Market Snapshot
briefing.com
| Dow | 33141.38 | +204.97 | (0.62%) | | Nasdaq | 13139.87 | +121.55 | (0.93%) | | SP 500 | 4247.68 | +30.64 | (0.73%) | | 10-yr Note | +1/32 | 4.84 |
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| | NYSE | Adv 1957 | Dec 863 | Vol 899 mln | | Nasdaq | Adv 2588 | Dec 1630 | Vol 4.6 bln |
Industry Watch
| Strong: Utilities, Communication Services, Materials, Consumer Discretionary, Real Estate, Industrials, Financials |
| | Weak: Energy |
Moving the Market
-- Digesting better than expected earnings results from blue chip companies
-- Rebounding after five consecutive losing sessions for the S&P 500, which closed below its 200-day moving average yesterday
-- Monitoring activity in Treasuries
| Closing Summary
24-Oct-23 16:30 ET
Dow +204.97 at 33141.38, Nasdaq +121.55 at 13139.87, S&P +30.64 at 4247.68
[BRIEFING.COM] The S&P 500 broke a five-day losing streak and closed above its 200-day moving average (4,236). All the major indices closed with gains, albeit off their highs, driven by broad based buying. Stocks hit an air pocket, though, around 11:00 a.m. ET and pulled back to session lows.
There was no specific catalyst to account for the mid-morning pullback that coincided with some mega caps dipping into negative territory. The Vanguard Mega Cap Growth ETF (MGK) was down fractionally at its low of the day, but closed with a 0.9% gain.
Many other stocks bounced back alongside mega caps. The Invesco S&P 500 Equal Weight ETF (RSP) closed with a 0.6% gain.
The overall positive bias was partially a function of recent weakness stirring a rebound mentality. Participants were also digesting a slate of mostly better-than-expected earnings results from blue chip names. Verizon (VZ 34.30, +2.91, +9.3%), Coca-Cola (KO 55.64, +1.56, +2.9%), Dow (DOW 49.24, +1.00, +2.1%), RTX (RTX 78.38, +2.25, +7.2%), General Electric (GE 113.62, +6.93, +6.5%), and 3M (MMM 90.12, +4.52, +5.3%) were among the top performers in that respect.
Ten of the 11 S&P 500 sectors closed with a gain while the energy sector (-1.4%) settled in negative territory. The utilities (+2.8%) and communication services (+1.4%) sectors led the pack.
Bank stocks were a pocket of weakness today related to lingering concerns about credit quality, deposit costs, and weakening loan demand. The SPDR S&P Regional Banking ETF (KRE) fell 0.6% and the SPDR S&P Bank ETF (KBE) fell 0.2%.
The 10-yr note yield settled unchanged from yesterday at 4.84%. The 2-yr note yield rose four basis points to 5.10% following a $51 billion 2-yr note auction that was met with solid demand.
Today's economic data was limited to the preliminary October S&P Global US Services PMI, which climbed to 50.9 from 50.1, and Manufacturing PMI, which rose to 50.0 from 49.8.
- Nasdaq Composite: +25.5% YTD
- S&P 500: +10.6% YTD
- Dow Jones Industrial Average: UNCH YTD
- S&P Midcap 400: -1.9% YTD
- Russell 2000: -4.6% YTD
Looking ahead to Wednesday, participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -6.9%)
- 10:00 ET: September New Home Sales (Briefing.com consensus 683,000; prior 675,000)
- 10:30 ET: Weekly crude oil inventories (prior -4.49 mln)
Stocks climb ahead of the close
24-Oct-23 15:30 ET
Dow +258.63 at 33195.04, Nasdaq +126.00 at 13144.32, S&P +34.02 at 4251.06
[BRIEFING.COM] The major indices continue to inch higher.
The 10-yr note yield settled unchanged from yesterday at 4.84%. The 2-yr note yield rose four basis points to 5.10% following a $51 billion 2-yr note auction that was met with solid demand.
Looking ahead, participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -6.9%)
- 10:00 ET: September New Home Sales (Briefing.com consensus 683,000; prior 675,000)
- 10:30 ET: Weekly crude oil inventories (prior -4.49 mln)
Energy sector underperforms; WTI crude oil futures fall
24-Oct-23 15:05 ET
Dow +235.62 at 33172.03, Nasdaq +103.26 at 13121.58, S&P +28.65 at 4245.69
[BRIEFING.COM] Stocks continue to climb. The S&P 500 is approaching its early high after passing its 200-day moving average (4,236).
Ten of the 11 S&P 500 sectors trade up led by utilities (+2.8%) and communication services (+1.4%). Meanwhile, the energy sector (-1.0%) remains in negative territory.
On a related note, energy complex futures settled in mixed fashion. WTI crude oil futures fell 2.0% to $83.79/bbl and natural gas futures rose 1.4% to $2.97/mmbtu.
Fair Isaac slips after credit ratings peer TransUnion's underwhelming print/guidance
24-Oct-23 14:30 ET
Dow +180.99 at 33117.40, Nasdaq +84.98 at 13103.30, S&P +23.25 at 4240.29
[BRIEFING.COM] The S&P 500 is tied with the Dow Jones Industrial Average, each hosting gains of +0.55% apiece.
S&P 500 constituents RTX (RTX 78.39, +5.26, +7.19%), Ball Corp (BALL 45.69, +2.87, +6.70%), and General Electric (GE 113.70, +7.01, +6.57%) pepper the top of today's standings. RTX and GE gain following earnings. BALL's move appears to more technical with the stock down some -22.5% off the early-August highs.
Meanwhile, Montana-based credit ratings services firm Fair Isaac (FICO 854.57, -72.62, -7.83%) is down on sympathy to peer TransUnion's (TRU 49.41, -15.44, -23.81%) print.
Gold slightly lower on Tuesday
24-Oct-23 14:00 ET
Dow +131.12 at 33067.53, Nasdaq +52.34 at 13070.66, S&P +13.19 at 4230.23
[BRIEFING.COM] With about two hours remaining on Tuesday the tech-heavy Nasdaq Composite (+0.40%) is tied atop the standings with the Dow Jones Industrial Average.
Gold futures settled $1.70 lower (-0.1%) to $1,986.10/oz, off overnight lows of about -1.2%, but pressured by a familiar foe -- gains in both yields and the greenback.
Meanwhile, the U.S. Dollar Index is up about +0.7% to $106.27.
General Electric flying higher as Aerospace segment once again shines in beat-and-raise report (GE)
Unlike its industrial counterpart 3M (MMM), General Electric (GE) was facing heightened expectations heading into its Q3 earnings report, as reflected in the stock's 60%+ run since the beginning of the year. Bolstered once again by its red-hot Aerospace segment, the company didn't disappoint, delivering another impressive beat-and-raise report that further highlights the success of its vast transformation. That transformation, which has included the recent spin-off of its Healthcare segment and the divestitures of stakes in Baker Hughes (BKR) and AerCap (AER), will come to a conclusion when GE completes its spin-off of GE Vernova.
In addition to reporting earnings, GE disclosed that it expects to complete the spin-off in 2Q24. Previously, the company had said that it anticipates the spin-off to occur "sometime in early 2024", so it seems that it has pushed the timing back a bit.
However, more importantly, the two segments that comprise GE Vernova -- Renewable Energy and Power -- posted stronger results and are gaining momentum. In fact, in Renewable Energy, both the grid and onshore businesses were profitable for the first time in many years, leading to a 72% increase in overall profit for the segment. This bodes well for GE Verona's valuation when the spin-off does take place, which is a positive for GE as it may attain a more favorable price for GE Vernova.
With Renewable Energy and Power finally experiencing a turnaround, GE is nearly firing on all cylinders.
- Aerospace stole the show once again as organic revenue jumped by 25%, nearly matching last quarter's growth of 28%. Demand for jet engines and for service repairs remains robust due to the ongoing strength in the commercial airline industry. On the defense side, which has dealt with supply chain issues for a few years now, revenue increased by a solid 8%.
- GE doesn't see these positive trends fading over the remainder of the year as it lifted its organic revenue growth forecast to the low 20% range from its prior outlook of high-teens to 20% growth.
- Renewable Energy generated revenue growth of 14%, led by healthy sales of equipment across the grid businesses and the North America onshore market. The passage of the Inflation Reduction Act in August of 2022 provided the initial spark to turn this segment around. Price increases and cost cutting measures have helped to accelerate the recovery.
- This combination of improved demand, pricing, and lower costs helped to narrow Renewable Energy's overall operating loss to ($317) mln from ($934) mln in the year-earlier period.
- Power, which provides gas turbines and power generation equipment, did see orders slip to (1)% from 7% last quarter, but profit jumped by 61% to $200 mln on favorable pricing and increased productivity.
The main takeaway is that GE is in as healthy shape as it has been in many years, mainly thanks to its successful transformation plan and the robust recovery in the commercial airline industry. With Renewable Energy and Power gaining momentum, the planned spin-off of GE Vernova is in good position to draw significant interest from investors -- assuming business conditions don't take a meaningful turn for the worse before 2Q24.
General Motors ticks higher following EPS beat, UAW strike causes GM to withdraw guidance (GM)
General Motors (GM) is trading modestly higher after the automotive giant reported Q3 results this morning. GM reported big upside for EPS and reported nice revenue upside. However, the headline was that GM withdrew its guidance for the rest of the year because of the UAW strike, which GM estimates is costing $200 mln per week. GM also withdrew its EV production guidance for FY24 as EV demand as slowed.
- Adjusted EBIT is the most closely followed metric. It fell 16.9% yr/yr to $3.56 bln in Q3, with a 8.1% adjusted EBIT margin which was up from 7.2% in Q2 but down from 10.2% a year ago. Production volumes and pricing were up yr/yr. However, these benefits were more than offset from other parts of the business normalizing including mix and GM Financial along with continued investments in EVs and Cruise (self-driving cars) resulting in a $700 mln decrease yr/yr.
- Rising warranty costs also impacted margins. GM says the quality of its vehicles continues to be strong as demonstrated by the decrease in claimant rates. However, GM has experienced an increase in the cost of repairing vehicles due to inflationary factors. GM is optimistic that yr/yr warranty headwinds will begin moderating in Q4.
- GM notes it was profitable in every region, including China. And GM International excluding China is on track to deliver significantly higher EBIT-adjusted in 2023 compared to a year ago. Also, before withdrawing guidance, GM's CFO said in a CNBC interview that its core business was performing at the top of the expected range.
- In terms of the UAW strike, GM said it knew, coming out of COVID, that wages and benefits across the US economy would need to increase because of inflation and other factors. GM notes that its current offer is the most significant that GM has ever proposed to the UAW, and the majority of its workforce will make $40.39 per hour by the end of this agreement's term. However, it can predict when the strikes will end.
- In terms of its EV goals, GM is targeting low to mid-single-digit EBIT EV margin in 2025. It expects to have annual EV capacity of 1 mln units in North America exiting 2025. This will impact its previous EV production targets of 100,000 EVs in 2H23. This moderation of EV production in 2024 and 2025 will help maintain strong pricing. The new launch timing also enables GM to make engineering changes that will make the trucks more efficient and less expensive to produce.
Overall, we think the stock reaction is pretty muted because a good bit of negativity was priced in already. The stock has been trending lower since mid-July and took another leg lower over the past month, trading below $30 for the first time since fall 2020. That tells us investors were nervous heading into this Q3 report. The UAW strike and slowing EV demand are the main concerns investors have right now. We think the withdrawal of its guidance was pretty unnerving, but not surprising. It's just a reminder of how much the strike is impacting GM.
3M sticks to cost cutting measures to drive improved margins and better-than-expected earnings (MMM)
Beleaguered industrial and manufacturing company 3M (MMM) issued some much-needed good news this morning, posting a beat-and-raise Q3 earnings report that featured improving margins across each of its business segments. Ahead of the report, shares were trading at their lowest levels in over a decade as sluggish growth across most of its end markets and ongoing litigation matters steered investors away from the Dow component. Given the overly bearish sentiment and rock-bottom expectations, MMM didn't need to hit a homerun to generate a spark for its stock.
- On that note, the demand picture remains stubbornly soft as organic sales declined by 3.7% yr/yr while MMM posted its seventh consecutive quarter of declines for total revenue. Similar to the past few quarters, consumer electronics were a weak spot, as was the Consumer segment with organic sales growth falling by 7.2%.
- A primary headwind for Consumer is that there are fewer employees working in office settings now, pressuring demand for office supplies.
- However, MMM has turned to massive cost-cutting measures, including through workforce reductions, and productivity gains to help mitigate the impact of sales declines. In Q3, adjusted operating margin expanded by 160 bps yr/yr to 23.2%, leading to a comfortable earnings beat and a smaller yr/yr EPS decrease of 3% compared to 13% last quarter.
- Looking at the individual business segments, Transportation & Electronics stands out as adjusted operating margin increased by 650 bps sequentially to 26.3%. Perhaps most encouraging, though, is that organic growth improved a bit, coming in at -1.8% compared to -2.4%.
- Recall that in Q2, weak demand for semiconductors, smartphones, TVs, and tablets drove a 22% yr/yr decline in electronics. Although electronics remains soft, MMM stated that the end market is showing signs of stabilization and that it's closely watching seasonal trends.
- In the Safety & Industrial unit, adjusted operating margin improved by 350 bps qtr/qtr to 25.7%, but organic growth slipped to -5.8% from -4.6%. The company saw low double-digit declines in closure and masking, while personal safety (which includes masks) were weak once again, down by high single-digits.
All things considered, MMM performed pretty well in Q3 as the company benefitted from restructuring actions and operational improvements. The company has also made some meaningful strides on the litigation front, reaching an agreement in late August to resolve the Combat Arms Earplug litigation by contributing $6.0 bln to cover claims. Still, business is far from booming for MMM as most of its end markets remain in a slump. Some minor improvement was shown in Q3, including for the struggling consumer electronics market, but for the stock to experience a more sustainable rally, a more pronounced recovery will likely be needed.
Coca-Cola investors refreshed by top and bottom-line beats in Q3 on improving volumes (KO)
Coca-Cola's (KO +2%) top and bottom-line beats in Q3 on improving volumes prove refreshing enough for investors to send its shares meaningfully higher today. The beverage giant also hiked its FY23 EPS and organic revenue growth targets. With several metrics even topping rival PepsiCo's (PEP) uplifting Q3 report earlier this month, KO's performance in the quarter reflects a resilient business model, being able to find success despite numerous headwinds, including stubborn inflation, geopolitical uncertainty, and new weight-loss treatments, all of which triggered a ~14% correction leading into today's results.
- KO expanded its bottom line by 7.2% yr/yr to $0.74 per share on top-line growth of 8.1% to $12.0 bln. Sales growth was broad-based; every market outside Asia Pacific registered positive growth. The sales growth came on improving global unit case volumes, which climbed 2% higher yr/yr in Q3 following flat growth last quarter. Still, some markets' volumes were flat, including North America, KO's largest, and Asia Pacific. Meanwhile, KO saw a 1% drop in Europe, Middle East & Africa volumes, slightly underperforming PEP.
- Management noted that recovery has not yet fully materialized in China and parts of Europe. China volumes have been taking longer than KO anticipated to rebound, while consumers continue facing inflationary pressures in Europe.
- However, despite flat volumes, North America was still a bright spot for KO when stacked against its closest rival, which registered a 6% volume decline in the region during Q3. KO's considerable outperformance compared to PEP in North America is a testament to its potentially stronger consumer loyalty. However, PEP's prices jumped by 12% in Q3 versus KO's 5%, possibly making the volume disparity a matter of price.
- Breaking KO's volume gains down by category reveals further broad-based strength. Sparkling soft drinks grew 2%, helped largely by Latin America, where total volumes outpaced all other regions at 7%, similar to PEP. Juice, dairy, and plant-based beverages also grew by 2%, with notable strength from the U.S. and Mexico. Water, sports, and coffee grew by 1%, with strength across several markets.
- Still, KO's diversity is keeping its overall performance buoyant, fueling its confidence in lifting its FY23 financial goals, projecting comparable EPS growth of +7-8%, up from +5-6%, and organic revenue growth of +10-11%, up from +8-9%.
Bottom line, KO put together a solid quarter, headlined by improving volumes despite prices continuing to climb, up 9% yr/yr. Unlike last quarter, which was more of a mixed bag, Q3 was primarily upbeat. While private labels remain a threat, with KO noting that trade-down continues to occur, it is hard to replicate KO's brands at a significantly reduced price. Furthermore, KO is delivering its consistent results despite an unfavorable economic backdrop. As such, Q3 may be what KO needed to turn around its recent sell-off.
Walt Disney jumps as it nears a deal to sell a majority stake in its India-based Star business (DIS)
While Walt Disney (DIS +1%) seeks options in potentially offloading its cable TV business, the entertainment behemoth encounters headwinds related to its streaming services. Hulu and ESPN+ have faced a weak advertising market throughout the past year, with few signs pointing to a rapid turnaround occurring in the immediate term.
Even though live sporting events have sustained viewership, with current stats pointing to a modest increase in the number of individuals in the U.S. watching live sports compared to this time last year, it has not strengthened DIS's view of potentially shedding its cable networks that support live sports, including ABC. CEO Bob Iger has repeatedly mentioned that these assets are not core to the company's business.
In connection with DIS ongoing strategic review, Bloomberg reported today that DIS is nearing a deal with India-based conglomerate Reliance Industries to sell a controlling stake in its Star business, valued at potentially up to $8.0 bln. DIS operates hundreds of channels outside the U.S., primarily under the Fox, National Geographic, and Star brands. The Star branded channels air a combination of generative entertainment and live sporting events, including cricket, soccer, and tennis.
- Included in Star is Disney+ Hotstar, DIS's subscription-based direct-to-consumer (DTC) service available in India and a few neighboring countries. This service has seen declining subscribers all year, recently registering a 24% drop yr/yr in Q2. However, since this business carries a significantly lower average revenue per user (ARPU) versus Disney+, it is not a material component of the company's overall DTC results, highlighting its non-core status.
- Additionally, Mr. Iger commented last quarter that international streaming has quite a bit of unevenness. He noted that some markets will be conducive to investment while others should be avoided. DIS's India business has been on the chopping block for some time, with the company reportedly seeking partners for several months.
- Still, DIS will likely maintain a minority stake in its Star business, consistent with Mr. Iger's remarks that even though DIS could begin investing less in local programming, it may still maintain the service, keeping profitability the top priority.
DIS has been looking to reduce its exposure to India for some time, so today's report is not a complete surprise. However, plenty of changes are likely still to come. With shares stuck around 2020 lows, DIS must act to restore investor confidence. However, turning the ship around will likely be no easy task for Bob Iger.
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