Market Snapshot
briefing.com
| Dow | 36245.50 | +294.61 | (0.82%) | | Nasdaq | 14305.03 | +78.81 | (0.55%) | | SP 500 | 4594.63 | +26.83 | (0.59%) | | 10-yr Note | +31/32 | 4.23 |
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| | NYSE | Adv 2394 | Dec 412 | Vol 1.0 bln | | Nasdaq | Adv 3281 | Dec 1055 | Vol 5.6 bln |
Industry Watch
| Strong: Energy, Industrials, Real Estate, Materials, Financials, Consumer Discretionary |
| | Weak: Communication Services |
Moving the Market
-- Carryover momentum after big gains in November, aided by a fear of missing out on further gains
-- Relative softness in mega cap stocks
-- Drop in rates acting as support for stocks
-- Digesting this morning's data, which were mostly consistent with a soft landing scenario
-- S&P 500 testing resistance at 4,600 |
Closing Summary
01-Dec-23 16:25 ET
Dow +294.61 at 36245.50, Nasdaq +78.81 at 14305.03, S&P +26.83 at 4594.63
[BRIEFING.COM] The S&P 500 closed at its best level since March 2022. The index failed to cross 4,600 today, reaching 4,599 at its high, before closing just below that level. The Nasdaq Composite and Dow Jones Industrial Average registered gains of 0.6% and 0.8%, respectively, while the Russell 2000 jumped 3.0%.
The price action in the the early going was lackluster, though, with the three major trading near yesterday's closing levels. Buying activity picked up in the stock market around the same time that buying picked up in Treasuries.
The 2-yr note yield sank 14 basis points today to 4.56% and the 10-yr note yield settled 13 basis points lower at 4.23%. These moves were partially a reaction to this morning's economic releases.
Briefly, the S&P Global U.S. Manufacturing PMI was unchanged from the flash November reading, the Manufacturing PMI from the ISM Institute reflected contracting activity at a pace that was unchanged from October, and the Construction Spending report for October was stronger than expected.
Market participants were also reacting to Fed Chair Powell's speech today, which did not contain anything surprising. Mr. Powell said "It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease."
Still, the fed funds futures market now sees a higher probability of a rate cut in May (89.0%) compared to yesterday (75.9%), according to the CME FedWatch Tool, in spite of Mr. Powell's commentary.
Just about everything came along for the upside ride today, aided by a fear of missing out on further gains in a seasonally strong period for the market. 23 of the 30 Dow components logged a gain and ten of the 11 S&P 500 sectors closed higher. The Invesco S&P 500 Equal Weight ETF (RSP) jumped 1.5% versus a 0.6% gain in the market-cap weighted S&P 500.
Relative weakness in some mega cap stocks led the communication services (-0.2%) and information technology (+0.2%) sectors to underperform the broader market. Meanwhile, the rate-sensitive real estate sector (+2.1%) saw the largest gain.
- Nasdaq Composite: +36.7%
- S&P 500: +19.7%
- Dow Jones industrial Average: +9.4%
- S&P Midcap 400: +80.%
- Russell 2000: +5.8%
Reviewing today's economic data:
- November S&P Global US Manufacturing PMI - Final 49.4; Prior 49.4
- November ISM Manufacturing Index 46.7% (Briefing.com consensus 47.5)%; Prior 46.7%
- The key takeaway from the report is that there was little overall change in the strength of the manufacturing sector in November, which was disappointing since the market had expected that the pace of contraction would decelerate. Furthermore, the Production Index fell into contraction (48.5%) after showing a slight expansion (50.4%) in October.
- October Construction Spending 0.6% (Briefing.com consensus 0.3%); Prior was revised to 0.2% from 0.4%
- The key takeaway from the report is that construction spending continued growing in October, which is a positive for the economy at a time when analysts and investors are on guard for signs of potential sudden economic weakness. For instance, manufacturing spending was up a robust 71.2% year-over-year.
Monday's economic calendar features:
- October Factory Orders (Briefing.com consensus 2.6%; prior 2.8%) at 10:00 ET
Stocks little changed ahead of the close
01-Dec-23 15:40 ET
Dow +264.56 at 36215.45, Nasdaq +68.56 at 14294.78, S&P +24.46 at 4592.26
[BRIEFING.COM] Things are little changed at the index level.
The 2-yr note yield fell 14 basis points today to 4.56% and the 10-yr note yield fell 13 basis points to 4.23%.
Monday's economic calendar features:
- October Factory Orders (Briefing.com consensus 2.6%; prior 2.8%) at 10:00 ET
S&P 500 sticks just below 4,600; oil slips below $75.00/bbl
01-Dec-23 15:05 ET
Dow +272.02 at 36222.91, Nasdaq +67.17 at 14293.39, S&P +24.65 at 4592.45
[BRIEFING.COM] The S&P 500 is trading just below the 4,600 level.
WTI crude oil futures slipped below $75.00/bbl, down 2.1% to $74.35/bbl. On a related note, the S&P 500 energy sector sports a 0.7% gain.
Separately, the CBOE Volatility Index is down 2.8% to 12.56.
Paramount gains after speculation of streaming bundle with Apple
01-Dec-23 14:25 ET
Dow +250.12 at 36201.01, Nasdaq +48.83 at 14275.05, S&P +21.34 at 4589.14
[BRIEFING.COM] The S&P 500 (+0.47%) is in second place on Friday, up about 21 points, but on pace to end the week +0.65%.
Elsewhere, S&P 500 constituents Paramount Global (PARA 15.72, +1.35, +9.39%), Illumina (ILMN 108.91, +6.96, +6.83%), and Comerica (CMA 48.21, +2.99, +6.61%) dot the top of the index on Friday. PARA shows decent strength today on the back of a report suggesting the company and Apple (AAPL 191.09, +1.14, +0.60%) could be eyeing a streaming services bundle product, while CMA caught a target increase out of Goldman this morning.
Meanwhile, streaming giant Netflix (NFLX 465.22, -8.75, -1.85%) is one of today's worst performers following the aforementioned PARA news.
Gold adds to weekly gains on Friday as yields continue to fall
01-Dec-23 14:00 ET
Dow +227.60 at 36178.49, Nasdaq +41.34 at 14267.56, S&P +18.98 at 4586.78
[BRIEFING.COM] With about two hours remaining on the session the tech-heavy Nasdaq Composite (+0.29%) remains at the bottom of the major averages, albeit on gains north of 41 points.
Gold futures settled $32.50 higher (+1.6%) to $2,089.70/oz, up +4.3% on the week, aided in part by declining yields and a weaker greenback.
Meanwhile, the U.S. Dollar Index is down about -0.3% to $103.15.
Page One
Last Updated: 01-Dec-23 08:55 ET | Archive
Softer open indicated to start the new month
The S&P 500 futures are down nine points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 51 points and are trading 0.3% below fair value, and the Dow Jones Industrial Average futures are down 24 points and are trading 0.1% below fair value.
Pre-open trading has been somewhat mixed after stocks logged big gains in November. There is likely some hesitation in play in front of Fed Chair Powell's discussion during a Fireside Chat at Spelman College today 11:00 a.m. ET. Recent gains have been partially predicated on the idea that the Fed will cut rates sooner rather than later, so market participants will be keenly focused on Mr. Powell's tone today.
Dow component Walt Disney (DIS) announced a cash dividend of $0.30/share in respect of the second half of fiscal year 2023 after suspending its dividend in the spring of 2020.
The 2-yr note yield down two basis points to 4.68% and the 10-yr note yield is down two basis points to 4.33%.
China's Caixin Manufacturing PMI for November returned into expansion while Manufacturing PMI readings in Germany, France, Spain, and the U.K. all showed a slower pace of ongoing contraction.
U.S. economic data today includes the final November S&P Global U.S. Manufacturing PMI at 9:45 a.m. ET followed by the November ISM Manufacturing Index and October Construction Spending report at 10:00 a.m. ET
In other news, fighting resumed between Israel and Gaza, but discussions over another truce are said to continue, according to The New York Times.
Dell pulls back following earnings/guidance as PC demand slowed in Sep/Oct (DELL)
Dell (DELL -5%) is trading lower despite reporting another large EPS beat with its Q3 (Oct) earnings report last night. This was Dell's fifth consecutive large EPS beat. Dell also reported impressive revenue upside. However, Dell missed on revs and guided Q4 (Jan) below analyst expectations.
- Breaking it down by segment, Infrastructure Solutions Group (ISG) saw revenue decline 12% yr/yr, but was flat sequentially to $8.50 bln with 12.6% segment operating margin vs 14.3% last year. Storage revenue declined 13% yr/yr while servers and networking fell 10%. Dell saw server ASPs expand in both AI-optimized and traditional servers. Also, customer demand for AI servers nearly doubled sequentially and demand remains well ahead of supply.
- The comment that stood out to us was Dell saying that it's seeing the beginning of a traditional server rebound and historically storage follows a couple of quarters later. That seems to be showing up in the sequential growth metrics.
- Turning to Client Solutions Group (CSG), segment revenue fell 11% yr/yr to $12.28 bln with 7.5% operating margin vs 7.7% last year. Commercial and consumer revenue were $9.8 bln and $2.4 bln, respectively. The demand momentum seen in June and July continued into August but slowed as the quarter progressed, which caused CSG revenue to decline sequentially and come in short of internal expectations.
- Dell saw improved PC demand in June and July, however, the business slowed in September and slowed even more in October. Dell saw customers being more selective, particularly large commercial customers, enterprise customers, and particularly in North America. The big change was the number of large deals slowed over the course of the quarter as customers again became more cautious and selective, which led to increased pricing pressure.
Overall, investors are disappointed with Dell's results and guidance. The stock gapped higher following its Q2 report in early September and kept moving higher, which tells us sentiment was running high heading into this report. And then last week, HPQ had a good report. However, Dell was noticeably more cautious on this Q3 call than it was for its Q2 call. Probably what is keeping the stock from falling even lower was management saying it is seeing the beginning of a traditional server rebound and storage historically follows a couple of quarters later. This is being seen as a bit of a silver lining for what was rough guidance.
UiPath breaks out of its trading range, surges to one-year highs on solid OctQ results (PATH)
UiPath (PATH +25%) smashes through all resistance levels from this year and returns to prices not seen since early 2022, following better-than-feared Q3 (Oct) numbers. Headline results were decent for the robotic process automation software developer, squeaking out beats on its top and bottom lines. Meanwhile, Q4 (Jan) guidance was sufficient, projecting revs in-line with consensus. With shares trading mostly sideways over the past six months leading up to PATH's Q3 report, this performance was precisely what the market was looking for before piling into the stock.
- PATH expanded its adjusted EPS by 140% yr/yr to $0.12, maintaining solid profitability throughout the year. This is a testament to management's ability to quickly shift gears toward profits above growth. Non-GAAP operating margins spiked by over 600 bps yr/yr to 13%. Revenue growth was also buoyant, jumping 24% yr/yr to $325.92 mln, a nice acceleration from the +18.6% posted last quarter.
- Part of PATH's plan to better contend with a fluid economic environment was pivoting its go-to-market resources toward organizations boasting a meaningful runway to invest in enterprise automation over the long haul. This investment raised PATH's presence in the C-suite, helping raise its profile with partners. This strategy also assisted PATH's ability to offset the headwinds from lingering macroeconomic headwinds toward the lower end of its market, which persisted in Q3.
- Given its software offerings, PATH is at the forefront of the AI revolution. The company has enhanced its AI-powered capabilities, such as Autopilot. PATH's recent expanded partnership with Deloitte, one of SAP SE's (SAP) largest strategic partners, highlights PATH's competitive edge surrounding AI, as Deloitte expects to embed the company's AI-powered Business Automation Platform into their delivery platform, powering SAP's digital transformation in the process.
- Looking ahead, the global macroeconomic environment remains variable. As a result, PATH's Q4 guidance still contained elements of caution. Still, by projecting revs of $381-386 mln, the midpoint of which edged past analyst predictions, PATH anticipates accelerating yr/yr revenue growth to carry through to close out the year if it achieves the midpoint of its forecast.
Last quarter's decent performance may not have kicked off a massive rally like today. However, it underpinned signs of demand stabilization, a trend seen throughout the B2B software landscape at the time. With these trends beginning to morph into tangible benefits, PATH is now on a potential turnaround path. Shares may seem overextended on the day. However, with AI still in its early stages, PATH is positioned to pounce on increasing demand from businesses to implement various AI-powered features, boding well for its long-term future.
Tesla Cybertruck launch event fails to put a charge into shares; margins remain in spotlight (TSLA)
Coming off one of its worst earnings reports in recent history in which it missed EPS expectations as automotive gross margins continued to crumble under a steady stream of price cuts, Tesla (TSLA) is in need of a fresh storyline that could swing sentiment back into a more positive place. As the EV maker's long-awaited Cybertruck launch event approached this week, there was hope that it would rekindle some excitement about the company's growth story, which is looking less rosy these days amid waning demand for EVs and rising competition.
Unfortunately for TSLA, the launch event was mainly a bust, creating yet another reason for investors to be disappointed.
- After years of delays -- initial Cybertruck deliveries were originally slated to begin in 2021 -- TSLA disclosed yesterday that its most affordable version (which costs about $61K) won't be available until 2025. That starting price also happens to be about $20K more than TSLA had forecasted.
- Until then, customers will only be able to choose between the two higher-end Cybertruck versions which run at about $100K. To be fair, the vehicle does boast of some pretty impressive specs.
- For instance, it can reach 60 mph in about 2.6 seconds, and it can tow up to 11,000 pounds, outperforming the Ford (F) F-150 Lightning. Its windows are also supposedly bulletproof, for whatever that's worth.
- However, in this high interest rate environment in which consumers are trading down to less expensive products, demand for a $100K vehicle that many find to be "odd looking", shall we say, is likely to be pretty tepid.
- Elon Musk did claim that over one million people have placed a reservation for Cybertruck, but the actual conversation rate on the number will probably be quite low.
- Production is another issue. Musk has frequently commented on how complex and difficult the vehicle is to make, partly because the frame is made out of inflexible stainless steel. Ramping production will be slow with Musk predicting that the company won't reach its target of 250,000 units per year until 2025. If the past is any prologue, then that timeframe will also be pushed out.
- In the meantime, TSLA's automotive gross margins may take another hit as production of the costly truck remains at relatively low levels over the next few quarters. In fact, Musk has already acknowledged that Cybertruck won't make a positive contribution to margins or earnings until 2025. So, that factor is likely already priced into the stock.
Overall, though, the Cybertruck launch caused market participants to dial back their expectations even further, rather than sparking excitement that TSLA's next big growth catalyst is about to come to fruition.
Marvell under pressure following earnings; most segments have pockets of weakness (MRVL)
Marvell (MRVL -5%) is not looking so "Marvell-ous" after the semiconductor company reported Q3 (Oct) results last night. Marvell reported its usual modest upside, but the mid-points for Q4 (Jan) EPS and revenue guidance was a bit below expectations.
- Data Center, which is Marvell's largest market at 39% of OctQ sales, segment revenue fell 11% yr/yr but rose 21% sequentially to $555.8 mln, well above prior guidance of mid-teen growth sequentially. The upside was driven by stronger than forecasted AI revenue. As expected, revenue from enterprise on-premise declined sequentially, reflecting weakening demand.
- Demand for data center storage also remains depressed and industry expectations for a recovery have continued to push out. Despite some weak spots, Marvell guided to pretty robust DC segment revenue for Q4 as it expects mid-30% sequential growth. AI demand has continued to grow and management now expects AI revenue in Q4 to come in significantly above forecast.
- Carrier Infrastructure (22% of revs), revenue grew 17% yr/yr and 15% sequentially to $316.5 mln. This was much better than prior guidance of low single-digit growth sequentially. The upside was driven entirely by wireless, while wired continued to decline. As stated previously, CI segment revs are expected to slow in Q4, as the initial wave of 5G rollout is near completion. Marvell is now expecting a period of digestion. Q4 CI revs are expected to decline in the mid-40% range sequentially.
- While DC and CI saw upside, Enterprise Networking (19% of revs) was a bit weak as revenue fell 28% yr/yr and 17% sequentially to $271 mln vs guidance of a low-teen sequential decline. Marvell expects a mid-single digit sequential decline in Q4. Its Consumer end market declined 1% sequentially with Q4 guidance pointing to a mid-teen sequential decline. Finally, Automotive/Industrial segment revs declined 3% sequentially and Q4 should decline by 20% sequentially as aerospace/defense order patterns can be lumpy.
- Marvell expects softness in demand to impact EN and CI revs in Q1 (Apr) but expects them to recover and turn into a revenue tailwind over time. It also anticipates a significant reduction in Consumer due to seasonality in Q1. On the positive side, DC revenue is growing rapidly, reflecting MRVL's emergence as a key enabler of accelerated computing and the ramp of multiple custom-accelerated compute programs for AI.
So, why is the stock lower? The guidance was a bit soft. Also, Data Center continues to be a big growth driver, but most of its other segments have pockets of weakness. And it looks like they will be weak heading into early next year. Furthermore, Carrier Infrastructure has been performing well, but a big drop off is expected for Q4. MRVL had signaled Q4 CI softening on its last call, but a mid-40% sequential drop may be more than investors were expecting.
Elastic skyrockets higher as AI opportunity takes shape and as consumption trends strengthen (ESTC)
Following in the footsteps of other big data cloud software companies, such as Snowflake (SNOW) and Datadog (DDOG), search, observability, and data analytics platform provider Elastic (ESTC) delivered strong quarterly results and issued upside guidance for the quarter ahead. Similar to those peers, ESTC experienced an upswing in cloud consumption from its customers as the optimization trend that slowed spending earlier this year and in 2022 has mostly played out.
- CFO Janesh Moorjani did caution that spend management and cost consciousness are still prevalent themes in the market, but many customers are now focused on moving new workloads to ESTC. On that note, one of the key trends that's driving momentum in ESTC's business is customers' ongoing consolidation onto its platform for multiple use cases.
- The company noted that during the quarter, it secured many wins in which it displaced existing observability tools, helping customers save on their overall IT spend, while simultaneously expanding their capabilities.
A couple key metrics bear this out.
- Total customers with annual contract value (ACV) greater than $100K increased by more than 30 from last quarter for a total of about 1,220. ESTC's net expansion rate of approximately 110% also illustrates that its customers are increasing their spending and usage on the platform.
However, what really has investors excited is ESTC's commentary surrounding generative AI and its expanding growth opportunities there.
- During the earnings call, CEO Ashutosh Kulkarni described generative AI as a "massive tailwind that will continue to benefit our business in the years to come."
- In particular, generative AI is reigniting interest in different search methods (semantic search, vector search, hybrid search) in order to base large language models on a company's specific business context. The company believes that its Elasticsearch Relevance Engine (ESRE) is the most comprehensive tool available today to help companies build generative AI applications.
- One caveat is that ESTC doesn't anticipate that generative AI will produce significant revenue in the near-term, but it is expected to become a major growth driver in the coming years.
The main takeaway is that both the near-term and longer-term outlook have brightened considerably from earlier this year as consumption trends strengthen and as the generative AI opportunity begins to materialize.
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