Market Snapshot
briefing.com
| Dow | 32829.82 | +66.94 | (0.20%) | | Nasdaq | 10480.34 | -5.54 | (-0.05%) | | SP 500 | 3820.20 | +2.12 | (0.06%) | | 10-yr Note | -30/32 | 3.68 |
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| | NYSE | Adv 1597 | Dec 1461 | Vol 892 mln | | Nasdaq | Adv 2314 | Dec 2242 | Vol 4.6 bln |
Industry Watch
| Strong: Energy, Financials, Materials, Industrials, Communication Services, Information Technology |
| | Weak: Consumer Discretionary, Real Estate, Health Care, Consumer Staples |
Moving the Market
-- Surprise move by the Bank of Japan to allow the 10-yr JGB yield to move +/- 50 basis points from 0.00% versus its prior band of +/- 25 basis points, which precipitated a big move in the yen and sovereign bond markets
-- Weak building permits data from November, which is a leading indicator
-- Mega cap stocks driving index level price action
-- Thinking the market is oversold on a short term basis likely fueling a rebound effort in a historically strong period for the market
-- S&P 500 finding support at 3800
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Closing Summary
20-Dec-22 16:25 ET
Dow +92.20 at 32855.08, Nasdaq +1.08 at 10486.96, S&P +3.96 at 3822.04
[BRIEFING.COM] Shortly after the opening bell, today's trade had the looks of another downtrend day for the stock market. The main indices bounced off their early lows, however, after buyers stepped in when the S&P 500 breached the 3,800 level.
The upside bias was supported by some speculative buying interest due to the market being oversold on a short-term basis. At their lows this morning, the Nasdaq Composite and S&P 500 were down 9.7% and 7.5%, respectively, from their highs a week ago. When taking into account the scope of recent losses, though, today's gains still had a tenuous feel and were decidedly modest in size.
Most of the outsized price action today was seen in the bond and currency markets. The 2-yr Treasury note yield settled at 4.27% after hitting 4.30% overnight. The 10-yr note yield rose ten basis points to 3.68% after hitting 3.71% overnight. The U.S. Dollar Index fell 0.7% to 103.97 with USD/JPY -3.8% to 131.69.
These moves followed a surprise announcement from the Bank of Japan (BOJ) that it will allow the 10-yr JGB yield to move +/- 50 basis points from 0.00% versus its prior band of +/- 25 basis points as part of an effort "to improve market functioning." Separately, the BOJ maintained its benchmark rate at -0.1%, as expected.
Market participants also had to digest some disappointing economic data released this morning. The focal point was an 11.2% month-over-month decline in November building permits (a leading indicator) to a seasonally adjusted annual rate of 1.342 million (Briefing.com consensus 1.480 million). Single-unit permits were flat to down in every region.
Still, buyers were not scared away entirely today and market breadth skewed somewhat positive. Advancers led decliners by a roughly 11-to-10 margin at both the NYSE and the Nasdaq.
The majority of the 11 S&P 500 sectors closed the session with a gain, although only one -- energy (+1.5%) -- ended more than 1.0% higher. That sector drew some added support from rising oil prices ($76.02/bbl, +0.55, +0.7%). Meanwhile, the consumer discretionary sector (-1.1%) suffered the steepest loss by a wide margin due to ongoing weakness in Tesla (TSLA 137.80, -12.07, -8.1%).
Many mega cap stocks had a volatile session and played an influential role in driving the meandering price action for the three main indices. The Vanguard Mega Cap Growth (MGK) closed flat versus a 0.1% gain in both the S&P 500 and Invesco S&P 500 Equal Weight ETF (RSP).
Notably, small and mid cap stocks performed better than their larger peers today. The Russell 2000 (+0.5%) and S&P Mid Cap 400 (+0.5%) were among the "biggest" winners for the main indices, albeit still registering modest gains.
- Dow Jones Industrial Average: -9.6% YTD
- S&P Midcap 400: -15.5% YTD
- S&P 500: -19.8% YTD
- Russell 2000: -22.2% YTD
- Nasdaq Composite: -32.6% YTD
Reviewing today's economic data:
- Total housing starts declined 0.5% month-over-month to a seasonally adjusted annual rate of 1.427 million units (Briefing.com consensus 1.395 million), yet single-unit starts fell by 4.1% to 828,000. Total building permits declined 11.2% month-over-month to a seasonally adjusted annual rate of 1.342 million (Briefing.com consensus 1.480 million), with permits for single-unit dwellings dropping by 7.1%.
- The key takeaway from the report is the weakness in building permits, which are a leading indicator. There wasn't growth in any region of the country for single units. That speaks to the waning confidence among homebuilders who recognize the affordability constraints for prospective buyers due to building cost inflation and much higher mortgage rates.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior +3.2%)
- 8:30 a.m. ET: Q3 Current Account Balance (Briefing.com consensus -$224.0B; prior -$251.1B)
- 10:00 a.m. ET: December Consumer Confidence (Briefing.com consensus 101.0; prior 100.2)
- 10:00 a.m. ET: November Existing Home Sales (Briefing.com consensus 4.20M; prior 4.43M)
- 10:30 a.m. ET: Weekly EIA Crude Oil Inventories (prior +10.23M)
Econ data releases for Wednesday
20-Dec-22 15:30 ET
Dow +131.36 at 32894.24, Nasdaq +18.99 at 10504.87, S&P +10.99 at 3829.07
[BRIEFING.COM] Things are little changed heading into the close. The main indices are somewhat choppy, but confined to a narrow trading range.
Treasury yields moved higher this session. The 10-yr note yield rose ten basis points to 3.68% and the 2-yr note yield fell two basis points to 4.27%.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 a.m. ET: Weekly MBA Mortgage Applications Index (prior +3.2%)
- 8:30 a.m. ET: Q3 Current Account Balance (Briefing.com consensus -$224.0B; prior -$251.1B)
- 10:00 a.m. ET: December Consumer Confidence (Briefing.com consensus 101.0; prior 100.2)
- 10:00 a.m. ET: November Existing Home Sales (Briefing.com consensus 4.20M; prior 4.43M)
- 10:30 a.m. ET: Weekly EIA Crude Oil Inventories (prior +10.23M)
Market clings to narrow range
20-Dec-22 15:05 ET
Dow +66.94 at 32829.82, Nasdaq -5.54 at 10480.34, S&P +2.12 at 3820.20
[BRIEFING.COM] The major indices are floating around a narrow trading range near session highs.
Semiconductor stocks are a notable pocket of weakness today. The PHLX Semiconductor Index is down 0.3%, trailing the broader market.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 0.7% to $76.02/bbl while natural gas futures fell 8.0% to $5.36/mmbtu.
Moderna outperforms, MasterBrand underperforms in S&P 500 Tuesday action
20-Dec-22 14:30 ET
Dow +158.11 at 32920.99, Nasdaq +16.64 at 10502.52, S&P +11.99 at 3830.07
[BRIEFING.COM] The S&P 500 (+0.31%) is firmly situated in second place on Tuesday afternoon.
S&P 500 constituents Moderna (MRNA 202.49, +12.60, +6.64%), Newmont Mining (NEM 47.89, +2.29, +5.02%), and General Electric (GE 80.61, +2.55, +3.27%) pepper the top of the standings. MRNA continues back-and-forth action on Tuesday, firmly higher after a modest tgt raise out of Piper Sandler and a string of three straight losses, gold miners including NEM advance alongside strength in the underlying commodity.
Meanwhile, recently spun off residential furnishings firm MasterBrand (MBC 7.66, -0.81, -9.56%) falls to the bottom of the S&P.
Gold jumps as dollar falls following BoJ yield policy update
20-Dec-22 14:00 ET
Dow +166.57 at 32929.45, Nasdaq +16.02 at 10501.90, S&P +12.00 at 3830.08
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (+0.15%) hosts the shallowest advance, up just 16 points.
Gold futures settled $27.90 higher (+1.5%) to $1,825.40/oz as the greenback fell modestly following news of the BoJ's surprise tweak to its yield curve control (YCC) policy.
Meanwhile, the U.S. Dollar Index is down approx. -0.6% to $104.05.
Page One
Last Updated: 20-Dec-22 09:04 ET | Archive
A BOJ tweak adds to market uncertainty
If market participants wanted more reason to feel uncertain about the market outlook, they found it today after the Bank of Japan (BOJ) sprung a surprise tweak to its yield curve control (YCC) policy on capital markets.
Briefly, the BOJ will now allow the 10-yr JGB yield to move +/- 50 basis points from 0.00% versus its prior band of +/- 25 basis points to improve market functioning. That doesn't sound like a big switch -- not in this day and age when central banks are moving their benchmark lending rates 50 basis points and 75 basis points at a time -- but it was big news nonetheless, evidenced by the massive swing in the dollar-yen pair.
USD/JPY is down 3.3% to 132.29 but it had been down as much as 3.6%. The scope of that move implies currency traders were not expecting the BOJ "tweak." The same can be said for sovereign bond markets, which saw knee-jerk selling (and rising yields) in the wake of the news.
The 10-yr note yield, which settled yesterday at 3.58%, flirted with 3.70%. It is now at 3.67%. The 2-yr note yield, which settled yesterday at 4.25%, moved up to 4.29%. It is currently at 4.27%.
In conjunction with the YCC tweak, the Bank of Japan left its benchmark policy rate unchanged at -0.1%, as expected, and said it continues to plan to make significant purchases of JGBs.
The People's Bank of China (PBOC), meanwhile, left its 1-yr and 5-yr loan prime rates unchanged, although there was speculation in the China Securities Journal that the rates could still be cut in coming months along with the reserve requirement ratio.
Given the lingering effects of COVID restrictions in China, and now the aftereffects of rapidly spreading COVID cases from loosening those restrictions, it is understandable that there would be increased speculation about the PBOC embracing more policy stimulus.
For now, market bulls in the U.S. aren't embracing much of anything.
Currently, the S&P 500 futures are down nine points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 55 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 12 points and are trading in-line with fair value.
The lackluster indication is telling given that the Nasdaq Composite is down 8.0% this month, the Russell 2000 is down 7.8%, and the S&P 500 is down 6.4%. Bargain hunters are still missing in action along with Santa.
Maybe they will show up today, heartened by the S&P 500's ability yesterday to hold its weakening line at 3,800. It's hard to say, especially since the November Housing Starts and Building Permits Report left much to be desired in terms of the economic growth outlook.
Total housing starts declined 0.5% month-over-month to a seasonally adjusted annual rate of 1.427 million units (Briefing.com consensus 1.395 million), yet single-unit starts fell by 4.1% to 828,000. Total building permits declined 11.2% month-over-month to a seasonally adjusted annual rate of 1.342 million (Briefing.com consensus 1.480 million), with permits for single-unit dwellings dropping by 7.1%.
The key takeaway from the report is the weakness in building permits, which are a leading indicator. There wasn't growth in any region of the country for single units. That speaks to the waning confidence among homebuilders who recognize the affordability constraints for prospective buyers due to building cost inflation and much higher mortgage rates.
Growth concerns of course have been at the heart of the selloff seen in December, as participants have been worried about the Fed overtightening and triggering a deeper economic setback. Those concerns, in turn, have fed into earnings concerns.
Accordingly, investors have not been chasing stock prices higher. On the contrary, they have been running away from stocks, concerned that they are overvalued.
-- Patrick J. O'Hare, Briefing.com
Stitch Fix tumbles on an analyst downgrade; will need to show progress toward long-term goals (SFIX)
Stitch Fix (SFIX -8%) is tumbling after a downgrade at Telsey Advisory Group, which slashed its price target on the stock by over 16%. Accounting for today's move, shares of the online apparel and styling platform broke below previous support lines around $3.00, hitting 52-week lows. The stock now sits over 85% lower on the year.
- Briefing.com notes that SFIX's recent Q1 (Oct) earnings report on December 6 did not inspire much confidence in a rapid turnaround, despite SFIX seeing slight price appreciation following the results.
- SFIX commented that during OctQ, the retail industry witnessed a meaningful pull forward of holiday promotional activity, which continued to be more pronounced than the company anticipated as consumer sentiment stayed weak and inventories remained excessive.
- As a result, net active clients, which SFIX views as a key indicator of its growth and overall health of its business, fell 11% yr/y, the fourth-straight quarter of yr/yr declines.
- During its Q1 call, SFIX reiterated its focus on achieving profitability, detailing plans to further simplify its cost structure, strengthen its client experience, and evolve its marketing strategy.
- SFIX's central focus remains returning to positive adjusted EBITDA and free cash flow.
- As an aside, analysts do not foresee positive free cash flow until close to FY26 (Jul).
- Part of reaching these targets involves more aggressive cost-reduction efforts. As such, SFIX increased its FY23 savings plan to $135 mln from $60 mln.
Nevertheless, the near term contains plenty of hurdles. SFIX continues to expect declining revs yr/yr in Q2, projecting a 20% decline at the midpoint of its $410-420 mln range as the economic environement heightens the uncertainty around the trajectory of net active clients. SFIX also trimmed its FY23 sales guidance to $1.60-1.70 bln from $1.76-1.86 bln. On a lighter note, SFIX expects inventories to begin falling in Q2 (Jan), forecasting a sequential decline, which will persist throughout FY23 (Jul).
Lastly, a possible spark to ignite a turnaround will need to come from SFIX displaying healthy progress toward its long-term financial goals. With short interest at a relatively high 18%, even minor improvements can significantly affect the stock. However, in the meantime, shares may trade sideways until SFIX's Q2 earnings report in early March.
3M makes long overdue decision to exit PFAS manufacturing as litigation continues to mount (MMM)
When thinking about 3M (MMM), the company's well-known Scotch Tape brand is something that immediately comes to mind for many people. Unfortunately, the company's environmentally unfriendly reputation and its litigation history stemming from its use of so-called "forever chemicals" is another thought that's closely linked to the industrial giant. This morning, the company took a significant step in its efforts to repair its tarnished standing, while also appeasing investors by lowering its risk of future lawsuits.
Specifically, the company announced that it will exit PFAS ("forever chemicals") manufacturing and will work to discontinue the use of PFAS chemicals across its product portfolio by the end of 2025. For some quick background, PFAS is used to manufacture many products that are used in everyday life, including phones, batteries, semiconductors, and vehicle components. Its usage by MMM goes back many decades, but the extent of their danger to the environment and to human health has only really come to light in the past 10-15 years. The "forever chemical" moniker is derived from the fact that PFAS is resistant to degradation in the soil, enabling it to contaminate both the land and ground water.
MMM has not only been a lightning rod for controversy over its usage of PFAS, but it's also found itself in the crosshairs of a few major court cases.
- In 2018, the company settled a lawsuit with the state of Minnesota, agreeing to pay $850 mln to remediate damages related to contaminated drinking water in the town of Cottage Grove and other surrounding towns.
- This past July, the company resolved its dispute in Belgium by shelling out nearly $600 mln to account for damage caused by toxic discharges from its Zwijndrecht plant near the Belgian port city of Antwerp.
- MMM's troubles don't end there because California Attorney General Rob Bonta filed a lawsuit against the company last month, claiming that PFAS chemicals are causing irreparable harm to the state's natural resources. The lawsuit also names Dupont (DD) as a defendant, but the company denies the allegation, stating that it has never manufactured products with PFAS chemicals.
From a financial perspective, MMM products that are manufactured using PFAS chemicals account for annual net sales of about $1.3 bln. That pencils out to less than 5% of the company's total sales. As MMM gradually phases out PFAS, it will incur pre-tax charges in the range of $1.3-$2.3 bln, with approximately 70% of the total being non-cash.
The main takeaway is that this decision seems long overdue given the trouble that PFAS chemicals have created for the environment, human health, and for MMM. There may be some modest disruptions in MMM's manufacturing processes, but we don't expect the transition to cause any material financial impact since the migration away from PFAS will occur over a multi-year period. From a fundamental perspective, the biggest positive is that MMM's litigation risk will be lessened, ultimately removing a key overhang on the stock.
General Mills slips as a few weak spots from Q2 spur profit-taking activity today (GIS)
Shares of General Mills (GIS -3%) are sliding today despite the consumer packaged goods giant topping earnings and sales estimates for the third-straight quarter in Q2 (Nov). GIS also increased its FY23 (May) outlook, projecting adjusted EPS growth in constant currency of +4-6% yr/yr from flat to +3% and organic revenue growth of +8-9% from +6-7%.
Why are investors reacting negatively? Profit-taking is likely in the cards today after GIS appreciated around 13% from November 14 lows, climbing nearly 30% on the year. Also, although improved from the year-ago period, supply chains remain constrained, with GIS's service level hovering in the high 80s, below more normalized levels of 98%. Volumes also dropped considerably in Q2, declining 12 pts yr/yr, fueling some uneasiness that GIS's constant price hikes are spurring trade-down activity to private labels.
- Still, with price/mix positively affecting sales growth by 17 pts, revs grew 3.9% yr/yr. GIS's favorable price realization and mix also contributed to adjusted gross margins expanding 100 bps yr/yr to 33.2% to $5.22 bln. These highlights culminated in bottom-line growth of 11.1% to $1.10.
- Although volumes fell dramatically, they did not worsen compared to the 12 pt dip in Q1 (Aug). Additionally, GIS anticipates price elasticities to remain below historical levels throughout FY23, helping sustain currently elevated prices without significant declines in volume.
- In Europe, elasticities historically trend slightly higher than in the U.S., continuing through the current environment. However, directionally, GIS noted that it is seeing similarities in European and U.S. elasticities.
- The company's assumptions are that there will not be a significant change in elasticities over the next six months.
- Another positive stemmed from GIS's remark that consumers will likely remain under inflationary pressure for the back half of FY23, spurring continual shifts to cooking-at-home.
Overall, GIS's Q2 report was positive, with elasticities remaining low and at-home consumption remaining high. However, the stock's extended run over the past month caused a few of GIS's weak spots from the quarter to be viewed with more scrutiny. The second-straight quarter of double-digit volume declines is worrisome; perhaps elasticities cannot stay at their current levels for much longer. We have continually seen grocers boast robust private label growth lately, including Walmart (WMT), which saw a 130 bp gain in OctQ, Costco (COST), and Kroger (KR), to name a few.
Still, none of GIS's comments were particularly worrisome. The company still commands exceptional brand loyalty. Even though valuations are relatively high, with GIS trading around 21x forward earnings, a premium compared to some of its peers like CPB at 19x, SJM at 18x, and K at 17x, GIS remains a solid play during the inflationary environment.
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.
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