Market Snapshot
briefing.com
| Dow | 33380.31 | +525.23 | (1.60%) | | Nasdaq | 10654.85 | +167.89 | (1.60%) | | SP 500 | 3879.48 | +57.44 | (1.50%) | | 10-yr Note | +1/32 | 3.680 |
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| | NYSE | Adv 2324 | Dec 715 | Vol 821 mln | | Nasdaq | Adv 3083 | Dec 1493 | Vol 4.3 bln |
Industry Watch
| Strong: Information Technology, Financials, Consumer Discretionary, Industrials, Real Estate |
| | Weak: -- |
Moving the Market
-- Broad-based rebound from a short-term oversold condition
-- Positive reaction to earnings reports from FedEx (FDX) and Nike (NKE)
-- Leadership from strong mega cap stocks
-- Better-than-expected consumer confidence data for December adding fuel to the rally effort
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Closing Summary
21-Dec-22 16:25 ET
Dow +526.74 at 33381.82, Nasdaq +162.26 at 10649.22, S&P +56.82 at 3878.86
[BRIEFING.COM] The stock market found some upside momentum today after logging big losses recently. Some speculative buying interest on the notion that the market was oversold on a short-term basis aided the rebound effort, along with the well-received earnings reports from Dow component Nike (NKE 115.78, +12.57, +12.2%) and leading transport company FedEx (FDX 169.99, +5.64, +3.4%). Today's trade has triggered some renewed hope that the stock market could see a Santa Claus rally after all to end the year.
Nike led the Dow (+1.6%) to first place among the three main indices thanks to signs of strong demand and a contention that the worst of its inventory problems are behind it. FedEx, meanwhile, said demand trends softened further in its fiscal Q2, but pleased investors nonetheless with additional cost-cutting actions aimed at preserving profit margins.
In addition to these reports, market participants digested some better-than-expected consumer confidence data for December, which was another support factor for the broader market. That report overshadowed a weaker than expected existing home sales report for November that was released at the same time.
The broad-based rally effort saw the S&P 500, which breached 3,800 yesterday, push past its 50-day moving average (3,877). The main indices clung to a fairly narrow trading range around that key technical level starting about 11:00 a.m. ET. Ultimately, the S&P 500 managed to close one point above its 50-day moving average.
All 11 S&P 500 sectors registered gains today. Consumer staples (+0.8%) and materials (+0.8%) showed the slimmest gain while the energy sector (+1.9%) sat atop the leaderboard. The heavily weighted information technology (+1.7%) and consumer discretionary (+1.6%) sectors were among the top performers also.
The mega cap stocks were a pocket of strength today, except Tesla (TSLA 137.57, -0.23, -0.2%), which continues to struggle. This comes after CEO Elon Musk said "I will resign as CEO (of Twitter) as soon as I find someone foolish enough to take the job! After that, I will just run the software & servers teams" and a report indicating that the company is aiming to implement a hiring freeze and announce layoffs, according to Electrek.
The Vanguard Mega Cap Growth ETF (MGK) closed up 1.6% and the S&P 500 gained 1.5%.
- Dow Jones Industrial Average: -8.2% YTD
- S&P Midcap 400: -14.0% YTD
- S&P 500: -18.6% YTD
- Russell 2000: -20.9% YTD
- Nasdaq Composite: -31.6% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 0.9% with refinancing applications jumping 6.0% while purchase applications fell 0.1%.
- Current Account Balance fell to -$217.1 billion in Q3 (Briefing.com consensus -$224.0 billion) from a revised -$238.7 billion in Q2 (from -$251.1 billion).
- Existing home sales decreased 7.7% month-over-month in November to a seasonally adjusted annual rate of 4.09 million (Briefing.com consensus 4.20 million) versus an unrevised 4.43 million in October. That is the tenth straight month that existing home sales have fallen. Total sales in November were down 35.4% from a year ago.
- The key takeaway from the report is that median price growth has slowed appreciably as higher mortgage rates, and affordability pressures, are crimping interest from prospective buyers.
- The Conference Board's Consumer Confidence Index took a surprising turn for the better in December, jumping to 108.3 (Briefing.com consensus 101.0) from an upwardly revised 101.4 (from 100.2) in November.
- The key takeaway from the report is that there were upticks in both the Present Situation and Expectations Indexes driven by improved views of the economy and jobs, and declining gas prices that contributed to the lowest level for year-ahead inflation expectations since September 2021.
- Weekly EIA Crude Oil Inventories showed a draw of 5.894 million barrels following last week's build of 10.23 million barrels.
Market participants will receive the following economic data on Thursday:
- 8:30 a.m. ET: Q3 GDP Third Estimate (Briefing.com consensus 2.9%; prior 2.9%) and GDP Deflator Third Estimate (Briefing.com consensus 4.3%; prior 4.3%)
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 225K; prior 211K) and continuing claims (prior 1671K)
- 10:00 a.m. ET: November Leading Economic Index (Briefing.com consensus -0.4%; prior -0.8%)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -50 bcf)
Market hangs near highs ahead of close
21-Dec-22 15:25 ET
Dow +494.20 at 33349.28, Nasdaq +158.04 at 10645.00, S&P +54.32 at 3876.36
[BRIEFING.COM] The positive disposition is holding up heading into the close. The main indices all trade just below session highs.
Market participants will receive the following economic data on Thursday:
- 8:30 a.m. ET: Q3 GDP Third Estimate (Briefing.com consensus 2.9%; prior 2.9%) and GDP Deflator Third Estimate (Briefing.com consensus 4.3%; prior 4.3%)
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 225K; prior 211K) and continuing claims (prior 1671K)
- 10:00 a.m. ET: November Leading Economic Index (Briefing.com consensus -0.4%; prior -0.8%)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -50 bcf)
Market maintains position
21-Dec-22 15:05 ET
Dow +525.23 at 33380.31, Nasdaq +167.89 at 10654.85, S&P +57.44 at 3879.48
[BRIEFING.COM] Recent price action has the main indices floating around a narrow trading range.
Energy complex futures are ticking higher. WTI crude oil futures are up 2.9% to $78.43/bbl and natural gas futures are up 1.3% to $5.40/mmbtu.
Strength here is boosting the S&P 500 energy sector (+2.1%), which shows the biggest gain among the 11 sectors by a sizable margin.
Carnival outperforms after earnings, Western Digital dips into Micron print
21-Dec-22 14:30 ET
Dow +519.40 at 33374.48, Nasdaq +182.36 at 10669.32, S&P +58.97 at 3881.01
[BRIEFING.COM] The S&P 500 (+1.54%) is at the bottom of the major averages, albeit still up almost 60 points late Wednesday afternoon.
S&P 500 constituents Carnival (CCL 8.56, +0.46, +5.68%), Etsy (ETSY 134.12, +7.02, +5.52%), and Hasbro (HAS 57.69, +2.90, +5.29%) dot the top of today's standings. CCL gains following this morning's earnings, while ETSY appears to be gaining on reaction to positive data from a boutique research firm.
Meanwhile, storage firm Western Digital (WDC 31.65, -0.43, -1.34%) is one of today's worst performers, underperforming alongside peer Seagate (STX 50.50, -0.50, -0.99%) ahead of storage peer Micron's (MU 51.31, +0.63, +1.24%) earnings tonight.
Gold unchanged at midweek
21-Dec-22 14:00 ET
Dow +507.96 at 33363.04, Nasdaq +175.00 at 10661.96, S&P +59.41 at 3881.45
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (+1.66%) stands atop the major averages while the DJIA and S&P 500 share gains of +1.55% apiece.
Gold futures settled unchanged at $1,825.40/oz, peeling off overnight highs owing in part to intraday gains in the dollar and recovering bond yields.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $104.23.
Page One
Last Updated: 21-Dec-22 08:59 ET | Archive
Nike and FedEx clear path to rebound effort
The stock market is going to be running at the start of today's session, outfitted with some enthusiasm for the earnings report and outlook from Dow component Nike (NKE). To be fair, FedEx (FDX) is providing some uplift, too, as it also posted better-than-expected results. Shares of NKE are up 12.4% and shares of FDX are up 5.6% in pre-market trading.
The irony is that the positive response to these earnings reports is rooted in entirely different perspectives.
In the case of Nike, it is rooted in enthusiasm that demand for its products is still strong and the company's contention that the worst of its inventory problems is behind it. In the case of FedEx, it is rooted in the company's bid to preserve profit margins by cutting costs even further because demand trends softened further in its fiscal second quarter.
While it seems that business is good for Nike, it is apparent that the economy is bad for FedEx.
That's quite the paradox, yet stock market participants are focused on the good and not the bad. They seem to have had enough of the bad for the time being, having seen the Nasdaq Composite and the S&P 500 fall as much as 9.7% and 7.5%, respectively, between their highs on December 13 and their lows yesterday.
Currently, the S&P 500 futures are up 33 points and are trading 0.9% above fair value, the Nasdaq 100 futures are up 66 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 360 points and are trading 1.1% above fair value. The 2-yr note yield is down six basis points to 4.21% and the 10-yr note yield is down four basis points to 3.64%.
Stocks are presumably keying more off Nike, whereas Treasuries are presumably keying more off FedEx.
Nike and FedEx, though, had perfect timing for their earnings reports, because the stock market's bar of expectations had been lowered to a significant degree in this ugly month of trading.
The stock market was primed to jump on any whiff of news that was better than feared, better than expected, or simply good. That's what it is doing this morning, enthused by the possibility that Nike and FedEx might be snow plows clearing the path for a year-end/Santa Claus rally effort.
We know the opening path is clear for the stock market. What matters more for sentiment, though, is what that path looks like at today's close.
-- Patrick J. O'Hare, Briefing.com
Six Flags on thrilling ride after activist investor proposes separation of real estate assets (SIX)
It's been a harrowing ride for investors of amusement park operator Six Flags (SIX) this year with shares down by about 50%, but the stock is climbing sharply higher today after activist investor Land & Buildings Investment Management disclosed a 3% stake in the company. With that ownership position in hand, the investment firm is making a pitch to SIX's management that could be a game-changer for the company. More specifically, Land & Buildings' CIO Jonathan Litt is pushing for SIX to separate its vast real estate assets -- which are comprised of 27 theme and water parks across North America -- from the company's operations.
- One possibility is that SIX could be converted into a REIT, which Litt believes would unlock the value of the company's real estate. In fact, he estimates that SIX shares are currently undervaluing the company's real estate assets by about $11/share.
- Another option proposed by Litt is for SIX to enter into a Sale-Leaseback transaction. In that scenario, the company would sell its properties to another REIT or to a private equity firm, which would then lease the properties back to SIX, much like the setup between MGM Resorts (MGM) and MGM Growth Properties (MGP). Notably, Litt was a key figure in pushing MGM Resorts to split off its real estate assets into a REIT back in 2015.
Like that MGM spin-off, Litt is confident that SIX's properties would draw plenty of interest from outside investors. As evidence, he points to the fact that VICI Properties (VICI), Realty Income (O), Gaming & Leisure Properties (GLPI), and EPR Properties (EPR), have each expressed interest in acquiring large scale leisure-oriented properties. However, we do wonder if that appetite to make a substantial real estate deal has waned, given the rise in interest rates and the increased volatility in the markets and the global economy.
We also wonder if SIX's recently appointed CEO, Selim Bassoul, would be open to such a transformational move at this time.
- When he took the helm of the company in November 2021, he initiated a major shift in strategy by moving away from SIX's long-standing approach of offering heavy discounts. Instead, Bassoul is aiming to create a premium guest experience that mimics Disney's (DIS) model, but the financial results so far have been disappointing.
- On that note, SIX badly missed EPS and revenue estimates in Q3 as attendance dove by 33% yr/yr to 8.0 mln.
- Bassoul argues that it will take more time for the positive effects of this shift to play out, which is a valid point. The question, though, is whether he'd be interested in navigating through a major restructuring of the company, at that same time that he's trying to implement a turnaround plan.
We do see the advantages of splitting the company into two separate entities and we believe there would be solid interest for a dividend paying investment that's backed by SIX's attractive real estate portfolio. Whether Bassoul believes the timing is right to execute such a consequential move, however, is very uncertain.
NIKE shoots and scores in Q2 as robust demand leads to fewer markdowns than expected (NKE)
Heading into NIKE's (NKE) 2Q23 earnings results, there was concern that the athletic footwear and apparel giant would deliver a lump of coal into investors' stockings as it grapples with a glut of inventory in a highly promotional environment. Instead, NKE gift-wrapped an impressive beat-and-raise report as it experienced strong demand across its brands, channels, and markets.
- Thanks to that robust demand, markdown activity wasn't as severe as originally feared, enabling gross margin to exceed expectations. Last quarter, NKE warned that discounted prices would result in a 350-400 bps drop in gross margin, but the company outperformed that guidance as gross margin only fell by 300 bps to 42.9%.
- There is still a good amount of excess inventory to work through -- inventory was up 43% on a yr/yr basis -- but the makeup of that inventory (less seasonal apparel) and NKE's sales momentum is easing concerns on this issue.
- During the earnings call, CFO Matt Friend also suggested that the 43% yr/yr increase in inventory is a bit misleading. That's because in the year-earlier period, inventory levels were artificially low due to factory closures in Vietnam. He argued that comparing the situation to the prior quarter is a better way of looking at the matter. On that basis, inventory dollars were down by 3% and units were down high single digits with days in inventory reaching the lowest level in four quarters.
The other main issue that has plagued the stock is the persistent weakness in China.
- COVID-related lockdowns and the related macroeconomic headwinds have curtailed demand there, as reflected in the 13% drop in revenue for Greater China in Q1, which was preceded by a 20% plunge in Q4.
- In this quarter, though, sales picked up significantly with revenue in China down by just 3%. On a constant currency basis, sales were actually higher by 6% with NKE crediting local marketing, its investments in technology, and a shift towards the digital channel as key differentiators in Q2.
In North America, the news is even more upbeat with revenue up by 30% as both the wholesale and direct channels excelled.
- Market share gains across its top partners, including at Dicks Sporting Goods (DKS) and Foot Locker (FL), fueled a 19% increase in wholesale revenue.
- In a holiday shopping season that has been a disappointment for many retailers, NKE is standing out as its Black Friday and Cyber Week performance set records for demand and traffic. As a result, NIKE Direct generated sales growth of 16% on a reported basis with the company seeing double-digit growth in engagement from its membership base.
Bolstered by its brand strength, accelerating sales growth, and progress on the inventory front, NKE boosted its FY23 revenue growth forecast higher. After guiding for low double-digit growth on a constant currency basis last quarter, NKE is now projecting low-teens growth. However, the company maintained its outlook for gross margin, calling for a decline of 200-250 bps.
The main takeaway is that the two primary concerns that have afflicted the stock -- bloated inventory levels and softness in China -- turned out to be key positives for NKE in Q2. While the company isn't out of the woods just yet on either point, the arrow is clearly pointing in the right direction on both items. Simply put, NKE demonstrated once again why it's regarded as the premier name in the athletic footwear and apparel space.
BlackBerry heads lower despite earnings upside; mgmt was a bit cautious on the call (BB)
BlackBerry (BB -7%) is trading lower following its Q3 (Nov) earnings results last night despite slight upside. BB reported an adjusted loss of $(0.05), but that was narrower than expected. Revenue fell 8.2% yr/yr to $169 mln, but that also was better than expected. We think the weakness is being spurred by some cautious comments on the call about the months ahead.
The company is still thought of by many as a mobile phone company but it's really not. You will still find Blackberry phones in the market, but they are not designed or made by Blackberry. Instead, BB decided a few years ago to license out the Blackberry name to third party manufactures. Today, BB is primarily focused on IoT (automotive technology) and cybersecurity. BB also is in the process of selling substantially all of its non-core patents to Catapult for $600 mln.
- The more exciting segment is on the IoT side. Segment revs rose 19% yr/yr and was flat sequentially at $51 mln. This was down from 28% yr/yr growth in Q2. However, Q3 set another record for design-phase revenue and pre-production revenue. This is being driven by significant new design wins, including in the safety-critical auto ADAS, Advanced Driver Assist, and digital cockpit domain, where BB is significantly gaining market share.
- The largest win in the quarter was with Aptiv to use the QNX Hypervisor and RTOS to power a digital cockpit for a European OEM. Other auto wins include a design with Daimler Truck. Overall, BB secured a total of 24 new design wins, with 9 in Auto and 15 in the General Embedded Market (GEM).
- Looking forward, BB continues to see a very strong pipeline of upcoming new designs on the IoT side. Also, while the industry-wide macro backdrop for Auto remains mixed, the company sees strength in China and India, both significant markets for QNX. On the flipside, BB did see some tightening in North America and Europe, primarily due to ongoing supply chain and some demand challenges.
- The Cybersecurity segment is much larger, but revenue fell 17% yr/yr and 4.5% sequentially to $106 mln. This was an acceleration from a -8% yr/yr decline in Q2. A silver lining was that churn improved this quarter, with an uptick in renewal rates and, with it, an improved ARR sequentially. However, on the macro environment, BB says it is noticing some elongation of sales cycles during the past few quarters. As such, BB expects macro will be a headwind in the near term.
The market does not seem very impressed with BB's Q3 report. Granted, it reported slight upside. However, the cautious comments on the IoT side and flat sequential IoT growth may be spooking investors a bit because the IoT side is really the growth engine. We also think the acceleration in the yr/yr decline in cybersecurity revs is a bit of a letdown as well. Other cybersecurity firms have been posting better results. Overall, continue to think the jury is still out on BlackBerry. Its automotive tech segment looks promising, but we would like to see more growth. And we think the Cyber business should be doing better.
FedEx shares transported higher on accelerated cost-reduction plan in Q2 (FDX)
With the central focus on cost-cutting, FedEx (FDX +4%) identifying an incremental $1.0 bln in cost-savings beyond its September forecast and presenting a roadmap on reaching over $4.0 bln in annualized structural cost reductions by FY25 (May) is transporting shares nicely higher today. Also providing kindling for the favorable reaction today was FDX's earnings upside in Q2 (Nov), as well as a few other highlights, keeping some of the weaker points from casting a cloud on the stock.
- Like in Q1 (Aug), volumes fell across the board yr/yr, particularly at FedEx Express, which was down low double digits. As a result, FDX missed its Q2 revenue forecast of $23.5-24.0 bln, with sales slipping 2.9% yr/yr to $22.8 bln. Nonetheless, moving quickly to offset a shortfall with cost reductions and targeting additional cost actions led to a sizeable adjusted EPS beat, posting $3.18, well above FDX's prediction of $2.75.
- Economic struggles continued to weigh on results. However, unlike in Q1, it was much less of a surprise; FDX knew it would continue to be challenged by volume softness and high inflation leading into Q2. Drilling deeper, weakness was pronounced in Europe and Asia, although volume trends improved sequentially in Europe. Meanwhile, in Asia, FDX expects to continue facing yield pressure.
- As a result of deteriorating economic conditions, FDX is accelerating its cost actions. During Q2, the company achieved over $900 mln of savings, surpassing its $700 mln cost target from last quarter and bringing its total YTD progress to $1.2 bln. FDX is not letting off the throttle either, projecting approximately $3.7 bln in cuts for FY23 (May), up $1.0 bln from its prior outlook.
- Still, although FDX expects volume declines to begin moderating in Express and Ground by the end of Q3 (Feb), business conditions remain challenging. Volume decreases accelerated during Q2 across major product categories globally. Yield growth will also remain increasingly pressured as yr/yr fuel surcharge comps normalize and customer demand shifts, particularly in Asia. As a result, FDX provided a conservative FY23 earnings forecast of $13.00-14.00, which missed analyst forecasts.
Overall, Q2 results were largely better than feared, especially with so much uneasiness surrounding the global economy. In addition to the substantial cost reduction plan, FDX boasted many other bright spots from Q2, including executing its $1.5 bln accelerated share repurchase transaction, which will be completed by year's end, Ground service returning to pre-pandemic levels, and further progress on its DRIVE savings goals. With shares underperforming rival UPS (UPS) considerably this year, FDX's Q2 results may be the spark needed to begin closing the gap.
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.
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