Market Snapshot
briefing.com
| Dow | 32656.03 | -269.77 | (-0.82%) | | Nasdaq | 10468.97 | -176.29 | (-1.66%) | | SP 500 | 3807.79 | -44.99 | (-1.17%) | | 10-yr Note |
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| | NYSE | Adv 931 | Dec 2223 | Vol 951 mln | | Nasdaq | Adv 1278 | Dec 3349 | Vol 4.54 bln |
Industry Watch
| Strong: Energy |
| | Weak: Information Technology, Consumer Discretionary, Real Estate, Materials, Communication Services |
Moving the Market
-- Rising Treasury yields
-- Lack of conviction after large losses recently
-- Downside leadership from mega cap stocks
-- Bloomberg article over the weekend suggesting sovereign wealth funds, pension funds, and balanced mutual funds could sell up to $100 billion of stocks over the last few weeks in December in a rebalancing effort
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Closing Stock Market Summary
19-Dec-22 16:20 ET
Dow -162.92 at 32762.88, Nasdaq -159.38 at 10485.88, S&P -34.70 at 3818.08
[BRIEFING.COM] Any expectations for a rebound today coming off last week's losses were dashed shortly after today's open. The major indices were soon backsliding, pressured by ongoing earnings concerns, weakness in the mega-cap stocks, and a Bloomberg report highlighting a rebalancing disposition that will presumably favor bonds in the last few weeks of the year.
Bonds, however, didn't fare much better today. They were also under selling pressure throughout today's trade, notwithstanding a weaker-than-expected NAHB Housing Market Index report for December. The 2-yr note yield jumped five basis points to 4.25% and the 10-yr note yield increased 10 basis points to 3.58%.
In the case of bonds, though, they were consolidating some of their monthly gains. For stocks, the losses simply continued to mount as fundamental concerns contributed to a further deterioration in the stock market's technical condition.
Including today's losses, the Nasdaq Composite is down 8.0% in December, the Russell 2000 is down 7.8%, the S&P Midcap 400 is down 7.3%, the S&P 500 is down 6.4%, and the Dow Jones Industrial Average is down 5.3%.
The S&P 500, which traded a whisker above 4,100 last Tuesday, fell to 3,800 at today's low in afternoon trading before rebounding some in the final hour. The trek there was paced by weakness in the mega-cap stocks, tax-loss selling interest, and a general sense of reluctance among participants to buy into the weakness.
Meta Platforms (META 114.48, -4.95, -4.1%) dropped on a report that the European Commission believes Meta breached its antitrust rules; Apple (AAPL 132.37, -2.14, -1.6%) fell on lingering supply/demand uncertainty as China grapples with rapidly spreading COVID cases; Tesla (TSLA 149.87, -0.36, -0.2%) traded down on dual concerns about weakening demand and Elon Musk's Twitter involvement; Microsoft (MSFT 240.45, -4.24, -1.7%) lost ground despite being named a Top Pick for 2023 by Morgan Stanley; and Alphabet (GOOG 89.15, -1.71, -1.9%) dropped in sympathy with the lot.
Losses in those particular stocks, which fed a 1.5% decline in the Vanguard Mega-Cap Growth ETF (MGK), also had a disproportionate impact on the communication services (-2.2%), consumer discretionary (-1.7%), and information technology (-1.4%) sectors, which were weighty influences on the broader market.
The materials (-1.3%) and real estate (-1.1%) sectors were also weak links. The only sector to eke out a gain today was energy (+0.1%), which benefited from a 1.6% gain in WTI crude futures to $75.47/bbl.
Market internals reflected today's losing battle. Declining issues outpaced advancing issues by a better than 2-to-1 margin at the NYSE and Nasdaq.
Economic data today was limited to the NAHB Housing Market Index, which fell to 31 in December (Briefing.com consensus 34) from 33 in November.
- Dow Jones Industrial Average: -9.9% YTD
- S&P Midcap 400: -15.9% YTD
- S&P 500: -19.9% YTD
- Russell 2000: -22.5% YTD
- Nasdaq Composite: -32.6% YTD
Tuesday's session will include the November Housing Starts and Building Permits Report at 8:30 a.m. ET, as well as earnings results from General Mills (GIS) before the open, and Nike (NKE) and FedEx (FDX) after the close.
Mega-cap stocks weigh heavily on broader market
19-Dec-22 15:25 ET
Dow -280.54 at 32645.26, Nasdaq -194.79 at 10450.47, S&P -49.79 at 3802.99
[BRIEFING.COM] The major indices have taken another leg lower in today's afternoon trade. The S&P 500 scraped 3,800 a short time ago after trading a whisker above 4,100 last Tuesday.
Buyers have remained a reluctant bunch, unnerved by the idea that 2023 earnings estimates are at increased risk of downward revision in what is expected to be a weakening economic environment.
The weight of today's losses, though, has emanated from the mega-cap space. The Vanguard Mega-Cap Growth ETF (MGK) is down 1.8% and the losses in those components are being felt in areas like the S&P 500 communication services (-2.2%), consumer discretionary (-1.9%), and information technology (-1.9%).
Another notable pocket of weakness is the semiconductor space, evidenced by a 2.1% decline in the Philadelphia Semiconductor Index.
Warner Bros. Discovery falls in sympathy to soft weekend box office, Vertex Pharma dips on downgrade
19-Dec-22 14:25 ET
Dow -269.77 at 32656.03, Nasdaq -176.29 at 10468.97, S&P -44.99 at 3807.79
[BRIEFING.COM] Losses have accelerated in the last half hour, the S&P 500 (-1.17%) now approaching the 3,800 level, down about 45 points.
S&P 500 constituents Warner Bros. Discovery (WBD 9.09, -0.82, -8.27%), Wynn Resorts (WYNN 81.51, -4.50, -5.23%), and Vertex Pharma (VRTX 291.15, -13.65, -4.48%) dot the bottom of the standings. Shares of WBD slip on Monday as fellow filmmaker Walt Disney (DIS) declines in the face of a worse than expected opening box office for Avatar: The Way of Water, WYNN and casino peers dip in part due to the worsening COVID-19 situation in China, while VRTX falls following a Jefferies downgrade to Hold.
Meanwhile, Cummins (CMI 239.04, +3.44, +1.46%) stands atop the S&P, holding up well alongside other select industrial names.
Gold fades off opening gains, ends lower on Monday
19-Dec-22 14:00 ET
Dow -199.06 at 32726.74, Nasdaq -151.16 at 10494.10, S&P -35.44 at 3817.34
[BRIEFING.COM] With about two hours remaining on Monday the tech-heavy Nasdaq Composite (-1.41%) holds the worst losses among the major averages, extending losses to about -8.5% thus far in December.
Gold futures settled $2.50 lower (-0.1%) to $1,797.70/oz, fading off earlier gains juxtaposed against yields turning around during the session.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.58.
Nike, IBM underperform in DJIA on Monday
19-Dec-22 13:30 ET
Dow -111.44 at 32814.36, Nasdaq -112.40 at 10532.86, S&P -23.06 at 3829.72
[BRIEFING.COM] The Dow Jones Industrial Average (-0.34%) is the shallowest declining major average on Monday afternoon, having moved mostly sideways in the last half hour.
A look inside the DJIA shows that Nike (NKE 103.39, -2.56, -2.42%), IBM (IBM 137.64, -2.52, -1.80%), and Microsoft (MSFT 240.32, -4.37, -1.79%) are among today's top laggards.
Meanwhile, Boeing (BA 187.58, +2.88, +1.56%) stands atop the average.
The DJIA is in the midst of a four-session skid, down about -3.50% over that period.
Page One
Last Updated: 19-Dec-22 08:59 ET | Archive
Wall Street still missing that Christmas spirit
Christmas is approaching and Santa has yet to be seen. Instead the Grinch has infiltrated Wall Street, evidenced by the cold-hearted returns seen so far this month.
Entering today, the Nasdaq Composite is down 6.7%, the Russell 2000 is down 6.5%, the S&P Midcap 400 is down 6.3%, the S&P 500 is down 5.6%, and the Dow Jones Industrial Average is down 4.8% in December.
Moreover, there was a Bloomberg article over the weekend suggesting sovereign wealth funds, pension funds, and balanced mutual funds could sell up to $100 billion of stocks over the last few weeks in a rebalancing effort.
To say the least, the stock market is very much off balance in this typically good month as growth concerns have come to the fore. They won't disappear overnight either like Frosty in a greenhouse.
That reality seems to be hanging like a wet blanket over the futures market.
Currently, the S&P 500 futures are flat and are trading roughly in-line with fair value, the Nasdaq 100 futures are up nine points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are down 15 points and are trading fractionally below fair value.
That is a fairly weak disposition knowing that the S&P 500 has dropped 5.4% in the last two weeks. Yes, there is some thinking that the market might be due for a bounce after slipping on ice like it has, yet there isn't any real traction yet.
Everyone, it seems, is waiting to see if Santa is going to come around, which leaves the market stuck between feelings of hope and angst. Accordingly, there isn't much happening at the broad market level this morning.
All the action is happening in story stocks like Madrigal Pharmaceuticals (MDGL), which is soaring 210% following a positive Phase 3 trial result, like Tesla (TSLA), which is up 2.0% after Elon Musk suggested he would abide by a Twitter poll saying he should step down as Twitter CEO, and like Aerojet Rocketdyne Holdings (AJRD), which is up 1.8% on the news that it is being acquired by L3 Harris (LHX) for $4.7 billion, or $58.00 per share, in cash.
Business is happening in Whoville, but the overall Christmas spirit is still missing.
-- Patrick J. O'Hare, Briefing.com
AT&T sinks on an analyst downgrade; TMUS remains a fierce competitor (T)
AT&T (T -4%) is sinking below its 50-day moving average (18.06) today after MoffettNathanson downgraded the stock to "Underperform" from "Market Perform." The analyst simultaneously upgraded rival Verizon (VZ), which has seen its shares plunge relative to AT&T on the year, dropping nearly 30% while AT&T is down single digits. Meanwhile, the second major telecom in the U.S., T-Mobile (TMUS), has rocketed higher on the year, currently up roughly 24%.
In October, Briefing.com outlined a substantial factor why TMUS has been mightily outperforming its closest rivals after its Q3 numbers dwarfed VZ's and AT&T's. Price is TMUS's most significant competitive advantage, as its unlimited plan, which consumers are trading up for as it offers the best bang-for-your-buck, is less expensive than its competitors. In an environment where value is emphasized, TMUS is capitalizing.
Meanwhile, after climbing over 20% since posting upbeat Q3 numbers on October 20, shares of AT&T have met some resistance, as a few of the weak spots from Q3 become more noticeable after such a big run.
- AT&T's Business Wireline division, which remains under restructuring, continues to hang over the company. Revs fell 4.5% yr/yr in Q3 on waning demand for legacy voice and data services. Meanwhile, TMUS announced the planned sale of its overall wireline business, underscoring its agility, a plus during a souring economy. Although AT&T is restructuring its Business Wireline unit, it may continue to weigh on results.
- Additionally, TMUS was not shy in boasting that it continued to win business customers from rivals, evidenced by one of its highest-ever postpaid phone net adds in Q3. AT&T's business-related results may have outshined VZ, which saw its business churn tick up toward record highs, but it is not good long-term for AT&T if TMUS continues to take its business customers.
- Although TMUS's presence may not affect AT&T reaching its trimmed FY22 free cash flow outlook of $14 bln, it could start to pressure future free cash flow. Last quarter, AT&T commented that it expects EBITDA growth and higher free cash flows in FY23, using excess cash after dividends to reduce debt, targeting debt to adjusted EBITDA of 2.5x.
Outside of competitive challenges, the macroeconomic environment continues to dampen discretionary spending. Collection cycles are lengthening, reverting to pre-pandemic levels, while delinquencies are ticking slightly higher than pre-pandemic levels. At the same time, cost inflation remains elevated, forcing AT&T to hike prices, possibly magnifying current consumer-related issues.
Still, AT&T's long-term health appears upbeat. Nevertheless, it will need to focus on innovating and offering more value as it has a fierce competitor hot on its tail.
Cerevel Therapeutics on a promising path to launching its schizophrenia treatment (CERE)
Cerevel Therapeutics (CERE), a clinical-stage biopharmaceutical company focused on treating neurological diseases, is soaring after announcing positive results from its Phase 1 trial that analyzed the effect of emraclidine on ambulatory blood pressure. The Food & Drug Administration (FDA) wanted to see if emraclidine, which is being developed by CERE as a once-daily treatment for schizophrenia, posed a risk of raising a patient's blood pressure. According to data from the study, the drug did not induce an increase in blood pressure over the eight-week trial period for people living with schizophrenia.
This is an encouraging development for the drug as the positive safety and tolerability data is aligning with some promising news on the efficacy front.
- Last Friday, CERE announced that data from its Phase 1b clinical trial was published in The Lancet. The medical publication reported that both emraclidine treatment groups -- one on a 30 mg once daily regiment, and another on a 20 mg dose -- demonstrated statistically significant improvements in symptom severity.
- While this data was originally announced in June 2021, the inclusion of the study results in The Lancet shines a brighter light on the drug and its potential.
Based on the positive initial trial results, CERE initiated two Phase 2 trials (EMPOWER-1 and EMPOWER-2) this past June. The read out from those trials aren't expected to be released until 1H24, at which time it will be determined whether a Phase 3 trial is warranted. Therefore, a potential FDA approval of emraclidine may still be a couple of years away.
Should emraclidine receive clearance from the FDA, it would represent a game-changing development for CERE.
- On a global basis, there are approximately 24 mln people living with schizophrenia, which is a debilitating neurological disease that oftentimes requires lifelong treatment.
- Although there are several FDA-approved schizophrenia treatments available, most of them have serious side effects that can include neuromotor effects, sedation, weight gain, and increased risk of heart disease.
- For some context on the market opportunity, CAPLYTA, a popular schizophrenia drug developed by Intra-Cellular Therapies (ITCI), generated sales of $71.9 mln in Q3. That was good for a 223% yr/yr surge in sales.
The main takeaway is that CERE's novel approach in treating schizophrenia, which includes the activation of proteins called M4 muscarinic acetylcholine receptors, is becoming validated with positive data on both the efficacy and safety fronts. A potential FDA approval isn't on the near-term horizon, but any updates regarding the Phase 2 trial could act as a major catalyst for the stock in the months ahead.
L3Harris looks to gain foothold in emerging missile development market with Aerojet deal (LHX)
Aerojet Rocketdyne (AJRD), a manufacturer of propulsion systems for missiles and for NASA's space vehicles, is taking its second crack at being acquired. Yesterday, defense contractor L3Harris (LHX) announced that it has acquired AJRD for $58/share in an all-cash transaction, valuing AJRD at about $4.7 bln. When Reuters reported on November 30 that AJRD was putting itself up for sale, it stated that General Electric (GE) and Textron (TXT) were also in the running to purchase AJRD. In the end, it appears that the price tag became a bit too frothy for those two industrial companies.
The buyout attempt comes less than one year after the Federal Trade Commission (FTC) struck down a deal that had Lockheed Martin (LMT) acquiring AJRD for $4.4 bln. The FTC thwarted that acquisition over antitrust concerns.
Since there isn't much overlap between AJRD's and LHX's customer bases and supply chains, it seems that this transaction has a better chance of gaining regulatory approval. However, an approval is still far from a slam dunk given that regulators have really sharpened their focus on anti-competitive matters.
- Should this deal go through, LHX would gain significant access to a missile and missile defense system market that's experiencing robust demand in the wake of the conflict in Ukraine. Supply chain issues have prevented AJRD from fully meeting this demand, as illustrated by its top-line miss in Q3.
- AJRD's backlog, though, stands at about $6.7 bln, which provides good revenue and earnings visibility in the near and intermediate term.
Additionally, a rising priority for the U.S. government and the Pentagon is the development of hypersonic missiles, which AJRD is also heavily involved in.
- The Department of Defense (DoD) has authorized a $40+ bln budget for FY23, with missile defeat and defense representing over half of that total.
- On top of that, NASA has requested a $25+ bln budget for FY23 in support of its Artemis mission to enable human exploration on the Moon and on Mars.
Buoyed by these market tailwinds and the complementary nature of AJRD's products, LHX expects the transaction to be accretive to non-GAAP EPS in year one. Despite these positives, LHX is trading lower on the acquisition news, likely due to a couple different reasons.
- LHX is financing the deal primarily with debt, tacking on to its existing long-term debt balance of nearly $6.0 bln. In these volatile market conditions, investors want to see companies de-risking their balance sheets by paying down debt, rather than aggressively adding to their debt burdens.
- There are execution concerns given that AJRD has been contending with major supply chain disruptions. Sorting through those issues could cause LHX to take its eye off the ball in other areas of the business.
- The acquisition also creates some uncertainty given the regulatory hurdles that LHX needs to jump to complete this deal. Contemplating whether the acquisition will be approved creates an overhang on the stock.
Overall, we believe that this deal is a strong strategic fit for LHX which aligns the company with a reemerging missile development program within the DoD. Perhaps in a different market environment in which investors weren't as risk-averse, the deal would be greeted more enthusiastically.
Madrigal Pharmaceuticals surges on positive results from highly-anticipated clinical trial (MDGL)
Madrigal Pharma (MDGL +235%) is surging today after this clinical-stage biopharma announced some big news regarding its flagship drug in development. Madrigal announced positive topline results from its pivotal Phase 3 MAESTRO-NASH biopsy clinical trial of resmetirom, a liver-directed selective thyroid hormone receptor agonist.
- The trial achieved both liver histological improvement endpoints that the FDA had proposed as being reasonably likely to predict clinical benefit to support accelerated approval for the treatment NASH with liver fibrosis. The company says these results demonstrate the potential for resmetirom to improve treatment for both the underlying steatohepatitis that drives this disease and the resulting fibrosis that is associated with progression to cirrhosis and its complications.
- Resmetirom was also shown to be safe and well-tolerated at both the 80 mg and 100 mg doses. Madrigal now intends to file a NDA seeking accelerated approval of resmetirom for the treatment of non-cirrhotic NASH with liver fibrosis. This disease puts patients at risk of progressing to liver failure, liver cancer, need for liver transplant, and premature mortality.
- Just to understand the potential numbers here. Nonalcoholic steatohepatitis (NASH) is a more advanced form of nonalcoholic fatty liver disease (NAFLD). According to the company, NAFLD afflicts more than 20% of adults globally, about 30% in the US. Of that population, 20% may have NASH. Once NASH progresses to significant liver fibrosis (stages F2 and F3) the risk increases dramatically. NASH is rapidly becoming the leading cause of liver transplantation in the US.
- So why is the stock up so much? Because this appears to be good news all the way around. The trial achieved both liver histological improvement endpoints. This easily could have been a mixed result rather than a clean result on efficacy, which this appears to be. Also, it was important that it was shown to be safe and well-tolerated. Another factor here is that this trial was based on actual liver biopsies, which should aid Madrigal's quest to get accelerated approval. There are currently no FDA-approved therapies for the treatment of NASH, so this is a big deal.
Finally, we suspect larger pharma companies will take note of today's news and this surely makes Madrigal more attractive as a potential acquisition target. Madrigal is a small company with few employees, so it would make sense to consider being acquired by a large pharma, which would be better positioned to roll this drug out to commercialization.
ZipRecruiter shares receiving a raise after the company's $50 mln ASR program (ZIP)
ZipRecruiter (ZIP +6%) may not operate in a favorable environment, with the Federal Reserve actively pursuing a cooler labor market. However, that has not stopped management from aggressively buying back shares. The employment marketplace provider initiated an accelerated share repurchase (ASR) program to buy back $50 mln of its stock, roughly 3% of its total outstanding shares.
Today's announcement marks the second time ZIP has stepped on the gas this year in retiring shares, a sign that management continues to view its share price as undervalued. Furthermore, after ZIP's Q3 earnings report in early November, the company added $200 mln to its current repurchase authorization in addition to its previous $250 mln announced earlier in the year. After ZIP's ASR agreement, around $110 mln will remain, highlighting management's buyback aggressiveness lately.
As a result of management's bullishness on ZIP's potential upside, we wanted to spotlight some of the company's positive developments lately.
- The job market is amid a mean reversion process from last year's peaks. However, during a conference earlier this month, ZIP commented that the situation is not as dire as headlines make it appear. While the tech sector is among the worst-performing industries, it is vastly different from what ZIP is witnessing in travel and healthcare verticals.
- ZIP's Q3 numbers provide evidence of this. The company delivered a solid beat-and-raise, topping sales estimates and upping its revenue and adjusted EBITDA outlook. Meanwhile, adjusted EBITDA margins reached 23%, a 3 pt jump yr/yr, and healthy progress toward ZIP's long-term goal of 30%.
- Another long-term target is to generate 50% of total revenue from enterprises. As of Q3, this figure stood at 23%, a solid improvement from the roughly 19% in the year-ago period. A critical difference between enterprises and small and medium-sized businesses (SMBs) is that enterprises boast a longer decision-making cycle. In contrast, SMBs are quick to react to ups and downs. As a result, there are less dramatic moves from enterprises, providing more stability during economic cycles.
- Lastly, ZIP commands a sturdy competitive position. When asked how ZIP stacks up against its peer group, notably LinkedIn (MSFT), ZIP discussed how it is positioned differently, targeting most of the economy instead of a smaller subset of high-end white-collar jobs. Additionally, ZIP is optimistic that even as the labor market sours, its platform will be top-of-mind for many new job seekers.
Overall, even as the labor market is in the Fed's crosshairs, ZIP boasts healthy financials, solid margins, an excellent competitive position, and room to capture more market share. We also like seeing management continually buy back shares, signaling its share price is relatively low and its confidence in continually generating strong cash flows.
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