Market Snapshot
briefing.com
| Dow | 33667.23 | +63.97 | (0.19%) | | Nasdaq | 10993.01 | +94.61 | (0.87%) | | SP 500 | 3950.16 | +15.82 | (0.40%) | | 10-yr Note | -5/32 | 3.49 |
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| | NYSE | Adv 1646 | Dec 1337 | Vol 842 mln | | Nasdaq | Adv 2591 | Dec 1962 | Vol 4.2 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Health Care, Materials |
| | Weak: Communication Services, Energy |
Moving the Market
-- Due for a bounce after recent losses
-- Positive reaction to weekly initial jobless claims and continuing claims
-- Relative strength in many mega cap names
-- S&P 500 testing yesterday's closing level (3933.92) and finding support there
-- News that the FTC is seeking to block Microsoft’s (MSFT) acquisition of Activision Blizzard (ATVI) precipitated afternoon leg lower
| Closing Summary
08-Dec-22 16:25 ET
Dow +183.56 at 33786.82, Nasdaq +123.45 at 11021.85, S&P +29.59 at 3963.93
[BRIEFING.COM] There was a positive bias in today's trade coming off a weak start to December for the stock market. The S&P 500 closed in the red eight out of the last nine sessions and has logged five straight losses to begin December. According to Bloomberg, that is the worst start to a month for the S&P 500 since 2011.
Things got started on an upbeat note today before the S&P 500 faded back to test yesterday's closing level (3,933.92). Buyers stepped in, however, and defended that line, which aided investor sentiment.
The market hit an air pocket in the afternoon trade, though, following the news that the FTC is seeking to block Microsoft’s (MSFT 247.40, +3.03, +1.2%) acquisition of Activision Blizzard (ATVI 74.76, -1.17, -1.5%). Again, buyers showed up to help stabilize the market and the main indices ultimately closed around the levels seen before the Microsoft news emerged.
Broad buying interest left most of the S&P 500 sectors in positive territory by the close. Communication services (-0.5%) lagged due to a weak showing from Alphabet (GOOG 93.95, -1.20, -1.3%) and the energy sector (-0.5%) felt the pinch of falling oil prices ($71.40/bbl, -0.89, -1.2%).
On the flip side, the information technology (+1.6%) and consumer discretionary (+1.1%) sectors sat atop the leaderboard. The latter was boosted in part by casino stocks trading up on the news that Macau is easing COVID-19 testing requirements, according to Reuters. Las Vegas Sands (LVS 48.31, +1.18, +2.5%) and Wynn Resorts (WYNN 86.43, +1.47, +1.7%) were winning standouts for the group.
Tesla (TSLA 173.44, -0.60, -0.3%) was an individual story stock of note today. It lost ground again on news that Elon Musk's bankers could provide him with new margin loans supported by Tesla stock to replace high interest Twitter debt, according to Bloomberg. The company is also aiming to shorten shifts in Shanghai and delay hiring, according to CNBC.
Treasury yields moved higher today. The 2-yr note yield rose eight basis points to 4.32% and the 10-yr note yield rose eight basis points to 3.49%.
- Dow Jones Industrial Average: -7.0% YTD
- S&P Midcap 400: -12.2% YTD
- Russell 2000: -19.0% YTD
- S&P 500: -16.8% YTD
- Nasdaq Composite: -29.2% YTD
Reviewing today's economic data:
- Initial claims for the week ending December 3 increased by 4,000 to 230,000 (Briefing.com consensus 220,000) and continuing claims for the week ending November 26 increased by 62,000 to 1.671 million.
- The key takeaway from the report is that continuing jobless claims hit their highest level since February 2022, suggesting perhaps that it is becoming more difficult to find a job as employers are taking a more cautious-minded approach with their hiring plans.
- Weekly EIA Natural Gas Inventories showed a draw of 21 bcf versus a draw of 81 bcf last week
Looking ahead to Friday, market participants will be focused on the November Producer Price Index (Briefing.com consensus 0.2%; prior 0.2%) and core-Produce Price Index (Briefing.com consensus 0.2%; prior 0.0%) at 8:30 a.m. ET. Other data out tomorrow includes:
- 10:00 a.m. ET: Preliminary December University of Michigan Consumer Sentiment (Briefing.com consensus 57.0; prior 56.8)
- 10:00 a.m. ET: October Wholesale Inventories (prior 0.6%)
Market lifts higher into the close
08-Dec-22 15:30 ET
Dow +149.56 at 33752.82, Nasdaq +135.20 at 11033.60, S&P +29.63 at 3963.97
[BRIEFING.COM] The main indices are trying to climb a bit higher heading into the close.
Market participants will be focused on the November Producer Price Index (Briefing.com consensus 0.2%; prior 0.2%) and core-Produce Price Index (Briefing.com consensus 0.2%; prior 0.0%) tomorrow at 8:30 a.m. ET. Other data out tomorrow includes:
- 10:00 a.m. ET: Preliminary December University of Michigan Consumer Sentiment (Briefing.com consensus 57.0; prior 56.8)
- 10:00 a.m. ET: October Wholesale Inventories (prior 0.6%)
Market recovers from dip on MSFT news
08-Dec-22 15:05 ET
Dow +63.97 at 33667.23, Nasdaq +94.61 at 10993.01, S&P +15.82 at 3950.16
[BRIEFING.COM] The market recovered somewhat from its turn lower following the news that the FTC is seeking to block Microsoft’s (MSFT 246.11, +1.74, +0.7%) acquisition of Activision Blizzard (ATVI 74.77, -1.16, -1.5%).
Semiconductor stocks are a bright spot in the market today. The PHLX Semiconductor Index is up 2.2%. NVIDIA (NVDA 170.04, +8.83, +5.5%) is a winning standout for the group with a big gain today.
WTI crude oil futures fell 1.2% today to $71.40/bbl. Natural gas futures rose 3.8% to $5.96/mmbtu.
NVIDIA tops S&P 500 as semis perk up
08-Dec-22 14:30 ET
Dow +115.67 at 33718.93, Nasdaq +102.81 at 11001.21, S&P +23.19 at 3957.53
[BRIEFING.COM] The S&P 500 (+0.59%) tapped afternoon lows in the last half hour, but still holds onto second place among the major averages.
S&P 500 constituents NVIDIA (NVDA 169.46, +8.26, +5.12%), Evergy (EVRG 62.04, +2.37, +3.97%), and Estee Lauder (EL 241.00, +8.47, +3.64%) are among today's top gainers.
Meanwhile, Avery Dennison (AVY 180.61, -11.15, -5.81%) is one of today's worst performers after comments from the company's fireside chat wherein management said the company was seeing a challenging finish to the year; further, QTD the company said revenue was off the previous forecast by about $100 mln.
Gold secures third up day, ends above $1,800 level
08-Dec-22 14:00 ET
Dow +210.02 at 33813.28, Nasdaq +134.77 at 11033.17, S&P +32.47 at 3966.81
[BRIEFING.COM] The broader market topped session highs in the last half hour, the tech-heavy Nasdaq Composite (+1.23%) atop the standings with about two hours remaining in the session.
Gold futures settled $3.50 higher (+0.2%) to $1,801.50/oz, closing out a third straight day of gains, aided in part by news that China's central bank added some 32 tonnes of gold to its reserves.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $104.77.
Page One
Last Updated: 08-Dec-22 09:04 ET | Archive
Trying to rediscover seasonal spirit
'Tis the season for stock market gains, yet the gains have been conspicuously absent this December. Entering today, the Russell 2000 is down 4.5%, the Nasdaq Composite is down 4.4%, the S&P Midcap 400 is down 3.9%, the S&P 500 is down 3.6%, and the Dow Jones Industrial Average is down 2.9% since the start of the month.
The selling started on day one and it has carried over in every session so far, which is to say the S&P 500 has opened this December with five consecutive losses. According to Bloomberg, that is the longest stretch of losses to start a month since 2011.
This weakness has been fueled by growth concerns that are rooted in concerns about the Fed overtightening and driving the U.S. economy into recession.
Those concerns, as we have been pointing out for some time, have manifested themselves in a deepening inversion across the Treasury yield curve, whereby short-term rates are higher than long-term rates.
The concerns have made their way into stock prices, which have been in a downtrend since the start of the year. The start of December has respected the downtrend and the risk to earnings estimates that exists with a deteriorating economic environment.
That is largely why the seasonal spirit normally seen this time of year has been lacking. There is an attempt this morning, however, to rediscover some of that seasonal cheer.
Currently, the S&P 500 futures are up 24 points and are trading 0.6% above fair value, the Nasdaq 100 futures are up 66 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 147 points and are trading 0.4% above fair value.
The impetus for today's positive disposition is the negativity that has been accruing since Fed Chair Powell's speech last Wednesday. The bullish response to that speech proved to be a one-hit wonder, as it has been pretty much straight downhill since then. At yesterday's close, the S&P 500 was down 3.6% since the November 30 close, which happens to be the only session in the last nine sessions that the S&P 500 closed higher.
What we have today, then, is a little rebound spirit -- an assumption that the stock market is due for a bounce after behaving so poorly in more recent action that has seen support give way at the 200-day moving average.
The latest initial and continuing jobless claims report has provided a little clearance to wage a rebound effort. It was relatively good on the initial claims side to support the soft landing view and relatively bad on the continuing claims side to support the idea that the labor market might be getting a little more challenging, which is what the Fed would like to see.
Initial claims for the week ending December 3 increased by 4,000 to 230,000 (Briefing.com consensus 220,000) and continuing claims for the week ending November 26 increased by 62,000 to 1.671 million.
The key takeaway from the report is that continuing jobless claims hit their highest level since February 2022, suggesting perhaps that it is becoming more difficult to find a job as employers are taking a more cautious-minded approach with their hiring plans.
-- Patrick J. O'Hare, Briefing.com
C3.ai sees genuine gains today; maintains goal of returning to 30+% growth over next 18 months (AI)
C3.ai (AI +6%) is experiencing genuine gains today after delivering beats on its top and bottom lines in Q2 (Oct). AI guided Q3 (Jan) sales slightly below consensus but reiterated its FY23 revenue outlook of $255-270 mln, representing 4% growth yr/yr at the midpoint.
AI has spoken in the past about its plans to disrupt the customer relationship management (CRM) industry through its platform-as-a-service (PaaS) that allows users to operate enterprise AI applications at scale. Unfortunately, management's ambitious goals have not translated to meaningful stock growth. Since IPO-ing in December 2020, shares have nosedived, plummeting roughly 92% from all-time highs and around 60% thus far in 2022.
However, AI has been amid a series of strategic shifts it is confident will create a cash-positive, profitable business returning to a growth rate of over 30% annually within the next 18 months.
- One seismic shift has been its new consumption-based pricing, which it transitioned to in Q2, causing its average contract value to fall to just over $800,000 from $19.0 mln in the year-ago period. AI commented that its customers and prospects find its new consumption-based pricing easier to understand.
- As a result, the company expects this new model to significantly expand its customer count in any given quarter. In Q2, completed contracts already doubled yr/yr to 25.
- Another big move stemmed from the recomposition of AI's global sales force. The company is growing a team of sales professionals engaging with prospective clients and expanding production usage with current customers.
Although we like seeing early success with some of AI's strategies, the near term is still ripe with challenges. AI was realistic in its view of the next year or so, noting that there is no question of pervasive economic uncertainty that will continue to spur bookings headwinds. AI added that Tech firms have been some of the hardest hit, with layoffs already underway at giants like Amazon (AMZN), Meta Platforms (META), Salesforce (CRM), and Google (GOOG). Considering this, it is encouraging to see AI growing its employee base, adding 83 additional workers from Q1 (Jul).
Bottom line, AI has a massive hill to climb, and its decent Q2 report is not likely to spur a rapid return to its IPO price of $42/share. However, we like AI's ongoing changes and appreciate its confidence in being a cash-positive, profitable, and clear market leader once the Fed lets its foot off the brake. As such, it is worth keeping AI on the radar as a possible turnaround play down the road.
Exxon Mobil fueling more gains after disclosing growth plans, lifting share repurchase program (XOM)
Fueled by rising commodity prices, record refining volumes, and cost reduction efforts, oil and gas behemoth Exxon Mobil (XOM) has generated very strong financial results this year, leading to a remarkable 75% year-to-date gain for its stock. Today, XOM is tacking onto those gains after announcing its corporate plans and projections for the next five years, in addition to increasing its share repurchase program to $50 bln from $30 bln.
There are many highlights within XOM's update, but one item that stands out is its expectation of doubling its earnings and cash flow growth by 2027 compared to 2019, primarily driven by the Upstream and Product Solutions segments. The company believes it can achieve this healthy growth even as it increases its investments to reduce greenhouse gas emissions. On that note, XOM plans to raise its spending on lower carbon projects to $17 bln from $15 bln through 2027.
However, fossil fuels will continue to be the main focal point for XOM in the coming years, even as competitors like Shell (SHEL) steadily transition towards renewables.
- Illustrating this heavy reliance on oil and gas production, we note that XOM's production in the Permian Basin reached an all-time high in Q3 at nearly 560,000 oil-equivalent barrels per day (boepd). In total, volume increased by more than 50,000 oil-equivalent barrels per day in Q3 (excluding Russia exit impact).
- In contrast, SHEL reported a 10% yr/yr drop in oil and gas output in Q3.
- Although XOM is targeting flat yr/yr production in 2023 at 3.7 mln boepd, it's expecting to ramp volume up to 4.2 mln boepd by the end of 2027. That growth will be supported by the company's annual capital investments of $20-$25 bln over the next five years.
- More specifically, over 70% of XOM's capital investments will target developments in high value projects such as the Permian Basin, Guyana, Brazil, and other LNG projects.
- These projects are forecasted to have returns of more than 10%.
Another key growth catalyst should come from XOM's Product Solutions business, which includes chemicals, lubricants, lower-emission fuels, and other building block materials. In fact, favorable product mix, including higher Product Solutions revenue and rising oil and gas output, are expected to account for half of XOM's earnings growth in 2023-2027.
Lastly, XOM will lean on structural cost reductions to drive cash flow higher, reduce debt, and increase shareholder distributions. Through the ongoing consolidation of its supply chain and its efforts to centrally manage its finance, collection, and payment operations, XOM says it's on track to deliver $9 bln of structural cost savings by 2023.
The main takeaway is that XOM has a few significant levers that it can pull over the next several years to bolster its earnings, cash flow, and distribution growth. Of course, the wild card is whether the global economy will continue to support higher commodity costs, which are essential to achieving the company's ambitious growth goals.
GameStop spikes as positive developments triumph over an EPS and sales miss in Q3 (GME)
Shares of GameStop (GME +6%) are soaring since initially bouncing around after the video game retailer posted misses on its top and bottom lines in Q3 (Oct). GME's report was fairly mixed, with some positives like narrowing losses yr/yr somewhat overshadowed by negatives like sales falling by more than analysts expected despite upbeat numbers from top video game franchises like Call of Duty (ATVI).
The stock has been consolidating, trading within a range of around $22-34 since late August. Although shares are surging, they still trade well below previous three-month highs. Still, with short interest around 21%, shares can experience wild swings during intra-day trading, possibly leading to an even more explosive move.
- Why did GME miss earnings and sales estimates for the first time since 4Q21 (Jan)? GME has been conducting necessary investments over the past couple of years to improve profitability in the near term and drive pragmatic growth over the long term. These investments included modernizing infrastructure, fulfillment capabilities, and reducing corporate headcount, which occurred during the back half of CY22, possibly hindering earnings growth in Q3.
- GME's bottom line was also not helped by sales falling 8.5% yr/yr to $1.19 bln. The wider-than-expected decline was due to a few factors, including a strong U.S. dollar taking an approximately $50 mln bite out of revs.
- Also, even though ATVI's Call Of Duty: Modern Warfare II set records as the fastest-selling title in franchise history in late October, video game spending still tumbled by mid-single digits yr/yr in August and September.
- Additionally, digital sales could be creating a headwind for GME. For example, video game publisher Take-Two (TTWO) saw digitally delivered net bookings soar 62% yr/yr in SepQ, comprising 94% of its total bookings.
- Regarding FTX, GME already ended its partnership with the firm, which was pretty minor to begin with, only offering gift cards. Furthermore, GME remarked that it proactively minimized its exposure to cryptocurrency risk throughout the year. Still, GME believes in the long-term potential for digital assets in the gaming world, highlighted by its recently launched NFT marketplace, which remains open to the public.
- Looking ahead, GME is confident it is well-positioned heading into the new year. It is maintaining its laser focus on achieving profitability over the short run. The company also noted it would be prudent in how it allocates capital, possibly exploring acquisition opportunities if they become available at the right price.
GME remains a risky investment, given the volatility shares can experience daily. However, it is encouraging to hear an upbeat tone from management during its Q3 call. GME also has a solid cash position of $1.04 bln with essentially no debt, allowing it to pursue strategic acquisitions, which could continue to help it along its turnaround journey.
Oxford Industries has investors in a vacation vibe with another strong upside quarter (OXM)
Oxford Industries (OXM +1.4%) is sitting pretty on a beach somewhere today. The apparel company, which owns Tommy Bahama, Lilly Pulitzer, Johnny Was, Southern Tide, Beaufort Bonnet and Duck Head focuses on the laid-back vacation vibe. OXM reported a sizeable beat in Q3 (Oct) for both EPS and revenue. This marked the company's seventh consecutive double-digit EPS beat.
- Tommy Bahama, which is by far OXM's largest brand (57% of OctQ sales), posted impressive 20% yr/yr growth to $178.6 mln with strong results in all channels of distribution. Its next largest brand, Lily Pulitzer, also performed well with sales up 16% yr/yr to $84.1 mln. Beyond that, OXM lumps its other segments into Emerging Brands, which saw revenue rise 22% yr/yr.
- Of note, its Johnny Was brand is a new addition, having been acquired in September 2022. Its price points are a bit higher than OXM's other brands as it competes in the affordable luxury portion of the market. That helps margins as does its distribution model with 40% of sales being made online and it has a small store base with just 60+ locations. It will be a nice tailwind to earnings as the brand generates annualized sales of $200+ mln with operating margins in the mid-to-high teens. It should add a nice push to OXM's Q4 results, which will be its first full quarter in the OXM family.
- Perhaps a slight disappointment was guidance for Q4 (Jan), which was just in-line. Last year's holiday period was unusual because, for the first time in many years, the market was not very promotional. That was mostly because retailers were light on inventory due to supply chain and port bottlenecks. However, OXM expects promotions to bounce back this year. They should not be much greater than they were pre-pandemic, but more than last year. That seems to be shading the guidance a bit.
- Adjusted gross margin expanded a robust 120 bp yr/yr to 63.4% from 62.2% last year thanks to lower freight costs, which included less air freight. However, adjusted operating margin still dipped to 10.4% from 10.8% last year due to a larger flash sale at Lilly Pulitzer following extremely lean inventories last year. Adjusted SG&A expenses were also higher.
Overall, we were impressed with OXM's Q3 result. We would have liked to have seen more robust Q4 holiday guidance, but we also note that OXM tends to be a bit conservative on guidance. A unique thing about OXM's brands is that they are more closely tied to travel than other brands. As such, they were hurt more than others during the pandemic, but they are now benefitting more than other brands as people get back to normal and travel again and have social gatherings.
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