Market Snapshot
briefing.com
| Dow | 33267.73 | -703.96 | (-2.07%) | | Nasdaq | 10784.67 | -326.06 | (-2.93%) | | SP 500 | 3905.73 | -90.01 | (-2.25%) | | 10-yr Note | +3/32 | 3.45 |
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| | NYSE | Adv 554 | Dec 2428 | Vol 1.0 bln | | Nasdaq | Adv 1206 | Dec 3358 | Vol 5.4 bln |
Industry Watch
| Strong: -- |
| | Weak: Communication Services, Information Technology, Materials, Financials |
Moving the Market
-- Concerns about central banks raising rates into a deteriorating global economic environment and the adverse impact for earnings growth following a litany of rate hikes overnight and this morning
-- Slate of generally disappointing economic data, including the November Retail Sales Report, the December Philadelphia Fed Index, the December New York Empire Manufacturing Survey, and November industrial production and capacity utilization
-- Weak mega cap stocks weighing on broader market
-- Broad selling interest bringing the S&P 500 below the 3,900 level
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Closing Summary
15-Dec-22 16:25 ET
Dow -764.13 at 33207.56, Nasdaq -360.36 at 10750.37, S&P -99.57 at 3896.17
[BRIEFING.COM] It was a trend-down day for the stock market amid growing recession concerns. On the heels of the FOMC rate hike yesterday, market participants received a slate of generally disappointing economic data today that exacerbated the market's recession concerns.
The main concern for market participants is that the Fed may overtighten and trigger a deeper economic setback in the U.S. That thinking stoked a belief that 2023 earnings estimates are too high, so today's trade reflected a general buyers' strike as investors rein in their willingness to pay a premium for earnings that are likely to be subject to downward revision.
The slowdown issue is not confined to the U.S., though, as other central banks have also been raising rates -- and pointing to the likelihood of more rate hikes to come -- to get inflation under control.
Since yesterday's close, the ECB, Bank of England, Swiss National Bank, and Hong Kong Monetary Authority all raised their benchmark rates by 50 basis points. The Norges Bank raised its benchmark rate by 25 basis points.
Today's economic reports only added fuel to the recession concerns. China's November retail sales, industrial production, and fixed asset investment data was all weaker than expected. The November retail sales and industrial production in the U.S., as well as the December Philadelphia Fed Index and New York Empire State Manufacturing Survey, were also weaker than expected.
The broad based retreat brought the S&P 500 below the 3,900 level after the index reached 4,100 on Tuesday. All 11 S&P 500 sectors closed in the red with losses ranging from 0.5% (energy) to 3.8% (communication services). The information technology sector (-3.8%) was another influential laggard.
Mega cap stocks dragged on index level performance. The Vanguard Mega Cap Growth ETF (MGK) closed down 3.3% versus a 2.2% loss in the Invesco S&P 500 Equal Weight ETF (RSP) and a 2.5% loss in the S&P 500. Growth stocks in general fared worse than value stocks. The Russell 3000 Growth Index was down 3.0% while the Russell 3000 Value Index was down 2.1%.
The 2-yr Treasury note yield fell one basis point to 4.25% and the 10-yr note yield fell five basis points to 3.45%. The U.S. Dollar Index jumped 0.8% to 104.64.
- Dow Jones Industrial Average: -8.6% YTD
- S&P Midcap 400: -14.1% YTD
- Russell 2000: -21.0% YTD
- S&P 500: -18.3% YTD
- Nasdaq Composite: -30.9% YTD
Reviewing today's economic data:
- November Retail Sales -0.6% (Briefing.com consensus -0.1%); Prior 1.3%; November Retail Sales ex-auto -0.2% (Briefing.com consensus 0.2%); Prior was revised to 1.2% from 1.3%
- The key takeaway from the report is that monthly sales declines were logged in nearly every discretionary category. The exceptions were miscellaneous store retailers (+0.5%) and food services and drinking places (+0.9%).
- Weekly Initial Claims 211K (Briefing.com consensus 227K); Prior was revised to 231K from 230K; Weekly Continuing Claims 1.671 mln; Prior was revised to 1.670 mln from 1.671 mln
- The key takeaway from this report is that the low level of initial claims -- a leading indicator -- fits the Fed's own narrative that it needs to keep raising rates, which in turn will contribute to the market's concerns that the Fed will overdue things with its rate hikes and force a hard landing for the economy.
- December Philadelphia Fed Index -13.8 (Briefing.com consensus -10.0); Prior -19.4
- December Empire State Manufacturing -11.2 (Briefing.com consensus -1.0); Prior 4.5
- November Industrial Production -0.2% (Briefing.com consensus 0.1%); Prior -0.1%; November Capacity Utilization 79.7% (Briefing.com consensus 80.0%); Prior 79.9%
- The key takeaway from the report is that there was broad-based weakness in the manufacturing sector. The indexes for durable and nondurable manufacturing were both down 0.6% while the index for other manufacturing dropped 0.4%.
- October Business Inventories 0.3% (Briefing.com consensus 0.4%); Prior was revised to 0.2% from 0.4%
- Weekly EIA Natural Gas Inventories showed a draw of 50 bcf versus a draw of 21 bcf last week
Economic data on Friday will be limited to the preliminary December IHS Markit Manufacturing PMI (prior 47.7) and Services PMI (prior 46.2) at 9:45 a.m. ET.
Economic data out Friday
15-Dec-22 15:30 ET
Dow -692.36 at 33279.33, Nasdaq -336.54 at 10774.19, S&P -91.77 at 3903.97
[BRIEFING.COM] The main indices are clinging to a narrow range heading into the close.
Energy complex futures settled in mixed fashion. WTI crude oil futures fell 1.7% to $76.14/bbl and natural gas futures rose 7.1% to $6.85/mmbtu.
Economic data on Friday will be limited to the preliminary December IHS Markit Manufacturing PMI (prior 47.7) and Services PMI (prior 46.2) at 9:45 a.m. ET.
Market chopping around narrow range
15-Dec-22 15:05 ET
Dow -703.96 at 33267.73, Nasdaq -326.06 at 10784.67, S&P -90.01 at 3905.73
[BRIEFING.COM] The main indices are little changed in recent trading.
On an individual basis, Novavax (NVAX 12.25, -4.97, -28.9%) and Western Digital (WDC 32.89, -2.94, -8.2%) are among the more notable losers today. The former announced a $125 mln convertible notes offering and a $125 mln public offering for its common stock while the latter was downgraded to Sell from Neutral at Goldman Sachs.
The U.S. Dollar Index pulled back somewhat from its session high to 104.53.
Nucor slips after guidance; S&P 500 hovering near lows
15-Dec-22 14:30 ET
Dow -892.99 at 33078.70, Nasdaq -384.92 at 10725.81, S&P -112.24 at 3883.50
[BRIEFING.COM] The S&P 500 (-2.81%) remains firmly in second place on Thursday afternoon, hovering now near session lows.
S&P 500 constituents Nucor (NUE 134.80, -13.13, -8.88%), Generac (GNRC 92.08, -9.07, -8.97%), and Meta Platforms (META 114.26, -7.33, -6.03%) pepper the bottom of the standings. NUE falls following in-line guidance and news that it would expand its Tower & Structures business, while GNRC and META are weaker despite a dearth of corporate news.
Meanwhile, Charles River (CRL 221.97, +7.64, +3.56%) is today's top performer, aided in part by a positive sell side note suggesting the company was not aware of any NHP shipment restrictions.
Gold falls as dollar firms up following Fed
15-Dec-22 14:00 ET
Dow -914.47 at 33057.22, Nasdaq -385.63 at 10725.10, S&P -111.80 at 3883.94
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-3.45%) remains at the bottom of the table, down north of 385 points.
Gold futures settled $30.90 lower (-1.7%) to $1,787.80/oz, pushing lower juxtaposed against the dollar's continued post-Fed gains.
Meanwhile, the U.S. Dollar Index is up about +0.9% to $104.70.
Nordson stands out in a sea of red as broad-based strength in business leads to upside result (NDSN)
Nordson (NDSN), an industrial company that manufacturers dispensing and coating systems for a variety of applications, is exhibiting impressive relative strength following its upside 4Q22 earnings report. While contending with numerous macro-related challenges, including decades-high inflation, foreign currency headwinds, supply chain constraints, COVID-19 shutdowns, and labor shortages, NDSN still achieved a quarterly sales record of $683.6 mln (+14%). Also, unlike other large industrial companies, such as 3M (MMM) and General Electric (GE), NDSN experienced strength across nearly all of its geographies and product lines.
- Breaking the results down by operating segment, Industrial Precision Solutions (dispensing, coating, and laminating systems for adhesives, lotions, liquids, etc.) generated organic sales growth of 16%, with particular strength seen in medical and fluid solutions in the Americas and Europe. NDSN also experienced steady growth in industrial coating products and packaging product lines in the food and beverage industry.
- Advanced Technology Solutions (dispensing systems for the attachment, protection, and coating of fluids) achieved strong organic sales growth of 28%, driven by robust demand in test and inspection systems, and double-digit growth in electronics dispensing. Due to the healthy sales growth, which was buoyed by a mix of higher volumes and price increases, segment operating profit surged by 131% yr/yr to 38 mln.
NDSN's attributes its surprising resilience to a few different factors.
- In 2021, the company launched its "Ascend" strategy, which is designed to deliver market-leading growth. The key tenet of this initiative is the understanding that a small group of customers and products contribute to the bulk of the company's revenue and earnings. This component of the strategy, which is called "NBS Next", has prompted NDSN to disproportionately invest in these customers and product lines.
- During the earnings call, CFO Joseph Kelley credited the consistent application of the NBS Next growth framework as the key element that continues to fuel consistent profitable growth across the business.
- The diversity of NDSN's business, from both a geographic and end market perspective, is another important advantage. As an example, the company's electronics-related systems are sold into a more resilient dispense application market, enabling the product group to overcome weakness in the more secular test and inspection markets.
- Lastly, over 50% of the company's sales mix is aftermarket parts and consumables, providing it with a substantial base of recurring revenue.
Overall, it was a solid performance for NDSN, but it wasn't without a couple flaws. For instance, gross margin decreased by 200 bps yr/yr to 53% as price increases were unable to fully overcome cost inflation. Also, the company's EPS guidance for Q4 fell short of expectations as a strengthening dollar continues to pressure its bottom-line. The main takeaway, though, is that NDSN is executing admirably in a very difficult environment and that FY23 is shaping up to be a positive year with approximately $1.0 bln residing in its backlog.
Tesla avoids another crash after Musk's latest stock sale is disclosed, but troubles remain (TSLA)
Cathie Wood, Founder and CEO of Ark Invest, is literally buying what Elon Musk is selling. From December 12 through December 14, the eccentric CEO of Tesla (TSLA) has unloaded nearly 22.0 mln shares of TSLA stock for a total of about $3.5 bln in proceeds. As TSLA continued to skid lower on Wednesday afternoon, Wood added more than 74,000 shares of TSLA across three of her funds. With TSLA shares plunging by about 55% so far this year, it's easy to understand the allure of taking a bet on the stock.
However, the leading EV maker is attempting to navigate around a number of obstacles at the moment.
- Musk's penchant for selling TSLA stock is one such impediment for the stock. Since last December, when Musk first hinted that he may buy Twitter, he has executed four substantial sales of TSLA, including this week's disposal.
- In total, Musk has raised about $23 bln in capital through TSLA sales to help finance his $44 bln acquisition of Twitter. Even after these sales, Musk still holds nearly 425 mln shares of TSLA, which means he still has plenty of dry powder remaining should he choose to unload more stock.
- Given Twitter's rough financial situation, which seems to be worsening by the day as more advertisers flee, it's not out of the question that Musk will tap into his TSLA holdings again. In fact, many investors believed that Musk was done selling in August when he tweeted that his selling spree was over. That declaration proved to be false and now many are wondering what Musks' true intentions are.
- Demand is on shaky ground, especially in China, where COVID-related restrictions continue to hinder economic growth. In November, passenger vehicle sales declined for the first time in six months and auto sales are expected to be relatively flat in 2023.
- These demand concerns were amplified last week when Reuters reported that TSLA was planning to suspend its Model Y output at its Shanghai plant during the last week of the year. This news followed a Bloomberg report from December 5 that stated that TSLA was cutting its December Model Y production by 20% in Shanghai. The company later refuted the story, but investors took a "where there's smoke, there's fire" mindset, sending shares sharply lower that day.
- What is not debatable is that TSLA has become more promotional in recent months as it looks to clear out inventory after ramping up production. In October, the company cut prices by 5-10% for the Model 3 and Model Y in China.
- Although the stock has plummeted this year, shares are still quite expensive with a P/E hovering around 30x. Furthermore, the "E' component of that ratio could be poised for a drop as ASPs and automotive gross margin sink in the face of sluggish demand.
The stock is experiencing a reprieve from its sell-off today, even with the market taking a strong hit, likely due to the idea that the bad news surrounding Musk's stock sale is already priced in. Whether today's relative strength translates into a more lasting rebound remains to be seen, but we believe TSLA is facing an uphill battle as Musk's attention and focus centers on his flopping Twitter acquisition.
Lennar snaps back from earlier losses as investors focus on the positives from Q4 (LEN)
Lennar (LEN) rebounds nicely after the homebuilder topped earnings and sales estimates in Q4 (Nov). Today's initial unfavorable reaction largely stemmed from LEN's weak new orders outlook for Q1 (Feb). The company expects orders to range from 12,000-13,500, reasonably below the new orders of 15,747 it posted in the year-ago quarter. It would also mark the lowest number of new orders since LEN's pandemic quarter in 2Q20 (May) when the company boasted new orders of just 13,015.
It is no surprise by this point that homebuilders are enduring substantial headwinds given the one-two-punch of rising rates and elevated inflation. However, LEN and many of its close competitors, like D R Horton (DHI) and PulteGroup (PHM), have seen their shares trade mostly in line with the broader market, especially recently, as the Fed's rate hike campaign becomes clearer.
Nevertheless, how the housing market will react to further tightening by the Fed and a potential decline in economic conditions keeps the uncertainty surrounding LEN high. This level of nervousness adds to the daily volatility.
- Outside of a weak new order outlook, LEN also saw its cancellations rate climb to 26% in Q4, up meaningfully from 12% in the year-ago period, underpinning the rapidly changing demand environment as rates increase.
- Meanwhile, LEN missed its new orders forecast of 14,000-15,500 for Q4, posting orders of just 13,200, a 15% decline yr/yr.
- LEN also expects deliveries to remain somewhat stagnant yr/yr in FY23 (Nov), guiding to 60,000-65,000 compared to 66,399 in FY22. We would also not be surprised to find this range narrowed or even trimmed as the year progresses, as it would mirror what took place throughout FY22.
- There were still positives worth focusing on in Q4. For one, LEN has not changed its bullish tone regarding the long term, adding that a significant housing shortage still exists, especially in workforce housing. Also, LEN commented that demand still exists even as mortgage rates climb to decade highs, further highlighting favorable long-term dynamics.
- This sentiment echoes what we have heard over the past few months from other homebuilders like KB Home (KBH) and Toll Brothers (TOL).
- LEN also boasts solid financials, with a homebuilding debt-to-capital ratio of 14.4%, the lowest in its history, illustrating healthy financial leverage, which will be vital in a rising rate environment. By comparison, LEN's debt-to-capital ratio is lower than TOL, DHI, and PHM, which each posted a percentage above 20% in their most recent quarters.
Bottom line, LEN will continue to face challenges in the short run. However, the economic picture is becoming more apparent as the Fed provides further details on its rate-raising roadmap and CPI reports indicate inflationary pressures are easing. Finally, it is important to watch the $95 mark, as this price has acted as tough resistance throughout the bulk of the year.
Jabil heads lower despite another upside quarter (JBL)
Jabil (JBL -4%) is trading modestly lower despite reporting nice upside with its Q1 (Nov) earnings results this morning. Jabil broke its string of four consecutive double-digit EPS beats, but it still had solid upside and notched its tenth consecutive EPS beat. It also reported nice upside on revs and guided in-line for Q2 (Feb).
- We like to keep an eye on Jabil because it's an electronics design and production service provider. Its results provide a window into the semi/electronics space. It also has exposure to many markets as it has branched out into many new end markets in recent years, including 5G, Cloud, Healthcare, Packaging, Connected Devices, Semi-Capital Equipment and EVs. In fact, some premium EVs now contain up to $3,000 worth of JBL components.
- Results were driven by better-than-expected revenue in Automotive, Healthcare and Industrial. All other end markets largely performed consistent with internal expectations. As we said in our preview, this is a thin margin business. Even a slight change can have a big difference on EPS because revenue is so large. Core operating margin was 4.8%, up 10 bp yr/yr, which was in-line with expectations.
- By segment, DMS revenue grew 8% yr/yr to $5.1 bln which was better than expected while core operating margin for the segment came in at 5.2%, which was a bit light. Jabil says the "absurd strength" in Automotive and Healthcare was offset by operational inefficiencies with Mobility in China. EMS revenue rose 18% yr/yr to $4.5 bln with core margin jumping 50 bp to 4.3%.
- Looking to the balance of FY23, Jabil is forecasting some moderation in growth in the second half of the fiscal year. However, as of now, demand has been extremely resilient particularly in areas with strong secular tailwinds like EVs, Healthcare, renewable energy infrastructure, 5G and Cloud. In particular, Jabil should benefit as the transition to EV accelerates. As a result, Jabil expects FY23 Automotive revenue growth of 40+%.
- Healthcare should also grow double digits in FY23 as the industry continues to shift toward outsourcing of manufacturing. Plus Healthcare tends to be recession-resistant with long product lifecycles. Industrial should also be up double-digits, fueled by clean and smart energy infrastructure spending, thanks in part to the Inflation Reduction Act.
We think the stock is lower despite the earnings upside because perhaps the beat was not as impressive as recent quarters. Plus overall market weakness today is likely playing a role as well. The stock has also been strong of late, so maybe a good report was priced in. Despite forecasting a weak macro environment in 2HFY23, Jabil seems well-positioned to manage any downturn well thanks to its exposure to EVs and Healthcare. Finally, we like the stock action. Jabil recently broke above its multi-month trading range of $50-65, which is a good sign and potentially signals another leg higher.
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