Market Snapshot
| Dow | 41954.24 | -398.51 | (-0.94%) | | Nasdaq | 17923.90 | -213.95 | (-1.18%) | | SP 500 | 5695.94 | -55.13 | (-0.96%) | | 10-yr Note | -27/32 | 4.03 |
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| | NYSE | Adv 730 | Dec 2026 | Vol 890 mln | | Nasdaq | Adv 1301 | Dec 2952 | Vol 5.2 bln |
Industry Watch
| Strong: Energy |
| | Weak: Consumer Discretionary, Utilities, Real Estate, Materials, Consumer Staples |
Moving the Market
-- Profit-taking activity after Friday's rally in response to the much better than expected September jobs report
-- Rising market rates; 10-yr yield and 2-yr yield near 4.00%
-- Losses in some mega cap stocks
-- Ongoing geopolitical angst related to Middle East
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Closing Summary
07-Oct-24 16:20 ET
Dow -398.51 at 41954.24, Nasdaq -213.95 at 17923.90, S&P -55.13 at 5695.94
[BRIEFING.COM] Today's trade featured a negative bias through the entire session. The major indices were trading slightly lower for most of the day before selling picked up in the afternoon. The S&P 500 ultimately settled 1.0% lower, the Nasdaq Composite closed 1.2% below its prior close, the Dow Jones Industrial Average declined 0.9%, and the Russell 2000 settled with a 0.8% loss.
The late deterioration coincided with some mega caps and chipmakers sliding below prior closing levels. Meta Platforms (META 584.88, -11.06, -1.9%), which had been up as much as 1.2% at its best level, and Broadcom (AVGO 175.08, -1.56, -0.9%), which had been up as much as 0.9%, are among the standouts in that respect.
Apple (AAPL 221.69, -5.11, -2.3%) and Amazon.com (AMZN 180.88, -5.63, -3.0%) extended downgrade-related losses in the afternoon. AAPL shares were downgraded to Hold from Buy at Jefferies and AMZN shares were downgraded to Equal Weight from Overweight at Wells Fargo.
Some selling interest was related to profit-taking activity after the solid run of late. The major indices were near record highs and ended last week on an upbeat note following a very strong jobs report for September.
Downside action was also related to ongoing geopolitical worries around a potential escalation between Israel and Iran. This fear manifested in another jump in oil prices. WTI crude oil futures rose 3.7% to $77.18/bbl. The price action in oil was also in response to concerns about Hurricane Milton, which has intensified into a Category 5 hurricane.
The S&P 500 energy sector was boosted by the activity in oil. It was the only sector to close higher today, up 0.4% from Friday. Chevron (CVX 151.13, +0.38, +0.3%) was a winner from the sector after news that it sold interests in the Athabasca Oil Sands Project and Duvernay Shale for $6.5 billion.
The rate-sensitive utilities sector closed with the largest decline, down 2.3%. The communication services sector also fell 2.0%.
Rising market rates also contributed to the selling in equities. The 10-yr yield settled five basis points higher at 4.03% and the 2-yr yield settled seven basis points higher at 4.00%.
- Nasdaq Composite: +19.4% YTD
- S&P 500: +19.4% YTD
- Dow Jones Industrial Average: +11.3% YTD
- S&P Midcap 400: +11.3% YTD
- Russell 2000: +8.2% YTD
Reviewing today's economic data:
- Consumer credit increased by $8.9 billion in August (Briefing.com consensus $12.7 billion) after increasing a revised $26.7 billion (from $25.5 billion) in July.
- The key takeaway from the report is that revolving credit decreased, suggesting the presence of increased caution among consumers.
Looking ahead, market participants will receive the following data tomorrow:
- 6:00 ET: September NFIB Small Business Optimism (prior 91.2)
- 8:30 ET: August Trade Balance (Briefing.com consensus -$71.3 bln; prior -$78.8 bln)
Consumer credit increases in August
07-Oct-24 15:20 ET
Dow -395.12 at 41957.63, Nasdaq -184.96 at 17952.89, S&P -49.56 at 5701.51
[BRIEFING.COM] The major indices turned lower in recent trading, reaching fresh session lows.
Consumer credit increased by $8.9 billion in August (Briefing.com consensus $12.7 billion) after increasing a revised $26.7 billion (from $25.5 billion) in July.
The key takeaway from the report is that revolving credit decreased, suggesting the presence of increased caution among consumers.
The 10-yr yield settled five basis points higher at 4.03% and the 2-yr yield settled seven basis points higher at 4.00%.
Looking ahead, market participants will receive the following data tomorrow:
- 6:00 ET: September NFIB Small Business Optimism (prior 91.2)
- 8:30 ET: August Trade Balance (Briefing.com consensus -$71.3 bln; prior -$78.8 bln)
Everest Group, Arch Capital and insurance peers dominate bottom of S&P 500 ahead of Milton landfall
07-Oct-24 14:30 ET
Dow -356.42 at 41996.33, Nasdaq -104.21 at 18033.64, S&P -35.01 at 5716.06
[BRIEFING.COM] The S&P 500 (-0.61%) is in second place on Monday afternoon.
Elsewhere, S&P 500 constituents Everest Group (EG 370.01, -37.03, -9.10%), Arch Capital (ACGL 107.06, -7.80, -6.79%), and Garmin (GRMN 162.33, -7.70, -4.53%) dot the bottom of the average. Insurance firms EG and ACGL draw weakness from the impending landfall of Hurricane Milton, while GRMN was downgraded this morning to Underweight at Morgan Stanley amid a forecasted slowdown in growth and margin compression for 2025.
Meanwhile, Wisconsin-based generator firm Generac (GNRC 173.13, +12.95, +8.08%) is today's best performer, garnering strength ahead of Milton's landfall.
Gold modestly lower on Monday
07-Oct-24 14:00 ET
Dow -275.16 at 42077.59, Nasdaq -85.62 at 18052.23, S&P -27.14 at 5723.93
[BRIEFING.COM] The tech-heavy Nasdaq Composite is tied with the S&P 500 on losses of -0.47% apiece.
Gold futures settled $1.80 lower (-0.1%) to $2,666/oz, drifting off earlier gains as yields have gone modestly higher today.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $102.39.
Travelers, Disney pressure DJIA to start the week
07-Oct-24 13:30 ET
Dow -231.36 at 42121.39, Nasdaq -84.02 at 18053.83, S&P -23.16 at 5727.91
[BRIEFING.COM] The Dow Jones Industrial Average (-0.55%) is today's worst-performing major average.
A look inside the DJIA shows that Travelers (TRV 227.20, -9.01, -3.81%), Walt Disney (DIS 92.60, -2.55, -2.68%), and Walmart (WMT 79.80, -1.14, -1.41%) are underperforming.
Meanwhile, Boeing (BA 156.45, +1.45, +0.94%) is atop the standings.
The DJIA is now +11.75% higher YTD.
Coupang jumps to multi-year highs today following a double upgrade at Bernstein (CPNG)
Coupang (CPNG +5%) soars to multi-year highs today following a double upgrade from Bernstein to "Outperform" from "Underperform." Today's upgrade follows four additional upgrades from other brokerages in 2024.
Briefing.com notes that the South Korean-focused e-commerce giant, similar in several ways to Amazon (AMZN), has embarked on an explosive rebound this year following an extended correction from highs reached shortly after going public in 2021. CPNG is up over +60% on the year, kicked into gear by a few impressive quarterly reports. After a sharp pullback following CPNG's latest Q2 report coming up just shy of analyst revenue expectations, shares bounced back stronger than before as investors focused on the several uplifting trends from the quarter.
- One highlight from Q2 was another quarter of steady double-digit growth in active customers within CPNG's Product Commerce segment, its primary segment, comprising 97% of FY23 revs. While newer customers tend to spend less than established users, a rising number of new active customers adds more cement to CPNG's foundation for longer-term revenue generation.
- Another bright spot was CPNG's 13th consecutive quarter of marketplace growth outpacing overall business growth. This means that marketplace, or third-party, sellers are outpacing first-party sales and the overall South Korean retail market. Most of these sellers are small and medium-sized businesses (SMBs), which can be more sensitive to the macroeconomic environment. However, despite some uneven regional demand characteristics, SMBs are performing nicely, an encouraging trend leading into the back half of FY24.
- CPNG's Developing Offerings segment, a minor component of its total business, is enjoying promising momentum. Various businesses comprise Developing Offerings, including Eats, similar to DoorDash (DASH), which saw a nearly 30% jump in volumes yr/yr in Q2. Farfetch, another piece of Developing Offerings and a recent acquisition, is on track to generate close to positive adjusted EBITDA on a run-rate basis by the end of 2024.
CPNG may not be operating in an environment as favorable as it was during the pandemic. However, after a lengthy period of headwinds as economic conditions normalized during 2022 and 2023, CPNG's adjustments throughout these years are bearing meaningful fruit. While the company has not yet become consistently profitable, it is showing notable margin improvements, exiting Q2 with gross margins of 28.3% when excluding Farfetch, a 220 bp jump yr/yr. CPNG anticipates further margin expansion over the next several quarters. At the same time, the company has been registering accelerating top-line growth. With new customers steadily flocking to CPNG's platform and economic conditions gradually improving, the company is staring at significant upside potential. Management estimates the current commerce market in South Korea at $560 bln and sees it as highly fragmented, ripe for CPNG to disrupt.
Chevron takes step forward in Guyana-Permian strategy with sale of two Canadian shale plays (CVX)
Over the past few years, there has been plenty of deal-making in the oil and gas industry and that trend is continuing today after Chevron (CVX) announced that its selling ownership stakes in two shale assets in Western Canada to Canadian Natural Resources (CNQ) for $6.5 bln in cash. More specifically, CVX is selling its 20% interest in the Athabasca Oil Sands project and its 70% interest in the Duvernay Shale, which had a combined production of 84,000 barrels of oil equivalent per day in 2023.
- CNQ is moving higher on this development (although, the strength in crude prices is also helping), reflecting the high-quality nature of the assets its acquiring. On that note, the company also raised its quarterly dividend by 7% in conjunction with the acquisition as it expects the new assets to increase its average production by about 60,000 barrels of oil per day in 2025.
- Given the strong production that these assets are generating, it may seem surprising that CVX is cutting the cord on them. However, when viewing the deal through the lens of the company's strategic move to focus on its Permian Basin and Guyana portfolio, it's in line with its big picture plan.
- That strategy took a huge step forward last October when CVX announced its intention to acquire Hess Corporation (HES) in an all-stock transaction valued at $53.0 bln. That deal, which the Federal Trade Commission approved on September 30, 2024 -- under the stipulation that HES CEO John Hess cannot serve on CVX's Board of Directors -- substantially expanded CVX's footprint in Guyana with the addition of the Stabroek block.
- CVX's new 30% ownership stake in Stabroek provides it with more than 11.0 billion barrels of oil equivalent discovered and recoverable resources. The acquisition is also expected to be accretive to cash flow in 2025, achieving run-rate cost synergies of about $1.0 bln.
- Meanwhile, CVX's Permian Basin assets are producing record production numbers, helping Q2 worldwide net oil-equivalent production to jump by 11%. With its Guyana and Permian Basis assets providing a formidable one-two punch, CVX is identifying $10-$15 bln in other assets to divest, and its ownership stakes in Athabasca and Duvernay fit the bill.
The main takeaway is that this deal looks like a win-win scenario for both CVX and CNQ. While CNQ gains two high-quality assets in Alberta, Canada, CVX is able to take another step forward in its mission of becoming a leading player in the Guyana and Permian Basin plays.
Cheesecake Factory traded above multi-month trading range on Friday (CAKE)
Cheesecake Factory (CAKE) is a name we wanted to quickly flag as it traded above a $34-41 multi-month trading range on Friday to a new 52-week high. Given the recent strength seen in Brinker (EAT), another fast casual dining chain which operates Chili's, we wanted to take a closer look at CAKE ahead of its Q3 earnings report on October 29 after the close.
- In late July, CAKE reported its third consecutive EPS upside quarter. Revenue rose 4.4% yr/yr to $904 mln, which was a bit light of analyst expectations, but at the high end of prior guidance. More impressively, CAKE has made headway on its goal to cut operating costs and that was evident in Q2 when adjusted EPS jumped 24% yr/yr to $1.09. To miss on revenue but beat handily on EPS tells us margins were much better than expected.
- Also, of note, comps for its Cheesecake Factory segment returned to positive territory in Q2 at +1.4%, up from -0.6% in Q1. CAKE said that its comps, once again, meaningfully outperformed the casual dining industry and that resilient consumer demand for CAKE's distinct, high-quality dining experience has been pivotal in supporting its continued outperformance of the broader casual dining industry.
- CAKE has been increasing menu prices and it's benefitting from launching its the Cheesecake Rewards loyalty program just over a year ago. CAKE remains very pleased with the program's performance thus far. CAKE also operates other restaurant chains, including North Italia and Other Fox Restaurant Concepts (FRC). North Italia comps in Q2 were solid at +2% despite lapping a tough +8% comp in the year ago period. CAKE does not provide comps for FRC.
- On the cost side, CAKE was able to grow operating margin in Q2 to 6.5% from 5.5% a year ago as CAKE continued to realize improvement across several key line items in the P&L. Specifically, higher menu pricing has been able to partially offset commodity and labor inflation.
Overall, CAKE trading above its recent multi-month trading range caught our attention as that is generally a positive sign. The stock is pulling back today, but we see some positives. In particular, comps have been improving. However, CAKE will be lapping pretty decent +2.4% comps in the year ago period when it reports Q3 results. We also like the menu price increases, which are helping to improve both comps and margins. CAKE's recent results do not blow us away, but they are pointing in the right direction and investors are taking notice. We look forward to its Q3 report in a few weeks to get a better sense of how the business is performing.
Vista Outdoor shuts the door on a lengthy bidding war; agrees to sell Revelyst for $1.125 bln (VSTO)
Vista Outdoor (VSTO +10%) closes the door on a lengthy bidding war today after agreeing to sell Revelyst to Strategic Value Partners, or SVP, for $1.125 bln. The outdoor sports and recreation manufacturer also announced that it amended its previously announced agreement with Czechoslovak Group, or CSG, to sell The Kinetic Group business for $2.225 bln, up from an already increased offer of $2.15 bln and the original $2.10 bln price. The deal with SVP is contingent upon closing the transaction with CSG.
VSTO has been the center of M&A talks since initiating a restructuring in May 2022, separating its Outdoor Products and Sporting Products segments into two publicly traded entities. Investors immediately gave VSTO the cold shoulder, igniting an extended correction that bottomed out on news that VSTO found a buyer for its Sporting Products business, agreeing to sell it to CSG for $1.91 bln.
Since then, the stock has been steadily climbing, supported by several uplifting developments, starting with an unsolicited takeover proposal from Colt CZ Group at $30.00 per share in November 2023. The offers only went up from there, with MNC Capital Partners proposing $35/share and ultimately bumping this up to $43/share last month.
- VSTO commented multiple times over the past several months about its commitment to exploring strategic alternatives for its Revelyst banner, which encompasses numerous brands focused on outdoor and adventure sporting goods. Revelyst also comprises the other half of VSTO's overall operations, contributing nearly 50% of its FY23 revenue.
- As such, today's announcement of a sale was not so much the underlying driver of today's upward price action. Rather, the dollar amount received for the sale of Revelyst and the higher offer from CSG excites investors.
- The reason is that following today's agreement, VSTO would receive more than it would have if it had agreed to the deal with MNC Capital Partners. At the closing of the CSG deal, when combining the prices paid between CSG and SVP, VSTO shareholders receive $45.00 per share in cash instead of the $43.00 offered by MNC.
There were many ups and downs this year as multiple agents bid to either acquire VSTO outright or take it in pieces. A bidding war erupting between MNC and CSG combined with management not overly eager to accept a deal kept uncertainty elevated for an extended period. However, following today's agreement with SVP, a resolution appears to have finally come to pass. MNC could still hike its offer, possibly adding a wrinkle to the story. Still, given VSTO's history with CSG regarding its Sporting Product business, it seems more likely it will remain steadfast in closing its previously announced merger with CSG, which would result in the closing of today's SVP deal, expected in January 2025.
DXC Technology possibly on the cusp of a broader turnaround while still at a decent valuation (DXC)
A new addition to our Value Leaders rankings this week, DXC Technology (DXC) is a relatively lesser-known IT services provider that was recently at the center of takeover discussions between Apollo (APO) and Kyndryl (KD), the company that IBM (IBM) spun off several years ago. DXC has encountered turbulence this year, sinking to around four-year lows in May following troubling FY25 (Mar) guidance, with EPS and revs falling considerably short of analyst expectations.
However, a new CEO, Raul Fernandez, was appointed in February to enact a major overhaul. Given his recent appointment, Q4 numbers were largely out of his hands. Since that dismal quarter, Mr. Fernandez's actions are already starting to bear fruit. Also, while takeover talks have cooled, they are not entirely off the table; APO and KD discussed acquisition at a high of $25.00 per share in June. Mr. Fernandez may opt to keep the company independent. However, he may also seek to extract more shareholder value by turning around operations before entertaining bids at a higher price.
- Beginning with the bad news, market uncertainty continues to produce cautious behavior from many of DXC's customers. This has restrained discretionary spending on short-term project work across the company's Global Business Services (GBS) and Global Infrastructure Services (GIS) segments. However, DXC forecasted this when initially outlining its FY25 outlook, helping to already ground investor expectations. In fact, conditions have unfolded better than DXC anticipated, fueling its slightly raised FY25 guidance in August.
- To squeeze as much out of the deflated demand environment as possible, Mr. Fernandez immediately revamped the company's go-to-market approach within its sales organizations. These moves included deploying dedicated client partners with expertise in certain industries, updating the compensation structure, and elevating incentives.
- Early success has branched from these efforts. DXC noted in August that its pipeline expanded nicely, driven by new deal inflows in its largest segment. The company added that within its pipeline, it noticed a greater mix of larger deals progressing to the later stages of the sales cycle. While these engagements will likely contribute less to near-term revenue, they fortify DXC's longer-term base.
- DXC's insurance software business remains a laggard, with revenue growth continuing to flatline. That is not to say this business is not lucrative; it generates over $1.0 bln in annual revs, boasting 21 of the top 25 global insurance carriers as customers. As such, this business seems more likely than a total takeover, at least in the short run. DXC commented in August that it is still exploring various strategic opportunities within its insurance business.
DXC is still operating in a dynamic market environment, which can produce elevated volatility over the near term. Future announcements surrounding M&A may also spur swings in the stock price. However, for buy-and-hold investors, DXC may be on the verge of a broader turnaround, especially after displaying encouraging signs last quarter. Meanwhile, the stock still trades at an attractive 7x forward earnings valuation. As always, a stop loss limit in the 15-20% is a good idea.
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