Market Snapshot
briefing.com
| Dow | 33189.06 | +156.23 | (0.47%) | | Nasdaq | 10428.51 | +12.54 | (0.12%) | | SP 500 | 3841.62 | +18.81 | (0.49%) | | 10-yr Note | -4/32 | 3.75 |
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| | NYSE | Adv 2019 | Dec 989 | Vol 587 mln | | Nasdaq | Adv 2357 | Dec 2155 | Vol 3.5 bln |
Industry Watch
| Strong: Energy, Utilities, Communication Services, Financials, Materials |
| | Weak: -- |
Moving the Market
-- Thinner holiday trading conditions
-- Reacting to conflicting economic data, including the better than expected University of Michigan Consumer Sentiment final reading for December and a November Personal Income and Spending Report that showed no growth in real spending and PCE and core-PCE inflation rates that are still too high
-- Mega cap stocks driving index level price action
-- S&P 500 found support at 3,800
-- Rising Treasury yields
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Closing Summary
23-Dec-22 16:25 ET
Dow +176.44 at 33209.27, Nasdaq +21.74 at 10437.71, S&P +22.43 at 3845.24
[BRIEFING.COM] Things got started on a weaker note with the main indices opening to modest losses as participants reacted to a November Personal Income and Spending Report that showed no growth in real spending and PCE and core-PCE inflation rates that are still too high on a year-over-year basis (5.5% and 4.7%, respectively) for the Fed's liking.
This report meshed with a Durable Goods Orders Report for November that was weaker than expected and was subsequently followed by economic data at 10:00 a.m. ET that showed new home sales were stronger than expected in November and that easing inflation pressures helped boost consumer sentiment in December.
Those 10:00 a.m. ET reports emerged right around the time that the S&P 500 dipped below the 3,800 level, so their welcome positive tone lightened investors' sentiment and fueled some bargain hunting activity. The main indices settled into a narrow ranges for most of the session amid thinner holiday trading conditions.
Ultimately, a late afternoon push higher left the main indices near their best levels of the session, albeit with slim gains, to close out this first day of the the so-called Santa Claus rally period (last five trading days of the year plus the first two trading sessions of the new year) on an upbeat note.
Mega cap stocks had a somewhat volatile showing, weighing a bit on index level gains. The Vanguard Mega Cap Growth ETF (MGK) registered a 1.1% loss shortly after the open, but closed the session up 0.3%.
Tesla (TSLA 123.15, -2.20, -1.8%) had another weak performance today, but fought back some from an early 3.5% loss. CEO Elon Musk said in an interview that he will not sell Tesla shares for 18-24 months and buybacks will depend on the economy, according to The Wall Street Journal.
All 11 S&P 500 sectors were able to close the session in positive territory. Gains were modest in scope with the exception of the energy sector (+3.2%), which was bolstered by a nice uptick in oil prices ($79.56/bbl, +2.07, +2.7%) following remarks from Russia's Deputy Prime Minister Novak indicating that his country may reduce its oil output by up to 7% early next year.
The Treasury market had a weaker showing with selling picking up after the 8:30 a.m. ET data releases. The 2-yr note yield rose six basis points to 4.31% and the 10-yr note yield rose eight basis points to 3.75%.
- Dow Jones Industrial Average: -8.6% YTD
- S&P Midcap 400: -14.3% YTD
- S&P 500: -19.3% YTD
- Russell 2000: -21.6% YTD
- Nasdaq Composite: -32.9% YTD
Reviewing today's economic data:
- Personal income increased 0.4% month-over-month in November (Briefing.com consensus 0.3%) and personal spending increased 0.1%, as expected. The PCE Price Index was also up just 0.1% month-over-month (Briefing.com consensus 0.2%) and the core-PCE Price Index, which excludes food and energy, was up 0.2% (Briefing.com consensus +0.3%).
- On a year-over-year basis, the PCE Price Index was up 5.5%, versus 6.1% in October, and the core-PCE Price Index was up 4.7%, versus 5.0% in October.
- The key takeaway from the report is that real spending was flat while the inflation rates were still too high for the Fed's liking, making for an offputting stagflation mix.
- Durable goods orders in November declined 2.1% month-over-month (Briefing.com consensus -1.0%) following a downwardly revised 0.7% increase (from 1.0%) in October. Excluding transportation, durable goods orders were up 0.2% (Briefing.com consensus 0.1%) following a downwardly revised 0.1% increase (from 0.5%) in October.
- The key takeaway from the report is that nondefense capital goods orders, excluding aircraft -- a proxy for business spending -- were up just 0.2% while shipments, which factor into GDP computations, were down 0.1% month-over-month.
- New home sales increased 5.8% month-over-month in November to a seasonally adjusted annual rate of 640,000 units (Briefing.com consensus 600,000) from a downwardly revised 605,000 (from 632,000) in October. On a year-over-year basis, new home sales were down 15.3%.
- The key takeaway from the report is that it reflects how the pullback in mortgage rates in November proved to be an inducement for prospective buyers; however, affordability pressures remain for lower-income buyers and that is holding back overall sales potential.
- The final December University of Michigan Index of Consumer Sentiment checked in at 59.7 (Briefing.com consensus 59.1) versus the preliminary reading of 59.1 and the final reading of 56.8 for November. In the same period a year ago, the index stood at 70.6.
- The key takeaway from the report is that consumer sentiment improved as inflation pressures eased.
As a reminder, the stock and bond markets are closed on Monday for Christmas.
Market sticks to narrow range ahead of the close
23-Dec-22 15:35 ET
Dow +87.59 at 33120.42, Nasdaq -7.48 at 10408.49, S&P +11.31 at 3834.12
[BRIEFING.COM] The main indices are sticking to narrow trading ranges heading into the close. The Dow Jones Industrial Average looks poised to log a slim gain this week.
The S&P 500 information technology (-0.3%) and health care (-0.3%) sectors remain pinned in negative territory.
As a reminder, the stock and bond markets are closed on Monday for Christmas.
Market making upside moves recently
23-Dec-22 15:00 ET
Dow +156.23 at 33189.06, Nasdaq +12.54 at 10428.51, S&P +18.81 at 3841.62
[BRIEFING.COM] The main indices are seemingly trying to climb a bit higher with an hour left in the session.
The CBOE Volatility Index is down 4.4%, or 0.96, to 21.01.
The Treasury market saw some outsized action this week. The 2-yr note yield rose six basis points today, and 11 this week, to 4.31%. The 10-yr note yield rose eight basis points today, and 27 this week, to 3.75%.
APA Corp., Bath & Body Works outperform in S&P 500 on Friday
23-Dec-22 14:30 ET
Dow +78.08 at 33110.91, Nasdaq -13.32 at 10402.65, S&P +9.18 at 3831.99
[BRIEFING.COM] The S&P 500 (+0.24%) is tied atop the standings alongside the Dow Jones Industrial Average (+0.24%), the SPX still on pace to close -0.53% lower this week.
S&P 500 constituents APA Corp. (APA 46.80, +2.11, +4.72%), Carmax (KMX 59.34, +2.14, +3.74%), and Bath & Body Works (BBWI 41.40, +1.06, +2.63%) pepper the top of today's standings. Energy stocks, including APA, move higher to close out the week aided in part by strong crude oil prices, KMX continues to rebound off yesterday's earnings-driven opening losses, while BBWI moves higher alongside a somewhat notable options trade.
Meanwhile, vaccine maker Moderna (MRNA 199.67, -8.67, -4.16%) is today's worst performer, continuing to slip from recent multi-month highs.
Gold up modestly into holiday weekend
23-Dec-22 14:00 ET
Dow +82.09 at 33114.92, Nasdaq -17.76 at 10398.21, S&P +8.95 at 3831.76
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.17%) remains the only major average in negative territory.
Gold futures settled $8.90 higher (+0.5%) to $1,804.20/oz, finishing above the $1800 psych level amid a softer dollar trade.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $104.41.
Page One
Last Updated: 23-Dec-22 09:04 ET | Archive
Not sure who is coming to town today
That Santa Claus rally everyone keeps talking about? Well, the time is now if there is going to be one. The so-called Santa Claus rally period encompasses the last five trading days of the year and the first two trading sessions of the new year. Today is the first of the last five trading days of 2022.
Earlier, there was some ho-ho-ho-ing that could be heard in the distance. The futures for the major indices were up on some bargain-hunting efforts, but Santa's voice was subsequently drowned out by some relatively disappointing economic data.
The S&P 500 futures are flat and are trading roughly in-line with fair value, the Nasdaq 100 futures are down three points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are up 30 points and are trading 0.1% above fair value.
Those indications suggest it will be a flattish and mixed start for the stock market today, but how things look at the closing bell will determine if it is in fact a good or bad start for the Santa Claus rally period.
Thus far in December things have looked positively Burgermeister Meisterburger. The Nasdaq Composite is down 8.7% for the month so far, the Russell 2000 is down 7.0%, the S&P 500 is down 6.3%, the S&P 400 is down 6.2%, and the Dow Jones Industrial Average is down 4.5%.
Notably, the Flow Show report from BofA Securities indicates that the week ending December 21 saw the largest outflow from equities ever (~$42 billion).
The "flows" today should be lighter with many participants taking/needing a break for the holidays, but they will be interesting nonetheless following this morning's data.
The headliner is the November Personal Income and Spending Report. It showed personal income increasing 0.4% month-over-month (Briefing.com consensus 0.3%) and personal spending increasing 0.1%, as expected. The PCE Price Index was also up just 0.1% month-over-month (Briefing.com consensus 0.2%) and the core-PCE Price Index, which excludes food and energy, was up 0.2% (Briefing.com consensus +0.3%).
On a year-over-year basis, the PCE Price Index was up 5.5%, versus 6.1% in October, and the core-PCE Price Index was up 4.7%, versus 5.0% in October.
There was some knee-jerk selling on the news, ostensibly because the core-PCE Price Index did not come down on a year-over-year basis as much as expected. It was projected to fall to 4.6%, but upward revisions to readings in prior months altered things.
The key takeaway from the report is that real spending was flat while the inflation rates were still too high for the Fed's liking, making for an offputting stagflation mix.
Separately, durable goods orders in November declined 2.1% month-over-month (Briefing.com consensus -1.0%) following a downwardly revised 0.7% increase (from 1.0%) in October. Excluding transportation, durable goods orders were up 0.2% (Briefing.com consensus 0.1%) following a downwardly revised 0.1% increase (from 0.5%) in October.
The key takeaway from the report is that nondefense capital goods orders, excluding aircraft -- a proxy for business spending -- were up just 0.2% while shipments, which factor into GDP computations, were down 0.1% month-over-month.
The 2-yr note yield, at 4.27% in front of the releases, has jumped to 4.32% and the 10-yr note yield, at 3.70% in front of the releases, has risen to 3.72%.
The equity futures all sunk into negative territory immediately following the data, but managed to make their way back to positive territory again in a roller-coaster trade that is leaving everyone guessing as to whether Santa Claus or Burgermeister Meisterburger is coming to town today.
-- Patrick J. O'Hare, Briefing.com
Nutanix left out in the cold by Hewlett Packard Enterprise as it seeks acquisition partner (NTNX)
Nutanix (NTNX), a provider of cloud and virtualized storage systems, reportedly put itself up for sale in mid-October and quickly drew interest from Hewlett Packard Enterprise (HPE), according to Bloomberg. The prospects of NTNX being acquired lit a fire under the stock with shares soaring by as much as 58% since the Wall Street Journal first broke the story that the company was looking for a suitor.
Today, though, that buzz is fading in the wake of an update from Dealreporter suggesting that HPE has lost interest in acquiring NTNX. It's unclear what specifically caused HPE to reportedly walk away from the negotiating table, but the price tag and the current economic climate were likely at the center of the decision.
- Given the huge rally in NTNX shares over the past couple of months, acquiring the company has become a much costlier proposition. At the height of this recent rally, NTNX's market cap ballooned up to $7.75 bln, equating to a P/S of roughly 4.5x. Undoubtedly, HPE would be asked to pay a higher multiple than that, which doesn't look like a great deal when considering NTNX's erratic growth rates over the past couple of years.
- At the same time, concerns about economic growth in 2023 are escalating, causing enterprises to postpone and/or cut back on IT spending. Therefore, the idea of paying a premium price for a company that has had its share of struggles probably didn't seem very appealing to HPE.
From a strategic perspective, we can understand why HPE was interested in acquiring NTNX.
- At the core of HPE's turnaround plan and business model transition is its GreenLake cloud-based platform. In its mission to lessen its exposure to legacy on-premise servers and storage systems, HPE has prioritized growing GreenLake, which operates as a everything-as-a-service (XaaS) platform. That means that users can add functionality to their existing hardware -- such as more storage, Kubernetes, and disaster recovery - as they move to a hybrid cloud environment.
- With HPE doubling the level of growth for GreenLake in Q3, it is making good progress in its cloud transformation. However, the addition of NTNX, which implements its own subscription model, would really turbo-charge HPE's XaaS business model.
If the proposed deal has indeed fallen through, the good news for NTNX is that it's coming off a solid beat-and-raise 1Q23 report with Annual Contract Value (ACV) increasing by 27% to $232 mln. Although NTNX acknowledged that some customers are more closely scrutinizing deals due to macroeconomic factors, the company also stated that demand continues to be healthy. In particular, NTNX saw strong performance on the renewal side of the business as supply chain restraints ease for some of its server OEM partners. Lastly, just because HPE may have bowed out, that doesn't mean that NTNX can't find another partner. On that note, it's interesting that shares of NTNX have wiped out most of its opening losses, perhaps indicating that investors are still confident that NTNX will eventually be acquired.
Mission Produce under pressure on earnings miss as avocado prices tumble (AVO)
Mission Produce (AVO -15%) is under pressure today after wrapping up FY22 on a down note. This supplier of avocados reported Q4 (Oct) results that missed on EPS and revenue. Average avocado selling prices fell sharply, by 10% yr/yr. Lower prices were partially offset by a 6% increase in volume. Taken together, this caused margin compression and resulted in adjusted EPS being nearly cut in half to just $0.13 while adjusted EBITDA fell 35% yr/yr to $17.2 mln.
- While AVO was pleased with the commercial traction it is having with its Peruvian production, its Q4 results were hurt by the rapid decline in avocado pricing. In addition, inflation on the cost side coupled with a delay to its seasonal transition to Mexican production resulted in an unfavorable mix, lower pricing, and temporary margin compression.
- While AVO does not provide specific guidance, the silver lining here is that AVO sees a more normal marketplace emerging in FY23. Specifically, it expects better and more consistent supply conditions. AVO says it's prepared to meet demand during the upcoming peak Super Bowl season, and expects an improved operating performance for the full year 2023.
- In terms of Q1 (Jan), the company expects volumes to be higher yr/yr, primarily due to a larger Mexican harvest. Specifically, the overall Mexican crop is expected to be 20% higher than last year, but early season volumes have lagged that figure due to low pricing. Pricing is expected to be lower on a sequential basis, down 20-25% yr/yr.
Overall, this was a difficult quarter for Mission Produce as avocado prices dropped more quickly than expected. The stock had been slowly trending higher for much of 2022, but this Q4 report really took investors by surprise. We would be cautious with AVO in general because its earnings are notoriously hard to predict and they tend to miss on earnings fairly often. The company also does not provide specific guidance.
Tesla's rough year takes turn for the worse as demand concerns return to spotlight (TSLA)
It's been a whirlwind of a week for Tesla (TSLA) as the EV maker continues to suffer the consequences from Elon Musk's controversial acquisition of Twitter while demand concerns also continue to swirl. On the latter point, the stock is taking another big hit today after Reuters broke a story that TSLA has doubled its discount on its Model 3 and Model Y vehicles to $7,500. With today's losses, TSLA shares are now lower by nearly 15% for the week and are down by over 60% for the year.
Today's news is the strongest evidence yet that cracks are emerging in the demand story for TSLA.
- The company is notoriously stingy for offering discounts in the U.S., mostly because it hasn't needed to be promotional in the past. It is worth pointing out, though, that some would-be TSLA buyers have been holding off on making a purchase until 2023, when the new tax credits are expected to kick in.
- The exact requirements surrounding that tax credit were thrown into flux earlier this week when the U.S. Treasury Department said that it was postponing its decision on battery requirements. To entice buyers to make a purchase now, rather than waiting on a final resolution on the tax credit, TSLA made the aggressive move of doubling its discount.
In isolation, today's news may not be overly troubling and could be mainly explained away by the tax credit situation. However, when combined with a few other recent developments, the steep discount really solidifies the decelerating demand narrative.
- Following a Bloomberg report on December 5 that stated that TSLA was cutting its December Model Y production by 20% in Shanghai, Reuters followed up that story a few days later with news that TSLA will completely suspend production during the last week of 2022.
- Rewinding a bit further, in October, TSLA cut prices on the Model 3 and Model Y in China by 5-10%.
- During the Q3 earnings call, CFO Zachary Kirkhorn acknowledged that deliveries for FY22 may not meet its growth target of "50% average annual growth over a multi-year horizon."
- However, according to Kirkhorn, the shortfall is more related to transportation and logistics constraints, than demand. Recall that when TSLA reported Q3 production and delivery results on October 3, there was a large discrepancy between production (365K) and deliveries (343K). This difference was caused by challenges in loading huge batches of vehicles onto ships and trains during a timeframe of just a few days.
TSLA isn't immune to the dimming macroeconomic picture, but its issues run a bit deeper. Many argue that Musk's antics and rants on Twitter are tarnishing TSLA's brand and are turning off some buyers. There was some relief earlier this week when Musk said that he would abide by the results of his own Twitter poll and step down from his CEO role of Twitter. That joy was short-lived though as shares of TSLA quickly resumed their free-fall. Sentiment hasn't been this negative on TSLA in a long time, which makes the stock pretty compelling to some investors, including Cathie Wood of Ark Invest. For the stock to reverse course, though, the situation between Musk and Twitter must become more tenable for investors.
MillerKnoll avoids the market sell-off, springing to life on upbeat Q2 results (MLKN)
Office furniture manufacturer MillerKnoll (MLKN +7%) is springing to life today after surpassing analysts' earnings and sales expectations in Q2 (Nov). The company's upbeat results follow rival Steelcase (SCS), which topped bottom-line estimates in NovQ, but missed sales forecasts earlier this week. MLKN also guided Q3 (Feb) numbers in line with consensus.
MLKN's ability to succeed during an unfavorable environment can be attributed to its strategic emphasis on diversifying its business model over the past few years. This includes expanding its global retail operations to over $1.0 bln in annual revenue and merging Herman Miller and Knoll, creating additional opportunities to bring its portfolios to new geographies.
- Geographic diversification was critical to MLKN's 4.0% sales growth yr/yr in Q2 to $1.07 bln, as different regions are in varying phases of return to the office. As a result of workers returning to the office quicker in many areas relative to the Americas, revs grew 7.2% yr/yr in MLKN's second-largest International Contract and Specialty segment. Adjusted operating margins also expanded, gaining 180 bps yr/yr.
- Meanwhile, in MLKN's largest Americas Contract segment, although uncertain economic conditions pressured order levels, with customers extending purchasing decisions, the company's price increases and cost synergies improved profitability, with adjusted operating margins expanding 560 bps yr/yr. Sales also still grew 6.1% yr/yr.
- MLKN's Global Retail segment lagged in Q2, as sales ticked 2.8% lower yr/yr on an ongoing slowdown in the housing market, particularly in luxury. This comment is somewhat surprising after Williams-Sonoma's (WSM) Pottery Barn racked up another robust quarter with a +19.6% comp in OctQ. Although, MLKN's remark does resemble what we heard from luxury furniture maker RH (RH) earlier this month, stating that the next several quarters will pose a challenge as business trends continue to deteriorate.
- Margins were also negatively impacted by elevated inventory-related costs, although this was expected.
- Looking ahead, MLKN predicts sales to decline 2.9% yr/yr at the midpoint of its guidance of $0.98-1.02 bln in Q3. However, MLKN's forecast closely mirrors SCS's FebQ sales guidance, which called for just under flat growth yr/yr. Analysts also expected SCS's FebQ revs to be much higher. MLKN is also proactively taking the appropriate steps to improve its near-term profitability, including optimizing its organizational structure and reducing spending, culminating in around $30-35 mln of annualized expense reductions beginning in Q3.
Overall, MLKN's Q2 numbers stacked up well against SCS. Management's confidence in successfully navigating the current environment was also encouraging, noting that it will remain flexible and nimble. These positive developments may be what the stock needs to reverse its long downward trend.
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