Market Snapshot
| Dow | 42512.00 | +431.63 | (1.03%) | | Nasdaq | 18291.62 | +108.70 | (0.60%) | | SP 500 | 5792.04 | +40.91 | (0.71%) | | 10-yr Note | -4/32 | 4.06 |
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| | NYSE | Adv 1556 | Dec 1164 | Vol 829 mln | | Nasdaq | Adv 2127 | Dec 2054 | Vol 5.2 bln |
Industry Watch
| Strong: Financials, Industrials, Consumer Staples, Information Technology |
| | Weak: Communication Services, Real Estate |
Moving the Market
-- Upside momentum after yesterday's rally; ongoing buy-the-dip interest
-- Lingering geopolitical angst and worries about Hurricane Milton
-- Reacting to news that the DOJ is considering remedies for Google including possible breakup in antitrust case
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Closing Summary
09-Oct-24 16:20 ET
Dow +431.63 at 42512.00, Nasdaq +108.70 at 18291.62, S&P +40.91 at 5792.04
[BRIEFING.COM] The stock market was in rally-mode today, leading the S&P 500 (+0.7%) and Dow Jones Industrial Average (+1.0%) to new record highs. The market benefitted from ongoing momentum following yesterday's bounce, along with strength in some mega caps and semiconductor-related names.
Alphabet (GOOG 163.06, -2.64, -1.6%) was left out of the rally today following news that the Department of Justice is considering a breakup of Google. Just about everything else participated in upside moves, though. 28 of the 30 Dow components closed higher and nine of the 11 S&P 500 sectors closed above prior closing levels.
The heavily-weighted health care (+1.0%) and information technology (+1.0%) sectors were the top performers today, which comprise 43% of the index. The rate-sensitive real estate sector (-0.9%) logged the largest decline as yields rose.
The 10-yr yield settled three basis points higher at 4.06% and the 2-yr yield settled three basis points higher at 4.01% after today's 10-yr note auction saw the high yield slightly tail the when-issued yield amid solid demand from indirect bidders.
The market didn't react much to the minutes for the September 17–18 FOMC meeting, which didn't contain any surprises. The minutes showed that almost all participants saw upside risks to the inflation outlook as having diminished, while downside risks to employment were seen as having increased.
However, Dallas Fed President Logan (non-FOMC voter) noted today that she sees a meaningful risk that inflation could get stuck above the Fed's 2% goal and that she believes the FOMC should not rush to get the funds funds target to a "normal" or "neutral" level.
There's also lingering worries about the situation in the Middle East in play, along with concerns about Hurricane Milton, but the market didn't seem bothered today.
- Nasdaq Composite: +21.9% YTD
- S&P 500: +21.4% YTD
- Dow Jones Industrial Average: +12.8% YTD
- S&P Midcap 400: +12.1% YTD
- Russell 2000: +8.6% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -5.1%; Prior -1.3%
- August Wholesale Inventories 0.1% (Briefing.com consensus 0.2%); Prior 0.2%
- Weekly EIA crude oil inventories had a build of 5.81 million barrels after last week's build of 3.89 million barrels
Market participants receive some market-moving data tomorrow in the form of the weekly jobless claims report and the September CPI report at 8:30 ET.
Stocks hit fresh highs ahead of the close; yields settle higher
09-Oct-24 15:40 ET
Dow +451.91 at 42532.28, Nasdaq +102.71 at 18285.63, S&P +40.78 at 5791.91
[BRIEFING.COM] The S&P 500 (+0.7%) hit a fresh high heading into the close.
Market participants receive some market-moving data tomorrow in the form of the weekly jobless claims report and the September CPI report at 8:30 ET.
The 10-yr yield settled three basis points higher at 4.06% and the 2-yr yield settled three basis points higher at 4.01% after today's 10-yr note auction saw the high yield slightly tail the when-issued yield amid solid demand from indirect bidders.
DAL, DPZ, PGR trade up in front of earnings
09-Oct-24 15:05 ET
Dow +368.16 at 42448.53, Nasdaq +66.51 at 18249.43, S&P +27.95 at 5779.08
[BRIEFING.COM] The major indices remain near session highs. The S&P 500 trades about 30 points higher than yesterday's close.
Delta Air Lines (DAL 51.03, +0.43, +0.9%), Domino's Pizza (DPZ 412.00, +0.85, +0.2%), and Progressive (PGR 251.12, +2.10, +0.8%) trade higher in front of their earnings reports tomorrow.
The S&P 500 financial sector (+0.6%) continues to trade higher ahead of quarterly results from some big banks on Friday. JPMorgan Chase (JPM 213.56, +2.81, +1.3%) and Wells Fargo (WFC 57.43, +0.13, +0.2%) are standouts from the space.
FOMC minutes show participants debated 25 and 50 point rate cut
09-Oct-24 14:30 ET
Dow +326.83 at 42407.20, Nasdaq +67.30 at 18250.22, S&P +26.09 at 5777.22
[BRIEFING.COM] The recently released minutes for the September 17–18 FOMC meeting noted that, given the significant progress made since the Committee first set its target range for the federal funds rate at 5¼ to 5½ percent, a substantial majority of participants supported lowering the target range for the federal funds rate by 50 basis points to 4¾ to 5 percent. Still, some participants noted that there had been a plausible case for a 25 basis point rate cut at the previous meeting and that data over the intermeeting period had provided further evidence that inflation was on a sustainable path toward 2 percent while the labor market continued to cool.
As it stands currently, the S&P 500 (+0.45%) is in second place, the major averages now little changed compared to half an hour ago.
Getting back to the minutes, almost all participants saw upside risks to the inflation outlook as having diminished, while downside risks to employment were seen as having increased.
Further, although real GDP growth in the second quarter was stronger than the staff had expected, the forecast for economic growth in the second half of this year was marked down, largely in response to recent softer-than-expected labor market indicators.
Several participants discussed the importance of communicating that the ongoing reduction in the Federal Reserve's balance sheet could continue for some time even as the Committee reduced its target range for the federal funds rate.
Yields came off a bit following the minutes, the yield on the benchmark 10-yr treasury note is up about five basis points at 4.068%.
Gold pressured ahead of FOMC minutes
09-Oct-24 13:55 ET
Dow +359.10 at 42439.47, Nasdaq +72.67 at 18255.59, S&P +30.80 at 5781.93
[BRIEFING.COM] The major averages remain higher, the Nasdaq Composite (+0.40%) in last place by percentage, ahead of the September FOMC minutes which are due at the top of the hour.
Gold futures settled $9.40 lower (-0.4%) to $2,626.00/oz, pressured by a trio of stronger stocks, bond yields, as well as a rising greenback.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $102.90.
Boeing descends following reports it must raise cash soon to avoid a credit-rating downgrade (BA)
Boeing (BA -2%) maintains its long descent, reaching fresh 23-month lows today following a few unfavorable news items. Boeing stated that further negotiations with its machinists union did not make sense at this point, withdrawing its offer. This may have already been priced in, given that BA's increased offer this week was already not received well by the union. Furthermore, the market has potentially been pricing in the current strike, which was kicked off last month after the union voted by an overwhelming majority last month to reject a four-year contract, to last an extended period, possibly through the remainder of 2024.
As such, today's downward price action likely branches more from the other news that broke yesterday shortly after the close.
- The S&P placed Boeing ratings, including its BBB- issuer credit rating, on CreditWatch Negative. The strike underpinned the S&P's decision, noting that as it treks into its fourth week, BA is amid increasing financial risks. S&P estimates an approximately $10.0 bln in cash outflow this year surrounding the strike, requiring BA to likely raise funding to maintain its target cash balance and meet near-term debt obligations.
- Through Q2, Boeing reported around $7.2 bln in net cash outflow due to lower commercial deliveries and poor working capital timing. Meanwhile, Boeing's total debt balance swelled to $57.9 bln after issuing $10.0 bln in new debt in May.
- This warning prompted today's Reuters article noting that Boeing is weighing routes to raise cash. Given S&P's roughly $10.0 bln cash outflow estimate, Reuters mentioned that a source suggested raising this precise amount.
- Which route Boeing follows has yet to become clear. However, stock dilution, either through common stock offerings or convertible bond and preferred stock offerings, as well as large stock sales, all of which can weigh on the current share price, may be in the cards.
There does not seem to be a shortage of setbacks for Boeing. The company has been the center of numerous scathing headlines this year, from a door plug blowing out and a side panel ripping off during different flights to the FAA finding many non-compliance issues in the company's manufacturing process. Further damaging to its image, Boeing's Starliner has thus far failed to bring two stranded space station astronauts back to Earth.
Now, Boeing is facing a nearly month-long strike, with negotiations paused, leading to a cash crunch and potentially prompting a significant cash raise soon. Given this context, silver linings are essentially a needle in the haystack. Boeing is under new leadership, appointing Kelly Ortberg as CEO two months ago. Perhaps this shakeup will eventually spur sweeping changes. However, at this point, it may take a few uplifting developments before the stock begins to break free from the current bearish sentiment.
Alphabet facing possibility of breakup, but search business likely to remain dominant (GOOG)
On August 5, 2024, District of Columbia court judge Amit Mehta ruled that Google (GOOG) is operating a monopoly that's engaging in unfair business practices, particularly within its dominant search business. In the next step of the process, last night the Department of Justice (DOJ) released a court filing outlining possible remedies for Judge Mehta to consider in undoing GOOG's alleged anticompetitive position and behaviors. The headline from that report is that the DOJ may recommend breaking up GOOG so that its search business is separated from its other businesses, including YouTube, Cloud, Android, and Chrome.
- Typically, these antitrust news stories don't carry too much weight because the market just presumes that tech giants like GOOG, Microsoft (MSFT), Apple (AAPL), and Amazon (AMZN) will just pay a fine and move on. This case, though, clearly has more teeth to it and GOOG is likely facing some significant changes to its business model in the coming years, although a sweeping breakup probably isn't the most likely scenario.
- If the Court rules that GOOG must split off its search business, which constitutes about 60% of its total revenue, it would be a given that GOOG would appeal that decision. That would not only drag this case out for a very long time -- possibly years -- but it also might not have the desired effect that prosecutors are seeking. Without new guardrails in place, an independent Google Search would have little incentive to change its practices.
- Therefore, we believe that the most likely outcome is that GOOG will have to scrap or significantly alter the search distribution deals and contracts it has long had in place with its partners. Most notably, this could include the deal it has with AAPL in which it pays AAPL billions of dollars to be the default search engine on iPhones, iPads, and the Safari browser.
- Although splitting off the search business altogether may not be in the cards, the DOJ did state that it's considering "structural remedies" that would prevent GOOG from using products like Android, Play, and Chrome from giving it an unfair advantage. Stunting GOOG's ability to funnel users to its search platforms through these products could prove to be effective, but it's still hard to imagine a competitor coming in and putting a major dent in GOOG's market share, which is estimated at approximately 90%.
- From GOOG's perspective, the company believes that the government is overstepping its boundaries and that its decision could have unintended consequences for a number of other industries. The company is likely to appeal the final ruling, although any decision that doesn't require a breakup will likely have a quicker resolution.
The main takeaway is that GOOG is facing a viable threat to its business model but given the company's already well-established dominant position in search, we don't foresee a major drop-off coming any time soon, regardless of what the court decides next year. From a longer-term perspective, though, a more competitive landscape and the emergence of Gen AI could weaken GOOG's dominance.
Sweetgreen has been making some "sweet green" lately; strong comps and dinner expansion (SG)
Sweetgreen (SG) has been making some "sweet green" for investors lately. The stock traded to a new 52-week high yesterday and has been in a general uptrend since early March. With it being a fairly slow news day, we wanted to provide some color ahead of its Q3 earnings report in a few weeks.
- Shares for this fast food restaurant operator with a focus on salads and bowls have gapped higher following earnings each of its past three quarterly reports. Sweetgreen is expected to report Q3 results in early November.
- In terms of the most recent quarterly result in early August, Sweetgreen actually posted a larger than expected loss in Q2. However, investors focused more on the huge jump in adjusted EBITDA to $12.4 mln vs $3.3 mln a year ago. Adjusted EBITDA margin also increased to 7% vs 2% in the prior year period. Also, it boosted the low end of FY24 adjusted EBITDA guidance pretty substantially to $16-19 mln from $10-19 mln. It also beat on revenue and raised FY24 guidance for sales.
- While other fast food chains have been struggling and have been resorting to rolling out value meals to drive traffic, we give credit to Sweetgreen for serving up some impressive results despite being at a higher price point. A metric that really stood out was its impressive Q2 comps at +9%, comprised of a +5% benefit from menu price and +4% positive traffic and mix. Also, SG raised its FY24 comp guidance to +5-7% from +4-6% prior guidance.
- For one thing, SG said that Caramelized Garlic Steak, which launched in May, has been a hit with customers. Also, Sweetgreen has made a concerted effort to expand beyond lunch to compete more in the dinner daypart. And they have been successful. Dinner now represents 40% of sales, excluding the 2-4PM mid-day daypart. The new steak option and protein plates have been particularly successful at driving comps at dinner and on weekends.
- New store expansion is another important part of SG's growth story. It opened four new restaurants in Q2, including one in New Hampshire, a new market for Sweetgreen. More recently, Sweetgreen just opened its first restaurant in the Carolinas with a location in Charlotte. Sweetgreen expects additional expansion across the Carolinas.
In an era when fast food chains are scrambling to keep customers, we tip our cap to a couple of restaurant chains that keep churning out enviable results: Sweetgreen and CAVA Group (CAVA), a Mediterranean fast-casual restaurant brand. Search the archive for recent write-ups on CAVA, but the takeaway that strikes us is that both brands are generally higher quality and compete at higher price points. Lower income customers are feeling the inflation pinch more acutely and that is hurting the burger chains. However, Sweetgreen and CAVA seem to be navigating the industry downturn better.
Helen of Troy had the Midas touch in Q2; returns to strength following Q1 disastrous results (HELE)
Helen of Troy (HELE +19%) had the Midas touch in Q2 (Aug), reversing its considerable earnings miss from Q1 (May) and returning to delivering revenue upside as early benefits from its "Reset and Revitalize" restructuring plan deployed last quarter began to roll in. HELE, the parent company of household and personal care brands like Oxo and Vicks, has also been amid an additional restructuring plan dubbed "Project Pegasus," which remains on track to deliver $26-30 mln in savings this year and $75-80 mln total by FY27 (Feb). HELE also announced today that following active discussions of whether to divest certain aspects of its business, it has paused the process as the offers it received did not meet the perceived value of HELE or its potential.
- HELE operates two segments, Home & Outdoor and Beauty & Wellness, each comprising around half its total revenue. While Home & Outdoor sales ticked about 1% higher yr/yr, Beauty & Wellness contracted by nearly 8%, bringing total revenue down by 3.5% yr/yr to $474.2 mln. However, this was still well above analyst forecasts and represented a roughly 14% jump sequentially.
- In Home & Outdoor, HELE's international performance took center stage, a recurring trend over the past few quarters. Oxo and Hydro Flask were two highlights. Oxo continues to benefit from its expansion into over 3,000 Walmart (WMT) locations and robust demand in the EMEA region. Hydro Flask has recently undergone a brand revitalization, launching a new travel bottle and new options at Costco (COST) during the quarter.
- The beauty component of Beauty & Wellness remained below HELE's expectations, enduring softening trends like others in the industry, including Ulta Beauty (ULTA) and L'Oreal (LRLCY). However, the wellness side exceeded HELE's expectations, supported by Braun and Vicks brands, as illness rates in the U.S. started to pick up through July and most of August.
- Adjusted operating margins continued to compress, down 270 bps yr/yr to 15.0%. Higher expenses from previous quarters seeped into Q2, including promotional allowance programs and marketing campaigns, taking a piece off HELE's margins. Also, fallout effects from automation start-up issues at the company's Tennessee plant in Q1 continued to clip margins. However, this disruption has since been largely resolved. Additionally, HELE's margins were still better than analysts feared, resulting in a double-digit earnings beat in Q2.
One hang-up from the quarter stems from HELE's FY25 guidance. The company left its EPS and revenue forecasts of $7.00-7.50 and $1.89-1.94 bln unchanged despite registering healthy top and bottom-line upside in Q2. Management mentioned that ongoing headwinds, including increased promotional activity and softer retail replenishment, keep it on its toes. HELE added that while declining interest rates should provide relief, it may take time to cycle through to most of its consumers.
However, investors are shrugging off this minor blemish. Instead, they are cheering the swift snap back after a disastrous Q1 report in July. While the road ahead remains bumpy, HELE's portfolio of highly recognizable brands should help prevent a broader comeback from being a Herculean task.
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.
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