Market Snapshot
| Dow | 42080.37 | +126.13 | (0.30%) | | Nasdaq | 18182.92 | +259.01 | (1.45%) | | SP 500 | 5751.13 | +55.19 | (0.97%) | | 10-yr Note | 0/32 | 4.03 |
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| | NYSE | Adv 1426 | Dec 1316 | Vol 832 mln | | Nasdaq | Adv 1995 | Dec 2213 | Vol 5.5 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Health Care, Financials |
| | Weak: Energy, Materials |
Moving the Market
-- Buy-the-dip interest after recent losses
-- Gains in mega caps and chipmakers; NVDA up after reports that Hon Hai Precision is aiming to increase capacity to meet demand for artificial intelligence products
-- Drop in oil prices related to fears about Hurricane Milton and related to demand worries after lack of new stimulus measures out of China
-- Treasury yields holding steady after recent rise
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Closing Summary
08-Oct-24 16:30 ET
Dow +126.13 at 42080.37, Nasdaq +259.01 at 18182.92, S&P +55.19 at 5751.13
[BRIEFING.COM] The stock market closed on a higher note on buy-the-dip interest after a soft start to the week. The Russell 2000 gained 0.1%, the Dow Jones Industrial Average closed 0.3% higher, the S&P 500 climbed 1.0%, and the Nasdaq Composite settled 1.5% higher.
Mega caps, growth stocks, and chipmakers had an outsized impact on index gains in today's broad rally. The Vanguard Mega Cap Growth ETF (MGK) jumped 1.8%, the PHLX Semiconductor Index (SOX) settled 1.3% higher, and the Russell 3000 Growth Index closed with a 1.6% gain.
NVIDIA (NVDA 132.89, +5.17, +4.1%) was a top performer after a Bloomberg report that Hon Hai Precision is aiming to increase capacity to meet demand for artificial intelligence products.
Calmer action in Treasuries after sharp losses of late, along with a drop in oil prices also helped boost the equity market. The 10-yr yield settled one basis higher at 4.03% and the 2-yr yield settled two basis points lower at 3.98%. On a related note, today's $58 billion 3-yr note sale met weak demand.
WTI crude oil futures 4.5% lower at $73.70/bbl. This price action was related to fears about Hurricane Milton, along with demand concerns due to a lack of new stimulus measures out of China.
The S&P 500 energy sector was the worst performer in the index by a wide margin, dropping 2.6%. The only other sector to close lower was materials (-0.4%). Meanwhile, the information technology sector jumped 2.1%, the communication services sector logged a 1.1% gain, and the consumer discretionary sector settled 1.0% higher.
- Nasdaq Composite: +21.1% YTD
- S&P 500: +20.6% YTD
- Dow Jones Industrial Average: +11.7% YTD
- S&P Midcap 400: +11.3% YTD
- Russell 2000: +8.3% YTD
Reviewing today's economic data:
- September NFIB Small Business Optimism 91.5; Prior 91.2
- August Trade Balance -$70.4 bln (Briefing.com consensus -$71.3 bln); Prior was revised to -$78.9 bln from -$78.8 bln
- The key takeaway from the report is that the net exports component for August will be a positive input for Q3 GDP forecasts.
Looking ahead, market participants receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.3%)
- 10:00 ET: August Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.2%)
- 10:30 ET: Weekly crude oil inventories (prior +3.89 mln)
- 14:00 ET: September FOMC Minutes
Stocks hit fresh highs ahead of the close
08-Oct-24 15:30 ET
Dow +123.28 at 42077.52, Nasdaq +242.56 at 18166.46, S&P +52.32 at 5748.26
[BRIEFING.COM] The market moved to fresh highs ahead of the close.
The 10-yr yield settled one basis higher at 4.03% and the 2-yr yield settled two basis points lower at 3.98%.
Looking ahead, market participants receive the following economic data on Wednesday:
- 7:00 ET: Weekly MBA Mortgage Index (prior -1.3%)
- 10:00 ET: August Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.2%)
- 10:30 ET: Weekly crude oil inventories (prior +3.89 mln)
- 14:00 ET: September FOMC Minutes
JPM, WFC trade up in front of earnings on Friday
08-Oct-24 15:05 ET
Dow +126.63 at 42080.87, Nasdaq +227.36 at 18151.26, S&P +48.53 at 5744.47
[BRIEFING.COM] The major indices continues to climb with about an hour left in the session. The S&P 500 trades 0.9% higher and the Nasdaq Composite trades 1.3% higher.
Some big banks are trading higher in front of their earnings report Friday morning. JPMorgan Chase (JPM 211.21, +0.28, +0.1%) and Wells Fargo (WFC 57.50, +0.34, +0.6%) are standouts in that respect.
The S&P 500 financial sector sports a 0.7% gain at this point in the session.
S&P 500 in second place; Palantir & Edwards Lifesciences outperform
08-Oct-24 14:30 ET
Dow +83.32 at 42037.56, Nasdaq +206.18 at 18130.08, S&P +43.63 at 5739.57
[BRIEFING.COM] The S&P 500 (+0.77%) is in second place on Tuesday afternoon.
Elsewhere, S&P 500 constituents Palantir Technologies (PLTR 41.03, +2.14, +5.50%), Edwards Lifesciences (EW 67.98, +3.44, +5.33%), and Palo Alto Networks (PANW 352.85, +14.91, +4.41%) dot the top of the standings. PLTR is leading today's trading, making highs not seen since the early going of 2021, EW gains as Piper note suggests high expectations for EW's EARLY-TAVR study at TCT in late October, and PANW was initiated with an Outperform at Exane BNP Paribas as well as being the subject of a bullish Goldman note suggested subscription upgrades could drive 7-21% upside in NGS ARR over the next 3 years.
Meanwhile, Marathon Petroleum (MPC 160.19, -13.08, -7.55%) is today's top laggard, pressured in part by worse-than 4% losses in crude oil futures.
Gold extends losing streak to five on Tuesday
08-Oct-24 14:00 ET
Dow +22.29 at 41976.53, Nasdaq +190.95 at 18114.85, S&P +38.24 at 5734.18
[BRIEFING.COM] The Nasdaq Composite (+1.07%) is today's top gaining major average.
Gold futures settled $30.60 lower (-1.1%) to $2,635.40/oz, as recent strong U.S. jobs data lowered expectations of sizable Fed rate cuts.
Meanwhile, the U.S. Dollar Index is unchanged at $102.54.
Honeywell hopes to sweeten its stock's performance by following familiar spin-off path (HON)
Following in the footsteps of fellow industrial conglomerates 3M (MMM) and GE Aerospace (GE), Honeywell (HON) is looking to streamline and simplify the company by spinning off business units that aren't aligned with its long-term vision and growth strategy. Earlier this morning, HON announced that it plans to spin-off its Advanced Materials business into a new publicly traded company sometime in late 2025 or early 2026 in a move that it believes will help unlock greater shareholder value.
- The Advanced Materials unit, which is part of HON's Energy and Sustainability Solutions segment, manufactures additives and polymers that are used in a wide variety of products, such as plastics, paints, and asphalt. In 2Q24, the business performed well, achieving sales growth of 8%, led by continued strength in flourine products. If this momentum continues into 2025, then an Advanced Materials IPO should fetch plenty of interest.
- On that note, it's believed that the Advanced Materials business could be valued as much as $10.0 bln in an IPO. At that valuation, the IPO would be priced at about 2.6x estimated FY24 sales of $3.8 bln.
- It may seem counterintuitive to spin-off a business that's generating solid growth, but by separating it from HON, the company believes that Adanced Materials will be properly valued in the open market as a standalone entity. Furthermore, the spin-off will allow Advanced Materials to pursue its own, specific strategies for driving growth.
- For HON, the company will be in a better position to optimize the company around the three megatrends that it identified last October when it announced plans to realign the business into a simplified structure. More specifically, those megatrends are automation, the future of aviation, and energy transition.
- While not to the same degree as GE, which is now an aviation pure play, HON will be poised to better capitalize on the robust demand environment in both the commercial aviation and the defense markets. HON, which manufactures everything from engines to avionics systems to cockpit displays, has experienced eight consecutive quarters of double-digit organic growth in its Aerospace Technologies segment.
- Meanwhile, the Energy and Sustainability Solutions segment is aligned with the push to reduce emissions and improve the resiliency and efficiency of the power grid. In Q2, sales edged higher by 3% on an organic basis, bolstered by growth in refining catalysts and aftermarket services.
Overall, we believe that the market will reward HON for simplifying its business structure and aligning itself with its key growth strategies, just as it has done with GE and MMM. With shares languishing around the unchanged mark for 2024, the stock could use a positive catalyst, and this spin-off develop could ultimately provide it with a boost.
Powell Inds has been "electric" in recent months; seeing strong demand across markets (POWL)
Powell Industries (POWL) has been "electric" for investors in recent months and especially over the last month when it traded from around $150 in early September to around $245 now. As such, we wanted to take a closer look. This supplier of equipment which is used for the distribution, control and monitoring of electrical energy serves large industrial customers such as utilities, oil & gas producers, refineries, LNG facilities, petrochemical plants etc.
- Powell focuses on low and medium voltage, it does not operate in high voltage. When electricity leaves the high voltage line, it gets stepped down to medium voltage. That's where POWL plays as its products include switchgear (including circuit breakers) and rectifiers. There is a high degree of electrical complexity and configuration in this segment in terms of switching and connecting and distributing load.
- In terms of catalysts, the company's impressive Q3 (Jun) report in late July has gotten the stock moving. Another positive has been the US Dept of Energy recently issuing a key LNG export permit, its first since a pause in January. LNG is a key end market for Powell. The company also said on its Q2 call that it continues to qualify more products for the burgeoning data center market. Also, the Fed lowering rates was a good sign and should push more customers into upgrading their networks.
- Revenue in JunQ jumped 50% yr/yr to $288 mln, driven by strength across nearly all of its market sectors. Powell said that commercial activity remains strong, providing a tailwind as it closes out FY24 next quarter. A metric that really jumped out and explains the huge EPS beat was a big jump in margins in JunQ. Gross margin surged to 28.4%, its highest level in over a decade, vs 22.2% a year ago and 24.6% in Q2 (Mar). This was driven by the higher volume levels across all manufacturing facilities.
- POWL booked $356 mln of new orders in the quarter, the highest quarterly total of FY24 and orders were spread broadly across key end markets. POWL saw a significant increase driven by its electric utility sector, further underscoring the strength POWL is seeing in that market. POWL was also awarded a notable petrochemical order for a greenfield project to be located in North America.
- Powell does not guide, but it says quoting activity remains very healthy and balanced. Within the oil & gas LNG market, the fundamentals of the US natural gas market remain favorable. Powell sees continued strength in oil & gas and petrochemical markets, which includes biofuels, carbon capture, and hydrogen, areas where Powell has not historically participated, but where Powell is seeing a substantially higher volume of project activity. Commercial and other industrial markets also remain attractive, which includes activity within the data center market.
Overall, Powell is not a name most people are familiar with but a lot of good things are happening in its various end markets, from LNG to electric utilities to data centers. The stock does look a bit overextended in the near term, so some caution makes sense. We look forward to its Q4 (Sep) report, likely in early December. We would like to get Powell's take on the DoE's action on LNG, the progress being made in data centers and an update on strong demand from utilities.
PepsiCo up modestly on improving Frito-Lay volumes in Q3 and unchanged long-term trends (PEP)
PepsiCo's (PEP +1%) mixed Q3 results are sufficient to push shares modestly higher today. The consumer packaged goods giant, which owns the Frito-Lay and Quaker, squeaked out a bottom-line beat in the quarter but fell short of revenue estimates, delivering a minor yr/yr contraction when analysts expected modest growth. Consolidated Convenient Foods and Beverages volumes fell by 2% each yr/yr, underscoring persistent global headwinds across food brands and a deterioration in international beverage consumption.
On the bright side, PEP did reiterate its FY24 adjusted EPS outlook of $8.15. However, the company once again trimmed its organic revenue growth forecast for the year, now targeting a low single-digit improvement yr/yr instead of approximately +4%, already down from "at least" +4%.
- A strained end consumer across North America has been a nagging issue for PEP, weighing on its food and beverage volumes throughout FY24. Beverage volumes slid by 3% yr/yr for the second straight quarter, impacted by a 5% jump in effective net pricing. Encouragingly, Frito-Lay volumes slipped by just 1.5% compared to a 4% decrease last quarter despite bubbling prices. Similarly, Quaker volumes compressed by 13%, better than the 17% and 22% declines over the past two quarters, as supply chain and recall disruptions continued to ease.
- PEP commented that Lay's added 3 pts of household penetration in Q3 following aggressive investments deployed over the summer. Management remarked that it would apply this strategy to other categories outside potato chips, putting more money behind Doritos and Tostitos over the next quarter to drive further household penetration and potentially spur further volume improvements.
- A noticeable change in trend in Q3 occurred within PEP's beverage portfolio overseas. Volumes dipped 2% lower yr/yr, dragged down by broad-based weakness -- the best performer was Europe with flat growth. Meanwhile, Convenient Foods volumes remained negative at 2%. Several factors underscored the softening of beverage consumption, including moderate deceleration across China and Mexico. Also, geopolitical tensions pulled volumes lower in the Middle East. PEP expects this to persist over the coming months.
- On a lighter note, PEP continued to deploy supply chain automation and production enhancements, aiding its 15th consecutive earnings beat in Q3 and unchanged FY24 EPS guidance despite ongoing volume woes. Also, while near-term demand dynamics have been unfavorable, PEP is optimistic about long-term trends, pointing to Gen Z snacking patterns, middle-class development, and a general shift toward eating mini meals.
PEP's Q3 report may not have been all that and a bag of chips, but it was decent enough to stoke moderate buying activity today. Investors may be waiting for PEP's rivals' performance in their upcoming earnings reports. Coca-Cola (KO) is scheduled to deliver its Q3 report on October 23, and Keurig Dr Pepper (KDP) on October 24. In beverages, KO and KDP have been outperforming PEP lately. If this trend persists, PEP could move lower. However, in the interim, investors are applauding the improvement in Frito-Lay volumes and the potential stabilization of North American beverage volumes.
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.
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