Market Snapshot
briefing.com
| Dow | 34372.24 | +174.56 | (0.51%) | | Nasdaq | 11182.64 | -42.53 | (-0.38%) | | SP 500 | 4029.57 | +2.19 | (0.05%) | | 10-yr Note | 0/32 | 3.70 |
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| | NYSE | Adv 1862 | Dec 1069 | Vol 356 mln | | Nasdaq | Adv 2497 | Dec 1818 | Vol 2.1 bln |
Industry Watch
| Strong: Utilities, Energy, Real Estate, Industrials |
| | Weak: Information Technology, Consumer Discretionary, Communication Services |
Moving the Market
-- Thinner holiday trading conditions on this shortened session
-- Mega cap stocks weigh on index performance, particularly Apple (AAPL)
-- Treasury yields climbing off overnight lows
-- Dollar building up strength
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Closing Summary
25-Nov-22 13:25 ET
Dow +152.97 at 34350.65, Nasdaq -58.96 at 11166.21, S&P -1.14 at 4026.24
[BRIEFING.COM] The stock market ended this holiday-shortened session on a mixed note, but overall, things held up pretty well. The main indices showed nice resilience to selling efforts today amid below-average volume despite a decent sized loss in Apple (AAPL 148.11, -2.96, -2.0%).
Earlier, Reuters reported that iPhone production in November is projected to be curtailed by at least 30% at the Foxconn facility due to worker unrest that stems from pay disputes and COVID concerns. On a related note, record high COVID cases have prompted more lockdown measures that have reportedly brought Beijing to a near standstill.
Coincidentally, China has announced new stimulus measures, including more credit support for property developers. The People's Bank of China also announced a 25 basis point cut in the required reserve ratio for most banks, which will free roughly CNY500 bln of liquidity, starting December 5.
There wasn't an outsized reaction to the latter news, although market participation was lacking per usual on the day after Thanksgiving as attention turned to other interests.
For consumers, the day after Thanksgiving usually equates to shopping Black Friday deals. This did not registered much in retail stocks, however, as evidenced by the SPDR S&P Retail ETF (XRT) closing with a 0.1% loss.
The lack of participation today was reflected S&P 500 sector performance. None of the 11 sectors moved more than 0.7% in either direction. The "biggest" move was made by the communication services sector (-0.7%), which was weighed down by Activision (ATVI 73.47, -3.12, -4.1%). The company sold off on news that the FTC may file an antitrust lawsuit to block Microsoft's (MSFT 247.49, -0.09, -0.04%) acquisition of Activision.
On the flip side, the real estate (+0.6%) and utilities (+0.6%) sectors sat atop the leaderboard.
Treasury yields climbed off overnight lows today. The 10-yr note yield, which hit 3.65% overnight, sits at 3.71% now. The 2-yr note yield, which hit 4.43% overnight, sits at 4.48% now.
There was no U.S. economic data of note today.
- Dow Jones Industrial Average: -5.5% YTD
- S&P Midcap 400: -10.4% YTD
- Russell 2000: -17.1% YTD
- S&P 500: -15.5% YTD
- Nasdaq Composite: -28.2% YTD
Semiconductors lag broader market
25-Nov-22 12:35 ET
Dow +161.30 at 34358.98, Nasdaq -48.76 at 11176.41, S&P -0.52 at 4026.86
[BRIEFING.COM] The S&P 500 dipped just below the unchanged mark recently.
Semiconductor related stocks are having a weak showing. NVIDIA (NVDA 163.65, -1.56, -0.9%) and Advanced Micro Devices (AMD 75.36, -1.03, -1.3%) are notable losing standouts for the group. Meanwhile, Entegris (ENTG 76.26, +1.05, +1.3%) enjoys a decent gain.
The PHLX Semiconductor Index is down 1.4%.
Utilities outperforms
25-Nov-22 12:00 ET
Dow +174.56 at 34372.24, Nasdaq -42.53 at 11182.64, S&P +2.19 at 4029.57
[BRIEFING.COM] The main indices are still clinging to a narrow trading range amid thin trading conditions.
The S&P 500 utilities sector (+0.7%) enjoys a first place spot today led by gains in components Duke Energy (DUK 99.54, +1.00, +1.0%) and Alliant Energy (LNT 56.53, +0.56, +1.0%). NRG Energy (NRG 42.22, -0.22, -0.5%) is alone in the red.
The communication services (-0.5%) and information technology (-0.5%) sectors remain in last place, weighed down by mega cap components.
CS and V move on specific news
25-Nov-22 11:35 ET
Dow +175.62 at 34373.30, Nasdaq -28.28 at 11196.89, S&P +5.58 at 4032.96
[BRIEFING.COM] The Dow Jones Industrial Average has been inching somewhat higher while the S&P 500 and Nasdaq chop around a narrow range.
On an individual basis, Credit Suisse (CS 3.58, -0.24, -6.4%) suffers a decent sized loss today after shareholders approved a capital increase.
Visa (V 213.15, +1.42, +0.7%) outpaces the broader market after disclosing that November U.S. payments volume was up 9.0% year-over-year.
Energy outperforms
25-Nov-22 11:00 ET
Dow +156.23 at 34353.91, Nasdaq -37.89 at 11187.28, S&P +3.91 at 4031.29
[BRIEFING.COM] The main indices are clinging to a narrow trading range thus far.
WTI crude oil futures are up 0.3% to $78.20/bbl and natural gas futures are down 0.7% to $7.65/mmbtu. The S&P 500 energy sector is up 0.3% versus a 0.1% gain in the S&P 500.
Market breadth skews more positive. Advancing issues outpace declining issues by a nearly 2-to-1 margin at the NYSE and a 4-to-3 margin at the Nasdaq.
Page One
Last Updated: 25-Nov-22 09:02 ET | Archive
Market and traders operating in holiday mode
The market will close today at 1:00 p.m. ET, but for many folks it will never open. There are other pursuits of greater interest on this day after Thanksgiving, so trading volume will be undoubtedly light barring some major news development between now and today's close.
Currently, the S&P 500 futures are down two points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 42 points and are trading 0.6% below fair value, and the Dow Jones Industrial Average futures are up 22 points and are trading 0.1% below fair value.
There isn't a great deal of news to digest, which isn't surprising knowing that many corporate offices (even the home offices doubling as corporate work spaces) are operating in holiday mode. That means something entirely different, however, for the retailers on this Black Friday, which is anything but a quiet day.
The shopping malls will be busy and so will E-commerce sites with consumers partaking in a favorite pastime: shopping.
This understanding could concentrate some of today's thin trading interest on the retail stocks, but just about anything can go on a day like today if the "trading masses" latch on to a specific stock or group of stocks.
For now, they aren't latching on to much from a broader standpoint or even an individual standpoint.
Apple (AAPL) is the most high-profile standout, only it is standing out for being down 1.2% in pre-market trading. The weakness there follows a Reuters report that suggests problems at the Foxconn manufacturing facility in China could curtail November iPhone production by at least 30%.
Various reports continue to highlight China's ongoing effort to get rising COVID cases under control with mass testing and lockdown restrictions. Activity in Beijing, for example, is said to be at a near standstill.
New stimulus measures, though, are being applied, including increased credit support for property developers and the People's Bank of China announcing a 25 basis point cut in the required reserve ratio for most banks starting December 5.
The stimulus efforts have helped mitigate some of the fallout from the frustrating shutdowns, yet the zero-COVID policy continues to stand as a major obstacle for global growth prospects.
Looking elsewhere, the 10-yr note is up three basis points to 3.74%, the U.S. Dollar Index is up 0.2% to 106.34, and WTI crude futures are down 1.4% to $78.94/bbl.
Today's price action in all markets should be taken with a grain of salt given the thin trading conditions; nonetheless, the price action is what it is on this day.
-- Patrick J. O'Hare, Briefing.com
American Eagle extends its run sparked by excellent OctQ earnings earlier this week (AEO)
Shares of American Eagle (AEO +1%) are extending their run today, ascending to levels not seen since May, sustaining the robust momentum kickstarted by strong Q3 (Oct) results from earlier this week. There were multiple highlights from Q3, including a massive earnings beat, AEO's largest in over 20 quarters. Revs also fell less than analysts anticipated, dropping just 2.6% yr/yr to $1.24 bln.
These were solid headline numbers, but we view a few other developments as more inspiring.
- Following the theme of many of its peers, AEO is leveraging the strength of its operations to put itself in a good position to better compete with the challenging macroeconomic environment.
- More specifically, AEO is planning its inventories tightly, pulling on levers to chase into demand. The firm is also looking to reduce expenses, improving its bottom line and free cash flow.
- AEO already made healthy progress regarding inventories, taking deliberate steps to clear through spring and summer goods earlier this year. As a result, its inventory was in good shape in Q3, up just 8% yr/yr, a massive improvement from the increase of 36% in Q2 (Jul). AEO further noted that it expects a sequential improvement in Q4 (Jan), with ending inventory falling on a yr/yr basis.
- Looking ahead to 2023, AEO expects a highly promotional environment. Despite this, the company guided to Q4 gross margins of 32-33%, slightly at the higher end of its prior low 30s outlook.
Although the stock has been making some powerful moves since AEO's Q3 earnings report, near-term concerns remain. The company touched on this during its earnings call, stating that it is still cautious regarding the road ahead as discretionary spending levels remain suppressed. Also, even though freight costs are easing, AEO may need to implement more aggressive markdown activity if economic conditions sour, which would weigh on gross margins. Nevertheless, we think AEO is taking the appropriate actions to handle the unfavorable environment, which should position it nicely to react quickly to demand signals.
Lastly, if last quarter was any indication, AEO's report is a good sign for Zumiez (ZUMZ), which reports OctQ earnings on December 1.
Off-price retail space looks like a good way to play consumers' desire to trade down (XRT)
On the day after Thanksgiving, there is not a lot of news hitting the tape. As such, we like to use this opportunity every year to step back and present an attractive idea or two.
An idea that stands out to us is the off-price retail space. Ross Stores (ROST) recently reported a nice beat-and-raise for Q3 (Oct) and TJX Cos (TJX) beat on EPS. Burlington Stores (BURL) posted a sizable EPS miss, but it was more of an outlier. Also, its commentary on the call was quite bullish and the stock was up sharply despite the miss.
- The commentary on the calls was not outstanding, but it was notably more upbeat than we were expecting given the inflation pinch hurting lower income consumers the most. Specifically, ROST said it expects a very promotional holiday season and inflation continues to be a headwind for low-to-moderate-income customers. However, ROST expects markdowns will be less impactful in Q4 (Jan) relative to Q3. ROST also noted it will be lapping its easiest year-ago comps for the year in Q4. Another positive is that its holiday assortment, particularly its gift giving items, will be much improved after supply constraints last year. That should help comps.
- TJX sees a tremendous buying environment, saying the marketplace is "absolutely loaded with quality branded merchandise across good, better and best brands." That should lead to a better holiday assortment this year. Last week, TJX increased its outlook for US comps in Q4 to flat to +1%, a notable improvement over Q2 and Q3.
- But probably the standout comments came from BURL, which switched focus back to value items this fall. This resulted in a notable trend improvement from mid-October through November. BURL was even more bullish about next year as it thinks the economic and competitive environment could set up very well for off-price in 2023. It also helps that BURL will be lapping execution mistakes and under-performance from 2022. As such, BURL believes it we can start to drive a significant sales, margin, and earnings recovery next year.
Overall, we think the off-price retail space is setting up nicely for the holiday season and 2023 as consumers trade-down. The stock charts have gotten our attention as most have been perking up, we like to see that pattern. The main laggard has been Big Lots (BIG). It is seen as perhaps a lower quality name, but we are keeping it on the radar heading into earnings on December 1. Five Below (FIVE) also reports next week (Nov 30 after the close). After a rough 2022, the off-price retail space could bounce back in 2023. (FUNDX)
Activision Blizzard's merger with MSFT faces further regulatory scrutiny (ATVI)
After Activision Blizzard (ATVI -4%) agreed to Microsoft's (MSFT) $68.7 bln bid this past January, CEO Bobby Kotick remarked that closing on the deal would be filled with regulatory hurdles, setting up for a long road ahead. The acquisition has already run into some bumps, including skepticism from the U.K. Competition and Markets Authority (CMA) that the merger would not harm competition. Industry leader Sony (SONY) has also voiced concerns that blockbuster franchise Call of Duty, owned by ATVI, would see priority on MSFT's Xbox console, with titles not being available at launch on Sony's PlayStation.
The market has expressed concerns that regulatory battles would ultimately squash this deal, keeping shares of ATVI from trading above $87.00, significantly below MSFT's $95.00 valuation. In fact, the turbulence already faced by ATVI has caused the stock to remain on a cold streak, sliding around 8% from August highs.
Today, news that the Federal Trade Commission (FTC) likely filing an anti-trust suit to block MSFT's takeover is extending ATVI's downward trend. It should be noted that the FTC has not actually filed any lawsuits. Instead, today's price action is coming on the backs of reports indicating that the FTC staff looking over the merger are skeptical of each companies' arguments.
- MSFT has argued that by adding ATVI to its portfolio, it can better compete with Sony and Tencent (TCEHY), one of the world's largest video game publishers. Outside of these giants, ATVI and MSFT have discussed an increasingly competitive landscape, with many more companies investing aggressively in gaming. For example, Netflix (NFLX) has been pursuing video game studios to bolster its recent entrance into the industry.
- On the other hand, MSFT boasts one of three mainstream video game consoles, the Xbox, a leading cloud platform in Azure, and the most-used computer operating system with Windows. By adding one of the largest video game publishers to its portfolio, regulators argue this would seriously harm competition. For example, the U.K. CMA noted concerns about MSFT leveraging ATVI's games to damage competition in the market for cloud gaming services.
We would not be surprised to hear the FTC share similar concerns as the CMA. A big issue seems to stem from the Call of Duty franchise. Although ATVI does not break down revs from this title and instead includes it in its Activision segment, it is clear Call of Duty is a massive money-maker. For instance, since its release on October 28, Call of Duty: Modern Warfare II has set records, becoming the fastest in the franchise to cross $1.0 bln in sell-throughs for ATVI. As such, it is no surprise to hear Sony voice concerns about possible anti-competitive practices from the MSFT/ATVI merger.
Bottom line, the regulatory obstacles were to be expected, especially on a deal of this magnitude. Therefore, it will likely continue, adding volatility to ATVI shares over the near term. Nonetheless, ATVI remains confident that the transaction will close in June 2023.
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