Market Snapshot
| Dow | 42330.15 | +17.15 | (0.04%) | | Nasdaq | 18189.15 | +69.58 | (0.38%) | | SP 500 | 5762.48 | +24.31 | (0.42%) | | 10-yr Note |
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| | NYSE | Adv 1517 | Dec 1298 | Vol 1.34 bln | | Nasdaq | Adv 2062 | Dec 2164 | Vol 5.86 bln |
Industry Watch
| Strong: Health Care, Energy, Communication Services, Information Technology, Real Estate |
| | Weak: Materials, Consumer Discretionary |
Moving the Market
--End-of-quarter consolidation interest
--Eye on labor market reports this week
-- PBOC tells commercial banks to start lowering mortgage rates in batches; Shanghai Composite +8.1%
--Fed Chair Powell suggests only two more 25 basis points cuts this year if economy evolves as expected
--Late-day squeeze leaves S&P 500 at highs for session at the close
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Closing Stock Market Summary
30-Sep-24 16:25 ET
Dow +17.15 at 42330.15, Nasdaq +69.58 at 18189.15, S&P +24.31 at 5762.48
[BRIEFING.COM] For the most part, the stock market was in a restful state in today's trade until a late rally effort finished off a very good third quarter.
Losses were relatively modest during the session, even at the lows for the day that occurred around 2:30 p.m. ET after Fed Chair Powell told listeners at an NABE Conference that, if the economy evolves as expected, that would mean two more cuts this year of 25 basis points each. The fed funds futures market had been expecting a total of 75 basis points worth of cuts before the end of the year. That created some knee-jerk selling interest that had the S&P 500 down as much as 0.6% for the day.
The Treasury market reacted with yields backing up. The 2-yr note yield rose nine basis points to 3.65% while the 10-yr note yield jumped five basis points to 3.80%.
The market bounced back just as quickly, however, heartened by the understanding that the Fed will still be cutting rates, and that it will move in a more aggressive manner if necessary. It was the so-called "Fed put" trade that co-mingled with the patented buy-the-dip trade that has proven successful all year.
Fittingly, the S&P 500 hit session highs shortly before the close, finishing the third quarter on an upbeat note.
It was not nearly as upbeat as the 8.1% gain logged by China's Shanghai Composite, which flowed from reports the People's Bank of China told commercial banks to lower mortgage rates in batches, but it was still an impressive move that capped off a quarter that saw the market-cap weighted S&P 500 gain 5.5% and the equal-weighted S&P 500 gain 9.1%.
In terms of sector performance, it was dotted with mostly red figures throughout the day, but everything flipped late. Nine of the 11 S&P 500 sectors finished in positive territory with gains ranging from 0.1% to 0.8%. The two holdouts were the materials sector (-0.6%) and the consumer discretionary sector (-0.3%), the latter of which was impeded primarily by a loss in Amazon.com (AMZN 186.33, -1.64, -0.9%).
Elsewhere, the communication services sector (+0.8%) got some extra help from Alphabet (GOOG 167.19, +1.90, +1.2%) and Meta Platforms (META 572.44, +5.08, 0.9%) while digesting a batch of industry-related M&A news.
DIRECTV will acquire EchoStar's video distribution business, including DISH TV and Sling TV, in exchange for a nominal consideration of $1 plus the assumption of DISH DBS net debt, AT&T (T 21.99, +0.09, +0.4%) is selling its remaining stake in DIRECTV to TPG for $7.6 billion in cash payments received from DIRECTV and TPG through 2029, and Verizon (VZ 44.92, +0.03, +0.1%) entering into a definitive agreement for Vertical Bridge to obtain the exclusive rights to lease, operate and manage 6,339 wireless communications towers across all 50 states and Washington, D.C. from subsidiaries of Verizon for approximately $3.3 billion.
The energy sector (+0.8%) joined the communication services sector at the top of the leaderboard, taking stock of a Washington Post report that said Israel has told the U.S. it is planning an imminent and limited ground operation in Lebanon.
- Nasdaq Composite: +21.2% YTD (+2.6% for Q3)
- S&P 500: +20.8% YTD (+5.5% for Q3)
- Dow Jones Industrial Average: +12.3% YTD (+8.2% for Q3)
- S&P Midcap 400: +12.2% YTD (+6.6% for Q3)
- Russell 2000: +10.0% YTD (+8.9% for Q3)
Reviewing today's economic data:
- The September Chicago PMI checked in at 46.6 (Briefing.com consensus 46.2) versus 46.1 in August.
- The dividing line between expansion and contraction is 50.0, so the September reading implies that manufacturing activity in the Chicago Fed region contracted in September but at a slower pace than August.
Looking ahead, Tuesday's economic calendar features:
- 09:45 ET: September Final S&P Global US Manufacturing PMI (prior 47.9
- 10:00 ET: September ISM Manufacturing PMI (Briefing.com consensus 47.7%; prior 47.2%)
- 10:00 ET: August JOLTS - Job Openings (prior 7.673M)
- 10:00 ET: August Construction Spending (Briefing.com consensus 0.1%; prior -0.3%)
Economic news to do Tuesday's steering
30-Sep-24 15:25 ET
Dow -156.23 at 42156.77, Nasdaq -44.37 at 18075.20, S&P -8.12 at 5730.05
[BRIEFING.COM] Stocks have stabilized after some gyrations driven by Fed Chair Powell's policy remarks. The indices are still in negative territory, but are showing only modest losses on this last day of a third quarter that has been accented with healthy gains.
Tomorrow's session will be steered by some economic news, namely the September ISM Manufacturing PMI (Briefing.com consensus 47.7%; prior 47.2%) and the August JOLTS-Job Openings Report (prior 7.673M).
The PMI will provide a glimpse of manufacturing activity on a national level, but it will also include an employment index that will be closely watched. The JOLTS report will shed some added light on labor market conditions, which have become the Fed's primary policy guidepost.
Powell speaks, market retreats
30-Sep-24 15:00 ET
Dow -192.07 at 42120.93, Nasdaq -38.77 at 18080.80, S&P -9.73 at 5728.44
[BRIEFING.COM] Stocks beat a hasty retreat after Fed Chair Powell suggested the Fed could cut rates by a lesser amount this year than the market expects. Specifically, the Fed Chair said in a speech to the NABE that, if the economy evolves as expected, that would mean two more cuts this year of 25 basis points each. He added that the Fed could move faster, or slower, based on economic data.
The fed funds futures market had been pricing in the likelihood of 75 basis points worth of rate cuts before the end of the year, but the probability of a 50-basis points cut in November has been slashed to 34.7% today from 53.3% on Friday, according to the CME FedWatch Tool.
A broad-based retreat in the stock market coincided with a pop in Treasury yields to highs for the session. The 2-yr note yield is up nine basis points to 3.65% and the 10-yr note yield is up five basis points to 3.80%.
The major indices, however, have already recovered a sizable portion of the "Powell dip," heartened most likely by the realization that the Fed will still be cutting rates and will move faster to cut rates if necessary, keeping the so-called Fed put (i.e., a belief the Fed will be aggressive in providing policy accommodation to stem any material decline in stock prices that upsets the smooth functioning of the financial system) very much in play in the market's mind.
The S&P 500 had been down as much as 0.6% immediately following Mr. Powell's remarks, and is now down 0.2%.
CVS, FedEx resisting broader selloff in S&P 500 this afternoon
30-Sep-24 14:30 ET
Dow -370.20 at 41942.80, Nasdaq -118.37 at 18001.20, S&P -33.10 at 5705.07
[BRIEFING.COM] The markets have faded in the last half hour, the S&P 500 (-0.58%) down 33 points, after comments from Fed Chair Powell at the National Association for Business Economics conference.
Elsewhere, S&P 500 constituents CVS (CVS 62.86, +1.48, +2.41%), FedEx (FDX 272.52, +4.97, +1.86%), and Intuitive Surgical (ISRG 488.23, +9.05, +1.89%) are atop the standings. CVS is higher today on reports of activist pressure, FDX gains on a Stifel note suggesting the International Longshoremen's Association may execute a labor strike.
Meanwhile, Micron (MU 102.65, -4.85, -4.51%) is lagging alongside general weakness in chip stocks.
Gold lower on Monday
30-Sep-24 14:00 ET
Dow -135.44 at 42177.56, Nasdaq -8.01 at 18111.56, S&P -3.24 at 5734.93
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.04%) is only slightly lower this afternoon.
Gold futures settled $8.70 lower (-0.3%) to $2,659.40/oz, pressured by modest gains in yields and the dollar, among other items. Gold ended the month +5.21% higher and the quarter +13.66% higher.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $100.54.
Carnival cruising lower despite topping Q3 estimates as Q4 outlook creates some waves (CCL)
Cruise line operator Carnival (CCL) experienced another wave of demand in Q3, enabling it to exceed EPS and revenue estimates while delivering record results across a variety of metrics, but the stock is still drifting lower as investors lock in prior gains. Along with rivals Norwegian Cruise Line (NCLH) and Royal Caribbean (RCL), the company has been benefitting from robust and resilient demand for cruises, creating lofty expectations that drove shares higher by 25% since mid-August.
Coming off an impressive beat-and-raise performance in Q2 in which CCL touted broad-based strength in both its European and North American brands, the company upped the ante in Q3, achieving new quarterly records for operating income ($2.2 bln, +34% yr/yr), adjusted EBITDA ($2.8 bln, +25% yr/yr), and revenue ($7.9 bln, +15.2%). The problem, though, is that the market was already anticipating the strong Q3 results, putting the spotlight on CCL's guidance.
- While the company did increase its FY24 EPS guidance to $1.33 from its previous forecast of $1.18, partly to reflect its outperformance in Q3, its Q4 EPS guidance of $0.05 slightly missed the mark. Additionally, its Q4 Net Yield guidance of approximately 5.0% represents a drop-off from the +8.7% CCL registered this quarter.
- Net Yield is a key demand metric in the cruise line industry that strips out direct costs such as air transportation and travel agent commissions from the revenue line.
- At the same time, CCL is anticipating expenses to increase materially in Q4, forecasting adjusted cruise costs (excluding fuel per available lower berth day) of +8.0% yr/yr (constant currency), up from +3.5% in Q3.
In the big picture, these are relatively minor issues that do little to negatively alter the bullish narrative for CCL.
- On that note, the momentum behind CCL's business is showing no signs of slowing as nearly half of 2025 is already booked and with remaining inventory running at lower levels compared to a year earlier. This combination of healthy demand and leaner inventory is fueling record ticket pricing.
- Additionally, the 2026 season is off to a remarkable start with CCL generating record booking volumes over the last three months.
Overall, there was plenty to like with CCL's Q3 earnings report, which showed that consumers are still willing to spend on experiences like cruises. However, with the stock sailing sharply higher over the past several weeks, CCL's Q4 guidance provided enough of a reason for investors to take some gains off the table.
Stellantis sent to late 2022 lows following a substantial guidance cut amid weakening demand (STLA)
Stellantis (STLA -14%) swerves to late 2022 lows after a global industry backdrop ripe with potholes prompts the prominent automotive manufacturer to lower its FY24 guidance today. The OEM known for many brands, including Chrysler, Dodge, Jeep, and Alfa Romeo, slashed its FY24 adjusted operating income margins to 5.5-7.0% from its previous double-digit forecast issued in late July and industrial free cash flow to negative €5.0 bln to €10.0 bln from its prior view of positive FCF.
- What happened to spur such a sharp shift in sentiment so quickly? Management commented that the updated guidance reflected its decision to significantly bolster its remediation actions on North American performance issues and a broader deterioration in global industry dynamics.
- STLA's remediation actions include accelerating its inventory normalization in the U.S., eyeing at most 330,000 units of dealer inventory by the end of 2024 instead of by the end of 1Q25. To achieve this, STLA will reduce its North American shipments by over 200,000 vehicles during the back half of this year versus the year-ago period, double what it previously targeted. Additionally, the company will increase its incentives on current and older model-year vehicles. STLA is also continuing its cost-savings programs.
- These actions are being sparked by a nasty combination of fading demand and increasing competition, especially in China. Furthermore, inventories are rising, giving potential car buyers plenty of options to weigh at the dealer.
- STLA warned of brewing issues just last week, commenting that market forecasts were moving slightly more negative, with global growth going from +1-2% at the beginning of the year to negative 1-2%. STLA added that North America was a particular pocket of weakness. Furthermore, STLA remarked that inventories are generally higher, pointing to the U.S. as a particular problem area.
However, STLA did not alter its guidance last week or convey an overly concerning tone, adding that it is making progress on inventories and repeatedly expressing excitement over 2025. As such, its considerable guide-down came as a massive shock today, producing a tremor across the automotive sector, weighing on OEMS, from General Motors (GM) and Ford Motor (F) to Honda (HMC) and Toyota (TM). Similarly, semiconductors with meaningful exposure to the automotive sector, such as On Semi (ON) and NXP Semi (NXPI), are pulling back today.
While it is difficult to find much in the way of a silver lining, STLA is far from a doomsday scenario. For starters, even though it could take time, the Federal Reserve has shifted its monetary policy, cutting interest rates to help ease consumer financing costs. Furthermore, STLA's actions amount to ripping the Band-Aid off instead of slowly right-sizing inventories and cutting costs. This should help put it in a better position to start the new year, which has been its top priority for some time.
Still, today's slashed guidance is concerning. Until concrete numbers support STLA's aggressive initiatives, investors could continue sending the stock in reverse.
EchoStar losing its connection after reaching deal to merge Dish Network with AT&T's DirecTV (SATS)
The emergence of streaming services such as Netflix (NFLX) and Walt Disney's (DIS) Hulu and Disney+ ignited a cord-cutting trend that continues to decimate the traditional cable and pay TV markets to this day, but it also may have paved the way for a merger between DirecTV and Dish Network to finally materialize. After Bloomberg reported on September 13 that AT&T's (T) DirecTV and EchoStar's (SATS) Dish Network were involved in merger negotiations, the two companies announced this morning that a deal to combine the satellite TV services was reached.
- Many years before streaming even existed, DirecTV and Dish attempted to join forces through a merger that would've created a pay TV powerhouse at the time, but regulators shot the deal down in 2001 due to anti-competitive concerns. Fast forward twenty-three years later, and it seems implausible to think that the combination of two satellite TV providers would be viewed as a serious threat.
- With the advent of streaming, DirecTV and Dish have experienced a dramatic fall from grace, as evidenced by the 7-8 mln estimated subscriber losses for DirecTV over the past decade, and the 6-7 mln in subscriber losses for Dish during this same period.
- As a result of their much weaker competitive standings, it's widely believed that U.S. regulators would give a DirecTV and Dish merger the green light this time around. Furthermore, while a combination between the two likely would do little to slow the cord-cutting trend in the long run, a more competitive satellite option may actually be a positive for the consumer.
From a company-specific perspective, the transaction should be beneficial for both AT&T and SATS, although SATS is experiencing a nasty selloff today.
- Since the beginning of September, SATS had rocketed higher by 55% prior to today's losses, bolstered by the aforementioned Bloomberg story from a couple weeks ago. So, there is a sell-the-news factor at play, but the weakness may also be related to shareholders balking at the terms of the deal. For instance, there could be some disappointment regarding the cash component of the transaction, which amounts to a relatively modest $1.0 bln.
- DirecTV will be assuming about $9.75 bln in Dish's debt, but there is some uncertainty regarding this part of the agreement. Specifically, Dish's bondholders would have to agree to the principal amount on at least $1.57 bln in debt being reduced in order to compete the debt exchange offer.
- If the deal is finalized, then SATS' balance sheet, which held over $24.0 bln in debt as of the end of Q2, would be in a significantly healthier position. The company would also be freed up to focus on its Boost Mobile wireless segment, which it has poured billions of dollars into in recent years as it constructs towers and purchases spectrum licenses. Relatedly, SATS received some good news on September 20 when the FCC granted its 5G buildout framework for Boost Mobile.
- For AT&T, the deal also allows it to finally exit the satellite TV business. In 2021, the company took a step forward in those efforts, selling a 30% stake in DirecTV to private equity firm TPG, netting about $16.0 bln. In connection with today's merger, AT&T sold the remaining 70% stake to TPG for an expected $7.6 bln in cash payments from DirecTV through 2029.
The main takeaway is that consolidation was needed as both DirecTV and Dish have been crushed by streaming platforms. Not only will the combination of the two provide for cost synergies of at least $1.0 bln per year, but it will also put the combined company in a stronger position to negotiate with programmers. With that said, it's hard to imagine that this merger will have a lasting and material effect on the competitive landscape in the TV/streaming market with no end in sight to the cord cutting phenomenon.
CVS Health springing to life today following reports of activist investor pressure (CVS)
CVS Health (CVS +2%) looks to break free from its frail state today following a WSJ report that Glenview Capital, a major shareholder, will meet with management to propose a new route to turn around its operations. As of Friday's close, shares of the pharmacy benefits manager (PBM), health insurer, and retail pharmaceutical chain have tumbled by 24%. While still far better than Walgreens Boots Alliance (WBA), whose stock has plunged by over 65%, not to mention Rite Aid, which filed for Chapter 11 bankruptcy late last year, it does not offer much comfort for investors who have endured several periods of stagnant growth and slashed guidance.
What Glenview Capital is proposing has yet to be disclosed. However, CVS must address several items, all of which could be part of Glenview's discussions.
- CVS's Health Care Benefits segment has been on shaky ground, resulting in the departure of the Aetna President in August, less than a year after he stepped into the position. Problems here arose primarily from Medicare Advantage. Costs have risen rapidly; CVS's medical benefit ratio (MBR) jumped by 340 bps yr/yr in Q2. Meanwhile, CVS aggressively targeted membership expansion, culminating in operating margins being cut in half.
- Bringing margins back up could be a focal point for Glenview. While little control can be had over medical cost trends, CVS can control its offerings, including supplemental benefits and Part D, both of which are placing pressure on margins this year.
- PBMs are in the hot seat. The FTC announced it was suing CVS's Caremark Rx, among other PBMs, earlier this month. While this is out of CVS's hands, it produces uncertainty. Whatever comes of the government scrutiny, changes may be coming within CVS's Health Services segment following persistent headwinds, including losing a large client to Cigna's (CI) Express Scripts earlier this year.
- Health Services is still a relatively high-margin business, a factor behind CVS's activity in the M&A market, such as acquiring Oak Street for $10.6 bln last year. It also has been driving gains across other businesses, including Aetna. Therefore, Glenview may want to explore further opportunities within this segment but at a cost-effective pace, given the debt CVS has accrued due to M&A.
- The retail side of CVS has endured sliding front store volumes, reflecting stubborn inflationary headwinds. However, competitors such as Amazon (AMZN) also deal with inflation but are still possibly scooping up CVS shoppers, underpinning potential staleness at CVS and lagging technological advantages, including delivery. CVS has announced past store closures, similar to WBA, which is shuttering around 25% of its physical locations. Glenview could be wanting to accelerate these plans.
Activist investor pressure is not new to CVS. Starboard Value took a stake in the company in 2019 and held talks with executives. Then, last month, hedge fund Sachem Head Capital disclosed a new stake in CVS. There may be many challenges facing CVS. However, it commands an imposing presence, from retail to health care services, and sweeping changes may be the spark to finally light a fire under the stock.
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.
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