Market Snapshot
briefing.com
| Dow | 37557.98 | +251.96 | (0.68%) | | Nasdaq | 15002.84 | +98.03 | (0.66%) | | SP 500 | 4768.37 | +27.81 | (0.59%) | | 10-yr Note | +2/32 | 3.92 |
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| | NYSE | Adv 2275 | Dec 541 | Vol 1.0 bln | | Nasdaq | Adv 3188 | Dec 1164 | Vol 5.7 bln |
Industry Watch
| Strong: Materials, Consumer Discretionary, Communication Services, Industrials, Real Estate, Energy |
| | Weak: -- |
Moving the Market
-- Drop in market rates, helped by interest rate differential trade as Bank of Japan holds policy rate unchanged at -0.10% and sticks with negative interest rate policy
-- Continued momentum
-- Relative softness in some mega cap stocks limiting index performance
-- Seasonality and a fear of missing out on further gains |
Closing Summary
19-Dec-23 16:25 ET
Dow +251.96 at 37557.98, Nasdaq +98.03 at 15002.84, S&P +27.81 at 4768.37
[BRIEFING.COM] Stocks built on gains today. The Dow Jones Industrial Average closed at a fresh record high and the S&P 500 closed just 0.6% below its prior record closing high of 4,796.56. The A-D line favored advancers by a better than 4-to-1 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq.
Small cap stocks outperformed the broader market, reflecting an increase in speculative trading in the absence of concerted selling activity. The Russell 2000 closed with a 1.9% gain while the three major indices logged gains ranging from 0.6% to 0.7%.
The positive bias was support in part by seasonality and a fear of missing out on further gains, along with a drop in market rates. The 2-yr note yield fell one basis point to 4.45% and the 10-yr note yield fell four basis points to 3.92%.
Factors that drove price action in the Treasury market included the Bank of Japan's decision to leave its policy rate unchanged at -0.10% and to stick with a negative interest rate policy, a report showing housing starts were much stronger than expected in November, an upward revision to the Atlanta Fed GDPNow model estimate for Q4 real GDP growth to 2.7% from 2.6%, and Atlanta Fed President Bostic (2024 FOMC voter) telling listeners at an event in Atlanta that he does not see an urgency to cut rates in 2024, according to Bloomberg.
Broad based gains had all 11 S&P 500 sectors close in positive territory. The consumer staples (+0.2%) and information technology (+0.2%) sectors showed the slimmest gains while the energy sector (+1.2%) led the pack, responding to rising oil prices. WTI crude oil futures climbed another 1.6% today to $74.01/bbl.
- Nasdaq Composite: +43.4%
- S&P 500: +24.2%
- Russell 2000: +14.8%
- S&P Midcap 400: +14.6%
- Dow Jones industrial Average: +13.3%
Reviewing today's economic data:
- November Building Permits 1.460 mln (Briefing.com consensus 1.460 mln); Prior was revised to 1.498 mln from 1.487 mln; November Housing Starts 1.560 mln (Briefing.com consensus 1.360 mln); Prior was revised to 1.359 mln from 1.372 mln
- The key takeaway from the report is that single-unit activity was on the plus side, up a robust 18.0% for starts and up a more modest 0.7% for permits. Those are welcome indications for a housing market constrained by a low inventory of existing homes for sale.
Looking ahead, Wednesday's economic calendar features:
- 07:00 ET: MBA Mortgage Applications Index (Prior 7.4%)
- 08:30 ET: Q3 Current Account Balance (Briefing.com consensus -$201.0B; Prior -$212.1B)
- 10:00 ET: November Existing Home Sales (Briefing.com consensus 3.80M; Prior 3.79M)
- 10:00 ET: December Consumer Confidence (Briefing.com consensus 104.0; Prior 102.0)
- 10:30 ET: EIA Crude Oil inventories (Prior -4.26M)
- 13:00 ET: $13 billion 20-yr bond reopening
Treasuries settle with gains; Wednesday's economic calendar
19-Dec-23 15:35 ET
Dow +190.51 at 37496.53, Nasdaq +77.44 at 14982.25, S&P +21.03 at 4761.59
[BRIEFING.COM] Stocks are hanging out near session highs ahead of the close.
The 2-yr note yield fell one basis point to 4.45% and the 10-yr note yield fell four basis points to 3.92%.
Looking ahead, Wednesday's economic calendar features:
- 07:00 ET: MBA Mortgage Applications Index (Prior 7.4%)
- 08:30 ET: Q3 Current Account Balance (Briefing.com consensus -$201.0B; Prior -$212.1B)
- 10:00 ET: November Existing Home Sales (Briefing.com consensus 3.80M; Prior 3.79M)
- 10:00 ET: December Consumer Confidence (Briefing.com consensus 104.0; Prior 102.0)
- 10:30 ET: EIA Crude Oil inventories (Prior -4.26M)
- 13:00 ET: $13 billion 20-yr bond reopening
FDX trades down ahead of earnings
19-Dec-23 15:00 ET
Dow +197.31 at 37503.33, Nasdaq +74.56 at 14979.37, S&P +21.65 at 4762.21
[BRIEFING.COM] The S&P 500 (+0.4%), Nasdaq Composite (+0.5%), and Dow Jones Industrial Average (+0.5%) remain near their best levels of the day.
WTI crude oil futures climbed another 1.6% to $74.01/bbl and natural gas futures settled unchanged at $2.50/mmbtu.
Separately, FedEx (FDX 281.58, -0.31, -0.1%) sports a modest decline ahead of its earnings report after the close.
Enphase higher on workforce reduction news; S&P 500 lags (relatively)
19-Dec-23 14:25 ET
Dow +199.24 at 37505.26, Nasdaq +71.64 at 14976.45, S&P +20.91 at 4761.47
[BRIEFING.COM] The S&P 500 (+0.44%) is in last place on Tuesday afternoon, hovering near HoDs, as more stepped-up gains are had elsewhere.
Elsewhere, S&P 500 constituents Enphase Energy (ENPH 133.81, +9.78, +7.89%), Catalent (CTLT 44.38, +2.49, +5.94%), and Illumina (ILMN 136.93, +7.83, +6.07%) dot the top of the standings. ENPH last night announced a 10% reduction to its workforce, while health care-related stocks like CTLT and ILMN push to multi-month highs.
Meanwhile, EQT Corp. (EQT 38.34, -0.57, -1.46%) is near the bottom of the S&P as shares have failed to follow nat gas higher on Tuesday afternoon with shares toying with the 200-day SMA (38.32).
Gold finds modest gains on Tuesday
19-Dec-23 14:00 ET
Dow +204.90 at 37510.92, Nasdaq +65.20 at 14970.01, S&P +20.48 at 4761.04
[BRIEFING.COM] With about two hours remaining on Tuesday the tech-heavy Nasdaq Composite (+0.44%) is narrowly in second place, up about 65 points.
Gold futures settled $11.60 higher (+0.6%) to $2,052.10/oz, helped on by weakness in yields and the dollar.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $102.17.
Page One
Last Updated: 19-Dec-23 09:04 ET | Archive
Steam engine keeps chugging along
Would it surprise anyone to learn that there is a positive bias in the equity futures market? It shouldn't at this point considering the S&P 500 has soared 15.5% from its low on October 27 while the Nasdaq Composite, Dow Jones Industrial Average, and Russell 2000 have surged 18.8%, 15.4%, and 21.4%, respectively, from their October lows.
That is a full head of buying steam in those results, and while things have slowed a bit in more recent sessions, the tide of momentum has not turned in any decisive way at all.
Currently, the S&P 500 futures are up seven points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 16 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are up 59 points and are trading 0.2% above fair value.
The steam engine has been fueled by diving market rates, rising rate-cut expectations, and a steady view that the economy will enjoy a soft landing in spite of the Fed's prior rate hikes.
Some catalytic trading elements have included short-covering activity, seasonality, repositioning from underweight exposure to equities, and a fear of missing out on further gains.
No matter the cause, the run since late October has been truly extraordinary and yet another reminder that trying to time the market is the most challenging of undertakings.
The bid this morning isn't a robust one, but once again, the key consideration after the run the stock market has had is that the move to sell is even less pronounced.
Some support factors include a drop in the 10-yr note yield to 3.90%, some stronger-than-expected housing data for November, modest gains in most of the mega-cap stocks, and plain old momentum.
The Bank of Japan (BOJ) has had a hand in pushing rates lower. It effectively encouraged an interest rate differential trade with a unanimous vote to leave its policy rate unchanged at -0.10%. The BOJ also indicated it will be sticking with its negative interest rate policy. The yen has weakened sharply against the dollar in response. USD/JPY +1.1% to 144.29, having traded as high as 144.96 earlier.
Separately, one could make the case that the housing starts and building permits data for November supported the soft landing view (or maybe no landing view).
Total housing starts increased 14.8% month-over-month to a seasonally adjusted annual rate of 1.560 million units (Briefing.com consensus 1.360 million) while building permits decreased 2.5% month-over-month to a seasonally adjusted annual rate of 1.460 million, as expected.
The key takeaway from the report is that single-unit activity was on the plus side, up a robust 18.0% for starts and up a more modest 0.7% for permits. Those are welcome indications for a housing market constrained by a low inventory of existing homes for sale.
There was some knee-jerk selling in the Treasury market following the report, but that inclination has settled down.
A question on the mind of many market participants is, where will the S&P 500 settle 2023? It closed yesterday at 4,740.56, leaving it within striking distance of its prior record-high close of 4,796.56 seen on January 3, 2022.
-- Patrick J. O'Hare, Briefing.com
Affirm's remarkable comeback hits higher gear with expanded Walmart partnership (AFRM)
Looking back to the beginning of 2023, it was dark times for buy now, pay later (BNPL) company Affirm (AFRM) as its stock hovered around all-time lows after crashing by 95% from its November 2021 highs. What a difference a year makes, though, as its stock continues its remarkable comeback amid a much more favorable business climate and a steady flow of bullish developments. This morning, AFRM added to the positive news trend, announcing that it has expanded its partnership with Walmart (WMT), which will now provide AFRM's buy now, pay later services at its checkout kiosks at over 4,500 stores.
The news is fueling a huge rally in the stock today, but upward momentum was already building over the past several weeks. Prior to today's skyrocket move higher, AFRM had gained over 150% since the beginning of November.
- From a macro-standpoint, the easing of interest rates has helped swing sentiment into a more bullish fashion. Not only do lower rates support strong loan growth, but they also reduce delinquency risks and lower AFRM's own borrowing costs.
- Additionally, with finances strained for many consumers, demand for BNPL services has jumped this holiday shopping season. A report published by Adobe Analytics showed that the number of shoppers using a BNPL service surged by 42.5% yr/yr on Cyber Monday. Considering that AFRM is by far the market leader in BNPL, it's clear that this upswing this holiday shopping season is providing it with a major boost.
A few company-specific items have also helped to turn the tables around for AFRM.
- On November 8, the company posted better-than-expected Q1 results that featured accelerating gross merchandise volume (GMV) growth of 28%. Notably, bigger-ticket categories like personal electronics, home & lifestyle, and sporting goods showed improvement after a few rough quarters.
- About a week before its upside earnings report, Amazon (AMZN) confirmed that it expanded its relationship with AFRM to include small businesses. AFRM's installment loans were already available to AMZN's retail customers, but now the millions of sole proprietors and small business owners on AMZN will have access to them. With over $30 bln in annual sales, Amazon Business is huge and represents a significant win for AFRM.
AFRM's expanded partnership with WMT (it's BNPL products were already available on Walmart's website) further distances itself from a field that has become more competitive. BNPL is becoming increasingly popular because the loans have set terms with no late fees or compound interest and AFRM is well-positioned to capitalize with partnerships in place with two of the largest retailers in the country.
Alphabet's litigation woes growing, but investors mostly shrugging it off for now (GOOG)
For the second time in a week, Google parent Alphabet (GOOG) is in the headlines for a negative litigation event as the tech giant agreed to pay $700 mln to resolve an antitrust case against its Google Play platform. The settlement comes on the heels of a landmark victory for Fortnite maker Epic Games, which sued GOOG for anticompetitive practices related to the fees that GOOG charges app developers to access Google Play.
- Interestingly, Epic Games rejected the $700 mln settlement that was made public today but was actually reached in September, believing that the agreement didn't go far enough to rein in GOOG's anticompetitive position against developers. Despite losing a similar case against Apple (AAPL) in 2021, Epic Games forged ahead with its own lawsuit against GOOG. This time, though, a jury provided the verdict, rather than a single judge as was the case in the AAPL litigation.
- GOOG has vowed to appeal the decision, but if it's unsuccessful, the loss to Epic Games could have even more significant implications than the $700 mln settlement that was disclosed today. If the judge in the Epic Games comes down hard on GOOG, the company could be forced to make even greater changes to its Play Store.
- As it currently stands, GOOG will now allow developers to use an alternative billing system to charge uses, but the fees for that billing system are only about 4% less than GOOG's standard fees.
- Investors don't seem overly concerned, though, about these developments. The primary reason why is that Google Play makes up a tiny amount of the company's overall revenue. In Q3, total revenue for GOOG's Other Bets segment, which includes Play, declined by 35% yr/yr to $288 mln, representing less than 4% of its total revenue.
- In comparison, Google advertising accounted for over 80% of total revenue in Q3 at $54.7 bln. A major threat to this business would have a profound impact on GOOG's stock, and there is indeed a potential danger on the horizon.
- Three years ago, The Justice Department and a group of states sued GOOG, claiming that the company -- with a market share of approximately 90% in search -- has an online advertising monopoly and is restricting competition. That case, which went to trial this past September, alleges that GOOG illegally pays mobile phone companies such as AAPL, Samsung (SSNLF), and Verizon (VZ) to make its search engine the default option on devices.
- Like the Epic Games vs. Apple case, the verdict in this case will be decided by a single judge (U.S. District Judge Amit Mehta), who could enforce new constraints on how GOOG partners up with other large tech companies.
The main takeaway is that while these litigation developments are generating plenty of negative headlines for GOOG, they don't have a significant effect on the company's financials or fundamentals -- at least, not yet. That could change depending on how the case against its advertising business plays out, but for the time being, market participants are shrugging off the court losses and are focusing instead on GOOG's growing AI aspirations.
Accenture presses pause on bearish Q2 revenue forecast; 2024 still filled with opportunities (ACN)
Following one-year highs last week, IT consulting firm Accenture (ACN) shares are pressing pause today on lighter-than-expected Q2 (Feb) revenue guidance. Lower discretionary spending, which particularly impacts consulting work, and slower decision-making remained headwinds in Q1 (Nov). While ACN delivered top and bottom-line beats in the quarter despite these challenges, its immediate-term outlook was not as fortunate, projecting Q2 revs of $15.4-16.0 bln, an approximately 1% drop yr/yr at the midpoint, the first quarterly sales decline for ACN since the pandemic.
Nevertheless, ACN reiterated its FY24 (Aug) projections, underscoring how quickly the worst of its woes will resolve. The company continues to expect EPS of $11.97-12.23 and revenue growth of +2-5% in FY24. This positive development and ACN's upbeat headline numbers might have been sufficient in maintaining upward momentum if it were not for shares likely overextending themselves leading into the company's Q1 report. The stock climbed +17% from October lows, recently boasting six straight green days until yesterday's minor profit-taking snapped the streak. Still, today's move is modest in scope, highlighting a general enthusiasm surrounding ACN ahead of the new year.
- This enthusiasm likely boils down to AI. Management has repeated that 2023 was a year of generative AI experimentation, evidenced by deal sizes hovering around just $1.0 mln, a minor amount given ACN inks deals valued at over $100 mln. However, 2024 will center around ACN helping its clients scale their AI investments.
- AI demand also continues to accelerate; ACN enjoyed over $450 mln in Gen AI sales in Q1, outpacing the entirety of FY23. With under 10% of companies utilizing AI, according to ACN, the company is staring at massive potential over the long run.
- Meanwhile, even though ACN's Communications, Media & Technology (CMT) sector is disproportionately hurt by macroeconomic headwinds, realizing a 10% decline in sales yr/yr during Q1, the rest of its segments are expanding nicely. Health & Public Service was the star in the quarter, jumping by 13%. At the same time, Resources, Products, and Financial Services all exhibited growth at 7%, 4%,and 2%, respectively.
- ACN's diversification kept revs from turning negative in Q1, improving by 3% yr/yr to $16.22 bln. Furthermore, ACN remains on track with previously announced business optimizations to reduce structural costs. This assisted with a 20 bp bump in adjusted operating margins yr/yr in Q1, driving a 6% jump in adjusted EPS to $3.27.
The pace of spending remains negatively affected by macroeconomic conditions, especially across ACN's CMT segment and in the U.K., which endured greater-than-expected challenges in Q1. However, plenty of uplifting developments are ahead. ACN continues to see considerable demand for cloud migration, business modernization, and generative AI. ACN estimates that only 40% of enterprise workloads are in the cloud, of which just 20% are modernized, underscoring tremendous opportunities ahead. Given how light today's pullback is even after an impressive rally to one-year highs, the market is equally excited.
HEICO gets a high-five from investors on larger-than-usual upside quarter (HEI)
HEICO (HEI +1.3%) wrapped up FY23 on a good note with solid upside for its Q4 (Oct) report last night. This supplier of aircraft components beat handily on both EPS and revenue. The standout metric was revenue jumping 53.6% yr/yr to $936.45 mln, well ahead of analyst expectations. In fairness, HEICO recently closed on its largest-ever acquisition (Wencor, which closed August 4), so that helped to boost its Q4 results.
- The company reported record quarterly results in sales and operating income driven by record sales at both of operating segments. And it is not all from the Wencor boost, HEICO was able to report 12% organic sales growth, principally driven by continued strong demand for its commercial aerospace products and services.
- Its Flight Support Group segment, which sells jet engine and aircraft component replacement parts, saw sales increase 74% yr/yr to a record $601.7 mln in Q4, fueled by the Wencor acquisition as well as the strong organic growth of 20%. This segment benefitted mainly from increased demand for its commercial aerospace parts and services. The FSG segment has now achieved 13 consecutive quarters of growth in sales reflecting continued global commercial air travel growth.
- Its Electronic Technologies Group segment sells various types of electronic, data and microwave, and electro-optical products to military agencies, prime defense contractors and satellite/spacecraft manufacturers. Sales grew a robust 28% yr/yr to a record $342.5 mln, fueled by increased demand. Of note, ETG posted 26% sequential growth in defense product sales in Q4.
- HEICO does not provide guidance, but did provide some color on the FY24 outlook. The company expects sales growth in both segments, principally driven by contributions from its FY23 acquisitions and demand for the majority of its products. However, HEICO cautioned that continued inflationary pressures may lead to higher material and labor costs. Also, the company will continue to integrate Wencor.
Overall, this was a nice way for HEICO to wrap up FY23. This was its largest EPS upside quarter since 3Q20. The revenue upside was also much more robust than usual. In fairness, perhaps some analysts underestimated the tailwind that the Wencor acquisition would provide in Q4. Regardless, it is just more evidence that the commercial aerospace market continues to improve. Just look at Boeing (BA), which has seen its share price surge since late October.
Finally, it's worth noting that HEI has seen its stock recently break above its multi-month trading range in the $155-180 area. Just like Boeing and other aerospace names, it has made a strong move since late October. We think that is why we are not seeing an even stronger reaction to the robust Q4 results. It seems like a good result was already priced in. We also think this report bodes well for other aerospace suppliers as earnings season kicks off next month.
Masonite International opens the door to the M&A market with buyout of PGT Inc. (DOOR)
Masonite International (DOOR) opened the door to the M&A market this morning, announcing its intention to acquire impact-resistant frame window and door maker PGT Inc. (PGTI) in a cash-and-stock deal valued at $3.0 bln. The transaction amounts to $41/share with PGTI shareholders receiving $33.50 in cash and $7.50 in common stock of DOOR, which represents a fairly modest premium of about 14% over last Friday's closing price. However, PGTI had already doubled in price on a year-to-date basis and reached all-time highs last Thursday, leaving less room for DOOR to offer an attractive price that it would be comfortable with.
- Still, DOOR is selling off sharply in the wake of this news even though it's only paying about 8x next year's earnings for PGTI. The main issue is that the company is partly financing the deal with new debt and/or equity, negatively affecting its EPS. Furthermore, investors may be questioning the timing of making a big splash in the M&A market when the company already has plenty on its plate and is trying to turn its own business around.
- In each of the past two quarters, DOOR's revenue has declined on a yr/yr basis, following flat revenue in 1Q23. During its Q3 earnings call in early November, DOOR noted that rising mortgage rates were continuing to put pressure on its end markets. The company saw "considerably softer demand" in both the new construction and the repair and remodeling markets, causing EPS and revenue to fall by 19% and 3.5%, respectively.
- Perhaps market participants would feel a little more comfortable if DOOR's business was starting to turn a corner and it could completely focus its attention on integrating the acquisition. Overall, though, we do believe that PGTI is a good fit for DOOR from a strategic and financial standpoint.
- PGTI's heavy-duty aluminum and vinyl frames are made to withstand hurricane-force winds and will nicely complement DOOR's more traditional interior and exterior residential doors. While PGTI has also been impacted by higher mortgage rates, its business has been a little more resilient.
- Last quarter, sales in the southeast segment grew by 5% to a record of $303 mln with strength in new construction (+6%) and repair and remodeling (+5%).
- A broader, more diversified product portfolio is a key positive to this deal, but DOOR also expects to realize approximately $100 mln in annual synergies over the next several years due to a combination of cost-saving and sales growth opportunities.
- In particular, the company should experience more cross-selling opportunities as it sells to a larger, more diverse customer base. Importantly, the transaction is expected to be accretive to DOOR's EPS in the first full year of ownership and accelerate thereafter, despite the use of new equity and/or debt to finance it.
Although the idea of taking on more risk in an environment that's already very challenging isn't going over very well today, we do believe the acquisition could ultimately provide DOOR with a much-needed growth catalyst, especially if easing rates provide the business with a jumpstart.
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