Market Snapshot
briefing.com
| Dow | 32693.09 | -41.89 | (-0.13%) | | Nasdaq | 10864.59 | -63.41 | (-0.58%) | | SP 500 | 3863.66 | -8.39 | (-0.22%) | | 10-yr Note | 0/32 | 4.05 |
|
| | NYSE | Adv 1805 | Dec 1251 | Vol 938 mln | | Nasdaq | Adv 2443 | Dec 2172 | Vol 4.6 bln |
Industry Watch
| Strong: Energy, Utilities, Financials, Materials, Health Care |
| | Weak: Information Technology, Consumer Discretionary, Communication Services |
Moving the Market
-- Unconfirmed reports that China will soon exit its zero COVID policy
-- JOLTS Job Openings indicating the labor market remains tight, creating some concerns that the Fed might not soften its rate hike approach following the November meeting
-- 10-yr Treasury note yield back above 4.00%
-- M&A buzz following reports of Johnson & Johnson (JNJ) acquiring Abiomed (ABMD)
-- Uber (UBER) reported favorable quarterly results and issued pleasing Q4 adjusted EBITDA guidance
-- Waiting game ahead of FOMC decision tomorrow at 2:00 p.m. ET
|
Closing Summary
01-Nov-22 16:30 ET
Dow -79.75 at 32655.23, Nasdaq -97.30 at 10830.70, S&P -15.88 at 3856.17
[BRIEFING.COM] The stock market kicked off November on an upbeat note. The S&P 500, Dow, and Nasdaq were up 1.0%, 1.5%, and 0.7%, respectively, at this morning's highs. The initial upside push was driven by some optimism about China potentially entertaining a shift in coming months to its zero-COVID policy, falling Treasury yields, and some M&A buzz after Johnson & Johnson (JNJ 173.09, -0.88, -0.5%) said it would acquire Abiomed (ABMD 377.82, +125.74, +49.9%) at a 47% premium over yesterday's closing price.
The market quickly shifted to retreat mode, though, after the release of economic data at 10:00 a.m. ET. That data included a weaker-than-expected ISM Manufacturing Index for October, a stronger-than-expected Construction Spending Report for September, and a stronger-than-expected JOLTS - Job Openings Report for September.
The main sticking point in the data was the elevated JOLTS number, indicating the labor market remains strong and that wage-based inflation pressures are likely to continue. That understanding created some concerns that the Fed might not soften its rate hike approach following the November meeting.
Both the stock and Treasury markets saw buyers step away in the wake of the data and retreat to lower price levels. The 10-yr Treasury note yield, which was below 4.00% while stocks rallied, settled at 4.05%. The 2-yr note yield, at 4.43% earlier, settled at 4.51%.
After dealing with the initial retreat, the stock market reverted to wait-and-see mode and stuck to a fairly narrow trading range for the remainder of the session. This came ahead of the FOMC decision tomorrow at 2:00 p.m. ET followed by Fed Chair Powell's press conference at 2:30 p.m. ET.
Notably, small and mid cap stocks fared better than their larger peers today. The Russell 2000 (+0.3%) and S&P Mid Cap 400 (+0.4%) sported a modest gain while the three main indices closed below the flat line.
Semiconductor stocks were a specific pocket of strength today. The PHLX Semiconductor Index (SOX) closed up 0.7% after some pleasing earnings news from Lattice Semi (LSCC 52.58, +4.07, +8.4%) and NXP Semi (NXPI 151.85, +5.77, +4.0%).
On an individual basis, Uber (UBER 29.75, +3.18, +12.0%) was a winning standout for growth stocks after posting quarterly results and raising its Q4 adjusted EBITDA guidance.
Roughly half of the 11 S&P 500 sectors suffered a loss today with communication services (-1.3%) buried in last place. Meanwhile, energy (+1.1%) sat atop the leaderboard while oil prices rose in response to the prospect of China "reopening" in coming months. WTI crude oil futures rose 2.2% to $88.40/bbl.
Ahead of Wednesday's open, Brinker (EAT), C.H. Robinson (CHRW), Canada Goose (GOOS), CVS Health (CVS), Dine Brands (DIN), DISH Network (DISH), Estee Lauder (EL), Ferrari (RACE), Generac (GNRC), Humana (HUM), New York Times (NYT), Paramount Global (PARA), Rockwell Automation (ROK), Scotts Miracle-Gro (SMG), Vulcan Materials (VMC), Yum! Brands (YUM), and Zimmer Biomet (ZBH) are set to report earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 1.7%)
- 8:15 ET: October ADP Employment Change (Briefing.com consensus 198,000; prior 208,000)
- 10:30 ET: Weekly crude oil inventories (prior +2.59 mln)
- 14:00 ET: November FOMC Decision (Briefing.com consensus 3.75-4.00%; prior 3.00-3.25%)
Reviewing today's economic data:
- The October ISM Manufacturing Index dropped to 50.2% (Briefing.com consensus 50.0%) from 50.9% in September. A number above 50.0% is indicative of expansion, yet the lower reading versus September points to a deceleration in overall manufacturing activity. October marked the 29th consecutive month of expansion in the manufacturing sector, yet it was the lowest reading since May 2020.
- The key takeaway from the report is that it connotes a moderation in manufacturing activity that is bordering on a contraction in manufacturing activity, which hasn't been seen since the pandemic-led contractions in April and May 2020. The tepid reading will raise concerns about the U.S. economy being at risk of experiencing a recession.
- Total construction spending increased 0.2% month-over-month in September (Briefing.com consensus -0.5%) following an upwardly revised 0.6% decline (from -0.7%) in August. Total private construction was up 0.4% month-over-month while total public construction spending was down 0.4%. On a year-over-year basis, total construction spending was up 10.9%.
- The key takeaway from the report is that new single-family construction (-2.6%) continues to be a major drag on overall construction spending, reflecting the adverse impact of the spike in mortgage rates, higher building costs, and weakening homebuilder sentiment.
- JOLTS Job openings totaled 10.717 million in September from the prior revised total of 10.280 million (from 10.053 million).
Dow Jones Industrial Average: -10.1% YTD
S&P Midcap 400: -14.1% YTD
S&P 500: -19.1% YTD
Russell 2000: -17.5% YTD
Nasdaq Composite: -30.4% YTD
Market clings to narrow range
01-Nov-22 15:30 ET
Dow -70.63 at 32664.35, Nasdaq -89.70 at 10838.30, S&P -14.12 at 3857.93
[BRIEFING.COM] The stock market is stuck in a narrow trading range ahead of the close.
Advanced Micro (AMD), Airbnb (ABNB), Caesars Entertainment (CZR), Cirrus Logic (CRUS), Clorox (CLX), Electronic Arts (EA), Match Group (MTCH), McKesson (MCK), MicroStrategy (MSTR), Mondelez Int'l (MDLZ), Paycom Software (PAYC), Western Union (WU), and Yum China (YUMC) headline the earnings reports after today's close.
Ahead of Wednesday's open, Brinker (EAT), C.H. Robinson (CHRW), Canada Goose (GOOS), CVS Health (CVS), Dine Brands (DIN), DISH Network (DISH), Estee Lauder (EL), Ferrari (RACE), Generac (GNRC), Humana (HUM), New York Times (NYT), Paramount Global (PARA), Rockwell Automation (ROK), Scotts Miracle-Gro (SMG), Vulcan Materials (VMC), Yum! Brands (YUM), and Zimmer Biomet (ZBH) are set to report earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 1.7%)
- 8:15 ET: October ADP Employment Change (Briefing.com consensus 198,000; prior 208,000)
- 10:30 ET: Weekly crude oil inventories (prior +2.59 mln)
- 14:00 ET: November FOMC Decision (Briefing.com consensus 3.75-4.00%; prior 3.00-3.25%)
Value outpacing growth
01-Nov-22 15:00 ET
Dow -41.89 at 32693.09, Nasdaq -63.41 at 10864.59, S&P -8.39 at 3863.66
[BRIEFING.COM] The major averages are little changed in the last half hour.
Value stocks have a performance edge over value stocks today. The Russell 3000 Growth Index is down 0.9% while the Russell 3000 Value Index is up 0.3%.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 2.2% to $88.40/bbl while natural gas futures fell 7.0% to $6.13/mmbtu.
Earnings movers dot either side of S&P 500 on Tuesday
01-Nov-22 14:25 ET
Dow -100.31 at 32634.67, Nasdaq -74.33 at 10853.67, S&P -15.00 at 3857.05
[BRIEFING.COM] The S&P 500 (-0.39%) is in second place at this point on Tuesday, having moved mostly sideways in the last half hour.
S&P 500 constituents Catalent (CTLT 50.36, -15.37, -23.38%), Zebra Tech (ZBRA 244.68, -38.54, -13.61%), and Ecolab (ECL 142.98, -14.09, -8.97%) dot the bottom of today's standings following earnings.
Meanwhile, Maine-based diagnostics firm IDEXX Labs (IDXX 392.13, +32.45, +9.02%) is one of today's better performers following this morning's Q3 beat.
Gold rebounds modestly after another monthly loss
01-Nov-22 14:00 ET
Dow -94.62 at 32640.36, Nasdaq -80.05 at 10847.95, S&P -14.96 at 3857.09
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-0.73%) is within a stone's throw of session lows.
Gold futures settled $9 higher (+0.6%) to $1,649.70/oz a day after cementing their seventh consecutive monthly decline.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $111.58.
Greatness in October spilling over to November
October was a great month for the stock market (which needed a great month). That greatness is spilling over to November, evidenced by an equity futures market that has a positive disposition.
Currently, the S&P 500 futures are up 41 points and are trading 1.1% above fair value, the Nasdaq 100 futures are up 153 points and are trading 1.4% above fair value, and the Dow Jones Industrial Average futures are up 221 points and are trading 0.7% above fair value.
Several catalysts are working in the stock market's favor at the moment:
- There are unconfirmed reports that China is going to set up a "reopening committee" for its economy, which would entail an exit from its zero-COVID policy.
- Today is the first trading day of a new month, which typically invites new inflows. The invitation looks more attractive at this point knowing how things went in October and that this is historically a seasonally strong period for stocks.
- Longer-dated Treasury yields have dropped noticeably. The 10-yr note yield is down 15 basis points to 3.93%.
- Johnson & Johnson (JNJ) created some M&A buzz with a $16.6 billion, or $380.00 per share, cash acquisition of Abiomed (ABMD) that translates to a 47% premium over yesterday's closing price for ABMD shareholders.
- Uber (UBER) is aiding the cause for growth stocks, trading up 13% after pleasing investors with its Q4 adjusted EBITDA guidance
There is an intangible factor in the trading mix, too. That would be the fear of missing out on further gains.
To be sure, the recent trend has been a friend for bullish-minded participants. The S&P 500 has climbed back above its 50-day moving average, rallying 10.9% off its October 13 low. Still, it has some work to do to break a pattern of lower highs and to alter a downward-sloping 200-day moving average (currently 4,105).
It will have to do so against a deteriorating economic backdrop that will continue to leave fourth quarter, and 2023, earnings prospects in doubt. Nonetheless, an element of the relief rally seen since mid-October is that third quarter earnings results and guidance have been generally better than feared.
That condition has been owed in part to a consumer that remains relatively strong. Uber CEO, Dara Khosrowshahi, told CNBC as much following the company's earnings report, yet he also conceded that Uber is being cautious about 2023.
The stock market, however, is in a mode of operating in the here and now, and what it is hearing in the here and now is that earnings are still holding up better than feared and that the Fed may soon embrace a less aggressive rate-hike approach. That has made it feel better about the outlook or perhaps resigned to think that things won't be as bad as the market's behavior for most of this year has suggested it will be.
Accordingly, there has been a marked improvement in many stock prices that has been aided by short-covering activity and more earnest bargain-hunting activity, particularly in cyclical sectors.
The energy sector has led all sectors this quarter, soaring 24.8%. It is poised to continue to do well to start the month as the thought of China "reopening" has given a nice boost to oil prices ($88.44, +1.89, +2.2%), not to mention copper prices ($3.49, +0.12, +3.4%).
The energy sector has also been the engine behind the modest earnings growth for the S&P 500 in the third quarter. Companies are delivering some big profits. On a related note, President Biden said he is going to work with Congress to look at available options for possibly imposing a windfall profit tax on energy companies. The sector hasn't reacted more negatively to the news because the market doesn't believe such a proposal will pass Congress.
The energy sector is the only sector up this year (+63.2%), but with the move in October, nearly every sector has pared its losses for the year. It has been a welcome move and it could have more room to run if the Fed doesn't spoil the hopeful party when it makes its latest policy decision known tomorrow at 2:00 p.m. ET.
-- Patrick J. O'Hare, Briefing.com
Eli Lilly rides its key products for top and bottom-line beat, but FX headwinds hit outlook (LLY)
Bolstered by strong sales from some of its key product franchises, pharmaceutical giant Eli Lilly (LLY) edged past 3Q22 EPS and revenue estimates after missing on both measures last quarter. Verzenio, the company's breast cancer treatment, especially stood out in Q3, posting sales growth of 84% to $617.7 mln. Trulicity (diabetes) and Taltz (autoimmune diseases) also performed well with sales up by 16% and 15%, respectively. However, despite the solid growth and LLY's better-than-expected overall results, shares are sliding sharply lower.
LLY's downwardly revised guidance for FY22 and its commentary regarding COVID-19 antibodies is what's holding the stock back. Even though the company topped Q3 expectations, it lowered its FY22 EPS guidance to $7.70-$7.85 from $7.90-$8.05, and cut its revenue forecast to $28.5-$29.0 bln from $28.8-$29.3 bln.
- Like many global enterprises, foreign exchange impacts are taking a major toll on LLY. Previously, the company was estimating a negative FX impact of about $700 mln for FY22. Now, LLY believes the total effect for the year could be near $1.0 bln. For Q4 in particular, LLY shaved $30 mln off its sales forecast due to foreign exchange.
- Meanwhile, IP R&D and development milestone charges are expected to total $670 mln in FY22, representing an additional $0.06/share headwind to LLY's FY22 EPS outlook. Between FX impacts and these tax-related charges, LLY took its non-GAAP EPS forecast down by $0.20/share.
- The stock may be reacting more to LLY's comments regarding Bebtelovimab during the earnings call. Specifically, CFO Anat Ashkenazi stated that while LLY made Bebtelovimab commercially available, the company does not believe that it will neutralize against the new BQ variants.
- For some financial context, LLY supplied an additional 60,000 doses of Bebtelovimab to the U.S. government in Q3 for about $110 mln.
- Ashkenazi added that COVID-19 antibodies will not likely be a major driver for long-term growth for LLY.
Beyond the disappointment regarding the guidance cut, there was still plenty of good news within the earnings press release. Notably, LLY's new Type 2 diabetes drug, Mounjaro, is off to a fast start with sales of $187.3 mln in Q3. In fact, Ashkenazi described Mounjaro's demand as "unprecedented", bolstered by strong efficacy and positive patient outcomes. Overall, it was a solid quarter for LLY and the company is upbeat about its product pipeline that could feature four new launches by the end of 2023. For today, though, LLY's FY22 guidance cut is driving the stock action.
Uber delivers impressive quarterly report fueled by robust rideshare demand and cost controls (UBER)
Investors are catching a ride on Uber (UBER) shares today after the ridesharing and food delivery company reported solid 3Q22 results and provided a better-than-expected outlook for Q4. Buoyed by robust demand for travel and favorable consumer spending patterns, UBER's mobility unit achieved quarterly record highs for Gross Bookings ($13.7 bln) and Adjusted EBITDA ($898 mln). Despite the macroeconomic uncertainties, rideshare demand remains brisk while UBER continues to take a conservative approach with costs.
Recall that UBER CEO Dara Khosrowshahi stated several months ago that the company was implementing a hiring freeze and was looking to cut costs in other areas, including marketing. These actions were taken in preparation of a looming economic slowdown that Khosrowshahi saw materializing on the horizon. Although the global economy has become quite shaky, the volatility hasn't translated into a deceleration in rideshare demand. Therefore, the company's profitability benefits from a combination of two factors: strong rideshare demand and tighter cost management. For the quarter, UBER generated Adjusted EBITDA of $516 mln, up by $508 mln yr/yr, and easily surpassing its guidance of $440-$470 mln.
Importantly, UBER expects this momentum to continue.
- For Q4, the company guided for Adjusted EBITDA of $600-$630 mln, comfortably beating analysts' estimates. Another key element of UBER's profitability and expense management strategy has been its decision to rein in driver incentives. With active drivers now above September 2019 levels, UBER is no longer facing the severe driver shortage that plagued it and rival Lyft (LYFT) throughout 2021 and early 2022.
- During the earnings call, Khosrowshahi noted that October is trending to be UBER's strongest month ever for Mobility and for total company Gross Bookings. Overall, for Q4, UBER guided for Gross Bookings of $30-$31 bln, equating to yr/yr growth of 23-27% on a constant currency basis. That's roughly in line with this quarter's growth of 26%.
- Delivery Gross Bookings increased by 13% on a constant currency basis to $13.7 bln, essentially matching last quarter's growth rate. The resiliency of the Delivery business has been both impressive and surprising as consumers return to normal pre-pandemic behaviors. What the steady growth shows is that the pandemic introduced UBER's food delivery service to many new users, and that the growth in UBER's user base has been sticky.
- More so than the Mobility unit, Delivery's profit potential has been heavily scrutinized due to the low margin profile of the business. However, the business continues to prove doubters wrong as Adjusted EBITDA jumped to $181 mln from ($12) mln in the year-earlier period.
- UBER credits improved network efficiencies, an increasing contribution from advertising, and marketing optimization, for the significant improvement in Adjusted EBITDA.
At first glance, UBER's results may not look overly positive since it posted a GAAP loss of $0.61/share, missing expectations. That number, though, includes losses on its investments in Didi Global and Grab Holdings, so it's not reflective of UBER's operational performance. On an operational basis, UBER is firing on all cylinders, as evidenced by its rapidly ascending Adjusted EBITDA metric. Issues outside of its control, such as the Labor Department's potential decision to reclassify gig-economy workers as regular employees, remain an overhang on the stock. For today, though, the spotlight is shining bright on UBER's solid results, which also provide a bullish data point for LYFT's upcoming earnings report on November 7.
NXP Semi's steps to navigate increasing weakness in its end markets is receiving applause (NXPI)
NXP Semi (NXPI +3%) did not differ much from comments made by many of its peers recently, noticing softness creep up on the industrial side of the business, with supply chain constraints disrupting the more resilient automotive side of the business. These remarks remind us of many other organizations operating in the semiconductor industry, including ON Semiconductor (ON) and Texas Instruments (TXN). The unfavorable economic situation culminated in NXPI's Q4 guidance, expecting revs of $3.2-3.4 bln, just under analyst estimates.
- Digging deeper, NXPI noted that it is amid a tricky demand environment. While demand trends from automotive and core industrial customers (those not operating in the internet-of-things space) remained resilient, supply constraints are not allowing NXPI to ship to the true end demand.
- Meanwhile, the potential for demand destruction in the consumer end markets NXPI touched on last quarter has materialized, causing weakness in the internet-of-things (IoT) and Android (GOOG) markets. As a result, even though supply constraints here are minimal, allowing NXPI to ship more into the channel, it is taking a proactive stance to limit channel inventory buildup. This is displayed with its decision to keep channel inventory at the 1.6 months of supply level, well below its long-term model of 2.5 months.
- NXPI is also pulling levers under its control, particularly in lowering expenses. Amongst some reductions in discretionary spending, NXPI will also be slowing its hiring rate.
- Given the macroeconomic backdrop and NXPI's measures in place, not one of its end markets is expected to see growth sequentially in Q4. Even in automotive, NXPI is guiding to a flattish Q4 compared to Q3. Industrial and IoT are projected to decline in the high teens range sequentially. Mobile is also expected to fall, but only by upper single digits. Lastly, communication infrastructure and other markets will likely see a flattish quarter sequentially.
However, despite NXPI's downbeat Q4 guidance, investors are sending shares nicely higher today. It helps that NXPI posted a double-digit earnings beat and solid revenue growth in Q3. Investors may also appreciate the steps NXPI is taking to navigate the current choppy environment. Furthermore, NXPI is sold out through FY23 in its automotive and core industrial end markets, highlighting just how strong these industries are at the moment.
Bottom line, NXPI is struggling alongside the broader semiconductor industry. However, it is taking the proper steps to make it through the current economic cycle as little as unscathed as possible, setting up a brighter longer-term future.
Johnson & Johnson hearts Abiomed as JNJ pays a big premium to acquire the heart pump maker (JNJ)
Johnson & Johnson (JNJ) is making a big splash on the M&A front to boost its MedTech segment. It will acquire Abiomed (ABMD +50%) for $16.6 bln. The transaction is structured a little differently. Abiomed shareholders will get $380 per share in cash, which is a huge 51% premium over yesterday's close, plus they will receive a non-tradeable contingent value right (CVR) entitling them to receive up to $35/sh in cash if certain milestones are achieved. The deal is expected to close in 1Q23.
- Abiomed is best known for its Impella heart pumps, which provide circulatory support and oxygenation. Its pumps enable the heart to rest by improving blood flow and/or performing the pumping of the heart. Its pumps have been approved by the FDA for patients with severe coronary artery disease and other indications. Its Impella ECP is the smallest heart pump in the world.
- This is a huge market with cardiovascular disease being the number one cause of death. All forms of cardiovascular disease lead to heart failure, which is a significant cost to health systems due to hospitalizations and extended length of stay.
- So why do this deal? The transaction broadens Johnson & Johnson MedTech's (JJMT) position as a growing cardiovascular provider. Abiomed already operates in one of the fastest growing medtech industries and JNJ sees significant expansion opportunities in indication, geography, and product. JNJ would be able to use its massive global footprint, customer base and distribution network to expand sales. Abiomed also complements JJMT's other products, including its Biosense Webster electrophysiology business. The deal also further accelerates JJMT's shift into high-growth markets.
- It is also a bold step by new CEO Joaquin Duato, a long time insider who took the helm in January 2022. It is clear Duato wants to reshape JNJ pretty dramatically. Recall that JNJ is in the process of spinning off its consumer health business, renamed Kenvue, which has been burdened by numerous lawsuits alleging its baby powder contained asbestos. The spin-off will allow JNJ to focus on pharmaceuticals and medical devices.
Overall, we think this deal makes sense for both sides. JNJ gets a top notch cardiovascular product with significant expansion opportunities. The premium being paid does seem quite high, but maybe that is what it took. Also, JNJ's share price is not reacting too much, so maybe investors are not worried about that. Also, a $16 bln deal is not all that big relative to JNJ's massive $450+ bln market cap. The deal is also good for Abiomed shareholders, who get a huge premium plus the CVR kicker. Between this deal and the consumer health spin off, JNJ should look pretty different next year.
|
