Market Snapshot
briefing.com
| Dow | 37248.35 | +158.11 | (0.43%) | | Nasdaq | 14761.55 | +27.59 | (0.19%) | | SP 500 | 4719.55 | +12.46 | (0.26%) | | 10-yr Note | +30/32 | 3.93 |
|
| | NYSE | Adv 2247 | Dec 583 | Vol 1.5 bln | | Nasdaq | Adv 3038 | Dec 1319 | Vol 8.0 bln |
Industry Watch
| Strong: Real Estate, Materials, Energy, Consumer Discretionary, Industrials, Financials |
| | Weak: Consumer Staples, Health Care, Communication Services, Information Technology |
Moving the Market
-- Carryover upside momentum after the Fed's dovish pivot yesterday
-- Relative weakness in mega cap stocks weighing on index gains
-- Strong buying activity in the broader market, especially small caps
-- Another drop in Treasury yields providing support for stocks; 10-yr yield below 4.00%
|
Closing Summary
14-Dec-23 16:30 ET
Dow +158.11 at 37248.35, Nasdaq +27.59 at 14761.55, S&P +12.46 at 4719.55
[BRIEFING.COM] The stock market had another strong showing after yesterday's rally. The Russell 2000 jumped 2.7% while the Nasdaq Composite (+0.2%), S&P 500 (+0.3%), and Dow Jones Industrial Average (+0.4%) registered more modest gains due to relative weakness in mega cap constituents.
The three major indices hit an air pocket in the early afternoon and briefly fell below yesterday's closing levels. There was no specific catalyst to account for the move, which was likely related to a lingering sense that stocks are overbought on a short-term basis.
Still, many stocks recovered from session lows. The Invesco S&P 500 Equal Weight ETF (RSP) was up only 0.8% at its low for the session, but closed with a 1.4% gain.
Six of the 11 S&P 500 sectors registered gains of at least 0.9%. The energy sector (+2.9%) saw the largest gain, rising alongside oil prices ($71.61/bbl, +2.14, +3.1%), which had been partially reacting to a weaker dollar. The U.S. Dollar Index was down 0.9% to 101.97 from a high of 104.03 yesterday. The real estate sector (+2.6%) was the next best performer.
Meanwhile, the consumer staples (-1.5%) and utilities (-1.3%) sectors saw the biggest declines.
The overall positive bias was a continuation of yesterday's post-FOMC surge. Buyers have been responding to a more dovish-looking policy/tone from the FOMC and Fed Chair Powell. As a results, expectations for a rate cuts have increased from yesterday. The fed funds futures market is now pricing in six (!) rate cuts for 2024 with the first cut coming in March.
Other central banks followed the Fed's lead and left their respective rates unchanged, too. The ECB left its corridor of key policy rates unchanged, as expected, along with the Bank of England, the Swiss National Bank and Hong Kong Monetary Authority. Notably, however, ECB President Lagarde and officials at other banks indicated that they are further away from rate cuts after Fed Chair Powell disclosed that the FOMC had began discussing rate cuts.
Volume was heavy at both the NYSE and Nasdaq due in part to some added maneuvering ahead of tomorrow's huge quarterly options and futures expiration. The increased participation was also driven by a fear of missing out on further gains in this seasonally strong period for the market.
The rally continued for the Treasury market today also. The 2-yr note yield fell six basis points today to 4.40% and the 10-yr note yield declined nine basis points to 3.93%, which acted as support for stocks.
- Nasdaq Composite: +41.0%
- S&P 500: +22.9%
- Dow Jones industrial Average: +12.4%
- S&P Midcap 400: +14.0%
- Russell 2000: +13.6%
Reviewing today's economic data:
- Weekly Initial Claims 202K (Briefing.com consensus 222K); Prior was revised to 221K from 220K; Weekly Continuing Claims 1.876 mln; Prior was revised to 1.856 mln from 1.861 mln
- The key takeaway from the report is that the level of initial jobless claims -- a leading indicator -- is a long way still from being associated with levels registered during a recession.
- November Retail Sales 0.3% (Briefing.com consensus -0.1%); Prior was revised to -0.2% from -0.1%; November Retail Sales ex-auto 0.2% (Briefing.com consensus 0.0%); Prior was revised to 0.0% from 0.1%
- The key takeaway from the report is that it remains supportive of a soft landing outlook, as the rebound in sales from October reflects an ongoing propensity of consumers to spend on goods.
- November Export Prices -0.9%; Prior was revised to -0.9% from -1.1%
- November Export Prices ex-ag. -1.0%; Prior -1.0%
- November Import Prices -0.4%; Prior was revised to -0.6% from -0.8%
- November Import Prices ex-oil 0.2%; Prior -0.2%
- October Business Inventories -0.1% (Briefing.com consensus 0.1%); Prior was revised to 0.2% from 0.4%
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 a.m. ET: December Empire State Manufacturing (Briefing.com consensus 3.0; prior 9.1)
- 9:15 a.m. ET: November Industrial Production (Briefing.com consensus 0.2%; prior -0.6%) and Capacity Utilization (Briefing.com consensus 79.1%; prior 78.9%)
- 9:45 a.m. ET: December Preliminary S&P Global US Manufacturing PMI (prior 49.4) and S&P Global US Services PMI (prior 50.8)
- 4:00 p.m. ET: October Net Long-Term TIC Flows (prior -$1.7 billion)
Treasury yields decline; Economic calendar on Friday
14-Dec-23 15:30 ET
Dow +127.56 at 37217.80, Nasdaq +16.12 at 14750.08, S&P +9.78 at 4716.87
[BRIEFING.COM] The Nasdaq Composite is up 0.1%; the S&P 500 is up 0.2%; and the Dow Jones Industrial Average is up 0.3%.
The 2-yr note yield fell six basis points today to 4.40% and the 10-yr note yield declined nine basis points to 3.93%.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 a.m. ET: December Empire State Manufacturing (Briefing.com consensus 3.0; prior 9.1)
- 9:15 a.m. ET: November Industrial Production (Briefing.com consensus 0.2%; prior -0.6%) and Capacity Utilization (Briefing.com consensus 79.1%; prior 78.9%)
- 9:45 a.m. ET: December Preliminary S&P Global US Manufacturing PMI (prior 49.4) and S&P Global US Services PMI (prior 50.8)
- 4:00 p.m. ET: October Net Long-Term TIC Flows (prior -$1.7 billion)
Energy complex climbs, boosted in part by weaker dollar
14-Dec-23 15:05 ET
Dow +105.33 at 37195.57, Nasdaq +10.52 at 14744.48, S&P +8.50 at 4715.59
[BRIEFING.COM] Stock continues to climb after the sharp dip recently.
Energy complex futures settled higher, thanks in part to a weaker dollar. WTI crude oil futures climbed 3.1% to $71.61/bbl and natural gas futures rose 2.1% to $2.39/mmbtu. On a related note, the energy sector is trading up 2.8%, sporting the largest gain among S&P 500 sectors.
The US Dollar Index is down 0.9% to 101.97.
Solar stocks outperform on Thursday in S&P 500
14-Dec-23 14:30 ET
Dow +81.49 at 37171.73, Nasdaq -8.68 at 14725.28, S&P +6.29 at 4713.38
[BRIEFING.COM] The S&P 500 (+0.13%) has climbed out of the red in recent trading, now holding gains of about 6 points.
Elsewhere, S&P 500 constituents SolarEdge Technologies (SEDG 94.64, +12.03, +14.56%), Mohawk (MHK 107.67, +10.09, +10.34%), and Align Tech (ALGN 254.96, +23.60, +10.20%) pepper the top of the standings. SEDG and solar peers enjoy solid gains on the back of a positive sentiment shift toward rate cuts owing to yesterday's Fed policy directive, while ALGN finds seven-week highs following news last night that Health Canada issued an updated medical device license to Align for its Invisalign Palatal Expander System.
Meanwhile, insurance firm Arthur J. Gallagher (AJG 226.47, -18.74, -7.64%) underperforms, weakness extending following yesterday's investor meeting.
Gold rallies behind Fed's rate cut signals
14-Dec-23 14:00 ET
Dow +4.36 at 37094.60, Nasdaq -70.15 at 14663.81, S&P -6.12 at 4700.97
[BRIEFING.COM] With about two hours to go on Thursday the tech-heavy Nasdaq Composite (-0.48%) is today's top laggard, down about 70 points now.
Gold futures settled $47.60 higher (+2.4%) to $2,044.90/oz, propped up by yesterday's policy directive from the Fed wherein the Committee signaled it would cut rates three times next year.
Meanwhile, the U.S. Dollar Index is down about -0.9% to $101.98.
Page One
Last Updated: 14-Dec-23 09:06 ET | Archive
Surprise! Surprise! Surprise!
As Jim Nabors, playing the character of Gomer Pyle, would say: "Surprise, surprise, surprise!" The FOMC and Fed Chair Powell did it. They surprised the market yesterday -- and pleasantly so -- with a dovish-looking pivot that featured a median estimate for a third rate cut in 2024 (versus two previously) and an acknowledgment by Mr. Powell that the FOMC discussed when it would be appropriate to dial back the amount of policy restraint in place.
It wasn't that long ago that Mr. Powell said the Fed is not even thinking about cutting rates. In fact, he said that after the November 1 FOMC meeting, so, "Surprise!"
This acknowledgment was the primary catalyst for the rally that ensued in both the stock market and Treasury market. It was nice to see that the Fed was looking for an additional rate cut in 2024 than it had been previously, but the fed funds futures market had already been pricing in at least four rate cuts in 2024 before the FOMC announcement and release of the Summary of Economic Projections.
Remarkably, the fed funds futures market is now pricing in six rate cuts in 2024. "Surprise!"
That could be a bridge too far, but the market has never been shy about getting ahead of itself. The Treasury market is certainly relishing the notion of multiple rate cuts and inflation moving back toward the 2.0% target.
The 2-yr note yield, at 5.21% in late October, hit 4.29% overnight, but has moved back to 4.37% following this morning's economic data (more on that in just a bit). The 10-yr note yield, at 5.02% in late October, saw 3.93% overnight and is at 3.97% now.
Clearly, the momentum trade and short-covering activity isn't just for stocks, which saw the Dow Jones Industrial Average close at a record high yesterday. There is a yield grab taking place right now in the Treasury market, meaning participants are looking to grab yield while they can, as yesterday's pivot by the Fed has fostered a sense that the prevailing trend for Treasury yields is going to be lower from then and now.
A lot can happen in the interim to change that thinking, but it is the thinking today and it has been supported by the ECB, the Bank of England, the Swiss National Bank, and the Hong Kong Monetary Authority leaving their key policy rates unchanged, fueling some added hope that they, too, will be entertaining a series of rate cuts in 2024.
Accordingly, sovereign bond yields overnight followed the lead set for them by Treasuries, aiding the risk-on trading that has benefited equities.
Currently, the S&P 500 futures are up 26 points and are trading 0.6% above fair value, the Nasdaq 100 futures are up 73 points and are trading 0.4% above fair value, and the Dow Jones industrial Average futures are up 197 points and are trading 0.6% above fair value.
The uplift has been supported by some otherwise pleasing economic data out of the U.S.
Total retail sales increased 0.3% month-over-month in November (Briefing.com consensus -0.1%) while retail sales, excluding autos, increased 0.2% month-over-month (Briefing.com consensus 0.0%).
The key takeaway from the report is that it remains supportive of a soft landing outlook, as the rebound in sales from October reflects an ongoing propensity of consumers to spend on goods.
Initial jobless claims for the week ending December 9 decreased by 19,000 to 202,000 (Briefing.com consensus 222,000). Continuing jobless claims for the week ending December 2 increased by 20,000 to 1.876 million.
The key takeaway from the report is that the level of initial jobless claims -- a leading indicator -- is a long way still from being associated with levels registered during a recession.
Finally, nonfuel import prices increased 0.2% month-over-month but were down 0.4% year-over-year. Non-agricultural export prices were down 1.0% month-over-month and down 4.5% year-over-year.
The key takeaway from the report is that it supports the notion that inflation pressures -- and inflation expectations -- should be moderating.
Whether this equity market rally chooses to retrench at some point today remains to be seen. To be sure, based on how the market has behaved since late October, it would be a "Surprise!" if it did.
-- Patrick J. O'Hare, Briefing.com
Moderna's post-COVID aspirations receive shot in the arm with positive data for melanoma drug (MRNA)
As sales of its COVID-19 vaccine have tapered off from the meteoric heights seen during the pandemic, sending its shares into a two-year tailspin, uncertainty has swirled over Moderna (MRNA) as investors questioned whether the company was a one hit wonder or whether it was just starting to tap into its potential. This morning, a little more clarity on that question materialized after MRNA and its development partner Merck (MRK) announced promising data on mRNA-4157, the companies' investigational treatment for melanoma patients who have had the cancer surgically removed.
- Data from the Phase 2b study showed that mRNA-4157 in combination with MRK's KEYTRUDA reduced the risk of recurrence or death by 49% compared to when KEYTRUDA is taken alone.
- The results, which were analyzed after a three-year period, are similar to the two-year findings that MRNA reported last December. At that time, MRNA and MRK reported that mRNA-4157 had met its primary endpoint as the risk of death or recurrence was 44% lower among patients who received the combined treatment versus those who received KETRUDA alone.
- The positive efficacy results represent a significant step forward for MRNA's messenger RNA-based technology, which was the basis of its COVID-19 vaccine and is the foundation of other respiratory vaccines in its pipeline, including for RSV.
- While there is plenty of enthusiasm surrounding the RSV vaccine -- MRNA has projected respiratory vaccine revenue of $8-$15 bln in 2027 -- the possibility of breaking into the oncology treatment space could be a game changer.
- In addition to utilizing mRNA-based technology, what's unique and interesting about mRNA-4157 is that it's a personalized treatment. What that means is that the treatment uses the specific genetic profile of a patient's tumor and guides the patient's T-cells to attack their cancerous cells.
- Assuming the studies continue to yield positive results, a launch could come relatively quickly. CEO Stephane Bancel expects a Phase 3 trial to be fully enrolled in 2H24 and said that an accelerated launch of the treatment could come as soon as 2025.
- In the meantime, FY24 figures to be another difficult year for MRNA with sales of its COVID-19 vaccine continuing to erode. When the company reported Q3 results on November 2, it guided for FY24 revenue of at least $4.0 bln, representing a potential yr/yr decline of over 35%, depending on how 4Q23 revenue shakes out. However, it's looking increasingly likely that 2024 will be a low point for MRNA with its RSV vaccine expected to launch late next year, followed by a possible conditional launch of mRNA-4157 in 2025.
The main takeaway is that the encouraging data for mRNA-4157 is an important steppingstone in the company's mission to capitalize on its pipeline as it attempts to launch fifteen new treatments over the next five years.
Jabil bounces back after initial selling pressure following Q1 results today (JBL)
After backpedaling immediately following decent Q1 (Nov) results today, Jabil (JBL +6%) shares quickly bounced back, currently sustaining strength above their flatline. Jabil's Q1 report was not overly impressive, eking out earnings and sales beats and reiterating its previously sliced FY24 (Aug) outlook. However, economic conditions do not appear to be deteriorating, a concern investors have held since Jabil grounded expectations late last month by cutting its FY24 guidance due to softening demand from short-term inventory corrections. Management stayed firm on the reasoning behind its updated outlook today, believing inventory adjustments to be temporary.
Jabil has a prominent customer base, providing services for several tech titans, including Apple (AAPL), its largest customer at 17% of FY23 revenue, NVIDIA (NVDA), where it manufactures its adapter card and switch system products, and Amazon (AMZN), through offering sellers packaging design and manufacturing services. As such, its reduced outlook last month signaled a broader slowdown in end-customer demand across the tech industry, a development several of its electronics manufacturing services (EMS) peers warned about before Jabil lowered its forecasts. For example, Flex (FLEX) mentioned softening comps heading into 2024 in late October, and Sanmina (SANM) touched on an ongoing customer inventory adjustment headwind in early November.
Therefore, while Jabil endured meaningful selling pressure following reduced financial targets last month, shares still held well above levels before the company's upbeat Q4 (Aug) report in late September. Today's steadily climbing stock price continues to underscore general investor optimism as Jabil enters 2024 with customer inventory adjustments progressing as expected.
- The inventory corrections were clearly visible in Q1. Jabil's revenue fell 13% yr/yr to $8.39 bln, its widest quarterly drop in years. Diversified Manufacturing Services (DMS) held up better than Electronics Manufacturing Services (EMS), falling 6% to $4.8 bln versus a 21% drop to $3.6 bln. Weaknesses branched from connected devices, 5G, networking, and digital print. Conversely, automotive and healthcare end markets exhibited relative strength.
- Operating margins were a silver lining in the quarter, expanding by 50 bps yr/yr to 5.3%, fueling a 13% bump in adjusted EPS yr/yr to $2.60. Again, DMS was the underlying factor, growing its operating margins by 180 bps yr/yr. Meanwhile, EMS still squeaked out some margin expansion, up 30 bps.
- Looking ahead, Jabil continues to expect adjusted EPS of $9.00 and revs of $31.0 bln in FY24. The company also remains committed to delivering adjusted free cash flow above $1.0 bln this year.
While end market demand has wavered in recent months, Jabil's Q1 results and reaffirmed FY24 targets show that the situation is progressing in line with internal expectations. Jabil anticipates the next couple of quarters to continue enduring inventory corrections, with a less challenging market in the back half of FY24.
Adobe wraps up FY23 on a strong note, but guidance as FY24 gets underway weighs on shares (ADBE)
Adobe (ADBE -6%) is trading lower today despite reporting a strong Q4 (Nov) result last night. This digital document giant has now posted five consecutive double digit EPS beats following four small beats, so that is a good trend. Adobe also posted decent revenue upside. Notably, the company posted its first-ever $5 bln quarter. The guidance was more of a problem as Adobe guided revs below expectations for both Q1 (Feb) and FY24. It did provide upside EPS guidance for Q1, but the mid-point of FY24 EPS guidance was below expectations.
- Its Digital Media segment performed well with revenue rising 13% yr/yr (+14% CC) to $3.72 bln, which was nicely above prior guidance of $3.67-3.70 bln. DM is by far Adobe's larger segment, so people watch it closely. Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE segment revenue grew 10% yr/yr (+11% CC) to $1.27 bln, which was at the high end of its $1.25-1.27 bln prior guidance.
- Adobe says global demand for content is accelerating and continues to be a tailwind for the business. Creative Cloud remains the creativity platform of choice for creators across imaging, photography, design, video, web, animation and 3D. Q4 was a record quarter for Creative Cloud, achieving $3 bln in revenue. Adobe is particularly excited about Firefly, its family of creative generative AI models. Results were helped by the release of three new Firefly models.
- On the Document Cloud side, Adobe says it's a leader in digital documents, powering all common document actions including editing, sharing, reviewing, scanning and signing. Business highlights include Acrobat Web growth, with monthly active users up 70+% yr/yr. Adobe is also seeing strong demand for Acrobat on mobile, with MAU surpassing 100 mln users in Q4.
- In terms of its pending Figma acquisition, which is used by millions of mobile and web developers, the US DOJ and the EU has been scrutinizing the deal based on anti-competitive concerns. Adobe remains excited about the strategic opportunity with Figma. Unfortunately, the EC has provided a preliminary statement of objections, and the CMA has issued provisional findings of competition concerns. Adobe strongly disagrees and is responding. Adobe expects a DOJ decision soon.
Overall, this was another very good quarter for Adobe. However, the lackluster guidance as FY24 gets underway is weighing on the stock today. In particular, the revenue guidance for Q1 was a letdown. Adobe typically guides in-line for revs for the next quarter, so even modest downside is spooking investors a bit. We also think the Figma deal update is also weighing on shares. There appear to be some hurdles on the regulatory review front. Also, we think maybe investors are using this report to lock in some profits given the recent run in the share price (+80% since mid-May).
Southwest Air grounded as profit-taking and lack of updated EPS guidance create headwinds (LUV)
After soaring higher by about 35% since the beginning of November, Southwest Air (LUV) is losing some altitude today after issuing a 4Q23 update that was mostly positive and reflected a surge in travel demand over the Thanksgiving holiday period. Most notably, the airline said that it expects unit revenue, or Revenue per Available Seat Mile (RASM), to come in at -9% to -10% versus its prior guidance range of -9% to -11%.
The question, then, is why isn't LUV rallying on this bullish update? We believe there are two main reasons.
- First, it's well-known that demand for the Thanksgiving holiday period and for the upcoming Christmas and New Years holiday periods is very strong. On December 6, Delta Air Lines (DAL) reaffirmed its Q4 EPS guidance with the airline citing record revenue for the Thanksgiving period. That good news was followed by JetBlue Airways (JBLU) raising its Q4 revenue and EPS guidance on December 7 as slightly lower-than-expected fuel costs added another element to the brighter outlook.
- As noted above, shares of LUV have rallied over the past several weeks, pricing in this upswing in demand. Therefore, we are seeing a sell-the-news reaction today as investors lock in recent gains.
- Second, unlike JBLU, LUV did not raise its Q4 EPS guidance. In fact, the company surprisingly increased its fuel cost estimate to $3.00-$3.10 per gallon from $2.90-$3.00 per gallon, which is a modest headwind to its expected Q4 earnings. Importantly, LUV reiterated its CASM-X forecast of -16% to -19% and its capacity, or Available Seat Mile (ASM), guidance of +21%.
- On the topic of capacity, LUV kept its 2024 expectations of an increase of 10-12% intact, but it lowered its annual targets beyond 2024, seeing low-to-mid single digit growth compared to its prior estimate mid-single-digit growth. Given the concerns regarding rising capacity across the airline industry, and the negative impact it has on airfare prices, LUV's intention to pull back a bit on adding capacity should come as a mild relief.
The main takeaway is that while LUV joined its competitors in benefitting from this surge in holiday-related travel, that was widely expected and baked into the stock already. That allowed market participants to focus on the fact that the company didn't lift its earnings guidance as JBLU did before it.
ABM Industries pops to one-year highs following better-than-feared Q4 results (ABM)
ABM Industries (ABM +13%), a provider of facility services, including janitorial, parking, HVAC, and landscaping, is scooping up phenomenal gains today, gapping to one-year highs following better-than-feared Q4 (Oct) results. Ahead of ABM's report, the market was cautious, evidenced by shares remaining relatively flat on the year. A depressed commercial property market as the hybrid work model remains prevalent has led to intense headwinds for ABM. The company was coming off its first earnings miss in over two years last quarter, contributing to its slashed FY23 EPS guidance. ABM also initiated adjustments to its cost structure in Q3 (Jul) to better steer through a challenging demand environment, which it predicted would remain soft throughout 2024.
Therefore, by returning to delivering earnings upside in Q4 as well as projecting FY24 EPS of $3.20-3.40, consistent with analyst forecasts, ABM is rapidly alleviating previously elevated concerns. The company also announced an additional $150 mln for share buybacks.
- During Q4, ABM grew revs by 4.4% yr/yr to $2.1 bln, providing a decent lift to its bottom line, which expanded by 13.5% to $1.01. While growth was broad-based, it was not evenly distributed.
- Business & Industry, ABM's largest segment by far at 50% of total revs, grew sales at the slowest pace at 0.4% yr/yr to $1.03 bln. Management commented that office density rates remained somewhat static during the quarter, with commercial office vacancies near 20%. These factors directly hurt demand for the company's janitorial services. However, even though hybrid work looks to be the new norm following the pandemic, ABM anticipates a gradual increase in employees' time at the office over the next couple of years.
- Each of ABM's other segments enjoyed solid growth in Q4. Manufacturing & Distribution experienced a 5.4% bump to $391.2 mln, benefiting from e-commerce and logistics clients, while onshoring of manufacturing continued to provide a tailwind. Education expanded by 5.8% to $229.8 mln driven by 100% in-class learning. Technical Solutions grew by 6.2% to $190.8 mln comprised of an even split between the closeout of several legacy projects and M&A activity.
- A notable standout was Aviation, which soared by nearly 16% to $248.2 mln, reflecting sustained strength within the leisure and business travel markets, including international travel. ABM does not anticipate Aviation to let up on the gas in 2024 either, projecting another solid year ahead despite lapping more formidable yr/yr comparisons.
- Speaking of which, ABM expects decent growth across all its segments outside of Business & Industry, which may remain muted due to 2024 office lease expirations which could shift clients toward smaller office footprints.
It has been a tricky year for ABM as remote work has weighed on its most critical businesses. However, even though 2024 is not shaping up to be a quick bounce to pre-pandemic activity, at least not within its Business & Industry division, it looks like a solid growth year for ABM, providing plenty of room for continued upside.
|
