Market Snapshot
| Dow | 42313.00 | +137.89 | (0.33%) | | Nasdaq | 18119.57 | -70.70 | (-0.39%) | | SP 500 | 5738.17 | -7.20 | (-0.13%) | | 10-yr Note |
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| | NYSE | Adv 1809 | Dec 988 | Vol 951 mln | | Nasdaq | Adv 2462 | Dec 1734 | Vol 5.38 bln |
Industry Watch
| Strong: Utilities, Communication Services, Energy, Industrials, Real Estate, Financials |
| | Weak: Information Technology, Materials |
Moving the Market
--Policy stimulus rally continues in China
--Pleasing PCE price data in August Personal Income and Spending Report
--Soft landing optimism
--Weak tech sector
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Closing Stock Market Summary
27-Sep-24 16:20 ET
Dow +137.89 at 42313.00, Nasdaq -70.70 at 18119.57, S&P -7.20 at 5738.17
[BRIEFING.COM] The stock market had some pep in its step to begin the day, aided by some pleasing economic data that featured a moderation in PCE price inflation and stronger than expected consumer sentiment. It was also still buzzing with the reverberations of China's surprise stimulus moves this week.
The major indices all started on a positive footing, but some slippage in the information technology sector (-1.0%) and some mega-cap stocks masked what was an otherwise healthy showing by the broader market.
The equal-weighted S&P 500 was up as much as 0.9% and at a new record high; the Russell 2000 was up as much as 1.5%; and 10 of the 11 S&P 500 sectors were in positive territory.
The opening momentum faded, however, as the session progressed without a clear-cut news catalyst. Some ostensible causes included a Bloomberg report that Israel had launched a major airstrike on Hezbollah headquarters in Beirut, a strengthening Japanese yen against the dollar (which upset things in early August), and a general sense that the market overall was short-term overextended given the remarkable rebound it has waged since early August.
Still, the fading momentum meant simply that most stocks pulled back from higher levels, not that there was any acute weakness -- at least not at the index level.
The sore thumb today was the information technology sector. Its underperformance was the difference in the losses registered by the Nasdaq Composite (-0.4%) and S&P 500 (-0.1%) versus the gains registered by the Dow Jones Industrial Average (+0.3%) and Russell 2000 (+0.7%). The equal-weighted S&P 500 closed 0.4% higher.
Even with today's 1.0% decline, the information technology sector ended the week 1.1% higher. In the same vein, the Philadelphia Semiconductor Index dropped 1.8% today but ended the week with a 4.3% gain.
The materials (-0.2%), consumer discretionary (-0.1%), health care (-0.04%), and consumer staples (-0.01%) posted negligible losses. The standout winners today were the energy (+2.1%) and utilities (+1.0%) sectors. The former was helped by rising energy prices, whereas the latter drafted off Treasury yields that moved lower in response to the PCE data and some geopolitical angst.
The 2-yr note yield fell six basis points to 3.56% and the 10-yr note yield declined four basis points to 3.75%. Pressured by the stronger yen, the U.S. Dollar Index slipped 0.1% to 100.43.
- Nasdaq Composite: +1.0% for the week / +20.7% YTD
- S&P 500: +0.6% for the week / +20.3% YTD
- Dow Jones Industrial Average: +0.6% for the week / +12.2% YTD
- S&P Midcap 400: +0.5% for the week / +12.1% YTD
- Russell 2000: -0.1% for the week / +9.7% YTD
Reviewing today's economic data:
- August Adv. Intl. Trade in Goods balance (actual -$94.3 bln; prior -$102.8 bln), Adv. Retail Inventories (actual 0.5%; prior 0.8%), and Adv. Wholesale Inventories (actual 0.2%; prior 0.3%).
- Personal income increased 0.2% month-over-month in August (Briefing.com consensus 0.4%) following a 0.3% increase in July. Personal spending increased 0.2% (Briefing.com consensus 0.3%) following a 0.5% increase in July. The PCE Price Index rose 0.1% month-over-month (Briefing.com consensus 0.1%) following a 0.2% increase in July. The core-PCE Price Index, which excludes food and energy, increased 0.1% (Briefing.com consensus 0.2%) following a 0.2% increase in July. On a year-over-year basis, the PCE Price Index was up 2.2%, versus 2.5% in July, while the core-PCE Price index was up 2.7%, versus 2.6% in July.
- The key takeaway from the report is that it shows tame inflation figures that support the Fed's progress in getting inflation back to its 2% target on a sustainable basis.
- The final reading for the September University of Michigan Index of Consumer Sentiment reached 70.1 (Briefing.com consensus 69.0) versus the preliminary reading of 69.0. The final reading for August was 67.9. In the same period a year ago, the index stood at 67.8.
- The key takeaway from the report is that consumer sentiment picked up in September, and has been picking up as inflation pressures have moderated.
Labor market in focus next week
27-Sep-24 15:30 ET
Dow +188.55 at 42363.66, Nasdaq -74.12 at 18116.15, S&P -3.93 at 5741.44
[BRIEFING.COM] The S&P 500 is hugging the flat line as it heads into the week's closing stretch. It is a commendable performance given how far it has come from its August 5 lows (+12.2%).
This week it was bolstered by China's surprising stimulus moves. Next week it will contend with some key economic data that includes the September ISM Manufacturing PMI, the September ISM Services PMI, and the September Employment Situation Report.
The latter is the headliner, because it will reveal nonfarm payroll trends that are key to the Fed's policy outlook, not to mention economic growth prospects.
There will be some residual employment information leading up to that report. The Manufacturing PMI and Services PMI both have employment indexes, the August JOLTS - Job Openings Report is on Tuesday, the September ADP Employment Change report is on Wednesday, and the weekly Initial and Continuing Jobless Claims Report is on Thursday.
Eye on the yen
27-Sep-24 15:05 ET
Dow +214.62 at 42389.73, Nasdaq -66.08 at 18124.19, S&P -1.94 at 5743.43
[BRIEFING.COM] The stock market has lost some of its swagger with breadth figures showing a narrowing margin for advancers over decliners. Earlier, they led by a better than 4-to-1 margin at the NYSE, but now it is a roughly 8-to-5 margin.
Tech stocks have continued to be weak. They haven't gotten significantly weaker than before, it's just that many other stocks have faded away from stronger levels.
An item that is catching some increased attention today is the yen strengthening against the dollar. The stronger yen is drawing attention as participants recognized it forced a dislocation in the stock market in early August from an unwinding of yen-based carry trades.
Today's move followed the news of Shigeru Ishiba winning the election to be leader of the LDP, which puts him on course to be Japan's prime minister. Mr. Ishiba prevailed over another candidate who was seen to be more dovish with respect to policy. USD/JPY is down 1.8% to 142.25.
Globe Life falls after disclosing investigation; Walgreens atop S&P 500
27-Sep-24 14:30 ET
Dow +157.38 at 42332.49, Nasdaq -85.34 at 18104.93, S&P -9.89 at 5735.48
[BRIEFING.COM] The S&P 500 (-0.17%) is at session lows, down about 10 points in recent action.
Elsewhere, S&P 500 constituents Globe Life (GL 104.174, -5.43, -4.95%), Universal Health (UHS 231.13, -8.54, -3.56%), and HP Inc. (HPQ 35.62, -1.23, -3.34%) dot the bottom of the standings. GL dips after disclosing a EEOC investigation into allegations of discrimination, while HPQ falls after BofA Securities downgraded their recommendation on the stock to Neutral citing limited EPS growth potential amid weak print margins
Meanwhile, Walgreens Boots Alliance (WBA 9.08, +0.56, +6.57%) is outperforming, up now circa +10.1% over the last two days after hitting 28-year lows earlier in the week.
Gold higher on the week despite Friday dip
27-Sep-24 14:00 ET
Dow +211.14 at 42386.25, Nasdaq -48.27 at 18142.00, S&P -0.91 at 5744.46
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.27%) is today's top lagging average.
Gold futures settled $26.80 lower (-1.0%) to $2,668.10/oz, ultimately ending +0.8% higher on the week, as demand for the yellow metal was bolstered by ongoing geopolitical tensions and the Fed's recent rate cut.
Meanwhile, the U.S. Dollar Index is down less than -0.1% to $100.47.
Scholastic Corp up on decent Q1 numbers and reiterated FY25 guidance; headwinds still present (SCHL)
Scholastic Corp (SCHL +7%) aims to turn the page today after delivering a decent sales lift in Q1 (Aug). Shares of the children's book publisher and distributor have been prone to violent gap-downs following past quarterly reports. In December, we warned that two consecutive gloomy quarters painted a rough picture ahead for SCHL. After steadily slipping thereafter, its Q4 (May) results in July sent shares toward 2022 lows before bottoming in August, a roughly 30% correction from December highs.
Given this context, it is clear that bearish sentiment has plagued SCHL, keeping expectations low ahead of Q1 numbers. As such, even though several developments from the quarter reflect shaky ground underneath SCHL, the company registered enough silver linings to rekindle buying support today.
- Revenue grew by 3.8% yr/yr to $237.2 mln, the first time SCHL registered yr/yr sales growth since 4Q23. Net losses also improved versus the year-ago period, with EPS of $(2.13) compared to $(2.20).
- However, the enthusiasm surrounding these numbers begins to fade when peeling back the layers. Revenue expanded primarily because of SCHL's $250 mln acquisition of 9 Story, which owns several kid's brands, like Clifford The Big Red Dog and Daniel Tiger's Neighborhood. Also, SCHL's net losses are still noticeably worse than the August quarters from before 2023. It would take going back to 2018 before net losses mirrored those posted in Q1.
- The current U.S. school environment remains challenging. In past quarters, SCHL has cited several factors making it harder to boost sales each year, from more polarized school boards to higher absenteeism rates. At the same time, the economy is producing outsized headwinds as inflationary pressures erode parents' purchasing power, particularly within SCHL's core middle-class demographic. Additionally, SCHL has endured increased churn amongst some higher-value fairs.
- These obstacles culminated in SCHL keeping its FY25 (May) guidance unchanged. The company continues to target a modest +4-6% bump in revs yr/yr and adjusted EBITDA of $140-150 mln. Given its dependence on the U.S. school schedule, the first and third quarters of each fiscal year are weak, given the summer and winter breaks. However, the second and fourth quarters tend to accompany profitability and sales growth.
SCHL's Q1 report was adequate. It grew revs during a typically quiet quarter, trimmed its net losses, and maintained confidence in its initial FY25 outlook. However, the demand environment remains troubling. SCHL has had to lower its full-year forecasts in the past due to the dynamic characteristics of a sour mixture of inflation, school-related challenges, and politics. Because of this, it is worth treading cautiously. SCHL may be in the early stages of a turnaround, but it has not delivered consistently sound quarterly numbers yet, keeping uncertainty elevated.
Costco slips lower following slight revenue miss, but bullish storyline remains intact (COST)
A more cost-conscious consumer made for a challenging business climate in 4Q24 for Costco (COST), which fell just short of revenue expectations, but the results overall still point to a company that's executing well and outperforming most retailers. This is most clearly evidenced by COST's strong comp of +6.9% (excluding impact of gas and FX), which was almost entirely driven by the 6.4% increase in traffic. It's also worth noting that the strength in shopping frequency came even as gas prices eased somewhat, lessening a key driver for traffic.
Along with some softness in certain non-food product categories, such as home and furniture, the drop in gas prices did contribute to the modest top-line miss. Looking beyond this blemish, there were plenty of positives.
- A primary growth strategy for COST has been to improve and enhance its digital capabilities and those efforts continued to pay dividends in Q4, as illustrated by its impressive adjusted eCommerce comp of +19.5%. Improving delivery times, product assortment, and scheduling functionalities, combined with enhancements to the mobile app and website, have helped bolster COST's digital sales.
- Additionally, the insatiable demand for gold bars and silver bullion continued in Q4, providing another potent catalyst for COST's eCommerce channel. Gold and jewelry were up double-digits in the quarter, but a number of discretionary product categories also posted double-digit increases, such as toys, gift cards, tires, home furnishings, and health and beauty.
- Membership growth remains very healthy, as well, coming in at +7.3% for a total of 76.2 mln paid household members. Overall, membership fee income edged higher by 0.2% to $1.512 bln, which slightly missed analysts' expectations. The miss may be attributable to FX-related headwinds, which clipped membership fee income by 0.9%.
- COST's membership fee increase didn't have an impact on Q4 results since it took effect on September 1 -- the day that Q4 ended -- but it will be a significant factor moving forward. During the earnings call, CFO Gary Millerchip shortly addressed the topic, stating that the fee increase will only have a minimal impact early in FY25 due to deferred accounting, with the majority of the benefit coming in the back half of the year and into FY26. Mr. Millerchip also commented, though, that COST remains committed to investing in its employees, as evidenced by a July wage increase, suggesting that some of the benefit may be funneled back to its workforce.
COST delivered another solid earnings report, although it wasn't perfect due to the small revenue miss, which is enough to spur some moderate selling pressure. With a 1-year forward P/E north of 50x, the stock is also quite expensive, and COST will need to continue performing at a very high level to justify that valuation. With its membership fee increase in hand, and with the possibility that consumer spending trends improve as interest rates recede, we do expect that COST will indeed remain a best-in-class retailer.
Vail Resorts heads downhill following soft Q4 results, multiple headwinds trickling into FY25 (MTN)
Vail Resorts (MTN -4%) heads downhill today after the ski resort operator delivered soft Q4 (Jul) results. MTN missed earnings expectations for the tenth consecutive quarter but did turn around its string of top-line misses. Still, the company's FY25 outlook signals little changes from FY24, highlighting sticky macroeconomic headwinds. As a result, MTN initiated a two-year transformation plan, which included a workforce reduction.
Dependent on a robust travel industry and healthy discretionary spending, MTN has encountered a few snags over the past year. The travel sector has steadily normalized while lead times continue to extend. Alternative accommodation platform Airbnb (ABNB) has mentioned that while increasing lead times have hindered revenue growth, it is confident that demand has not fallen off a cliff.
However, adding a third wrinkle into the mix for MTN is that skiing requires favorable weather conditions. MTN stated that during Q4, snowfall across its Western resorts in North America was down 28% yr/yr. Eastern U.S. resorts endured similarly limited natural snow and variable temperatures. Likewise, in Australia, snowfall was down 28% yr/yr and was 44% lower than the 10-year average.
- Still, against this backdrop, MTN's Q4 numbers do not look disastrous. The company's net losses may have widened yr/yr, delivering EPS of $(4.67), but its revenue of $265.39 mln held relatively steady, down just 1.6%. These headline results came despite skier visitation contracting by 9.5% yr/yr across North American and Australian resorts. Conversely, MTN enjoyed another strong period of ancillary spending per visit across ski school, dining, and rentals.
- Looking ahead to the 2024-2025 North American ski season, pass product sales are down around 3% in units but up 3% in dollars, underpinning MTN's past price hikes. The unit compression illuminates persistent industry normalization and weather-related headwinds. The problem is that lift ticket visitation during the season tends to drive pass conversion. Given the recent struggles in visitation, pass sales are sliding.
- As a result, MTN projected Resort Reported EBITDA of $838-894 mln and net income of $224-300 mln for FY25, similar to the $825.1 mln and $2340.4 mln posted in FY24, respectively.
- The challenges ahead also prompted MTN to initiate a transformation plan, aiming for $100 mln in annualized cost efficiencies by the end of FY26. Achieving this target involves eliminating under 2% of its total workforce, including 14% of its corporate employees and just under 1% of its operations workforce.
While MTN may be receiving the cold shoulder today as investors weigh the many obstacles in its way, there are silver linings. MTN trimming its corporate workforce should enhance profitability and support it through the current unfavorable conditions. Furthermore, the Board nearly tripled the company's repurchase authorization to 1.7 mln shares, translating to around 4-5% of its market cap, underscoring confidence in future cash flows. Lastly, bad weather, while creating volatility each year, can reverse course, igniting a tremendous lift in future demand, which may be further propped up by a higher base of skiers following the pandemic.
Southwest Air taking off after revealing new turnaround plan and raising Q3 guidance (LUV)
Southwest Airlines (LUV), which is currently embroiled in a proxy fight with activist investment firm Elliott Management, has faced plenty of turbulence this year, but the stock is flying higher today after the budget carrier released its transformational plan and other updates ahead of its Investor Day. The beleaguered airline had positive news to share on both a near-term basis, including upwardly revised Q3 RASM guidance of +2-3%, and a longer-term basis, such as its plan to generate an additional $4.0 bln in EBIT by 2027.
- Due to LUV's lack of international flights and its no-frills service, the company has not been able to fully capitalize on the robust travel demand and the most profitable trends within the commercial airline industry, such as higher-income passengers upgrading to premium cabins. This has put LUV at a major disadvantage relative to competitors like United Airlines (UAL), American Airlines (AAL), and Delta Airlines (DAL).
- However, in Q3, the tables turned a bit in LUV's favor as the CrowdStrike (CRWD) outage in July sent stranded passengers scrambling to find flights on LUV -- which doesn't rely on CRWD's cybersecurity systems. This event, combined with improving demand trends in general, allowed LUV to nudge its Q3 RASM outlook higher to +2-3% from its prior forecast of flat to -2%.
- More importantly, though, the big picture for LUV has brightened after the company revealed a series of actions that it believes will enable it to generate the best-in-class profits that it once was known for. After posting operating margins of 5.5% in Q2, badly lagging behind the 14.7% for DAL and the 13.1% for UAL, the company has some serious ground to make up.
- Perhaps the biggest change is that for the first time in its history LUV will begin selling assigned seats, starting in 2H25. Some of those seats will be premium seats with additional legroom, providing LUV with a new high-margin revenue stream.
- New redeye flights to certain markets will also be added this coming February, providing customers with more flight options, while simultaneously optimizing aircraft utilization.
- On the cost side, LUV intends to minimize hiring over the next couple of years as it also optimizes scheduling efficiency and capitalizes on supply chain opportunities. In total, the company expects to reduce average aircraft capital expenditures to approximately $500 mln through 2027.
As an added bonus, LUV also announced a new $2.5 bln share repurchase program this morning. Whether these efforts are enough to stave off Elliott Management's demand for an overhaul of LUV's Board of Directors remains to be seen -- the activist investor had called for a special shareholder meeting in the coming weeks -- but the company's other shareholders are clearly applauding the moves.
Jabil soars on uplifting Q4 report; buyback and restructuring also provide kindling (JBL)
Several developments from Jabil (JBL +10%) today culminated in a significant push higher. The electronic circuit board maker exceeded top and bottom-line estimates for the second consecutive quarter in Q4 (Aug), issued relatively uplifting FY25 guidance, and authorized up to $1.0 bln, or roughly 7% of its outstanding shares, for buybacks. JBL also approved a restructuring plan, including reducing its headcount. Lastly, JBL announced it would transition its reporting segments in FY25 from DMS and EMS to three new segments: Regulated Industries, Intelligent Infrastructure, and Connected Living & Digital Commerce. The move follows the divestiture of its mobility business for $2.2 bln earlier this year.
- Quarterly numbers were decent. JBL's EPS of $2.30 marked a 6.1% drop yr/yr, dragged down primarily by a 17.7% tumble in revs to $6.96 bln. JBL has posted double-digit percentage declines on its top line for four straight quarters, illuminating the persistent softness across various end markets, including automotive, 5G, renewable energy, and digital print. Still, investors are not fixating on this weak point, especially since sales were still better than the $6.30-6.90 bln JBL predicted.
- By segment, DMS was down around 22% yr/yr, underpinning the mobility divestiture and some weakness in its automotive business. In EMS, revs did tick 13% lower yr/yr. However, management observed growth in its cloud, semi-cap, and warehouse automation markets, pushing core margins 90 bps higher yr/yr to 6.1%.
- Guidance was sound. JBL's FY25 earnings outlook of $8.65 was a hair higher than consensus, while its revenue forecast of $27.0 bln met analyst targets. While JBL touched on numerous end markets and how demand may shape up in the year ahead, a couple items stuck out.
- In its new Intelligent Infrastructure segment, which will include many end markets in EMS, JBL is eyeing around +7-10% growth over the long haul, a solid financial goal given the declines in the last several periods.
- JBL predicted a roughly +2% growth rate in health care in FY25, performing below the overall health care market growth rate of around 3-4%. GLP-1 drugs were the culprit. Management mentioned that these have hurt its medical device segment. This commentary is interesting as it could be a troubling sign ahead for companies with relatively high exposure to this industry, such as Intuitive Surgical (ISRG) and Stryker (SYK).
- JBL's restructuring plan follows a relatively significant divestiture of mobility, which has already helped to balance its geographical footprint. Around a third of revenue stems from each of the three regions: Americas, Europe, and Asia. Management emphasized that no capacity restructuring will occur, reflecting confidence in depressed end markets eventually bouncing back.
JBL's Q4 report and the announcements that followed were mostly good news. A headcount reduction does underscore some challenges ahead. However, becoming a leaner organization should help fortify JBL's already sturdy foundation, supporting its capacity to capture an eventual recovery across the many end markets still stuck in decline.
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