Market Snapshot
briefing.com
| Dow | 33038.31 | -208.59 | (-0.63%) | | Nasdaq | 10184.33 | -108.74 | (-1.06%) | | SP 500 | 3799.59 | -30.08 | (-0.79%) | | 10-yr Note | -25/32 | 3.89 |
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| | NYSE | Adv 685 | Dec 2403 | Vol 640 mln | | Nasdaq | Adv 1520 | Dec 3053 | Vol 3.8 bln |
Industry Watch
| Strong: -- |
| | Weak: Energy, Materials, Communication Services, Consumer Discretionary |
Moving the Market
-- Many stocks reversing early gains with no news catalyst; possible tax-loss selling and general lack of buyer conviction
-- Rising Treasury yields
-- Thinner holiday trading conditions
-- S&P 500 falling below the 3,800 level
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Closing Summary
28-Dec-22 16:30 ET
Dow -365.85 at 32881.05, Nasdaq -139.94 at 10153.13, S&P -46.03 at 3783.64
[BRIEFING.COM] Today's trade started on a more upbeat note with the main indices being led higher by renewed buying interest in the mega cap space. The initial upside moves saw the S&P 500 test the 3,850 level.
Things started to deteriorate noticeably around 10:30 a.m. ET with no specific news catalyst. Instead, it was induced by a general lack of buyer conviction and presumably some ongoing tax-loss selling efforts.
Shortly after the open, advancers led decliners by a roughly 3-to-2 margin at both the NYSE and the Nasdaq. By the closing bell, however, decliners led advancers by a greater than 3-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq. The main indices ultimately closed near their worst levels of the session, which brought the S&P 500 below the 3,800 level.
Many stocks faded from their highs as the market declined. The Vanguard Mega Cap Growth ETF (MGK) had been up as much as 0.7% before closing down 1.3%. The PHLX Semiconductor Index was up 0.6% at its high, but registered a 1.5% loss today.
Notably, the turn lower in the equity market coincided with an increase in selling pressure for the bond market. The 10-yr note yield, which hit 3.80% overnight, settled at 3.89%. The 2-yr note yield, which hit 4.33% earlier, settled at 4.35%.
Tesla (TSLA 112.71, +3.61, +3.3%) was able to go against the grain today after ARK Innovation ETF (ARKK) purchased 25K shares, but like the broader market, the stock declined from an earlier 6.6% gain.
All 11 S&P 500 sectors closed in the red with energy (-2.2%) suffering the steepest loss by a wide margin. Falling oil and natural gas prices provided a catalyst for some profit-taking efforts. WTI crude oil futures fell 0.8% to $78.94/bbl and natural gas futures declined 9.8% to $4.78/mmbtu, which coincided with the arrival of warmer winter temperatures.
Meanwhile, the financial (-0.4%) and health care (-0.6%) sectors sat atop the leaderboard with the slimmest losses.
- Dow Jones Industrial Average: -9.5% YTD
- S&P Midcap 400: -15.7% YTD
- S&P 500: -20.6% YTD
- Russell 2000: -23.3% YTD
- Nasdaq Composite: -34.7% YTD
Today's economic data was limited to Pending Home Sales, which fell 4.0% in November (Briefing.com consensus -0.2%) following a 4.6% decline in October.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 220,000; prior 216,000) and continuing claims (prior 1.672 million)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -87 bcf)
- 11:00 a.m. ET: Weekly EIA Crude Oil Inventories (prior -5.89 million)
Sell off is accelerating ahead of the close
28-Dec-22 15:30 ET
Dow -300.52 at 32946.38, Nasdaq +131.72 at 10424.79, S&P -41.03 at 3788.64
[BRIEFING.COM] The sell off is accelerating ahead of the closing bell. The main indices are at session lows.
The U.S. Dollar Index is climbing, up 0.3% to 104.52.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial jobless claims (Briefing.com consensus 220,000; prior 216,000) and continuing claims (prior 1.672 million)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -87 bcf)
- 11:00 a.m. ET: Weekly EIA Crude Oil Inventories (prior -5.89 million)
Financials sector continues to outperform
28-Dec-22 15:00 ET
Dow -208.59 at 33038.31, Nasdaq -108.74 at 10184.33, S&P -30.08 at 3799.59
[BRIEFING.COM] Things are little changed in last half hour. The main indices are sticking to a narrow range while the S&P 500 oscillates around the 3,800 mark.
Small and mid cap stocks are faring worse than their larger peers. The Russell 2000 (-1.2%) and S&P Mid Cap 400 (-1.2%) show steeper losses than the three main indices.
The S&P 500 financials sector (+0.2%) is alone in positive territory. It's the best performing sector this week with a 0.2% gain versus a 1.1% loss in the S&P 500. Bank of America (BAC 32.95, +0.42, +1.3%) and JPMorgan Chase (JPM 133.27, +1.53, +1.2%) show the biggest gains among sector components.
EQT Corp. falls on reported production snags, Generac gains after positive analyst comments
28-Dec-22 14:30 ET
Dow -213.42 at 33033.48, Nasdaq -100.40 at 10192.67, S&P -28.72 at 3800.95
[BRIEFING.COM] The S&P 500 (-0.75%) is in second place on Wednesday afternoon, down about 29 points.
S&P 500 constituents EQT Corp. (EQT 33.92, -2.42, -6.66%), V.F. Corp (VFC 25.94, -1.22, -4.49%), and Wynn Resorts (WYNN 81.02, -3.31, -3.93%) dot the bottom of today's trading. EQT slips after reports of winter storm-fueled production declines, while WYNN an casino peers dip despite news that Hong Kong is following Chinese regulators in removing COVID restrictions.
Meanwhile, Generac (GNRC 96.08, +4.93, +5.41%) stands atop the index amid favorable analyst commentary.
Gold gives back some of yesterday's multi-month highs
28-Dec-22 14:00 ET
Dow -216.21 at 33030.69, Nasdaq -91.89 at 10201.18, S&P -27.54 at 3802.13
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-0.89%) remains today's worst-performing major average, down just shy of 92 points on the day.
Gold futures settled $7.30 lower (-0.4%) to $1,815.80/oz, giving back a bit of yesterday's multi-month highs, pressured in part by modest gains in the dollar.
Meanwhile, the U.S. Dollar Index is up +0.2% to $104.36.
Page One
Last Updated: 28-Dec-22 08:55 ET | Archive
Market set to try again for rebound effort
If at first you don't succeed, try, try again -- and that is what the equity market will do this morning. It will try to put together a winning session that puts some legs under the Santa Claus rally effort.
Currently, the S&P 500 futures are up two points and are trading 0.1% above fair value, the Nasdaq 100 futures are down three points and are fractionally above fair value, and the Dow Jones Industrial Average futures are up 40 points and are trading 0.1% above fair value. They are all well off their highs of the morning.
Tesla (TSLA), which plunged 11.4% yesterday, leaving it down 44% for the month, is up 2.1% in pre-market action. The ARK Innovation ETF (ARKK) reportedly purchased an additional 25,000 shares of TSLA, but it's a stretch to think that purchase is the true basis for TSLA powering up this morning.
In any case, Tesla's move is lending a measure of support to the futures market along with lower Treasury yields.
Rising Treasury yields were highlighted as a headwind for the equity market yesterday; ergo, falling Treasury yields are being looked at as a tailwind today.
The 2-yr note yield is down eight basis points to 4.35% and the 10-yr note yield is down three basis points to 3.83%. The basis for the roller-coaster action is open for interpretations that might include thin volume, end-of-year rebalancing activity, short covering, and/or expectations that lower growth will help tame inflation (and the Fed).
On a related note, the IMF is forecasting 2023 global GDP growth to slow to 2.7% from 3.2% in 2022 and for inflation to fall to 6.5% from 8.8%, according to CNBC. If the IMF is right, then growth will be sluggish and inflation will still be far too high. That's not a great combination.
It is what is, though, which is to say it is just a forecast.
In other news, Russia is banning oil sales to countries abiding by the price cap, according to The Wall Street Journal, Hong Kong has removed most of its coronavirus restrictions for visitors, according to Bloomberg, and the flight situation for Southwest Airlines (LUV) remains a huge mess, according to, well, thousands of travelers still contending with baffling flight cancellations at a time when other airlines have largely recovered form Winter Storm Elliott.
Checking in on Santa Claus, he hasn't left the building but he seems somewhat stuck in a revolving door. After the first two days of the Santa Claus rally period, the S&P 500 is up a little less than seven points, or slightly less than 0.2%.
-- Patrick J. O'Hare, Briefing.com
CVS Health: A 2023 Stock Idea as its "all weather" attributes make it a compelling choice (CVS)
With the final days of 2022 upon us, we now look ahead to a new year that holds some promise for brighter days after a rough year that has seen the S&P 500 shed 19% year-to-date. However, we also acknowledge that the macroeconomic outlook for 2023 is cloudy with fears of a recession on the minds of many. We expect that growth concerns will continue to define the stock market as rising interest rates, lingering supply chain issues, and geopolitical tensions remain primary undercurrents. Against this highly uncertain backdrop, one "all weather" stock that we believe can fare well in 2023 is healthcare giant CVS (CVS).
When contemplating investment ideas for 2023, there were a few specific attributes that we were looking for. At the top of the list was a well-established track record of profitability and consistent performance relative to EPS and revenue expectations -- even during volatile economic conditions. Other key factors included a reasonable valuation, a shareholder-friendly capital allocation strategy, and an identifiable catalyst for earnings growth. CVS checks off all of these boxes.
Driven by well-rounded growth across each of its business segments (Health Care Benefits, Pharmacy Services, Retail/LTC), CVS is coming off a solid beat-and-raise Q3 earnings report in which it handily exceeded top and bottom-line estimates. In fact, the company hasn't missed EPS expectations in over five years, while revenue growth has remained in positive territory throughout that span. In contrast, main rival Walgreens Boots Alliance (WBA) has posted revenue declines in three of the past four quarters, indicating that CVS continues to gain market share against the company.
CVS's Health Care Benefits division, which provides health insurance through various Aetna plans, has really stood out.
- Fueled by a 590,000 increase in members, and an easing of COVID-related health care costs, the segment generated revenue and adjusted operating income growth of 10% and 40% in Q3.
- This business received a setback in October when the 2023 Star Ratings were released, showing that the Aetna National PPO plan was cut to 3.5 stars from 4.5. The Star Rating system, ran by the Centers for Medicare & Medicaid Services, rates health plan quality and can have an impact on membership numbers.
- When the rating cut was released, concerns that CVS's earnings would take a hit began to intensify, particularly for FY24 when the ratings change affects government bonus payments.
- Those concerns, though, were eased during the Q3 earnings call when CFO Shawn Guertin stated that CVS will deploy capital towards share repurchases to address 2024 earnings headwinds. For FY24, the company is still aiming for double-digit EPS growth.
From a broader perspective, we believe that CVS's strategy to diversify the business in its effort to become a full-service healthcare company will drive earnings growth and the stock higher.
- Relatedly, the company's $8.0 bln acquisition of Signify Health last September could be a game-changer for CVS. SGFY, which uses a combination of analytics and at-home visits from physicians to provide healthcare, will expand CVS's capabilities and total addressable market.
- The acquisition will also complement the pharmacy business since physicians can direct patients to CVS's pharmacies to fulfill prescriptions.
- With a network of over 10,000 clinicians across the U.S., SGFY already has considerable reach. However, its reach, scale, and revenue generating potential should expand considerably with CVS's resources behind it.
Finally, CVS is trading with a reasonable forward P/E of 10.6x, giving the stock plenty of leeway for appreciation. The cherry on top is that the company just boosted its quarterly dividend to $0.605/share from $0.55/share, equating to a dividend yield of about 2.6%. The bottom line is that while CVS isn't going to amaze investors with its growth rates, its consistency, profitability, share buybacks, and dividends make it a compelling choice for 2023.
J.M. Smucker jamming to new highs as it's poised to benefit from new post-pandemic habits (SJM)
J M Smucker (SJM) has been jamming to a slow and steady beat in recent months, trading to a new all-time high yesterday. The company held a bullish Investor Day in mid-December, which seems to have been a recent catalyst for the stock. With tech stocks out of favor, investors have been rotating into high quality food & beverage names for safety. SJM is a consumer goods company, its brands include Smuckers, Jif, Folgers, and Milk-Bone.
- The company splits its revenue segments into US Pet Foods (~35%), US Coffee (~31%), and US Consumer Foods (~23%). International / Away From Home makes up 13%. SJM has positioned itself in three of the most attractive and resilient categories in the food space. We commend SJM for reshaping its portfolio with four divestitures over the last two fiscal years to focus on higher growth areas. That includes the sale of its natural beverage and grains businesses; its private label dry pet food business; the Natural Balance premium pet food business; and maybe the highest profile was its 2020 sale of Crisco oils and shortening to B&G Foods.
- The overarching theme we see is that SJM wants to focus on the post-pandemic consumer and the new habits that have been formed since the pandemic. As a general note, SJM is benefitting from people spending more time at home, and thus eating at home more often. But when we dig into each category, it is pretty interesting to get some granularity on each segment.
- At its recent Investor Day, the company did a great job breaking down how the consumer has changed since the pandemic. The pet category is benefitting from more pets and pet parents than ever. Dog and cat ownership have both increased by 10% since 2019, which means 5 mln new households for each. Besides the raw numbers, pet parents are increasingly viewing pets as true members of the family.
- The pandemic also changed the coffee category, which SJM says remains incredibly strong as coffee consumption in the US is at a two-decade high. With increased consumption of at-home coffee throughout the pandemic, consumers have invested in upgrading their home coffee bars. Finally, in its consumer food categories, snacking and new eating behaviors continue to benefit SJM. There is a greater focus on convenient, low preparation, and on the go options. SJM says the culture of snacking in the US has changed dramatically with around one-third of consumers saying they snack more often compared to 2019 and half of all food and beverage occasions are snacking occasions.
Overall, SJM may not be as exciting as high-growth companies or companies with cutting-edge technology, but its boring business may be worth a look as a hedge against the weakness in tech stocks as we approach 2023. The pandemic has created many new habits for consumers that should benefit many of SJM's product categories. Finally, SJM pays a healthy 2.6% dividend yield.
Tesla's reported shutdown of Shanghai facility kicks demand concerns into higher gear (TSLA)
In desperate need of an emergency brake to stop this year-end free-fall, Tesla (TSLA) is finding no relief today as concerns about softening demand kick into a higher gear. According to Reuters, the EV maker halted all production at its Shanghai plant on December 24, which follows a Bloomberg story from earlier this month that stated that TSLA cut its Model Y production by 20% at the same facility.
On both occasions, TSLA refuted the reports, but it seems pretty clear that the company is dialing back its activity in Shanghai as a combination of issues beset the company. In fact, an article from Investor's Business Daily essentially provided the "smoking gun" that business in China has weakened throughout December for TSLA. Specifically, IBD noted that Tesla registrations slipped to 8,915 from December 19-December 25, compared to 10,254 registrations the week before, and 12,977 registrations the week before that.
At the heart of the matter is the fear that TSLA's high-growth rate is in jeopardy of taking a major step backwards in FY23. As it currently stands, analysts are forecasting TSLA's revenue growth to slip to about 38% in FY23 from about 55% this year. Achieving a growth rate near 40% would still be a very impressive accomplishment for a company with a $360 bln market cap, but there's a growing sense that FY23 estimates will be ratcheted lower in the coming weeks. That belief stems from a few different factors.
- China just can't seem to break free from the grips of COVID-19. While the Chinese government has finally relented a bit on its crippling zero-COVID policy, now there are reports of virus breakouts across various parts of the country. This is causing worker shortages and is creating a ripple effect throughout supply chains, putting renewed pressure on production rates for manufacturers.
- Relatedly, TSLA competitor NIO, Inc. (NIO) significantly cut its Q4 delivery guidance today, stating that supply chain constraints have worsened in the wake of COVID-19 outbreak.
- On the topic of competition, the EV market in China is becoming much more competitive. While TSLA once dominated the field there, competitors like NIO, Li Auto (LI), XPeng (XPEV), and BYD (BYDFF) are steadily gaining ground on the company.
- On that note, the aforementioned IBD article also reported that BYD's vehicle registrations actually increased for the week ending December 25, reaching 51,636 compared to 50,462 in the prior week.
- In the U.S., rising interest rates, high inflation, and possibly Elon Musk's antics on Twitter are weighing on demand. The severity of the problem came to light last week when Reuters reported that TSLA doubled its discount on its Model 3 and Model Y vehicles to $7,500 in order to stoke sales.
On January 2, a clear picture of the demand environment will be revealed when TSLA issues its Q4 delivery and production report. With the stock plunging by nearly 30% since December 15, it's safe to say that investors are anticipating a disappointing number. However, once that report is in the rearview mirror, it wouldn't be surprising if TSLA shares receive a bit of a jolt as buyers look to capitalize on the stock's plunge. Overall, though, the prospects for a more meaningfully rebound in the near-term look questionable as a preoccupied Musk has his hands full.
Southwest Airlines facing a blizzard of criticism after cancelling thousands of flights (LUV)
The massive winter storm that wreaked havoc across the country over the past several days has morphed into a different kind of storm for Southwest Air (LUV). After canceling about 70% of its flights yesterday, and nearly 60% of its flights for today, LUV is facing a blizzard of criticism from angry travelers and from the U.S. Department of Transportation (USDOT).
Of course, bad weather is a factor that's completely out of LUV's control and it isn't alone in its severe service disruptions. The issue, though, is that LUV's difficulties were far more widespread than its competitors. In the words of the USDOT, LUV's rate of cancellations was "disproportionate and unacceptable", prompting the agency to investigate whether the airline could have avoided some cancellations and whether it's complying with its customer service plan.
For some context, the Wall Street Journal, citing aviation data provide Anuvu, reported that Delta Air Lines (DAL) canceled about 20% of its flights on Saturday and Sunday. With the improving weather, DAL and other airlines are also returning back to normal service levels, while LUV is still trying to dig itself out of this hole. There are a couple main reasons why LUV was completely buried by this storm.
- Of the big four airlines (UAL, AAL, DAL, and LUV), LUV has by far the most exposure to U.S. markets on a percentage of revenue basis. According to LUV, it is the largest carrier in 23 of the top 25 travel markets in the U.S. As the winter storm barreled across the country, over half of the airports that LUV operates in were impacted and contended with disruptions.
- In particular, Chicago and Denver -- two major hubs for LUV -- experienced sub-zero temperatures, causing planes and equipment to freeze.
- As LUV's busy flight schedule snowballed into an avalanche of cancellations, the company's crew-scheduling system failed to keep up with the all the changes. In turn, LUV was essentially flying blind as it tried to match and reschedule available crews with flights.
From a public relations and customer service standpoint, the wave of cancellations that left tens of thousands of travelers stranded during the Christmas holiday weekend is a nightmare for LUV. It's very difficult to assign a monetary value to this disaster, but it will likely be material, at least in the near-term. Not only is LUV covering travel costs (hotel, meals, rental cars) for its affected customers, but it's also offering full refunds for customers who change their travel plans. There could also be a fine from the USDOT coming, depending on the result of its investigation.
However, we doubt that this debacle -- as bad as it has been -- will have a real lasting effect on LUV and its financial performance. Perhaps a small percentage of impacted travelers will look to another carrier the next time they fly, but the negative feelings will eventually fade. Also, it's hard to imagine that many of LUV's frequent flyers would make the effort to change loyalty programs. The bigger fundamental concern, in our view, is the shaky economy and the recent jump in fuel costs.
NIO losing its charge today as the Chinese EV company cuts its Q4 delivery outlook (NIO)
NIO Inc. (NIO -6%) is under pressure today after the Chinese EV company lowered its Q4 delivery outlook. There was also a Reuters report that Tesla (TSLA -7%) suspended its Shanghai plant production, which is also weighing on the EV space today.
- NIO says that in December it has been hampered by supply chain constraints, caused by the COVID-19 outbreak in major cities in China. This has caused challenges in terms of deliveries and in terms of its production schedule. As a result, NIO is lowering its Q4 delivery outlook to 38,500-39,500 vehicles from prior guidance of 43,000-48,000 vehicles.
- Our first thought is that was a pretty large drop, which helps to explain why the stock is down so much even though the shares had already been weak in recent months. NIO does not provide updated guidance for Q4 revenue today, but we have to think its prior guidance of RMB17,368-19,225 mln is in jeopardy. And we wonder if NIO will offer more muted guidance for 2023 when it reports Q4 results, likely in March.
- Perhaps the silver lining is that the press release has no mention of demand being a problem. NIO focuses only on the supply chain constraints as an issue. So that was good to see. However, NIO is also not saying positive things about demand, it is just basically silent on the subject. We have to think if demand was brisk, management would have said so.
Overall, the lowered Q4 delivery guidance is a letdown. What's more is that it comes only about six weeks after NIO guided Q4 revenue below consensus by a good amount, which is pretty disappointing. Also, that 43-48K guidance was pretty recent on November 10. That tells us that December must have been a bad month and that makes us nervous heading into Q1. We never like to see a company stumble late in a quarter as that does not bode well for the next quarter.
Hopefully, the issues are truly mostly supply constraint-related and hopefully that situation improves in 1H23, but as of now, we would be cautious with NIO in the coming quarters.
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