging markets, such as India, Vietnam, and Indonesia, which each doubled iPhone sales yr/yr. Although AAPL has been seeing tremendous growth in emerging markets for some time, we like seeing this continue, especially during an economic downturn, as it highlights the company's ability to translate its marketing prowess and brand power to many different customers and cultures.
- Another positive stand out was Mac achieving record revs of $11.5 bln, a 25% increase yr/yr, more than enough to topple estimates. However, much of the improvement yr/yr stemmed from AAPL's supply catching up with demand, satisfying pent-up demand that carried forward from Q3 (Jun). Still, given the steep drop-offs in PC demand lately, it was encouraging to see that consumers still wanted to purchase Macs they could not get during JunQ.
- The laggard in Q4 was iPad, where revs tumbled 13% yr/yr to $7.2 bln due to FX impacts and an unfavorable comparison from the year-ago period.
- Looking ahead to Q1, AAPL still did not provide detailed estimates, noting that it expects revenue growth to decelerate compared to Q4. A significant component of this is FX impacts, which is expected to take nearly 10 pts off growth. Also, a challenging comparison from the year-ago period is setting up Mac sales to substantially decline yr/yr, which will further weigh on overall growth. Gross margins are expected to expand slightly, with AAPL projecting 42.5-43.5%.
Bottom line, AAPL's Q4 results highlight the impressive brand loyalty the company has garnered, allowing it to continue delivering solid growth during an environment that has taken a toll on many of its peers. Although Q1 is not shaping up to be an exciting quarter, the situation could have been much worse. Plus, with demand remaining relatively healthy, investors are not overly concerned with the factors weighing on AAPL's near-term results as they are largely outside its control.
Honeywell's Q3 results glistened, especially compared to its industrial counterparts (HON)
Honeywell (HON +3%) is doing well today after posting a solid earnings beat in Q3 and providing a reasonably uplifting near-term outlook. Additionally, the global conglomerate, operating within four main fields (Aerospace, Building Technologies, Performance Materials and Technologies, and Safety and Productivity), posted earnings that stood out in a much more positive light than peers 3M (MMM) and General Electric (GE), which both ran into headwinds leading to reduced guidance earlier this week.
That is not to say that HON did not face similar hurdles. The strengthening U.S. dollar remained a thorn in HON's side, trimming $0.05 off the company's Q3 EPS and shaving 3 pts off its Q4 sales outlook. FX impacts were the primary driver behind 3M's lowered FY22 guidance. Also, supply chain constraints continued to temper total volume growth in Q3. GE experienced around a 4 pt hit to its Q3 revs due to a sour combination of supply chain and macroeconomic pressures.
Nevertheless, HON still delivered solid results in Q3, doing a good job leaping over these obstacles in the process.
- Adjusted EPS jumped 11.4% yr/yr to $2.25, exceeding the high-end of its prior guidance by $0.05 on a 90 bp improvement to operating margins yr/yr in the quarter.
- Meanwhile, although revs only met analyst expectations, increasing 5.6% yr/yr to $8.95 bln, HON delivered double-digit organic growth across three segments, reflecting strong demand despite widespread macroeconomic uncertainty.
- Building Technologies was a positive standout, boasting organic sales growth of 19% on resilient demand for HON's fire products and building management systems. Another bright spot was Aerospace, where organic sales grew 10% as commercial aviation sales grew by double-digits for the sixth-straight quarter. Aerospace would have performed better, too, if not for HON's large defense business, which weighed on top-line growth. However, HON commented that it viewed Q3 as an inflection point, leading to sequential improvement in Q4.
- Robust aerospace demand emulates what we saw with GE, where its Aerospace segment led all other segments in Q3.
- Regarding supply chain constraints, HON noted that the situation is improving, pointing to sequential volume gains for the third consecutive quarter.
- Improving supply chains was a key component of HON's relatively upbeat outlook. The company expects Q4 revs of $9.1-9.4 bln, a 10-13% increase yr/yr, marking HON's highest quarterly growth rate since 2Q21. HON also upped the low end of its FY22 adjusted EPS forecast, guiding to $8.70-8.80 from $8.55-8.80.
Bottom line, HON's Q3 results resonated much more with investors than its industrial counterparts. Clearly, HON is amid many favorable dynamics, such as the ongoing recovery in the aviation industry and improving supply chains. These tailwinds should help fuel continual top and bottom-line growth and will be a driver behind HON's commitment to buying back at least $4 bln of shares in FY22.
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