Market Snapshot
briefing.com
| Dow | 35151.04 | +203.76 | (0.58%) | | Nasdaq | 14284.53 | +159.05 | (1.13%) | | SP 500 | 4547.58 | +33.56 | (0.74%) | | 10-yr Note | +2/32 | 4.42 |
|
| | NYSE | Adv 1759 | Dec 1061 | Vol 865 mln | | Nasdaq | Adv 2614 | Dec 1682 | Vol 4.5 bln |
Industry Watch
| Strong: Information Technology, Energy, Consumer Discretionary, Communication Services |
| | Weak: Utilities, Consumer Staples |
Moving the Market
-- Strength in mega cap stocks
-- Light participation ahead of the Thanksgiving holiday
-- Oil prices continuing to rebound
-- Ongoing buying activity in a seasonally strong period for the market
| Closing Summary
20-Nov-23 16:30 ET
Dow +203.76 at 35151.04, Nasdaq +159.05 at 14284.53, S&P +33.56 at 4547.58
[BRIEFING.COM] Today's advance left the major indices near session highs at the closing bell with gains ranging from 0.5% to 1.1%. Today's action was spearheaded by the mega cap stocks, a dose of AI enthusiasm, a positive response to the $16 billion 20-yr bond auction, and ongoing buying activity in a seasonally strong period for the market.
Microsoft (MSFT 377.44, +7.59, +2.1%), which benefitted from the news that it hired OpenAI's ex-CEO Sam Altman to lead its AI team, and AI chip leader NVIDIA (NVDA 504.19, +11.21, +2.3%), which reports earnings after Tuesday's close, were standout leaders today. Other semiconductor stocks came along for the ride and composed a valuable leadership group today as well. The Vanguard Mega Cap Growth ETF (MGK) rose 1.2% and the PHLX Semiconductor Index jumped 1.5%.
The Invesco S&P 500 Equal Weight ETF (RSP) logged a modest 0.4% gain while the market-cap weighted S&P 500 rose 0.7%.
Volume was a bit lighter than average at the start of this holiday week, which will see the stock market closed on Thursday for Thanksgiving and close early at 1:00 p.m. ET on Friday.
Two of the S&P 500 sectors closed with modest declines while nine sectors finished higher. The information technology (+1.5%) and communication services (+1.1%) sectors led the pack thanks to strength in their respective mega cap constituents. The utilities sector (-0.3%) saw the "biggest" decline.
The energy sector was a relative underperformer, gaining 0.1% today, despite continued rebound action in WTI crude oil futures ($77.84/bbl, +1.84, +2.4%).
Treasuries mostly settled with gains following today's $16 billion 20-yr bond auction, which was met with solid demand. The 2-yr yield settled unchanged at 4.90% and the 10-yr note yield fell two basis points to 4.42% after sitting at 4.47% just ahead of the auction results.
Separately, Dick's Sporting Goods (DKS 24.86, -0.70, -2.7%) and Best Buy (BBY 68.11, -0.11, -0.2%) trailed today's action in front of their quarterly results before Tuesday's open.
- Nasdaq Composite: +36.5% YTD
- S&P 500: +18.4% YTD
- Dow Jones Industrial Average: +6.1% YTD
- S&P Midcap 400: +4.8% YTD
- Russell 2000: +2.6% YTD
Reviewing today's economic data:
- October Leading Indicators -0.8% (Briefing.com consensus -0.7%); Prior -0.7%
Tuesday's economic calendar features:
- 10:00 ET: October Existing Home Sales (Briefing.com consensus 3.90 mln; prior 3.96 mln)
- 14:00 ET: November FOMC Minutes
Treasury yields decline after solid 20-yr bond auction
20-Nov-23 15:35 ET
Dow +265.41 at 35212.69, Nasdaq +174.56 at 14300.04, S&P +40.07 at 4554.09
[BRIEFING.COM] The major indices all sit near session highs heading into the close.
Treasuries mostly settled with gains following today's solid $16 billion 20-yr bond auction. The 2-yr yield settled unchanged at 4.90% and the 10-yr note yield fell two basis points to 4.42%.
The U.S. Dollar Index fell 0.5% to 103.44, sliding past its 200-day moving average (103.62).
Energy complex futures settle mixed; stocks climb
20-Nov-23 15:05 ET
Dow +247.56 at 35194.84, Nasdaq +172.56 at 14298.04, S&P +39.60 at 4553.62
[BRIEFING.COM] Stocks continue to hit fresh session highs.
WTI crude oil futures rose 2.4% to $77.84/bbl while natural gas futures fell 2.6% to $3.05/mmbtu. The S&P 500 energy sector (+0.3%) trades near the bottom of the pack.
The CBOE Volatility Index is down 1.2% to 13.63.
Paramount atop the S&P 500 after PFL closes acquisition of Bellator; WRK weak on analyst note
20-Nov-23 14:30 ET
Dow +191.33 at 35138.61, Nasdaq +149.05 at 14274.53, S&P +31.82 at 4545.84
[BRIEFING.COM] The S&P 500 (+0.70%) is firmly in second place, up about 32 points.
Elsewhere, S&P 500 constituents Paramount Global (PARA 14.04, +0.85, +6.44%), Enphase Energy (ENPH 97.96, +5.10, +5.49%), and Moderna (MRNA 79.28, +2.84, +3.72%) dot the top of the standings. PARA is atop the index after the Professional Fighters League completed its acquisition of Bellator from PARA, while ENPH outperforms alongside other solar peers.
Meanwhile, WestRock (WRK 36.90, -1.01, -2.66%) and other packaging stocks show weakness given a weekend Truist note wherein analyst detailed softening containerboard pricing, the first such move since May, with mixed demand.
Gold slides as investors shy away from havens
20-Nov-23 14:00 ET
Dow +196.77 at 35144.05, Nasdaq +151.69 at 14277.17, S&P +32.19 at 4546.21
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+1.07%) holds the lead among the major averages.
Gold futures settled $4.40 lower (-0.2%) to $1,980.30/oz even as the dollar and treasury yields showed modest weakness.
Meanwhile, the U.S. Dollar Index is down about -0.5% to $103.43.
Page One
Last Updated: 20-Nov-23 08:57 ET | Archive
Taking a break
There isn't much to be said about the stock market this morning. It is doing very little, but to be fair, it is doing very little presumably because it has been doing so much since late October. It needs a break -- or so it would seem.
This week is as good a week as any to take a break. It is a holiday-shortened week. The market will be closed Thursday for Thanksgiving and it will close early at 1:00 p.m. ET on Friday.
Travel plans and school breaks are already underway, and will continue throughout the week, which will lead to increasingly thinner trading conditions as the attention of market participants is understandably diverted elsewhere.
Currently, the S&P 500 futures are up one point and are trading in-line with fair value, the Nasdaq 100 futures are up 12 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are down 10 points and are trading fractionally below fair value.
Conviction is lacking at the moment, which means the opening action should see the major indices confined to narrow trading ranges.
There just isn't a lot of news to get the market worked up one way or another. Microsoft (MSFT) had been up close to 2.0% earlier, but is now up a more modest 0.4% in pre-market action, reacting to the news that it has hired Sam Altman to lead Microsoft's AI team.
Mr. Altman was ousted Friday from his CEO position at OpenAI by the company's board of directors.
Other items in the news mix, but not really driving any meaningful movement, include the People's Bank of China leaving its one-year and five-year loan prime rates unchanged at 3.45% and 4.20%, respectively, and Treasury Secretary Yellen saying she thinks considerable progress has been made in bringing down inflation and that a higher interest rate environment poses challenges for the budget that need to be addressed.
There will be a $16 billion 20-yr bond auction today. Results will be released at 1:00 p.m. ET. Treasuries are mixed in front of the auction. The 2-yr note yield is down one basis point to 4.89% and the 10-yr note yield is up three basis points to 4.47%.
Today's lone economic release is the October Leading Economic Index at 10:00 a.m. ET.
-- Patrick J. O'Hare, Briefing.com
Titan Intl trades at attractive levels ahead of a potential rebound year for Ag equipment (TWI)
Titan Intl (TWI), an agricultural and construction OEM parts manufacturer, is a small-cap stock potentially at the latter half of the many obstacles it endured this year. The beginning of 2023 saw intensifying Ag and construction dealer inventory destocking, when dealers offload more equipment than they replace from OEMs, denting investor sentiment.
However, over the past few months, companies operating in the farming and construction markets, such as giants Deere (DE) and Caterpillar (CAT), have noticed improving dynamics; TWI agrees. Even more significant, the consensus is that 2024 will mark a return to normal market conditions, making TWI's current pullback on the year an attractive entry point, especially when considering its current valuation, carrying forward earnings and sales multiples of 7.7x and 0.4x, respectively, placing it a #27 in our most recent Value Leaders Rankings.
TWI specializes in manufacturing wheels, tires, and other components, such as undercarriage systems, for agricultural, earthmoving, and other construction equipment across North America, Europe, Latin America, and Russia. Its biggest segment is Agricultural, comprising 55% of FY22 revs, while Earthmoving/Construction is its next largest at 37%. Its lightest business encompasses sales directly to consumers in Latin America and Russia, including tires for trucks and ATVs, totaling just 8% of FY22 revenue.
What makes now an appealing time to buy?
- The theme TWI carried throughout its Q3 earnings call earlier this month was a concluding dealer destocking dynamic that weighed on results throughout the year. Management was optimistic that because this trend appears as though it is nearly complete, it can enter 2024 operating in a relatively normal market.
- CAT shared a similar sentiment last month, repeatedly expressing its bullishness toward 2024, citing improving supply conditions assisting normalizing lead times, allowing the company to work through a higher-than-normal backlog.
- TWI discussed several other favorable factors contributing to its upbeat view of next year and beyond. For one, farmer incomes are healthy, an attribute DE touched on in August, supporting a sturdy demand picture in large Ag, a meaningful component of TWI's overall business. At the same time, the average age of Ag and construction fleets is above historical averages, creating an impending tailwind as customers have no choice but to upgrade their equipment.
- DE has talked about an aging fleet for years, so this trend could take some time before it becomes a major tailwind. Nonetheless, DE did note that it has been making progress in bringing down the average age of its fleet and is expecting to make further progress in 2024. However, it stated that it will still be above historical averages.
- Another encouraging development was the stabilizing market conditions within TWI's small OEM Ag business after a tumultuous year filled with decreasing volumes as the smaller farmer dealt with elevated interest rates and inflation. TWI mentioned that excess dealer inventories in this segment are subsiding and expects the business to rebound in 2024.
While challenges have not wholly run their course, TWI is likely on the other side of the adversity it faced over the past year. Shares have already run nearly +20% since TWI's Q3 report on November 1 but are still down roughly 10% on the year. With 2024 turning into a rebound year, we think current levels offer a compelling entry for exposure to the improving Ag and construction markets.
Bristol-Myers receives double dose of bad news, but shares exhibiting some resilience (BMY)
Bristol-Myers (BMY) received a double dose of bad news, announcing that the FDA's Oncologic Drugs Advisory Committee will delay its approval decision on Abecma for earlier lines of treatment for relapsed refractory multiple myeloma (RRMM), while Bayer (BAYRY) halted its Phase 3 trial of cardiovascular drug asundexian due to lack of efficacy.
- The BAYRY development may seem unrelated to BMY, but market participants are inferring that the discontinuation of the study is a negative data point for BMY's milvexian, which is being co-produced with Janssen Pharmaceuticals -- Johnon & Johnson's (JNJ) pharmaceutical arm.
- Asundexian and milvexian are both blood thinning drugs that are in Phase 3 studies for the prevention of stroke and systemic embolism in patients with atrial fibrillation.
- Both drugs are known as "FXI(a) inhibitors", which help to prevent strokes without a corresponding increase in bleeding risk associated in other standards of care.
- However, since asundexian didn't show better efficacy than Eliquis -- an existing blood-thinner manufactured by Pfizer (PFE) and BMY -- the Phase 3 analysis didn't support the continuation of development.
- For some financial context, BAYRY had predicted that asundexian could generate sales as high as $5.5 bln.
- In regard to the FDA's delayed decision on abecma, the news is unsurprisingly hitting shares of 2seventy bio (TSVT) much harder. TSVT, which is jointly developing abecma with BMY, will feel the financial impact from a possible FDA rejection far more acutely than BMY would. In FY22, TSVT's revenue totaled $91.5 mln while posting a net loss of ($254.2) mln.
- Before making a decision on abecma, the Oncologic Drugs Advisory Committee wants to meet with a panel of independent experts to gain additional insight. While that's not the most encouraging news, it's worth noting that abecma did achieve positive results in the Phase 3 study.
- The drug, which is already approved for adult patients with RRMM after four or more prior lines of therapy, demonstrated statistically significant improvement in progression-free survival (PFS) compared to standard regimens.
- By reducing the risk of disease progression or death versus the standard regimen, abecma met its primary endpoint in the Phase 3 trial.
- Currently, Darzalex, a drug produced by JNJ, is one of the most commonly used treatments in multiple myeloma. The drug is on track to generate sales of nearly $10.0 bln this year.
Despite the negative headlines, shares of BMY are exhibiting some resilience as losses remain manageable. While the FDA will not meet its December 16 decision deadline on abecma, an approval could still be in the cards following this setback.
Microsoft ticks higher following management shakeup at OpenAI
OpenAI surprised the investment world late Friday when it announced that co-founder Sam Altman would depart as CEO and leave the board of directors. The artificial intelligence company, which launched ChatGPT about a year ago, said that Altman "was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities." The board said it no longer had confidence in his ability to continue leading OpenAI.
- Not a lot of details are available. However, the Wall Street Journal reported that tensions had boiled for weeks around the rapid expansion of OpenAI's commercial offerings. Some board members felt that violated the company's initial charter to develop safe AI. However, that was later disputed as we mention below. The article further stated investors pressured OpenAI over the weekend to reinstate Altman, but to no avail. Also, it said that employees at OpenAI were in an uproar through the weekend and several researchers threatened to quit.
- Microsoft (MSFT), which has poured billions into OpenAI and is its largest shareholder, subsequently hired Altman and fellow OpenAI co-founder Greg Brockman to lead Microsoft's new advanced AI research team. OpenAI hired former Twitch CEO Emmett Shear as interim CEO. Shear tweeted that OpenAI's partnership with Microsoft remains strong and he conceded that the process and communications around Sam's removal were handled very badly.
- Shear said he plans to hire an independent investigator to dig into the entire process leading up to Altman's firing and to generate a full report. He also disputed the reported reasoning for Altman's firing. He said the board did not remove Altman over any specific disagreement on safety and that their reasoning was completely different from that. Shear further said he's "not crazy enough to take this job without board support for commercializing our awesome models."
- As for Microsoft, it says it remains committed to its partnership with OpenAI. It has confidence in its product roadmap, its ability to continue to innovate, and in continuing to support customers and partners. It also said it looks forward to getting to know Emmett Shear and OpenAI's new leadership team and working with them.
All in all, this was a drama filled past few days for OpenAI. We suspect more details of what happened will trickle out in the days and weeks ahead. The company is not yet public, so we do not have a great sense for what investors are thinking. However, MSFT is ticking higher, which tells us investors like the hiring of Altman and what that means for MSFT's AI research unit. But safe to say, this process was not handled well and it took investors by surprise. We will be sure to keep a close eye on any future developments.
Gap surges as investors buy into ongoing turnaround efforts, shrug off weak JanQ guidance (GPS)
After multiple missteps over the years, resulting in a CEO shakeup and extensive restructuring initiatives, Gap (GPS +29%) may finally be turning over a new leaf. The apparel retailer, owning several familiar global brands, including Old Navy and Banana Republic, delivered its best quarter of profitability since 3Q22 and reversed its string of top-line misses in Q3 (Oct).
GPS still projected mild Q4 (Jan) revenue guidance, a common theme amongst retailers lately as consumers continue to deal with a challenging economic environment going into the holiday shopping season. Management also acknowledged that it still has plenty of work to get its brands back to form.
Nevertheless, the highlights from OctQ underscored long-awaited benefits from the company's ongoing restructuring, driving today's momentous gains.
- GPS's financial discipline actions, including lowering transportation costs, improving discounting, and deploying more effective sourcing strategies, combined with commodity costs easing, resulted in over $550 mln in anticipated annualized cost savings. Meanwhile, the company has reduced its inventory by almost $800 mln compared to peak levels last year.
- These initiatives paved the way for GPS to expand its adjusted operating margins by 290 bps yr/yr to 6.8% in OctQ. For perspective, GPS registered a negative 5.7% operating margin just over a year ago in 1Q22. The significantly improved operating margins fueled GPS's impressive adjusted EPS of $0.59, considerably ahead of analyst expectations.
- While GPS has done what it must to bolster profitability, it cannot control outside factors, i.e., unfavorable demand. Revenue was still down yr/yr, falling by 6.7%, GPS's fourth straight quarter of declining revenue. Meanwhile, same-store growth was negative at -2%. However, both of these metrics represented sequential improvements. GPS also noted that it grew market share at its Gap and Old Navy brands, where comps outperformed, coming in at -1% and +1%, respectively.
- The impressive numbers from OctQ provided the confidence GPS needed to reiterate its FY24 revenue growth outlook of down mid-single digits yr/yr despite projecting a light holiday sales quarter. GPS expects JanQ revs to be flat to slightly negative compared to the year-ago period, coming up a tad short of analyst predictions.
Investors are looking well beyond GPS's relatively soft JanQ sales and focusing entirely on the company's swift turnaround. There are still several facets across GPS's business that require tweaking. For example, Banana Republic delivered -8% comps in OctQ, reflecting the brand's ongoing repositioning. Additionally, Athleta's performance in OctQ was dismal, delivering -19% comp growth, although this was largely due to the year-ago period's heavy discounting tactics. However, management is actively focusing on its brands' core features, such as capitalizing on a quiet luxury space with Banana Republic and aligning Athleta's product line with the lucrative active apparel category.
While GPS still has a way to go before its turnaround tactics are finalized and it can reaccelerate growth across its portfolio, its OctQ performance represents a massive step in the right direction.
Beazer Homes has some cracks in the foundation as average home selling prices slip (BZH)
Staying true to recent form within the homebuilding industry, Beazer Homes (BZH) cruised past EPS and revenue estimates in Q4 as new home orders jumped by nearly 43% yr/yr to just north of 1,000. Like its peers before it, including D.R. Horton (DHI), Lennar (LEN), and KB Homes (KBH), the company's results benefited from a lack of existing homes for sale on the market. A less familiar storyline, though, is that construction cycle times are also shrinking as supply chain issues are resolved. In fact, BZH reclaimed more than two months of construction cycle time, enabling it to close on contracts much faster.
However, a strong performance was widely anticipated, as reflected in the stock's 35% surge since late October, and the earnings report was far from perfect.
- Although rising mortgage rates are preventing homeowners from putting their homes on the market, thereby increasing the existing housing supply, rising interest rates are also hurting home affordability. As a result, BZH is ramping up concessions and lowering home prices in order to stay competitive.
- In Q4, the average selling price of homes in BZH's backlog declined by 5.4% to $518K and the company sees more price declines on the horizon.
- For 1Q24, the company is forecasting average selling price to dip to $510K with the average price dropping to about $500K for the full year.
- Although mortgage rates have cooled off in recent weeks after reaching multi-decade highs of about 8% in October, BZH is not assuming that this drop will translate into a significant improvement in the pace of sales for Q1. During the earnings call, BZH noted that while quarter-to-date sales are up on a yr/yr basis, sales were notably sluggish when mortgage rates were at the 8% level.
- The company's guidance for net new orders calls for growth to slow to about 30% in Q1 off of a very low base in the year-ago period. With homebuilding gross margin forecasted to slip to about 23% from 24.3% in Q4, BZH's EPS Q1 EPS guidance of $0.70 fell short of expectations.
The main takeaway is that the favorable demographic and supply and demand dynamics continue to underpin better-than expected quarterly earnings reports from homebuilders, but the fundamentals are mixed overall. Price reductions and other concessions are chipping away at margins and earnings and those factors seem likely to be a major part of the equation in 2024.
|
