Market Snapshot
briefing.com
| Dow | 32811.93 | -395.63 | (-1.19%) | | Nasdaq | 10612.79 | -137.58 | (-1.28%) | | SP 500 | 3842.05 | -54.12 | (-1.39%) | | 10-yr Note | -3/32 | 3.48 |
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| | NYSE | Adv 931 | Dec 2002 | Vol 3.2 bln | | Nasdaq | Adv 1716 | Dec 2827 | Vol 7.8 bln |
Industry Watch
| Strong: -- |
| | Weak: Real Estate, Energy, Utilities, Materials, Industrials |
Moving the Market
-- Lingering growth concerns and worries about earnings estimates being too high continue to undercut stock prices
-- S&P 500 breaching support at its 50-day moving average (3,864)
-- Heavy volume on this quarterly options expiration day
-- Broad selling efforts seeing many areas pullback
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Closing Summary
16-Dec-22 16:25 ET
Dow -281.76 at 32925.80, Nasdaq -105.11 at 10645.26, S&P -43.39 at 3852.78
[BRIEFING.COM] It was another downbeat session for the stock market on this quadruple witching options expiration day. Market participants were weighing the same recession concerns that fueled yesterday's retreat, along with a deteriorating technical position.
Market participants remained stuck on the notion that the Fed is intent on raising rates in the face of a weakening economic backdrop as it aims to get inflation back down to 2.0%. Accordingly, worries that the Fed will overtighten and force a hard landing for the U.S. economy have left 2023 earnings estimates in question. The specter of earnings estimates being lowered in coming months has left investors questioning current valuations.
The result is that sellers have stepped up their efforts and buyers have remained reluctant to buy on the weakness.
Piling onto the market's growth concerns today, the preliminary IHS Markit Manufacturing PMI (46.2 vs 47.7 prior) and Services PMI (44.4 vs 46.2 prior) for December sank deeper into contraction territory (i.e. sub-50 readings).
Broad selling efforts brought the S&P 500 below a key support level at its 50-day moving average (3,864) shortly after the opening bell. The late afternoon trade saw the S&P 500 lift off its session low to test that level again, but it ran into resistance and faded away into the close.
All 11 S&P sectors suffered losses today that ranged from 0.1% (communication services) to 3.0% (real estate). The communication services sector performed better than the broader market thanks to an outsized gain in Meta Platforms (META 119.43, +3.28, +2.8%) after it was upgraded to Overweight from Neutral at JPMorgan.
Another notable stock that went against the grain today was Adobe (ADBE 338.54, +9.38, +3.0%), which reported favorable fiscal Q4 earnings results and guided fiscal Q1 EPS above consensus.
The Treasury market settled the session in mixed fashion. The 2-yr note yield fell five basis points to 4.20% while the 10-yr note yield rose three basis points to 3.48%.
- Dow Jones Industrial Average: -9.4% YTD
- S&P Midcap 400: -15.0% YTD
- Russell 2000: -21.5% YTD
- S&P 500: -19.2% YTD
- Nasdaq Composite: -31.6% YTD
Reviewing today's economic data:
- December IHS Markit Manufacturing PMI - Prelim 46.2; Prior 47.7
- December IHS Markit Services PMI - Prelim 44.4; Prior 46.2
Economic data on Monday is limited to the December NAHB Housing Market Index (Briefing.com consensus 34; prior 33) at 10:00 a.m. ET.
Market recovers somewhat ahead of close
16-Dec-22 15:35 ET
Dow -230.56 at 32977.00, Nasdaq -80.28 at 10670.09, S&P -34.65 at 3861.52
[BRIEFING.COM] The main indices are recovering some losses ahead of the close. The S&P 500 is testing resistance at its 50-day moving average (3864).
The S&P 500 communication services sector (+0.2%) tipped back into positive territory.
Treasury yields made sizable downside moves this week. The 2-yr note yield fell 15 basis points this week to 4.20% and the 10-yr note yield fell nine basis points to 3.48%.
Looking ahead to next week, economic data on Monday is limited to the December NAHB Housing Market Index (Briefing.com consensus 34; prior 33) at 10:00 a.m. ET.
TSLA logs more losses
16-Dec-22 15:10 ET
Dow -395.63 at 32811.93, Nasdaq -137.58 at 10612.79, S&P -54.12 at 3842.05
[BRIEFING.COM] The main indices have been inching somewhat higher, but maintain sizable losses.
Tesla (TSLA 150.85, -6.80, -4.3%) is among the more notable losers today. Tesla's order backlog was decreased to below 200,000, according to Inside EVs. Weakness in TSLA is contributing to the underperformance of the S&P 500 consumer discretionary sector 2.0%), which exhibits one of the steepest losses among the 11 sectors.
The CBOE Volatility Index turned negative, down 1.4% or 0.32 to 22.51.
Moderna slips after hitting 11-month highs, Universal Health outperforms on BofA upgrade
16-Dec-22 14:30 ET
Dow -461.83 at 32745.73, Nasdaq -144.56 at 10605.81, S&P -59.37 at 3836.80
[BRIEFING.COM] The S&P 500 (-1.52%) shows the worst losses among the major averages on Friday afternoon, down almost 60 points.
S&P 500 constituents Moderna (MRNA 193.32, -13.93, -6.72%), Ford Motor (F 12.22, -0.81, -6.22%), and Carmax (KMX 61.30, -4.09, -6.25%) pepper the bottom of the standings. After notching 11-month highs earlier in the week, shares of MRNA slip on Friday likely as a result of some profit taking, while Ford slides to seven-week lows on a continuation of recent weakness.
Meanwhile, Universal Health (UHS 134.41, +1.88, +1.42%) is one of today's better performing stocks, owing largely to today's upgrade to Neutral out of BofA Securities.
Gold notches win to cap off the week
16-Dec-22 14:00 ET
Dow -487.08 at 32720.48, Nasdaq -152.61 at 10597.76, S&P -62.49 at 3833.68
[BRIEFING.COM] With about two hours remaining on Friday the tech-heavy Nasdaq Composite (-1.41%) hosts the shallowest losses, though the Nasdaq is on pace to lose some -3.70% this week.
Gold futures settled $12.40 higher (+0.7%) to $1,800.20/oz, allowed higher by weaker treasury yields and falling equities, narrowing losses to -0.58% on the week vs -1.48% at this week's worst levels.
Meanwhile, the U.S. Dollar Index is up narrowly to $104.59.
Page One
Last Updated: 16-Dec-22 09:01 ET | Archive
Indices to do more sledding at the open
It was a poor showing for the stock market on Thursday to say the least. Stock prices broke down with both technical and fundamental factors contributing to a broad-based selloff that saw mega-cap stocks and growth stocks suffer the biggest losses.
The breakdown is continuing this morning.
Currently, the S&P 500 futures are down 38 points and are trading 1.0% below fair value, the Nasdaq 100 futures are down 55 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 354 points and are trading 1.0% below fair value.
Today is a quarterly expiration day that includes the expiration of stock options, index options, index futures, and single-stock futures. It is otherwise referred to as a "quadruple witching" day and Bloomberg reports that $4 trillion of options are set to expire today. Today also features index rebalancing for the S&P 500, S&P 400, S&P 600, and Nasdaq 100. Accordingly, today will be a huge volume day.
This creates a setup for some added volatility, not that the stock market needs any more of that. In any case, it will be a busy tape today.
If things stay as they are, or worsen, the S&P 500 will be on track to breach technical support at its 50-day moving average (3,864) at the open. That will be the first line of defense to see if the bulls have intentions of showing some fight today.
The bulls have been knocked down since the FOMC decision. The S&P 500 has fallen approximately 158 points, or 3.9%, since the FOMC decision was announced on Wednesday.
It has been a gut punch alright, as the combination of incoming data showing a deterioration in growth along with central bank rate hikes and, importantly, declarations of more rate hikes to come, have undercut investor sentiment.
The main concern is that the Fed will raise rates too much and force a hard landing for the U.S. economy, which will have knock-on effects for the global economy. The more direct connection for stock prices is that 2023 earnings estimates are at increased risk for downward revisions, which has invited concerns about stock valuations still being stretched.
That thinking has been the basis for pulling back on buying efforts, yet the market's weakening technical condition has also served as a deterrent.
Market participants, therefore, are watching for a shift in tone. That shift hasn't happened yet, so today's open will feature some more sledding for the major indices.
-- Patrick J. O'Hare, Briefing.com
Accenture seeing a familiar slowdown in spending, sinking its outlook and the stock (ACN)
IT services and consulting firm Accenture (ACN) handily exceeded top and bottom-line estimates for 1Q23 with the company experiencing double-digit growth across all of its markets, but a soft sales outlook for Q2 is clouding over the upside performance.
- Foreign exchange impacts are presenting a major challenge, to the tune of a 9.5% headwind in Q1, but like many other technology companies, ACN is experiencing some macro-related pressures.
- Specifically, the company is seeing some delays in purchasing decisions and a general slowdown in the pace of spending, especially for smaller deals in the retail and consumer goods industries.
This more cautious approach in spending led ACN to take a more guarded approach with its guidance.
- For Q2, the company is forecasting revenue of $15.20-$15.75 bln, which is below expectations at the $15.48 bln mid-point.
- Although ACN lifted its FY23 EPS guidance to $11.20-$11.52 from $11.09-$11.41, the amount of the increase isn't overly impressive since it's a bit less than the amount that ACN beat Q1 estimates by. Therefore, in effect, the company actually revised its EPS outlook slightly lower for the remainder of FY23.
However, business certainly isn't falling off a cliff and there are clear areas of strength.
- For instance, ACN's Cloud First solution, which assists companies in their migration to the cloud and their digital transformations, grew by "very strong" double digits in Q1. During the earnings call, CEO Julie Sweet commented that customers are making significant investments to modernize, improve, and innovate in the cloud.
- Additionally, the Health and Public Service vertical continues to stand out, generating revenue growth of 15% in local currency.
- From a broader and longer-term perspective, Sweet believes that the challenging macroeconomic environment is advantageous for the company. That premise is based on the idea that businesses need to change and adapt more, rather than less, during times of economic volatility.
- In the coming years, the emergence of AI and big data analysis will drive the reinvention of the enterprise and its technology platforms. At the same time, the need to identify and access talent will increase, putting ACN's capabilities at the forefront.
The main takeaway is that ACN reported solid quarterly results, but even a modest downgrade to its outlook is enough to spur a sharp sell-off in this market environment. Investors remain in a "sell now, ask questions later" mindset as economic and earnings growth concerns mount.
Darden Restaurants posts appetizing results amid cooler inflation, but shares still get cooked (DRI)
Darden Restaurants (DRI), the owner of Olive Garden, LongHorn Steakhouse, and a few other smaller casual dining chains, posted a solid beat-and-raise 2Q23 earnings report with strength seen across each of its banners. The strong performance represents a meaningful improvement from last quarter when cost inflation and sluggish consumer spending amid high gas prices put a dent in DRI's results.
- Since that mediocre Q1 earnings report from late September, inflation has cooled off a bit, as evidenced by this week's CPI report. That easing of prices, including for gasoline, provided some much-needed relief for DRI's customer base -- especially those customers with household incomes of $50,000 or less.
- The issue though, as far as today's stock action is concerned, is that the cooling of inflation and the associated improvement in results were anticipated and baked into the stock. In the past two months, DRI had gained about 10%, setting the stage for a sell-the-news reaction.
DRI's healthy same-restaurant sales growth of 7.3% illustrates that people are still enthusiastic about dining out and that its menus and service are resonating well with customers.
- What's especially impressive about this comp number is that the company lapped comp growth of 34.4% from the year-ago period. Olive Garden, which is by far DRI's largest chain, led the way with comp growth of 7.6%. LongHorn Steakhouse wasn't far behind, though, registering comp growth of 7.3%.
- It's also encouraging to see that DRI's strategy to reduce promotional activity -- an approach implemented by recently appointed CEO Rick Cardenas -- hasn't weighed on sales. That speaks to the overall value and quality that customers are finding on DRI's menus.
However, even with this full-price strategy in place, DRI's operating margin slipped by 130 bps yr/yr to 9.4%. Likewise, the company's net earnings declined by 3% yr/yr to $187.2 mln as operating expenses climbed by 11%. Wage inflation and higher food costs are still proving to be a very difficult obstacles to overcome.
Looking ahead, DRI is feeling more optimistic about its prospects for FY23. Specifically, the company nudged its same-restaurant sales growth outlook higher to 5.0-6.5% from 4.0-6.0% and raised the low end of its EPS guidance higher to $7.60 from $7.40. DRI maintained the high end of its guidance, though, sticking with $8.00. That reluctance to raise the high end of its earnings outlook may be a source of disappointment.
Although it's not being reflected in the stock today, it was a solid quarter for DRI. Heightened expectations ahead of the Q2 report, intensifying concerns about the economy and consumer spending, and the lapping of a very difficult comp next quarter (+38.1%) are combining to keep a lid on the stock. In terms of what DRI can control, though, the company is executing well.
Adobe is nicely higher as it closes out FY22 on a strong note (ADBE)
Adobe (ADBE +4%) is nicely higher today despite overall market weakness after ending FY22 on a strong note. The company's Q4 (Nov) results included its first double-digit EPS beat of the fiscal year and its biggest EPS upside in six quarters. Revenue and Q1 (Feb) guidance was in-line. Adobe also reaffirmed FY23 EPS and revs.
- Its Digital Media segment performed well with revenue rising 10% yr/yr (+14% constant currency) to $3.30 bln. This was slightly below prior guidance of +13% (+15% CC). We think the CC comparison is the truer comparison because it weeds out FX headwinds, which were greater than expected in Q4. It was also down a bit from +16% CC in Q3. However, we think it was a good number and was better than feared. DM is by far Adobe's larger segment, so people watch it closely.
- Within the DM segment, Creative revenue grew to $2.68 bln (+13% CC) while Document Cloud revenue was $619 mln (+19% CC). The other metrics in DM were quite good as it had its best quarter ever for net new ARR at $576 mln, exiting the quarter with Digital Media ARR of $13.97 bln. Adobe says the strong results were driven by demand for its flagship applications, including Photoshop, Lightroom, Illustrator, Premier Pro and Acrobat. Adobe also expanded in both SMB and enterprise.
- Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE saw revenue grow 14% yr/yr (+16% CC) to $1.15 bln, which was better than +13% (+15% CC) prior guidance. DE subscription revenue came in at $1.01 bln, topping $1 bln for the first time ever. Adobe cited Chipotle as a good example of how the DM and DE segments work together. Chipotle uses Creative Cloud to design content for Web and mobile channels and Experience Cloud to highlight new product offerings and support a faster online ordering process.
- Looking ahead to FY23, Adobe expects normal seasonality with Q1 being sequentially down and seasonally light for new business, then Adobe expects sequential growth in Q2, a dip in Q3 on summer seasonality, and a strong finish to the year in Q4. Quickly on the Figma acquisition announcement, which was announced last quarter. Adobe remains excited about Figma, which is used by millions of mobile and web developers. Adobe continues to expect to close the transaction in 2023.
Overall, this was a good quarter for Adobe, following in Docusign's (DOCU) footsteps last week. The highlights were the big EPS upside, strong net new ARR growth in the DM segment and the revenue upside in the DE segment. While the overall results did not blow us away, we think they were much better than feared, especially the Q1 guidance. We had concerns macro headwinds might lead to a guide-down. It goes to show that businesses continues to prioritize investments in digital.
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 im
The Big Picture
Last Updated: 16-Dec-22 13:19 ET | Archive
A Dogs of the Dow 2023 Preview
2022 has not been a good year for the stock market. In fact, it has been annus horribilis. As of this writing, the Nasdaq Composite is down 31.9%, the Russell 2000 is down 22.1%, the S&P is down 19.5%, the S&P Midcap 400 is down 15.4%, and the Dow Jones Industrial Average is down 10.0%.
A 10% decline for the Dow Jones Industrial Average isn't cause for celebration in an absolute sense, but it is in a relative sense. What has also been cause for celebration is the average total return of the 2022 Dogs of the Dow.
Stronger Together
The Dogs of the Dow are the ten Dow Jones Industrial Average components with the highest dividend yield. Sometimes those high dividend yields are the result of falling stock prices while other times they are simply a case of a stock having a high dividend yield.
It is a pretty simple process for investing in a Dogs of the Dow portfolio. After the market closes on the last day of the year, identify the ten highest-yielding Dow stocks, and then buy them at the start of the year investing an equal dollar amount in each of the stocks. Hold the stocks for a year and repeat the process at the end of the next year.
A variation of the strategy is to buy the five lowest-priced of the ten highest-yielding Dow stocks. These are called the "Small Dogs of the Dow." Again, one would purchase them at the start of the year, investing an equal dollar amount, and hold them for a year.
The table below provides a snapshot of the 2022 Dogs of the Dow. Individually, there have been some real dogs in the bunch, but collectively, they have vastly outperformed the market with an average total return of 0.3% versus -17.0% for the S&P 500. The Small Dogs of the Dow are in blue.
Stock Symbol Price 2022 Total Return (%) | Dow, Inc. | DOW | 49.07 | -9.2 | | IBM | IBM | 139.11 | 9.3 | | Verizon | VZ | 36.84 | -25.2 | | Chevron | CVX | 167.90 | 48.3 | | Walgreens Boots Alliance | WBA | 38.70 | -22.3 | | Merck | MRK | 108.96 | 46.7 | | Amgen | AMGN | 266.83 | 22.4 | | 3M | MMM | 120.52 | -29.3 | | Coca-Cola | KO | 62.48 | 8.6 | | Intel | INTC | 26.53 | -46.5 | Source: FactSet
Less than Average
The website dogsofthedow.com offers an insightful look at the historical performance of the Dow Dogs and the process for carrying out this investment strategy.
Past performance is no guarantee of future results, yet the strategy has a decent track record.
Since 2000, the Dogs of the Dow has had an average annual total return of 8.7% and the Small Dogs of the Dow has had an average annual total return of 9.3%, according to dogsofthedow.com. The 2022 Dogs of the Dow portfolio, then, has been less than average, yet it has clearly fared much better than the broader market. The Small Dogs of the Dow portfolio has not with an average total return of -18.9%.
There are still nine trading days left in 2022, but an early glimpse of a Dogs of the Dow portfolio for 2023 is included in the table below. The Small Dogs of the Dow are in blue. They are the same, with the exception of Cisco, which has replaced Coca-Cola in that projected grouping.
Stock Symbol Price Dividend Yield (%) | Verizon | VZ | 36.86 | 6.9 | | Dow, Inc. | DOW | 49.07 | 5.7 | | Intel | INTC | 26.54 | 5.5 | | Walgreens Boots Alliance | WBA | 38.72 | 5.0 | | 3M | MMM | 120.41 | 4.9 | | IBM | IBM | 139.34 | 4.7 | | Chevron | CVX | 167.92 | 3.4 | | Amgen | AMGN | 267.00 | 3.2 | | Cisco | CSCO | 47.61 | 3.2 | | JPMorgan Chase | JPM | 128.73 | 3.1 | Source: FactSet
We will post a final Dogs of the Dow for 2023 portfolio at the end of trading on Friday, December 30, to our In Play page.
We will reserve this space that day for our annual "Year in Review."
Happy holidays!
-- Patrick J. O'Hare, Briefing.com
(Editor's Note: the next installment of The Big Picture will be the Year in Review on December 30)
portant 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.
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