Market Snapshot
briefing.com
| Dow | 34066.42 | +362.52 | (1.08%) | | Nasdaq | 11070.99 | +106.63 | (0.97%) | | SP 500 | 3996.06 | +46.00 | (1.16%) | | 10-yr Note | +6/32 | 3.76 |
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| | NYSE | Adv 2240 | Dec 781 | Vol 832 mln | | Nasdaq | Adv 2775 | Dec 1844 | Vol 4.1 bln |
Industry Watch
| Strong: Energy, Utilities, Materials, Industrials |
| | Weak: -- |
Moving the Market
-- Positive earnings news from retailers
-- Ongoing growth concerns connected to China's COVID-related lockdowns
-- Buying interest in stocks that have been beaten down recently
-- 10-yr Treasury note yield pulling back and dollar weakening
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Closing Summary
22-Nov-22 16:25 ET
Dow +397.82 at 34101.72, Nasdaq +149.90 at 11114.26, S&P +53.64 at 4003.70
[BRIEFING.COM] The stock market traded with a decidedly positive disposition after yesterday's retreat. The major indices were on a steady climb this session that brought the S&P 500 above the 4,000 level. Growth concerns that precipitated yesterday's selling were put on the backburner even though reports indicated that COVID-related lockdowns have reached record levels in China.
A catalyst for the positive disposition today was a slew of pleasing earnings reports. Retailers were a specific area of strength after Best Buy (BBY 79.88, +9.05, +12.8%), Abercrombie & Fitch (ANF 22.62, +3.99, +21.4%), American Eagle Outfitters (AEO 15.36, +2.36, +18.2%), and Burlington Stores (BURL 189.98, +32.32, +20.5%) logged big earnings-driven gains. The SPDR S&P Retail ETF (XRT) closed with a 2.7% gain.
Agilent Technologies (A 156.86, +11.72, +8.1%), Analog Devices (ADI 168.43, +9.19, +5.8%), and Dell Technologies (DELL 43.85, +2.78, +6.8%) were also among the biggest winners for the earnings reporters.
Many stocks came along for the upside ride as market participants took advantage of thinner holiday trading conditions to do some tactical and opportunistic trading. Advancing issues led declining issues by a nearly 3-to-1 margin at the NYSE and a 5-to-3 margin at the Nasdaq.
All 11 S&P 500 sectors closed with gains that ranged from 0.5% (real estate) to 3.2% (energy).
Mega cap stocks, which suffered losses in recent sessions, rebounded nicely today. The Vanguard Mega Cap Growth ETF (MGK) rose 1.5% versus a 1.4% gain in the S&P 500.
A pullback in the 10-yr Treasury note yield and a weakening dollar were added support factors for the stock market. The 10-yr note yield fell seven basis points 3.76% and the U.S. Dollar Index fell 0.6% to 107.17.
There was no U.S. economic data of note today.
Deere (D) is slated to report earnings ahead of Wednesday's open.
Wednesday is an economic data heavy day that includes:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.7%)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 226,000; prior 222,000), Continuing Claims (prior 1.507 mln), October Durable Orders (Briefing.com consensus 0.4%; prior 0.4%), and Durable Orders ex-transportation (Briefing.com consensus 0.1%; prior -0.5%)
- 9:45 ET: Preliminary November IHS Markit Manufacturing PMI (prior 50.4) and preliminary November IHS Markit Services PMI (prior 47.8)
- 10:00 ET: October New Home Sales (Briefing.com consensus 578,000; prior 603,000) and final November University of Michigan Consumer Sentiment survey (Briefing.com consensus 55.5; prior 54.7)
- 10:30 ET: Weekly crude oil inventories (prior -5.40 mln)
- 12:00 ET: Weekly natural gas inventories (prior +64 bcf)
- 14:00 ET: October FOMC Minutes
- Dow Jones Industrial Average: -6.2% YTD
- S&P Midcap 400: -10.4% YTD
- Russell 2000: -17.1% YTD
- S&P 500: -16.0% YTD
- Nasdaq Composite: -28.6% YTD
S&P 500 finding resistance at 4000
22-Nov-22 15:35 ET
Dow +388.07 at 34091.97, Nasdaq +134.14 at 11098.50, S&P +50.39 at 4000.45
[BRIEFING.COM] The S&P 500 is finding resistance at the 4,000 level.
After the close, HP Inc. (HPQ), Nordstrom (JWN), VMware (VWM), Autodesk (ADSK), and Guess? (GES) are set to report earnings.
Looking ahead to Wednesday, Deere (D) and Kingsoft Cloud (KC) will report earnings.
Wednesday is an economic data heavy day that includes:
- 7:00 ET: Weekly MBA Mortgage Index (prior 2.7%)
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 226,000; prior 222,000), Continuing Claims (prior 1.507 mln), October Durable Orders (Briefing.com consensus 0.4%; prior 0.4%), and Durable Orders ex-transportation (Briefing.com consensus 0.1%; prior -0.5%)
- 9:45 ET: Preliminary November IHS Markit Manufacturing PMI (prior 50.4) and preliminary November IHS Markit Services PMI (prior 47.8)
- 10:00 ET: October New Home Sales (Briefing.com consensus 578,000; prior 603,000) and final November University of Michigan Consumer Sentiment survey (Briefing.com consensus 55.5; prior 54.7)
- 10:30 ET: Weekly crude oil inventories (prior -5.40 mln)
- 12:00 ET: Weekly natural gas inventories (prior +64 bcf)
- 14:00 ET: October FOMC Minutes
S&P 500 tests 4000 level
22-Nov-22 15:00 ET
Dow +362.52 at 34066.42, Nasdaq +106.63 at 11070.99, S&P +46.00 at 3996.06
[BRIEFING.COM] The S&P 500 is testing the 4,000 level as the 10-yr Treasury note yield continues to pullback.
The 10-yr note yield is down six basis points to 3.76%. The 2-yr note yield is down one basis point to 4.52%.
Small cap stocks are faring somewhat worse than their larger peers today. The Russell 2000, up 0.5%, shows the slimmest gain among the major indices.
Materials names outperform in S&P 500 on Tuesday
22-Nov-22 14:25 ET
Dow +322.77 at 34026.67, Nasdaq +88.12 at 11052.48, S&P +39.77 at 3989.83
[BRIEFING.COM] The S&P 500 (+1.01%) is still the best-performing major average to this point on Tuesday afternoon, narrowly off session highs.
S&P 500 constituents CF Industries (CF 108.89, +6.12, +5.96%), Fidelity Nat'l Info (FIS 64.82, +3.26, +5.30%), and Celanese (CE 104.52, +4.95, +4.97%) dot the top of the standings. Materials stocks, including CF and CE, enjoy solid gains on Tuesday, FIS moves higher after reports the company plans to let go of thousands of employees in a cost cutting push.
Meanwhile, Georgia-based pest control firm Rollins (ROL 39.51, -2.61, -6.20%) slips despite a dearth of corporate news.
Gold narrowly higher on Tuesday
22-Nov-22 14:00 ET
Dow +322.35 at 34026.25, Nasdaq +99.82 at 11064.18, S&P +39.43 at 3989.49
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.91%) is at the bottom of the major averages with about two hours to go on Tuesday, albeit still up more than 99 points.
Gold futures settled less than $1 higher (flat) to $1,739.90/oz, aided in part by a decline in the dollar and treasury yields.
Meanwhile, the U.S. Dollar Index is down about -0.6% to $107.20.
Page One
Last Updated: 22-Nov-22 09:00 ET | Archive
The vicissitudes of a holiday market are on display
The futures for the major equity indices are all pointing higher this morning. The basis for that positive disposition is up for debate considering there isn't a specific news driver acting as a bullish focal point.
Currently, the S&P 500 futures are up 19 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 45 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 148 points and are trading 0.4% above fair value.
Some peculiar interplays on the news front that make it tough to ascertain the basis for today's bullish bias include the following:
- Growth worries tied to COVID-related lockdowns in China were reportedly behind yesterday's selling, but today stocks are indicated higher in the face of reports that lockdowns in China have reached record levels.
- ECB member Holzmann made the case for a 75-basis point rate hike at the Governing Council's December meeting while counterpart Mario Centeno thinks conditions are right for a smaller rate hike.
- There has been a good bit of earnings news since yesterday's close, yet the response has been mixed. To wit: Best Buy (BBY) is up 8.6% and Dollar Tree (DLTR) is down 2.2% after their reports; Agilent Technologies (A) is up 4.3% after its report and Medtronic (MDT) is down 4.6% after its report; Analog Devices (ADI) is up 3.0% and Dell Technologies (DELL) is down 2.1%.
The news backdrop, then, seems to be more in-line with a market that might open flat to down, so we naturally turn our attention to the disposition of the mega-cap stocks and that's where we see a basis for some ballast in the futures market.
Tesla (TSLA) is up 1.5%; Amazon.com (AMZN) is up 0.6%; Meta Platforms (META) is up 0.5%; NVIDIA (NVDA) is up 0.5%; Alphabet (GOOG) is up 0.4%; Apple (AAPL) is up 0.3%; and Microsoft (MSFT) is up 0.2%.
There isn't a news item responsible for the relative strength in these stocks, all of which were down yesterday with the exception of Microsoft.
This is the nature of a holiday trading environment that is accented with thinner trading volumes. There isn't always a news item driving things. Sometimes the leaning of the market is simply rooted in there being more buyers than sellers and vice versa.
Currently, the buying interest is greater than the selling interest, whereas yesterday the selling interest was greater than the buying interest.
Treasury securities are in a similar position. Yesterday, the 10-yr note yield was up one basis point to 3.83%. Today, it is down three basis points to 3.80%, perhaps benefiting some from Morgan Stanley's Chief Investment Officer, Mike Wilson, saying he expects a "pretty steep decline in inflation" between now and the end of 2023, according to CNBC.
The seesaw action has extended to the dollar, too. The U.S. Dollar Index jumped 0.8% yesterday to 107.83 and today it is down 0.4% to 107.43.
This is all related we think to the vicissitudes of a holiday market, so take it for what it's worth. This morning, for debatable reasons, things are worth more or less than they were yesterday.
-- Patrick J. O'Hare, Briefing.com
Analog Devices keeps defying the odds in a rough semiconductor space (ADI)
For most semiconductor companies, 2022 has been a forgettable year, marked by persistent supply chain issues, collapsing demand in the PC/laptop markets, and eroding margins due to rising costs. However, one company that has risen above these challenges is Analog Devices (ADI), a chip maker that generates over 70% of its revenue from the industrial and automotive end markets.
ADI's resilience was on display again this morning when it posted an impressive beat-and-raise 4Q22 earnings report. The upside Q4 results represent ADI's tenth consecutive quarter in which it topped EPS and revenue expectations. Perhaps more importantly, ADI continues to churn out strong double-digit top and bottom-line growth, even as the semiconductor industry grapples with higher raw materials, component, and freight costs. In Q4, ADIs revenue and adjusted EPS grew by 39% and 58%, respectively.
While the company has strung together several solid quarterly reports, it was far from a certainty that ADI would keep that momentum going this time around. When ADI reported Q3 results in mid-August, it issued tepid guidance for Q4, while commenting that economic conditions were starting to weigh on demand. Consequently, orders began to slow late in Q3, and order cancellations also ticked higher.
A couple months later, peer Texas Instruments (TXN) seemingly confirmed this weakening of the business climate when it issued downside Q4 EPS and revenue guidance in its Q3 earnings report. Similar to ADI's commentary from August, TXN expressed concern about the macroeconomic environment, stating that it expects most of its end markets to decline sequentially in Q4. For ADI's investors, the most troubling disclosure from TXN was that the weakness in the personal electronics space was starting to bleed into the industrial market -- a market that accounts for over half of ADI's revenue.
ADI put those concerns to rest today, though, as it capitalized on a couple key factors that led to its outperformance versus TXN.
- Over the past year, ADI has invested a record amount of capex into its manufacturing capacity. These investments have created a more cost-effective hybrid manufacturing model that's not only enabling ADI to support its design win pipeline, but it's also pushing margins higher. In Q4, Non-GAAP gross margin expanded by 310 bps yr/yr to 74.0%, while Non-GAAP operating margin skyrocketed by 800 bps to 51.1%.
- ADI has diversified its customer base in the Consumer end market, particularly homing in on opportunities towards the higher end of the market, including portables and applications with longer life cycles. This strategy is paying dividends and is setting ADI apart from many other chip makers, as illustrated by its Consumer segment achieving growth of 8% in Q4.
- Meanwhile, ADI continues to generate record results in its Automotive end market, which generated growth of 31% for the year. This strength is being underpinned by the rapid growth of the electric vehicle market. During the earnings call, ADI stated that Battery Management Systems now represent a $4.0 bln opportunity for the company.
The main takeaway is that business trends didn't erode in Q4 like ADI had anticipated. In fact, CEO Vincent Roche offered a much more upbeat tone, stating that bookings stabilized during the quarter after a couple months of slowing orders, positioning the company to enter Q1 at a more normalized level.
Zoom Video is sent lower on uninspiring Q3 earnings and Q4 guidance (ZM)
Zoom Video (ZM -4%) remains stuck in its lengthy consolidation pattern after Q3 (Oct) earnings failed to rouse much enthusiasm, especially given the video streaming platform's underwhelming Q4 (Jan) guidance. The macroeconomic backdrop remains challenging, with FX headwinds and a broad slowdown in spending. Still, it is hard to excuse ZM's Q4 outlook of $0.75-0.78 in adjusted EPS and $1.095-1.105 bln in sales, representing just 3% growth yr/yr at the midpoint, particularly when considering its still-lofty multiple of ~23x forward earnings.
- It also does not help that ZM's Sales & Marketing expenses continue to climb while other tech firms have offered a new roadmap toward profitability to survive the rising interest rate environment. In Q3, these expenses grew by 27% yr/yr to $301 mln, representing roughly 27.3% of revs, up from 22.6% in the year-ago period.
- Again, this is difficult to shrug off, especially when growth is also sluggish. Although expected, sales climbed just 4.9% yr/yr to $1.1 bln in Q3, marking ZM's lightest quarter since going public over three years ago.
- Since considerable revenue was pulled forward during the pandemic, illustrated by multiple quarters of well over +300% growth, ZM has been focused on diversifying its business. One method has been expanding its enterprise customer base, which rose 14% yr/yr to around 209K in Q3, comprising roughly 56% of total revs. ZM anticipates that its enterprise customers will encompass an increasingly higher percentage of total revenue over time. The company also guided to enterprise growth in the mid-20s for Q4.
- ZM also has been bolstering its new capabilities, such as Zoom Phone, Zoom Rooms, and Zoom Contact Center. These capabilities moderately extended their success in Q3, with Zoom Phone adding 9 customers that purchased over 10,000 seats, bringing the total to 64. ZM did not dive much into details surrounding Rooms and Contact Center, only noting that Rooms contributed growth in the quarter and that both will likely be future revenue drivers.
ZM's Q3 results underpinned another challenging quarter, countered by some silver linings, such as decent enterprise growth and continued success with Zoom Phone. However, Q4 guidance did not offer much encouragement that ZM is staring at a significant turnaround anytime soon. With big fish swimming in the same waters, such as Microsoft (MSFT), which boasts similar offerings like Teams and Skype, as well as Cisco's (CSCO) WebEx, ZM's path ahead remains rife with hurdles.
Best Buy leans on promotions to spark sales, setting stage for a less gloomy holiday season (BBY)
Expectations were low heading into Best Buy's (BBY) 3Q23 earnings report, but the consumer electronics retailer reported results that were much better-than-feared as shoppers scooped up discounted computers, mobile devices, and appliances.
The freefall in demand for PCs and laptops has been well documented, thanks to the gloomy earnings reports and outlooks from various semiconductor companies such as Intel (INTC) and Advanced Micro Devices (AMD). After PC and laptop sales boomed during the work-from-home transition, creating a pull-forward in demand, consumers have reined in spending on electronics as inflation cuts into their monthly budgets.
While this scenario played out again in Q3, BBY effectively adapted to the challenging environment by becoming more promotional. Additionally, the company kept a lid on operating expenses by cutting costs, including through job reductions at its stores. For the quarter, SG&A expenses fell by nearly 9% yr/yr to $1.77 bln.
The end result of these actions is that BBY easily surpassed its own muted Q3 expectations, enabling it to bump its FY23 guidance higher. Specifically, the company previously forecasted Q3 domestic comparable sales to decline by slightly more than 12%, but comps actually came in at -10.5%. Although BBY isn't changing its outlook for Q4, it revised its FY23 comparable sales guidance higher to account for its outperformance in Q3. Now, BBY is anticipating FY23 comparable sales of approximately -10% compared to its prior guidance of approximately -11%.
However, BBY's beat-and-raise performance doesn't necessarily suggest that the business climate is brightening in a meaningful way. Indeed, the earnings report still painted a pretty bleak picture.
- Every major product category experienced a yr/yr decline in sales, with Consumer Electronics (printers, home theater, headphones, etc.) posting the largest drop at -12.8%. Computing and Mobile Phones was down by 11.4%, while Appliances saw a 9.6% decrease.
- There's a price to be paid for ramping up promotions to increase sales. Due to BBY's heavier discounting, domestic gross margin contracted by 150 bps yr/yr to 21.9%. Similarly, Non-GAAP operating margin slipped by 190 bps to 3.9%, although BBY now expects FY23 operating margin to be a bit better than it originally anticipated at slightly higher than 4.0%.
- Along with the 11.1% yr/yr drop in revenue, the margin compression caused BBY's adjusted EPS and Non-GAAP operating income to plunge by 34% and 41%, respectively.
The main takeaway is that BBY's increased promotional activity was more effective than anticipated, illustrating that consumers are willing to spend if the price is right. The company's better-than-feared report is an encouraging sign for the holiday shopping season, which BBY expects to be more similar to historical holiday seasons. For instance, CEO Corie Barry stated that shopping activity will likely center around Black Friday week, Cyber Monday, and the two weeks leading up to Christmas. It will still be a much weaker holiday season compared to the past two years, but it's shaping up to be a bit merrier than BBY and its investors had initially envisioned.
Dell computes nice gains with its Q3 report despite a somewhat cautious outlook (DELL)
Dell (DELL +3.2%) is trading higher following a huge EPS beat with its Q3 (Oct) earnings report last night. In fact, this was Dell's largest EPS beat of any quarter in the past five years as Dell was able to manage operating expenses well. We think the initial lackluster response (stock has since moved off its lows) from the market had to do with some cautious comments on the call including its broad strokes outlook for 2023.
- While EPS had a big beat, revenue upside was much more modest. There was definitely a disparity between its two operating segments. Infrastructure Solutions Group (ISG) grew 12% yr/yr to a record $9.6 bln, while its much larger Client Solutions Group (CSG) segment saw revenue fall 17% yr/yr to $13.8 bln. Most people know Dell for its consumer PCs, but it has much higher exposure to the enterprise market.
- On the ISG side, sales were driven by a reduction in its server backlog, consistent with its Q2 call commentary. Dell did see softening unit demand in servers, somewhat offset by higher average selling prices given richer configurations driven by customers running more complex workloads. Overall, Q3 ISG results generally played out as Dell expected, albeit with server demand velocity slowing a bit more than anticipated.
- On the CSG side, revenue fell yr/yr due to underlying softness in both Commercial and Consumer demand. Commercial revenue was $10.7 bln, down 13% while Consumer revenue was $3 bln, down 29%. However, ASPs trended higher in both Commercial and Consumer, as customers bought PCs with richer configurations.
- In terms of macro factors going forward, Dell expects slowing economic growth, inflation, rates and FX pressure will weigh on its customers and, as a result, their IT spending intentions even as they continue to digitize their businesses. Dell's Q4 (Jan) guidance has EPS in-line, albeit with a wide range given the uncertainty, but its Q4 revenue outlook was below analyst expectations. Dell also sounded cautious on 2023 but did not provide specific guidance.
Overall, Dell posted a solid Q3 result despite multiple headwinds, posting a huge EPS beat. It was mainly the cautious outlook for Q4 and into 2023 that is taking some shine off the stock action today. While the PC market slowing was expected, we think investors are reacting more to the somewhat cautious comments on servers being a bit weak.
Dell was a bit more cautious than what we saw from Cisco (CSCO) last week. On the positive side, the stock has rebounded off its lows from earlier in the pre-market as investors seem to be warming up to the report a bit. It seems a cautious outlook was priced in already. That makes us a bit more bullish on HP (HPQ), which reports tonight and Ciena (CIEN), which reports on Dec 8.
Dick's Sporting Goods jumps out of the gym on excellent OctQ numbers (DKS)
Dick's Sporting Goods (DKS +5%) looks to maintain a high score today after putting up solid numbers in Q3 (Oct). The sporting goods retail goliath registered its widest earnings beat since 3Q21 on robust same-store sales growth of +6.5% when analysts were calling for a negative figure. Meanwhile, DKS raised its FY23 guidance for the second consecutive quarter, putting it closer to its initial forecast in March. The company expects adjusted EPS of $11.50-12.10 and comps of negative 3.0% to negative 1.5%, slightly below its original forecast of $11.70-13.10 and comps of negative 4% to flat. Still, this is well above its prior forecast of $10.00-12.00 in earnings and comps as bad as negative 6.0%.
There were many additional positives contained in DKS's Q3 report, which, for the second-straight quarter, swam against a strong tide of inflationary pressures cutting into consumer budgets.
- Adjusted earnings fell by much less than analysts predicted, contracting 18.5% yr/yr to $2.60. Sales saw a solid 7.7% lift, a strong reversal from the 5.0% drop last quarter. Comps also reversed the negative trend from Q2 (Jul).
- DKS posted these numbers on increases in transactions and average ticket. It is also worth noting that DKS was lapping a challenging +13% comp in the year-ago period.
- A nice tailwind from back-to-school trends helped push comps into positive territory, carrying over the momentum DKS touched on in Q2. A good assortment of inventory also provided a boost.
- Speaking of which, DKS is confident in the quality of its inventory heading into the all-important holiday season. Total inventories climbed 35% yr/yr to $3.36 bln in Q3, around $800 mln higher than 2019 levels.
There are still broader concerns lingering in the background. For one, promotional activity may be needed to entice shoppers during a period of high inflation; this was somewhat evident in Q3 as gross margins slipped by over 400 bps yr/yr to 34.2%. Furthermore, as a retailer competing against many other department stores adding more activewear to their shelves, such as Kohl's (KSS) and Macy's (M), DKS may need to step on the gas regarding markdowns to keep traffic rates up. Looking more long-term, brands like NIKE (NKE) are accelerating their DTC efforts, which has already hurt Foot Locker (FL).
Nevertheless, we view DKS's Q3 report as a win. However, the retail backdrop, especially for highly discretionary hardlines like sporting goods, is currently not favorable, keeping an elevated level of uncertainty heading into FY23. Still, in the near term, DKS's confidence is uplifting, possibly signaling bullishness ahead of OctQ reports by peers Hibbett (HIBB) and Academy Sports + Outdoors (ASO) on November 29 and December 7, respectively.
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