Market Snapshot
| Dow | 34625.09 | +6.85 | (0.02%) | | Nasdaq | 13698.06 | -10.28 | (-0.07%) | | SP 500 | 4450.89 | +0.57 | (0.01%) | | 10-yr Note | +1/32 | 4.32 |
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| | NYSE | Adv1279 | Dec15462 | Vol858 mln | | Nasdaq | Adv1601 | Dec2753 | Vol4.8 bln |
Industry Watch
| Strong:Energy, Information Technology, Industrials, Communication Services |
| | Weak:Consumer Discretionary, Real Estate, Materials |
Moving the Market
-- Big move in Apple (AAPL) following analyst comments provided support to the major indices
-- Keeping an eye on market rates and oil prices
-- Hesitant in front of Wednesday's FOMC policy decision, updated Summary of Economic Projections, and Fed Chair Powell's press conference
-- Digesting news that the UAW rejected a Stellantis (STLA) offer to increase pay by nearly 21%
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Closing Summary
18-Sep-23 16:30 ET
Dow+6.03at 34624.27,Nasdaq+1.90at 13710.24,S&P+3.21at 4453.53
[BRIEFING.COM] The stock market had a mixed showing today following Friday's sell-off. The major indices settled flat after pulling back from their highs of the day, following the trend of the mega cap stocks. The Russell 2000 was relatively weak, falling 0.7%.
The lack of conviction was driven by some hesitation ahead of the FOMC meeting on Wednesday. The market is not expecting a rate hike and will be more focused on the updated Summary of Economic Projections and dot plot, as well as the tone that Fed Chair Powell takes at his press conference.
Apple(AAPL177.97, +2.96, +1.7%) was a source of support for the major indices after reacting favorably to comments from analysts. The stock had been up as much as 2.5% at its high of the day, but drifted lower with the broader market. Nonetheless, the gain in Apple helped to drive the outperformance of the S&P 500 information technology sector (+0.5%).
The energy sector (+0.7%) was another standout performer despite oil prices settling slightly lower. WTI crude oil futures fell 0.5% to $90.53/bbl. Meanwhile, the consumer discretionary sector (-1.0%) fell to the bottom of the pack. It was the only sector to move more than 1.0% in either direction.
Ford(F12.34, -0.27, -2.1%),General Motors(GM33.34, -0.61, -1.8%), andStellantis(STLA18.94, -0.31, -1.6%) were standout laggards today after the UAW rejected a Stellantis offer to increase pay by nearly 21% over the contract term, with a 10% immediate increase.
The 2-yr note yield and 10-yr note yield settled unchanged from Friday at 5.04% and 4.32%, respectively.
This morning's economic data was limited to the NAHB Housing Market Index, which dropped to 45 in September (Briefing.com consensus 50) from 50 in August.
Looking ahead, Tuesday's calendar includes the August Housing Starts and Building Permits report at 8:30 a.m. ET.
- Nasdaq Composite: +31.0% YTD
- S&P 500: +16.0% YTD
- S&P Midcap 400: +5.5% YTD
- Russell 2000: +4.2% YTD
- Dow Jones Industrial Average: +4.5% YTD
Market mostly flat ahead of the close
18-Sep-23 15:30 ET
Dow+7.24at 34625.48,Nasdaq-7.66at 13700.68,S&P+0.62at 4450.94
[BRIEFING.COM] Recent action had the major indices trading in narrow ranges. The S&P 500, Nasdaq, and Dow Jones Industrial Average are trading flat while the Russell 2000 (-0.4%) lags.
The 2-yr note yield and 10-yr note yield settled unchanged from Friday at 5.04% and 4.32%, respectively.
Looking ahead, Tuesday's calendar includes the August Housing Starts and Building Permits report at 8:30 a.m. ET.
Energy complex settles mixed
18-Sep-23 15:05 ET
Dow+6.85at 34625.09,Nasdaq-10.28at 13698.06,S&P+0.57at 4450.89
[BRIEFING.COM] The major indices turned lower recently.
Energy complex futures settled in mixed fashion. WTI crude oil futures fell 0.5% to $90.53/bbl and natural gas futures rose 3.2% to $2.73/mmbtu.
On a related note, the S&P 500 energy sector (+0.6%) remains atop the leaderboard.
S&P 500, Nasdaq tied atop the standings; Moderna falls after co-founder sells stock
18-Sep-23 14:25 ET
Dow+60.02at 34678.26,Nasdaq+29.31at 13737.65,S&P+9.36at 4459.68
[BRIEFING.COM] The S&P 500 is now tied with the tech-heavy Nasdaq Composite, both up +0.21% apiece, while the Dow Jones Industrial Average (+0.17%) has moved modestly off levels from half an hour ago.
S&P 500 constituentsRollins(ROL 38.28, +1.25, +3.38%),TylerTech(TYL 387.98, +12.60, +3.36%), andAxon(AXON 210.89, +4.68, +2.27%) are outperforming despite a dearth of corporate news.
Meanwhile,Moderna(MRNA 104.79, -9.80, -8.55%) is getting hit after co-founder Noubar Afeyan disclosed the sale of 15K shares worth approx. $1.64 mln.
Gold higher on Monday, find two week highs
18-Sep-23 14:00 ET
Dow+67.34at 34685.58,Nasdaq+24.36at 13732.70,S&P+9.97at 4460.29
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.18%) is at the bottom of the standings, up 24 points.
Gold futures settled $7.20 higher (+0.4%) to $1,953.40/oz, aided mostly by modest declines in both yields and the dollar.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $105.05.
Page One
Last Updated: 18-Sep-23 08:59 ET | Archive
Buyers still holding back
Last week ended on a disappointing note with broad-based selling kicking in to knock the S&P 500 and Nasdaq Composite back below their 50-day moving averages. In the process, the selling also knocked the S&P 500 and Nasdaq Composite into negative territory for the week.
This occurred as interest rates and oil prices continued to rise, and as mega-cap stocks fell prone to selling interest. The same is happening this morning.
The 2-yr note yield is up three basis points to 5.07% and the 10-yr note yield is up three basis points to 4.35%. WTI crude futures are up 1.2% to $91.85 per barrel. The Vanguard Mega-Cap Growth ETF (MGK) is down 0.1%.
Those aren't big moves, yet they are part of a larger move that has unfolded in recent weeks, so each tick adds to the pressure that is weighing on investor sentiment and holding back the equity market.
Currently, the S&P 500 futures are down two points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 32 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are down two points and are trading 0.1% below fair value.
The futures trade connotes a lack of conviction, which is understandable.
Participants are waiting to see how the market responds to Friday's sell-off and they are cognizant that a market-moving catalyst awaits on Wednesday. That would be the FOMC meeting.
The catalyst won't be the policy decision itself. The market sees it as a given at this point that the Fed will hold the target range for the fed funds rate steady at 5.25-5.50%. The catalyst will be the updated Summary of Economic Projections and dot plot, and what they confer about the expected policy path.
In the meantime, today's news flow isn't driving much trading interest in the early going.
The UAW strike persists, which is not a surprise. Reports indicate thatStellantis (STLA)presented an offer to raise pay by nearly 21% over the contract term, with an immediate 10% pay increase, and that its offer has been rejected as insufficient by UAW head Shawn Fain.
House Republicans, meanwhile, presented a bill that would keep the government funded through October 31. According toCNBC, the bill calls for an 8% cut in domestic spending and stricter border security measures, yet the approach here is being labeled dead on arrival in the Democrat-led Senate.
-- Patrick J. O'Hare, Briefing.com
Clorox slips on a cybersecurity incident today that it warns could weigh on SepQ results (CLX)
Clorox (CLX)endures modest selling pressure today after identifying unauthorized activity on some of its IT systems and anticipating the event to materially weigh on its Q1 (Sep) results. Although Clorox did not specify the degree to which the unauthorized activity would impact its financials, investors are still cautious today. With Clorox in the middle of returning household penetration and margins to pre-pandemic levels, the potentially meaningful hiccup today could delay management's goals.
Regarding the security incident, Clorox already took the proper steps to stop and remediate the issue. However, in doing so, Clorox had to engage in manual ordering and processing procedures, causing operations to slow and triggering an elevated level of consumer product availability problems. Clorox expects to remain in manual mode until next week, when it will begin transitioning back to normal automated order processing. However, how long it will take to resume fully normalized operations is unclear. As a result, SepQ figures will take a hit.
- Although security breaches always present headaches, today's setback comes at a particularly bad time. After an initial spike on a Q4 (Jun) earnings beat in early August, investors have washed away all of Clorox's gains, sending shares over -10% lower, underpinning lingering concerns surrounding the macroeconomic environment. Clorox's FY24 (Jun) outlook incorporates a mild recession during the first half of 2024.
- Despite the recession prediction, Clorox was committed to rebuilding margins back to pre-COVID levels (FY24 guidance assumes over half of Clorox's 800 bp margin contraction to already be recovered). Part of Clorox's confidence in achieving its goals was favorable elasticities, which have remained lower relative to historical levels, a testament to the stickiness associated with Clorox's brands. The other component was improving operational performance. However, with Clorox having to resolve day-to-day orders manually, operational performance may materially regress in SepQ.
- Investors initially shrugged off Clorox's FY24 organic and reported sales growth projections of +2-4% and +0-2%, respectively, falling slightly short of the company's long-term goals. Encouragingly, management was optimistic that after a relatively muted FY24, it would not encounter similar headwinds, putting it on track to reach its long-term estimates. However, the security breach could trigger a revised forecast, putting Clorox further behind its long-term financial targets.
The cybersecurity attack is an unfortunate occurrence that could push out Clorox's timeline on strengthening its margins and bolstering household penetration. However, it might not be as impactful as potentially weakening macroeconomic conditions. After 18 months since Clorox began implementing meaningful price hikes, consumers have adjusted their purchasing habits, seeking alternatives, delaying purchases, or exiting categories altogether. Still, Clorox commented last month that it maintained 9 out of 10 households, positioning it to begin expanding penetration. However, this plan could be met by formidable economic roadblocks much more significant than a data breach.
Walt Disney sees another executive head for the exits, creating more unease for investors (DIS)
There never seems to be a dull moment forWalt Disney(DIS) which, according to theWall Street Journal, lost its Chief Information Officer earlier this month. Diane Jurgens is not a long-standing member of DIS's executive team, having joined DIS as Chief Information Officer in October of 2020 when Bob Chapek was at the helm as CEO. However, her departure comes at a challenging time for DIS as the company navigates through a multi-faceted transformation that's based on optimizing its streaming assets and improving its profitability.
The departure also comes just a few months after Christine McCarthy exited the company, reportedly due to health-related issues in her family. It's not clear why Ms. Jurgens decided to leave DIS, with theWall Street Journalnoting that she told colleagues she was seeking "new adventures", but her departure doesn't help to improve sentiment on a stock that's in need of a positive catalyst. Since Bob Iger returned to DIS as CEO on November 20, 2022, the stock has fallen by about 13%.
- Most of the angst surrounding DIS centers on its Direct-to-Consumer business and, in particular, whether the company can strike the right balance between growth and profitability for Disney+, Hulu, and ESPN+. While Mr. Iger has followed through on his promise to cut the losses for Disney+, price increases for the service and a slowdown in consumer discretionary spending has taken a toll on subscriber growth.
- In Q3, domestic Disney+ subscribers fell by 1% in Q3 to 46.0 mln, after dropping by 4.0 mln in Q2.
- Last week,Bloombergreported that DIS lowered its FY24 Disney+ subscriber forecast by "tens of millions" as the company essentially throws in the towel on reaching the 230-260 mln subscriber figure that former CEO Bob Chapek laid out just before he was replaced by Mr. Iger.
- Cutting the cord on the struggling Linear Networks segment is another major component of DIS's transformation. On September 14,Bloombergreported that DIS held initial discussions withNexstar(NXST) to sell its broadcast and cable channels (ABC, FX, National Geographic) to the TV and media company. Byron Allen, the founder of Entertainment Studios, also reportedly offered $10 bln to buy the broadcast channels, but a deal with NXST or Mr. Allen doesn't appear to be imminent.
The main takeaway is that DIS has its hands full as it looks to reshape the company and steer its content and viewers towards its streaming assets. Therefore, the unexpected departure of its Chief Information Officer adds another layer of complexity to an already complicated situation. In the wake of Ms. McCarthy's exit in June, it also stirs up concerns that DIS's executives aren't on the same page when it comes to executing this transition.
Steel Dynamics trading modestly higher despite downside Q3 guidance (STLD)
Steel Dynamics (STLD +0.4%)is trading modestly higher despite guiding Q3 EPS below analyst expectations this morning. The guidance was not a total surprise because its close peerNucor (NUE)also guided lower on Friday. The two tend to guide in similar directions, but not always. Also, they both tend to provide guidance around the middle of the last month of every quarter. We noted on Friday that we expected guidance from STLD today.
- What does stand out to us is that both companies guided to EPS numbers that were a good bit below what analysts were expecting, so that is a bit worrisome. STLD said that Q3 profitability from its steel operations is expected to be significantly lower than its Q2 results, based on metal spread contraction as lower flat rolled steel pricing more than offset lower scrap input costs.
- On a more positive note, STLD said that steel order activity remains solid. Steel shipments are expected to be comparable to Q2 volume, excluding lost volume related to Sinton's unplanned July outage. Speaking of its Sinton, TX facility, we think this recently opened plant is going to become a bigger part of the STLD story and a reason to keep an eye on the stock.
- Sinton is STLD's third flat rolled plant (Butler and Columbus are the others). This new mill is seen as transformational not only because it will boost STLD's overall production capacity. The key point is that it's designed to accommodate product size and quality capabilities beyond those of existing mini-mills, competing with integrated steel mills and foreign competition. STLD has said before it expects Sinton will be operating at an 80% utilization rate by the end of 2023, as it steadily ramps production during 2H23. We will listen for an update on the Q3 call next month.
- Unfortunately, we did not get a breakdown by sector today from STLD. Its take on automotive would have been interesting in light of the UAW strike. Also, on its Q2 call, STLD said the non-residential construction market was strong and that oil & gas activity was strong. But we will have to wait for the Q3 call to get an update.
Overall, the guidance was a bit of a letdown. However, we are not totally surprised as we were expecting some downside guidance from STLD after Nucor's guidance last Friday. We think investors were already bracing for it as well given STLD's 4% drop on Friday. That is probably why we are not seeing a negative reaction today.
Dropbox's rating dropped at William Blair today triggering modest selling pressure (DBX)
Dropbox (DBX -1%)was hit by a downgrade today at William Blair to "Market Perform" from "Outperform," citing an unfavorable growth outlook in 2024, triggering a minor correction today. William Blair's downgrade marks just the second downgrade from analysts Briefing.com tracks this year.
Briefing.com notesthat shares of the file-sharing and cloud-storage software firm are still up roughly +17% on the year despite today's selling pressure, advancing over +30% since registering upbeat Q1 results in May, which coincided with a broader AI-fueled tech rally. Given its business, which competes against colossal players likeGoogle (GOOG)andMicrosoft (MSFT), DBX is trying to target market segments it believes can fortify its position. Although it is an ambitious long-term plan, it could be accompanied by several hurdles along the way.
- DBX has been pivoting its attention to small and medium-sized businesses (SMBs) over the past several quarters, noting earlier this year that this segment is less addressed than enterprises. This strategy is DBX's way of taking market share from bigger fish, like Microsoft and establishing a base with which it can grow alongside.
- However, unlike enterprises, SMBs are highly sensitive to macroeconomic changes, a problem in the current environment. DBX commented late last year that it was facing relatively higher churn on the SMB side of its business. DBX's quarterly results will be less cushioned if economic conditions remain challenging or worsen compared to more prominent tech names.
- DBX's business relies almost entirely on retaining and upgrading paying users. The company offers free versions of some of its offerings, including core file-sharing and storage options. The good news is that DBX is quite popular, boasting well over half a billion registered users. The bad news is that only around 3%, or 18 mln, of these users pay for DBX's services.
- Still, DBX has been expanding its paid user base consistently over the past few years, recently improving the metric by 4% yr/yr and 1% sequentially in Q2. Although most users are happy with the free versions of DBX's software, the company has a massive user base to nudge into a paid tier.
- The e-signature industry exploded during the pandemic, benefiting leaders likeDocuSign (DOCU)andAdobe (ADBE). The move to remote work also boosted DBX's HelloSign, which became Dropbox Sign late last year. With remote work remaining in place long after the pandemic, albeit to a lesser extent, Dropbox Sign has assisted DBX's top line.
- While economic softness has moderated the growth of Dropbox Sign, this business has plenty of room to grow, especially since less than 10% of DBX users are even aware this offering exists.
Stiff competition, economic headwinds, and low-paid user penetration pose risks to DBX's near-term outlook. Nevertheless, at 13x forward earnings, a discount compared to MSFT at 29x and DOCU at 16x, shifting toward carving out a moat among SMBs, and early signs of demand stabilization in Q2, DBX is a name worth keeping on the radar.
Shake Shack looks to shake its recent bearish trend following an upgrade at Northcoast today (SHAK)
Shake Shack (SHAK)tries to shake its recent downward trend following an upgrade at Northcoast to "Buy" from "Neutral" today. Although still up nearly 50% on the year, shares of the urban-based quick-service restaurant chain have tumbled by over 20% since early August highs. The decline certainly adds a layer of concern, especially as inflationary pressures, namely energy, begin to tick back up, potentially eating into future sales.
However, Briefing.com points outthat today's Northcoast upgrade comes just one month after the same firm downgraded SHAK, a quick change of sentiment potentially reflecting an even quicker positive shift in demand. Aside from Northcoast's downgrade last month, analysts we track have not been bearish toward SHAK since January, either reiterating or upgrading their ratings.
Although the market faded much of today's gains, favorable dynamics are at play, creating a potentially attractive entry point for buy-and-hold investors.
- Since the end of Q2, SHAK noticed an uptick in sales momentum, boasting +4.5% same-store sales growth during July. Traffic trends are also improving as consumers lessen their taste for deliveries, instead flocking to SHAK's locations. Rising prices and stubborn inflationary trends likely play a role in spurring a shift toward in-person ordering. Still, higher in-person orders can lead to add-ons consumers may not have opted for when choosing delivery, boosting overall sales.
- Also lifting sales are higher menu prices. SHAK has had to implement several price hikes to help offset rising input costs. While SHAK did notice signs of food costs declining in Q2, most of its basket costs remained elevated. Still, this has been common across the quick-service restaurant industry;McDonald's (MCD),Wendy's (WEN), and Burger King(QSR)have all hiked their menu prices over the past two years. What gives SHAK an advantage is its objective and perspective quality. To avoid meaningful consumer resistance to price hikes, restaurants need to not just provide quality products but be able to market them as such. SHAK does a solid job at both.
- An expanding presence will also provide a longer-term tailwind. The sheer number of locations keeps MCD at the top of the quick-service restaurant landscape. One of SHAK's priorities is maximizing its total addressable market (TAM), targeting sites across the U.S. to deepen its footprint. Building out additional drive-thrus should also help improve sales over the long haul; a lack of drive-thrus was a serious issue for SHAK during the pandemic.
- SHAK is also bolstering its licensed business, opening new Shake Shacks around the globe, anticipating approximately 35 new licensed Shack openings in 2023.
By still being early in its growth story, SHAK will encounter its share of hurdles toward becoming a leading quick-service restaurant chain. Higher prices may keep a lid on near-term growth, especially with energy prices increasing, student loans resuming, and uneasiness surrounding the economy persisting. Nevertheless, SHAK offers a refreshing menu over its established peers, giving it a competitive edge as it builds out its store presence domestically and abroad. |
