Market Snapshot
briefing.com
| Dow | 32604.23 | -559.63 | (-1.69%) | | Nasdaq | 10313.47 | -242.58 | (-2.30%) | | SP 500 | 3757.43 | -70.75 | (-1.85%) | | 10-yr Note | -2/32 | 4.15 |
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| | NYSE | Adv 564 | Dec 2457 | Vol 946 mln | | Nasdaq | Adv 1150 | Dec 3459 | Vol 4.9 bln |
Industry Watch
| Strong: -- |
| | Weak: Energy, Information Technology, Consumer Discretionary, Financials |
Moving the Market
-- Digesting midterm election results; reports indicate the market's expectation of a split Congress leading to a legislative gridlock environment is the likely outcome
-- Slew of disappointing earnings results from names like Disney, Affirm Holdings, CarGurus, Roblox, Upstart
-- Continued weakness in cryptocurrency market, fueling concerns about margin calls contributing to some de-risking efforts
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Closing Summary
09-Nov-22 16:30 ET
Dow -646.89 at 32516.97, Nasdaq -263.02 at 10293.03, S&P -79.54 at 3748.64
[BRIEFING.COM] The stock market had a defensive posture today. Fairly broad based selling had the major averages stuck in negative territory and sporting sizable losses at the close which approximated their worst levels of the session. The disconcerting price action in the cryptocurrency market kept buyers sidelined, along with disappointing quarterly results from Walt Disney (DIS 86.75, -13.15, -13.2%) and a number of growth stocks like Affirm Holdings (AFRM 12.10, -3.54, -22.6%).
Market participants also digested midterm election results today. Some races remain too close to call, yet reports indicate the likely outcome is a split Congress that will lead to a legislative gridlock environment. That would make it near impossible to pass any additional tax hikes or major spending plans, which was the expected outcome going into the election, so there was a sell-the-news component behind today's losses.
The major averages had been clinging to a somewhat narrow trading range, albeit in negative territory, until selling picked up noticeably in the cryptocurrency market and stocks took another leg lower. This followed reports that Binance walked away from a plan to acquire FTX.com. Bitcoin was down 14.0% and Ethereum was down 14.2% around the time the stock market closed.
The specter of margin calls, as crypto prices plunged, undercut the stock market, which is likely to be used as a source of funds to help meet those calls. The S&P 500 fell below 3,800 during today's session and was unable to reclaim a posture above that mark, as bids fell by the wayside in a risk-averse market.
Other factors in play today include some apprehension ahead of the Consumer Price Index for October tomorrow and the dismal 10-yr note auction.
The high yield of 4.14% at the 10-yr note auction tailed the when-issued yield of 4.106% by nearly four basis points. The bid-to-cover ratio of 2.23 was well below the prior 12-auction average of 2.45% and the indirect takedown of 57.5% was well below the prior 12-auction average of 67.0%.
The 10-yr note yield settled up three basis points to 4.15% and the 2-yr note yield fell two basis points to 4.64%.
The U.S. Dollar Index rose 0.8% to 110.47.
All 11 S&P 500 sectors closed in the red. Utilities (-0.8%) showed the slimmest loss while energy (-4.9%) brought up the rear as oil prices pulled back. WTI crude oil futures fell 3.9% to $85.67/bbl and natural gas futures fell 5.8% to $6.26/mmbtu.
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index fell 0.1% following last week's 0.5% decline
- September Wholesale Inventories rose 0.6% versus a revised 1.4% increase in August (from 1.3%)
- Weekly EIA Crude Oil Inventories showed a build of 3.92 million barrels after last week's draw of 3.12 million barrels
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: November CPI (Briefing.com consensus 0.7%; prior 0.4%), Core CPI (Briefing.com consensus 0.5%; prior 0.6%), weekly Initial Claims (Briefing.com consensus 220,000; prior 217,000), and Continuing Claims (prior 1.485 mln)
- 10:30 ET: Weekly natural gas inventories (prior +107 bcf)
- 14:00 ET: October Treasury Budget (prior -$429.70 bln)
Dow Jones Industrial Average: -10.5% YTD
S&P Midcap 400: -16.2% YTD
S&P 500: -21.4% YTD
Russell 2000: -21.6% YTD
Nasdaq Composite: -33.8% YTD
Little changed ahead of close
09-Nov-22 15:40 ET
Dow -565.23 at 32598.63, Nasdaq -222.00 at 10334.05, S&P -70.61 at 3757.57
[BRIEFING.COM] The stock market is little changed in the last half hour.
After the close, Wynn Resorts (WYNN), AppLovin (APP), Redfin (RDFN), Rivian Automotive (RIVN), Dutch Bros (BROS), and Beyond Meat (BYND) are set to report earnings.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: November CPI (Briefing.com consensus 0.7%; prior 0.4%), Core CPI (Briefing.com consensus 0.5%; prior 0.6%), weekly Initial Claims (Briefing.com consensus 220,000; prior 217,000), and Continuing Claims (prior 1.485 mln)
- 10:30 ET: Weekly natural gas inventories (prior +107 bcf)
- 14:00 ET: October Treasury Budget (prior -$429.70 bln)
Energy complex futures fall
09-Nov-22 15:00 ET
Dow -559.63 at 32604.23, Nasdaq -242.58 at 10313.47, S&P -70.75 at 3757.43
[BRIEFING.COM] The stock market continue to inch lower as Treasury yields tick higher and cryptocurrencies sell off.
The 10-yr note yield is up two basis points to 4.1%.
Energy complex futures made big downside moves today. WTI crude oil futures fell 3.9% to $85.67/bbl and natural gas futures fell 5.8% to $6.26/mmbtu.
On a related note, the S&P 500 energy sector (-4.8%) is the worst performer by a wide margin.
Akamai gains after last night's Q3 beat; averages narrowly off lows
09-Nov-22 14:25 ET
Dow -485.46 at 32678.40, Nasdaq -202.28 at 10353.77, S&P -55.66 at 3772.52
[BRIEFING.COM] The S&P 500 (-1.45%) is now narrowly ahead of the Dow Jones Industrial Average (-1.46%), just off lows from the previous half hour.
S&P 500 constituents Norwegian Cruise Line (NCLH 15.95, -1.33, -7.70%), Occidental Petro (OXY 69.25, -5.58, -7.46%), and Bath & Body Works (BBWI 31.46, -2.10, -6.26%) dot the bottom of the standings. NCLH continues to fade off yesterday's earnings-related pop higher, while OXY dips following last night's Q3 results.
Meanwhile, Akamai Tech (AKAM 89.10, +5.21, +6.21%) is among today's best performers following last night's Q3 beat.
Gold lower on Wednesday as stronger dollar, impending CPI report weigh
09-Nov-22 14:00 ET
Dow -538.86 at 32625.00, Nasdaq -232.76 at 10323.29, S&P -65.48 at 3762.70
[BRIEFING.COM] The broader market fade has left the tech-heavy Nasdaq Composite (-2.19%) down more than 230 points with about two hours to go on Wednesday.
Gold futures settled $2.30 lower (-0.1%) to $1,713.70/oz, unable to hold onto a brief morning peek into positive territory, as pressure from a higher dollar and tomorrow's impending CPI reading cast a pall over the precious metal.
Meanwhile, the U.S. Dollar Index is up about +0.8% to $110.49.
Page One
Last Updated: 09-Nov-22 09:02 ET | Archive
Election Day is over, but the election is not
The midterm election is over, only not really. The election day itself is over but the election itself is still going. There are some races that are still too close to call, although reports suggest the GOP is likely to control the House by a slim margin. Meanwhile, it is possible that the Senate outcome might not be determined until December with a potential runoff election in Georgia.
So, it sounds like there will be a split Congress at least that will be labeled as a ticket for legislative gridlock the next few years. That is what the stock market had been expecting, yet it had been led to think by polling data that the GOP would have a larger majority in the House than it likely will.
This will give political pundits a lot to talk about in the days and weeks ahead and it will stir debate about what it could possibly mean for the 2024 presidential race.
What it means right now for the stock market is that the next few years likely won't include any new major spending plans or tax hikes. It could mean, however, since the GOP majority in the House would be so slim, that both parties will feel compelled to work together to avoid the "do-nothing Congress" label that might not sell well in the races that will be a part of the 2024 election.
Time will indeed tell, but if one wanted to be hopeful about these election matters, that would be something about which to think.
What we are seeing in the stock market this morning is some sell-the-news activity. The stock market had a nice, little run leading up to election day based on the gridlock angle. It appears that is going to be the case, so participants are taking some money off the table.
Currently, the S&P 500 futures are down 24 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 81 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 208 points and are trading 0.7% below fair value.
This negative disposition, though, isn't just a sell-the-election news response. There is also some selling in response to disappointing earnings news and/or guidance from the likes of Walt Disney (DIS), Affirm Holdings (AFRM), CarGurus (CARG), Roblox (RBLX), and Upstart (UPST), many of which were former growth stock darlings when interest rates were at the zero bound and the economy was roaring back from its pandemic lows.
Disney is the main drag on the Dow Jones Industrial Average futures. It is down 8.0%, feeling the pinch of investors' concerns about rising streaming costs and a possible recession that could adversely affect attendance at its theme parks.
Separately, there is likely some de-risking activity in the mix in relation to the crashy behavior seen in the cryptocurrency market yesterday that has been rooted in liquidity concerns involving FTX. Cryptocurrencies remain under pressure today, which will continue to feed worries about margin calls that could lead to some selling of stocks to meet those calls.
This is all part of the wet blanket that seems to be covering the equity futures market at the moment, not to mention the specter of the October Consumer Price Index tomorrow.
-- Patrick J. O'Hare, Briefing.com
Wendy's sizzles today with robust US comps as breakfast daypart fueled sales (MCD)
Wendy's (WEN +4%) is sizzling today despite posting decent but not great Q3 results this morning. WEN posted modest EPS upside and reaffirmed full year guidance. However, sales were a bit light and WEN trimmed its outlook for FY22 global systemwide sales growth to +6-7% from +6-8% prior guidance.
- So why is the stock higher? The highlight was US comps at +6.4%, a significant improvement from +2.3% in Q2 and +1.1% in Q1. In fairness, WEN was lapping much easier comps in Q3 whereas Q2 and Q1 faced much higher hurdles thanks to generous federal stimulus in 1H21. Nonetheless, investors like the big US comp number. What's more is that Wendy's US comps in Q3 surpassed McDonald's (MCD) US comps of +6.1%, which is something that rarely happens.
- Wendy's benefitted from the continuation of its Strawberry Frosty, its compelling $5 Biggy Bag and the relaunch of the much loved Pretzel Bacon pub burger. Another big positive was the breakfast daypart. Recall, that WEN just launched breakfast in the US in March 2020 right at the start of the pandemic, so it is still pretty new. Breakfast is seen as a potentially huge tailwind for comps in the coming years.
- Breakfast was helped by the successful launch of its French Toast Sticks. This morning treat has quickly become WEN's number one selling breakfast item, proving just how much growth is ahead for the breakfast daypart. The launch drove a meaningful acceleration in US breakfast sales over the course of the quarter with average weekly sales approaching $3,000 exiting Q3. Its recently launched $3 croissant promotion has also been a nice addition.
- Another highlight was its digital business as momentum held strong. WEN delivered a global digital sales mix of approximately 10%, and expects to grow this even further with a heightened focus on digital and delivery marketing to close out the year.
Overall, investors are very happy with Wendy's Q3 report with robust US comps being the main highlight. This was that rare quarter when Wendy's US comps eclipsed McDonald's US comps. Also, WEN has gotten much more excited about breakfast over the past two quarters after being cautious in Q1. After years of not serving breakfast, we see success for this daypart as being the main catalyst to drive comps in the coming years.
Akamai Tech rides higher growth Security and Compute segments to deliver upside results (AKAM)
Akamai Tech (AKAM), which is traditionally known as a leading content delivery network (CDN), reported better-than-expected Q3 results as its up-and-coming Security and Compute segments continued to gain momentum. Combined, these two segments generated yr/yr revenue growth of 28% when adjusted for foreign exchange and represented 55% of AKAM's total Q3 revenue. The rise of these two businesses comes at a time when AKAM's Delivery segment is struggling in a slower internet traffic environment, especially in its core advertising and gaming end markets.
For the quarter, Delivery's revenue slipped by 15% yr/yr due to a continued deceleration of traffic among AKAM's largest customers. Additionally, the company has chosen to decline some traffic growth from a few customers who have extreme traffic peaks in an effort to lower its delivery network capex. Those savings, along with savings from reductions in operating expenses and a smaller real estate footprint, are being funneled back into AKAM's higher growth Security and Compute segments.
This strategy is paying dividends for the company.
- Fueled by strong demand for AKAM's Zero Trust products, which registered yr/yr growth of 51%, the Security segment grew revenue by 19% on a constant currency basis to $380 mln. Although macroeconomic conditions are causing enterprises to be more cautious with IT spending, cyber security is still a very high priority for most CIOs.
- Compute was the star of the quarter with revenue surging by 77% to $109 mln. For some quick background, this segment operates an edge platform that enables developers to quickly deploy code at the edge. Currently, AKAM has over 4,000 sites for edge computing. AKAM is also building out an all-purpose cloud computing platform that will compete with Amazon (AMZN) Web Services and Microsoft's (MSFT) Azure.
- During the earnings conference call, CEO Tom Leighton stated that the opportunity in cloud computing is even greater than it is in Security or Delivery. More specifically, he sees cloud computing as a $100 bln market opportunity that's growing at a rapid rate. Eventually, he believes that AKAM can capture 10% of the market.
- Initially, AKAM will focus on winning cloud customers in the media vertical, which the company is already quite familiar with. Thereafter, AKAM will home in on e-commerce companies.
It's not all positive news for AKAM, though. Non-GAAP operating margin fell by four percentage points to 28%. This is related to the company's investments in the Security and Compute segments, which will likely keep operating margins below 30% in the near-term. AKAM's Q4 EPS guidance of $1.23-$1.30 was below expectations at the midpoint, reflecting these investments and the accompanying contraction in margins. However, as the company migrates internal workloads to its own Linode platform, its cloud spend with hyperscalers will steadily decline and potentially boost margins back above 30%.
Overall, it was an encouraging quarterly report for AKAM as its strategy to elevate its Security and Compute segments is paying dividends.
The Trade Desk trades higher following earnings/guidance that were not as bad as feared (TTD)
The Trade Desk (TTD) is now trading lower but was higher earlier in the day following its Q3 report this morning. This operator of a cloud-based online advertising-buying platform has been facing difficult macro headwinds. We had concerns heading into this report after some pretty bearish earnings/guidance from SNAP, ROKU, META, GOOG and others. Two things seem to be propelling the stock today: 1) results/guidance were not as bad as feared and 2) TTD made a pretty good positive argument on the call.
- TTD reported a decent earnings beat with nice upside revenue. We commend TTD for being consistent. It has not missed on EPS or revenue in any quarter in the past five years despite the ups and downs of the online ad market.
- As we said in our preview, the bigger concern we had was the Q4 guidance. TTD did provide downside revenue guidance, but we think investors were expecting a worse number, so it was not as bad as feared. TTD also expects US political midterm election spend to about double compared with the prior quarter. Also, the adjusted EBITDA guidance of $229 mln was pretty solid. We also think investors understand that TTD tends to be a little cautious on guidance which explains the consistent upside.
- The company also made some good points on the call. Namely, that TTD has significantly outperformed seemingly all other forms of digital, with a significant contrast to walled gardens and its ability to win advertising budgets. TTD said it was significantly outpacing the market regardless of the macro environment.
- That is because nearly every single major advertiser wants an open internet where competition and price discovery thrive. TTD says the power balance is shifting to the open internet and away from opaque, walled gardens and systems that are not comparable to others.
Overall, this was a good quarter for TTD. The numbers did not blow us away, but in a quickly deteriorating online ad market, this was better than feared. Also helping the stock today is that a lot of negativity appears to have been priced in heading into this report. The stock has been in a steady decline since mid-August and dropped quite a bit over the last week or so with ROKU's recent bad result being the main catalyst. The online ad space remains difficult, but the pessimism was a bit overdone with TTD.
Disney losing some of magic as operating losses for Disney+ pile up, driving earnings miss (DIS)
When Disney (DIS) launched its Disney+ streaming service to great fanfare in November 2019, the primary focus was on subscriber growth. It remained that way for the next couple of years as Disney+ dazzled investors with its spectacular growth rates. Now, with a long stretch of high growth under its belt, the streaming services' ability to generate a profit is becoming much more of a focal point as its operating losses continue to pile up. In 3Q22, those operating losses, which increased by $800 mln yr/yr to $1.5 bln for the Direct-to-Consumer (DTC) segment, played a major role in DIS's large EPS miss.
Disney+ had a strong quarter in terms of subscriber growth, adding 12.1 mln new subscribers for a total of 164.2 mln. That total comfortably beat analysts' expectations. Yet, the stock is still selling off sharply, clearly illustrating how investors' perspective on Disney+ has changed.
During the earnings conference call, CEO Bob Chapek tried to ease those profitability concerns by stating that Disney+ is at an inflation point and that losses will begin to shrink in 1Q23. He also reiterated that the streaming service is poised to reach profitability in FY24. Price increases, the launch of the Disney+ ad tier in December, and the rationalization of marketing spending represent a few levers that will drive Disney+ towards profitability. Based on the stock's reaction, though, it's apparent that those comments did little to soothe investors' angst.
Those reassuring comments may not be having the desired effect because there are a few other issues that are weighing on DIS.
- DIS guided for FY23 revenue growth in the high-single digit range, but analysts were forecasting top-line growth of about 13%. The downside outlook highlights the challenge that DIS is facing. Specifically, the company wants to decrease its content spending in order to improve DTC's profitability. However, that could lead to slower growth and market share losses to competitors like Netflix (NFLX) and Paramount Global (PARA).
- In FY22, cash content spend totaled $30 bln. For FY23, the company continues to expect it to be in the low $30 bln range.
- Relatedly, Content Sales/Licensing experienced a 15% decrease in revenue this quarter due to lower TV/SVOD and home entertainment distribution results. In other words, DIS released less film and episodic content in Q3, causing sales volume to decline.
- The theme park business continues to shine, registering record revenue of $7.4 bln in Q3, up 36% on a yr/yr basis. Like last quarter, demand at the domestic theme parks outpaced capacity on many days. Guests are also spending more with per-capita spending increasing by 6% yr/yr and nearly 40% versus 2019 levels. Internationally, Disney Paris had another strong performance, but Shanghai Disney continues to grapple with COVID-related lockdowns.
- While the theme park business is currently very healthy, DIS's muted FY23 revenue guidance suggests that the company is feeling a bit cautious about its prospects next year as inflation and rising rates continue to take a bite out of consumers' budgets.
It certainly was not a fairytale ending to a fiscal year that can be characterized as a rollercoaster ride for DIS. The primary growth engine that has fueled the stock over the past few years, Disney+, is experiencing some growing pains as its operating losses pile up. While DIS is promising to get costs under control for Disney+ and the DTC segment overall, those efforts will come at the expense of growth, as evidenced by DIS's soft revenue guidance for FY23.
Affirm plummets as PTON drags down results while rising rates and inflation remain a nuisance (AFRM)
Shares of Affirm (AFRM -16%) are sinking today after the buy now, pay later (BNPL) firm lowered its FY23 revenue forecast and the high end of its gross merchandise volume (GMV) guidance. The company expects FY23 revs of $1.60-1.675 bln, down from $1.625-1.725 bln, and GMV of $20.5-21.5 bln, down from $20.5-22.0 bln.
Rising rates and soaring inflation are proving to be quite aggravating for AFRM, which saw its shares trade at highs of over $176.00 just one year ago. Rising rates mean an increase in financing costs for AFRM. Meanwhile, as the cost of goods remains elevated, consumers have fewer discretionary dollars, leading to reduced GMV.
Although these themes factored into AFRM's underwhelming Q1 (Sep) results, the company also struggled due to problems associated with its largest merchant partner, Peloton (PTON), which shows up plainly when looking at headline numbers.
- Revs grew 34% yr/yr to $362 mln but jumped 46% when excluding PTON. The same story is true for GMV, which grew 62% yr/yr to $4.4 bln, but would have jumped by 11 additional points when excluding PTON. This issue carries over into AFRM's guidance. The company estimated that GMV growth would have been 40% yr/yr in Q2 (Dec) if not for PTON, which lowered the forecast to just 31% growth. The same held true for revenue growth as well.
- After PTON's SepQ results last week, it was clear that the home fitness machine manufacturer is facing intense economic-related headwinds, seeing member count fall sequentially, net losses pile up, and revenue growth remains suppressed. We suspect that PTON's woes will continue to weigh on AFRM for the next few quarters.
- Aside from the PTON-related drag, the rate-raising campaign by the Fed will continue to put pressure on AFRM's total revenue less transaction costs (RLTC), which fell slightly qtr/qtr in Q1. AFRM is projecting pressure on RLTC to persist over the next year, slashing its FY23 RLTC guidance to $715-765 mln from $865-915 mln, representing just 12% growth yr/yr at the midpoint.
- AFRM has also been dialing back its loan origination activity to better manage its risk during the current environment, which reduces GMV growth. Still, AFRM noted it has not needed to slam on the brakes regarding approvals, reducing them by a "tiny bit" sequentially in Q1.
There were additional pockets of good news in Q1. AFRM's GMV growth in Q1 shone much brighter when stacked against rival Block (SQ), which grew its BNPL GMV by just +10% yr/yr in SepQ. Additionally, AFRM continued to see substantial active consumer and merchant growth of 69% and 140% yr/yr, respectively, in Q1.
Nevertheless, the one-two punch of souring macroeconomic conditions and rising interest rates is an enormous hurdle for AFRM. We still believe it is too early to panic about delinquencies and net charge-offs, which both remained at or below pre-pandemic levels in Q1. However, there is still a high degree of uncertainty heading into FY23.
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