Market Snapshot
briefing.com
| Dow | 33150.59 | +320.56 | (0.98%) | | Nasdaq | 10532.99 | +28.62 | (0.27%) | | SP 500 | 3825.16 | +18.29 | (0.48%) | | 10-yr Note | +6/32 | 4.14 |
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| | NYSE | Adv 1843 | Dec 1192 | Vol 944 mln | | Nasdaq | Adv 2359 | Dec 2183 | Vol 5.0 bln |
Industry Watch
| Strong: Materials, Information Technology, Real Estate, Industrials |
| | Weak: Consumer Discretionary |
Moving the Market
-- Speculation that midterm elections results will lead to gridlock that lessen the prospect of new tax hikes, regulatory pressure, and large spending plans
-- Waiting game ahead of October Consumer Price Index Thursday
-- Pullback in Treasury yields; 10-yr note yield getting rejected at 4.24% overnight
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Closing Summary
08-Nov-22 16:30 ET
Dow +333.83 at 33163.86, Nasdaq +51.68 at 10556.05, S&P +21.31 at 3828.18
[BRIEFING.COM] Today's trade had a positive disposition as market participants awaited midterm election results. The stock market's prevailing expectation is that the results will ultimately lead to a legislative gridlock environment that will make it near impossible to approve new tax hikes, large stimulus plans, and stepped-up regulatory pressure.
The latter assumption fueled some bargain-hunting along with reports about how the stock market typically performs well in the 12-month period following a midterm election (average gain of 14.7% since 1950, according to LPL Research).
The stock market took a noticeable turn lower around 1:00 p.m. ET, however, in a move that coincided with cryptocurrencies taking a noticeable turn lower. The cryptocurrency market was extremely volatile today amid reports that FTX was encountering a liquidity crunch. Early selling interest was tempered, though, after Binance said it had signed a letter of intent to acquire FTX.com, pending due diligence, to help cover the liquidity crunch.
Selling pressure picked up again in a big way as the day progressed, triggering concerns about possible margin calls that ostensibly might have precipitated some selling of stocks to cover those margin calls.
Bitcoin and Ethereum were down 11.2% and 16.6%, respectively. The afternoon selling effort took the S&P 500 below the 3,800 level but buyers showed up there and helped get the market back on a winning track.
Treasury yields were a supportive factor for the equity market today. The 10-yr note yield, which tested 4.24% overnight, settled the session at 4.13%. The 2-yr note yield settled at 4.66%. The U.S. Dollar Index was unable to hold an early gain and fell prone to continued selling pressure, dropping 0.4% to 109.64.
For the S&P 500 sectors, Materials (+1.7%) enjoyed a first place spot thanks to earnings-driven gains in DuPont (DD 66.28, +4.54, +7.4%) and Mosaic (MOS 52.89, +2.97, +6.0%). Meanwhile, consumer discretionary (-0.3%) was the lone sector in negative territory.
Semiconductor stocks were a bright spot in the market. The PHLX Semiconductor Index was up 2.2%. NVIDIA (NVDA 146.02, +3.01, +2.1%) was a winning standout for the group after The Wall Street Journal reported that it has come up with an alternative chip for its Chinese customers that does not violate U.S. export controls.
D.R. Horton (DHI), Hanesbrands (HBI), Capri Holdings (CPRI), Roblox (RBLX), The Trade Desk (TTD), MSG Entertainment (MSGE), SeaWorld Entertainment (SEAS), Nomad Foods (NOMD), and Olaplex (OLPX) are set to report earnings ahead of Wednesday's open.
Looking ahead to Wednesday, market participants will be digesting the results from the midterm elections and will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.5%)
- 10:00 ET: September Wholesale Inventories (prior 1.3%)
- 10:30 ET: Weekly crude oil inventories (prior -3.12 mln)
Economic data today was limited to the October NFIB Small Business Optimism Index, which came in at 91.3 after the prior reading of 92.1.
Dow Jones Industrial Average: -8.7% YTD
S&P Midcap 400: -14.5% YTD
S&P 500: -19.7% YTD
Russell 2000: -14.5% YTD
Nasdaq Composite: -32.1% YTD
Market continues to lift off lows ahead of the close
08-Nov-22 15:30 ET
Dow +449.63 at 33279.66, Nasdaq +83.58 at 10587.95, S&P +35.31 at 3842.18
[BRIEFING.COM] The stock market continues to recover from the late afternoon lows.
After today's close, Walt Disney (DIS), Occidental Petro (OXY), Fidelity National (FNF), GXO Logistics (GXO), AMC Entertainment (AMC), Novavax (NVAX), Affirm (AFRM), and News Corp. (NWSA) are among the earnings reports.
D.R. Horton (DHI), Hanesbrands (HBI), Capri Holdings (CPRI), Roblox (RBLX), The Trade Desk (TTD), MSG Entertainment (MSGE), SeaWorld Entertainment (SEAS), Nomad Foods (NOMD), and Olaplex (OLPX) are set to report earnings ahead of Wednesday's open.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -0.5%)
- 10:00 ET: September Wholesale Inventories (prior 1.3%)
- 10:30 ET: Weekly crude oil inventories (prior -3.12 mln)
Mega caps weigh on index performance
08-Nov-22 15:05 ET
Dow +320.56 at 33150.59, Nasdaq +28.62 at 10532.99, S&P +18.29 at 3825.16
[BRIEFING.COM] The stock market has been climbing off its lows after the S&P 500 took a dip below 3,800.
Mega cap stocks are a drag on index level performance. The Vanguard Mega Cap Growth ETF (MGK) is down 0.1% versus a 0.3% gain in the S&P 500.
Growth stocks are trailing value stocks. The Russell 3000 Growth Index trades flat while the Russell 3000 Value Index is up 0.2%.
Averages fall in afternoon trading; S&P 500, Nasdaq Composite turn negative
08-Nov-22 14:25 ET
Dow +157.55 at 32987.58, Nasdaq -21.95 at 10482.42, S&P -1.37 at 3805.50
[BRIEFING.COM] The broader market retreat picked up steam in the last half hour, the S&P 500 (-0.04%) and the Nasdaq Composite (-0.29%) slipping into negative territory.
S&P 500 constituents Welltower (WELL 66.89, +5.43, +8.84%), Albemarle (ALB 305.61, +19.12, +6.67%), and Generac (GNRC 102.11, +4.14, +4.23%) dot the top of the standings. WELL gains following last night's Q3 beat, ALB advances alongside peer Mosaic (MOS 52.36, +2.44, +4.89%) following its earnings report, while GNRC perks up with news of Tropical Storm Nicole on the coast of Florida which could impact the state later in the week.
Meanwhile, Maryland-based utilities firm Constellation Energy (CEG 86.62, -6.88, -7.36%) is one of today's worst performers following last night's Q3 miss.
Gold higher amid crypto volatility
08-Nov-22 13:55 ET
Dow +281.71 at 33111.74, Nasdaq +47.88 at 10552.25, S&P +18.92 at 3825.79
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.45%) brings up the rear among the major averages.
Gold futures settled $35.50 highier (+2.1%) to $1,716.00/oz as investors flocked to the safe haven asset amid an unwind in crypto prices following news this morning of a funds crunch at exchange FTX which prompted peer Binance to offer a LOI to acquire the company.
Meanwhile, the U.S. Dollar Index falls -0.5% to $109.57.
Page One
Last Updated: 08-Nov-22 09:02 ET | Archive
Market playing politics on Election Day
Election Day has arrived and it promises to be another must-see event tonight as the results roll in, helping to determine the composition of the House and Senate.
Both chambers are currently in control of the Democrats, yet previews are pointing to the potential for Republicans to win control of the House and possibly the Senate. The previews also point to some "too-close-to-call" Senate races that could mean the composition of the Senate is not finalized tonight.
To be fair, polling data is not always accurate, so the element of surprise can't be dismissed altogether. That point notwithstanding, the stock market has been trading on an expectation that Republicans will win one, or both, houses and that there will be legislative gridlock for the next few years.
The positive spin the market is placing on gridlock is that it will remove some political uncertainty and will lessen the prospect of new tax hikes, further regulatory pressure, and additional large spending plans.
Currently, the S&P 500 futures are up 12 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 68 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 100 points and are trading 0.3% above fair value.
The positive spin in the futures market has to do somewhat with the expected gridlock angle and some modest gains among some of the mega-cap stocks, but it also has to do with the understanding that the stock market has typically done quite well in the 12-month period following a midterm election (average gain of 14.7% since 1950, according to LPL Research).
That understanding has gotten some of the market's speculative juices flowing, although there is still much to contend with in this coming post-election period. That includes a Fed that is still intent on raising interest rates, an inflation rate that is still too high, an ongoing war in Ukraine, China's continued embrace of a zero-COVID policy, a deteriorating housing market, and downward-sloping earnings estimates.
In other words, past performance following a midterm election is no guarantee of future results.
The immediate future also includes the release of the October Consumer Price Index on Thursday. That is certain to produce some trading excitement since it will factor directly into the market's expectations regarding the Fed's monetary policy path.
This important inflation report will drive market participants to cast votes of a different kind that pertain to selling or buying in its wake. For now, though, there is a bit more buying rooted in political considerations.
-- Patrick J. O'Hare, Briefing.com
Builders FirstSource's sturdy Q3 report illustrates its ability to navigate many challenges (BLDR)
Builders FirstSource (BLDR +6%) delivered sturdy results in Q3, crushing earnings estimates and lifting its FY22 sales guidance considerably, underscoring the company's resilience to intense market pressures. BLDR is the nation's largest supplier of structural building products (i.e., roof/floor trusses, wall panels, stairs, windows, etc.), value-added components, and services to the new residential construction and repair and remodeling (R&R) markets. Therefore, BLDR has been fighting an unfavorable economic environment as mortgage rates soar and interest rates rise to unappealing levels for homeowners looking to upgrade their properties.
Nonetheless, as we pointed out in our spotlight of BLDR when it was added to our Value Leaders rankings in late September, BLDR is a much different company than it was during the housing market crisis 15 years ago. That is, BLDR has dramatically enhanced its footprint through numerous strategic acquisitions. Meanwhile, BLDR has many levers to pull to quickly respond to a market downturn, primarily through effective cost management, including reducing discretionary spending, taking appropriate workforce actions, and accelerating productivity projects.
- These initiatives were influential factors in BLDR's upbeat Q3 results. Revs saw a 4.6% boost yr/yr to $5.76 bln. Although this did not come close to BLDR's record $6.93 bln last quarter, it was still more than enough to topple analyst expectations. Meanwhile, BLDR grew its bottom line by 53.4% yr/yr to $5.20.
- BLDR's sales growth was bolstered by double-digit gains across many of its businesses. Core organic sales in higher-margin valued-added products jumped nearly 20% yr/yr, while R&R revs soared even higher at over 30%. Multi-family sales meanwhile increased by 16%.
- BLDR's exceptional value-added and R&R growth is further evidence of the relative resilience of these markets. For example, last week, Louisiana-Pacific's (LPX) strategic focus on these two markets drove continued growth in Q3. Meanwhile, despite Trex's (TREX) underwhelming Q3 numbers last month, it noted that its tie to the R&R sector gives it more resilience than other sectors. Peers Beacon Roofing Supply (BECN) and Masonite International (DOOR) shared similar thoughts.
- The fantastic gains across these divisions helped prop total revenue up slightly as sales from BLDR's primary business, single-family, climbed by just 2% in the quarter.
- BLDR's strong Q3 numbers resulted in its raised FY22 revenue forecast. The company now expects sales of $22.5-23.0 bln in FY22, up significantly from the $21.48-22.28 bln outlined last quarter, which was also lowered from its initial forecast of $21.88-22.68 bln.
One of BLDR's long-term strategic priorities includes growing through tuck-in acquisitions, pouring an average of $500 mln annually to consolidate what BLDR refers to as a highly fragmented industry. Although M&A activity tends to decelerate during an economic downturn, excellent opportunities also present themselves. Even though the near term will be rife with challenges for BLDR, its acquisition strategy creates a firmer foundation that should set it up for sustained growth over the long term. BLDR's buyback program also highlights management's confidence in healthy cash flows, repurchasing $2 bln thus far this year with $500 mln remaining on its current authorization.
Lyft crashes as quarterly results and outlook fail to match Uber's strong performance (LYFT)
When Uber (UBER) reported strong 3Q22 results on November 1, including a 38% yr/yr increase in mobility Gross Bookings, it raised the bar for fellow ridesharing company Lyft (LYFT). It was expected that LYFT would also fully capitalize on the favorable trends (robust travel demand, shift in consumer spending habits) underpinning the rideshare market. However, for the first time since 2Q20, LYFT fell short of revenue expectations in 3Q22 as revenue growth slowed to 22% from 30% last quarter.
LYFT still managed to edge past EPS estimates, thanks to a 13.7% increase in Revenue per Active Rider to $51.88. This increase can partly be attributed to pricier airport rides reaching another new quarterly record, representing 10.4% of total rides.
While LYFT has stated that it's reining in costs to account for macroeconomic volatility, total cost and expense growth of 26% outpaced its top-line growth. Accordingly, Adjusted EBITDA slightly declined on a yr/yr basis to $66.2 mln, although that figure did exceed LYFT's conservative guidance of $55-$65 mln. Looking ahead, we expect to see LYFT's operating expenses moderate due to the 13% workforce reduction it announced last week. Cost of Revenue, though, will swing higher in Q4 due to an insurance renewal that will tack on an additional $82 mln in costs. Still, LYFT expects higher fares and its cost-cutting actions to mitigate the insurance impact, forecasting Q4 Adjusted EBITDA of $80-$100 mln, up 20% at the mid-point.
It was a mixed quarterly performance, but there are two primary causes behind the stock's nosedive lower today.
- Although LYFT's Q4 revenue guidance of $1.145-$1.165 bln was in line with analysts' estimates, it equates to yr/yr growth of just 19%, extending the company's downward trend of top-line growth. During the earnings conference call, LYFT commented that it anticipates rideshare activity to slow in November and December following a 6% increase in October. This deceleration is related to seasonality, but the more cautious tone does contrast with UBER's bullish outlook and statement that October is shaping up to be its strongest month ever for mobility.
- Relatedly, there is growing concern that LYFT is losing market share to UBER. This assertion stems from LYFT's disappointing Active Rider growth of 7.2% to 20.3 mln riders, compared to UBER's growth of 22%. When LYFT and UBER went public in 2019, many believed that LYFT's more streamlined and simplified business model would ultimately work in its favor. Now, that doesn't appear to be the case since UBER is benefitting from cross-usage across its mobility and delivery apps. As an example, someone who uses Uber Eats may be more likely to use Uber instead of LYFT for a ride to the airport.
On the positive side, LYFT stated that it's more confident than ever in reaching its goal of $1.0 bln in Adjusted EBITDA in 2024. With a more aggressive cost-cutting approach now in action, that seems like a realistic possibility. Today, though, investors are not looking that far down the road, focusing instead on LYFT's slowing growth and its likely market share losses to rival UBER.
SolarEdge heating up despite EPS miss; Europe's energy crisis leads to a surge in demand (SEDG)
SolarEdge (SEDG +17%) is a real bright spot for investors today. This supplier of solar PV inverters is sharply higher today despite a big Q3 EPS miss, but it makes sense when we dug into the story a bit. The top line was great with revenue jumping 59% yr/yr to $836.7 mln, nicely above the mid-point of prior guidance which was $810-840 mln. Perhaps more impressive was the Q4 revenue guidance at $855-$885 mln, the mid-point of which was much better than analyst expectations.
- We think investors were impressed by the top line, however, we also think they were relieved to see non-GAAP gross margin finally stabilize. We looked back to see how this metric was trending. It has not been great, but it finally ticked sequentially higher after several sequential declines and that should continue in Q4: 4Q22 27-30E%, 3Q22 27.3%, 2Q22 26.7%, 1Q22 28.4%, 4Q21 30.3%, 3Q21 34.0%, 2Q21 33.9%.
- Maybe the bigger reason why investors are overlooking the EPS miss is because sales were highly concentrated in Europe and that has FX implications when converted back into US dollars. The key point here is that demand in Europe is surging because of the energy crisis there and ahead of what is expected to be a cold winter. With gas supplies/prices up in the air, many European consumers are turning to solar ahead of the winter.
- Specifically, solar revenues from the US in Q3 fell 19% sequentially to $251.6 mln and represented 32% of solar revenue. Solar revenue from Europe was a record $475.7 mln, up 46% sequentially and represented 60% of solar revenues. Growth was particularly strong in the largest European market of Germany, where revenue surged 125% sequentially. The Netherlands, France and the UK also had record quarterly revenue. SEDG expects the strong momentum in Europe to continue into 2023.
- Investors should not fret about the US weakness. SEDG made the strategic decision in Q3 to prioritize shipments to Europe while the US was impacted by constrained capacity. Outside of Europe and the US, SEDG supplied several large projects in Israel and Taiwan where land is being used for both solar generation and growth of crops at the same time. SEDG is engaged in several such projects in Europe and Asia and sees this as a potential high-growth application for the future.
Overall, we think the main reason investors are overlooking the EPS miss is because they understand that the surge in sales to Europe caused a huge FX headwind. The energy crisis in Europe is leading to a windfall of sales as consumers there understandably do not want to be impacted by supply shortages or surging prices this winter. It is better to have your own solar plant on your roof. Finally, the stock has been quite weak the past two months, we will see if this report gets the stock going again.
Take-Two sells off on slashed FY23 guidance as delays and inflation packed a punch in SepQ (TTWO)
Video game publisher Take-Two (TTWO -12%), known for its heavy-weight titles like Grand Theft Auto V and NBA 2K, is amid a sizeable sell-off today on slashed FY23 (Mar) earnings and net bookings guidance. TTWO expects FY23 net bookings of $5.4-5.5 bln, down considerably from $5.8-5.9 bln. TTWO also missed analysts' net bookings expectations in Q2 (Sep).
Plenty of firms have warned of softness taking place in the video game industry, including chip makers like Advanced Micro (AMD) and console manufacturers such as Microsoft (MSFT) and Sony (SONY). However, TTWO's rivals Electronic Arts (EA) and Roblox (RBLX) scoffed at a slowdown, posting solid numbers recently. For example, even though EA trimmed its FY23 net bookings guidance, it was by a less severe percentage than TTWO. EA also raised its FY23 EPS guidance. Meanwhile, RBLX saw daily active users and hours engaged accelerate month/month in September, underscoring a resiliency to the current macroeconomic pressures, such as inflation.
Without TTWO experiencing similar encouraging trends as its competition, investors are displaying significant concern, driving today's intense selling pressure.
- Why is TTWO not enjoying as much success as some of its competitors? TTWO's mantra of choosing financial pain over delivering a flop is part of the reason. The company's video game pipeline has been pushed out, with one of its core releases, Marvel's Midnight Suns, likely not coming until next year, well after its initial expected release date of March 2022.
- Pronounced softness in mobile gaming is another sticky issue. Last quarter, TTWO warned that its mobile gaming business Zynga, which comprises nearly half of its net bookings, was experiencing reduced user engagement, weakening in-app purchases, and lower advertising revenue. These deflating themes carried into Q2. Even worse, CEO Strauss Zelnick noted that it could be staring at another three to six additional months of downward pressure.
- Macroeconomic challenges are creating elevated woes for TTWO. With inflation at decade highs in the U.S. and even worse in some other countries, free-to-play mobile games, which typically only see 5-10% of users paying for in-app purchases, begin seeing even fewer users engage in in-app purchases.
- Also, although TTWO's console titles like Grand Theft Auto Online are not free-to-play, requiring an upfront cost and an online subscription, the company derives much more revenue from purchases made within the game. With Grand Theft Auto consistently leading quarterly net bookings results, inflationary pressures have a greater impact on TTWO than its peers.
Bottom line, a sour combination of delays and inflationary pressures is taking a pronounced toll on TTWO relative to its competition. Still, TTWO has an enormous pipeline between FY23 and FY25, expecting 87 titles, including another sequal to its phenomenonal Grand Theft Auto franchise. With shares currently trading below March 2020 lows, we think current prices offer an attractive entry point for long-term investors.
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