Market Snapshot
briefing.com
| Dow | 34016.81 | +346.56 | (1.03%) | | Nasdaq | 13587.79 | +180.56 | (1.35%) | | SP 500 | 4378.65 | +50.87 | (1.18%) | | 10-yr Note | -28/32 | 4.71 |
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| | NYSE | Adv 2052 | Dec 766 | Vol 834 mln | | Nasdaq | Adv 2771 | Dec 1495 | Vol 4.3 bln |
Industry Watch
| Strong: Consumer Discretionary, Materials, Industrials, Health Care, Financials, Consumer Staples, |
| | Weak: -- |
Moving the Market
-- Measure of relief that the Israel-Hamas war did not turn into wider conflict over the weekend when market was closed
-- Optimism that Q3 earnings reporting season will continue to be better than expected
-- The People's Bank of China injected liquidity through the medium-term lending facility in a bid to support economic growth
-- Indiscriminate buying interest |
Closing Summary
16-Oct-23 16:30 ET
Dow +314.25 at 33984.50, Nasdaq +160.75 at 13567.98, S&P +45.85 at 4373.63
[BRIEFING.COM] Today's positive price action was driven by a sense of relief that the Israel-Hamas war did not turn into a wider conflict over the weekend when the market was closed. The tone could quickly shift on any given headline, however, but for today, the market's focus appeared to be more on what did not happen as opposed to something bad happening.
The relief trade manifested itself in rising stock prices, rising Treasury yields, and declining oil prices ($86.62/bbl, -1.18, -1.3%). The positive bias was also helped in part by the People's Bank of China making its largest liquidity injection since 2020 to help boost growth there, and the hope that the third quarter earnings reporting period, which will accelerate this week, will be better than expected.
The S&P 500 and Nasdaq Composite closed off their best levels of the session after the former ran into some resistance on a retest of early session highs around 4,380. After doing so, the market traded in a tightly contested range for the bulk of today's session.
Gains for the major indices ranged from 0.9% to 1.6%. Many stocks participated in the upside moves amid fairly indiscriminate buying interest.
The Invesco S&P 500 Equal Weight ETF (RSP) climbed 1.1%; the Vanguard Mega Cap Growth ETF (MGK) rose 1.3%; the Russell 3000 Value Index was up 1.1%; and the Russell 3000 Growth Index closed up 1.2%. Apple (AAPL 178.72, -0.13, -0.1%) was a notable laggard after Bloomberg reported that the iPhone 15 had a disappointing start to sales in China.
All 11 S&P 500 sectors closed in the green. Eight sectors jumped at least 1.0%, led by consumer discretionary (+1.7%) and communication services (+1.5%). The energy sector (+0.7%) saw the slimmest gain amid falling oil prices. The move in oil was also connected to a Washington Post report that the U.S. is aiming to ease sanctions on oil from Venezuela
The 2-yr note yield rose four basis points to 5.09% and the 10-yr note yield rose eight basis points to 4.71%, reflecting some of the safety premium being unwound.
- Nasdaq Composite: +29.6% YTD
- S&P 500: +13.9% YTD
- Dow Jones Industrial Average: +2.5% YTD
- S&P Midcap 400: +2.1% YTD
- Russell 2000: -0.8% YTD
Reviewing today's economic data:
- The Empire State Manufacturing index fell to -4.6 in October (Briefing.com consensus -4.0%) from 1.9 in September.
Tuesday's economic calendar features:
- 8:30 ET: September Retail Sales (Briefing.com consensus 0.3%; prior 0.6%) and Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.6%)
- 9:15 ET: September Industrial Production (Briefing.com consensus 0.0%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 79.5%; prior 79.7%)
- 10:00 ET: August Business Inventories (Briefing.com consensus 0.3%; prior 0.0%) and October NAHB Housing Market Index (Briefing.com consensus 45; prior 45)
- 16:00 ET: August net Long-Term TIC Flows (prior $8.8 bln)
Treasuries settle with losses; Tuesday's economic calendar
16-Oct-23 15:35 ET
Dow +331.72 at 34001.97, Nasdaq +175.11 at 13582.34, S&P +48.82 at 4376.60
[BRIEFING.COM] The market moved mostly sideways over the last half hour.
Treasuries settle with losses across the curve. The 2-yr note yield rose four basis points to 5.09% and the 10-yr note yield rose eight basis points to 4.71%.
Tuesday's economic calendar features:
- 8:30 ET: September Retail Sales (Briefing.com consensus 0.3%; prior 0.6%) and Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.6%)
- 9:15 ET: September Industrial Production (Briefing.com consensus 0.0%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 79.5%; prior 79.7%)
- 10:00 ET: August Business Inventories (Briefing.com consensus 0.3%; prior 0.0%) and October NAHB Housing Market Index (Briefing.com consensus 45; prior 45)
- 16:00 ET: August net Long-Term TIC Flows (prior $8.8 bln)
Energy complex futures settle lower
16-Oct-23 15:05 ET
Dow +346.56 at 34016.81, Nasdaq +180.56 at 13587.79, S&P +50.87 at 4378.65
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Energy complex futures settled lower. WTI crude oil futures fell 1.3% to $86.62/bbl and natural gas futures fell 3.7% to $3.12/mmbtu. The S&P 500 energy sector (+0.6%) still shows the slimmest decline among the 11 sectors.
Elsewhere, the CBOE Volatility Index continues to decline, down 10.1% or 1.96 to 17.39.
Moderna lower in S&P 500 after PFE guidance cut
16-Oct-23 14:30 ET
Dow +309.99 at 33980.28, Nasdaq +172.80 at 13580.03, S&P +47.90 at 4375.68
[BRIEFING.COM] The S&P 500 (+1.11%) is in second place on Monday afternoon, higher by about 48 points.
S&P 500 constituents V.F. Corp (VFC 16.23, +0.78, +5.08%), Warner Bros. Discovery (WBD 10.93, +0.56, +5.45%), and Etsy (ETSY 66.09, +2.92, +4.63%) pepper the top of today's standings. Beaten specialty retail stock VFC is reversing recent losses today despite a dearth of news, WBD moves higher after bullish mgmt comments at MIPCOM about streaming
Meanwhile, pharma company Moderna (MRNA 92.05, -6.25, -6.36%) underperforms after peer Pfizer (PFE 33.05, +0.94, +2.94%) lowered guidance.
Gold slips to open the week
16-Oct-23 14:00 ET
Dow +344.75 at 34015.04, Nasdaq +157.67 at 13564.90, S&P +47.83 at 4375.61
[BRIEFING.COM] With about two hours remaining on Monday the tech-heavy Nasdaq Composite (+1.18%) continues to be the top performer as tech sector outperforms across the board.
Gold futures settled $7.20 lower (-0.4%) to $1,934.90/oz, falling after posting gains in the prior session, under pressure today as equities rose to the fore.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $106.31.
Page One
Last Updated: 16-Oct-23 09:06 ET | Archive
Some relief in a liquidity put
The press reports ahead of the weekend were littered with accounts that Israel had warned 1.1 million residents in the northern Gaza Strip to evacuate within 24 hours. That warning was seen as a pretense to large ground invasion by Israeli troops into Gaza. Naturally, this understanding created a good bit of angst that led to falling Treasury yields, a firmer dollar, rising oil prices, and weak stock prices.
The worry was that the Israel-Hamas War would escalate and potentially turn into a wider conflict over the weekend when the stock market was closed for trading. That did not happen, so there is a measure of relief this morning that can be seen in rising Treasury yields, a weaker dollar, only a modest bump in oil prices, and gains in the equity futures market.
Currently, the 10-yr note yield is up six basis points to 4.69%, the U.S. Dollar Index is down 0.3% to 106.34, and WTI crude futures are up 0.4% to $88.02/bbl. The S&P 500 futures are up 23 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 55 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 208 points and are trading 0.6% above fair value.
Notwithstanding the improved tone this morning, it is relative to Friday, which is to say the worry about a widening in the Israel-Hamas War is still very much on the market's mind. The difference at the moment is that equity market participants know they have the capacity to act on new developments in real-time for the next five days.
In part, then, there is a bit of a "liquidity put" helping things here, but that doesn't mean things couldn't turn negative quickly, and in a more demonstrable manner, if there were reports detailing the involvement of other parties (primarily Iran) in the Israel-Hamas War.
With the absence of such reports thus far, the market is pre-occupying itself with constructive thoughts about the People's Bank of China making its largest liquidity injection since 2020 and the hope that the third quarter earnings reporting period will continue to be better than expected.
There are more than 50 S&P 500 companies reporting their results this week, including Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), United Airlines (UAL), Procter & Gamble (PG), Tesla (TSLA), Netflix (NFLX), AT&T (T), Freeport-McMoRan (FCX), CSX Corp. (CSX), American Express (AXP), and SLB (SLB), so there will be a lot of opportunity to divine if that is the case.
In some related earnings news, Pfizer (PFE) lowered its FY23 outlook due to weaker sales of COVID products, but it is up 0.9% in pre-market trading, getting some offsetting support from a Jefferies upgrade to Buy from Hold.
There will soon be some new members of the S&P 500. Prior to the open on Wednesday, October 18, lululemon athletica (LULU) and Hubbell (HUBB) will be added to the S&P 500, replacing Activision Blizzard (ATVI) and Organon (OGN). That news explains why both stocks are trading higher this morning.
There is some other news, though, that helps to explain why some other S&P 500 stocks are trading lower. Apple (AAPL) is down 0.5% following a Bloomberg report that iPhone 15 sales have gotten off to a disappointing start in China, and Tesla (TSLA) is down 0.7% following a Wall Street Journal report that electric vehicle industry sales are not going as well as expected.
-- Patrick J. O'Hare, Briefing.com
Vista Outdoor plummets after agreeing to sell Sporting Products and slashing FY24 guidance (VSTO)
Vista Outdoor (VSTO -24%) was kicked to the curb today after announcing it would sell its Sporting Products segment to Czechoslovak Group a.s. for an enterprise value of $1.91 bln in an all-cash transaction. This valuation represented approximately 5x Sporting Products' FY24 EBITDA. VSTO expects the transaction to close during 2024.
Additionally, VSTO slashed its FY24 (Mar) adjusted earnings and revenue forecasts, citing increasingly challenging economic conditions branching from higher-for-longer interest rates. The company is now targeting sales of $2.725-2.825 bln and adjusted EPS of $3.65-4.05, down from $2.85-2.95 bln and $4.50-5.00, respectively.
- VSTO has been amid restructuring for over a year, announcing in May 2022 that it would separate its Outdoor Products and Sporting Products segments into two independent, publicly traded organizations. The news kicked off an extended period of selling pressure, with shares slipping around 35% since. Today's deal, albeit consistent with VSTO's plan to split the company into two separate entities, did not command much of a premium at 5x FY24 EBITDA and just over 1x FY24 sales. Today's sell-off partly reflects this disappointment.
- Furthermore, macroeconomic headwinds have plagued VSTO for much of the past year. However, management hinted at demand stabilization last quarter, noting that its Sporting Products segment met its financial goals as the market normalized. VSTO continued, stating that given a normalizing market, it expected to return to seasonal buying patterns and anticipated sustained demand for various products across its Sporting Products business going forward.
- Given these remarks, today's guide-down was particularly frustrating. Both of VSTO's segments are facing more formidable challenges than previously anticipated. In Sporting Products, VSTO projects Q2 (Sep) sales of $347-352 mln, markedly below its prior remarks that implied around $375 mln each quarter. Likewise, in Outdoor Products, VSTO's $325-330 mln outlook for Q2 represented a 6.2% drop yr/yr at the midpoint, a dramatic difference from the "approximately flat" growth estimated in Q1 (Jun).
VSTO's Sporting Products business divestiture and slashed FY24 guidance comes as a blow to its shares. While a stubbornly unfavorable economic environment has weighed on VSTO this year, given the consumer loyalty among the several prominent brands housed under its Sporting Products business, investors may have rather seen VSTO receive a better price or even hold onto this segment, spinning it off into a publicly-listed company like it plans to do with its Outdoor Products division.
lululemon athletica trades to new 52-week high on news it will be added to S&P 500 (LULU)
lululemon athletica (LULU +10%) is getting a boost today on news it will join the S&P 500, effective prior to the open on Wednesday. This is a nice feather in the cap for this yoga-inspired athletic apparel company. The news has pushed the stock back above $400 and it has traded to a new 52-week high today. We thought this would be a good opportunity to provide a quick update on LULU.
- LULU has been hanging in pretty well despite a tough macro and apparel retail environment. This was evident in Q2 (Jul) when LULU reported nice upside even as other athletic retailers like Dick's Sporting Goods (DKS), Foot Locker (FL), and NIKE (NKE) all reported disappointing results. In particular, Q2 same store comps were impressive at +11% (+13% CC), which includes in-store comps of +7% (+9% CC) and DTC comps of +15% (+17% CC).
- Consumers have been pulling back on discretionary purchases and we figured that LULU's higher price points would be a headwind. However, that was not the case in Q2 as the company reported a beat-and-raise. Also, LULU was pretty optimistic about the second half of the fiscal year. It helps that LULU's customer tends to be higher income as they have not felt the inflation pinch as much.
- LULU has also smartly branched out beyond its core yoga products. In what it calls its Play segment, LULU has launched tennis and golf collections, which have been strong performers. Its strategy with Play is to solve its customers' unmet needs across their secondary sweat activities. LULU has also branched into footwear, where it is making steady progress. LULU recently introduced Chargefeel 2, an update to its most versatile run to train style. Also, LULU is gearing up to launch a Men's footwear line next year. These areas are still small but they have potential to grow nicely over time.
- International growth is another big area of focus, especially in Asia. Revenue in North America in Q2 grew a decent 11% but international sales jumped 52%. Granted, international is building off a smaller base, but the results are still notable. In particular, Greater China sales jumped 61%. LULU also opened its first store in Thailand in July, which marked the 100th location in the APAC region. LULU is making progress as international in Q2 represented 22% of total sales, up quite a bit from 17% a year ago.
Clearly, investors are excited to see LULU get this recognition of joining the S&P 500. Not only will index funds need to buy LULU shares, but it's also an important milestone and a nice feather in LULU's cap. This does not mean it's all smooth sailing for LULU. The company has been able to perform well, but the macro pressures remain a concern. Some would like to see LULU branch out into the wholesale channel to boost sales further, but management has been reluctant to do so. It wants to control its brand, pricing and retail presentation and the best way to do that is in its own stores. Nevertheless, this was good news for LULU and investors are pleased.
Apple faces modest selling pressure as competitive risks in China potentially intensify (AAPL)
Apple (AAPL) is enduring modest selling pressure today following a Bloomberg report that its newest iPhone 15 is encountering a soft start in China, the company's third-largest region by sales, at roughly 19% of FY22 (Sep) revenue. Analysts estimate sales of iPhone 15 are tracking around mid-single digits lower than last year's model.
Relatively light iPhone sales were anticipated after Apple warned in early August that overall revenue, of which over half is derived from the iPhone, would trend in Q4 (Sep) similarly to the 1.4% yr/yr drop in Q3 (Jun), illuminating global economic headwinds. However, making today's news moderately more concerning is that domestic competitor Huawei is bucking the trend in China, a potential sign of strengthening competition for Apple.
- The Huawei Mate 60 has been well-received in China since its launch in August. The phone's processor is manufactured by Semiconductor Manufacturing International, or SMIC, the largest contract chip maker in China, which has enjoyed a solid uptick in its Hong Kong Stock Exchange-listed shares since the launch. Even at a price similar to the Pro version of iPhone 15, the Huawei Mate 60 has enjoyed meaningful demand despite a challenging economic landscape in China, underpinning a possible technological/aesthetic advantage.
- China was a bright spot for Apple in JunQ, improving to +8% yr/yr after a 3% sales decline in Q2 (Mar). This acceleration was an encouraging sign and highlighted how Apple's geographical diversification could help offset any brewing weakness in the United States. However, if China sales were to decelerate in SepQ, it could drag down Apple's overall results.
- While Huawei is banned from selling its devices in the United States and its allies, including the U.K., it is free to conduct business in many emerging markets where Apple competes, including India, which recorded an all-time JunQ for the company. India and other emerging markets are a critical growth pillar for Apple's long-term vision. If competing smartphone brands begin encroaching on its territory, Apple may need to take action to win over consumers, including possible price cuts, which would erode margins.
Today's Bloomberg story paints a slightly concerning picture for Apple ahead of its SepQ earnings results on November 2. Demand has tailed off, particularly among discretionary goods, including handsets and other consumer electronics, in the United States, Apple's largest market (the Americas comprised 43% of FY22 revs). If demand starts to waver overseas, yr/yr revenue in SepQ may decrease more significantly than Apple predicted.
Still, even though critics have been vocal about iPhone's staleness over the past several years, it has yet to translate to a substantial drop-off in demand, reflecting consumer loyalty and, in many cases, a technological advantage over competition, especially on the software side. Therefore, although prominent tech names overseas, such as Huawei, can cut into Apple's market share, it may only contribute to short-term headwinds rather than causing structural problems for Apple over the long term.
Belden crashes as weakening demand adds to channel destocking headwinds(BDC)
Network infrastructure and connectivity device company Belden (BDC) is plummeting after lowering its Q3 guidance last night, sending shares to their lowest levels of the year. Although the company didn't revise its FY23 guidance lower, it commented that softer demand is expected to continue into Q4, negatively impacting revenue and profitability. When BDC reported Q2 results in early August, it raised its FY23 EPS outlook due to stronger-than-expected gross margins, but it slightly lowered its revenue forecast as channel partners reduced their inventories.
At that time, BDC didn't seem overly concerned about the channel destocking situation, characterizing the impact on orders as "temporary" and "slightly higher than anticipated." Since then, though, it's clear that demand has weakened considerably, compounding the pressures from the inventory reduction situation.
- The magnitude of the reduction in BDC's revenue guidance is catching market participants off guard. Specifically, the company now expects to generate Q3 revenue of approximately $625 mln versus its prior guidance of $675-$690 mln. This equates to a yr/yr decline of about 7%, compared to an increase of about 2% based on its former projection.
- BDC didn't specify in the press release which business segment or products in particular are experiencing weaker demand. The company operates through two primary divisions: Enterprise Solutions (applications such as 5G, data centers, and local area networks) and Industrial Automation Solutions (routers, firewalls, ethernet switches, and gateways).
- In Q2, Enterprise Solutions lagged behind, posting revenue growth of just 1% compared to 8% for Automation Solutions.
- It's also notable that Cisco Systems (CSCO), which is a direct competitor of BDC's Automation Solutions segment, delivered strong Q4 results in mid-August, illustrating that demand for routers, switches, and networking equipment is healthy.
- On the other hand, companies with more exposure to the 5G, data center, and home automation end markets have dealt with inventory destocking headwinds for several quarters.
- Despite the substantial cut to revenue guidance, BDC only slightly lowered its Q3 EPS guidance to $1.75-$1.77 from $1.75-$1.85. Amid a tough demand environment, gross margin has remained resiliently strong. Last quarter, gross margin expanded by 400 bps yr/yr to 38%.
From a longer-term perspective, BDC remains optimistic about its prospects, pointing to growing investments in automation and increasing bandwidth usage as primary growth drivers for its business. For the time being, though, the company is facing a daunting combination of slowing end market demand and inventory destocking that will make it difficult for the stock to recover in a meaningful way.
SMART Global plunges on wide top and bottom-line misses in AugQ and discouraging guidance (SGH)
SMART Global (SGH -44%) erases its 2023 gains, plunging to late October 2022 levels following substantial earnings and sales misses in Q4 (Aug) as well as dismal Q1 (Nov) guidance. SGH sells various products, including DRAM and Flash-based memory under its Memory Solutions segment, high-performance computing (HPC), AI and IoT platform technologies under its IPS segment, and application-optimized LEDs under its LED Solutions group. Given that most (~80%) of its annual revenue stems from businesses outside LEDs, SGH can be viewed as more of a memory and data center company. As such, its alarming Q4 results may be a canary in the coal mine ahead of several prominent tech names reporting SepQ earnings over the coming weeks.
- Headline results were dismal. SGH registered adjusted EPS of $0.35, an over 56% decline from $0.80 delivered in the year-ago period and marking its first miss in over five years. Revenue did not fare any better, dropping 28% yr/yr to $316.66 mln, SGH's widest single quarter decline since 1Q19 (Nov), and well short of the company's $350-400 mln forecast.
- What happened? When SGH originally guided for Q4 in June, it incorporated its Brazil operations into its continuing business. Around that time, SGH agreed to divest an 81% stake in SMART Brazil but did not expect it to close until early 2024. However, even if added back into SGH's Q4 revenue, SMART Brazil would have only helped revs by $32 mln, still short of its quarterly forecast.
- Another factor weighing on Q4 performance was orders in SGH's IPS business shifting from Q4 to Q1. When SGH first provided its Q4 prediction, it did not anticipate order delays, partly due to supply constraints clouding inventory visibility. Still, orders shifting into Q1 did not materially impact SGH's guidance. The company projected adjusted EPS and revs well short of consensus at $0.00-0.30 and $250-300 mln, respectively.
- That brings us to the crux of the matter: weak demand. Management conceded that it is observing headwinds from persistent market softness and customers still working through finished goods inventory. Specifically, in IPS, the HPC market remains lumpy with high customer concentration. Meanwhile, in Memory Solution, while early signs of price stabilization unfold, demand for specialty products is lower than expected as inventories remain elevated.
There were some bright spots, such as LED Solutions revs edging 3% higher sequentially with improving customer design activity heading into FY24. SGH is also witnessing interest in its AI platforms, citing plenty of enthusiasm surrounding the technology. Furthermore, non-GAAP gross margins jumped 460 bps yr/yr to 31.7%, a testament to SGH's cost containment initiatives.
Nevertheless, the wide top and bottom-line misses, weak guidance, and lingering macroeconomic softness were a wake-up call today, especially after such solid results last quarter. A possible silver lining for the data center and AI industry is that much of SGH's problems in Q4 were internal, which likely initially staved off selling pressure across some of its peers today until a market-wide sell-off dragged them lower. Still, SGH's results should not be ignored ahead of earnings season.
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