Market Snapshot
briefing.com
| Dow | 33788.48 | +70.08 | (0.21%) | | Nasdaq | 11287.56 | +233.56 | (2.11%) | | SP 500 | 4000.42 | +43.98 | (1.11%) | | 10-yr Note |
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| | NYSE | Adv 2062 | Dec 1096 | Vol 1.12 bln | | Nasdaq | Adv 3066 | Dec 1576 | Vol 5.80 bln |
Industry Watch
| Strong: Energy, Materials, Communication Services, Consumer Discretionary, Information Technology, Financials |
| | Weak: Health Care, Consumer Staples, Utilities, Industrials, Real Estate |
Moving the Market
--China relaxing quarantine guidelines for inbound travelers
--U.S. dollar continues to weaken
--FTX Group files for voluntary Chapter 11 bankruptcy
--Mega-cap stocks trading higher
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Closing Stock Market Summary
11-Nov-22 16:20 ET
Dow +32.49 at 33750.89, Nasdaq +209.18 at 11263.18, S&P +36.56 at 3993.00
[BRIEFING.COM] With the Treasury market closed today for Veterans Day, cryptocurrencies selling off again after FTX Group filed for Chapter 11 bankruptcy, and the sheer magnitude of yesterday's advance, the stock market had ample reason to ease back today and give in to some profit-taking pressure. It didn't do that, however. Granted there were some pockets of weakness, but overall, the market not only held yesterday's gains but added to them.
In brief, it was an impressive display of resilience that was fortified by leadership from the mega-cap stocks, continued rebound action in the growth stocks, further weakness in the dollar, and some hopeful news that China is relaxing its quarantine guidelines for inbound travelers.
The latter was seen as a first step toward China extricating itself from its economically damaging zero-COVID policy. Chinese officials might not admit as much, but nonetheless, market participants liked the thought of it just as they liked the thought that inflation has peaked and that the Fed will soon take a less aggressive rate-hike approach.
Accordingly, today was driven predominately by an upside bias and risk-on dynamics.
The energy sector (+3.1%) led the gains that pushed the S&P 500 just above 4,000 in the afternoon trade before encountering some resistance that left it just shy of that mark when the closing bell rang. Other key leadership groups included the consumer discretionary (+2.5%), communication services (+2.5%), information technology (+1.7%), and materials (+1.2%) sectors, as well as the semiconductor stocks.
The Philadelphia Semiconductor Index surged 3.1%, leaving it up 14.9% for the week. Even Intel (INTC 30.43, +0.67, +2.3%), which was downgraded to Underweight from Overweight by JPMorgan, participated in the advance.
The few areas of weakness were defensive-oriented sectors, namely health care (-1.3%) and utilities (-1.1%), which fell prone to sector rotation activity. Market participants rotated back into many of the market's most beaten up stocks and sectors at the expense of those sectors that have exhibited relative strength this year.
To be fair, these defensive-oriented sectors finished well off their worst levels of the day in a display of broad market resilience to end the week. The health care sector, for instance, had been down as much as 2.6% earlier in the day.
The mega-cap stocks as a whole finished near their best levels of the day and showed relative strength throughout the session. The Vanguard Mega-Cap Growth ETF jumped 2.1%. The leadership from that cohort provided a solid underpinning for the major indices.
Growth stocks were the favored plays again, evidenced by a 1.5% gain in the Russell 3000 Growth Index versus a 0.6% gain for the Russell 3000 Value Index.
The U.S. dollar for its part was not in favor at all. The U.S. Dollar Index dropped another 1.7% to 106.38, leaving it down 4.1% for the week.
The lone economic release today was the preliminary November University of Michigan Index of Consumer Sentiment. It was weaker than expected at 54.7 (Briefing.com consensus 59.6) and down from 59.9 in October, although the year-ahead and five-year inflation expectations edged higher to 5.1% and 3.0%, respectively, from 5.0% and 2.9%.
There won't be any economic data of note on Monday, but the week ahead will feature the Producer Price Index, Retail Sales, Industrial Production, Housing Starts, and Existing Home Sales Reports for October.
- Dow Jones Industrial Average: -7.0% YTD
- S&P Midcap 400: -10.9% YTD
- Russell 2000: -16.1% YTD
- S&P 500: -16.2% YTD
- Nasdaq Composite: -27.6% YTD
A little resistance with test of 4,000 level
11-Nov-22 15:30 ET
Dow +9.39 at 33727.79, Nasdaq +181.44 at 11235.44, S&P +33.51 at 3989.95
[BRIEFING.COM] The push to 4,000 by the S&P 500 has invited some resistance that has knocked the market back from its best levels of the day, but it is still holding onto some nice gains.
At today's high (4,001.48), the S&P 500 was up 6.9% from its low on Wednesday and up 14.6% from the low it reached on October 13 (the day of the disappointing September CPI Report).
The improvement in the afternoon trade has featured leadership groups extending their gains and laggard groups cutting their losses.
To wit, the S&P 500 energy sector is up 3.1% while the S&P 500 health care sector, down as much as 2.6% earlier, is now down 1.4%.
Advancing issues are leading declining issues by a 2-to-1 margin at the NYSE and Nasdaq.
S&P 500 kisses 4,000 level
11-Nov-22 15:00 ET
Dow +70.08 at 33788.48, Nasdaq +233.56 at 11287.56, S&P +43.98 at 4000.42
[BRIEFING.COM] The dollar keeps sinking and stock prices keep rising. The U.S. Dollar Index (106.33, -1.87, -1.7%) is on its lows for the day while the major indices are sitting at their highs for the day.
Notably, the S&P 500 has kissed the 4,000 level for the first time since mid-September. Ironically, the mid-September high occurred just before the release of the disappointing August CPI report. It was basically downhill from there until the release of the equally disappointing September CPI report in mid-October, which eventually gave way to a major reversal.
Now, with the pleasing October CPI report in the rearview mirror, stocks have found a new rebound gear, riding the hope that inflation has peaked and that the Fed will slow the pace of its rate hikes. The shifting rate-hike expectations have added momentum to the dollar selloff, which had already been in the works with the unwinding of crowded, long dollar positions.
Today's trading has featured another push back into the beaten-up mega-cap stocks, which have been instrumental in leading the broader market today. The Vanguard Mega-Cap Growth ETF (MGK) is up 2.3% versus a 1.1% gain for the S&P 500.
We should note, too, that the Dow Jones Industrial Average has escaped red figures and is back in positive territory after spending most of today's session below the unchanged line.
Huntington Ingalls slips after BofA downgrade
11-Nov-22 14:25 ET
Dow -67.34 at 33651.06, Nasdaq +191.68 at 11245.68, S&P +29.09 at 3985.53
[BRIEFING.COM] In the last half hour the S&P 500 (+0.74%) hit session highs, still firmly in second place.
S&P 500 constituents Paramount Global (PARA 18.85, +2.28, +13.76%), Align Tech (ALGN 219.50, +23.02, +11.72%), and V.F. Corp (VFC 32.89, +2.96, +9.89%) dot the top of today's trading. PARA enjoys solid gains owing to general strength in tech/streaming stocks, while VFC moves higher in parallel with general gains in consumer discretionary stocks.
Meanwhile, Virginia-based shipbuilder Huntington Ingalls (HII 226.35, -17.82, -7.30%) is today's worst performer; this morning, BofA Securities downgraded HII to Underperform.
Gold opens up solid gains on Friday, week as Fed signals dent dollar
11-Nov-22 14:00 ET
Dow -46.91 at 33671.49, Nasdaq +207.86 at 11261.86, S&P +33.49 at 3989.93
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (+1.87%) holds percentage gains more than double that of the next-best major average, the S&P 500 (+0.85%).
Gold futures settled $15.70 higher (+0.9%) to $1,769.40/oz, ultimately finishing off with gains of +5.5% this week, hurried by steep declines in the dollar and treasury yields over the past few days.
Meanwhile, the U.S. Dollar Index is down about -1.6% to $106.44.
Page One
Last Updated: 11-Nov-22 08:55 ET | Archive
Feeling less bad
That was some rally yesterday to say the least. The huge gains were a manifestation of pent-up hope that inflation has peaked and that the ultra-aggressive nature of the Fed's policy approach has also peaked.
That's not to say that the Fed is done raising interest rates -- not at all. In fact, several Fed speakers yesterday were pretty clear in saying more work needs to be done to rein in inflation despite the encouraging October CPI report.
Still, the market saw an opening in the October CPI report for the Fed to take a less aggressive approach in coming meetings on its way to a terminal rate that the market now thinks might not be as high as it thought it would be before the release of the October CPI data. To that end, the fed funds futures market shows the odds have tipped slightly in favor of 4.75-5.00% being the terminal rate versus 5.00-5.25% before the October CPI data.
The shift in rate-hike expectations is nothing new for this market, which has been desperate before to think the Fed is close to being done with its rate hikes only to be disappointed by subsequent data, and jawboning from Fed officials, that suggests otherwise.
Nonetheless, the shift was on in a big way in the Treasury market and the dollar yesterday to suggest there is stronger conviction in the idea that subsequent data will support the market's thinking. The stunning drop in market rates and the stunning drop in the dollar were major support factors for the stock market's best day since 2020.
The Treasury market won't have any direct impact on today's trading. It is closed in observance of Veterans Day. The dollar, however, has maintained its supporting role. The U.S. Dollar Index is down 1.3% to 106.86.
The weakness in the dollar is taking some of the pressure off multinationals and is aiding in the belief that downward revisions to 2023 earnings estimates may not be as severe as feared, assuming the weakening persists.
Of course, the weaker dollar is also supportive for dollar-denominated commodity prices. Upward-trending price action there will ultimately continue to stoke concerns about inflation sticking at higher levels and companies continuing to pass along price increases to customers.
WTI crude futures are up 3.1% to $89.11/bbl and copper futures are up 3.3% to $3.88/lb. Those moves aren't just dollar-related today. They are also stemming from reports that China is relaxing its quarantine guidelines for inbound travelers and is aiming to avoid city-wide mass testing when COVID transmission chains are clear, according to Bloomberg.
This subtle, but important move is being perceived as laying the groundwork for a transition away from China's strict, zero-COVID policy. That transition won't happen rapidly, but like the October CPI data, the direction is more important right now for the market than the actual level. This news is a step in the right direction. Hong Kong's Hang Seng Index soared 7.7% and China's Shanghai Composite gained 1.7%.
This news is helping the U.S. stock market take yet another step in a positive direction.
The S&P 500 futures are up 20 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 61 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 154 points and are trading 0.4% above fair value.
Those indications will translate into a higher start for the major indices, as market participants rest on the hope that things are turning less bad in terms of the direction for inflation, the pace of rate hikes, and China's zero-COVID policy.
-- Patrick J. O'Hare, Briefing.com
Expensify sinks to 52-week lows as economic conditions drive a decline in profitability in Q3 (EXFY)
Shares of Expensify (EXFY -11%) are plummeting today as the expense management firm spooks investors by delivering a quarter of declining profitability. Furthermore, adjusted earnings and sales missed the mark in Q3 as the economic backdrop, particularly for small and medium-sized businesses (SMBs), EXFY's primary customer, remains challenging. Further adding to EXFY's sell-off today was a downgrade at Piper Sandler to "Neutral" from "Overweight."
- What went wrong in Q3? To survive an onslaught of economic obstacles, such as suppressed demand due to high inflation, businesses are cutting back on expenses, particularly discretionary expenditures such as food and travel. Since EXFY's customers use its platform to track employee expenses, paying either a pay-per-use fee or an annual fixed fee, if employee expenditures are down, EXFY's top line is adversely affected.
- As a result, revs grew just 13.5% yr/yr to $42.49 mln, marking not just decelerating growth but also declining revenue from the $43.16 mln posted in Q2. The light top-line growth partly drove adjusted earnings to slip by $0.02 sequentially to $0.06.
- On a more positive note, most of EXFY's customers commit to an annual plan, building in a dependable revenue stream. However, this still requires consistent paid member growth, which did not expand by an overly exciting figure in Q3, climbing 14% yr/yr and just under 1% sequentially to 761,000. Meanwhile, in Q2, paid members grew by 7% sequentially, underscoring how quickly economic conditions have weakened.
- Perhaps the best news from EXFY's Q3 report was its affirmation of achieving +25-35% sales growth over the long haul. Still, analysts are skeptical, predicting EXFY to end FY22 with growth well under the low end of its long-term projection while forecasting FY23 growth to not be much better.
- EXFY also announced it would repurchase $6 mln of its shares within the next couple of months, totaling $10 mln by the end of the year. Even though this represents just over 1% of its total outstanding shares, it still signals that management believes EXFY stock is undervalued.
Overall, EXFY is struggling in the current environment. SMBs are typically less cushioned against an economic downturn, which is weighing heavily on EXFY. Meanwhile, decelerating revenue is not helping convince investors that EXFY can achieve its long-term sales target anytime soon. Additionally, by trading at a pricey ~29x forward earnings, EXFY is held to a higher standard. Even though the company delivered a few silver linings, it is proving insufficient in convincing investors that its valuation is reasonable.
Doximity dialing up some very healthy gains as top-line growth rate reaccelerates in 2Q23 (DOCS)
Telehealth company Doximity (DOCS), a former high-flyer during the pandemic, is soaring following an upside 2Q23 earnings report that featured a reacceleration of top-line growth and a sharp improvement in adjusted EBITDA margin. The company also reaffirmed its FY23 revenue and adjusted EBITDA guidance of $424-$432 mln and $47.7-$48.7 mln, respectively. That comes as a relief after DOCS issued downside FY23 guidance in its 1Q23 earnings report on August 4.
When the company went public in June 2021, telehealth usage was taking off as health-conscious people stayed away from hospitals and physician offices. Accordingly, demand for DOCS' fax, e-signature, and online scheduling tools flourished, as evidenced by its high-double digit revenue growth in calendar year 2021 and early 2022. The impressive growth pushed the stock to post-IPO highs of about $108 in September 2021, good for a 310% gain versus its $26/share IPO price.
This year, it's been a completely different story for DOCS. Earlier this week, the stock hit all-time lows, reflecting the rock bottom expectations for DOCS' earnings report. It's also worth noting that short interest is relatively high in DOCS, with 15-20% of the float residing on the short side. Therefore, some of the gains we're seeing today can be attributed to a short squeeze. However, to ignite a short squeeze, there needs to be a catalyst, and that catalyst came in the form of improving fundamentals.
- What immediately jumps out is that DOCS' revenue growth accelerated to 29% from 25% last quarter, putting an end to the down trend in its growth rate that began a year ago. The company also slightly beat its guidance, generating revenue of $102.2 mln vs. its forecast of $99.5-$100.6 mln.
- In Q2, usage hit new highs across the board. More specifically, its fax and e-signature products registered record usage with millions of HIPPA-related secure messages. Additionally, DOCS' physician scheduling tool experienced a 57% increase in unique logged in users.
- DOCS' net revenue retention rate came in at 128% overall and 136% for its top 20 clients. This indicates that the company's largest users -- which include all top 20 hospitals and top 20 pharma companies in the country -- are also its fastest-growing users.
- A key to DOCS' upswing in growth is that hospitals are finding that it's now a necessity, rather than a desire, to shift to digital applications. During the earnings conference call, DOCS highlighted a research report from Kaufman Hall that predicted that half of U.S. hospitals will lose money this year. Given the tough financial situations that many hospitals are facing, digital-based solutions that drive revenue and provide costs advantages are critical.
- Adjusted EBITDA of $46 mln came in 12% above the high end of DOCS' guidance, was higher by 40% on a yr/yr basis and equated to a margin of 45% compared to 41% in the year-earlier period. Although the company is still investing in R&D and Sales & Marketing, with those expenses up by 19% and 26%, respectively, DOCS was able to achieve G&A efficiencies as costs declined by 1% in that category.
The main takeaway is that while DOCS may never return to its near triple-digit growth rates seen during the pandemic, its digital tools became entrenched across the healthcare sector. In fact, the company stated that its telehealth tools were used by a record 370,000 unique physicians, nurse practitioners, and physician assistants in Q3. This growing usage should bode well for DOCS' top-line growth moving forward.
Toast's accelerated path to profitability signals healthy demand within the restaurant sector (TOST)
Cloud-based restaurant management software provider Toast (TOST +5%) is being celebrated today after serving up improved profitability and surpassing $100 bln in annualized gross payment volume (GPV) in Q3. TOST also upped its FY22 adjusted EBITDA forecast to $(127)-$(117) mln from $(160)-$(140) mln. By continuously narrowing its losses, TOST noted that it is now on a trajectory to deliver a quarterly adjusted EBITDA profit by the end of 2023.
- Positive Q3 results highlighted TOST's healthy progress toward profitability. Gross margins expanded by over 300 bps sequentially, helping narrow adjusted net losses by $0.90 per share yr/yr to $(0.15). Meanwhile, TOST's top line jumped 54.7% yr/yr to $752.0 mln, exceeding analyst estimates.
- With grocery outlets like SpartanNash (SPTN) and Albertson (ACI) posting solid gains recently, there were concerns that restaurants would run into pronounced headwinds as inflation sustains momentum in eat-at-home trends. However, TOST alleviated these fears, growing GPV 53% yr/yr and 8% sequentially to $25.2 bln.
- Management also commented that its customer base continued to see robust consumer demand, signs that the restaurant industry remains healthy.
- Also, TOST commented that it is noticing the cost of food at home growing faster than the cost of food away from home, which it believes will shift consumer demand back toward dining out over time.
- Still, inflation was definitely a factor in the quarter. Although TOST's average ticket is trending up, its transaction levels still have not entirely returned to 2019 levels.
- Meanwhile, labor shortages are continuing to plague the food service industry. TOST mentioned that about a third of restaurants it surveyed said they experienced difficulties hiring this year.
- However, on the flip side, a third of surveyed respondents also noted that technology is its biggest pain point, reinforcing the importance of TOST's offerings, such as Sling, which it acquired earlier this year. Amongst other features, Sling is an employee scheduling software that should help restaurants navigate their ongoing labor woes.
Bottom line, TOST accelerating its path to profitability is receiving all the praise today, especially since it is accomplishing this feat despite intense inflationary pressures and ongoing labor issues. TOST's Q3 results also added further evidence that it is ideally positioned to assist restaurants during this challenging time.
LegalZoom.com is zooming higher on its Q3 report; Q4 guidance looks pretty solid (LZ)
LegalZoom (LZ +8%) is zooming higher today after reporting Q3 results last night. The headline numbers were decent but did not blow us away. EPS was just in-line while revenue had nice upside. The Q4 revenue guidance was in-line, which we think was music to the ears of investors. We had a real concern LZ might guide lower given the macro headwinds on small businesses.
- It is important to break down the revenue numbers. Total revenue rose 4.4% yr/yr to $154.4 mln. Transactional revenue fell 14% yr/yr to $57.6 mln due to a 1% decline in transaction units and a 12% reduction in average order value. LZ had prepared investors for a drop in AOV on its last call due to testing of its new lower price line-up, as well as growth in its partner channel where LZ provides wholesale rates. So this was not a huge surprise.
- While the transactional side saw a decline, LZ more than made up for it with a 25% increase in subscription revenue at $91.4 mln. LZ did caution that it expects a slight sequential decline in subscription revenue in Q4 with yr/yr growth slowing materially and into 2023 due to macro headwinds. However, we think investors were happy to see the pace remain brisk in Q3.
- Adjusted EBITDA margin ticked up to 11% vs 10% a year ago. And despite the macro headwinds, investors were happy to hear LZ reaffirm its goal of 15% EBITDA margin and a 15% share improvement in 2023. LZ cites some of the larger product and platform investments it has made the past few years as beginning to bear fruit. Also, helping margins has been a reduction in marketing spend and a hiring slowdown.
- Among the biggest changes LZ has been making recently is its evolution from a consumer to a SMB (small & medium business) brand and it has been making a big push to improve conversion rates. To achieve both goals, LZ has been building a unique SMB ecosystem designed to get businesses off the ground and keep them compliant. LZ has been adding several features and just last month it acquired Revv, an online forms and e-signature service.
Overall, we think the big takeaway here is that investors are relieved LZ did not guide down for Q4. The company began adjusting to a deteriorating macro environment early in Q2. While management says it has yet to see a significant near-term deterioration in the macro, it has been vigilant on expense control and that shows up in the EBITDA margin, especially the expansion expected in 2023. LZ also benefits from a low fixed cost structure and strong cash position. Granted we are surprised to see such a strong reaction today, but we think investors were preparing for a guide-down.
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.
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