Market Snapshot
briefing.com
| Dow | 36054.43 | -70.13 | (-0.19%) | | Nasdaq | 14146.71 | -83.20 | (-0.58%) | | SP 500 | 4549.34 | -17.84 | (-0.39%) | | 10-yr Note | +27/32 | 4.12 |
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| | NYSE | Adv 1341 | Dec 1429 | Vol 743 mln | | Nasdaq | Adv 2087 | Dec 2229 | Vol 5.1 bln |
Industry Watch
| Strong: Industrials, Utilities, Health Care |
| | Weak: Energy, Consumer Staples, Information Technology, Financials, Communication Services |
Moving the Market
-- Reacting to this morning's economic data, which fit with a soft-landing scenario for the economy
-- Treasury yields moving slightly lower in response to the data
-- Losses in mega cap stocks weighing on the three major indices
-- Notion that stocks are due for some consolidation |
Closing Summary
06-Dec-23 16:30 ET
Dow -70.13 at 36054.43, Nasdaq -83.20 at 14146.71, S&P -17.84 at 4549.34
[BRIEFING.COM] Today's session started on a mostly positive note. Relative weakness in the mega cap space limited index performance throughout the session, but buying activity was more robust under the surface in the early going. The market-cap weighted S&P 500 was up 0.5% at its high today, but closed with a 0.4% loss. The Invesco S&P 500 Equal Weight ETF (RSP) was up 0.9% at its best level of the day, but closed the session nearly unchanged from yesterday.
Many stocks rolled over in the afternoon trade with no specific catalyst to account for the price action. Still, the market held up okay when considering how far stocks climbed in a relatively short period of time. At its high today, the equal-weighted S&P 500 was up 13% from its October 27 low. The Russell 2000 had been up as much as 1.8% at its high today before closing with a 0.2% decline.
Shortly after the open, advancers had a better than 3-to-1 lead over decliners at the NYSE. By the close, decliners had an 11-to-10 lead over advancers at the NYSE. Only three of the S&P 500 sectors registered a gain -- utilities (+1.4%), industrials (+0.5%), and health care (+0.1%) -- while the energy sector (-1.6%) saw the largest decline by a wide margin.
The energy sector was responding to the sharp drop in oil prices. WTI crude oil futures settled below $70.00/bbl at $69.37/bbl.
The early upside moves were the result of an inclination to buy on weakness after yesterday's losses, which was supported by another drop in the 10-yr yield in response to this morning's economic data. The 10-yr note yield fell five basis points today to 4.12%, but the 2-yr note yield climbed five basis points to 4.61%.
Briefly, the ADP Employment Change Report for November showed 103,000 jobs were added to private-sector payrolls following a downwardly revised 106,000 (from 113,000) in October. The other reports featured an upwardly revised 5.2% increase in Q3 Productivity (from 4.7%), a downwardly revised 1.2% decline (from -0.8%) in unit labor costs, and a widening in the October trade deficit to $64.3 billion from an upwardly revised -$61.2 billion (from -$61.5 billion) in September that was the result of exports being $2.6 billion less than September exports and imports being $0.5 billion more than September imports.
- Nasdaq Composite: +35.2%
- S&P 500: +18.5%
- Dow Jones industrial Average: +8.8%
- S&P Midcap 400: +7.2%
- Russell 2000: +5.2%
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 2.8%; Prior 0.3%
- November ADP Employment Change 103K (Briefing.com consensus 127K); Prior was revised to 106K from 113K
- Q3 Productivity-Rev. 5.2% (Briefing.com consensus 4.8%); Prior 4.7%; Q3 Unit Labor Costs-Rev. -1.2% (Briefing.com consensus -0.8%); Prior -0.8%
- The key takeaway from the report is the connection between rising productivity and falling unit labor costs. Each is headed in the right direction for the Fed's purposes, which means interest rates should continue to move in the right direction for the market's purposes.
- October Trade Balance -$64.3 bln (Briefing.com consensus -$64.4 bln); Prior was revised to -$61.2 bln from -$61.5 bln
- The key takeaway from the report is the different paths taken by exports and imports, as that fits with a narrative that underscores weaker activity abroad versus what has been seen in the U.S.
Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 223,000; prior 218,000) and Continuing Claims (prior 1.927 mln)
- 10:00 ET: October Wholesale Inventories (Briefing.com consensus -0.2%; prior 0.2%)
- 10:30 ET: Weekly natural gas inventories (prior +10 bcf)
- 15:00 ET: October Consumer Credit (Briefing.com consensus $9.0 bln; prior $9.0 bln)
Major indices trade at session lows
06-Dec-23 15:35 ET
Dow -67.02 at 36057.54, Nasdaq -69.72 at 14160.19, S&P -16.42 at 4550.76
[BRIEFING.COM] The market sits at session lows heading into the close.
Thursday's economic calendar features:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 223,000; prior 218,000) and Continuing Claims (prior 1.927 mln)
- 10:00 ET: October Wholesale Inventories (Briefing.com consensus -0.2%; prior 0.2%)
- 10:30 ET: Weekly natural gas inventories (prior +10 bcf)
- 15:00 ET: October Consumer Credit (Briefing.com consensus $9.0 bln; prior $9.0 bln)
Stocks remain near session lows
06-Dec-23 15:05 ET
Dow -7.07 at 36117.49, Nasdaq -27.09 at 14202.82, S&P -7.05 at 4560.13
[BRIEFING.COM] The major indices are near session lows.
WTI crude oil futures declined 4.1% to $69.37/bbl. Natural gas futures slipped 5.5% to $2.57/mmbtu. On a related note, the S&P 500 energy sector is trading down 1.5%.
Separately, the US Dollar Index is up 0.1% to 104.19.
Brown-Forman underperforms after Q2 miss; S&P 500 in second place again
06-Dec-23 14:30 ET
Dow +18.63 at 36143.19, Nasdaq -17.72 at 14212.19, S&P -3.62 at 4563.56
[BRIEFING.COM] The S&P 500 (-0.08%) is in second place on Wednesday afternoon, leaking back into the red and now hovering just off session lows.
Elsewhere, S&P 500 constituents Brown-Forman (BF.B 54.05, -6.18, -10.26%), First Solar (FSLR 148.05, -7.34, -4.72%), and Altria (MO 41.46, -1.11, -2.61%) dot the bottom of the standings. BF.B slides following this morning's Q2 miss, while MO falls after news of a $31.5 bln write-down at peer British American Tobacco (BTI 28.84, -2.70, -8.56%) alongside new BTI guidance that 2023 organic revs could be at the low end of guidance and amid reports that the Biden administration's ban on methanol cigarettes will be delayed owing to political concerns.
Meanwhile, North Carolina-based chemical firm Albemarle (ALB 119.79, +6.53, +5.77%) is outperforming, rebounding nicely amid reports that the recent rout in lithium prices will soon be done.
Gold ends modestly higher
06-Dec-23 14:00 ET
Dow +66.40 at 36190.96, Nasdaq -10.94 at 14218.97, S&P +0.98 at 4568.16
[BRIEFING.COM] The major averages stepped modestly higher over the prior half hour, the tech-heavy Nasdaq Composite (-0.08%) now the sole lagging index after the S&P 500 (+0.02%) peeked its head into the green.
Gold futures settled $11.60 higher (+0.6%) to $2,047.90/oz, aided in part by a modest retreat in treasury yields.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $104.10.
Page One
Last Updated: 06-Dec-23 09:01 ET | Archive
Looking and smelling better
To begin today's column, we will direct readers back to yesterday's column in which we queried if the major indices were capable of passing the smell test. In Tuesday's trade, they were not. They passed the eye test at the index level because the mega-cap stocks exhibited relative strength, but with market internals negative at the NYSE and Nasdaq, and the equal-weighted S&P 500 declining 0.9%, they clearly did not pass the smell test.
It wasn't like a rotten egg smell. Rather, it was more like a sweaty smell following a long run. From what we can gather at the moment, the broader market is looking and smelling better today even if it isn't exactly coming up roses.
Currently, the S&P 500 futures are up 18 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 94 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 76 points and are trading 0.2% above fair value.
The positive leaning has been influenced by an inclination to buy on weakness. It has also been influenced by a positive response to earnings reports from Toll Brothers (TOL), Campbell Soup (CPB), and SentinelOne (S), Avis Budget (CAR) announcing a $10.00 per share special dividend, Mastercard (MA) announcing a dividend increase and new $11 billion share repurchase program, and some economic data this morning that was in-line with the soft landing view.
Specifically, private-sector employment increased by 103,000 jobs in November (Briefing.com consensus 127,000), according to ADP, following a downwardly revised 106,000 (from 113,000) in October. The 5.6% pay increase for job-stayers in November was also the slowest pace of increase since September 2021.
The key takeaway from the report is that job growth and wage gains both moderated in the private sector, which is what the Fed will like to see in its battle to tame inflation with higher interest rates.
Another feather in the Fed's inflation-fighting cap is the revised Q3 Productivity Report, which showed an upward revision to 5.2% (Briefing.com consensus 4.8%) from 4.7% that was paired with a downward revision for unit labor costs to -1.2% (Briefing.com consensus -0.8%) from -0.8%.
The key takeaway from the report is the connection between rising productivity and falling unit labor costs. Each is headed in the right direction for the Fed's purposes, which means interest rates should continue to move in the right direction for the market's purposes.
The final report this morning was the October Trade Balance Report. It showed a widening in the deficit to -$64.3 billion (Briefing.com consensus -$64.4 billion) from an upwardly revised -$61.2 billion (from -$61.5 billion) in September. The widening was the result of exports being $2.6 billion less than September exports and imports being $0.5 billion more than September imports.
The key takeaway from the report is the different paths taken by exports and imports, as that fits with a narrative that underscores weaker activity abroad versus what has been seen in the U.S.
The Treasury market apparently liked what it saw in today's data. The 2-yr note yield, at 4.60% in front of the releases, is at 4.57% now, up one basis point from yesterday. The 10-yr note yield, at 4.18% in front of the reports, is at 4.15% now, down two basis points from yesterday and down roughly 85 basis points from its peak in late October.
The sharp move lower in rates is essentially why everything has been coming up roses for the stock market since late October.
-- Patrick J. O'Hare, Briefing.com
Toll Brothers feeling right at home with another upside earnings report as demand stays strong (TOL)
Luxury homebuilder Toll Brothers (TOL) delivered another upside earnings report last night, once again capitalizing on a historically low supply of existing homes on the market amid a high mortgage rate environment.
Coming on the heels of strong quarterly results from peers such as D.R. Horton (DGI) and Beazer Homes (BZH), the better-than-expected results from TOL don't come as a surprise and are almost a non-event because that was likely already priced into the stock. However, what is moving the needle for the stock today is the bullish commentary from CEO Douglas Yearley, who said that he expects the recent decline in mortgage rates and inflation to augment an already healthy demand climate.
- That healthy demand for new homes is reflected in TOL's delivered homes for Q3 coming in at 2,755, ahead of its forecast of 2,650-2,750. More importantly, though, the company's FY24 deliveries guidance was strong at 9,850-10,350 units, equating to yr/yr growth of about 5% at the mid-point. It's also worth noting that TOL has regularly exceeded its deliveries guidance lately.
- As mortgage rates have fallen, momentum has started to build ahead of the spring selling season, which begins in January. Mr. Yearley disclosed that the company has signed 2,038 contracts through Q4, good for 72% yr/yr increase, with an average selling price of $989,000.
- TOL's average selling price is declining as it joins other homebuilders in boosting incentives to improve home affordability, but the decrease is also partly by design. The company is broadening its home portfolio to include lower price points as it simultaneously expands its community count.
- For some context, the $989,000 average selling price for the contracts signed in Q4 equates to about a 6.3% reduction compared to the average price per home in its backlog as of October 31, 2023.
- Home sales gross margin has become a key metric to monitor for homebuilders as incentives ramp up and as prices come down. The good news for TOL is that adjusted home sales gross margin remained quite steady in Q3 at 29.0% compared to 29.3% last quarter.
- The one minor blemish in TOL's earnings report is that it anticipates adjusted home sales gross margin to slip to about 28.0% in FY24 as the average selling price decreases further.
Overall, it was another solid performance for TOL, and the company is poised to continue to benefit from favorable demographics, the lack of inventory on the market, and now, a much-welcomed dip in mortgage rates.
Thor Industries travels higher following better-than-feared Q1 results (THO)
Thor Industries (THO +4%), the world's largest RV maker, eked out beats on its top and bottom lines in Q1 (Oct) and kept its FY24 (Jul) financial goals unchanged, a good enough report to keep its shares traveling higher, now up over +20% since the start of November. Leading into THO's OctQ report, there were plenty of warning signs from dealers and suppliers, most notably a shift in consumer tastes toward used RV units and aftermarket repairs. This trend signaled that consumers have become hesitant to upgrade to the newest RV model or rely on lower-priced used units to satisfy their camping ambitions.
While this development is undoubtedly denting THO's quarterly performance, enduring five straight quarters of yr/yr revenue declines, it continues to deliver better-than-feared numbers. By doing so, the market remains confident in the company's ability to reaccelerate growth once macroeconomic headwinds begin to fade.
- These headwinds remained intact during OctQ, including elevated interest rates upping financing costs and cumulative inflationary pressures hiking the cost of ownership. As a result, revs fell 19.5% yr/yr to $2.5 bln, leading to a 60.9% contraction in EPS to $0.99.
- While North American economic conditions have remained mostly unchanged over the past year, market demand in Europe is gaining momentum, primarily because supply chain constraints for the regionally popular motorized units are easing. As a result, European sales soared by over 40% yr/yr on a 20% jump in units sold in OctQ compared to around a 30% drop in towables and motorized sales on a 13% and 32% decline in units sold, respectively, in North America.
- Encouragingly, THO has not wavered from its bullish longer-term view, repeating that current soft retail demand remains temporary as the interest in the RV lifestyle continues to expand. The pandemic set a new higher base for the RV industry as closed attractions sparked an interest in the outdoors. Furthermore, RV dealer Camping World Holdings (CWH) recently posted record used unit sales in Q3, highlighting that demand is still present. THO has pointed out that these used RV owners will likely eventually move toward new units, providing a longer-term tailwind.
- This relative optimism was reflected in THO's FY24 guidance, projecting EPS of $6.25-7.25 and revs of $10.5-11.0 bln, not worsening from its prior forecasts. Keep in mind that THO is heading into its lull period, with demand not typically picking back up until closer to April (the start of its fourth quarter).
THO's OctQ performance was solid. However, the RV industry is dealing with significant challenges. Higher interest rates price out potential customers, while widespread inflation keeps RV purchases toward the bottom of individuals' list of priorities. THO has reduced production levels to avoid excess inventory problems, expecting cautious ordering patterns to continue throughout 2024. While shares of THO have held up well over the years, including an over +40% run YTD, a deterioration in economic conditions could lead to a rapid correction within the highly discretionary RV industry.
SentinelOne becoming a first-class cybersecurity company as it matches CrowdStrike's strong Q3 (S)
About one week after competitor CrowdStrike (CRWD) reported strong Q3 results with upside Q4 guidance, SentinelOne (S) followed suit and posted its own impressive earnings report. The provider of endpoint security and threat detection solutions delivered a beat-and-raise report, adding to the recent evidence that corporations and organizations are ramping up cybersecurity investments despite the tough macroeconomic conditions.
- While CEO Tomer Weingarten acknowledged that global economic challenges are persisting and are being amplified by rising geopolitical tensions, he described the threat landscape as unrelenting as the pace and complexity of cyberattacks have increased substantially.
- Additionally, from a company-specific perspective, SentinelOne is giving CRWD a run for its money when it comes to winning competitive evaluations. Similar to CRWD, the company is benefitting from enterprises modernizing and simplifying their cybersecurity infrastructure onto a singular platform.
This trend is evidence across a few key metrics.
- For instance, net new ARR increased to $52 mln (+11% yr/yr), exceeding SentinelOne's typical Q3 seasonality, and up from $49 mln last quarter. Due to this outperformance, the company nudged its FY24 outlook higher, forecasting net new ARR of $200 mln compared to its prior guidance of $195 mln.
- Also, demand for its Singularity Data Lake and Singularity Cloud offerings was robust, growing by triple-digits and accounting for over 20% of quarterly bookings.
- During the earnings call, Mr. Weingarten commented that the company is winning deals with these two products regardless of what technology is installed.
- As an example, a large enterprise that used Splunk (SPLK) for about fifteen years replaced that system with Singularity Data Lake and SentinelOne's endpoint and cloud security products
This momentum and strong top-line growth is driving efficiencies of scale, pushing the company closer to profitability.
- Non-GAAP gross margin expanded by eight percentage points yr/yr to 79% -- a new record for the company -- and non-GAAP net loss was trimmed to ($7.7) mln from ($44.4) mln in the year-earlier quarter.
- Although the company doesn't expect to reach profitability until FY26, it did reiterate that it's committed to achieving positive free cash flow in 2H25
Lastly, SentinelOne disclosed that it began selling Purple AI to select customers and that it expects general availability starting in 1Q25.
- Purple AI is an integrated generative AI product using conversational prompts and dialog, allowing users to leverage large language models to help them identify, analyze, and mitigate threats.
- The excitement over this product launch may have as much to do with the stock's skyrocket move higher as the company's actual Q3 results do.
The main takeaway is that SentinelOne is making a case that it should be considered in the same class as CRWD. Both companies are capitalizing on healthy spending for cybersecurity and it's becoming increasingly evident that enterprises are viewing SentinelOne's capabilities as on par with CRWD's.
MongoDB pulls back after a 30+% run since November as mild blemishes in Q3 spark profit taking (MDB)
Shares running over +30% in just the past five weeks, several peers delivering exceptional beat-and-raise quarterly reports, and a general bullish market sentiment put MongoDB (MDB -7%) on a pedestal ahead of its Q3 (Oct) report yesterday after the close. As a result, even though the unstructured database management software developer seemingly showed no faults during the quarter, clearing analysts' earnings and sales estimates while guiding Q4 (Jan) figures well above consensus, the market was unconvinced.
When a stock has potentially become overextended, albeit on good news from many of its peers, including GitLab (GTLB), Snowflake (SNOW), and Datadog (DDOG), it opens itself up to more nitpicking. There were a few areas that the market may not have liked, given MDB's relatively pricey 16x forward sales multiple.
- Sales growth continues to slow. During Q3, MDB expanded revs 29.8% yr/yr to $432.94 mln, decelerating slightly from the +39.6% posted in Q2 (Jul). Management does not anticipate growth to pick up in Q4 either, projecting sales of $429-433 mln, a 19.3% improvement yr/yr at the midpoint.
- MDB chalked up the projected slowdown to a few items, including Atlas (its cloud offering, which is billed on a consumption basis) consumption being adversely impacted by a typical seasonal slowdown around the holidays, challenging yr/yr comparisons when Atlas saw several million dollars more of revenue coming from unused commitments, and a sequential decline in non-Atlas revs (its legacy Enterprise Advanced offering).
- MDB's Q4 adjusted EPS forecast signals a steep sequential decline, targeting $0.44-0.46. While this range has been roughly similar to MDB's quarterly estimates for the past two quarters, only for the company to crush it, this has been largely due to unexpected strength within its higher-margin Enterprise Advanced product. MDB does not expect this to persist into Q4.
- New customer growth is beginning to tail off modestly, up 3.1% sequentially compared to a 4.4% bump in Q2 and 5.6% in Q1. Most of MDB's new customers gravitate toward its Atlas product, which ended the quarter with 44,900 users, nearly 97% of the company's total customer base. New customers do not have to be new logos either; MDB counts existing Enterprise Advanced customers moving their workloads to Atlas.
Again, these weak points are overly critical. MDB still delivered another exceptional quarter. The company continues to see healthy new business activity, underscoring the mission criticality of its platform. Meanwhile, week-over-week consumption growth throughout Q3 was more substantial than in Q2, a positive sign for Atlas's consumption-based business model. Additionally, customers with at least $100,000 in annualized recurring revenue climbed 6.3% sequentially, an acceleration from the 5.3% improvement last quarter.
With shares up over 30% since November and over 120% on the year, today's pullback represents a minor correction from overbought conditions. MDB remains a crucial component of businesses' ability to organize unstructured data, i.e., names, places, etc., and stands to benefit immensely if AI continues its current growth trajectory.
Ollie’s Bargain Outlet reports another upside quarter with good guidance for holiday period (OLLI)
Ollie's Bargain Outlet's (OLLI +4%) is heading higher after reporting Q3 (Oct) earnings results this morning. Q3 is typically OLLI's smallest revenue quarter of the year, but investors like what they see. That includes nice upside for both EPS and revenue. OLLI also increased its comp guidance by a good amount for FY24, which bodes well for the Q4 (Jan) holiday period.
- OLLI describes itself as America's largest retailer of closeout merchandise and excess inventory. Consumers are looking for bargains and OLLI's value positioning fits the bill. That was evident in this Q3 report. In its history, OLLI has been hit-or-miss around earnings. Part of that was supply chain issues in past years and execution issues. In Q3, OLLI tied for its largest EPS upside quarter in the past ten quarters. It also posted its fourth consecutive revenue upside quarter.
- Turning to same store comps, they came in at a robust +7.0%. In fairness, OLLI was lapping fairly easy +1.9% comps last year, but that is still a big number. Comp growth was driven primarily by transactions. Notably, over 60% of its product categories comped positive in the quarter. OLLI raised its Q4 comp sales expectation to approximately +3%.
- OLLI has been working to improve productivity in its supply chain and in stores in various ways. It also made a change to its ads where it is now advertising fewer items. The streamlined flyer better showcases its most compelling deals. This is working out quite well because it is driving traffic and reducing complexity. OLLI has also been growing its social media marketing program, which is helping to fuel growth, especially with younger customers.
- New store openings is a key part of its growth story. OLLI opened 23 stores in Q3, which is a record number of openings in a quarter for Ollie's. The company is also excited it surpassed the 500 store milestone and expanded into another state. It ended Q3 with 505 stores in 30 states, including its first store in Long Island, NY.
- Importantly, OLLI says its closeout deal flow is very strong. Consumers remain under pressure and are looking for ways to save money on branded merchandise. Manufacturers are creating new and innovative products, changing packaging and sizes, and competing for retail shelf space, which is creating more closeout opportunities and that is good news for OLLI.
Overall, investors are quite impressed with OLLI's Q3 result and guidance. We remember when this retail chain was struggling in 2021-2022, but it seems like it has been turning a corner in recent quarters. We also think its position on the value end of the retail spectrum is acting as a nice tailwind in this macro environment when consumers are watching what they spend.
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