Market Snapshot
briefing.com
| Dow | 33604.49 | +1087.52 | (3.34%) | | Nasdaq | 10947.26 | +654.23 | (6.36%) | | SP 500 | 3930.16 | +181.52 | (4.84%) | | 10-yr Note | +73/32 | 3.83 |
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| | NYSE | Adv 2798 | Dec 370 | Vol 1.1 bln | | Nasdaq | Adv 3757 | Dec 956 | Vol 6.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Real Estate |
| | Weak: -- |
Moving the Market
-- Cooler than expected CPI for October, reigniting the narratives that we've reached peak inflation and the Fed may be apt to soften its approach
-- Plunging Treasury yields and weakening dollar
-- Big gains in mega cap stocks bolstering index level gains
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Closing Summary
10-Nov-22 16:25 ET
Dow +1201.43 at 33718.40, Nasdaq +760.97 at 11054.00, S&P +207.80 at 3956.44
[BRIEFING.COM] The stock market had an impressive showing today. Market participants were motivated by the cooler-than-expected Consumer Price Index (CPI) for October, which showed a welcome moderation in the year-over-year changes for total CPI (to 7.7% from 8.2%) and core CPI (to 6.3% from 6.6%). The major indices all closed at, or near, their highs for the day, underpinned by healthy buying interest, short-covering activity, and a fear of missing out on further gains.
The immediate takeaways from the CPI report were that peak inflation may have been reached and that the Fed may be apt to soften its rate hike approach going forward.
The fed funds futures market corroborated the latter point. It's now pricing in an 80.6% probability of a 50-basis points rate hike in December (vs 56.8% yesterday) and a lower terminal rate of 4.75-5.00% by June (vs 5.00-5.25% yesterday).
Price action in the bond and currency markets following the CPI report supported the stock market rally. The U.S. Dollar Index plunged 2.5% to 107.74. The 10-yr note yield fell 32 basis points to 3.83% and the 2-yr note yield fell 33 basis points to 4.31%.
Many stocks came along for the CPI ride, but the sharp turn lower in market rates led to big gains for growth stocks. The Vanguard Mega Cap Growth ETF (MGK) closed up 8.0%; the Russell 3000 Growth Index closed up 7.0%; the Russell 3000 Value Index closed up 4.5%.
All 11 S&P 500 sectors closed with gains ranging from 2.2% (energy) to 8.3% (information technology). The latter was paced by material gains in Apple (AAPL 156.87, +12.00, +8.9%) and Microsoft (MSFT 242.98, +18.47, +8.2%), along with snapback rallies in the semiconductor issues. The PHLX Semiconductor Index surged 10.2%.
Energy complex futures settled higher. WTI crude oil futures rose 0.8% to $86.37/bbl and natural gas futures rose 5.7% to $6.62/mmbtu.
The bond market will be closed tomorrow in observance of Veterans Day.
Economic data on Friday is limited to the preliminary November University of Michigan Consumer Sentiment reading (Briefing.com consensus 59.6; prior 59.9).
Reviewing today's economic data:
- Total CPI increased 0.4% month-over-month in October (Briefing.com consensus 0.7%) while core-CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus 0.5%). The monthly changes left total CPI up 7.7% year-over-year, versus 8.2% in September, and core CPI up 6.3% year-over-year, versus 6.6% in September.
- The key takeaway from the report isn't singular. It is manifold: (1) The report helps validate the peak inflation view. (2) The report is apt to compel the Fed to take a less aggressive rate-hike approach at the December FOMC meeting. (3) Some encouragement will be borne out of the understanding that the shelter index (computed with a lag) contributed more than half of the monthly all items increase, suggesting price increases moderated in many other areas.
- Initial jobless claims for the week ending November 5 increased by 7,000 to 225,000 (Briefing.com consensus 220,000) while continuing jobless claims for the week ending October 29 increased by 6,000 to 1.493 million.
- The key takeaway from the report is that initial jobless claims are still running at low levels, yet the latest reading shows claims moving in a direction that has been deemed the right direction for tempering the pace of the Fed's rate hikes.
- Weekly EIA Natural Gas Inventories showed a build of 79 bcf versus a build of 107 bcf last week
Dow Jones Industrial Average: -7.2% YTD
S&P Midcap 400: -11.4% YTD
S&P 500: -17.0% YTD
Russell 2000: -16.8% YTD
Nasdaq Composite: -29.0% YTD
At session highs ahead of the close
10-Nov-22 15:30 ET
Dow +1132.66 at 33649.63, Nasdaq +713.45 at 11006.48, S&P +196.54 at 3945.18
[BRIEFING.COM] The stock market sits at session highs heading into the close.
Energy complex futures settled higher. WTI crude oil futures rose 0.8% to $86.37/bbl and natural gas futures rose 5.7% to $6.62/mmbtu.
After the close, Compass (COMP), Toast (TOST), FIGS, Inc. (FIGS), Archaea Energy (LFG), and Poshmark (POSH) are among the earnings reporters.
Economic data on Friday is limited to the preliminary November University of Michigan Consumer Sentiment reading (Briefing.com consensus 59.6; prior 59.9).
AFRM and other growth stocks are up double digits
10-Nov-22 15:05 ET
Dow +1087.52 at 33604.49, Nasdaq +654.23 at 10947.26, S&P +181.52 at 3930.16
[BRIEFING.COM] The major averages continue to inch higher.
Some growth stocks that have been beaten down lately exhibit double digit gains, likely benefitting from some short covering activity. Affirm Holdings (AFRM 14.56, +2.46, +20.3%) is a winning standout for the group.
The U.S. Dollar Index continues to fall, down 2.1% to 108.23.
October deficit down yr/yr
10-Nov-22 14:25 ET
Dow +1002.31 at 33519.28, Nasdaq +637.28 at 10930.31, S&P +172.42 at 3921.06
[BRIEFING.COM] The benchmark S&P 500 (+4.60%) is within reach of session highs, still firmly in second place among the major averages.
The Treasury Budget for October showed a deficit of $87.8 bln versus a deficit of $165.1 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the October deficit cannot be compared to the deficit of $429.7 bln for September.
Total receipts of $318.6 bln rose 12.2% compared to last year while total outlays of $406.4 bln were down about 9.5% compared to last year.
Gold shines as dollar, yields retreat post CPI
10-Nov-22 13:55 ET
Dow +976.81 at 33493.78, Nasdaq +639.17 at 10932.20, S&P +171.46 at 3920.10
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+6.17%) still stands atop the major averages with about two hours to go on Thursday.
Gold futures settled $40 higher (+2.3%) to $1,753.70/oz, climbing to its best levels since late August owing to a firm retreat in the dollar and yields following this morning's cooler-than-expected CPI reading.
Meanwhile, the U.S. Dollar Index falls about -1.9% to $108.48.
As a reminder, the Treasury Budget for October will be released in about 5 minutes at the top of the hour.
YETI puts prolonged sell-off on ice after delivering encouraging earnings report (YETI)
YETI Holdings (YETI), the maker of drinkware and high-end coolers, is red hot today following its upside 3Q22 earnings report and reassuring outlook for the remainder of FY22. With shares trading at their lowest levels since the spring of 2020, expectations were very low heading into the report. Coming off a disappointing Q2 report in which it missed on the top and bottom lines and issued downside guidance for Q3, the bar was set low for YETI this time around.
It was anticipated that inflationary pressures would curtail consumer demand again in Q3, while higher freight and product costs also cut deeply into gross margin. However, sales growth accelerated a bit this quarter to 20% compared to 18% for 1H22, and the contraction in gross margin moderated as ocean shipping rates continued to ease from their peak rates. More specifically, after declining by 630 bps yr/yr in Q2, gross margin dipped by 580 bps to 57.1% in Q3.
We wouldn't characterize business as booming like it was when YETI stormed onto the scene in 2018 when it went public. Business, though, is much healthier than many assumed with the all-important holiday season approaching.
- In the Wholesale segment, strength in both hard and soft coolers drove a 25% increase in sales to $206.2 mln. In a promising sign for the holiday shopping season, YETI facilitated some earlier-than-expected shipments to retailers to support their inventory.
- Bolstered by strong drinkware sales, the Amazon (AMZN) business returned to healthy growth in Q3, helping to push Direct-to-Consumer (DTC) channel sales higher by 17% to $239.0 mln. Newly introduced colorways and sizes supported drinkware sales growth, as did strong demand for customization.
- The international business is still relatively small for YETI, generating $56.5 mln in sales for Q3, accounting for 13% of the total. It is growing quickly, though, with sales jumping by 60% yr/yr with balanced growth across Canada, Australia, and Europe.
- Although inventory is up by more than 50% from January 1, 2022 to $490.0 mln, YETI expects year end inventories to be below its prior outlook and to be modestly below Q3 levels. Transit times have continued to trend lower, while strong sell-through in the wholesale channel is allowing its retail partners to reach optimal inventory levels ahead of the holiday season. YETI also said that the composition of its inventory is favorable, including a mix of newer and recently launched products.
- After sharply cutting its FY22 EPS and revenue guidance last quarter, YETI narrowed its outlook today, forecasting EPS of $2.36 and revenue growth of 16%. Previously, the company guided for EPS of $2.34-$2.46 and revenue growth of 15-17%. There is some relief that YETI didn't lower its outlook again. Instead, solid customer retention and acquisition across the DTC channel, and improving demand on the wholesale, enabled YET to retain its outlook.
YETI's performance not only qualifies as "better-than-feared", but the results and outlook also illustrate that demand is picking up just in time for the holidays. Looking beyond this year, YETI is optimistic that an improving supply chain situation will yield stronger margins in 2023. With shares sitting at multi-year lows prior to YETI's report, the encouraging outlook for the remainder of this year and into 2023 was enough to spark a major rally.
Beyond Meat is sizzling after outlining how it is pivoting to a cash flow positive operation (BYND)
Beyond Meat (BYND +15%) is rallying today after founder and CEO Ethan Brown detailed steps the plant-based meat provider is taking to weather the current inflation-induced storm. Rising prices are spurring heightened trade-down activity amongst consumers, flocking toward less expensive proteins, such as moving from beef to chicken or even from chicken to SPAM. BYND's products are offered at price points exceeding that of premium cuts of meat in some cases, where even Tyson Foods (TSN) is seeing softness. As a result, BYND missed earnings expectations for the ninth-straight quarter in Q3 as losses continued to widen yr/yr.
However, investors are shrugging off Q3's woes, instead setting their sites on what is shaping up to be a possible turnaround.
- There were three main pillars to BYND's new strategy to pivot to a cash flow positive operation and quicken its path to profitability instead of concentrating on growth at all costs. BYND is focused on significantly reducing operating expenses, emphasizing cash flow-accretive management of its inventory, and restoring growth in retail and foodservice through innovation, sales, and marketing.
- BYND has already demonstrated healthy progress on these fronts. For example, compared to 1Q22, it has reduced total operating expenses by 23% in Q3 and expects further reductions in Q4 and beyond. Part of BYND's trimmed OpEx stems from reducing its global workforce by 20% this year.
- Furthermore, since the end of Q1, BYND has already lowered its inventory by around $37 mln. The company is also testing pricing reductions to bring its prices more on par with animal protein equivalents, which should accelerate the drawdown of its inventory. Although this will ding margins, BYND reiterated that it is focused on maximizing cash flow generation over percent margin.
- BYND's third pillar may be the most challenging. Mr. Brown detailed during the call how BYND is one of the most innovative companies in the food industry and expects to lean on that to restore growth to its core product offerings. BYND has continuously enhanced its Beyond Burger, recently teasing its fourth iteration, while constantly releasing new products, such as its most recent Beyond Steak.
- Meanwhile, in foodservice, BYND has multiple partnerships that should help increase brand awareness and drive more individuals to choose BYND's products at the grocery store. One example is the McPlant Burger through McDonald's (MCD), which BYND is launching across multiple countries. Another example is BYND's Yum! Brands (YUM) partnership, where it is rolling out Beyond Kentucky Fried Chicken and Beyond Meat toppings at Pizza Hut locations across numerous markets.
Bottom line, BYND recognized that its current trajectory was not working, highlighted by its shares tumbling over 80% on the year before today's explosive rebound action. There are still plenty of obstacles that will make BYND's path toward positive cash flow, which it expects within 2H23, and profitability rocky. However, we like the company's new direction, which could be the key to beefing up its financials over the medium term.
Rivian electrifies investors by reaffirming annual production guidance as R1 preorders rise (RIVN)
Upstart electric vehicle maker Rivian Automotive (RIVN) is charging higher following a mixed 3Q22 earnings report that included a smaller-than-expected net loss of ($1.57)/share, but also a miss on the top-line. Driven by a 67% qtr/qtr increase in production to 7,363 vehicles, revenue soared by 64% sequentially to $536 mln, which was still well below expectations. That top-line shortfall, though, isn't creating much of an issue for the stock today because the primary story for RIVN revolves around production and its prospects for improving gross profits as its Normal, Illinois factory becomes more efficient.
RIVN's Q3 production number was already known because it was disclosed in an SEC filing in early October. Therefore, the main focal point centered on whether RIVN would reaffirm its FY22 production target of 25K vehicles. Despite contending with ongoing supply chain issues, the company did indeed reaffirm that guidance, providing the stock with a jolt this morning. To achieve that target, RIVN will need to produce about 10,700 vehicles in Q4, representing a qtr/qtr increase of about 45%.
Unless the supply chain disruptions significantly worsen in Q4, RIVN should have little trouble in meeting its goal. Towards the end of Q3, RIVN added a second manufacturing shift at its plant, which the company says is a key step for the ramp up of its R1 SUV. It's important to note, however, that it will take some time to optimize production from the second shift due to training efforts. This will likely have a negative effect on gross margin in the near-term.
Beyond the production developments, there were a few other positive items from the earnings report.
- RIVN also reaffirmed its FY22 Adjusted EBITDA guidance of ($5.450) bln and lowered its CapEx guidance to $1.750 bln from $2.00 bln. Although inflationary pressures are still squeezing RIVN's bottom-line, the company transitioned its deliveries to rail from truck, providing it with logistics cost savings. Additionally, CFO Claire McDonough noted that the company is losing much less money on each vehicle produced compared to prior quarters as volume increases and as price increases kick in.
- Demand remains robust, even in the face of rising interest rates and persistently high inflation. Net preorders in the U.S. and Canada for the R1 grew by 16K from last quarter for a total of 114K. On the commercial side, RIVN's partnership with Amazon (AMZN) is progressing smoothly as the e-commerce giant prepares to roll out more than 1,000 electric delivery vans in time for the holiday season. In total, AMZN ordered 100K vehicles from RIVN.
- Although RIVN is burning through a substantial amount of cash -- cash flow from operations in Q3 was ($1.4) bln -- the company has nearly $14.0 bln in cash on the balance sheet. According to CEO RJ Scaringe, that is sufficient to get the company through 2025, limiting the risk that RIVN will need to execute a dilutive stock offering during the next couple of years.
One disappointment is that RIVN pushed back the launch of its R2 platform by one year to 2026. The R2 platform, which will support the production of a pickup truck and smaller SUVs, will be launched at RIVN's future factory in Georgia. Scaringe said that the decision to delay the launch was made to ensure there's enough time to prepare for production at the plant. Other than this development, there's plenty for investors to feel encouraged about as both demand and production are trending higher.
Six Flags surges despite EPS miss as pricing change weighs on attendance (SIX)
Six Flags (SIX +15%) is surging today following its Q3 report this morning. The numbers were not that great, but we think investors understand that this is a transition year for Six Flags, so maybe they are cutting them some slack.
In addition to earnings, SIX also announced it amended its cooperation agreement with major shareholder H Partners, which now allows H Partners to acquire up to a 19.9% stake in SIX, up from a prior cap of 14.9%. This seems to be adding a push to the stock. Another catalyst seems to be the big drop we are seeing in rates today following the benign inflation data. SIX has a lot of debt, so lower rates are good for them.
- Quickly on the headline numbers, EPS and revenue both came up light. Revenue fell 21% yr/yr to $505 mln, driven by lower attendance partially offset by higher per capita spending. The lower attendance was driven by an increase in ticket prices and elimination of free tickets and heavily-discounted product offerings. Attendance fell 33% yr/yr to 8.0 mln, but spending per capita jumped 17% yr/yr to $60.96.
- Recall that Selim Bassoul took over as CEO in November 2021 and he has been making some radical changes. Six Flags is shifting its focus toward a premium guest experience and is moving away from its decades-long strategy of heavy price discounting. It sounds like it is going more toward the Disney model. They know the higher prices will hurt attendance but they are willing to bet consumers, and especially families with kids, will pay more for a more premium experience.
- The H Partners news is probably moving the stock more than earnings. Clearly, investors love to see it when a sophisticated investment firm, which knows SIX very well and has a seat on the board, sees value down here and wants to buy more shares.
Overall, investors should understand that there will be some pain associated with making such a radical change in pricing strategy. However, we think this is probably the right way to go over the long term. Other regional parks charge more than SIX, so there is a market at these price points. Investors should understand this is a transitional year for Six Flags and many of its customers are probably shocked at the higher prices, especially its teenage audience. But that is ok, families with kids tend to spend more at the parks and that is who SIX wants to focus on.
Bumble Inc. flies despite product delays driving weak Q3 results and Q4 guidance (BMBL)
Dating platform Bumble Inc. (BMBL +9%) continued to feel the sting of a strong U.S. dollar and deteriorating economic conditions in Q3, which led to a weak Q4 revenue forecast. The company expects revs of just $232-237 mln in the upcoming quarter, representing just 12.6% growth yr/yr at the midpoint, which would be BMBL's lightest quarter since its February 2021 IPO.
BMBL also delayed new product launches during Q3 after encountering some design and user engagement issues, pushing the rollouts into Q4 and early 2023. Additionally, rival Match Group's (MTCH) upbeat Q3 adjusted EPS and sales figures last week are further kindling today's unfavorable reaction.
- Digging deeper, adjusted net losses widened yr/yr to $(0.08) from $(0.02), missing analyst expectations. Also, sales growth of 16.8% to $232.64 mln fell short of analysts' and BMBL's expectations.
- The weakening global economy was an influential factor in BMBL's underwhelming headline numbers, especially within its Badoo app, which is popular in overseas markets. Badoo and other revs totaled just $52 mln, a 10% decline yr/yr, which included 21 pts of combined negative impact from the war in Ukraine and FX headwinds.
- A strong U.S. dollar continued to eat into BMBL's top-line growth, shaving 10 pts off overall sales growth in the quarter. The same situation was present for MTCH, which would have seen double-digit growth in Q3 if not for FX impacts, which caused sales to grow by just 1.0% yr/yr.
- Bright spots were still present in Q3. Monetization was strong as paying users accelerated for the fourth straight quarter to a record 164,000 sequential net adds. BMBL also alleviated some concerns regarding macroeconomic pressures stating it has not seen any impact on new subscriptions, and user engagement and growth remain robust.
- BMBL did temper its optimism by noting that some user segments are dealing with pronounced pressure on disposable income, causing subscriptions to renew at a modestly lower rate.
The main takeaway is that compared to rival MTCH, BMBL's Q3 report had one critical difference: product delays. These company-specific issues drove a relatively underwhelming quarter, which is trickling into Q4. It is also a complete reversal from what we saw last quarter when BMBL's numbers outperformed those from MTCH due to MTCH's Tinder app not seeing specific results expected after product initiatives and optimizations. The good news is that BMBL noted it already addressed the issues and started rolling out its new products in a few countries, including parts of the U.S., like New York and New England.
Bottom line, inflationary and FX headwinds will persist over the near term, keeping the uncertainty higher than it otherwise would be. However, after Q4, it looks as though BMBL will no longer be dealing with product launch issues, removing a significant obstacle that led to disappointing Q3 results.
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