Market Snapshot
briefing.com
| Dow | 33602.55 | -202.28 | (-0.60%) | | Nasdaq | 13556.99 | -102.68 | (-0.75%) | | SP 500 | 4345.74 | -31.21 | (-0.71%) | | 10-yr Note | -33/32 | 4.71 |
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| | NYSE | Adv 480 | Dec 2359 | Vol 827 mln | | Nasdaq | Adv 1155 | Dec 3120 | Vol 4.8 bln |
Industry Watch
| Strong: Energy, Information Technology |
| | Weak: Consumer Staples, Real Estate, Materials, Consumer Discretionary, Financials, Industrials |
Moving the Market
-- Digesting the September Consumer Price Index and weekly jobless claims report, failed to put rate-hike worries entirely to rest
-- Reacting to rising market rates, which first started climbing in response to the data, then turned higher again after the completion of today's $20 bln 30-yr bond auction, which met dismal demand
-- Gains in some mega cap stocks helping to limit downside moves
-- Geopolitical worries hanging over the market amid Israel-Hamas war
| Closing Summary
12-Oct-23 16:25 ET
Dow -173.73 at 33631.10, Nasdaq -85.46 at 13574.21, S&P -27.34 at 4349.61
[BRIEFING.COM] The stock market closed with losses. Rising market rates in response to this morning's data, and some relatively disappointing bond auction data, led to an underlying negative bias throughout the session. Early strength from the mega cap space, though, had the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average trading up 0.3%, 0.4%, and 0.2%, respectively, at their highs of the day.
Some mega caps rolled over as another wave of selling hit the Treasury market coinciding with the completion of today's $20 billion 30-yr bond auction, which met dismal demand. The 2-yr note yield, which hit 4.97% in front of the CPI data, rose six basis points to 5.06%, and the 10-yr note yield, which hit 4.53% in front of the CPI data, climbed 12 basis points to 4.71%.
Total CPI was unchanged at 3.7% year-over-year while core CPI, which excludes food and energy, dropped to 4.1% year-over-year from 4.3% in August. Meanwhile, initial jobless claims of 209,000 remained consistent with a tight labor market. Both reports failed to quell concerns about future rate hikes.
There was also lingering geopolitical uncertainty hanging over the market, along with a strengthening dollar. The U.S. Dollar Index rose 0.7% to 106.58.
Apple (AAPL 180.71, +0.91, +0.5%), Amazon.com (AMZN 132.33, +0.50, +0.4%), and NVIDIA (NVDA 469.45, +1.39, +0.3%) all managed to hold onto their gains, and provided a needed measure of support to the major indices. The market-cap weighted S&P 500 fell 0.6% while the Invesco S&P 500 Equal Weight ETF (RSP) dropped 1.3%.
Nine of the 11 S&P 500 sectors closed in the red. The materials (-1.5%), utilities (-1.5%), and real estate (-1.3%) saw the biggest declines while the information technology (+0.1%) and energy (+0.1%) sectors closed with the largest gains.
Separately, the Russell 2000 underperformed relative to the other major indices, dropping 2.2%, which brings the index into negative territory for the year (-1.5%).
- Nasdaq Composite: +29.7% YTD
- S&P 500: +13.3% YTD
- S&P Midcap 400: +1.1% YTD
- Dow Jones Industrial Average: +1.5% YTD
- Russell 2000: -1.5% YTD
Reviewing today's economic data:
- Total CPI increased 0.4% month-over-month in September (Briefing.com consensus 0.3%) and core CPI, which excludes food and energy, rose 0.3% (Briefing.com consensus 0.3%). More than half of the increase in total CPI was driven by a 0.6% increase in the index for shelter.
- On a year-over-year basis, total CPI was unchanged at 3.7% while core CPI dropped to 4.1% from 4.3% for the 12 months ended in August.
- The key takeaway from the report is that the headline numbers belie some otherwise encouraging inflation readings below the surface. To wit: the all items index less shelter was up just 2.0% year-over-year and the services index less rent of shelter was up 2.8% year-over-year.
- Initial jobless claims for the week ending October 7 were unchanged at 209,000 (Briefing.com consensus 214,000) while continuing jobless claims for the week ending September 30 increased by 30,000 to 1.702 million.
- The key takeaway from the report is that the low level of initial claims -- a leading indicator -- remains consistent with a tight labor market that continues to work in the economy's favor.
Friday's economic calendar features:
- 8:30 ET: September Import Prices (prior 0.5%), Import Prices ex-oil (prior -0.1%), Export Prices (prior 1.3%), and Export Prices ex-agriculture (prior 1.7%)
- 10:00 ET: Preliminary October University of Michigan Consumer Sentiment survey (Briefing.com consensus 67.5; prior 68.1)
Treasuries settle with losses; Friday's economic calendar
12-Oct-23 15:35 ET
Dow -153.77 at 33651.06, Nasdaq -81.50 at 13578.17, S&P -25.30 at 4351.65
[BRIEFING.COM] The major indices are climbing ahead of the close, but remain buried in negative territory.
Treasuries settled with sharp losses. The 2-yr note yield rose six basis points to 5.06% and the 10-yr note yield climbed 12 basis points to 4.71%.
Friday's economic calendar features:
- 8:30 ET: September Import Prices (prior 0.5%), Import Prices ex-oil (prior -0.1%), Export Prices (prior 1.3%), and Export Prices ex-agriculture (prior 1.7%)
- 10:00 ET: Preliminary October University of Michigan Consumer Sentiment survey (Briefing.com consensus 67.5; prior 68.1)
Energy complex settles lower; Treasury yields climb
12-Oct-23 15:05 ET
Dow -202.28 at 33602.55, Nasdaq -102.68 at 13556.99, S&P -31.21 at 4345.74
[BRIEFING.COM] The major indices tried to bounce off their lows.
Energy complex futures settled lower. WTI crude oil futures fell 0.8% to $83.07/bbl and natural gas futures fell 1.5% to $3.34/mmbtu. Despite the lower settlements, the S&P 500 energy sector (+0.3%) is the only sector in positive territory.
Treasury yields continue to climb. The 2-yr note yield is up six basis points to 5.06% and the 10-yr note yield is up 12 basis points to 4.71%.
Hormel dips after wage increase agreement with union, Eversource & other utilities lower in S&P 500
12-Oct-23 14:30 ET
Dow -278.77 at 33526.10, Nasdaq -135.98 at 13523.70, S&P -41.39 at 4335.56
[BRIEFING.COM] The S&P 500 (-0.95%) is in second place on Thursday afternoon, down about 41 points.
S&P 500 constituents Hormel Foods (HRL 32.36, -3.87, -10.68%), Lamb Weston (LW 84.24, -7.60, -8.28%), and Eversource Energy (ES 54.28, -4.69, -7.95%) dot the bottom of the index. HRL slips after agreeing with the United Food and Commercial Workers International Union on the largest wage increase in the company's history (up $3 to $6 an hour, among other benefits), while LW continues its post-investor day fade to 10-month lows, with ES (along with fellow utilities peers) being flushed by rising yields.
Meanwhile, California-based semi equipment firm KLA Corporation (KLAC 497.11, +14.48, +3.00%) is near the top of today's standings is the top holdout of the market fade in the chip group.
Gold dented by rising yields, dollar on Thursday
12-Oct-23 13:55 ET
Dow -270.01 at 33534.86, Nasdaq -102.39 at 13557.29, S&P -35.75 at 4341.20
[BRIEFING.COM] The major averages continued to make session lows in the last half hour, while the tech-heavy Nasdaq Composite (-0.75%) is today's shallowest decliner.
Gold futures settled $4.30 lower (-0.2%) to $1,883.00/oz, dented by both higher treasury yields as well as strength in the greenback.
Meanwhile, the U.S. Dollar Index is up about +0.7% to $106.54.
Page One
Last Updated: 12-Oct-23 09:10 ET | Archive
Some tension on the line
The stock market has been on a good run since the release of the September employment report last Friday. One could call it a remarkable run, really, given what has been going on around it.
To be sure, the (geo)political uncertainty has ramped up with the Israel-Hamas War, and business in the U.S. House of Representatives at a standstill because it lacks a Speaker. Yesterday, Steve Scalise (R-LA) emerged victorious from a GOP conference vote, yet doubts exist within his own party as to whether he can secure the 217 votes needed in a full House vote to become Speaker, according to Politico.
There is a risk that both things could get worse. The bigger risk in this regard is the Israel-Hamas situation. The House Speaker situation will ultimately get resolved, but it might be a messy process getting there. Once there, the next hurdle will be to reach an agreement on a funding bill that prevents the government from shutting down after November 17 -- and that's no sure thing.
In any case, the stock market has been clinging to interest rate relief on its remarkable run, maintaining hope that the Israel-Hamas War will not evolve into a wider regional conflict. The 10-yr note yield, catalyzed partly by safe-haven flows, hit 4.53% today after flirting with 4.90% last week ahead of the employment report.
Other driving catalysts for the improvement have included short-covering activity from an oversold position and a batch of Fed speakers who have intimated that the jump in long-term rates seen since the September FOMC meeting has done more of the Fed's tightening work for it, enabling the Fed to "proceed carefully" before deciding if it is necessary to raise rates again.
Market rates, however, are showing some agitation today in the wake of the September Consumer Price Index and weekly initial jobless claims reports. Both reports, at the least, make it clear that the Fed won't even be thinking of cutting rates soon.
Total CPI increased 0.4% month-over-month in September (Briefing.com consensus 0.3%) and core CPI, which excludes food and energy, rose 0.3% (Briefing.com consensus 0.3%). More than half of the increase in total CPI was driven by a 0.6% increase in the index for shelter.
On a year-over-year basis, total CPI was unchanged at 3.7% while core CPI dropped to 4.1% from 4.3% for the 12 months ended in August.
The key takeaway from the report is that the headline numbers belie some otherwise encouraging inflation readings below the surface. To wit: the all items index less shelter was up just 2.0% year-over-year and the services index less rent of shelter was up 2.8% year-over-year.
Separately, initial jobless claims for the week ending October 7 were unchanged at 209,000 (Briefing.com consensus 214,000) while continuing jobless claims for the week ending September 30 increased by 30,000 to 1.702 million.
The key takeaway from the report is that the low level of initial claims -- a leading indicator -- remains consistent with a tight labor market that continues to work in the economy's favor.
The 10-yr note yield went from 4.53% to 4.62% immediately after the releases and equity futures dropped from higher levels.
Currently, the 10-yr note yield is at 4.60%, up two basis points from yesterday. The S&P 500 futures are up four points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 13 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are up 54 points and are trading 0.2% above fair value.
Stocks, therefore, look poised to hold the line at the open, but there is some tension on the line because of the tension in the Treasury market, the unresolved tension on the (geo)political front, and heightened tension in the UAW strike following the surprise news that UAW workers at Ford's (F) Kentucky truck plant have walked out in a targeted strike action.
-- Patrick J. O'Hare, Briefing.com
Fastenal speeds above 52-week highs on solid Q3 results; co still expecting sluggish demand (FAST)
Fastenal (FAST +8%) cannot slow down, speeding to 52-week highs today after exceeding analysts' earnings expectations in Q3 on decent top-line growth. FAST's strong headline numbers were sufficient in offsetting the reasonably concerning comments by management regarding the general economy, noting that macro data points to sluggish demand and a cautious outlook for spending and production. The company added that even though its September daily sales rate was up +5%, this mostly branched from easing comparisons rather than a clear sign of firming customer demand or a brightening outlook.
As a major distributor of fasteners and other industrial and construction-related supplies, FAST's quarterly results are a good gauge of manufacturing activity. Although its Q3 results were improved over last quarter, when earnings and sales came up short of consensus, FAST's remarks are a concern ahead of earnings season later this month. It will be worth watching numerous firms operating within these industries.
- In Q3, revenue growth slowed sequentially, expanding just 2.4% yr/yr to $1.85 bln. However, unlike in Q2, FAST's Q3 revenue growth topped expectations. Meanwhile, adjusted EPS of $0.52, a decent 4.1% expansion yr/yr, marked a return to exceeding analyst forecasts by single digits following last quarter's miss.
- Like last quarter, operating margins remained stable yr/yr at 21%, despite a minor headwind of one less selling day. Management noted that when looking at operating margins on a same-day basis, it believes the metric would have expanded yr/yr.
- FAST's competitive advantage, increasing its number of Onsite locations, was a primary growth driver in Q3, helping offset the adverse impact of softer end-market demand on its manufacturing customers and weaker sales to construction and reseller customers.
- Additionally, FAST maintained its new Onsite signing momentum, adding 93 locations during Q3, resulting in 1,778 active sites by the end of the quarter, a 13.5% jump yr/yr. This upward momentum is critical to FAST's continued growth, given the competitive advantage of its Onsite locations, which help prevent customers from purchasing products from other vendors.
- Other growth drivers included a decent 4.0% bump in FAST's daily sales rate and manufacturing sales climbing 6.4%, offsetting a 1.3% decline in non-manufacturing sales. FAST noted that dynamics around its products, customers, and end markets trended similarly over the past six months. Likewise, due to the cyclicality of its business, fasteners remained relatively weak, down 2% in the quarter, while non-fasteners remained healthy.
Overall, while FAST's Q3 performance improved from last quarter, buoyed by its ongoing uptick in Onsite locations and easing yr/yr comparisons, demand has not picked up much, remaining stagnant, with growth driver performance not at levels management would like. Nevertheless, the market is brushing this off, pricing in a swift rebound in demand. Even though it is unclear when demand will turn, what is becoming increasingly clear is FAST's ability to accelerate sales growth when underlying demand finally improves.
Delta Air Lines encounters some turbulence as total unit revenue trends weaken (DAL)
On September 14, with just two weeks remaining in the quarter, Delta Air Lines (DAL) joined a long list of commercial airlines to update their Q3 guidance, mainly to reflect the impact of rising fuel costs. Accordingly, few surprises were anticipated regarding the company's results, which fell in line with its revised outlook. As DAL predicted, operating revenue came in towards the high end of its initial guidance range of +11-14%, increasing by 13%, while EPS of $2.03 was above the midpoint of its updated $1.85-$2.05 forecast.
It's well understood that higher fuel costs, and, in the case of DAL, higher maintenance costs due to supplier issues, are cutting into margins and profits across the industry. On a qtr/qtr basis, DAL's average fuel cost per gallon was up by about 10% to $2.78. Meanwhile, the company's non-fuel CASM increased by 1.3%, above its original forecast for a decline of 1% to 3%.
The much bigger question mark, though, was whether demand has shown any signs of cracking as discretionary spending slows. On that account, DAL had mostly good news to share, although its Q4 revenue outlook for growth of 9-12% was merely in line with expectations.
- Similar to last quarter, international was a standout as passenger revenue increased by 35% yr/yr with record margins achieved across all regions. Transatlantic revenue jumped by 34%, while Latin America grew by 20%. Those growth rates are down from Q2 when international and transatlantic passenger revenue surged by 61% and 65%, respectively, but DAL likely lapped more difficult comparisons this quarter.
- Domestic travel demand may not be booming like it was earlier this year and in 2022, but it's still healthy as domestic passenger revenue increased by 6%. For some context, domestic revenue grew by 8% last quarter and by 37% yr/yr in 1Q23.
- While it appears that leisure travel demand is cooling off, business travel continues to improve as corporations announce return to office initiatives.
- Relatedly, premium and loyalty revenue continue to provide a top-line boost, with each category increasing by 17%.
- One issue, though, is that DAL's unit revenue trends are declining as the airline adds capacity. For Q4, the company is anticipating total unit revenue (TRASM) to decrease by 2.5% to 4.5%, after falling by 2.5% in Q3. The main concern is that ticket prices will drop as more seats become available, putting pressure on margins.
The main takeaway is that business remained healthy for DAL in Q3 as it dealt with rising fuel and maintenance costs. Booking trends remains strong, led by strength in business and international travel, but declining unit revenue trends and slowing domestic leisure travel demand are two factors that are keeping a lid on shares today. It's also worth noting that oil prices are marching higher today, putting rising fuel costs back under the spotlight.
Domino's Q3 comps were cheesy, but investors like the EPS upside and comp trends in Q4 and 2024(DPZ)
Domino's Pizza (DPZ +2.4%) is trading higher after reporting its largest EPS beat in the last five years and providing some upbeat commentary on comp trends. Unfortunately, Q3 sales were a bit below analyst expectations and perhaps even more disappointing were its Q3 US comps, which dipped into negative territory.
- US comps were pretty disappointing at -0.6% and they followed a lackluster +0.1% in Q2. DPZ was lapping easy +2.0% comps in the prior year period, so the Q3 comps were a letdown for investors. The US comp decline was driven by auto count declines, partially offset by a higher average ticket which included pricing actions.
- DPZ has now reported uninspiring comps in back-to-back quarters and the trend so far this year has been heading downward: +3.6% in Q1, +0.1% in Q2 and now -0.6% in Q3. Comps were disappointing in light of DPZ's 3.2% average price increase. A slight silver lining was international (excl FX) comps coming in at +3.3%, roughly in-line with Q2's +3.6%.
- As has been the case in recent quarters, its US carryout business remained strong in Q3. US carryout comps were +1.9% and that was despite lapping a huge +19.6% comp last year. However, its delivery business remains weak, but in-line with management expectations as stated on the last call. US delivery comps were -2.3% despite lapping -7.5% comps last year.
- Looking ahead, DPZ expects total US comps to return to positive territory in Q4. Delivery comps are expected to "show improvement" in Q4 due to an updated loyalty program (launched Sep 12) and its emergency pizza promotion has now rolled out. And that should be followed by what DPZ describes as "considerable improvement" in 2024 as a result of transaction growth from its Uber Eats partnership and the other initiatives previously shared.
- Quickly on pricing, the average price increase across its US system was 3.2%. However, DPZ expects that to moderate to slightly below 1% in Q4. Turning to its Uber Eats partnership, DPZ continues to expect it to be rolled out to all US stores by the end of the year. DPZ expects the partnership will drive incremental delivery volume from new customers, increase its share of the pizza delivery market and create stronger economics. This will begin in a measurable way in 1Q24.
Overall, there were a lot of cross currents with this report. We think that's why the stock initially traded lower then recovered during the call. The revenue/comp numbers were not great and delivery remains a weak spot. However, we think investors were pleased with management's comments about delivery trends finally starting to improve in Q4 and especially next year when the Uber Eats partnership fully rolls out. And this is despite pricing being less of a tailwind in Q4.
Walgreens Boots Alliance delivers some silver linings in Q4; looking at a fresh start in FY24 (WBA)
With its final quarter of FY23 (Aug) and under the guidance of former CEO Rosalind Brewer in the books, Walgreens Boots Alliance (WBA +4%) is looking at a fresh start to FY24. The global retail pharmaceutical titan topped Q4 revenue projections but missed earnings expectations, coming up a penny shy of the low end of its $0.68-0.73 outlook. Also, WBA's FY24 guidance was light, with earnings and the midpoint of revenue below consensus. However, after such a tumultuous year, including downward revisions to its annual outlook, deteriorating demand, and Ms. Brewer's departure, investors are brushing off the few blemishes from Q4, instead focusing on a potentially brighter future under newly minted CEO Tim Wentworth.
We noted ahead of WBA's Q4 report that Mr. Wentworth has quite a bit on his plate, particularly surrounding the company's U.S. Healthcare segment, which saw $17.0 bln invested via VillageMD, Summit Health, Shields, and CareCentrix. The capital poured into U.S. Healthcare over the past couple of years was seldom well-received, which was warranted given WBA's comments last quarter that this segment was experiencing a slower-than-expected ramp to profitability. However, WBA projected U.S. Healthcare adjusted EBITDA of $(50)-$50 mln today, breakeven at the midpoint, an uplifting development.
Silver linings like this were sprinkled throughout WBA's Q4 report, helping keep shares' recent upward momentum active.
- WBA reiterated that recent restructuring initiatives, including planned cost reductions of at least $1.0 bln and lowering CapEx by approximately $600 mln, would still benefit FY24 beginning in Q2 (Feb). Some of the actions WBA is already undertaking include store closures, operating hour changes, and AI implementation. WBA is also bringing executives back to the office, which it expects will accelerate priority projects.
- While headline Q4 figures, including EPS of $0.67 and revs of $35.42 bln, a 9.2% gain yr/yr, reflected a stubbornly challenging macroeconomic climate and lower COVID-19-related contributions, there are signs of growth on the horizon. WBA projected FY24 revenue in constant currency to expand +1-4% yr/yr and reported revenue growth of +3% at the midpoint of its $141-145 bln outlook.
- Furthermore, although FY24 EPS of $3.20-3.50 represents a decline from $3.99 posted in FY23, the impact primarily resides in lower COVID-19 contributions and sticky inflationary pressures on the end consumer. If not for these headwinds, WBA's forecast assumes underlying growth, underpinning improving profitability from U.S. Healthcare.
WBA is staring at plenty of obstacles over the next several quarters. Shifting consumer behaviors, lower sale-leaseback gains, and a sharp drop-off in COVID-19-related tailwinds will likely cap near-term financial performance. However, accelerating synergies between U.S. Healthcare and WBA operations, modest FY24 growth on top of a +5% jump in FY23, and a new leader who has spent decades in the healthcare industry are encouraging developments. WBA remains a risky turnaround play, but unlike fading rival Rite Aid (RAD), which is on the brink of bankruptcy, WBA boasts a massive global presence with its nearly 9,000 stores, brand recognition, and expanding primary care offerings, all of which make it harder to discount WBA's ability to mount a comeback.
Birkenstock's IPO had high hopes, but investors got cold feet ahead of the launch (BIRK)
Hopes were high ahead of Birkenstock's (BIRK) IPO in the wake of strong pricings from Arm Holdings (ARM), Instacart (CART), and Klaviyo (KVYO), but the Germany-based sandal maker has received a chilly reception in a setback for the IPO market's recovery.
- As reported last night by the Wall Street Journal, BIRK's 32.26 mln share IPO priced at $46, which is slightly below the midpoint of the $44-$49 expected price range. The pricing came as both a disappointment and a surprise because news reports were indicating that the deal would price at the high end of that range.
- We're just speculating, but it seems that BIRK and its investment banking team sensed that the IPO could falter once it opened for trading, perhaps due to concerns over BIRK's lofty valuation.
- Had the deal priced at $49/share as some had anticipated, BIRK's market cap would have been approximately $11.0 bln, equating to a P/Adj. EBITDA of roughly 25x.
- That valuation may be hard for market participants to swallow, especially since consumer spending is slowing -- including for footwear. BIRK's top-line growth has slowed, indicating that it's not immune to the macroeconomic headwinds. Revenue growth for the nine months ended June 30, 2023 came in at 21%. In FY22, the company's top-line growth rate was around 29%.
- Adding to the concern is that those three highly anticipated IPOs -- ARM, CART, and KVYO -- have not performed particularly well in the public markets. In particular, CART has faltered and is currently trading 10% below its IPO price.
- Taking these factors into account, it's understandable that the IPO did stumble out of the gate, opening for trading at $41, or about 11% below the IPO price.
However, all is not lost for BIRK.
- The slow start may entice some investors who otherwise ignored the IPO to take another look at BIRK. With a market cap of about $7.8 bln, the valuation is more attractive as the P/Adj. EBITDA drops to roughly 18x.
- Additionally, BIRK has a strong brand name, has a long history and has weathered many economic downturns, and is consistently profitable. On that note, BIRK generated an operating profit of EUR263 mln with an adjusted gross margin of 62% in FY22.
Overall, though, this was a disappointing and discouraging debut for BIRK, offering a not-so-subtle reminder that the IPO market is still fragile and has not fully emerged from its years-long slump.
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